UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File number: 811-06136
HOMESTEAD FUNDS, INC.
(Exact name of registrant as specified in charter)
4301 Wilson Boulevard
Arlington, VA 22203
(Address of principal executive office – Zip code)
Danielle Sieverling
Homestead Funds, Inc.
4301 Wilson Boulevard
Arlington, VA 22203
(Name and address of agent for service)
Copies to:
Bryan Chegwidden, Esq.
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036-8704
(Name and addresses of agent for service)
Registrant’s telephone number, including area code: (703) 907-5993
Date of fiscal year end: December 31
Date of reporting period: December 31, 2019
Item 1. Reports to Stockholders.
Annual Report
December 31, 2019
Our Funds
Daily Income Fund (HDIXX)
Short-Term Government Securities Fund (HOSGX)
Short-Term Bond Fund (HOSBX)
Intermediate Bond Fund (HOIBX)
Stock Index Fund (HSTIX)
Value Fund (HOVLX)
Growth Fund (HNASX)
Small-Company Stock Fund (HSCSX)
International Equity Fund (HISIX)
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary. Instead, the reports will be made available on the Fund’s website (www.homesteadfunds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 800.258.3030, option 1, or by sending an email request to Homestead Funds at invest@homesteadfunds.com.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call 800.258.3030, option 1, or send an email request to invest@homesteadfunds.com to let the Fund know you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the fund complex if you invest directly with the Fund.
The investment commentaries on the following pages were prepared for each fund by its portfolio manager(s). The views expressed are those of the portfolio manager(s) on January 17, 2020, for each fund as of December 31, 2019. Since that date, those views might have changed. The opinions stated might contain forward-looking statements and discuss the impact of domestic and foreign markets, industry and economic trends, and governmental regulations on the funds and their holdings. Such statements are subject to uncertainty, and the impact on the funds might be materially different from what is described here.
Past performance does not guarantee future results.
Investors are advised to consider fund objectives, risks, charges and expenses before investing. The prospectus contains this and other information and should be read carefully before you invest. To obtain a prospectus, call 800.258.3030 or download a PDF at homesteadfunds.com.
President’s Letter
2019 Annual Report
January 17, 2020
Dear Shareholders:
As we begin 2020, I want to thank each and every one of you for your continued support and confidence in Homestead Funds’ investment and client services teams. We strive to maintain your trust in our ability to manage your hard-earned assets and want you to know that we take our responsibilities very seriously.
Following a bumpy third quarter, stock and bond markets in the U.S. finished out 2019 with strong gains for the year. Global economic data continued to soften slightly, though an uptick in outlooks around year-end could signal that some pressures are easing. We believe the December announcement of a phase one trade deal for the United States and China could boost manufacturing and export activity — key areas of weakness in 2019 — in the quarters ahead.
The Federal Reserve made three cuts to interest rates over the course of the year, and by the fourth quarter the yield curve had returned to a traditional upward-sloping shape. The Fed’s rate cuts also reinforced a supportive policy backdrop for stocks.
Please take a few minutes to read the portfolio manager letters that follow for details on how your fund performed in 2019, the impact of portfolio managers’ decisions on returns and the portfolio managers’ outlooks for the coming months. The strong investment performance of 2019 could be hard to match, but with progress on the U.S.-China trade war, a strong job market and healthy U.S. consumer, we see reasons to be upbeat.
If you have questions about your Homestead Funds portfolio, we invite you to get in touch with our team of registered representatives who work with investors daily. Our associates can help you understand the factors influencing the capital markets and check that your levels of exposure to different asset classes are in line with your goals. Please feel free to give us a call at 800.258.3030, option 2.
Again, we appreciate your trust and confidence.
Sincerely,
Mark D. Santero
CEO, President and Director
Homestead Funds
Mark Santero
CEO, President and Director
Daily Income Fund
Performance Evaluation | Prepared by the Fund’s Investment Advisor, RE Advisers Corporation
Performance
The fund earned a return of 1.43% for the full year of 2019. The seven-day current annualized yield was 0.81% as of December 31, 2019, down from 1.62% on June 30, 2019. Even with the Federal Reserve lowering the federal funds rate band in 2019 by 0.75% to between 1.50% and 1.75%, the fund still earned enough interest income to cover its expenses and provide income to its shareholders. For most of the first half of the year we sought to enhance the performance of the fund by keeping the percentage of short-term assets low in an effort to take advantage of increasing yields in government securities. As the yield curve started to invert, the portfolio was adjusted to retain higher cash balances to mitigate the effects on the fund’s yield.
Market Conditions
Although expectations were mixed when the year began, the U.S economy exhibited steady, albeit muted, growth in 2019; however, questions remained as to how long even that growth might last. After a surprisingly strong 3.1% rise in gross domestic product (GDP) in the first quarter of 2019, the economy cooled to some degree in the second and third quarters with GDP increases of 2.0% and 2.1%, respectively. Currently, the consensus among economists is that GDP will likely rise by an annual rate of approximately 2.0% in the fourth quarter of 2019. Not surprisingly, Fed forecasts still only indicate a relatively modest 2.0% gain in GDP for all of 2020.
Although the Fed’s analysis of the data suggests some good overall economic activity in 2019, specific issues remain. Household spending has been a bright spot and was strong during the year, while indicators of business fixed investment and exports have remained somewhat weak. Several labor market measurements during 2019 continued to show acceptable growth: Initial jobless claims remained on average below 225,000; continuing claims trended right below 1.7 million, and the unemployment rate declined to 3.5%. However, wage gains slipped to approximately 2.9%. This is historically low for this point in the business cycle, although like last year, we believe sustained improvement in labor productivity will be a key to wage gains for 2020 and beyond. On a 12-month basis, overall inflation (even that which excludes food and energy prices) is running at approximately 2.0%, and expectations for longer-term inflation were little changed.
| Investment Advisor: RE Advisers Corporation |
 | Marc Johnston, CFP, ChFC, CAIAMoney Market Portfolio ManagerBA, General Arts, Villanova University;
MBA, Northeastern University |
Outlook
After the Federal Open Market Committee (FOMC), the Fed’s policymaking body, decided to lower its target for the federal funds rate to between 1.50% and 1.75% in 2019, many investors focused on whether economic conditions would warrant further rate cuts in 2020, and if so, when the cuts might occur. Currently, we believe market forecasts indicate a low probability for a 0.25% decrease in the federal funds rate by the June 2020 FOMC meeting. However, in an increasingly unpredictable economic environment with continued trade tensions and lack of government policy clarity, in our view demand is likely to drag, thus affecting investment and growth. We believe that the FOMC may be forced to act if economic conditions deteriorate. However, being cautious, any interest rate decreases will remain dependent upon the data and the situation at the time. We believe that the continued growth in the economy, labor and financial market stability, as well as a positive yield curve could lessen the burden on the FOMC to adjust interest rates. With inflation on a 12-month basis expected to remain somewhat near the FOMC’s 2.0% objective in the medium term, we believe that monetary policy is likely to remain slightly accommodative to support a strong labor market and a sustained return to 2% inflation. Overall, the risks to the economic outlook continue to appear roughly balanced.
We continue to try to be prepared to operate in this type of challenging interest rate environment by adjusting the investment mix and weighted average maturity of the portfolio as appropriate. We seek to prudently take advantage of investment opportunities as they become available to enhance yield consistent with our management of the fund as a government money market fund.
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| Daily Income Fund | 1.43 | 0.54 | 0.28 |
| Yield | |
| Annualized 7-day current yield quoted 12/31/19 | 0.81% |
| Security Diversification |
| | % of Total Investments |
| | as of 12/31/18 | as of 12/31/19 |
| U.S. government and agency obligations | 94.4 | 89.7 |
| Short-term and other assets* | 5.6 | 10.3 |
| Total | 100.0% | 100.0% |
| Maturity | | |
| | as of 12/31/18 | as of 12/31/19 |
| Average weighted maturity | 39 days | 46 days |
The returns quoted in the above table represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. You could lose money by investing in the Daily Income Fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Daily Income Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
The Daily Income Fund’s average annual total returns are net of any fee waivers and reimbursements. The fund’s advisor waived a portion of its management fee and/or reimbursed fund expenses during the five- and 10-year periods. Had the advisor not done so, the fund’s total returns would have been lower. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
*Represents investment in an unaffiliated U.S. government money market fund.
Short-Term Government Securities Fund
Performance Evaluation | Prepared by the Fund’s Investment Advisor, RE Advisers Corporation
Performance
The fund returned 3.36% for the year ended December 31, 2019, underperforming its benchmark index, the ICE BofAML 1-5 Year U.S. Treasury Index, which returned 4.20%.
The main detractor to the fund’s performance was its overall lower interest rate exposure as measured by duration relative to the benchmark and underweight allocation to U.S. Treasuries for most of the period. However, the underperformance was somewhat offset by the fund’s allocation to agency issuers backed by the full faith and credit of the U.S. government.
The portfolio management team gradually increased the fund’s duration closer to that of its benchmark throughout the year by adding to its U.S. Treasury holdings while reducing exposure to shorter maturity U.S. Treasuries.
Market Conditions
The Federal Open Market Committee (FOMC), the Federal Reserve’s policymaking committee, expected to raise the federal funds rate one to two times in 2019, continuing its gradual path to normalizing monetary policy. However, the continued uncertainty surrounding the trade spat between the United States and China, and the slowdown in Global Manufacturing Purchasing Managers Index, prompted Fed officials to temper expectations for further rate increases. Trade negotiations broke in the month of May, sending shock waves throughout financial markets and further driving Treasury yields lower. The Fed hinted that monetary policy would soon start to reverse course and become more accommodative. In July, policymakers cut the federal funds rate by 25 basis points, which Fed Chair Jerome Powell referred to as a “mid-cycle adjustment.” By year’s end, the FOMC had cut the federal funds rate by a total of 75 basis points, perceived by many market participants as unprecedented considering that the stock market was hovering near all-time highs and the unemployment rate near multi-decade lows.
U.S. Treasury yields declined during the year with two-year yields lower by 92 basis points and five-year yields lower by 82 basis points to end 2019 at 1.57% and 1.69%, compared with 2.49% and 2.51%, respectively, at the end of 2018. Economic activity as measured by year-over-year real gross domestic product declined from 2.5% at the end of 2018 toward long-term trend growth of 2.0% at the end of 2019 as the effects of tax reform faded. The labor market remained robust, and the unemployment rate dropped further to end the year at 3.5%. Core inflation decreased during the period with core personal consumption expenditures at 1.61% at the end of November 2019 versus 1.97% at the end of December 2018.
Overall corporate bonds and equities performed well during the year. A combination of a more accommodative Fed policy stance and an agreement in principal between the
| Investment Advisor: RE Advisers Corporation |
 | Mauricio Agudelo, CFASenior Fixed Income Portfolio ManagerBS, Finance, The University of Maryland,
Robert H. Smith School of Business |
 | Ivan Naranjo, CFA, FRMFixed Income Portfolio ManagerBS, Finance, The University of Maryland,
Robert H. Smith School of Business |
United States and China to a phase one trade deal supported the markets. Corporate credit spreads tightened by 53 basis points during the period as measured by the Bloomberg U.S. Credit Index. In terms of credit quality, the BBB portion of the market was the best performer as investors globally reached for yield and grew more comfortable with the Fed’s support for financial markets.
Outlook
We remain cautiously optimistic on the economy and believe U.S. growth moderation will continue in 2020 toward long-term growth in the 2.0% range. In our view, monetary policy will continue to be supportive of risk markets. Moreover, we believe monetary policy will play a less important role in 2020 than it did in 2019. Last year’s unexpected mid-cycle adjustments reduced the Fed’s capability to act in the event of downside risk; in our view this will force the Fed to have a higher threshold to react. Market participants currently expect interest rate moves in the range of zero to one rate cut by the end of 2020.
We believe that there will be further risks in addition to the phase one and two China trade negotiations, and in our view the markets have priced in a very optimistic outcome. If the outcome is not as positive as expected, we believe this could leave the market exposed to potential corrections throughout the year. We expect to continue to maintain a conservative stance, emphasizing U.S. Treasuries and other high-quality holdings, though that view may change depending on changing market conditions.
We expect interest rates to be rangebound for most of the year. We will seek to continue to invest the portfolio in sectors and issuers that we believe offer compelling expected returns given their fundamentals and current valuation. Moreover, we seek to continue to maintain a high-quality bias to provide excess return while protecting downside risk given our current expectation of the risk/reward relationship.
Short-Term Government Securities Fund
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| Short-Term Government Securities Fund | 3.36 | 1.26 | 1.28 |
| ICE BofAML 1-5 Year U.S. Treasury Index | 4.20 | 1.68 | 1.73 |
| Security Diversification |
| | % of Total Investments |
| | as of 12/31/18 | as of 12/31/19 |
| U.S. government and agency obligations | 58.1 | 62.6 |
| Corporate bonds–government guaranteed | 21.3 | 27.5 |
| Asset-backed securities | 3.4 | 4.3 |
| Corporate bonds–other | 8.4 | 2.7 |
| Certificates of deposit | 1.5 | 0.6 |
| Mortgage-backed securities | 2.2 | 0.1 |
| Municipal bonds | 0.3 | 0.0 |
| Short-term and other assets | 4.8 | 2.2 |
| Total | 100.0% | 100.0% |
| Maturity | | |
| | as of 12/31/18 | as of 12/31/19 |
| Average weighted maturity | 1.71 | 2.70 |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund and the ICE BofAML 1-5 Year U.S. Treasury Index made on December 31, 2009.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The Short-Term Government Securities Fund’s average annual total returns are net of any fee waivers and reimbursements. The fund’s advisor waived a portion of its management fee during the periods shown. Had the advisor not done so, the fund's total returns would have been lower. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
Short-Term Bond Fund
Performance Evaluation | Prepared by the Fund’s Investment Advisor, RE Advisers Corporation
Performance
The fund returned 3.90% for the year ended December 31, 2019, underperforming its benchmark index, the ICE BofAML 1-5 Year Corporate/Government Index, which returned 5.08%.
The fund’s main detractor to performance was its overall lower interest rate exposure as measured by duration relative to the benchmark for most of the period. Additionally, the fund’s overall underweight positioning relative to the benchmark to U.S. Treasuries, agencies and BBB-rated securities detracted from performance. On the positive side, the fund benefitted from its allocation to asset-backed securities (auto and consumer loans), municipals and utilities.
The portfolio management team gradually increased the fund’s duration closer to that of its benchmark throughout the year by adding to its U.S. Treasury holdings while reducing exposure to high-quality short maturity industrials and less-interest-rate-sensitive securities, particularly floating rate corporates and student loans in an effort to perform closer to benchmark under a falling interest rate environment.
Market Conditions
The Federal Open Market Committee (FOMC), the Federal Reserve’s policymaking committee, expected to raise the federal funds rate one to two times in 2019, continuing its gradual path to normalizing monetary policy. However, the continued uncertainty surrounding the trade spat between the United States and China, and the slowdown in the Global Manufacturing Purchasing Managers' Index, prompted Fed officials to temper expectations for further rate increases. Trade negotiations broke in the month of May, sending shock waves throughout financial markets and further driving Treasury yields lower. The Fed hinted that monetary policy would soon start to reverse course and become more accommodative. In July, policymakers cut the federal funds rate by 25 basis points, which Fed Chair Jerome Powell referred to as a “mid-cycle adjustment.” By year’s end, the FOMC had cut the federal funds rate by a total of 75 basis points, perceived by many market participants as unprecedented considering that the stock market was hovering near all-time highs and the unemployment rate near multi-decade lows.
U.S. Treasury yields declined during the year with two-year yields lower by 92 basis points and five-year yields lower by 82 basis points to end 2019 at 1.57% and 1.69%, compared with 2.49% and 2.51%, respectively, at the end of 2018. Economic activity as measured by year-over-year real gross domestic product declined from 2.5% at the end of 2018 toward long-term growth of 2.0% at the end of 2019 as the effects of tax reform faded. The labor market remained robust, and the unemployment rate dropped further to end the year at 3.5%. Core inflation decreased during the period with the core personal consumption expenditures at 1.61% at the end of November 2019 versus 1.97% at the end of December 2018.
| Investment Advisor: RE Advisers Corporation |
| Mauricio Agudelo, CFASenior Fixed Income Portfolio ManagerBS, Finance, The University of Maryland,
Robert H. Smith School of Business |
| Ivan Naranjo, CFA, FRMFixed Income Portfolio ManagerBS, Finance, The University of Maryland,
Robert H. Smith School of Business |
Overall corporate bonds and equities performed well during the year. A combination of a more accommodative Fed policy stance and an agreement in principal between the United States and China to a phase one trade deal supported the markets. Corporate credit spreads tightened by 53 basis points during the period as measured by the Bloomberg U.S. Credit Index. In terms of credit quality, the BBB portion of the market was the best performer as investors globally reached for yield and grew more comfortable with the Fed’s support for financial markets.
Outlook
We remain cautiously optimistic on the economy and believe U.S. growth moderation will continue in 2020 toward long-term growth in the 2.0% range. In our view, monetary policy will continue to be supportive yet play a smaller role and likely be on the sidelines for the year. Last year’s unexpected mid-cycle adjustments reduced the Fed’s capability to act in the event of downside risk; in our view this will force the Fed to have a higher threshold to react. Market participants currently expect interest rate moves in the range of zero to one rate cut by the end of 2020.
We believe that there will be further risks in addition to the phase one and two China trade negotiations, and in our view the markets have priced in a very optimistic outcome. If the outcome is not as positive as expected, we believe this could leave the market exposed to potential corrections throughout the year. We expect to continue to maintain a conservative stance, emphasizing U.S. Treasuries and other high-quality holdings, though that view may change depending on changing market conditions.
We expect interest rates to be rangebound for most of the year. We will seek to continue to invest the portfolio in sectors and issuers that we believe offer compelling expected returns given their fundamentals and current valuation. Moreover, we will seek to continue to maintain a high-quality bias to provide excess return while protecting downside risk given our current expectation of the risk/reward relationship.
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| Short-Term Bond Fund | 3.90 | 1.88 | 2.47 |
| ICE BofAML 1-5 Year Corp./Gov. Index | 5.08 | 2.07 | 2.19 |
| Security Diversification |
| | % of Total Investments |
| | as of 12/31/18 | as of 12/31/19 |
| U.S. government and agency obligations | 11.4 | 61.4 |
| Corporate bonds–other | 37.4 | 19.6 |
| Asset-backed securities | 21.7 | 12.2 |
| Yankee bonds | 10.3 | 5.6 |
| Municipal bonds | 14.5 | 0.2 |
| Mortgage-backed securities | 0.8 | 0.1 |
| Corporate bonds–government guaranteed | 0.0 | 0.1 |
| Short-term and other assets | 3.9 | 0.8 |
| Total | 100.0% | 100.0% |
| Maturity | | |
| | as of 12/31/18 | as of 12/31/19 |
| Average weighted maturity | 1.52 | 2.64 |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund and the ICE BofAML 1-5 Year Corp./Gov. Index made on December 31, 2009.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The Short-Term Bond Fund’s average annual total returns are net of any fee waivers and reimbursements. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
Intermediate Bond Fund
Performance Evaluation | Prepared by the Fund’s Investment Advisor, RE Advisers Corporation
Performance
For the period since inception (May 1, 2019) through December 31, 2019, the fund returned 4.69%, underperforming its benchmark index, the Bloomberg Barclays US Aggregate Index, which returned 5.55%.
The main detractor to fund performance was the initial underweight and coupon stack selection of the mortgage-backed security pass-through sector in addition to the fund’s overall lower interest rate exposure as measured by duration relative to the benchmark throughout the period. Moreover, the fund’s slight underweight positioning relative to the benchmark to the utility and local authority sectors detracted from performance. On the positive side, the fund benefitted from its allocation to financial institutions, industrials, asset-backed securities (auto and consumer loans), and agencies.
Market Conditions
The Federal Open Market Committee (FOMC), the Federal Reserve’s policymaking committee, expected to raise the federal funds rate one to two times in 2019, continuing its gradual path to normalizing monetary policy. However, the continued uncertainty surrounding the trade spat between the United States and China, and the slowdown in Global Manufacturing Purchasing Managers Index prompted Fed officials to temper expectations for further rate increases. Trade negotiations broke in the month of May, sending shock waves throughout financial markets and further driving Treasury yields lower. The Fed hinted that monetary policy would soon start to reverse course and become more accommodative. In July, policymakers cut the federal funds rate by 25 basis points, which Fed Chair Jerome Powell referred to as a “mid-cycle adjustment.” By year’s end, the FOMC had cut the federal funds rate by a total of 75 basis points, perceived by many market participants as unprecedented considering that the stock market was hovering near all-time highs and the unemployment rate near multi-decade lows.
U.S. Treasury yields declined during the year with two-year yields lower by 92 basis points and five-year yields lower by 82 basis points to end 2019 at 1.57% and 1.69%, compared with 2.49% and 2.51%, respectively, at the end of 2018. Economic activity as measured by year-over-year real gross domestic product declined from 2.5% at the end of 2018 toward long-term growth of 2.0% at the end of 2019 as the effects of tax reform faded. The labor market remained robust and the unemployment rate dropped further to end the year at 3.5%. Core inflation decreased during the period with core personal consumption expenditures at 1.61% at the end of November 2019 versus 1.97% at the end of December 2018.
| Investment Advisor: RE Advisers Corporation |
| Mauricio Agudelo, CFASenior Fixed Income Portfolio ManagerBS, Finance, The University of Maryland,
Robert H. Smith School of Business |
| Ivan Naranjo, CFA, FRMFixed Income Portfolio ManagerBS, Finance, The University of Maryland,
Robert H. Smith School of Business |
Overall corporate bonds and equities performed well during the year. A combination of a more accommodative Fed policy stance and an agreement in principal between the United States and China to a phase one trade deal supported the markets. Corporate credit spreads tightened by 53 basis points during the period as measured by the Bloomberg U.S. Credit Index. In terms of credit quality, the BBB portion of the market was the best performer as investors globally reached for yield and grew more comfortable with the Fed’s support for financial markets.
Outlook
We remain cautiously optimistic on the economy and believe U.S. growth moderation will continue in 2020 toward long-term growth in the 2.0% range. In our view, monetary policy will continue to be supportive yet play a smaller role. Last year’s unexpected mid-cycle adjustments reduced the Fed’s capability to act in the event of downside risk; in our view this will force the Fed to have a higher threshold to react. Market participants currently expect interest rate moves in the range of zero to one rate cut by the end of 2020.
We believe that there will be further risks in addition to the phase one and two China trade negotiations, and in our view the markets have priced in a very optimistic outcome. If the outcome is not as positive as expected, we believe this could leave the market exposed to potential corrections throughout the year. We expect to continue to maintain a conservative stance, emphasizing U.S. Treasuries and other high-quality holdings, though that view may change depending on changing market conditions.
We expect interest rates to be rangebound for most of the year. We will seek to continue to invest the portfolio in sectors and issuers that we believe offer compelling expected returns given their fundamentals and current valuation. Moreover, we will seek to continue to maintain a high-quality bias to provide excess return while protecting downside risk given our current expectation of the risk/reward relationship.
| Aggregate Since Inception Return (for the period 05/01/19 to 12/31/19) | |
| | Since Inception
05/01/19 % |
| Intermediate Bond Fund | 4.69 |
| Bloomberg Barclays U.S. Agg Index | 5.55 |
| Security Diversification |
| | % of Total Investments |
| | as of 12/31/19 |
| U.S. government and agency obligations | 39.8 |
| Corporate bonds–other | 25.5 |
| Mortgage-backed securities | 23.4 |
| Asset-backed securities | 5.2 |
| Yankee bonds | 3.8 |
| Municipal bonds | 0.4 |
| Short-term and other assets | 1.9 |
| Total | 100.0% |
| Maturity | |
| | as of 12/31/19 |
| Average weighted maturity | 7.30 |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund and the Bloomberg Barclays U.S. Agg Index made on May 1, 2019.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The Intermediate Bond Fund’s average annual total returns are net of any fee waivers and reimbursements. The fund’s advisor waived all of its management fee and reimbursed a portion of the fund's expenses during the period shown. Had the advisor not done so, the fund's total returns would have been lower. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
Stock Index Fund
Performance Evaluation | Prepared by the Master Portfolio’s Investment Advisor, BlackRock Fund Advisors
Performance
For the 12 months ended December 31, 2019, the U.S. large cap market metric and the Stock Index Fund’s benchmark, the Standard & Poor’s (S&P) 500 Index, returned 31.49%, and the fund tracked closely with a return of 30.77%. The S&P 500 Index is a market capitalization-weighted index composed of 500 common stocks issued by large-capitalization companies in a wide range of industries. The stocks included in the index collectively represent a substantial portion of all common stocks publicly traded in the United States.
During the 12-month period, as changes were made to the composition of the S&P 500 Index, the Master Portfolio in which the fund invests purchased and sold securities to maintain its objective of replicating the risks and return of the index.
Market Conditions
All 11 of the Global Industry Classification Standard (GICS) sectors advanced in the first quarter of 2019 as positive headlines regarding Sino-American trade negotiations, relatively strong corporate earnings growth and the Federal Reserve’s dovish pivot helped investor sentiment recover from steep losses in the fourth quarter of 2018. The technology sector outperformed and was responsible for 29% of the S&P 500 Index’s overall rally with real estate as the second best-performing sector. Health care shares underperformed but still posted a respectable gain.
In its January 2019 announcement, the Fed indicated that it would refrain from interest rate hikes for the foreseeable future, with a dovish assessment of U.S. economic conditions and transparency around balance sheet normalization. This reduced market-based expectations of interest rate hikes, serving as a boon for both equities and bonds. Less optimism was evident in the U.S. rates market. The pause in interest rate hiking by the Fed coupled with lowered forecasts for growth drove investors into longer-duration government bonds.
The prospect of an easier monetary policy buoyed equities broadly in the second quarter of 2019. At the June Federal Open Market Committee announcement, Fed Chair Jerome Powell noted that should trade tensions weigh on the committee’s economic outlook or should the shortfall of inflation from the target rate persist longer than expected, the Fed would provide more accommodation to sustain the expansion.
Trade tensions were a source of intra-quarter volatility. In May, President Trump threatened an increase in tariffs and protectionism against both China and Mexico. The S&P 500 Index fell 6.4% in May on these renewed trade concerns. However, these announcements did not materialize, and sentiment eased by June month-end.
Looking to interest rates, the 10-year U.S. Treasury yield declined 0.50% in the second quarter to 2% — the lowest level since 2016.
In the third quarter of 2019, trade tensions were a key focus for both domestic and global investors. The S&P 500 Index suffered its worst week of 2019 in early August on the back of President Trump’s promise to impose 10% tariffs on all Chinese imports that were not already subject to 25% tariffs. U.S.-China tensions did ostensibly ease ahead of a new round of trade talks in October. In monetary policy, the Fed lowered the target range for the federal funds rate at both its July and September meetings.
On the macroeconomic front, survey-based U.S. economic indicators continued to soften in the manufacturing and consumer sectors, while hard economic data releases exhibited resilience. In interest rates, the frequently monitored two-year/10-year Treasury yield spread inverted for the first time since the global financial crisis in August but ended the quarter in positive territory.
In the fourth quarter of 2019, risk appetite was boosted broadly by expectations of a U.S.-China trade deal, strong economic growth and easy monetary policy. U.S. tariffs on China were originally scheduled to increase on December 15 but were avoided due to persistent negotiations between the United States and China. Additionally, news that the United States did not impose tariffs on European Union auto exports helped support sentiment. On the macroeconomic front, the U.S. services and employment sectors remained buoyant.
In November, 266,000 jobs were added to the economy, revising the third-quarter unemployment rate down to 3.5% from 3.7%. Overall, the supportive macroeconomic data and boosted risk appetite drove selling of Treasuries in the fourth quarter. Despite the strength in the U.S. economy, the Fed cut the benchmark federal funds rate to 1.75% in October, marking the third rate cut of the year.
For the year 2019, all the GICS sectors returned positive results in the S&P 500 Index. Top contributors were information technology (50.3%), communication services (32.6%) and financials (32.1%). Bottom contributors for the year were energy (11.8%), health care (20.8%) and materials (24.8%).
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| Stock Index Fund | 30.77 | 11.06 | 12.95 |
| Standard & Poor’s 500 Stock Index | 31.49 | 11.70 | 13.56 |
| Sector Diversification | |
| | % of Total Investments
as of 12/31/19 |
| Information technology | 22.8 |
| Health care | 13.9 |
| Financials | 12.7 |
| Communication services | 10.1 |
| Consumer discretionary | 9.5 |
| Industrials | 9.0 |
| Consumer staples | 7.1 |
| Energy | 4.2 |
| Utilities | 3.2 |
| Real estate | 2.9 |
| Materials | 2.7 |
| Short-term and other assets | 1.9 |
| Top 10 Equity Holdings | |
| | % of Total Investments
as of 12/31/19 |
| Apple, Inc. | 4.5 |
| Microsoft Corp. | 4.4 |
| Alphabet, Inc. | 2.9 |
| Amazon.com, Inc. | 2.8 |
| Facebook, Inc. | 1.8 |
| Berkshire Hathaway, Inc. | 1.6 |
| JPMorgan Chase & Co. | 1.6 |
| Johnson & Johnson | 1.4 |
| Visa Inc. | 1.2 |
| Procter & Gamble Co. | 1.1 |
| Total | 23.3% |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund and the Standard & Poor’s 500 Stock Index made on December 31, 2009.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The Stock Index Fund’s average annual total returns are net of any fee waivers and reimbursements. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
Sector diversification and top holdings information is for the S&P 500 Index Master Portfolio, managed by BlackRock Fund Advisors, the portfolio in which the Stock Index Fund invests all of its investable assets. Please refer to the Appendix for the complete annual report of the S&P 500 Index Master Portfolio.
Performance Evaluation
11
Value Fund
Performance Evaluation | Prepared by the Fund’s Investment Advisor, RE Advisers Corporation
Performance
The fund posted a return of 27.69% during 2019, trailing its benchmark index, the S&P 500 Value Index, which returned 31.93%. The fund’s lower-than-index result was primarily due to the fund not holding shares of Apple. A year-end, Apple was an 8% weight in the benchmark and the stock was up over 80% for the year.
Portfolio Review
The fund’s information technology (IT) holdings were positive for performance thanks to strong contributions from long-term holdings such as Microsoft, Visa and Leidos, but on a relative basis the fund’s IT holdings lagged the benchmark’s. We remain positive on the sector and continue to hold a large overweight. During the year, we adjusted some of the fund’s individual stock weights in the sector. In particular, we eliminated Intel Corporation from the portfolio and rotated the proceeds into new names, including NVIDIA Corporation and NXP Semiconductor. We believe that these two companies are better positioned within the semiconductor industry in markets such as data center machine learning and autonomous vehicle technology.
The fund’s energy and health care sectors were a drag on relative performance. In energy, we reduced the fund’s exposure by eliminating Halliburton and Helmerich & Payne. We believe the appeal of the cheapness of the sector does not outweigh the risk of a secularly challenged industry. In health care, the fund’s underperformance was marginal, and with the sole exception of Pfizer, all of the fund’s sector participants generated double-digit returns for the year. As concerns about “Medicare for All” abated, the fund’s health care providers and services stocks rebounded from depressed levels in the second half of the year.
The fund’s financials holdings contributed the strongest positive relative performance for the year. Notable contributors were Citigroup, J.P. Morgan, Bank of America and Allstate. At the end of the reporting period, the fund was still underweight the financials sector relative to the benchmark, though we augmented sector exposure with the addition of Goldman Sachs early in the year.
The fund’s industrials holdings were also positive for performance. Parker Hannifin, Honeywell and Stanley Black & Decker were notable contributors. We initiated a new position for the fund in CSX, one of the major Class I railroad companies in the United States. We believe the company’s precision scheduled railroading efforts will continue to improve operating efficiency and allow the company to regain market share.
The fund added new names in the consumer discretionary sector, including Las Vegas Sands Corporation, a leading global casino gaming operator, and McDonald’s Corporation, the largest restaurant company in the world.
| Investment Advisor: RE Advisers Corporation |
 | Prabha Carpenter, CFASenior Equity Portfolio ManagerBA, Economics, University of Madras; MBA with distinction in Finance and BS in Business Economics, The American University |
 | Jim Polk, CFASenior Equity Portfolio ManagerBA, English, Colby College; MBA, The Olin Graduate School of Business at Babson College |
We believe that both companies have an abundance of organic growth initiatives that will lead them to outperform peers in their respective industries.
Outlook
Even with equities up in 2019, we remain optimistic about the stock market’s potential in 2020. We believe that there may be a delayed impact of global central bank easing, which should have a positive impact on economic growth. The Fed has continued to demonstrate an accommodative policy, keeping rates low. With few signs of inflation, we believe there’s a strong likelihood that this position will remain throughout 2020. Nonetheless with unemployment rates at significantly low levels, we will be watching for signs of wage inflation, as low rates could lead to a rebound in the real estate/housing markets. In our view, the growth in these markets could help propel additional consumer spending. We also believe that the phase one trade agreement with China could help alleviate some uncertainty that companies have been experiencing.
We also have several counterbalancing concerns in managing the portfolio. Recent Middle East tensions could get worse. While we don’t believe any aggression would have a direct impact on the market, it could certainly create a more risk-off environment. Any further, significant delays in a trade deal could also bring more uncertainty into the market. And finally, with the presidential election later in the year, there could be headline risk to various sectors depending on the perceived and then ultimate Democratic nominee.
We are committed to evaluating the fund’s existing holdings and seeking new investment opportunities that reward shareholders, in keeping with our long-term, research-oriented focus.
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| Value Fund | 27.69 | 10.11 | 12.52 |
| Standard & Poor’s 500 Value Index | 31.93 | 9.52 | 12.16 |
| Russell 1000 Value Index | 26.54 | 8.29 | 11.80 |
| Sector Diversification | |
| | % of Total Investments
as of 12/31/19 |
| Health care | 22.0 |
| Information technology | 21.4 |
| Financials | 17.5 |
| Industrials | 12.7 |
| Materials | 7.8 |
| Energy | 6.9 |
| Communication services | 6.0 |
| Consumer discretionary | 4.1 |
| Consumer staples | 0.8 |
| Short-term and other assets | 0.8 |
| Total | 100.0% |
| Top 10 Equity Holdings | |
| | % of Total Investments
as of 12/31/19 |
| Microsoft Corp. | 5.4 |
| JPMorgan Chase & Co. | 4.7 |
| Visa Inc. | 4.7 |
| Avery Dennison Corp. | 4.5 |
| Alphabet, Inc. | 4.5 |
| Parker-Hannifin Corp. | 4.5 |
| Allstate Corp. | 4.1 |
| Honeywell International, Inc. | 4.1 |
| Merck & Co., Inc. | 3.5 |
| Abbott Laboratories | 3.4 |
| Total | 43.4% |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund, the Standard & Poor’s 500 Value Index and the Russell 1000 Value Index made on December 31, 2009.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The Value Fund’s average annual total returns are net of any fee waivers and reimbursements. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
As of January 1, 2020, the Russell 1000 Value Index replaced the Standard & Poor's 500 Value Index as the primary benchmark for the Fund because the Russell 1000 Value Index more closely reflects the market sectors and types of stocks in which the Fund invests.
Performance Evaluation
13
Growth Fund
Performance Evaluation | Prepared by the Fund’s Subadvisor, T. Rowe Price Associates
Performance
The fund delivered a positive return of 28.36% for the 12-month period but underperformed its benchmark, the Russell 1000 Growth Index, which returned 36.39%. Both stock selection and sector allocation decisions drove relative underperformance.
Portfolio Review
Information technology was the primary relative detractor, due to security selection and an underweight allocation. The fund’s underweight position in Apple detracted from relative performance as shares marched higher over the past 12 months, driven by accelerating growth of services and wearables, along with improving conditions for iPhone sales in China. The fund maintained an underweight position relative to the benchmark at period end due to our concerns for oversaturation and elongation of replacement cycles for smartphones and Apple’s ability to monetize its installed base of users as hardware reaches parity and operating systems become less differentiated.
An overweight position in the health care sector relative to the fund’s benchmark, along with poor stock choices, also weighed on relative performance. Despite solid fundamentals, shares of Cigna underperformed as pressure from democratic presidential candidates promoting a single-payer health care system caused a major sell-off and represents an ongoing overhang for the managed care industry.
Stock picks in the industrials and business services sector further pulled back relative returns. Shares of Boeing sold off following the tragic events that were linked to a design flaw in the 737 MAX and were dragged lower by a series of negative news events during the investigation and an ongoing recertification process that has taken longer than expected.
Conversely, the consumer staples sector contributed to relative performance due to an underweight allocation.
Stock choices in consumer discretionary further added value, although an overweight position tempered gains. Within the sector, shares of Alibaba Group Holding drove performance.
| Subadvisor: T. Rowe Price Associates |
 | Taymour Tamaddon, CFAPortfolio ManagerBS, Applied Physics, Cornell University;
MBA, Finance, Dartmouth |
Outlook
Overall, we are cautious but optimistic that sufficient market drivers are still in place and think more volatile market conditions could produce potentially attractive buying opportunities for long-term investors. However, with all the fits and starts, we believe trade and interest rates remain the two key market factors to watch. Furthermore, as the U.S. presidential election campaigns gain momentum and controversial policy issues are debated, political headline risk may become more of a concern, in our view. In this environment, we will continue to rely on our expertise to navigate the market, focusing on investing in high-quality companies. Leveraging the rigorous research and unique insights from our talented analyst platform gives us an important edge as we sift through the noise and identify companies with attractive growth prospects.
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| Growth Fund | 28.36 | 15.57 | 15.60 |
| Russell 1000 Growth Index | 36.39 | 14.63 | 15.22 |
| Sector Diversification | |
| | % of Total Investments
as of 12/31/19 |
| Information technology | 33.3 |
| Consumer discretionary | 19.3 |
| Communication services | 19.2 |
| Health care | 15.7 |
| Industrials | 6.9 |
| Utilities | 2.1 |
| Financials | 1.8 |
| Energy | 0.6 |
| Consumer staples | 0.4 |
| Short-term and other assets | 0.7 |
| Total | 100.0% |
| Top 10 Equity Holdings | |
| | % of Total Investments
as of 12/31/19 |
| Microsoft Corp. | 7.8 |
| Amazon.com, Inc. | 7.5 |
| Alphabet, Inc. | 7.3 |
| Facebook, Inc. | 5.7 |
| Visa Inc. | 5.2 |
| Boeing Co. | 4.4 |
| Apple, Inc. | 3.4 |
| Alibaba Group Holding Ltd. ADR | 2.7 |
| Global Payments, Inc. | 2.6 |
| Tencent Holdings Ltd. ADR | 2.4 |
| Total | 49.0% |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund and the Russell 1000 Growth Index made on December 31, 2009.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The Growth Fund’s average annual total returns are net of any fee waivers and reimbursements. The fund's advisor waived a portion of its management fee during the five- and 10-year periods. Had the advisor not done so, the fund's total returns would have been lower. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
Performance Evaluation
15
Small-Company Stock Fund
Performance Evaluation | Prepared by the Fund’s Investment Advisor, RE Advisers Corporation
Performance
The fund returned 22.16% in 2019, trailing its benchmark index, the Russell 2000 Index, which returned 25.52%. Stock choices in the consumer discretionary sector weighed on relative returns.
Portfolio Review
The fund’s strongest performing sector was the materials sector. The fund was overweight the sector, and the fund’s holdings outperformed the benchmark’s sector returns. Much of the performance was driven by Summit Materials where favorable weather and an improving macro backdrop helped results.
In the financials sector, the fund was slightly overweight, and its holdings outperformed the benchmark’s. Kinsale, which we believe is a unique opportunity in the insurance industry, was up significantly. Encore Capital in the consumer finance subsector was also strong. In banking, the fund was overweight and underperformed. Metropolitan Bank Holding and Atlantic Union Bankshares were strong performers. We believe these will be solid investments over the next year, considering the steepening of the yield curve later in 2019, their relatively cheap valuations and the potential for further consolidation in the bank industry. Cadence Bancorp detracted from results.
In information technology, the fund was overweight and outperformed. Descartes Systems (a unique logistics software company), Mantech and Itron were the performance leaders. We have added to names in this category and increased the fund’s exposure to the sector overall. A recent addition is Verint Systems, a software company that provides intelligence for customer engagement and cyber intelligence communities. We believe the company has strong technological offerings for both segments.
The fund’s biggest sector detractor was consumer cyclicals where it was slightly overweight. The restaurant category was weak with BJ’s Restaurant down significantly and Cracker Barrel underperforming. While we maintain a favorable long-term investment opinion of both, we reduced the fund’s exposure to these names to trim its sector weighting.
The fund was underweight health care and underperformed. ICU Medical and Merit Medical both underperformed. We have eliminated the fund’s position in Merit Medical. Overall, however, we believe there are numerous opportunities in the sector, and we have increased the fund’s exposure to this sector over the past year. Notable sector performance leaders include Nanostring, Steris, Medpace and LHC Group. The fund established a position in Inovalon Holdings. We are positive on this health care data analytics company as the company is coming out of an extended investment cycle in the past several years and, in our view, is beginning to reap the benefits of its investments in cloud computing, end market diversification, sales and marketing.
| Investment Advisor: RE Advisers Corporation |
| Prabha Carpenter, CFASenior Equity Portfolio ManagerBA, Economics, University of Madras; MBA with distinction in Finance and BS in Business Economics, The American University |
| Jim Polk, CFASenior Equity Portfolio ManagerBA, English, Colby College; MBA, The Olin Graduate School of Business at Babson College |
We reduced the fund’s exposure to the industrials sector in 2019 with the elimination of NN, Inc., Standex, Covenant and Interface but the fund remains overweight relative to the benchmark. Strong performers in the sector for the year included BWX Technologies, Knight-Swift Transportation, Welbilt and Werner. New names added to the sector include BWX Technologies, Colfax, Comfort Systems and Enersys. Comfort Systems is a leading mid-market HVAC and electrical contracting installation and service provider. We invested with this high-caliber management team in previous years to great success, so when we saw a price decline as a result of deal timing in the first half of 2019, we were excited for the fund to have another opportunity to get involved at an inexpensive valuation.
Outlook
We continue to be optimistic regarding equities in general and small-cap stocks in particular. In our view, there continue to be underfollowed companies and strong businesses that can reward investors over the long haul. We believe the delayed impact of central bank stimulus will bear results this year and next. We believe that lower interest rates, strong employment, a reasonably healthy consumer and a less contentious trade environment should benefit small-cap stocks.
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| Small-Company Stock Fund | 22.16 | 2.62 | 10.46 |
| Russell 2000 Index | 25.52 | 8.23 | 11.83 |
| Sector Diversification | |
| | % of Total Investments
as of 12/31/19 |
| Information technology | 23.1 |
| Industrials | 19.5 |
| Health care | 18.0 |
| Financials | 17.8 |
| Consumer discretionary | 8.0 |
| Materials | 6.9 |
| Real estate | 3.7 |
| Consumer staples | 1.0 |
| Communication services | 0.5 |
| Short-term and other assets | 1.5 |
| Total | 100.0% |
| Top 10 Equity Holdings | |
| | % of Total Investments
as of 12/31/19 |
| Descartes Systems Group Inc. (The) | 4.2 |
| STERIS PLC | 4.0 |
| ManTech International Corp. | 4.0 |
| Kinsale Capital Group, Inc. | 4.0 |
| Applied Industrial Technologies, Inc. | 3.7 |
| Glacier Bancorp, Inc. | 3.5 |
| NanoString Technologies, Inc. | 3.2 |
| PolyOne Corp. | 3.2 |
| Cracker Barrel Old Country Store, Inc. | 2.9 |
| Encore Capital Group, Inc. | 2.9 |
| Total | 35.6% |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund and the Russell 2000 Index made on December 31, 2009.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The Small-Company Stock Fund’s average annual total returns are net of any fee waivers and reimbursements. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
Performance Evaluation
17
International Equity Fund
Performance Evaluation | Prepared by the Fund’s Subadvisor, Harding Loevner LP
Performance
In 2019, the fund outperformed its benchmark, the MSCI EAFE Index. The fund increased 24.83% versus the 22.01% return for the benchmark.
Portfolio Review
For the full year, the fund’s good relative performance came primarily from strong stocks in most sectors and an overweight in the top-performing sector, information technology (IT). The fund’s health care stocks delivered the most outperformance, led by Japanese online medical information services platform M3. The company’s efforts to entice more drug companies to use its clinical trial participant recruiting service paid off, and its shares were also buoyed by the announcement that it would be added to the Nikkei 225 Index. IT holdings added to relative returns, thanks to the fund’s large weight, but the fund’s stock selections didn’t keep up with the rest of the sector. TSMC and bank software developer Temenos were strong, but Checkpoint Software and Infineon lagged. In consumer staples, Nestlé helped relative performance after it generated strong organic revenue growth in the first half of the year. Atlas Copco was a standout performer among industrials.
The communications services sector lagged the market, and the fund’s stocks performed even worse. Chinese internet search provider Baidu weighed on the fund’s performance for most of the year amid concerns about weakening growth in its core search business and the cash drain of its new ventures, including entertainment and autonomous driving. Telecom services operator China Mobile weakened when its voice and messaging revenue failed to meet expectations. Dentsu, a Japan-based marketing and advertising services company, suffered ongoing margin pressure from its overseas subsidiaries, where customers are shifting more quickly from traditional to digital advertising channels, requiring heavier investments in new media expertise.
From a geographic perspective, the fund outperformed in every region. Japan edged out Europe Ex-EMU in delivering the most outperformance, thanks to M3 and drug manufacturer Chugai Pharmaceutical, whose new hemophilia treatment was well received in Japan and elsewhere. In Europe Ex-EMU, the fund benefited from Atlas Copco and Temenos. The fund’s biggest allocation drag was its cash reserves, which averaged just over 3% for the year.
Outlook
We believe a decade of monetary stimulus has turned many of the rules of investing on their heads. Short-term interest rates, controlled by central banks, are now set firmly below zero in Japan and every European money market except Britain. Denied the prospect of positive real yields, investors have embraced equities as a source of income. The search for
| Subadvisor: Harding Loevner LP |
 | Ferrill D. Roll, CFACo-Lead Portfolio ManagerBA, Economics, Stanford University |
 | Andrew West, CFACo-Lead Portfolio ManagerBS, Business Administration, University of Central Florida; MBA, New York University |
investment yield has encouraged the pursuit of “low volatility” stock funds, which seek to mimic the stability of bonds while delivering both dividend income and a total return approximating the broader market.
We focus on identifying high-quality companies with reliable profitability, sound finances, strong management and bright growth prospects; however, we wrestle with what we must pay for such companies. In our view, the scramble for yield, by fueling demand for defensive equity portfolios and pushing discount rates lower, is making this challenge even trickier. High-quality companies have become more popular and more highly priced as a result. Stocks of faster-growing businesses have become more highly priced still and simultaneously more volatile as sentiment drives changes in the market’s discount rate.
Our response, as is usual at Harding Loevner, has been incremental. We pursue strong quality characteristics in the businesses we follow, not low volatility for its own sake, because the former is typically more persistent than the latter. We pursue faster growth so, all else being equal, the portfolio has the potential to benefit from better-than- average earnings growth over time. And, despite our tolerance for seemingly stretched valuations in a period of ultra-low interest rates, we continue, at the margin, to reduce holdings of the most expensive stocks in the portfolio.
International Equity Fund
| Average Annual Total Returns (periods ended 12/31/19) | | | |
| | 1 YR % | 5 YR % | 10 YR % |
| International Equity Fund* | 24.83 | 7.15 | 5.11 |
| MSCI® EAFE® Index | 22.01 | 5.67 | 5.50 |
| Country Diversification | |
| | % of Total Investments
as of 12/31/19 |
| Germany | 15.8 |
| Japan | 13.9 |
| Switzerland | 13.6 |
| Britain | 9.6 |
| France | 8.5 |
| Sweden | 7.2 |
| Spain | 4.1 |
| United States of America | 4.0 |
| Hong Kong | 3.5 |
| Israel | 3.1 |
| Singapore | 3.0 |
| Canada | 3.0 |
| China | 2.2 |
| Taiwan | 1.4 |
| Republic of South Korea | 1.0 |
| Russia | 1.0 |
| India | 1.0 |
| Denmark | 1.0 |
| Brazil, Mexico, & South Africa | 1.3 |
| Short-term and other assets | 1.8 |
| Total | 100.0% |
| Top 10 Equity Holdings | |
| | % of Total Investments
as of 12/31/19 |
| Roche Holding AG REG | 4.6 |
| Nestlé SA ADR | 4.1 |
| SAP SE ADR | 3.9 |
| Allianz SE REG | 3.8 |
| Infineon Technologies AG | 3.7 |
| L’Oréal SA | 3.6 |
| Atlas Copco AB | 3.5 |
| AIA Group Ltd. | 3.5 |
| Check Point Software Technologies Ltd. | 3.1 |
| DBS Group Holdings Ltd. | 3.0 |
| Total | 36.8% |
Performance Comparison
Comparison of the change in value of a $10,000 investment in the fund and the MSCI® EAFE® Index made on December 31, 2009.
The returns quoted in the above table and chart represent past performance, which is no guarantee of future results. Current performance may be higher or lower than that shown above. To obtain the most recent month-end returns, please call 800.258.3030 or visit homesteadfunds.com. Returns and the principal value of your investment will fluctuate such that shares, when redeemed, may be worth more or less than their original cost. The International Equity Fund’s average annual total returns are net of any fee waivers and reimbursements. The fund's advisor waived a portion of its management fee during the periods shown. Had the advisor not done so, the fund's total returns would have been lower. The expenses used are as of the most recent period-end and may fluctuate over time. Returns include the reinvestment of dividends and capital gains. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares.
* Performance information for the International Equity Fund (formerly the International Value Fund) reflects its performance as an actively managed fund subadvised by Mercator Asset Management from December 31, 2009, to September 14, 2015; as a passively managed portfolio directed by SSGA Funds Management Inc. from September 15, 2015, to January 8, 2016; and, after a transition, as an actively managed fund subadvised by Harding Loevner LP from January 15, 2016, to period-end.
Performance Evaluation
19
As a shareholder, you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, service fees, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in each of the Homestead Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at July 1, 2019 and held through December 31, 2019.
Actual Expenses
The first line for each Fund in the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Individual Retirement Arrangements (IRAs) and Educational Savings Accounts (ESAs) are charged a $15.00 annual custodial fee. The charge is automatically deducted from your account in the fourth quarter of each year or, if you close your account, at the time of redemption. A fee is collected for each IRA or ESA, as distinguished by account type (Traditional IRA, Roth IRA, or ESA) and Social Security Number. For example, if you have both a Traditional IRA and a Roth IRA account, each would be charged a fee. But only one fee would be collected for each account type, regardless of the number of Funds held by each account type. These fees are not included in the example below. If included, the costs shown would be higher.
Hypothetical Example for Comparison Purposes
The second line for each Fund in the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect the custodial account fee. Therefore, the hypothetical information in the example is useful in comparing your ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the custodial account fee was included, your costs would have been higher.
Expense Example (Continued)
| Daily Income Fund | Beginning Account Value
July 1, 2019 | Ending Account Value
December 31, 2019 | Expenses Paid During the Perioda | Annualized Expense Ratio for the Period Ended
December 31, 2019 |
| Actual Return | $1,000.00 | $1,006.10 | $4.00 | 0.79% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,021.01 | $4.03 | 0.79% |
| Short-Term Government Securities Fundb | | | | |
| Actual Return | $1,000.00 | $1,009.50 | $3.80 | 0.75% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,021.22 | $3.82 | 0.75% |
| Short-Term Bond Fund | | | | |
| Actual Return | $1,000.00 | $1,010.50 | $4.10 | 0.81% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,020.92 | $4.13 | 0.81% |
| Intermediate Bond Fundb | | | | |
| Actual Return | $1,000.00 | $1,021.00 | $4.05 | 0.80% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,020.99 | $4.05 | 0.80% |
| Stock Index Fundc | | | | |
| Actual Return | $1,000.00 | $1,125.20 | $3.18 | 0.59% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,022.01 | $3.03 | 0.59% |
| Value Fund | | | | |
| Actual Return | $1,000.00 | $1,115.20 | $3.68 | 0.69% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,021.52 | $3.52 | 0.69% |
| Growth Fund | | | | |
| Actual Return | $1,000.00 | $1,102.30 | $5.18 | 0.98% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,020.07 | $4.98 | 0.98% |
| Small-Company Stock Fund | | | | |
| Actual Return | $1,000.00 | $1,021.20 | $5.82 | 1.14% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,019.24 | $5.82 | 1.14% |
| International Equity Fundb | | | | |
| Actual Return | $1,000.00 | $1,073.80 | $5.17 | 0.99% |
| Hypothetical Return (5% return before expenses) | $1,000.00 | $1,020.01 | $5.04 | 0.99% |
| a. | The dollar amounts shown as “Expenses Paid During the Period” are equal to each Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period (184), then divided by 365. |
| b. | Reflects fee waiver and/or expense limitation agreements in effect during the period. |
| c. | The Stock Index Fund is a feeder fund that invests substantially all of its assets in a Master Portfolio. The example reflects the expenses of both the feeder fund and the Master Portfolio. |
Regulatory and Shareholder Matters
Proxy Voting Policies and Procedures
The policies and procedures used to determine how to vote proxies relating to the Funds’ portfolio securities are available online at homesteadfunds.com and, without charge, upon request by calling 800-258-3030. This information is also available on the Securities and Exchange Commission’s website at sec.gov.
Proxy Voting Record
For the most recent twelve-month period ended June 30, information regarding how proxies relating to portfolio securities were voted on behalf of each of the Funds is available, without charge, upon request by calling 800-258-3030. This information is also available online at homesteadfunds.com and on the Securities and Exchange Commission’s website at sec.gov.
Quarterly Disclosure of Portfolio Holdings
The Funds file complete schedules of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to their reports on Form N-PORT. Portfolio holdings for the second and fourth quarters of each fiscal year are filed as part of the Funds’ semi-annual and annual reports. The Funds’ Form N-PORT, semi-annual and annual reports are available on the Commission’s website at sec.gov. The most recent quarterly portfolio holdings and semi-annual and annual reports also can be accessed on the Funds’ website at homesteadfunds.com.
Principal Risks
You may lose money by investing in the Funds. Below are summaries of some, but not all, of the principal risks of investing in one or more of the Funds, each of which could adversely affect a Fund’s NAV, yield and total return. Each risk listed below does not necessarily apply to each Fund, and you should read each Fund’s prospectus carefully for a description of the principal risks associated with investing in a particular Fund.
• Asset-Backed and Mortgage-Backed Securities Risk The risk that defaults, or perceived increases in the risk of defaults, on the obligations underlying asset-backed and mortgage-backed securities, including mortgage pass-through securities and collateralized mortgage obligations (“CMOs”), significant credit downgrades and illiquidity may impair the value of the securities. These securities also present a higher degree of prepayment risk (when repayment of principal occurs before scheduled maturity resulting in the Fund having to reinvest proceeds at a lower interest rate) and extension risk (when rates of repayment of principal are slower than expected, which may lock in a below-market interest rate, increase the security’s duration, and reduce the value of the security) than do other types of fixed income securities. Enforcing
rights against the underlying assets or collateral may be difficult, and the underlying assets or collateral may be insufficient if the issuer defaults.
• Commercial Paper Risk Investments in commercial paper are subject to the risk that the issuer cannot issue enough new commercial paper to satisfy its obligations with respect to its outstanding commercial paper, also known as rollover risk. Commercial paper is generally unsecured, which increases the credit risk associated with this type of investment. The value of commercial paper may be affected by changes in the credit rating or financial condition of the issuing entities. The value of commercial paper will tend to fall when interest rates rise and rise when interest rates fall.
• Concentration Risk To the extent the fund concentrates in a particular industry, it may be more susceptible to economic conditions and risks affecting that industry.
• Convertible Securities Risk Convertible securities may be subordinate to other debt securities issued by the same issuer. Issuers of convertible securities are often not as strong financially as issuers with higher credit ratings. Convertible securities typically provide yields lower than comparable non-convertible securities. Their values may be more volatile than those of non-convertible securities, reflecting changes in the values of the securities into which they are convertible.
• Corporate Bond Risk Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligations and may also be subject to price volatility due to factors such as interest rates, market perception of the creditworthiness of the issuer and general market liquidity.
• Currency Risk Foreign currencies may experience steady or sudden devaluation relative to the U.S. dollar or other currencies, adversely affecting the value of the Fund’s investments. The value of the Fund’s assets may be affected favorably or unfavorably by currency exchange rates, currency exchange control regulations, and restrictions or prohibitions on the repatriation of foreign currencies. Because the Fund’s net asset value is determined on the basis of U.S. dollars, if the local currency of a foreign market depreciates against the U.S. dollar, you may lose money even if the foreign market prices of the Fund’s holdings rise.
• Debt Securities Risks
Credit Risk The risk that an issuer or counterparty will fail to pay its obligations to the Fund when they are due. As a result, the Fund’s income might be reduced, the value of the Fund’s investment might fall, and/or the Fund could lose the entire amount of its investment. Changes in the financial condition of an issuer or counterparty, changes in specific economic, social or political conditions that affect a particular type of security or other instrument or an issuer, and changes in economic, social or political conditions generally can
Regulatory and Shareholder Matters
Regulatory and Shareholder Matters (Continued)
increase the risk of default by an issuer or counterparty, which can affect a security’s or other instrument’s credit quality or value and an issuer’s or counterparty’s ability to pay interest and principal when due. The values of lower-quality debt securities (commonly known as “junk bonds”) tend to be particularly sensitive to these changes. The values of securities also may decline for a number of other reasons that relate directly to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods and services, as well as the historical and prospective earnings of the issuer and the value of its assets.
Extension Risk The risk that if interest rates rise, repayments of principal on certain debt securities, including, but not limited to, mortgage-related securities, may occur at a slower rate than expected and the expected maturity of those securities could lengthen as a result. Securities that are subject to extension risk generally have a greater potential for loss when prevailing interest rates rise, which could cause their values to fall sharply.
Interest Rate Risk The risk that debt instruments will change in value because of changes in interest rates. The value of an instrument with a longer duration (whether positive or negative) will be more sensitive to changes in interest rates than a similar instrument with a shorter duration. Bonds and other debt instruments typically have a positive duration. The value of a debt instrument with positive duration will generally decline if interest rates increase.
• Depositary Receipts Risk Depositary receipts in which the Fund may invest are receipts listed on U.S. exchanges that are issued by banks or trust companies that entitle the holder to all dividends and capital gains that are paid out on the underlying foreign shares. Investments in depositary receipts may be less liquid than the underlying shares in their primary trading market.
• Derivatives Risk The risk that an investment in derivatives will not perform as anticipated by the Fund’s manager, cannot be closed out at a favorable time or price, or will increase the Fund’s volatility; that derivatives may create investment leverage; that, when a derivative is used as a substitute for or alternative to a direct cash investment, the transaction may not provide a return that corresponds precisely with that of the cash investment; or that, when used for hedging purposes, derivatives will not provide the anticipated protection, causing the Fund to lose money on both the derivatives transaction and the exposure the Fund sought to hedge. The counterparty to a derivatives contract may be unable or unwilling to make timely settlement payments, return the Fund’s margin, or otherwise honor its obligations. Changes in regulation relating to a mutual fund’s use of derivatives and related instruments could potentially limit or impact the Fund’s ability to invest in derivatives, limit a Fund’s ability to
employ certain strategies that use derivatives and adversely affect the value or performance of derivatives and the Fund.
• Emerging and Frontier Market Risk The risk that investing in emerging and frontier markets will be subject to greater political and economic instability, greater volatility in currency exchange rates, less developed securities markets, possible trade barriers, currency transfer restrictions, a more limited number of potential buyers and issuers, an emerging market country’s dependence on revenue from particular commodities or international aid, less governmental supervision and regulation, unavailability of currency hedging techniques, differences in auditing and financial reporting standards, thinner trading markets, different clearing and settlement procedures and custodial services, and less developed legal systems than in many more developed countries. The securities of emerging market companies may trade less frequently and in smaller volumes than more widely held securities. These risks are generally greater for investments in frontier market countries, which typically have smaller economies or less developed capital markets than traditional emerging market countries.
• Equity Securities Risk Equity securities generally have greater price volatility than fixed-income securities. The market price of equity securities owned by the Fund may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer, equity securities markets generally, particular industries represented in those markets or the issuer itself.
• Focused Investment Risk A fund that invests a substantial portion of its assets in a particular market, industry, sector, group of industries or sectors, country, region, group of countries or asset class is subject to greater risk than a fund that invests in a more diverse investment portfolio. In addition, the value of such a fund is more susceptible to any single economic, market, political or regulatory or other occurrence affecting, for example, the particular markets, industries, regions, sectors or asset classes in which the fund is invested. This is because, for example, issuers in a particular market, industry, region, sector or asset class may react similarly to specific economic, market, regulatory, political or other developments. The particular markets, industries, regions, sectors or asset classes in which the Fund may focus its investments may change over time and the Fund may alter its focus at inopportune times. For example, the Fund may have a significant portion of its assets invested in securities of companies in the information technology sector. Companies in the information technology sector can be adversely affected by, among other things, intense competition, earnings disappointments, and rapid obsolescence of products and services due to technological innovations or changing consumer preferences. As a matter of fundamental policy, the Intermediate Bond Fund will normally invest at least 25% of its total assets (i.e.,
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Regulatory and Shareholder Matters (Continued)
concentrate) in mortgage-related assets and asset-backed instruments issued by government agencies or other governmental entities or by private originators or issuers, and other investments that RE Advisers considers to have the same primary economic characteristics.
• Foreign Risk Foreign securities are subject to political, regulatory, and economic risks not present in domestic investments and may exhibit more extreme changes in value than securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. In addition, foreign companies often are not subject to the same degree of regulation as U.S. companies. Reporting, legal, accounting and auditing standards of foreign countries differ, in some cases significantly, from U.S. standards. Nationalization, expropriation or confiscatory taxation, currency blockage, political changes or diplomatic developments could adversely affect the Fund’s investments in a foreign country. In the event of nationalization, expropriation or other confiscation, the Fund could lose its entire investment. Investments in emerging market countries are likely to involve significant risks. These countries are generally more likely to experience political and economic instability.
• Growth Style Risk The risk that returns on stocks within the growth style in which the Fund invests will trail returns of stocks representing other styles or the market overall over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. Growth stocks can be volatile, as these companies usually invest a high portion of earnings in their business and therefore may lack the dividends of value stocks that can cushion stock prices in a falling market. Also, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth.
• High Yield Securities Risk The risk that debt instruments rated below investment grade or debt instruments that are unrated and determined by RE Advisers to be of comparable quality are predominantly speculative. These instruments, commonly known as “junk bonds,” have a higher degree of default risk and may be less liquid than higher-rated bonds. These instruments may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of high yield investments generally, and less secondary market liquidity.
• Income Risk The Fund’s income may decline due to falling interest rates or other factors. Issuers of securities held by the Fund may call or redeem the securities during periods of falling interest rates, and the Fund would likely be required to reinvest in securities paying lower interest
rates. If an obligation held by the Fund is prepaid, the Fund may have to reinvest the prepayment in other obligations paying income at lower rates.
• Index Fund Risk An index fund has operating and other expenses while an index does not. As a result, while a fund will attempt to track its underlying index as closely as possible, it will tend to underperform the index to some degree over time. If an index fund is properly correlated to its stated index, the Fund will perform poorly when the index performs poorly.
• Index-Related Risk There is no assurance that the index provider will compile the underlying index accurately, or that the underlying index will be determined, composed or calculated accurately. Gains, losses or costs associated with index provider errors will be borne by the Fund and its shareholders.
• Investments in Other Investment Companies Risk The risk that an investment company or other pooled investment vehicle in which the Fund invests will not achieve its investment objective or execute its investment strategies effectively or that significant purchase or redemption activity by shareholders of such an investment company might negatively affect the value of the investment company’s shares. There will be some duplication of expenses because the Fund also must pay its pro-rata share of that investment company’s fees and expenses.
• Investments in Small- and Mid-Size Companies Securities of small and medium-sized companies tend to be more volatile and less liquid than securities of large companies. Compared to large companies, small and medium-sized companies may face greater business risks because they lack the management depth or experience, financial resources, product diversification or competitive strengths of larger companies, and they may be more adversely affected by poor economic conditions. There may be less publicly available information about smaller companies than larger companies. In addition, these companies may have been recently organized and may have little or no track record of success.
• Issuer Risk The risk that the value of a security may decline because of adverse events or circumstances that directly relate to the issuer.
• Limited Operating History Risk A Fund may have a limited operating history to evaluate and may not attract sufficient assets to achieve or maximize investment and operational efficiencies.
• Manager Risk The risk that the manager’s decisions, including security selection, will cause the Fund to underperform relative to the Fund’s peers. There can be no assurance that the manager's investment techniques and decisions will produce the desired results. The Fund’s ability to achieve its investment objective is dependent upon the manager's ability to identify profitable investment opportunities for the Fund. The past
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Regulatory and Shareholder Matters (Continued)
experience of the portfolio manager, including with other strategies and funds, does not guarantee future results for the Fund.
• Market Capitalization Risk Investing primarily in issuers within the same market capitalization category carries the risk that the category may be out of favor due to current market conditions or investor sentiment. Securities issued by large-cap companies tend to be less volatile than securities issued by smaller companies. However, larger companies may not be able to attain the high growth rates of successful smaller companies, especially during strong economic periods, and may be unable to respond as quickly to competitive challenges.
• Market Risk The risk that markets will perform poorly or that the returns from the securities in which the Fund invests will underperform returns from the general securities markets or other types of investments. Markets may, in response to governmental actions or intervention, political, economic or market developments, or other external factors, experience periods of high volatility and reduced liquidity. During those periods, the Fund may experience high levels of shareholder redemptions, and may have to sell securities at times when the Fund would otherwise not do so, and potentially at unfavorable prices. Certain securities may be difficult to value during such periods. These risks may be heightened for fixed income securities in low interest rate environments.
• Master/Feeder Structure Risk The Fund pursues its objective by investing substantially all of its assets in another pooled investment vehicle (a “master fund”). The ability of the Fund to meet its investment objective is directly related to the ability of the master fund to meet its investment objective. The Fund will bear its pro rata portion of the expenses incurred by the master fund. Substantial redemptions by other investors in a master fund may affect the master fund’s investment program adversely and limit the ability of the master fund to achieve its objective.
• Money Market Securities Risk The value of a money market instrument typically will decline during periods of rising interest rates, and can also decline in response to changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral assets, or changes in market, economic, industry, political, and regulatory conditions affecting a particular type of security or issuer or fixed income securities generally. Money market funds are not designed to offer capital appreciation. Certain money market funds may impose a fee upon the sale of shares or may temporarily suspend the ability of investors to redeem shares if such fund’s liquidity falls below required minimums, which may adversely affect the Fund’s returns or liquidity.
• Municipal Bond Risk Factors unique to the municipal bond market may negatively affect the value of the Fund’s investment in municipal bonds. The Fund may invest in a
group of municipal obligations that are related in such a way that an economic, business, or political development affecting one would also affect the others. In addition, the municipal bond market, or portions thereof, may experience substantial volatility or become distressed, and individual bonds may go into default, which would lead to heightened risks of investing in municipal bonds generally. The ability of municipalities to meet their obligations will depend on the availability of tax and other revenues, economic, political and other conditions within the state and municipality, and the underlying fiscal condition of the state and municipality.
• Passive Investment Risk Because BlackRock Fund Advisors does not select the individual companies in the Index that the Master Portfolio tracks, the Master Portfolio may hold securities of companies that present risks that an investment adviser researching individual securities might otherwise seek to avoid.
• Portfolio Turnover Risk The risk that frequent purchases and sales of portfolio securities may result in higher Fund expenses and may result in larger distributions of taxable capital gains to investors as compared to a fund that trades less frequently.
• Preferred Securities Risk The risk that: (i) certain preferred stocks contain provisions that allow an issuer under certain conditions to skip or defer distributions; (ii) preferred stocks may be subject to redemption, including at the issuer’s call, and, in the event of redemption, the Fund may not be able to reinvest the proceeds at comparable or favorable rates of return; (iii) preferred stocks are generally subordinated to bonds and other debt securities in an issuer’s capital structure in terms of priority for corporate income and liquidation payments; and (iv) preferred stocks may trade less frequently and in a more limited volume and may be subject to more abrupt or erratic price movements than many other securities.
• Repurchase Agreements Risk The Fund’s investment return on repurchase agreements will depend on the counterparty’s willingness and ability to perform its obligations under a repurchase agreement. If the Fund’s counterparty should default on its obligations, becomes subject to a bankruptcy or other insolvency proceeding or if the value of the collateral is insufficient, the Fund could (i) experience delays in recovering cash or the securities sold (and during such delay the value of the underlying securities may change in a manner adverse to the fund) and/or (ii) lose all or part of the income, proceeds or rights in the securities to which the Fund would otherwise be entitled.
• Restricted Securities Risk The Fund may hold securities that are restricted as to resale under the U.S. federal securities laws. There can be no assurance that a trading market will exist at any time for any particular restricted security. Limitations on the resale of these securities may prevent the Fund from disposing of them
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25
Regulatory and Shareholder Matters (Continued)
promptly at reasonable prices or at all. The Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays in effecting the registration. Also, restricted securities may be difficult to value because market quotations may not be readily available, and the values of restricted securities may have significant volatility.
• Sovereign Debt Obligations Risk The risk that investments in debt obligations of sovereign governments may lose value due to the government entity’s unwillingness or inability to repay principal and interest when due in accordance with the terms of the debt or otherwise in a timely manner. Sovereign governments may default on their debt obligations for a number of reasons, including social, political, economic and diplomatic changes in countries issuing sovereign debt. The Fund may have limited (or no) recourse in the event of a default because bankruptcy, moratorium and other similar laws applicable to issuers of sovereign debt obligations may be substantially different from those applicable to private issuers, and any recourse may be subject to the political climate in the relevant country. In addition, foreign governmental entities may enjoy various levels of sovereign immunity, and it may be difficult or impossible to bring a legal action against a foreign governmental entity or to enforce a judgment against such an entity. Holders of certain foreign government debt securities may be requested to participate in the restructuring of such obligations and to extend further loans to their issuers. There can be no assurance that the foreign government debt securities in which the Fund may invest will not be subject to similar restructuring arrangements or to requests for new credit, which may adversely affect the Fund’s holdings.
• Tracking Error Risk Tracking error is the divergence of an index fund’s performance from that of the underlying index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Index, pricing differences, differences in transaction costs, the fund’s holding of uninvested cash, differences in timing of the accrual of dividends or interest, tax gains or losses, changes to the Index or the need of the Fund or Master Portfolio to meet various new or existing regulatory requirements. This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result because the Fund incurs fees and expenses, while the Index does not.
• U.S. Government Securities Risk The risk that the value of U.S. Government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. Government.
• Value Style Risk The risk that returns on stocks within the value style in which the Fund invests will trail returns of stocks representing other styles or the market overall over any period of time and may shift in and out of favor
with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. Investments in value securities may be subject to risks that (1) the issuer’s potential business prospects will not be realized; (2) their potential values will never be recognized by the market; and (3) their value was appropriately priced when acquired and they do not perform as anticipated.
• Variable and Floating-Rate Securities Risk The value of these securities may decline if their interest rates do not rise as much, or as quickly, as other interest rates. Conversely, these securities will not generally increase in value to the same extent as other fixed income securities, or at all, if interest rates decline.
Board of Directors' Considerations in Approving the Investment Management and Sub-Advisory Agreements
Homestead Funds, Inc. (“Homestead”) and RE Advisers Corporation (“RE Advisers”) have entered into investment management agreements (the “Investment Management Agreements”), pursuant to which RE Advisers is responsible for the day-to-day management of the following series of Homestead: the Daily Income Fund, the Short-Term Bond Fund, the Short-Term Government Securities Fund, the Small-Company Stock Fund, the Value Fund, the Growth Fund and the International Equity Fund (each series, a “Fund” and, collectively, the “Funds”)1. In addition, RE Advisers has entered into subadvisory agreements (the “Subadvisory Agreements” and, together with the Investment Management Agreements, the “Agreements”) with T. Rowe Price Associates, Inc. (“T. Rowe Price”) and Harding Loevner LP (“Harding Loevner”), on behalf of the Growth Fund and the International Equity Fund, respectively, pursuant to which T. Rowe Price and Harding Loevner are responsible for the day-to-day management of the assets of such Funds. RE Advisers, T. Rowe Price and Harding Loevner each is an “Adviser” and are collectively referred to as the “Advisers.”
The Board of Directors (the “Board”) of Homestead held a telephonic meeting on August 13, 2019 (the “August Meeting”), at which they gave preliminary consideration to information bearing on the continuation of the Agreements for the period from September 23, 2019 through September 22, 2020. At its regular quarterly meeting held on September 17-18, 2019 (the “September Meeting”), following the receipt of additional information and discussion at an executive session of the Directors who are not “interested persons” (as defined in the Investment Company Act of 1940,
1RE Advisers serves as an administrator to the Stock Index Fund pursuant to an administrative services agreement with that Fund and does not currently serve as the Fund’s investment adviser. The Board of Trustees of Homestead Funds Trust (the “Trust”) approved an investment management agreement for the Intermediate Bond Fund, a series of the Trust, for an initial two-year term in March 2019; accordingly, the Board of Trustees is not reapproving the Intermediate Bond Fund’s investment management agreement at this time.
Regulatory and Shareholder Matters
Regulatory and Shareholder Matters (Continued)
as amended (the “1940 Act”)), of the Funds (“Independent Directors”) and independent counsel to the Independent Directors, at which no representative of the Advisers were present, the Board, voting separately, approved the continuation of the Agreements with respect to all Funds for an additional one-year period.
Prior to the August Meeting, the Independent Directors’ requested that the Advisers provide the Board information they deemed reasonably necessary for their consideration of the Agreements. Pursuant to this request, the Advisers provided the Board with, and the Board, including the Independent Directors, considered and discussed, information regarding, among other things, (a) the level of the advisory fees that RE Advisers charges a Fund compared with the fees charged to comparable mutual funds and compared with those of RE Adviser’s non-investment company clients and the level of subadvisory fees that T. Rowe Price and Harding Loevner receive with respect to the Growth Fund and the International Equity Fund, respectively, and compared with the advisory and/or subadvisory fees charged by T. Rowe Price and Harding Loevner to other clients; (b) each Fund’s overall fees and operating expenses compared with similar mutual funds; (c) each Fund’s performance compared with similar mutual funds; (d) the investment management and other services the Advisers provide the Funds, including each Adviser’s compliance program; (e) the Advisers’ investment management personnel; and (f) RE Advisers’ financial condition and profitability in connection with managing the Funds. The Directors also reviewed information provided by Strategic Insight (“Strategic Insight”), an information service provider unaffiliated with the Advisers, comparing each Fund’s advisory fee rate, net total expenses, operating expenses and performance to those of other similar open-end funds selected by Strategic Insight.
The Independent Directors and their independent legal counsel met separately in an executive session held telephonically on August 8, 2019, to discuss the materials received. During the executive session the Independent Directors also reviewed and discussed with their independent legal counsel various key aspects of the Directors’ legal responsibilities relating to the proposed continuation of the Agreements, as addressed in a memorandum prepared by independent legal counsel and provided in advance of the meeting.
Following their telephonic executive session on August 8th and the August Meeting, the Independent Directors requested certain follow-up information from each Adviser. The Advisers provided such follow-up information prior to the September Meeting. At the September Meeting, the Advisers presented certain additional information to the Directors regarding the Funds. The Directors then considered whether any further discussion or review was necessary, concluding that the August Meeting and the information reviewed by the Independent Directors and their
independent counsel prior to and at the September Meeting provided a sufficient basis for taking action on the continuation of the Advisory Agreements with respect to each Fund for an additional year.
The Directors also met over the course of the year with investment advisory personnel from RE Advisers and regularly reviewed detailed information, presented both orally and in writing, regarding the investment program, performance and operations of each Fund. Accordingly, the Directors’ determination to approve the continuance of the Agreements was made on the basis of each Director’s business judgment after an evaluation of all of the information provided to the Directors, both at the August and September Meetings and at prior meetings.
In reaching their determinations relating to the continuation of the Agreements, the Directors, including the Independent Directors, considered all factors they believed relevant, including the factors discussed below. Individual Directors may have attributed different weights to the various factors and assigned various degrees of materiality to information received in connection with the approval process. No single factor was determined to be decisive.
In particular, the Board focused on the following:
Nature, Extent and Quality of Services. The Directors considered the nature, extent and quality of the services the Advisers provide to the applicable Funds and the resources the Advisers dedicate to the Funds. In this regard, the Directors evaluated, among other things, each Adviser’s personnel, experience, track record, compliance program and, with respect to RE Advisers, oversight of the Funds’ other service providers, including T. Rowe Price and Harding Loevner in their capacity as subadvisers to the Growth Fund and the International Equity Fund, respectively. The Directors considered information concerning the investment philosophy and investment processes used by the Advisers in managing the Funds. In this context, the Directors also considered the managerial and financial resources available to the Advisers and concluded that they would be sufficient to meet any reasonably foreseeable obligations under the current Agreements. The Directors considered each Adviser’s assessment of its ability to attract and retain capable personnel and succession planning processes with respect to the leadership of the Funds’ portfolio management teams. The Directors considered the quality of the services provided by the Advisers and the quality of the resources available to the Funds. The Directors further considered each Adviser’s experience and reputation and the professional qualifications of its personnel. The Directors noted, in particular, that RE Advisers had made significant enhancements to its investment team over the previous 18 months, including the addition of an equity analyst, a senior equity analyst, a fixed-income portfolio manager and a senior equity portfolio manager. The Directors also noted that RE Advisers had made additional investments in personnel and technology to service existing shareholders.
Regulatory and Shareholder Matters
27
Regulatory and Shareholder Matters (Continued)
The Directors also considered that the Investment Management Agreements require RE Advisers to oversee the administration of all aspects of the Funds’ business and affairs and to provide certain services required for effective administration of the Funds.
On the basis of these considerations as well as others and in the exercise of their business judgment, the Directors concluded that the nature, extent and quality of services provided by the Advisers to the Funds supported the approval of the Agreements for an additional one-year period.
Investment Performance of the Fund. The Directors reviewed reports provided by Strategic Insight that compared each Fund’s performance record (trailing annualized net total returns) for the one-, three-, five-, and ten-years ended December 31, 2018, as applicable, against a group of the Fund’s peer funds with similar total assets and investment objectives selected by Strategic Insight (a “Peer Group”) and the Fund’s relevant benchmark index for the same time periods. In addition, the Directors reviewed reports provided by eVestment that compared each Fund’s performance record for the one-, three-, five-, and ten-years ended June 30, 2019, as applicable, against each Fund’s benchmark index.
With respect to each Fund, the Directors concluded that the Fund’s performance (including absolute performance and, where applicable, outperformance of peers and relevant benchmarks over long-term periods) and/or other relevant factors supported continuation of the Agreements. In the case of each Fund that had performance that lagged that of a relevant peer group or benchmark for certain (although not necessarily all) periods, the Directors concluded that other factors relevant to performance supported continuation of the advisory arrangements. These factors included, among other factors, that the Fund’s more recent or long-term performance, as applicable, was competitive when compared to relevant performance benchmarks or peer groups. The Directors noted that, in addition to meeting with members of each Fund’s portfolio management team on a regular basis during the prior year to discuss Fund performance and related matters, they had held additional meetings with members of RE Advisers senior management regarding the Small-Company Stock Fund and discussed in additional detail succession planning with respect to the Fund, steps intended to help improve the Fund’s performance and asset growth. The Directors noted that management had provided thorough and thoughtful analysis regarding its continued confidence in the Fund’s investment team, and also considered the recent additions to the investment team.
Among other information, the Directors took into account the following information regarding each individual Fund’s performance.
Daily Income Fund
With respect to the Daily Income Fund, the Directors noted that the Fund’s trailing annualized net total return was 1.08% for the one-year period ended December 31, 2018, 0.42% for the three-year period ended December 31, 2018, 0.26% for the five-year period ended December 31, 2018, and 0.16% for the ten-year period ended December 31, 2018, compared to the return of its benchmark index, the Lipper Money Market Index, which had returns of 1.63%, 0.80%, 0.48%, and 0.27% for the same periods.
The Board noted that, while the Fund ranked in the fifth quintile for the one-, three-, and five-year periods, the Fund’s performance was in the fourth quintile for the ten-year period and generally more in line with the performance of such other funds over the ten-year period.
Short-Term Government Securities Fund
With respect to the Short-Term Government Securities Fund, the Directors noted that the Fund’s trailing annualized net total return was 1.20% for the one-year period ended December 31, 2018, 0.84% for the three-year period ended December 31, 2018, 0.83% for the five-year period ended December 31, 2018 and 1.23% for the ten-year period ended December 31, 2018, compared to the return of its benchmark index, the BofA Merrill Lynch 1-5 Year U.S. Treasury Index, which had returns of 1.52%, 1.09%, 1.09%, and 1.33% for the same periods. The Board noted RE Advisers’ statement that it viewed the returns as competitive, given the conservative manner in which the Fund is managed and that the average duration of the Fund is shorter than that of the benchmark index.
The Board considered the peer group data provided by Strategic Insight, noting that the Fund ranked in the second quintile for one- and five- year periods and the third quintile for the three- and 10- year periods ended December 31, 2018.
Short-Term Bond Fund
With respect to the Short-Term Bond Fund, the Directors noted that the Fund’s trailing annualized net total return was 1.69% for the one-year period ended December 31, 2018, 1.70% for the three- year period ended December 31, 2018, 1.41% for the five-year period ended December 31, 2018 and 3.64% for the ten-year period ended December 31, 2018, compared to the return of its benchmark index, the BofA Merrill Lynch 1-5 Year Corp./Gov. Index, which returned 1.40%, 1.43%, 1.37%, and 2.17% for the same periods.
The Board considered the peer group data provided by Strategic Insight, noting that the Fund ranked in the first or second quintiles of the Fund’s Peer Group for the one-, three-, five- and ten- year periods ending December 31, 2018.
Regulatory and Shareholder Matters
Regulatory and Shareholder Matters (Continued)
Value Fund
With respect to the Value Fund, the Directors noted that the Fund’s trailing annualized net total return was -6.36% for the one-year period ended December 31, 2018, 8.70% for the three-year period ended December 31, 2018, 7.58% for the five-year period ended December 31, 2018, and 12.46% for the ten-year period ended December 31, 2018, compared to the return of its benchmark index, the Standard & Poor’s 500 Value Index, which had returns of -8.95%, 7.23%, 6.06%, and 11.21% for the same periods.
The Directors noted that the Fund ranked in the first quintile of the Fund’s Peer Group for the three-, five- and ten-year periods ending December 31, 2018, and in the second quintile for the one-year period ended December 31, 2018.
Growth Fund
With respect to the Growth Fund, the Directors noted that that the Fund’s trailing annualized net total return was 3.96% for the one-year period ended December 31, 2018, 13.64% for the three- year period ended December 31, 2018, 11.72% for the five-year period ended December 31, 2018, and 17.54% for the ten-year period ended December 31, 2018, compared to the return of its benchmark index, the Russell 1000 Growth Index, which had returns of -1.51%, 11.15%, 10.40%, and 15.29% for the same periods.
The Directors noted that the Fund ranked in the first quintile of the Fund’s Peer Group for the one-, three-, five- and ten-year periods ending December 31, 2018.
Small-Company Stock Fund
With respect to the Small-Company Stock Fund, the Directors noted that the Fund’s trailing annualized net total return was -26.18% for the one-year period ended December 31, 2018, -0.58% for the three-year period ended December 31, 2018, 0.12% for the five-year period ended December 31, 2018, and 12.38% for the ten-year period ended December 31, 2018, compared to the return of its benchmark index, the Russell 2000 Index, which had returns of -11.01%, 7.36%, 4.41% and 11.97% for the same periods.
The Directors noted that the Fund ranked in the fifth quintile of the Fund’s Peer Group for each of the one-, three- and five-year periods ending December 31, 2018 and in the second quintile of the Fund’s Peer Group for the ten-year period ended December 31, 2018.
The Directors considered RE Adviser’s statement that it had taken steps to support and enhance the investment resources available to the portfolio management team (in addition to expanding the investment team), and that the Fund had outperformed its benchmark index for the 6-month period ended June 30, 2019.
International Equity Fund
With respect to the International Equity Fund, the Directors noted that the Fund’s trailing annualized net total return was -12.74% for the one-year period ended December 31, 2018, 5.44% for the three-year period ended December 31, 2018, 0.61% for the five-year period ended December 31, 2018, and 5.20% for the ten-year period ended December 31, 2018, compared to the return of its benchmark index, the MSCI EAFE Index, which had returns of -13.79%, 2.87%, 0.53% and 6.32% for the same periods.
The Directors noted that the Fund ranked in the second and first quintile of the Fund’s Peer Group for the one- and three-year periods ending December 31, 2018, respectively, in the third quintile of the Fund’s Peer Group for the five-year period ended December 31, 2018, and in the fifth quintile of the Fund’s Peer Group for the ten-year period ended December 31, 2018.
The Directors noted that Harding Loevner became the Fund’s subadviser in January 2016, and that prior thereto, the Fund was named the International Value Fund and had been managed by different subadvisers at different periods. Accordingly, the Directors gave greater weight to the Fund’s performance during the period in which it has been sub-advised by Harding Loevner.
Comparative Fees and Expense Ratios. The Directors considered the net total expense ratio, contractual management fees, net operating expense ratio and other expense information for each Fund provided by Strategic Insight as compared against the Fund’s peer group identified by Strategic Insight (“Expense Group”). The Directors noted that the Funds are not currently subject to Rule 12b-1 fees and that the expense information provided by Strategic Insight included comparisons of the Funds’ net total expense ratios with those of their Expense Group peers both inclusive and exclusive of 12b-1 fees.
The Directors concluded that the fees payable by the Funds to RE Advisers are reasonable in relation to the nature and quality of the services provided. In reaching this conclusion, the Directors compared the fees payable by the Funds to the fees paid by other mutual funds that are in the same Expense Group. The Directors also considered the fees RE Advisers receives from, and the scope of services it provides to, other RE Advisers clients, including its separate account and unified managed account clients, noting the significantly broader scope of services that RE Advisers provides to the Funds as compared to the other types of clients. In reaching their conclusion, the Directors also took into account the costs and risks assumed by RE Advisers in connection with launching and maintaining publicly-offered mutual funds, and how those costs and risks differ from those associated with other components of RE Advisers’ business. The Directors also considered the high level of customer service RE Advisers provides to shareholders.
Regulatory and Shareholder Matters
29
Regulatory and Shareholder Matters (Continued)
Among other information, the Directors took into account the following information regarding particular Fund expense information.
Daily Income Fund
The Directors noted that the Fund’s contractual management fee ratio is 0.50% of average daily net assets and the net total expense ratio was 0.74%. The net total expense ratio ranked 9 out of 10 of the money market-taxable funds selected by Strategic Insight. The Directors considered RE Advisers’ agreement to contractually limit fees and reimburse expenses to the extent necessary to keep the Daily Income Fund’s total annual operating expenses (subject to certain excluded expenses) from exceeding 0.80% of the Fund’s average daily net assets until at least May 1, 2020. The Directors also considered the effect of peer funds’ fee waivers on those funds’ fee levels as compared to the Fund’s. The Directors considered the Fund’s lower net asset level during the period, relative to recent years, which resulted in certain expenses being allocated across a smaller asset base.
Short-Term Government Securities Fund
The Directors noted that the Fund’s contractual management fee ratio is 0.45% of average daily net assets and the net total expense ratio was 0.750%. The Fund’s net total expense ratio ranked 10 out of 12 of the short government bond funds selected by Strategic Insight. The Directors also considered RE Advisers’ agreement to contractually limit fees and reimburse expenses (subject to certain excluded expenses) to the extent necessary to keep the Short-Term Government Securities Fund’s total annual operating expenses from exceeding 0.75% of the Fund’s average daily net assets until at least May 1, 2020.
Short-Term Bond Fund
The Directors noted that the Fund’s contractual management fee is 0.60% of average daily net assets and the net total expense ratio was 0.768%. The net total expense ratio ranked 20 out of 20 of the short-term bond funds selected by Strategic Insight. The Directors also considered RE Advisers’ agreement to contractually limit fees and reimburse expenses (subject to certain excluded expenses) to the extent necessary to keep the Short-Term Bond Fund’s total annual operating expenses from exceeding 0.80% of the Fund’s average daily net assets until at least May 1, 2020.
Value Fund
The Directors noted that the Fund’s contractual management fee is 0.65% of average daily net assets up to $200 million; 0.50% of average daily net assets up to the next $200 million; and 0.40% of average daily net assets in excess of $400 million, and the net total expense ratio was 0.600%. The net total expense ratio ranked 2 out of 18 of the large value funds selected by Strategic Insight. The Directors also considered RE Advisers’ agreement to contractually limit fees and reimburse expenses (subject to certain excluded
expenses) to the extent necessary to keep the Value Fund’s total annual operating expenses from exceeding 1.25% of the Fund’s average daily net assets until at least May 1, 2020.
Growth Fund
The Directors noted that the Fund’s contractual management fee is 0.65% of average daily net assets up to $250 million and 0.60% of average daily net assets over $250 million, and the net total expense ratio was 0.860%. The net total expense ratio each ranked 11 out of 21 of the large growth funds selected by Strategic Insight. The Directors also considered RE Advisers’ agreement to contractually limit fees and reimburse expenses (subject to certain excluded expenses) to the extent necessary to keep the Growth Fund’s total annual operating expenses from exceeding 0.95% of the Fund’s average daily net assets until at least May 1, 2020.
The Directors considered the fees paid to T. Rowe Price under the current Subadvisory Agreement. This information included comparison of the Growth Fund’s subadvisory fee to that charged by T. Rowe Price to other accounts with a similar investment objective to the Fund, as well as the current management fee paid to RE Advisers under the existing Investment Management Agreement. The Directors also took into account the anticipated demands, complexity and quality of the investment management of the Fund. The Directors noted that RE Advisers, and not the Fund, is responsible for paying the fees charged by T. Rowe Price. The Directors noted RE Advisers’ and T. Rowe Price’s representations about the services each provide to the Growth Fund. Based on these and other considerations, the Directors concluded that the subadvisory fee payable by RE Advisers to T. Rowe Price is reasonable in relation to the nature and quality of the services provided.
Small-Company Stock Fund
The Directors noted that the Fund’s contractual management fee is 0.85% of average daily net assets up to $200 million and 0.75% of average daily net assets in excess of $200 million and the net total expense ratio was 0.900%. The net total expense ratio ranked 2 out of 20 of the small blend funds selected by Strategic Insight. The Directors also considered RE Advisers’ agreement to contractually limit fees and reimburse expenses to the extent necessary to keep the Small- Company Stock Fund’s total annual operating expenses (subject to certain excluded expenses) from exceeding 1.50% of the Fund’s average daily net assets until at least May 1, 2020.
International Equity Fund
The Directors noted that the Fund’s contractual management fee is 0.75% of average daily net assets up to $300 million; 0.65% of average daily net assets up to the next $100 million; 0.55% of average daily net assets up to the next $100 million and 0.50% of average net assets in excess of
Regulatory and Shareholder Matters
Regulatory and Shareholder Matters (Continued)
$500 million, and the net total expense ratio was 0.990%. The net total expense ratio ranked 6 out of 18 of the foreign large growth funds selected by Strategic Insight. The Directors also considered RE Advisers’ agreement to contractually limit fees and reimburse expenses to the extent necessary to keep the International Equity Fund’s total annual operating expenses (subject to certain excluded expenses) from exceeding 0.99% of the Fund’s average daily net assets until at least May 1, 2020.
The Directors considered the fees paid to Harding Loevner under the current Subadvisory Agreement. This information included comparison of the Fund’s subadvisory fee to that charged by Harding Loevner to other accounts with a similar investment objective to the Fund as well as the current management fee paid to RE Advisers under the existing Investment Management Agreement. The Directors also took into account the anticipated demands, complexity and quality of the investment management of the Fund. The Directors noted that RE Advisers, and not the Fund, is responsible for paying the fees charged by Harding Loevner. The Directors noted RE Advisers’ and Harding Loevner’s representations regarding the services each provides to the International Equity Fund. Based on these and other considerations, the Directors concluded that the subadvisory fee payable by RE Advisers to Harding Loevner is reasonable in relation to the nature and quality of the services provided.
After reviewing these and related factors, the Directors concluded, within the context of their overall conclusions regarding the Agreements, that the fees to be charged to the Funds were fair and reasonable, and that the anticipated costs of these services generally supported the approval of the Agreements.
Cost of Services and Profits Realized by the Advisers. The Directors considered the cost of the services provided by RE Advisers. The Directors reviewed the information provided by RE Advisers concerning its profitability from the fees received from and the services provided to the Funds and the financial condition of RE Advisers for various past periods. The Directors considered the profit margin information for RE Advisers’ investment company business as a whole, as well as RE Advisers’ profitability data for the Funds. The Directors reviewed RE Advisers’ assumptions and methods of cost allocation used in preparing Fund-specific profitability data. The Directors also considered the basis for RE Advisers’ belief that its methods of allocation were reasonable.
The Directors considered their discussion with representatives of RE Advisers about the fees being charged to the Funds and considered the other administrative, compliance and shareholder services provided by RE Advisers to the Funds. The Directors noted and discussed the additional services provided by RE Advisers to the Funds compared to other investment products managed by RE Advisers, and noted that, in the cases of the Growth Fund and the International Equity Fund, RE Advisers, and not the Fund, would pay the subadvisory fees to the subadvisers. The
Directors determined that RE Advisers should be entitled to earn a reasonable level of profits for the services it provides to the Funds. In light of the foregoing, the Directors, including the Independent Directors, determined that the management fees were reasonable in relation to the wide array services provided to the Funds.
The Directors considered the compensation to be received by Harding Loevner and T. Rowe Price from their relationship with the International Equity Fund and Growth Fund, respectively, and considered the information on profitability provided by T. Rowe Price. The Directors noted that RE Advisers would continue to pay each subadviser from the management fees received from the Funds.
Economies of Scale. The Directors considered the extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale for the benefit of each Fund’s shareholders. The Directors noted that the Value Fund, Growth Fund, Small-Company Stock Fund and International Equity Fund include breakpoints in their fee schedules, though some Fund assets have not yet reached the necessary levels to qualify for a lower fee rate. The Board was satisfied that the current fee structure was appropriate at this time.
Fall-Out Benefits. Additionally, the Directors considered so-called “fall-out benefits” to the Advisers, such as research, statistical and quotation services the Advisers may receive from broker-dealers executing the Funds’ portfolio transactions on an agency basis.
CONCLUSION
On the basis of these considerations as well as others and in the exercise of their business judgment, the Directors, including the Independent Directors, voted unanimously to approve the continuation of the Agreements for an additional one-year period.
Regulatory and Shareholder Matters
31
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Homestead Funds, Inc. and the Board of Trustees of Homestead Funds Trust and Shareholders of Daily Income Fund, Short-Term Government Securities Fund, Short-Term Bond Fund, Stock Index Fund, Value Fund, Growth Fund, Small-Company Stock Fund, International Equity Fund and Intermediate Bond Fund.
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Daily Income Fund, Short-Term Government Securities Fund, Short-Term Bond Fund, Stock Index Fund, Value Fund, Growth Fund, Small-Company Stock Fund, and International Equity Fund (constituting Homestead Funds, Inc.) and Intermediate Bond Fund (constituting Homestead Funds Trust) (hereafter collectively referred to as the "Funds") as of December 31, 2019, the related statements of operations and of changes in net assets for each of the periods indicated in the table below, including the related notes, and the financial highlights for each of the periods indicated in the table below (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2019, the results of each of their operations, the changes in each of their net assets, and each of the financial highlights for each of the periods indicated in the table below, in conformity with accounting principles generally accepted in the United States of America.
| Fund | Statement of
Operations | Statement of
change in net
assets | Financial
Highlights |
| Daily Income Fund | For the year ended
December 31, 2019 | For the years ended
December 31, 2019 and 2018 | For the years ended
December 31, 2019, 2018, 2017, 2016, and 2015 |
Short-Term Government
Securities Fund | | | |
| Short-Term Bond Fund | | | |
| Stock Index Fund | | | |
| Value Fund | | | |
| Growth Fund | | | |
| Small-Company Stock Fund | | | |
| International Equity Fund | | | |
| Intermediate Bond Fund | For the period May
1, 2019 (inception)
through December
31, 2019 | For the period May
1, 2019 (inception)
through December
31, 2019 | For the period May
1, 2019 (inception)
through December
31, 2019 |
Basis for Opinion
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodians and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.
Baltimore, Maryland
February 24, 2020
We have served as the auditor of one or more investment companies in Homestead Funds, Inc. since 2001.
Report of Independent Registered Public Accounting Firm
Portfolio of Investments
Daily Income Fund | December 31, 2019
| U.S. Government & Agency Obligations | 89.7% of portfolio |
| | Interest Rate /
Yield | Maturity Date | Face Amount | Value |
| Federal Agricultural Mortgage Corp. | 1.57% | 02/18/20 | $5,000,000 | $4,989,567 |
| Federal Agricultural Mortgage Corp. | 1.59 | 03/25/20 | 5,000,000 | 4,981,567 |
| Federal Home Loan Bank | 1.78 | 01/02/20 | 5,000,000 | 4,999,754 |
| Federal Home Loan Bank | 1.55 | 01/03/20 | 5,000,000 | 4,999,569 |
| Federal Home Loan Bank | 1.60 | 01/08/20 | 2,400,000 | 2,399,253 |
| Federal Home Loan Bank | 1.60 | 01/23/20 | 1,000,000 | 999,022 |
| Federal Home Loan Bank | 1.56 | 01/29/20 | 5,000,000 | 4,993,933 |
| Federal Home Loan Bank | 1.56 | 01/31/20 | 2,460,000 | 2,456,822 |
| Federal Home Loan Bank | 1.59 | 02/03/20 | 4,500,000 | 4,493,462 |
| Federal Home Loan Bank | 1.55 | 02/05/20 | 4,200,000 | 4,193,712 |
| Federal Home Loan Bank | 1.59 | 02/06/20 | 1,800,000 | 1,797,138 |
| Federal Home Loan Bank | 1.59 | 02/10/20 | 1,231,000 | 1,228,839 |
| Federal Home Loan Bank | 1.59 | 02/10/20 | 1,199,000 | 1,196,882 |
| Federal Home Loan Bank | 1.59 | 02/12/20 | 3,300,000 | 3,293,917 |
| Federal Home Loan Bank | 1.60 | 02/12/20 | 1,400,000 | 1,397,403 |
| Federal Home Loan Bank | 1.55 | 02/26/20 | 7,000,000 | 6,983,177 |
| Federal Home Loan Bank | 1.58 | 02/26/20 | 1,580,000 | 1,576,117 |
| Federal Home Loan Bank | 1.58 | 03/05/20 | 6,000,000 | 5,983,200 |
| Federal Home Loan Bank | 1.59 | 03/11/20 | 2,250,000 | 2,243,088 |
| Federal Home Loan Bank | 1.58 | 03/13/20 | 3,538,000 | 3,526,855 |
| Federal Home Loan Bank | 1.59 | 03/16/20 | 4,000,000 | 3,986,792 |
| Federal Home Loan Bank | 1.58 | 03/18/20 | 5,000,000 | 4,983,156 |
| Federal Home Loan Bank | 1.59 | 03/23/20 | 4,000,000 | 3,985,559 |
| Federal Home Loan Bank | 1.59 | 03/30/20 | 5,000,000 | 4,980,408 |
| Federal Home Loan Bank | 1.56 | 04/22/20 | 4,000,000 | 3,980,649 |
| Federal Home Loan Bank | 1.56 | 04/24/20 | 4,000,000 | 3,980,303 |
| Federal Home Loan Mortgage Corp. | 1.84 | 01/22/20 | 5,500,000 | 5,494,129 |
| Tennessee Valley Authority | 1.55 | 01/08/20 | 5,000,000 | 4,998,493 |
| U.S. Treasury Bill | 1.55 | 01/07/20 | 5,000,000 | 4,998,735 |
| U.S. Treasury Bill | 1.61 | 01/21/20 | 10,000,000 | 9,991,211 |
| U.S. Treasury Note | 1.38 | 02/15/20 | 2,500,000 | 2,498,524 |
| U.S. Treasury Note | 1.38 | 02/15/20 | 5,000,000 | 4,998,488 |
| U.S. Treasury Note | 1.38 | 02/29/20 | 6,000,000 | 5,997,514 |
| U.S. Treasury Note | 1.25 | 02/29/20 | 4,500,000 | 4,497,456 |
| U.S. Treasury Note | 2.25 | 03/31/20 | 3,500,000 | 3,505,823 |
| U.S. Treasury Note | 1.38 | 03/31/20 | 4,500,000 | 4,497,518 |
| Total U.S. Government & Agency Obligations | | | | |
| (Cost $146,108,035) | | | | 146,108,035 |
| Money Market Fund | 10.3% of portfolio |
| | | | Shares | |
| State Street Institutional U.S. Government Money Market Fund | 1.53(a) | | 16,798,001 | 16,798,001 |
| Total Money Market Fund | | | | |
| (Cost $16,798,001) | | | | 16,798,001 |
| Total Investments in Securities | | | | |
| (Cost $162,906,036) | 100.0% | | | | $162,906,036 |
| (a) | 7-day yield at December 31, 2019. |
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
33
Portfolio of Investments
Short-Term Government Securities Fund | December 31, 2019
| U.S. Government & Agency Obligations | 62.6% of portfolio |
| | Interest Rate /
Yield | Maturity Date | Face Amount | Value |
| Overseas Private Investment Corp. | 2.74%(a) | 04/23/21 | $1,000,000 | $1,026,026 |
| Overseas Private Investment Corp. | 2.22(a) | 01/24/25 | 2,000,000 | 1,997,280 |
| Private Export Funding Corp. | 1.75 | 11/15/24 | 1,000,000 | 992,044 |
| U.S. Department of Housing & Urban Development | 6.07 | 08/01/21 | 20,000 | 20,073 |
| U.S. Department of Housing & Urban Development | 6.12 | 08/01/22 | 10,000 | 10,035 |
| U.S. Department of Housing & Urban Development | 5.77 | 08/01/26 | 94,000 | 94,278 |
| U.S. Treasury Note | 1.50 | 10/31/21 | 94,000 | 93,846 |
| U.S. Treasury Note | 1.50 | 11/30/21 | 300,000 | 299,512 |
| U.S. Treasury Note | 2.63 | 12/15/21 | 11,500,000 | 11,724,937 |
| U.S. Treasury Note | 2.50 | 01/15/22 | 2,950,000 | 3,002,437 |
| U.S. Treasury Note | 1.38 | 10/15/22 | 13,691,000 | 13,600,256 |
| U.S. Treasury Note | 1.63 | 12/15/22 | 6,490,000 | 6,492,575 |
| U.S. Treasury Note | 1.75 | 12/31/24 | 5,477,000 | 5,488,890 |
| Total U.S. Government & Agency Obligations | | | | |
| (Cost $44,609,249) | | | | 44,842,189 |
| Corporate Bonds Guaranteed by Export-Import Bank of the United States | 27.5% of portfolio |
| | | | |
| Consumer Discretionary | 0.1% | | |
| Ethiopian Leasing (2012) LLC | 2.68 | 07/30/25 | 104,932 | 107,066 |
| Total Consumer Discretionary | | | | 107,066 |
| Energy | 12.7% | | |
| Petroleos Mexicanos | 2.00 | 12/20/22 | 300,000 | 299,907 |
| Petroleos Mexicanos | 1.95 | 12/20/22 | 751,800 | 750,393 |
| Petroleos Mexicanos | 2.38 | 04/15/25 | 891,550 | 900,539 |
| Petroleos Mexicanos | 2.46 | 12/15/25 | 600,000 | 592,837 |
| Reliance Industries Ltd. | 2.06 | 01/15/26 | 3,352,700 | 3,362,699 |
| Reliance Industries Ltd. | 1.87 | 01/15/26 | 1,792,632 | 1,787,566 |
| Reliance Industries Ltd. | 2.44 | 01/15/26 | 1,368,421 | 1,390,389 |
| Total Energy | | | | 9,084,330 |
| Financials | 14.6% | | |
| CES MU2 LLC | 1.99 | 05/13/27 | 2,117,982 | 2,115,637 |
| Export Leasing 2009 LLC | 1.86 | 08/28/21 | 129,911 | 130,024 |
| Lulwa Ltd. | 1.83 | 03/26/25 | 465,000 | 463,194 |
| Mexican Aircraft Finance IV | 2.54 | 07/13/25 | 258,989 | 263,076 |
| Mexican Aircraft Finance V | 2.33 | 01/14/27 | 326,250 | 330,385 |
| MSN 41079 and 41084 Ltd. | 1.63 | 12/14/24 | 877,191 | 870,179 |
| Penta Aircraft Leasing 2013 LLC | 1.69 | 04/29/25 | 952,560 | 943,339 |
| Rimon LLC | 2.45 | 11/01/25 | 142,500 | 144,044 |
| Safina Ltd. | 1.55 | 01/15/22 | 479,233 | 477,538 |
| Safina Ltd. | 2.00 | 12/30/23 | 1,124,308 | 1,126,696 |
| Salmon River Export LLC | 2.19 | 09/15/26 | 145,521 | 146,476 |
| Sandalwood 2013 LLC | 2.82 | 02/12/26 | 364,511 | 373,646 |
| Santa Rosa Leasing LLC | 1.69 | 08/15/24 | 41,259 | 41,018 |
| Santa Rosa Leasing LLC | 1.47 | 11/03/24 | 440,241 | 434,928 |
| Tagua Leasing LLC | 1.90 | 07/12/24 | 983,983 | 982,444 |
| Tagua Leasing LLC | 1.73 | 09/18/24 | 422,495 | 419,824 |
| Tagua Leasing LLC | 1.58 | 11/16/24 | 231,801 | 229,453 |
| Union 11 Leasing LLC | 2.41 | 01/23/24 | 386,887 | 390,892 |
| Union 16 Leasing LLC | 1.86 | 01/22/25 | 463,373 | 462,054 |
| VCK Lease SA | 2.59 | 07/24/26 | 75,099 | 76,607 |
| Total Financials | | | | 10,421,454 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | Short-Term Government Securities Fund | December 31, 2019 |
(Continued)
| Corporate Bonds Guaranteed by Export-Import Bank of the United States | 27.5% of portfolio (Continued) |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Industrials | 0.1% | | |
| Sayarra Ltd. | 2.77% | 10/29/21 | $110,830 | $111,845 |
| Total Industrials | | | | 111,845 |
| Total Corporate Bonds Guaranteed by Export-Import Bank of the United States | | | | |
| (Cost $19,678,038) | | | | 19,724,695 |
| Asset-Backed Securities | 4.3% of portfolio |
| | | | |
| Ally Master Owner Trust 17-3 | 2.20(b) | 06/15/22 | 250,000 | 250,296 |
| Avid Automobile Receivables Trust 19-1 (c) | 2.62 | 02/15/24 | 233,636 | 233,557 |
| Consumer Loan Underlying Bond 19-HP1 (c) | 2.59 | 12/15/26 | 200,000 | 200,067 |
| Exeter Automobile Receivables Trust 18-3 (c) | 2.90 | 01/18/22 | 3,987 | 3,988 |
| Exeter Automobile Receivables Trust 18-4 (c) | 3.05 | 12/15/21 | 39,492 | 39,512 |
| Exeter Automobile Receivables Trust 19-4 (c) | 2.18 | 01/17/23 | 258,678 | 258,755 |
| Foursight Capital Automobile Receivables Trust 17-1 (c) | 2.37 | 04/15/22 | 13,576 | 13,582 |
| Foursight Capital Automobile Receivables Trust 18-2 (c) | 3.32 | 04/15/22 | 76,468 | 76,660 |
| Foursight Capital Automobile Receivables Trust 19-1 (c) | 2.67 | 03/15/24 | 300,000 | 302,200 |
| Freedom Financial 18-2 (c) | 3.99 | 10/20/25 | 88,860 | 89,472 |
| GLS Auto Receivables Trust 18-3 (c) | 3.35 | 08/15/22 | 49,815 | 50,024 |
| GLS Auto Receivables Trust 19-4 (c) | 2.47 | 11/15/23 | 482,528 | 482,608 |
| Marlette Funding Trust 19-3 (c) | 2.69 | 09/17/29 | 187,723 | 188,216 |
| Marlette Funding Trust 19-4 (c) | 2.39 | 12/17/29 | 232,955 | 233,107 |
| Prosper Marketplace Issuance Trust 18-2 (c) | 3.35 | 10/15/24 | 48,031 | 48,124 |
| Small Business Administration Pool # 503463 | 2.88(b) | 09/25/21 | 99 | 98 |
| SoFi Consumer Loan Program Trust 19-4 (c) | 2.45 | 08/25/28 | 86,276 | 86,394 |
| Upstart Securitization Trust 19-3 (c) | 2.68 | 01/21/30 | 500,000 | 499,799 |
| Total Asset-Backed Securities | | | | |
| (Cost $3,054,188) | | | | 3,056,459 |
| Corporate Bonds–Other | 2.7% of portfolio |
| | | | |
| Consumer Staples | 0.2% | | |
| Walgreens Boots Alliance, Inc. | 3.80 | 11/18/24 | 100,000 | 103,951 |
| Total Consumer Staples | | | | 103,951 |
| Financials | 1.6% | | |
| Citibank, N.A. | 2.84(b) | 05/20/22 | 250,000 | 253,009 |
| Goldman Sachs Group, Inc. | 3.20 | 06/05/20 | 150,000 | 150,815 |
| Goldman Sachs Group, Inc. | 3.00 | 04/26/22 | 250,000 | 253,077 |
| JP Morgan Chase Bank NA | 3.09(b) | 04/26/21 | 250,000 | 250,845 |
| Main Street Capital Corp. | 5.20 | 05/01/24 | 250,000 | 268,679 |
| Total Financials | | | | 1,176,425 |
| Health Care | 0.3% | | |
| Cigna Corp. | 3.75 | 07/15/23 | 200,000 | 209,615 |
| Total Health Care | | | | 209,615 |
| Real Estate | 0.4% | | |
| SBA Tower Trust (c) | 3.45 | 03/15/23 | 250,000 | 257,436 |
| Total Real Estate | | | | 257,436 |
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
35
Portfolio of Investments | Short-Term Government Securities Fund | December 31, 2019 |
(Continued)
| Corporate Bonds–Other | 2.7% of portfolio (Continued) |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Utilities | 0.2% | | |
| Duke Energy Florida Project Finance, LLC | 1.20% | 03/01/20 | $40,242 | $40,233 |
| Southwest Gas Corp. | 4.45 | 12/01/20 | 125,000 | 126,546 |
| Total Utilities | | | | 166,779 |
| Total Corporate Bonds–Other | | | | |
| (Cost $1,897,760) | | | | 1,914,206 |
| Mortgage-Backed Security | 0.1% of portfolio |
| | | | |
| FDIC Structured Sale Guaranteed Notes 2010-S3 (c) | 2.74 | 12/03/20 | 62,768 | 62,746 |
| Total Mortgage-Backed Security | | | | |
| (Cost $62,760) | | | | 62,746 |
| Certificates of Deposit | 0.6% of portfolio |
| | | | |
| HSBC Bank USA NA | 3.10(b) | 11/17/20 | 246,000 | 248,907 |
| JP Morgan Chase Bank, NA | 2.00(b) | 04/22/21 | 200,000 | 200,178 |
| Total Certificates of Deposit | | | | |
| (Cost $446,380) | | | | 449,085 |
| Money Market Fund | 2.2% of portfolio |
| | | | Shares | |
| State Street Institutional U.S. Government Money Market Fund | 1.53(d) | | 1,544,204 | 1,544,204 |
| Total Money Market Fund | | | | |
| (Cost $1,544,204) | | | | 1,544,204 |
| Total Investments in Securities | | | | |
| (Cost $71,292,579) | 100.0% | | | | $71,593,584 |
| (a) | Interest is paid at maturity. |
| (b) | Variable coupon rate as of December 31, 2019. |
| (c) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. The securities have been determined to be liquid under criteria established by the Fund's Board of Directors. The total of such securities at period-end amounts to $3,126,247 and represents 4.4% of total investments. |
| (d) | 7-day yield at December 31, 2019. |
LLC - Limited Liability Company
SA - Sociedad Anonima or Societe Anonyme
NA - National Association
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments
Short-Term Bond Fund | December 31, 2019
| U.S. Government & Agency Obligations | 61.4% of portfolio |
| | Interest Rate /
Yield | Maturity Date | Face Amount | Value |
| Federal Home Loan Bank | 2.55% | 05/06/22 | $10,060,000 | $10,082,294 |
| Federal Home Loan Mortgage Corp. | 2.35 | 03/04/22 | 2,220,000 | 2,220,992 |
| Overseas Private Investment Corp. | 2.52 | 09/15/22 | 1,232,955 | 1,241,582 |
| Tennessee Valley Authority | 0.00(a) | 06/15/21 | 595,000 | 578,807 |
| U.S. Department of Housing & Urban Development | 6.07 | 08/01/21 | 10,000 | 10,036 |
| U.S. Department of Housing & Urban Development | 6.12 | 08/01/22 | 10,000 | 10,035 |
| U.S. Treasury Note | 1.50 | 10/31/21 | 11,703,000 | 11,683,794 |
| U.S. Treasury Note | 2.88 | 11/15/21 | 1,625,000 | 1,662,927 |
| U.S. Treasury Note | 1.50 | 11/30/21 | 44,750,000 | 44,677,263 |
| U.S. Treasury Note | 2.63 | 12/15/21 | 29,900,000 | 30,484,835 |
| U.S. Treasury Note | 2.50 | 01/15/22 | 1,770,000 | 1,801,462 |
| U.S. Treasury Note | 1.38 | 10/15/22 | 163,830,000 | 162,744,138 |
| U.S. Treasury Note | 1.63 | 12/15/22 | 7,005,000 | 7,007,779 |
| U.S. Treasury Note | 2.88 | 09/30/23 | 710,000 | 740,992 |
| U.S. Treasury Note | 1.50 | 10/31/24 | 6,232,000 | 6,174,112 |
| U.S. Treasury Note | 1.75 | 12/31/24 | 55,525,000 | 55,645,543 |
| Total U.S. Government & Agency Obligations | | | | |
| (Cost $336,392,142) | | | | 336,766,591 |
| Corporate Bonds–Other | 19.6% of portfolio |
| | | | |
| Communication Services | 0.7% | | |
| Comcast Corp. | 3.45 | 10/01/21 | 1,010,000 | 1,039,383 |
| Sprint Spectrum Co. LLC (b) | 3.36 | 03/20/23 | 1,082,813 | 1,092,450 |
| Sprint Spectrum Co. LLC (b) | 4.74 | 03/20/25 | 1,560,000 | 1,652,009 |
| Total Communication Services | | | | 3,783,842 |
| Consumer Discretionary | 2.0% | | |
| ABC Inc. | 8.75 | 08/15/21 | 810,000 | 890,542 |
| Daimler Finance North America LLC (b) | 3.65 | 02/22/24 | 745,000 | 778,872 |
| Ford Motor Credit Company LLC | 3.35 | 11/01/22 | 2,135,000 | 2,155,554 |
| Ford Motor Credit Company LLC | 4.14 | 02/15/23 | 1,200,000 | 1,233,913 |
| Ford Motor Credit Company LLC | 4.06 | 11/01/24 | 2,030,000 | 2,070,331 |
| Harley-Davidson Financial Services, Inc. (b) | 3.35 | 02/15/23 | 420,000 | 429,398 |
| Volkswagen Group of America, Inc. (b) | 2.50 | 09/24/21 | 1,270,000 | 1,280,772 |
| Volkswagen Group of America, Inc. (b) | 2.70 | 09/26/22 | 2,120,000 | 2,143,091 |
| Total Consumer Discretionary | | | | 10,982,473 |
| Consumer Staples | 1.4% | | |
| Altria Group Inc. | 3.80 | 02/14/24 | 1,300,000 | 1,367,269 |
| Anheuser-Busch InBev Finance Inc. | 3.70 | 02/01/24 | 1,280,000 | 1,357,202 |
| Mead Johnson Nutrition Co. | 3.00 | 11/15/20 | 4,125,000 | 4,161,014 |
| Walgreens Boots Alliance, Inc. | 3.80 | 11/18/24 | 750,000 | 779,631 |
| Total Consumer Staples | | | | 7,665,116 |
| Energy | 1.1% | | |
| BP Capital Markets America Inc. | 2.52 | 09/19/22 | 1,600,000 | 1,620,296 |
| EQM Midstream Partners, LP | 4.75 | 07/15/23 | 1,570,000 | 1,573,980 |
| Midwest Connector Capital Company LLC (b) | 3.63 | 04/01/22 | 620,000 | 635,488 |
| Midwest Connector Capital Company LLC (b) | 3.90 | 04/01/24 | 825,000 | 866,196 |
| Pioneer Natural Resources Co. | 4.45 | 01/15/26 | 1,146,000 | 1,253,431 |
| Total Energy | | | | 5,949,391 |
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
37
Portfolio of Investments | Short-Term Bond Fund | December 31, 2019 | (Continued)
| Corporate Bonds–Other | 19.6% of portfolio (Continued) |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Financials | 8.4% | | |
| AIG Global Funding Inc. (b) | 2.30% | 07/01/22 | $865,000 | $869,385 |
| AMBAC Assurance Corp. (b) | 5.10 | 06/07/20 | 2,871 | 4,249 |
| AMBAC LSNI LLC (b) | 6.94(c) | 02/12/23 | 11,293 | 11,434 |
| Anthem, Inc. | 3.30 | 01/15/23 | 625,000 | 646,330 |
| Anthem, Inc. | 2.38 | 01/15/25 | 2,130,000 | 2,130,937 |
| Athene Global Funding (b) | 4.00 | 01/25/22 | 1,400,000 | 1,445,708 |
| Athene Global Funding (b) | 2.75 | 06/25/24 | 1,931,000 | 1,948,950 |
| Bank of America Corp. | 2.74(c) | 01/23/22 | 2,100,000 | 2,115,664 |
| Bank of America Corp. | 4.00 | 01/22/25 | 1,210,000 | 1,290,030 |
| Bank of America Corp. | 3.95 | 04/21/25 | 1,030,000 | 1,098,312 |
| Bank of America Corp. | 2.46(c) | 10/22/25 | 2,200,000 | 2,212,643 |
| Branch Banking and Trust Co. | 2.64(c) | 09/17/29 | 1,350,000 | 1,348,577 |
| Capital One Financial Corp. | 3.90 | 01/29/24 | 1,440,000 | 1,526,195 |
| CIT Bank, NA | 2.97(c) | 09/27/25 | 1,640,000 | 1,635,900 |
| Citibank, N.A. | 2.84(c) | 05/20/22 | 4,275,000 | 4,326,451 |
| Citibank, NA | 2.85 | 02/12/21 | 1,650,000 | 1,665,970 |
| Citibank, NA | 3.40 | 07/23/21 | 875,000 | 893,662 |
| Citibank, NA | 3.65 | 01/23/24 | 1,325,000 | 1,401,913 |
| Discover Bank | 4.68(c) | 08/09/28 | 3,081,000 | 3,219,645 |
| Goldman Sachs Group, Inc. | 3.00 | 04/26/22 | 5,330,000 | 5,395,592 |
| J.P. Morgan Chase & Co. | 4.02(c) | 12/05/24 | 800,000 | 852,647 |
| J.P. Morgan Chase & Co. | 2.30(c) | 10/15/25 | 2,130,000 | 2,125,937 |
| Main Street Capital Corp. | 5.20 | 05/01/24 | 2,750,000 | 2,955,473 |
| Metropolitan Life Global Funding (b) | 3.38 | 01/11/22 | 450,000 | 462,479 |
| Metropolitan Life Global Funding (b) | 3.60 | 01/11/24 | 450,000 | 475,780 |
| Morgan Stanley | 3.15(c) | 01/20/22 | 1,277,000 | 1,288,632 |
| Morgan Stanley | 2.72(c) | 07/22/25 | 1,220,000 | 1,234,774 |
| Wells Fargo Bank NA | 3.33(c) | 07/23/21 | 1,025,000 | 1,033,029 |
| Wells Fargo Bank NA | 3.63 | 10/22/21 | 625,000 | 643,209 |
| Total Financials | | | | 46,259,507 |
| Health Care | 1.8% | | |
| AbbVie Inc. (b) | 2.30 | 11/21/22 | 850,000 | 854,032 |
| AbbVie Inc. (b) | 2.60 | 11/21/24 | 910,000 | 915,210 |
| Bristol-Myers Squibb Co. (b) | 2.90 | 07/26/24 | 1,475,000 | 1,521,795 |
| Cigna Corp. | 3.75 | 07/15/23 | 6,510,000 | 6,822,974 |
| Total Health Care | | | | 10,114,011 |
| Industrials | 0.8% | | |
| Burlington Northern & Santa Fe Railway Co. | 4.58 | 01/15/21 | 82,107 | 82,927 |
| Burlington Northern & Santa Fe Railway Co. | 4.83 | 01/15/23 | 36,229 | 36,888 |
| Caterpillar Financial Services Corp. | 3.15 | 09/07/21 | 875,000 | 894,175 |
| Caterpillar Financial Services Corp. | 2.15 | 11/08/24 | 940,000 | 942,869 |
| John Deere Capital Corp. | 3.13 | 09/10/21 | 220,000 | 225,017 |
| Parker-Hannifin Corp. | 2.70 | 06/14/24 | 435,000 | 444,039 |
| Ryder System Inc. | 2.88 | 06/01/22 | 435,000 | 441,493 |
| Ryder System Inc. | 2.50 | 09/01/24 | 1,340,000 | 1,345,121 |
| Ryder System, Inc. | 3.50 | 06/01/21 | 220,000 | 224,468 |
| Total Industrials | | | | 4,636,997 |
| Information Technology | 1.2% | | |
| Apple Inc. | 2.50 | 02/09/22 | 975,000 | 989,316 |
| Broadcom Inc. (b) | 3.63 | 10/15/24 | 1,890,000 | 1,964,304 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | Short-Term Bond Fund | December 31, 2019 | (Continued)
| Corporate Bonds–Other | 19.6% of portfolio (Continued) |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Information Technology | 1.2% (Continued) | | |
| International Business Machine Corp. | 3.00% | 05/15/24 | $2,200,000 | $2,278,090 |
| Qualcomm Inc. | 3.45 | 05/20/25 | 1,250,000 | 1,320,818 |
| Total Information Technology | | | | 6,552,528 |
| Materials | 0.1% | | |
| 3M Co. | 1.63 | 09/19/21 | 450,000 | 448,876 |
| Total Materials | | | | 448,876 |
| Real Estate | 0.6% | | |
| SBA Tower Trust (b) | 3.45 | 03/15/23 | 2,175,000 | 2,239,687 |
| Service Properties Trust | 4.35 | 10/01/24 | 850,000 | 872,769 |
| Total Real Estate | | | | 3,112,456 |
| Utilities | 1.5% | | |
| Duke Energy Florida Project Finance, LLC | 1.20 | 03/01/20 | 666,145 | 665,989 |
| Oncor Electric Delivery Co. LLC | 5.75 | 09/30/20 | 660,000 | 678,301 |
| San Diego Gas & Electric Co. | 1.91 | 02/01/22 | 1,775,740 | 1,769,141 |
| Southern California Edison Co. | 3.88 | 06/01/21 | 1,050,000 | 1,072,759 |
| Southern California Edison Co. | 1.85 | 02/01/22 | 2,925,000 | 2,888,959 |
| Southwest Gas Corp. | 4.45 | 12/01/20 | 825,000 | 835,206 |
| Toledo Edison Co. | 7.25 | 05/01/20 | 250,000 | 253,564 |
| Total Utilities | | | | 8,163,919 |
| Total Corporate Bonds–Other | | | | |
| (Cost $106,203,669) | | | | 107,669,116 |
| Asset-Backed Securities | 12.2% of portfolio |
| | | | |
| ACC Trust 18-1 (b) | 3.70 | 12/21/20 | 36,388 | 36,412 |
| Ally Master Owner Trust 17-3 | 2.20(c) | 06/15/22 | 750,000 | 750,884 |
| Ally Master Owner Trust 17-3 | 2.04 | 06/15/22 | 900,000 | 899,854 |
| American Airlines 13-2 | 4.95 | 07/15/24 | 1,092,540 | 1,138,601 |
| American Credit Acceptance Receivables Trust 18-4 (b) | 3.38 | 12/13/21 | 524,301 | 524,827 |
| American Credit Acceptance Receivables Trust 19-2 (b) | 2.85 | 07/12/22 | 1,083,234 | 1,085,406 |
| Avant Loans Funding Trust 18-B (b) | 3.42 | 01/18/22 | 385,563 | 386,378 |
| Avant Loans Funding Trust 19-A (b) | 3.48 | 07/15/22 | 498,459 | 500,269 |
| Avant Loans Funding Trust 19-B (b) | 2.72 | 10/15/26 | 1,696,842 | 1,698,353 |
| Avid Automobile Receivables Trust 19-1 (b) | 2.62 | 02/15/24 | 1,640,128 | 1,639,573 |
| California Republic Auto Receivable Trust 15-3 | 2.13 | 05/17/21 | 101,634 | 101,622 |
| Carvana Auto Receivables Trust 19-2 (b) | 2.60 | 01/18/22 | 2,592,206 | 2,595,976 |
| CCR Inc. MT-100 Payment Rights Master Trust 12-C (b) | 4.75 | 07/10/22 | 645,833 | 652,039 |
| Consumer Loan Underlying Bond 17-P2 (b) | 2.61 | 01/15/24 | 20,145 | 20,146 |
| Consumer Loan Underlying Bond 18-P2 (b) | 3.47 | 10/15/25 | 463,803 | 466,383 |
| Consumer Loan Underlying Bond 18-P3 (b) | 3.82 | 01/15/26 | 617,065 | 622,317 |
| Consumer Loan Underlying Bond 19-HP1 (b) | 2.59 | 12/15/26 | 2,970,000 | 2,970,992 |
| Consumer Loan Underlying Bond 19-P1 (b) | 2.94 | 07/15/26 | 697,702 | 700,291 |
| CPS Auto Trust 19-A (b) | 3.18 | 06/15/22 | 494,207 | 496,002 |
| Credit Acceptance Auto Loan Trust 17-1 (b) | 2.56 | 10/15/25 | 32,370 | 32,373 |
| Credit Acceptance Auto Loan Trust 17-2 (b) | 2.55 | 02/17/26 | 692,234 | 693,003 |
| Credit Acceptance Auto Loan Trust 17-3 (b) | 2.65 | 06/15/26 | 819,860 | 821,537 |
| Credit Acceptance Auto Loan Trust 18-1 (b) | 3.01 | 02/16/27 | 1,525,000 | 1,530,655 |
| Credit Acceptance Auto Loan Trust 18-2 (b) | 3.47 | 05/17/27 | 2,200,000 | 2,227,630 |
| Credit Acceptance Auto Loan Trust 18-3 (b) | 3.55 | 08/15/27 | 1,100,000 | 1,117,299 |
| Credit Acceptance Auto Loan Trust 19-1 (b) | 3.33 | 02/15/28 | 2,880,000 | 2,930,419 |
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
39
Portfolio of Investments | Short-Term Bond Fund | December 31, 2019 | (Continued)
| Asset-Backed Securities | 12.2% of portfolio (Continued) |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Drive Auto Receivables Trust 19-3 | 2.63% | 09/15/22 | $809,178 | $810,432 |
| DT Auto Owner Trust 19-1 (b) | 3.08 | 09/15/22 | 813,244 | 816,166 |
| Element Rail Leasing I LLC 14-1 (b) | 2.30 | 04/19/44 | 600,641 | 600,945 |
| Entergy New Orleans Storm Recovery Fund 15-1 | 2.67 | 06/01/27 | 551,435 | 556,896 |
| Exeter Automobile Receivables Trust 18-3 (b) | 2.90 | 01/18/22 | 23,920 | 23,926 |
| Exeter Automobile Receivables Trust 18-4 (b) | 3.05 | 12/15/21 | 140,196 | 140,267 |
| Exeter Automobile Receivables Trust 19-1 (b) | 3.20 | 04/15/22 | 501,150 | 502,156 |
| Exeter Automobile Receivables Trust 19-4 (b) | 2.18 | 01/17/23 | 1,233,033 | 1,233,399 |
| Foursight Capital Automobile Receivables Trust 16-1 (b) | 2.87 | 10/15/21 | 39,252 | 39,271 |
| Foursight Capital Automobile Receivables Trust 17-1 (b) | 2.37 | 04/15/22 | 97,749 | 97,791 |
| Foursight Capital Automobile Receivables Trust 18-2 (b) | 3.32 | 04/15/22 | 516,160 | 517,457 |
| Foursight Capital Automobile Receivables Trust 19-1 (b) | 2.67 | 03/15/24 | 4,140,000 | 4,170,358 |
| Freedom Financial 18-1 (b) | 3.61 | 07/18/24 | 669,083 | 671,994 |
| Freedom Financial 18-2 (b) | 3.99 | 10/20/25 | 462,073 | 465,256 |
| Freedom Financial 19-1 (b) | 3.42 | 06/18/26 | 455,403 | 457,264 |
| GLS Auto Receivables Trust 18-1 (b) | 2.82 | 07/15/22 | 810,332 | 812,155 |
| GLS Auto Receivables Trust 18-3 (b) | 3.35 | 08/15/22 | 348,706 | 350,164 |
| GLS Auto Receivables Trust 19-1 (b) | 3.37 | 01/17/23 | 716,616 | 720,845 |
| GLS Auto Receivables Trust 19-2 (b) | 3.06 | 04/17/23 | 1,126,988 | 1,132,871 |
| GLS Auto Receivables Trust 19-4 (b) | 2.47 | 11/15/23 | 2,041,094 | 2,041,431 |
| Longtrain Leasing III LLC 2015-1 (b) | 2.98 | 01/15/45 | 396,292 | 397,024 |
| Marlette Funding Trust 18-2 (b) | 3.06 | 07/17/28 | 225,107 | 225,243 |
| Marlette Funding Trust 18-3 (b) | 3.20 | 09/15/28 | 678,692 | 680,010 |
| Marlette Funding Trust 18-4 (b) | 3.71 | 12/15/28 | 1,009,021 | 1,016,268 |
| Marlette Funding Trust 19-1 (b) | 3.44 | 04/16/29 | 928,207 | 934,916 |
| Marlette Funding Trust 19-3 (b) | 2.69 | 09/17/29 | 3,431,573 | 3,440,595 |
| Marlette Funding Trust 19-4 (b) | 2.39 | 12/17/29 | 1,295,229 | 1,296,076 |
| NP SPE II LLC 17-1 (b) | 3.37 | 10/21/47 | 435,972 | 439,972 |
| Oscar US Funding Trust 17-2 (b) | 2.45 | 12/10/21 | 578,467 | 578,993 |
| Oscar US Funding Trust 18-1 (b) | 2.91 | 04/12/21 | 258,453 | 258,658 |
| Oscar US Funding Trust 18-2 (b) | 3.15 | 08/10/21 | 302,092 | 302,829 |
| Oscar US Funding Trust 19-1 (b) | 3.10 | 04/11/22 | 800,362 | 803,815 |
| Prosper Marketplace Issuance Trust 18-2 (b) | 3.35 | 10/15/24 | 902,979 | 904,737 |
| Prosper Marketplace Issuance Trust 19-2 (b) | 3.20 | 09/15/25 | 487,052 | 488,649 |
| Prosper Marketplace Issuance Trust 19-3 (b) | 3.19 | 07/15/25 | 938,697 | 943,411 |
| SoFi Consumer Loan Program Trust 17-1 (b) | 3.28 | 01/26/26 | 255,028 | 255,811 |
| SoFi Consumer Loan Program Trust 17-3 (b) | 2.77 | 05/25/26 | 386,304 | 387,637 |
| SoFi Consumer Loan Program Trust 17-4 (b) | 2.50 | 05/26/26 | 316,169 | 316,667 |
| SoFi Consumer Loan Program Trust 18-3 (b) | 3.20 | 08/25/27 | 88,851 | 88,987 |
| SoFi Consumer Loan Program Trust 18-4 (b) | 3.54 | 11/26/27 | 1,006,922 | 1,014,991 |
| SoFi Consumer Loan Program Trust 19-2 (b) | 3.01 | 04/25/28 | 726,015 | 730,651 |
| SoFi Consumer Loan Program Trust 19-4 (b) | 2.45 | 08/25/28 | 1,164,719 | 1,166,324 |
| United Auto Credit Securitization Trust 19-1 (b) | 2.82 | 07/12/21 | 1,225,981 | 1,228,017 |
| Upgrade Receivables Trust 18-1 (b) | 3.76 | 11/15/24 | 370,922 | 371,735 |
| Upgrade Receivables Trust 19-1 (b) | 3.48 | 03/15/25 | 726,200 | 728,125 |
| Upstart Securitization Trust 19-3 (b) | 2.68 | 01/21/30 | 3,940,000 | 3,938,413 |
| World Financial Network Credit Card Master Note Trust 18-B | 3.46 | 07/15/25 | 1,200,000 | 1,227,125 |
| Total Asset-Backed Securities | | | | |
| (Cost $66,705,980) | | | | 66,965,964 |
| Yankee Bonds | 5.6% of portfolio |
| | | | |
| América Móvil SAB de CV | 5.00 | 03/30/20 | 646,000 | 649,954 |
| Banco Santander SA | 3.85 | 04/12/23 | 1,200,000 | 1,251,057 |
| Banco Santander SA | 2.71 | 06/27/24 | 1,400,000 | 1,418,697 |
| BMO Financial Group | 2.90 | 03/26/22 | 900,000 | 917,227 |
| BMO Financial Group | 4.34(c) | 10/05/28 | 1,300,000 | 1,370,980 |
| Coca-Cola European Partners PLC | 3.50 | 09/15/20 | 825,000 | 832,468 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | Short-Term Bond Fund | December 31, 2019 | (Continued)
| Yankee Bonds | 5.6% of portfolio (Continued) |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Enel Finance International NV (b) | 2.65% | 09/10/24 | $1,275,000 | $1,278,136 |
| HSBC Holdings PLC | 3.80(c) | 03/11/25 | 2,635,000 | 2,764,183 |
| ING Groep NV | 3.55 | 04/09/24 | 720,000 | 753,493 |
| Lloyds Banking Group PLC | 2.86(c) | 03/17/23 | 1,400,000 | 1,417,029 |
| Lloyds Banking Group PLC | 2.91(c) | 11/07/23 | 1,400,000 | 1,420,311 |
| Reckitt Benckiser Treasury Services PLC (b) | 2.75 | 06/26/24 | 1,100,000 | 1,121,023 |
| Royal Bank of Scotland Group PLC | 4.52(c) | 06/25/24 | 1,325,000 | 1,406,701 |
| Royal Bank of Scotland Group PLC | 4.27(c) | 03/22/25 | 1,330,000 | 1,411,971 |
| Seagate HDD Cayman | 4.75 | 01/01/25 | 1,895,000 | 2,024,100 |
| Shell International Finance BV | 2.00 | 11/07/24 | 1,650,000 | 1,645,574 |
| Sinopec Group Overseas Development (2017) Ltd. (b) | 2.38 | 04/12/20 | 2,175,000 | 2,175,587 |
| Sinopec Group Overseas Development (2020) Ltd. (b) | 2.25 | 09/13/20 | 2,200,000 | 2,199,648 |
| Standard Chartered PLC (b) | 2.74(c) | 09/10/22 | 1,700,000 | 1,710,617 |
| Syngenta Finance NV (b) | 3.70 | 04/24/20 | 1,300,000 | 1,304,087 |
| Syngenta Finance NV (b) | 3.93 | 04/23/21 | 425,000 | 432,157 |
| Syngenta Finance NV (b) | 4.44 | 04/24/23 | 400,000 | 417,485 |
| Tencent Holdings Ltd. (b) | 3.28 | 04/11/24 | 960,000 | 987,110 |
| Total Yankee Bonds | | | | |
| (Cost $30,244,096) | | | | 30,909,595 |
| Municipal Bond | 0.2% of portfolio |
| | | | |
| Wisconsin | 0.2% | | |
| Wisconsin, Public Finance Authority | 2.82 | 03/01/20 | 910,000 | 910,227 |
| Total Wisconsin | | | | 910,227 |
| Total Municipal Bond | | | | |
| (Cost $910,000) | | | | 910,227 |
| Mortgage-Backed Securities | 0.1% of portfolio |
| | | | |
| ACE Securities Corp. 06-ASL1 | 2.07(c) | 02/25/36 | 189,213 | 78,475 |
| Amresco Residential Securities 98-1 | 7.12(c) | 10/25/27 | 24,424 | 26,032 |
| Bear Stearns Asset Backed Securities Trust 03-3 | 2.97(c) | 06/25/43 | 28,324 | 28,191 |
| Bear Stearns Asset Backed Securities Trust 04-HE5 | 3.58(c) | 07/25/34 | 23,269 | 23,534 |
| CDC Mortgage Capital Trust 02-HE1 | 2.33(c) | 01/25/33 | 153,007 | 152,054 |
| CITICORP Mortgage Securities, Inc. 07-1 | 5.30(d) | 03/25/37 | 19,752 | 19,786 |
| Cityscape Home Equity Loan Trust 96-2 | 8.10 | 08/25/26 | 44,133 | 44,090 |
| Conseco Finance Securitizations Corp. 01-2 | 7.10 | 02/01/33 | 75,823 | 79,102 |
| Countrywide Asset Backed Certificate 02-S2 (e) | 5.98 | 01/25/17 | 1,688 | 1,682 |
| Countrywide Asset Backed Certificate 02-S4 (e) | 4.67(c) | 10/25/17 | 7,236 | 7,590 |
| Countrywide Asset Backed Certificate 04-S1 | 5.12 | 02/25/35 | 6,610 | 6,595 |
| FHLMC 780754 | 4.63(c) | 08/01/33 | 1,036 | 1,095 |
| FNMA 813842 | 4.01(c) | 01/01/35 | 3,825 | 3,941 |
| GMAC Mortgage Corp. Loan Trust 06-HE3 | 5.75 | 10/25/36 | 12,761 | 12,874 |
| Green Tree Financial Corp. 98-5 | 6.22 | 03/01/30 | 22,483 | 23,172 |
| Master Asset Backed Securities Trust 07-NCW (b) | 2.01(c) | 05/25/37 | 239,824 | 224,158 |
| Option One Mortgage Loan Trust 07-FXD2 | 5.90 | 03/25/37 | 1,701 | 1,676 |
| Salomon Brothers Mortgage Securities 97-LB6 | 6.82 | 12/25/27 | 3 | 3 |
| Total Mortgage-Backed Securities | | | | |
| (Cost $837,525) | | | | 734,050 |
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
41
Portfolio of Investments | Short-Term Bond Fund | December 31, 2019 | (Continued)
| Corporate Bond Guaranteed by Export-Import Bank of the United States | 0.1% of portfolio |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Energy | 0.1% | | |
| Petroleos Mexicanos | 2.46% | 12/15/25 | $263,400 | $260,255 |
| Total Energy | | | | 260,255 |
| Total Corporate Bond Guaranteed by Export-Import Bank of the United States | | | | |
| (Cost $260,807) | | | | 260,255 |
| Money Market Fund | 0.8% of portfolio |
| | | | Shares | |
| State Street Institutional U.S. Government Money Market Fund | 1.53(f) | | 4,191,510 | 4,191,510 |
| Total Money Market Fund | | | | |
| (Cost $4,191,510) | | | | 4,191,510 |
| Total Investments in Securities | | | | |
| (Cost $545,745,729) | 100.0% | | | | $548,407,308 |
| (a) | Zero coupon rate, purchased at a discount. |
| (b) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. The securities have been determined to be liquid under criteria established by the Fund's Board of Directors. The total of such securities at period-end amounts to $94,921,847 and represents 17.3% of total investments. |
| (c) | Variable coupon rate as of December 31, 2019. |
| (d) | Step coupon security, the current rate may be adjusted upwards before maturity date. |
| (e) | Security did not mature on maturity date. While additional principal and interest have been received past the maturity date, the amount and timing of future payments is uncertain. |
| (f) | 7-day yield at December 31, 2019. |
LLC - Limited Liability Company
LP - Limited Partnership
AMBAC - American Municipal Bond Assurance Corporation
NA - National Association
SAB de CV - Sociedad Anonima Bursatil de Capital Variable
SAB - Sociedad Anonima Bursatil
SA - Sociedad Anonima or Societe Anonyme
PLC - Public Limited Company
NV - Naamloze Vennottschap
BV - Besloten Vennootschap
FHLMC - Federal Home Loan Mortgage Corporation
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments
Intermediate Bond Fund | December 31, 2019
| U.S. Government & Agency Obligations | 39.8% of portfolio |
| | Interest Rate /
Yield | Maturity Date | Face Amount | Value |
| Overseas Private Investment Corp. | 3.00% | 10/05/34 | $196,890 | $205,398 |
| U.S. Treasury Note | 1.50 | 10/31/21 | 729,000 | 727,804 |
| U.S. Treasury Note | 1.50 | 11/30/21 | 862,000 | 860,599 |
| U.S. Treasury Note | 1.63 | 12/31/21 | 540,000 | 540,503 |
| U.S. Treasury Note | 1.63 | 12/15/22 | 2,585,000 | 2,586,025 |
| U.S. Treasury Note | 1.75 | 12/31/24 | 1,320,000 | 1,322,866 |
| U.S. Treasury Note | 1.75 | 12/31/26 | 962,000 | 956,287 |
| U.S. Treasury Note | 1.75 | 11/15/29 | 927,000 | 912,280 |
| U.S. Treasury Note | 2.25 | 08/15/49 | 1,397,000 | 1,353,562 |
| U.S. Treasury Note | 2.38 | 11/15/49 | 20,000 | 19,910 |
| Total U.S. Government & Agency Obligations | | | | |
| (Cost $9,507,453) | | | | 9,485,234 |
| Corporate Bonds–Other | 25.5% of portfolio |
| | | | |
| Communication Services | 1.7% | | |
| Charter Communications Operating LLC | 5.38 | 04/01/38 | 135,000 | 154,462 |
| Charter Communications Operating LLC | 5.75 | 04/01/48 | 10,000 | 11,647 |
| Comcast Corporation | 3.25 | 11/01/39 | 110,000 | 111,445 |
| Sprint Communications, Inc. | 6.00 | 11/15/22 | 15,000 | 15,731 |
| Sprint Corp. | 7.63 | 03/01/26 | 110,000 | 121,308 |
| Total Communication Services | | | | 414,593 |
| Consumer Discretionary | 1.2% | | |
| Ford Motor Credit Company LLC | 4.06 | 11/01/24 | 211,000 | 215,192 |
| General Motors Co. | 5.15 | 04/01/38 | 66,000 | 67,370 |
| Total Consumer Discretionary | | | | 282,562 |
| Consumer Staples | 1.2% | | |
| Anheuser-Busch InBev Worldwide Inc. | 5.45 | 01/23/39 | 50,000 | 62,774 |
| Keurig Dr Pepper Inc. | 3.43 | 06/15/27 | 130,000 | 135,311 |
| Molson Coors Brewing Co. | 3.00 | 07/15/26 | 30,000 | 30,343 |
| Molson Coors Brewing Co. | 4.20 | 07/15/46 | 20,000 | 19,904 |
| Walgreens Boots Alliance, Inc. | 3.80 | 11/18/24 | 30,000 | 31,185 |
| Total Consumer Staples | | | | 279,517 |
| Energy | 2.5% | | |
| Cheniere Corpus Christi Holdings LLC (a) | 3.70 | 11/15/29 | 30,000 | 30,593 |
| ConocoPhillips | 4.30 | 11/15/44 | 15,000 | 17,604 |
| Energy Transfer Operating LP | 5.25 | 04/15/29 | 211,000 | 236,795 |
| EQM Midstream Partners, LP | 4.75 | 07/15/23 | 110,000 | 110,279 |
| National Oilwell Varco, Inc. | 3.60 | 12/01/29 | 80,000 | 80,102 |
| Pioneer Natural Resources Co. | 4.45 | 01/15/26 | 32,000 | 35,000 |
| Shell International Finance BV | 2.38 | 11/07/29 | 50,000 | 49,465 |
| Shell International Finance BV | 3.13 | 11/07/49 | 50,000 | 49,211 |
| Total Energy | | | | 609,049 |
| Financials | 8.7% | | |
| Anthem Inc. | 4.38 | 12/01/47 | 53,000 | 58,337 |
| Athene Global Funding (a) | 2.95 | 11/12/26 | 35,000 | 34,921 |
| Bank of America Corp. | 3.95 | 04/21/25 | 414,000 | 441,457 |
| Citigroup Inc. | 4.30 | 11/20/26 | 411,000 | 447,033 |
| Goldman Sachs Group Inc. | 3.81(b) | 04/23/29 | 98,000 | 104,972 |
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
43
Portfolio of Investments | Intermediate Bond Fund | December 31, 2019 | (Continued)
| Corporate Bonds–Other | 25.5% of portfolio (Continued) |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| Financials | 8.7% (Continued) | | |
| JPMorgan Chase & Co. | 3.63% | 12/01/27 | $105,000 | $110,815 |
| Main Street Capital Corp. | 5.20 | 05/01/24 | 587,000 | 630,859 |
| Morgan Stanley | 2.72(b) | 07/22/25 | 149,000 | 150,804 |
| Synchrony Financial | 3.95 | 12/01/27 | 103,000 | 108,133 |
| Total Financials | | | | 2,087,331 |
| Health Care | 5.0% | | |
| AbbVie Inc. (a) | 2.95 | 11/21/26 | 70,000 | 71,047 |
| AbbVie Inc. (a) | 4.05 | 11/21/39 | 130,000 | 137,385 |
| Allergan Funding SCS | 3.45 | 03/15/22 | 142,000 | 145,203 |
| Becton Dickinson and Co. | 2.92(b) | 06/06/22 | 268,000 | 269,973 |
| Bristol-Myers Squibb Co. (a) | 4.63 | 05/15/44 | 44,000 | 53,192 |
| Cigna Corp. | 3.75 | 07/15/23 | 100,000 | 104,808 |
| CVS Health Corp. | 4.10 | 03/25/25 | 201,000 | 215,601 |
| HCA Healthcare Inc. | 5.13 | 06/15/39 | 174,000 | 192,030 |
| Total Health Care | | | | 1,189,239 |
| Industrials | 1.0% | | |
| Boeing Co. | 3.30 | 03/01/35 | 65,000 | 65,128 |
| Caterpillar Financial Services Corp. | 2.15 | 11/08/24 | 30,000 | 30,092 |
| Delta Air Lines, Inc. | 3.75 | 10/28/29 | 25,000 | 24,960 |
| Parker-Hannifin Corp. | 3.25 | 06/14/29 | 112,000 | 116,847 |
| Total Industrials | | | | 237,027 |
| Information Technology | 1.5% | | |
| Broadcom Inc. (a) | 4.25 | 04/15/26 | 100,000 | 106,248 |
| International Business Machines Corp. | 4.15 | 05/15/39 | 100,000 | 112,513 |
| Microsoft Corp. | 3.70 | 08/08/46 | 126,000 | 142,068 |
| Total Information Technology | | | | 360,829 |
| Materials | 0.6% | | |
| International Paper Co. | 5.00 | 09/15/35 | 37,000 | 43,454 |
| Mercer International Inc. | 5.50 | 01/15/26 | 33,000 | 33,577 |
| Steel Dynamics, Inc. | 2.80 | 12/15/24 | 30,000 | 30,164 |
| Steel Dynamics, Inc. | 3.45 | 04/15/30 | 25,000 | 25,259 |
| Total Materials | | | | 132,454 |
| Real Estate | 0.3% | | |
| Service Properties Trust | 4.35 | 10/01/24 | 60,000 | 61,607 |
| Total Real Estate | | | | 61,607 |
| Utilities | 1.8% | | |
| San Diego Gas & Electric Co. | 1.91 | 02/01/22 | 23,215 | 23,128 |
| Southern California Edison Co. | 3.65 | 03/01/28 | 165,000 | 176,738 |
| Southern California Edison Co. | 4.00 | 04/01/47 | 173,000 | 181,575 |
| TerraForm Power Operating LLC (a) | 4.25 | 01/31/23 | 15,000 | 15,442 |
| TerraForm Power Operating LLC (a) | 4.75 | 01/15/30 | 35,000 | 35,613 |
| Total Utilities | | | | 432,496 |
| Total Corporate Bonds–Other | | | | |
| (Cost $5,987,479) | | | | 6,086,704 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | Intermediate Bond Fund | December 31, 2019 | (Continued)
| Mortgage-Backed Securities | 23.4% of portfolio |
| | Interest Rate /Yield | Maturity Date | Face Amount | Value |
| FNMA BN5402 | 3.50% | 04/01/49 | $162,476 | $167,168 |
| FNMA CA4016 | 3.00 | 08/01/49 | 258,488 | 263,343 |
| FNMA FM1000 | 3.00 | 04/01/47 | 1,803,772 | 1,841,707 |
| FNMA MA3745 | 3.50 | 08/01/49 | 2,442,201 | 2,509,968 |
| FNMA MA3834 | 3.00 | 11/01/49 | 794,483 | 805,455 |
| Total Mortgage-Backed Securities | | | | |
| (Cost $5,592,628) | | | | 5,587,641 |
| Asset-Backed Securities | 5.2% of portfolio |
| | | | |
| Avant Loans Funding Trust 19-B (a) | 2.72 | 10/15/26 | 166,357 | 166,505 |
| Avid Automobile Receivables Trust 19-1 (a) | 2.62 | 02/15/24 | 93,455 | 93,423 |
| Consumer Loan Underlying Bond 19-HP1 (a) | 2.59 | 12/15/26 | 100,000 | 100,033 |
| CPS Auto Trust 19-A (a) | 3.18 | 06/15/22 | 73,904 | 74,173 |
| Drive Auto Receivables Trust 19-3 | 2.63 | 09/15/22 | 63,715 | 63,814 |
| Exeter Automobile Receivables Trust 19-4 (a) | 2.18 | 01/17/23 | 137,962 | 138,003 |
| Foursight Capital Automobile Receivables Trust 19-1 (a) | 2.67 | 03/15/24 | 100,000 | 100,733 |
| GLS Auto Receivables Trust 19-2 (a) | 3.06 | 04/17/23 | 6,830 | 6,866 |
| Marlette Funding Trust 19-3 (a) | 2.69 | 09/17/29 | 75,089 | 75,286 |
| Prosper Marketplace Issuance Trust 19-3 (a) | 3.19 | 07/15/25 | 68,269 | 68,612 |
| SoFi Consumer Loan Program Trust 19-1 (a) | 3.24 | 02/25/28 | 84,008 | 84,591 |
| SoFi Consumer Loan Program Trust 19-4 (a) | 2.45 | 08/25/28 | 86,276 | 86,394 |
| United Auto Credit Securitization Trust 19-1 (a) | 2.82 | 07/12/21 | 35,365 | 35,424 |
| Upstart Securitization Trust 19-3 (a) | 2.68 | 01/21/30 | 150,000 | 149,940 |
| Total Asset-Backed Securities | | | | |
| (Cost $1,242,939) | | | | 1,243,797 |
| Yankee Bonds | 3.8% of portfolio |
| | | | |
| DH Europe Finance II SARL | 2.60 | 11/15/29 | 109,000 | 108,438 |
| Imperial Brands PLC (a) | 3.88 | 07/26/29 | 211,000 | 212,558 |
| Mexico City Airport Trust (a) | 3.88 | 04/30/28 | 200,000 | 204,252 |
| Royal Bank of Scotland Group PLC | 4.27(b) | 03/22/25 | 210,000 | 222,943 |
| Seagate HDD Cayman | 4.75 | 01/01/25 | 25,000 | 26,703 |
| Teva Pharmaceutical Industries Ltd. | 2.80 | 07/21/23 | 70,000 | 64,925 |
| Vodafone Group PLC | 4.25 | 09/17/50 | 55,000 | 57,222 |
| Total Yankee Bonds | | | | |
| (Cost $885,981) | | | | 897,041 |
| Municipal Bond | 0.4% of portfolio |
| | | | |
| New Jersey | 0.4% | | |
| New Jersey Transportation Trust Fund Authority | 4.08 | 06/15/39 | 100,000 | 99,584 |
| Total New Jersey | | | | 99,584 |
| Total Municipal Bond | | | | |
| (Cost $100,000) | | | | 99,584 |
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
45
Portfolio of Investments | Intermediate Bond Fund | December 31, 2019 | (Continued)
| Money Market Fund | 1.9% of portfolio |
| | Interest Rate /Yield | | Shares | Value |
| State Street Institutional U.S. Government Money Market Fund | 1.53%(c) | | 448,344 | $448,344 |
| Total Money Market Fund | | | | |
| (Cost $448,344) | | | | 448,344 |
| Total Investments in Securities | | | | |
| (Cost $23,764,824) | 100.0% | | | | $23,848,345 |
| (a) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. The securities have been determined to be liquid under criteria established by the Fund's Board of Trustees. The total of such securities at period-end amounts to $2,081,234 and represents 8.7% of total investments. |
| (b) | Variable coupon rate as of December 31, 2019. |
| (c) | 7-day yield at December 31, 2019. |
LLC - Limited Liability Company
LP - Limited Partnership
BV - Besloten Vennootschap
SCS - Societe En Commandite Simple
SARL - Societe a responsabilite limitee
PLC - Public Limited Company
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments
Stock Index Fund | December 31, 2019
| | Cost | Value |
| Investment | $48,051,235 | $171,146,429 |
Substantially all the assets of the Stock Index Fund are invested in the S&P 500 Index Master Portfolio managed by BlackRock Fund Advisors. As of December 31, 2019, the Stock Index Fund's ownership interest in the S&P 500 Index Master Portfolio was 0.74%. See the Portfolio of Investments for the S&P 500 Index Master Portfolio for holdings information.
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
47
Portfolio of Investments
Value Fund | December 31, 2019
| Common Stocks | 99.2% of portfolio |
| | Shares | Value |
| Communication Services | 6.0% |
| Diversified Telecommunication Services | | |
| Verizon Communications, Inc. | 229,971 | $14,120,219 |
| Interactive Media & Services | | |
| Alphabet, Inc., Class C (a) | 33,489 | 44,775,463 |
| Total Communication Services | | 58,895,682 |
| Consumer Discretionary | 4.1% |
| Distributors | | |
| Genuine Parts Co. | 236,193 | 25,090,782 |
| Hotels, Restaurants & Leisure | | |
| Las Vegas Sands Corp. | 112,547 | 7,770,245 |
| McDonald's Corp. | 37,129 | 7,337,062 |
| Total Consumer Discretionary | | 40,198,089 |
| Consumer Staples | 0.8% |
| Beverages | | |
| Anheuser-Busch InBev SA ADR | 96,812 | 7,942,457 |
| Total Consumer Staples | | 7,942,457 |
| Energy | 6.9% |
| Oil, Gas & Consumable Fuels | | |
| Chevron Corp. | 232,642 | 28,035,688 |
| ConocoPhillips | 401,941 | 26,138,223 |
| Royal Dutch Shell PLC ADR | 243,735 | 14,616,788 |
| Total Energy | | 68,790,699 |
| Financials | 17.5% |
| Banks | | |
| Bank of America Corp. | 737,331 | 25,968,798 |
| Citigroup, Inc. | 290,921 | 23,241,679 |
| JPMorgan Chase & Co. | 336,658 | 46,930,125 |
| Wells Fargo & Co. | 217,128 | 11,681,486 |
| Capital Markets | | |
| Goldman Sachs Group, Inc. | 51,360 | 11,809,205 |
| Insurance | | |
| Allstate Corp. | 362,639 | 40,778,755 |
| Chubb Ltd. | 83,935 | 13,065,322 |
| Total Financials | | 173,475,370 |
| Health Care | 22.0% |
| Health Care Equipment & Supplies | | |
| Abbott Laboratories | 392,076 | 34,055,722 |
| Boston Scientific Corp. (a) | 348,113 | 15,741,670 |
| Medtronic PLC | 143,994 | 16,336,119 |
| Health Care Providers & Services | | |
| Centene Corp. (a) | 228,236 | 14,349,197 |
| Cigna Corp. | 88,522 | 18,101,864 |
| Life Sciences Tools & Services | | |
| Mettler-Toledo International, Inc. (a) | 27,029 | 21,441,565 |
| Common Stocks | 99.2% of portfolio (Continued) |
| | Shares | Value |
| Health Care | 22.0% (Continued) |
| Pharmaceuticals | | |
| Allergan PLC | 78,661 | $15,037,623 |
| Bristol-Myers Squibb Co. | 268,230 | 17,217,684 |
| Merck & Co., Inc. | 378,444 | 34,419,482 |
| Pfizer, Inc. | 809,839 | 31,729,492 |
| Total Health Care | | 218,430,418 |
| Industrials | 12.7% |
| Airlines | | |
| Southwest Airlines Co. | 361,453 | 19,511,233 |
| Industrial Conglomerates | | |
| Honeywell International, Inc. | 227,106 | 40,197,762 |
| Machinery | | |
| Parker-Hannifin Corp. | 216,536 | 44,567,440 |
| Stanley Black & Decker, Inc. | 63,391 | 10,506,424 |
| Road & Rail | | |
| CSX Corp. | 157,563 | 11,401,258 |
| Total Industrials | | 126,184,117 |
| Information Technology | 21.4% |
| Communications Equipment | | |
| Cisco Systems, Inc. | 322,168 | 15,451,177 |
| Electronic Equipment, Instruments & Components | | |
| TE Connectivity Ltd. | 209,163 | 20,046,182 |
| IT Services | | |
| Leidos Holdings Inc. | 246,418 | 24,121,858 |
| Visa Inc., Class A | 247,654 | 46,534,187 |
| Semiconductors & Semiconductor Equipment | | |
| NVIDIA Corp. | 87,782 | 20,655,105 |
| NXP Semiconductors NV | 146,206 | 18,606,175 |
| Software | | |
| Microsoft Corp. | 337,843 | 53,277,841 |
| Tyler Technologies, Inc. (a) | 13,831 | 4,149,577 |
| VMware, Inc., Class A (a) | 64,372 | 9,771,026 |
| Total Information Technology | | 212,613,128 |
| Materials | 7.8% |
| Chemicals | | |
| Dow Inc. | 233,231 | 12,764,733 |
| DuPont de Nemours, Inc. | 311,208 | 19,979,553 |
| Containers & Packaging | | |
| Avery Dennison Corp. | 343,969 | 44,998,025 |
| Total Materials | | 77,742,311 |
| Total Common Stocks | | |
| (Cost $502,853,088) | | 984,272,271 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | Value Fund | December 31, 2019 | (Continued)
| Money Market Fund | 0.8% of portfolio |
| | Shares | Value |
| State Street Institutional U.S. Government Money Market Fund, 1.53% (b) | 8,030,578 | $8,030,578 |
| Total Money Market Fund | | |
| (Cost $8,030,578) | | 8,030,578 |
| Total Investments in Securities | | |
| (Cost $510,883,666) | 100.0% | | $992,302,849 |
| (b) | 7-day yield at December 31, 2019. |
ADR - American Depositary Deposit
SA - Sociedad Anonima or Societe Anonyme
PLC - Public Limited Company
NV - Naamloze Vennottschap
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
49
Portfolio of Investments
Growth Fund | December 31, 2019
| Common Stocks | 99.3% of portfolio |
| | Shares | Value |
| Communication Services | 19.2% |
| Entertainment | | |
| Netflix, Inc. (a) | 10,429 | $3,374,511 |
| Spotify Technology SA (a) | 17,924 | 2,680,534 |
| Tencent Music Entertainment Group ADR (a) | 86,221 | 1,012,235 |
| Interactive Media & Services | | |
| Alphabet, Inc., Class C (a) | 4,400 | 5,882,888 |
| Alphabet, Inc., Class A (a) | 8,947 | 11,983,523 |
| Facebook, Inc., Class A (a) | 66,825 | 13,715,831 |
| IAC/InterActiveCorp (a) | 9,111 | 2,269,641 |
| Tencent Holdings Ltd. ADR | 122,424 | 5,877,576 |
| Total Communication Services | | 46,796,739 |
| Consumer Discretionary | 19.3% |
| Auto Components | | |
| Aptiv PLC | 38,224 | 3,630,133 |
| Hotels, Restaurants & Leisure | | |
| Hilton Worldwide Holdings, Inc. | 18,771 | 2,081,892 |
| Las Vegas Sands Corp. | 5,715 | 394,563 |
| Restaurant Brands International Inc. | 18,766 | 1,196,708 |
| Wynn Resorts, Ltd. | 4,822 | 669,631 |
| Internet & Direct Marketing Retail | | |
| Alibaba Group Holding Ltd. ADR (a) | 31,565 | 6,694,937 |
| Amazon.com, Inc. (a) | 9,886 | 18,267,746 |
| Booking Holdings, Inc. (a) | 1,382 | 2,838,255 |
| Multiline Retail | | |
| Dollar General Corp. | 23,013 | 3,589,568 |
| Specialty Retail | | |
| Carvana Co. (a) | 7,600 | 699,580 |
| Ross Stores, Inc. | 25,481 | 2,966,498 |
| Textiles, Apparel & Luxury Goods | | |
| lululemon athletica Inc. (a) | 6,890 | 1,596,206 |
| NIKE, Inc., Class B | 22,209 | 2,249,994 |
| Total Consumer Discretionary | | 46,875,711 |
| Consumer Staples | 0.4% |
| Tobacco | | |
| Philip Morris International, Inc. | 10,511 | 894,381 |
| Total Consumer Staples | | 894,381 |
| Energy | 0.6% |
| Oil, Gas & Consumable Fuels | | |
| Concho Resources Inc. | 16,234 | 1,421,612 |
| Total Energy | | 1,421,612 |
| Financials | 1.8% |
| Capital Markets | | |
| Charles Schwab Corp. | 33,514 | 1,593,926 |
| Intercontinental Exchange, Inc. | 17,166 | 1,588,713 |
| TD Ameritrade Holding Corp. | 19,167 | 952,600 |
| Common Stocks | 99.3% of portfolio (Continued) |
| | Shares | Value |
| Financials | 1.8% (Continued) |
| XP Inc., Class A (a) | 6,776 | $261,012 |
| Total Financials | | 4,396,251 |
| Health Care | 15.7% |
| Biotechnology | | |
| Alexion Pharmaceuticals, Inc. (a) | 9,645 | 1,043,107 |
| Vertex Pharmaceuticals, Inc. (a) | 18,515 | 4,053,859 |
| Health Care Equipment & Supplies | | |
| Becton, Dickinson & Co. | 16,727 | 4,549,242 |
| Intuitive Surgical, Inc. (a) | 8,352 | 4,937,285 |
| Stryker Corp. | 26,188 | 5,497,909 |
| Health Care Providers & Services | | |
| Centene Corp. (a) | 28,434 | 1,787,646 |
| Cigna Corp. | 24,015 | 4,910,827 |
| HCA Healthcare, Inc. | 29,075 | 4,297,576 |
| Humana Inc. | 3,800 | 1,392,776 |
| UnitedHealth Group, Inc. | 14,338 | 4,215,085 |
| Life Sciences Tools & Services | | |
| Avantor, Inc. (a) | 79,578 | 1,444,340 |
| Total Health Care | | 38,129,652 |
| Industrials | 6.9% |
| Aerospace & Defense | | |
| Boeing Co. | 33,024 | 10,757,898 |
| Industrial Conglomerates | | |
| Honeywell International, Inc. | 6,613 | 1,170,501 |
| Professional Services | | |
| CoStar Group, Inc. (a) | 3,005 | 1,797,892 |
| Road & Rail | | |
| J.B. Hunt Transport Services, Inc. | 9,977 | 1,165,114 |
| Norfolk Southern Corp. | 7,296 | 1,416,372 |
| Uber Technologies, Inc. (a) | 16,881 | 502,041 |
| Total Industrials | | 16,809,818 |
| Information Technology | 33.3% |
| IT Services | | |
| Fidelity National Information Services, Inc. | 11,045 | 1,536,249 |
| Global Payments, Inc. | 34,984 | 6,386,679 |
| Okta, Inc. (a) | 4,923 | 567,967 |
| PayPal Holdings, Inc. (a) | 30,895 | 3,341,912 |
| Visa Inc., Class A | 67,661 | 12,713,502 |
| Semiconductors & Semiconductor Equipment | | |
| Advanced Micro Devices, Inc. (a) | 40,900 | 1,875,674 |
| ASML Holding NV ADR | 11,611 | 3,436,159 |
| Marvell Technology Group Ltd. | 81,123 | 2,154,627 |
| Software | | |
| Atlassian Corp. PLC, Class A (a) | 2,348 | 282,558 |
| Intuit, Inc. | 19,723 | 5,166,045 |
| Microsoft Corp. | 119,569 | 18,856,031 |
| Paycom Software, Inc. (a) | 2,469 | 653,692 |
| salesforce.com, Inc. (a) | 26,937 | 4,381,034 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | Growth Fund | December 31, 2019 | (Continued)
| Common Stocks | 99.3% of portfolio (Continued) |
| | Shares | Value |
| Information Technology | 33.3% (Continued) |
| ServiceNow, Inc. (a) | 9,660 | $2,727,211 |
| Slack Technologies, Inc., Class A (a) | 33,635 | 756,115 |
| Splunk Inc. (a) | 21,874 | 3,276,069 |
| VMware, Inc., Class A (a) | 17,759 | 2,695,639 |
| Workday, Inc., Class A (a) | 11,358 | 1,867,823 |
| Zoom Video Communications, Inc. (a) | 590 | 40,144 |
| Technology Hardware, Storage & Peripherals | | |
| Apple, Inc. | 28,581 | 8,392,811 |
| Total Information Technology | | 81,107,941 |
| Utilities | 2.1% |
| Electric Utilities | | |
| NextEra Energy, Inc. | 13,690 | 3,315,170 |
| Multi-Utilities | | |
| Sempra Energy | 12,145 | 1,839,725 |
| Total Utilities | | 5,154,895 |
| Total Common Stocks | | |
| (Cost $156,473,198) | | 241,587,000 |
| Money Market Fund | 0.7% of portfolio |
| | Shares | Value |
| State Street Institutional U.S. Government Money Market Fund, 1.53% (b) | 1,676,128 | $1,676,128 |
| Total Money Market Fund | | |
| (Cost $1,676,128) | | 1,676,128 |
| Total Investments in Securities | | |
| (Cost $158,149,326) | 100.0% | | $243,263,128 |
| (b) | 7-day yield at December 31, 2019. |
SA - Sociedad Anonima or Societe Anonyme
ADR - American Depositary Deposit
PLC - Public Limited Company
NV - Naamloze Vennottschap
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
51
Portfolio of Investments
Small-Company Stock Fund | December 31, 2019
| Common Stocks | 98.5% of portfolio |
| | Shares | Value |
| Communication Services | 0.5% |
| Wireless Telecommunication Services | | |
| Shenandoah Telecommunications Co. | 38,257 | $1,591,874 |
| Total Communication Services | | 1,591,874 |
| Consumer Discretionary | 8.0% |
| Distributors | | |
| Core-Mark Holding Company, Inc. | 316,717 | 8,611,535 |
| Hotels, Restaurants & Leisure | | |
| BJ’s Restaurants, Inc. | 112,947 | 4,287,468 |
| Cracker Barrel Old Country Store, Inc. | 64,488 | 9,914,385 |
| Textiles, Apparel & Luxury Goods | | |
| Carter's, Inc. | 35,708 | 3,904,313 |
| Total Consumer Discretionary | | 26,717,701 |
| Consumer Staples | 1.0% |
| Food Products | | |
| TreeHouse Foods, Inc. (a) | 65,802 | 3,191,397 |
| Total Consumer Staples | | 3,191,397 |
| Financials | 17.8% |
| Banks | | |
| Atlantic Union Bankshares Corp. | 145,743 | 5,472,650 |
| CenterState Bank Corp. | 195,599 | 4,886,063 |
| FB Financial Corp. | 156,991 | 6,215,274 |
| Glacier Bancorp, Inc. | 257,263 | 11,831,525 |
| Metropolitan Bank Holding Corp. (a) | 106,932 | 5,157,330 |
| Texas Capital Bancshares, Inc. (a) | 49,885 | 2,831,971 |
| Consumer Finance | | |
| Encore Capital Group, Inc. (a) | 277,921 | 9,827,287 |
| Insurance | | |
| Kinsale Capital Group, Inc. | 131,468 | 13,365,037 |
| Total Financials | | 59,587,137 |
| Health Care | 18.0% |
| Biotechnology | | |
| Emergent BioSolutions Inc. (a) | 72,045 | 3,886,828 |
| Health Care Equipment & Supplies | | |
| STAAR Surgical Co. (a) | 184,246 | 6,479,932 |
| STERIS PLC | 88,123 | 13,431,708 |
| Health Care Providers & Services | | |
| AMN Healthcare Services, Inc. (a) | 91,446 | 5,698,000 |
| LHC Group, Inc. (a) | 50,492 | 6,955,778 |
| Health Care Technology | | |
| Inovalon Holdings, Inc. (a) | 294,995 | 5,551,806 |
| Life Sciences Tools & Services | | |
| Medpace Holdings, Inc. (a) | 73,479 | 6,176,645 |
| NanoString Technologies, Inc. (a) | 384,197 | 10,688,360 |
| Common Stocks | 98.5% of portfolio (Continued) |
| | Shares | Value |
| Health Care | 18.0% (Continued) |
| Pharmaceuticals | | |
| Aerie Pharmaceuticals, Inc. (a) | 51,308 | $1,240,114 |
| Total Health Care | | 60,109,171 |
| Industrials | 19.5% |
| Aerospace & Defense | | |
| BWX Technologies, Inc. | 38,864 | 2,412,677 |
| Construction & Engineering | | |
| Comfort Systems USA, Inc. | 65,006 | 3,240,549 |
| Dycom Industries, Inc. (a) | 158,884 | 7,491,381 |
| Primoris Services Corp. | 361,705 | 8,044,319 |
| Electrical Equipment | | |
| EnerSys | 43,905 | 3,285,411 |
| Machinery | | |
| Colfax Corp. (a) | 179,221 | 6,520,060 |
| Welbilt, Inc. | 533,850 | 8,333,399 |
| Road & Rail | | |
| Knight-Swift Transportation Holdings Inc. | 149,283 | 5,350,303 |
| Werner Enterprises, Inc. | 226,788 | 8,252,815 |
| Trading Companies & Distributors | | |
| Applied Industrial Technologies, Inc. | 184,655 | 12,314,642 |
| Total Industrials | | 65,245,556 |
| Information Technology | 23.1% |
| Electronic Equipment, Instruments & Components | | |
| Itron, Inc. (a) | 48,426 | 4,065,363 |
| Knowles Corp. | 328,847 | 6,955,114 |
| IT Services | | |
| CACI International Inc., Class A���(a) | 25,051 | 6,262,500 |
| Cass Information Systems, Inc. | 99,818 | 5,763,491 |
| ManTech International Corp., Class A | 167,660 | 13,392,681 |
| Semiconductors & Semiconductor Equipment | | |
| Advanced Energy Industries, Inc. (a) | 60,428 | 4,302,473 |
| Software | | |
| Altair Engineering Inc. (a) | 103,927 | 3,732,019 |
| Descartes Systems Group Inc. (The) (a) | 326,431 | 13,945,132 |
| Five9, Inc. (a) | 98,132 | 6,435,496 |
| j2 Global, Inc | 81,715 | 7,657,513 |
| Verint Systems Inc. (a) | 81,514 | 4,512,615 |
| Total Information Technology | | 77,024,397 |
| Materials | 6.9% |
| Chemicals | | |
| Ingevity Corp. (a) | 38,865 | 3,396,024 |
| PolyOne Corp. | 285,889 | 10,517,856 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | Small-Company Stock Fund | December 31, 2019 | (Continued)
| Common Stocks | 98.5% of portfolio (Continued) |
| | Shares | Value |
| Materials | 6.9% (Continued) |
| Construction Materials | | |
| Summit Materials, Inc., Class A (a) | 382,224 | $9,135,153 |
| Total Materials | | 23,049,033 |
| Real Estate | 3.7% |
| Equity Real Estate Investment Trusts (REITs) | | |
| Easterly Government Properties, Inc. | 109,997 | 2,610,229 |
| Pebblebrook Hotel Trust | 137,378 | 3,683,104 |
| QTS Realty Trust, Inc. Class A | 110,777 | 6,011,868 |
| Total Real Estate | | 12,305,201 |
| Total Common Stocks | | |
| (Cost $240,848,801) | | 328,821,467 |
| Money Market Fund | 1.5% of portfolio |
| | Shares | Value |
| State Street Institutional U.S. Government Money Market Fund, 1.53% (b) | 5,156,460 | $5,156,460 |
| Total Money Market Fund | | |
| (Cost $5,156,460) | | 5,156,460 |
| Total Investments in Securities | | |
| (Cost $246,005,261) | 100.0% | | $333,977,927 |
| (b) | 7-day yield at December 31, 2019. |
PLC - Public Limited Company
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
53
Portfolio of Investments
International Equity Fund | December 31, 2019
| Common Stocks | 96.5% of portfolio |
| | Shares | Value |
| Brazil | 0.5% |
| Ambev SA ADR | 77,706 | $362,110 |
| Total Brazil | | 362,110 |
| Britain | 9.6% |
| Diageo PLC | 43,608 | 1,837,495 |
| HSBC Holdings PLC | 118,266 | 925,838 |
| Rio Tinto PLC | 15,408 | 912,076 |
| Royal Dutch Shell PLC, Class B | 42,426 | 1,259,359 |
| Standard Chartered PLC | 117,248 | 1,104,838 |
| Unilever PLC | 26,540 | 1,519,220 |
| Total Britain | | 7,558,826 |
| Canada | 3.0% |
| Alimentation Couche-Tard Inc., Class B | 30,100 | 955,235 |
| Canadian National Railway Co. | 15,337 | 1,387,232 |
| Total Canada | | 2,342,467 |
| China | 2.2% |
| Baidu, Inc. ADR (a) | 4,213 | 532,523 |
| China Moble Ltd. ADR | 9,452 | 399,536 |
| Ping An Insurance Group Co. of China Ltd., Class H | 40,500 | 479,255 |
| Tencent Holdings Ltd. | 6,600 | 317,963 |
| Total China | | 1,729,277 |
| Denmark | 1.0% |
| Novozymes A/S, Class B | 15,400 | 753,604 |
| Total Denmark | | 753,604 |
| France | 8.5% |
| Air Liquide SA | 6,726 | 953,550 |
| Dassault Systèmes SE | 9,573 | 1,578,830 |
| L’Oréal SA | 9,675 | 2,860,969 |
| Schneider Electric SE | 12,890 | 1,324,315 |
| Total France | | 6,717,664 |
| Germany | 15.2% |
| adidas AG | 5,087 | 1,653,624 |
| Allianz SE REG | 11,991 | 2,938,128 |
| Infineon Technologies AG | 129,548 | 2,927,053 |
| SAP SE ADR | 22,994 | 3,080,966 |
| Symrise AG | 12,659 | 1,330,573 |
| Total Germany | | 11,930,344 |
| Hong Kong | 3.5% |
| AIA Group Ltd. | 259,200 | 2,726,255 |
| Total Hong Kong | | 2,726,255 |
| Common Stocks | 96.5% of portfolio (Continued) |
| | Shares | Value |
| India | 1.0% |
| HDFC Bank Ltd. ADR | 5,944 | $376,671 |
| ICICI Bank Ltd. ADR | 27,078 | 408,607 |
| Total India | | 785,278 |
| Israel | 3.1% |
| Check Point Software Technologies Ltd. (a) | 22,287 | 2,472,966 |
| Total Israel | | 2,472,966 |
| Japan | 13.9% |
| Chugai Pharmaceutical Co., Ltd. | 19,000 | 1,749,809 |
| Dentsu Inc. | 26,800 | 923,416 |
| FANUC Corp. | 4,600 | 849,458 |
| Keyence Corp. | 5,100 | 1,790,806 |
| Komatsu Ltd. | 35,300 | 847,251 |
| Kubota Corp. | 89,000 | 1,397,588 |
| Nitori Holdings Co., Ltd. | 500 | 78,926 |
| Shionogi & Co., Ltd. | 3,400 | 210,329 |
| Sysmex Corp. | 16,100 | 1,096,167 |
| Unicharm Corp. | 58,400 | 1,972,005 |
| Total Japan | | 10,915,755 |
| Mexico | 0.2% |
| Fomento Economico Mexicano, SAB de CV ADR | 2,125 | 200,834 |
| Total Mexico | | 200,834 |
| Republic of South Korea | 0.3% |
| Samsung Electronics Co., Ltd. GDR | 228 | 272,846 |
| Total Republic of South Korea | | 272,846 |
| Russia | 1.0% |
| LUKOIL PJSC ADR | 4,424 | 436,693 |
| Yandex NV, Class A (a) | 8,295 | 360,750 |
| Total Russia | | 797,443 |
| Singapore | 3.0% |
| DBS Group Holdings Ltd. | 123,200 | 2,375,449 |
| Total Singapore | | 2,375,449 |
| South Africa | 0.2% |
| Sasol Ltd. | 5,662 | 122,841 |
| Total South Africa | | 122,841 |
| Spain | 4.1% |
| Amadeus IT Group SA | 17,521 | 1,434,913 |
| Portfolio of Investments | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | International Equity Fund | December 31, 2019 | (Continued)
| Common Stocks | 96.5% of portfolio (Continued) |
| | Shares | Value |
| Spain | 4.1% (Continued) |
| Banco Bilboa Vizcaya Argentaria SA | 322,022 | $1,807,936 |
| Total Spain | | 3,242,849 |
| Sweden | 7.2% |
| Alfa Laval AB | 52,014 | 1,309,933 |
| Atlas Copco AB, Class A | 69,429 | 2,771,305 |
| Epiroc AB, Class A | 78,655 | 961,892 |
| Skandinaviska Enskilda Banken AB, Class A | 65,703 | 617,863 |
| Total Sweden | | 5,660,993 |
| Switzerland | 13.6% |
| Lonza Group AG REG | 4,569 | 1,666,804 |
| Nestlé SA ADR | 29,816 | 3,228,035 |
| Roche Holding AG REG | 10,976 | 3,567,229 |
| SGS SA REG | 355 | 972,229 |
| Sonova Holding AG REG | 5,436 | 1,242,716 |
| Total Switzerland | | 10,677,013 |
| Taiwan | 1.4% |
| Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 19,002 | 1,104,016 |
| Total Taiwan | | 1,104,016 |
| United States of America | 4.0% |
| Linde PLC | 8,731 | 1,873,418 |
| Schlumberger Ltd. | 31,841 | 1,280,008 |
| Total United States of America | | 3,153,426 |
| Total Common Stocks | | |
| (Cost $59,331,525) | | 75,902,256 |
| Preferred Stocks | 1.7% of portfolio |
| | Shares | Value |
| Brazil | 0.4% |
| Itaú Unibanco Holding SA ADR | 32,757 | $299,727 |
| Total Brazil | | 299,727 |
| Germany | 0.6% |
| FUCHS PETROLUB SE | 9,378 | 465,931 |
| Total Germany | | 465,931 |
| Republic of South Korea | 0.7% |
| Samsung Electronics Co., Ltd. REG GDR | 579 | 563,836 |
| Total Republic of South Korea | | 563,836 |
| Total Preferred Stocks | | |
| (Cost $813,071) | | 1,329,494 |
| Money Market Fund | 1.8% of portfolio |
| | |
| State Street Institutional U.S. Government Money Market Fund, 1.53% (b) | 1,392,961 | 1,392,961 |
| Total Money Market Fund | | |
| (Cost $1,392,961) | | 1,392,961 |
| Total Investments in Securities | | |
| (Cost $61,537,557) | 100.0% | | $78,624,711 |
| (b) | 7-day yield at December 31, 2019. |
ADR - American Depositary Deposit
SA - Sociedad Anonima or Societe Anonyme
PLC - Public Limited Company
A/S - Aktieselskab
SE - Societas Europaea
AG - Aktiengesellschaft
REG - Registered Shares
SAB de CV - Sociedad Anonima Bursatil de Capital Variable
SAB - Sociedad Anonima Bursatil
GDR - Global Depositary Receipt
NV - Naamloze Vennottschap
AB - Aktiebolag
| The accompanying notes are an integral part of these financial statements. | Portfolio of Investments |
55
Statements of Assets and Liabilities
December 31, 2019
| Assets | Daily Income Fund | Short-Term Government Securities Fund | Short-Term Bond Fund |
| Investments in securities, at value (cost: $162,906,036, $71,292,579, $545,745,729, $23,764,824, $48,051,235, $510,883,666, $158,149,326, $246,005,261 and $61,537,557, respectively) | $162,906,036 | $71,593,584 | $548,407,308 |
| Foreign currency (cost $64) | — | — | — |
| Investment securities sold | — | — | — |
| Dividends, interest, and tax reclaims | 158,673 | 213,762 | 2,069,413 |
| Capital shares sold | 107,600 | 15,595 | 31,465 |
| Prepaid expenses | 19,356 | 9,687 | 42,103 |
| Due from RE Advisers | — | — | — |
| Total Assets | 163,191,665 | 71,832,628 | 550,550,289 |
| Liabilities | | | |
| Investment securities purchased | — | 150,196 | 1,301,699 |
| Accrued expenses | 68,860 | 54,268 | 242,408 |
| Independent Director/Trustee's deferred compensation | 69,184 | 27,848 | 152,409 |
| Due to RE Advisers | 90,254 | 33,577 | 344,687 |
| Due to custodian | — | — | 218 |
| Capital shares redeemed | 128,236 | 50,243 | 186,071 |
| Dividends | 381 | 858 | 11,086 |
| Total Liabilities | 356,915 | 316,990 | 2,238,578 |
| Net Assets | $162,834,750 | $71,515,638 | $548,311,711 |
| Net Assets Consist Of: | | | |
| Distributable earnings (losses) | (69,185) | 318,083 | 3,131,311 |
| Paid-in-capital applicable to outstanding shares of 162,903,894, 13,738,149, 104,793,431, 4,649,873, 7,143,981, 19,262,145, 20,677,128, 12,665,386 and 8,762,743, respectively | 162,903,935 | 71,197,555 | 545,180,400 |
| Net Assets | $162,834,750 | $71,515,638 | $548,311,711 |
| Net Asset Value Per Share | $1.00 | $5.21 | $5.23 |
| Statements of Assets and Liabilities | The accompanying notes are an integral part of these financial statements. |
| Intermediate Bond Fund | Stock Index Fund | Value Fund | Growth Fund | Small-Company Stock Fund | International Equity Fund |
| $23,848,345 | $171,146,429 | $992,302,849 | $243,263,128 | $333,977,927 | $78,624,711 |
| — | — | — | — | — | 64 |
| — | 23,027 | — | 462,101 | — | — |
| 96,989 | — | 873,811 | 66,004 | 184,636 | 317,867 |
| 149,820 | 20,603 | 279,506 | 113,557 | 46,918 | 2,157 |
| 22,940 | 18,181 | 66,367 | 26,881 | 40,439 | 14,923 |
| 1,140 | — | — | — | — | — |
| 24,119,234 | 171,208,240 | 993,522,533 | 243,931,671 | 334,249,920 | 78,959,722 |
| | | | | | |
| 236,259 | — | — | 39,121 | — | — |
| 37,445 | 125,312 | 392,609 | 124,318 | 216,107 | 82,459 |
| 942 | 31,356 | 254,075 | 26,463 | 172,076 | 50,433 |
| — | 56,670 | 502,582 | 162,959 | 280,592 | 46,406 |
| — | — | — | — | — | — |
| — | 43,630 | 265,434 | 30,958 | 1,130,968 | 5,159 |
| 29 | — | — | — | — | — |
| 274,675 | 256,968 | 1,414,700 | 383,819 | 1,799,743 | 184,457 |
| $23,844,559 | $170,951,272 | $992,107,833 | $243,547,852 | $332,450,177 | $78,775,265 |
| | | | | | |
| 2,852 | 122,744,323 | 496,047,410 | 87,398,001 | 91,156,387 | 15,232,312 |
| 23,841,707 | 48,206,949 | 496,060,423 | 156,149,851 | 241,293,790 | 63,542,953 |
| $23,844,559 | $170,951,272 | $992,107,833 | $243,547,852 | $332,450,177 | $78,775,265 |
| $5.13 | $23.93 | $51.51 | $11.78 | $26.25 | $8.99 |
| The accompanying notes are an integral part of these financial statements. | Statements of Assets and Liabilities |
57
Statements of Operations
For the Period Ended December 31, 2019
| Investment Income | Daily Income Fund | Short-Term Government Securities Fund | Short-Term Bond Fund |
| Interest | $3,641,292 | $1,686,533 | $14,801,016 |
| Dividends | — | — | — |
| Allocated from Master Portfolio | | | |
| Dividends | — | — | — |
| Interest | — | — | — |
| Total Investment Income | 3,641,292 | 1,686,533 | 14,801,016 |
| Expenses | | | |
| Management fees | 827,809 | 333,625 | 3,339,856 |
| Shareholder servicing fees | 150,529 | 80,541 | 188,611 |
| Custodian and accounting fees | 82,779 | 75,779 | 192,638 |
| Director, Trustee, and Board meeting expenses | 77,779 | 36,052 | 259,037 |
| Legal and audit fees | 65,919 | 32,710 | 212,758 |
| Printing and regulatory filings | 29,952 | 19,031 | 50,757 |
| Registration fees | 28,552 | 26,072 | 36,165 |
| Insurance | 8,204 | 3,911 | 27,649 |
| Communication | 5,969 | 3,368 | 10,350 |
| Other expenses | 8,749 | 21,611 | 71,971 |
| Administration fees | — | — | — |
| Allocated from Master Portfolio | — | — | — |
| Total Expenses | 1,286,241 | 632,700 | 4,389,792 |
| Less fees waived and/or expenses reimbursed by RE Advisers | — | (76,510) | — |
| Net Expenses | 1,286,241 | 556,190 | 4,389,792 |
| Net Investment Income (Loss) | 2,355,051 | 1,130,343 | 10,411,224 |
| Realized and Unrealized Gain (Loss) on Investments | | | |
| Net realized gain on investments | — | 359,731 | 5,060,226 |
| Net change in unrealized apprecation (depreciation) | — | 861,300 | 5,694,771 |
| Net Gain (Loss) On Investments | — | 1,221,031 | 10,754,997 |
| Net Increase In Net Assets From Operations | $2,355,051 | $2,351,374 | $21,166,221 |
| * | For the period May 1, 2019 to December 31, 2019. |
| (a) | Includes foreign tax withholding expense of $43,760 in Value Fund, $14,201 in Growth Fund, and $166,636 in International Equity Fund. |
| (b) | Represents realized and unrealized gain on investments allocated from the Master Portfolio. |
| Statements of Operations | The accompanying notes are an integral part of these financial statements. |
| Intermediate Bond Fund* | Stock Index Fund | Value Fund | Growth Fund | Small-Company Stock Fund | International Equity Fund |
| $204,129 | $— | $305,062 | $86,124 | $307,630 | $46,196 |
| — | — | 20,254,903(a) | 1,697,478(a) | 6,400,030 | 1,620,447(a) |
| | | | | | |
| — | 2,992,252 | — | — | — | — |
| — | 38,739 | — | — | — | — |
| 204,129 | 3,030,991 | 20,559,965 | 1,783,602 | 6,707,660 | 1,666,643 |
| | | | | | |
| 49,608 | — | 4,461,016 | 1,465,706 | 3,362,908 | 548,474 |
| 24,256 | 179,150 | 414,933 | 204,299 | 322,712 | 137,031 |
| 42,565 | 60,315 | 195,158 | 99,606 | 118,983 | 119,055 |
| 3,401 | 76,711 | 461,403 | 112,582 | 216,253 | 35,149 |
| 34,306 | 66,263 | 377,187 | 94,547 | 181,609 | 31,531 |
| 3,794 | 43,833 | 118,307 | 51,519 | 108,262 | 36,430 |
| 38,241 | 26,364 | 40,605 | 31,810 | 36,206 | 24,146 |
| 96 | 7,627 | 46,838 | 11,086 | 25,811 | 3,550 |
| 177 | 9,311 | 24,451 | 10,921 | 17,033 | 7,685 |
| 8,037 | 11,111 | 43,698 | 13,955 | 30,617 | 7,701 |
| — | 383,614 | — | — | — | — |
| — | 35,950 | — | — | — | — |
| 204,481 | 900,249 | 6,183,596 | 2,096,031 | 4,420,394 | 950,752 |
| (139,031) | — | — | — | — | (227,636) |
| 65,450 | 900,249 | 6,183,596 | 2,096,031 | 4,420,394 | 723,116 |
| 138,679 | 2,130,742 | 14,376,369 | (312,429) | 2,287,266 | 943,527 |
| | | | | | |
| 108,114 | 841,781(b) | 137,873,648 | 14,030,244 | 38,451,396 | 3,272,569 |
| 83,521 | 37,525,793(b) | 76,986,017 | 40,898,938 | 52,318,099 | 11,841,604 |
| 191,635 | 38,367,574 | 214,859,665 | 54,929,182 | 90,769,495 | 15,114,173 |
| $330,314 | $40,498,316 | $229,236,034 | $54,616,753 | $93,056,761 | $16,057,700 |
| The accompanying notes are an integral part of these financial statements. | Statements of Operations |
59
Statements of Changes in Net Assets
| | Daily Income Fund |
| | Year Ended December 31, 2019 | Year Ended December 31, 2018 |
| Increase (Decrease) In Net Assets | | |
| Operations | | |
| Net investment income | $2,355,051 | $1,781,962 |
| Net realized gain on investments | — | — |
| Net change in unrealized appreciation (depreciation) | — | — |
| Increase (decrease) in net assets from operations | 2,355,051 | 1,781,962 |
| Distributions to Shareholders | | |
| Distributions to shareholders | (2,360,611) | (1,781,962) |
| Total Distributions to shareholders | (2,360,611) | (1,781,962) |
| Capital Share Transactions | | |
| Net capital share transactions | (1,013,479) | (10,073,437) |
| Total increase (decrease) in net assets from capital transactions | (1,013,479) | (10,073,437) |
| Total Increase (Decrease) In Net Assets | (1,019,039) | (10,073,437) |
| Net Assets | | |
| Beginning of year | $163,853,789 | $173,927,226 |
| End of year | $162,834,750 | $163,853,789 |
| Statements of Changes in Net Assets | The accompanying notes are an integral part of these financial statements. |
| Short-Term Government Securities Fund | Short-Term Bond Fund | Intermediate Bond Fund |
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Since Inception December 31, 2019 |
| | | | | |
| | | | | |
| $1,130,343 | $1,043,181 | $10,411,224 | $11,135,781 | $138,679 |
| 359,731 | 1,404 | 5,060,226 | 203,351 | 108,114 |
| 861,300 | (143,002) | 5,694,771 | (1,270,313) | 83,521 |
| 2,351,374 | 901,583 | 21,166,221 | 10,068,819 | 330,314 |
| | | | | |
| (1,441,910) | (1,059,685) | (14,850,051) | (11,376,055) | (327,462) |
| (1,441,910) | (1,059,685) | (14,850,051) | (11,376,055) | (327,462) |
| | | | | |
| (6,312,013) | 1,651,517 | (20,036,998) | 13,097,696 | 23,841,707 |
| (6,312,013) | 1,651,517 | (20,036,998) | 13,097,696 | 23,841,707 |
| (5,402,549) | 1,493,415 | (13,720,828) | 11,790,460 | 23,844,559 |
| | | | | |
| $76,918,187 | $75,424,772 | $562,032,539 | $550,242,079 | $— |
| $71,515,638 | $76,918,187 | $548,311,711 | $562,032,539 | $23,844,559 |
| The accompanying notes are an integral part of these financial statements. | Statements of Changes in Net Assets |
61
Statements of Changes in Net Assets (Continued)
| | Stock Index Fund |
| | Year Ended December 31, 2019 | Year Ended December 31, 2018 |
| Increase (Decrease) In Net Assets | | |
| Operations | | |
| Net investment income | $2,130,742 | $2,065,092 |
| Net realized gain on investments | 841,781 | 1,283,303 |
| Net change in unrealized appreciation (depreciation) | 37,525,793 | (10,109,545) |
| Increase (decrease) in net assets from operations | 40,498,316 | (6,761,150) |
| Distributions to Shareholders | | |
| Distributions to shareholders | (3,333,711) | (2,625,112) |
| Total Distributions to shareholders | (3,333,711) | (2,625,112) |
| Capital Share Transactions | | |
| Net capital share transactions | (147,519) | (1,773,979) |
| Total increase (decrease) in net assets from capital transactions | (147,519) | (1,773,979) |
| Total Increase (Decrease) In Net Assets | 37,017,086 | (11,160,241) |
| Net Assets | | |
| Beginning of year | $133,934,186 | $145,094,427 |
| End of year | $170,951,272 | $133,934,186 |
| Statements of Changes in Net Assets | The accompanying notes are an integral part of these financial statements. |
| Value Fund | Growth Fund | Small-Company Stock Fund |
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2019 | Year Ended December 31, 2018 |
| | | | | | |
| | | | | | |
| $14,376,369 | $16,329,001 | $(312,429) | $294,109 | $2,287,266 | $2,568,725 |
| 137,873,648 | 81,100,003 | 14,030,244 | 19,033,343 | 38,451,396 | 217,695,361 |
| 76,986,017 | (156,332,971) | 40,898,938 | (13,337,473) | 52,318,099 | (433,694,859) |
| 229,236,034 | (58,903,967) | 54,616,753 | 5,989,979 | 93,056,761 | (213,430,773) |
| | | | | | |
| (135,337,648) | (89,984,419) | (12,506,704) | (20,113,936) | (65,351,838) | (122,418,197) |
| (135,337,648) | (89,984,419) | (12,506,704) | (20,113,936) | (65,351,838) | (122,418,197) |
| | | | | | |
| 22,943,471 | (94,554,235) | 6,970,674 | 30,570,695 | (182,247,316) | (454,592,108) |
| 22,943,471 | (94,554,235) | 6,970,674 | 30,570,695 | (182,247,316) | (454,592,108) |
| 116,841,857 | (243,442,621) | 49,080,723 | 16,446,738 | (154,542,393) | (790,441,078) |
| | | | | | |
| $875,265,976 | $1,118,708,597 | $194,467,129 | $178,020,391 | $486,992,570 | $1,277,433,648 |
| $992,107,833 | $875,265,976 | $243,547,852 | $194,467,129 | $332,450,177 | $486,992,570 |
| The accompanying notes are an integral part of these financial statements. | Statements of Changes in Net Assets |
63
Statements of Changes in Net Assets (Continued)
| | International Equity Fund |
| | Year Ended December 31, 2019 | Year Ended December 31, 2018 |
| Increase (Decrease) In Net Assets | | |
| Operations | | |
| Net investment income | $943,527 | $1,042,997 |
| Net realized gain on investments | 3,272,569 | 1,091,500 |
| Net change in unrealized appreciation (depreciation) | 11,841,604 | (11,742,258) |
| Increase (decrease) in net assets from operations | 16,057,700 | (9,607,761) |
| Distributions to Shareholders | | |
| Distributions to shareholders | (841,645) | (1,151,141) |
| Total Distributions to shareholders | (841,645) | (1,151,141) |
| Capital Share Transactions | | |
| Net capital share transactions | (2,522,666) | 2,702,686 |
| Total increase (decrease) in net assets from capital transactions | (2,522,666) | 2,702,686 |
| Total Increase (Decrease) In Net Assets | 12,693,389 | (8,056,216) |
| Net Assets | | |
| Beginning of year | $66,081,876 | $74,138,092 |
| End of year | $78,775,265 | $66,081,876 |
| Statements of Changes in Net Assets | The accompanying notes are an integral part of these financial statements. |
Financial Highlights
Daily Income Fund
The financial highlights tables are intended to help you understand the Fund's financial performance for the past 5 years or, if shorter, the period of a Fund's operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions).
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Income from investment operations | | | | | |
| Net investment income | 0.01 | 0.01 | -—(a,b,c) | —(a,b,c) | —(a,b,c) |
| Net realized and unrealized gain (loss) on investments | — | — | — | — | — |
| Total from investment operations | 0.01 | 0.01 | — | — | — |
| Distributions | | | | | |
| Net investment income | (0.01) | (0.01) | —(c) | —(c) | —(c) |
| Net realized gain | — | — | — | — | — |
| Total distributions | (0.01) | (0.01) | — | — | — |
| Net Asset Value, End of Year | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Total Return | 1.43% | 1.08% | 0.18% | 0.01% | 0.01% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $162,835 | $163,854 | $173,927 | $195,858 | $193,156 |
| Ratio of net investment income to average net assets | 1.42% | 1.07% | 0.17%(a,b) | 0.00%(a,b,d) | 0.00%(a,b,d) |
| Ratio of gross expenses before voluntary expense limitation to average net assets | 0.78% | 0.74% | 0.71% | 0.71% | 0.68% |
| Ratio of expenses to average net assets | 0.78% | 0.74% | 0.66%(a,b) | 0.37%(a,b) | 0.14%(a,b) |
| (a) | On January 27, 2009, RE Advisers voluntarily and temporarily reduced the amount of the expense limitation from 0.80% to 0.50%. Additionally, effective August 14, 2009, RE Advisers agreed to further waive fees or reimburse expenses to the extent necessary to assist the Fund in attempting to maintain a positive yield. The temporary waiver continued through May 11, 2017. |
| (b) | Excludes excess investment management fees and other expenses voluntarily waived and reimbursed by RE Advisers. |
| (c) | Less than $0.01 per share. |
| (d) | Less than 0.01%. |
| The accompanying notes are an integral part of these financial statements. | Financial Highlights |
65
Financial Highlights
Short-Term Government Securities Fund
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $5.14 | $5.15 | $5.16 | $5.18 | $5.20 |
| Income from investment operations | | | | | |
| Net investment income | 0.08 | 0.07 | 0.05 | 0.04 | 0.04 |
| Net realized and unrealized gain (loss) on investments | 0.09 | (0.01) | (0.01) | (0.02) | (0.02) |
| Total from investment operations | 0.17 | 0.06 | 0.04 | 0.02 | 0.02 |
| Distributions | | | | | |
| Net investment income | (0.08) | (0.07) | (0.05) | (0.04) | (0.04) |
| Net realized gain | (0.02) | —(a) | —(a) | —(a) | —(a) |
| Total distributions | (0.10) | (0.07) | (0.05) | (0.04) | (0.04) |
| Net Asset Value, End of Year | $5.21 | $5.14 | $5.15 | $5.16 | $5.18 |
| Total Return | 3.36% | 1.20% | 0.87% | 0.45% | 0.46% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $71,516 | $76,918 | $75,425 | $73,108 | $73,048 |
| Ratio of net investment income to average net assets | 1.52%(b) | 1.37%(b) | 1.02%(b) | 0.81%(b) | 0.84% |
| Ratio of gross expenses before expense limitation to average net assets | 0.85% | 0.82% | 0.81% | 0.78% | 0.77% |
| Ratio of expenses to average net assets | 0.75%(b) | 0.75%(b) | 0.75%(b) | 0.75%(b) | 0.77% |
| Portfolio turnover rate | 237%(c) | 40% | 33% | 26% | 32% |
| (a) | Less than $0.01 per share. |
| (b) | Excludes expenses in excess of a 0.75% contractual expense limitation with RE Advisers, in effect through April 30, 2020. |
| (c) | The change in portfolio turnover from 2018 to 2019 is due to a repositioning of the Fund as a result of market activities. |
| Financial Highlights | The accompanying notes are an integral part of these financial statements. |
Financial Highlights
Short-Term Bond Fund
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $5.17 | $5.19 | $5.19 | $5.18 | $5.23 |
| Income from investment operations | | | | | |
| Net investment income | 0.10 | 0.10 | 0.08 | 0.08 | 0.07 |
| Net realized and unrealized gain (loss) on investments | 0.10 | (0.02) | —(a) | 0.01 | (0.05) |
| Total from investment operations | 0.20 | 0.08 | 0.08 | 0.09 | 0.02 |
| Distributions | | | | | |
| Net investment income | (0.10) | (0.10) | (0.08) | (0.08) | (0.07) |
| Net realized gain | (0.04) | —(a) | —(a) | — | — |
| Total distributions | (0.14) | (0.10) | (0.08) | (0.08) | (0.07) |
| Net Asset Value, End of Year | $5.23 | $5.17 | $5.19 | $5.19 | $5.18 |
| Total Return | 3.90% | 1.69% | 1.65% | 1.75% | 0.43% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $548,312 | $562,033 | $550,242 | $541,014 | $542,251 |
| Ratio of net investment income to average net assets | 1.87% | 2.02% | 1.59% | 1.49% | 1.38% |
| Ratio of expenses to average net assets | 0.79% | 0.77% | 0.76% | 0.76% | 0.74% |
| Portfolio turnover rate | 276%(b) | 39% | 32% | 31% | 20% |
| (a) | Less than $0.01 per share. |
| (b) | The change in portfolio turnover from 2018 to 2019 is due to a repositioning of the Fund as a result of market activities. |
| The accompanying notes are an integral part of these financial statements. | Financial Highlights |
67
Financial Highlights
Intermediate Bond Fund
| | Since Inception
May 1, 2019
to December 31 , |
| For a Share Outstanding Throughout the Period | 2019 |
| Net Asset Value, Beginning of Period | $5.00 |
| Income from investment operations | |
| Net investment income | 0.06 |
| Net realized and unrealized gain (loss) on investments | 0.17 |
| Total from investment operations | 0.23 |
| Distributions | |
| Net investment income | (0.06) |
| Net realized gain | (0.04) |
| Total distributions | (0.10) |
| Net Asset Value, End of Period | $5.13 |
| Total Return | 4.69%(a) |
| Ratios/Supplemental Data | |
| Net assets, end of period (thousands) | $23,845 |
| Ratio of net investment income to average net assets | 1.69%(b,c) |
| Ratio of gross expenses before expense limitation to average net assets | 2.49%(b) |
| Ratio of expenses to average net assets | 0.80%(b,c) |
| Portfolio turnover rate | 395%(d) |
| (a) | Aggregate total return for the period. |
| (b) | Annualized. |
| (c) | Excludes expenses in excess of a 0.80% contractual expense limitation with RE Advisers, in effect through April 30, 2021. |
| (d) | Rate includes purchases and sales of long-term U.S. Treasury Bonds. |
| Financial Highlights | The accompanying notes are an integral part of these financial statements. |
Financial Highlights
Stock Index Fund
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $18.67 | $20.02 | $16.67 | $15.20 | $15.33 |
| Income from investment operations | | | | | |
| Net investment income | 0.34 | 0.32 | 0.27 | 0.25 | 0.25 |
| Net realized and unrealized gain (loss) on investments | 5.39 | (1.30) | 3.26 | 1.47 | (0.13) |
| Total from investment operations | 5.73 | (0.98) | 3.53 | 1.72 | 0.12 |
| Distributions | | | | | |
| Net investment income | (0.38) | (0.37) | (0.18) | (0.25) | (0.25) |
| Net realized gain | (0.09) | — | — | — | — |
| Total distributions | (0.47) | (0.37) | (0.18) | (0.25) | (0.25) |
| Net Asset Value, End of Year | $23.93 | $18.67 | $20.02 | $16.67 | $15.20 |
| Total Return | 30.77% | -4.95% | 21.16% | 11.33% | 0.79% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $170,951 | $133,934 | $145,094 | $123,039 | $114,436 |
| Ratio of net investment income to average net assets | 1.39% | 1.39% | 1.42% | 1.57% | 1.49% |
| Ratio of expenses to average net assets | 0.59% | 0.56% | 0.55% | 0.58% | 0.54% |
| Portfolio turnover rate | N/A | N/A | N/A | N/A | N/A |
| The accompanying notes are an integral part of these financial statements. | Financial Highlights |
69
Financial Highlights
Value Fund
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $46.64 | $55.26 | $47.70 | $46.77 | $50.79 |
| Income from investment operations | | | | | |
| Net investment income | 0.83 | 0.91 | 1.00 | 1.10 | 0.94 |
| Net realized and unrealized gain (loss) on investments | 11.93 | (4.39) | 9.52 | 4.60 | (1.59) |
| Total from investment operations | 12.76 | (3.48) | 10.52 | 5.70 | (0.65) |
| Distributions | | | | | |
| Net investment income | (0.83) | (0.91) | (1.00) | (1.10) | (0.94) |
| Net realized gain | (7.06) | (4.23) | (1.96) | (3.67) | (2.43) |
| Total distributions | (7.89) | (5.14) | (2.96) | (4.77) | (3.37) |
| Net Asset Value, End of Year | $51.51 | $46.64 | $55.26 | $47.70 | $46.77 |
| Total Return | 27.69% | -6.36% | 22.17% | 12.26% | -1.28% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $992,108 | $875,266 | $1,118,709 | $955,828 | $899,158 |
| Ratio of net investment income to average net assets | 1.53% | 1.55% | 1.92% | 2.26% | 1.85% |
| Ratio of expenses to average net assets | 0.66% | 0.60% | 0.60% | 0.62% | 0.59% |
| Portfolio turnover rate | 17%(a) | 1% | 7% | 9% | 8% |
| (a) | The change in portfolio turnover from 2018 to 2019 is due to a repositioning of the Fund as a result of market activities. |
| Financial Highlights | The accompanying notes are an integral part of these financial statements. |
Financial Highlights
Growth Fund
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $9.68 | $10.36 | $8.07 | $8.00 | $7.79 |
| Income from investment operations | | | | | |
| Net investment income | -— | 0.02 | -— | — | — |
| Net realized and unrealized gain (loss) on investments | 2.73 | 0.41 | 3.04 | 0.19 | 0.73 |
| Total from investment operations | 2.73 | 0.43 | 3.04 | 0.19 | 0.73 |
| Distributions | | | | | |
| Net investment income | — | (0.02) | — | — | — |
| Net realized gain | (0.63) | (1.09) | (0.75) | (0.12) | (0.52) |
| Total distributions | (0.63) | (1.11) | (0.75) | (0.12) | (0.52) |
| Net Asset Value, End of Year | $11.78 | $9.68 | $10.36 | $8.07 | $8.00 |
| Total Return | 28.36% | 3.96% | 37.68% | 2.54% | 9.43% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $243,548 | $194,467 | $178,020 | $117,281 | $114,329 |
| Ratio of net investment income (loss) to average net assets | (0.14)% | 0.14% | (0.12)% | (0.14)%(a) | (0.32)% |
| Ratio of gross expenses before expense limitation to average net assets | 0.93% | 0.86% | 0.93% | 0.98% | 0.95% |
| Ratio of expenses to average net assets | 0.93% | 0.86% | 0.93% | 0.95%(a) | 0.95% |
| Portfolio turnover rate | 29% | 34% | 37% | 39% | 40% |
| (a) | Excludes expenses in excess of a 0.95% contractual expense limitation with RE Advisers, in effect through April 30, 2020. |
| The accompanying notes are an integral part of these financial statements. | Financial Highlights |
71
Financial Highlights
Small-Company Stock Fund
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $25.57 | $44.11 | $41.13 | $35.45 | $39.28 |
| Income from investment operations | | | | | |
| Net investment income | 0.18 | 0.15 | 0.08 | 0.14 | 0.15 |
| Net realized and unrealized gain (loss) on investments | 5.42 | (11.45) | 4.86 | 6.55 | (2.19) |
| Total from investment operations | 5.60 | (11.30) | 4.94 | 6.69 | (2.04) |
| Distributions | | | | | |
| Net investment income | (0.18) | (0.15) | (0.08) | (0.14) | (0.15) |
| Net realized gain | (4.74) | (7.09) | (1.88) | (0.87) | (1.64) |
| Total distributions | (4.92) | (7.24) | (1.96) | (1.01) | (1.79) |
| Net Asset Value, End of Year | $26.25 | $25.57 | $44.11 | $41.13 | $35.45 |
| Total Return | 22.16% | -26.18% | 11.99% | 18.85% | -5.18% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $332,450 | $486,993 | $1,277,434 | $1,322,218 | $1,211,351 |
| Ratio of net investment income to average net assets | 0.54% | 0.26% | 0.14% | 0.34% | 0.43% |
| Ratio of expenses to average net assets | 1.05% | 0.90% | 0.88% | 0.89% | 0.86% |
| Portfolio turnover rate | 38% | 5% | 7% | 14% | 16% |
| Financial Highlights | The accompanying notes are an integral part of these financial statements. |
Financial Highlights
International Equity Fund
| | Year Ended December 31, |
| For a Share Outstanding Throughout Each Year | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Year | $7.28 | $8.49 | $6.69 | $6.44 | $7.17 |
| Income from investment operations | | | | | |
| Net investment income | 0.12 | 0.12 | 0.08 | 0.07 | 0.47 |
| Net realized and unrealized gain (loss) on investments | 1.69 | (1.20) | 1.80 | 0.24 | (0.72) |
| Total from investment operations | 1.81 | (1.08) | 1.88 | 0.31 | (0.25) |
| Distributions | | | | | |
| Net investment income | (0.10) | (0.13) | (0.08) | (0.06) | (0.48) |
| Net realized gain | — | — | — | — | — |
| Total distributions | (0.10) | (0.13) | (0.08) | (0.06) | (0.48) |
| Net Asset Value, End of Year | $8.99 | $7.28 | $8.49 | $6.69 | $6.44 |
| Total Return | 24.83% | -12.74% | 28.12% | 4.85% | -3.48% |
| Ratios/Supplemental Data | | | | | |
| Net assets, end of year (thousands) | $78,775 | $66,082 | $74,138 | $53,974 | $53,144 |
| Ratio of net investment income to average net assets | 1.29%(a) | 1.39%(a) | 1.03%(a) | 1.22%(a,b) | 1.87%(a,b) |
| Ratio of gross expenses before voluntary expense limitation to average net assets | 1.30% | 1.23% | 1.25% | 1.46% | 1.01% |
| Ratio of expenses to average net assets | 0.99%(a) | 0.99%(a) | 0.99%(a) | 0.97%(a,b) | 0.87%(a,b) |
| Portfolio turnover rate | 27% | 16% | 11% | 112%(c) | 62% |
| (a) | Excludes expenses in excess of a 0.99% contractual expense limitation with RE Advisers, in effect through April 30, 2020. |
| (b) | RE Advisers waived additional management fees equal to the difference between the fee that would have been paid to the previous subadviser, Mercator and the fee paid to SSgA Funds Management Inc., beginning September 7, 2015 through January 14, 2016, the period in which SSgA Funds Management Inc. was subadviser. |
| (c) | Unusually high due to change in strategy and subadviser on January 15, 2016. |
| The accompanying notes are an integral part of these financial statements. | Financial Highlights |
73
Notes to Financial Statements
1. Organization
Homestead Funds, Inc. (the "Corporation") is a Maryland corporation organized on June 29, 1990. Homestead Funds Trust (the "Trust") is a Massachusetts business trust organized on February 15, 2019. The Corporation and the Trust are each registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Corporation currently consists of eight portfolios, Daily Income Fund, Short-Term Government Securities Fund, Short-Term Bond Fund, Stock Index Fund, Value Fund, Growth Fund, Small-Company Stock Fund, and International Equity Fund and the Trust currently consists of one portfolio, the Intermediate Bond Fund (collectively, the "Homestead Funds"). The Board of Directors of the Corporation and the Board of Trustees of the Trust are referred to collectively as the "Board".
Each Fund is a separate investment portfolio with distinct investment objectives, investment programs, policies and restrictions. The investment objectives of the Funds, as well as the nature and risks of the investment activities of each Fund, are set forth more fully in Homestead Funds’ Prospectus and Statement of Additional Information. All of the Funds are diversified for purposes of the Act. The Growth Fund previously operated as a non-diversified fund and may operate as a non-diversified fund in the future to the extent permitted by applicable law. Under current law, shareholder approval would be required for the Growth Fund to resume operating as non-diversified.
The Stock Index Fund pursues its investment objective by seeking to replicate the total return performance of the S&P 500 Index, which is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange. At December 31, 2019, the Stock Index Fund was operating as a feeder fund, whereby substantially all of its assets are invested in the S&P 500 Index Master Portfolio (“Master Portfolio”), an open-end investment company managed by BlackRock Fund Advisors. At December 31, 2019, the Stock Index Fund’s investment constituted 0.74% of the Master Portfolio. The financial statements of the Master Portfolio are contained in the Appendix of this report and should be read in conjunction with the financial statements for the Stock Index Fund.
2. Summary of Significant Accounting Policies
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Homestead Funds is considered an Investment Company under GAAP and follows the accounting and reporting guidance set forth in ASC Topic 946 Financial Services—Investment Companies. The preparation of financial statements in conformity with GAAP 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.
Security Valuation: Each Fund’s net asset value per share is determined as of the close of the New York Stock Exchange (“NYSE”) (usually 4:00 p.m. ET), each day that the NYSE is open for business ("Valuation Time"). Portfolio securities for which market quotations are readily available are valued at current market value as of the Valuation Time in accordance with the Portfolio Securities Valuation Policies and Procedures (“Valuation Procedures”) adopted by the Board. Market value is generally determined on the basis of official closing prices or the last reported sales prices and/or may be based on quotes or prices (including evaluated prices) supplied by the Funds’ approved independent pricing services. Portfolio securities for which market quotations are not readily available are valued at fair value by RE Advisers Corporation (“Adviser” or “RE Advisers”) or a Fund’s subadvisor, as determined in good faith in accordance with the Valuation Procedures.
The Board has delegated day-to-day responsibility for determining the fair value of securities to the Adviser and the Funds' subadvisors. RE Advisers has chartered an internal Valuation Committee to oversee the implementation of the Valuation Procedures, oversee the fair valuation decisions of the subadvisors, monitor the valuation process, and provide quarterly reports to the Board. The Valuation Committee reports all instances of fair valuation to the Board at each quarterly Board meeting, as applicable.
A disclosure hierarchy that categorizes the inputs used to value assets and liabilities at measurement date has been established under GAAP. These inputs are summarized into three broad levels as follows:
• Level 1—quoted prices in active markets for identical investments;
• Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and
• Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair valuation of investments).
| | Notes to Financial Statements |
Notes to Financial Statements | (Continued)
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy during the period.
The Funds use the following valuation techniques to value securities by major category:
Registered investment company shares (other than shares of exchange-traded funds and closed-end fund shares that trade on an exchange) are valued at the net asset value determined by the registered investment company after the close of the NYSE. The Funds invest in regulated investment companies that seek to maintain a share price of $1.00 and are categorized as Level 1 in the hierarchy.
Domestic equity securities and exchange traded funds that are traded on a national securities exchange are valued at the closing price as reported by an independent pricing service from the primary market in which the securities trade and are categorized as Level 1. Securities not traded or dealt in upon a national securities exchange for which over-the-counter market quotations are readily available generally are valued (i) at the last quoted sales price (if adequate trading volume is present) or, (ii) otherwise at the last bid price.
Foreign equity securities that are traded on a foreign exchange are valued based on the closing price as reported by an independent pricing service from the primary market in which such securities are normally traded. An independent pricing service is utilized to fair value foreign equity securities based on the impact of market events between the close of the foreign exchange and the time the net asset value is calculated. Foreign equity securities that are fair valued are categorized as Level 2 in the hierarchy and foreign equity securities not fair valued are categorized as Level 1.
Fixed income securities, including corporate, government, municipal, mortgage-backed and asset-backed securities are valued (1) by an independent pricing service based on market prices, or broker/dealer quotations, (2) market value generated by an independent pricing service, or (3) market value generated by RE Advisers using a pricing matrix or model based on benchmark yields, issuer, spreads, monthly payment information or other available market information for securities of similar characteristics. For purposes of the Valuation Procedures, the process described in (3) is deemed to be a fair valuation of such portfolio securities, solely for the purpose of the applicability of the fair valuation determinations set forth in the Valuation Procedures. For fixed-income securities, the security is valued following the sequence above and flows to the next method only if the prior method is not available.
Fixed income securities utilizing these methods are generally categorized as Level 2. Fixed income securities that are valued using only a broker quote, absent corroborating observable inputs are categorized as Level 3.
Fixed income securities and commercial paper held in the Daily Income Fund are valued at amortized cost and are categorized as Level 2 in the hierarchy. Under the amortized cost method, discounts and premiums on securities purchased are amortized over the lives of the respective securities. The value of the securities using amortized cost would be approximately the same as using fair value without amortized cost.
If a market value cannot be determined for a security using the methodologies described above, or if, in the good faith opinion of the Adviser or Funds’ subadvisor, the market value does not constitute a readily available market quotation, or if a significant event has occurred that would impact a security’s valuation, the security will be fair valued as determined in good faith by the Funds’ Adviser or subadvisor Funds’ based on the Valuation Procedures approved by the Board. The determination of a security’s fair value price often involves the consideration of a number of subjective factors, and therefore, is subject to the risk that the value that is assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security were readily available. Such securities are generally categorized as Level 3 in the hierarchy.
The Stock Index Fund records its investment in the Master Portfolio at the market value of its proportionate interest in the net assets of the Master Portfolio. For purposes of determining the net asset value of the Stock Index Fund, the securities of the Master Portfolio are priced by the investment advisor to the Master Portfolio under the direction of the Board of Trustees of the Master Portfolio. The policies and procedures are discussed in the notes to the Master Portfolio’s financial statements, included in the Appendix of this report.
The following table summarizes each Fund’s investments, based on the inputs used to determine their values on December 31, 2019 (other than Stock Index Fund). The level classifications of the Master Portfolio as of December 31, 2019 are included in the Appendix.
| Notes to Financial Statements | |
75
Notes to Financial Statements | (Continued)
| Daily Income Fund | Level 1 | Level 2 | Level 3 | Total |
| U.S. Government & Agency Obligations | $ — | $146,108,035 | $ — | $146,108,035 |
| Money Market Fund | 16,798,001 | — | — | 16,798,001 |
| Total | $16,798,001 | $146,108,035 | $ — | $162,906,036 |
| Short-Term Government Securities Fund | | | | |
| U.S. Government & Agency Obligations | $ — | $44,842,189 | $ — | $44,842,189 |
| Corporate Bonds Guaranteed by Export-Import Bank of the United States | — | 19,724,695 | — | 19,724,695 |
| Asset-Backed Securities | — | 3,056,459 | — | 3,056,459 |
| Corporate Bonds–Other | — | 1,914,206 | — | 1,914,206 |
| Mortgage-Backed Security | — | 62,746 | — | 62,746 |
| Certificates of Deposit | — | 449,085 | — | 449,085 |
| Money Market Fund | 1,544,204 | — | — | 1,544,204 |
| Total | $1,544,204 | $70,049,380 | $ — | $71,593,584 |
| Short-Term Bond Fund | | | | |
| U.S. Government & Agency Obligations | $ — | $336,766,591 | $ — | $336,766,591 |
| Corporate Bonds–Other | — | 107,669,116 | — | 107,669,116 |
| Asset-Backed Securities | — | 66,965,964 | — | 66,965,964 |
| Yankee Bonds | — | 30,909,595 | — | 30,909,595 |
| Municipal Bond | — | 910,227 | — | 910,227 |
| Mortgage-Backed Securities | — | 734,050 | — | 734,050 |
| Corporate Bond Guaranteed by Export-Import Bank of the United States | — | 260,255 | — | 260,255 |
| Money Market Fund | 4,191,510 | — | — | 4,191,510 |
| Total | $4,191,510 | $544,215,798 | $ — | $548,407,308 |
| Intermediate Bond Fund | | | | |
| U.S. Government & Agency Obligations | $ — | $9,485,234 | $ — | $9,485,234 |
| Corporate Bonds–Other | — | 6,086,704 | — | 6,086,704 |
| Mortgage-Backed Securities | — | 5,587,641 | — | 5,587,641 |
| Asset-Backed Securities | — | 1,243,797 | — | 1,243,797 |
| Yankee Bonds | — | 897,041 | — | 897,041 |
| Municipal Bond | — | 99,584 | — | 99,584 |
| Money Market Fund | 448,344 | — | — | 448,344 |
| Total | $448,344 | $23,400,001 | $ — | $23,848,345 |
| Value Fund | | | | |
| Common Stocks | $984,272,271 | $ — | $ — | $984,272,271 |
| Money Market Fund | 8,030,578 | — | — | 8,030,578 |
| Total | $992,302,849 | $ — | $ — | $992,302,849 |
| Growth Fund | | | | |
| Common Stocks | $241,587,000 | $ — | $ — | $241,587,000 |
| Money Market Fund | 1,676,128 | — | — | 1,676,128 |
| Total | $243,263,128 | $ — | $ — | $243,263,128 |
| Small-Company Stock Fund | | | | |
| Common Stocks | $328,821,467 | $ — | $ — | $328,821,467 |
| Money Market Fund | 5,156,460 | — | — | 5,156,460 |
| Total | $333,977,927 | $ — | $ — | $333,977,927 |
| | Notes to Financial Statements |
Notes to Financial Statements | (Continued)
| International Equity Fund | Level 1 | Level 2 | Level 3 | Total |
| Common Stocks | $13,358,147 | $62,544,109 | $ — | $75,902,256 |
| Preferred Stocks | 299,727 | 1,029,767 | — | 1,329,494 |
| Money Market Fund | 1,392,961 | — | — | 1,392,961 |
| Total | $15,050,835 | $63,573,876 | $ — | $78,624,711 |
During the period ended December 31, 2019, there were no transfers between levels.
Foreign currency: The International Equity Fund may use foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contract’s terms. Foreign-denominated assets, including investment securities and liabilities are translated into U.S. dollars at the exchange rate at the end of the period. Purchases and sales of investment securities and income and dividends received are translated into U.S. dollars at the exchange rate in effect on the transaction date. Currency gains and losses and the effects of exchange rate fluctuations on investments are included with the realized and unrealized gain (loss) on investment securities.
To-be-announced securities: The Intermediate Bond Fund purchases securities on a to-be-announced (TBA) basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. The Fund maintains liquid assets sufficient to settle its commitment to purchase a TBA security.
Distributions to shareholders: Dividends to shareholders are recorded on the ex-dividend date. Ordinary income dividends for the Daily Income, Short-Term Government Securities, Short-Term Bond, and Intermediate Bond Funds are declared daily and paid monthly. Ordinary income dividends for Value Fund are declared and paid semi-annually. Ordinary income dividends for the Stock Index, Growth, Small-Company Stock and International Equity Funds are declared and paid annually. Capital gains dividends, if any, are declared and paid at the end of each fiscal year. Any unpaid capital gains will be paid in June of the subsequent year, but no later than the extended due date of the federal tax return.
Other: Dividend income is recorded on the ex-dividend date. Interest income, including amortization of premium and accretion of discount, and expenses are recorded on the accrual basis. Investment transactions are recorded as of the trade date. Realized gains and losses from investment transactions are reported on the identified cost basis.
The Stock Index Fund records a pro rata share of the Master Portfolio’s income, expenses, and realized and unrealized gains and losses in addition to the Fund’s own expenses, which are accrued daily.
In the normal course of business, the Funds enter into contracts that provide general indemnifications. The Funds’ maximum exposure under these arrangements is dependent on claims that may be made against the Funds in the future and therefore cannot be estimated; however, the Funds have not had prior claims or losses pursuant to these contracts.
Management considered events occurring between the date of this report, December 31, 2019, and the date of issuance of this report in determining adjustments to the financial statements or necessary disclosures in this report.
3. Federal Income Tax Information
The Funds intend to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and will distribute all net investment income to its shareholders. Therefore, no provision for Federal income taxes is required.
Management has analyzed the Funds’ tax positions and has concluded that no provision for income tax is required in the Funds’ financial statements. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. However, management’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to new tax laws, regulations and administrative interpretations.
Each Fund files U.S. federal, state, and local tax returns as required. Each Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after filing of the tax return but could be longer in certain circumstances.
| Notes to Financial Statements | |
77
Notes to Financial Statements | (Continued)
Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments of the following: futures and options transactions, foreign currency transactions, losses deferred due to wash sales, losses deferred due to post-October losses, partnership investments, deferred Director’s fees, passive foreign investment company transactions, and REIT transactions, which are reflected as "other book/tax differences" in the following tables.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Reclassifications recorded in 2019 include paydown losses for Short-Term Government Securities, Short-Term Bond,and Intermediate Bond Funds, prior year excise tax for Stock Index Fund, deemed distribution due to equalization for Value Fund, foreign currency transactions, net operating losses, and distribution redesignations for Growth Fund, REIT trasactions and deemed distributions due to equalization for Small Company Stock Fund, and foreign currency transactions for International Equity Fund. The tax reclassifications for 2019 are reflected below. Undistributed net investment income and undistributed capital gains are included in distributable earnings in the Statement of Assets and Liabilities.
| | Undistributed
Net Investment
Income | Undistributed
Capital Gains | Paid in
Capital |
| Daily Income Fund | $— | $— | $— |
| Short-Term Gov. Securities Fund | $4 | $(4) | $— |
| Short-Term Bond Fund | $15,547 | $(15,547) | $— |
| Intermediate Bond Fund | $3,525 | $(3,525) | $— |
| Stock Index Fund | $277,732 | $(277,487) | $(245) |
| Value Fund | $— | $(9,584,301) | $9,584,301 |
| Growth Fund | $289,910 | $14,576 | $(304,486) |
| Small-Company Stock Fund | $(58,224) | $(13,480,498) | $13,538,722 |
| International Equity Fund | $111,824 | $5,600 | $(117,424) |
| | | | |
Tax character of distributions paid in 2019 was as follows:
| | Ordinary
Income | Long-Term
Gain | Return of
Capital | Total
Distributions |
| Daily Income Fund | $2,360,611 | $— | $— | $2,360,611 |
| Short-Term Gov. Securities Fund | $1,441,910 | $— | $— | $1,441,910 |
| Short-Term Bond Fund | $14,850,051 | $— | $— | $14,850,051 |
| Intermediate Bond Fund | $327,462 | $— | $— | $327,462 |
| Stock Index Fund | $3,204,130 | $129,581 | $— | $3,333,711 |
| Value Fund | $14,340,909 | $120,996,739 | $— | $135,337,648 |
| Growth Fund | $— | $12,506,704 | $— | $12,506,704 |
| Small-Company Stock Fund | $2,225,699 | $63,126,139 | $— | $65,351,838 |
| International Equity Fund | $841,645 | $— | $— | $841,645 |
| | | | | |
Tax character of distributions paid in 2018 was as follows:
| | Ordinary
Income | Long-Term
Gain | Return of
Capital | Total
Distributions |
| Daily Income Fund | $1,781,962 | $— | $— | $1,781,962 |
| Short-Term Gov. Securities Fund | $1,044,071 | $15,614 | $— | $1,059,685 |
| Short-Term Bond Fund | $11,180,740 | $195,315 | $— | $11,376,055 |
| Intermediate Bond Fund | $— | $— | $— | $— |
| Stock Index Fund | $2,625,112 | $— | $— | $2,625,112 |
| Value Fund | $16,389,345 | $73,595,074 | $— | $89,984,419 |
| Growth Fund | $1,391,923 | $18,722,013 | $— | $20,113,936 |
| Small-Company Stock Fund | $2,497,047 | $119,921,150 | $— | $122,418,197 |
| International Equity Fund | $1,151,141 | $— | $— | $1,151,141 |
Amounts reflected in ordinary income include short-term gain distributions.
| | Notes to Financial Statements |
Notes to Financial Statements | (Continued)
The tax character of distributable earnings/(accumulated losses) at December 31, 2019 was as follows:
| | Undistributed
Ordinary
Income | Undistributed
Long-Term
Gain | Net
Unrealized
Appreciation/
Depreciation | Capital Loss
Carryforward/
Late Year
Loss Deferral | Other
Book/Tax
Differences | Total
Distributable
Earnings (Losses) |
| Daily Income Fund | $— | $— | $— | $— | $(69,185) | $(69,185) |
| Short-Term Gov. Securities Fund | $46,156 | $— | $299,775 | $— | $(27,848) | $318,083 |
| Short-Term Bond Fund | $650,130 | $— | $2,633,590 | $— | $(152,409) | $3,131,311 |
| Intermediate Bond Fund | $— | $— | $79,616 | $(75,822) | $(942) | $2,852 |
| Stock Index Fund | $— | $520,784 | $120,997,367 | $— | $1,226,172 | $122,744,323 |
| Value Fund | $84,765 | $14,815,730 | $481,400,990 | $— | $(254,075) | $496,047,410 |
| Growth Fund | $— | $2,602,688 | $84,821,776 | $— | $(26,463) | $87,398,001 |
| Small-Company Stock Fund | $38,252 | $3,313,486 | $87,976,725 | $— | $(172,076) | $91,156,387 |
| International Equity Fund | $95,090 | $— | $17,061,177 | $(1,873,522) | $(50,433) | $15,232,312 |
| | | | | | | |
For Intermediate Bond Fund $75,822 represents losses incurred between November 1st and December 31st and which will reverse the first day of 2020. For International Equity Fund, $1,873,522 represents short-term capital loss carry forwards with no expiration. International Equity Fund utilized $3,301,499 of capital loss carry forwards in 2019.
At December 31, 2019, the cost of securities for federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value was as follows:
| | Tax Cost | Tax Appreciation | Tax Depreciation | Net Tax
Appreciation
(Depreciation) |
| Daily Income Fund | $162,906,036 | $— | $— | $— |
| Short-Term Gov. Securities Fund | $71,293,809 | $374,338 | $(74,563) | $299,775 |
| Short-Term Bond Fund | $545,773,718 | $3,121,029 | $(487,439) | $2,633,590 |
| Intermediate Bond Fund | $23,768,729 | $125,439 | $(45,823) | $79,616 |
| Value Fund | $510,901,859 | $483,493,944 | $(2,092,954) | $481,400,990 |
| Growth Fund | $158,441,352 | $85,965,257 | $(1,143,481) | $84,821,776 |
| Small-Company Stock Fund | $246,001,202 | $89,522,765 | $(1,546,040) | $87,976,725 |
| International Equity Fund | $61,565,512 | $18,729,166 | $(1,669,967) | $17,059,199 |
| | | | | |
The difference between book basis and tax basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales. Net unrealized appreciation/(depreciation) of Stock Index Fund in the Master Portfolio consists of an allocated portion of the portfolio’s unrealized appreciation/(depreciation). For information pertaining to the unrealized appreciation/(depreciation) for the Master Portfolio, please refer to the Appendix of this report.
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, 2019, were as follows:
| | Purchases | Proceeds
from Sale |
| Short-Term Gov. Securities Fund | $11,525,738 | $16,437,768 |
| Short-Term Bond Fund | $231,332,883 | $476,909,621 |
| Intermediate Bond Fund | $30,760,364 | $17,024,914 |
| Value Fund | $160,622,807 | $254,990,800 |
| Growth Fund | $64,066,656 | $67,679,772 |
| Small-Company Stock Fund | $154,540,906 | $375,015,881 |
| International Equity Fund | $18,954,885 | $20,830,269 |
| Notes to Financial Statements | |
79
Notes to Financial Statements | (Continued)
Purchases and proceeds from sales of long-term U.S. Government securities, for the period ended December 31, 2019, were as follows:
| | Purchases | Proceeds
from Sale |
| Short-Term Gov. Securities Fund | $154,382,882 | $150,356,202 |
| Short-Term Bond Fund | $1,262,176,133 | $1,005,832,163 |
| Intermediate Bond Fund | $45,520,482 | $36,034,032 |
5. Related Parties
The investment management agreements between Homestead Funds, with respect to each Fund (other than the Stock Index Fund), and RE Advisers, an indirect, wholly-owned subsidiary of the National Rural Electric Cooperative Association (“NRECA”), provide for an annual investment management fee, that also provides for certain administrative services to the Funds, which is computed daily and paid monthly, based on each Fund’s average daily net assets. The annualized management fee rates for the Funds are 0.50% of average daily net assets for Daily Income Fund; 0.45% of average daily net assets for Short-Term Government Securities Fund; 0.60% of average daily net assets for Short-Term Bond Fund; 0.60% of average daily net assets up to $500 million, 0.50% of average daily net assets up to the next $500 million, and 0.45% of average daily net assets in excess of $1 billion for Intermediate Bond Fund; 0.65% of average daily net assets up to $200 million, 0.50% of average daily net assets up to the next $200 million, 0.40% of average daily net assets in excess of $400 million for Value Fund; 0.65% of average daily net assets up to $250 million and 0.60% of average daily net assets in excess of $250 million for the Growth Fund; 0.85% of average daily net assets up to $200 million and 0.75% of average daily net assets in excess of $200 million for Small-Company Stock Fund; and 0.75% of average daily net assets up to $300 million, 0.65% of average daily net assets up to the next $100 million, 0.55% of average daily net assets up to the next $100 million, and 0.50% of average daily net assets in excess of $500 million for International Equity Fund.
T. Rowe Price Associates, Inc. (“T. Rowe”) is the subadvisor for the Growth Fund and Harding Loevner LP (“Harding”) is the subadvisor for the International Equity Fund. The subadvisors select, buy, and sell securities under the supervision and oversight of RE Advisers and the Board of Directors. RE Advisers pays the subadvisors from the fees it receives from the Funds. SSGA Funds Management, Inc. ("SSGA FM") served as interim subadvisor to the International Equity Fund from September 7, 2015 until January 8th, 2016. Harding Loevner LP began as subadvisor on January 15, 2016 after a transition period.
RE Advisers serves as the administrator for the Stock Index Fund pursuant to an Administrative Services Agreement with the fund, under which RE Advisers provides certain administrative services to the Fund. Pursuant to this agreement, RE Advisers receives a fee of 0.25% of the Fund's average daily net assets. In addition, the Stock Index Fund is allocated a management fee from the Master Portfolio, calculated daily at an annual rate of 0.01% of its average daily net assets. This fee includes advisory, custody, and administrative fees provided by the Master Portfolio on behalf of its investors. The financial information for the Master Portfolio is included in the Appendix.
RE Advisers has agreed, as part of the Expense Limitation Agreement entered into with Homestead Funds, with respect to each Fund, to waive its management fee and/or reimburse all Fund operating expenses, excluding certain non-recurring expenses, such as interest, taxes, brokerage commissions, other expenditures that are capitalized in accordance with generally accepted accounting principles, expenses not incurred in the ordinary course of business, or, in the case of each Fund other than the Stock Index Fund, fees and expenses associated with an investment in another investment company or any company that would be an investment company under Section 3(a) of the Act, but for the exceptions to that definition provided for in Sections 3(c)(1) and 3(c)(7) of the Act, which in any year exceed 0.80% of the average daily net assets of the Daily Income, Short-Term Bond, and Intermediate Bond Funds, 0.75% of the average daily net assets of the Short-Term Government Securities and Stock Index Funds, 1.25% of the average daily net assets of Value Fund, 0.95% of the average daily net assets of Growth Fund, 1.50% of the average daily net assets of Small-Company Stock Fund and 0.99% of the average daily net assets of the International Equity Fund.
Pursuant to the Expense Limitation Agreement, management fees waived for the period ended December 31, 2019 amounted to $76,510 for Short-Term Government Securities Fund, $49,608 for Intermediate Bond Fund and $227,636 for International Equity Fund. In addition, RE Advisers reimbursed certain expenses to the Intermediate Bond Fund in the amount of $89,423.
On August 14, 2009, RE Advisers voluntarily agreed to waive fees and/or reimburse expenses, to the extent necessary to assist the Daily Income Fund in attempting to maintain a positive yield (the "temporary waiver"). The temporary waiver continued from 2009 through May 11, 2017.
| | Notes to Financial Statements |
Notes to Financial Statements | (Continued)
For the period beginning September 7, 2015 through January 14, 2016, RE Advisers, pursuant to a contractual waiver with the International Equity Fund, waived from the management fee due to it from International Equity Fund the amount equal to the subadvisory fees it would have paid to Mercator Asset Management L.P., the Fund's subadvisor prior to September 7, 2015, less the amount it paid to SSGA FM for subadvisory services during such period.
Under a Deferred Compensation Plan (the “Plan”), Independent Directors or Trustees of the Funds may elect to defer receipt of all or a specified portion of their compensation. Deferred amounts are credited with the earnings and losses equal to those made as if the deferred amounts were invested in one or more of the Funds, as designated by each participating Independent Director / Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. The liability is reflected as Independent Director / Trustee's deferred compensation on the Statement of Assets and Liabilities and the expense is included in Director, Trustee and Board meeting expenses on the Statement of Operations.
As of December 31, 2019, certain unaffiliated shareholders of record, including omnibus accounts, held greater than 10% of the net assets of the Funds as follows: there was one such account in the Intermediate Bond Fund accounting for approximately 12% of the outstanding shares and there were two such accounts in the Small-Company Stock Fund accounting for approximately 14% of the outstanding shares each.
6. Capital Share Transactions
As of December 31, 2019, unlimited shares of $.01 par value capital shares are authorized for Intermediate Bond Fund, 500 million shares are authorized for Daily Income Fund, 200 million shares for Short-Term Bond Fund, and 100 million shares for Short-Term Government Securities Fund, Stock Index Fund, Value Fund, Growth Fund, Small-Company Stock Fund, and International Equity Fund. Transactions in capital shares were as follows:
| | Shares
Sold | Shares Issued
In Reinvestment
of Dividends | Total Shares
Issued | Total Shares
Redeemed | Net Increase
(Decrease) |
| Year Ended December 31, 2019 | | | | | |
| In Dollars | | | | | |
| Daily Income Fund | $91,086,706 | $2,336,618 | $93,423,324 | $(94,436,803) | $(1,013,479) |
| Short-Term Government Securities Fund | $4,833,516 | $1,424,511 | $6,258,027 | $(12,570,040) | $(6,312,013) |
| Short-Term Bond Fund | $56,684,029 | $14,583,306 | $71,267,335 | $(91,304,333) | $(20,036,998) |
| Intermediate Bond Fund | $23,899,853 | $327,117 | $24,226,970 | $(385,263) | $23,841,707 |
| Stock Index Fund | $17,527,067 | $3,303,467 | $20,830,534 | $(20,978,053) | $(147,519) |
| Value Fund | $48,837,566 | $131,515,248 | $180,352,814 | $(157,409,343) | $22,943,471 |
| Growth Fund | $36,189,129 | $12,427,196 | $48,616,325 | $(41,645,651) | $6,970,674 |
| Small-Company Stock Fund | $35,434,305 | $64,691,901 | $100,126,206 | $(282,373,522) | $(182,247,316) |
| International Equity Fund | $5,229,301 | $831,804 | $6,061,105 | $(8,583,771) | $(2,522,666) |
| In Shares | | | | | |
| Daily Income Fund | 91,086,706 | 2,336,618 | 93,423,324 | (94,436,803) | (1,013,479) |
| Short-Term Government Securities Fund | 930,893 | 273,974 | 1,204,867 | (2,420,838) | (1,215,971) |
| Short-Term Bond Fund | 10,852,517 | 2,786,212 | 13,638,729 | (17,474,550) | (3,835,821) |
| Intermediate Bond Fund | 4,660,754 | 63,669 | 4,724,423 | (74,550) | 4,649,873 |
| Stock Index Fund | 807,251 | 140,575 | 947,826 | (976,297) | (28,471) |
| Value Fund | 936,620 | 2,568,734 | 3,505,354 | (3,011,146) | 494,208 |
| Growth Fund | 3,255,743 | 1,071,930 | 4,327,673 | (3,749,241) | 578,432 |
| Small-Company Stock Fund | 1,258,845 | 2,385,961 | 3,644,806 | (10,027,693) | (6,382,887) |
| International Equity Fund | 638,711 | 93,043 | 731,754 | (1,045,911) | (314,157) |
| Notes to Financial Statements | |
81
Notes to Financial Statements | (Continued)
| | Shares
Sold | Shares Issued
In Reinvestment
of Dividends | Total Shares
Issued | Total Shares
Redeemed | Net Increase
(Decrease) |
| Year Ended December 31, 2018 | | | | | |
| In Dollars | | | | | |
| Daily Income Fund | $99,834,828 | $1,759,707 | $101,594,535 | $(111,667,972) | $(10,073,437) |
| Short-Term Government Securities Fund | $13,050,967 | $1,047,397 | $14,098,364 | $(12,446,847) | $1,651,517 |
| Short-Term Bond Fund | $92,746,007 | $11,174,708 | $103,920,715 | $(90,823,019) | $13,097,696 |
| Stock Index Fund | $19,057,748 | $2,608,256 | $21,666,004 | $(23,439,983) | $(1,773,979) |
| Value Fund | $92,336,077 | $87,189,015 | $179,525,092 | $(274,079,327) | $(94,554,235) |
| Growth Fund | $51,575,108 | $19,984,976 | $71,560,084 | $(40,989,389) | $30,570,695 |
| Small-Company Stock Fund | $96,766,231 | $120,348,694 | $217,114,925 | $(671,707,033) | $(454,592,108) |
| International Equity Fund | $10,465,592 | $1,138,797 | $11,604,389 | $(8,901,703) | $2,702,686 |
| In Shares | | | | | |
| Daily Income Fund | 99,834,828 | 1,759,707 | 101,594,535 | (111,667,972) | (10,073,437) |
| Short-Term Government Securities Fund | 2,546,237 | 204,330 | 2,750,567 | (2,428,212) | 322,355 |
| Short-Term Bond Fund | 17,930,290 | 2,160,822 | 20,091,112 | (17,558,653) | 2,532,459 |
| Stock Index Fund | 926,146 | 135,267 | 1,061,413 | (1,134,986) | (73,573) |
| Value Fund | 1,675,097 | 1,843,395 | 3,518,492 | (4,996,418) | (1,477,926) |
| Growth Fund | 4,553,819 | 2,027,070 | 6,580,889 | (3,662,673) | 2,918,216 |
| Small-Company Stock Fund | 2,368,470 | 4,481,052 | 6,849,522 | (16,759,137) | (9,909,615) |
| International Equity Fund | 1,233,468 | 156,000 | 1,389,468 | (1,049,807) | 339,661 |
7. Subsequent Events
Management has evaluated the impact of all subsequent events through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in these financial statements.
8. Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued Accounting Standard Update 2018-13, Fair Value Measurement (Topic 820); Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, intended to improve the effectiveness of the disclosure requirements for fair value measurements. The amendment is affective for fiscal years and interim periods beginning after December 15, 2019. Management is currently evaluating the impact these changes will have on the financial statements and disclosures.
Effective January 1, 2019, the Funds adopted Accounting Standard Update No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for the premium on certain callable debt securities to the earliest call date. There was no impact on the financial statements.
| | Notes to Financial Statements |
Shareholder Meeting Results
A special meeting of shareholders of Homestead Funds, Inc. (the “Corporation”) was held on June 27, 2019. The proposals and results of the votes are summarized below.
Election of Directors
| | Votes For | Votes Withheld |
| Julie H. Dellinger | 303,181,061.582 | 8,953,085.411 |
| Judith H. McKinney | 303,441,664.942 | 8,692,482.051 |
| Mark D. Santero | 302,667,784.912 | 9,466,362.081 |
| Peter J. Tonetti | 303,456,363.323 | 8,677,783.670 |
The other Directors whose term of office continued after the meeting are as follows: James F. Perna, Douglas W. Johnson, Kenneth R. Meyer, Anthony M. Marinello, Sheldon C. Petersen and Mark Rose.
To approve a proposal to authorize RE Advisers Corporation and the Corporation to enter into and materially amend certain investment sub-advisory agreements, with the approval of the Board, but without obtaining additional shareholder approval.
| | Votes For | Votes Against | Abstentions | Broker Non-
Votes |
| Daily Income Fund | 141,151,229.001 | 10,068,646.098 | 3,320,258.712 | 75,027.760 |
| Short-Term Bond Fund | 79,383,080.036 | 3,324,639.165 | 1,836,953.091 | 4,322,240.122 |
| Value Fund | 9,084,528.635 | 2,272,136.708 | 233,933.144 | 2,566,240.461 |
Short-Term Government
Securities Fund | 11,044,431.996 | 717,913.770 | 241,248.074 | 11,481.206 |
| Stock Index Fund | 5,157,867.472 | 192,415.900 | 24,331.274 | 153,614.778 |
| Growth Fund | 14,099,682.584 | 510,747.354 | 269,710.629 | 1,803,849.813 |
| International Equity Fund | 7,138,682.065 | 196,465.413 | 65,994.227 | 26,633.341 |
The special meeting of shareholders of the Small-Company Stock Fund (the "Fund"), a series of the Corporation first held on June 27, 2019 was reconvened on July 30, 2019. The proposal and results of the votes are summarized below.
To approve a proposal to authorize RE Advisers Corporation and the Corporation to enter into and materially amend certain investment sub-advisory agreements, with the approval of the Board, but without obtaining additional shareholder approval.
| | Votes For | Votes Against | Abstentions | Broker Non-
Votes |
| Small-Company Stock Fund | 6,175,007.011 | 601,135.383 | 703,731.949 | 5,527,507.878 |
Directors, Trustees and Officers
Independent | (Unaudited)
Each Director or Trustee serves until their resignation or until their successor is duly elected and qualified. The Statement of Additional Information (“SAI”) has additional information about the Funds’ Directors, Trustees and officers and is available online at homesteadfunds.com and, without charge, upon request by calling 800-258-3030.
Name, Address
and Date of Birth | Position(s) Held
With Homestead Funds | Term of Office and Length of Time Served | Principal Occupation(s)
During Past Five Years | Number of Portfolios Overseen by Director | Other Directorships Held by Director |
James F. Perna
12/01/47 | Director/Trustee, Chairman of the Board, Member of Audit Committee, Member of Compensation Committee | 1990-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | Solo Practitioner (attorney) (2008-present) | 9 | None |
Douglas W. Johnson
06/02/55 | Director/Trustee, Chairman of Audit Committee, Member of Compensation Committee | 2003-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | CEO, Blue Ridge Electric Membership Corporation (1989-present) | 9 | None |
Kenneth R. Meyer
08/11/44 | Director/Trustee, Member of Audit Committee, Chairman of Compensation Committee | 2005-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | Retired (2004-present) | 9 | None |
Anthony M. Marinello
04/13/46 | Director/Trustee, Member of Audit Committee, Member of Compensation Committee | 1990-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | Retired (2004-present) | 9 | None |
Sheldon C. Petersen
02/21/53 | Director/Trustee, Member of Audit Committee, Member of Compensation Committee | 2005-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | CEO, National Rural Utilities Cooperative Finance Corporation (1995-present) | 9 | None |
Mark Rose
04/19/53 | Director/Trustee, Member of Audit Committee, Member of Compensation Committee | 2005-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | Consultant, public affairs (2017-present (self-employed)); CEO and General Manager, Bluebonnet Electric Cooperative (2002-2017) | 9 | None |
Peter J. Tonetti
02/11/53 | Director/Trustee, Member of Audit Committee, Member of Compensation Committee | 2010-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | Retired (2015-present); Chief Investment Officer, Hamilton College (2008-2015) | 9 | None |
Judy H. McKinney
07/10/50 | Director/Trustee, Member of Audit Committee, Member of Compensation Committee | 2019-present (Homestead Funds, Inc.); 2019-present (Homestead Funds Trust) | Executive Vice President and Manager, Callan LLC (2007-2019) | 9 | None |
Directors, Trustees and Officers
Independent | (Unaudited) (Continued)
Julie H. Dellinger
10/04/53 | Director/Trustee, Member of Audit Committee, Member of Compensation Committee | 2019-present (Homestead Funds, Inc.); 2019-present (Homestead Funds Trust) | Westminster Investment Consultants, CEO (2017- present); Managing Vice President of Investments, ICMARC and Manager, Vantagepoint Investment Advisers, LLC (1998-2017) | 9 | None |
Directors and Officers
85
Directors and Officers
Interested | (Unaudited)
Name, Address
and Date of Birth | Position(s) Held
With Homestead Funds | Term of Office and Length of Time Served | Principal Occupation(s)
During Past Five Years | Number of Portfolios Overseen by Director | Other Directorships Held by Director |
Mark D. Santero (1)
4301 Wilson Boulevard
Arlington, VA 22203
05/29/61 | Director/Trustee, President and Chief Executive Officer | 2018-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | RE Advisers Corporation, President, Chief Executive Officer and Director (2018- present); Chief Executive Officer, The Dreyfus Corporation (2016-2017); Chief Operating Officer, BNY Mellon Investment Management (2014- 2016) | 9 | Not Applicable |
Danielle C. Sieverling
4301 Wilson Boulevard
Arlington, VA 22303
02/25/71 | Chief Compliance Officer | 2005-present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | Chief Compliance Officer, RE Advisers (2005-present); Vice President, Chief Risk and Compliance Officer, NRECA (2015-present); Chief Compliance Officer, RE Investment Corporation (2017- Present); Secretary, RE Advisers (2017- 2018); Chief Executive Officer and Director, RE Investment Corporation (2017- 2018); Director, RE Investment Corporation (2016); Vice President and Director, RE Investment Corporation (2015- 2016); Vice President and Chief Compliance Officer, Management Advisory Services, NRECA (2008-2015) | Not Applicable | Not Applicable |
Amy M. DiMauro
4301 Wilson Boulevard
Arlington, VA 22203
07/29/71 | Treasurer | 2007-present (Homestead Funds, Inc,); since inception (Homestead Funds Trust) | Treasurer and Director, RE Investment Corporation (2006- present); Treasurer and Director, RE Advisers Corporation (2010- present); Senior Director, Finance & Accounting—Mutual Funds, NRECA (2014-present); Treasurer and Director, Electric Cooperative Life Insurance Co. (2013-present); Treasurer and Director, Cooperating Insurance Services Co. (2013- present) | Not Applicable | Not Applicable |
John (Jack) Delaney
4301 Wilson Boulevard
Arlington, VA 22203
12/19/83 | Secretary | 2017-present (Homestead Funds, Inc,); since inception (Homestead Funds Trust) | Secretary, RE Advisers (2018-present); Counsel, Securities Compliance, NRECA (2017-Present); Senior Counsel, The Rock Creek Group, LP (2014-2017); Associate Attorney, Ruddy Law Office PLLC (2011-2014) | Not Applicable | Not Applicable |
Jennifer (Laurie) Webster
4301 Wilson Boulevard
Arlington, VA 22203
06/14/63 | Chief Operations Officer | 2017-Present (Homestead Funds, Inc.); since inception (Homestead Funds Trust) | President and Director, RE Investment Corporation (2018- present); Chief Operations Officer, RE Investment Corporation (2017- present); Vice President of Operations and Client Services, RE Advisers (2017-present); Chief Operating Officer, Solomon Hess Capital Management (2017-2017); V.P. Investment Operations and Indexing, Calvert Investments (2014-2017) | Not Applicable | Not Applicable |
| (1) | Mr. Santero is a director who is an “interested person” of Homestead Funds within the meaning of Section 2(a)(19) of the 1940 Act due to his affiliation with RE Advisers and its affiliates. |
Other Tax Information (Unaudited)
The following information for the year ended December 31, 2019, is included pursuant to provisions of the Internal Revenue Code.
The Funds designate the following percentages of dividends declared from net investment income as qualified dividend income for individuals or as dividends received deduction for corporations:
| Fund | Qualified Dividend Income for Individuals | Dividends Received Deduction for Corporations |
| Daily Income Fund | 0% | 0% |
| Short-Term Government Securities Fund | 0% | 0% |
| Short-Term Bond Fund | 0% | 0% |
| Stock Index Fund | 100% | 94% |
| Value Fund | 100% | 98% |
| Growth Fund | 0% | 0% |
| Small-Company Stock Fund | 80% | 80% |
| International Equity Fund | 100% | 98% |
The Funds designate the following amounts as short-term and long-term capital gains distributed during the year ended December 31, 2019.
| Fund | Record Date | Distributions of Short-Term Capital Gains | Distributions of Long-Term Capital Gains |
| Short-Term Government Securities Fund | 12/17/2019 | $0.0226 | $– |
| Short-Term Bond Fund | 12/17/2019 | $0.0423 | $– |
| Intermediate Bond Fund | 12/17/2019 | $0.0427 | $– |
| Stock Index Fund | 12/17/2019 | $0.0022 | $0.0703 |
| Value Fund | 6/27/2019 | $– | $0.4263 |
| Value Fund | 12/17/2019 | $– | $6.6300 |
| Growth Fund | 6/27/2019 | $– | $0.0947 |
| Growth Fund | 12/17/2019 | $– | $0.5361 |
| Small-Company Stock Fund | 6/27/2019 | $– | $2.9227 |
| Small-Company Stock Fund | 12/17/2019 | | $1.8135 |
The International Equity Fund designates $0.019185 per share as foreign taxes paid and $0.080427 per share as income earned from foreign sources.
Portfolio of Investments
S&P 500 Index Master Portfolio | December 31, 2019
| Common Stocks | 98.6% of net assets |
| | Shares | Value |
| Aerospace & Defense | 2.4% |
| Arconic, Inc. | 327,315 | $10,071,483 |
| Boeing Co. | 457,205 | 148,939,101 |
| General Dynamics Corp. | 200,393 | 35,339,305 |
| Huntington Ingalls Industries, Inc. | 34,816 | 8,734,638 |
| L3Harris Technologies, Inc. | 189,043 | 37,405,938 |
| Lockheed Martin Corp. | 212,266 | 82,652,135 |
| Northrop Grumman Corp. | 134,032 | 46,102,987 |
| Raytheon Co. | 238,140 | 52,328,884 |
| Textron, Inc. | 195,208 | 8,706,277 |
| TransDigm Group, Inc. | 42,586 | 23,848,160 |
| United Technologies Corp. | 693,790 | 103,901,990 |
| Total Aerospace & Defense | | 558,030,898 |
| Air Freight & Logistics | 0.5% |
| C.H. Robinson Worldwide, Inc. | 115,658 | 9,044,455 |
| Expeditors International of Washington, Inc. | 145,632 | 11,362,209 |
| FedEx Corp. | 205,267 | 31,038,423 |
| United Parcel Service, Inc., Class B | 599,247 | 70,147,854 |
| Total Air Freight & Logistics | | 121,592,941 |
| Airlines | 0.4% |
| Alaska Air Group, Inc. | 104,278 | 7,064,834 |
| American Airlines Group, Inc. | 333,289 | 9,558,729 |
| Delta Air Lines, Inc. | 492,223 | 28,785,201 |
| Southwest Airlines Co. | 405,266 | 21,876,259 |
| United Airlines Holdings, Inc. (a) | 185,099 | 16,305,371 |
| Total Airlines | | 83,590,394 |
| Auto Components | 0.1% |
| Aptiv PLC | 218,308 | 20,732,711 |
| BorgWarner, Inc. | 176,581 | 7,660,084 |
| Total Auto Components | | 28,392,795 |
| Automobiles | 0.3% |
| Ford Motor Co. | 3,329,973 | 30,968,749 |
| General Motors Co. | 1,075,199 | 39,352,284 |
| Harley-Davidson, Inc. | 133,402 | 4,961,220 |
| Total Automobiles | | 75,282,253 |
| Banks | 5.6% |
| Bank of America Corp. | 6,922,909 | 243,824,855 |
| Citigroup, Inc. | 1,866,948 | 149,150,476 |
| Citizens Financial Group, Inc. | 374,540 | 15,210,070 |
| Comerica, Inc. | 123,273 | 8,844,838 |
| Fifth Third Bancorp | 611,953 | 18,811,435 |
| First Republic Bank (b) | 144,111 | 16,925,837 |
| Huntington Bancshares, Inc. | 884,212 | 13,333,917 |
| JPMorgan Chase & Co. | 2,682,150 | 373,891,710 |
| KeyCorp | 840,464 | 17,010,991 |
| M&T Bank Corp. | 113,343 | 19,239,974 |
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Banks | 5.6% (Continued) |
| People's United Financial, Inc. | 379,790 | $6,418,451 |
| PNC Financial Services Group, Inc. | 374,698 | 59,813,042 |
| Regions Financial Corp. | 833,745 | 14,307,064 |
| SVB Financial Group (a)(b) | 44,213 | 11,099,232 |
| Truist Financial Corp. | 1,146,804 | 64,588,001 |
| U.S. Bancorp | 1,215,411 | 72,061,718 |
| Wells Fargo & Co. | 3,291,211 | 177,067,152 |
| Zions Bancorp. NA | 145,771 | 7,568,430 |
| Total Banks | | 1,289,167,193 |
| Beverages | 1.8% |
| Brown-Forman Corp., Class B (b) | 156,572 | 10,584,267 |
| Coca-Cola Co. | 3,297,475 | 182,515,241 |
| Constellation Brands, Inc., Class A | 143,235 | 27,178,841 |
| Molson Coors Brewing Co., Class B | 161,725 | 8,716,978 |
| Monster Beverage Corp. (a) | 324,637 | 20,630,681 |
| PepsiCo, Inc. | 1,192,444 | 162,971,322 |
| Total Beverages | | 412,597,330 |
| Biotechnology | 2.0% |
| AbbVie, Inc. | 1,264,606 | 111,968,215 |
| Alexion Pharmaceuticals, Inc. (a) | 189,913 | 20,539,091 |
| Amgen, Inc. | 508,114 | 122,491,042 |
| Biogen, Inc. (a) | 154,517 | 45,849,830 |
| Gilead Sciences, Inc. | 1,081,883 | 70,300,757 |
| Incyte Corp. (a)(b) | 152,882 | 13,349,656 |
| Regeneron Pharmaceuticals, Inc. (a)(b) | 68,310 | 25,649,039 |
| Vertex Pharmaceuticals, Inc. (a) | 219,901 | 48,147,324 |
| Total Biotechnology | | 458,294,954 |
| Building Products | 0.3% |
| Allegion PLC | 79,458 | 9,895,700 |
| AO Smith Corp. | 116,550 | 5,552,442 |
| Fortune Brands Home & Security, Inc. | 118,250 | 7,726,455 |
| Johnson Controls International PLC | 659,676 | 26,855,410 |
| Masco Corp. | 243,172 | 11,669,824 |
| Total Building Products | | 61,699,831 |
| Capital Markets | 2.6% |
| Ameriprise Financial, Inc. | 108,343 | 18,047,777 |
| Bank of New York Mellon Corp. | 718,627 | 36,168,497 |
| BlackRock, Inc. (c) | 100,848 | 50,696,290 |
| Cboe Global Markets, Inc. | 95,502 | 11,460,240 |
| Charles Schwab Corp. | 979,258 | 46,573,510 |
| CME Group, Inc. | 306,451 | 61,510,845 |
| E*Trade Financial Corp. | 193,191 | 8,765,076 |
| Franklin Resources, Inc. | 241,326 | 6,269,649 |
| Appendix | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Capital Markets | 2.6% (Continued) |
| Goldman Sachs Group, Inc. | 272,516 | $62,659,604 |
| Intercontinental Exchange, Inc. | 476,188 | 44,071,199 |
| Invesco Ltd. | 327,515 | 5,888,720 |
| MarketAxess Holdings, Inc. (b) | 32,431 | 12,294,916 |
| Moody's Corp. | 138,848 | 32,963,904 |
| Morgan Stanley | 1,052,280 | 53,792,554 |
| MSCI, Inc. | 72,437 | 18,701,785 |
| Nasdaq, Inc. | 97,151 | 10,404,872 |
| Northern Trust Corp. | 181,190 | 19,249,626 |
| Raymond James Financial, Inc. | 105,579 | 9,445,097 |
| S&P Global, Inc. | 208,997 | 57,066,631 |
| State Street Corp. | 312,123 | 24,688,929 |
| T. Rowe Price Group, Inc. | 199,828 | 24,347,043 |
| Total Capital Markets | | 615,066,764 |
| Chemicals | 1.9% |
| Air Products & Chemicals, Inc. | 188,503 | 44,296,320 |
| Albemarle Corp. | 90,674 | 6,622,829 |
| Celanese Corp. | 103,779 | 12,777,270 |
| CF Industries Holdings, Inc. | 183,499 | 8,760,242 |
| Corteva, Inc. (a) | 639,991 | 18,918,134 |
| Dow Inc. | 634,087 | 34,703,582 |
| DuPont de Nemours, Inc. | 633,497 | 40,670,507 |
| Eastman Chemical Co. | 114,764 | 9,096,195 |
| Ecolab, Inc. | 214,447 | 41,386,127 |
| FMC Corp. | 109,532 | 10,933,484 |
| International Flavors & Fragrances, Inc. | 91,710 | 11,832,424 |
| Linde PLC | 459,363 | 97,798,383 |
| LyondellBasell Industries NV, Class A | 219,538 | 20,741,950 |
| Mosaic Co. (b) | 301,320 | 6,520,565 |
| PPG Industries, Inc. | 202,210 | 26,993,013 |
| Sherwin-Williams Co. | 70,254 | 40,996,019 |
| Total Chemicals | | 433,047,044 |
| Commercial Services & Supplies | 0.4% |
| Cintas Corp. (b) | 71,691 | 19,290,614 |
| Copart, Inc. (a)(b) | 174,928 | 15,907,952 |
| Republic Services, Inc. | 180,124 | 16,144,514 |
| Rollins, Inc. | 120,824 | 4,006,524 |
| Waste Management, Inc. | 333,765 | 38,035,860 |
| Total Commercial Services & Supplies | | 93,385,464 |
| Communications Equipment | 1.0% |
| Arista Networks, Inc. (a)(b) | 45,858 | 9,327,517 |
| Cisco Systems, Inc. | 3,627,750 | 173,986,890 |
| F5 Networks, Inc. (a) | 51,988 | 7,260,124 |
| Juniper Networks, Inc. | 290,641 | 7,158,488 |
| Motorola Solutions, Inc. | 146,517 | 23,609,750 |
| Total Communications Equipment | | 221,342,769 |
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Construction & Engineering | 0.1% |
| Jacobs Engineering Group, Inc. | 116,069 | $10,426,478 |
| Quanta Services, Inc. | 121,753 | 4,956,565 |
| Total Construction & Engineering | | 15,383,043 |
| Construction Materials | 0.1% |
| Martin Marietta Materials, Inc. (b) | 53,447 | 14,945,919 |
| Vulcan Materials Co. | 113,183 | 16,297,220 |
| Total Construction Materials | | 31,243,139 |
| Consumer Finance | 0.7% |
| American Express Co. | 573,787 | 71,430,744 |
| Capital One Financial Corp. | 398,259 | 40,984,834 |
| Discover Financial Services | 268,061 | 22,736,934 |
| Synchrony Financial | 511,323 | 18,412,741 |
| Total Consumer Finance | | 153,565,253 |
| Containers & Packaging | 0.3% |
| Amcor PLC (a) | 1,385,456 | 15,018,343 |
| Avery Dennison Corp. | 70,531 | 9,226,865 |
| Ball Corp. (b) | 278,130 | 17,986,667 |
| International Paper Co. | 335,316 | 15,441,302 |
| Packaging Corp. of America | 81,400 | 9,115,986 |
| Sealed Air Corp. | 133,968 | 5,335,946 |
| WestRock Co. | 221,545 | 9,506,496 |
| Total Containers & Packaging | | 81,631,605 |
| Distributors | 0.1% |
| Genuine Parts Co. | 124,507 | 13,226,379 |
| LKQ Corp. (a) | 263,623 | 9,411,341 |
| Total Distributors | | 22,637,720 |
| Diversified Consumer Services | 0.0% |
| H&R Block, Inc. | 171,262 | 4,021,232 |
| Total Diversified Consumer Services | | 4,021,232 |
| Diversified Financial Services | 1.6% |
| Berkshire Hathaway, Inc., Class B (a)(b) | 1,672,696 | 378,865,644 |
| Total Diversified Financial Services | | 378,865,644 |
| Diversified Telecommunication Services | 2.0% |
| AT&T, Inc. | 6,246,835 | 244,126,312 |
| CenturyLink, Inc. | 839,468 | 11,089,372 |
| Verizon Communications, Inc. | 3,536,695 | 217,153,073 |
| Total Diversified Telecommunication Services | | 472,368,757 |
| The accompanying notes are an integral part of these financial statements. | Appendix |
89
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Electric Utilities | 2.0% |
| Alliant Energy Corp. | 205,536 | $11,246,930 |
| American Electric Power Co., Inc. | 422,401 | 39,921,119 |
| Duke Energy Corp. | 623,429 | 56,862,959 |
| Edison International | 306,656 | 23,124,929 |
| Entergy Corp. | 170,261 | 20,397,268 |
| Evergy, Inc. | 194,890 | 12,685,390 |
| Eversource Energy | 276,863 | 23,552,735 |
| Exelon Corp. | 831,294 | 37,898,693 |
| FirstEnergy Corp. | 462,045 | 22,455,387 |
| NextEra Energy, Inc. | 417,974 | 101,216,584 |
| Pinnacle West Capital Corp. | 96,814 | 8,706,483 |
| PPL Corp. | 618,298 | 22,184,532 |
| Southern Co. | 896,820 | 57,127,434 |
| Xcel Energy, Inc. | 448,428 | 28,470,694 |
| Total Electric Utilities | | 465,851,137 |
| Electrical Equipment | 0.5% |
| AMETEK, Inc. (b) | 195,480 | 19,497,175 |
| Eaton Corp. PLC | 354,242 | 33,553,802 |
| Emerson Electric Co. | 520,915 | 39,724,978 |
| Rockwell Automation, Inc. | 99,131 | 20,090,880 |
| Total Electrical Equipment | | 112,866,835 |
| Electronic Equipment, Instruments & Components | 0.6% |
| Amphenol Corp., Class A | 253,544 | 27,441,067 |
| CDW Corp. | 122,868 | 17,550,465 |
| Corning, Inc. | 654,158 | 19,042,539 |
| FLIR Systems, Inc. | 113,633 | 5,916,870 |
| IPG Photonics Corp. (a)(b) | 29,995 | 4,346,875 |
| Keysight Technologies, Inc. (a)(b) | 160,406 | 16,462,468 |
| TE Connectivity Ltd. | 286,025 | 27,412,636 |
| Zebra Technologies Corp. (a) | 46,110 | 11,778,339 |
| Total Electronic Equipment, Instruments & Components | | 129,951,259 |
| Energy Equipment & Services | 0.4% |
| Baker Hughes a GE Co. | 555,732 | 14,243,411 |
| Halliburton Co. | 750,650 | 18,368,405 |
| Helmerich & Payne, Inc. | 90,592 | 4,115,595 |
| National Oilwell Varco, Inc. | 326,024 | 8,166,901 |
| Schlumberger Ltd. | 1,183,853 | 47,590,891 |
| TechnipFMC PLC | 362,703 | 7,776,352 |
| Total Energy Equipment & Services | | 100,261,555 |
| Entertainment | 0.9% |
| Activision Blizzard, Inc. | 656,974 | 39,037,395 |
| Electronic Arts Inc. (a) | 249,684 | 26,843,527 |
| Live Nation Entertainment, Inc. (a) | 120,504 | 8,612,421 |
| Netflix, Inc. (a) | 374,768 | 121,263,682 |
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Entertainment | 0.9% (Continued) |
| Take-Two Interactive Software, Inc. (a) | 96,784 | $11,849,265 |
| Total Entertainment | | 207,606,290 |
| Equity Real Estate Investment Trusts (REITs) | 2.8% |
| Alexandria Real Estate Equities, Inc. | 98,471 | 15,910,944 |
| American Tower Corp. | 378,778 | 87,050,760 |
| Apartment Investment & Management Co., Class A | 128,731 | 6,648,956 |
| AvalonBay Communities, Inc. | 119,431 | 25,044,681 |
| Boston Properties, Inc. | 121,980 | 16,816,163 |
| Crown Castle International Corp. | 355,542 | 50,540,295 |
| Digital Realty Trust, Inc. | 178,486 | 21,371,914 |
| Duke Realty Corp. | 314,327 | 10,897,717 |
| Equinix, Inc. | 72,926 | 42,566,906 |
| Equity Residential | 299,340 | 24,222,593 |
| Essex Property Trust, Inc. | 56,510 | 17,001,598 |
| Extra Space Storage, Inc. | 110,751 | 11,697,521 |
| Federal Realty Investment Trust | 61,405 | 7,904,666 |
| Healthpeak Properties, Inc. | 423,257 | 14,589,669 |
| Host Hotels & Resorts, Inc. | 607,358 | 11,266,491 |
| Iron Mountain, Inc. | 245,549 | 7,825,647 |
| Kimco Realty Corp. | 361,070 | 7,477,760 |
| Mid-America Apartment Communities, Inc. | 97,543 | 12,862,020 |
| Prologis, Inc. | 540,236 | 48,156,637 |
| Public Storage | 128,464 | 27,357,693 |
| Realty Income Corp. | 278,708 | 20,521,270 |
| Regency Centers Corp. | 143,993 | 9,084,518 |
| SBA Communications Corp. | 96,290 | 23,204,927 |
| Simon Property Group, Inc. | 262,411 | 39,088,742 |
| SL Green Realty Corp. | 70,082 | 6,439,134 |
| UDR, Inc. | 250,603 | 11,703,160 |
| Ventas, Inc. | 318,743 | 18,404,221 |
| Vornado Realty Trust | 135,460 | 9,008,090 |
| Welltower, Inc. | 346,982 | 28,376,188 |
| Weyerhaeuser Co. | 637,205 | 19,243,591 |
| Total Equity Real Estate Investment Trusts (REITs) | | 652,284,472 |
| Food & Staples Retailing | 1.5% |
| Costco Wholesale Corp. | 377,789 | 111,039,743 |
| Kroger Co. | 685,826 | 19,882,096 |
| Sysco Corp. | 436,318 | 37,322,642 |
| Walgreens Boots Alliance, Inc. | 641,132 | 37,801,142 |
| Walmart, Inc. | 1,213,098 | 144,164,566 |
| Total Food & Staples Retailing | | 350,210,189 |
| Food Products | 1.1% |
| Archer-Daniels-Midland Co. | 476,047 | 22,064,779 |
| Campbell Soup Co. | 143,388 | 7,086,235 |
| Conagra Brands, Inc. | 416,160 | 14,249,318 |
| Appendix | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Food Products | 1.1% (Continued) |
| General Mills, Inc. | 516,845 | $27,682,218 |
| Hershey Co. | 126,825 | 18,640,739 |
| Hormel Foods Corp. | 237,784 | 10,726,436 |
| J.M. Smucker Co. | 97,733 | 10,176,937 |
| Kellogg Co. | 212,930 | 14,726,239 |
| Kraft Heinz Co. | 532,578 | 17,111,731 |
| Lamb Weston Holdings, Inc. | 124,905 | 10,745,577 |
| McCormick & Co., Inc. | 105,670 | 17,935,369 |
| Mondelez International, Inc., Class A | 1,231,258 | 67,817,691 |
| Tyson Foods, Inc., Class A | 252,425 | 22,980,772 |
| Total Food Products | | 261,944,041 |
| Gas Utilities | 0.0% |
| Atmos Energy Corp. | 102,056 | 11,415,984 |
| Total Gas Utilities | | 11,415,984 |
| Health Care Equipment & Supplies | 3.5% |
| Abbott Laboratories | 1,511,382 | 131,278,641 |
| ABIOMED, Inc. (a) | 38,162 | 6,510,056 |
| Align Technology, Inc. (a) | 60,889 | 16,990,467 |
| Baxter International, Inc. | 436,599 | 36,508,408 |
| Becton, Dickinson & Co. | 231,283 | 62,902,037 |
| Boston Scientific Corp. (a)(b) | 1,191,922 | 53,898,713 |
| Cooper Cos., Inc. | 42,393 | 13,620,447 |
| Danaher Corp. | 534,857 | 82,089,852 |
| DENTSPLY SIRONA, Inc. | 191,806 | 10,854,302 |
| Edwards Lifesciences Corp. (a) | 178,358 | 41,609,138 |
| Hologic, Inc. (a) | 229,303 | 11,971,910 |
| IDEXX Laboratories, Inc. (a) | 73,357 | 19,155,713 |
| Intuitive Surgical, Inc. (a) | 98,833 | 58,425,128 |
| Medtronic PLC | 1,146,218 | 130,038,432 |
| ResMed, Inc. | 122,958 | 19,054,801 |
| STERIS PLC | 72,502 | 11,050,755 |
| Stryker Corp. | 275,343 | 57,805,509 |
| Teleflex, Inc. (b) | 39,590 | 14,903,260 |
| Varian Medical Systems, Inc. (a) | 77,926 | 11,066,271 |
| Zimmer Biomet Holdings, Inc. | 175,890 | 26,327,215 |
| Total Health Care Equipment & Supplies | | 816,061,055 |
| Health Care Providers & Services | 2.8% |
| AmerisourceBergen Corp. | 127,499 | 10,839,965 |
| Anthem, Inc. | 216,834 | 65,490,373 |
| Cardinal Health, Inc. | 249,757 | 12,632,709 |
| Centene Corp. (a) | 353,856 | 22,246,927 |
| Cigna Corp. | 319,333 | 65,300,405 |
| CVS Health Corp. | 1,112,513 | 82,648,591 |
| DaVita, Inc. (a)(b) | 76,688 | 5,753,901 |
| HCA Healthcare, Inc. | 226,236 | 33,439,943 |
| Henry Schein, Inc. (a)(b) | 124,314 | 8,294,230 |
| Humana Inc. | 113,168 | 41,478,335 |
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Health Care Providers & Services | 2.8% (Continued) |
| Laboratory Corp. of America Holdings (a) | 83,386 | $14,106,410 |
| McKesson Corp. | 154,900 | 21,425,768 |
| Quest Diagnostics, Inc. | 115,185 | 12,300,606 |
| UnitedHealth Group, Inc. | 810,177 | 238,175,834 |
| Universal Health Services, Inc., Class B | 69,185 | 9,925,280 |
| WellCare Health Plans, Inc. (a) | 43,014 | 14,203,653 |
| Total Health Care Providers & Services | | 658,262,930 |
| Health Care Technology | 0.1% |
| Cerner Corp. | 266,769 | 19,578,177 |
| Total Health Care Technology | | 19,578,177 |
| Hotels, Restaurants & Leisure | 1.8% |
| Carnival Corp. | 342,538 | 17,411,207 |
| Chipotle Mexican Grill, Inc. (a) | 21,867 | 18,305,084 |
| Darden Restaurants, Inc. | 104,842 | 11,428,826 |
| Hilton Worldwide Holdings, Inc. | 241,409 | 26,774,672 |
| Las Vegas Sands Corp. | 288,985 | 19,951,524 |
| Marriott International, Inc., Class A | 232,050 | 35,139,332 |
| McDonald's Corp. | 644,004 | 127,261,630 |
| MGM Resorts International | 436,817 | 14,532,902 |
| Norwegian Cruise Line Holdings Ltd. (a) | 182,061 | 10,634,183 |
| Royal Caribbean Cruises Ltd. | 146,997 | 19,625,569 |
| Starbucks Corp. | 1,009,926 | 88,792,694 |
| Wynn Resorts, Ltd. | 81,809 | 11,360,816 |
| Yum! Brands, Inc. | 258,649 | 26,053,714 |
| Total Hotels, Restaurants & Leisure | | 427,272,153 |
| Household Durables | 0.4% |
| D.R. Horton, Inc. | 286,755 | 15,126,326 |
| Garmin Ltd. | 123,550 | 12,053,538 |
| Leggett & Platt, Inc. | 110,137 | 5,598,264 |
| Lennar Corp., Class A | 238,254 | 13,292,191 |
| Mohawk Industries, Inc. (a)(b) | 50,377 | 6,870,415 |
| Newell Brands, Inc. | 319,095 | 6,133,006 |
| NVR, Inc. (a) | 2,970 | 11,310,978 |
| PulteGroup, Inc. | 215,939 | 8,378,433 |
| Whirlpool Corp. | 53,219 | 7,851,399 |
| Total Household Durables | | 86,614,550 |
| Household Products | 1.7% |
| Church & Dwight Co., Inc. | 210,296 | 14,792,221 |
| Clorox Co. | 107,323 | 16,478,373 |
| Colgate-Palmolive Co. | 732,897 | 50,452,629 |
| Kimberly-Clark Corp. | 293,149 | 40,322,645 |
| Procter & Gamble Co. | 2,132,571 | 266,358,118 |
| Total Household Products | | 388,403,986 |
| The accompanying notes are an integral part of these financial statements. | Appendix |
91
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Independent Power and Renewable Electricity Producers | 0.1% |
| AES Corp. | 568,095 | $11,305,090 |
| NRG Energy, Inc. | 211,937 | 8,424,496 |
| Total Independent Power and Renewable Electricity Producers | | 19,729,586 |
| Industrial Conglomerates | 1.3% |
| 3M Co. | 491,752 | 86,754,888 |
| General Electric Co. | 7,468,451 | 83,347,913 |
| Honeywell International, Inc. | 611,029 | 108,152,133 |
| Roper Technologies, Inc. | 88,985 | 31,521,157 |
| Total Industrial Conglomerates | | 309,776,091 |
| Insurance | 2.3% |
| Aflac, Inc. | 627,692 | 33,204,907 |
| Allstate Corp. | 275,775 | 31,010,899 |
| American International Group, Inc. | 743,935 | 38,186,184 |
| Aon PLC | 200,221 | 41,704,032 |
| Arthur J Gallagher & Co. | 159,504 | 15,189,566 |
| Assurant, Inc. | 52,112 | 6,830,841 |
| Chubb Ltd. | 387,553 | 60,326,500 |
| Cincinnati Financial Corp. | 129,928 | 13,661,929 |
| Everest Re Group Ltd. | 34,875 | 9,654,795 |
| Globe Life, Inc. | 85,194 | 8,966,668 |
| Hartford Financial Services Group, Inc. | 308,212 | 18,730,043 |
| Lincoln National Corp. | 169,602 | 10,008,214 |
| Loews Corp. (b) | 219,232 | 11,507,488 |
| Marsh & McLennan Cos., Inc. | 431,564 | 48,080,545 |
| MetLife, Inc. | 666,820 | 33,987,815 |
| Principal Financial Group, Inc. | 221,337 | 12,173,535 |
| Progressive Corp. | 499,943 | 36,190,874 |
| Prudential Financial, Inc. | 343,768 | 32,224,812 |
| Travelers Cos., Inc. | 220,724 | 30,228,152 |
| Unum Group | 173,973 | 5,073,053 |
| W.R. Berkley Corp. | 124,448 | 8,599,357 |
| Willis Towers Watson PLC | 109,948 | 22,202,899 |
| Total Insurance | | 527,743,108 |
| Interactive Media & Services | 4.9% |
| Alphabet, Inc., Class C (a) | 255,594 | 341,734,290 |
| Alphabet, Inc., Class A (a) | 256,225 | 343,185,203 |
| Facebook, Inc., Class A (a) | 2,057,879 | 422,379,664 |
| Twitter, Inc. (a) | 663,898 | 21,277,931 |
| Total Interactive Media & Services | | 1,128,577,088 |
| Internet & Direct Marketing Retail | 3.3% |
| Amazon.com, Inc. (a) | 356,142 | 658,093,433 |
| Booking Holdings, Inc. (a)(b) | 35,793 | 73,509,158 |
| eBay, Inc. | 653,941 | 23,613,810 |
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Internet & Direct Marketing Retail | 3.3% (Continued) |
| Expedia Group, Inc. | 119,502 | $12,922,946 |
| Total Internet & Direct Marketing Retail | | 768,139,347 |
| IT Services | 5.3% |
| Accenture PLC, Class A | 543,071 | 114,354,460 |
| Akamai Technologies, Inc. (a)(b) | 138,211 | 11,938,666 |
| Alliance Data Systems Corp. | 34,374 | 3,856,763 |
| Automatic Data Processing, Inc. | 370,020 | 63,088,410 |
| Broadridge Financial Solutions, Inc. | 98,039 | 12,111,738 |
| Cognizant Technology Solutions Corp., Class A | 468,248 | 29,040,741 |
| DXC Technology Co. | 220,706 | 8,296,339 |
| Fidelity National Information Services, Inc. | 525,572 | 73,101,809 |
| Fiserv, Inc. (a) | 488,383 | 56,471,726 |
| FleetCor Technologies, Inc. (a) | 74,210 | 21,351,701 |
| Gartner, Inc. (a)(b) | 76,998 | 11,865,392 |
| Global Payments, Inc. | 257,012 | 46,920,111 |
| International Business Machines Corp. | 757,348 | 101,514,926 |
| Jack Henry & Associates, Inc. | 65,792 | 9,583,921 |
| Leidos Holdings Inc. | 113,726 | 11,132,638 |
| Mastercard, Inc., Class A | 759,138 | 226,671,015 |
| Paychex, Inc. | 272,424 | 23,172,385 |
| PayPal Holdings, Inc. (a) | 1,004,105 | 108,614,038 |
| VeriSign, Inc. (a) | 88,454 | 17,043,317 |
| Visa Inc., Class A | 1,463,870 | 275,061,173 |
| Western Union Co. | 355,433 | 9,518,496 |
| Total IT Services | | 1,234,709,765 |
| Leisure Products | 0.0% |
| Hasbro, Inc. | 108,821 | 11,492,586 |
| Total Leisure Products | | 11,492,586 |
| Life Sciences Tools & Services | 1.0% |
| Agilent Technologies, Inc. | 264,640 | 22,576,438 |
| Illumina, Inc. (a) | 125,706 | 41,701,709 |
| IQVIA Holdings, Inc. (a) | 154,315 | 23,843,211 |
| Mettler-Toledo International, Inc. (a) | 20,929 | 16,602,557 |
| PerkinElmer, Inc. (b) | 95,779 | 9,300,141 |
| Thermo Fisher Scientific, Inc. (b) | 342,905 | 111,399,547 |
| Waters Corp. (a)(b) | 55,926 | 13,067,110 |
| Total Life Sciences Tools & Services | | 238,490,713 |
| Machinery | 1.6% |
| Caterpillar, Inc. | 472,837 | 69,828,568 |
| Cummins, Inc. | 132,183 | 23,655,470 |
| Deere & Co. | 269,262 | 46,652,334 |
| Dover Corp. | 124,224 | 14,318,058 |
| Appendix | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Machinery | 1.6% (Continued) |
| Flowserve Corp. | 112,148 | $5,581,606 |
| Fortive Corp. | 252,702 | 19,303,906 |
| IDEX Corp. | 65,042 | 11,187,224 |
| Illinois Tool Works, Inc. | 250,112 | 44,927,618 |
| Ingersoll-Rand PLC | 204,890 | 27,233,979 |
| PACCAR Inc. | 295,772 | 23,395,565 |
| Parker-Hannifin Corp. | 109,856 | 22,610,562 |
| Pentair PLC | 140,780 | 6,457,579 |
| Snap-on, Inc. | 46,909 | 7,946,385 |
| Stanley Black & Decker, Inc. | 129,992 | 21,544,874 |
| Wabtec Corp. | 154,199 | 11,996,682 |
| Xylem, Inc. | 153,994 | 12,133,187 |
| Total Machinery | | 368,773,597 |
| Media | 2.4% |
| Charter Communications, Inc., Class A (a)(b) | 134,078 | 65,038,556 |
| Comcast Corp., Class A | 3,882,193 | 174,582,219 |
| Discovery, Inc., Class A (a)(b) | 134,754 | 4,411,846 |
| Discovery, Inc., Class C (a)(b) | 286,831 | 8,745,477 |
| DISH Network Corp., Class A (a) | 218,051 | 7,734,269 |
| Fox Corp., Class A | 303,158 | 11,238,067 |
| Fox Corp., Class B (a) | 133,124 | 4,845,714 |
| Interpublic Group of Cos., Inc. | 327,050 | 7,554,855 |
| News Corp., Class A | 332,273 | 4,698,340 |
| News Corp., Class B | 95,128 | 1,380,307 |
| Omnicom Group, Inc. | 186,192 | 15,085,276 |
| ViacomCBS, Inc. | 462,120 | 19,395,176 |
| Walt Disney Co. (b) | 1,541,312 | 222,919,955 |
| Total Media | | 547,630,057 |
| Metals & Mining | 0.3% |
| Freeport-McMoRan, Inc. | 1,240,742 | 16,278,535 |
| Newmont Mining Corp. | 701,081 | 30,461,969 |
| Nucor Corp. | 259,293 | 14,593,010 |
| Total Metals & Mining | | 61,333,514 |
| Multi-Utilities | 1.0% |
| Ameren Corp. | 210,391 | 16,158,029 |
| CenterPoint Energy, Inc. | 429,490 | 11,712,192 |
| CMS Energy Corp. | 242,726 | 15,252,902 |
| Consolidated Edison, Inc. | 284,276 | 25,718,450 |
| Dominion Energy, Inc. | 703,864 | 58,294,016 |
| DTE Energy Co. | 164,278 | 21,334,784 |
| NiSource, Inc. | 321,488 | 8,950,226 |
| Public Service Enterprise Group, Inc. | 432,469 | 25,537,294 |
| Sempra Energy | 241,062 | 36,516,072 |
| WEC Energy Group, Inc. | 269,744 | 24,878,489 |
| Total Multi-Utilities | | 244,352,454 |
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Multiline Retail | 0.5% |
| Dollar General Corp. | 217,720 | $33,959,966 |
| Dollar Tree, Inc. (a) | 202,380 | 19,033,839 |
| Kohl's Corp. | 132,816 | 6,766,975 |
| Macy's, Inc. | 267,347 | 4,544,899 |
| Nordstrom, Inc. | 88,174 | 3,608,962 |
| Target Corp. | 433,334 | 55,557,752 |
| Total Multiline Retail | | 123,472,393 |
| Oil, Gas & Consumable Fuels | 3.9% |
| Apache Corp. | 317,469 | 8,124,032 |
| Cabot Oil & Gas Corp. | 349,750 | 6,089,148 |
| Chevron Corp. | 1,616,970 | 194,861,055 |
| Cimarex Energy Co. | 87,062 | 4,569,884 |
| Concho Resources Inc. | 171,909 | 15,054,071 |
| ConocoPhillips | 938,324 | 61,019,210 |
| Devon Energy Corp. | 330,941 | 8,594,538 |
| Diamondback Energy, Inc. | 136,845 | 12,707,427 |
| EOG Resources, Inc. | 497,493 | 41,670,014 |
| Exxon Mobil Corp. | 3,618,209 | 252,478,624 |
| Hess Corp. | 221,483 | 14,797,279 |
| HollyFrontier Corp. | 129,331 | 6,558,375 |
| Kinder Morgan, Inc. | 1,665,711 | 35,263,102 |
| Marathon Oil Corp. | 684,055 | 9,289,467 |
| Marathon Petroleum Corp. | 555,265 | 33,454,716 |
| Noble Energy, Inc. | 412,314 | 10,241,880 |
| Occidental Petroleum Corp. | 763,916 | 31,480,978 |
| ONEOK, Inc. | 353,248 | 26,730,276 |
| Phillips 66 | 379,991 | 42,334,797 |
| Pioneer Natural Resources Co. | 141,652 | 21,441,863 |
| Valero Energy Corp. | 351,168 | 32,886,883 |
| Williams Cos., Inc. | 1,036,478 | 24,585,258 |
| Total Oil, Gas & Consumable Fuels | | 894,232,877 |
| Personal Products | 0.2% |
| Coty, Inc., Class A | 246,388 | 2,771,865 |
| Estee Lauder Cos., Inc., Class A (b) | 190,313 | 39,307,247 |
| Total Personal Products | | 42,079,112 |
| Pharmaceuticals | 4.6% |
| Allergan PLC | 280,724 | 53,666,007 |
| Bristol-Myers Squibb Co. | 2,004,618 | 128,676,429 |
| Eli Lilly & Co. | 722,525 | 94,961,461 |
| Johnson & Johnson | 2,250,632 | 328,299,690 |
| Merck & Co., Inc. | 2,177,186 | 198,015,066 |
| Mylan NV (a) | 441,369 | 8,871,517 |
| Perrigo Co. PLC | 116,394 | 6,012,914 |
| Pfizer, Inc. | 4,732,477 | 185,418,449 |
| Zoetis, Inc. | 407,305 | 53,906,817 |
| Total Pharmaceuticals | | 1,057,828,350 |
| Professional Services | 0.3% |
| Equifax, Inc. | 103,544 | 14,508,585 |
| The accompanying notes are an integral part of these financial statements. | Appendix |
93
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Professional Services | 0.3% (Continued) |
| IHS Markit Ltd. (a)(b) | 342,903 | $25,837,741 |
| Nielsen Holdings PLC | 301,186 | 6,114,076 |
| Robert Half International, Inc. | 98,758 | 6,236,568 |
| Verisk Analytics, Inc. (b) | 140,133 | 20,927,462 |
| Total Professional Services | | 73,624,432 |
| Real Estate Management & Development | 0.1% |
| CBRE Group, Inc., Class A (a) | 286,262 | 17,544,998 |
| Total Real Estate Management & Development | | 17,544,998 |
| Road & Rail | 1.0% |
| CSX Corp. | 664,992 | 48,118,821 |
| J.B. Hunt Transport Services, Inc. | 73,282 | 8,557,872 |
| Kansas City Southern (b) | 84,265 | 12,906,027 |
| Norfolk Southern Corp. | 222,977 | 43,286,525 |
| Old Dominion Freight Line, Inc. | 54,811 | 10,402,032 |
| Union Pacific Corp. | 593,642 | 107,324,537 |
| Total Road & Rail | | 230,595,814 |
| Semiconductors & Semiconductor Equipment | 4.2% |
| Advanced Micro Devices, Inc. (a) | 952,313 | 43,673,074 |
| Analog Devices, Inc. | 314,952 | 37,428,896 |
| Applied Materials, Inc. | 789,944 | 48,218,182 |
| Broadcom, Inc. | 339,211 | 107,197,460 |
| Intel Corp. | 3,719,881 | 222,634,878 |
| KLA-Tencor Corp. | 134,937 | 24,041,725 |
| Lam Research Corp. | 124,064 | 36,276,314 |
| Maxim Integrated Products, Inc. | 231,410 | 14,234,029 |
| Microchip Technology, Inc. | 204,361 | 21,400,684 |
| Micron Technology, Inc. (a) | 946,689 | 50,912,934 |
| NVIDIA Corp. | 523,349 | 123,144,020 |
| Qorvo, Inc. (a) | 99,482 | 11,562,793 |
| QUALCOMM, Inc. | 976,443 | 86,151,566 |
| Skyworks Solutions, Inc. | 145,792 | 17,623,337 |
| Texas Instruments, Inc. | 799,368 | 102,550,921 |
| Xilinx, Inc. | 215,041 | 21,024,558 |
| Total Semiconductors & Semiconductor Equipment | | 968,075,371 |
| Software | 7.0% |
| Adobe, Inc. (a) | 413,958 | 136,527,488 |
| ANSYS, Inc. (a)(b) | 73,184 | 18,838,294 |
| Autodesk, Inc. (a) | 188,160 | 34,519,834 |
| Cadence Design Systems, Inc. (a) | 239,948 | 16,642,793 |
| Citrix Systems, Inc. | 104,676 | 11,608,568 |
| Fortinet, Inc. (a) | 121,395 | 12,960,130 |
| Intuit, Inc. | 222,600 | 58,305,618 |
| Microsoft Corp. | 6,523,736 | 1,028,793,167 |
| NortonLifeLock, Inc. | 490,329 | 12,513,196 |
| Oracle Corp. | 1,852,639 | 98,152,814 |
| salesforce.com, Inc. (a) | 758,514 | 123,364,717 |
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Software | 7.0% (Continued) |
| ServiceNow, Inc. (a)(b) | 161,280 | $45,532,570 |
| Synopsys, Inc. (a) | 128,555 | 17,894,856 |
| Total Software | | 1,615,654,045 |
| Specialty Retail | 2.2% |
| Advance Auto Parts, Inc. | 59,306 | 9,498,449 |
| AutoZone, Inc. (a) | 20,549 | 24,480,229 |
| Best Buy Co., Inc. | 194,308 | 17,060,242 |
| CarMax, Inc. (a) | 141,009 | 12,362,259 |
| Gap, Inc. | 180,058 | 3,183,425 |
| Home Depot, Inc. | 932,819 | 203,709,013 |
| L Brands, Inc. | 200,125 | 3,626,265 |
| Lowe's Cos., Inc. | 655,447 | 78,496,333 |
| O'Reilly Automotive, Inc. (a)(b) | 64,699 | 28,354,984 |
| Ross Stores, Inc. | 309,332 | 36,012,432 |
| Tiffany & Co. | 92,777 | 12,399,646 |
| TJX Cos., Inc. | 1,037,007 | 63,319,647 |
| Tractor Supply Co. | 101,563 | 9,490,047 |
| Ulta Salon Cosmetics & Fragrance, Inc. (a)(b) | 49,300 | 12,479,802 |
| Total Specialty Retail | | 514,472,773 |
| Technology Hardware, Storage & Peripherals | 4.9% |
| Apple, Inc. | 3,571,658 | 1,048,817,372 |
| Hewlett Packard Enterprise Co. | 1,097,787 | 17,410,902 |
| HP, Inc. | 1,267,251 | 26,042,008 |
| NetApp, Inc. | 195,166 | 12,149,083 |
| Seagate Technology PLC | 198,698 | 11,822,531 |
| Western Digital Corp. | 254,324 | 16,141,944 |
| Xerox Holdings Corp. (a) | 160,203 | 5,906,685 |
| Total Technology Hardware, Storage & Peripherals | | 1,138,290,525 |
| Textiles, Apparel & Luxury Goods | 0.7% |
| Capri Holdings Ltd. (a)(b) | 130,344 | 4,972,623 |
| Hanesbrands, Inc. | 313,302 | 4,652,535 |
| NIKE, Inc., Class B | 1,065,535 | 107,949,351 |
| PVH Corp. (a) | 63,061 | 6,630,864 |
| Ralph Lauren Corp. | 42,619 | 4,995,799 |
| Tapestry, Inc. | 237,843 | 6,414,626 |
| Under Armour, Inc., Class A (a)(b) | 164,871 | 3,561,214 |
| Under Armour, Inc., Class C (a)(b) | 169,421 | 3,249,495 |
| VF Corp. | 280,049 | 27,909,683 |
| Total Textiles, Apparel & Luxury Goods | | 170,336,190 |
| Tobacco | 0.8% |
| Altria Group, Inc. | 1,597,520 | 79,732,223 |
| Philip Morris International, Inc. | 1,330,499 | 113,212,160 |
| Total Tobacco | | 192,944,383 |
| Appendix | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| Common Stocks | 98.6% of net assets (Continued) |
| | Shares | Value |
| Trading Companies & Distributors | 0.2% |
| Fastenal Co. | 490,449 | $18,122,090 |
| United Rentals, Inc. (a)(b) | 64,479 | 10,753,163 |
| W.W. Grainger, Inc. | 37,030 | 12,535,396 |
| Total Trading Companies & Distributors | | 41,410,649 |
| Water Utilities | 0.1% |
| American Water Works Co., Inc. | 154,590 | 18,991,381 |
| Total Water Utilities | | 18,991,381 |
| Wireless Telecommunication Services | 0.1% |
| T-Mobile US, Inc. (a) | 270,707 | 21,228,843 |
| Total Wireless Telecommunication Services | | 21,228,843 |
| Total Common Stocks | | |
| (Cost $13,108,218,270) | | 22,881,321,678 |
| Investment Companies | 0.4% of net assets |
| | |
| iShares Core S&P 500 ETF (c) | 292,674 | $94,603,944 |
| Total Investment Companies | | |
| (Cost $88,157,092) | | 94,603,944 |
| Total Long-Term Investments | | |
| (Cost $13,196,375,362) | | 22,975,925,622 |
| Short-Term Securities | 1.5% of net assets |
| | Shares | Value |
| BlackRock Cash Funds: Institutional, SL Agency Shares, 1.84% (c)(d)(e) | 139,348,114 | $139,403,854 |
| BlackRock Cash Funds: Treasury, SL Agency Shares, 1.52% (c)(d)(e) | 215,380,072 | 215,380,072 |
| Total Short-Term Securities | | |
| (Cost $354,767,438) | | 354,783,926 |
| Total Investments | | |
| (Cost $13,551,142,800) | 100.5% | 23,330,709,548 |
| Liabilities in Excess of Other Assets | (0.5)% | | (122,751,203) |
| Net Assets | 100.0% | | $23,207,958,345 |
| (b) | Security, or a portion of security, is on loan. |
| (c) | During the period ended December 31, 2019, investments in issuers considered to be affiliates of the Master Portfolio for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, and/or related parties of the Master Portfolio were as follows: |
| | |
| Affiliate Persons and/or Related Parties | Shares Held at
December 31, 2018 | Shares
Purchased | Shares
Sold | Shares Held at
December 31, 2019 | Value at
December 31, 2019 | Income | Realized
Gain (Loss)1 | Change in Unrealized Appreciation (Depreciation) |
| BlackRock Cash Funds: Institutional, SL Agency Shares2 | 118,748,723 | 20,599,391 | — | 139,348,114 | 139,403,854 | $679,4093 | $13,818 | $13,652 |
| BlackRock Cash Funds: Treasury, SL Agency Shares2 | 479,801,017 | — | (264,420,945) | 215,380,072 | 215,380,072 | 5,105,161 | — | — |
| BlackRock, Inc. | 98,827 | 4,735 | (2,714) | 100,848 | 50,696,290 | 1,290,152 | (361,626) | 11,125,951 |
| iShares Core S&P 500 ETF | — | 292,674 | — | 292,674 | 94,603,944 | 647,089 | — | 6,446,852 |
| Total | | | | | $500,084,160 | $7,721,811 | $(347,808) | $17,586,455 |
| 1 | Includes net capital gain distributions, if applicable. |
| 2 | Represents net shares purchased (sold). |
| 3 | Represents all or portion of securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and collateral investment expenses, and other payments to and from borrowers of securities. |
| (d) | 7-day yield at December 31, 2019. |
| The accompanying notes are an integral part of these financial statements. | Appendix |
95
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| (e) | All or a portion of security was purchased with the cash collateral from loaned securities. |
| | |
| Derivative Financial Instruments Outstanding as of Period End - Futures Contracts |
| Contracts Long | Issue | Expiration | Notional Amount (000) | Unrealized
Appreciation
(Depreciation) |
| 1,479 | S&P 500 E-Mini Index | March 2020 | $238,940 | $2,345,486 |
Derivative Financial Instruments Categorized by Risk Exposure
As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:
| Assets-Derivative Financial Instruments | Commodity
Contracts | Credit
Contract | Equity
Contracts | Foriegn
Currency
Exchange
Contracts | Interest Rate
Contracts | Other
Contracts | Total |
| Futures contracts net unrealized appreciation1 | — | — | $2,345,486 | — | — | — | $2,345,486 |
| 1 | Net cumulative unrealized appreciation (depreciation) on futures contracts, if any, are reported in the Schedule of Investments. In the Statement of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in net unrealized appreciation (depreciation). |
For the year ended December 31, 2019, the effect of derivative financial instruments in the Statements of Operations was as follows:
| | Commodity
Contracts | Credit
Contract | Equity
Contracts | Foreign
Currency
Exchange
Contracts | Interest Rate
Contracts | Other
Contracts | Total |
| Net Realized Gain (Loss) From: |
| Futures contracts | — | — | $67,610,011 | — | — | — | $67,610,011 |
| Net Change in Unrealized Appreciation (Depreciation) on: |
| Futures contracts | — | — | $1,968,163 | — | — | — | $1,968,163 |
| Average Quarterly Balances on Outstanding Derivative Financial Instruments |
Futures contracts:
Average notional value of contracts—long | | | | | | | $250,138,951 |
For more information about the Master Portfolio’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of investments and derivative financial instruments. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.
The following tables summarize the Master Portfolio’s investments and derivative financial instruments categorized in the disclosure hierarchy:
| Appendix | The accompanying notes are an integral part of these financial statements. |
Portfolio of Investments | S&P 500 Index Master Portfolio | December 31, 2019 | (Continued)
| | Level 1 | Level 2 | Level 3 | Total |
| Assets: | | | | |
| Investments: | | | | |
Long-Term Investments(a)
| $22,975,925,622 | $— | $— | $22,975,925,622 |
Short-Term Securities:
Money Market Funds
| 354,783,926 | — | — | 354,783,926 |
| | $23,330,709,548 | $— | $— | $23,330,709,548 |
| Derivative Financial Instruments(b) | | | | |
| Assets: | | | | |
Equity contracts
| $2,345,486 | $— | $— | $2,345,486 |
| (a) | See above Schedule of Investments for values in each industry. |
| (b) | Derivative financial instruments are futures contracts. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument. |
| The accompanying notes are an integral part of these financial statements. | Appendix |
97
Statement of Assets and Liabilities
S&P 500 Index Master Portfolio | December 31, 2019
| Assets | |
| Investments in securities, at value (including securities loaned of $137,214,328) (cost: $13,076,378,623) | $22,830,625,388 |
| Investments at value—affiliated (cost—$474,764,177) | 500,084,160 |
| Cash | 270,037 |
| Cash pledged for futures contracts | 9,411,800 |
| Dividends—unaffiliated | 22,795,533 |
| Dividends—affiliated | 459,684 |
| Securities lending income—affiliated | 186,784 |
| Variation margin on futures contracts | 569,390 |
| Prepaid expenses | 84,984 |
| Total Assets | 23,364,487,760 |
| Liabilities | |
| Collateral on securities loaned at value | 139,392,096 |
| Withdrawals to investors | 16,720,413 |
| Investment advisory fees | 334,166 |
| Trustees' fees | 82,740 |
| Total Liabilities | 156,529,415 |
| Net Assets | $23,207,958,345 |
| Net Assets Consist Of: | |
| Unrealized appreciation (depreciation) of investments | 9,781,912,234 |
| Investors’ capital | 13,426,046,111 |
| Net Assets | $23,207,958,345 |
| Appendix | The accompanying notes are an integral part of these financial statements. |
Statement of Operations
S&P 500 Index Master Portfolio | Year Ended December 31, 2019
| Investment Income | |
| Dividends—unaffiliated | 392,078,121 |
| Dividends—affiliated | 7,042,402 |
| Securities lending—affiliated—net | 679,409 |
| Foreign taxes withheld | (1,515,553) |
| Total Investment Income | 398,284,379 |
| Expenses | |
| Investment advisory | 4,863,044 |
| Director, Trustee, and Board meeting expenses | 310,692 |
| Professional | 75,099 |
| Total Expenses | 5,248,835 |
| Less fees waived and/or reimbursed by the Manager | (563,865) |
| Total Expenses After Fees Waived and/or Reimbursed | 4,684,970 |
| Net Investment Income | 393,599,409 |
| Realized And Unrealized Gain (Loss) | |
| Net realized gain (loss) from: | |
| Investments—unaffiliated | (13,455,802) |
| Investments—affiliated | (347,808) |
| Futures contracts | 67,610,011 |
| Net Realized Gain (Loss) | 53,806,401 |
| Net change in unrealized appreciation (depreciation) on: | |
| Investments—unaffiliated | 4,960,397,272 |
| Investments—affiliated | 17,586,455 |
| Futures contracts | 1,968,163 |
| Net Change In Unrealized Appreciation (Depreciation) | 4,979,951,890 |
| Net Realized And Unrealized Gain | $5,033,758,291 |
| Net Increase In Net Assets From Operations | $5,427,357,700 |
| The accompanying notes are an integral part of these financial statements. | Appendix |
99
Statements of Changes in Net Assets
S&P 500 Index Master Portfolio
| | Year Ended December 31, 2019 | Year Ended December 31, 2018 |
| Increase (Decrease) In Net Assets | | |
| Operations | | |
| Net investment income | $393,599,409 | $308,119,158 |
| Net realized gain on investments | 53,806,401 | 68,976,788 |
| Net change in unrealized appreciation (depreciation) | 4,979,951,890 | (1,302,602,820) |
| Net Increase (decrease) in net assets from operations | 5,427,357,700 | (925,506,874) |
| Capital Transactions | | |
| Proceeds from contributions | 11,063,823,888 | 9,671,286,018 |
| Value of withdrawals | (10,540,152,052) | (5,263,924,715) |
| Total increase in net assets from capital transactions | 523,671,836 | 4,407,361,303 |
| Total Increase In Net Assets | 5,951,029,536 | 3,481,854,429 |
| Net Assets | | |
| Beginning of year | $17,256,928,809 | $13,775,074,380 |
| End of year | $23,207,958,345 | $17,256,928,809 |
| Appendix | The accompanying notes are an integral part of these financial statements. |
Financial Highlights
S&P 500 Index Master Portfolio
| | Year Ended December 31, |
| | 2019 | 2018 | 2017 | 2016 | 2015 |
| Total Return | 31.44% | -4.38% | 21.77% | 11.92% | 1.35% |
| Ratio to Average Net Assets | | | | | |
| Total expenses | 0.03% | 0.04% | 0.04% | 0.04% | 0.05% |
| Total expenses after fees waived and/or reimbursed | 0.02% | 0.04% | 0.04% | 0.04% | 0.04% |
| Net investment income | 1.95% | 1.92% | 1.93% | 2.11% | 2.00% |
| Supplemental Data | | | | | |
| Net assets, end of year (000) | $23,207,958 | $17,256,929 | $13,775,074 | $9,791,759 | $7,209,857 |
| Portfolio turnover rate | 3% | 12% | 11% | 4% | 2% |
| The accompanying notes are an integral part of these financial statements. | Appendix |
101
Notes to Financial Statements
S&P 500 Index Master Portfolio
1. Organization
Master Investment Portfolio (“MIP”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. MIP is organized as a Delaware statutory trust. S&P 500 Index Master Portfolio (the “Master Portfolio”) is a series of MIP. The Master Portfolio is classified as diversified.
The Master Portfolio, together with certain other registered investment companies advised by BlackRock Fund Advisors (the “Manager”) or its affiliates, is included in a complex of equity, multi-asset, index and money market funds referred to as the BlackRock Multi-Asset Complex.
Prior Year Reorganization: The Board of BlackRock Funds III and the Board of State Farm Mutual Fund Trust and the shareholders of State Farm S&P 500 Index Fund (the “Target Fund”) approved the reorganization of the Target Fund into iShares S&P 500 Index Fund (the “Fund”), a series of BlackRock Funds III. As a result, the Fund acquired all of the assets and assumed certain stated liabilities of the Target Fund in exchange for an equal aggregate value of newly-issued shares of the Fund.
On November 19, 2018, all of the portfolio securities previously held by the Target Fund were subsequently contributed by the Fund to the Master Portfolio in exchange for an investment in the Master Portfolio.
For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value. However, the cost basis of the investments received from the Target Fund was carried forward by the Master Portfolio to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
The Target Fund’s fair value and cost of investments prior to the reorganization were as follows:
| Target Fund | Fair Value of Invesments | Cost of Investments |
| State Farm S&P 500 Index Fund | $1,473,476,973 | $726,300,157 |
2. Significant Accounting Policies
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Master Portfolio is considered an investment
company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:
Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed. Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Master Portfolio is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, a portion of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain.
Segregation and Collateralization: In cases where the Master Portfolio enters into certain investments (e.g., futures contracts) that would be treated as “senior securities” for 1940 Act purposes, the Master Portfolio may segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Master Portfolio may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Indemnifications: In the normal course of business, the Master Portfolio enters into contracts that contain a variety of representations that provide general indemnification. The Master Portfolio’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Master Portfolio, which cannot be predicted with any certainty.
Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.
3. Investment Valuation and Fair Value Measurements
Investment Valuation Policies: The Master Portfolio’s investments are valued at fair value (also referred to as “market value” within the financial statements) as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Master Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolio determines the fair values of its financial
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instruments using various independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing function for all financial instruments.
Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of the Master Portfolio’s assets and liabilities:
• Equity investments traded on a recognized securities exchange are valued at the official closing price each day, if available. For equity investments traded on more than one exchange, the official closing price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price.
• Investments in open-end U.S. mutual funds are valued at net asset value (“NAV”) each business day.
• Futures contracts traded on exchanges are valued at their last sale price.
If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such investments, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee will include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Master Portfolio might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Fair Value Hierarchy: Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:
• Level 1—Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Master Portfolio has the ability to access
• Level 2—Other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)
• Level 3—Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately held companies or funds. There may not be a secondary market, and/or there are a limited number of investors. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities.
4. Securities and Other Investments
Securities Lending: The Master Portfolio may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Master Portfolio collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Master Portfolio is required
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to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Master Portfolio and any additional required collateral is delivered to the Master Portfolio, or excess collateral returned by the Master Portfolio, on the next business day. During the term of the loan, the Master Portfolio is entitled to all distributions made on or in respect of the loaned securities, but does not receive interest income on securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of any securities on loan, all of which were classified as common stocks in the Master Portfolio’s Schedule of Investments, and the value of any related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of period end, any securities on loan were collateralized by cash and/or U.S. Government obligations. Cash collateral invested by the securities lending agent, BlackRock Institutional Trust Company, N.A. (“BTC”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Master Portfolio under Master Securities Lending Agreements (each, an “MSLA”), which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Master Portfolio, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, absent an event of default, the borrower can resell or re-pledge the loaned securities, and the Master Portfolio can reinvest cash collateral received in connection with loaned securities. Upon an event of default, the parties’ obligations to return the securities or collateral to the other party are extinguished, and the parties can resell or re-pledge the loaned securities or the collateral received in connection with the loaned securities in order to satisfy the defaulting party’s net payment obligation for all transactions under the MSLA. The defaulting party remains liable for any deficiency.
| Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount |
| Bank of America N.A. | $5,539,671 | $(5,539,671) | — |
| Barclays Bank PLC | 3,843,919 | (3,843,919) | — |
| Barclays Capital, Inc. | 50,783 | (50,783) | — |
| BMO Capital Markets | 202,006 | (202,006) | — |
| Citigroup Global Markets, Inc. | 53,451,965 | (53,451,965) | — |
| Credit Suisse Securities (USA) LLC | 7,798,663 | (7,798,663) | — |
| Goldman Sachs & Co. | 15,789,735 | (15,789,735) | — |
| HSBC Bank PLC | 1,045,058 | (1,045,058) | — |
| JP Morgan Securities LLC | 7,983,961 | (7,983,961) | — |
| Nomura Securities International, Inc. | 174,471 | (174,471) | — |
| Scotia Capital (USA), Inc. | 772,920 | (772,920) | — |
| SG Americas Securities LLC | 16,396,672 | (16,396,672) | — |
| UBS AG | 665,358 | (665,358) | — |
| UBS Securities LLC | 22,906,558 | (22,906,558) | — |
| Wells Fargo Securities LLC | 592,588 | (592,588) | — |
| | $137,214,328 | $(137,214,328) | $— |
| 1Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Master Portfolio is disclosed in the Master Portfolio’s Statement of Assets and Liabilities. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Master Portfolio benefits from a borrower default indemnity provided by BlackRock, Inc. (“BlackRock”). BlackRock’s indemnity allows for full replacement of the securities loaned to the extent the collateral received does not cover the value on the securities loaned in the event of borrower default. The Master Portfolio could incur a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received. Such losses are borne entirely by the Master Portfolio.
5. Derivative Financial Instruments
The Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Master Portfolio and/or to manage its exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial
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instruments categorized by risk exposure are included in the Schedule of Investments. These contracts may be transacted on an exchange or over-the-counter (“OTC”).
Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk) and changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).
Futures contracts are agreements between the Master Portfolio and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a futures contract, the Master Portfolio is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Amounts pledged, which are considered restricted, are included in cash pledged for futures contracts in the Statement of Assets and Liabilities.
Securities deposited as initial margin are designated in the Schedule of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in the Statement of Assets and Liabilities. Pursuant to the contract, the Master Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statement of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Statement of Operations equal to the difference between the notional amount of the contract at the time it was opened and the notional amount at the time it was closed. The use of futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest, foreign currency exchange rates or underlying assets.
6. Investment Advisory Agreement and Other Transactions with Affiliates
Investment Advisory: MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement with the Manager, the Master Portfolio’s investment adviser and an indirect, wholly-owned subsidiary of BlackRock, to provide investment advisory services. The Manager is responsible for the management of the Master Portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of the Master Portfolio.
For such services, the Master Portfolio pays the Manager a monthly fee at an annual rate equal to 0.01% of the average daily value of the Master Portfolio’s net assets. Prior to July 1, 2019, the Master Portfolio paid the Manager a monthly fee at an annual rate equal to 0.04% of the average daily value of the Master Portfolio’s net assets.
Administration: MIP, on behalf of the Master Portfolio, entered into an Administration Agreement with BlackRock Advisors, LLC (“BAL”), which has agreed to provide general administrative services (other than investment advice and related portfolio activities). BAL has agreed to bear all of the Master Portfolio’s ordinary operating expenses, excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Master Portfolio.
BAL is not entitled to compensation for providing administrative services to the Master Portfolio, for so long as BAL (or an affiliate) is entitled to compensation for providing administrative services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolio, or BAL (or an affiliate) receives investment advisory fees from the Master Portfolio.
Expense Waivers and Reimbursements: The fees and expenses of the Master Portfolio’s trustees who are not “interested persons” of MIP, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and the Master Portfolio’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolio. Each of BFA and BAL, as applicable, has contractually agreed to reimburse the Master Portfolio or provide an offsetting credit against the administration fees paid by the Master Portfolio in an amount equal to these independent expenses through April 30, 2021. For the year ended December 31, 2019, the amount waived and/or reimbursed was $385,791.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Master Portfolio pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”). This amount is included in fees waived and/or reimbursed by the Manager in the Statement of Operations. For the year ended December 31, 2019, the amount waived was $175,916.
The Manager has contractually agreed to waive its investment advisory fee with respect to any portion of the Master Portfolio’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through April 30, 2021. The contractual agreement may be terminated upon 90 days’ notice by a majority of the Independent Trustees of MIP, or by a vote of a majority of the outstanding voting securities of the Master Portfolio. This amount is included in fees waived and/or reimbursed by the Manager
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in the Statement of Operations. For the year ended December 31, 2019, the Manager waived $2,158 in investment advisory fees pursuant to this arrangement.
Securities Lending: The U.S. Securities and Exchange Commission (“SEC”) has issued an exemptive order which permits BTC, an affiliate of the Manager, to serve as securities lending agent for the Master Portfolio, subject to applicable conditions. As securities lending agent, BTC bears all operational costs directly related to securities lending. The Master Portfolio is responsible for fees in connection with the investment of cash collateral received for securities on loan (the “collateral investment fees”). The cash collateral is invested in a money market fund managed by the Manager or its affiliates. However, BTC has agreed to reduce the amount of securities lending income it receives in order to effectively limit the collateral investment fees the Master Portfolio bears to an annual rate of 0.04%. The shares of such money market fund will not be subject to a sales load, distribution fee or service fee. The money market fund in which the cash collateral has been invested may, under certain circumstances, impose a liquidity fee of up to 2% of the value redeemed or temporarily restrict redemptions for up to 10 business days during a 90 day period, in the event that the money market fund’s weekly liquid assets fall below certain thresholds.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment fees. The Master Portfolio retains a portion of securities lending income and remits a remaining portion to BTC as compensation for its services as securities lending agent.
Pursuant to the current securities lending agreement, the Master Portfolio retains 73.5% of securities lending income (which excludes collateral investment fees), and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment fees.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the BlackRock Multi-Asset Complex in a calendar year exceeds a specified threshold, the Master Portfolio, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income in an amount equal to 80% of securities lending income (which excludes collateral investment fees), and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment fees.
The share of securities lending income earned by the Master Portfolio is shown as securities lending income — affiliated — net in the Statement of Operations. For the year ended December 31, 2019, the Master Portfolio paid BTC $197,708 in total for securities lending agent services.
Interfund Lending: In accordance with an exemptive order (the “Order”) from the SEC, the Master Portfolio may participate in a joint lending and borrowing facility for temporary purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the Master Portfolio’s investment policies and restrictions. The Master Portfolio is currently permitted to borrow and lend under the Interfund Lending Program.
A lending BlackRock fund may lend in aggregate up to 15% of its net assets, but may not lend more than 5% of its net assets to any one borrowing fund through the Interfund Lending Program. A borrowing BlackRock fund may not borrow through the Interfund Lending Program or from any other source more than 33 1/3% of its total assets (or any lower threshold provided for by the fund’s investment restrictions). If a borrowing BlackRock fund’s total outstanding borrowings exceed 10% of its total assets, each of its outstanding interfund loans will be subject to collateralization of at least 102% of the outstanding principal value of the loan. All interfund loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the highest current overnight repurchase agreement rate available to a lending fund and the bank loan rate, as calculated according to a formula established by the Board.
During the year ended December 31, 2019, the Master Portfolio did not participate in the Interfund Lending Program.
Trustees and Officers: Certain trustees and/or officers of the Master Portfolio are directors and/or officers of BlackRock or its affiliates.
Other Transactions: The Master Portfolio may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment adviser, common officers, or common trustees. For the year ended December 31, 2019, the purchase and sale transactions and any net realized gains (losses) with affiliated funds in compliance with Rule 17a-7 under the 1940 Act were as follows:
| Purchases | Sales | Net Realized Gain (Loss) |
| $656,292,770 | $60,145,540 | $(29,208,341) |
7. Purchases and Sales
For the year ended December 31, 2019, purchases and sales of investments, excluding short-term securities, were $1,567,674,746 and $668,088,798, respectively.
8. Income Tax Information
The Master Portfolio is classified as a partnership for U.S. federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of net assets, income, expenses and realized and
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unrealized gains and losses of the Master Portfolio. Therefore, no U.S. federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.
The Master Portfolio files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Master Portfolio’s U.S. federal tax returns generally remains open for each of the four years ended December 31, 2019. The statutes of limitations on the Master Portfolio’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Master Portfolio as of December 31, 2019, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Master Portfolio’s financial statements.
As of December 31, 2019, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Tax cost | $13,338,949,197 |
| Gross unrealized appreciation | $10,452,081,189 |
| Gross unrealized depreciation | $(460,320,838) |
| Net unrealized appreciation | $9,991,760,351 |
9. Bank Borrowings
MIP, on behalf of the Master Portfolio, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.25 billion credit agreement with a group of lenders. Under this agreement, the Master Portfolio may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Master Portfolio, can borrow up to an aggregate commitment amount of $1.75 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.10% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2020 unless extended or renewed. Prior to April 18, 2019, Participating Funds paid an upfront commitment fee of 0.02% on the total commitment amounts, in addition to administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations. These fees were allocated among such funds based upon portions of the aggregate commitment available
to them and relative net assets of Participating Funds. During the year ended December 31, 2019, the Master Portfolio did not borrow under the credit agreement.
10. Principal Risks
In the normal course of business, the Master Portfolio invests in securities or other instruments and may enter into certain transactions, and such activities subject the Master Portfolio to various risks, including among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may also be affected by various factors, including, without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability; (iii) regulation, taxation or international tax treaties between various countries; or (iv) currency, interest rate and price fluctuations. The Master Portfolio’s prospectus provides details of the risks to which the Master Portfolio is subject.
The Master Portfolio may be exposed to additional risks when reinvesting cash collateral in money market funds that do not seek to maintain a stable NAV per share of $1.00, which may be subject to redemption gates or liquidity fees under certain circumstances.
Valuation Risk: The market values of equities, such as common stocks and preferred securities or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company. They may also decline due to factors which affect a particular industry or industries. The Master Portfolio may invest in illiquid investments. An illiquid investment is any investment that the Master Portfolio reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. The Master Portfolio may experience difficulty in selling illiquid investments in a timely manner at the price that it believes the investments are worth. Prices may fluctuate widely over short or extended periods in response to company, market or economic news. Markets also tend to move in cycles, with periods of rising and falling prices. This volatility may cause the Master Portfolio’s NAV to experience significant increases or decreases over short periods of time. If there is a general decline in the securities and other markets, the NAV of the Master Portfolio may lose value, regardless of the individual results of the securities and other instruments in which the Master Portfolio invests.
Counterparty Credit Risk: The Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions. The Master Portfolio manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those
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counterparties. Financial assets, which potentially expose the Master Portfolio to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolio’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.
A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
With exchange-traded futures, there is less counterparty credit risk to the Master Portfolio since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Master Portfolio does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Master Portfolio.
11. Subsequent Events
Management has evaluated the impact of all subsequent events on the Master Portfolio through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
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Report of Independent Registered Public Accounting Firm
S&P 500 Index Master Portfolio
To the Board of Trustees of Master Investment Portfolio and the Investors of S&P 500 Index Master Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of S&P 500 Index Master Portfolio (one of the series constituting Master Investment Portfolio, referred to hereafter as the “Master Portfolio”) as of December 31, 2019, the related statement of operations for the year ended December 31, 2019, the statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Master Portfolio as of December 31, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2019 and the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Master Portfolio’s management. Our responsibility is to express an opinion on the Master Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Master Portfolio in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agent and brokers. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 14, 2020
We have served as the auditor of one or more BlackRock investment companies since 2000.
Statement Regarding Liquidity Risk Management Program
S&P 500 Index Master Portfolio
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management throughout the open-end investment company industry, thereby reducing the risk that funds will be unable to meet their redemption obligations and mitigating dilution of the interests of fund shareholders.
The Board of Trustees (the “Board”) of MIP, on behalf of S&P 500 Index Master Portfolio, met on November 12-13, 2019 (the “Meeting”) to review the liquidity risk management program (the “Program”) applicable to the BlackRock open-end funds, excluding money market funds (each, a “Fund”), pursuant to the Liquidity Rule. The Board has appointed BlackRock Advisors, LLC or BlackRock Fund Advisors (“BlackRock”), each an investment adviser to certain Funds, as the program administrator for each Fund’s Program, as applicable. BlackRock has delegated oversight of the Program to the 40 Act Liquidity Risk Management Committee (the “Committee”). At the Meeting, the Committee, on behalf of BlackRock, provided the Board with a report that addressed the operation of the Program and assessed its adequacy and effectiveness of implementation, including the operation of each Fund’s Highly Liquid Investment Minimum (“HLIM”) where applicable, and any material changes to the Program (the “Report”). The Report covered the period from December 1, 2018 through September 30, 2019 (the “Program Reporting Period”).
The Report described the Program’s liquidity classification methodology for categorizing a Fund’s investments (including derivative transactions) into one of four liquidity buckets. It also described BlackRock’s methodology in establishing a Fund’s HLIM and noted that the Committee reviews and ratifies the HLIM assigned to each Fund no less frequently than annually.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’s liquidity risk, as follows:
A. The Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions: During the Program Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure with a focus on Funds with more significant and consistent holdings of less liquid and illiquid assets. The Committee also factored a Fund’s concentration into in an issuer the liquidity classification methodology by taking issuer position sizes into account. Where a Fund participated in borrowings for investment purposes (such as tender option bonds and reverse repurchase agreements), such borrowings were factored into the Program’s calculation of a Fund’s liquidity bucketing. Derivative exposure was also considered in such calculation.
B. Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions: During the Program Reporting Period, the Committee reviewed historical net redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size (“RATS”). Each Fund has adopted an in-kind redemption policy which may be utilized to meet larger redemption requests. The Committee may also take into consideration a Fund’s shareholder ownership concentration (which, depending on product type and distribution channel, may or may not be available), a Fund’s distribution channels, and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
C. Holdings of cash and cash equivalents, as well as borrowing arrangements: The Committee considered the terms of the credit facility applicable to the Funds, the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds (including that a portion of the aggregate commitment amount is specifically designated for BlackRock Floating Rate Income Portfolio and BlackRock Credit Strategies Income Fund, each a series of BlackRock Funds V). The Committee also considered other types of borrowing available to the Funds, such as the ability to use reverse repurchase agreements and interfund lending, as applicable.
There were no material changes to the Program during the Program Reporting Period. The Report provided to the Board stated that the Committee concluded that based on the operation of the functions, as described in the Report, the Program is operating as intended and is effective in implementing the requirements of the Liquidity Rule.
Officers and Trustees
S&P 500 Index Master Portfolio | Independent Trustees1
| Name and Year of Birth2 | Position(s) Held | Length of Time Served3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen | Public Company and Investment Company Directorships During Past Five Years |
Mark Stalnecker
1951 | Chair of the Board and Trustee | Since 2019 (Chair of the Board); Since 2015 (Trustee) | Chief Investment Officer, University of Delaware from 1999 to 2013; Trustee and Chair of the Finance and Investment Committees, Winterthur Museum and Country Estate from 2005 to 2016; Member of the Investment Committee, Delaware Public Employees’ Retirement System since 2002; Member of the Investment Committee, Christiana Care Health System from 2009 to 2017; Member of the Investment Committee, Delaware Community Foundation from 2013 to 2014; Director and Chair of the Audit Committee, SEI Private Trust Co. from 2001 to 2014. | 37 RICs consisting of
177 Portfolios | None |
Bruce R. Bond
1946 | Trustee | Since 2019 | Board Member, Amsphere Limited (software) since 2018; Trustee and Member of the Governance Committee, State Street Research Mutual Funds from 1997 to 2005; Board Member of Governance, Audit and Finance Committee, Avaya Inc. (computer equipment) from 2003 to 2007. | 37 RICs consisting of
177 Portfolios | None |
Officers and Trustees
S&P 500 Index Master Portfolio | Independent Trustees1 (Continued)
| Name and Year of Birth2 | Position(s) Held | Length of Time Served3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen | Public Company and Investment Company Directorships During Past Five Years |
Susan J. Carter
1956 | Trustee | Since 2016 | Director, Pacific Pension Institute from 2014 to 2018; Advisory Board Member, Center for Private Equity and Entrepreneurship at Tuck School of Business since 1997; Senior Advisor, Commonfund Capital, Inc. (“CCI”) (investment adviser) in 2015; Chief Executive Officer, CCI from 2013 to 2014; President & Chief Executive Officer, CCI from 1997 to 2013; Advisory Board Member, Girls Who Invest from 2015 to 2018 and Board Member thereof since 2018; Advisory Board Member, Bridges Fund Management since 2016; Trustee, Financial Accounting Foundation since 2017; Practitioner Advisory Board Member, Private Capital Research Institute (“PCRI”) since 2017. | 37 RICs consisting of
177 Portfolios | None |
Collette Chilton
1958 | Trustee | Since 2015 | Chief Investment Officer, Williams College since 2006; Chief Investment Officer, Lucent Asset Management Corporation from 1998 to 2006. | 37 RICs consisting of
177 Portfolios | None |
Neil A. Cotty
1954 | Trustee | Since 2016 | Bank of America Corporation from 1996 to 2015, serving in various senior finance leadership roles, including Chief Accounting Officer from 2009 to 2015, Chief Financial Officer of Global Banking, Markets and Wealth Management from 2008 to 2009, Chief Accounting Officer from 2004 to 2008, Chief Financial Officer of Consumer Bank from 2003 to 2004, Chief Financial Officer of Global Corporate Investment Bank from 1999 to 2002. | 37 RICs consisting of
177 Portfolios | None |
Officers and Trustees
S&P 500 Index Master Portfolio | Independent Trustees1 (Continued)
| Name and Year of Birth2 | Position(s) Held | Length of Time Served3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen | Public Company and Investment Company Directorships During Past Five Years |
Lena G. Goldberg
1949 | Trustee | Since 2019 | Senior Lecturer, Harvard Business School, since 2008; Director, Charles Stark Draper Laboratory, Inc. since 2013; FMR LLC/Fidelity Investments (financial services) from 1996 to 2008, serving in various senior roles including Executive Vice President — Strategic Corporate Initiatives and Executive Vice President and General Counsel; Partner, Sullivan & Worcester LLP from 1985 to 1996 and Associate thereof from 1979 to 1985. | 37 RICs consisting of
177 Portfolios | None |
Robert M. Hernandez
1944 | Trustee | Since 2019 | Director, Vice Chairman and Chief Financial Officer of USX Corporation (energy and steel business) from 1991 to 2001; Director and non-executive Chairman, RTI International Metals, Inc. from 1990 to 2015; Director, TE Connectivity (electronics) from 2006 to 2012. | 37 RICs consisting of
177 Portfolios | Chubb Limited (insurance company); Eastman Chemical Company |
Henry R. Keizer
1956 | Trustee | Since 2019 | Director, Park Indemnity Ltd. (captive insurer) since 2010; Director, MUFG Americas Holdings Corporation and MUFG Union Bank, N.A. (financial and bank holding company) from 2014 to 2016; Director, American Institute of Certified Public Accountants from 2009 to 2011; Director, KPMG LLP (audit, tax and advisory services) from 2004 to 2005 and 2010 to 2012; Director, KPMG International in 2012, Deputy Chairman and Chief Operating Officer thereof from 2010 to 2012 and U.S. Vice Chairman of Audit thereof from 2005 to 2010; Global Head of Audit, KPMGI (consortium of KPMG firms) from 2006 to 2010; Director, YMCA of Greater New York from 2006 to 2010. | 37 RICs consisting of
177 Portfolios | Hertz Global Holdings (car rental); Montpelier Re Holdings, Ltd. (publicly held property and casualty reinsurance) from 2013 until 2015; Sealed Air Corp. (packaging); WABCO (commercial vehicle safety systems) |
Officers and Trustees
S&P 500 Index Master Portfolio | Independent Trustees1 (Continued)
| Name and Year of Birth2 | Position(s) Held | Length of Time Served3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen | Public Company and Investment Company Directorships During Past Five Years |
Cynthia A. Montgomery
1952 | Trustee | Since 2009 | Professor, Harvard Business School since 1989. | 37 RICs consisting of
177 Portfolios | Newell Rubbermaid, Inc. (manufacturing) |
Donald C. Opatrny
1952 | Trustee | Since 2019 | Trustee, Vice Chair, Member of the Executive Committee and Chair of the Investment Committee, Cornell University since 2004; President, Trustee and Member of the Investment Committee, The Aldrich Contemporary Art Museum from 2007 to 2014; Member of the Board and Investment Committee, University School from 2007 to 2018; Member of the Investment Committee, Mellon Foundation from 2009 to 2015; Trustee, Artstor (a Mellon Foundation affiliate) from 2010 to 2015; President and Trustee, the Center for the Arts, Jackson Hole from 2011 to 2018; Director, Athena Capital Advisors LLC (investment management firm) since 2013; Trustee and Chair of the Investment Committee, Community Foundation of Jackson Hole since 2014; Member of Affordable Housing Supply Board of Jackson, Wyoming since 2018; Member, Investment Funds Committee, State of Wyoming since 2017; Trustee, Phoenix Art Museum since 2018. | 37 RICs consisting of
177 Portfolios | None |
Joseph P. Platt
1947 | Trustee | Since 2009 | General Partner, Thorn Partners, LP (private investments) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Chair, Basic Health International (non-profit) since 2015. | 37 RICs consisting of
177 Portfolios | Greenlight Capital Re, Ltd. (reinsurance company); Consol Energy Inc. |
Officers and Trustees
S&P 500 Index Master Portfolio | Independent Trustees1 (Continued)
| Name and Year of Birth2 | Position(s) Held | Length of Time Served3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen | Public Company and Investment Company Directorships During Past Five Years |
Kenneth L. Urish
1951 | Trustee | Since 2009 | Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Past- Chairman of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since founding in 2001; Principal, UP Strategic Wealth Investment Advisors, LLC since 2013; Trustee, The Holy Family Institute from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007. | 37 RICs consisting of
177 Portfolios | None |
Claire A. Walton
1957 | Trustee | Since 2016 | Chief Operating Officer and Chief Financial Officer of Liberty Square Asset Management, LP from 1998 to 2015; General Partner of Neon Liberty Capital Management, LLC since 2003; Director, Boston Hedge Fund Group from 2009 to 2018; Director, Woodstock Ski Runners since 2013; Director, Massachusetts Council on Economic Education from 2013 to 2015. | 37 RICs consisting of
177 Portfolios | None |
| 1 The address of each Trustee is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055. |
| 2 Independent Trustees serve until their resignation, retirement, removal or death, or until December 31 of the year in which they turn 75. The Board may determine to extend the terms of Independent Trustees on a case-by-case basis, as appropriate. |
| 3 In connection with the acquisition of Barclays Global Investors by BlackRock, Inc. in December 2009, certain Independent Trustees were elected to the Board. Furthermore, effective January 1, 2019, three BlackRock Fund Complexes were realigned and consolidated into two BlackRock Fund Complexes. As a result, although the chart shows the year that each Independent Trustee joined the Board, certain Independent Trustees first became members of the boards of other BlackRock-advised Funds or legacy BlackRock funds as follows: Bruce R.Bond, 2005; Robert M. Hernandez, 1996; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Kenneth L. Urish, 1999; Lena G. Goldberg, 2016; Henry R. Keizer, 2016; Donald C. Opatrny, 2015. |
Officers and Trustees
S&P 500 Index Master Portfolio | Interested Trustees1,4
| Name and Year of Birth2 | Position(s) Held | Length of Time Served3 | Principal Occupation(s) During Past Five Years | Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen | Public Company and Investment Company Directorships During Past Five Years |
Robert Fairbairn
1965 | Trustee | Since 2018 | Vice Chairman of BlackRock, Inc. since 2019; Member of BlackRock’s Global Executive and Global Operating Committees; Co-Chair of BlackRock’s Human Capital Committee; Senior Managing Director of BlackRock, Inc. from 2010 to 2019; oversaw BlackRock’s Strategic Partner Program and Strategic Product Management Group from 2012 to 2019; Member of the Board of Managers of BlackRock Investments, LLC from 2011 to 2018; Global Head of BlackRock’s Retail and iShares® businesses from 2012 to 2016. | 123 RICs consisting of
287 Portfolios | None |
John M. Perlowski5
1964 | Trustee, President and Chief Executive Officer | Since 2015 (Trustee); Since 2010 (President and Chief Executive Officer) | Managing Director of BlackRock, Inc. since 2009; Head of BlackRock Global Accounting and Product Services since 2009; Advisory Director of Family Resource Network (charitable foundation) since 2009. | 124 RICs consisting of 288 Portfolios | None |
| 1 The address of each Trustee is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055. |
| 2 Independent Trustees serve until their resignation, retirement, removal or death, or until December 31 of the year in which they turn 75. The Board may determine to extend the terms of Independent Trustees on a case-by-case basis, as appropriate. |
| 3 In connection with the acquisition of Barclays Global Investors by BlackRock, Inc. in December 2009, certain Independent Trustees were elected to the Board. Furthermore, effective January 1, 2019, three BlackRock Fund Complexes were realigned and consolidated into two BlackRock Fund Complexes. As a result, although the chart shows the year that each Independent Trustee joined the Board, certain Independent Trustees first became members of the boards of other BlackRock-advised Funds or legacy BlackRock funds as follows: Bruce R. Bond, 2005; Robert M. Hernandez, 1996; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Kenneth L. Urish, 1999; Lena G. Goldberg, 2016; Henry R. Keizer, 2016; Donald C. Opatrny, 2015. |
| 4 Mr. Fairbairn and Mr. Perlowski are both “interested persons,” as defined in the 1940 Act, of the Trust/MIP based on their positions with BlackRock, Inc. and its affiliates. Mr. Fairbairn and Mr. Perlowski are also board members of the BlackRock Fixed-Income Complex. |
| 5 Mr. Perlowski is also a trustee of the BlackRock Credit Strategies Fund. |
Officers and Trustees
S&P 500 Index Master Portfolio | Officers Who Are Not Trustees1
| Name and Year of Birth2 | Position(s) Held | Length of Time Served3 | Principal Occupation(s) During Past Five Years |
Thomas Callahan
1968 | Vice President | Since 2016 | Managing Director of BlackRock, Inc. since 2013; Member of the Board of Managers of BlackRock Investments, LLC (principal underwriter) since 2019 and Managing Director thereof since 2017; Head of BlackRock’s Global Cash Management Business since 2016; Co-Head of the Global Cash Management Business from 2014 to 2016; Deputy Head of the Global Cash Management Business from 2013 to 2014; Member of the Cash Management Group Executive Committee since 2013; Chief Executive Officer of NYSE Liffe U.S. from 2008 to 2013. |
Jennifer McGovern
1977 | Vice President | Since 2014 | Managing Director of BlackRock, Inc. since 2016; Director of BlackRock, Inc. from 2011 to 2015; Head of Product Development and Oversight for BlackRock’s Strategic Product Management Group since 2019; Head of Product Structure and Oversight for BlackRock’s U.S. Wealth Advisory Group from 2013 to 2019. |
Neal J. Andrews
1966 | Chief Financial Officer | Since 2009 | Chief Financial Officer of the iShares® exchange traded funds since 2019; Managing Director of BlackRock, Inc. since 2006. |
Jay M. Fife
1970 | Treasurer | Since 2009 | Managing Director of BlackRock, Inc. since 2007. |
Charles Park
1967 | Chief Compliance Officer | Since 2014 | Anti-Money Laundering Compliance Officer for certain BlackRock-advised Funds from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the BlackRock Multi-Asset Complex and the BlackRock Fixed-Income Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006; Chief Compliance Officer for the BFA-advised iShares® exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management International Inc. since 2012. |
Lisa Belle
1968 | Anti-Money
Laundering
Compliance Officer | Since 2019 | Managing Director of BlackRock, Inc. since 2019; Global Financial Crime Head for Asset and Wealth Management of JP Morgan from 2013 to 2019; Managing Director of RBS Securities from 2012 to 2013; Head of Financial Crimes for Barclays Wealth Americas from 2010 to 2012. |
Janey Ahn
1975 | Secretary | Since 2019 | Managing Director of BlackRock, Inc. since 2018; Director of BlackRock, Inc. from 2009 to 2017. |
| 1 The address of each Officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055. |
| 2 Officers of the Trust/MIP serve at the pleasure of the Board. |
Further information about the Trust’s/MIP’s Trustees and Officers is available in the Trust’s/MIP’s Statement of Additional Information, which can be obtained without charge by calling (800) 441-7762.
PRSRT STD
U.S. POSTAGE
PAID
LANCASTER, PA
PERMIT NO. 1793
homesteadfunds.com | 800.258.3030 | 4301 Wilson Blvd. | Arlington, VA | 22203
This report is authorized for distribution to shareholders and others who have received a copy of the prospectus.
Distributor: RE Investment Corporation.
Item 2. Code of Ethics.
Homestead Funds, Inc. has adopted a Senior Officer Code of Ethics, as defined in Item 2 of Form N-CSR, which applies to its principal executive officer, principal financial officer, principal accounting or controller, or persons performing similar functions. The Senior Officer Code of Ethics is available on Homestead Funds, Inc.’s website at www.homesteadfunds.com or without charge, upon request, by calling the Chief Compliance Officer at 1-800-258-3030. During the period covered by this report, no substantive amendments were approved or waivers were granted to the Senior Officer Code of Ethics.
Item 3. Audit Committee Financial Expert.
The Board of Directors of Homestead Funds, Inc. has determined that the Board's Audit Committee does not have an “audit committee financial expert” as the Securities and Exchange Commission has defined that term. After carefully considering all of the factors involved in the definition of “audit committee financial expert,” the Board determined that none of the members of the Audit Committee met all five qualifications in the definition, although each of the members of the Audit Committee met some of the qualifications. The Board also determined that because of the collective general financial expertise of the Audit Committee members, as well as the types of funds in Homestead Funds, Inc. and the nature of the accounting and valuation issues they have presented, it did not appear that the Audit Committee as a whole lacked any necessary skill to fulfill the functions of an Audit Committee.
Item 4. Principal Accountant Fees and Services.
Fiscal Year 2018 | $230,000 |
Fiscal Year 2019 | $263,146 |
Fiscal Year 2018 | $0 |
Fiscal Year 2019 | $0 |
Fiscal Year 2018 | $0 |
Fiscal Year 2019 | $0 |
Fiscal Year 2018 | $0 |
Fiscal Year 2019 | $0 |
____________________
1 | These fees were for professional services rendered for the audits of the financial statements of Daily Income Fund, Short-Term Government Securities Fund, Short-Term Bond Fund, Stock Index Fund, Value Fund, Small-Company Stock Fund, International Equity Fund, and Growth Fund, including services that are normally provided in connection with the Funds' statutory and regulatory filings. |
(e)(1) | The Registrant’s audit committee is directly responsible for approving the services to be provided by the principal accountant.
|
(2) | None of the services provided to the Registrant described in paragraphs (b)-(d) of Item 4 were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
|
(f) | Not applicable.
|
(g) | The National Rural Electric Cooperative Association paid the Funds’ principal accountant $114,007 and $ 44,001 in 2019 and 2018 respectively, respectively, for consulting and tax services. The National Rural Electric Cooperative Association is the parent company, hence a controlling entity of RE Advisers Corporation, the investment adviser that provided ongoing services to Homestead Funds Inc. for each of its last two fiscal years.
|
(h) | Homestead Funds Inc.'s Audit Committee considered the provision of non-audit services, which were not approved by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, that the principal accountant rendered to the National Rural Electric Cooperative Association, a controlling entity of RE Advisers Corporation, the investment adviser that provided ongoing services to Homestead Funds Inc. for each of its last two fiscal years. The Audit Committee determined that these services were compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) | The Registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders under Item 1 of this Form N-CSR.
|
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) | Disclosure Controls and Procedures. The registrant's principal executive officer and principal financial officer concluded, based on their evaluation of the disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the registrant's disclosure controls and procedures are effectively designed to provide reasonable assurance that the information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported by the filing date, including the registrant's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
|
(b) | Internal Control. There were no changes in registrant's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities For Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) | Not required with this filing. |
(a)(2) | A separate certification for the principal executive officer and principal financial officer of the registrant, as required by Rule 30a-2(a) under the Investment Company Act of 1940, is filed herewith. |
(a)(3) | Not applicable. |
| (a)(4) | Not applicable.
|
(b) | A certification by the registrant’s principal executive officer and principal financial officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HOMESTEAD FUNDS, INC.
| |
By: | /s/ Mark D. Santero |
| Mark D. Santero |
| President, Chief Executive Officer and Director |
Date: March 6, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| |
By: | /s/ Mark D. Santero |
| Mark D. Santero |
| President, Chief Executive Officer and Director |
Date: March 6, 2020
| |
By: | /s/ Amy M. DiMauro |
| Amy M. DiMauro |
| Treasurer |
Date: March 6, 2020
