Filed with the Securities and Exchange Commission on February 7, 1997.
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. 6 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 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>
PROSPECTUS
DATED FEBRUARY 18, 1997
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THE HOMESTATE GROUP
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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>
PROSPECTUS DATED FEBRUARY 18, 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 18, 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.
<PAGE>
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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
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<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(3) 0.35% 0.35%
Other Expenses (After Reimbursement) 0.75% 1.00%(4)
----- --------
TOTAL OPERATING EXPENSES 1.85% 2.35%(5)
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) Because of the 12b-1 fee, long-term shareholders may indirectly pay
more than the economic equivalent of the maximum permitted front-end sales
charge.
(4) (5) 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
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 18,
1997. Its operations up to February 18, 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 uperior 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 Pennsylvania 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. According to Surveys by brokerage firms, 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 the various state regulatory authorities. The
Board of Trustees has adopted investment guidelines (described below)
reflecting those option trading regulations.
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.
OPTIONS STRATEGIES: The HomeState Select Opportunities 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. 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.
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. 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. The Fund may purchase and
write covered straddles on securities or indexes. 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"). For a more complete
discussion of these and other hedging techniques, the investors are directed
to the Trust's Statement of Additional Information.
OPTIONS GUIDELINES. The HomeState Select Opportunities Fund has adopted
the following investment guidelines to govern its use of options 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 feature similar to options.
SHORT-SELLING
If the HomeState Select Opportunities 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.
Whenever the Fund effects a short sale, it will set aside in segregated
accounts cash, U.S. Government Securities or other 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.
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.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligations under an option by entering
into a closing 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.
(2) Options normally have expiration dates of up to three years.
(3) A position in an exchange-listed option may be closed out only
on an exchange that provides a secondary market for identical
options. Closing transactions may be effected with respect to
options traded in the OTC market only be negotiating directly with
the other party to the option contract or in a secondary market for
the option if such market exists.
(4) With certain exceptions, exchange listed options generally
settle by physical delivery of the underlying security or currency.
(5) 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
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.
For a more detailed discussion of these risks, investors are directed to
the Trust's 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); such borrowing will be limited to no
more than 5% of net assets.
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 18, 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 February 1, 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 nest $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; Diane D. Marky, Assistant 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 18 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 18, 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 18, 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.
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
<PAGE>
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); such borrowing will be limited to no
more than 5% of net assets.
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 their 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.
DIANE D. MARKY, Rodney Square North, 1100 N. Market St., Wilmington, DE 19890-
0001, Assistant Secretary, age 32, has been a Senior Fund Administrator of
RSMC since 1994 and a Fund Administration Officer of RSMC since July 1991.
She was a Mutual Fund Accountant for RSMC from 1989 to 1991.
* 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.
COMPENSATION TABLE
Name and Title Aggregate Pay
Aggregate Pay From Select Total Pay
From PA Opportunities From Fund
Growth Fund Fund Complex (1)
Scott L. Rehr
Trustee and President $0 $0 $0
Bruce E. Bowen
Trustee 2,000 0 2,000
Daniel W. Moyer, IV
Vice-President and
Secretary 0 0 0
Kenneth G. Mertz, II
Trustee, Vice-President
and Chief Investment Officer 0 0 0
Scott C. Penwell
Trustee
2,000 0 2,000
Dr. H. J. Zoffer
Trustee 2,000 0 2,000
(1) No pension or retirement benefits are provided for trustees or officers
of the Funds.
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 November 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 $22,724
pursuant to the Distribution Plan. For the period from July 1, 1995 through
November 19, 1995, the HomeState Pennsylvania Growth Fund incurred expenses
totaling $30,192 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, $51,204 was paid to qualifying dealers, and $1,712 was paid
for the preparation and distribution of marketing materials.
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 years ended June 30, 1996, 1995 and 1994, The HomeState
Pennsylvania Growth Fund incurred brokerage commissions aggregating $127,600
$91,506, and $35,125 respectively. During the fiscal year ended June 30,
1996, transactions of the Fund aggregating $68,352 were allocated to brokers
providing research, statistical and other related services and $290 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
acquisition 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>
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.
<PAGE>
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.
<PAGE>
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>
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>
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 (Incorporated by
reference to Exhibit 1 to post effective amendment
No. 5 to this Registration Statement filed November
27, 1996.)
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 (Incorporated by reference to
Exhibit 5(a) to post effective amendment No. 5 to this
Registration Statement filed November 27, 1996.)
(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 (Incorporated by reference to
Exhibit 5(b) to post effective amendment No. 5 to this
Registration Statement filed November 27, 1996.)
6. (a) Distribution Agreement between the Registrant and
Rodney Square Distributors, Inc. dated November 20,
1995.*
(b) Form of Selected Dealer Agreement*
7. None
8. (a) Custody Agreement between the Registrant
(HomeState Pennsylvania Growth Fund) and CoreStates
Financial Corp. dated August 31, 1992 (Incorporated
by reference to Exhibit 8(a) to post effective
amendment No. 5 to this Registration Statement filed
November 27, 1996.)
(b) Form of Custody Agreement between the
Registrant(HomeState Select Oppurtunities Fund) and
CoreStates Financial Corp. to be dated February 1,
1997 (Incorporated by reference to Exhibit 8(b) to
post effective amendment No. 5 to this Registration
Statement filed November 27, 1996.)
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 (Incorporated by reference to Exhibit
15(a) to post effective amendment No. 5 to this
Registration Statement filed November 27, 1996.)
(b) Rule 12b-1 Plan for The HomeState Select
Opportunities Fund (Incorporated by reference to
Exhibit 15(b) to post effective amendment No. 5 to
this Registration Statement filed November 27, 1996.)
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 JANUARY 31, 1997)
(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.
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.
The registrant hereby undertakes to file a further Post-Effective
Amendment to include financial statements for the Pennsylvania Select
Opportunities Growth Fund which need not be certified, within four to six
months from the effective date of this Post-Effective Amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 7th day of February, 1997.
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 February 7, 1997
- ----------------------
Bruce E. Bowen Trustee February 7, 1997
/s/ Kenneth G. Mertz
- ---------------------- Vice President,
Kenneth G. Mertz CIO, and Trustee February 7, 1997
/s/ Scott C. Penwell
- ----------------------
Scott C. Penwell, Esq. Trustee February 7, 1997
- ----------------------
H.J. Zoffer Trustee February 7, 1997
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. 6 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
February 7, 1997
