Filed with the Securities and Exchange Commission on November 27, 1996.
File No. 33-48940
File No. 811-6722
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __
Post-Effective Amendment No. 5 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 X
THE HOMESTATE GROUP
(Exact Name of Registrant as Specified in Charter)
1857 WILLIAM PENN WAY, SUITE 203, LANCASTER, PA 17605
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (717) 396-7864
SCOTT L. REHR
1857 WILLIAM PENN WAY, SUITE 203, LANCASTER, PA
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2)
_____ on pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
X This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
CROSS-REFERENCE SHEET
THE HOMESTATE GROUP
Items Required By Form N-1A
PART A - PROSPECTUS
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ -----------------------
1. Cover Page Cover Page
2. Synopsis Expense Table
Investment Objectives and Policies
Purchase Information
3. Condensed Financial Financail Highlights
Information
4. General Description of Investment Objectives and Policies
Registrant Management of the Fund
Brokerage Allocation
5. Management of the Fund Management of the Fund
5A. Management's Discussion [Contained in the Fund's Annual
Report, of Fund Performance President's Letter]
6. Capital Stock and Cover Page
Other Securities Dividends, Distributions
and Taxes
General Information
7. Purchase of Securities How to Purchase Shares of the Fund
Being Offered Valuing the Fund's Shares
Management of the Fund/The
Distribution Plan
8. Redemption or Repurchase How to Redeem Shares of the Fund
9. Pending Legal Proceedings Not Applicable
<PAGE>
THE HOMESTATE GROUP
Items Required By Form N-1A (continued)
PART B - STATEMENT OF ADDITIONAL INFORMATION
CAPTION IN STATEMENT OF
ITEM NO. ITEM CAPTION ADDITIONAL INFORMATION
- -------- ------------ -----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Additional Information
and Policies Concerning Investment
Objctives and Policies
Portfolio Turnover
Appendix A
14. Management of the Registrant Trustees and Officers
15. Control Persons and Trustees and Officers
Principal Holders Other Information Securities
16. Investment Advisory Investment Advisor and
and Other Services Other Service Provviders
17. Brokerage Allocation Additional Brokerage
Allocation
18. Capital Stock and Redemptions
Other Securities Description of the Fund
19. Purchase, Redemption Redemptions
and Pricing of Net Asset Value and Dividends
Securities Being
Offered
20. Tax Status Additional Dividends, Distributions
and Taxes Information
21. Underwriters Distributor
22. Calculation of Measuring Performance
Performance
23. Financial Statements Financial Statements
<PAGE>
DRAFT
PRELIMINARY PROSPECTUS
DATED FEBRUARY 10, 1997
HOMESTATE
---------
PENNSYLVANIA [GRAPHIC CAPITAL "E" IN AN OCTAGONAL-SHAPED LOGO] GROWTH FUND
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE HOMESTATE SELECT OPPORTUNITIES FUND
Fund Information New Accounts -- (800) 232-0224
Existing Accounts/Orders-- (800) 892-1351
Brokers Only-- (800) 232-OK-PA
<PAGE>
PRELIMINARY PROSPECTUS DATED FEBRUARY 10, 1997
THE HOMESTATE GROUP Mailing 1857 William Penn Way, P.O. Box 10666
Address Lancaster, PA 17605-0666
Phone (800) 232-0224 -- Toll-Free
(717) 396-7864 -- Local & International
INVESTMENT OBJECTIVES AND POLICIES
The HomeState Group (the "Trust") is an open-end management company,
organized on August 26, 1992, as a common law trust under Pennsylvania law.
The Trust is registered as a "series fund." Currently, there are two series
in operation: the HomeState Pennsylvania Growth Fund and the HomeState Select
Opportunities Fund (the "Funds").
THE HOMESTATE PENNSYLVANIA GROWTH FUND -- The 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. To pursue its objective, the Fund will invest at least 65% of
its total assets in such companies. The Fund will usually invest in a
diversified portfolio of common stock of approximately 120 companies. There
is no assurance the Fund will achieve this investment objective (See
"Investment Objectives and Policies").
THE HOMESTATE SELECT OPPORTUNITIES FUND -- The objective of the Fund is long-
term appreciation of capital through investments in a non-diversified
portfolio of U.S. securities, without regard to any further issuer location
limitations. The Fund will typically invest in the common stock of no more
than fifty U.S. companies. Due to potential concentration in these issues,
the Fund will close to new investors when total net assets surpass $100
million. While the Fund can invest in companies of varying size, it will
usually emphasize companies having a market capitalization of less than $1
billion. There is no assurance the Fund will achieve this investment
objective (See "Investment Objectives and Policies").
PURCHASE INFORMATION
Shares of each Fund can be purchased through any independent securities
dealer having a sales agreement with the Funds' Distributor, at the then-
current net asset value plus a sales charge of 4.75%. There are several ways
to purchase shares at a reduced sales charge. The required minimum initial
investment in each Fund is $500 and the minimum subsequent investment is $50.
The minimum initial and subsequent investment amounts are $50 under the
Funds' AutoInvest Plan. See "How to Purchase Shares of the Funds" for more
information.
ADDITIONAL INFORMATION
This Prospectus sets forth the information a prospective investor should know
before investing. Please read it carefully and retain it for future
reference. A Statement of Additional Information, dated February 10, 1997 has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus. The Statement of Additional
Information includes a description of the Funds' trustees and officers, a
list of investment policies and restrictions, and further details about the
management and operations of each Fund, and is available at no charge by
writing or calling the Funds at the address or phone numbers listed above.
For further information concerning a new account, call the Funds at (800) 232-
0224. For questions about an established account, call Rodney Square
Management Corporation, the Funds' shareholder servicing agent, at (800) 892-
1351.
Shares of the Funds are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
TABLE OF CONTENTS
WHERE TO FIND INFORMATION CONCERNING PAGE NUMBER
- ------------------------------------ -----------
Investment Objectives and Policies............ 1
Purchase Information.......................... 1
Additional Information........................ 1
Expenses Summary.............................. 3
Financial Highlights.......................... 4
Investment Objectives and Policies............ 5
How to Purchase Shares of the Funds........... 9
How to Redeem Shares of the Funds............. 13
Valuing the Funds' Shares..................... 15
Management of the Funds....................... 16
Brokerage Allocation.......................... 19
Dividends, Distributions and Taxes............ 19
General Information........................... 21
<PAGE>
HOMESTATE PENNSYLVANIA GROWTH FUND
HOMESTATE SELECT OPPORTUNITIES FUND
EXPENSES SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(As a percentage of Maximum offering price) ... 4.75%(1)
Sales Load Imposed on Reinvested Dividends .... None
Deferred Sales Load ........................... None
Redemption Fees ............................... None
Exchange Fees ................................. None
Wire Transfer of Redemption Proceeds Fee ...... $7.00
ANNUAL FUND OPERATING EXPENSES (2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
HomeState Pennsylvania HomeState Select
GROWTH FUND OPPORTUNITIES FUND
---------------------- ------------------
Management Fees....................... 0.75% 1.00%
12b-1 Fees............................ 0.35% 0.35%
Other Expenses (After Reimbursement).. 0.75% 1.00%(3)
------ --------
TOTAL OPERATING EXPENSES......... 1.85% 2.35%(4)
EXAMPLE OF EXPENSES
An investor would have directly or indirectly paid the following
expenses at the end of the periods shown on a hypothetical $1,000 investment
in the Funds, assuming a 5% annual return and redemption at the end of each
period:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
HomeState PA Growth Fund $65 $103 $143 $254
HomeState Select
Opportunities Fund $70 $117 $167 $303
This table is provided to help you understand the expense of investing
in the Funds and your share of the operating expenses which the Funds incur.
The table does not represent past or future expense levels. Actual expenses
may be greater or less than those shown. Federal regulations require the
Example to assume a 5% annual return, but the funds' actual annual returns
will vary.
- ----------------------
(1) The rules of the SEC require that the maximum sales charge (in the
Funds' case, 4.75% of the offering price) be reflected in the above table.
However, there are several methods by which the sales charge can be reduced.
See "How to Purchase Shares of the Funds" for more information.
(2) The table shows expenses based on the HomeState Pennsylvania Growth
Fund's management fee and distribution service (12b-1) fee and other expenses
on an annualized basis for the period ended June 30, 1996, and estimated
expenses for the HomeState Select Opportunities Fund.
(3) (4) Because the HomeState Select Opportunities Fund is newly
organized, its percentages shown for "Other Expenses" are estimated and have
been computed giving effect to the Adviser's agreement to limit the Fund's
ordinary operating expenses to no more than 2.35% at least through and
including June 30, 1997. Absent that limitation, the "Other Expenses" and
"Total Operating Expenses" would be estimated to be 1.47% and 2.82%,
respectively.
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for the
HomeState Pennsylvania Growth Fund since its commencement of operations on
October 1, 1992. This information has been audited and reported on by the the
HomeState Pennsylvania Growth Fund's independent accountants. The Report of
Independent Accountants and financial statements included in the HomeState
Pennsylvania Growth Fund's Annual Report to shareholders for the period ended
June 30, 1996 are incorporated by reference into this Prospectus. The
HomeState Pennsylvania Growth Fund's Annual Report contains additional
performance information that will be made available without charge upon
request.
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------
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
The HomeState Select Opportunities Fund commenced operations on February 10,
1997. Its operations up to February 10, 1997 were limited to the issuance of
1,000 shares at $10.00 to the Fund's investment adviser.
INVESTMENT OBJECTIVES AND POLICIES
The HomeState Group is registered as a "series" fund whereby each
individual series of the Trust, in effect, represents a separate mutual fund
with its own investment objectives and policies, with varying possibilities
for capital appreciation or income, and subject to varying degrees of market
risks. Currently, two series are in operation: the HomeState Pennsylvania
Growth Fund and the HomeState Select Opportunities Fund. The discussion of
investment objectives and policies that follows relates only to each specific
series as noted. Future series of the Trust would have their own distinct
objectives and policies. Each series may also employ the techniques described
below under "Investment Techniques" and are subject to specific risks
described below under "Risk Factors."
THE HOMESTATE PENNSYLVANIA GROWTH FUND
The Fund's objective is long-term growth through capital appreciation.
The Fund seeks to achieve this goal mainly by investing in a diversified
portfolio of companies that have their headquarters in the Commonwealth of
Pennsylvania, or companies based elsewhere but have significant operations in
the Commonwealth of Pennsylvania (i.e. at least 50% of their revenues are
derived from operating units located in Pennsylvania). The Fund's objective
may not be changed without a vote of the holders of a majority of the
outstanding shares of the Fund. There can be no guarantee the investment
objective of the Fund will be achieved. The Fund will be actively managed
but will limit short-term trading and high portfolio turnover rates. The
Fund's annual portfolio turnover rate is not anticipated to exceed eighty
percent.
THE HOMESTATE SELECT OPPORTUNITIES FUND
The objective of the Fund is long-term appreciation of capital through
investments in a non-diversified portfolio of securities. The Fund seeks to
achieve this goal by typically investing in the common stock of no more than
fifty U.S. companies. While the Fund can invest in companies of varying size,
it will usually emphasize companies having a market capitalization of less
than $1 billion.
The Fund may invest a larger percentage of its assets in a particular
security or issuer than the average diversified mutual fund, and will focus
on those companies identified by the Fund's adviser as having what it
believes are superior prospects for price appreciation. Due to potential
concentration in these issues, the Fund will close to new investors when
total net assets surpass $100 million. The Fund's annual portfolio turnover
rate is expected to not exceed one hundred and fifty percent. Higher
portfolio turnover rates increase transaction costs and the possibility of
realizing taxable capital gains. The Fund's objective may not be changed
without a vote of the holders of a majority of the outstanding shares of the
Fund. There can be no guarantee the investment objective of the Fund will be
achieved.
INVESTMENT TECHNIQUES
The following are the investment techniques that may be used by the
Funds. Any discussion of an investment technique specific to one series will
be noted.
EQUITY SECURITIES
Under normal circumstances the Funds will invest a minimum of 65% of its
total assets in common stocks, preferred stocks and securities convertible
into common and preferred stocks. Investments are based primarily on
fundamental analysis and, although technical factors will not be ignored, the
main investment criteria will focus on an evaluation of revenues, earnings,
debt, capitalization, quality of management, level of insider ownership,
changing market conditions, past performance and future expectations. The
Funds will strive to invest in companies with strong balance sheets and
dominant or leading positions in niche markets. The Funds will look favorably
upon those companies that have well-defined business plans and long-term
operating strategies designed to increase shareholder value. When evaluating
a company for possible inclusion in a Funds' portfolio, a member of the
Adviser's portfolio management or research staff will request to conduct an
in-person visit to the company whenever such a visit is judged appropriate,
and will seek to meet with the company's management and survey its
operations. The Adviser will also attempt to interview a cross section of the
company's employees, customers, suppliers and competitors. The Adviser
believes that this "hands-on" approach to investing may give it an
opportunity to spot developing trends in these companies. The Adviser
estimates that approximately 80 percent of the HomeState Pennsylvania Growth
Fund's equity holdings have historically been a result of this in-house
research effort and that this percentage will be even higher in the HomeState
Select Opportunities Fund. The HomeState Select Opportunities Fund, however,
will not share the HomeState Pennsylvnia Growth Fund's geographic limitation.
SMALL COMPANIES
The Funds can each invest in companies from a wide range of industries
and of varying size, but both will include smaller companies. The HomeState
Select Opportunities Fund will usually emphasize these smaller companies.
Smaller companies are generally not as widely followed by institutional
investment analysts as larger companies such as those listed on the New York
Stock Exchange. Surveys by brokerage firms show that over 60 percent of all
companies listed on the NASDAQ Stock Exchange and American Stock Exchange
have two or fewer analysts following the company. The Funds' adviser believes
that this lack of generally available information about smaller companies
presents an opportunity for investment managers who provide their own
research analysis to spot developing trends before such information is widely
distributed among the larger investment community.
REGIONAL INVESTING
To pursue its objective, the HomeState Pennsylvania Growth Fund will
invest at least 65 percent of the value of its total assets in common stocks,
preferred stocks and securities convertible into common and preferred stocks
issued by firms whose headquarters are located in the Commonwealth of
Pennsylvania or companies based elsewhere but that have significant
operations in the Commonwealth of Pennsylvania. The Funds' Adviser, Emerald
Advisers, Inc., believes that Pennsylvania is positioned to provide publicly-
traded companies and their shareholders significant opportunities for growth.
The state is situated between two of the nation's most densely populated
regions, and its industries are poised to take advantage of global markets.
The state has ports accessing the Great Lakes system, the Mississippi and
Ohio rivers to the Gulf of Mexico, and the Atlantic Ocean. Pennsylvania is at
the heart of an expansive railroad system and has a major network of inter-
connecting interstate highways. Its corporate profile is diverse: from high-
tech biopharmaceutical firms headquartered in the state's southeast corner,
to rich farmlands in central Pennsylvania, to the growing financial and
commercial center of the west. From Erie to Philadelphia and from Pittsburgh
to the Poconos, the four corners of Pennsylvania frame a $244 billion
economy. If Pennsylvania were a free-standing country, its Gross Domestic
Product would rank it similar in size to such countries as Mexico or the
Republic of Korea. The Adviser believes that the Fund will provide a positive
influence on the Pennsylvania economy by stimulating investor interest and
awareness in Pennsylvania companies.
OTHER INVESTMENT TECHNIQUES
Both Funds may also invest up to 35 percent of the value of their total
assets in preferred stocks, investment-grade corporate bonds and notes, and
high-quality short-term debt securities such as commercial paper, bankers'
acceptances, certificates of deposit, repurchase agreements, obligations
insured or guaranteed by the United States Government or its agencies, and
demand and time deposits of domestic banks and United States branches and
subsidiaries of foreign banks. (The price of debt securities in which the
Funds invest are likely to decrease in times of rising interest rates.
Conversely, when rates fall, the value of the Funds' debt securities may
rise. Price changes of these debt securities held by the Funds have a direct
impact on the net asset value per share of the Funds. Investment grade
corporate bonds are generally defined by the four highest rating categories
by Standard & Poor's Corporation ("S & P") and Moody's Investors Services
("Moody's"): AAA, AA, A or BBB by S & P and Aaa, Aa, A and Baa by Moody's.
Corporate bonds rated BBB by S & P or Baa by Moody's are regarded as having
an adequate capacity to pay principal and interest but with greater
vulnerability to adverse economic conditions and speculative characteristics
(See "Appendix A" of the Funds' Statement of Additional Information for
further information). The Funds will make use of these short-term instruments
primarily under those circumstances where it has cash to manage for a brief
time period (i.e. after receiving dividend distributions, proceeds from the
sale of portfolio securities or money from the sale of Fund shares to
investors).
The Funds will not engage in direct investment in real estate or real
estate mortgage loans, except those instruments issued or guaranteed by the
United States Government. The mortgage-related instruments in which the Funds
may invest include those issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home
Loan Mortgage Corporation ("FHLMC") (collectively, the "Mortgage-Related
Instruments"). The underlying mortgages which collateralize Mortgage-Related
Instruments issued by GNMA are fully guaranteed by the Federal Housing
Administration or Veteran's Administration, while those collateralizing
Mortgage-Related Instruments issued by FHLMC or FNMA are typically
conventional residential mortgages conforming to strict underwriting size and
maturity constraints. Mortgage-Related Instruments provide for a periodic
payment consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income and the capital
portion will be reinvested. Unlike conventional bonds, Mortgage-Related
Instruments pay back principal over the life of the Mortgage-Related
Instrument rather than at maturity. At the time that a holder of a Mortgage-
Related Instrument reinvests the payments and any unscheduled prepayment of
principal that it receives, the holder may receive a rate of interest which
is actually lower than the rate of interest paid on the existing Mortgage-
Related Instruments. As a consequence, Mortgage-Related Instruments may be a
less effective means of "locking-in" long-term interest rates than other
types of U.S. government securities. While Mortgage-Related Instruments
generally entail less risk of a decline during periods of rapidly rising
interest rates, they may also have less potential for capital appreciation
than other investments with comparable maturities because as interest rates
decline, the likelihood increases that mortgages will be prepaid.
Furthermore, if Mortgage-Related Instruments are purchased at a premium,
mortgage foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of premium paid.
Conversely, if Mortgage-Related Instruments are purchased at a discount, both
a scheduled payment of principal and an unscheduled payment of principal
would increase current and total returns and would be taxed as ordinary
income when distributed to shareholders.
On those occasions when, in the opinion of the Funds' investment
adviser, market conditions warrant a temporary defensive approach, the Funds
may invest more than 35 percent of their total assets in short-term
obligations, including the following: securities issued or guaranteed by the
U.S. government, commercial paper and bankers acceptances. During intervals
when the Funds have adopted a temporary defensive position they will not be
achieving their stated investment objective.
The Funds may from time to time engage in repurchase agreements. That
is, a seller may sell securities to the Fund and agree to repurchase the
securities at the Funds' cost plus interest within a specified period
(normally one day). The arrangement results in a fixed rate of return that is
not subject to market fluctuations during the period that the underlying
security is held by the Funds. Repurchase agreements involve certain risks,
including seller's default on its obligation to repurchase or seller's
bankruptcy.
HEDGING STRATEGIES
In managing the HomeState Select Opportunities Fund, the adviser may
engage in certain options and short selling strategies to hedge various
market risks or to enhance potential gain. Certain special characteristics
of and risks associated with using these instruments are discussed below.
Use of options and short selling is subject to applicable regulations of the
SEC, the several options exchanges upon which these instruments may be
traded, and various state regulatory authorities. The Board of Trustees has
adopted investment guidelines (See "Appendix B" in the Statement of
Additional Information) reflecting those option trading regulations. These
strategies are discussed in further detail in the Trust's Statement of
Additional Information.
RISK FACTORS
GENERAL
The principal risk factor associated with an investment in the Funds is that
the market value of the portfolios' securities may decrease and result in a
decrease in the value of a shareholder's investment. All investments,
including those in mutual funds, have risks, and no investment is suitable
for all investors. The Funds are intended for long-term investors.
SMALL COMPANIES
The Funds' portfolios will include smaller companies, those defined by the
Funds' adviser as having a market capitalization of less than $1 billion.
Stocks of "small cap" companies tend to be more volatile and less liquid than
stocks of large companies. "Small cap" companies, as compared to larger
companies, may have a shorter history of operations, may not have as great an
ability to raise additional capital, may have a less diversified product line
making them more susceptible to market pressure, may have a smaller public
market for their shares, and may not be nationally recognized.
REGIONAL INVESTING
Due to its geographic limitation, the HomeState Pennsylvania Growth
Fund's assets may be subject to greater risk of loss from economic, political
or other developments (e.g., natural disasters) having an unfavorable impact
upon business located in the Commonwealth of Pennsylvania than similar funds
whose investments are geographically more diverse (i.e. the Fund may be less
diversified than other funds with similar investment objectives but no such
geographic limitation. The HomeState Select Opportunities Fund has no such
geographic limitation.) There can be no assurance that the economy of
Pennsylvania or the companies headquartered or operating in Pennsylvania will
grow in the future.
Since the HomeState Pennsylvania Growth Fund will be mainly investing in
a diversified portfolio of companies that have their headquarters in the
Commonwealth of Pennsylvania, or companies based elsewhere but that have
significant operations in Pennsylvania, Fund investments can be significantly
affected by business trends and the economic health of Pennsylvania. The
following is a brief summary of certain factors affecting the Pennsylvania
Growth Fund. The summary does not purport to be complete and is based upon
information derived from publicly available documents.
SPECIAL FACTORS AFFECTING INVESTMENTS IN PENNSYLVANIA COMPANIES --
Pennsylvania is the nation's fifth-ranked state in terms of population,
behind California, New York, Texas and Florida. Pennsylvania's population
notched up to 11.9 million in 1990 from 11.8 million in 1980. Pennsylvania's
population is evenly split between the metropolitan areas of Philadelphia and
Pittsburgh and the rest of the State.
Pennsylvania boasts the nation's highest personal savings rate and the
least transitory population of any state in the nation (81% of the current
population was born in the State).
Pennsylvania's workforce totals more than 5.9 million, ranking it as the
sixth largest labor pool in the nation. The State's seasonally adjusted
unemployment rate stood at 5.1% in July 1996, versus 5.4% for the U.S.
economy as a whole. By comparison, neighboring New Jersey's rate was 6.1%.
Pennsylvania has a lower per capita state tax burden than the surrounding
states of New York, New Jersey, Maryland or Ohio.
Pennsylvania's $244 billion economy is home to 33 Fortune 500
corporations and more than 237,000 public and private businesses.
Pennsylvania is the only state in the nation with two cities (Philadelphia
and Pittsburgh) listed in Fortune's top ten cities with the largest number of
Fortune 500 companies. Since the Fund commenced operations in 1992, the
number of Pennsylvania-based publicly-traded companies it has identified has
grown from 440 to over 500 companies. See "Appendix B: Pennsylvania-based
Companies" in the Statement of Additional Information for a complete listing
of these companies. Pennsylvania has historically been identified as among
the leading states in manufacturing and mining. The coal and steel industries
have declined in national importance in recent years, but remain a major
component of the Pennsylvania economy. Due to the cyclical nature of these
businesses, Pennsylvania may be more vulnerable to the industries' economic
fluctuations and downturns.
In part because of the decline in the heavy manufacturing sector,
Pennsylvania's economy has diversified beyond the traditional "smoke stack"
industries. Major new sources for growth are in the service sector, including
medical and health services, trade, education and financial institutions. The
State's workforce has diversified so that it is almost evenly divided between
the services (24.4%), wholesale and retail trade (23.9%) and manufacturing
(23.3%) employment sectors. The State is home to the nation's third largest
number of technology companies, and the greater Philadelphia area is ranked
as the nation's number-two region for biotechnology companies.
Pennsylvania's agriculture industries have also historically played a
prominent role in the State's economy. Crop and livestock products add an
annual $3.5 billion to the State's economy, while agribusiness and food
related industries as a whole support $38 billion in annual economic
activity. Agribusiness activities can be detrimentally affected by
consistently poor weather conditions.
NON-DIVERSIFICATION
As a "non-diversified" Fund, the HomeState Select Opportunities Fund has the
ability to invest a larger percentage of its assets in the stock of a smaller
number of companies than a "diversified" fund. Because the appreciation or
depreciation of a single portfolio security may have a greater impact on the
net asset value of the Fund, the net asset value per share of the Fund can be
expected to fluctuate more than that of a comparable "diversified" fund. See
Investment Restriction Number 1, below.
HEDGING STRATEGIES
Both options and short selling are dependent on the movement of the
market in regard to the securities associated with either strategy. In the
case of options there is the risk that the Fund wait until the option expires
or is exercised which could cause the Fund to experience due to losses on the
option transaction itself and or the on the covering securities. With short
selling there is the risk that the security will have decreased in value by
the time the Fund is required to replace the security. Certain special
characteristics and risks associated with using these instruments are
discussed in more detail in Schedule B of the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The Funds are subject to specific fundamental investment restrictions,
which may not be changed without a vote of a majority of their outstanding
shares. Following is a discussion of some of these fundamental restrictions:
The HomeState Pennsylvania Growth Fund may not:
1. Invest more than 5% of the value of its assets in the equity or debt
of one issuer (other than obligations issued or guaranteed by the United
States Government).
2. Invest more than 15% of total assets in one industry.
3. Invest in, write or sell put or call options, straddles, spreads or
combinations thereof.
4. Invest in commodities or commodity contracts.
5. Borrow money except for temporary or emergency purposes and then only
from commercial banks and not in excess of 15% of the Fund's total assets.
The Fund will not purchase securities when borrowing exceeds 5% of total
assets.
The HomeState Select Opportunities Fund may not:
1. Invest more than 25% of the value of its assets in the equity or debt
of one issuer (other than obligations issued or guaranteed by the U.S.
Government), nor, in respect of at least 50% of its assets, invest more than
5% of the value of its assets in the equity or debt of one issuer (other than
obligations issued or guaranteed by the U.S. Government.
2. Invest more than 25% of total assets in one industry.
3. Borrow money, except from a bank or for purposes of purchasing
securities on margin (provided that such purchases may not exceed 120% of
total assets taken at current value).
The Funds may not :
1. Acquire more than 10% of the voting securities of any one issuer.
2. Issue or sell senior securities.
The aforementioned investment limitations are considered at the time the
investment securities are purchased.
See the Funds' Statement of Additional Information for the full text of
these policies and the Funds' other Fundamental Policies, as well as a
listing of non-fundamental policies, which the Board of Trustees may change
without shareholder approval.
HOW TO PURCHASE SHARES OF THE FUND
Shares of the Funds are available for purchase through selected
financial service firms (such as broker-dealer firms) that have signed a
selling agreement with Rodney Square Distributors, Inc. (the "Distributor"),
the Funds' principal distributor. If an investor would like assistance in
locating a dealer, he or she should contact the Funds. Shares can be
purchased by mail or by wire, as described below. The minimum initial
investment is $500, and the minimum subsequent investment is $50.
Shares of the Funds are purchased at net asset value per share next
determined after an order is received (See "Valuing the Funds' Shares"), plus
any applicable sales charge as described below, which is known as the
"offering price." Funds' shareholders pay an ongoing distribution services
fee at an annual rate of up to 0.35% of the Portfolio's aggregate average
daily net assets attributable to Funds shares (See "Management of the Funds -
- - The Distribution Plan").
At a meeting held on November 21, 1996 the Trust's Board of Trustees
voted to reduce the sales load of the HomeState Pennsylvania Growth Fund. As
a results, effective February 1, 1997 the maximum sales load on the purchase
of shares of the Funds will be 4.75%. The Offering Price is calculated as
follows:
SALES CHARGE AS A
PERCENTAGE OF: DEALER'S CONCESSION
DOLLAR AMOUNT INVESTED OFFERING PRICE N.A.V. (AS A % OF OFFERING PRICE)
- ---------------------- -------------- ------ --------------------------
Less Than $50,000 4.75% 4.99% 4.25%
$50,000 to $250,000 3.75 3.90 3.25
$250,000 to $500,000 2.75 2.83 2.50
$500,000 to $1,000,000 2.25 2.30 2.00
$1,000,000 & Above 0.00 0.00 0.50
REDUCED SALES CHARGE
There are several ways for shareholders to qualify to pay a lower sales
charge. Shareholders may qualify by aggregating purchases being made or that
have been made in both Funds:
(1.) Reach "Break Points" -- Increase the initial investment amount to
reach a higher discount level, as listed above.
(2.) Right of Accumulation -- Add to an existing shareholder account so
that the current offering price value of the total combined holdings reach a
higher discount level, as listed above.
(3.) Sign a Letter of Intent -- Inform the Funds or their Agent that you
wish to sign a non-binding "Letter of Intent" (the "Letter") to purchase an
additional number of shares so that the total equals at least $50,000 over
the following 13-month period. Upon the Funds' receipt of the signed Letter,
the shareholder will receive a discount equal to the dollar level specified
in the Letter. If, however, the purchase level specified by the shareholder's
Letter has not been reached at the conclusion of the 13-month period, each
purchase will be deemed made at the sales charge appropriate for the actual
purchase amount.
(4.) Combined Purchase Privilege -- Combine the following investor
accounts into one "purchase" or "holding" to qualify for a reduced sales
charge:
(i) An individual or "company," as defined in Section 2(a)(8) of the
Act; (ii) an individual, his spouse and children under age 21; (iii) a
trustee or other fiduciary for certain trusts, estates, and certain fiduciary
accounts; or (iv) the employee benefit plans of a single employer. The
Funds' Transfer Agent, Rodney Square Management Corporation (the "Transfer
Agent") must be advised of the related accounts at the time the purchase is
made.
(5.) Purchases at Net Asset Value -- Additionally, the Board of Trustees
has determined that the following shareholders shall be permitted to purchase
shares of the Funds without paying a sales charge:
(i) Existing shareholders, upon reinvestment of their dividend
income or capital gains distributions as dividends and capital gains
distributions are reinvested in shares of the Funds at the net asset value
without sales charge;
(ii) Shareholders who have redeemed any or all of their shares of
the Funds within the past 120 days may purchase shares at the net asset value
without sales charge. The amount which may be reinvested is limited to the
amount up to but not exceeding the redemption proceeds (or to the nearest
full share if fractional shares are not purchased) and is limited to
shareholders who have not previously exercised this right. The Transfer Agent
must be notified of the exercise of this privilege when shares are being
purchased;
(iii) Shareholders of the HomeState Pennsylvania Growth Fund or the
HomeState Select Opportunities Fund may exchange their Fund shares into
shares of the other Fund at net asset value without sales charge;
(iv) The HomeState Pennsylvania Growth Fund only: Certain
"Institutional Investors" -- Pennsylvania State and local government-
affiliated agencies, non-profit and charitable organizations, and
corporations with headquarters or significant operations in the Commonwealth
of Pennsylvania having a minimum of $5 million in annual sales and fifteen
full-time employees, and the retirement plans of each of the above may
purchase at net asset value without sales charge. For these purposes,
"significant operations" is defined as having a material impact on the
corporation's financial condition or profitability in the discretion of the
Adviser;
(v) Investor's shares purchased by advisory accounts managed by SEC-
registered investment advisers or bank trust departments;
(vi) Trustees, Officers, Employees (and those retired) of the
Funds, their services providers and their affiliates, for their own accounts
and for their spouse and children, and employees of such broker-dealer firms
that have executed a Selling Agreement with the Funds may purchase shares at
net asset value without a sales charge.
(6.) On purchases of $1,000,000 or more, shares are acquired at net
asset value with no sales charge or dealer concession charged to the
investor. The Distributor, however, may pay the broker-dealer up to 0.50% of
the Offering Price, from its own assets.
The Distributor may from time to time allow broker-dealers selling
shares of the Funds to retain 100% of the sales charge. In such cases, the
broker-dealer may be deemed an "underwriter" under the Securities Act of
1933, as amended.
In addition to the commission paid to broker-dealers selling Funds
shares by way of a selling agreement, the Distributor may also from time to
time pay additional cash bonuses or other incentives to selected broker-
dealers in connection with their registered representatives selling Funds
shares. Such compensation will be paid solely by the Distributor, and may be
conditioned upon the sale by the broker-dealer's representatives of a
specified minimum dollar amount of shares. Compensation may include payment
for travel expenses, including lodging, incurred in connection with trips
taken by registered representatives and members of their families to
locations within or outside the United States for meetings of a business
nature.
PURCHASING SHARES
Shares of the Funds may be purchased for your account directly by your
financial services firm representative, and may be purchased by mail or wire.
INVESTING BY MAIL: To invest by mail, an investor must complete and sign the
Subscription Application Form which accompanies this Prospectus and send it,
with a check payable, to The HomeState Group, c/o Rodney Square Management
Corporation, P.O. Box 8987, Wilmington, DE 19899-9752. A purchase order sent
by overnight mail should be sent to The HomeState Group, c/o Rodney Square
Management Corporation, 1105 N. Market Street, Wilmington, DE 19801.
INVESTING BY WIRE: Investors having an account with a commercial bank that is
a member of the Federal Reserve System may purchase shares of the Funds by
requesting their bank to transmit funds by wire to:
c/o Wilmington Trust Company, Wilmington, DE
ABA #0311-0009-2
DDA# 2688-958-8
Attention: (HomeState Pennsylvania Growth Fund or
HomeState Select Opportunities Fund)
(followed by the name in which the account is
registered, and the account number).
INITIAL PURCHASES -- Before making an investment by wire, an investor must
first telephone the Transfer Agent at (800) 892-1351 before the close of the
New York Stock Exchange (generally, 4:00 p.m.) to be assigned an account
number. The Subscription Application Form which accompanies this Prospectus
should be promptly forwarded to Rodney Square Management Corporation at the
address above under "Investing by Mail."
SUBSEQUENT PURCHASES -- Additional investments may also be made through the
wire procedures described above. An investor must telephone the Transfer
Agent at (800) 892-1351 before the close of the New York Stock Exchange
(generally, 4:00 p.m.).
The bank transmitting the wire may charge a fee for this service.
Federal funds wires received before the close of the New York Stock Exchange
("NYSE") (generally, 4:00 p.m. Eastern time) will be executed based on each
Fund's valuation that same day. Purchase orders received after the close of
the NYSE will be executed on the next day the exchange is open.
TAX-DEFERRED RETIREMENT PLANS
Shares may be purchased by certain types of retirement plans. The Funds
provide plan forms and custody agreements for the following:
Individual Retirement Accounts (IRA) -- An IRA is a tax-deferred retirement
savings account that may be used by an individual who has compensation or
self-employment income and his or her unemployed spouse, or an individual who
has received a qualified total or partial distribution from his or her
employer's retirement plan. The current annual maintenance fee for IRA
accounts is $10.00 per year.
In each of these plans, dividends and distributions will be
automatically reinvested. For further details, contact the Adviser to obtain
specific plan documents. Investors should consult with their tax adviser
before establishing any tax-deferred retirement plans.
AUTOINVEST PLAN
The Funds also provide for an automatic investment plan whereby
shareholders may arrange to make regular monthly, quarterly, semi-annual, or
annual investments in the Funds. Investment amounts are automatically debited
from the shareholder's checking account. The minimum initial and subsequent
investment pursuant to this plan is $50.
GENERAL PURCHASE INFORMATION
Purchase orders for shares of the Funds placed with a registered broker-
dealer must be received by the broker-dealer before the close of the NYSE to
receive the Funds' valuation calculated that day. The broker-dealer is
responsible for the timely transmission of orders to the Distributor. Orders
placed with the registered broker-dealer after the close of the NYSE will be
executed based on the Funds' valuation calculated on the next business day.
The Funds may refuse any order for the purchase of shares which the
Board of Trustees deems as not in the best interests of the Funds.
Stock certificates representing shares of the Funds are not issued
except upon written request. In order to facilitate redemptions and
transfers, most shareholders elect not to receive certificates. If you lose
your certificate, you may incur an expense to replace it.
HOW TO REDEEM SHARES OF THE FUNDS
There is no charge for share redemptions. Shares will be redeemed at the
net asset value next determined after the redemption request has been
received in proper order by the Funds' Transfer Agent. Shares may be redeemed
by telephone call or mail delivery to the Transfer Agent.
BY MAIL -- A written request for redemption (along with any endorsed stock
certificates) must be received by the Funds' Transfer Agent, Rodney Square
Management Corporation, P.O. Box 8987, Wilmington, DE 19899-9752, to
constitute a valid tender for redemption. A signature guarantee is required
for any written redemption request which: (1) is in excess of $10,000.00; (2)
requests proceeds be sent to somewhere other than the account's listed
address; or (3) requests proceeds be sent to someone other than the account's
listed owner(s). These requirements may be waived or modified upon notice to
shareholders. Signatures must be guaranteed by an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934. Eligible guarantor institutions include banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations. A broker-dealer guaranteeing
signatures must be a member of a clearing corporation or maintain net capital
of at least $100,000. Credit unions must be authorized to issue signature
guarantees. Signature guarantees will be accepted from any eligible guarantor
institution which participates in a signature guarantee program. Payment of a
written request for redemption will be made within seven business days of
receipt of the request.
BY TELEPHONE -- A shareholder redeeming at least $1,000 of shares (for which
certificates have not been issued) and who has authorized expedited
redemption on the Subscription Application form filed with the Transfer Agent
may, at the time of such redemption, request that the funds be mailed or
wired to the commercial bank or registered broker-dealer designated on the
application form by telephoning the Transfer Agent at (800) 892-1351 before
close of the New York Stock Exchange. Redemption proceeds will be sent on the
next business day following receipt of the telephone redemption request. A
wire fee of $7.00 will be deducted from the shareholder account or proceeds
before a wire is sent. Please note that the Funds' Transfer Agent receives
all telephone calls for telephone instructions on a recorded phone line. The
Funds and/or their Transfer Agent will employ such reasonable procedures to
confirm that instructions communicated by telephone are genuine. If they fail
to employ reasonable procedures, the Funds may be liable for any losses due
to unauthorized or fraudulent instructions. The Funds reserve the right, at
any time, to suspend or terminate the expedited redemption procedure. During
a period of unusual economic or market changes, shareholders may experience
difficulties or delays in effecting telephone redemptions.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders may elect to participate in a "Systematic Withdrawal Plan"
which provides for automatic fixed withdrawals of at least $50 monthly,
quarterly, semi-annually, or annually. The minimum investment to establish a
Systematic Withdrawal Plan is $10,000.
GENERAL REDEMPTION INFORMATION
If a shareholder seeks to redeem shares that were purchased within
fifteen days of the redemption request, the Funds may delay payment until
such time as the funds in question have been properly cleared and collected
by the Funds.
Due to the relatively high administration cost of smaller shareholder
accounts, the Funds reserve the right to redeem, at net asset value, the
shares of any shareholder whose account has a value of less than $500, other
than as a result of a decline in the net asset value per share of the Funds
or as an active participant in the AutoInvest Plan. The Funds will provide a
30-day written notice to such shareholder prior to initiating such a
redemption.
HOW TO EXCHANGE SHARES OF THE FUNDS
Shares of the HomeState Pennsylvania Growth Fund and the HomeState
Select Opportunities Fund may be exchanged for shares of each other at the
then current net asset value by calling the Funds' Transfer Agent by 4:00
p.m. Eastern Time on a normal Business Day; or for shares of any other funds
which may be introduced by the Adviser; or shares may also be exchanged for
the Rodney Square Fund ("RSF") which is managed by Rodney Square Management
Corporation and distributed by Rodney Square Distributors, Inc. Shares of RSF
acquired through direct purchase or in the form of dividends earned on such
shares may be exchanged for shares of any HomeState fund at net asset value
plus the normal sales charge of such funds. The minimum initial investment of
$1,000 is required to establish an account in RSF by telephone exchange or
written request. RSF reserves the right to amend or change the exchange
privilege upon 60 days notice to the shareholders. Exchanges of the Funds'
shares involve the redemption of the Funds' shares and therefore an exchange
may cause the realization of gains or losses for income tax purposes.
VALUING THE FUNDS' SHARES
The HomeState Pennsylvania Growth Fund's daily closing price is listed
in many newspapers in the mutual fund prices section as "HomeStPA." The net
asset value and offering price of the shares of the Funds are determined once
on each Business Day as of the close of the NYSE, which on a normal Business
Day is usually 4:00 p.m. Eastern Time. A "Business Day" is defined as a day
in which the NYSE is open for trading. Holidays currently observed by the
NYSE are New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each Fund's
value is determined by adding the value of the portfolio securities and other
assets, subtracting its liabilities, and dividing the result by the number of
its shares outstanding. Net asset value includes interest on fixed income
securities, which is accrued daily. The net asset value of the Funds will
fluctuate with market conditions as the value of the investment portfolio
changes.
With approval of the Board of Trustees, the Funds may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Funds' securities. The prices of bonds and other fixed income securities
provided by such service providers may be determined without regard to bid or
last sale prices but take into account institutional size trading in similar
groups of securities and any developments related to specific securities.
Fund securities listed or traded on a national securities exchange or market
system for which representative market quotations are available will be
valued at the last quoted sales price on the security's listed exchange on
that day. Listed securities not traded on an exchange that day, and other
securities traded in the over-the-counter market will be valued at the mean
between the closing asked price and the closing bid price. Debt securities
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Where market quotations are not readily available,
securities will be valued using a method which the Board of Trustees believes
in good faith accurately reflects the fair value.
For more information concerning valuation of the Funds' shares, see
"Additional Information Concerning Valuing the Funds' Shares" in the
Statement of Additional Information.
MANAGEMENT OF THE FUNDS
THE BOARD OF TRUSTEES
The operations and management of the Trust are the responsibility of the
Board of Trustees. Pursuant to that responsibility, the Board of Trustees has
approved contracts with the following organizations to provide, among other
things, day-to-day investment advisory and administrative management
services.
THE INVESTMENT ADVISER
Emerald Advisers, Inc. serves as investment adviser to the Funds. The
Adviser was organized as a Pennsylvania corporation on November 14, 1991, and
is registered with the SEC under the Investment Advisers Act of 1940 and with
the Pennsylvania Securities Commission under the Pennsylvania Securities Act
of 1972. In August 1994, Emerald Advisers, Inc. became a wholly-owned
subsidiary of Emerald Asset Management, Inc. Substantially all of the
executives and investment related personnel of Emerald Advisers continue in
their positions. Total assets managed by the Adviser exceeded $150 million at
September 30, 1996. The three principal officers of the Adviser combine over
40 years of experience in the mutual fund, investment advisory, pension funds
management and securities brokerage industries.
Pursuant to investment advisory agreements (the "Advisory Agreements"),
the Adviser furnishes each Fund with investment advisory and administrative
services which are necessary to conduct the Fund's business. Specifically,
the Adviser manages the Funds' investment operations and furnishes advice
with respect to the purchase and sale of securities on a daily basis. The
HomeState Pennsylvania Growth Fund agreement is dated September 1, 1992 and
the HomeState Select Opportunities Fund agreement is dated _____________,
1997.
Kenneth G. Mertz II, CFA, President of Emerald Advisers, Inc., and Vice
President and Chief Investment Officer of the Funds, is primarily responsible
for the day-to-day management of the Funds' portfolios. Mr. Mertz has had
this responsibility since the HomeState Pennsylvania Growth Fund commenced
operations on October 1, 1992. Prior to this date, Mr. Mertz was the Chief
Investment Officer to the $12 billion Pennsylvania State Employes' Retirement
System. Mr. Mertz has had this responsibility with the HomeState Select
Opportunities Fund since its inception.
Under the terms of the Advisory Agreements, the Funds pay the Adviser an
annual fee based on a percentage of the net assets under management. The fees
are computed daily and paid monthly as follows:
HomeState Pennsylvania Growth Fund: for assets up to and including
$250,000,000: 0.75%; for assets in excess of $250,000,000 and up to and
including $500,000,000: 0.65%; for assets in excess of $500,000,000 and up to
and including $750,000,000: 0.55%; for assets in excess of $750,000,000:
0.45%.
HomeState Select Opportunities Fund: for assets up to and including
$100,000,000: 1.0%; for assets in excess of $100,000,000: 0.90%. The Fund
will be closed to new investors when total net assets surpass $100 million.
These fees are higher than most other registered investment companies but
comparable to fees paid by equity funds of a similar investment objective and
size.
The Funds pay all of its expenses other than those expressly assumed by
the Adviser. Specifically, the Funds pay the fees and expenses of their
transfer agent, custodian, independent auditors and legal counsel. These fees
are generally for the costs of necessary professional services, regulatory
compliance, and those pertaining to maintaining the Funds' organizational
standing. The resulting fees may include, but are not limited to: brokerage
commissions, taxes and organizational fees, bonding and insurance, custody,
auditing and accounting services, shareholder communications and shareholder
servicing, and the cost of financial reports and prospectuses sent to
shareholders.
The Adviser will reimburse its fee to the Funds to the extent such fee
exceeds the most restrictive expense limitation in effect by a state
regulatory agency where the Funds' shares are registered for purchase. The
Adviser reserves the right to voluntarily waive any portion of its advisory
fee at any time. The Adviser has agreed to waive its advisory fee and/or
reimburse other expenses for the HomeState Select Opportunities Fund for the
period at least through and including June 30, 1997 so that total Fund
operating expenses are capped at 2.35% or less.
The Adviser has agreed that a percentage of its net advisory fee income
earned from the HomeState Pennsylvania Growth Fund (less any fee waivers and
expense reimbursements made by the Adviser to the Fund) will be contributed
annually by the Fund on behalf of the Adviser to provide scholarship funding
that will specifically benefit Pennsylvania residents who have graduated from
a Pennsylvania high school and are attending an accredited Pennsylvania
college, university or trade school. The current year's contribution is 1% of
the HomeState Pennsylvania Growth Fund's net advisory fee income.
ADMINISTRATOR, ACCOUNTING AND TRANSFER AGENT
Pursuant to separate administration, accounting services and transfer
agency agreements each dated November 20, 1995, as amended, Rodney Square
Management Corporation ("Rodney Square"), Rodney Square North, 1100 N. Market
Street, Wilmington, DE 19890-0001, has been retained to serve as
administrator, accounting and transfer agent. As administrator, Rodney Square
provides administrative and operational services and facilities. For
its services as administrator, Rodney Square receives a monthly fee from the
Funds, based on the Funds' daily net assets of 0.15% on the first $50 million
(subject to a minimum fee of $50,000), 0.10% on the next $150 million and
0.07% on assets in excess of $200 million. As accounting agent, Rodney Square
determines net asset value and provides accounting services to the Funds.
Also, Rodney Square, as transfer agent, performs certain shareholder
servicing duties as listed in the Transfer Agency Agreement.
CUSTODIAN
Pursuant to custodian agreements (the "Custodial Agreement"), CoreStates
Financial Corp., P.O Box 7558, Philadelphia, PA 19101-7558 (the "Custodian"),
has been retained to serve as custodian to the Funds' assets, and performs
certain corresponding administrative tasks.
THE DISTRIBUTOR
Rodney Square Distributors, Inc., Rodney Square North, 1100 N. Market
Street, Wilmington, DE 19890-0001, is the sole distributor of shares of the
Funds. The Distributor is a Delaware corporation, a broker-dealer registered
with the SEC and a member of the National Association of Securities Dealers
(the "NASD"), and an affiliate of Rodney Square, which also performs
administrative, shareholder and accounting servicing duties for the Funds.
Certain officers and/or employees of the Adviser may also serve as
registered representatives of the Distributor, but only in the capacity of
distributing shares of the Funds.
THE DISTRIBUTION PLANS
The Distributor will incur certain expenses while providing selling and
sales distribution services for the Funds, including such costs as
compensation to broker-dealers for (i) selling shares of the Funds, and (ii)
providing information and advice to their shareholder clients regarding
ongoing investment in the Funds, as well as advertising, promotional and
printing expenses.
To promote shares of the Funds to the general public, each Fund has
adopted a distribution services plan (the "Plans") under Rule 12b-1 of the
Investment Company Act of 1940 (the "Act"). The Plans allow the Funds to
reimburse the Distributor for costs specifically described in this Section.
The Distributor receives no other compensation from the Funds, except that
(i) any sales charge collected will be paid to the Distributor (See "How to
Purchase Shares of the Funds"), and (ii) the minimum total dollar amount paid
to the Distributor on an annual basis (net of the amount paid to broker-
dealers and/or service organizations) will be $3,000. The Distributor may pay
such sales charge to broker-dealers who have entered into a Selling Agreement
with the Distributor as a commission paid for selling the Funds' shares.
The Funds pay the Distributor on a monthly basis at an annual rate not
to exceed 0.35% of the series' average net assets. Expenses acceptable for
reimbursement under the Plan include compensation of broker-dealers or other
persons for providing assistance in distribution and for promotion of the
sale of the shares of the Funds. The Funds' Adviser is responsible to pay the
Distributor for any unreimbursed distribution expenses.
Pursuant to the Plans, a broker-dealer may receive a maintenance
commission in the amount of 0.25% (annualized) of the average net assets
maintained in the Funds by their clients.
The Funds may also compensate a bank under the Plans only to the extent
that a bank may serve as a "service organization," providing administrative
and accounting services for the Funds' shareholders. The Glass-Steagall Act
and other applicable laws and regulations prohibit a bank from acting as
underwriter or distributor of securities. If a bank were prohibited from
providing certain administrative services, shareholders would be permitted to
remain as the Funds' shareholders and alternate means for continuing the
servicing of such shareholders would be sought. It is not expected that
shareholders would suffer any financial consequences as a result of any of
those occurrences.
The Board of Trustees of the Trust adopted the Plans after determining
the Plans would likely benefit the Funds and their shareholders to the extent
that the Plans can aid the Distributor in attracting additional shareholders,
promoting the sale of shares, reducing redemptions, and maintaining and
improving services provided to shareholders by the Distributor or dealers.
The resulting increase in assets should benefit the Funds by providing a
continuous cash flow, thereby affording the Adviser the ability to purchase
and redeem portfolio securities without making unwanted redemptions of
existing portfolio securities.
The Board of Trustees will annually review the success of the Plans in
meeting these objectives based on information provided by the Adviser.
Future regulatory review and revision of Rule 12b-1 by the SEC, of Rule
2830 of the Rules of Fair Practice by the NASD, or any similar review and
revision of other applicable regulations by other regulatory agencies could
affect the Funds' Plans. The Board of Trustees will promptly modify the Plans
if such action is warranted.
BROKERAGE ALLOCATION
The Adviser is responsible for selecting brokers and dealers to effect
portfolio securities transactions and for negotiating brokerage commissions
and dealers' charges. When selecting brokers and dealers to handle the
purchase and sale of portfolio securities, the Adviser looks for prompt
execution of the order at the best overall terms available. Securities may be
bought from or sold to brokers who have furnished statistical, research and
other financial information or services to the Adviser. The Adviser may give
consideration to those firms which have sold or are willing to sell shares of
the Funds. See "Additional Brokerage Allocation Information" in the Statement
of Additional Information for more information.
To the extent consistent with applicable provisions of the Investment
Company Act of 1940, Rule 17e-1, and other rules and exemptions adopted by
the SEC under that Act, the Board of Trustees has determined that
transactions for the Funds may be executed by affiliated brokers if, in the
judgment of the Adviser, the use of an affiliated broker is likely to result
in price and execution at least as favorable as those qualified brokers. The
Adviser will not execute principal transactions by use of an affiliated
broker.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends, if any, realized by the Funds will be declared and paid semi-
annually, in the months of January and July. Capital gains, if any, realized
by the Funds will be declared and paid semi-annually in the months of July
and December. The Record and Declaration dates for payments to shareholders
will normally be the 15th of the month, the Ex-Dividend dates will normally
be the 16th of the month, and the Payment dates will normally be the 20th of
the month (or the next business day if any of these dates fall on a weekend).
Shareholders of record as of the Record Date will be paid, or have their
payments reinvested in additional shares, as of the Re-Invest and Payable
Dates. The net asset value price of the Funds will be reduced by the
corresponding amount of the per-share payment declared on the Ex-Dividend
Date. Since dividend income is not a primary objective of the Funds, the
Funds do not anticipate paying substantial income dividends to shareholders.
A shareholder will automatically receive all dividends and capital gains
distributions in additional full and fractional shares of the Funds at net
asset value as of the date of payment, unless the shareholder elects to
receive such distributions in cash. To change the distribution option chosen,
the shareholder should write to the Funds' Transfer Agent, Rodney Square
Management Corporation, P.O. Box 8987, Wilmington, DE 19899-9752. The request
will become effective with respect to distributions having record dates after
its receipt by the Transfer Agent.
If a shareholder elects to receive distributions in cash, and the check
is returned by the United States Postal Service, the Funds reserve the right
to invest the amount of the returned check in additional shares of the Funds
at the then existing net asset value and to convert the shareholder's
election to automatic reinvestment of all distributions.
TAXES
Reinvested dividends and capital gains distributions will receive the
same tax treatment as dividends and distributions paid in cash. Because the
Funds are series of a Pennsylvania common law trust, they will not be liable
for corporate income or franchise tax in the Commonwealth of Pennsylvania.
Further, shares of the Funds are exempt from Pennsylvania personal property
taxes.
The Trust intends to qualify for treatment as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Qualification under the Code requires that the Funds satisfy:
(1) two gross income tests that ensure the Funds earn passive income; (2) two
diversification tests that limit the investment of the Funds' assets in any
one issuer; and (3) a series of distribution rules which require that the
Funds distribute to shareholders substantially all of their investment
company taxable income and net tax-exempt interest income. Each individual
series of the Trust is expected to be treated as a separate corporation for
most federal income tax purposes. So long as each Fund qualifies for this tax
treatment, the Fund will be relieved of Federal income tax on amounts
distributed to shareholders but amounts so distributed will be taxable to
shareholders.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Funds will be
taxed to shareholders as long-term capital gain in the year in which it was
received, regardless of the length of time a shareholder has owned the shares
and whether or not such gain was reflected in the price paid for the shares.
All other distributions, to the extent they are taxable, are taxed to
shareholders as ordinary income. Redemptions and exchanges from the Funds are
each taxable events.
A statement detailing the Federal income tax status of all distributions
made during a taxable year will be sent to shareholders of record no later
than January 31 of the following year.
Shareholders must furnish to the Funds a certified taxpayer
identification number ("TIN"). The Funds are required to withhold 31% from
reportable payments including ordinary income dividends, capital gains
distributions, and redemptions occurring in accounts where the shareholder
has failed to furnish a certified TIN and has not certified that such
withholding does not apply. Any shareholders who are non-resident alien
individuals, or foreign corporations, partnerships, trusts or estates, may be
subject to different Federal income tax treatment.
The tax information presented here is based on Federal and state tax
laws and regulations effective as of the date of this Prospectus, and may
subsequently change. Because the information presented here is only a very
brief summary of some of the important tax considerations for shareholders,
shareholders are urged to consult their tax advisers for more specific
professional advice, especially as it relates to local and state tax
regulations. See "Additional Dividend, Distribution and Taxes Information" in
the Statement of Additional Information for more information.
GENERAL INFORMATION
The HomeState Group was organized as a Pennsylvania common law trust on
August 26, 1992. Shares of the Trust do not have preemptive or conversion
rights, and are fully-paid and non-assessable when issued.
Since The HomeState Group is organized as a Pennsylvania common law
trust, it is not required to hold annual meetings, and does not intend to do
so, except as required by the Act or other applicable Federal or state law.
The Trust will assist in shareholder communications as required by Section
16(c) of the Act. The Act does require initial shareholder approval of each
investment advisory agreement and election of Trustees. Under certain
circumstances, the law provides shareholders with the right to call for a
special shareholders meeting for the purpose of removing Trustees or for
other proper purposes. Shares are entitled to one vote per share, and do not
have cumulative voting rights.
The HomeState Group currently issues shares of beneficial interest with
no par value, in two series. Additional series may be added in the future by
the Board of Trustees. Each share of each Fund has pro rata distribution
rights, and shares equally in dividends and distributions of the respective
Fund series.
Shareholders will receive an annual report containing financial
statements which have been audited by the Funds' independent accountants, and
a semi-annual report containing unaudited financial statements. Each report
will include a list of investment securities held by the Funds. Shareholders
may contact the Funds for additional information.
DUANE, MORRIS & HECKSCHER, 305 North Front Street, Harrisburg, PA 17108,
is legal counsel to the Trust.
PRICE WATERHOUSE LLP, 30 South Seventeenth Street, Philadelphia, PA
19103, are the independent accountants for the Trust.
MANAGEMENT OF THE FUNDS
TRUSTEES
- --------
Bruce E. Bowen
Kenneth G. Mertz II, C.F.A.
Scott C. Penwell, Esq.
Scott L. Rehr
H.J. Zoffer, Ph.D.
OFFICERS
- --------
Scott L. Rehr -- PRESIDENT
Kenneth G. Mertz II, C.F.A. -- VICE PRESIDENT AND CHIEF INVESTMENT OFFICER
Daniel W. Moyer IV -- VICE PRESIDENT AND SECRETARY
<PAGE>
SUBSCRIPTION APPLICATION FORM
THE HOMESTATE GROUP
PENNSYLVANIA GROWTH FUND
SELECT OPPORTUNITIES FUND
Mail to: Rodney Square Management Corporation
-------
P.O. Box 8987
Wilmington, DE 19899-9752
FOR ASSISTANCE, CALL (800) 892-1351
- ------------------------------------------------------------------------------
1. AMOUNT INVESTED
[ ] Pennsylvania Growth Fund $----------
[ ] Select Opportunities Fund $----------
Total Amount to be Invested $----------
FORM OF PAYMENT -- INITIAL INVESTMENT
[ ] Check
[ ] NAV Purchase: Attach NAV Purchase Form
[ ] My Dealer purchased ---------------------- on -----------.
(No. of shares) (date)
- ------------------------------------------------------------------------------
2. REGISTRATION (PLEASE PRINT OR TYPE)
INDIVIDUAL *(Joint ownership with rights of survivorship unless otherwise
noted)
------------------------------------------------- ---------------------
(First Name) (Initial) (Last Name) (Social Sec No.)
------------------------------------------------- ---------------------
(Jt. Owner) (Initial) (Last Name) (Social Sec No.)
GIFT TO MINORS
AS CUSTODIAN FOR
--------------------------------- -----------------------
(Name of Custodian--ONE ONLY) (Minor's Name)
Under the Uniform Gift to Minors Act. -- --
------------ -------------------------
(State) (Minor's Soc Sec No.)
CORPORATIONS, PARTNERSHIPS, TRUSTS and OTHERS (complete Corporate
Resolution)
---------------------------------------------------------------------------
(Name of Corporation, Partnership, Trust or Other)
/ / --
------ ------------ -------------------------------- ------------------
(Date of Trust) (Name of Trustee(s)) (Tax I.D. No.)
Citizen of: [ ] U.S. [ ] Other:
----------------------
- ------------------------------------------------------------------------------
3. MAILING ADDRESS OF RECORD AND TELEPHONE NUMBER(S)
---------------------------------------------------------------------------
(Street Address)
-------------------------------------------------- ---------------- -------
(City) (State) (Zip)
( ) -- ( ) --
------- -------- -------- --------
(Daytime Phone No.) (Evening Phone No.)
- ------------------------------------------------------------------------------
4. DISTRIBUTION OPTIONS (PLEASE INDICATE ONE -- DISTRIBUTIONS WILL BE
REINVESTED IF NO OPTION IS CHECKED)
[ ] Automatic Compounding (reinvest all dividends and capital gains)
[ ] Cash Dividends (dividends in cash; reinvest capital gains)
[ ] All Cash (all dividends and capital gains in cash)
- ------------------------------------------------------------------------------
5. SHAREHOLDER OPTIONS (FILL-IN THOSE SECTIONS THAT APPLY)
LETTER OF INTENT
[ ] $50,000. [ ] $250,000. [ ] $500,000. [ ] $1,000,000.
[ ] I agree to the letter of intent provisions of the Prospectus and
Statement of Additional Information, Although I am not obligated to
purchase, and the Fund is not obligated to sell, I intend to invest,
over a 13-month period beginning on , 19 , an
aggregate amount in the Fund at least equal to (check appropriate box
above).
RIGHT OF ACCUMULATION/COMBINED PURCHASE PRIVILEGE
I apply for Right of Accumulation or Combined Purchase Privilege reduced
sales charges subject to the Agent's confirmation of the following
holdings of eligible load accounts of the Fund.
-------------------------------- ----------------------- $-----------------
(Shareholder) (Account No.) (Approx. $ Value)
-------------------------------- ----------------------- $-----------------
(Shareholder) (Account No.) (Approx. $ Value)
TELEPHONE TRANSFER OPTION
[ ] I (we) authorize Rodney Square Management Corporation to honor
telephone instructions for my (our) account. Neither the Fund nor Rodney
Square Management Corporation will be liable for properly acting upon
telephone instructions believed to be genuine. PLEASE ATTACH A VOIDED
CHECK ON THE TRANSFER ACCOUNT AND COMPLETE BELOW:
---------------------------------------------- ----------------- ----------
(NAME OF BANK) (CITY) (STATE)
----------------- -------------------------------------------------------
(Account Number) (ABA Bank Routing Number--9-digit number needed to
process)
[ ] Checking [ ] Savings
- ------------------------------------------------------------------------------
6. SIGNATURE AND CERTIFICATION
Required by Federal tax law to avoid 31% backup withholding: "By signing,
I certify under penalties of perjury that the social security or taxpayer
identification number entered above is correct and that I have not been
notified by the IRS that I am subject to backup withholding unless I have
checked the box below:"
[ ] I am subject to backup withholding.
Receipt of the current Prospectus is hereby acknowledged.
------------------------------------- Date: , 19
(Signature) ------------------- ---
[ ] Owner [ ] Custodian [ ] Trustee
-------------------------------------- Date: , 19
(Joint Owner Signature, If Applicable) ------------------- ---
- ------------------------------------------------------------------------------
7. INVESTMENT DEALER INFORMATION
---------------------------------------------------------------------------
(Firm Name)
----------------------------------------- ------------------------------
(Rep. Name) (Rep No.)
-----------------------------------------
(Authorized Signature)
---------------------------------------------------------------------------
(Branch Address) (Branch No.)
------------------------------------ ---------------------- ------------
(City) (State) (Zip)
- ------------------------------------------------------------------------------
<PAGE>
THE HOMESTATE GROUP
HOMESTATE PENNSYLVANIA GROWTH FUND
1857 William Penn Way
P.O. Box 10666
Lancaster, PA 17605-0666
INVESTMENT ADVISER
GENERAL FUND INFORMATION
Emerald Advisers, Inc.
P.O. Box 10666
Lancaster, PA 17605-0666
DISTRIBUTOR
MARKETING INFORMATION
Rodney Square Distributors, Inc.
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
ADMINISTRATOR
ACCOUNTING AGENT
TRANSFER AGENT
Rodney Square Management Corporation
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
CUSTODIAN
CoreStates Financial Corp.
P.O. Box 7558
Philadelphia, PA 19101-7558
LEGAL COUNSEL
Duane, Morris & Heckscher
305 North Front Street
Harrisburg, PA 17108
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
30 South Seventeenth Street
Philadelphia, PA 19103
<PAGE>
GRAPHIC DESCRIPTION
-------------------
Back Cover is a Marble Pattern
only. No type on Back Cover of
Prospectus.
<PAGE>
THE HOMESTATE GROUP
HomeState Pennsylvania Growth Fund
HomeState Select Opportunities Fund
- -----------------------------------
1857 William Penn Way
P.O. Box 10666
Lancaster, PA 17605-0666
INVESTMENT ADVISER
GENERAL FUND INFORMATION
EMERALD ADVISERS, INC. PRELIMINARY STATEMENT OF
P.O. Box 10666 ADDITIONAL INFORMATION
Lancaster, PA 17605-0666
THE HOMESTATE GROUP
THE HOMESTATE PENNSYLVANIA
GROWTH FUND
DISTRIBUTOR THE HOMESTATE SELECT
RODNEY SQUARE DISTRIBUTORS, INC. OPPORTUNITIES FUND
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
ADMINISTRATOR
TRANSFER AGENT AND DATED FEBRUARY 10, 1997
ACCOUNTING AGENT
RODNEY SQUARE MANAGEMENT CORPORATION
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
CUSTODIAN
CORESTATES FINANCIAL CORP.
P.O. Box 7558
Philadelphia, PA 19101-7558
LEGAL COUNSEL
DUANE, MORRIS & HECKSCHER
305 North Front Street
Harrisburg, PA 17108
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
30 South Seventeenth Street
Philadelphia, PA 19103
<PAGE>
PART B
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 10, 1997
THE HOMESTATE GROUP
This Statement of Additional Information contains information which
may be useful to investors but which is not included in the Prospectus
of The HomeState Group (the "Trust"), and its two operating series
funds: The HomeState Pennsylvania Growth Fund and The HomeState Select
Opportunities Fund (the "Funds"). This Statement is not a Prospectus
and should be read in conjunction with the Funds' Prospectus. This
Statement is only authorized for distribution when accompanied or
preceded by a copy of the Funds' Prospectus dated February 10, 1997.
You may obtain a free copy of the Prospectus by writing the Funds,
P.O. Box 10666, Lancaster, PA 17605, or by calling (717) 396-7864.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL
INFORMATION DOES NOT CONSTITUTE A PROSPECTUS.
TABLE OF CONTENTS
Additional Information Concerning Investment Objectives
and Policies ................................................. 2
Fundamental Investment Restrictions ................ 2
Other Investment Policies .......................... 4
Additional Fund Valuation Information ........................ 6
Additional General Fund Information ................ 6
Additional Purchase and Redemption Information ............... 8
Reduced Sales Charge Plans ......................... 8
Additional Dividend, Distributions & Taxes Information ....... 10
Dividend & Distributions ........................... 10
Taxes .............................................. 12
Management of the Funds....................................... 12
Board of Trustees and Officers of the Funds ....... 12
Person Controlling the Funds ....................... 14
Investment Adviser and Other Services Providers .... 14
The Distribution Plan .............................. 16
Additional Brokerage Allocation Information .................. 17
Measuring Performance ........................................ 17
Financial Statements ......................................... 19
Appendix A - Description of Ratings .......................... 35
Appendix B - Hedging Strategies .............................. 37
Appendix C - Pennsylvania Based Companies .................... 37
ADDITIONAL INFORMATION CONCERNING INVESTMENT OBJECTIVES AND POLICIES
General
The HomeState Group is registered as a "series" fund, whereby
each individual series of the Trust, in effect, represents a separate
mutual fund with its own objectives and policies. Currently, there are
two series operating: The HomeState Pennsylvania Growth Fund and The
HomeState Select Opportunities Fund. The discussion of investment
objectives and policies that follows relates only to these series of
the Trust. In the likely event that further series' of the Trust are
introduced, these new series would have their own separate objectives
and policies and would be disclosed here as such.
The HomeState Pennsylvania Growth Fund's objective is long-term
growth through capital appreciation. The Fund seeks to achieve this
goal mainly by investing in a diversified portfolio of companies that
have their headquarters or principal operations in the Commonwealth of
Pennsylvania, or companies based elsewhere but whose business in the
Commonwealth of Pennsylvania contributes significantly to their
overall performance. To pursue its objective, the Fund will invest at
least 65% of the value of its total assets in common stocks, preferred
stocks and securities convertible into common and preferred stocks
issued by firms whose headquarters are located in Pennsylvania or
companies based elsewhere but have significant operations in
Pennsylvania (i.e. at least 50% of their revenues are derived from
operating units headquartered in Pennsylvania).
The HomeState Select Opportunities Fund's objective is long-term
appreciation of capital through investments in a non-diversified
portfolio of equity securities. The Fund seeks to achieve this goal by
typically investing in the common stock of no more than fifty U.S.
companies. While the Fund can invest in companies of varying size, it
will usually emphasize companies having a market capitalization of
less than $1 billion. The Fund may invest a larger percentage of its
assets (more than the average diversified fund) in a particular
security or industry, and will focus on those companies identified by
the Fund's adviser as having what it believes are superior prospects
for price appreciation.
Fundamental Investment Restrictions
The following investment policies and restrictions may not be
changed without the approval of a majority of each Fund's outstanding
shares. For these purposes, a majority of shares of each Fund is
defined as the vote, at a special meeting of the shareholders of the
Fund duly called, of more than fifty percent (50%) of the Fund's
outstanding voting securities.
The HomeState Pennsylvania Growth Fund may not:
1. Invest more than 5% of the value of its assets in the equity
or debt of one issuer (other than obligations issued or guaranteed by
the United States Government).
2. Invest more than 15% of total assets in one industry.
3. Invest in, write, or sell put or call options, straddles,
spreads or combinations thereof.
4. Make short sales.
5. Borrow money, except from a bank. Such borrowing shall be
permitted for temporary or emergency purposes only (to facilitate the
meeting of redemption requests), and not for investment purposes. Such
borrowing cannot exceed fifteen percent (15%) of the Fund's current
total assets, and will be repaid before any additional investments are
purchased. The Fund will not purchase securities when borrowing
exceeds 5% of total assets;
6. Pledge, mortgage or hypothecate assets, except to secure
borrowings permitted by Item (4) above, and then only pledge
securities not exceeding ten percent (10%) of the Fund's total assets
(at current value);
7. Purchase securities on margin, except such short-term credits
as may be necessary for the clearance of purchases and sales of
securities;
8. Purchase or sell commodities, commodity contracts or futures
contracts;
The HomeState Select Opportunities Fund may not:
1. Invest more than 25% of the value of its assets in the equity
or debt of one issuer (other than obligations issued or guaranteed by
the U.S. Government), nor, in respect of at least 50% of its assets,
invest more than 5% of the value of its assets in the equity or debt
of one issuer (other than obligations issued or guaranteed by the U.S.
Government.
2. Invest more than 25% of total assets in one industry.
3. Borrow money, except from a bank or for purposes of purchasing
securities on margin (provided that such purchases may not exceed
120% of total assets taken at current value).
The Funds may not :
1. Issue or sell senior securities;
2. Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws;
3. Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real estate
that are issued or backed by the United States Government, its
agencies or instrumentalities;
4. Purchase or hold the securities of any issuer if the officers
or directors of the Fund or its investment adviser (i) individually
own more than one-half of one percent (0.5%) of the outstanding
securities of the issuer, or
(ii) collectively own more than five percent (5%) of the outstanding
securities;
5. Acquire more than ten percent (10%) of the voting securities
of any issuer; or make investments for the purpose of gaining control
of a company's management;
6. Invest in the securities of other investment companies
(excepting no-load, open-end money market mutual funds, and excepting
the case of acquiring such companies through merger, consolidation or
acquisition of assets). The Fund will not invest more than ten percent
(10%) of its total current assets in shares of other investment
companies nor invest more than five percent (5%) of its total current
assets in a single investment company. When investing in a money
market mutual fund, the Fund will incur duplicate fees and expenses.
7. Make loans, except by purchase of debt obligations in which
the Fund may invest in accordance with its investment policies, or
except by entering into qualified repurchase agreements with respect
to not more than twenty-five percent (25%) of its total assets (taken
at current value)
The aforementioned investment limitations are considered at the
time the investment securities are purchased.
Other Investment Policies
In addition to the fundamental investment restrictions listed above,
the Funds have also adopted the following non-fundamental investment
policies. These policies may be changed by the Funds' Board of
Trustees without shareholder approval.
The HomeState Pennsylvania Growth Fund:
1. Will not buy or sell oil, gas or other mineral leases, rights
or royalty contracts;
2. Will not invest in illiquid securities (including illiquid
equity securities, repurchase agreements and time deposits with
maturities or notice periods of more than 7 days, and other securities
which are not readily marketable, including securities subject to
legal or contractual restrictions on resale);
3. Will not invest in warrants (A warrant is an option issued by
a corporation that gives the holder the right to buy a stated number
of shares of common stock of the corporation at a specified price
within a designated time period);
4. Will not invest more than five percent (5%) of its total
assets (at current value) in securities of companies, including
predecessor companies or controlling persons, having a record of less
than three years of continuous operation;
The HomeState Select Opportunities Fund:
1. Will not invest more than 15% in illiquid securities
(including illiquid equity securities, repurchase agreements and time
deposits with maturities or notice periods of more than 7 days, and
other securities which are not readily marketable, including
securities subject to legal or contractual restrictions on resale);
2. May engage in options strategies, in which the Fund will
either: (i) set aside liquid, unencumbered, daily marked-to-market
assets in a segregated account with the Fund's custodian in the
prescribed amount; or (ii) hold securities or other options or futures
contracts whose values are expected to offset ("cover") its
obligations thereunder. Securities, currencies or other options or
futures contracts used for cover cannot be sold or closed out while
the strategy is outstanding, unless they are replaced with similar
assets;
3. May not write put or call options having aggregate exercise
prices greater than 25% of the Fund's net assets, except with respect
to options attached to or acquired with or traded together with their
underlying securities and securities that incorporate features similar
to options; and
4. May make short sales.
The Funds:
1. Will not invest in foreign currencies or foreign options;
2. Will not issue long-term debt securities;
3. Will not invest more than ten percent (10%) of its total
assets (at current value) in repurchase agreements, and will not
invest in repurchase agreements maturing in more than seven days;
(A repurchase agreement is a contract under which the Fund acquires a
security for a relatively short time period (usually not more than one
week) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (which
represents the Fund's cost plus interest. The Fund will enter into
such agreements only with commercial banks and registered broker-
dealers. In these transactions, the securities issued by the Fund will
have a total value in excess of the value of the repurchase agreement
during the term of the agreement. If the seller defaults, the Fund
could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are
less than the resale price provided in the agreement including
interest, and it may incur expenses in selling the security. In
addition, if the other party to the agreement becomes insolvent and
subject to liquidation or reorganization under the United States
Bankruptcy Code of 1983 or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within
the control of the Fund and therefore the Fund may not be able to
substantiate its interest in the underlying security and may be deemed
an unsecured creditor of the other party to the agreement. While the
Funds' management acknowledges these risks, it is expected that they
can be controlled through careful monitoring procedures.)
4. May invest thier cash for temporary purposes in commercial
paper, certificates of deposit, money market mutual funds, repurchase
agreements (as set forth in Item 7 above) or other appropriate short-
term investments;
(Commercial paper must be rated A-1 or A-2 by Standard & Poor's
Corporation ("S & P") or Prime-1 or Prime-2 by Moody's Investor
Services ("Moody's"), or issued by a company with an unsecured debt
issue currently outstanding rated AA by S & P or Aa by Moody's, or
higher. For more information on ratings, see "Appendix: Description of
Ratings" in this Statement. Certificates of Deposit ("CD's") must be
issued by banks or thrifts which have total assets of at least $1
billion. In the case of a bank or thrift with assets of less than $1
billion, the Funds will only purchase CD's from such institutions
covered by FDIC insurance, and only to the dollar amount insured by
the FDIC.)
5. May invest in securities convertible into common stock, but
only when the Funds' investment adviser believes the expected total
return of such a security exceeds the expected total return of common
stocks eligible for investment; (In carrying out this policy, the
Funds may purchase convertible bonds and convertible preferred stock
which may be exchanged for a stated number of shares of the issuer's
common stock at a price known as the conversion price. The conversion
price is usually greater than the price of the common stock at the
time of purchase of the convertible security. The interest rate of
convertible bonds and the yield of convertible preferred stock will
generally be lower than that of the non-convertible securities. While
the value of the convertible securities will usually vary with the
value of the underlying common stock and will normally fluctuate
inversely with interest rates, it may show less volatility in value
than the non-convertible securities. A risk associated with the
purchase of convertible bonds and convertible preferred stock is that
the conversion price of the common stock will not be attained. The
Funds will purchase only those convertible securities which have
underlying common stock with potential for long-term growth in EAI's
opinion. The Funds will only invest in investment-grade convertible
securities (Those rated in the top four categories by either Standard
& Poor's Corporation ("S & P") or Moody's Investor Services, Inc.
("Moody's") - See "Appendix: Description of Ratings" in this
statement).
6. Will maintain their portfolio turnover rate at a percentage
consistent with their investment objective, in the case of the
HomeState Pennsylvania Growth Fund: long-term growth, in the case of
The HomeState Select Opportunities Fund: long-term appreciation of
capital. The Funds will not engage primarily in trading for short-term
profits, but it may from time to time make investments for short-term
purposes when such trading is believed by the Funds' Adviser to be
desirable and consistent with a sound investment policy. The Funds may
dispose of securities whenever the Adviser deems advisable without
regard to the length of time held. The HomeState Pennsylvania Growth
Fund is not expected to exceed a portfolio turnover rate of 80% on an
annual basis; The HomeState Select Opportunities Fund is not expected
to exceed a portfolio turnover rate of 150% on an annual basis.
ADDITIONAL FUND VALUATION INFORMATION
Each Fund determines its net asset value per share daily by
subtracting its liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the securities the
Fund holds plus cash or other assets, including interest accrued but
not yet received) and dividing the result by the total number of
shares outstanding. Each Fund's net asset value per share is
calculated as of the close of trading on the New York Stock Exchange
(the "Exchange") every day the Exchange is open for trading. The
Exchange closes at 4:00 p.m. Eastern Time on a normal business day.
Presently, the Exchange is closed on the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
Temporary investments held by the Funds' portfolios having a
remaining maturity of less than sixty days when purchased and
securities originally purchased with maturities in excess of sixty
days but which currently have maturities of sixty days or less may be
valued at cost, adjusted for amortization of premiums or accrual of
discounts, if in the judgment of the Board of Trustees such methods of
valuation are appropriate, or under such other methods as the Board of
Trustees may from time to time deem to be appropriate. The cost of
those temporary securities that had original maturities in excess of
sixty days shall be determined by their fair market value as of the
sixty-first day prior to maturity. All other securities and assets in
the portfolios will be appraised in accordance with those procedures
established in good faith in computing the fair market value of these
assets by the Board of Trustees.
ADDITIONAL GENERAL FUND INFORMATION
Description of Share and Voting Rights
The Declaration of Trust permits the Board of Trustees to issue
an unlimited number of shares of beneficial interest without par value
from separate classes ("Series") of shares. Currently the Trust is
offering shares of two Series.
The shares of the Trust are fully paid and nonassessable except
as set forth under "Shareholder and Trustee Liability" and have no
preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Trust have no pre-emptive rights. The
shares of the Trust have non-cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees if they choose to do so. A
shareholder is entitled to one vote for each full share held (and a
fractional vote for each fractional share held), then standing in his
name on the books of the Trust. On any matter submitted to a vote of
shareholders, all shares of the Trust then issued and outstanding and
entitled to vote, irrespective of the class, shall be voted in the
aggregate and not by class except that shares shall be voted as a
separate class with to respect matters affecting that class or as
otherwise required by applicable law.
The Trust will continue without limitation of time, provided
however that:
1) Subject to the majority vote of the holders of shares of any
Series of the Trust outstanding, the Trustees may sell or convert the
assets of such Series to another investment company in exchange for
shares of such investment company and distribute such shares ratably
among the shareholders of such Series;
2) Subject to the majority vote of shares of any Series of the
Trust outstanding, the Trustees may sell and convert into money the
assets of such Series and distribute such assets ratably among the
shareholders of such Series; and
3) Without the approval of the shareholders of any Series, unless
otherwise required by law, the Trustees may combine the assets of any
two or more Series into a single Series so long as such combination
will not have a material adverse effect upon the shareholders of such
Series.
Upon completion of the distribution of the remaining proceeds or
the remaining assets of any Series as provided in paragraphs 1), 2),
and 3) above, the Trust shall terminate as to that Series and the
Trustees shall be discharged of any and all further liabilities and
duties hereunder and the right, title and interest of all parties
shall be canceled and discharged.
Shareholder and Trustee Liability. - Under Pennsylvania law,
shareholders of such a Trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Trust.
Therefore, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of
the Trust property of any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust also provides that
the Trust shall, upon request, assume the defense of any claim against
any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will
not be liable for errors of judgment or mistakes of fact or law, but
nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds' shares are sold at net asset value with a sales charge
payable at the time of purchase. The Prospectus contains a general
description of how investors may buy shares of the Funds, as well as a
table of applicable sales charges for the Funds. This Statement
contains additional information which may be of interest to investors.
The Funds are currently making a continuous offering of their
shares. The Funds receive the entire net asset value of shares sold.
The Funds will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per share
next determined after the order is placed. The public offering price
is the net asset value plus the applicable sales charge, if any.
For orders placed through the Funds' established broker-dealer
network, the public offering price will be based on the net asset
value determined on the day the order is placed, but only if (i) the
dealer has received the order before the close of the Exchange, and
(ii) the dealer transmits it to the Funds' Distributor prior to the
close of the Exchange that same day (normally 4:00 p.m. Eastern time).
The dealer is responsible for transmitting this order by 4:00 p.m.
Eastern time, and if the dealer fails to do so, the customer's
entitlement to that day's closing price must be settled between the
customer and the dealer. If the dealer receives the order after the
close of the Exchange, the price will be based on the net asset value
determined as of the close of the Exchange on the next day it is open.
If funds are sent directly to Rodney Square, they will be
invested at the public offering price based on the net asset value
next determined after receipt. Payment for purchase of shares of the
Funds must be in United States dollars. If payment is made by check,
the check must be drawn on a United States bank.
Reduced Sales Charge Plans
Shares of series of the Trust may be purchased at a reduced sales
charge to certain investors listed in the Funds' Prospectus and below.
The shareholders' purchases in the series of the Trust may be
aggregated in order to qualify for reduced sales charges.
The underwriter's commission (paid to the Distributor) is the
sales charge shown in the Prospectus, less any applicable dealer
concession. The dealer concession is paid to those firms selling
shares as a member of the Funds' broker-dealer network. The dealer
concession is the same for all dealers, except that the Distributor
retains the entire sales charge on any retail sales made by it. For
the period ended June 30, 1995, Fund/Plan Broker Services, Inc., the
Funds' previous distributor, received $263,145 in sales charges on
sales of shares of the HomeState Pennsylvania Growth Fund, of which it
retained $35,601 after reallowance of dealer concessions. Following
are detailed discussions of some of the reduced sales charge plans
listed in the Funds' Prospectus:
COMBINED PURCHASE PRIVILEGE - Certain investors may qualify for a
reduced sales charge by combining purchases into a single "purchase"
if the resulting "purchase" totals at least $50,000. The applicable
sales charge for such a "purchase" is based on the combined purchases
of the following: (i) an individual, or a "company," as defined in
section 2(a)(8) of the Investment Company Act of 1940 (which includes
corporations which are corporate affiliates of each other, but does
not include those companies in existence less than six months or which
have no purpose other than the purchase of shares of the Funds or
other registered investment companies at a discount); (ii) an
individual, their spouse and their children under age twenty-one,
purchasing for his, her or their own account; (iii) a single purchase
by a trustee or other fiduciary purchasing shares for a single trust,
estate or single fiduciary account although more than one beneficiary
is involved; or (iv) a single purchase for the employee benefit plans
of a single employer. Rodney Square, the Funds' Transfer Agent, must
be advised of the related accounts at the time the purchase is made.
RIGHT OF ACCUMULATION - An investor's purchase of additional shares
may qualify for a cumulative quantity discount by combining a current
purchase with certain other shares already owned ("Right of
Accumulation"). The applicable shares charge is based on the total of:
(i) the investor's current purchase; (ii) the net asset value (valued
at the close of business on the previous day of (a.) all shares of the
series held by the investor, and (b.) all shares of any other series
fund of the HomeState Group which may be introduced and held by the
investor; and (iii) the net asset value of all shares described in
section (ii) above owned by another shareholder eligible to combine
their purchase with that of the investor into a single "purchase" (See
"Combined Purchase Privilege" above).
To qualify for the Combined Purchase Privilege or obtain the
Right of Accumulation on a purchase through a broker-dealer, when each
such purchase is made the investor or dealer must provide the
Distributor with sufficient information to verify that the purchase
qualifies for the privilege or discount.
LETTER OF INTENT - Investors may purchase shares at a reduced sales
charge by means of a written Letter of Intent (a "Letter"), which
expresses the investor's intention to invest a minimum of $50,000
within a period of 13 months in shares of the Funds.
Each purchase of shares under a Letter will be made at the public
offering price applicable at the time of such purchase to a single
transaction of the dollar amount indicated in such Letter. At the
investor's option, a Letter may include purchases of shares made not
more than ninety days prior to the date the investor signed the
Letter; however, the 13-month period during which the Letter is in
effect will then begin on the date of the earliest purchase to be
included. Investors do not receive credit for shares purchased by the
reinvestment of distributions. Investors qualifying for the Combined
Purchase Privilege (see above) may purchase shares under a single
Letter. The Letter is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment
under a Letter is 20% of such stated amount. Shares purchased with the
first 5% of such amount will be held in escrow (while remaining
registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the
full amount indicated is not purchased, and such escrowed accounts
will be involuntarily redeemed to pay the additional sales charge, if
necessary.
To the extent that an investor purchases more than the dollar
amount indicated in the Letter and qualifies for a further reduction
in the sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period, upon recovery from
the investor's dealer of its portion of the sales charge adjustment.
Once received from the dealer, the sales charge adjustment will be
used to purchase additional shares of the Trust's series at the then-
current offering price applicable to the actual amount of the
aggregate purchases. No sales charge adjustment will be made until the
investor's dealer returns any excess commissions previously received.
Dividends and distributions on shares held in escrow, whether paid in
cash or reinvested in additional Fund shares, are not subject to
escrow. The escrow will be released when the full amount indicated has
been purchased. Investors making initial purchases who wish to enter
into a Letter may complete the appropriate section of the Subscription
Application Form. Current shareholders may call the Fund at (800) 232-
0224 to receive the appropriate form.
REINSTATEMENT PRIVILEGE - An investor who has sold shares of the Funds
may reinvest the proceeds of such sale in shares of the series within
120 days of the sale, and any such reinvestment will be made at the
Funds' then-current net asset value, so that no sales charge will be
levied. Investors should call the Funds for additional information.
By exercising this reinstatement privilege, the investor does not
alter the federal income tax treatment of any capital gains realized
on the previous sale of shares of the series, but to the extent that
any shares are sold at a loss and proceeds are reinvested in shares of
the series, some or all of the loss may be disallowed as a deduction.
Please contact your tax adviser for more information concerning tax
treatment of such transactions.
ADDITIONAL DIVIDEND, DISTRIBUTIONS & TAXES INFORMATION
Dividends and Distributions
Dividends, if any, will be declared and paid in January and July.
Capital gains, if any, will be declared and paid in July and December.
All such payments will be declared on the 15th of the month and paid
on the 20th of the month. If any of these dates falls on a weekend,
both the declaration and payment dates will be moved accordingly to
the next business day.
If you elect to receive cash dividends and/or capital gains
distributions and a check is returned as undelivered by the United
States Postal Service, the Funds reserve the right to invest the check
in additional shares of the Funds at the then-current net asset value
and to convert your account's election to automatic reinvestment of
all distributions, until the Funds' Transfer Agent receives a
corrected address in writing from the number of account owners
authorized on your application to change the registration. If the
Transfer Agent receives no written communication from the account
owner(s) and there are no purchases, sales or exchanges in your
account for a period of time mandated by state law, then that state
may require the Transfer Agent to turn over to state government the
value of the account as well as any dividends or distributions paid.
After a dividend or capital gains distribution is paid, the
Funds' share price will drop by the amount of the dividend or
distribution. If you have chosen to have your dividends or
distributions paid to your account in additional shares, the total
value of your account will not change after the dividend or
distribution is paid. In such cases, while the value of each share
will be lower, each reinvesting shareholder will own more shares.
Reinvested shares will be purchased at the price in effect at the
close of business on the day after the record date.
Taxes
Each series of the Trust is treated as a separate Fund for federal
income tax purposes. Each Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order to qualify,
and, therefore to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, each Fund must,
among other things:
(1) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities, loans, and
gains from the sale of stock and securities, or other income derived
with respect to its business of investing in such stock or securities;
(2) Derive less than 30% of its gross income from gains from the
sale or other disposition of certain assets (including stock or
securities) held for less than three months;
(3) Distribute with respect to each taxable year at least 90% of
its taxable and tax-exempt income for such year; and
(4) Diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items, United States Government
securities, securities of other investment companies, and other
securities limited in respect of any one issuer to a value not greater
than 5% of the value of the Fund's total assets and 10% of the voting
securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the
United States Government or other regulated investment companies) of
any one issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related types of
businesses.
If each Fund qualifies to be taxed as a regulated investment
company it is accorded special tax treatment and will not be subject
to federal income tax on income distributed to its shareholders in the
form of dividends (including both capital gain and ordinary income
dividends). If, however, a Fund does not qualify for such special tax
treatment, that Fund will be subject to tax on its taxable income at
corporate rates, and could be required to recognize unrealized gains,
pay substantial taxes and interest and make substantial distributions
before requalifying as a regulated investment company that is accorded
special tax treatment. In addition, if a Fund fails to distribute in a
calendar year substantially all of its ordinary income for such year
and substantially all of its net capital gain for the year ending
October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, that Fund will
be subject to a 4% excise tax on the undistributed amounts. Each Fund
intends generally to make distributions sufficient to avoid imposition
of the 4% excise tax. In calculating its income, each Fund must
include dividends in income not when received, but on the date when
the stock in question is acquired or becomes ex-dividend, whichever is
later.
Other Tax Information
RETURN OF CAPITAL DISTRIBUTIONS - If a Fund makes a distribution to
you in excess of its accumulated earnings and profits in any taxable
year, the excess distribution will be treated as a return of capital
to the extent of your tax basis in your shares, and thereafter as
capital gain. A return of capital is not taxable, but it reduces your
tax basis in your shares.
CAPITAL GAINS - When you purchase shares of a Fund, the Fund's then-
current net asset value may reflect undistributed capital gains or net
unrealized appreciation of securities held by the Fund. If the Fund
subsequently distributed such amounts to you, the distribution would
be taxable, although it constituted a return of your investment. For
federal income tax purposes, each Fund is permitted to carry forward
net realized capital losses, if any, and realize net capital gains up
to the amount of such losses without being required to pay taxes on or
distribute such gains which, if distributed, might be taxable to you.
DIVIDENDS - The Code provides a 70% deduction for dividends received
by corporate shareholders, with certain exceptions. It is expected
that only part of each Fund's investment income will be derived from
dividends qualifying as such and, therefore, not all dividends
received will be subject to the deduction.
SHARES PURCHASED THROUGH RETIREMENT PLANS - Special tax rules and
fiduciary responsibility requirements apply to investments made
through retirement plans which satisfy the requirements of Section
401(a) of the Code. Shareholders of the Funds should consult with
their tax adviser to determine the suitability of shares of the Funds
as an investment through such plans, and the precise effect of such an
investment on their particular tax situation.
MANAGEMENT OF THE FUNDS
Board of Trustees and Officers of the TRUST
The following individuals hold positions as Trustees and/or
Officers of the Trust. Their position with the Trust is listed along
with their business occupations for the previous five years:
Name, Position and Occupation for previous Five Years
SCOTT L. REHR*, 1857 William Penn Way, Lancaster, PA 17601, President
and Trustee, age 33, has been Senior Vice President and Treasurer of
Emerald Advisers, Inc. since 1991. He was Vice President of Weik
Investment Services, Inc. from 1990 to 1991. He was Vice President of
Penn Square Mutual Fund and the William Penn Interest Income Fund from
1989 to 1990 and Director of Investor Services , Penn Square
Management Corp. from 1986 to 1989.
BRUCE E. BOWEN, 1536 Buttonbush Circle, Palm City, Fl 34990, Trustee,
age 59, is currently a private investor. He retired as Vice Chairman
and Secretary of Penn Square Mutual Fund, positions he held from 1968
to 1988 and Vice Chairman and Secretary of William Penn Interest
Income Fund positions he held from 1987 to 1988. He also served as
Vice President and Secretary of Penn Square Management Corp. from 1964
to 1988. He also was a Director of Berk-Tek, Inc. from 1987 to 1991
and Director of Morgan Corporation, from 1989 to 1991.
KENNETH G. MERTZ II, C.F.A.*, 1857 William Penn Way, Lancaster, PA
17601, Trustee, Vice President and Chief Financial Officer, age 44,
has been President and Chief Investment Officer of Emerald Advisers,
Inc. since 1992. He was Chief Investment Officer for the Pennsylvania
State Employes Retirement System from 1985 to 1992. He was a Member of
the National Advisory Board, Northwest Center for Professional
Education/Real Estate Investment for Pension Funds from 1991 to 1992
and a Member of the Advisory Board, APA/Fostin Pennsylvania Venture
Capital Fund from 1987 to 1992.
DANIEL W. MOYER IV*, 1857 William Penn Way, Lancaster, PA 17601, Vice
President and Secretary, age 41, has been Vice President of Emerald
Advisers, Inc. since 1992 as well as a Registered Representative for
First Montauk Securities Corp. since 1992. He was the Branch Office
Manager for Keogler Morgan & Co. and a Registered Representative and
Director for Financial Management Group from 1988 to 1992.
SCOTT C. PENWELL, ESQ. **, 305 North Front Street, Harrisburg, PA
17108, Trustee, age 43, has been a partner at Duane, Morris &
Heckscher since 1981. He has also been Chairman of the Securities
Regulation Committee of the Corporation, Banking and Business Law
Section of the Pennsylvania Bar Association since 1994.
DR. H. J. ZOFFER, Joseph M. Katz School of Business, 366 Mervis Hall,
Pittsburgh, PA 15260, Trustee, age 66, has been Professor of Business
Administration at Joseph M. Katz School of Business since 1966. He was
Dean of Joseph M. Katz School of Business, University of Pittsburgh
from 1966 to 1996. He is also a Director of Penwood Savings
Association.
* EMPLOYEE OF EMERALD ADVISERS, INC. AND "INTERESTED PERSON" WITHIN
THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940.
** EMPLOYEE OF THE TRUST'S LEGAL COUNSEL AND THEREFORE AN "INTERESTED
PERSON" WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940.
The Trustees of the Funds who are not employed by the Adviser,
the Distributor, or their affiliates (the "Disinterested Trustees")
receive an annual retainer of $2,500 for the HomeState Pennsylvania
Growth Fund and $ 1,000 for the HomeState Select Opportunities Fund,
$350 for each Trustees meeting attended, and $100 for each Audit
Committee meeting attended. For the year ended June 30, 1996, the
Trustees received fees totaling $6,000 for their services. The Funds
will also reimburse the Independent Trustees' travel expenses incurred
attending Board meetings.
The Officers of the Funds receive no compensation for their
services as such.
As of October 31, 1996, the Trustees and Officers of the Funds
owned, as a group, less than one percent of the outstanding shares of
the Funds.
The Declaration of Trust provides that the Trust will indemnify
the Trustees and may indemnify its officers and employees against
liabilities and expenses incurred in connection with litigation in
which they may be involved because of their offices with the Trust,
except if it is determined in the manner specified in the Trust that
they have acted in bad faith, with reckless disregard of his/her
duties, willful misconduct or gross negligence. The Trust, at its
expense, may provide liability insurance for the benefit of its
Trustees, officers and employees.
Person Controlling the Funds
To the knowledge of the Funds, no person owned of record or
beneficially 25% or more of each Fund's outstanding shares as of
October 31, 1996.
The Following persons owned of record or beneficially 5% or more
of each Fund's outstanding shares as of October 31, 1996:
NAME ADDRESS % OF OWNERSHIP
- -------------------------------------------------------------------------
Mac & Co., P.O. Box 3198, Pittsburgh, PA 15230-3198 5.5%
Smith Barney Inc. 388 Greenwich St., NY, NY 10013 7.8%
Investment Adviser and Other Service Providers
Investment Adviser and Principal Underwriter
Emerald Advisers, Inc., 1857 William Penn Way, Lancaster, PA 17601,
and Rodney Square Distributors, Inc., Rodney Square North, 1100 N.
Market Street, Wilmington, DE 19890-0001, are the Funds' investment
adviser and distributor, respectively. The Distributor is not
obligated to sell any specific amount of shares of the Funds and will
purchase shares for resale only against orders for shares. The
Distributor is a Delaware corporation, a broker-dealer registered with
the Securities and Exchange Commission, and a member of the National
Association of Securities Dealers, Inc., (the "NASD"). The Distributor
is an affiliate of Rodney Square, which also provides administrative,
shareholder and accounting services to the Funds. Some officers of the
Funds are employed by the Adviser and may also distribute shares of
the Funds as registered representatives of the Distributor.
Effective August 19, 1994, Emerald Advisers, Inc. the investment
adviser of the Funds, became a wholly-owned subsidiary of Emerald
Asset Management, Inc. ("EAM"), 1857 William Penn Way, Lancaster, PA
17601. The shareholders of EAM are: Joseph E. Besecker, James
Brubaker, J. Jeffrey Fox, Kenneth G. Mertz II, Daniel W. Moyer IV,
Scott L. Rehr, Douglas S. Thomas, Paul W. Ware and Judy S. Ware. The
following individuals have the following positions and offices with
the Trust and EAI:
POSITION WITH:
NAME: ADVISER TRUST
Scott L. Rehr Senior Vice President, Trustee, President
Treasurer, Director
Kenneth G. President, Director Trustee, Vice
Mertz II, C.F.A. President, Chief
Investment Officer
Daniel W. Vice President, Director Vice President and
Moyer IV Secretary
In carrying out its responsibilities under the investment
advisory contract with the Funds, EAI furnishes or pays for all
facilities and services furnished or performed for, or on behalf of,
the Funds. Such items may include, but are not limited to: office
facilities, office support materials and equipment, records and
personnel necessary to manage the Funds' daily affairs. In return for
these services, the Funds have agreed to pay EAI an annualized fee,
based on the average market value of the net assets of the Funds,
computed each business day and paid to EAI monthly. The fee is paid as
follows:
HOMESTATE PENNSYLVANIA GROWTH FUND:
Assets $0 to $250 Million....................... 0.75%
Over $250 MM to $500 MM......................... 0.65%
Over $500 MM to $750 MM......................... 0.55%
Over $750 Mill.................................. 0.45%
HOMESTATE SELECT OPPORTUNITIES FUND:
Assets $0 to $100 Million......................... 1.00%
Over $100 Million................................. 0.90%
The Fund will be closed to new investors when total net
assets surpass $100 million.
These fees are higher than most other registered mutual funds but
comparable to fees paid by equity funds of a similar investment
objective and size. For the fiscal years ended June 30, 1996, 1995 and
1994, EAI received management fees from the HomeState Pennsylvania
Growth Fund, before voluntary reimbursement of expenses, totaling
$246,310, $106,017, and $53,255, respectively.
The Funds pay all of its expenses other than those expressly
assumed by the Adviser. Specifically, the Funds pay the fees and
expenses of their transfer agent, custodian, independent auditors and
legal counsel. These fees are generally for the costs of necessary
professional services, regulatory compliance, and those pertaining to
maintaining the Funds' organizational standing. The resulting fees may
include, but are not limited to: brokerage commissions, taxes and
organizational fees, bonding and insurance, custody, auditing and
accounting services, shareholder communications and shareholder
servicing, and the cost of financial reports and prospectuses sent to
Shareholders. The Adviser will reimburse its fee to a Fund to the
extent such fee exceeds the most restrictive expense limitation in
effect by a state regulatory agency where that Fund's shares are
registered for purchase. The Adviser reserves the right to voluntarily
waive any portion of its advisory fee at any time.
Administrator, Accounting Agent and Transfer Agent
Rodney Square Management Corporation, Rodney Square North, 1100
N. Market Street, Wilmington, DE 19890-0001, is the administrator,
accounting agent and transfer agent for the Funds. As administrator,
Rodney Square provides administrative and operational services and
facilities. As transfer, dividend disbursing, and shareholder
servicing agent for the Funds. Rodney Square is responsible for all
such corresponding duties, including: maintenance of the Funds'
shareholders' records, transactions involving the Funds' shares, and
the compilation, distribution, or reinvestment of income dividends or
capital gains distributions, and shareholder communication regarding
these items. Rodney Square also performs certain bookkeeping and
accounting duties for the Funds. For the period from Novemebr 20, 1995
through June 30, 1996, Rodney Square Management Corporation received
fees totaling $106,524. For the period from July 1, 1995 through
November 19, 1995, the fiscal year ended June 30, 1995 and 1994
Fund/Plan Services, Inc., The HomeState Pennsylvania Growth Fund's
previous transfer and accounting agent, received fees from the Fund
totaling $21,022, $80,253, and $70,372, respectively.
Custodian and Independent Accountants
CoreStates Financial Corporation, P.O. Box 7558, Philadelphia, PA
19101-7558 ("CoreStates"), is the custodian of the securities and cash
of the Funds. For the year ended June 30, 1996, CoreStates received
custodial fees from The HomeState Pennsylvania Growth Fund totaling
$31,586. Price Waterhouse LLP, 30 South Seventeenth Street,
Philadelphia, PA 19103, are the independent accountants which audit
the annual financial statements of the Funds.
The Distribution Plans
General Information. In order to compensate investment dealers
(including for this purpose certain financial institutions) for
services provided in connection with sales of shares of certain series
of the Trust and maintenance of shareholder accounts within these
series, the Distributor makes quarterly payments to qualifying dealers
based on the average net asset value of shares of the Funds' specified
series which are attributable to shareholders for whom the dealers are
designated as the dealer of record. The Distributor makes such
payments at the annual rate of 0.25% of the average net asset value,
with "average net asset value" attributable to a shareholder account
meaning the product of (i) the average daily share balance of the
account multiplied by (ii) the series' average daily net asset value
per share.
For administrative reasons, the Distributor may enter into
agreements with certain dealers providing for the calculation of
"average net asset value" on the basis of assets of the accounts of
the dealer's customers on an established day in each quarter. The
Distributor may suspend or modify these payments at any time. Payments
are subject to the continuation of the Series' Plan described below
and the terms of service agreements between dealers and the
Distributor.
The HomeState Pennsylvania Growth Fund and the HomeState Select
Opportunities Fund are both currently operating with Distribution
Plans (the "Plans"). Each Fund has adopted a Plan pursuant to Rule 12b-
1 under the Investment Company Act of 1940. The purpose of the Plans
are to permit the Funds to compensate the Distributor for services
provided and expenses incurred by it in promoting the sale of shares
of the Series, reducing redemptions, or maintaining or improving
services provided to shareholders by the Distributor or dealers. By
promoting the sale of shares and/or reducing redemptions, the Plan
should help provide a continuous cash flow, affording the Adviser the
ability to purchase and redeem securities without forcing the Adviser
to make unwanted redemptions of existing portfolio securities.
The Plans provide for quarterly payments by each Fund to the
Distributor at the annual rate of up to 0.35% of the Series' average
net assets, subject to the authority of the Trust's Board of Trustees
to reduce the amount of payments or to suspend the Plans for such
periods as they may determine. Subject to these limitations, the
amount of such payments and the specific purposes for which they are
made shall be determined by the Board of Trustees. At present, the
Trustees have approved payments under the Plans for the purpose of
reimbursing the Distributor for payments made by it to dealers under
the service agreements referred to above as well as for certain
additional expenses related to shareholder services and the
distribution of shares, subject to the maximum annual rate of 0.35% of
each Fund's average net assets. Continuance of the Plans is subject to
annual approval by a vote of the Board of Trustees, including a
majority of the Trustees who are not interested persons of the Fund
and who have no direct or indirect interest in the Plan or related
arrangements (these Trustees are known as "Disinterested Trustees"),
cast in person at a meeting called for that purpose. All material
amendments to the Plans must be likewise approved by separate votes of
the Trustees and the Disinterested Trustees of the Trust. The Plans
may not be amended in order to increase materially the costs which the
Funds bear for distribution pursuant to the Plans without also being
approved by a majority of the outstanding voting securities of a Fund.
The Plans terminate automatically in the event of their assignment and
may be terminated without penalty, at any time, by a vote of the
majority of (i) the outstanding voting securities of a Fund, or (ii)
the Disinterested Trustees.
For the period from November 20, 1995 through June 30, 1996, The
HomeState Pennsylvania Growth Fund incurred expenses totaling $84,202
pursuant to the Plan. For the period from July 1, 1995 through
November 19, 1995, the fiscal year ended June 30, 1995 and the fiscal
year ended June 30, 1994, The HomeState Pennsylvania Growth Fund
incurred $31,665, $35,339, and $17,751, respectively, in 12b-1 fees to
Fund/Plan Broker Services, Inc., the Fund's previous distributor,
pursuant to the Fund's Distribution Plan. Of the amounts incurred
above for the fiscal years ended June 30, 1996, 1995, and 1994
$79,721, $26,584, and $15,215, respectively, was paid to qualifying
dealers.
ADDITIONAL BROKERAGE ALLOCATION INFORMATION
EAI places orders for the purchase or sale of portfolio
securities of the Funds. In choosing a particular broker to execute a
given transaction, EAI uses the following criteria: (1) the past
capabilities of that broker in executing such types of trades; (2) the
quality and speed of executing trades; (3) competitive commission
rates; and (4) all other factors being equal, useful research services
provided by the brokerage firm. The research services provided to EAI
are used to advise all of its clients, including the Funds, but not
all such services furnished are used to advise the Funds. Research
services can include written reports and interviews by analysts on a
particular industry or company or on economic factors, and other such
services which can enhance EAI's ability to gauge the potential
investment worthiness of companies and/or industries, such as
evaluation of investments, recommendations as to the purchase or sale
of investments, newspapers, magazines, quotation services and news
services. If these services are not used exclusively by EAI for Funds
research purposes, then EAI, based upon allocations of expected use,
bears that portion of the service's cost that directly relates to non-
Funds research use. The management fee paid by the Funds to EAI is not
reduced because EAI receives these services even though EAI might
otherwise be required to purchase some of these services for cash. EAI
does not pay excess commissions to any broker for research services
provided or for any other reason. Consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the
"NASD") and subject to seeking the most favorable price and execution
available and such other policies as the Board of Trustees may
determine, EAI may consider sales of shares of front-end load series
of the Funds as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds.
For the fiscal year ended June 30, 1996, The HomeState
Pennsylvania Growth Fund incurred brokerage commissions aggregating
$127,600. During the fiscal year ended June 30, 1996, transactions of
the Fund aggregating $68,352.00 were allocated to brokers providing
research, statistical and other related services and $290.00 in
brokerage commissions were paid on these transactions.
Portfolio Turnover Rate. The portfolio turnover rate is calculated by
dividing the lesser of each Fund's annual purchases and sales of
portfolio securities for the particular fiscal year by the monthly
average value of the portfolio securities owned by each Fund during
the year. All securities, including options, whose maturity or
expiration date at the time of aquisition was one year or less are to
be excluded from both the numerator and the denominator. The
portfolio turnover rate of The HomeState Pennsylvania Growth Fund for
the fiscal years ended June 30, 1996 and 1995 was 66% and 51%,
respectively.
MEASURING PERFORMANCE
Average annual total return data ("Standardized Return") for the
Funds may from time to time be presented in the Prospectus, this
Statement and in advertisements. Each Fund's "average annual total
return" is an average annual compounded rate of return. It is the rate
of return based on factors that include a hypothetical investment of
$1,000 held for a number of years with an Ending Redeemable Value of
that investment, according to the following formula:
(ERV/P)1/n - 1 = T
where: P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at end of the
period of a hypothetical $1,000 payment
made at the beginning of that period.
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION
1 YEAR OCTOBER 1, 1992
ENDED THROUGH
SALES LOAD JUNE 30, 1996 JUNE 30, 1996
---------- ------------- -------------
5.00% 32.94% 22.51%
NONE 39.94% 24.20%
Total return data ("Non-Standardized Return") may also be
presented from time to time. The calculation of each Fund's "total
return" uses some of the same factors as the calculation of the
average annual total return, but does not average the rate of return
on an annual basis. Total return measures the cumulative (rather than
average) change in value of a hypothetical investment in a Fund over a
stated period. Total return is stated as follows:
P(1 + T)(n) = ERV
Both methods of total return calculation assume: (i) deduction of
the Fund's maximum sales charge, if applicable, and (ii) reinvestment
of all Fund distributions at net asset value on the respective date.
Average annual total return and total return calculation is a
measurement of past performance, and is not indicative of future
results. Share prices will fluctuate so that an investor's shares in
the Fund may be worth more or less than their original purchase cost
when redeemed.
Each Fund may periodically compare its performance to that of
other mutual funds tracked by mutual fund ratings services (such as
Lipper Analytical Services, Inc.), financial and business publications
and periodicals, of broad groups of comparable mutual funds or of
unmanaged indices (such as the Standard & Poor's 500, Dow Jones
Industrial Average, NASDAQ Composite, Wilshire 5000 or Wilshire 4500
indices), which may assume investment of dividends but generally do
not reflect deductions for administrative and management costs. A Fund
may quote Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance. A Fund may also quote financial
and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
<PAGE>
HOMESTATE
---------
PENNSYLVANIA [GRAPHIC CAPITAL "E" IN AN OCTAGONAL-SHAPED LOGO] GROWTH FUND
ANNUAL REPORT
------------------
JUNE 30, 1996
<PAGE>
- ------------------------------------------------------------------------------
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.
<PAGE>
- ------------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
THE FUND AT A GLANCE JUNE 30, 1996
- ------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
REPORT FROM MANAGEMENT
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
REPORT FROM MANAGEMENT
- ---------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
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
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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
<PAGE>
(THIS PAGE LEFT INTENTIONALLY BLANK)
<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.
<PAGE>
APPENDIX A:
DESCRIPTION OF RATINGS
Following are descriptions of investment securities ratings from
Moody's Investor Services ("Moody's") and Standard & Poor's
Corporation ("S & P"). See pages 4 and 5 of this Statement for how
these ratings relate to investments in the Funds' portfolio.
I. Commercial Paper Ratings:
A. Moody's: Issuers rated Prime-1 have a superior capacity,
issuers rated Prime-2 have a strong capacity, and issuers rated Prime-
3 have an acceptable capacity for the repayment of short-term
promissory obligations.
B. S & P: Issues rated A are the highest quality obligations.
Issues in this category are regarded as having the greatest capacity
for timely payment. For issues designated A-1 the degree of safety
regarding timely payment is very strong. For issues designated A-2 the
capacity for timely payment is also strong, but not as high as for A-1
issues. Issues designated A-3 have a satisfactory capacity for timely
payment.
II. Corporate Bond Ratings:
A. Moody's:
Aaa - Bonds which are rated Aaa are judged to be of the best
quality and carry the smallest degree of investment risk. Interest
payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there maybe other elements present which make the long
term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great period of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
These categories are considered to be of "Investment Grade" by
Moody's. Moody's applies numerical modifiers "1," "2," and "3" in each
generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
B. S & P:
AAA - This is the highest rating assigned by Standard & Poor's to
a debt obligation and indicates an extremely strong capacity to pay
principal & interest.
AA - Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong,
and in the majority of instances they differ from AAA issues only in
small degree.
A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay principal and conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in the A category.
S & P classifies corporate bonds of these ratings to be of "Investment
Grade." Plus (+) or Minus (-): The ratings from AA to B may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
III. Preferred Stock Ratings:
Both Moody's and S & P use the same designations for corporate
bonds as they do for preferred stock except in the case of Moody's
preferred stock ratings, the initial letter rating is not capitalized.
While the descriptions are tailored for preferred stocks, the relative
quality descriptions are comparable to those described above for
corporate bonds.
Ratings by Moody's and S & P represent their respective opinions as to
the investment quality of the rated obligations. These ratings do not
constitute a guarantee that the principal and interest payable under
these obligations will be paid when due, but rather serve as a general
guide in comparing prospective investments.
APPENDIX B
HEDGING STRATEGIES FOR THE HOMESTATE SELECT OPPORTUNITIES FUND
OPTIONS AND SHORT SELLING
REGULATION OF THE USE OF OPTIONS STRATEGIES. As discussed in the
Prospectus, in managing the HomeState Select Opportunities Fund, the
adviser may engage in certain options and short selling strategies to
hedge various market risks or to enhance potential gain. Certain
special characteristics of and risks associated with using these
instruments are discussed below. Use of options and short selling is
subject to applicable regulations of the SEC, the several options
exchanges upon which these instruments may be traded, and the various
state regulatory authorities. The Board of Trustees has adopted
investment guidelines (described below) reflecting those option
trading regulations.
COVER FOR OPTIONS STRATEGIES. The Fund will not use leverage in
their options strategies. Accordingly, the Fund will comply with
guidelines established by the SEC with respect to coverage of these
strategies and will either (1) set aside liquid, unencumbered, daily
marked-to-market assets in a segregated account with the Fund's
custodian in the prescribed amount; or (2) hold securities or other
options or futures contracts whose values are expected to offset
("cover") their obligations thereunder. Securities or other options
used for cover cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a
result, there is a possibility that the use of cover involving a large
percentage of a Fund's assets could impede portfolio management or
that Fund's ability to meet redemption requests or other current
obligations.
OPTIONS STRATEGIES. The Fund may purchase and write (sell)
options on securities and securities indices that are traded on U.S.
and in the over-the-counter ("OTC") market. Currently, options on
debt securities are primarily traded on the OTC market. Exchange-
traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed, which, in
effect, guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts between a Fund
and its contra-party with no clearing organization guarantee unless
the parties provide for it. Thus, when a Fund purchases an OTC
option, it relies on the dealer from which it has purchased the OTC
option to make or take delivery of the securities underlying the
option. Failure by the dealer to do so would result in the loss of
any premium paid by the Fund as well as the loss of the expected
benefit of the transaction. Accordingly, before the Fund purchases or
sells an OTC option, the adviser assesses the creditworthiness of each
counterparty and any guarantor or credit enhancement of the
counterparty's credit to determine whether the terms of the option are
likely to be satisfied.
The Fund may purchase call options on securities in which it is
authorized to invest in order to fix the cost of a future purchase.
Call options also may be used as a means of enhancing returns by, for
example, participating in an anticipated price increase of a security.
In the event of a decline in the price of the underlying security, use
of this strategy would serve to limit the potential loss to the Fund
to the option premium paid; conversely, if the market price of the
underlying security increases above the exercise price and the Fund
either sells or exercises the option, any profit eventually realized
would be reduced by the premium paid.
The Fund may purchase put options on securities that it holds in
order to hedge against a decline in the market value of the securities
held or to enhance return. The put option enables a Fund to sell the
underlying security at the predetermined exercise price; thus, the
potential for loss to the Fund below the exercise price is limited to
the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put option, any
profit the Fund realizes on the sale of the security is reduced by the
premium paid for the put option less any amount for which the put
option may be sold.
The Fund may on certain occasions wish to hedge against a decline
in the market value of securities that it holds at a time when put
options on those particular securities are not available for purchase.
At those times, the Fund may purchase a put option on other carefully
selected securities in which it is authorized to invest, the values of
which historically have a high degree of positive correlation to the
value of the securities actually held. If the adviser's judgment is
correct, changes in the value of the put options should generally
offset changes in the value of the securities being hedged. However,
the correlation between the two values may not be as close in these
transactions as in transactions in which the Fund purchases a put
option on a security that it holds. If the value of the securities
underlying the put option falls below the value of the portfolio
securities, the put option may not provide complete protection against
a decline in the value of the portfolio securities.
The Fund may write covered call options on securities in which it
is authorized to invest for hedging purposes or to increase return in
the form of premiums received from the purchasers of the options. A
call option gives the purchaser of the option the right to buy, and
the writer (seller) the obligation to sell, the underlying security at
the exercise price during the option period. The strategy may be used
to provide limited protection against a decrease in the market price
of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by the Fund declines, the
amount of the decline will be offset wholly or in part by the amount
of the premium received by the Fund. If, however, there is an
increase in the market price of the underlying security and the option
is exercised, the Fund will be obligated to sell the security at less
than its market value.
Securities used to cover OTC call options written by the Fund are
considered illiquid and therefore subject to the Fund's limitations on
investing in illiquid securities, unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC
options it writes for a maximum price to be calculated by a formula
set forth in the option agreement. The cover for an OTC call option
written subject to this procedure is considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option. The Fund could lose the ability to
participate in an increase in the value of the underlying securities
above the exercise price because the increase would likely be offset
by an increase in the cost of closing out the call option (or could be
negated if the buyer chose to exercise the call option at an exercise
price below the current market value).
The Fund may also write covered put options on securities in
which it is authorized to invest. A put option gives the purchaser of
the option the right to sell, and the writer (seller) the obligation
to buy, the underlying security at the exercise price during the
option period. So long as the obligation of the writer continues, the
writer may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring it to make payment of the
exercise price against delivery of the underlying security. The
operation of put options in other respects, including their related
risks and rewards, is substantially identical to that of call options.
If the put option is not exercised, the Fund will realize income in
the amount of the premium received. This technique could be used to
enhance current return during periods of market uncertainty. The risk
in such a transaction would be that the market price of the underlying
securities would decline below the exercise price less the premiums
received, in which case the Fund would expect to suffer a loss.
The Fund may purchase put and call options and write covered put
and call options on indexes in much the same manner as the more
traditional options discussed above, except that index options may
serve as a hedge against overall fluctuations in the securities
markets (or a market sector) rather than anticipated increases or
decreases in the value of a particular security. An index assigns
values to the securities included in the index and fluctuates with
changes in such values. Settlements of index options are effected
with cash payments and do not involve delivery of securities. Thus,
upon settlement of a index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the
exercise price and the closing price of the index. The effectiveness
of hedging techniques using index options will depend on the extent to
which price movements in the index selected correlate with price
movements of the securities in which a Fund invests. Perfect
correlation is not possible because the securities held or to be
acquired by a Fund will not exactly match the composition of indexes
on which options are purchased or written.
The Fund may purchase and write covered straddles on securities
or indexes. A long straddle is a combination of a call and a put
purchased on the same security where the exercise price of the put is
less than or equal to the exercise price on the call. The Fund would
enter into a long straddle when adviser believes that it is likely
that prices will be more volatile during the term of the options than
is implied by the option pricing. A short straddle is a combination
of a call and a put written on the same security where the exercise
price on the put is less than or equal to the exercise price of the
call where the same issue of the security is considered "cover" for
both the put and the call. The Fund would enter into a short straddle
when adviser believes that it is unlikely that prices will be as
volatile during the term of the options as is implied by the option
pricing. In such case, the Fund will set aside cash and/or liquid,
high-grade debt securities in a segregated account with its custodian
equivalent in value to the amount, if any, by which the put is "in-the-
money," that is, that amount by which the exercise price of the put
exceeds the current market value of the underlying security. Because
straddles involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
The Fund may purchase put and call warrants with values that vary
depending on the change in the value of one or more specified indexes
("index warrants"). An index warrant is usually issued by a bank or
other financial institution and gives the Fund the right, at any time
during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer of the warrant based on the
value of the underlying index at the time of exercise. In general, if
the Fund holds a call warrant and the value of the underlying index
rises above the exercise price of the warrant, the Fund will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the value of the index and the exercise
price of the warrant; if the Fund holds a put warrant and the value of
the underlying index falls, the Fund will be entitled to receive a
cash payment from the issuer upon exercise based on the difference
between the exercise price of the warrant and the value of the index.
The Fund holding a call warrant would not be entitled to any payments
from the issuer at any time when the exercise price is greater than
the value of the underlying index; the Fund holding a put warrant
would not be entitled to any payments when the exercise price is less
than the value of the underlying index. If the Fund does not exercise
an index warrant prior to its expiration, then the Fund loses the
amount of the purchase price that it paid for the warrant.
The Fund will normally use index warrants as they use index
options. The risks of the Fund's use of index warrants are generally
similar to those relating to their use of index options. Unlike most
index options, however, index warrants are issued in limited amounts
and are not obligations of a regulated clearing agency, but are backed
only by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than index
options. Index warrants are not likely to be as liquid as index
options backed by a recognized clearing agency. In addition, the
terms of index warrants may limit the Fund's ability to exercise the
warrants at any time or in any quantity.
OPTIONS GUIDELINES. In view of the risks involved in using the
options strategies described above, the Fund has adopted the following
investment guidelines to govern its use of such strategies; these
guidelines may be modified by the Board of Trustees without
shareholder approval:
(1) the Fund will write only covered options, and each
such option will remain covered so long as the Fund is
obligated under the option; and
(2) the Fund will not write put or call options having
aggregate exercise prices greater than 25% of its net
assets.
These guidelines do not apply to options attached to or acquired
with or traded together with their underlying securities and do not
apply to securities that incorporate features similar to options.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund
may effectively terminate its right or obligation under an option by
entering into a closing transaction. If the Fund wishes to terminate
its obligation to purchase or sell securities or currencies under a
put or a call option it has written, the Fund may purchase a put or a
call option of the same series (that is, an option identical in its
terms to the option previously written); this is known as a closing
purchase transaction. Conversely, in order to terminate its right to
purchase or sell specified securities or currencies under a call or
put option it has purchased, the Fund may sell an option of the same
series as the option held; this is known as a closing sale
transaction. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the
exercise or expiration of the option. If the Fund is unable to effect
a closing purchase transaction with respect to options it has
acquired, the Fund will have to allow the options to expire without
recovering all or a portion of the option premiums paid. If the Fund
is unable to effect a closing purchase transaction with respect to
covered options it has written, the Fund will not be able to sell the
underlying securities or currencies or dispose of assets used as cover
until the options expire or are exercised, and the Fund may experience
material losses due to losses on the option transaction itself and in
the covering securities or currencies.
In considering the use of options to enhance returns or for
hedging purposes, particular note should be taken of the following:
(1) The value of an option position will reflect,
among other things, the current market price of the
underlying security, index or currency, the time remaining
until expiration, the relationship of the exercise price to
the market price, the historical price volatility of the
underlying security, index or currency and general market
conditions. For this reason, the successful use of options
depends upon adviser's ability to forecast the direction of
price fluctuations in the underlying securities or currency
markets or, in the case of index options, fluctuations in
the market sector represented by the selected index.
(2) Options normally have expiration dates of up to
three years. An American style put or call option may be
exercised at any time during the option period while a
European style put or call option may be exercised only upon
expiration or during a fixed period prior to expiration.
The exercise price of the options may be below, equal to or
above the current market value of the underlying security,
index or currency. Purchased options that expire
unexercised have no value. Unless an option purchased by
the Fund is exercised or unless a closing transaction is
effected with respect to that position, the Fund will
realize a loss in the amount of the premium paid and any
transaction costs.
(3) A position in an exchange-listed option may be
closed out only on an exchange that provides a secondary
market for identical options. Although the Fund intends to
purchase or write only those exchange-traded options for
which there appears to be a liquid secondary market, there
is no assurance that a liquid secondary market will exist
for any particular option at any particular time. A liquid
market may be absent if: (i) there is insufficient trading
interest in the option; (ii) the exchange has imposed
restrictions on trading, such as trading halts, trading
suspensions or daily price limits; (iii) normal exchange
operations have been disrupted; or (iv) the exchange has
inadequate facilities to handle current trading volume.
Closing transactions may be effected with respect to
options traded in the OTC markets only by negotiating
directly with the other party to the option contract or in a
secondary market for the option if such market exists.
Although the Fund will enter into OTC options with dealers
that agree to enter into, and that are expected to be
capable of entering into, closing transactions with the
Fund, there can be no assurance that the Fund will be able
to liquidate an OTC option at a favorable price at any time
prior to expiration. In the event of insolvency of the
contra-party, the Fund may be unable to liquidate an OTC
option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, which
would result in the Fund having to exercise those options
that it has purchased in order to realize any profit. With
respect to options written by the Fund, the inability to
enter into a closing transaction may result in material
losses to the Fund.
(4) With certain exceptions, exchange listed options
generally settle by physical delivery of the underlying
security or currency. Index options are settled exclusively
in cash for the net amount, if any, by which the option is
"in-the-money" (where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in
the case of a put option, the exercise price of the option)
at the time the option is exercised. If the Fund writes a
call option on an index, the Fund will not know in advance
the difference, if any, between the closing value of the
index on the exercise date and the exercise price of the
call option itself and thus will not know the amount of cash
payable upon settlement. If the Fund holds an index option
and exercises it before the closing index value for that day
is available, the Fund runs the risk that the level of the
underlying index may subsequently change.
The Fund's activities in the options markets may result
in a higher portfolio turnover rate and additional brokerage
costs; however, the Fund also may save on commissions by
using options as a hedge rather than buying or selling
individual securities in anticipation of, or as a result of,
market movements.
SHORT-SELLING
If the Fund anticipates that the price of a security will
decline, it may sell the security short and borrow the same security
from a broker or other institution to complete the sale. The Fund may
realize a profit or loss depending upon whether the market price of a
security decreases or increases between the date of the short sale and
the date on which the Fund must replace the borrowed security. As a
hedging technique, the Fund may purchase options to buy securities
sold short by the Fund. Such options would lock in a future purchase
price and protect the Fund in case of an unanticipated increase in the
price of a security sold short by the Fund. Short-selling is a
technique that may be considered speculative and involves risk beyond
the initial capital necessary to secure each transaction. In
addition, the technique could result in higher operating costs for the
Fund and have adverse tax effects for the investor. Investors should
consider the risks of such investments before investing in the Fund.
Whenever the Fund effects a short sale, it will set aside in
segregated accounts cash, U.S. Government Securities or other liquid
assets equal to the difference between (i) the market value of the
securities sold short; and (ii) set aside liquid, unencumbered, daily
marked-to-market assets in a segregated account with the Fund's
custodian in the prescribed amount. Until the Fund replaces the
security it borrowed to make the short sale it must maintain daily the
segregated account at such a level that the amount deposited in it
plus the amount deposited with the broker as collateral will equal the
current market value of the securities sold short. No more than 25%
of the value of the Fund's total net assets will be, when added
together, (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales; and (ii) allocated to
segregated accounts in connection with short sales. The Fund's
ability to make short sales may be limited by a requirement applicable
to "regulated investment companies" under Subchapter M of the Internal
Revenue Code that no more than 30% of the Fund's gross income in any
year may be the result of gains from the sale of property held for the
less than three months.
APPENDIX C
PENNSYLVANIA-BASED CORPORATIONS
In order to present a prospective investor in The HomeState
Pennsylvania Growth Fund with a general idea of the size and
composition of the universe of Pennsylvania-based publicly-traded
companies, this Appendix provides a listing of such companies
identified by the Adviser as: 1. Being available for purchase by the
general public, either as listed on major exchanges (New York Stock
Exchange, American Stock Exchange, or NASDAQ Stock Market), or
available over the counter; 2. Having their principal headquarters
located in Pennsylvania. This listing does not purport to be complete
and is based on information derived from publicly available documents.
The listing is a general guide of Pennsylvania-based companies and is
not meant to serve as a listing of companies whose stocks are
currently held or may be held in the future by The HomeState
Pennsylvania Growth Fund. See "Investment Objectives and Policies" in
the Prospectus and "Additional Information Concerning Investment
Objectives and Policies" in this Statement for an explanation how
portfolio investments are chosen, and certain limitations on what
investments this Fund can purchase.
Appendix C information is presented as follows:
COMPANY NAME SYMBOL
1 202 Data Systems TOOT
2 Acap Corp. ACAP
3 ACNB Corp. ACNB
4 Acrodyne ACRO
5 Action Industries ACX
6 ADAGE ADGE
7 Adelphia Communication ADLA.C
8 Adience NONE
9 Advanta ADVN.A
10 AEL Industries AELN.A
11 Aero Services International AERO
12 Air Products APD
13 Airgas ARG
14 Alco Standard ASN
15 Alcoa AA
16 Allegheny Ludlum ALS
17 Allegheny Valley Bancorp. NONE
18 Allen Organ AORG.B
19 Aloette Cosmetics ALET
20 AM Communications AMCI
21 Amalgamated Automotive AAI
22 Ambassador Bank of the Commonwealth NONE
23 American Eagle Outfitters AEOS
24 American Travellers ATVC
25 AmeriSource ASHC
26 Ametek AME
27 AMP Incorporated AMP
28 Ampco-Pittsburgh AP
29 Amsco International ASZ
30 Apogee Inc. APGG
31 Apollo Bancorp, Inc. NONE
32 Arco Chemical RCM
33 Armco AS
34 Armstrong County Trust Company NONE
35 Armstrong World ACK
36 Arnold Industries AIND
37 Arrow International ARRO
38 Associated Communication ACCM.A
39 Astea International, Inc. ATEA
40 Astrotech International AIX
41 Atlantic Central Bankers Bank NONE
42 Autoclave Engineers ACLV
43 Aydin Corp. AYD
44 Baker, Michael Corp. BKR
45 Bank of Landisburg NONE
46 Bankers' Financial Services Corporation BKSV*
47 Bankvest Inc. NONE
48 BCB Financial Services Corp. NONE
49 Bell Atlantic BEL
50 Berger Holdings Ltd. BGRH
51 Bethlehem Corp. BET
52 Bethlehem Steel BS
53 Betz Labs BTL
54 BHC Financial BHCF
55 Biocontrol Tech BICO
56 Black Box Corp. BBOX
57 Blair BL
58 Blue Ridge Real Estate Co. BLRGZ
59 Bon Ton BONT
60 Bowline Corp. BOLN*
61 Brandywine Realty Trust BDN
62 Bridgeville Savings BRFC
63 Bryn Mawr Bank Corp. BMTC
64 BT Financial BTFC
65 Buck Hill Falls Co. NONE
66 Buckeye Partners, L.P. BPL
67 Buffalo Valley Telephone BUFF*
68 Burnham BURCA*
69 C Cor Electronics CCBL
70 C-Tec CTEX
71 Cable Design Technologies CDTC
72 Cabot Medical CBOT
73 Calgon Carbon CCC
74 Canondale Corp. BIKE
75 Carbide/Graphite Group CGGI
76 Cardinal Bancorp Inc. PA NONE
77 Carpenter Technology CRS
78 Castle Energy Corp. CECX
79 CCFNB Bancorp Inc. NONE
80 CDI Corp. CDI
81 Ceco Filters Inc. CEC
82 Cedar Group Inc. CGMV
83 Centercore CCOR
84 Centocor CNTO
85 Central Sprinkler CNSP
86 Century Financial Corp. CYFN*
87 Cephalon CEPH
88 CGS Scientific Corp. CGSC
89 Chambers Development CDV/A
90 Charming Shoppes CHRS
91 Charter Power System 1 CHP
92 Chemcial Leaman CLEA
93 Chester Valley Bancorp CVAL
94 Cigna CI
95 Citizen and Northern Corp. CZNC
96 Citizens Bankcorp. NONE
97 Citizens Bank and Trust Company CZNP*
98 Citizens Financial Services Inc. NONE
99 Citizens, Inc. NONE
100 Citizens National Bank of Ashland CIZP*
101 Citizens National Bank of Meyersdale CZNS*
102 Clearfield Bank & Trust Comapny CLFD*
103 CMAC Investment Corp. CMT
104 CNB Financial Corp. CNBB
105 Codorus Valley Bancorp Inc. CVLY*
106 Columbia Financial Corporation CLBF*
107 Comcast CMCSK
108 Comm Bancorp NONE
109 Commerce Bank/Harrisburg COBH
110 Commercial National Financial Corp. CNAF*
111 Commonwealth Federal Savings Bank CMSB
112 Communciations Group CMGI
113 Community Bankers Corp. NONE
114 Community Banks CBKI
115 Community Bank, National Association CMYN*
116 Community Independent Bank CMYI*
117 Community Ntl. Bank of Northwestern PA NONE
118 Computer Research Inc. CORE
119 Concord Health CHGR
120 Conestoga Enterprises Inc. NONE
121 Conrail CRR
122 Consolidated Natural Gas CNG
123 Constitution Bancorp, Inc. NONE
124 Consumers Financial Corp. CFIN
125 CoreStates CFL
126 Craftmatic Contour Industries Inc. CRCC
127 Crown American Realty Trust CWN
128 Crown Cork & Seal CCK
129 CSS Industries CSS
130 Dauphin Deposit DAPN
131 Deb Shops DEBS
132 Dentsply XRAY
133 Derma Sciences DSCI
134 Digimetrics Inc. DIGMC
135 Digital Descriptor Systems DDSI
136 DiMark DMK
137 Dimeco NONE
138 DNB Financial Corp. NONE
139 Donegal Group DGIC
140 DQE DQE
141 Dravo DRV
142 Drovers Bancshares Corp. DROV*
143 Eagle National Bank NONE
144 East Penn Bank NONE
145 East Prospect State Bank NONE
146 Eastern Environmental EESI
147 ECC International ECC
148 Ecogen EECN
149 Elderton State Bank NONE
150 Electro Kinetic Systems EKSIA
151 Emcee Broadcast Products ECIN
152 Elverson National Bank ELVN*
153 Emclaire Financial Corp. NONE
154 Emons Transportation Group EMHO
155 Environmental Tectonics ETC
156 Ephrata National Bank EPNB*
157 Equitable Resources EQT
158 Erie Family Life Insurance ERIF*
159 ExecuFirst FXBC
160 Exide EX
161 Extended Product Life EXED
162 Farmers National Bank of Kittanning NONE
163 Farmers National Bank of Newville NONE
164 Farmers & Merchants Bank FMMB*
165 FedOne Savings Bank, F.A. NONE
166 Fidelity Bancorp FSBI
167 Fidelity Deposit and Discount Bank FDDB*
168 Financial Trust FITC
169 First Bank of Philadelphia FBKP
170 First Bell Bancorp Inc. FBBC
171 First Capitol FCYP*
172 First Colonial Group Inc. FTCG
173 First Commercial Bank of Philadelphia NONE
174 First Commonwealth Financial FCF
175 First Harrisburg Bancorp FFHP
176 First Jermyn FJMY*
177 First Keystone Corp. FKYS*
178 First Leesport Bancorp, Inc. FLPB*
179 First Lehigh Corporation FLHI*
180 First National Bancorp. NONE
181 First National Bank of Gallitzin FIGA*
182 First National Bank of Canton FINC*
183 First National Bank of Fredicksburg NONE
184 First National Bank of Lilly NONE
185 First National Bank of Liverpool NONE
186 First National Bank of Marysville FNBM*
187 First National Bank of Newport FNBT*
188 First National Bank of Port Allegheny FIPG*
189 First National Bank of Reynoldsville NONE
190 First National Bank of Slippery Rock FNSL*
191 First National Bank of Spangler FNBG*
192 First National Bank of Spring Mills NONE
193 First National Community Bank NONE
194 First Philson Financial Corp. FPHN*
195 First Shenango Bancorp, Inc. SHEN
196 First Star Savings Bank FSRS
197 First Sterling Bancorp. NONE
198 First United National Bank NONE
199 First West Chester Corp. FWCC
200 First Western FWBI
201 FJF Financial Mutual Holding Company NONE
202 Fleetwood Bank Corporation NONE
203 FNB Bancorp, Inc. NONE
204 FNB Financial Corporation FBAN
205 FNBM Financial Corporation NONE
206 FNH Corporation NONE
207 Foamex International FMXI
208 Fore Systems FORE
209 Foster, L.B. FSTRA
210 Founders Bank NONE
211 FPA Bank FPO
212 Franklin First Financial Services FRAF
213 Freda Corp. FRDA
214 Fulton Bancshares NONE
215 Fulton Financial FULT
216 General Devices GDIC
217 General Nutrition Corp. GNCI
218 Genesis Health Ventures GHV
219 Geriatric & Medical GEMC
220 Giant Cement GCHI
221 Gilbert Associates GILB.A
222 Glatfelter, P.H. GLT
223 Glen Rock State Bank GLRO*
224 Global Environmental Corp. GLEN
225 Global Spill Management GSMI
226 GMIS GMIS
227 Gracecare Health Systems Inc. GCHS*
228 Grant Street National Bank GSNB
229 Greater Pottsville Federal S&LA NONE
230 Guaranty Bancshares GBNC
231 Halifax National Bank NONE
232 Hamlin Bank and Trust Company NONE
233 Hanover Bancorp. HOVB*
234 Hanover Foods Corp. NONE
235 Harleysville Group HGIC
236 Harleysville Nat'l Corp. HNBC
237 Harleysville Savings HARL
238 Harris Savings Bank HARS
239 Harsco Corporation HSC
240 Healthcare Services Group HCSG
241 Health Rite HLRT
242 Heinz HNZ
243 Herley Industries HRLY
244 Herndon National Bank NONE
245 Hershey Foods HSY
246 Hoblitzell National Bank of Hyndman NONE
247 Honat Bancorp HONT*
248 Hope Technologies HOPK*
249 Horsehead Resources Development HHRD
250 Hunt Manufacturing HUN
251 IBAH, Inc. IBAH
252 IBT Bancorp, Inc. IBTB
253 ICC Technology ICGN
254 II VI IIVI
255 Independent American Financial Corp. NONE
256 Industrial Scientific ISCX
257 Inertial Motors Corp. IMTS*
258 Information Systems Acquisitions Corp. ISAC
259 Innovative Tech Systems ITSY
260 Integra Financial ITG
261 Integrated Circuit Systems ICST
262 Intelligent Electronics INEL
263 InterDigital Communications IDC
264 International Canine Genetics ICGI
265 Irex Corp. IREX
266 Iron & Glass Bancorp, Inc. IRGB*
267 J & L Specialty Steels JL
268 Jetronic Industries JET
269 JLG Industries JLGI
270 Johnstown America JAII
271 Jones Apparel Group JNY
272 Jonestown Bank & Trust Company NONE
273 JTNB Bancorp NONE
274 Judicate Inc. JUDG
275 Juniata Valley Financial Corp. JUVF*
276 Kennametal Inc. KMT
277 Keystone Financial Inc. KSTN
278 Keystone Heritage Group Inc. KHGI
279 Kish Bancorp, Inc. KISB*
280 Kleinerts KLRT
281 Kranzco Realty Trust KRT
282 Kulicke Soffa KLIC
283 Lake Ariel Bancorp, Inc. LABN*
284 Lannett Co. Inc. LANN*
285 Laurel Capital Group LARL
286 Laurentian Capital LQ
287 Lewistown Trust Company LEWI*
288 Liberty Property Trust LRY
289 Liberty Technology LIBT
290 Lock Haven Savings Bank NONE
291 Lukens LUC
292 Luzerne National Bank Corporation NONE
293 Madison Bancshares Group LTD NONE
294 Magainin Pharmaceuticals MAGN
295 Mainline Bancorp. NONE
296 Manor National Bank MANR*
297 Mark Centers Trust MCT
298 Marlton Technology MTY
299 Mars National Bank MNBP*
300 Masland MSLD
301 Matthews International Corporation MATW
302 Mauch Chunk Trust Company NONE
303 Medco Group Inc. NONE
304 Med-Design MEDD
305 Mellon Bank MEL
306 Menley & James MENJ
307 Mercer County State Bancorp MCSB*
308 Mercersburg Financial Corporation NONE
309 Merchants National Bank of Bangor MCHT*
310 Merchants National Bank of Kittanning NONE
311 Merchants of Shenandoah Ban-Corp MSHN*
312 Meridian Bancorp MRDN
313 Met-Pro MPR
314 Metrobank of Philadelphia, N.A. NONE
315 Mid Penn Bancorp MPEN*
316 Mifflinburg Bancorp, Inc. NONE
317 Mine Safety Appliances MNES
318 Miners Bank of Lykens MNRB*
319 Miners Nat'l Bancorp MNBC
320 MK Rail MKRL
321 Montour Bank NONE
322 Moore Products MORP
323 Mother's Work MWRK
324 Mountbatten, Inc. MTBN
325 Moxham Bank Corporation MOXM*
326 Moyco Industries MOYC*
327 Muncy Bank Financial MNCY*
328 Musicom MUSO
329 Mylan Labs MYL
330 National American Bancorp NABN*
331 National Bank of Malvern NONE
332 National Bank of Olyphant NONE
333 National Media NM
334 National Penn Bancshares NPBC
335 National Record Mart NRMI
336 Neffs Bancorp, Inc. NEFF*
337 New Bethelem Bank NBET*
338 New Tripoli Bancorp NETN*
339 Nobel Education Dynamics NEDI
340 Nocopi NOOP*
341 North East Bancshares, Inc. NONE
342 North Pittsburgh System NORY*
343 Northern Lehigh Bancorp, Inc. NOLE*
344 NorthStar Health Services NSTR
345 Northumberland National Bank NONE
346 Novacare NOV
347 Noxso NOXO
348 NSD Bancorp NONE
349 Nuclear Research Corp. NONE
350 Nuclear Support NSSI
351 Numar NUMR
352 Numerex NMRX
353 Nutrition Management NMSCA
354 Oakhurst Company OAK
355 O'Brien Energy System OBS
356 Old Forge Bank OLDF*
357 OMEGA OMEF
358 Orbisonia Community Bancorp, Inc. NONE
359 Orrstown Financial Services ORRB*
360 Owosso Corp. OWOS
361 Palm Bancorp NONE
362 Parkvale Financial PVSA
363 PCI Services PCIS
364 PDG Environmental PDGE
365 Penn American Group PAGI
366 Penn Engineering & Mfg. PNN
367 Penn First Bancorp PWBC
368 Penn Laurel Financial Corporation NONE
369 Penn National Gaming PENN
370 Penn Security Bank and Trust Company PSBT*
371 Penn Virginia PVIR
372 Penncore Financial Services Corporaiton NONE
373 Pennrock Finanical Services Corp. PRFS*
374 Penns Woods Bancorp Inc. PWOD*
375 Pennsylvania Capital Bank NONE
376 Pennsylvania Enterprises PNT
377 Pennsylvania Power & Light PPL
378 Pennsylvania Real Estate Inv. Trust PEI
379 Pennsylvania State Bank NONE
380 PennTreaty American Corp. PTAC
381 Peoples Bank of Oxford PPBK*
382 Peoples Bank of Unity NONE
383 Peoples Financial Corporation, Inc. NONE
384 Peoples Financial Services Corporation, Inc. NONE
385 Peoples Ltd. NONE
386 Peoples National Bank of Rural Valley NONE
387 Peoples State Bank PSEB
388 Pep Boys PBY
389 Phoenix Bancorp, Inc. NONE
390 Philadelphia Consolidated Holding Corp. PHLY
391 PECO PE
392 Philadelphia Suburban PSC
393 Piercing Pagoda PGDA
394 Pioneer American Holding Company Corp. NONE
395 Pitt-Desmoines PDM
396 PNC Financial PNC
397 PPG Industries PPG
398 Premier Bank NONE
399 Prime Bancorp. PSAB
400 Progress Financial PFNC
401 Prophet 21 PXXI
402 Provident American PAMC
403 QNB Corp. QNBC*
404 Quad Systems QSYS
405 Quaker Chemical QCHM
406 Quigley Corp. QGYC
407 QVC Network QVCN
408 Reading Co. RDGCA
409 Regent Bancshares RBNK
410 Renal Treatment Centers RXTC
411 Rent Way RWAY
412 Resource America REXI
413 Respironics RESP
414 Rhone Poulac-Rorer RPR
415 Right Management Consultants RMCI
416 Rite Aid RAD
417 Robec ROBC
418 Robroy Industries RROYA*
419 Rochester & Pittsburgh Coal Company REPT
420 Rohm & Haas ROH
421 Royal Bank RBPA.A
422 R&B Inc. RBIN
423 Safeguard Scientifics SFE
424 Salem SBS
425 Scan Graphics SCNG
426 Scanforms Inc. SCFM
427 Scott Paper SPP
428 Second National Bank of Masontown NONE
429 Security First Bank SFMP
430 SEI Corp. SEIC
431 Selas SLS
432 Shared Medical Systems SMED
433 Shawnee Financial Services Corporation NONE
434 SI Handling SIHS
435 Sigma Alpha Entertainment Group LTD SAEG
436 Sinter Metals SNM
437 Smithfield State Bank of Smithfield NONE
438 SMT Health Services SHED
439 Somerset Trust Company SOMT*
440 Southwest National SWPA
441 Sovereign Bancorp SVRN
442 Spectrum Control SPEC
443 SPS Technologies ST
444 State Bancshares SBNP
445 Steel City Products SCPI
446 Sterling Financial Corp. SLFI*
447 Strawbridge & Clother STRW.A
448 STV Group STVI
449 SubMicron SUBM
450 Suburban Federal Savings Bank SUBF*
451 Sulcus Computer SUL
452 Summit Bancorp NONE
453 Sun Bancorp SUBI
454 Sun Company SUN
455 Sungard Data Systems SNDT
456 Super Rite SUPR
457 Supra Medical SUM
458 Surgical Laser Technologies SLTI
459 Susquehanna Bancshares SUSQ
460 Sylvan Foods SYLN
461 Systems & Computer Tehcnology SCTC
462 S&T Bancorp. STBA
463 Tasty Baking TBC
464 Technitrol TNL
465 Teleflex TFX
466 Tel-Save Holdings TALK
467 TF Financial Corp. NONE
468 Thermal Industries THMP
469 Toll Brothers TOL
470 Total Containment, Inc. TCIX
471 Tower Bancorp. TOBC*
472 Transducer Systems TSIC
473 Troy Hill Bancorp. THBC
474 Tseng Labs TSNG
475 Turbotville National Bank TVNB*
476 Tuscarora Plastics TUSC
477 UGI Corp. UGI
478 UNB Corporation NONE
479 Uni-Marts UNI
480 Union Bancorp UBTP*
481 Union National Financial Corp. NONE
482 Union Pacific UNP
483 Unisys UIS
484 United Bank of Philadelphia NONE
485 United Valley Bank NONE
486 Universal Health Services UHS
487 Univest Corporation of Pennsylvania UVSP
488 Urban Outfitters URBN
489 USA BancShares USAB
490 USA Technologies USAN
491 US Wats Inc. USWI
492 USBANCorp. UBAN
493 USX - Marathon MRO
494 USX Delhi DGP
495 USX - U.S. Steel X
496 UTI Energy Corporation UTI
497 U.S. Bioscience UBS
498 U.S. Healthcare USHC
499 Valley Forge Scientific VLFG
500 Vineyard Oil and Gas NONE
501 Vishay Intertechnology VSH
502 VWR VWRX
503 V. F. Corp VFC
504 Walshire Inc. WALS
505 Wayne County Bank & Trust Company WYBP*
506 Weis Markets WMK
507 West WST
508 West Milton State Bank NONE
509 Westinghouse WX
510 Westinghouse Airbrake WAB
511 Westmoreland Coal WCX
512 Weston Roy F. WSTN.A
513 Woodlands Bank NONE
514 WVS Financial Corp. WVFC
515 York Financial YFED
516 York International YRK
517 York Water YWTR
518 Zurn Ind. ZRN
519 Zynaxis ZNXS
<PAGE>
EXHIBITS AND PART C OF N1-A REGISTRATION STATEMENT
THE HOMESTATE GROUP
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a.) Financial Statements:
Included in Part A of this Registration Statement:
Financial Highlights for the period October 1, 1992
(Commencement of Operations) to June 30, 1993 and for each of
the three years in the period ended June 30, 1996.
Included in Part B of this Registration Statement:
Investments, June 30, 1996
Statement of Assets and Liabilities, June 30, 1996
Statement of Operations, for the fiscal year ended June 30,
1996
Statement of Changes in Net Assets, for the fiscal years ended
June 30, 1995 and June 30, 1996
Financial Highlights for the period October 1,
1992(Commencement of Operations) to June 30, 1993 and for each
of the three years in the period ended June 30, 1996.
Notes to Financial Statements
(b.) Exhibits:
1. The HomeState Group's (the "Registrant") Declaration
of Trust, dated August 26, 1992, Addendum to the Declaration of
Trust dated November 21, 1996 and Joinder of Additional
Trustees
2. None
3. None
4. Form of Certificate of Common Stock (Incorporated by
reference to Exhibit 4 to Pre-Effective Amendment No.
3 to this Registration Statement filed on September
25, 1992.)
5. (a) Investment Advisory Agreement between the
Registrant, on behalf of the HomeState Pennsylvania
Growth Fund, and Emerald Advisers, Inc. dated
September 1, 1992.
(b) Form of Investment Advisory Agreement between the
Registrant, on behalf of the HomeState Select
Opportunities Fund, and Emerald Advisers, Inc. to be
dated February 1, 1997.
6. (a) Distribution Agreement between the Registrant and
Rodney Square Distributors, Inc. dated November 20,
1995.*
(b) Form of Selected Dealer Agreement*
7. None
<PAGE>
8. (a) Custody Agreement between the Registrant
(HomeState Pennsylvania Growth Fund) and CoreStates
Financial Corp. dated August 31, 1992.
(b) Form of Custody Agreement between the
Registrant(HomeState Select Oppurtunities Fund) and
CoreStates Financial Corp. to be dated February 1,
1997.
9. (a) Transfer Agency Agreement between the Registrant
and Rodney Square Management Corporation dated
November 20, 1995.*
(b) Accounting Services Agreement between the
Registrant and Rodney Square Management Corporation
dated November 20, 1995.*
(c) Administration Agreement between the Registrant
and Rodney Square Management Corporation dated
November 20, 1995.*
10. None.
11. Consent of Price Waterhouse LLP.
12. None.
13. Subscription Agreement.
14. None.
15. (a) Rule 12b-1 Plan for The HomeState Pennsylvania
Growth Fund.
(b) Rule 12b-1 Plan for The HomeState Select
Opportunities Fund.
16. Schedule for Computation of Performance Quotation.*
17. Financial Data Schedule.*
18. None.
* Incorporated by reference to Pre-Effective Amendment No. 4 to
this Registration Statement filed on October 3, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF OCTOBER 31, 1996)
(1) (2)
TITLE OF CLASS NUMBER OF RECORD SHAREHOLDERS
-------------- -----------------------------
Shares of beneficial
interest $.01 par value
The HomeState Pennsylvania 4,762
Growth Fund
ITEM 27. INDEMNIFICATION
The Declaration of Trust (filed as Exhibit 1) provides for
indemnification of Trustees, as set forth in Section 13 thereof.
The Registrant's Distribution Agreement (filed as Exhibit 6(a)) provides
for indemnification of the principal underwriter against certain losses, as
set forth in Section 10 thereof.
It is expected that the Registrant will obtain a directors' and officers'
liability policy covering specific types of errors and omissions.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to such provisions of the Declaration of Trust,
Distribution Agreement, or statutes or otherwise, the Registrant has been
advised that in the opinion of a Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any such action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the shares of the Registrant, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in said Act and will be governed by
the final adjudication of such issue. Emerald Advisers, Inc. performs
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
investment advisory services for the Registrant and certain other
investment advisory clients. Emerald Advisers, Inc. also serves as General
Partner to Emerald Partners, L.P., a Pennsylvania-chartered investment limited
partnership.
As Emerald Advisers, Inc. is a wholly-owned corporation (incorporated on
November 14, 1991), each director and officer of the corporation has held
various positions with other companies prior to the founding of Emerald
Advisers, Inc. Information as to the directors and officers of Emerald
Advisers, Inc. is included in its Form ADV filed on November 14, 1991 and most
recently supplemented on May 31, 1996 with the Securities Exchange Commission
File No. 801-40263 and is incorporated by reference herein.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The Rodney Square Fund
The Rodney Square Strategic Fixed-Income Fund
The Rodney Square Multi-Manager Fund
The Rodney Square Tax-Exempt Fund
1838 Investment Advisors Funds
Heitman Real Estate Fund, Institutional Class
Kiewit Mutual Fund
The Olstein Funds
(b)
(1) (2) (3)
NAME AND PRINCIPAL POSITION AND OFFICES WITH POSITION AND OFFICES
BUSINESS ADDRESS RODNEY SQUARE DISTRIBUTORS, INC. WITH REGISTRANT
- ------------------ -------------------------------- --------------------
Jeffrey O. Stroble President, Secretary, None
1105 North Market St. Treasurer & Director
Wilmington, DE 19890
Martin L. Klopping Director None
Rodney Square North
1100 North Market St.
Wilmington, DE 19890
Neil Curran Vice President None
1105 North Market St.
Wilmington, DE 19890
<PAGE>
(c) None.
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder and the records relating to the duties of the Registrant's transfer
agent will be maintained by Rodney Square Management Corporation, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
Records relating to the duties of the Registrant's custodian will be
maintained by CoreStates Financial Corp., P.O. Box 7558, Philadelphia, PA
19101-7558.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32 UNDERTAKINGS
The Registrant will undertake to call a special meeting of shareholders
if shareholders representing at least 10% of the Registrant's outstanding
voting shares request such a meeting for the purpose of voting on the removal
of a Trustee or Trustees. Under such circumstances, the Registrant will
assist in shareholder communications as required by Section 16(c) of the Act.
The Registrant hereby undertakes to furnish a copy of the Registrant's
Annual Report to shareholders and to each person to whom a copy of the
Registrant's Prospectus is deliverd, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lancaster, and State of
Pennsylvania, on the 26th day of November, 1996.
THE HOMESTATE GROUP
By: /s/ Scott L. Rehr
Scott L. Rehr, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Scott L. Rehr President (Principal
- ---------------------- Executive Officer)
Scott L. Rehr and Trustee November 26, 1996
/s/ Bruce E. Bowen
- ----------------------
Bruce E. Bowen Trustee November 27, 1996
/s/ Kenneth G. Mertz
- ---------------------- Vice President,
Kenneth G. Mertz CIO, and Trustee November 26, 1996
/s/ Scott C. Penwell
- ----------------------
Scott C. Penwell, Esq. Trustee November 25, 1996
- ----------------------
H.J. Zoffer Trustee
<PAGE>
Form N-lA
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
1 Declaration of Trust and
Addendum to the Declaration of Trust
5(a) Investment Advisory Agreement for the Homestate
Pennsylvania Growth Fund
5(b) Investment Advisory Agreement for the Homestate
Select Opportunities Fund
8(a) Custody Agreement for the Homestate Pennsylvania
Growth Fund
8(b) Custody Agreement for the Homestate Select
Opportunities Fund
11 Consent of Independent Accountants
15(a) 12b-1 Plan
15(b) 12b-1 Plan
Exhibit 1
THE HOMESTATE GROUP
DECLARATION OF TRUST
On the 26th day of August, 1992, Bruce E. Bowen, Scott L. Rehr, and H.J.
Zoffer declare themselves to be trustees (the "Trustees") of a trust to be
known as the HomeState Group (the "Fund"); and further declare that they and
their successors as Trustees shall invest and reinvest all sums received in
the Fund for the benefit of all shareholders of the Fund in accordance with
the laws of the United States and of the Commonwealth of Pennsylvania, in
trust, as follows:
1. PURPOSE
The Fund is a Pennsylvania common law trust formed for the purpose of
acting as an open-end, diversified management investment company of the series
type under and pursuant to the Investment Company Act of 1940 (the "1940
Act"), except that an individual Series need not be diversified. It is hereby
expressly declared that a common law trust and not a partnership is created
hereby.
2. SERIES OF THE FUND
A. The Fund shall initially be composed of one Series. Each Series
will have separate investment objectives and policies, and shares of the Fund
will be identified as being shares of one of the Series. Shares of each
Series represent interests in that Series only, and will be entitled to all
income and gains (or losses) and bear all of the expenses associated with the
operations of that specific Series. Common expenses of the Fund will be
allocated among all of the Series based upon the respective net assets of each
Series.
B. The initial Series of the Fund shall be the HomeState
Pennsylvania Growth Fund ("HPGF").
(i) The investment objective of the HPGF will be
long-term growth of capital through investments primarily
in the common stock of companies with headquarters or
significant operations in the Commonwealth of
Pennsylvania.
(ii) The following investment policies and
restrictions may not be changed without the approval of a
majority of the shares of HPGF. For these purposes, a
majority of the shares of HPGF is defined as the vote, at
a special meeting of the shareholders of the HPGF duly
called, of more than fifty percent (50%) of the HPGF's
outstanding voting securities.
The HPGF may not under any circumstances:
(a) Purchase the securities of any issuer (other than
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities) if as a result more than five percent (5%)
of the value of the HPGF's total assets at the time of such purchase
would be invested in the securities of the issuer;
<PAGE>
(b) Invest more than fifteen percent (15%) of its total assets
in any one industry;
(c) Invest in, write, or sell put or call options, straddles,
spreads or combinations thereof;
(d) Borrow money, except from a bank. Such borrowing shall be
permitted for temporary or emergency purposes only (to facilitate the
meeting of redemption requests), and not for investment purposes. Such
borrowing cannot exceed fifteen percent (15%) of the HPGF's current total
assets, and will be repaid before any additional investments are
purchased. The Fund will not purchase securities when borrowing exceeds
five percent (5%) of total assets;
(e) Pledge, mortgage or hypothecate assets, except to secure
borrowings permitted by Item (d) above, and then only pledge securities
not exceeding ten percent (10%) of the HPGF's total assets (at current
value);
(f) Issue or sell senior securities;
(g) Make short sales;
(h) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities;
(i) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain federal
securities laws;
(j) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real estate
that are issued or backed by the United States Government, its agencies
or instrumentalities;
(k) Make loans, except by purchase of debt obligations in which
the HPGF may invest in accordance with its investment policies, or except
by entering into qualified repurchase agreements with respect to not more
than twenty-five percent (25%) of its total assets (taken at current
value).
(l) Purchase or sell commodities, commodity contracts or
futures contracts;
(m) Purchase or hold the securities of any issuer if the
officers or directors of the HPGF or its investment adviser (i)
individually own more than one-half of one percent (0.5%) of the
outstanding securities of the issuer, or (ii) collectively own more than
five percent (5%) of the outstanding securities;
(n) Acquire more than ten percent (10%) of the voting
securities of any issuer; or make investments for the purpose of gaining
control of a company's management;
(o) Invest in the securities of other investment companies
(excepting no-load, open-end money market mutual funds, and excepting the
2
<PAGE>
case of acquiring such companies through merger, consolidation or
acquisition of assets). The HPGF will not invest more than ten percent
(10%) of its total current assets in shares of other investment companies
nor invest more than five percent (5%) of its total current assets in a
single investment company.
C. The assets and liabilities of each Series will be segregated on
the Fund's books and records. The assets of each Series will be separately
invested and reinvested without regard to the other Series.
D. The shares of each Series will be entitled to vote as a
separate class with respect to matters affecting that Series or as otherwise
required by applicable law. Where not so required, the shares of all Series
will vote together as a single class.
E. The voting rights of each share of each Series will be
identical to the rights of all other shares within that Series, and, with
respect to matters affecting the Fund generally, identical to the rights of
all other shares of the Fund. Each share of a Series will entitle the holder
thereof to one vote (and a fractional share shall entitle the holder to a
corresponding fractional vote). Shareholders shall not be entitled to
cumulate votes and shall not have preemptive rights. Special meetings may be
called by holders of at least 10% of the shares of (i) a singe Series, if the
meeting relates to that Series, or (ii) the entire Fund, if the meeting
relates to the Fund as a whole.
F. The Trustees may create additional Series of the Fund at any
time, each Series having such objectives, policies, terms and provisions as
the Trustees, in their sole discretion, may determine, provided, however, that
each Series must be consistent with the other provisions of this Declaration
of Trust.
3. SHARES OF THE FUND
Each investor in a Series of the Fund shall have a beneficial
interest in such Series measured by the number of shares which he owns, and
all shares shall be equal in value. The shares shall be fully paid and non-
assessable when issued and have no preference as to conversion, exchange,
dividends or retirement. The Fund shall be entitled to issue an unlimited
number of shares. The Trustees may, from time to time, divide or combine the
shares of any Series into a greater or lesser number of shares. An account
will be maintained for each shareholder indicating the number of shares
(including fractions) such shareholder owns. Certificates for shares shall
not be issued unless specifically requested by a purchaser of shares.
4. VALUATION
(a) DATE OF VALUATION: The Trustees will cause the assets of
each Series of the Fund, together with accrued income, to be valued once
on each Business Day as of the close of the New York Stock Exchange
("NYSE") and before any admission or withdrawal as of that day. A
"Business Day" is defined as a day in which the NYSE is open for trading.
(b) Method of Valuation: Valuation of the assets of each
Series of the Fund will be made using a method which the Board of
Trustees believes in good faith accurately reflects fair value and will
include adjustment for incomplete settlements, for securities bought and
sold, for accrued interest, for dividends receivable on stocks quoted
<PAGE> 3
ex dividend, and for reserves. Securities that are traded on an exchange
or over-the-counter will be valued at market value according to the
broadest and most representative market. Bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing
service acceptable to the Trustees. Short-term investments may be valued
at cost.
(c) Net Asset Value Per Share: The net asset value per share
of each share of each Series shall be determined by adding the value of
the Series' securities and other assets, subtracting its liabilities, and
dividing the result by the number of its shares outstanding at the close
of business on each Business Day.
5. ADMISSIONS AND WITHDRAWALS
(a) Admissions: A person may, with the consent of and in
accordance with guidelines established from time to time by the Trustees,
acquire shares of a Series as of any day by tendering to the Trustees or
their agent before the close of business on such day a sum equal to the
net asset value per share of the requested Series as of the close of
business that day.
(b) Withdrawals: A shareholder may withdraw shares as of any
day if he has given the Trustees or their agent notice not later than the
close of business that day of his intention to do so. Such notice shall
be given in the manner and form prescribed by the Trustees, and may
include withdrawals pursuant to check writing plans authorized by the
Trustees from time to time. For each share withdrawn, the Custodian
shall mail to the shareholder within seven (7) days thereafter a check
representing the net asset value of each share withdrawn as of that day,
less any transaction charge that may then be in effect.
6. TRANSFER OF SHARES
Shares in the Fund may be transferred in accordance with such
reasonable rules and regulations as may be adopted by the Trustee from time to
time, which rules may be different for certificated and non-certificated
shares. Shareholders will be permitted to exchange shares between Series by
giving such notice as the Trustees may from time to time require. Replacement
of lost or destroyed certificates will be subject to such rules as the
Trustees may deem necessary and proper.
7. INCOME DISTRIBUTION
A. Dividends declared will be accrued and credited to each
shareholder's account daily at such other times as the Trustees may determine
in accordance with law. Net capital gains will be distributed at such times
as the Trustees may determine in accordance with law. All capital gains and
dividends will be automatically reinvested in additional shares of the same
Series at the net asset value per share unless the shareholder has specified
he wants dividends and/or capital gains paid to him in cash.
B. Shareholders who have elected to receive net capital gains
and/or dividends in cash will receive payments of such amounts due them, if
any, monthly (with respect to dividends) and annually (with respect to capital
gains), or at such other times established by the Trustees.
4
<PAGE>
8. CUSTODIAN
The Trustees shall, at all times, employ a bank, a trust company, or
a bank and trust company as Custodian of the Fund. The Custodian shall
receive, hold, and disburse all securities and cash of the Fund and the
Trustees shall not, themselves, receive, hold, or disburse any such securities
or cash. The Custodian shall perform such other services with respect to
recordkeeping, valuation, and other matters pertaining to the Fund as the
Trustees and Custodian shall agree.
9. APPOINTMENT OF ACCOUNTANT
The Trustees shall from time to time select an independent certified
public accountant who will annually prepare a financial statement of the Fund
as required by law. The holders of record of not less than two-thirds of the
outstanding shares of the Fund may have the appointed accountant removed by
filing a declaration with the Custodian or by a vote at a meeting called for
such purpose. The Trustees shall promptly call a meeting of shareholders for
the purpose of voting upon the removal of such accountant when requested in
writing by holders of at least 10% of the Fund's outstanding shares.
10. APPOINTMENT, RESIGNATION, AND REMOVAL OF TRUSTEES
(a) Number of Trustees: The number of Trustees shall not be
less than three (3) and not more than twelve (12), the exact number to be
set from time to time by the action of the Trustees or by a vote of the
holders of a majority of the outstanding shares.
(b) Initial Appointment: All of the Trustees named in this
Declaration of Trust, and all Trustees subsequently appointed or elected
in accordance with this Declaration of Trust, shall serve until their
successors have been elected and qualified, they resign, or they are
removed in accordance with the provisions of this Declaration of Trust.
(c) Resignation, Removal, and Death: A majority of the
Trustees may, at any time, accept the written resignation of another
Trustee or may remove him from office by written notice to him and to the
Custodian. In addition, the holders of record of not less than two-
thirds of the outstanding shares of the Fund may have a trustee removed
by filling a declaration with the Custodian or by a vote at a meeting
called for such purpose. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon removal of such Trustee(s)
when requested in writing by holders of at least 10% of the Fund's
outstanding shares. Pending the filling of any vacancy or vacancies
caused by death, resignation, or removal, the remaining Trustee or
Trustees shall have all the powers and duties of the whole number of
Trustees.
(d) Filling Vacancies: If a vacancy occurs in the office of a
Trustee for any reason, including an increase in the number of Trustees,
the other Trustees shall by written notice delivered to the Custodian
appoint a Trustee to fill the vacancy and will promptly notify the
shareholders that they have done so, subject to the provisions of Section
16(a) of the 1940 Act. The agreement to be entered into with the
Custodian will provide that, if at any time the Custodian decides that
there is no Trustee available or able to serve, it will call a meeting of
the shareholders to elect at least three (3) Trustees.
5
<PAGE>
(e) Acceptance by Trustees: Any person appointed to the
office of Trustee will execute and file with the Custodian a writing
agreeing to the terms and conditions of this Declaration of Trust, but
this provision shall not apply to reappointments and reelections of
Trustees.
11. POWERS OF TRUSTEES
In addition to any other powers herein expressly or impliedly given
to them, and in addition to such powers as may be vested in the Trustees by
applicable law, the Trustees shall have the power, in their discretion:
(a) To cause the principal of each Series of the Fund to be
invested and reinvested in bonds, notes, stocks, and other securities,
within the investment objective and policies of each particular Series,
except for a reasonable amount which may be kept in cash, without being
confined to legal investments as defined under Pennsylvania law, but
subject to the provisions of the 1940 Act relating to the diversification
of investments of diversified management companies, the rules and
regulations of the Securities and Exchange Commission pursuant to such
Act as well as other federal law pertinent thereto, and other provisions
and limitations contained in this Declaration of Trust, and to do
anything required for the protection of any investments;
(b) To employ and remove the Custodian of the Fund, counsel,
an independent certified public accountant, a distributor, transfer
agent, pricing agent, and employees and officers of the Fund, and such
other persons as shall be required for the proper administration of the
Fund, such persons to have such duties, responsibilities, and authority
with respect to the Fund as the Trustee may determine, except that the
Trustees shall not have the power to employ an independent certified
public accountant rejected by the shareholders of the Fund;
(c) To employ and remove investment advisor(s) with whom the
Trustees shall enter into written contracts setting forth all
compensatory arrangements and other matters agreed upon between the
Trustees and such investment advisor(s);
(d) To cause the Custodian to pay from the Fund all proper
charges against it, and, in their discretion, to make proper reserves for
such charges, including, without limitation: taxes; commissions and other
expenses in connection with the purchase and sale of securities held by
the Fund; the compensation of the Trustees, officers and employees of the
Fund, of the Investment Advisor, of the Distributor of the Fund's shares,
of the Custodian, of counsel, and of the independent certified public
accountant; premiums on the fidelity bond of the Trustees; fees paid to
the Securities and Exchange Commission and other regulatory agencies;
costs of transfer and registration of new and transferred certificates;
costs for the purchase, printing, or for the mailing of, share
certificates of the Fund, periodic reports to shareholders of the Fund,
notices to shareholders of the Fund, proxies and proxy material; amounts
required to effectuate the indemnification of the Trustees and others and
of those who have ceased to be Trustees as provided herein; and any other
sums necessary for the proper conduct of the Fund;
(e) To allocate any such charge to principal or to income or
partly to each;
6
<PAGE>
(f) To allocate stock dividends and extraordinary dividends to
principal or to income or partly to each;
(g) To delegate in writing to one or more of the Trustees and
at any time to assume any or all of the powers of the full Board of
Trustees, including discretionary powers, except that the following
powers may not be so delegated: the powers to appoint or remove a
Trustee, to employ or remove a Custodian or an independent certified
public accountant, to liquidate the Fund or to amend this Declaration of
Trust;
(h) To advance cash from the principal account of the Fund to
the income account and vice versa; and
(k) Generally, except as herein restricted, to do anything
with respect to the property of the Fund that an absolute owner could do,
subject to the duty of acting only for the benefit of the shareholders.
12. GENERAL RESTRICTIONS ON POWERS
(a) No person or organization having a contract to furnish or
furnishing managerial, supervisory, distributing, underwriting, or
investment advisory services to the Fund shall receive any commission,
fee, or other payment or otherwise profit directly or indirectly from
sales or purchases by the Fund of securities, provided, however, that
nothing in this paragraph shall prevent or prohibit payment of a fee to
any person for services rendered to the Fund.
(b) The Trustees shall not cause the Fund to make investments
in violation of the 1940 Act or any regulations of the Securities and
Exchange Commission adopted pursuant thereto, or in contravention of the
provisions of the Internal Revenue Code of 1986, as amended, with respect
to regulated investment companies.
13. LIMITATION OF LIABILITY AND INDEMNIFICATION
(a) LIMITATION OF TRUSTEE LIABILITY. Every act or thing done
or omitted, and every power exercised or obligation incurred by the
Trustees or any of them in the administration of this Fund or in
connection with any affairs, property, or concerns of the Fund, whether
ostensibly in their own names or in their Fund capacity, shall be done,
omitted, exercised or incurred by them as Trustees and not as
individuals; and every person contracting or dealing with the Trustees or
having any debt, claim, or judgment against them or any of them shall
look only to the assets of the Fund for payment or satisfaction. No
Trustee or Trustees of the Fund shall ever be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment, or decree
arising out of or connected with the administration or preservation of
the Fund estate or the conduct of any other affairs of the Fund.
It is the intention of this Section 13(a) that no Trustee shall
be subject to any personal liability whatsoever to any person for errors
of judgment, mistakes of fact or law, or any action or failure to act
(including without limitation the failure to compel in any way any former
or acting Trustee to redress any breach of trust) and that all persons
7
<PAGE>
shall look solely to the Fund assets for satisfaction of claims of any
nature arising in connection with the affairs of the Fund; except that
nothing in this Declaration of Trust shall protect any Trustee from any
liability to the Fund or its shareholders to which he would otherwise be
subject by reason of willful malfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
(b) Indemnification of Trustees, Officers and Employees. The
Fund shall indemnify each of its Trustees against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit, or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while as a Trustee or
thereafter, by reason of his being or having been such a Trustee; except
with respect to any matter as to which he shall have been adjudicated to
have acted in bad faith or reckless disregard of his duties, or with
willful misconduct or gross negligence. The rights accruing to any
person under these provisions shall not exclude any other right to which
he may be lawfully entitled; provided, however, that no person may
satisfy any right of indemnity or reimbursement except out of the
property of the Fund.
The Trustees shall have the power, but not the duty, in their
sole discretion, to indemnify officers and employees of the Fund to the
same extent that Trustees are entitled to indemnification pursuant to
this Section 13(b).
In addition to such rights of indemnification as may be
provided hereunder, the Trustees may purchase insurance against the risk
of liability imposed against Trustees, officers, or employees by reason
of their services on behalf of the Fund.
(c) Reliance on Experts, Etc. Each Trustee, officer, and
representative of the Fund shall, in the performance of his duties, be
fully and completely justified and protected with regard to any act or
any failure to act resulting from reliance in good faith upon the books
of account or other records of the Fund, upon an opinion of counsel
satisfactory to the Fund, or upon reports made to the Fund by any of its
officers, representatives, or employees or by the investment advisor, the
principal underwriter, selected dealers, accountants, appraisers, or
other experts or consultants selected with reasonable care by the
Trustees or officers of the Fund, regardless of whether such counsel or
expert may also be a Trustee.
(d) Limitation of Shareholder Liability. Shareholders shall
not be subject to any personal liability for the acts or obligations of
the Fund and notice of this disclaimer shall be given in each agreement,
obligation or instrument entered into or executed by the Fund or the
Trustees. The Trustees shall have no power to bind any shareholder
personally or to call upon any shareholder for the payment of any sum of
money or assessment whatsoever other than such as the shareholder may at
any time personally agree to pay by way of subscription to any shares or
otherwise.
(e) Indemnification of Shareholders. In case any shareholder
or former shareholder shall be held to be personally liable solely by
8
<PAGE>
reason of his being or having been a shareholder and not because of his
acts or omissions or for some other reason, the shareholder or former
shareholder (or his heirs, executors, administrators, or other legal
representatives or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the Fund's
assets to be held harmless from and indemnified against all loss and
expense arising from such liability. The Fund shall, upon request by
the shareholder, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any
judgment thereon.
14. COMPENSATION OF TRUSTEES
Each Trustee who shall be affiliated with the Fund's investment
advisor or the fund's legal counsel or who shall be an officer or employee of
the Fund shall serve without compensation, and each Trustee who is not so
affiliated shall be compensated as determined from time to time by the
Trustees.
15. TAXES
The Trustees will pay from the Fund any tax assessed with respect to
the Fund or any asset of it or the income from it, and shall, in their
discretion, charge this tax to income or to principal, or partly to both.
16. REPORTS
The Trustees will send to each shareholder, at least semi-annually,
a report of the Fund, containing information and financial statements required
by law, and they will send to each shareholder, from time to time, the
information required for preparation of individual income tax returns.
17. NOTICES
Any notice or report provided for herein shall be considered as
given to each shareholder if mailed to him at the address appearing on the
Transfer Agent's records for the distribution of income, with first-class
postage affixed.
18. TERMINATION
The Fund will continue without limitation of time, provided however
that:
1) Subject to the majority vote of the holders of shares of any
Series of the Fund outstanding, the Trustees may sell or convert the
assets of such Series to another investment company in exchange for
shares of such investment company and distribute such shares ratably
among the shareholders of such Series;
2) Subject to the majority vote of shares of any Series of the
Fund outstanding, the Trustees may sell and convert into money the assets
of such Series and distribute such assets ratably among the shareholders
of such Series; and
3) Without the approval of the shareholders of any Series, unless
otherwise required by law, the Trustees may combine the assets of any two
or more Series into a single Series so long as such combination will not
have a material adverse effect upon the shareholders of such Series.
9
<PAGE>
Upon completion of the distribution of the remaining proceeds or the
remaining assets of any Series as provided in paragraphs 1), 2), and 3)
above, the Fund shall terminate as to that Series and the Trustees shall
be discharged of any and all further liabilities and duties hereunder and
the right, title and interest of all parties shall be canceled and
discharged.
19. PERSONS DEALING WITH TRUSTEES
Anyone dealing with the Trustees shall be entitled to rely upon the
written or oral statement of any one or more of the Trustees to whom authority
has been delegated to act on behalf of all the Trustees, or upon his or their
representation that such authority has been delegated to him or them.
20. AMENDMENTS
This Declaration of Trust may be amended from time to time by all
the Trustees with the written consent of the holders of a majority of the
outstanding shares or with the consent of such holders voting in person or by
proxy at a meeting called to pass upon such amendment; but no amendment shall
give any share preference over any other share. An amendment shall be
effective upon delivery of an appropriate writing to the Custodian, notice of
which will then be given immediately to all the shareholders.
21. SITUS OF TRUST
The situs of this Fund shall be East Lampeter Township, Lancaster County,
Pennsylvania and this Declaration of Trust shall be governed and controlled by
the laws and statutes of the Commonwealth of Pennsylvania.
22. MISCELLANEOUS
(a) Close of Business. As used in this Declaration of Trust,
the phrase "close of business," whether with respect to determining net
asset value per share, effecting purchases or redemptions of shares, or
any other purpose, shall be deemed to mean the close of business of the
New York Stock Exchange on the applicable day unless the Trustees specify
another time.
(b) Other Capacities. Any Trustee, officer, representative,
employee, or agent of the Fund, including any investment advisor,
distributor, custodian, or transfer agent, may serve in multiple
capacities for the Fund, and may engage in other business activities in
addition to his or its services on behalf of the Fund, provided, however,
that any such business activities not related to the Fund do not
interfere with the performance of such person's responsibilities and
duties for or on behalf of the Fund.
(c) Conformance with Law. This Fund has been created to be an
investment company under the 1940 Act. To the extent that any provision
of this Declaration of Trust is inconsistent with the 1940 Act or any
regulation thereunder, the regulated investment company provisions of the
Internal Revenue Code of 1986 or any regulation thereunder, or with other
applicable laws or regulations, such inconsistent provision of this
Declaration of Trust shall be deemed to be amended to so be consistent,
or deemed to be severed from this Declaration of Trust, as appropriate,
10
<PAGE>
without any action by the Trustees or shareholders. Notwithstanding the
foregoing, Section 13 of this Declaration of Trust shall not be affected
in any manner that would increase the liability of Trustees or
shareholders or decrease the indemnification available to such persons.
(d) Actions by Written Consent; Telephonic Meetings. Any
action that may be taken by the Trustees may be taken by a writing signed
by all of them. Trustees may participate in meetings by means of a
conference telephone or other similar equipment pursuant to which
each person participating in the meeting may hear all other persons
participating.
IN WITNESS WHEREOF, the undersigned Trustees have signed their names and
affixed their seals the day and year first above written.
/S/ BRUCE E. BOWEN (SEAL)
Bruce E. Bowen
/S/ SCOTT L. REHR (SEAL)
Scott L. Rehr
/S/ H. J. ZOFFER (SEAL)
H. J. Zoffer
11
<PAGE>
THE HOMESTATE GROUP
Pennsylvania Growth Fund
Joinder of New Trustees
WHEREAS, the undersigned, Kenneth G. Mertz, II and Scott C. Penwell desire
to become and serve as Trustees of The HomeState Group (the "Fund"); and
WHEREAS, on August 26, 1992, the Trustees of the Fund, pursuant to the
Fund'sorganization, adopted, approved, executed, ratified and joined the
following, all of which the undersigned have reviewed (the "Organizational
Actions"):
1. A consent to act as Trustee of the Fund:
2. Organizational Resolutions;
3. A uniform resolution for filing with state securities commissions;
4. An authorization of Scott L. Rehr to make written and oral
instructions on behalf of the Fund;
5. A determination of a charitable contribution policy;
6. Execution of the Declaration of Trust; and
7. Execution of the Fund's registration statement on Form N-1A.
NOW THEREFORE, BE IT RESOLVED, that the undersigned hereby join in,
adopt, approve, ratify, and where appropriate execute the Organizational
Actions as if the undersigned were present at the organizational meeting
of the Trustees held on August 26, 1992.
IN WITNESS WHEREOF, we set forth our hands and seals this 31st day of
August, 1992.
/S/ KENNETH G. MERTZ, II (SEAL)
Kenneth G. Mertz, II
/S/ SCOTT C. PENWELL (SEAL)
Scott C. Penwell
<PAGE>
THE HOMESTATE GROUP
DECLARATION OF TRUST
ADDENDUM 1
HOMESTATE SELECT OPPORTUNITIES FUND
On the 21st day of November, 1996, pursuant to Section 2(f) of the
Declaration of Trust (the "Declaration of Trust") of the HomeState Group (the
"Fund"), the trustees of the Trust (the "Trustees") created an additional
Series of the Fund, to be known hereafter as the HomeState Select
Opportunities Fund ("HSOF"). With respect to HSOF, the Trustees further
determined:
FUNDAMENTAL INVESTMENT RESTRICTIONS:
HSOF may not:
(1) Invest more than 25% of the value of its assets in the equity
or debt of one issuer (other than obligations issued or guaranteed
by the U.S. Government), nor, in respect of at least 50% of its
assets, invest more than 5% of the value of its assets in the equity
or debt of one issuer (other than obligations issued or guaranteed
by the U.S. Government).
(2) Invest more than 25% of total assets in one industry.
(3) Issue or sell senior securities, subject to policy (a) below
(relating to the ability to borrow money for certain purposes);
(4) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws;
(5) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real
estate that are issued or backed by the United States Government,
its agencies or instrumentalities;
(6) Make loan, except by purchase of debt obligations in which the
HSOF may invest in accordance with its investment policies, or
except by entering into qualified repurchase agreements with respect
to not more than twenty-five percent (25%) of its total assets
(taken at current value);
(7) Purchase or hold the securities of any issuer if the officers
or directors of HSOF or its investment adviser (i) individually own
more than one-half of one percent (0.5%) of the outstanding
securities of the issuer, or (ii) collectively own more than five
percent (5%) of the outstanding securities;
(8) Acquire more than ten percent (10%) of the voting securities of
any issuer; or make investments for the purpose of gaining control
of a company's management;
<PAGE>
(9) Invest in the securities of other investment companies
(excepting no-load, open-end money market mutual funds, and
excepting the case of acquiring such companies through merger,
consolidation or acquisition of assets). HSOF will not invest more
than ten percent (10%) of its total current assets in shares of
other investment companies nor invest more than five percent (5%) of
its total current assets in a single investment company. When
investing in a money market mutual fund, HSOF will incur duplicate
fees and expenses; and
(10) May not borrow money,except from a bank, or for purposes of
purchasing securities on margin (provided that such purchases may
not exceed 120% of total assets taken at current value.
INVESTMENT POLICIES (WHICH MAY BE CHANGED BY HSOF'S BOARD OF TRUSTEES):
(a) Will not invest in foreign currencies or foreign options;
(b) Will not invest more than 15% of total assets (taken at current
value) in illiquid securities (including illiquid equity securities,
repurchase agreements and time deposits with maturities or notice
periods of more than 7 days, and other securities which are not
readily marketable, including securities subject to legal or
contractual restrictions on resale);
(c) Will not issue long-term debt securities (except pursuant to
policy (a) above relating to borrowing for certain purposes;
(d) Will not invest more than ten percent (10%) of its total assets
(at current value) in repurchase agreements, and will not invest in
repurchase agreements maturing in more than seven days;
(e) May invest its cash for temporary purposes in commercial paper,
certificates of deposit, money market mutual funds, repurchase
agreements (as set forth in Item g above) or other appropriate short-
term investments;
(f) May invest in securities convertible into common stock, but
only when HSOF's investment adviser believes the expected total
return of such a security exceeds the expected total return of
common stocks eligible for investment;
(g) Will maintain its portfolio turnover rate at a percentage
consistent with its investment objective of long-term appreciation
of capital. HSOF will not engage primarily in trading for short-
term profits, but it may from time to time make investments for
short-term purposes when such trading is believed by HSOF's Adviser
to be desirable and consistent with a sound investment policy. HSOF
may dispose of securities whenever the Adviser deems advisable
without regard to the length of time held. HSOF is not expected to
exceed a portfolio turnover rate of 150% on an annual basis.
(h) May engage in options strategies. HSOF will either: (i) set
aside cash, U.S. Government or other liquid, high-grade debt
securities in a segregated account with HSOF's custodian in the
prescribed amount; or (ii) hold securities or other options or
futures contracts whose values are expected to offset ("cover") its
obligations thereunder. Securities, currencies or other options or
futures contracts used for cover cannot be sold or closed out while
the strategy is outstanding, unless they are replaced with similar
assets;
<PAGE>
(i) May not write put or call options having aggregate exercise
prices greater than 25% of HSOF's net assets, except with respect to
options attached to or acquired with or traded together with their
underlying securities and securities that incorporate features
similar to options; and
(j) May make short sales.
home\sre\eam\hsof
<PAGE>
Exhibit 5(a)
THE HOMESTATE GROUP
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and executed this 1st day of September, 1992, between
the HomeState Group (the "Fund") and Emerald Advisers, Inc. (the "Adviser").
The Fund is a Pennsylvania common law trust and is an investment company
registered under the Investment Company Act of 1940 (the "Act"). The Fund is
an open-end, diversified management company of the series type which invests
and reinvests its assets in one series: The HomeState Pennsylvania Growth
Fund, but which may in the future introduce additional series, each with
distinct investment objectives and policies (The "Series"). The Adviser is a
Pennsylvania corporation, registered with the United States Securities and
Exchange Commission and the Pennsylvania Securities Commission as an
investment adviser.
WHEREAS, the Fund and the Adviser wish to enter into an agreement setting
forth the terms on which the Adviser will perform certain services for the
Fund;
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND HEREBY, it is agreed by and
between the parties hereto as follows:
1. Appointment of Investment Adviser. The Fund hereby appoints the
Adviser to manage the investment and reinvestment of the assets of the fund
and to administer its affairs, subject to supervision by the Fund's Board of
Trustees, for the period and on the terms set forth in this Agreement. In
furnishing such management and administration services, the Adviser will be
guided by the Fund's distinct investment objectives and policies for each
Series as set forth in the statements contained in the a Fund's Registration
Statement on Form N-1A filed with the Securities and Exchange Commission, as
such Registration Statement may be amended or supplemented from time to time.
The Adviser hereby accepts such appointment and agrees to render the services
required by this Agreement for the compensation and upon other terms and
conditions set forth in this Agreement. In performing the investment advisory
services under this Agreement, the Adviser is authorized to engage such sub-
advisers and other persons as deemed necessary or desirable.
The fees of any such persons shall be borne entirely by the Adviser, and
the engagement of such persons shall not relieve the Adviser of any
responsibility under this Agreement. The Adviser shall for all purposes
contained herein be deemed an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
2. Office Space and Facilities. The Adviser shall furnish to the Fund
space in the offices of the Adviser or in such other place as may be agreed
upon from time to time and all necessary office facilities, equipment and
personnel for managing the affairs and investments and keeping the books of
the Fund.
<PAGE>
3. Allocation of Expenses.
(a) (1) Adviser shall pay the organizational expenses of the Fund,
which the Fund shall reimburse to Adviser over a sixty-month period
commencing after the date of the Fund's initial public offering of its
shares. The Fund shall not be obligated to reimburse the Adviser for
aggregate organizational expenses in excess of $25,000. (2.) The Adviser
shall be responsible for the compensation (if any) paid to officers of
the Fund for serving in that capacity; federal and state registration
fees, other than initial fees to be reimbursed pursuant to Section 3(a)
(1); and the cost of fidelity bond and other insurance for the Fund.
(b) The Fund shall bear all expenses of its organization,
operations, and business not specifically assumed or agreed to be paid by
the Adviser as provided in this Agreement. In particular, but without
limiting the generality of the foregoing, the Fund shall pay:
(1) Custody and Accounting Service. All expenses of the
transfer, receipt, safekeeping, servicing and accounting for the
Fund's cash, securities, and other property, including all charges
of depositories, custodians, and other agents, if any;
(2) Shareholder Servicing. All expenses of maintaining and
servicing shareholder accounts, including all charges of the Fund's
transfer, shareholder recordkeeping, dividend disbursing,
redemption, and other agents, if any;
(3) Shareholder Communications. All expenses of preparing,
setting in type, printing, and distributing reports and other
communications to shareholders;
(4) Shareholder Meetings. All expenses incidental to holding
duly called meetings of Fund shareholders, including the printing of
notices and proxy material;
(5) Prospectuses. All expenses of preparing, setting in type,
and printing of annual or more frequent revisions of the Fund's
prospectus and of mailing them to shareholders;
(6) Communication Equipment. All charges for equipment or
services used for communication between the Adviser or the Fund and
the custodian, transfer agent or any other agents selected by the
Fund;
(7) Legal and Accounting Fees and Expenses. All charges for
services and expenses of the Fund's legal counsel and independent
auditors;
(8) Trustee's Fees and Expenses. All compensation of Trustees,
other than those affiliated with the Adviser, and all expenses
incurred in connection with their service;
(9) Issue and Redemption of the Fund Shares. All expenses
incurred in connection with the issue, redemption and transfer of
Fund shares, including the expense of confirming all share
transactions, and of preparing and transmitting the Fund's stock
certificates (if any);
<PAGE>
(10) Brokerage Commissions. All broker's commission and other
charges incident to the purchase, sale, or lending of the Fund's
portfolio securities;
(11) Taxes and Fees. All taxes or governmental fees payable by
or with respect of the Fund to federal, state, or other governmental
agencies, domestic or foreign, including stamp or other transfer
taxes;
(12) Non-recurring and Extraordinary Expenses. Such non-
recurring expenses as may arise, including the costs of actions,
suits, or proceeding to which the Fund is a party and the expense
the Fund may incur as a result of its legal obligation to provide
indemnification to its officers, trustees and agents.
4. Service to Other Accounts. The service of the Adviser to the Fund
hereunder shall not be deemed exclusive, and the Adviser shall be free to
render similar services to others so long as its services hereunder are not
impaired hereby.
5. Compensation for Services.
(a) For the facilities and services to be furnished by the Adviser,
the Fund shall pay the Adviser an annual fee computed on the basis of the
average net asset value of the Fund as ascertained each business day and
paid monthly in accordance with the fee schedule as determined by the
Board of Trustees for the Series.
The fee schedule for the HomeState Select Opportunities Fund is as
follows:
Net Assets Fee
---------- ---
Up to and including $250,000,000 .75 of 1%
In excess of 250,000,000 and up
to and including $500,000,000 .65 of 1%
In excess of $500,000,000 and up
to and including $750,000,000 .55 of 1%
In excess of $750,000,000 .45 of 1%
For purposes of computing the annual fee, the net asset value of the
Fund shall be equal to the difference between its total assets and its
total liabilities (excluding from such liabilities its capital stock and
surplus) with its assets and liabilities to be valued in accordance with
the procedures set forth in the Fund's Declaration of Trust.
(b) The Fund and the Adviser may mutually agree to reduce the fees
payable by the Fund if the reduction is in the best long-range interest
of the Fund and the Adviser. The fees may not be increased under any
circumstances. If the Adviser shall serve for less than the whole of any
month, the monthly payment shall be prorated.
6. Reimbursement by Adviser. The Adviser agrees to reimburse the Fund
for the amount by which the adviser's fee in any fiscal year exceeds the
limits prescribed by any state in which the Fund's shares are qualified for
sale. For the purposes of determining whether the Fund is entitled to
reimbursements, the adviser's fee is calculated on a monthly basis. If the
Fund is entitled to a reimbursement, that month's advisory fee will be reduced
or postponed, with any adjustments made at the end of the fiscal year.
<PAGE>
7. Books and Records. The Fund shall cause its books and accounts to be
audited at least once each year by a reputable, independent public accountant
or organization of public accountants who shall render a report to the Fund.
8. Affiliation. It is understood that trustees, officers, agents and
stockholders of the Fund are or may not be interested in the Adviser (or any
successor thereof) as directors, officers, stockholders, or otherwise, and
that the Adviser (or any such successor) is or may be interested in the Fund
as a stockholder or otherwise.
9. Approval of Agreement; Termination. This Agreement shall be in effect
upon its execution and will remain in effect for an initial term expiring
December 31, 1997. Thereafter, the Agreement will continue in effect with
respect to a particular Series for successive yearly terms each ended on
December 31 of each year, unless terminated by either party, provided that the
renewal of the Agreement and its terms are specifically approved annually by
(i) the vote of a majority of those members of the Fund's Board of Trustees
who are not interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval; and (ii) by
the Fund's Board of Trustees or such vote of a majority of the outstanding
voting securities of such Series. The Agreement may be terminated with respect
to a particular Series at any time, without payment of any penalty, by the
Fund (by vote of the Fund's Board of Trustees or by vote of a majority of
outstanding voting securities of such Series, or by the Adviser, on sixty days
written notice). This Agreement will terminate automatically in the event of
an assignment, unless as order is issued by the Securities and Exchange
Commission conditionally or unconditionally exempting such assignments from
the provisions of Section 15(a) of the Act, in which event this contract shall
continue in full force and effect.
This Agreement may not be amended, transferred, sold or in any manner
hypothecated or pledged, nor may a new advisory agreement become effective
with respect to a particular Series, without the affirmative vote or written
consent of the holders of a majority of the shares of such Series; provided,
that this limitation shall not prevent any minor amendments to the Agreement
which may be required pursuant to federal or state law.
10. Defined Terms. For the purpose of this Agreement, the terms "Vote of
a majority of the outstanding securities," "assignment," and "interested
persons" shall have the respective meaning specified in the Investment Company
Act of 1940 when such terms are used in reference to the Fund.
11. Miscellaneous. This Agreement embodies the entire agreement between
the Adviser and the Fund with respect to the services to be provided by the
Adviser and supercedes any prior written or oral agreement between those
parties. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania and, to the extent it involves
any United States statutes, in accordance with the laws of the United States.
In the event that either party should be required to take legal action in
order to enforce its rights under this Agreement, the prevailing party in any
such action or proceeding shall be entitled to recover from the other party
costs and reasonable attorney's fees.
IN WITNESS THEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written.
HOMESTATE GROUP
<PAGE>
By: /S/ SCOTT L. REHR
Scott L. Rehr
President
ATTEST:
/S/SHEILA M. DUX
Sheila M. Dux
Secretary
EMERALD ADVISERS, INC.
By: /S/ SCOTT L. REHR
Scott L. Rehr
President
ATTEST:
/S/SHEILA M. DUX
Sheila M. Dux
Secretary
<PAGE>
Exhibit 5(b)
THE HOMESTATE GROUP
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and executed this 1st day of February, 1997, between
the HomeState Group (the "Fund") and Emerald Advisers, Inc. (the "Adviser").
The Fund is a Pennsylvania common law trust and is an investment company
registered under the Investment Company Act of 1940 (the "Act"). The Fund is
an open-end, diversified management company of the series type which invests
and reinvests its assets in its series: The HomeState Select Opportunities
Fund, but which may in the future introduce additional series, each with
distinct investment objectives and policies (The "Series"). The Adviser is a
Pennsylvania corporation, registered with the United States Securities and
Exchange Commission and the Pennsylvania Securities Commission as an
investment adviser.
WHEREAS, the Fund and the Adviser wish to enter into an agreement setting
forth the terms on which the Adviser will perform certain services for the
Fund;
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND HEREBY, it is agreed by and
between the parties hereto as follows:
1. Appointment of Investment Adviser. The Fund hereby appoints the
Adviser to manage the investment and reinvestment of the assets of the fund
and to administer its affairs, subject to supervision by the Fund's Board of
Trustees, for the period and on the terms set forth in this Agreement. In
furnishing such management and administration services, the Adviser will be
guided by the Fund's distinct investment objectives and policies for each
Series as set forth in the statements contained in the a Fund's Registration
Statement on Form N-1A filed with the Securities and Exchange Commission, as
such Registration Statement may be amended or supplemented from time to time.
The Adviser hereby accepts such appointment and agrees to render the services
required by this Agreement for the compensation and upon other terms and
conditions set forth in this Agreement. In performing the investment advisory
services under this Agreement, the Adviser is authorized to engage such sub-
advisers and other persons as deemed necessary or desirable.
The fees of any such persons shall be borne entirely by the Adviser, and
the engagement of such persons shall not relieve the Adviser of any
responsibility under this Agreement. The Adviser shall for all purposes
contained herein be deemed an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
2. Office Space and Facilities. The Adviser shall furnish to the Fund
space in the offices of the Adviser or in such other place as may be agreed
upon from time to time and all necessary office facilities, equipment and
personnel for managing the affairs and investments and keeping the books of
the Fund.
<PAGE>
3. Allocation of Expenses.
(a) (1) Adviser shall pay the organizational expenses of the Fund, which
the Fund shall reimburse to Adviser over a sixty-month period commencing after
the date of the Fund's initial public offering of its shares. The Fund shall
not be obligated to reimburse the Adviser for aggregate organizational
expenses in excess of $25,000. (2.) The Adviser shall be responsible for the
compensation (if any) paid to officers of the Fund for serving in that
capacity; and the cost of fidelity bond and other insurance for the Fund.
(b) The Fund shall bear all expenses of its organization, operations, and
business not specifically assumed or agreed to be paid by the Adviser as
provided in this Agreement. In particular, but without limiting the generality
of the foregoing, the Fund shall pay:
(1) Custody and Accounting Service. All expenses of the transfer,
receipt, safekeeping, servicing and accounting for the Fund's cash,
securities, and other property, including all charges of depositories,
custodians, and other agents, if any;
(2) Shareholder Servicing. All expenses of maintaining and servicing
shareholder accounts, including all charges of the Fund's transfer,
shareholder recordkeeping, dividend disbursing, redemption, and other agents,
if any;
(3) Shareholder Communications. All expenses of preparing, setting in
type, printing, and distributing reports and other communications to
shareholders;
(4) Shareholder Meetings. All expenses incidental to holding duly called
meetings of Fund shareholders, including the printing of notices and proxy
material;
(5) Prospectuses. All expenses of preparing, setting in type, and
printing of annual or more frequent revisions of the Fund's prospectus and of
mailing them to shareholders;
(6) Communication Equipment. All charges for equipment or services used
for communication between the Adviser or the Fund and the custodian, transfer
agent or any other agents selected by the Fund;
(7) Legal and Accounting Fees and Expenses. All charges for services and
expenses of the Fund's legal counsel and independent auditors;
(8) Trustee's Fees and Expenses. All compensation of Trustees, other than
those affiliated with the Adviser, and all expenses incurred in connection
with their service;
(9) Issue and Redemption of the Fund Shares. All expenses incurred in
connection with the issue, redemption and transfer of Fund shares, including
the expense of confirming all share transactions, and of preparing and
transmitting the Fund's stock certificates (if any);
(10) Brokerage Commissions. All broker's commission and other charges
incident to the purchase, sale, or lending of the Fund's portfolio securities;
(11) Taxes and Fees. All taxes or governmental fees payable by or with
respect of the Fund to federal, state, or other governmental agencies,
domestic or foreign, including stamp or other transfer taxes;
<PAGE>
(12) Non-recurring and Extraordinary Expenses. Such non-recurring
expenses as may arise, including the costs of actions, suits, or proceeding to
which the Fund is a party and the expense the Fund may incur as a result of
its legal obligation to provide indemnification to its officers, trustees and
agents.
4. Service to Other Accounts. The service of the Adviser to the Fund
hereunder shall not be deemed exclusive, and the Adviser shall be free to
render similar services to others so long as its services hereunder are not
impaired hereby.
5. Compensation for Services.
(a) For the facilities and services to be furnished by the Adviser, the
Fund shall pay the Adviser an annual fee computed on the basis of the average
net asset value of the Fund as ascertained each business day and paid monthly
in accordance with the fee schedule as determined by the Board of Trustees for
the Series.
The fee schedule for the HomeState Select Opportunities Fund is as follows:
NET ASSETS FEE
---------- ---
Up to and including $100,000,000 1.00%
In excess of 100,000,000 .90 of 1%
For purposes of computing the annual fee, the net asset value of the Fund
shall be equal to the difference between its total assets and its total
liabilities (excluding from such liabilities its capital stock and surplus)
with its assets and liabilities to be valued in accordance with the procedures
set forth in the Fund's Declaration of Trust.
(b) The Fund and the Adviser may mutually agree to reduce the fees
payable by the Fund if the reduction is in the best long-range interest of the
Fund and the Adviser. The fees may not be increased under any circumstances.
If the Adviser shall serve for less than the whole of any month, the monthly
payment shall be prorated.
6. Reimbursement by Adviser. The Adviser agrees to reimburse the Fund
for the amount by which the adviser's fee in any fiscal year exceeds the
limits prescribed by any state in which the Fund's shares are qualified for
sale. For the purposes of determining whether the Fund is entitled to
reimbursements, the adviser's fee is calculated on a monthly basis. If the
Fund is entitled to a reimbursement, that month's advisory fee will be reduced
or postponed, with any adjustments made at the end of the fiscal year.
7. Books and Records. The Fund shall cause its books and accounts to be
audited at least once each year by a reputable, independent public accountant
or organization of public accountants who shall render a report to the Fund.
8. Affiliation. It is understood that trustees, officers, agents and
stockholders of the Fund are or may not be interested in the Adviser (or any
successor thereof) as directors, officers, stockholders, or otherwise, and
that the Adviser (or any such successor) is or may be interested in the Fund
as a stockholder or otherwise.
<PAGE>
9. Approval of Agreement; Termination. This Agreement shall be in effect
upon its execution and will remain in effect for an initial term expiring
December 31, 1997. Thereafter, the Agreement will continue in effect with
respect to a particular Series for successive yearly terms each ended on
December 31 of each year, unless terminated by either party, provided that the
renewal of the Agreement and its terms are specifically approved annually by
(i) the vote of a majority of those members of the Fund's Board of Trustees
who are not interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval; and (ii) by
the Fund's Board of Trustees or such vote of a majority of the outstanding
voting securities of such Series. The Agreement may be terminated with respect
to a particular Series at any time, without payment of any penalty, by the
Fund (by vote of the Fund's Board of Trustees or by vote of a majority of
outstanding voting securities of such Series, or by the Adviser, on sixty days
written notice). This Agreement will terminate automatically in the event of
an assignment, unless as order is issued by the Securities and Exchange
Commission conditionally or unconditionally exempting such assignments from
the provisions of Section 15(a) of the Act, in which event this contract shall
continue in full force and effect.
This Agreement may not be amended, transferred, sold or in any manner
hypothecated or pledged, nor may a new advisory agreement become effective
with respect to a particular Series, without the affirmative vote or written
consent of the holders of a majority of the shares of such Series; provided,
that this limitation shall not prevent any minor amendments to the Agreement
which may be required pursuant to federal or state law.
10. Defined Terms. For the purpose of this Agreement, the terms "Vote of
a majority of the outstanding securities," "assignment," and "interested
persons" shall have the respective meaning specified in the Investment Company
Act of 1940 when such terms are used in reference to the Fund.
11. Miscellaneous. This Agreement embodies the entire agreement between
the Adviser and the Fund with respect to the services to be provided by the
Adviser and supercedes any prior written or oral agreement between those
parties. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania and, to the extent it involves
any United States statutes, in accordance with the laws of the United States.
In the event that either party should be required to take legal action in
order to enforce its rights under this Agreement, the prevailing party in any
such action or proceeding shall be entitled to recover from the other party
costs and reasonable attorney's fees.
IN WITNESS THEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written.
HOMESTATE GROUP
By:/s/____________________
Scott L. Rehr
President
ATTEST:
/s/____________________
Daniel W. Moyer IV
Secretary
<PAGE>
EMERALD ADVISERS, INC.
By: /s/____________________
Kenneth G. Mertz II
President
ATTEST:
/s/____________________
Scott L. Rehr
Secretary
<PAGE>
Exhibit 8(a)
CUSTODIAN AGREEMENT
This Agreement, dated as of the 31ST day of August made by and between
THE HOMESTATE GROUP (the "Fund"), a corporation operating as an open-end
investment company, duly organized and existing under the laws of the
Pennsylvania and CoreStates Bank, N.A. (the "Custodian"), a national banking
association duly organized and existing under the laws of the United States of
America;
WITNESSETH THAT:
WHEREAS, the HOMESTATE PENNSYLVANIA GROWTH FUND is currently the only
operating series of shares.
WHEREAS, the fund desires to appoint the custodian of the Securities and
principal cash of the Fund and the Custodian is willing to act in such
capacity upon the terms and conditions herein set forth;
WHEREAS, the Custodian in its capacity as custodian hereunder will also
collect and apply the dividends and interest on said Securities in the manner
and to the extent herein set forth; and
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
Section 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have the meanings
herein specified unless the context other requires.
Book-Entry Securities: The term Book-Entry Securities shall mean
securities issued by the Treasury of the United States of America and federal
agencies of the United States of America which are maintained in the book-
entry system ("the book-entry system") as provided in Subpart 0 of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR part 350, and the book-entry
regulations of federal agencies substantially in the form of Subpart 0 and the
term Book-Entry Account shall mean an account maintained by a Federal Reserve
Bank in accordance with the aforesaid Circular and regulations.
Custodian: The term Custodian shall mean CoreStates Bank, N.A. in its
capacity as custodian under this Agreement.
Investment Company Securities: The term Investment Company Securities
shall mean shares of stock or beneficial interest in a regulated investment
company registered under the Investment Company Act of 1940 amended.
Dividend Disbursing Agent: The term Dividend Disbursing Agent shall
mean Fund/Plan Services, Inc. A shareholder servicing corporation providing a
broad range of services which includes the distribution of dividends to fund
shareholders.
Investment Company Securities Transaction: The term INVESTMENT COMPANY
SECURITIES TRANSACTION shall mean the purchase, sale or redemption of the
account of the Fund of Investment Company Securities.
<PAGE>
Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to the Custodian in person or by telephone, telegram,
telecopy or other mechanical or documentary means lacking original signature,
by a person or persons reasonably believed in good faith by the Custodian to
be a person or persons authorized by a resolution of the Board of Trustees of
the Fund to give Oral Instructions on behalf of the Fund.
Securities: The term Securities shall mean bonds, debentures, notes,
stocks, shares, evidence of indebtedness, and other securities and investments
from time to time owned by the Fund, including but not limited to Investment
Company Securities, options, stock index futures, and options on such stock
index futures.
Securities Depository: The term Securities Depository shall mean a
system for the central handling of securities where all securities of any
particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of the securities.
Series: The term Series shall mean the HOMESTATE PENNSYLVANIA GROWTH
FUND.
Shareholders: The term Shareholders shall mean the registered owners
from time to time of the Shares of any Series of the Fund in accordance with
the stock registry records of the Fund.
Shares: The term Shares shall mean the issued and outstanding shares of
common stock of any Series of the Fund.
Stock Index Futures: This tern Stock Index Future shall mean futures
contracts on stock indices.
Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to the Custodian in original writing containing original
signatures or a copy of such document transmitted by telecopy including
transmission of such signature, reasonably believed in good faith by the
Custodian to be the signature of a person authorized by a resolution of the
Board of Trustees of the Fund to give Written Instructions on behalf of the
Fund.
Section 2. The Fund shall from time to time file with the Custodian a
certified copy of each resolution of its Board of Trustees authorizing
execution of Written Instructions and specifying the number of signatories
required, together with certified signatures of the officers and other
signatories authorized to sign, which shall constitute conclusive evidence of
the authority of the officers and other signatories designated therein, and
shall be considered in full force and effect with the Custodian fully
protected in acting in reliance thereon until it receives a new certified copy
of a resolution adding or deleting a person or persons with authority to give
Written Instructions. If the certifying officer is authorized to sign Written
Instructions, the certificate shall also be signed by a second officer of the
Fund.
The Fund shall from time to time file with the Custodian a certified copy
of each resolution of its Board of Trustees authorization the transmittal of
Oral Instructions and specifying the person or persons authorized to give Oral
<PAGE>
Instructions and the matter or matters which may be the subject of any such
instruction in accordance with this Agreement. Any resolution so filed with
the Custodian shall be considered in full force and effect and the Custodian
shall be fully protected in acting in reliance thereon until it actual
receives a new certified copy of a resolution adding or deleting a person or
persons with authority to give Oral Instructions or revising matters so
provided. If the certifying officer is authorized to give Oral Instructions,
the certification shall also be signed by a second officer of the Fund.
Section 3. For all purposes under this Agreement, the Custodian is
authorized to act upon receipt of the first of any Written or Oral
instructions it receives. In cases where the first Instruction is an Oral
Instruction that is not in the form of a document or written record, the Fund
shall be responsible for delivering, or having delivered to the Custodian, a
confirmatory Written Instruction or Oral Instruction the form of a document or
written record, and in cases where the Custodian receives an Instruction,
whether Written or Oral, with respect to a portfolio transaction (other than
an Investment Company Securities Transaction or a transaction involving a
transfer on the books of a Securities Depository) the Fund shall cause the
broker or dealer to send a written confirmation to the Custodian. The
Custodian shall be entitled to rely on the first Instruction received and, for
any act or omission undertaken in compliance therewith, shall be free of
liability and fully indemnified and held harmless by the Fund. The Custodian
shall if practicable act upon and comply with any subsequent Written or Oral
Instruction which modifies such first Instruction. The obligation of the
Custodian with respect to any follow-up or confirmatory Written Instruction,
Oral Instruction in documentary or written form, or broker-dealer written
confirmation shall be to make reasonable efforts to detect any discrepancy
between the original Instruction and such confirmation and to report such
discrepancy to the Fund. The Custodian shall also be responsible for taking
any action necessary with respect to any timely follow-up Written or Oral
Instruction which countermands or modifies a Written or Oral Instruction.
The Fund shall be responsible, at the Fund's expense, for taking any action,
including any reprocessing, necessary to correct any discrepancy or error and,
to the extent such action requires the Custodian to act, the Fund shall give
the Custodian specific Written Instructions as to the action required.
Section 4. The Fund hereby appoints the Custodian as custodian of the
Securities and cash from time to time on deposit hereunder, to be held by the
Custodian and applied as provided in this Agreement. The Custodian hereby
accepts such appointment subject to the terms and conditions hereinafter
provided. The Securities held by the Custodian shall, unless payable to
bearer or maintained in a Securities Depository or Book-Entry Account pursuant
to Section 5, be registered in the name of the Custodian or in the name of its
nominee. Securities, excepting bearer securities delivered from time to time
to the Custodian upon purchase or otherwise shall in all cases be in due form
for transfer or already registered as above provided. Such Securities and
cash of any Series of the Fund shall, however, be and remain the sole
property of the acquiring Series of the Fund and the Custodian shall have only
the bare custody thereof.
Section 5. The Fund hereby authorizes the Custodian to deposit with a
bank located in the United States assets held in the Option Account created
pursuant to Section 13 or Futures Account pursuant to Section 14 and to (a)
deposit in its account(s) with any Securities Depository registered as a
Clearing Agency under Section 17A of the Securities Exchange Act of 1934, all
or any part of the Securities as may from time to time be held for the Fund,
and (b) deposit Book-Entry Securities belonging to the Fund in a Book-Entry
<PAGE>
Account which is maintained for the Custodian by a Federal Reserve Bank and
(c) hold Investment Company Securities in the name of the Custodian or its
nominee in the form of an account on the books of the respective investment
company issuer. So long as any deposit referred to in (a), (b) or (c) above
is maintained for the Fund, the Custodian:
(i) shall deposit the Securities in an account that includes only
assets held by it for customers;
(ii) shall, with respect to Securities transferred to the account
of the Fund, identify as belonging to the proper Series of the
Fund a quantity of securities in a fungible bulk of securities
(i) registered in the name of the Custodian or its nominee, or
(ii) shown on the Custodian's account on the books of the
Securities Depository, the Book-Entry System, the Custodian's
agent, or the respective investment company issuer; and
(iii) shall send to the Fund such reports of the systems of internal
accounting control of the Custodian and its agents through
which such Securities are deposited as are available and as
the Fund may reasonably request from time to time.
The Fund warrants that its Board of Trustees has approved the arrangement
for the deposit of Securities in a Securities Depository and the Book-Entry
System and the holding of Investment Company Securities in the name of the
Custodian or its nominee in an account on the books of the Investment Company
issuer.
Section 6 The Fund will initially transfer and deposit or cause to be
transferred and deposited with the Custodian all of the Securities and cash
owned by each Series of the Fund at the time this Agreement becomes effective.
Such deposit shall be evidenced by appropriate schedules duly executed by the
Fund and the Fund agrees that it is solely responsible for the accuracy of
said schedule. The Fund will cause to be deposited with the Custodian
additional Securities of each Series of the Fund as the same are purchased or
otherwise acquired from time to time, and any dividends or interest collected
on such Securities.
Thereafter the Fund will cause to be deposited with the Custodian
hereunder the net proceeds of Securities sold or redeemed from time to time.
Section 7 The Custodian is hereby authorized and directed to disburse
cash from time to time as follows:
(a) for the purpose of payment for the purchase of Securities purchased
by any Series of the Fund, upon receipt by the Custodian of both (i) Written
or Oral Instructions identifying the acquiring Series, specifying the
Securities and stating the purchase price, and the name of the broker,
investment banker or other party to or upon whose order the purchase price is
to be paid, and (ii) except in respect to Investment Company Securities, the
Securities so purchased in due form for transfer or already registered as
provided in Section 4, provided, however, that the Custodian may make payment
for Securities on deposit with a Securities Depository and Book-Entry
Securities at such times as the Custodian enters a credit in the account it
maintains for the proper Series of the Fund to the effect that it has accepted
delivery of such Securities on behalf of that Series of the Fund;
<PAGE>
(b) for the purpose of transferring funds in connection with a
repurchase agreement, upon receipt by the Custodian of (i) Written or Oral
Instructions identifying the Series, specifying the Securities, the purchase
price and the party to whom the purchase price is to be paid and (ii) written
evidence of the identity of the party obligated to repurchase the Securities
from the Fund;
(c) for the purpose of transferring funds to a duly designated
redemption paying agent to redeem or repurchase Shares, upon receipt of
Written or Oral Instructions identifying the Series issuing such Shares and
stating the applicable redemption price thereof;
(d) for the purpose of exercising warrants and rights received upon the
Securities, upon timely receipt of Written or Oral Instructions authorizing
the exercise of such warrants and rights and stating the consideration to be
paid by the acquiring Series;
(e) for the purpose of repaying in whole or in part any loan of the
Fund, upon receipt of Written or Oral Instructions directing payment and
stating the Securities, if any, to be received against payment;
(f) for the purpose of paying over to a duly designated Dividend
Disbursing Agent such amounts as may be stated in Written or Oral
Instructions, representing proceeds of the sale of warrants, rights, stock
dividends, profit and increases in values of the Securities of a Series, as
the Fund may determine to include in dividends and/or distribution declared on
the Shares of such Series;
(g) for the purpose of making or reimbursing the Fund for other
corporate expenditures upon receipt of Written or Oral Instructions stating
that such expenditures were authorized by resolution of the Board of Trustees
of the Fund and are or were for proper corporate purposes, and specifying the
amount of payment, the purpose for which such payment is to be made, naming
the person or persons to whom payment is to be made, and allocating the
payment to the Series of the Fund chargeable therewith in whole or in part;
(h) for the purpose of transferring funds to any Sub-Custodian, upon
receipt of Written or Oral Instructions from the Fund;
(i) in connection with puts and calls traded on securities exchanges as
set forth in Section 14;
(j) as set forth in Section 9; or
(k) for the purpose of payment for the purchase of Investment Company
Securities purchased by any Series of the Fund, upon receipt by the Custodian
of Written or Oral Instructions specifying the Securities and stating the
purchase price and the name of the broker, investment banker or other party to
or upon whose order the purchase price is to be paid.
Section 8. The Custodian is hereby authorized and directed to deliver
Securities of any Series of the Fund from time to time as follows;
(a) for the purpose of exchanging Investment Company Securities for
other Investment Company Securities within the same Investment company complex
of funds,'
<PAGE>
(b) for the purpose of redeeming Investment Company Securities owned for
the account of any Series of the Fund, upon receipt by the Custodian of
Written or Oral Instructions specifying the Securities and stating the amounts
of the proceeds to be received for the account of the Series, the approximate
time of receipt and the manner of payments;
(c) for the purpose of completing sales of Securities other than
redemption of Investment Company Securities sold by any Series of the Fund,
upon receipt of both (i) the net proceeds of sale and (ii) Written or Oral
Instruction specifying the Securities sold and stating the amount to be
received and the broker, investment banker or other party to or upon whose
order the Securities are to be delivered provided, however, that the Custodian
may accept payment owing in connection with the disposition by the Fund of
Securities on deposit with a Securities Depository and Book-Entry Securities,
by means of a credit in the appropriate amount to the account described in
Section 5 hereof;
(d) for the purpose of exchanging Securities for other Securities and/or
cash upon timely receipt of (i) Written or Oral Instructions stating the
Securities to be delivered and the Securities and/or cash to be received in
exchange and the manner in which the exchange is to be made, and (ii) against
receipt of the other Securities and/or cash as specified in the Written or
Oral Instructions.
(e) for the purpose of exchanging or converting Securities pursuant to
their terms or pursuant to any plan of conversion, consolidation,
recapitalization, reorganization, readjustment or otherwise, upon timely
receipt of (i) Written or Oral Instructions authorizing such exchange or
conversion and stating the manner in which such exchange or conversion is to
be made, and (ii) the Securities, certificates of deposit, interim receipts,
and/or cash to be received as specified in the Written or Oral Instructions;
(f) for the purpose of presenting Securities for payment which have
matured or have been called for redemption;
(g) for the purpose of delivery of Securities of a Series upon
redemption of Shares of that Series in kind, upon receipt (i) of Share
Certificates of such Series in due form for transfer, or proper processing of
such Shares for which no Share Certificates are outstanding, and (ii)
appropriate Written or Oral Instructions;
(h) for the purpose of depositing with a lender Securities of a Series
to be held as collateral for a loan to that Series of the Fund upon receipt of
Written or Oral Instructions on directing delivery to the lender;
(i) upon receipt of Written or Oral Instructions stating (i) the
Securities to be delivered and the payment to be received and (ii) payment, in
connection with any repurchase agreement related to such Securities; or
Section 9. The Custodian will collect from time to time the dividends
and interest on the Securities held by it hereunder and will deposit the same
for the benefit of the proper Series of the Fund until disbursed as
hereinafter provided.
The Custodian is authorized to advance or pay out of the income account
of any Series cash accrued interest on bonds purchased and dividends on stocks
sold and like items.
<PAGE>
Subject to proper reserves for dividends owing stocks sold and like
items, the Custodian will disburse the money from time to time on deposit for
the Fund to or upon the order of the Fund as it may from time to time direct
for the following purposes:
(a) to pay the proper compensation and expenses of the Custodian;-
(b) to transfer funds to a duly designated Dividend Disbursing Agent to
pay dividends and/or distributions which may be declared by The Fund on any
Shares of any Series upon receipt of appropriate Written or Oral Instructions;
(c) to pay or provide the Fund with money to pay taxes upon receipt of
appropriate Written or Oral Instructions;
(d) to transfer funds to a separate checking account maintained by the
Fund pursuant to Section 17(f) of the Investment Company Act of 1940, as
amended;
(e) to pay interest, management or supervisory fees, administration,
dividend and transfer agency fees and costs, compensation of personnel, or
operating expenses (including, without limitation thereto, fees for legal,
accounting and auditing services), and to disburse cash for other purposes
charging any or all of such amounts against any Series properly chargeable
therewith upon receipt of Written or Oral Instructions requesting such payment
or disbursement and identifying the Series chargeable therewith.
Section 10. The Fund will cause any bank (including the Custodian)
from which it borrows money using Securities as collateral to deliver to the
Custodian a notice or undertaking in the form currently employed by such bank
setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian Written or Oral Instructions identifying the borrowing Series
and stating, for each loan: (a) the name of the bank, (b) the amount and terms
of the borrowing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other loan agreement,
(c) the time and date, if known, on which the loan is to be entered into (the
"borrowing date"), (d) the date on which the loan becomes due and payable, (e)
the total amount payable to the borrowing Series of the Fund on the borrowing
date, and (f) the market. value of Securities of such Series to be delivered
as collateral for such loan, including the name of the issuer, the title and
the number of shares or the principal amount of any particular Securities.
The Custodian shall deliver on the borrowing date such specified collateral
and the executed promissory note, if any, against delivery by the lending bank
of the total amount of the loan payable, provided that the same confirms to
the total amount as set forth in the Written or Oral Instructions. The
Custodian may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein given
the lending bank by virtue of any promissory note or loan agreement.
The Custodian shall deliver from time to time such Securities as
additional collateral as may be specified in Written or Oral Instructions, to
collateralize further any transaction described in this section. The Fund
shall cause all Securities released from collateral status to be returned
directly to the Custodian.
In the event that Written or Oral Instructions fail to specify the name
of the issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any particular
Securities.
<PAGE>
Section 11. If the Custodian should in its sole discretion advance
funds on behalf of a Series of the Fund which results in an overdraft because
the moneys held by the Custodian for the account of that Series of the Fund
shall be insufficient to pay the total amount payable upon purchase of
Securities or which results in an overdraft for some reason or if such Series
of the Fund is for any other reason indebted to the Custodian, such overdraft
or indebtedness shall be deemed to be a loan made by the Custodian to that
Series of the Fund payable on demand and bearing interest at the current rate
charged by the Custodian for such loans. The Fund hereby agrees that the
Custodian shall have a continuing lien and security interest in and to any
property at any time held by it for the benefit of the Fund or in which that
Series of the Fund may have an interest which that Series of the Fund may have
an interest which is then in the Custodian's possession or control or in
possession or control of any third party acting on the Custodian's behalf to
the extent of any such overdraft or indebtedness. The Fund authorizes the
Custodian, in its sole discretion at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to such Series' credit on the Custodian's books; provided, however,
that the Custodian may not charge any amounts against the balance of account
to the Series' credit unless it has notified the Fund of the overdraft prior
to the making of such charges.
Section 12. Upon receipt of Written or Oral Instructions, the
Custodian will execute, or cause a sub-custodian or agent to execute, an
escrow receipt relating to any covered call written by a Series of the Fund,
and will deliver such escrow receipt against payment of the premium therefor.
Such Instructions shall contain all information necessary for the issuance of
such receipt and will authorize the deposit of the Securities specified
therein into an escrow account of the proper Series of the Fund. Securities
so deposited into an escrow account will be held by the Custodian or sub-
custodian or agent subject to the terms of such escrow receipt. However, the
Custodian agrees that it will not deliver, or cause a sub-custodian or agent
to deliver, any Securities deposited in an escrow account pursuant to an
exercise notice unless it has received Instructions to do so or (i) it has
duly requested the issuance of such Instructions; (ii) at least two business
days have elapsed since the delivery of such request to the Fund; and (iii)
the Fund has not advised it that the Fund has purchased Securities that are to
be delivered pursuant to the exercise notice. The Fund agrees that it will
not issue any Instructions which shall conflict with the terms of any escrow
receipt executed by the Custodian or a sub-custodian or agent in relation to
the Fund which is then in effect. The parties agree that the Custodian need
not maintain any written evidence of any call written by the Fund as part of
its duties under this Agreement. The parties also agree that a Series of the
Fund may write calls on Securities ("underlying securities") which are not
owned by that Series of the Fund and issue Instructions to the Custodian to
execute, or cause a sub-custodian or agent to execute, an escrow receipt on
Securities ("convertible securities") which are, or are to be, owned by such
Series and are convertible into the underlying securities. In such event, the
parties agree that any Instructions as to the execution of the escrow receipt
will relate only to such convertible securities but that any Instructions as
to the delivery of such Securities may instruct the Custodian to convert the
same.
Section 13. a. If a Series of the Fund purchases or sells (writes) a put
option contract ("put") or call option contract ("call"), which is traded on
securities exchanges or quoted on the automatic quotation system of the
National Association of Securities Dealers, Inc., the Fund will, in connection
<PAGE>
with such purchase or sale, deliver to the Custodian Written or Oral
Instructions which identify such Series, describe the put or call in question
including (i) whether the contract in question is a put or call and whether
the put or call has been purchased or sold by the Fund, (ii) the exercise
price, the expiration date and the amount of premium to be paid or received,
(iii) if a premium; is to be paid by the Fund, the identity of the broker and
the documentation to be provided by such broker against receipt by the broker
of the premium; (iv) if a premium is to be received by the Fund, the identity
of the paying broker; (v) a description of the investment to which the put or
call relates, (vi) if the transaction is a closing purchase or sale
transaction, the documentation or cash to be delivered to the broker through
which the transaction was made; and (vii) in the case of a call sold by a
Series of the Fund, whether the call is covered.
b. If the option sold is a put or uncovered call, the Written or Oral
Instructions shall also state either (a) the amount and kind of collateral
required by the broker, which amount shall be delivered directly to the broker
through whom such option was written in return for both a receipt issued by
such broker and a confirmation by such broker of the option transaction at
such times and in such manner as is in accordance with the customs prevailing
among brokers in such securities or (b) the amount and kind of assets of the
Series, if any, which shall be segregated from the general assets of that
Series and shall be held by the Custodian in a segregated option account (the
"Option Account"). The Custodian shall set up and maintain the Option Account
as it shall be directed by Written or Oral Instructions and shall increase or
decrease the assets in such Option Account only as it shall be so directed by
subsequent Written or Oral Instructions.
c. If an option contract purchased or sold by a Series expires, the
Fund will deliver to the Custodian Written or Oral Instructions containing the
information specified in paragraph a. above and instruct the Custodian to (a)
delete such option contract from the list of holdings that the Custodian
maintains for the Series if it is a put or call held by the Series and (b) to
either remove from the Option Account the assets held therein with respect to
such option (which assets shall be specified in such Written or Oral
Instructions), or to remove the restriction on any securities underlying a
covered call, as the case may be. Upon the return and/or cancellation or
expiration of any escrow receipts, the Custodian shall remove such
restrictions, delete the option from the list of holdings maintained by the
Custodian for the benefit of the Series. Collateral delivered by a broker
with whom it was previously deposited shall, if identical with the collateral
specified in the receipt previously issued by such broker, be accepted by the
Custodian and held in the general account maintained by the Custodian for the
benefit of the Series. The Custodian shall accept delivery of collateral not
specified in such a receipt only upon receipt of Written or Oral Instructions.
d. If a call option sold by a Series of the Fund is exercised, the Fund
shall promptly furnish the Custodian with Written or Oral Instructions
stating: (a) that the Custodian shall deliver the related investments or cash;
(b) a description of the related investments or a statement of the amount of
cash to be delivered; (c) the person to whom the delivery is to be made; (d)
the amount, if any to be received by the Custodian to hold for the Fund upon
such delivery; and (e) the assets, if any, to be removed from the Option
Account or the collateral, if any, to be returned by a broker with whom it was
deposited. Assets of the Fund freed of restrictions imposed by reason of an
option and collateral returned by a broker shall be held by the Custodian in
the general account of the proper Series of the Fund.
<PAGE>
If a put option sold by a Series of the Fund is exercised, the Fund shall
promptly furnish the Custodian with Written or Oral Instructions stating: (a)
that the Custodian shall make payment for the related investment or a cash
payment as the case may be, subject to the put, (b) a description of the
related investment of a statement of the amount of cash to be delivered, (c)
the identity of the person to whom payment will be made against delivery of
the related investments or to whom the delivery of cash is to be made; (d) the
assets, if any, to be removed from the Option Account and/or the collateral,
if any, to be returned by a broker with which it was deposited, such assets
and collateral to be held by the Custodian in the general account of the
proper Series of the Fund.
e. If a put sold by a Series of the Fund is exercised, the Fund shall
promptly furnish the Custodian with Written or Oral Instructions stating (i)
that the Custodian shall make payment for the related investments subject to
the put or a cash payment as the case may be; (ii) a description of the
related investment of a statement of the amount of cash to be delivered; (iii)
the identity of the person to whom payment will be made against delivery of
the related investment or to whom the delivery of cash is to be made; and (iv)
the assets, if any, to be removed from the Option Account and/or the
collateral, if any, to be returned by a broker with which it was deposited,
such assets and/or collateral to be held by the Custodian in the general
account of the proper Series of the Fund,
f. If the Instructions indicate that the option transaction in question
is a closing purchase transaction, the Custodian shall, upon (i) payment by it
of the premium for the call purchased (if the closing purchase transaction is
as to a call sold by the Fund) or for the put purchased (if the closing
purchase transaction is as to a put sold by the Fund); (ii) (if the closing
purchase transaction is purchase of a call to close out a covered call written
by the Fund) the return and/or cancellation or expiration of any escrow
receipts as to such covered call; and (iii) receipt of Written or Oral
Instructions to do so, take action as to the put or call terminated by the
closing purchase transaction as specified for expired options in c. above.
g. If any put or call held by a Series of the Fund is to be exercised
by the Fund, such exercise must be the subject of Written or Oral Instructions
received by the Custodian not later than its close of business of the last
business day before the last day on which the option may be exercised. (This
shall not affect the right of the Fund to sell any put or call held by it at
any time prior to its lapse or to permit any put or call held by it to lapse
unexercised.) Such Instruction shall (i) identify the put or call held by the
Fund being exercised by it including the exercise price the related
investments and the broker which is the other party to the transaction; (ii)
in the case of the exercise of the Fund of a put, instruct the Custodian to
deliver the related investments to such broker against receipt of the exercise
price from such broker or to receive cash from such broker, as the case may
be, the amount of such cash to be specified in such Instructions; and (iii) in
the case of the exercise by the Fund of a call, instruct the Custodian to
deliver the exercise price to such broker against receipt from such broker of
the related investments; the Custodian shall then take action as to the put or
call exercised as specified for expired options.
h. The Custodian shall be under no duty or obligation to see that the
Fund has deposited or its maintaining adequate margin, if required, with any
broker in connection with an option nor shall the Custodian be under duty or
obligation to present such option to the broker unless it receives Written or
<PAGE>
Oral Instructions from the Fund. The Custodian shall have no responsibility
for the legality of any put or call option purchased or sold on behalf of the
Fund, the propriety of any such purchase or sale, and the adequacy of any
collateral delivered to a broker in connection with an option or held in the
Option Account. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation (i) to periodically check or notify
the Fund that the amount of such collateral held by broker or assets held in
the Option Account is sufficient to protect such broker or the Fund against
any loss, (ii) to effect the return of any collateral delivered to a broker,
or (iii) to advise the Fund @ any option it holds, has or is about to expire.
Such duties or obligations shall be the sole responsibility of the Fund.
Section 14. The Custodian is authorized and directed to take action as
to puts, calls, and future contracts ("Futures ") purchased or sold by the
Fund which are traded on commodities exchanges as set forth in this Section
14.
(a) If a Series of the Fund purchases or sells Futures or a put or call
traded on a commodities exchange, it will, in connection with such purchase or
sale of a Future deliver to the Custodian Written or Oral Instructions which
describe the Future in question including (i) the investment to which the
Future relates, (the "related investment"); (ii) the nature and amount of
initial margin; and (iii) the identity of the futures commission merchant
("FCM"); see (c) below as to the procedures as to puts and calls. The
Custodian shall thereupon establish an account (the "FCM Account") in the name
of such FCM, unless an FCM Account has already been established for such FCM.
The FCM Account shall contain cash or cash equivalents, including open-end
Investment Company Securities other than Shares, which equal at least the sum
of the aggregate value of the margin required to be established or maintained
on all future contracts through such FCM owned by the Fund, marked to market
each day. The Custodian shall permit access to the assets in the FCM Account
only by the FCM (except for payments to the Fund's general account on
Instructions from the Fund)and only if the FCM states to the Custodian orally
with written confirmation that the Fund is in default on an obligation to
perform, that all conditions precedent to the eight of the FCM to direct
disposition have been satisfied and that disposition is for a proper purpose.
Upon receipt of Written or Oral Instructions to do so, the Custodian shall
make deposits in and withdrawals a specified and segregated FCM Account in
connection with initial and variation margin and excess margin, including
deposits and withdrawals in connection with the closing out of Futures and the
taking or making of delivery pursuant to any Future. Upon receipt of Written
or Oral Instructions to do so, the Custodian shall make payments to a clearing
corporation if such corporation has made payments to an FCM on behalf the
Fund.
(b) In connection with the purchase of Futures and calls on Futures, the
Custodian shall, on receipt of Written or Oral Instructions to do so,
segregate from the general assets of the Fund and hold in a segregate from the
general assets of the Fund and hold in a segregated sub-account (the "Futures
Account ") an amount and kind of assets indicated in such Instructions and
consistent with the Fund's exemptive order from the United States Securities
and Exchange Commission and shall increase or decrease the assets in the
Futures Account, the Custodian shall segregate assets of the required value
from the Fund's general custodian accounts equal in value to at least the sum
of the aggregate value of all Futures Contracts of the Fund, market to market
each day, less than amount of margin deposits with respect thereto, such
assets being free of any allocation to support any other options or Futures
obligations of the Fund. The Fund may direct the substitution of any
qualified asset in its general accounts for any segregated asset in its Future
Accounts.
<PAGE>
(c) The procedures and responsibilities as to puts and calls as set
forth in Section 13 shall also apply to puts and calls covered by this Section
14 except that (i) references to brokers shall be deemed to refer to FCM; and
(ii) reference to collateral shall be deemed to refer to initial and variation
margin, and collateral shall not be delivered or received from a broker but
initial and variation margin shall be deposited to or withdrawn from the
applicable FCM Account; (iii) reference to the Option Account shall be deemed
to refer to the Futures Account.
(d) Nothing herein contained shall prevent the Custodian, the Fund and
any FCM from entering into any agreement or agreements (to which the Fund's
investment adviser may also be a party) not inconsistent herewith relating to
Futures and/or puts and calls traded on commodities exchanges.
(e) The responsibilities and liabilities of the Custodian as to Futures,
puts and c@ traded on commodities exchanges, any FCM Account and the Futures
Account shall be limited as set forth in paragraph (h) of Section 13 as if
such paragraph referred to an FCM Account, instead of margin, FCMs rather than
brokers, Futures and puts and calls traded on commodities exchanges rather
than puts and calls there covered and the Futures Account rather than the
Option Account.
Section 15. The Custodian assumes no duty, obligation or
responsibility whatsoever to exercise any voting or consent powers with
respect or the Securities held by it from time to time hereunder, it being
understood that the Fund or such person or persons as it may designate, shall
have the right to vote, or consent or otherwise act with respect to such
Securities. The Custodian will exercise its best efforts to furnish to the
Fund in a timely manner proxies or other appropriate authorization with
respect to Securities registered in the name of the Custodian or its nominee
so that such voting powers, or powers to consent to or otherwise act may be
exercised by the Fund or pursuant to its direction.
Section 16. The Custodian's compensation shall be as set forth in
Schedule A hereto attached, or as shall be set forth in amendments to such
Schedule approved in writing by the Fund and the Custodian.
Section 17. Custodian will exercise its best efforts to handle,
forward, or process in a prompt and timely manner notices of stockholder
meetings, proxy statements, annual reports, conversion notices, call notices,
or other notices or written materials of any kind sent to the registered
owners of securities (hereinafter referred to as "notices and materials"), it
being understood that the Fund and its investment adviser have primary
responsibility for reviewing such notices and materials, and for taking action
thereon. The Custodian will make reasonable efforts to promptly forward such
notices and materials as it receives them to the Fund, but makes no warranty
or representation that all notices and materials have not been timely received
by Custodian.
Upon receipt by the Custodian of warrants or rights issued in connection
with the assets of the Fund, the Custodian shall enter into its ledgers
appropriate notations indicating such receipt and shall notify the firm of
such receipt, but shall not have any obligation to @ any action of any kind
with respect to such warrants or rights except upon receipt of Written or Oral
Instructions from the Fund.
<PAGE>
Section 18. The Custodian assumes no duty, obligation or
responsibility whatsoever with respect to Securities not deposited with the
Custodian, with the exception of Securities deposited with any sub-custodian
appointed by the Custodian. Common stocks or other Securities exchanged for
Shares shall not be considered deposited with the Custodian until physically
received by Custodian in accordance with the provisions of this Agreement.
Custodian does not warrant the effective transfer of any Security until
registration in the name of the Custodian or its nominee has been
accomplished.
Section 19. The Custodian acknowledges and agrees that all books and
records maintained for the Fund in any capacity under this Agreement are
confidential and the property of the Fund. They may be inspected by the Fund,
or any authorized regulatory agency, at any reasonable time, and upon request
will be surrendered promptly to the Fund. The Custodian shall provide the
Fund with immediate notice of any request for review of the Fund's books and
records, and no party will be allowed access to such books and records unless
such prior notice has been given and consent has been received from the Fund
unless otherwise required by law, regulation, or court order; the Custodian
will immediately notify the Fund of any such examination in progress. The
Custodian agrees to make available upon request and to preserve for the
periods prescribed in Rule 3la-2 under the Investment Company Act of 1940 any
records relating to services provided under this Agreement which are required
to be maintained by Rule 3la-1 under said Act.
Section 20. The Custodian assumes only the usual duties and
obligations normally performed by custodians of mutual funds. It specifically
assumes no responsibility for the management, investment or reinvestment of
the Securities from time to time owned by the Fund whether or not on deposit
hereunder, it being understood that the responsibility for the proper and
timely management, investment and reinvestment of said Securities shall be
that of the Fund and its investment advisor.
The Custodian shall not be liable for any taxes, assessments or
governmental charges which may be levied or assessed upon the Securities held
by it hereunder, or upon the income therefrom or otherwise whatsoever. The
Custodian may pay any such tax, assessment or charge and reimburse itself out
of the moneys of the Fund or out of the Securities held hereunder; provided,
however, the Custodian shall consult the officers of the Fund before making
any such payment.
The Fund shall indemnify the Custodian and save it harmless from any and
against any and all actions, suits and claims whether groundless or otherwise,
arising directly or indirectly to of or in connection with its performance
under this Agreement and from and against any and all losses, damages, costs,
charge, counsel fees, payments, expenses and liabilities incurred by the
Custodian in connection with any such action, suit or claim except as shall
arise out of the negligence or willful misconduct of the Custodian, its
officers, agents or employees. The Custodian shall not be under any obligation
to prosecute or to defend any action, suit or claim arising out of or in
connection with its performance under this Agreement, which, in the opinion of
its counsel, may involve it in expense or liability, and the Fund shall, so
often as reasonably requested, furnish the Custodian with satisfactory
indemnity against such expense or liability, and upon request of the Custodian
the Fund shall assume the entire defense of any action, suit or claim subject
to the foregoing indemnity; provided, however, that the Custodian shall give
the Fund written notice, and reasonable opportunity to defend. any such
action, suit, or claim, in the name of the Fund or the Custodian or both.
<PAGE>
Without limitation of the foregoing:
(a) The Custodian may rely upon the advice of counsel, who may be
counsel for the Fund or counsel for the Custodian and upon statements of
accountants, brokers and other persons believed by it in good faith to be
expert in the matters upon which they are consulted and for any actions taken
in good faith upon such statements, the Custodian shall not be liable to
anyone.
(b) The Custodian shall not be liable for any action taken in good faith
reliance upon any Written or Oral Ion or certified copy of any resolution of
the Board of Trustees of the Fund, and the Custodian may rely upon the
genuineness of any such document or copy there of believed in good faith by
the Custodian to have been validly executed.
(c) The Custodian may rely and shall be protected in acting upon any
signature, instruction, opinion of counsel, statement, instrument, report,
notice, consent, order, authorization or other paper or document believed by
it to be genuine and to have been signed or presented by the Fund or other
proper party or parties.
Section 21. The Custodian is empowered to appoint one or more U.S.
banking instructions as Sub-Custodian including but not limited to, U.S. banks
located in foreign countries) of Securities and moneys at any time owned by
the fund to permit Custodian to effectively perform the duties called for
hereunder. Upon receipt of Written or 0ral Instructions, directing or
approving such appointment, the Custodian shall incur no liability to the Fund
or any other person by reason of any act or omission of any Sub-Custodian so
approved or appointed by the Fund and the Fund shall indemnify the Custodian
and save it harmless from any and against any and all actions, suits and
claims, whether groundless or otherwise and from and against any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising directly or indirectly out of or in connection with the
performance of any Sub-Custodian approved or appointed by the Fund. The
Custodian shall not be under any obligation to prosecute or to defend any
action, suit or claim arising out of or in connection with the performance of
any Sub-Custodian approved or appointed by the Fund, which, in the opinion of
its counsel, may involve it in expense or liability, and the Fund shall, so
often as reasonably requested, furnish the Custodian with satisfactory
indemnity against such expense or liability, and upon request of the
Custodian, the Fund shall assignee the entire defense of any action, suit or
claim subject to the foregoing indemnity.
The Fund shall pay all fees and expenses of any Sub-Custodian approved or
appointed by the Fund, to the extent that such fees or expenses have not been
paid to the Custodian for the performance of the services so provided by the
Sub-Custodian.
Section 22. This Agreement may be amended from time to time without
notice to or approval of the Shareholders by a written supplemental agreement
executed by the Fund and the Custodian and amending and supplementing this
Agreement in a manner mutually agreed.
Section 23. Either the Fund or the Custodian may give written notice to
the other of the termination of this Agreement, such termination to take
effect at the time specified in the notice which shall not be earlier than
sixty (60) days after the date of giving such notice. In case such notice of
<PAGE>
termination is given either by the Fund or by the Custodian, the Fund shall
use its best efforts to obtain a qualified successor custodian. If the Fund
cannot obtain a qualified successor custodian, then the Board of Trustees of
the Fund shall, by resolution duly adopted, promptly designate the Fund as its
own custodian. Each successor custodian shall be a person qualified to so act
under the Investment Company Act of 1940, as amended. Upon receipt of written
notice from the Fund of the appointment of such successor and upon receipt of
Written or Oral Instructions, the Custodian shall deliver such Securities and
cash as it may then be holding hereunder directly to and only to the successor
custodian. Unless or until a successor custodian has been appointed as above
provided, the Custodian then acting shall continue to act as Custodian under
this Agreement. Every successor custodian appointed hereunder shall execute
and deliver an appropriate written acceptance of its appointment and shall
thereupon become vested with the rights, powers, obligations and custody of
its predecessor Custodian. The Custodian ceasing to act shall nevertheless,
upon request of the Fund and successor custodian and upon payment of its
charges and disbursements, execute an instrument in form approved by its
counsel transferring to the successor custodian all the predecessor
Custodian's rights, duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto, without the execution or filing of
any papers or documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
Section 24. Nothing contained in this Agreement is intended to or shall
require the Custodian in any capacity hereunder to perform any functions or
duties on any holiday, day or special observance or any other day on which the
Custodian or the New York Stock Exchange is closed unless required by law, and
functions or duties normally scheduled to be performed on such days shall be
performed on, and as of the next succeeding business day on which both the New
York Stock Exchange and the Custodian are open.
Section 25. This Agreement shall take effect on the date hereof or on
such other date as the parties agree to transfer the Fund's assets to the
Custodian.
Section 26. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instruments.
Section 27 This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of its Board of Trustees.
Section 28. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement
to be signed by their respective Presidents or Vice Presidents and their
corporate seals hereunto duly affixed, and attested by their respective
Secretaries of Assistant Secretaries, as of the day and year first above
written.
THE HOMESTATE GROUP
By:/s/
Scott L. Rehr, President
CORESTATES BANK, N.A.
By:/s/
Sheila E. Kavanagh, Vice President
Attest:/s/
Travs Bradley, Vice President
<PAGE>
Exhibit 8(b)
CUSTODIAN AGREEMENT
This Agreement, dated as of the ____ day of ______ made by and between
THE HOMESTATE GROUP (the "Fund"), a corporation operating as an open-end
investment company, duly organized and existing under the laws of the
Pennsylvania and CoreStates Bank, N.A. (the "Custodian"), a national banking
association duly organized and existing under the laws of the United States of
America;
WITNESSETH THAT:
WHEREAS, the HOMESTATE SELECT OPPORTUNITIES FUND is currently the second
operating series of shares.
WHEREAS, the fund desires to appoint the custodian of the Securities and
principal cash of the Fund and the Custodian is willing to act in such
capacity upon the terms and conditions herein set forth;
WHEREAS, the Custodian in its capacity as custodian hereunder will also
collect and apply the dividends and interest on said Securities in the manner
and to the extent herein set forth; and
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
Section 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have the meanings
herein specified unless the context other requires.
Book-Entry Securities: The term Book-Entry Securities shall mean
securities issued by the Treasury of the United States of America and federal
agencies of the United States of America which are maintained in the book-
entry system ("the book-entry system") as provided in Subpart 0 of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR part 350, and the book-entry
regulations of federal agencies substantially in the form of Subpart 0 and the
term Book-Entry Account shall mean an account maintained by a Federal Reserve
Bank in accordance with the aforesaid Circular and regulations.
Custodian: The term Custodian shall mean CoreStates Bank, N.A. in its
capacity as custodian under this Agreement.
Investment Company Securities: The term Investment Company Securities
shall mean shares of stock or beneficial interest in a regulated investment
company registered under the Investment Company Act of 1940 amended.
Dividend Disbursing Agent: The term Dividend Disbursing Agent shall
mean Fund/Plan Services, Inc. A shareholder servicing corporation providing a
broad range of services which includes the distribution of dividends to fund
shareholders.
Investment Company Securities Transaction: The term INVESTMENT COMPANY
SECURITIES TRANSACTION shall mean the purchase, sale or redemption of the
account of the Fund of Investment Company Securities.
<PAGE>
Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to the Custodian in person or by telephone, telegram,
telecopy or other mechanical or documentary means lacking original signature,
by a person or persons reasonably believed in good faith by the Custodian to
be a person or persons authorized by a resolution of the Board of Trustees of
the Fund to give Oral Instructions on behalf of the Fund.
Securities: The term Securities shall mean bonds, debentures, notes,
stocks, shares, evidence of indebtedness, and other securities and investments
from time to time owned by the Fund, including but not limited to Investment
Company Securities, options, stock index futures, and options on such stock
index futures.
Securities Depository: The term Securities Depository shall mean a
system for the central handling of securities where all securities of any
particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of the securities.
Series: The term Series shall mean the HOMESTATE SELECT OPPORTUNITIES
FUND.
Shareholders: The term Shareholders shall mean the registered owners
from time to time of the Shares of any Series of the Fund in accordance with
the stock registry records of the Fund.
Shares: The term Shares shall mean the issued and outstanding shares of
common stock of any Series of the Fund.
Stock Index Futures: This tern Stock Index Future shall mean futures
contracts on stock indices.
Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to the Custodian in original writing containing original
signatures or a copy of such document transmitted by telecopy including
transmission of such signature, reasonably believed in good faith by the
Custodian to be the signature of a person authorized by a resolution of the
Board of Trustees of the Fund to give Written Instructions on behalf of the
Fund.
Section 2. The Fund shall from time to time file with the Custodian a
certified copy of each resolution of its Board of Trustees authorizing
execution of Written Instructions and specifying the number of signatories
required, together with certified signatures of the officers and other
signatories authorized to sign, which shall constitute conclusive evidence of
the authority of the officers and other signatories designated therein, and
shall be considered in full force and effect with the Custodian fully
protected in acting in reliance thereon until it receives a new certified copy
of a resolution adding or deleting a person or persons with authority to give
Written Instructions. If the certifying officer is authorized to sign Written
Instructions, the certificate shall also be signed by a second officer of the
Fund.
The Fund shall from time to time file with the Custodian a certified copy of
each resolution of its Board of Trustees authorization the transmittal of Oral
Instructions and specifying the person or persons authorized to give Oral
<PAGE>
Instructions and the matter or matters which may be the subject of any such
instruction in accordance with this Agreement. Any resolution so filed with
the Custodian shall be considered in full force and effect and the Custodian
shall be fully protected in acting in reliance thereon until it actual
receives a new certified copy of a resolution adding or deleting a person or
persons with authority to give Oral Instructions or revising matters so
provided. If the certifying officer is authorized to give Oral Instructions,
the certification shall also be signed by a second officer of the Fund.
Section 3. For all purposes under this Agreement, the Custodian is
authorized to act upon receipt of the first of any Written or Oral
instructions it receives. In cases where the first Instruction is an Oral
Instruction that is not in the form of a document or written record, the Fund
shall be responsible for delivering, or having delivered to the Custodian, a
confirmatory Written Instruction or Oral Instruction the form of a document or
written record, and in cases where the Custodian receives an Instruction,
whether Written or Oral, with respect to a portfolio transaction (other than
an Investment Company Securities Transaction or a transaction involving a
transfer on the books of a Securities Depository) the Fund shall cause the
broker or dealer to send a written confirmation to the Custodian. The
Custodian shall be entitled to rely on the first Instruction received and, for
any act or omission undertaken in compliance therewith, shall be free of
liability and fully indemnified and held harmless by the Fund. The Custodian
shall if practicable act upon and comply with any subsequent Written or Oral
Instruction which modifies such first Instruction. The obligation of the
Custodian with respect to any follow-up or confirmatory Written Instruction,
Oral Instruction in documentary or written form, or broker-dealer written
confirmation shall be to make reasonable efforts to detect any discrepancy
between the original Instruction and such confirmation and to report such
discrepancy to the Fund. The Custodian shall also be responsible for taking
any action necessary with respect to any timely follow-up Written or Oral
Instruction which countermands or modifies a Written or Oral Instruction.
The Fund shall be responsible, at the Fund's expense, for taking any action,
including any reprocessing, necessary to correct any discrepancy or error and,
to the extent such action requires the Custodian to act, the Fund shall give
the Custodian specific Written Instructions as to the action required.
Section 4. The Fund hereby appoints the Custodian as custodian of the
Securities and cash from time to time on deposit hereunder, to be held by the
Custodian and applied as provided in this Agreement. The Custodian hereby
accepts such appointment subject to the terms and conditions hereinafter
provided. The Securities held by the Custodian shall, unless payable to
bearer or maintained in a Securities Depository or Book-Entry Account pursuant
to Section 5, be registered in the name of the Custodian or in the name of its
nominee. Securities, excepting bearer securities delivered from time to time
to the Custodian upon purchase or otherwise shall in all cases be in due form
for transfer or already registered as above provided. Such Securities and
cash of any Series of the Fund shall, however, be and remain the sole
property of the acquiring Series of the Fund and the Custodian shall have only
the bare custody thereof.
Section 5. The Fund hereby authorizes the Custodian to deposit with a
bank located in the United States assets held in the Option Account created
pursuant to Section 13 or Futures Account pursuant to Section 14 and to (a)
deposit in its account(s) with any Securities Depository registered as a
Clearing Agency under Section 17A of the Securities Exchange Act of 1934, all
or any part of the Securities as may from time to time be held for the Fund,
<PAGE>
and (b) deposit Book-Entry Securities belonging to the Fund in a Book-Entry
Account which is maintained for the Custodian by a Federal Reserve Bank and
(c) hold Investment Company Securities in the name of the Custodian or its
nominee in the form of an account on the books of the respective investment
company issuer. So long as any deposit referred to in (a), (b) or (c) above
is maintained for the Fund, the Custodian:
(i) shall deposit the Securities in an account that includes only
assets held by it for customers;
(ii) shall, with respect to Securities transferred to the account
of the Fund, identify as belonging to the proper Series of
the Fund a quantity of securities in a fungible bulk of
securities (i) registered in the name of the Custodian or its
nominee, or (ii) shown on the Custodian's account on the
books of the Securities Depository, the Book-Entry System,
the Custodian's agent, or the respective investment company
issuer; and
(iii) shall send to the Fund such reports of the systems of
internal accounting control of the Custodian and its agents
through which such Securities are deposited as are available
and as the Fund may reasonably request from time to time.
The Fund warrants that its Board of Trustees has approved the arrangement
for the deposit of Securities in a Securities Depository and the Book-Entry
System and the holding of Investment Company Securities in the name of the
Custodian or its nominee in an account on the books of the Investment Company
issuer.
Section 6 The Fund will initially transfer and deposit or cause to be
transferred and deposited with the Custodian all of the Securities and cash
owned by each Series of the Fund at the time this Agreement becomes effective.
Such deposit shall be evidenced by appropriate schedules duly executed by the
Fund and the Fund agrees that it is solely responsible for the accuracy of
said schedule. The Fund will cause to be deposited with the Custodian
additional Securities of each Series of the Fund as the same are purchased or
otherwise acquired from time to time, and any dividends or interest collected
on such Securities.
Thereafter the Fund will cause to be deposited with the Custodian
hereunder the net proceeds of Securities sold or redeemed from time to time.
Section 7 The Custodian is hereby authorized and directed to disburse
cash from time to time as follows:
(a) for the purpose of payment for the purchase of Securities purchased
by any Series of the Fund, upon receipt by the Custodian of both (i) Written
or Oral Instructions identifying the acquiring Series, specifying the
Securities and stating the purchase price, and the name of the broker,
investment banker or other party to or upon whose order the purchase price is
to be paid, and (ii) except in respect to Investment Company Securities, the
Securities so purchased in due form for transfer or already registered as
provided in Section 4, provided, however, that the Custodian may make payment
for Securities on deposit with a Securities Depository and Book-Entry
Securities at such times as the Custodian enters a credit in the account it
maintains for the proper Series of the Fund to the effect that it has accepted
delivery of such Securities on behalf of that Series of the Fund;
<PAGE>
(b) for the purpose of transferring funds in connection with a
repurchase agreement, upon receipt by the Custodian of (i) Written or Oral
Instructions identifying the Series, specifying the Securities, the purchase
price and the party to whom the purchase price is to be paid and (ii) written
evidence of the identity of the party obligated to repurchase the Securities
from the Fund;
(c) for the purpose of transferring funds to a duly designated
redemption paying agent to redeem or repurchase Shares, upon receipt of
Written or Oral Instructions identifying the Series issuing such Shares and
stating the applicable redemption price thereof;
(d) for the purpose of exercising warrants and rights received upon the
Securities, upon timely receipt of Written or Oral Instructions authorizing
the exercise of such warrants and rights and stating the consideration to be
paid by the acquiring Series;
(e) for the purpose of repaying in whole or in part any loan of the
Fund, upon receipt of Written or Oral Instructions directing payment and
stating the Securities, if any, to be received against payment;
(f) for the purpose of paying over to a duly designated Dividend
Disbursing Agent such amounts as may be stated in Written or Oral
Instructions, representing proceeds of the sale of warrants, rights, stock
dividends, profit and increases in values of the Securities of a Series, as
the Fund may determine to include in dividends and/or distribution declared on
the Shares of such Series;
(g) for the purpose of making or reimbursing the Fund for other
corporate expenditures upon receipt of Written or Oral Instructions stating
that such expenditures were authorized by resolution of the Board of Trustees
of the Fund and are or were for proper corporate purposes, and specifying the
amount of payment, the purpose for which such payment is to be made, naming
the person or persons to whom payment is to be made, and allocating the
payment to the Series of the Fund chargeable therewith in whole or in part;
(h) for the purpose of transferring funds to any Sub-Custodian, upon
receipt of Written or Oral Instructions from the Fund;
(i) in connection with puts and calls traded on securities exchanges as
set forth in Section 14;
(j) as set forth in Section 9; or
(k) for the purpose of payment for the purchase of Investment Company
Securities purchased by any Series of the Fund, upon receipt by the Custodian
of Written or Oral Instructions specifying the Securities and stating the
purchase price and the name of the broker, investment banker or other party to
or upon whose order the purchase price is to be paid.
Section 8. The Custodian is hereby authorized and directed to deliver
Securities of any
Series of the Fund from time to time as follows;
(a) for the purpose of exchanging Investment Company Securities for
other Investment Company Securities within the same Investment company complex
of funds,'
<PAGE>
(b) for the purpose of redeeming Investment Company Securities owned for
the account of any Series of the Fund, upon receipt by the Custodian of
Written or Oral Instructions specifying the Securities and stating the amounts
of the proceeds to be received for the account of the Series, the approximate
time of receipt and the manner of payments;
(c) for the purpose of completing sales of Securities other than
redemption of Investment Company Securities sold by any Series of the Fund,
upon receipt of both (i) the net proceeds of sale and (ii) Written or Oral
Instruction specifying the Securities sold and stating the amount to be
received and the broker, investment banker or other party to or upon whose
order the Securities are to be delivered provided, however, that the Custodian
may accept payment owing in connection with the disposition by the Fund of
Securities on deposit with a Securities Depository and Book-Entry Securities,
by means of a credit in the appropriate amount to the account described in
Section 5 hereof;
(d) for the purpose of exchanging Securities for other Securities and/or
cash upon timely receipt of (i) Written or Oral Instructions stating the
Securities to be delivered and the Securities and/or cash to be received in
exchange and the manner in which the exchange is to be made, and (ii) against
receipt of the other Securities and/or cash as specified in the Written or
Oral Instructions.
(e) for the purpose of exchanging or converting Securities pursuant to
their terms or pursuant to any plan of conversion, consolidation,
recapitalization, reorganization, readjustment or otherwise, upon timely
receipt of (i) Written or Oral Instructions authorizing such exchange or
conversion and stating the manner in which such exchange or conversion is to
be made, and (ii) the Securities, certificates of deposit, interim receipts,
and/or cash to be received as specified in the Written or Oral Instructions;
(f) for the purpose of presenting Securities for payment which have
matured or have been called for redemption;
(g) for the purpose of delivery of Securities of a Series upon
redemption of Shares of that Series in kind, upon receipt (i) of Share
Certificates of such Series in due form for transfer, or proper processing of
such Shares for which no Share Certificates are outstanding, and (ii)
appropriate Written or Oral Instructions;
(h) for the purpose of depositing with a lender Securities of a Series
to be held as collateral for a loan to that Series of the Fund upon receipt of
Written or Oral Instructions on directing delivery to the lender;
(i) upon receipt of Written or Oral Instructions stating (i) the
Securities to be delivered and the payment to be received and (ii) payment, in
connection with any repurchase agreement related to such Securities; or
Section 9. The Custodian will collect from time to time the dividends
and interest on the Securities held by it hereunder and will deposit the same
for the benefit of the proper Series of the Fund until disbursed as
hereinafter provided.
The Custodian is authorized to advance or pay out of the income account
of any Series cash accrued interest on bonds purchased and dividends on stocks
sold and like items.
<PAGE>
Subject to proper reserves for dividends owing stocks sold and like
items, the Custodian will disburse the money from time to time on deposit for
the Fund to or upon the order of the Fund as it may from time to time direct
for the following purposes:
(a) to pay the proper compensation and expenses of the Custodian;-
(b) to transfer funds to a duly designated Dividend Disbursing Agent to
pay dividends and/or distributions which may be declared by The Fund on any
Shares of any Series upon receipt of appropriate Written or Oral Instructions;
(c) to pay or provide the Fund with money to pay taxes upon receipt of
appropriate Written or Oral Instructions;
(d) to transfer funds to a separate checking account maintained by the
Fund pursuant to Section 17(f) of the Investment Company Act of 1940, as
amended;
(e) to pay interest, management or supervisory fees, administration,
dividend and transfer agency fees and costs, compensation of personnel, or
operating expenses (including, without limitation thereto, fees for legal,
accounting and auditing services), and to disburse cash for other purposes
charging any or all of such amounts against any Series properly chargeable
therewith upon receipt of Written or Oral Instructions requesting such payment
or disbursement and identifying the Series chargeable therewith.
Section 10. The Fund will cause any bank (including the Custodian)
from which it borrows money using Securities as collateral to deliver to the
Custodian a notice or undertaking in the form currently employed by such bank
setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian Written or Oral Instructions identifying the borrowing Series
and stating, for each loan: (a) the name of the bank, (b) the amount and terms
of the borrowing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other loan agreement,
(c) the time and date, if known, on which the loan is to be entered into (the
"borrowing date"), (d) the date on which the loan becomes due and payable, (e)
the total amount payable to the borrowing Series of the Fund on the borrowing
date, and (f) the market. value of Securities of such Series to be delivered
as collateral for such loan, including the name of the issuer, the title and
the number of shares or the principal amount of any particular Securities.
The Custodian shall deliver on the borrowing date such specified collateral
and the executed promissory note, if any, against delivery by the lending bank
of the total amount of the loan payable, provided that the same confirms to
the total amount as set forth in the Written or Oral Instructions. The
Custodian may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein given
the lending bank by virtue of any promissory note or loan agreement.
The Custodian shall deliver from time to time such Securities as
additional collateral as may be specified in Written or Oral Instructions, to
collateralize further any transaction described in this section. The Fund
shall cause all Securities released from collateral status to be returned
directly to the Custodian.
In the event that Written or Oral Instructions fail to specify the name
of the issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by the Custodian, the
<PAGE>
Custodian shall not be under any obligation to deliver any particular
Securities.
Section 11. If the Custodian should in its sole discretion advance
funds on behalf of a Series of the Fund which results in an overdraft because
the moneys held by the Custodian for the account of that Series of the Fund
shall be insufficient to pay the total amount payable upon purchase of
Securities or which results in an overdraft for some reason or if such Series
of the Fund is for any other reason indebted to the Custodian, such overdraft
or indebtedness shall be deemed to be a loan made by the Custodian to that
Series of the Fund payable on demand and bearing interest at the current rate
charged by the Custodian for such loans. The Fund hereby agrees that the
Custodian shall have a continuing lien and security interest in and to any
property at any time held by it for the benefit of the Fund or in which that
Series of the Fund may have an interest which that Series of the Fund may have
an interest which is then in the Custodian's possession or control or in
possession or control of any third party acting on the Custodian's behalf to
the extent of any such overdraft or indebtedness. The Fund authorizes the
Custodian, in its sole discretion at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to such Series' credit on the Custodian's books; provided, however,
that the Custodian may not charge any amounts against the balance of account
to the Series' credit unless it has notified the Fund of the overdraft prior
to the making of such charges.
Section 12. Upon receipt of Written or Oral Instructions, the
Custodian will execute, or cause a sub-custodian or agent to execute, an
escrow receipt relating to any covered call written by a Series of the Fund,
and will deliver such escrow receipt against payment of the premium therefor.
Such Instructions shall contain all information necessary for the issuance of
such receipt and will authorize the deposit of the Securities specified
therein into an escrow account of the proper Series of the Fund. Securities
so deposited into an escrow account will be held by the Custodian or sub-
custodian or agent subject to the terms of such escrow receipt. However, the
Custodian agrees that it will not deliver, or cause a sub-custodian or agent
to deliver, any Securities deposited in an escrow account pursuant to an
exercise notice unless it has received Instructions to do so or (i) it has
duly requested the issuance of such Instructions; (ii) at least two business
days have elapsed since the delivery of such request to the Fund; and (iii)
the Fund has not advised it that the Fund has purchased Securities that are to
be delivered pursuant to the exercise notice. The Fund agrees that it will
not issue any Instructions which shall conflict with the terms of any escrow
receipt executed by the Custodian or a sub-custodian or agent in relation to
the Fund which is then in effect. The parties agree that the Custodian need
not maintain any written evidence of any call written by the Fund as part of
its duties under this Agreement. The parties also agree that a Series of the
Fund may write calls on Securities ("underlying securities") which are not
owned by that Series of the Fund and issue Instructions to the Custodian to
execute, or cause a sub-custodian or agent to execute, an escrow receipt on
Securities ("convertible securities") which are, or are to be, owned by such
Series and are convertible into the underlying securities. In such event, the
parties agree that any Instructions as to the execution of the escrow receipt
will relate only to such convertible securities but that any Instructions as
to the delivery of such Securities may instruct the Custodian to convert the
same.
Section 13. a. If a Series of the Fund purchases or sells (writes) a put
option contract ("put") or call option contract ("call"), which is traded on
<PAGE>
securities exchanges or quoted on the automatic quotation system of the
National Association of Securities Dealers, Inc., the Fund will, in connection
with such purchase or sale, deliver to the Custodian Written or Oral
Instructions which identify such Series, describe the put or call in question
including (i) whether the contract in question is a put or call and whether
the put or call has been purchased or sold by the Fund, (ii) the exercise
price, the expiration date and the amount of premium to be paid or received,
(iii) if a premium; is to be paid by the Fund, the identity of the broker and
the documentation to be provided by such broker against receipt by the broker
of the premium; (iv) if a premium is to be received by the Fund, the identity
of the paying broker; (v) a description of the investment to which the put or
call relates, (vi) if the transaction is a closing purchase or sale
transaction, the documentation or cash to be delivered to the broker through
which the transaction was made; and (vii) in the case of a call sold by a
Series of the Fund, whether the call is covered.
b. If the option sold is a put or uncovered call, the Written or Oral
Instructions shall also state either (a) the amount and kind of collateral
required by the broker, which amount shall be delivered directly to the broker
through whom such option was written in return for both a receipt issued by
such broker and a confirmation by such broker of the option transaction at
such times and in such manner as is in accordance with the customs prevailing
among brokers in such securities or (b) the amount and kind of assets of the
Series, if any, which shall be segregated from the general assets of that
Series and shall be held by the Custodian in a segregated option account (the
"Option Account"). The Custodian shall set up and maintain the Option Account
as it shall be directed by Written or Oral Instructions and shall increase or
decrease the assets in such Option Account only as it shall be so directed by
subsequent Written or Oral Instructions.
c. If an option contract purchased or sold by a Series expires, the
Fund will deliver to the Custodian Written or Oral Instructions containing the
information specified in paragraph a. above and instruct the Custodian to (a)
delete such option contract from the list of holdings that the Custodian
maintains for the Series if it is a put or call held by the Series and (b) to
either remove from the Option Account the assets held therein with respect to
such option (which assets shall be specified in such Written or Oral
Instructions), or to remove the restriction on any securities underlying a
covered call, as the case may be. Upon the return and/or cancellation or
expiration of any escrow receipts, the Custodian shall remove such
restrictions, delete the option from the list of holdings maintained by the
Custodian for the benefit of the Series. Collateral delivered by a broker
with whom it was previously deposited shall, if identical with the collateral
specified in the receipt previously issued by such broker, be accepted by the
Custodian and held in the general account maintained by the Custodian for the
benefit of the Series. The Custodian shall accept delivery of collateral not
specified in such a receipt only upon receipt of Written or Oral Instructions.
d. If a call option sold by a Series of the Fund is exercised, the Fund
shall promptly furnish the Custodian with Written or Oral Instructions
stating: (a) that the Custodian shall deliver the related investments or cash;
(b) a description of the related investments or a statement of the amount of
cash to be delivered; (c) the person to whom the delivery is to be made; (d)
the amount, if any to be received by the Custodian to hold for the Fund upon
such delivery; and (e) the assets, if any, to be removed from the Option
Account or the collateral, if any, to be returned by a broker with whom it was
deposited. Assets of the Fund freed of restrictions imposed by reason of an
option and collateral returned by a broker shall be held by the Custodian in
the general account of the proper Series of the Fund.
<PAGE>
If a put option sold by a Series of the Fund is exercised, the Fund shall
promptly furnish the Custodian with Written or Oral Instructions stating: (a)
that the Custodian shall make payment for the related investment or a cash
payment as the case may be, subject to the put, (b) a description of the
related investment of a statement of the amount of cash to be delivered, (c)
the identity of the person to whom payment will be made against delivery of
the related investments or to whom the delivery of cash is to be made; (d) the
assets, if any, to be removed from the Option Account and/or the collateral,
if any, to be returned by a broker with which it was deposited, such assets
and collateral to be held by the Custodian in the general account of the
proper Series of the Fund.
e. If a put sold by a Series of the Fund is exercised, the Fund shall
promptly furnish the Custodian with Written or Oral Instructions stating (i)
that the Custodian shall make payment for the related investments subject to
the put or a cash payment as the case may be; (ii) a description of the
related investment of a statement of the amount of cash to be delivered; (iii)
the identity of the person to whom payment will be made against delivery of
the related investment or to whom the delivery of cash is to be made; and (iv)
the assets, if any, to be removed from the Option Account and/or the
collateral, if any, to be returned by a broker with which it was deposited,
such assets and/or collateral to be held by the Custodian in the general
account of the proper Series of the Fund,
f. If the Instructions indicate that the option transaction in question
is a closing purchase transaction, the Custodian shall, upon (i) payment by it
of the premium for the call purchased (if the closing purchase transaction is
as to a call sold by the Fund) or for the put purchased (if the closing
purchase transaction is as to a put sold by the Fund); (ii) (if the closing
purchase transaction is purchase of a call to close out a covered call written
by the Fund) the return and/or cancellation or expiration of any escrow
receipts as to such covered call; and (iii) receipt of Written or Oral
Instructions to do so, take action as to the put or call terminated by the
closing purchase transaction as specified for expired options in c. above.
g. If any put or call held by a Series of the Fund is to be exercised
by the Fund, such exercise must be the subject of Written or Oral Instructions
received by the Custodian not later than its close of business of the last
business day before the last day on which the option may be exercised. (This
shall not affect the right of the Fund to sell any put or call held by it at
any time prior to its lapse or to permit any put or call held by it to lapse
unexercised.) Such Instruction shall (i) identify the put or call held by the
Fund being exercised by it including the exercise price the related
investments and the broker which is the other party to the transaction; (ii)
in the case of the exercise of the Fund of a put, instruct the Custodian to
deliver the related investments to such broker against receipt of the exercise
price from such broker or to receive cash from such broker, as the case may
be, the amount of such cash to be specified in such Instructions; and (iii) in
the case of the exercise by the Fund of a call, instruct the Custodian to
deliver the exercise price to such broker against receipt from such broker of
the related investments; the Custodian shall then take action as to the put or
call exercised as specified for expired options.
h. The Custodian shall be under no duty or obligation to see that the
Fund has deposited or its maintaining adequate margin, if required, with any
broker in connection with an option nor shall the Custodian be under duty or
obligation to present such option to the broker unless it receives Written or
<PAGE>
Oral Instructions from the Fund. The Custodian shall have no responsibility
for the legality of any put or call option purchased or sold on behalf of the
Fund, the propriety of any such purchase or sale, and the adequacy of any
collateral delivered to a broker in connection with an option or held in the
Option Account. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation (i) to periodically check or notify
the Fund that the amount of such collateral held by broker or assets held in
the Option Account is sufficient to protect such broker or the Fund against
any loss, (ii) to effect the return of any collateral delivered to a broker,
or (iii) to advise the Fund @ any option it holds, has or is about to expire.
Such duties or obligations shall be the sole responsibility of the Fund.
Section 14. The Custodian is authorized and directed to take action as
to puts, calls, and future contracts ("Futures ") purchased or sold by the
Fund which are traded on commodities exchanges as set forth in this Section 14.
(a) If a Series of the Fund purchases or sells Futures or a put or call
traded on a commodities exchange, it will, in connection with such purchase or
sale of a Future deliver to the Custodian Written or Oral Instructions which
describe the Future in question including (i) the investment to which the
Future relates, (the "related investment"); (ii) the nature and amount of
initial margin; and (iii) the identity of the futures commission merchant
("FCM"); see (c) below as to the procedures as to puts and calls. The
Custodian shall thereupon establish an account (the "FCM Account") in the name
of such FCM, unless an FCM Account has already been established for such FCM.
The FCM Account shall contain cash or cash equivalents, including open-end
Investment Company Securities other than Shares, which equal at least the sum
of the aggregate value of the margin required to be established or maintained
on all future contracts through such FCM owned by the Fund, marked to market
each day. The Custodian shall permit access to the assets in the FCM Account
only by the FCM (except for payments to the Fund's general account on
Instructions from the Fund)and only if the FCM states to the Custodian orally
with written confirmation that the Fund is in default on an obligation to
perform, that all conditions precedent to the eight of the FCM to direct
disposition have been satisfied and that disposition is for a proper purpose.
Upon receipt of Written or Oral Instructions to do so, the Custodian shall
make deposits in and withdrawals a specified and segregated FCM Account in
connection with initial and variation margin and excess margin, including
deposits and withdrawals in connection with the closing out of Futures and the
taking or making of delivery pursuant to any Future. Upon receipt of Written
or Oral Instructions to do so, the Custodian shall make payments to a clearing
corporation if such corporation has made payments to an FCM on behalf the
Fund.
(b) In connection with the purchase of Futures and calls on Futures, the
Custodian shall, on receipt of Written or Oral Instructions to do so,
segregate from the general assets of the Fund and hold in a segregate from the
general assets of the Fund and hold in a segregated sub-account (the "Futures
Account ") an amount and kind of assets indicated in such Instructions and
consistent with the Fund's exemptive order from the United States Securities
and Exchange Commission and shall increase or decrease the assets in the
Futures Account, the Custodian shall segregate assets of the required value
from the Fund's general custodian accounts equal in value to at least the sum
of the aggregate value of all Futures Contracts of the Fund, market to market
each day, less than amount of margin deposits with respect thereto, such
assets being free of any allocation to support any other options or Futures
obligations of the Fund. The Fund may direct the substitution of any
qualified asset in its general accounts for any segregated asset in its Future
Accounts.
<PAGE>
(c) The procedures and responsibilities as to puts and calls as set
forth in Section 13 shall also apply to puts and calls covered by this Section
14 except that (i) references to brokers shall be deemed to refer to FCM; and
(ii) reference to collateral shall be deemed to refer to initial and variation
margin, and collateral shall not be delivered or received from a broker but
initial and variation margin shall be deposited to or withdrawn from the
applicable FCM Account; (iii) reference to the Option Account shall be deemed
to refer to the Futures Account.
(d) Nothing herein contained shall prevent the Custodian, the Fund and
any FCM from entering into any agreement or agreements (to which the Fund's
investment adviser may also be a party) not inconsistent herewith relating to
Futures and/or puts and calls traded on commodities exchanges.
(e) The responsibilities and liabilities of the Custodian as to Futures,
puts and c@ traded on commodities exchanges, any FCM Account and the Futures
Account shall be limited as set forth in paragraph (h) of Section 13 as if
such paragraph referred to an FCM Account, instead of margin, FCMs rather than
brokers, Futures and puts and calls traded on commodities exchanges rather
than puts and calls there covered and the Futures Account rather than the
Option Account.
Section 15. The Custodian assumes no duty, obligation or
responsibility whatsoever to exercise any voting or consent powers with
respect or the Securities held by it from time to time hereunder, it being
understood that the Fund or such person or persons as it may designate, shall
have the right to vote, or consent or otherwise act with respect to such
Securities. The Custodian will exercise its best efforts to furnish to the
Fund in a timely manner proxies or other appropriate authorization with
respect to Securities registered in the name of the Custodian or its nominee
so that such voting powers, or powers to consent to or otherwise act may be
exercised by the Fund or pursuant to its direction.
Section 16. The Custodian's compensation shall be as set forth in
Schedule A hereto attached, or as shall be set forth in amendments to such
Schedule approved in writing by the Fund and the Custodian.
Section 17. Custodian will exercise its best efforts to handle,
forward, or process in a prompt and timely manner notices of stockholder
meetings, proxy statements, annual reports, conversion notices, call notices,
or other notices or written materials of any kind sent to the registered
owners of securities (hereinafter referred to as "notices and materials"), it
being understood that the Fund and its investment adviser have primary
responsibility for reviewing such notices and materials, and for taking action
thereon. The Custodian will make reasonable efforts to promptly forward such
notices and materials as it receives them to the Fund, but makes no warranty
or representation that all notices and materials have not been timely received
by Custodian.
Upon receipt by the Custodian of warrants or rights issued in connection
with the assets of the Fund, the Custodian shall enter into its ledgers
appropriate notations indicating such receipt and shall notify the firm of
such receipt, but shall not have any obligation to @ any action of any kind
with respect to such warrants or rights except upon receipt of Written or Oral
Instructions from the Fund.
<PAGE>
Section 18. The Custodian assumes no duty, obligation or
responsibility whatsoever with respect to Securities not deposited with the
Custodian, with the exception of Securities deposited with any sub-custodian
appointed by the Custodian. Common stocks or other Securities exchanged for
Shares shall not be considered deposited with the Custodian until physically
received by Custodian in accordance with the provisions of this Agreement.
Custodian does not warrant the effective transfer of any Security until
registration in the name of the Custodian or its nominee has been
accomplished.
Section 19. The Custodian acknowledges and agrees that all books and
records maintained for the Fund in any capacity under this Agreement are
confidential and the property of the Fund. They may be inspected by the Fund,
or any authorized regulatory agency, at any reasonable time, and upon request
will be surrendered promptly to the Fund. The Custodian shall provide the
Fund with immediate notice of any request for review of the Fund's books and
records, and no party will be allowed access to such books and records unless
such prior notice has been given and consent has been received from the Fund
unless otherwise required by law, regulation, or court order; the Custodian
will immediately notify the Fund of any such examination in progress. The
Custodian agrees to make available upon request and to preserve for the
periods prescribed in Rule 3la-2 under the Investment Company Act of 1940 any
records relating to services provided under this Agreement which are required
to be maintained by Rule 3la-1 under said Act.
Section 20. The Custodian assumes only the usual duties and
obligations normally performed by custodians of mutual funds. It specifically
assumes no responsibility for the management, investment or reinvestment of
the Securities from time to time owned by the Fund whether or not on deposit
hereunder, it being understood that the responsibility for the proper and
timely management, investment and reinvestment of said Securities shall be
that of the Fund and its investment advisor.
The Custodian shall not be liable for any taxes, assessments or
governmental charges which may be levied or assessed upon the Securities held
by it hereunder, or upon the income therefrom or otherwise whatsoever. The
Custodian may pay any such tax, assessment or charge and reimburse itself out
of the moneys of the Fund or out of the Securities held hereunder; provided,
however, the Custodian shall consult the officers of the Fund before making
any such payment.
The Fund shall indemnify the Custodian and save it harmless from any and
against any and all actions, suits and claims whether groundless or otherwise,
arising directly or indirectly to of or in connection with its performance
under this Agreement and from and against any and all losses, damages, costs,
charge, counsel fees, payments, expenses and liabilities incurred by the
Custodian in connection with any such action, suit or claim except as shall
arise out of the negligence or willful misconduct of the Custodian, its
officers, agents or employees. The Custodian shall not be under any obligation
to prosecute or to defend any action, suit or claim arising out of or in
connection with its performance under this Agreement, which, in the opinion of
its counsel, may involve it in expense or liability, and the Fund shall, so
often as reasonably requested, furnish the Custodian with satisfactory
indemnity against such expense or liability, and upon request of the Custodian
the Fund shall assume the entire defense of any action, suit or claim subject
to the foregoing indemnity; provided, however, that the Custodian shall give
the Fund written notice, and reasonable opportunity to defend. any such
action, suit, or claim, in the name of the Fund or the Custodian or both.
<PAGE>
Without limitation of the foregoing:
(a) The Custodian may rely upon the advice of counsel, who may be
counsel for the Fund or counsel for the Custodian and upon statements of
accountants, brokers and other persons believed by it in good faith to be
expert in the matters upon which they are consulted and for any actions taken
in good faith upon such statements, the Custodian shall not be liable to
anyone.
(b) The Custodian shall not be liable for any action taken in good faith
reliance upon any Written or Oral Ion or certified copy of any resolution of
the Board of Trustees of the Fund, and the Custodian may rely upon the
genuineness of any such document or copy there of believed in good faith by
the Custodian to have been validly executed.
(c) The Custodian may rely and shall be protected in acting upon any
signature, instruction, opinion of counsel, statement, instrument, report,
notice, consent, order, authorization or other paper or document believed by
it to be genuine and to have been signed or presented by the Fund or other
proper party or parties.
Section 21. The Custodian is empowered to appoint one or more U.S.
banking instructions as Sub-Custodian including but not limited to, U.S. banks
located in foreign countries) of Securities and moneys at any time owned by
the fund to permit Custodian to effectively perform the duties called for
hereunder. Upon receipt of Written or 0ral Instructions, directing or
approving such appointment, the Custodian shall incur no liability to the Fund
or any other person by reason of any act or omission of any Sub-Custodian so
approved or appointed by the Fund and the Fund shall indemnify the Custodian
and save it harmless from any and against any and all actions, suits and
claims, whether groundless or otherwise and from and against any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising directly or indirectly out of or in connection with the
performance of any Sub-Custodian approved or appointed by the Fund. The
Custodian shall not be under any obligation to prosecute or to defend any
action, suit or claim arising out of or in connection with the performance of
any Sub-Custodian approved or appointed by the Fund, which, in the opinion of
its counsel, may involve it in expense or liability, and the Fund shall, so
often as reasonably requested, furnish the Custodian with satisfactory
indemnity against such expense or liability, and upon request of the
Custodian, the Fund shall assignee the entire defense of any action, suit or
claim subject to the foregoing indemnity.
The Fund shall pay all fees and expenses of any Sub-Custodian approved or
appointed by the Fund, to the extent that such fees or expenses have not been
paid to the Custodian for the performance of the services so provided by the
Sub-Custodian.
Section 22. This Agreement may be amended from time to time without
notice to or approval of the Shareholders by a written supplemental agreement
executed by the Fund and the Custodian and amending and supplementing this
Agreement in a manner mutually agreed.
Section 23. Either the Fund or the Custodian may give written notice to
the other of the termination of this Agreement, such termination to take
effect at the time specified in the notice which shall not be earlier than
sixty (60) days after the date of giving such notice. In case such notice of
termination is given either by the Fund or by the Custodian, the Fund shall
use its best efforts to obtain a qualified successor custodian. If the Fund
<PAGE>
cannot obtain a qualified successor custodian, then the Board of Trustees of
the Fund shall, by resolution duly adopted, promptly designate the Fund as its
own custodian. Each successor custodian shall be a person qualified to so act
under the Investment Company Act of 1940, as amended. Upon receipt of written
notice from the Fund of the appointment of such successor and upon receipt of
Written or Oral Instructions, the Custodian shall deliver such Securities and
cash as it may then be holding hereunder directly to and only to the successor
custodian. Unless or until a successor custodian has been appointed as above
provided, the Custodian then acting shall continue to act as Custodian under
this Agreement. Every successor custodian appointed hereunder shall execute
and deliver an appropriate written acceptance of its appointment and shall
thereupon become vested with the rights, powers, obligations and custody of
its predecessor Custodian. The Custodian ceasing to act shall nevertheless,
upon request of the Fund and successor custodian and upon payment of its
charges and disbursements, execute an instrument in form approved by its
counsel transferring to the successor custodian all the predecessor
Custodian's rights, duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto, without the execution or filing of
any papers or documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
Section 24. Nothing contained in this Agreement is intended to or shall
require the Custodian in any capacity hereunder to perform any functions or
duties on any holiday, day or special observance or any other day on which the
Custodian or the New York Stock Exchange is closed unless required by law, and
functions or duties normally scheduled to be performed on such days shall be
performed on, and as of the next succeeding business day on which both the New
York Stock Exchange and the Custodian are open.
Section 25. This Agreement shall take effect on the date hereof or on
such other date as the parties agree to transfer the Fund's assets to the
Custodian.
Section 26. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instruments.
Section 27 This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of its Board of Trustees.
Section 28. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement
to be signed by their respective Presidents or Vice Presidents and their
corporate seals hereunto duly affixed, and attested by their respective
Secretaries of Assistant Secretaries, as of the day and year first above
written.
THE HOMESTATE GROUP
By:
Scott L. Rehr, President
CORESTATES BANK, N.A.
By:
Name, Title
Attest:
Name, Title
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of the Post-Effective Amendment No. 5 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
August 26, 1996, relating to the financial statements and financial
highlights of The HomeState Pennsylvania Growth Fund, which appears in such
Statement of Additional Information, and to the incorporation by reference
of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the
heading "Custodian and Independent Accountants" in such Statement of
Additional Information and to the references under the headings "Financial
Highlights" and "General Information" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 22, 1996
Exhibit 15(a)
DISTRIBUTION SERVICES AGREEMENT (RULE 12b-1 PLAN)
This Distribution Services Agreement (the "Plan") is adopted by The
HomeState Group (the "Fund"), a Pennsylvania Common Law Trust organized under
the Investment Company Act of 1940 (the "Act") as an open-end mutual fund,
with respect to the distribution of its shares of the HomeState Pennsylvania
Growth Fund (the "Shares") by Fund/Plan Broker Services, Inc., the principal
underwriter and distributor for the Fund (the "Distributor").
WITNESSETH:
WHEREAS, the Fund is an open-end management company,; and
WHEREAS, it has been proposed that the Fund make payments to the
Distributor out of the Fund's net assets for distribution services rendered to
the Fund; and
WHEREAS, the Fund intends to distribute its Shares in accordance with
Rule 12b-1 under the Act and desires to adopt a distribution plan pursuant to
such rule; and
WHEREAS, the Fund's Board of Trustees at a meeting held on August 26,
1992, in considering whether the Fund should adopt and implement a written
plan, has evaluated such information as it deemed necessary to make an
informed determination as to whether a written plan should be adopted and
implemented and has considered such pertinent factors as it deemed necessary
to form the basis for a decision to use assets of the Fund for such purposes
and has determined that there is a reasonable likelihood that adoption and
implementation of a plan will benefit the Fund and is shareholders.
NOW, THEREFORE, the Fund hereby adopts a distribution plan in accordance
with Rule 12b-1 under the Act, having the following terms and conditions:
1. The Distributor shall pay all costs and expenses incurred in
connection with (i) advertising and marketing the Shares; (ii) payments of
servicing fees to one or more securities dealers (which may include the
Distributor itself but only to the extent necessary to reimburse the
Distributor for its costs and expenses incurred in connection with such
servicing), financial institutions or other industry professionals, such as
investment advisers, accountants, and estate planning firms (individually, a
"Service Organization"), in respect of the average daily net asset value of
the Shares owned by shareholders for whom the Service Organization is the
dealer of record or holder of record and with whom the Service Organization
has a servicing relationship pursuant to the Fund's related Rule 12b-1 Service
Agreement; (iii) printing any Prospectuses, Statements of Additional
Information, or reports prepared for the Distributor's use in connection with
the offering of the Fund's Shares (except those used for regulatory purposes
or for distribution to existing shareholders); and (iv) with implementing and
operating this Plan.
2. Each of the Fund's respective series will reimburse the Distributor
as appropriate for its out-of-pocket costs and expenses described in Section
(1) on a monthly basis at an annual rate of not more than .35% of such Series
<PAGE>
net assets as of the close of the last business day of the month. To
determine the maximum amount of the costs and expenses reimburseable
hereunder, the value of the Fund's net assets shall be computed in the manner
specified in the Fund's Prospectus and/or Statement of Additional Information
for the determination of the net asset value of the Shares. The Distributor
may incur additional unreimbursed costs and expense in connection with the
distribution of Shares and may utilize its capital or any other resources to
pay for such costs and expenses.
3. The Fund shall, from time to time, furnish or otherwise make
available to the Distributor such financial reports, proxy statements, and
other information relating to the business and affairs of the Fund as the
Distributor may reasonably require in order to discharge its duties and
obligations hereunder.
4. Nothing herein contained shall be deemed to require the Fund to take
any action contrary to its Declaration of Trust, or any applicable statutory
or regulatory requirement to which it is subject or by which it is bound, or
relieve or deprive the Board of Trustees of the Fund of the responsibility for
and control of the conduct of the affairs of the Fund.
5. This Plan shall become effective when executed following approval by
a vote of at least a majority of the outstanding voting securities of the Fund
and by a vote of the Trustees of the Fund and of those Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the Plan or in any agreements relating to the Plan (the
"Independent Trustees), cast in person at a meeting called for the purpose of
voting on the Plan.
6. This Plan shall remain in effect until June 30, 1993 and for
successive annual periods of twelve months each thereafter; provided, however,
that such continuance is subject to approval annually by a vote of the
Trustees of the Fund and of the Independent Trustees cast in person at a
meeting called for the purpose of voting on this Plan. If such annual
approval is not obtained, the Plan shall expire twelve months after the date
of the last approval. This Plan may be amended at any time by the Board of
Trustees; provided that (a) any amendment to increase materially the amount to
be spent for the services described herein shall be effective only upon
approval by a vote of a majority of the outstanding Shares, and (b) any
material amendment of this Plan shall be effective only upon approval in the
manner provided in the first sentence of this paragraph.
7. This Plan may be terminated as to any Series at any time, without
the payment of any penalty, by a vote of a majority of the Independent
Trustees or by a vote of a majority of the outstanding voting securities of
such Series, and shall automatically terminate in the event of its assignment.
8. Nothing herein contained shall prohibit the Distributor or any
"affiliated person" of the Distributor to act as distributor for other
persons, firms, or corporations or to engage in other business activities.
9. Neither the Distributor nor any of its employees or agents is
authorized to make any representations concerning the Shares except those
contained in the Prospectus, Statement of Additional Information, or such
supplemental sales literature as the Fund may approve.
10. The Distributor shall be required to use its best efforts in rendering
distribution services but shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection
<PAGE>
with matters to which the Fund's distribution agreement with the Distributor
relates except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Distributor in the performance of its duties as
Distributor of from reckless disregard by the Distributor of its obligations
and duties under such distribution agreement.
11. The Distributor shall provide the Fund, for review by the Fund's
Board of Trustees, and the Directors shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan and the purposes
for which such expenditures were made. Such written report shall be in a form
satisfactory to the Fund and shall supply all information necessary for the
Board to discharge its responsibilities, including its responsibilities
pursuant to Rule 12b-1.
12. While this Plan is in effect, the selection and nomination of
Independent Trustees shall be committed to the discretion of such Independent
Trustees.
13. The Fund shall preserve copies of this Plan, any related agreements,
and all reports made pursuant to Section 11 hereof for a period of not less
than six years from the date of this Plan, or any such agreement or report, as
the case may be, the first two years, in an easily accessible place.
14. In the event that the Fund establishes additional classes of shares
evidencing interests in other series with respect to which it desires the Plan
to apply, it shall notify the Distributor in writing. If the Distributor is
willing to act hereunder it shall notify the Fund in writing whereupon such
series shall become a series hereunder and the compensation payable by such
new series to the Distributor will be as agreed in writing at the time.
Payments made by a series to the Distributor pursuant to this Plan must be to
reimburse the Distributor for reimbursable costs and expenses incurred in
connection with the distribution of such series shares only.
15. If any provision of this Plan shall be held or made invalid by a
court decision statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
16. For the purposes of this Plan, the terms "interested persons,"
"assignment," "affiliated person" and "majority of the outstanding voting
securities" are used as defined in the Act.
IN WITNESS WHEREOF, this Plan has been executed by the Fund effective as
of September 1, 1992
THE HOMESTATE GROUP
By: /s/ Scott L. Rehr
President
Attest: /s/Shelia M. Dux
Secretary
<PAGE>
Exhibit 15(b)
DISTRIBUTION SERVICES AGREEMENT (RULE 12b-1 PLAN)
This Distribution Services Agreement (the "Plan") is adopted by The
HomeState Group (the "Fund"), a Pennsylvania Common Law Trust organized under
the Investment Company Act of 1940 (the "Act") as an open-end mutual fund,
with respect to the distribution of its shares of the HomeState Select
Opportunities Fund (the "Shares") by Rodney Square Distributor, Inc., the
principal underwriter and distributor for the Fund (the "Distributor").
WITNESSETH:
WHEREAS, the Fund is an open-end management company,; and
WHEREAS, it has been proposed that the Fund make payments to the
Distributor out of the Fund's net assets for distribution services rendered to
the Fund; and
WHEREAS, the Fund intends to distribute its Shares in accordance with
Rule 12b-1 under the Act and desires to adopt a distribution plan pursuant to
such rule; and
WHEREAS, the Fund's Board of Trustees at a meeting held on November 21,
1996, in considering whether the Fund should adopt and implement a written
plan, has evaluated such information as it deemed necessary to make an
informed determination as to whether a written plan should be adopted and
implemented and has considered such pertinent factors as it deemed necessary
to form the basis for a decision to use assets of the Fund for such purposes
and has determined that there is a reasonable likelihood that adoption and
implementation of a plan will benefit the Fund and is shareholders.
NOW, THEREFORE, the Fund hereby adopts a distribution plan in accordance
with Rule 12b-1 under the Act, having the following terms and conditions:
1. The Distributor shall pay all costs and expenses incurred in
connection with (i) advertising and marketing the Shares; (ii) payments of
servicing fees to one or more securities dealers (which may include the
Distributor itself but only to the extent necessary to reimburse the
Distributor for its costs and expenses incurred in connection with such
servicing), financial institutions or other industry professionals, such as
investment advisers, accountants, and estate planning firms (individually, a
"Service Organization"), in respect of the average daily net asset value of
the Shares owned by shareholders for whom the Service Organization is the
dealer of record or holder of record and with whom the Service Organization
has a servicing relationship pursuant to the Fund's related Rule 12b-1 Service
Agreement; (iii) printing any Prospectuses, Statements of Additional
Information, or reports prepared for the Distributor's use in connection with
the offering of the Fund's Shares (except those used for regulatory purposes
or for distribution to existing shareholders); and (iv) with implementing and
operating this Plan.
2. Each of the Fund's respective series will reimburse the Distributor
as appropriate for its out-of-pocket costs and expenses described in Section
(1) on a monthly basis at an annual rate of not more than .35% of such Series
net assets as of the close of the last business day of the month. To
determine the maximum amount of the costs and expenses reimburseable
hereunder, the value of the Fund's net assets shall be computed in the manner
<PAGE>
specified in the Fund's Prospectus and/or Statement of Additional Information
for the determination of the net asset value of the Shares. The Distributor
may incur additional unreimbursed costs and expense in connection with the
distribution of Shares and may utilize its capital or any other resources to
pay for such costs and expenses.
3. The Fund shall, from time to time, furnish or otherwise make
available to the Distributor such financial reports, proxy statements, and
other information relating to the business and affairs of the Fund as the
Distributor may reasonably require in order to discharge its duties and
obligations hereunder.
4. Nothing herein contained shall be deemed to require the Fund to take
any action contrary to its Declaration of Trust, or any applicable statutory
or regulatory requirement to which it is subject or by which it is bound, or
relieve or deprive the Board of Trustees of the Fund of the responsibility for
and control of the conduct of the affairs of the Fund.
5. This Plan shall become effective when executed following approval by
a vote of at least a majority of the outstanding voting securities of the Fund
and by a vote of the Trustees of the Fund and of those Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the Plan or in any agreements relating to the Plan (the
"Independent Trustees), cast in person at a meeting called for the purpose of
voting on the Plan.
6. This Plan shall remain in effect until June 30, 1997 and for
successive annual periods of twelve months each thereafter; provided, however,
that such continuance is subject to approval annually by a vote of the
Trustees of the Fund and of the Independent Trustees cast in person at a
meeting called for the purpose of voting on this Plan. If such annual
approval is not obtained, the Plan shall expire twelve months after the date
of the last approval. This Plan may be amended at any time by the Board of
Trustees; provided that (a) any amendment to increase materially the amount to
be spent for the services described herein shall be effective only upon
approval by a vote of a majority of the outstanding Shares, and (b) any
material amendment of this Plan shall be effective only upon approval in the
manner provided in the first sentence of this paragraph.
7. This Plan may be terminated as to any Series at any time, without
the payment of any penalty, by a vote of a majority of the Independent
Trustees or by a vote of a majority of the outstanding voting securities of
such Series, and shall automatically terminate in the event of its assignment.
8. Nothing herein contained shall prohibit the Distributor or any
"affiliated person" of the Distributor to act as distributor for other
persons, firms, or corporations or to engage in other business activities.
9. Neither the Distributor nor any of its employees or agents is
authorized to make any representations concerning the Shares except those
contained in the Prospectus, Statement of Additional Information, or such
supplemental sales literature as the Fund may approve.
10. The Distributor shall be required to use its best efforts in
rendering distribution services but shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Fund's distribution agreement with the Distributor
relates except a loss resulting from willful misfeasance, bad faith, or gross
<PAGE>
negligence on the part of the Distributor in the performance of its duties as
Distributor of from reckless disregard by the Distributor of its obligations
and duties under such distribution agreement.
11. The Distributor shall provide the Fund, for review by the Fund's
Board of Trustees, and the Directors shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan and the purposes
for which such expenditures were made. Such written report shall be in a form
satisfactory to the Fund and shall supply all information necessary for the
Board to discharge its responsibilities, including its responsibilities
pursuant to Rule 12b-1.
12. While this Plan is in effect, the selection and nomination of
Independent Trustees shall be committed to the discretion of such Independent
Trustees.
13. The Fund shall preserve copies of this Plan, any related agreements,
and all reports made pursuant to Section 11 hereof for a period of not less
than six years from the date of this Plan, or any such agreement or report, as
the case may be, the first two years, in an easily accessible place.
14. In the event that the Fund establishes additional classes of shares
evidencing interests in other series with respect to which it desires the Plan
to apply, it shall notify the Distributor in writing. If the Distributor is
willing to act hereunder it shall notify the Fund in writing whereupon such
series shall become a series hereunder and the compensation payable by such
new series to the Distributor will be as agreed in writing at the time.
Payments made by a series to the Distributor pursuant to this Plan must be to
reimburse the Distributor for reimbursable costs and expenses incurred in
connection with the distribution of such series shares only.
15. If any provision of this Plan shall be held or made invalid by a
court decision statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
16. For the purposes of this Plan, the terms "interested persons,"
"assignment," "affiliated person" and "majority of the outstanding voting
securities" are used as defined in the Act.
IN WITNESS WHEREOF, this Plan has been executed by the Fund effective as
of February 1, 1997.
THE HOMESTATE GROUP
By: ____________________
President
Attest: ________________
Secretary
<PAGE>
