THE HOMESTATE GROUP
WELCOME TO THE HOMESTATE MUTUAL FUNDS
-------------------------------------
HomeState currently offers two mutual funds: the HomeState
Pennsylvania Growth Fund and the HomeState Select Opportunities
Fund. Both funds offer investors a unique investment strategy
aimed at pursuing long-term growth: what we call "The HomeState
Advantage."
IN-DEPTH, ON SITE RESEARCH
--------------------------
HomeState's own in-house team of research analysts believes in a
common-sense, fundamental approach to choosing investments.
Whenever we can, we visit a company before investing, talking to
its management and employees, as well as its suppliers, customers
and competitors.
PROFESSIONAL PORTFOLIO MANAGEMENT
---------------------------------
HomeState's chief investment officer is Kenneth G. Mertz II, CFA.
Ken has over eighteen years' experience in the money management
industry, including seven years as chief investment officer of a
$12 billion public pension fund. Ken has managed portfolios in
both "up" and "down" markets and this experience guides him as he
seeks to actively reduce risk.
UNIQUE INVESTMENT OPPORTUNITIES
-------------------------------
HomeState's two mutual funds each focus on areas we feel are
largely ignored by other institutional money managers:
- companies based in our home state of Pennsylvania; and
- smaller-sized companies, with special attention to
technology companies.
[HOMESTATE Invests a minimum 65% of its assets in companies
PENNSYLVANIA headquartered or with significant operations in
GROWTH FUND Pennsylvania.
Logo]
[HOMESTATE Invests in a portfolio of no more than 50 U.S.
SELECT companies, emphasizing those with a market
OPPORTUNITIES capitalization of less than $1 billion.
FUND logo]
In-Depth, On-Site Research. Professional Portfolio Management.
Unique Investment Opportunities. That's THE HOMESTATE ADVANTAGE.
Funds that invest in a particular state or region may involve
a greater degree of risk than funds with a more
geographically diversified portfolio. Investing in smaller
companies' stock can involve higher risk and increased
volatility than larger stocks. This report contains
information about the Funds' performance. Past performance is
no guarantee of future results. An investment in the Funds
will fluctuate in value so that your account, when redeemed,
may be worth more or less than your original purchase price.
<PAGE>
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THE HOMESTATE GROUP
REPORT FROM MANAGEMENT
- -------------------------------------------------------------------------------
July 15, 1997
Dear Shareholder:
Welcome to the fifth annual fiscal year-end report for the
HomeState Pennsylvania Growth Fund, and the first shareholder
report for the new HomeState Select Opportunities Fund. June 30th
marked the end of a fiscal year filled with growth and challenge
for the HomeState Funds. On the growth side of the ledger, assets
in our flagship PA Growth Fund increased from $55.8 million on
June 30, 1996 to over $89.5 million a year later. More than 5,900
shareholders now share in our quest to find long-term growth
opportunities primarily through investments in local Pennsylvania-
based companies. The 1997 fiscal year also gave birth to our
second fund. The Select Opportunities Fund was launched on
February 18th, sailing directly into the midst of one of the more
choppy and turbulent equity markets of recent years. The unusual
dominance of the large-cap investing style during the past
several quarters has made for a challenging marketplace for small-
cap investors like HomeState. As detailed on the following pages,
however, portfolio manager Ken Mertz's skillful, experienced
management style has thus far produced handsome short-term
results for Select Fund shareholders and continued growth for PA
Growth Fund owners.
Both HomeState Funds utilize the same building blocks for a
successful fund: the efforts of our own research team and the
careful guidance of Ken Mertz. The PA Growth Fund holds a
diversified portfolio of 100 - 130 companies, most of which are
based in Pennsylvania. The Select Fund is comprised of no more
than 50 U.S. companies (with no specific focus on Pennsylvania
companies) selected as having the greatest potential for superior
long-term growth. The Select Fund can also employ hedging and
shorting strategies, and investors can expect greater short-term
volatility in this more aggressive fund.*
* If the Advisor anticipates that the price of a security will decline,
the advisor 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.
Short-selling is a technique that may be considered speculative and
involves risk beyond the initial capital necessary to secure each
transaction. Short-selling could result in higher operating costs
for the Fund and have adverse tax effects for the investor.
<PAGE>
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THE HOMESTATE GROUP
REPORT FROM MANAGEMENT - (CONTINUED)
- -------------------------------------------------------------------------------
While the ups and downs and contrasts created by market
cycles seem more pronounced as of late, we remain committed to
providing our shareholders with an investment philosophy of hands-
on research analysis and experienced portfolio management of
unique investment opportunities, primarily in the smaller company
sector. This focus hasn't changed since HomeState's inception.
Between now and our December report, the PA Growth Fund will
celebrate five full years of operation. We are proud of the long-
term performance record the Fund has achieved, and look forward
to providing shareholders in both funds with "The HomeState
Advantage" for years to come. We thank you for your continuing
support and always welcome your comments, questions and
suggestions.
Sincerely,
/S/ Scott L. Rher
Scott L. Rehr
President
<PAGE>
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE FUND AT A GLANCE
- -------------------------------------------------------------------------------
HOMESTATE PENNSYLVANIA GROWTH FUND PERFORMANCE COMPARISON VS. S&P 500*
GROWTH OF HYPOTHETICAL $10,000 INVESTMENT
HomeState Pennsylvania Growth Fund S&P 500
Sep-92 $9,496.68 $10,000.00
Dec-92 $10,322.90 $10,504.90
Mar-93 $10,446.40 $10,965.90
Jun-93 $10,427.40 $11,018.10
Sep-93 $11,743.20 $11,302.20
Dec-93 $12,291.20 $11,564.80
Mar-94 $12,051.50 $11,127.90
Jun-94 $11,859.70 $11,173.40
Sep-94 $12,671.50 $11,718.80
Dec-94 $12,525.20 $11,716.10
Mar-95 $13,110.50 $12,855.40
Jun-95 $15,295.60 $14,080.70
Sep-95 $17,148.00 $15,198.50
Dec-95 $18,083.10 $16,112.20
Mar-96 $18,948.50 $16,976.30
Jun-96 $21,415.00 $17,736.00
Sep-96 $21,282.10 $18,279.00
Dec-96 $21,992.60 $19,801.00
Mar-97 $20,631.30 $20,333.00
Jun-97 $23,524.10 $23,881.00
*The S&P 500 Index is an unmanaged index of 500 stocks
weighted by market capitalization.
+ Past performance is not indicative of future performance.
The Fund's total returns since Inception (October 1, 1992)
and for one year reflect the effect of the maximum sales
load charge of 4.75%. Without the sales charge, the total
returns would have been 9.56% and 20.96% respectively. The
maximum sales load incurred changed from 5.00% to 4.75% on
February 18, 1997.
AVG. ANNUAL RETURN+
1 YEAR INCEPTION
HOMESTPA 4.36% 19.73%
S&P 500 34.68% 20.11%
THE HOMESTATE PENNSYLVANIA GROWTH FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1997
ISSUE % OF FUND ISSUE % OF FUND
- ----- --------- ----- ---------
1. Technitrol, Inc. 2.82% 6. GenRad. Inc. 1.81%
2. SI Handling Systems,Inc. 2.25% 7. Donegal Group, Inc. 1.77%
3. Penn Treaty American Corp 2.07% 8. Rite Aid Corp. 1.75%
4. Piercing Pagoda, Inc. 1.92% 9. Harsco Corp. 1.75%
5. Safeguard Scientifics, Inc. 1.86% 10. Susquehanna Bancshares, Inc. 1.74%
<PAGE>
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THE HOMESTATE GROUP
REPORT FROM MANAGEMENT - PENNSYLVANIA GROWTH FUND
- -------------------------------------------------------------------------------
July 15, 1997
Dear Shareholder:
We are pleased to report the performance results for the
HomeState Pennsylvania Growth Fund. The total return without
adjustment for sales charges for the twelve month period ended
June 30, 1997 was 9.56%. These results were achieved in a very
difficult and volatile market, especially for the smaller
companies in which the Fund specializes.
Performance since inception remains above comparable market
benchmarks as well our market fund peer group.
Performance results for the Fund for periods ended June 30,
1997 are as follows:
AVERAGE ANNUALIZED RETURNS*
--------------------------- CUMULATIVE
SINCE INCEPTION TOTAL RETURNS
FUND/INDEX ONE YEAR THREE YEARS 10/1/92 SINCE 10/1/92
- ---------- -------- ----------- -------------- --------------
HomeState PA Growth
(at N.A.V.) 9.56% 25.51% 20.96% 146.97%
HomeState PA Growth
(at Maximum
Offering Price) 4.36% 23.49% 19.73% 135.24%
Standard & Poor's
500 Index 34.68% 28.83% 20.11% 138.81%
Russell 2000 Index 16.34% 20.07% 18.20% 121.30%
Wilshire 5000 Index 29.31% 26.73% 19.40% 132.11%
Morningstar Small
Company 14.06% 22.96% 19.37% 131.91%
Funds Average
The S&P 500, Wilshire 5000 and Russell 2000 are unmanaged
stock market indices without any associated expenses and their
returns assume the reinvestment of all dividends. The
Morningstar Small Company Funds average includes the total return
(without effects of sales charges) for the one-year, three-year
and HomeState Fund since inception periods ended June 30, 1997
for 431, 273 and 149 small company-oriented funds, respectively.
Please remember that past performance is no guarantee of future
results.
* Past performance is no guaratnee of future results.
The value and performance return of an investment in the Fund will
fluctuate with market conditions, so that, shares when redeemed,
may be worth more or less than their original purchase price.
Your Fund received some national recognition in the February
28, 1997 edition of USA TODAY. In the article "Finding Returns
by Investing Close to Home" the Fund was featured as a leading
state and regional stock mutual fund for its three-year
performance. Not only is this a testament to our skills in
selecting growth opportunities but also a testament to the many
fine Pennsylvania-based companies that we have in the portfolio.
The past six months since our last report were particularly
difficult for small company growth portfolios like the Fund.
While the financial press focused on new highs for the Dow Jones
Industrials, smaller companies were in a "stealth" bear market.
At one point (the end of April) the performance gap between the
Russell 2000 Index (a small company index) and the Standard and
Poor's 500 (the proxy for large companies) exceeded 25%. The
Russell 2000 has been in existence since 1979 and this marks the
first occasion this performance gap ever exceeded 25%.
<PAGE>
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THE HOMESTATE GROUP
REPORT FROM MANAGEMENT - PENNSYLVANIA GROWTH FUND (CONTINUED)
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The lagging performance of small companies in general was a
result of Federal Reserve Chairman Alan Greenspan's, citing the
market's "irrational exuberance," and the Fed Board eventually
raising interest rates. We currently believe the economy is
slowing on its own, that the Federal Reserve was afraid of its
own shadow, and that inflation is not a problem in the
foreseeable future. The recent picture of inventory growth, a
slowing in retail sales, a rise in unemployment claims and a
decrease in factory orders provides a picture of adequate
economic growth, low inflation, and relatively low interest
rates. This scenario is a very attractive one for equity
investors.
We believe the factors that led to outperformance by large
companies, such as financial reengineering, strong export growth,
and greater safety, have been played out and factored into
current prices. Today the value and growth prospects reside in
the small company marketplace where the expertise of the
HomeState Funds exists. For example, the Micro-Cap Research
Group of Natwest Securities presents the following relationship
for the Russell 2000 Index: Current fiscal-year growth of 25.3%
and a Price Earnings ratio of just 20 times. For the S&P 500 the
growth rate is 10.1% and the Price Earnings ratio is 18.7 times.
This comparison indicates that greater growth and better
valuation exists in smaller companies.
Given the Federal Reserve's intention to limit the U.S.
economy's growth rate as a method to control inflation, we
continue to emphasize investments in companies that rank #1 or #2
in their market niches. Our list of holdings reflects our
commitment to find growth companies that are market leaders, but
are selling at attractive valuation levels.
The current lack of pricing power in most industries focuses
our attention on revenue or top-line growth. For without
adequate top-line growth, most companies will not be able to grow
their bottom-line earnings at a rate sufficient for inclusion in
the Fund. We also continue to focus on our "Keys of Investing":
1. LEADERSHIP. Leadership is of utmost importance in selecting
companies for investment; leadership in management, market share,
and earnings growth. 2. RESEARCH. We utilize our own team of
research analysts to find this leadership. 3. INDEPENDENT
THOUGHT. We do not use "group think" or "fad" investing. We
create a portfolio that often bears little resemblance to others
or to the market at-large. 4. RISK AVERSE. We seek to
understand the risks embedded in each equity by diversifying the
portfolio. 5. ATTENTION TO VALUATION. We invest in growth
companies which are not fully appreciated by the market.
In summary, we believe our process of hands-on fundamental
research, combined with professional portfolio management, will
continue to enable us to uncover and manage quality growth
opportunities in the market.
Sincerely,
/S/ Kenneth G. Mertz II, CFA
Kenneth G. Mertz II, CFA
Chief Investment Officer
<PAGE>
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THE HOMESTATE SELECT OPPORTUNITIES FUND
THE FUND AT A GLANCE
- -------------------------------------------------------------------------------
HOMESTATE SELECT OPPORTUNITIES FUND PERFORMANCE COMPARISON VS. RUSSELL 2000*
GROWTH OF HYPOTHETICAL $10,000 INVESTMENT
Index HomeState Select Opportunities Fund Russel 2000
- ----- ----------------------------------- -----------
Feb-97 $9,525.00 $10,000.00
Jun-97 $11,144.30 $10,778.00
*The Russell 2000 Index is an unmanaged index of 2000 socks
weighted by market capitalization.
+ Past performance is not indicative of future performance.
The Fund's total returns from Inception (February 18, 1997)
through June 30, 1997 reflect the effect of the maximum
sales load charge of 4.75%. Without the sales charge, the
total return would have been 17.00%.
AGGREGATE TOTAL RETURN+
SINCE INCEPTION
HomeStSel 11.44%
Russell 2000 7.78%
THE HOMESTATE SELECT OPPORTUNITIES FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1997
ISSUE % OF FUND ISSUE % OF FUND
- ----- --------- ----- ---------
1. Technitrol, Inc. 3.40% 6. Systems & Computer
2. Penn Treaty American Corp. 3.27% Technology Corp. 2.95%
3. UTI Energy Corp. 3.24% 7. Safeguard Scientifics 1.75%
4. GenRad,Inc. 3.22% 8. Keane, Inc. 2.77%
5. SI Handling Systems Inc. 3.16% 9. Piercing Pagoda, Inc. 2.68%
10. Cable Design Technologies 2.62%
<PAGE>
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THE HOMESTATE GROUP
REPORT FROM MANAGEMENT - SELECT OPPORTUNITIES FUND
- -------------------------------------------------------------------------------
July 15, 1997
Dear Shareholder:
We are pleased to report the Select Opportunities Fund had an
auspicious start. Since the inception of this fund on February
18, 1997, the total return without adjustments for sales charges
through June 30, 1997 was 17.00%. This was substantially better
than the Russell 2000 Index (a small company index) which was up
7.78% including reinvested dividends.
Performance results for the Fund for the period ended June
30, 1997 are as follows:
AGGREGATE RETURNS
-----------------
SINCE INCEPTION
2/18/97
---------------
HomeState Select Opportunities
(at N.A.V.) 17.00%
HomeState Select Opportunities
(at Maximum Offering Price) 11.44%
Russell 2000 Index 7.78%
Wilshire 5000 Index 7.76%
The volatility in the market, especially for the smaller
growth companies in which the Select Opportunities Fund invests
caused a great deal of concern for many investors over the past
few months. The unique characteristics of the Fund has enabled
it to benefit from this volatility. The Fund may sell "short" or
buy put options on securities which it believes are overvalued
based on its fundamentals.* This allows the Select Opportunities
Fund an opportunity to perform in poor markets, as well as good
markets.
*Past performance is no guarantee of future results. The value
and performance return of an investment in the Fund will fluctuate
with market conditions, so that, shares when redeemed, may be worth
more or less than their original purchase price. If the advisor
anticipates that the price of a security will decline, the advisor
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.
Short-selling is a technique that may be considered speculative and
involves risk beyond the initial capital necessary to secure each
transaction. Short-selling could result in higher operating costs
for the Fund and have adverse tax effects for the investor. If the
Fund is unable to effect a closing transaction, which essentially
permits the Fund to realize a profit or limit losses, 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.
<PAGE>
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THE HOMESTATE GROUP
REPORT FROM MANAGEMENT - SELECT OPPORTUNITIES FUND (CONTINUED)
- -------------------------------------------------------------------------------
This portfolio at the end of the fiscal year was more
concentrated than the Pennsylvania Growth portfolio but was still
well-diversified. Our heaviest concentration was in the
Technology sector, especially information technology and Year
2000 consultants and solution providers. Technology stocks,
especially small niche companies, provide many investment
opportunities in the future as providers of new solutions and
productivity enhancers for business as well as consumers. It is
in this area that our in-house research team has devoted
countless hours, days, and also nights to finding superior growth
companies with `real' solutions for tomorrow's world.
Our research approach with the Fund's companies is to find
growth opportunities in companies which have little research
coverage by Wall Street type firms. This lack of research
coverage we believe creates investment opportunities. Our
ability to spot new industries, market leaders, new solution
providers, and undervalued growth leaders has enabled us to pick
these "select opportunities" and hopefully reward our investors
with above market rates of returns.
In summary, our dedication to the under-researched small and
micro company universe enables us to provide you with our
"Select" list of companies as one of your portfolio choices.
Sincerely,
/S/ Kenneth G Mertz, II, CFA
Kenneth G. Mertz II, CFA
Chief Investment Officer
<PAGE>
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
COMMON STOCK - 99.1%
COMMUNICATIONS & BROADCASTING - 1.6%
Comcast Corp. (A Shares)*............... 65,150 $ 1,392,581
-----------
FINANCE & INSURANCE - 22.9%
INSURANCE CARRIERS - 6.6%
Conseco, Inc.++.......................... 27,300 1,010,100
Donegal Group, Inc...................... 64,900 1,581,937
Penn Treaty American Corp.*............. 60,750 1,860,469
Penn-America Group, Inc................. 98,250 1,479,891
-----------
5,932,397
-----------
NATIONAL COMMERCIAL BANKS - 1.7%
First Capitol Bank/York, PA............. 4,800 160,200
Mellon Bank Corp........................ 29,900 1,349,238
-----------
1,509,438
-----------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS - 4.2%
Parkvale Financial Corp................. 35,547 981,986
Patriot Bank Corp....................... 40,800 708,900
Prime Bancorp, Inc...................... 27,155 685,664
Sovereign Bancorp, Inc.................. 49,844 760,121
York Financial Corp..................... 31,615 628,348
-----------
3,765,019
-----------
STATE & NATIONAL BANKS - 10.4%
1st United Bancorp++.................... 10,000 175,000
BT Financial Corp....................... 33,641 1,471,794
Commerce Bancorp, Inc.++................ 37,091 1,437,276
First Colonial Group, Inc............... 27,805 670,796
Keystone Financial, Inc................. 17,900 559,375
Kish Bancorp............................ 600 43,800
Omega Financial Corp.................... 36,680 1,274,630
Onbancorp, Inc.......................... 7,500 382,500
PNC Bank Corp........................... 10,000 416,250
Signet Banking Corp.++.................. 23,500 846,000
Sun Bancorp, Inc........................ 12,695 453,828
Susquehanna Bancshares, Inc............. 39,600 1,554,300
-----------
9,285,549
-----------
TOTAL FINANCE & INSURANCE......................... 20,492,403
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
MANUFACTURING - 42.3%
CHEMICALS & ALLIED PRODUCTS - 3.2%
Macdermid, Inc.++........................ 32,500 $ 1,490,937
OM Group, Inc.++......................... 41,500 1,374,687
-----------
2,865,624
-----------
COMPUTER & OFFICE EQUIPMENT - 4.8%
Iomega Corp.++*......................... 31,000 616,125
Safeguard Scientifics, Inc.*............ 52,300 1,663,794
SI Handling Systems, Inc................ 108,950 2,015,575
-----------
4,295,494
-----------
ELECTRICAL MEASUREMENT & TEST INSTRUMENTS - 2.2%
Cohu, Inc.++*........................... 11,500 359,375
GenRad, Inc.++*......................... 71,500 1,617,687
-----------
1,977,062
-----------
ELECTRONIC TECHNOLOGY - 0.9%
Integrated Circuit Systems, Inc.*....... 35,900 814,480
-----------
FOOD & BEVERAGE - 1.7%
Hershey Foods Corp...................... 25,000 1,382,813
Puro Water Group, Inc.++*................ 10,000 58,437
Quigley Corp.*.......................... 7,000 60,813
-----------
1,502,063
-----------
IRON & STEEL - 0.8%
Carpenter Technology Corp............... 15,600 713,700
-----------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES - 13.5%
Allen Organ Co. (B Shares).............. 9,300 370,838
C & D Technology, Inc................... 35,500 1,331,250
Cable Design Technologies*.............. 52,500 1,545,469
Checkpoint Systems, Inc.++*............. 30,000 481,875
Emcee Broadcast Products, Inc.*......... 96,900 199,856
Harsco Corp............................. 38,600 1,563,300
JPM Co.*................................ 26,600 947,625
Park Electrochemical Corp.++............ 12,000 315,750
Technitrol, Inc......................... 92,400 2,529,450
Teleflex, Inc........................... 37,400 1,168,750
Vishay Intertechnology, Inc.*........... 49,350 1,428,066
Zitel Corp.++*.......................... 10,000 196,250
-----------
12,078,479
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT - 2.8%
CFM Technologies, Inc.*................. 10,000 $ 327,500
JLG Industries, Inc..................... 27,000 367,875
Met-Pro Corp............................ 102,150 1,545,019
Thermo Electron Corp.++*................. 7,000 240,625
-----------
2,481,019
-----------
MISCELLANEOUS MANUFACTURING INDUSTRIES - 0.6%
American United Global, Inc.++*.......... 33,000 189,750
Penn Engineering & Manufacturing Corp.*. 19,600 384,650
-----------
574,400
-----------
OPTICAL & OPHTHALMIC GOODS, PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.0%
II-VI, Inc.*............................ 42,000 882,000
-----------
PETROLEUM REFINING - 3.8%
Buckeye Partners, L.P................... 12,000 542,250
Coastal Corp.++......................... 15,700 835,044
Mapco, Inc.++........................... 12,500 393,750
Tesoro Petroleum Corp.++*............... 55,500 822,094
USX - Marathon Group.................... 28,000 808,500
-----------
3,401,638
-----------
PHARMACEUTICAL PREPARATIONS - 2.5%
IBAH, Inc.*............................. 82,000 292,125
Ligand Pharmaceuticals (B Shares)++*..... 23,000 296,125
Magainin Pharmaceuticals, Inc.*......... 100,000 725,000
Nabi, Inc.++*........................... 33,500 221,938
Neose Technologies, Inc.*............... 40,000 510,000
Viropharma, Inc.*....................... 13,500 241,312
-----------
2,286,500
-----------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES - 2.0%
Arrow International, Inc................ 24,000 702,000
Covalent Group, Inc.*................... 12,500 75,781
Environmental Tectonics Corp.*.......... 17,500 155,313
Medical Technology & Innovations*....... 145,000 27,550
Respironics, Inc.*...................... 40,000 845,000
-----------
1,805,644
-----------
TELECOMMUNICATIONS EQUIPMENT - 0.9%
Associated Group, Inc. (A Shares)*...... 5,800 232,000
Tollgrade Communications, Inc.*......... 24,850 568,444
-----------
800,444
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
TEXTILES & APPAREL - 1.6%
Jones Apparel Group, Inc.*.............. 30,000 $ 1,432,500
-----------
TOTAL MANUFACTURING............................... 37,911,047
-----------
MINING - 0.0%
Daleco Resources Corp. ++*............... 50,000 10,156
-----------
REAL ESTATE INVESTMENT TRUSTS - 4.8%
Brandywine Realty Trust................. 53,000 1,073,250
Crescent Real Estate Equities Co.
(When Issued)++......................... 17,500 555,625
Crown American Realty Trust............. 46,200 427,350
First Industrial Realty Trust, Inc.++... 32,000 936,000
Liberty Property Trust.................. 52,600 1,308,425
-----------
4,300,650
-----------
SERVICES - 16.1%
BUSINESS SERVICES - 2.5%
CRW Financial, Inc.*.................... 50,475 239,756
Diamond Technology Partners, Inc.++*.... 25,130 260,724
National Media Corp.*................... 17,000 110,500
Physician Support Systems, Inc.*........ 63,000 771,750
SOS Staffing Services, Inc.++*.......... 24,500 379,750
UTI Energy Corp.*....................... 11,000 501,875
-----------
2,264,355
-----------
COMPUTER SERVICES - 7.7%
Ansoft Corp.*........................... 74,000 545,750
Computer Associates International, Inc.. 10,000 556,875
Computer Horizons Corp. ++*............. 10,500 359,625
Daou Systems, Inc.++*................... 12,200 195,200
Keane, Inc.++ .......................... 9,500 494,000
Mastech Corp.*.......................... 67,000 1,348,375
Metacreations Corp.++*.................. 20,000 220,000
Microleague Multimedia, Inc.*........... 25,000 120,312
Prophet 21, Inc.*....................... 7,000 37,625
Sanchez Computer Associates, Inc.*...... 12,000 112,500
Scan-Graphics, Inc.*.................... 17,500 59,063
Seec, Inc.*............................. 12,000 231,000
SunGard Data Systems, Inc.* ............ 31,200 1,450,800
Systems & Computer Technology Corp.*.... 44,000 1,177,000
-----------
6,908,125
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
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THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
ENGINEERING SERVICES - 0.6%
Astrotech International Corp.*.......... 78,766 $ 502,133
-----------
HOME HEALTHCARE SERVICES - 0.4%
Home Health Corp.*...................... 35,700 339,150
-----------
MEDICAL & HEALTH SERVICES - 3.9%
Corecare Systems, Inc.*................. 92,000 80,500
Genesis Health Ventures, Inc.*.......... 31,700 1,069,875
Genome Therapeutics Corp.++*............ 33,000 284,625
Renal Treatment Centers, Inc.*.......... 29,400 790,125
SMT Health Services, Inc.*.............. 109,851 1,270,152
-----------
3,495,277
-----------
PERSONAL SERVICES - 1.0%
Crescent Operating, Inc.++.............. 1,750 21,000
Reliance Group Holdings, Inc.++......... 30,000 356,250
Sonus Pharmaceuticals, Inc.++*.......... 20,000 562,500
-----------
939,750
-----------
TOTAL SERVICES.................................... 14,448,790
-----------
UTILITIES - 1.9%
Consolidated Natural Gas Co............. 17,000 914,813
Philadelphia Suburban Corp.............. 42,500 812,813
-----------
1,727,626
-----------
WHOLESALE & RETAIL TRADE - 9.5%
MISCELLANEOUS RETAIL STORES - 3.4%
Borders Group, Inc.++*.................. 63,000 1,519,875
Rite Aid Corp........................... 31,500 1,571,062
-----------
3,090,937
-----------
RETAIL APPAREL & ACCESSORY STORES - 2.0%
Bon-Ton Stores, Inc.*................... 8,000 64,000
Piercing Pagoda, Inc.*.................. 68,400 1,718,550
-----------
1,782,550
-----------
RETAIL EATING & DRINKING PLACES - 0.6%
Schlotzsky's, Inc.++*................... 38,500 529,375
-----------
WHOLESALE - PETROLEUM & PRODUCTS - 0.2%
Harken Energy Corp.*.................... 30,000 210,000
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
WHOLESALE CHEMICALS & DRUGS - 1.5%
Amerisource Health Corp. (A Shares)*.... 26,500 $ 1,321,687
-----------
WHOLESALE ELECTRONIC EQUIPMENT & COMPUTERS - 1.2%
CHS Electronics, Inc.+.................. 40,000 1,060,000
-----------
WHOLESALE MISCELLANEOUS - 0.6%
Ikon Office Solutions, Inc.............. 21,300 531,169
-----------
TOTAL WHOLESALE & RETAIL TRADE.................... 8,525,718
-----------
Total Common Stock (Cost $68,003,903)............. 88,808,971
-----------
MONEY MARKET MUTUAL FUNDS - 1.2%
CoreFund Elite Treasury Reserve Portfolio 100,000 100,000
CoreFund Treasury Reserve Portfolio..... 930,872 930,872
-----------
Total Money Market Mutual Funds (COST $1,030,872).. 1,030,872
-----------
TOTAL INVESTMENTS (COST $69,034,775) - 100.3%........... 89,839,843
-----------
OTHER ASSETS AND LIABILITIES, NET - (0.3)%.............. (262,870)
-----------
NET ASSETS - 100.0%..................................... $89,576,973
===========
+ See Note 2 to Financial Statements.
* Non-income producing security.
++Non-Pennsylvania Company as defined in the Fund's current prospectus (the
aggregare value of such securities amounted to $20,723,530 as of June 30,
1997)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE SELECT OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
COMMON STOCK - 92.0%
FINANCE & INSURANCE - 5.9%
INSURANCE CARRIERS - 4.7%
Penn Treaty American Corp.*............. 6,000 $ 183,750
Penn-America Group, Inc................. 5,250 79,078
-----------
262,828
-----------
STATE & NATIONAL BANKS - 1.2%
Omega Financial Corp.................... 2,048 71,168
-----------
TOTAL FINANCE & INSURANCE......................... 333,996
-----------
MANUFACTURING - 48.2%
COMPUTER & OFFICE EQUIPMENT - 10.0%
Information Analysis, Inc.*............. 4,000 105,500
Iomega Corp.*........................... 6,000 119,250
Safeguard Scientifics, Inc.*............ 5,000 159,062
SI Handling Systems, Inc................ 9,600 177,600
-----------
561,412
-----------
ELECTRICAL MEASUREMENT & TEST INSTRUMENTS - 4.9%
Cohu, Inc............................... 3,000 93,750
GenRad, Inc.*........................... 8,000 181,000
-----------
274,750
-----------
ELECTRONIC TECHNOLOGY - 0.9%
Integrated Circuit Systems, Inc.*....... 2,200 49,912
-----------
FOOD & BEVERAGE - 1.8%
Quigley Corp.*.......................... 12,000 104,250
-----------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES - 14.6%
Cable Design Technologies*.............. 5,000 147,187
Checkpoint Systems, Inc.*............... 8,000 128,500
ORBIT/FR, Inc.*......................... 10,000 97,500
Park Electrochemical Corp. ............. 4,500 118,406
Technitrol, Inc......................... 7,000 191,625
Vishay Intertechnology, Inc.*........... 4,725 136,730
-----------
819,948
-----------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT - 3.7%
CFM Technologies, Inc.*................. 3,000 98,250
Met-Pro Corp............................ 7,300 110,413
-----------
208,663
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE SELECT OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
MISCELLANEOUS MANUFACTURING INDUSTRIES - 1.0%
American United Global, Inc.*........... 10,000 $ 57,500
-----------
OPTICAL & OPHTHALMIC GOODS, PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.8%
II-VI, Inc.*............................ 4,700 98,700
-----------
PETROLEUM REFINING - 1.8%
Tesoro Petroleum Corp.*................. 7,000 103,688
-----------
PHARMACEUTICAL PREPARATIONS - 1.1%
Halsey Drug Company, Inc.*.............. 14,000 64,750
-----------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES - 4.9%
Covalent Group, Inc.*................... 5,000 30,312
Environmental Tectonics Corp.*.......... 10,500 93,188
Intest Corp............................. 10,000 90,000
Osteotech, Inc.*........................ 1,500 15,750
Zonagen, Inc.*.......................... 2,000 43,750
-----------
273,000
-----------
TELECOMMUNICATIONS EQUIPMENT - 0.9%
Associated Group, Inc. (A Shares)*...... 1,200 48,000
-----------
TEXTILES & APPAREL - 0.8%
Jones Apparel Group, Inc.*.............. 1,000 47,750
-----------
TOTAL MANUFACTURING............................... 2,712,323
-----------
REAL ESTATE INVESTMENT TRUSTS - 3.7%
Crescent Real Estate Equities Co.
(When Issued).......................... 4,500 142,875
Crown American Realty Trust............. 7,000 64,750
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS............... 207,625
-----------
SERVICES - 22.7%
BUSINESS SERVICES - 7.8%
Diamond Technology Partners, Inc.*...... 7,000 72,625
Physician Support Systems, Inc.*........ 5,000 61,250
SOS Staffing Services, Inc.*............ 8,000 124,000
UTI Energy Corp.*....................... 4,000 182,500
-----------
440,375
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE SELECT OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
COMPUTER SERVICES - 12.3%
Computer Horizons Corp.*................ 2,250 $ 77,063
Daou Systems, Inc.*..................... 4,100 65,600
Keane, Inc.* ........................... 3,000 156,000
Mastech Corp.*.......................... 6,750 135,844
Sanchez Computer Associates, Inc.*...... 10,200 95,624
Systems & Computer Technology Corp.*.... 6,200 165,850
-----------
695,981
-----------
MEDICAL & HEALTH SERVICES - 2.5%
SMT Health Services, Inc.*.............. 12,000 138,750
-----------
PERSONAL SERVICES - 0.1%
Crescent Operating, Inc................. 250 3,000
-----------
TOTAL SERVICES.................................... 1,278,106
-----------
WHOLESALE & RETAIL TRADE - 11.5%
MISCELLANEOUS RETAIL STORES - 3.1%
Borders Group, Inc.*.................... 5,500 132,688
Compucom Systems, Inc.*................. 6,000 42,750
-----------
175,438
-----------
RETAIL APPAREL & ACCESSORY STORES - 4.8%
Bon-Ton Stores, Inc.*................... 15,000 120,000
Piercing Pagoda, Inc.*.................. 6,000 150,750
-----------
270,750
-----------
WHOLESALE - PETROLEUM & PRODUCTS - 2.2%
Harken Energy Corp.*.................... 17,500 122,500
-----------
WHOLESALE ELECTRONIC EQUIPMENT & COMPUTERS - 1.4%
CHS Electronics, Inc.................... 3,000 79,500
-----------
TOTAL WHOLESALE & RETAIL TRADE.................... 648,188
-----------
Total Common Stock (Cost $4,575,718).............. 5,180,238
-----------
PAR
---
COMMERCIAL PAPER - 3.6%
CoreStates, 4.25%, 07/01/97 - 07/07/97
(COST $200,000)..................... $200,000 200,000
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE SELECT OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE+
------ ------
MONEY MARKET MUTUAL FUNDS - 9.7%
CoreFund Elite Treasury Reserve
Portfolio.............................. 220,000 $ 220,000
SEI Daily Income Prime Obligations
Portfolio.............................. 327,527 327,527
-----------
Total Money Market Mutual Funds (Cost $547,527).... 547,527
-----------
TOTAL INVESTMENTS (COST $5,323,245) - 105.3% 5,927,765
-----------
SECURITIES SOLD SHORT - (0.9)%
Napro Biotherapeutics, Inc*............. 3,500 (25,375)
US Bioscience, Inc.*.................... 2,400 (23,100)
-----------
Total Securities sold short (proceeds $50,596).... (48,475)
-----------
RECEIVABLES FROM BROKERS FOR SECURITIES SOLD SHORT - 1.5% 84,157
-----------
OTHER ASSETS AND LIABILITIES, NET - (5.9)%............ (335,672)
-----------
NET ASSETS - 100.0%................................... $ 5,627,775
============
+ See Note 2 to Financial Statements.
* Non-income producing security.
SEE ACCOMPANYINGNOTES TO FINANCIAL STATEMENTS
<PAGE>
- -----------------------------------------------------------------------------
THE HOMESTATE GROUP
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1997
- -----------------------------------------------------------------------------
PENNSYLVANIA SELECT
GROWTH OPPORTUNITIES
FUND FUND
------------ ---------------
ASSETS
Investments in securities at market value
(identified cost $69,034,775 and $5,323,245,
respectively) (Note2)............... $ 89,839,843 $ 5,927,765
Cash....................................... 82,812 -
Deposits with brokers and custodian bank
for securities sold short.................. - 113,982
Receivables from brokers for securities
sold short................................ - 84,157
Receivables for:
Dividends and interest. ................... 83,746 2,050
Investment securities sold................ 518,515 181,812
Capital shares sold....................... 100,681 107,522
From Adviser.............................. - 14,837
Other assets.............................. - 8,962
--------------- -------------
Total assets........................... 90,625,597 6,441,087
--------------- -------------
LIABILITIES
Securities sold short at market value
(proceeds $50,596) (Note 2)................ - 48,475
Payables for:
Investment securities purchased........... 775,969 622,381
Capital shares repurchased................ 64,516 -
Accrued expenses........................... 208,139 40,846
Other payables............................. - 101,610
--------------- -------------
Total liabilities........................ 1,048,624 813,312
--------------- -------------
NET ASSETS................................. $ 89,576,973 $ 5,627,775
=============== =============
NET ASSETS CONSIST OF:
Shares of beneficial interest.............. $ 70,217,613 $ 4,972,912
Accumulated net realized gain (loss) on
investments............................... (1,445,708) 48,222
Net unrealized appreciation on investments
(Note 4).................................. 20,805,068 604,520
Net unrealized appreciation on securities
sold short................................ - 2,121
--------------- -------------
Net assets.............................. $ 89,576,973 $ 5,627,775
=============== =============
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE ($89,576,973/4,156,088 issued and
outstanding shares, no par value;and
$5,627,775/480,967 issued and outstanding
shares,no par value,respectively).......... $21.55 $11.70
====== ======
Maximum offering price per share
(100/95.25 of $21.55 and 100/95.25 of
$11.70, respectively)..................... $22.62 $12.28
====== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -----------------------------------------------------------------------------
THE HOMESTATE GROUP
STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30,1997
- -----------------------------------------------------------------------------
PENNSYLVANIA SELECT
GROWTH OPPORTUNITIES
FUND FUND*
------------ ---------------
INVESTMENT INCOME
Dividends................................. $ 823,145 $ 6,037
Interest.................................. 152,567 7,950
-------------- -------------
Total investment income................ 975,712 13,987
============== =============
EXPENSES
Advisory fees............................. 528,528 11,200
12b-1 fees................................ 249,651 3,920
Administration fees....................... 91,670 7,177
Transfer agent fees....................... 129,108 10,621
Custodial fees............................ 41,759 10,000
Accounting services fees.................. 49,201 14,356
Professional fees......................... 52,427 11,573
Printing expenses......................... 46,327 8,124
Registration fees......................... 32,786 9,271
Trustees fees and expenses................ 12,000 3,600
Miscellaneous expenses.................... 16,189 876
--------------- -------------
Total expenses before fee waivers and
reimbursements......................... 1,249,646 90,718
Advisory fee waived (Note 5)............... - (11,200)
Other fees waived (Note 5)................. - (5,335)
Reimbursement from Adviser (Note 5)........ - (47,862)
--------------- -------------
Total expenses,net........................ 1,249,646 26,321
--------------- -------------
NET INVESTMENT LOSS........................ (273,934) (12,334)
--------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment
transactions.............................. (1,094,445) 48,541
Net realized gain on securities sold
short...................................... - 12,015
Change in net unrealized appreciation on
investments................................ 9,793,385 604,520
Change in net unrealized appreciation on
securities sold short...................... - 2,121
-------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS................................. 8,698,940 667,197
-------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................. $ 8,425,006 $ 654,863
============== =============
* For the period February 18, 1997 (commencement of operations) through
June 30, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -----------------------------------------------------------------------------
THE HOMESTATE GROUP
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
PENNSYLVANIA SELECT
GROWTH OPPORTUNITIES
FUND FUND*
------------ ---------------
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OPERATIONS
Net investment loss........................ $ (273,934) $ (12,334)
Net realized gain (loss) on investment
transactions............................... (1,094,445) 48,541
Net realized gain on securities sold
short...................................... - 12,015
Change in unrealized net appreciation on
investments................................ 9,793,385 604,520
Change in unrealized net appreciation on
securities sold short...................... - 2,121
------------ -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. 8,425,006 654,863
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS+:
Net realized gain from investment
transactions............................... (3,944,375) -
------------ -----------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS - Note 3................ 29,268,289 4,972,912
------------ -----------
TOTAL INCREASE IN NET ASSETS................ 33,748,920 5,627,775
NET ASSETS:
Beginning of period........................ 55,828,053 -
------------ -----------
End of period.............................. $ 89,576,973 $ 5,627,775
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OPERATIONS
Net investment loss........................ $ (189,331)
Net realized gain on investment transactions 3,898,165
Change in unrealized appreciation on
investments............................... 7,151,550
-------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................ 10,860,384
-------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain from investment
transactions............................... (747,908)
-------------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS - Note 3................ 25,327,678
-------------
TOTAL INCREASE IN NET ASSETS................ 35,440,154
NET ASSETS:
Beginning of year.......................... 20,387,899
-------------
End of year................................ $ 55,828,053
=============
* For the period February 18, 1997(commencement of operations) through
June 30, 1997.
+ Does not include $ 829,465 long-term capital gain ($0.20 per share) for
the Pennsylvania Growth Fund and $55,890 short-term capital gain ($0.11
per share) for the Select Opportunities Fund distributed July 21, 1997
to shareholders of record as of July 15, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -----------------------------------------------------------------------------
THE HOMESTATE GROUP
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
PENNSYLVANIA GROWTH FUND
<TABLE>
<CAPTION>
PERIODS ENDED
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/30/97 6/30/96 6/30/95 6/30/94 6/30/93+
------- ------- ------- ------- --------
Net asset value at
beginning of period..... $21.25 $15.68 $12.37 $10.98 $10.00
------ ------ ------ ------ ------
Income from Investment
- ----------------------
Operations
- ----------
Net investment income
(loss) ................. (0.07) (0.07) (0.01) (0.03) 0.03
Net realized and
unrealized gain on
investments............. 1.78 6.17 3.54 1.53 0.95
------ ------ ------ ------ ------
Total from investment
operations............ 1.71 6.10 3.53 1.50 0.98
------ ------ ------ ------ ------
Less Distributions
- -------------------
Dividends from net
investment income ...... 0.00 0.00 0.00 (0.03) 0.00
Distributions from net
realized gains ......... (1.41) (0.53) (0.22) (0.08) 0.00
------ ------ ------ ------ ------
Total distributions.... (1.41) (0.53) (0.22) (0.11) 0.00
------ ------ ------ ------ ------
Net asset value at end
of period .............. $21.55 $21.25 $15.68 $12.37 $10.98
====== ====== ====== ====== ======
Total return**........... 9.56% 39.94% 28.96% 13.75% 13.07%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted)........... $89,577 $55,828 $20,388 $9,892 $3,026
Ratio of expenses to
average net assets
before reimbursement
by Adviser............... 1.77% 1.85% 2.00% 2.67% 7.85%*
Ratio of expenses to
average net assets after
reimbursement by Adviser. na1 na1 1.91% 2.23% 1.87%*
Ratio of net investment
loss to average net
assets before
reimbursement by Adviser. (0.39)% (0.58)% (0.20)% (0.76)% (5.24)%*
Ratio of net investment
income (loss) to
average net assets
after reimbursement by
Adviser.................. na1 na1 (0.10)% (0.32)% 0.74%*
Average commission
rate paid................. $0.0941 $0.0961 - - -
Portfolio turnover rate... 50% 66% 51% 51% 63%
<FOOTNOTE>
+ From commencement of operations: October 1, 1992.
* Annualized.
** Total return does not reflect 4.75% maximum sales charge.
1 Not applicable: no reimbursements were made by the Adviser.
</FOOTNOTE>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -----------------------------------------------------------------------------
THE HOMESTATE GROUP
FINANCIAL HIGHLIGHTS - CONTINUED
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, 1997:
SELECT OPPORTUNITIES FUND
Net asset value at
beginning of period........ $10.00
------
Income from Investment
- ----------------------
Operations
- ----------
Net investment loss....... (0.03)
Net realized and
unrealized gain on
investments................ 1.73
------
Total from investment
operations............... 1.70
------
Net asset value at end
of period ................. $11.70
======
Total return**.............. 17.00%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted)............. $5,628
Ratio of expenses to
average net assets
before reimbursement
by Adviser and waivers..... 8.10%*
Ratio of expenses to
average net assets after
reimbursement by Adviser
and waivers................ 2.35%*
Ratio of net investment
loss to average net
assets before
reimbursement by Adviser
and waivers................. (6.85)%*
Ratio of net investment
loss to average net assets
after reimbursement by
Adviser and waivers......... (1.10)%*
Average commission
rate paid................... $0.0983
Portfolio turnover rate...... 59%
+ From commencement of operations: February 18, 1997.
* Annualized.
** Total return does not reflect 4.75% maximum sales charge.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE GROUP
NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1997
- -------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF FUNDS
The HomeState Group (the "Trust"), an open-end management
company, was established as a Pennsylvania common law trust on
August 26, 1992, and is registered under the Investment
Company Act of 1940, as amended. The Trust has established
two series: the HomeState Pennsylvania Growth Fund and the
HomeState Select Opportunities Fund (each a "Fund" and
collectively, the "Funds"). The investment objective of each
Fund is set forth below.
The HomeState Pennsylvania Growth Fund 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.
To pursue its objective, 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.
The HomeState Select Opportunities Fund commenced operations
on February 18, 1997. The investment 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. It will usually emphasize companies having a
market capitalization of less than $1 billion. To pursue its
objective, the Fund will invest at least 65% of its total
assets in such companies.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies,
in conformity with generally accepted accounting principles,
which were consistently followed by each Fund in the
preparation of their 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.
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE GROUP
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
INCOME RECOGNITION - Interest income is accrued as earned.
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 - Each 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 for the HomeState Pennsylvania Growth Fund of
$273,934 for the fiscal year ended June 30, 1997 has been
charged to paid in-capital. In addition, net investment loss
for the HomeState Select Opportunities Fund of $12,334 for the
fiscal period ended June 30, 1997 has been reclassified to
accumulated net realized gain on investments. These
reclassifications have no effect on net asset values per share.
FEDERAL INCOME TAXES - Each 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.
CALL AND PUT OPTIONS - The HomeState Select Opportunities Fund
may write and/or purchase exchange-traded call options and
purchase exchange-traded put options on securities in the
Fund. When the Fund writes a call option, an amount equal to
the premium received is reflected as a liability. The amount
of the liability is subsequently "marked to market" to reflect
the current market value of the option written. If an option
which the Fund has written either expires on its stipulated
expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of
the closing transaction exceeds the premium received when the
option is sold), and the liability related to such option is
extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a gain or loss from the sale of
the underlying security, and the proceeds of which are
increased by the premium originally received.
<PAGE>
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THE HOMESTATE GROUP
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
The premium paid by the Fund for the purchase of a put option
is recorded as an investment and subsequently marked to market
to reflect the current market value of the option purchased.
If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund realizes a loss in the
amount of the cost of the option. If the Fund exercises a put
option, it realizes a gain or loss from the sale of the
underlying security, the proceeds of which are decreased by
the premium originally paid. The Fund limits the aggregate
value of puts and call options to 25% of the Fund's net
assets. There were no open option contracts for the HomeState
Select Opportunities Fund at June 30, 1997.
SHORT SALES - The HomeState Select Opportunities Fund may sell
securities short. Short sales are transactions in which the
Fund sells a security it does not own, in anticipation of a
decline in the market value of that security. To complete
such a transaction, the Fund must borrow the security to
deliver to the buyer upon the short sale; the Fund then is
obligated to replace the security borrowed by purchasing it in
the open market at some later date. The Fund will incur a
loss if the market price of the security increases between the
date of the short sale and the date on which the Fund replaces
the borrowed security. The Fund will realize a gain if the
security declines in value between those dates. All short
sales must be fully collateralized. The Fund maintains the
collateral in a segregated account consisting of cash, U.S.
Government securities or other liquid assets in an amount at
least equal to the market value of its short positions. The
Fund limits the value of short positions to 25% of the Fund's
net assets. At June 30, 1997, the HomeState Select
Opportunities Fund had 0.9% of its net assets in short
positions.
NOTE 3 - CAPITAL STOCK
At June 30, 1997, each Fund had an authorized unlimited number of
shares of beneficial interest with no par value.
The following table summarizes the capital share transactions of
each Fund:
THE HOMESTATE PENNSYLVANIA GROWTH FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR
JUNE 30, 1997 ENDED JUNE 30, 1996
------------------ --------------------
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sales..................... 1,703,122 $33,155,509 1,551,022 $29,459,053
Reinvested distributions.. 205,183 3,636,915 41,712 681,175
Redemptions............... (379,387) (7,524,135) (265,566) (4,812,550)
--------- ----------- --------- -----------
Net increase.............. 1,528,918 $29,268,289 1,327,168 $25,327,678
========= =========== ========= ===========
</TABLE>
<PAGE>
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THE HOMESTATE GROUP
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
THE HOMESTATE SELECT OPPORTUNITIES FUND
FOR THE PERIOD FEBRUARY 18, 1997
(COMMENCEMENT OF OPERATIONS)
THROUGH JUNE 30, 1997
----------------------------------
SHARES AMOUNT
------ ------
Sales............... 488,935 $5,056,927
Redemptions......... (7,968) (84,015)
------- ----------
Net increase........ 480,967 $4,972,912
======= ==========
NOTE 4 - INVESTMENT TRANSACTIONS
During the periods ended June 30, 1997, purchases and sales of
investment securities (excluding securities sold short and
short-term investments) were as follows:
HOMESTATE PENNSYLVANIA HOMESTATE SELECT
GROWTH FUND OPPORTUNITIES FUND
---------------------- ------------------
Purchases......... $64,500,992 $5,992,584
Sales............. $33,585,183 $1,472,276
The following balances for the Funds are as of June 30, 1997:
<TABLE>
<CAPTION>
COST FOR NET TAX TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED UNREALIZED
TAX PURPOSES APPRECIATION APPRECIATION DEPRECIATION
-------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Pennsylvania
Growth Fund............... $69,155,436 $20,684,407 $23,907,010 $3,222,603
Select Opportunities Fund... 5,326,183 601,582 661,836 60,254
</TABLE>
At June 30, 1997, The HomeState Select Opportunities Fund had
0.9% of its net assets in short positions. For the period
ended June 30, 1997, the cost of investments purchased to
cover short sales and the proceeds from those investments sold
short were $169,794 and $181,809, respectively.
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE GROUP
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
NOTE 5 - EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser (the
"Adviser") to the Funds for which it receives investment
advisory fees from each Fund. The fee for the HomeState
Pennsylvania Growth Fund is based on average daily net assets
at the annual rate of 0.75% on assets up to and including $250
million, 0.65% for assets in excess of $250 million up to
and including $500 million, 0.55% for assets in excess of $500
million up to and including $750 million, and 0.45% for
assets in excess of $750 million. The fee for the HomeState
Select Opportunities Fund is based on average daily net assets
at the annual rate of 1.00% on assets up to and including $100
million and 0.90% for assets in excess of $100 million. Under
the terms of the investment advisory agreement which expires
on December 31, 1997, Emerald Advisers, Inc. may also
voluntarily reimburse the Funds for certain expenses. Through
June 30, 1998, the Adviser has voluntarily agreed to waive its
advisory fee and/or reimburse other expenses for the Homestate
Select Opportunities Fund to the extent that the Fund's total
operating expenses exceeds 2.35% of the average daily net
assets of the Fund. At June 30, 1997, Emerald Advisers, Inc.
owned 115 shares of The HomeState Pennsylvania Growth Fund and
100 shares of the HomeState Select Opportunities Fund.
The following table summarizes the advisory fees and expense
waivers/reimburesments for the period ended June 30, 1997:
GROSS ADVISORY FEE REIMBURSEMENT
ADVISORY WAIVED FROM ADVISER
--------- ------------ --------------
Pennsylvania Growth Fund $ 528,528 $ 0 $ 0
Select Opportunities Fund 11,200 11,200 47,862
Rodney Square Distributors, Inc. ("RSD"), a wholly owned
subsidiary of Wilmington Trust Company, is the sole
distributor of the Trust shares pursuant to a Distribution
Agreement with each Fund. Each Fund has adopted a distribution
services plan (the "Plan") under Rule 12b-1 of the Investment
Company Act of 1940. The Plan allows each Fund to reimburse
RSD for a portion of the costs incurred in distributing each
Fund's shares, including amounts paid to brokers or dealers,
at an annual rate not to exceed 0.35% of each Fund's average
daily net assets. During the periods ending June 30, 1997,
the HomeState Pennsylvania Growth Fund and the HomeState
Select Opportunities Fund incurred expenses of $249,651 and
$3,920, respectively, pursuant to the Plan.
<PAGE>
- -------------------------------------------------------------------------------
THE HOMESTATE GROUP
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1997
- -------------------------------------------------------------------------------
Pursuant to separate Administration, Accounting Services and
Transfer Agency Agreements with each Fund, Rodney Square
Management Corporation ("RSMC"), a wholly owned subsidiary of
Wilmington Trust Company, serves as administrator, accounting
and transfer agent. During the periods ended June 30, 1997,
the HomeState Pennsylvania Growth Fund and the HomeState
Select Opportunities Fund incurred administration fees
totaling $91,670 and $7,177, of which $0 and $1,192 were
waived, respectively, accounting service fees totaling $49,201
and $14,356, of which $0 and $2,384 were waived, respectively,
and transfer agent fees totaling $129,108 and $10,621, of
which $0 and $1,759 were waived, respectively.
The Funds' Declaration of Trust provides that each Trustee
affiliated with the Funds' Adviser shall serve without
compensation and each Trustee who is not so affiliated shall
receive fees from the income of each Fund, and expense
reimbursements for each Trustees meeting attended. An
unaffiliated Trustee's annual fee shall not exceed $1,000. A
member of the Funds' 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 $34,927 and
$4,573 were incurred by the HomeState Pennsylvania Growth Fund
and the HomeState Select Opportunities Fund, respectively, to
Duane, Morris & Heckscher druing the periods ending June 30,
1997.
<PAGE>
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THE HOMESTATE GROUP
REPORT OF INDEPENDENT ACCOUNTANTS JUNE 30, 1997
- -------------------------------------------------------------------------------
August 7, 1997
To the Trustees and Shareholders of
The HomeState Group
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
the HomeState Pennsylvania Growth Fund and the HomeState Select
Opportunities Fund (constituting The HomeState Group, hereafter
referred to as the "Fund") at June 30, 1997 and the results of each
of their operations, the changes in each of their net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements
and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at June 30, 1997 by correspondence with the custodian, and
where appropriate,the application of alternataive auditing procedures
for unsettled security transactions, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
/S/ Price Waterhouse LLP
Philadelphia, PA
<PAGE>
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THE HOMESTATE GROUP
TAX INFORMATION (UNAUDITED) JUNE 30, 1997
- -------------------------------------------------------------------------------
For Federal tax purposes, the HomeState Pennsylvania Growth Fund
hereby designates $2,972,072 as long-term capital gain distributions
paid during fiscal 1997.
<PAGE>
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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 MARKETING / BROKER
SERVICES (800) 232-OK-PA
LEGAL COUNSEL SHAREHOLDER
------------- SERVICES (800) 892-1351
DUANE, MORRIS & HECKSCHER
HARRISBURG, PA
24 HOUR PRICING INFORMATION
---------------------------
1-800-232-0224
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>
- -------------------------------------------------------------------------------
ANNUAL REPORT
HOMESTATE
---------
[EMERALD ADVISERS LOGO]
---------
MUTUAL FUNDS
JUNE 30, 1997
- -----------------------------------------------------------------------------
