HOMESTATE
---------
PENNSYLVANIA [GRAPHIC CAPITAL "E" IN AN OCTAGONAL-SHAPED LOGO] GROWTH FUND
ANNUAL REPORT
------------------
JUNE 30, 1996
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
--------------------------------------
ABOUT THE FUND
--------------
The HomeState Pennsylvania Growth Fund seeks long-term growth of capital
through investment primarily in the common stocks of companies with
headquarters or significant operations in the Commonwealth of
Pennsylvania.
FUND MANAGEMENT HAS IDENTIFIED THREE KEY POINTS AS COMPONENTS OF ITS
INVESTMENT STRATEGY:
PENNSYLVANIA AS A PRIMARY MARKET
--------------------------------
The State is home to over 500 publicly traded companies, including 33
Fortune 500 companies. Pennsylvania's $244 billion economy is similar
in size to that of many individual countries, including Mexico and South
Korea. Its corporate profile is diverse, from traditional manufacturing
companies to state-of-the-art biopharmaceutical firms, with growth and
expansion in medical and health services, trade, education and financial
institutions.
UNCOVERING INVESTMENT OPPORTUNITIES
-----------------------------------
The Fund's investment adviser, Emerald Advisers, Inc., employs a full-
time research staff to explore the local Pennsylvania companies that are
often ignored by traditionally nationally oriented research firms.
Emerald's mission is to keep a constant eye on the State's business
community, actively updating a company's progress by talking to its
management, employees, suppliers, customers and competitors.
AN EXPERIENCED MANAGEMENT TEAM
------------------------------
Emerald Advisers, Inc.'s team of investment professionals bring to the
Fund diverse background experience gained from the securities brokerage,
trust and banking, institutional investment advisory and mutual fund
industries.
The Fund's portfolio is managed by Kenneth G. Mertz II, CFA, who
previously served as chief investment officer to the $12 billion
Pennsylvania State Employees Retirement System.
BY SEEKING OUT THE INVESTMENT OPPORTUNITIES FOUND HERE IN OUR HOME
STATE, OUR EXPERIENCED INVESTMENT PROFESSIONALS WORK TO PROVIDE FUND
SHAREHOLDERS WITH WHAT WE CALL. . .
"THE HOMESTATE ADVANTAGE."
THIS REPORT CONTAINS INFORMATION ABOUT THE FUND'S PERFORMANCE. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. AN INVESTMENT IN THE
FUND WILL FLUCTUATE IN VALUE SO THAT YOUR ACCOUNT, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN YOUR ORIGINAL PURCHASE PRICE.
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
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THE FUND AT A GLANCE JUNE 30, 1996
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HOMESTATE PENNSYLVANIA GROWTH FUND PERFORMANCE COMPARISON VS. S&P 500*
GROWTH OF HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sep-92 Dec-92 Mar-93 Jun-93 Sep-93 Dec-93 Mar-94 Jun-94
------ ------ ------ ------ ------ ------ ------ ------
HomeState
Pennsylvania
Growth Fund 9496.68 10322.89 10446.35 10427.35 11743.16 12291.17 12051.49 11859.74
S&P 500 10000.00 10504.86 10965.86 11018.08 11302.22 11564.84 11127.91 11173.42
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sep-94 Dec-94 Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96
------ ------ ------ ------ ------ ------ ------ ------
HomeState
Pennsylvania
Growth Fund 12671.50 12525.18 13110.47 15295.55 17148.04 18083.12 18948.53 21415.00
S&P 11718.81 11716.16 12855.43 14080.65 15198.50 16112.16 16976.33 17735.98
</TABLE>
TOP TEN HOLDINGS AS OF JUNE 30, 1996
ISSUE % OF FUND ISSUE % OF FUND
- ----- --------- ----- ---------
1. Safeguard Scientifics, Inc. 3.67% 6. Genrad, Inc. 1.82%
2. Technitrol, Inc. 2.18% 7. Charter Power Systems, Inc. 1.71%
3. Penn Treaty American Corp. 1.95% 8. Right Management Consultants 1.70%
4. Met-Pro Corp. 1.88% 9. Bel Fuse, Inc. 1.67%
5. Harsco Corp. 1.84% 10. Sungard Data Systems,Inc. 1.67%
3
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
REPORT FROM MANAGEMENT
- ---------------------------------------------------------------------------
July 31, 1996
Dear Shareholder:
We are pleased to report the performance results for the HomeState
Pennsylvania Growth Fund's fourth fiscal year. The total return without
adjustments for sales charges for the twelve-month period ended June 30,
1996 was 39.94%, substantially better than market benchmarks such as the
Standard & Poor's 500 Index return of 25.96% and the Wilshire 5000 Index (a
composite of all issues traded on the New York, American and NASDAQ
exchanges) return of 26.24%. The Fund's results were also substantially
higher than the Russell 2000 ( a small company index), which was up 23.94%
including reinvested dividends, and the Morningstar Growth Funds average,
which was up 23.10%. Including the Fund's full 5.0% sales charge over the
period, the Fund was up 32.94%.
Performance results for the Fund for periods ended June 30, 1996 are as
follows:
AVERAGE ANNUALIZED RETURNS
---------------------------- CUMULATIVE
SINCE TOTAL
INCEPTION RETURNS
FUND/INDEX ONE YEAR THREE YEARS 10/1/92 SINCE 10/1/92
- ---------- -------- ----------- ------- -------------
HomeState PA Growth (at N.A.V.) + 39.94% + 27.13% + 24.20% + 125.42%
HomeState PA Growth + 32.94% + 24.98% + 22.51% + 114.15%
(at Maximum Offering Price)
Standard & Poor's 500 Index + 25.96% + 17.20% + 16.50% + 77.29%
Wilshire 5000 Index + 36.47% + 16.80% + 16.90% + 79.58%
Morningstar Growth Funds Ave. + 30.74% + 15.16% + 15.81% + 73.38%
The Standard & Poor's 500 and Wilshire 5000 indices are unmanaged stock
market indices and their returns assume the reinvestment of all dividends.
The Morningstar Growth Funds average is a composite average of 836, 489,
and 403 growth-oriented funds over the one year, three year, and since
inception (10/1/92) time periods, respectively. Please keep in mind that
past performance is no guarantee of future results and investment return
and principal value will fluctuate so that shares may be worth more or less
than their original value. Some of the Fund's returns are higher due to
the manager's maintenance of expenses.
These performance results helped your HomeState Fund receive national
attention in the last few months. The Fund was cited by Lipper Analytical
Services, Inc. as one of the Top 15 Growth Funds in the nation, ranking #13
of 619 funds measured for the one year period ended June 30, 1996 and #4 of
379 growth funds for the three-year period also ended June 30th. And
finally, Morningstar, Inc. awarded the Fund their highest rating, a Five
4
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
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REPORT FROM MANAGEMENT
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Star (*****) rating for the three year period ended June 30th. Only 10% of
the 1,848 equity funds measured received five stars. For the one year
period ended June 30th, the Fund received a Three Star (***) rating out of
2,882 equity funds.*
As these results reflect, the stock market environment has been almost
ideal for investors through the month of June. The lowering of interest
rates since the Spring of 1995, a lack of inflationary pressures and
accelerating earnings had resulted in considerably above-average returns.
The market highs of April and May were accentuated by "momentum players"
who weren't making long-term investment decisions but rather pushing stocks
higher based on favorable technical charts. The market drop since these
highs has been sharp and we finally have a correction greater than 10% as
this letter is written. While this correction has been mainly concentrated
in the NASDAQ exchange, all market participants have certainly felt the
pain. It is natural that the leadership stocks of this market be subjected
to profit-taking. The strength of this market has been centered in
technology stocks as well as the small-cap issues and therefore the
correction has been exacerbated by a lack of liquidity in many of these
issues.
In our opinion, the stock market remains undervalued on a price-to-earnings
basis, as it trades at less than 16 times trailing earnings as we end July.
We also believe the market is also undervalued on a price-to-cash flow
basis, assuming that both earnings and cashflow are still increasing. This,
of course, is the current dilemma for all stock market participants. As has
been the usual case with each earnings period for the last two years, the
market displays signs of nervousness during the final week of the quarter
and the first two weeks of the reporting period, as the early negative
earnings reports saturate the marketplace. While this time period is never
easy, this particular period has generated extra concerns due to the market
heights and the lack of strength in the bond market.
Stock market "Bears" are pointing to many indicators for signs of weakness.
Included is the lack of Dow Jones Industrial Index and Standard & Poor's
500 Index gains since mid-February, even given the record billions of new
cash flowing into mutual funds (in fact, the inflows for the first six
months of 1996 have exceeded the entire amount for 1995). Also cited are
the churning at the market high in May, the commodity price increases in
1996, higher interest rates, extreme increases in employment numbers and
housing starts. While we could negate each such argument in terms of
expectations for the second half (we believe economic growth will slow from
the first half), the real keys and therefore the real problems for market
"Bulls" are wage inflation and earnings growth.
Our philosophy remains in place to invest in the best growth companies with
pricing power and an ability to control their pricing points and therefore
their own destiny. These companies are usually niche players and market-
share leaders. We are also looking for stable growth companies: stability
of earnings means less risk and more confidence in earnings estimates. In a
time of such anxiety about the stock market, we are pleased that so many of
these leading growth companies are found right here in our own backyard.
Our in-depth, on-site research is a crucial part of our process of reducing
potential risk.
5
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
REPORT FROM MANAGEMENT
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Finally, we are pleased to note that the Fund's total assets have risen by
more than 160% for the fiscal year 1996, and Emerald Advisers, Inc., the
Fund's investment adviser, now manages more than $150 million for
individual and institutional investors. We welcome our many new
shareholders to the HomeState family. As always, we thank you for your
confidence and support, and welcome your comments or questions.
Sincerely,
/s/ Kenneth G. Mertz II
Kenneth G. Mertz II
Chief Investment Officer
*Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 6/30/96. The ratings are subject to change every
month. Past performance is no guarantee of future results. Morningstar
ratings are calculated from the fund's three-, five-, and ten- year
average annual returns (if applicable) in excess of 90-day Treasury bill
returns with appropriate fee adjustments, and a risk factor that reflects
fund performance below 90-day T-bill returns.
6
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 1996
- -------------------------------------------------------------------------
MARKET
SHARES VALUE**
------ -------
COMMON STOCK - 88.1%
COMMUNICATIONS & BROADCASTING - 3.9%
American Telecasting, Inc.#*............ 22,200 $ 294,150
Comcast Corp., Special (A Shares)*...... 37,650 696,525
EZ Communications, Inc. (A Shares)#*.... 10,000 237,500
Palmer Wireless, Inc. (A Shares)#*...... 3,000 60,000
People's Choice TV Corp.#*.............. 17,000 310,250
Tel-Save Holdings, Inc.*................ 10,000 212,500
Wireless Cable of Atlanta, Inc.#*....... 21,800 359,700
-------------
2,170,625
-------------
FINANCE, INSURANCE & REAL ESTATE - 12.1%
INSURANCE CARRIERS - 5.1%
American Travellers Corp.*.............. 31,250 718,750
Donegal Group, Inc...................... 19,900 343,275
Penn-America Group, Inc................. 30,000 498,750
Penn Treaty American Corp.*............. 50,750 1,091,125
Walshire Assurance Co................... 14,350 218,837
-------------
2,870,737
-------------
LIFE INSURANCE - 0.3%
Provident American Corp.*............... 17,700 183,637
-------------
NATIONAL COMMERCIAL BANKS - 1.4%
First Capitol Bank/York, PA*............ 4,800 108,000
Mellon Bank Corp........................ 11,450 652,650
-------------
760,650
-------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS - 1.9%
Parkvale Financial Corp................. 9,108 229,977
Patriot Bank Corp....................... 21,500 274,125
Prime Bancorp, Inc...................... 10,255 190,358
Sovereign Bancorp, Inc.................. 16,537 165,370
York Financial Corp..................... 11,650 195,139
-------------
1,054,969
-------------
STATE & NATIONAL BANKS - 3.4%
BT Financial Corp....................... 5,483 185,051
Commerce Bancorp, Inc.#................. 14,825 348,387
First Colonial Group, Inc............... 11,481 212,398
Kish Bancorp............................ 600 30,600
Omega Financial Corp.................... 6,000 198,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 7
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
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SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1996
- -------------------------------------------------------------------------
MARKET
SHARES VALUE**
------ -------
Sun Bancorp, Inc........................ 12,090 $ 361,189
Susquehanna Bancshares, Inc............. 20,000 535,001
-------------
1,870,626
-------------
TOTAL FINANCE, INSURANCE & REAL ESTATE............ 6,740,619
-------------
MANUFACTURING - 44.3%
CHEMICALS & ALLIED PRODUCTS - 1.9%
MacDermid, Inc.#........................ 7,400 518,000
OM Group, Inc.#......................... 13,500 529,875
-------------
1,047,875
-------------
COMMUNICATION EQUIPMENT - 0.3%
C-COR Electronics, Inc.*................ 10,900 196,200
-------------
COMPUTER & OFFICE EQUIPMENT - 9.0%
Black Box Corp.*........................ 16,200 384,750
HDS Network Systems, Inc.*.............. 28,000 245,000
Iomega Corp.#*.......................... 25,000 725,000
Nocopi Technologies, Inc.*.............. 70,000 55,300
SI Handling Systems, Inc................ 33,850 346,963
Safeguard Scientifics, Inc.*............ 26,300 2,051,400
SubMicron Systems, Inc.*................ 69,800 610,750
Tseng Laboratories, Inc.*............... 60,000 577,500
-------------
4,996,663
-------------
ELECTRICAL MEASUREMENT & TEST INSTRUMENTS - 2.6%
Cohu, Inc.#............................. 20,500 415,125
Genrad, Inc.#*.......................... 61,500 1,014,750
-------------
1,429,875
FOOD & BEVERAGE - 1.4%
Hershey Foods Corp...................... 11,000 807,124
-------------
IRON & STEEL - 0.6%
Carpenter Technology Corp............... 11,100 355,200
-------------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES - 13.4%
Allen Organ Co. (B Shares).............. 9,300 363,863
AMETEK, Inc............................. 26,500 576,375
AMP, Inc................................ 7,600 304,950
Amphenol Corp. (A Shares)#*............. 15,500 356,500
Bel Fuse, Inc.#*........................ 55,360 934,200
Berg Electronics Corp.#*................ 8,000 190,000
Cable Design Technologies*.............. 20,700 677,925
Charter Power Systems, Inc.............. 27,500 955,625
8 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1996
- -------------------------------------------------------------------------
MARKET
SHARES VALUE**
------ -------
Emcee Broadcast Products, Inc.*......... 96,900 $ 750,975
Harsco Corp............................. 15,300 1,028,925
JPM Company*............................ 14,100 118,088
Technitrol, Inc......................... 30,700 1,216,488
-------------
7,473,914
-------------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT - 1.0%
York International Corp................. 11,000 569,250
-------------
MISCELLANEOUS MANUFACTURING INDUSTRIES - 0.7%
Penn Engineering & Manufacturing Corp.
(A Shares) 5,200 122,850
Penn Engineering & Manufacturing Corp.*. 15,600 294,450
-------------
417,300
-------------
OPTICAL & OPHTHALMIC GOODS, PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 0.9%
II-VI, Inc.*............................ 31,000 499,875
-------------
PETROLEUM REFINING - 0.4%
Tesoro Petroleum Corp.#*................ 21,500 247,250
-------------
PHARMACEUTICAL PREPARATIONS - 3.1%
Aronex Phamaceuticals, Inc.#*........... 40,000 210,000
Centocor, Inc.*......................... 20,500 612,438
IBAH, Inc.*............................. 56,500 452,000
Integra Lifesciences Corp.#*............ 11,000 107,250
Magainin Pharmaceuticals, Inc.*......... 10,000 105,000
Neose Technologies, Inc.*............... 11,500 235,750
-------------
1,722,438
-------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES - 2.7%
Arrow International, Inc................ 10,000 270,000
Healthdyne Technologies, Inc.#*......... 29,500 383,500
Medical Technology and Innovations, Inc.* 145,000 435,000
Respironics, Inc.*...................... 22,000 407,000
-------------
1,495,500
-------------
RUBBER & PLASTICS - 0.4%
Tuscarora, Inc.......................... 12,000 253,500
-------------
SPECIAL INDUSTRIAL MACHINERY - 1.9%
Met-Pro Corp............................ 56,300 1,048,587
-------------
TELECOMMUNICATIONS EQUIPMENT - 0.6%
Tollgrade Communications, Inc.*......... 14,000 322,000
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 9
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1996
- -------------------------------------------------------------------------
MARKET
SHARES VALUE**
------ -------
TEXTILES & APPAREL - 0.9%
Jones Apparel Group, Inc.*.............. 10,000 $ 491,250
-------------
TRANSPORTATION - 0.8%
Buckeye Partners, L.P................... 12,000 456,000
-------------
TRANSPORTATION EQUIPMENT - 1.7%
JLG Industries, Inc..................... 12,500 928,124
-------------
TOTAL MANUFACTURING............................... 24,757,925
-------------
REAL ESTATE INVESTMENT TRUSTS - 1.1%
Liberty Property Trust.................. 29,700 590,288
-------------
SERVICES - 18.1%
BUSINESS SERVICES - 3.0%
CRW Financial, Inc.*.................... 12,325 425,213
Physician Support Systems, Inc.*........ 13,000 294,125
Right Management Consultants*........... 26,000 949,000
-------------
1,668,338
-------------
COMPUTER SERVICES - 8.3%
Ansoft Corp.*........................... 48,500 351,625
Ansys, Inc.*............................ 9,000 118,125
Astea International, Inc.*.............. 13,500 327,375
Datastream Systems, Inc.#*.............. 15,000 528,750
DecisionOne Holdings Corp.*............. 25,900 615,125
Fore Systems, Inc.*..................... 5,000 180,625
Integrated Systems Consulting Group,
Inc.*................................. 6,383 124,468
Metatools, Inc.#*....................... 14,000 329,000
Microleague Multimedia, Inc.*........... 15,000 101,250
Physician Computer Network, Inc.#*...... 22,000 254,375
SCI Systems, Inc.#*..................... 15,000 609,375
STB Systems, Inc.#*..................... 10,500 179,812
Sungard Data Systems, Inc.*............. 23,200 930,900
-------------
4,650,805
-------------
ENGINEERING SERVICES - 0.6%
Astrotech International Corp.*.......... 63,766 358,684
-------------
FINANCE SERVICES - 0.5%
DVI, Inc.*.............................. 19,500 307,125
-------------
10 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1996
- -------------------------------------------------------------------------
MARKET
SHARES VALUE**
------ -------
HOME HEALTHCARE SERVICES - 1.0%
Amercian Homepatient, Inc.#*............ 8,000 $ 354,000
Home Health Corp.*...................... 13,700 185,806
-------------
539,806
-------------
MEDICAL & HEALTH SERVICES - 4.7%
Apria Healthcare Group, Inc.#*.......... 6,500 203,937
Community Care of America, Inc.#*....... 24,000 288,000
Corecare Systems, Inc.*................. 70,000 175,000
Genesis Health Ventures, Inc.*.......... 23,700 743,588
Mariner Health Group, Inc.#*............ 8,000 147,000
PMR Corp.#*............................. 6,000 62,250
Renal Treatment Centers, Inc.*.......... 15,500 445,625
SMT Health Services, Inc.*.............. 64,300 546,550
-------------
2,611,950
-------------
TOTAL SERVICES.................................... 10,136,708
-------------
ELECTRIC, GAS & WATER UTILITIES - 1.0%
Philadelphia Suburban Corp.............. 22,000 544,500
-------------
WHOLESALE & RETAIL TRADE - 7.6%
MISCELLANEOUS RETAIL STORES - 2.2%
National Media Corp.*................... 48,000 846,000
Rite Aid Corp........................... 12,000 357,000
-------------
1,203,000
-------------
RETAIL APPAREL & ACCESSORY STORES - 1.8%
Mothers Work, Inc.*..................... 14,000 357,000
Piercing Pagoda, Inc.*.................. 35,900 664,150
-------------
1,021,150
-------------
WHOLESALE CHEMICALS & DRUGS - 1.4%
AmeriSource Health Corp. (A Shares)*.... 23,400 778,050
-------------
WHOLESALE MISCELLANEOUS - 2.2%
Alco Standard Corp...................... 17,300 782,825
APS Holding Corp.#*..................... 8,000 176,000
VWR Scientific Products Corp.*.......... 18,250 292,000
-------------
1,250,825
-------------
TOTAL WHOLESALE & RETAIL TRADE ................... 4,253,025
-------------
TOTAL COMMON STOCK (COST $38,182,007)............. 49,193,690
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 11
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1996
- -------------------------------------------------------------------------
MARKET
SHARES VALUE**
------ -------
MONEY MARKET MUTUAL FUNDS - 10.6%
CoreFund Treasury Reserve Portfolio..... 2,000,000 $ 2,000,000
CoreFund Fiduciary Reserve Portfolio.... 1,850,000 1,850,000
SEI Liquid Asset Trust - Government
Portfolio.............................. 2,060,741 2,060,741
-------------
TOTAL MONEY MARKET MUTUAL FUNDS (COST $5,910,741).. 5,910,741
-------------
TOTAL INVESTMENTS (COST $44,092,748) - 98.7%............ 55,104,431
-------------
OTHER ASSETS AND LIABILITIES, NET - 1.3%................ 723,622
-------------
NET ASSETS - 100.0%..................................... $ 55,828,053
-------------
** See Note 2 to Financial Statements.
* Non-income producing security.
# Non-Pennsylvania Company as defined in the Fund's current prospectus
(the aggregate of value of such securities amounted to $10,373,936 as
of June 30, 1996).
12 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1996
- ------------------------------------------------------------------------------
ASSETS
Investments in securities at market
value (cost $44,092,748).................. $55,104,431
Cash....................................... 181,328
Receivables for:
Dividends and interest.................... 34,866
Investment securities sold................ 89,563
Capital shares sold....................... 2,091,672
-----------
Total Assets............................. 57,501,860
-----------
LIABILITIES
Payables for:
Investment securities purchased........... 1,511,380
Capital shares repurchased................ 14,604
Accrued expenses........................... 147,823
-----------
Total Liabilities........................ 1,673,807
-----------
NET ASSETS................................. $55,828,053
===========
NET ASSETS CONSISTED OF:
Shares of beneficial interest, no par
value, 50,000,000 authorized; 2,627,170
issued and outstanding.................... $41,223,258
Accumulated net realized gain on
investments............................... 3,593,112
Unrealized appreciation on investments..... 11,011,683
-----------
Net Assets............................... $55,828,053
===========
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE ($55,828,053/2,627,170 shares)...... $21.25
======
Maximum offering price per share
(100/95 of net asset value per share)..... $22.37
======
See accompanying Notes to Financial Statements 13
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1996
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................. $352,171
Interest.................................. 64,499
-----------
Total Investment Income................ 416,670
-----------
EXPENSES
Advisory fees............................. 246,310
12b-1 fees................................ 115,867
Administration fees....................... 31,973
Transfer agent fees....................... 60,211
Custodial fees............................ 31,586
Accounting services fees.................. 35,362
Professional fees......................... 38,321
Printing expenses......................... 8,932
Registration fees......................... 7,612
Trustees fees and expenses................ 6,070
Miscellaneous expenses.................... 23,757
-----------
Total Expenses......................... 606,001
-----------
NET INVESTMENT LOSS........................ (189,331)
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investment
transactions............................. 3,898,165
Change in unrealized appreciation
on investments........................... 7,151,550
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS............................... 11,049,715
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................. $10,860,384
===========
14 See accompanying Notes to Financial Statements
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30,1995
------------- ------------
OPERATIONS
Net investment loss....................... $(189,331) $ (14,949)
Net realized gain on investment
transactions............................. 3,898,165 442,297
Change in unrealized appreciation
on investments........................... 7,151,550 3,570,194
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................... 10,860,384 3,997,542
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:+
Net realized gain from investment
transactions............................. (747,908) (174,096)
----------- -----------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS - Note 3............... 25,327,678 6,672,056
----------- -----------
TOTAL INCREASE IN NET ASSETS............... 35,440,154 10,495,502
NET ASSETS:
Beginning of year......................... 20,387,899 9,892,397
----------- -----------
End of year............................... $55,828,053 $20,387,899
=========== ===========
+ Does not include $998,584 short-term capital gain ($0.37 per share)
and $2,375,010 long-term capital gain ($0.88 per share) distributed
July 22, 1996 to shareholders of record as of July 15, 1996.
See accompanying Notes to Financial Statements 15
- ------------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
PERIODS ENDED
------------------------------------------
6/30/96 6/30/95 6/30/94 6/30/93+
------- ------- ------- --------
Net asset value at
beginning of period............... $15.68 $12.37 $10.98 $10.00
------ ------ ------ ------
Income from Investment Operations
- ---------------------------------
Net investment income (loss)....... (0.07) (0.01) (0.03) 0.03
Net realized and unrealized
gains on investments.............. 6.17 3.54 1.53 0.95
------ ------ ------ ------
Total from investment operations. 6.10 3.53 1.50 0.98
------ ------ ------ ------
Less Distributions
- ------------------
Dividends from net investment
income........................... 0.00 0.00 (0.03) 0.00
Distributions from net realized
gains............................ (0.53) (0.22) (0.08) 0.00
------ ------ ------ ------
Total distributions.............. (0.53) (0.22) (0.11) 0.00
------ ------ ------ ------
Net asset value at end of period... $21.25 $15.68 $12.37 $10.98
====== ====== ====== ======
Total return**..................... 39.94% 28.96% 13.75% 13.07%*
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted)................... $55,828 $20,388 $9,892 $3,026
Ratio of expenses to average
net assets before
reimbursement by Adviser.......... 1.85% 2.00% 2.67% 7.85%*
Ratio of expenses to average
net assets after
reimbursement by Adviser.......... na++ 1.91% 2.23% 1.87%*
Ratio of net investment loss
to average net assets before
reimbursement by Adviser.......... (0.58)% (0.20)% (0.76)% (5.24)%*
Ratio of net investment income
(loss) to average net assets
after reimbursement by Adviser.... na++ (0.10)% (0.32)% 0.74%*
Average commission rate paid....... $0.0961 - - -
Portfolio turnover rate............ 66% 51% 51% 63%
+ From commencement of operations: October 1, 1992.
* Annualized.
** Total return does not reflect 5.0% maximum sales charge.
++ Not applicable: no reimbursements were made by the Adviser.
16 See accompanying Notes to Financial Statements
- ------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- ------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF FUND
The HomeState Pennsylvania Growth Fund (the "Fund") is a portfolio
series of The HomeState Group, a Pennsylvania common law trust
operating as a diversified open-end management company registered
under the Investment Company Act of 1940, as amended. The Fund was
organized on August 26, 1992, and commenced operations on October 1,
1992. Operations up to October 1, 1992 were limited to issuance of
10,000 shares at $10.00 per share to the Fund's investment adviser.
The investment objective of the Fund is long-term growth of capital
through investments primarily in the common stock of companies with
headquarters or significant operations in the Commonwealth of
Pennsylvania. Under normal circumstances, the Fund will invest at
least 65% of its total assets in such companies. Consequently, the
Fund may be subject to risk from economic changes and political
developments occurring within Pennsylvania.
NOTE 2 - SIGNIFICANT ACCOUNTING PRINCIPLES
Following is a summary of significant accounting policies, in
conformity with generally accepted accounting principles, which were
consistently followed by the Fund in the preparation of its financial
statements:
SECURITY VALUATION - Investment securities traded on a national
securities exchange are valued at the last reported sales price at
4:00 p.m. Eastern time, unless there are no transactions on the
valuation date, in which case they are valued at the mean between the
closing asked price and the closing bid price. Securities traded over-
the-counter are valued at the last reported sales price unless there
is no reported sales price, in which case the mean between the closing
asked price and the closing bid price is used. Debt securities with
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Where market quotations are not readily
available, securities are valued using methods which the Board of
Trustees believe in good faith accurately reflects their fair value.
INCOME RECOGNITION - Interest income is accrued daily. Dividend
income is recorded on the ex-dividend date.
SECURITIES TRANSACTIONS - Security transactions are accounted for on
the date the securities are purchased or sold. Realized gains and
losses on securities sold are determined using the identified cost
method.
DISTRIBUTIONS TO SHAREHOLDERS - The Fund records distributions to
shareholders on the ex-dividend date. Net gains realized from
securities transactions, if any, will normally be distributed to
shareholders in July and December. The amounts of distributions from
net investment income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ from
those amounts determined under generally accepted accounting
principles. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent,
they are charged or credited to paid-in capital in the period that the
difference arises. Accordingly, net investment loss of $189,331 for
17
- ------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1996
- ------------------------------------------------------------------------
the fiscal year ended June 30, 1996 has been charged to paid-in
capital. This reclassification has no effect on net assets or net
asset values per share.
FEDERAL INCOME TAXES - The Fund intends to comply with provisions of
the Internal Revenue Code applicable to regulated investment
companies, including the distribution of substantially all of its
taxable income. Accordingly, no provision for federal income taxes is
considered necessary in the financial statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of 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.
NOTE 3 - CAPITAL STOCK
At June 30, 1996, there were 50,000,000 authorized shares of
beneficial interest with no par value. As of June 30, 1996, the Fund
had 2,627,170 shares issued and outstanding. Capital share
transactions for the fiscal years ended June 30, 1996 and June 30,
1995 were:
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED JUNE 30, 1996 ENDED JUNE 30, 1995
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- ----------
Sales..................... 1,551,022 $29,459,053 670,899 $9,021,148
Reinvested distributions.. 41,712 681,175 13,102 161,946
Redemptions............... (265,566) (4,812,550) (183,880) (2,511,038)
--------- ----------- -------- ----------
Net increase.............. 1,327,168 $25,327,678 500,121 $6,672,056
========= =========== ======== ==========
NOTE 4 - INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term
investments, aggregated $39,153,336 and $20,947,081, respectively, for
the fiscal year ended June 30, 1996.
At June 30, 1996, net unrealized appreciation for reporting and
Federal income tax purposes aggregated $11,011,683, of which
$12,107,658 related to appreciated securities and $1,095,975 related
to depreciated securities.
NOTE 5 - EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser(the "Adviser")
to the Fund for which it receives investment advisory fees from the
Fund. The fee is based on average net assets at the annual rate of
18
- ------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1996
- ------------------------------------------------------------------------
0.75% on assets up to and including $250 million, 0.65% for assets in
excess of $250 million and up to and including $500 million, 0.55% for
assets in excess of $500 million and up to and including $750 million,
and 0.45% for assets in excess of $750 million. For the fiscal
year ended June 30, 1996, the Fund had incurred investment advisory
fees of $246,310. Under the terms of the investment advisory agreement
which expires on December 31, 1996, Emerald Advisers, Inc. will
reimburse the Fund if the Fund's total expenses exceed the most
restrictive expense limitation in effect by a,state regulatory agency
where the Fund's shares are registered for purchase. The Adviser may
also voluntarily reimburse the Fund for certain expenses. For the
fiscal year ended June 30, 1996, the Adviser made no voluntary
expense reimbursements. At June 30, 1996, Emerald Advisers, Inc.
owned 100 shares of the Fund.
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of
Wilmington Trust Company, is the sole distributor of Fund shares
pursuant to a Distribution Agreement with the Fund dated as of
November 20, 1995. The Fund has adopted a distribution services plan
(the "Plan") under Rule 12b-1 of the Investment Company Act of 1940.
The Plan allows the Fund to reimburse RSD for a portion of the costs
incurred in distributing the Fund's shares, including amounts paid to
brokers or dealers, at an annual rate not to exceed 0.35% of the
Fund's average daily net assets. During the period from November 20,
1995, through June 30, 1996, the Fund incurred expenses totaling
$84,202 pursuant to the Plan. Prior to November 20, 1995, Fund/Plan
Broker Services, Inc. served as the principal underwriter and
distributor of Fund shares. During the period from July 1, 1995,
through November 19, 1995, the Fund incurred expenses totaling $31,665
pursuant to the Plan.
Pursuant to separate Administration, Accounting Services and Transfer
Agency Agreements with the Fund, each dated November 20, 1995, Rodney
Square Management Corporation ("RSMC"), a wholly owned subsidiary of
Wilmington Trust Company, serves as administrator, accounting and
transfer agent. During the period from November 20, 1995 through June
30, 1996, the Fund paid RSMC administration fees totaling $31,973,
accounting services fees totaling $24,592 and transfer agent fees
totaling $49,959.
Prior to November 20, 1995, Fund/Plan Services, Inc. served as the
transfer and dividend disbursing agent and provided accounting and
pricing services for the Fund. During the period from July 1, 1995
through November 19, 1995, the Fund paid Fund/Plan Services, Inc.
transfer agency fees totaling $10,252, and accounting and pricing
services fees totaling $10,770.
The Fund's Declaration of Trust provides that each Trustee affiliated
with the Fund's Adviser shall serve without compensation and each
Trustee who is not so affiliated shall receive fees from the income of
the Fund, and expense reimbursements for each Trustees meeting
attended. An unaffiliated Trustee's annual fee shall not exceed
$1,000. A member of the Fund's Board of Trustees who is not affiliated
with the Adviser is employed as a practicing attorney and is a partner
in the law firm of Duane, Morris &Heckscher, the Fund's legal counsel.
Legal fees aggregating $21,308 during the fiscal year ended June 30,
1996 were paid to Duane, Morris & Heckscher.
19
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<PAGE>
- ------------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
--------------------------------------
INVESTMENT ADVISER BOARD OF TRUSTEES:
------------------ ------------------
EMERALD ADVISERS, INC. BRUCE E. BOWEN
LANCASTER, PA KENNETH G. MERTZ II, CFA
SCOTT C. PENWELL, Esq.
DISTRIBUTOR SCOTT L. REHR
----------- H.J. ZOFFER, PHD
RODNEY SQUARE DISTRIBUTORS, INC.
WILMINGTON, DE FUND MANAGEMENT
---------------
ADMINISTRATOR AND EMERALD ADVISERS, INC.
TRANSFER AGENT 1857 WILLIAM PENN WAY
---------------- P.O. BOX 10666
RODNEY SQUARE MANAGEMENT CORPORATION LANCASTER, PA 17605
WILMINGTON, DE
SHAREHOLDER SERVICES
CUSTODIAN --------------------
--------- RODNEY SQUARE MANAGEMENT CORPORATION
CORESTATES FINANCIAL CORP. P.O. BOX 8987
PHILADELPHIA, PA WILMINGTON, DE 19899-9752
INDEPENDENT ACCOUNTANTS TELEPHONE NUMBERS
----------------------- -----------------
PRICE WATERHOUSE LLP THE FUND (800) 232-0224
PHILADELPHIA, PA THE FUND (VIA
THE INTERNET) [email protected]
LEGAL COUNSEL MARKETING / BROKER
------------- SERVICES (800) 232-OK-PA
DUANE, MORRIS & HECKSCHER SHAREHOLDER
HARRISBURG, PA SERVICES (800) 892-1351
DAILY NEWSPAPER QUOTES
----------------------
"HomeStPA"
SYMBOL: HSPGX
THIS REPORT IS FOR THE GENERAL INFORMATION OF FUND SHAREHOLDERS. FOR MORE
DETAILED INFORMATION ABOUT THE FUND, PLEASE CONSULT A COPY OF THE FUND'S
CURRENT PROSPECTUS. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY A COPY OF
THE CURRENT PROSPECTUS.
- ------------------------------------------------------------------------------
8/96