Filed with the Securities and Exchange Commission on
September 15, 1997
File No. 33-48940
File No. 811-6722
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 8
-
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 x
-
(Check appropriate box or boxes.)
The HomeState Group
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(Exact Name of Registrant as Specified in Charter)
1857 William Penn Way, Suite 203, Lancaster, PA 17605
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (717) 396-7864
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Scott L. Rehr
1857 William Penn Way, Suite 203, Lancaster, PA
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Upon effective date of
----------------------
this registration statement
---------------------------
It is proposed that this filing will become effective (check
appropriate box)
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:
o This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933:
An indefinite number of securities is being registered under
the Securities Act of 1933 pursuant to Rule 24f-2
thereunder.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
HomeState Pennsylvania Growth Fund
HomeState Select Opportunities Fund
Items Required By Form N-1A
PART A - PROSPECTUS*
Form N-1A
Item Number Location in Prospectus
- ----------- ----------------------
1. Cover Page Cover Page
2. Synopsis Fund Expenses; Prospectus Summary;
Risk Factors
3. Condensed Financial Financial Highlights**; Performance
Information Calculations
4. General Description of Prospectus Summary; Risk Factors;
Registrant Investment Objective;
Investment Policies; Other
Investment Policies;
Investment Limitation
5. Management of the Fund Prospectus Summary; Investment
Adviser; Administrative
Services; Portfolio Transactions
5A. Management's Discussion of To be provided in
Fund Performance Registrant's Annual Report to
Shareholders
6. Capital Stock and other Purchase of Shares; Dividends,
Securities Capital Gains Distributions and
Taxes; General Information
7. Purchase of Securities Purchase of Shares; Distributor;
Being Offered Purchase of Shareholder Services;
Valuation of Shares
8. Redemption or Repurchase Redemption of Shares; Distributor;
Shareholder Services
9. Legal Proceedings Not Applicable
* PREVIOUSLY FILED WITH THE REGISTRANT'S POST-EFFECTIVE AMENDMENT NO. 6 TO
THIS REGISTRATION STATEMENT (FILED ON FEBRUARY 7, 1997) AND INCORPORATED
HEREIN BY REFERENCE.
** PREVIOUSLY FILED WITH THE REGISTRANT'S POST EFFECTIVE AMENDMENT NO. 7 TO
THIS REGISTRATION STATEMENT (FILED ON AUGUST 18, 1997) AND INCORPORATED HEREIN
BY REFERENCE.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
HomeState Year 2000 ("Y2K") Fund
Items Required By Form N-1A
PART A - PROSPECTUS
Form N-1A
Item Number Location in Prospectus
- ------------ ----------------------
1. Cover Page Cover Page
2. Synopsis The Y2K Fund Expense Summary;
Risk Factors
3. Condensed Financial Not Applicable
Information
4. General Description of Investment Objectives and
Registrant Policies; Risk
Factors; Investment Objective,
Policies and Risks; Investment
Policies and Techniques;
Investment Restrictions
5. Management of the Fund Management of the Fund; The
Investment Adviser;
Administrator, Accounting and
Transfer Agent; Portfolio
Transactions
5A. Management's Discussion of To be provided in
Fund Performance Registrant's Annual Report to
Shareholders
6. Capital Stock and other How to purchase Shares;
Securities Purchasing Shares;
Dividends, Distributions and
Taxes; General Information
7. Purchase of Securities Purchasing Shares; Distributor;
Being Offered Shareholder Services; Valuing
the Fund's Shares
8. Redemption or Repurchase How to Redeem Shares of the
Fund; General Redemption
Information
9. Legal Proceedings Not Applicable
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
HomeState Pennsylvania Growth Fund
HomeState Select Opportunities Fund
Items Required By Form N-1A
PART B - STATEMENT OF ADDITIONAL INFORMATION*
Form N-1A Location in Statement
Item Number of Additional Information
- ----------- -------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page; Table of Contents
12. General Information and History General Information
13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Limitations
14. Management of the Registrant Management of the Fund;
Investment Adviser
15. Control Persons and Principal Management of the Fund
Holders of Securities
16. Investment Advisory and Other Investment Adviser
Services
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities General Information
19. Purchase, Redemption and Pricing Purchase of Shares;
Securities Being Offered Redemption of Shares;
Shareholder Services
20. Tax Status General Information
21. Underwriters Management of the Fund
22. Calculation of Performance Data Performance Calculations
23. Financial Statements Financial Statements**
*PREVIOUSLY FILED WITH THE REGISTRANT'S POST-EFFECTIVE AMENDMENT NO. 6
TO THIS REGISTRATION STATEMENT (FILED ON FEBRUARY 7, 1997) AND INCORPORATED
HEREIN BY REFERENCE.
** PREVIOUSLY FILED WITH THE REGISTRANT'S POST EFFECTIVE AMENDMENT NO. 7 TO
THIS REGISTRATION STATEMENT (FILED ON AUGUST 18, 1997) AND INCORPORATED HEREIN
BY REFERENCE.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
HomeState Year 2000 ("Y2K") Fund
Items Required By Form N-1A
PART B - STATEMENT OF ADDITIONAL INFORMATION
Form N-1A Location in Statement
Item Number of Additional Information
- ------------ -------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page; Table of Contents
12. General Information and History General
13. Investment Objectives and Additional Information
Policies Concerning Investment
Objectives, Policies and
Risks; Fundamental
Restrictions; Non-Fundamental
Restrictions
14. Management of the Registrant Management of the Fund;
Investment Adviser
15. Control Persons and Principal Management of the Fund
Holders of Securities
16. Investment Advisory and Other Investment Adviser and
Services Principal Underwriter
17. Brokerage Allocation Additional Brokerage
Allocation Information
18. Capital Stock and Other Securities General Information
19. Purchase, Redemption and Pricing Additional Purchase and
of Securities Being Offered Redemption
20. Tax Status General Information
21. Underwriters Management of the Fund
22. Calculation of Performance Data Measuring Performance
23. Financial Statements Not Applicable
<PAGE>
PROSPECTUS DATED _____________, 1997
THE YEAR 2000 ("Y2K") FUND
Mailing 1857 William Penn Way
Address P.O. Box 10666
Emerald Advisers, Inc. Lancaster, PA 17605-0666
Investment Adviser Phone (888) Y2K-FUND
Toll-Free
(717)396-1116 - Local &
International
INVESTMENT OBJECTIVES AND POLICIES
The Year 2000 ("Y2K") Fund (the "Y2K Fund" or "Fund") is a
series of the HomeState Group (the "Trust"), an open-end management
company organized on August 26, 1992 as a common law trust under
Pennsylvania law. The Trust currently operates three series.
Information about the other two series can be obtained by
contacting the Trust at the telephone numbers listed above. The
information contained in this prospectus relates only to The Y2K
Fund.
The Fund seeks capital appreciation by investing primarily in
equity securities of public companies which have stated, or been
reported as possessing, an intention of developing or supporting
marketable solutions to problems stemming from the susceptibility
of various business and other computer application programs or
systems to fail, or to produce inappropriate results, regarding
data, calculations or other processing involving dates subsequent
to December 31, 1999. Under normal conditions, the Fund will
invest not less than 65% of its net assets in a non-diversified
portfolio of equity securities of these "Y2K companies". The
Fund's adviser may engage in option and short-selling strategies
to satisfy the stated 65% minimum requirement. The Fund's
adviser may also engage in option and short-selling, as well as
conventional securities, strategies to gain short as well as long
investment exposure to companies that do not meet the criteria of
being treated as a "Y2K company", but which the adviser believes
will also be impacted, favorably or unfavorably, by efforts to
solve Year 2000 computer system related problems.
Due to the limited time horizon associated with the Fund's
investment objective, the Fund's adviser intends to principally
pursue the objective of capital appreciation by capturing short-
term trading gains, rather than holding portfolio securities for
longer term appreciation. Such an active trading strategy is
likely to result in higher brokerage commission expenses, at the
Fund level, and potentially greater taxable ordinary income for
investors (to the extent that there are distributable gains, if
any, at the Fund level) than would be displayed by most other
registered investment companies. The Fund, accordingly, may not
be suitable for all investors and should not be regarded,
standing alone, as a complete investment program.
Due to the relatively limited number of companies in which the
Fund will principally invest, the Fund may not become fully
invested until up to 60 days following the commencement of the
public offering of its shares. In the interim, the Fund may
invest proceeds of its offering in the shares of money market
mutual funds which will cause investors to incur duplicate
investment management fees and other expenses.
The Fund's investment objective, for which there is no guarantee
of achievement, may not be changed without a vote of the holders
of a majority of the outstanding shares of the Fund. Before or
during the last six months of calendar year 2000, the Board of
Directors of the Fund plan to consider (1) implementation of an
offer of exchange whereby investors would be afforded the
opportunity to exchange shares of the Fund for shares of one or
more other registered investment companies, and/or (2)
solicitation of Fund shareholders for proxies regarding a vote
upon one or more of the following options, as the Board may then
determine to be in the best interests of all Fund shareholders,
as a group: (A) a change in the Fund's investment objective
and/or fundamental investment policies; (B) a merger into or
consolidation with another registered investment company; or (C)
dissolution and liquidation of the Fund's assets. Under current
laws and regulations, proceeding pursuant to the exchange offer
or dissolution options (see (1) and (2.c) above) would result in
taxable events, for federal income tax purposes, to Fund
investors. Changing the Fund's investment objective and policies
(see (2.a) above) would have no specific federal income tax
consequences at the Fund or investor level, while a merger or
consolidation transaction with another investment company (see
(2.b) above) might or might not constitute a federal income
taxable event for the Fund and Fund investors, depending upon how
the transaction was structured and pursued.
<PAGE>
PURCHASE INFORMATION
Shares of the Fund can be purchased through any independent
securities dealer having a sales agreement with the Fund's
Distributor, at the then-current net asset value plus a sales
charge of 2.90%. There are several ways to purchase shares at a
reduced sales charge. See "How to Purchase Shares of the Fund"
for more information. The required minimum initial investment in
the Fund is $500 and the minimum subsequent investment is $50.
The minimum initial and subsequent investment amounts are $50
under the Fund's AutoInvest Plan.
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 September , 1997 has been filed with the Securities and
Exchange Commission and is incorporated by reference into this
Prospectus. The Statement of Additional Information includes a
description of the Fund's trustees and officers, further
discussion of investment policies, restrictions and other details
regarding the management and operations of the Fund, and is
available at no charge by writing or calling the Fund at the
address or phone numbers listed above.
For further information concerning a new account, call the Fund
at (888) Y2K-FUND. For questions about an established account,
call Rodney Square Management Corporation, the Fund's shareholder
services agent, at (800) 892-1351.
Shares of the Fund 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
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Investment Objectives and Policies 1
Purchase Information 2
Additional Information 2
Expenses Summary 4
Financial Highlights 4
Investment Objectives and Policies 5
How to Purchase Shares of the Fund 12
How to Redeem Shares of the Funds 15
Valuing the Fund's Shares 16
Management of the Fund 16
Brokerage Allocation 19
Dividends, Distributions and Taxes 19
General Information 20
Appendix: Year 2000 Industry Companies 22
<PAGE>
THE Y2K FUND
EXPENSES SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(As a percentage of Maximum offering price) ... 2.90% (1)
Sales Load Imposed on Reinvested Dividends .... None
Deferred Sales Load ........................... None
Redemption Fees ............................... None
Exchange Fees ................................. None
Wire Transfer of Redemption Proceeds Fee ...... $12.00
ANNUAL FUND OPERATING EXPENSES (2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
12b-1 Fees(3) 0.70%
Other Expenses (After Reimbursement) 1.20%(3)
TOTAL OPERATING EXPENSES 2.90%(4)
EXAMPLE OF EXPENSES
An investor would have directly or indirectly paid the
following expenses at the end of the periods shown on a
hypothetical $1,000 investment in the Fund, assuming a 5% annual
return and redemption at the end of each period:
One Three
Year Years
$58 $117
This table is provided to help you understand the expense of
investing in the Fund and your share of the operating expenses
which the Fund incurs. 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 Fund's actual annual returns
will vary.
- -----------------------------------------------------------------
(1) The rules of the Securities and Exchange Commission (the
"SEC") require that the maximum sales charge (in the Fund's case,
2.90% 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 Fund" for more
information.
(2) The table shows estimated expenses for The Y2KFund.
(3) The Fund's total other expenses and total operating
expenses have been reduced to reflect the reimbursement of
certain expenses of the Fund by the Adviser. Absent the
reimbursement, the Fund's total other expenses would have been
x.00% and the Fund's total operating expenses would have been
x.00%.
(4) Because The Y2K 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 2.90% at least
through and including June 30, 1998. Absent that limitation, the
"Other Expenses" and "Total Operating Expenses" would be
estimated to be x.47% and x.82%, respectively.
The Y2K Fund commenced operations on September _____, 1997. Its
operations up to September , 1997 were limited to the issuance
of 100 shares at $10.00 to the Fund's investment adviser.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective of the Fund is to seek capital
appreciation by investing primarily in equity securities of
public companies which have stated, or been reported as
possessing, an intention of developing or supporting marketable
solutions to problems stemming from the susceptibility of various
business and other computer application programs or systems to
fail, or to produce inappropriate results, regarding data,
calculations or other processing involving dates subsequent to
December 31, 1999. The Fund can invest a larger percentage of
its assets in a particular company, and will focus on those
companies identified by the Fund's adviser as having what it
believes are superior prospects for price appreciation. The
Fund's annual portfolio turnover rate is expected to not exceed
200%. 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 principal risk factor associated with an
investment in the Fund is that the market value of the Fund's
portfolio securities may decrease and result in a decrease in the
value of a shareholder's investment. The Fund is likely to
pursue active securities, options, futures and short-selling
trading strategies, and may not be suitable for all investors.
For a fuller discussion of the risks posed by an investment in
the Fund, see "Risk Factors" below.
INVESTMENT POLICIES AND TECHNIQUES
EQUITY SECURITIES
Under normal conditions, the Fund will invest not less than
65% of its total net assets in a non-diversified portfolio of
equity securities of public companies identified by the Fund's
adviser as being involved in the "Year 2000 Industry" -- i.e.,
companies that are actively engaged in developing, or supporting
the development or implementation of, marketable solutions to the
"Year 2000 Problem". The fund will invest principally in common
stocks, but may also invest in preferred stocks and convertible
securities of Y2K, as well as other, companies.
THE YEAR 2000 INDUSTRY. The "Year 2000 Problem" stems
mainly from system design decisions made over a decade ago, when
the requirement to save cost by storing the year of date fields
as two digits instead of four far outweighed the consideration
for what would happen in the year 2000. In these designs, the
year 2000 ("00") will appear to be 1900 ("00"), 2001 will appear
to be 1901, etc. Whereas the difference between the year 1996
and 2006 is ten years in a four-digit system, in a two-digit
system it is 90. Some of the manifestations of the Year 2000
Problem may include: credit cards with an expiration date of
01/00 will appear to have expired and will be rejected;
mortgages, interest payments, forecasting systems where time
periods are calculated will all produce incorrect results, etc.
Left uncorrected, all date sensitive calculations involving the
years 2000 or later will result in massive computer malfunctions.
The costs of correcting the problem have been estimated at
anywhere from $200 to $800 billion or more worldwide. The
estimate given greatest credibility by the Fund's adviser is the
range of $300 billion to $600 billion, generated by the Gartner
Group, a computer/technology consulting firm of which
representatives testified before a U.S. House of
Representatives subcommittee exploring the Y2K issue. Total costs
include hardware and software conversion, replacement systems,
lost productivity and litigation.
The Fund will primarily target small systems integrators,
tool vendors and conversion factories. Companies targeted as
possible investment opportunities include computer/technology
firms and others which support the Y2K solutions offered.
Computer/technology companies may increase revenues through the
following Y2K-related activities: 1. Assessment of a company's
potential Y2K impact on systems; 2. Planning to
correct/prioritize Y2K problems; 3. Actual correction of Y2K
problems; 4. Testing of Y2K solutions. Many different firms may
be involved in each of these tasks for any one company's Y2K
problems. Companies which may increase revenues based on Y2K work
also include staffing companies to provide information technology
workers to assist in the correction process and disaster recovery
companies which can sell excess system time to customers at
premium prices. See "Appendix: Year 2000 Industry Companies" for
a listing of the companies which the Fund's adviser has
identified as currently participating in the Year 2000 industry.
<PAGE>
SMALL COMPANIES. The Fund's portfolio will typically
include equity securities of smaller companies, i.e., those
having a total market capitalization (as determined by the Fund's
investment adviser) of less than $1 billion ("small cap
companies"). Small cap companies are not as widely followed by
institutional investment analysts as larger companies such as
those listed on the New York Stock Exchange. During some
periods, the securities of small cap companies, as a class, have
performed better than the securities of larger companies, and in
some periods they have performed worse. 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 available information
about small cap 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.
CONVERTIBLE SECURITIES. The Fund may invest in securities
convertible into common stock, but only when the Fund's
investment adviser believes that the expected total return upon
such a security exceeds the expected total return of common
stocks eligible for inclusion in the Fund's portfolio. The Fund
will purchase only those convertible securities which have
underlying common stock with potential for long-term growth in
the adviser's opinion. The Fund will only invest in investment-
grade convertible securities, i.e., those rated in the top four
categories by either Standard & Poor's Corporation ("S & P") or
Moody's Investor Services, Inc. ("Moody's"). For more
information regarding rating categories, see "Appendix A:
Description of Ratings" in the Statement of Additional
Information.
FIXED INCOME SECURITIES
The Fund may invest up to 35% of the value of its total
assets in investment-grade corporate bonds and notes, United
States Government securities (including mortgage related
instruments), 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 Fund will make use of short-
term instruments primarily under circumstances where it has cash
to manage for a brief time period (e.g., after receiving dividend
distributions, proceeds from the sale of portfolio securities or
money from the sale of Fund shares to investors).
The Fund will not engage in direct investment in real estate
or real estate mortgage loans, but may invest in mortgage
related instruments issued or guaranteed by the United States
Government. For more information regarding these instruments,
see the Statement of Additional Information.
OPTIONS, FUTURES AND SHORT-SELLING STRATEGIES
In managing the Fund, the adviser may engage in options,
futures and short-selling strategies to hedge various market
risks or to enhance potential gain. Certain special
characteristics of and risks associated with using these
strategies are discussed below. Use of options, futures and
short-selling is subject to applicable regulations of the SEC and
the several options and futures exchanges upon which these
instruments may be traded. The Board of Trustees has adopted
investment guidelines (described below) reflecting these trading
regulations.
The Fund will not use leverage in its options, futures or
short-selling 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 the prescribed
amount(s) in one or more segregated accounts with the Fund's
custodian; or (2) hold securities or other options or futures
contracts whose values are expected to offset ("cover") its
obligations thereunder. Assets used for cover cannot be sold or
closed out while the position for which they serve as cover is
outstanding, unless they are replaced with similar assets. As a
result, there is a possibility that the use of up to 25% of the
Fund's assets as cover may impede portfolio management, or the
Fund's ability to meet redemption requests or other current
obligations.
<PAGE>
OPTIONS STRATEGIES. The Fund may purchase and write (sell)
options on securities and securities indices that are traded on
U.S. exchanges 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 also write covered
call options of securities in which it is authorized to invest
for hedging purposes or to increase return in the form of
premiums received.
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 also write covered put options on securities in
which it is authorized to invest for hedging purposes or to
increase return in the form of premiums received.
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"). Securities used to cover options
written by the Fund are considered illiquid and therefore subject
to the Fund's limitations on investing in illiquid securities.
For a more complete discussion of these and other hedging
techniques, investors are directed to the Fund's Statement of
Additional Information (including Appendix B thereof).
OPTIONS GUIDELINES. The 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 thereby.
(2) The Fund will not write options (whether on securities
or securities indexes) if aggregate exercise prices of
previously written outstanding options, together with
the value of assets used to cover all outstanding short-
sale positions, would exceed 25% of its total net assets.
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.
<PAGE>
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 by 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.
FUTURES AND RELATED OPTIONS STRATEGIES. The Fund may engage
in futures strategies for hedging purposes to attempt to reduce
the overall investment risk that would normally be expected to be
associated with ownership of the securities in which it invests.
The Fund may also engage in futures strategies to enhance
potential gain, subject to certain voluntary, as well as
regulatory, percentage limitations as discussed below.
The Fund may sell securities index futures contracts in
anticipation of a general market or market sector decline that
could adversely affect the market value of the Fund's securities
holdings. The Fund may purchase index futures contracts if a
significant market or market sector advance is anticipated. The
Fund may purchase a call option on an index futures contract to
hedge against a market advance in securities that the Fund plans
to acquire at a future date. The Fund may write covered put
options on index futures as a partial anticipatory hedge, and may
write covered call options on index futures as a partial hedge
against a decline in the prices of securities held by the Fund.
The Fund also may purchase put options on index futures
contracts.
FUTURES AND RELATED OPTIONS GUIDELINES. 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 vote.
(1) The Fund will engage only in covered futures
transactions, and each such transaction will remain
covered so long as the Fund is obligated thereby.
(2) The Fund will not purchase or sell non-hedging
futures contracts or related options if aggregate initial
margin and premiums required to establish such positions
would exceed 5% of the Fund's total assets. For purposes of
this limitation, unrealized profits and unrealized losses on
any open contracts are taken into account, while the in-the-
money amount of an option that is, or was, in-the-money at
the time of purchase is excluded.
(3) The Fund will not write options (whether hedging
or non-hedging) on futures contracts if aggregate exercise
prices of previously written outstanding options (whether on
securities or securities indexes), together with the value
of assets used to cover all outstanding short-sale
positions, would exceed 25% of its net assets.
<PAGE>
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED
OPTIONS TRADING. In considering the Fund's use of futures
contracts and related options, particular note should be taken of
the following:
(1) Successful use by the Fund of futures contracts
and related options will depend upon the adviser's ability
to predict movements in the direction of the securities
markets, which requires different skills and techniques than
predicting changes in the prices of individual securities.
Moreover, futures contracts relate not only to the current
price level of the underlying securities, but also to
anticipated price levels at some point in the future. If
the price of the futures contract moves more than the price
of the underlying securities, the Fund will experience
either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of
the securities that are the subject of the hedge. As a
result, a correct forecast of general market trends may not
result in successful hedging through the use of futures
contracts over the short term. In addition, activities of
large traders in both the futures and securities markets
involving arbitrage and other investment strategies may
result in temporary price distortions.
(2) Movements in the prices of futures contracts may
not correlate perfectly with movements in the prices of the
hedged securities due to price distortions in the futures
market. As a result, a correct forecast of general market
trends may not result in successful hedging through the use
of futures contracts over the short term. In addition,
activities of large traders in both the futures and
securities markets involving arbitrage and other investment
strategies may result in temporary price distortions
(3) Positions in futures contracts may be closed out
only on an exchange or board of trade that provides a
secondary market for such futures contracts. Although the
Fund intends to purchase and sell futures only on exchanges
or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist
for any particular contract at any particular time. In such
event, it may not be possible to close a futures position,
and in the event of adverse price movements, the Fund would
continue to be required to make variation margin payments.
(4) Like options on securities, options on futures
contracts have limited life. The ability to establish and
close out options on futures will be subject to the
development and maintenance of liquid secondary markets on
the relevant exchanges or boards of trade. There can be no
certainty that such markets for all options on futures
contracts will develop.
(5) As is the case with options, the Fund's activities
in the futures markets may result in a higher portfolio
turnover rate and additional transaction costs in the form
of added brokerage commissions. However, the Fund also may
save on commissions by using futures contracts or options
thereon 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 GUIDELINE. The Fund has adopted the following
investment guideline to govern its use of short-selling
strategies. This guideline may be modified by the Board of
Trustees without shareholder approval.
<PAGE>
The Fund will not initiate a short-sale position if the
value of assets used to cover all outstanding short-sale
positions, together with the aggregate exercise prices of
outstanding options written by the Fund, would exceed 25% of
the Fund's total net assets.
SPECIAL CHARACTERISTICS AND RISKS OF 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. Investors should carefully consider
the risks of such investments before investing in the Fund.
OTHER INVESTMENT TECHNIQUES
On those occasions when, in the opinion of the Fund's
investment adviser, market conditions warrant a temporary
defensive approach, the Fund may invest more than 35 percent of
its 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 Fund has adopted a temporary defensive
position it will not be achieving its stated investment
objective.
The Fund 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 Fund's 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 Fund. Repurchase agreements involve
certain risks, including the seller's default on its obligation
to repurchase or the seller's bankruptcy.
RISK FACTORS
INDUSTRY CONCENTRATION
The Year 2000 industry is, at present, an extremely narrow
and potentially short-term industry. While companies in the same
industry are often faced with the same obstacles, issues or
regulatory burdens, and their securities may react similarly to
and move in unison with these or other market conditions,
companies in the Y2K industry will be especially susceptible to
new technologies and processes developed by competitors or
customers.
EQUITY SECURITIES OF SMALL COMPANIES
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.
NON-DIVERSIFICATION
As a "non-diversified" Fund, The Y2K 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 No. 1, below.
FIXED-INCOME SECURITIES
The price of fixed-income securities in which the Fund
invests are likely to decrease in times of rising interest rates.
Conversely, when rates fall, the value of the Fund's debt
securities may rise. Price changes of these debt securities held
by the Fund have a direct impact on the net asset value per share
of the Fund.
<PAGE>
CONVERTIBLE SECURITIES
The value of convertible securities will usually vary with
the value of the underlying common stock, and will normally
fluctuate inversely with interest rates. A principal risk
associated with the purchase of convertible securities is that
the conversion price of the common stock will not be attained.
OPTIONS, FUTURES, RELATED OPTIONS AND SHORT-SELLING STRATEGIES
Options, futures, related options and short-selling
strategies may be considered speculative and may involve risks
beyond the initial capital necessary to secure each transaction.
See the discussion at pages _______ (and, in particular, the
three segments captioned "Special Characteristics and Risks") for
a discussion of risks posed by these strategies. Further
discussion of these strategies appears at "Appendix B: Options,
Futures and Short-Selling Strategies" in the Statement of
Additional Information. Investors should carefully consider the
risks of such investment techniques before investing in the Fund.
INVESTMENT RESTRICTIONS
The Fund is 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 Fund may not:
1. Invest more than 25% of the value of its total
assets in the equity or debt of one issuer (other than
obligations issued or guaranteed by the United States
Government), nor, with respect to 50% of its total
assets, invest more than 5% of the value of such 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,
except that the Fund shall, under normal conditions, invest
not less than 25% of its total assets in the Year 2000/
Technology industries.
3. Acquire more than 10% of the outstanding voting
securities of any issuer.
4. Issue or sell senior securities, except that the Fund
may engage in options, futures and/or short-selling
strategies provided the Fund complies with certain
anti-leverage (or so-called "cover") guidelines of the
SEC. Securities or other options or futures contracts used
for cover will not be sold or closed out while such strategies
are outstanding, unless they are replaced with similar assets.
5. 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 total net assets.
The foregoing investment limitations are considered as applying
at and as of the time when purchases, sales, short sales or other
transactions initially occur.
See the Fund's Statement of Additional Information for the
full text of these policies and the Fund's other fundamental
policies, as well as a listing of non-fundamental policies which
the Board of Trustees may change without shareholder approval.
<PAGE>
HOW TO PURCHASE SHARES OF THE FUND
Shares of the Fund 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 Fund's principal
distributor. If an investor would like assistance in locating a
dealer, he or she should contact the Fund. 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 Fund are purchased at net asset value per
share next determined after an order is received (See "Valuing
the Fund's Shares"), plus any applicable sales charge as
described below, which is known as the "offering price." Fund
shareholders pay an ongoing distribution services fee at an
annual rate of up to 0.70% of the Portfolio's aggregate average
daily net assets attributable to Funds shares (See "Management of
the Fund -- The Distribution Plan").
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 $100,000 2.90% x.xx% 2.40%
$100,000 to $250,000 1.90% x.xx 1.40%
$250,000 to $500,000 1.00% x.xx .90%
$500,000 & Above 0.00% 0.00 0.50%
REDUCED SALES CHARGE
There are several ways for shareholders to qualify to pay a
lower sales charge:
(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 Fund or its 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 Fund's 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 Fund's 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:
<PAGE>
(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 Fund at the net asset value
without sales charge;
(ii) Shareholders who have redeemed any or all of their
shares of the Fund 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) Investor's shares purchased by advisory accounts
managed by S.E.C.-registered investment advisers or
bank trust departments;
(iv) Trustees, Officers, Employees (and those retired)
of the Fund, its 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 $500,000 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 Fund 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
Fund 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 Fund 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 Fund 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 Y2K Fund,
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 Y2K Fund, 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 Fund 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: The Y2K Fund
(followed by the name in which the account is
registered,and the account number).
<PAGE>
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 the Fund 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 Fund provides 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 Fund also provides for an automatic investment plan
whereby shareholders may arrange to make regular monthly,
quarterly, semi-annual, or annual investments in the Fund.
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 Fund 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 Fund's valuation calculated on the
next business day.
The Fund may refuse any order for the purchase of shares
which the Board of Trustees deems as not in the best interests of
the Fund.
Stock certificates representing shares of the Fund 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.
<PAGE>
HOW TO REDEEM SHARES OF THE FUND
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
Fund's 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 Fund's
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 Fund's Transfer Agent receives all
telephone calls for telephone instructions on a recorded phone
line. The Fund and/or its Transfer Agent will employ such
reasonable procedures to confirm that instructions communicated
by telephone are genuine. If they fail to employ reasonable
procedures, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. The Fund reserves 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 Fund may delay
payment until such time as the funds in question have been
properly cleared and collected by the Fund.
Due to the relatively high administration cost of smaller
shareholder accounts, the Fund reserves 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 Fund will provide a 30-
day written notice to such shareholder prior to initiating such a
redemption.
<PAGE>
VALUING THE FUND'S SHARES
The net asset value and offering price of the shares of the
Fund 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, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The 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 Fund will fluctuate with market
conditions as the value of the investment portfolio changes.
With approval of the Board of Trustees, the Fund may use a
pricing service, bank or broker-dealer experienced in such
matters to value the Fund's 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 Fund's
shares, see "Additional Information Concerning Valuing the Fund's
Shares" in the Statement of Additional Information.
MANAGEMENT OF THE FUND
THE BOARD OF TRUSTEES
The operations and management of the Fund 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
Fund. The Adviser was organized as a Pennsylvania corporation on
November 14, 1991, and is registered with the Securities and
Exchange Commission 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
$200 million at June 30, 1997. 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 the investment advisory agreement (the "Advisory
Agreement"), the Adviser furnishes the Fund with investment
advisory and administrative services which are necessary to
conduct the Fund's business. Specifically, the Adviser manages
the Fund's investment operations and furnishes advice with
respect to the purchase and sale of securities on a daily basis.
The Y2K Fund agreement is dated June xx, 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 Fund's portfolio. Mr. Mertz has had this responsibility with
the Adviser since The HomeState Group 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 Y2K Fund since its inception.
<PAGE>
Under the terms of the Advisory Agreement, the Fund pays 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:
For assets up to and including $100,000,000: 1.0%; for assets in
excess of $100,000,000: 0.90%. 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 Fund pays all of its expenses other than those expressly
assumed by the Adviser. Specifically, the Fund pays the fees and
expenses of its 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 Fund's 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 Fund to the extent
such fee exceeds the most restrictive expense limitation in
effect by a state regulatory agency where the Fund's 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 Y2K Fund for the period at least through
and including June 30, 1998 so that total Fund operating expenses
are capped at 2.90% or less.
ADMINISTRATOR, ACCOUNTING AND TRANSFER AGENT
Pursuant to separate administration, accounting services and
transfer agency agreements each dated (September), 1997, 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. 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.
<PAGE>
CUSTODIAN
Pursuant to a custodian agreement dated September 11, 1997
(the "Custodial Agreement"), Wilmington Trust Company, 1100 N.
Market St., Wilmington DE (the "Custodian"), has been retained to
serve as custodian to the Fund's assets, and to perform certain
related 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 Fund. The Distributor is a Delaware
corporation, a broker-dealer registered with the Securities and
Exchange Commission, 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 Fund.
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 Fund.
THE DISTRIBUTION PLAN
The Distributor will incur certain expenses while providing
selling and sales distribution services for the Fund, including
such costs as compensation to broker-dealers for (i) selling
shares of the Fund, and (ii) providing information and advice to
their shareholder clients regarding ongoing investment in the
Fund, as well as advertising, promotional and printing expenses.
To promote shares of the Fund to the general public, the
Fund has adopted a distribution services plan (the "Plan") under
Rule 12b-1 of the Investment Company Act of 1940 (the "Act"). The
Plan allows the Fund to reimburse the Distributor for costs
specifically described in this Section. The Distributor receives
no other compensation from the Fund, 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 Fund shares.
The Fund pays the Distributor on a monthly basis at an
annual rate not to exceed 0.70% 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 Fund. The Funds' Adviser is responsible
to pay the Distributor for any unreimbursed distribution
expenses.
Pursuant to the Plan, a broker-dealer may receive a
maintenance commission in the amount of 0.50% (annualized) of the
average net assets maintained in the Fund by their clients.
The Fund may also compensate a bank under the Plan only to
the extent that a bank may serve as a "service organization,"
providing administrative and accounting services for Fund
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 Fund 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 Plan after
determining the Plan would likely benefit the Fund and its
shareholders to the extent that the Plan 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 Fund 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.
<PAGE>
The Trustees will annually review the success of the Plan in
meeting these objectives based on information provided by the
Adviser.
Future regulatory review and revision of Rule 12b-1 by the
Securities and Exchange Commission, of Article III Section 26 of
the Rules of Fair Practice by the National Association of
Securities Dealers, or any similar review and revision of other
applicable regulations by other regulatory agencies could affect
the Fund's Plan. The Trustees will promptly modify the Plan 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 Fund. 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 Securities and Exchange Commission
("SEC") under that Act, the Board of Trustees has determined that
transactions for the Fund 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 Fund will be declared and
paid semi-annually, in the months of December and July. Capital
gains, if any, realized by the Fund will be declared and paid
annually in the months of December and July. 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 Fund 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 Fund, the
Fund does 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 Fund 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 Fund's 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 Fund reserves the right to invest the amount of the returned
check in additional shares of the Fund at the then existing net
asset value and to convert the shareholder's election to
automatic reinvestment of all distributions.
<PAGE>
TAXES
Reinvested dividends and capital gains distributions will
receive the same tax treatment as dividends and distributions
paid in cash. Because the Fund is a series of a Pennsylvania
common law trust, it will not be liable for corporate income or
franchise tax in the Commonwealth of Pennsylvania. Further,
shares of the Fund 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 Fund satisfy: (1) a gross income test that
ensures the Fund earns passive income; (2) two diversification
tests that limit the investment of the Fund's assets in any one
issuer; and (3) a series of distribution rules which require that
the Fund distributes to shareholders substantially all of its
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 federal income tax
purposes. So long as the Fund qualifies for this tax treatment,
the Fund will be relieved of Federal income tax on amounts
distributed to shareholders. Amounts so distributed, however,
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 Fund 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 Fund 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 Fund a certified taxpayer
identification number ("TIN"). The Fund is 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, Distributions and
Taxes Information" in the Statement of Additional Information for
more information.
GENERAL INFORMATION
The Fund's adviser anticipates the revenue derived by
companies held in the Fund's portfolio from their Year 2000-
related work will have peaked by the end of calendar year 2000.
Therefore, before or during the last six months of calendar year
2000, the Board of Directors of the Fund plan to consider (1)
implementation of an offer of exchange whereby investors would be
afforded the opportunity to exchange shares of the Fund for
shares of one or more other registered investment companies,
and/or (2) solicitation of Fund shareholders for proxies
regarding a vote upon one or more of the following options, as
the Board may then determine to be in the best interests of all
Fund shareholders, as a group: (a) a change in the Fund's
investment objective and/or fundamental investment policies; (b)
a merger into or consolidation with another registered investment
company; or (c) dissolution and liquidation of the Fund's assets.
Under current laws and regulations, proceeding pursuant to the
exchange offer or dissolution options (see (1) and (2.c) above)
would result in a taxable event, for federal income tax purposes,
to Fund investors. Changing the Fund's investment objective and
policies (see (2.a) above) would have no specific federal income
tax consequences at the Fund or investor level, while a merger or
consolidation transaction with another investment company (see
(2.b) above) might or might not constitute a federal income
taxable event for the Fund and Fund investors, depending upon how
the transaction was structured and pursued.
<PAGE>
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 three 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 Fund's
independent accountants, and a semi-annual report containing
unaudited financial statements. Each report will include a list
of investment securities held by the Fund. Shareholders may
contact the Fund 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 FUND
TRUSTEES - Bruce E. Bowen, Kenneth G. Mertz II, C.F.A., Scott
C. Penwell, Esq., Scott L. Rehr, Dr. 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>
APPENDIX: YEAR 2000 INDUSTRY COMPANIES
The Following is a listing of companies (1) common stock of
which is (A) available for purchase and sale upon either the New
York Stock Exchange ("NYSE") or the American Stock Exchange
("AMEX"), (B) regularly quoted on either the National Market
("NNM") or Small-Cap ("NSC") level of the NASDAQ Automated Quote
System ("NASDAQ") of the National Association of Securities
Dealers, Inc.("NASD"), or (C) otherwise traded in the over-the-
counter dealer market ("OTC") by NASD member firms; and (2) which
the Fund's adviser has identified as having stated, or been
reported as possessing, an intention of developing or supporting
marketable solutions to Year 2000 computer-related problems.
The listing is based on information derived from publicly
available sources, is furnished only as a present illustrative
guide to the Y2K industry, and does not purport to be a complete
listing of either the Y2K industry as a whole or of the companies
which are currently (or which may, at any time in the future) be
represented within the portfolio of The Y2K Fund. The Fund's
adviser reserves the right to engage in short, as well as long
options and short-selling strategies when investing, on behalf of
the Fund, in securities issued by these, and other, Y2K
companies. For a complete description of the Fund's investment
objective and policies, see the Prospectus and accompanying
Statement of Additional Information.
Primary
Company Trading Symbol Trading Market
- ------- -------------- --------------
Accelr8 Technology Corp. ACLY NNM
AccuStaff, Inc. ASI NYSE
AGISS Corporation AGCR OTC
ALLTEL Corp. AT NYSE
Alternative Resources Corp. ALRC NNM
Alydaar Software Corp. ALYD OTC
Amdahl Corp. AMH AMEX
American Management Systems AMSY NNM
American Software AMSWA NNM
SABRE Group Holdings `A' TSG NYSE
Analysts International Corp. ANLY NNM
BDM International Inc. BDMI NNM
BRC Holdings Inc. BRCP NNM
BTG Incorporated BTGI NNM
CACI International Inc. CACI NNM
Cayenne Software Inc. CAYN NNM
CIBER Inc. CBR NYSE
Claremont Technology Group CLMT NNM
Cognizant Corporation CZT NYSE
Cognos COGNF NNM
Comdisco Inc. CDO NYSE
Comforce Corporation CFS AMEX
Complete Business Solutions Inc. CBSL NNM
Computer Associates International CA NYSE
Computer Concepts Corp. CCEE NSC
Computer Horizons Corp. CHRZ NNM
Computer Management Sciences Inc. CMSX NNM
Computer Sciences CSC NYSE
Computer Task Group Inc. TSK NYSE
Compuware Corp. CPWR NNM
ConSyGen, Inc. CSGI OTC
COREStaff Inc. CSTF NNM
Crystal Systems Solutions CRYSF NNM
Data Dimensions DDIM NNM
DelSoft Consulting Inc. DSFT OTC
Digital Equipment Corp. DEC NYSE
Egan Systems Inc. EGNS OTC
Electronic Data Systems Corp. EDS NYSE
Gartner Group `A' GART NNM
GTE Corp. GTE NYSE
Hitachi, Ltd. ADR HIT NYSE
Intl. Business Machines IBM NYSE
Infinium Software INFM NNM
Information Analysis Inc. IAIC NNM
Information Management Resources IMRS NNM
Informix Corp. IFMX NNM
International Veronex
Resources Ltd. IVXR OTC
Intersolv ISLI NSM
Keane Inc. KEA AMEX
Logicon Inc. LGN NYSE
MAPICS Inc. MAPX NNM
Mastech Corporation MAST NNM
MCI Communications MCIC NNM
Micro Focus GroupADS MIFGY NNM
NeoMedia Technologies Inc. NEOM NSM
Neoware Systems Inc. NWRE NNM
The NetPlex Group Inc. NTPL NSM
New Dimension Software DDDDF NNM
Norrell Corp. NRL NYSE
Olsten Corp. OLS NYSE
Oracle Corp. ORCL NNM
PeopleSoft Inc. PSFT NNM
PLATINUM technology Inc. PLAT NNM
Policy Management Systems PMS NYSE
Reliance Group Holdings REL NYSE
Robert Half International RHI NYSE
Romac International Inc. ROMC NNM
Safeguard Scientifics Inc. SFE NYSE
Sapiens International Corp. N.V. SPNSF NNM
SCB Computer Technology Inc. SCBI NNM
SEEC Inc. SEEC NNM
Sterling Software SSW NYSE
Strategia Corp. STGI OTC
SunGard Data Systems SDS NYSE
Sun Microsystems SUNW NNM
Sybase Inc. SYBS NNM
Systems & Computer Technology Corp.SCTC NNM
Systems Software Associates Inc. SSAX NNM
Techforce Corp. TFRC NNM
Thinking Tools Inc. TSIM NSM
Titan Corporation TTN NYSE
Transformation Processing Inc. TPII OTC
TSR Inc. TSRI NNM
Unicomp Inc. UCMP NNM
Unisys Corp. UIS NYSE
VIASOFT Inc. VIAS NNM
Walker Interactive Systems WALK NNM
Wang Laboratories Inc. WANG NNM
Whittman-Hart Inc. WHIT NNM
Zitel Corp. ZITL NNM
ZMAX Corp. ZMAX OTC
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED ______________, 1997
THE YEAR 2000 ("Y2K") FUND
This Statement of Additional Information contains information
which may be useful to investors, but which is not included in
the Prospectus of The Year 2000 ("Y2K") Fund (the "Fund").
This Statement is not a Prospectus and should be read in
conjunction with the Fund's Prospectus. This Statement is only
authorized for distribution when accompanied or preceded by a copy
of the Fund's Prospectus dated September __, 1997. You may obtain a
free copy of the Prospectus by writing The Y2K Fund, P.O. Box
10666, Lancaster, PA 17605, or by calling (888) Y2K-FUND.
TABLE OF CONTENTS
Additional Information Concerning Investment Objectives,
Policies and Risks.................................... 1
Fundamental Investment Restrictions......... 2
Other Investment Policies................... 3
Additional Fund Valuation Information................. 4
Additional General Fund Information .................. 5
Additional Purchase and Redemption Information........ 6
Reduced Sales Charge Plans.................. 6
Additional Dividend, Distributions & Taxes Information 8
Dividend & Distributions.................... 8
Taxes....................................... 8
Management of the Fund................................ 9
Board of Trustees and Officers of the Fund.. 9
Person Controlling the Fund................. 11
Investment Adviser and Other Services
Providers.................................. 11
The Distribution Plan....................... 13
Additional Brokerage Allocation Information........... 13
Measuring Performance................................. 14
Financial Statements.................................. 15
Appendix A - Description of Ratings................... 16
Appendix B - Options, Futures and
Short-Selling Strategies............................. 18
<PAGE>
ADDITIONAL INFORMATION CONCERNING INVESTMENT OBJECTIVES, POLICIES
AND RISKS
GENERAL
The HomeState Group (the "Trust") 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. There are currently three series in operation.
Information about the other two series can be obtained by
contacting The HomeState Group at the telephone numbers listed
herein. The discussion of investment objectives and policies that
follows relates only to The Year 2000 ("Y2K") Fund (the "Fund").
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 as such.
The Fund has been formed to invest primarily in equity
securities of companies involved in "The Year 2000 Industry" - a
grouping of companies which the Fund's adviser shall identify as
having stated an intention, or been reported as intending, to
develop or support marketable solutions to problems stemming from
the susceptibility of certain business and other computer
application programs or systems to fail, or to produce
inappropriate results with respect to, data, calculations and
other processing involving dates subsequent to December 31, 1999
(collectively, the "Year 2000 -- or Y2K -- Problem"). The Fund
can invest a larger percentage of its assets in a particular
company, and will focus on those companies identified by the
Fund's adviser as having what it believes are superior prospects
for price appreciation. The Fund's annual portfolio turnover rate
is expected to not exceed one hundred and fifty percent.
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 that the investment objective of the
Fund will be achieved. The principal risk factor associated with
an investment in the Fund is that the market value of the Fund's
portfolio 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.
CONVERTIBLE SECURITIES
The Fund 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
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
that of non-convertible securities. A principal 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.
FIXED-INCOME SECURITIES
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. For further information regarding
rating categories, see "Appendix A: Description of Ratings" of
this Statement.
The mortgage-related instruments in which the Fund 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.
<PAGE>
REPURCHASE AGREEMENTS
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 of 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 Fund's
management acknowledges these risks, it is expected that they can
be controlled through careful monitoring procedures.
PORTFOLIO TURNOVER
As discussed in the Prospectus, the Fund will engage in
trading for short-term profits when such trading is believed by
the Fund's adviser to be desirable and consistent with the Fund's
investment objective of achieving capital appreciation. The Fund
may dispose of securities whenever the adviser deems advisable
without regard to the length of time such securities have been
held. The Fund is not expected to exceed a portfolio turnover
rate of 150% on an annual basis.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment policies and restrictions may not
be changed without the approval of a majority of the Fund's
outstanding shares. For these purposes, a majority of shares of
the 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 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 United States Government), nor, with respect to
at least 50% of its total assets, invest more than 5% of the
value of such 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,
except that the Fund shall, under normal conditions, invest not
less than 25% of its total assets in the Year 2000/Technology
industries.
3. Issue or sell senior securities, except that the Fund
may engage in options, futures and/or short-selling strategies
provided the Fund either (i) sets aside liquid, unencumbered,
daily marked-to-market assets in a segregated account with its
custodian in amounts as prescribed by pertinent SEC guidelines,
or (ii) holds securities or other options or futures contracts
whose values are expected to offset ("cover") its obligations
thereunder. Securities or other options or futures contracts
used for cover will not be sold or closed out while such
strategies are outstanding, unless they are replaced with similar
assets.
4. 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 total net assets.
<PAGE>
5. 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.
6. 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.
7. Acquire more than 10% of the outstanding voting
securities of any issuer; or make investments for the purpose of
gaining control of a company's management.
8. 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 25% of the current value
of its total net assets.
The aforementioned investment limitations are considered as
applying at and as of the time when purchases, sales, short
sales or other transactions initially occur.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
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 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 not 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).
3. May not write options (whether on securities or
securities indexes) or initiate further short-sale positions if
aggregate exercise prices of previously written outstanding
options, together with the value of assets used to cover
outstanding short-sale positions, would exceed 25% of the Fund's
total net assets.
4. Will not invest in foreign traded options or futures
contracts.
5. Will not purchase or sell non-hedging futures
contracts or related options if aggregate initial margin and
premiums required to establish such positions would exceed 5% of
the Fund's total assets. For purposes of this limitation,
unrealized profits and unrealized losses on any open contracts
are taken into account, while the in-the-money amount of an
option that is, or was, in-the-money at the time of purchase is
excluded.
6.. May invest its cash for temporary purposes in
commercial paper, certificates of deposit, money market mutual
funds, repurchase agreements (as set forth in Item 1 above) or
other appropriate short-term investments.
(To be eligible for investment by the Fund, 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 A: 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 Fund will only purchase CD's from such
institutions covered by FDIC insurance, and only to the dollar
amount insured by the FDIC.)
<PAGE>
7. May invest in securities convertible into common stock,
but only when the Fund's investment adviser believes the expected
total return of such a security exceeds the expected total return
of common stocks eligible for inclusion in the Fund's portfolio.
The Fund will only invest in investment-grade convertible
securities, i.e., 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 A: Description
of Ratings" in this Statement.
ADDITIONAL FUND VALUATION INFORMATION
The 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. The 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 Fund 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 three Series: The Y2K
Fund, the HomeState Pennsylvania Growth Fund and the HomeState
Select Opportunities Fund.
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.
<PAGE>
Upon completion of the distribution of the remaining
proceeds or the remaining assets of any Series as provided in
paragraphs 1), 2), and 3) above, the 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 Fund's 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 Fund,
as well as a table of applicable sales charges for the Fund. This
Statement contains additional information which may be of
interest to investors.
The Fund is currently making a continuous offering of their
shares. The Fund receives the entire net asset value of shares
sold. The Fund 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 Fund's 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 Fund's
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 Fund 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 the Fund may be purchased at a reduced sales
charge to certain investors listed in the Fund's Prospectus and
below. 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 Fund's 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. Following are detailed discussions of some of
the reduced sales charge plans listed in the Fund's 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 Fund 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 Fund's Transfer Agent, must be advised of the related
accounts at the time the purchase is made.
<PAGE>
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
2.9% 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 OF PRIVILEGE - An investor who has sold shares of the
Fund may reinvest the proceeds of such sale in shares of the Fund
within 120 days of the sale, and any such reinvestment will be
made at the Fund's then-current net asset value, so that no sales
charge will be levied. Investors should call the Fund 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 July and
December. 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.
<PAGE>
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 Fund reserves the right to
invest the check in additional shares of the Fund at the then-
current net asset value and to convert your account's election to
automatic reinvestment of all distributions, until the Fund's
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
Fund's 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 mutual fund for
federal income tax purposes. The 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, the 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 the 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, the Fund does
not qualify for such special tax treatment, the 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 the 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, the Fund will be subject to a 4% excise tax
on the undistributed amounts. The Fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise
tax. In calculating its income, the 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 the 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.
<PAGE>
CAPITAL GAINS - When you purchase shares of the 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, the
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 the 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 Fund 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 FUND
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.
<PAGE>
DIANE D. MARKY, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Assistant Secretary, age 33, 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 $ 1,000 for The Y2K
Fund, $350 for each Trustees meeting attended, and $100 for each
Audit Committee meeting attended. The Funds will also reimburse
the Independent Trustees' travel expenses incurred attending
Board meetings.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Name and Title Aggregate Pay Aggregate Pay Aggregate Pay Total Pay
From PA From Select From The From Fund Complex (1)
Growth Fund Opportunities Fund Y2K Fund Complex (1)
<C> <C> <C> <C> <C>
Scott L. Rehr
Trustee and President $0 $0 $0 $0
Bruce E. Bowen
Trustee 2,000 0 0 2,000
Daniel W. Moyer, IV
Vice-President and
Secretary 0 0 0 0
Kenneth G. Mertz, II
Trustee, Vice-President
and Chief Investment
Officer 0 0 0 0
Scott C. Penwell
Trustee 2,000 0 0 2,000
Dr. H. J. Zoffer
Trustee 2,000 0 0 2,000
</TABLE>
The Officers of the Funds receive no compensation for their
services as such.
As of October 1, 1997, the Trustees and Officers of the
Funds owned, as a group, less than one percent of the outstanding
shares of the Fund.
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 FUND
As of October 1, 1997, the Fund's adviser owned all of the
outstanding shares of the Fund.
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 Fund's
investment adviser and distributor, respectively. The Distributor
is not obligated to sell any specific amount of shares of the
Fund 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 Fund 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 Fund, 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, Paul W. Ware and Judy S. Ware.
The following individuals have the following positions and
offices with the Trust and EAI:
<PAGE>
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 Fund, EAI furnishes or pays for all
facilities and services furnished or performed for, or on behalf
of, the Fund. Such items may include, but are not limited to:
office facilities, office support materials and equipment,
records and personnel necessary to manage the Fund's daily
affairs. In return for these services, the Fund has agreed to pay
EAI an annualized fee, based on the average market value of the
net assets of the Fund, computed each business day and paid to
EAI monthly. The fee is paid as follows:
Assets $0 to $100 Million......................... 1.00%
Over $100 Million................................. .90%
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.
The Fund pays all of its expenses other than those expressly
assumed by the Adviser. Specifically, the Fund pays the fees and
expenses of its 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 Fund's 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 Fund to the extent such fee
exceeds the most restrictive expense limitation in effect by a
state regulatory agency where the 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 Fund.
As administrator, Rodney Square provides administrative and
operational services and facilities. As transfer, dividend
disbursing, and shareholder servicing agent for the Fund, Rodney
Square is responsible for all such corresponding duties,
including: maintenance of the Fund's shareholders' records,
transactions involving the Fund's 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 Fund.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Wilmington Trust Company, One Rodney Square, Wilmington, DE 19801
"WTC"), is the custodian of the securities and cash of the Fund.
Price Waterhouse LLP, 30 South Seventeenth Street, Philadelphia,
PA 19103, are the independent accountants which audit the annual
financial statements of the Fund.
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 the Fund
and maintenance of shareholder accounts within the Fund, the
Distributor makes quarterly payments to qualifying dealers based
on the average net asset value of shares of the Fund 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 0.50% of the average net asset value of the
Fund, 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 Fund's
average daily net asset value per share.
<PAGE>
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 Fund's Plan
described below and the terms of service agreements between
dealers and the Distributor.
The Y2K Fund is currently operating with Distribution Plan (the
"Plan"). The Fund has adopted a Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plan is to
permit the Fund to compensate the Distributor for services
provided and expenses incurred by it in promoting the sale of
shares of the Fund, 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 Plan provides for quarterly payments by the Fund to the
Distributor at the annual rate of up to 0.70% of the Fund's
average net assets, subject to the authority of the Trust's Board
of Trustees to reduce the amount of payments or to suspend the
Plan 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 Plan 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 0.70% of the Fund's average
net assets. Continuance of the Plan 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 Plan must be likewise approved by
separate votes of the Trustees and the Disinterested Trustees of
the Trust. The Plan may not be amended in order to increase
materially the costs which the Fund bear for distribution
pursuant to the Plan without also being approved by a majority of
the outstanding voting securities of the Fund. The Plan
terminates 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.
ADDITIONAL BROKERAGE ALLOCATION INFORMATION
EAI places orders for the purchase or sale of portfolio
securities of the Fund. 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 Fund, but not all such services
furnished are used to advise the Fund. 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 Fund research purposes, then EAI, based
upon allocations of expected use, bears that portion of the
service's cost that directly relates to non-Fund research use.
The management fee paid by the Fund 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 Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
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.
<PAGE>
MEASURING PERFORMANCE
Average annual total return data ("Standardized Return") for
the Fund 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.
Total return data ("Non-Standardized Return") may also be
presented from time to time. The calculation of the 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 the 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.
The 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 Fund's 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.
<PAGE>
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
OPTIONS, FUTURES AND SHORT-SELLING STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND SHORT-SELLING
STRATEGIES. As discussed in the Prospectus, in managing the
Fund, the adviser may engage in certain options, futures and
short-selling strategies to hedge various market risks or to
enhance potential gain. Certain special characteristics of and
risks associated with using these strategies are discussed below.
Use of options, futures and short-selling is subject to
applicable regulations and/or interpretations of the SEC and the
several options and futures exchanges upon which these
instruments may be traded. The Board of Trustees has adopted
investment guidelines (described below) reflecting these trading
regulations.
COVER REQUIREMENTS. The Fund will not use leverage in its
options, futures and short-selling strategies. Accordingly, the
Fund will comply with guidelines established by the SEC with
respect to coverage of these strategies by either (1) setting
aside liquid, unencumbered, daily marked-to-market assets in the
prescribed amount(s) in one or more segregated accounts with the
Fund's custodian; or (2) holding securities or other options or
futures contracts whose values are expected to offset ("cover")
its obligations thereunder. Securities or other options or
futures contracts used for cover cannot be sold or closed out
while these strategies are 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 the Fund's
assets could impede portfolio management, or the 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. exchanges 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 the Fund and its contra-party with
no clearing organization guarantee unless the parties provide for
it. Thus, when the 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
the 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.
<PAGE>
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 the 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 the
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 the 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, unencumbered 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.
<PAGE>
The Fund will normally use index warrants as it may use
index options. The risks of the Fund's use of index warrants are
generally similar to those relating to its 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 thereby.
(2) The Fund will not write options (whether on
securities or securities indexes) if
aggregate exercise prices of previous written
outstanding options, together with the value of
assets used to cover all outstanding short-sale
positions, would exceed 25% of its total net
assets.
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
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 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 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.
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 or index, the time remaining
until expiration, the relationship of the exercise
price to the market price, the historical price
volatility of the underlying security or index, and
general market conditions. For this reason, the
successful use of options depends upon the adviser's
ability to forecast the direction of price fluctuations
in the underlying securities 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 or index. 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.
<PAGE>
(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. 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.
(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.
FUTURES AND RELATED OPTIONS STRATEGIES. The Fund may engage
in futures strategies for hedging purposes to attempt to reduce
the overall investment risk that would normally be expected to be
associated with ownership of the securities in which it invests.
The Fund may also engage in futures strategies to enhance
potential gain, subject to certain voluntary, as well as
regulatory, percentage limitations as discussed below.
The Fund may sell securities index futures contracts in
anticipation of a general market or market sector decline that
could adversely affect the market value of the Fund's securities
holdings. To the extent that a portion of the Fund's holdings
correlate with a given index, the sale of futures contracts on
that index could reduce the risks associated with a market
decline and thus provide an alternative to the liquidation of
securities positions. For example, if the Fund correctly
anticipates a general market decline and sells index futures to
hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the Fund's
holdings. The Fund may purchase index futures contracts if a
significant market or market sector advance is anticipated. Such
a purchase of a futures contract would serve as a temporary
substitute for the purchase of the underlying securities which
may then be purchased in an orderly fashion. This strategy may
minimize the effect of all or part of an increase in the market
price of securities that the Fund intends to purchase. A rise in
the price of the securities should be in part or wholly offset by
gains in the futures position.
<PAGE>
As in the case of a purchase of an index futures contract,
the Fund may purchase a call option on an index futures contract
to hedge against a market advance in securities that the Fund
plans to acquire at a future date. The Fund may write covered
put options on index futures as a partial anticipatory hedge, and
may write covered call options on index futures as a partial
hedge against a decline in the prices of securities held by the
Fund. This is analogous to writing covered call options on
securities. The Fund also may purchase put options on index
futures contracts. The purchase of put options on index futures
contracts is analogous to the purchase of protective put options
on individual securities where a level of protection is sought
below which no additional economic loss would be incurred by the
Portfolio.
FUTURES AND RELATED OPTIONS GUIDELINES. In view of the
risks involved in using the futures strategies that are 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 vote.
(1) The Fund will engage only in covered futures
transactions, and each such transaction will remain covered
so long as the Fund is obligated thereby.
(2) The Fund will not purchase or sell non-hedging
futures contracts or related options if aggregate initial
margin and premiums required to establish such positions
would exceed 5% of the Fund's total assets. For purposes of
this limitation, unrealized profits and unrealized losses on
any open contracts are taken into account, while the in-the-
money amount of an option that is, or was, in-the-money at
the time of purchase is excluded.
(3) The Fund will not write options (whether hedging
or non-hedging) on futures contracts if aggregate exercise
prices of previously written outstanding options (whether on
securities or securities indexes), together with the value
of assets used to cover all outstanding short-sale
positions, would exceed 25% of its net assets.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED
OPTIONS TRADING. No price is paid upon entering into a futures
contract. Instead, upon entering into a futures contract, the
Fund is required to deposit with the Fund's custodian, in a
segregated account in the name of the futures broker through whom
the transaction is effected, an amount of cash, U.S. Government
securities or other liquid instruments generally equal to 10% or
less of the contract value. This amount is known as "initial
margin." When writing a call or a put option on a futures
contract, margin also must be deposited in accordance with
applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not
involve borrowing to finance the futures transactions. Rather,
initial margin on a futures contract is in the nature of a
performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the transaction,
assuming all obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may
be required by a futures exchange to increase the level of its
initial margin payment. Additionally, initial margin
requirements may be increased generally in the future by
regulatory action. Subsequent payments, called "variation
margin," to and from the broker, are made on a daily basis as the
value of the futures or options position varies, a process known
as "marking to the market." For example, when the Fund purchases
a contract and the value of the contract rises, the Fund receives
from the broker a variation margin payment equal to that increase
in value. Conversely, if the value of the futures position
declines, the Fund is required to make a variation margin payment
to the broker equal to the decline in value. Variation margin
does not involve borrowing to finance the futures transaction,
but rather represents a daily settlement of the Fund's
obligations to or from a clearing organization.
Buyers and sellers of futures positions and options thereon
can enter into offsetting closing transactions, similar to
closing transactions on options on securities, by selling or
purchasing an offsetting contract or option. Futures contracts
or options thereon may be closed only on an exchange or board of
trade providing a secondary market for such futures contracts or
options.
Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a futures contract
or related option may vary either up or down from the previous
day's settlement price. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit
potential losses, because prices could move to the daily limit
for several consecutive trading days with little or no trading
and thereby prevent prompt liquidation of unfavorable positions.
In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund
would have to make daily cash payments of variation margin
(except in the case of purchased options). However, if futures
contracts have been used to hedge portfolio securities, such
securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses
on the futures contract. However, there is no guarantee that the
price of the securities will, in fact, correlate with the price
movements in the contracts and thus provide an offset to losses
on the contracts.
<PAGE>
In considering the Fund's use of futures contracts and
related options, particular note should be taken of the
following:
(1) Successful use by the Fund of futures contracts
and related options will depend upon the adviser's ability
to predict movements in the direction of the securities
markets, which requires different skills and techniques than
predicting changes in the prices of individual securities.
Moreover, futures contracts relate not only to the current
price level of the underlying securities, but also to
anticipated price levels at some point in the future. There
is, in addition, the risk that the movements in the price of
the futures contract will not correlate with the movements
in the prices of the securities being hedged. For example,
if the price of an index futures contract moves less than
the price of the securities that are the subject of the
hedge, the hedge will not be fully effective, but if the
price of the securities being hedged has moved in an
unfavorable direction, the Portfolio would be in a better
position than if it had not hedged at all. If the price of
the securities being hedged has moved in a favorable
direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has
insufficient cash, it may have to sell assets to meet daily
variation margin requirements. Any such sale of assets may
or may not be made at prices that reflect a rising market.
Consequently, the Fund may need to sell assets at a time
when such sales are disadvantageous to the Fund. If the
price of the futures contract moves more than the price of
the underlying securities, the Fund will experience either a
loss or a gain on the futures contract that may or may not
be completely offset by movements in the price of the
securities that are the subject of the hedge.
(2) In addition to the possibility that there may be
an imperfect correlation, or no correlation at all, between
price movements in the futures position and the securities
being hedged, movements in the prices of futures contracts
may not correlate perfectly with movements in the prices of
the hedged securities due to price distortions in the
futures market. There may be several reasons unrelated to
the value of the underlying securities that cause this
situation to occur. First, as noted above, all participants
in the futures market are subject to initial and variation
margin requirements. If, to avoid meeting additional margin
deposit requirements or for other reasons, investors choose
to close a significant number of futures contracts through
offsetting transactions, distortions in the normal price
relationship between the securities and the futures markets
may occur. Second, because the margin deposit requirements
in the futures market are less onerous than margin
requirements in the securities market, there may be
increased participation by speculators in the futures
market. Such speculative activity in the futures market
also may cause temporary price distortions. As a result, a
correct forecast of general market trends may not result in
successful hedging through the use of futures contracts over
the short term. In addition, activities of large traders in
both the futures and securities markets involving arbitrage
and other investment strategies may result in temporary
price distortions.
(3) Positions in futures contracts may be closed out
only on an exchange or board of trade that provides a
secondary market for such futures contracts. Although the
Fund intends to purchase and sell futures only on exchanges
or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist
for any particular contract at any particular time. In such
event, it may not be possible to close a futures position,
and in the event of adverse price movements, the Fund would
continue to be required to make variation margin payments.
(4) Like options on securities, options on futures
contracts have limited life. The ability to establish and
close out options on futures will be subject to the
development and maintenance of liquid secondary markets on
the relevant exchanges or boards of trade. There can be no
certainty that such markets for all options on futures
contracts will develop.
(5) Purchasers of options on futures contracts pay a
premium in cash at the time of purchase. This amount and
the transaction costs are all that is at risk. Sellers of
options on futures contracts, however, must post initial
margin and are subject to additional margin calls that could
be substantial in the event of adverse price movements. In
addition, although the maximum amount at risk when the Fund
purchases an option is the premium paid for the option and
the transaction costs, there may be circumstances when the
purchase of an option on a futures contract would result in
a loss to the Fund when the use of a futures contract would
not, such as when there is no movement in the level of the
underlying index value or the securities or currencies being
hedged.
<PAGE>
(6) As is the case with options, the Fund's activities
in the futures markets may result in a higher portfolio
turnover rate and additional transaction costs in the form
of added brokerage commissions. However, the Fund also may
save on commissions by using futures contracts or options
thereon as a hedge rather than buying or selling individual
securities in anticipation of, or as a result of, market
movements.
SHORT-SELLING
Whenever the Fund effects a short sale, it will set aside,
in segregated accounts with the Fund's custodian, 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) any cash or U.S. Government Securities required
to be deposited as collateral with the broker in connection with
the short sale (but not including the proceeds of the short
sale). Until the Fund replaces the security it borrowed to make
the short sale, it must maintain daily the segregated accounts at
such a level that (i) the amount deposited therein, plus the
amount deposited with the broker as collateral, will equal the
current market value of the securities sold short, and (ii) the
amount deposited therein, plus the amount deposited with the
broker, will not be less than the market value of the securities
at the time they were 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; (ii) allocated to segregated
accounts in connection with short sales; and/or (iii) equal to
the aggregate exercise prices of outstanding options written by
the Fund.
The Fund's ability to make short sales may be further
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>
EXHIBITS AND PART C OF N-1A REGISTRATION STATEMENT
THE HOMESTATE GROUP
Item 24. Financial Statements and Exhibits
(a.) Financial Statements:
Included in Part A of this Registration Statement For the HomeState
Pennsylvania Growth Fund and the HomeState Select Opportunities
Fund:
Financial Highlights for the period October 1, 1992 (Commencement
of Operations) to June 30, 1993 and for each of the four years in
the period ended June 30, 1997 for the HomeState Pennsylvania
Growth Fund and for the period February 18, 1997 (Commencement of
Operations) to June 30, 1997 for the HomeState Select
Opportunities Fund.(Incorporated by reference to Post-Effective
Amendment No. 7 filed August 18, 1997.)
Included in Part B of this Registration Statement for the
HomeState Pennsylvania Growth Fund and the HomeState Select
Opportunities Fund:
Investments, for the HomeState Pennsylvania Growth Fund, June 30, 1997*
Investments, for the HomeState Select Opportunities Fund, June 30,1997*
Statement of Assets and Liabilities, June 30, 1997*
Statement of Operations, for the fiscal year ended June 30, 1997*
Statement of Changes in Net Assets, for the fiscal years ended
June 30, 1996 and June 30, 1997*
Financial Highlights for the period October 1, 1992(Commencement
of Operations) to June 30, 1993 and for each of the four years in
the period ended June 30, 1997 for the HomeState Pennsylvania
Growth Fund and from inception (February 18, 1997) to the period
ended June 30, 1997 for the HomeState Select Opportunities Fund.*
Notes to Financial Statements*
* Incorporated by reference to Post-Effective Amendment No. 7 filed
August 18, 1997.
(b.) Exhibits:
1a. 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 on November
27, 1996.)
1b. Amendment to the Declaration of Trust
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 on November 27, 1996.)
(b) 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 on November 27, 1996.)
(c) Investment Advisory Agreement between the Registrant,
on behalf of the HomeState Year 2000 ("Y2K") Fund, and Emerald
Advisers, Inc. dated September 11, 1997.
<PAGE>
6. (a) Distribution Agreement between the Registrant and Rodney
Square Distributors, Inc. dated November 20, 1995. (Incorporated
by reference, excluding Schedule A thereto which is hereby
furnished, to Exhibit 6(a) to Post Effective Amendment No. 4 to
this Registration Statement filed on October 3, 1996.)
(b) Form of Selected Dealer Agreement. (Incorporated by reference
to Exhibit 6(b) to Post Effective Amendment No. 4 to this
Registration Statement filed on October 3, 1996.)
7. None
8. Custody Agreement between the Registrant (The HomeState Group)
and Wilmington Trust Company dated September 11, 1997.
9. (a) Transfer Agency Agreement between the Registrant and Rodney
Square Management Corporation dated November 20, 1995.
(Incorporated by reference, excluding Schedule A thereto which is
hereby furnished, to Exhibit 9(a) to Post-Effective Amendment No.
5 to this Registration Statement filed on November 27, 1996.)
(b) Accounting Services Agreement between the Registrant and
Rodney Square Management Corporation dated November 20, 1995.
(Incorporated by reference, excluding Schedule A thereto which is
hereby furnished, to Exhibit 9(b) to Post-Effective Amendment No.
5 to this Registration Statement filed on November 27, 1996.)
(c) Administration Agreement between the Registrant and Rodney
Square Management Corporation dated November 20, 1995.
(Incorporated by reference, excluding Schedule A thereto which is
hereby furnished, to Exhibit 9(c) to Post-Effective Amendment No.
5 to this Registration Statement filed on November 27, 1996.)
10. None.
11. None.
12. None.
13. Subscription Agreement. (Incorporated by reference to Exhibit 13
to Post-Effective Amendment No. 3 to this Registration Statement
filed on September 25, 1992.)
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 on 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 on November
27, 1996.)
(c) Rule 12b-1 Plan for The HomeState Year 2000 ("Y2K") Fund.
16. Schedule for Computation of Performance Quotation. (Incorporated
by reference to Exhibit 16 to Post-Effective Amendment No. 5 to
this Registration Statement filed on November 27, 1996.)
17. Financial Data Schedule.(Incorporated by reference to Exhibit 17
to Post Effective Amendment No. 7 filed on August 18, 1997.)
18. None.
Item 25. Persons controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Series as of June 30, 1997
--------------- ------------------
Shares of Beneficial Interest $.01 par value:
The HomeState Pennsylvania Growth Fund 5778
The HomeState Select Opportunities Fund 541
Item 27. Indemnification
The Declaration of Trust (filed as Exhibit 1) provides for
indemnification of Trustees, as set forth in Section 13 thereof.
<PAGE>
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.
The Registrant has, in effect, 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 the 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.
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 August 11, 1997 with the Securities Exchange
Commission File No. 801-40263 and is incorporated by reference herein.
Item 29. Principal Underwriters
(a) Investment Companies for which Rodney Square
Distributors, Inc. also acts as principal underwriter:
The Rodney Square Fund
The Rodney Square Multi-Manager Fund
The Rodney Square Strategic Fixed-Income Fund
The Rodney Square Tax-Exempt Fund
Brazos Mutual Fund
Heitman Real Estate Fund, Institutional Class
Kalmar Pooled Investment Trust
Kiewit Mutual Fund
Mallard Fund
1838 Investment Advisors Funds
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
<PAGE>
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
(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
Registrant hereby undertakes to file a further Post-Effective
Amendment to include financial Statements for the HomeState Year
2000 ("Y2K") Fund which need not be certified, within four to six
months from the effective date of this Post-Effective Amendment.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of the removal of a
Trustee or Trustees when requested in writing to do so by the
holders of at least 10% of the Registrant's outstanding shares and
in connection with such meeting to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940, as amended,
relating to shareholder communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, The HomeState
Group, has duly caused this Post-Effective Amendment No. 8 to its
Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Lancaster, and State of
Pennsylvania on the 15th day of September, 1997.
The HomeState Group
-------------------
Registrant
By:/s/ Scott L. Rhehr
------------------------
Scott L. Rehr
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 8 to the Registration Statement has been
signed below by the following persons in the capacities and on the
date indicated.
Trustee, September 15, 1997
/s/ Scott L Rehr
- ------------------------
Scott L. Rehr President
/s/ Kenneth G. Mertz, II, CFA * Trustee September 15, 1997
- -------------------------------
Kenneth G. Mertz, II, CFA Vice President
Chief Investment Officer
/s/ Bruce E. Bowen* Trustee September 15, 1997
- -------------------
Bruce E. Bowen
/s/ H.J. Zoffer * Trustee September 15, 1997
- ------------------
H.J. Zoffer
/s/Scott C. Penwell, Esq. * Trustee September 15,1997
- ----------------------
Scott C. Penwell, Esq.
*Pursuant to authority granted in a Power of Attorney
By:/s/ Scott L. Rehr
-------------------
Scott L. Rehr
Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned and trustees of The HomeState Group (the
"Trust") hereby appoint Scott L. Rehr as attorney-in-fact and
agent, in all capacities, to execute, and to file any of the
documents referred to below relating to the Notification of
Registration on Form N-8A registering the Trust as an investment
company under the Investment Company Act of 1940, as amended,
(the "Act") and the Trust's Registration Statement on Form N-1A
under the Act and under the Securities Act of 1933, including any
and all amendments thereto, covering the registration of the
Trust as an investment company and the sale of shares of the
Trust, including all exhibits and any and all documents required
to be filed with respect thereto with any regulatory authority,
including applications for exemptive order rulings. Each of the
undersigned grants to the said attorney full authority to do
every act necessary to be done in order to effectuate the same as
fully, to all intents and purposes, as he could do if personally
present, thereby ratifying all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
The undersigned Trustees hereby execute this Power of
Attorney as of the date specified.
Name Title Date
---- ----- -----
/s/ Scott L. Rehr
- -----------------
Scott L. Rehr Trustee, President August 18, 1997
/s/ Kenneth G. Mertz,II Trustee, Vice President,
- ----------------------- Chief Investment Officer August 18, 1997
Kenneth G. Mertz,II, CFA
/s/ Bruce E. Bowen
- ---------------------
Bruce E. Bowen Trustee August 18, 1997
/s/ Scott C. Pemwell Trustee August 18, 1997
- --------------------
Scott C. Penwell,Esq.
/s/ H.J. Zoffer
- -------------------
Dr. H.J. Zoffer Trustee August 18, 1997
<PAGE>
File No. 33-48940
File No. 811-6722
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 8
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 8
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
THE HOMESTATE GROUP
<PAGE>
EXHIBIT INDEX
Item 24(b) Exhibits
1b Amendment to Declaration of Trust
5c Investment Advisory Agreement
6a Schedule A to Distribution Agreement
8 Custody Agreement
9a Schedule A to Transfer Agency Agreement
9b Schedule A Accounting Services Agreement
9c Schedule A to Administration Agreement
15c Rule 12b-1 Plan
EXHIBIT 1b
THE HOMESTATE GROUP
DECLARATION OF TRUST
Addendum 2
The Year 2000 Fund
On the 1st day of August, 1997, pursuant to Section 2(f) of
the Declaration of Trust (the "Declaration of Trust") of the
HomeState Group (the "Fund"), the trustees of the Trust (the
"Trustees") created an additional Series of the Fund, to be known
hereafter as the Year 2000 Fund ("Y2K"). With respect to Y2K,
the Trustees further determined:
Fundamental Investment Restrictions:
Y2K 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, with respect to at least 50% of its
total assets, invest more than 5% of the value of such
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, except that Y2K shall, under normal
conditions, invest not less than 25% of its total
assets in the Year 2000/Technology industries.
(3) Issue or sell senior securities, except that Y2K
may engage in options, futures and/or short-selling
strategies provided Y2K Fund either (i) sets aside
liquid, unencumbered, daily marked-to-market assets in
a segregated account with its custodian in amounts as
prescribed by pertinent SEC guidelines, or (ii) holds
securities or other options or futures contracts whose
values are expected to offset ("cover") its obligations
thereunder. Securities or other options or futures
contracts used for cover will not be sold or closed out
while such strategies are outstanding, unless they are
replaced with similar assets.
(4) 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 total net assets.
(5) 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;
(6) 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;
(7) Acquire more than 10% of the outstanding voting
securities of any issuer, or make investments for the
purpose of gaining control of a company's management.
(8) Make loans, except by purchase of debt obligations in
which Y2K 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.
Investment Policies (which may be changed by Y2K's Board of
Trustees without shareholder approval):
Y2K:
(a) Will not invest more than 15% of total assets
(taken at current value) in illiquid securities
(including illiquid equity securities, repurchase
agreements and time deposits with maturities or notice
periods of more than 7 days, and other securities which
are not readily marketable, including securities
subject to legal or contractual restrictions on
resale);
(b) May not 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).
(c) May not write options (whether on securities or
securities indexes) or initiate further short-sale
positions if aggregate exercise prices of previously
written outstanding options, together with the value of
assets used to cover outstanding short-sale positions,
would exceed 25% of the Fund's total net assets.
(d) Will not invest in foreign traded options or
futures contracts.
(e) Will not purchase or sell non-hedging futures
contracts or related options if aggregate initial
margin and premiums required to establish such
positions would exceed 5% of the Fund's total assets.
For purposes of this limitation, unrealized profits and
unrealized losses on any open contracts are taken into
account, while the in-the-money amount of an option
that is, or was, in-the-money at the time of purchase
is excluded.
(f) May invest its cash for temporary purposes in
commercial paper, certificates of deposit, money market
mutual funds, repurchase agreements or other
appropriate short-term investments;
(g) May invest in securities convertible into common
stock, but only when Y2K's investment adviser believes
the expected total return of such a security exceeds
the expected total return of common stocks eligible for
inclusion in Y2K's portfolio. Y2K will only invest in
investment-grade convertible securities, i.e. those
rated in the top four categories by either Standard &
Poor's Corporation or Moody's Investor Services, Inc.
Exhibit 5c
THE HOMESTATE GROUP
INVESTMENT ADVISORY AGREEMENT
THE HOMESTATE YEAR 2000 FUND
THIS AGREEMENT is made and executed this 12th day of September,
1997, between the HomeState Group (the "Fund"), a Pennsylvania
common law trust, having its principal place of business in
Lancaster, Pennsylvania and Emerald Advisers, Inc. (the
"Adviser"), a Pennsylvania corporation, registered with the
United Stated Securities and Exchange Commission and the
Pennsylvania Securities Commission as an investment adviser.
WHEREAS, the Fund is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as
an open-end management company and offers for public sale one or
more distinct series of shares of beneficial interest ("Series"),
each corresponding to a distinct portfolio;
WHEREAS, each share of a Series represents an undivided interest
in the assets, subject to the liabilities, allocated to that
Series and each Series has a separate investment objective and
policies;
WHEREAS, at the present time the Fund consists of three Series:
The HomeState Pennsylvania Growth Fund, The HomeState Select
Opportunities Fund and The HomeState Year 2000 Fund (the "Y2K
Fund");
WHEREAS, the Fund and the Adviser wish to enter into an agreement
setting forth the terms on which the Adviser will perform certain
services for the Fund;
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND HEREBY, it is
agreed by and between the parties hereto as follows:
1. APPOINTMENT OF INVESTMENT ADVISER. The Fund hereby
appoints the Adviser to manage the investment and reinvestment of
the assets of the Fund and to administer its affairs, subject to
supervision by the Fund's Board of Trustees, for the period and
on the terms set forth in this Agreement. In furnishing such
management and administration services, the Adviser will be
guided by the Fund's distinct investment objectives and policies
for each Series as set forth in the statements contained in the a
Fund's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission, as such Registration
Statement may be amended or supplemented from time to time. The
Adviser hereby accepts such appointment and agrees to render the
services required by this Agreement for the compensation and upon
other terms and conditions set forth in this Agreement. In
performing the investment advisory services under this Agreement,
the Adviser is authorized to engage such sub-advisers and other
persons as deemed necessary or desirable.
<PAGE>
The fees of any such persons shall be borne entirely by the
Adviser, and the engagement of such persons shall not relieve
the Adviser of any responsibility under this Agreement. The
Adviser shall for all purposes contained herein be deemed an
independent contractor and, unless otherwise expressly provided
or authorized, shall have no authority to act for or represent
the Fund in any way or otherwise be deemed an agent of the Fund.
2. OFFICE SPACE AND FACILITIES. The Adviser shall furnish
to the Fund space in the offices of the Adviser or in such other
place as may be agreed upon from time to time and all necessary
office facilities, equipment and personnel for managing the
affairs and investments and keeping the books of the Fund.
3. ALLOCATION OF EXPENSES.
(a) (1) Adviser shall pay the organizational expenses of
the Fund, which the Fund shall reimburse to Adviser over a sixty-
month period commencing after the date of the Fund's initial
public offering of its shares. The Fund shall not be obligated
to reimburse the Adviser for aggregate organizational expenses in
excess of $25,000. (2) The Adviser shall be responsible for the
compensation (if any) paid to officers of the Fund for serving in
that capacity; and the cost of fidelity bond and other insurance
for the Fund.
(b) The Fund shall bear all expenses of its organization,
operations, and business not specifically assumed or agreed to be
paid by the Adviser as provided in this Agreement. In
particular, but without limiting the generality of the foregoing,
the Fund shall pay:
(1) Custody and Accounting Service. All expenses of the
transfer, receipt, safekeeping, servicing and accounting for the
Fund's cash, securities, and other property, including all
charges of depositories, custodians, and other agents, if any;
(2) Shareholder Servicing. All expenses of maintaining and
servicing shareholder accounts, including all charges of the
Fund's transfer, shareholder recordkeeping, dividend disbursing,
redemption, and other agents, if any;
(3) Shareholder Communications. All expenses of preparing,
setting in type, printing, and distributing reports and other
communications to shareholders;
(4) Shareholder Meetings. All expenses incidental to
holding duly called meetings of Fund shareholders, including the
printing of notices and proxy material;
(5) Prospectuses. All expenses of preparing, setting in
type, and printing of annual or more frequent revisions of the
Fund's prospectus and of mailing them to shareholders;
(6) Communication Equipment. All charges for equipment or
services used for communication between the Adviser or the Fund
and the custodian, transfer agent or any other agents selected by
the Fund;
(7) Legal and Accounting Fees and Expenses. All charges
for services and expenses of the Fund's legal counsel and
independent auditors;
(8) Trustee's Fees and Expenses. All compensation of
Trustees, other than those affiliated with the Adviser, and all
expenses incurred in connection with their service;
(9) Issue and Redemption of the Fund Shares. All expenses
incurred in connection with the issue, redemption and transfer of
Fund shares, including the expense of confirming all share
transactions, and of preparing and transmitting the Fund's stock
certificates (if any);
<PAGE>
(10) Brokerage Commissions. All broker's commission and
other charges incident to the purchase, sale, or lending of the
Fund's portfolio securities;
(11) Taxes and Fees. All taxes or governmental fees
payable by or with respect of the Fund to federal, state, or
other governmental agencies, domestic or foreign, including stamp
or other transfer taxes;
(12) Non-recurring and Extraordinary Expenses. Such non-
recurring expenses as may arise, including the costs of actions,
suits, or proceeding to which the Fund is a party and the expense
the Fund may incur as a result of its legal obligation to provide
indemnification to its officers, trustees and agents.
4. SERVICE TO OTHER ACCOUNTS. The service of the Adviser
to the Fund hereunder shall not be deemed exclusive, and the
Adviser shall be free to render similar services to others so
long as its services hereunder are not impaired hereby.
5. COMPENSATION FOR SERVICES.
(a) For the facilities and services to be furnished by the
Adviser, the Fund shall pay the Adviser an annual fee computed on
the basis of the average net asset value of the Fund as
ascertained each business day and paid monthly in accordance with
the fee schedule as determined by the Board of Trustees for each
Series.
The fee schedule for The Year 2000 ("Y2K") Fund
is as follows:
NET ASSETS FEE
---------- ---
Up to and including $100,000,000 1.00%
In excess of 100,000,000 0.90 of 1%
For purposes of computing the annual fee, the net asset
value of the Fund shall be equal to the difference between
its total assets and its total liabilities (excluding from such
liabilities its capital stock and surplus) with its assets and
liabilities to be valued in accordance with the procedures set
forth in the Fund's Declaration of Trust.
(b) The Fund and the Adviser may mutually agree to reduce
the fees payable by the Fund if the reduction is in the best long-
range interest of the Fund and the Adviser. The fees may not be
increased under any circumstances. If the Adviser shall serve
for less than the whole of any month, the monthly payment shall
be prorated.
6. REIMBURSEMENT BY ADVISER. The Adviser agrees to
reimburse the Fund for the amount by which the adviser's fee in
any fiscal year exceeds the limits prescribed by any state in
which the Fund's shares are qualified for sale. For the purposes
of determining whether the Fund is entitled to reimbursements,
the adviser's fee is calculated on a monthly basis. If the Fund
is entitled to a reimbursement, that month's advisory fee will be
reduced or postponed, with any adjustments made at the end of the
fiscal year.
<PAGE>
7. BOOKS AND RECORDS. The Fund shall cause its books and
accounts to be audited at least once each year by a reputable,
independent public accountant or organization of public
accountants who shall render a report to the Fund.
8. AFFILIATION. It is understood that trustees, officers,
agents and stockholders of the Fund are or may not be interested
in the Adviser (or any successor thereof) as directors, officers,
stockholders, or otherwise, and that the Adviser (or any such
successor) is or may be interested in the Fund as a stockholder
or otherwise.
9. APPROVAL OF AGREEMENT; TERMINATION. This Agreement
shall become effective as of the date first written above, and
shall continue in force for an initial term expiring two years
from the effective date. Thereafter, the Agreement will continue
in effect with respect to a particular Series for successive
yearly terms each ended on December 31 of each year, unless
terminated by either party, provided that the renewal of the
Agreement and its terms are specifically approved annually by (i)
the vote of a majority of those members of the Fund's Board of
Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of
voting on such approval; and (ii) by the Fund's Board of Trustees
or such vote of a majority of the outstanding voting securities
of such Series. The Agreement may be terminated with respect to
a particular Series at any time, without payment of any penalty,
by the Fund (by vote of the Fund's Board of Trustees or by vote
of a majority of outstanding voting securities of such Series, or
by the Adviser, on sixty days written notice). This Agreement
will terminate automatically in the event of an assignment,
unless as order is issued by the Securities and Exchange
Commission conditionally or unconditionally exempting such
assignments from the provisions of Section 15(a) of the Act, in
which event this contract shall continue in full force and
effect.
This Agreement may not be amended, transferred, sold or in
any manner hypothecated or pledged, nor may a new advisory
agreement become effective with respect to a particular Series
without the affirmative vote or written consent of the holders of
a majority of the shares of such Series; provided, that this
limitation shall not prevent any minor amendments to the
Agreement which may be required pursuant to federal or state law.
10. DEFINED TERMS. For the purpose of this Agreement, the
terms "Vote of a majority of the outstanding securities,"
"assignment," and "interested persons" shall have the respective
meaning specified in the Investment Company Act of 1940 when such
terms are used in reference to the Fund.
11. MISCELLANEOUS. This Agreement embodies the entire
agreement between the Adviser and the Fund with respect to the
services to be provided by the Adviser and supercedes any prior
written or oral agreement between those parties. This Agreement
shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania and, to the extent it involves
any United States statutes, in accordance with the laws of the
United States. In the event that either party should be required
to take legal action in order to enforce its rights under this
Agreement, the prevailing party in any such action or proceeding
shall be entitled to recover from the other party costs and
reasonable attorney's fees.
<PAGE>
IN WITNESS THEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year
first above written.
HOMESTATE GROUP
By:/s/ Scott L. Rehr
------------------------
Scott L. Rehr, President
ATTEST:
By:/s/ Daniel W. Moyer IV
-----------------------------
Daniel W. Moyer IV, Secretary
EMERALD ADVISERS, INC.
By:/s/ Kenneth G. Mertz, II
-----------------------------
Kenneth G. Mertz II,President
ATTEST:
By:/s/ Scott L. Rehr
---------------------------
Scott L. Rehr, Secretary
<PAGE>
Exhibit 6a
DISTRIBUTION AGREEMENT
AMENDED SCHEDULE A
THE HOMESTATE GROUP
PORTFOLIO LISTING
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE HOMESTATE SELECT OPPORTUNITIES FUND
THE YEAR 2000 ("Y2K") FUND
Exhibit 8
WTC Custody for Mutual Fund/
Business Trust
Multiple Portfolios
Rev. 5/15/96
CUSTODY AGREEMENT
This Agreement is made as of the 15th day of
September, 1997, BETWEEN THE HOMESTATE GROUP, a common
law trust organized under the laws of Pennsylvania (the
"Trust"), having its principal place of business in
Lancaster, Pennsylvania, and WILMINGTON TRUST COMPANY, a
Delaware corporation (the "Custodian"), having its principal
place of business in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-
end management investment company and offers for public sale
one or more distinct series of shares of beneficial interest
(each series, a "Fund" and collectively, the "Funds"), each
share having no par value, and each Fund corresponding to a
distinct portfolio;
WHEREAS, each share of beneficial interest
(collectively, "Shares") of a Fund represents an undivided
interest in the assets of that Fund, subject to the
liabilities of that Fund, as more fully described in the
Declaration of Trust pursuant to which the Trust is created
and governed;
WHEREAS, the Trust desires to employ the Custodian to
provide custody services; and
WHEREAS, the Custodian is willing to furnish custody
services to the Trust on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and
mutual covenants herein contained, and intending to be
legally bound, the parties agree as follows:
I. Employment of Custodian; Property of the Trust to be
----------------------------------------------------
Held by the Custodian
- ---------------------
The Trust hereby employs the Custodian as the custodian
of its assets. The Trust agrees to deliver to the Custodian
substantially all securities and cash owned by it on behalf
of the Fund(s) from time to time, and substantially all
income, principal, capital distributions or other payments
received by it with respect to such securities, and the cash
consideration received for the issuance and sale of Shares
of the Trust from time to time. The Custodian will not be
responsible for any property of the Trust not delivered to
the Custodian.
II. Duties of the Custodian with Respect to Property of the
-------------------------------------------------------
Trust Held by the Custodian
- ---------------------------
A. Holding Securities
------------------
The Custodian will hold, earmark and physically
segregate for the account of each Fund all non-cash
property, including all securities owned by the Trust on
behalf of the Fund(s), other
than securities maintained pursuant to Article II, Section J
hereof in a clearing agency which acts as a securities
depository or in an authorized book-entry system authorized
by the U.S. Department of the Treasury, collectively
referred to herein as a ``Securities System.''
B. Delivery of Securities
----------------------
The Custodian will deliver securities held by the
Custodian or in a Securities System account only upon
receipt of proper instructions, which may be continuing
instructions, and only in the following cases:
<PAGE>
1. Upon sale of such securities for the account
of each Fund and receipt of payment therefor;
2. Upon receipt of payment in connection with
any repurchase agreement related to such securities
entered into by the Trust with respect to any Fund;
3. In the case of a sale effected through a Securities
System, in accordance with the provisions of Article
II, Section J hereof;
4. To the depository agent in connection with tenders
or other similar offers for securities of each Fund;
5. To the issuer thereof, or its agent, when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in any
such case, the cash or other consideration is to
be delivered to the Custodian;
6. To the issuer thereof, or its agent, for
registration or re-registration pursuant to the
provisions of Article II, Section C hereof; or for
exchange for a different number of certificates or
other evidence representing the same aggregate
face amount or number of units; provided that, in
any such case, the new securities are to be
delivered to the Custodian;
7. To the broker selling such securities for
examination in accordance with the ``street
delivery'' custom; provided that the Custodian
will maintain procedures to ensure prompt return
to the Custodian by the broker in the event the
broker elects not to accept such securities;
8. For exchange or conversion pursuant to any
plan of merger, consolidation, recapitalization,
reorganization or readjustment of the securities
of the issuer or pursuant to provisions for
conversion contained in such securities, or
pursuant to any deposit agreement; provided that,
in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
9. In the case of warrants, rights or similar
securities, the surrender thereof in the exercise
of such warrants, rights or similar securities or
the surrender of interim receipts or temporary
securities for definitive securities; provided
that, in any such case, the new securities and
cash, if any, are to be delivered to the
Custodian;
10. For delivery in connection with any loans of
securities made by the Trust on behalf of any
Fund, but only against receipt of adequate
collateral, as agreed upon from time to time by
the Custodian and the Trust, which may be in the
form of cash or obligations issued by the United
States government, its agencies or instrumentalities;
11. For delivery as security in connection with
any borrowing by the Trust on behalf of any Fund
requiring a pledge of assets by the Trust on
behalf of that Fund against receipt of amounts
borrowed;
12. Upon receipt of instructions from the
transfer agent for the Trust (the "Transfer
Agent") for delivery to the Transfer Agent or to
holders of Shares in connection with distributions
in kind in satisfaction of requests by holders of
Shares for repurchase or redemption; and
13. For any other proper corporate purposes, but
only upon receipt of, in addition to proper
instructions, a certified copy of a resolution of
the Board of Trustees signed by an officer of the
Trust and certified by the Secretary or an
Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which
such delivery is to be made, declaring such
purposes to be proper corporate purposes, and
naming the persons to whom delivery of such
securities will be made.
<PAGE>
C. Registration of Securities
--------------------------
Securities held by the Custodian (other than bearer
securities) will be registered in the name of the Trust on
behalf of the Fund(s), or in the name of any nominee of the
Trust, the Custodian or any Securities System, or in the
name or nominee name of any agent or sub-custodian appointed
pursuant to Article II, Section I hereof, provided that the
Custodian will maintain a mechanism for identifying all
securities belonging to each Fund, wherever held or
registered. All securities accepted by the Custodian on
behalf of the Trust for the Fund(s) hereunder will be in
``street name'' or other good delivery form.
D. Bank Accounts
-------------
If requested by the Trust, the Custodian will open and
maintain a separate bank account or accounts in the name of
the Trust, subject only to draft or order by the Custodian
acting pursuant to the terms of this Agreement, and will
hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of
the Fund(s), other than cash maintained by the Trust in a
bank account established and used in accordance with Rule
17f-3 under the 1940 Act.
E. Payment for Shares
------------------
The Custodian will receive from the distributor of the
Shares of the Fund(s) or from the Transfer Agent and deposit
into each Fund's custody account payments received for
Shares of such Fund issued or sold from time to time by the
Trust. The Custodian will provide timely notification to
the Trust and the Transfer Agent of any receipt by it of
cash payments for Shares of the Fund(s).
F. Collection of Income and Other Payments
---------------------------------------
The Custodian will collect on a timely basis all income
and other payments with respect to securities held hereunder
to which the Trust and each of the Fund(s) will be entitled
by law or pursuant to custom in the securities business, and
will credit such income and other payments, as collected, to
each Fund's custody account.
G. Payment of Trust Moneys
-----------------------
Upon receipt of proper instructions, which may be
continuing instructions, the Custodian will pay out moneys
of the Trust on behalf of the Fund(s) in the following cases
only:
1. Upon the purchase of securities for the
account of each Fund, but only (a) against the
delivery of such securities to the Custodian (or
any bank, banking firm or trust company doing
business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian
and has been designated by the Trust or by the
Custodian as its agent for this purpose); (b) in
the case of a purchase effected through a
Securities System, in accordance with the
conditions set forth in Article II, Section J
hereof or; (c) in the case of repurchase
agreements entered into between the Trust on
behalf of the Fund and the Custodian, or another
bank, (i) against delivery of securities either in
certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank
with such securities and with an indication on the
books of the Custodian that such securities are
held for the benefit of the Fund, and (ii) against
delivery of the receipt evidencing purchase by the
Trust on behalf of the Fund of securities owned by
the Custodian or other bank along with written
evidence of the agreement by the Custodian or
other bank to repurchase such securities from the
Trust on behalf of the Fund;
<PAGE>
2. In connection with conversion, exchange or
surrender of securities owned by the Trust on
behalf of any Fund as set forth in Article II,
Section B hereof;
3. For the redemption or repurchase of Shares as
set forth in Article II, Section H hereof;
4. For the payment of any expense or liability
incurred by the Trust with respect to the Fund(s),
including, but not limited to, the following
payments for the account of the Fund(s): interest,
dividend disbursements, taxes, trade association
dues, advisory, administration, accounting,
transfer agent and legal fees, and operating
expenses allocated to the Trust or the Fund(s)
whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5. For the payment of any dividend declared on
behalf of the Fund(s) pursuant to the governing
documents of the Trust; and
6. For any other proper corporate purposes, but
only upon receipt of, in addition to proper
instructions, a certified copy of a resolution of
the Board of Trustees of the Trust signed by an
officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying
the amount of such payment, setting forth the
purpose for which such payment is to be made,
declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom
such payment is to be made.
H. Payments for Repurchase or Redemptions of Shares of the Fund(s)
---------------------------------------------------------------
From such funds as may be available, the Custodian
will, upon receipt of instructions from the Transfer Agent,
make funds available for payment to holders of Shares of the
Fund(s) who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection
with the redemption or repurchase of Shares, the Custodian
is authorized upon receipt of instructions from the Transfer
Agent to wire funds to a commercial bank designated by the
redeeming shareholders.
I. Appointment of Agents
---------------------
The Custodian may at any time in its discretion
appoint, but only in accordance with an applicable vote by
the Board of Trustees of the Trust, any bank or trust
company, which is qualified under the 1940 Act to act as a
custodian, as its agent or sub-custodian to carry out such
of the provisions of this Article II as the Custodian may
from time to time direct; provided that the appointment of
any such agent or sub-custodian will not relieve the
Custodian of any of its responsibilities or liabilities
hereunder. The Custodian is hereby authorized to deposit,
arrange for deposit and/or maintain foreign securities owned
by the Trust on behalf of the Fund(s) with the Custodian's
agent Bankers Trust Company or with the subcustodians or
agents of the Custodian's agent.
J. Deposit of Trust Assets in Securities Systems
---------------------------------------------
The Custodian may deposit and/or maintain securities
owned by the Trust on behalf of the Fund(s) in a clearing
agency registered with the Securities and Exchange
Commission (the "SEC") under Section 17A of the Securities
Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies
(collectively referred to herein as a ``Securities System'')
in accordance with applicable Federal Reserve Board and SEC
rules and regulations, if any, and subject to the following
provisions:
1. The Custodian may keep securities owned by
the Trust on behalf of the Fund(s) in a Securities
System provided that such securities are
represented in an account ("Account") of the
Custodian in the Securities System which will not
include any assets of the Custodian other than
assets held as a fiduciary, custodian, or
otherwise for customers;
<PAGE>
2. The records of the Custodian with respect to
securities owned by the Trust on behalf of the
Fund(s) which are maintained in a Securities
System will identify by book-entry those
securities belonging to the Fund(s);
3. The Custodian will pay for securities
purchased for the account of the Fund(s) upon (i)
receipt of advice from the Securities System that
such securities have been transferred to the
Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment
and transfer for the account of the Fund(s). The
Custodian will transfer securities
sold for the account of the Fund(s) upon (i)
receipt of advice from the Securities System that
payment for such securities has been transferred
to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such
transfer and payment for the account of the
Fund(s). The Custodian will furnish the Trust a
monthly account statement showing confirmation of
each transfer to or from the account of the
Fund(s) and each day's transactions in the
Securities System for the account of the Fund(s);
4. The book-entry system of the Federal Reserve
System authorized by the U.S. Department of the
Treasury and the Depository Trust Company, a
clearing agency registered with the SEC, each are
hereby specifically approved as a Securities
System, provided that any changes in these
arrangements shall be subject to the approval of
the Board of Trustees of the Trust; and
5. The Custodian will be liable to the Trust on
behalf of any Fund for any direct loss or damage
to the Trust on behalf of any Fund resulting from
use of the Securities System to the extent caused
by the gross negligence, willful misfeasance or
reckless misconduct of the Custodian or any of its
agents or of any of its or their employees. In no
event will the Custodian be liable for any
indirect, special, consequential or punitive
damages.
K. Segregated Accounts
-------------------
The Custodian, upon receipt of Proper Instructions (as
hereinafter defined) from the Trust on behalf of any one or
more applicable Funds, shall establish a segregated account
for and on behalf of each such Fund into which account or
accounts may be transferred cash and/or securities,
including securities maintained in an account by the
Custodian pursuant to Article II(J) hereof:
(a) in accordance with and subject to the provisions of any
agreement ("Escrow Agreement") among the Trust, on behalf of
each Fund(s), the Custodian and a broker-dealer registered
under the Securities Exchange Act and a member of the NASD
(or any futures commission merchant registered under the
Commodity Exchange Act) (collectively, "Broker-dealer"),
relating to compliance with the rules of The Options
Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading
Commission and any registered contract market), or of any
similar organization(s), regarding escrow or other
arrangements in connection with transactions by such
Fund(s). Such Escrow Agreements will only be entered into
upon receipt of written instructions from the Trust, on
behalf of the pertinent Fund(s) which state that (i) an
agreement between the Broker-dealer and the Fund relating to
such transactions (the "Trading Agreement") has been entered
into, and (ii) the Fund is in compliance with all the rules
and regulations of the agency or exchange having
jurisdiction over such transactions. Transfers of initial
funds or securities will be made into such account only upon
written instructions; transfers of premium and variation
margin may be made into such account pursuant to oral
instructions. Transfers of funds from such account to the
Broker-dealer for which the Custodian holds the account may
only occur upon written certification by such Broker-dealer
to the Custodian that pursuant to the Escrow Agreement and
the Trading Agreement, all conditions precedent to its right
to furnish the Custodian such instructions have been satisfied;
<PAGE>
(b) for purposes of segregating cash or government
securities in connection with options purchased, sold
or written by the Fund(s) or commodity futures contracts
or options thereon purchased, sold or written by the Fund(s);
(c) for purposes of compliance by the Fund(s) with the
procedures required by Investment Company Act Release 10666,
or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies;
(d) to hold securities subject to repurchase agreements,
to the extent that certificates for such securities are held in
physical custody; and
(e) for other proper Trust purposes, but only, in the
case of this clause (e), upon receipt of, in addition to proper
instructions from the Trust on behalf of the applicable Fund(s), a
certificate signed by one or more of the Trustees of the Trust,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper Trust purposes.
L. Ownership Certificates for Tax Purposes
----------------------------------------
The Custodian will execute ownership and other certificates
and affidavits for all federal and state tax purposes in
connection with receipt of income or other payments
with respect to securities of the Fund(s) held by it
and in connection with transfers of securities of the
Fund(s).
M. Proxies
-------
The Custodian will cause to be promptly executed by
the registered holder of such securities, if the
securities are registered otherwise than in the name
of the Trust on behalf of the Fund(s) or a nominee of
the Trust, all proxies, without indication of the
manner in which such proxies are to be voted, and
will promptly deliver to the Trust's investment
advisor for the Fund(s) (the "Advisor") such proxies,
all proxy soliciting materials and all notices
relating to such securities.
N. Communications Relating to Securities of the Fund(s)
----------------------------------------------------
The Custodian will transmit promptly to the
Advisor of that Fund all written information
(including, without limitation, pendency of calls and
maturities of securities and expirations of rights in
connection therewith) received by the Custodian from
issuers of the securities being held for the Fund(s).
With respect to tender or exchange offers, the
Custodian will transmit promptly to the Advisor all
written information received by the Custodian from
issuers of the securities whose tender or exchange is
sought and from the party (or its agents) making the
tender or exchange offer. If the Advisor desires to
take action with respect to any tender offer,
exchange offer or any other similar transaction, the
Advisor will notify the Custodian at least five
business days prior to the date on which the
Custodian is to take such action.
O. Proper Instructions
--------------------
"Proper Instructions'' as used herein mean a
writing signed or initialed by one or more person or
persons in such manner as the Board of Trustees will
have authorized from time to time. Each writing will
set forth the transaction involved, including a
specific statement of the purpose for which such
action is requested. Oral instructions will be
considered proper instructions if the Custodian
reasonably believes them to have been given by a
person authorized to give such instructions with
respect to the transaction involved. The Trust will
cause all oral instructions to be confirmed promptly
in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Trust
accompanied by a detailed description of procedures
approved by the Board of Trustees, proper
instructions may include communications effected
directly between electromechanical or electronic
devices provided that the Board of Trustees and the
Custodian are satisfied that such procedures afford
adequate safeguards for the assets of the Trust.
<PAGE>
P. Actions Permitted Without Express Authority
-------------------------------------------
The Custodian may, in its discretion, without express
authority from the Trust:
1. make payments to itself or others for
minor expenses of handling securities or
other similar items relating to its duties
under this Agreement, provided that all
such payments will be accounted for to the
Trust;
2. surrender securities in temporary form for
securities in definitive form;
3. endorse for collection, in the name of
the Trust on behalf of the Fund(s), checks,
drafts and other negotiable instruments;
and
4. in general, attend to all non-
discretionary details in connection with
the sale, exchange, substitution, purchase,
transfer and other dealings with the
securities and property of the Trust,
except as otherwise directed by the Trust
or the Board of Trustees of the Trust.
Q. Evidence of Authority
---------------------
The Custodian will be protected in acting upon
any instruction, notice, request, consent,
certificate or other instrument or paper reasonably
believed by it to be genuine and to have been
properly executed by or on behalf of the Trust. The
Custodian may receive and accept a certified copy of
a vote of the Board of Trustees of the Trust as
conclusive evidence (a) of the authority of any
person to act in accordance with such vote, or (b) of
any determination or of any action by the Board of
Trustees as described in such vote, and such vote may
be considered as in full force and effect until
receipt by the Custodian of written notice to the
contrary.
III. Duties of Custodian with Respect to Books of Account
----------------------------------------------------
The Custodian will cooperate with and supply to
the entity or entities appointed to keep the books of
account of the Trust such information in the
possession of the Custodian as is reasonably
necessary to the maintenance of the books of account
of the Trust.
IV. Records
-------
The Custodian will create and maintain all
records relating to its activities and obligations
under this Agreement in such manner as will meet the
obligations of the Trust under the 1940 Act, including,
without limitation, Section 31 thereof and Rules 31a-1
and 31a-2 thereunder. All such records will be property
of the Trust and will at all times during the regular
business hours of the Custodian be open for
inspection by duly authorized officers, employees or
agents of the Trust and employees and agents of the
SEC. The Custodian will, upon request, provide the
Trust with a tabulation of securities held by the
Custodian on behalf of the Fund(s), and will, upon
request, and for such compensation as will be agreed
upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
V. Opinion of Trust's Independent Accountant
-----------------------------------------
The Custodian will take all reasonable action,
as the Trust may from time to time request, to obtain
from year to year favorable opinions from the Trust's
independent accountants with respect to its
activities hereunder in connection with the
preparation of the Trust's Form N-1A, Form N-SAR or
other annual or semiannual reports to the SEC and
with respect to any other requirements of the SEC.
<PAGE>
VI. Reports to Trust by Auditors
----------------------------
The Custodian will provide the Trust, at such
times as the Trust may reasonably request, with
reports by its internal or independent auditors on
the accounting system, internal accounting controls
and procedures for safeguarding securities, including
reports available on securities deposited and/or
maintained in a Securities System, relating to the
services provided by the Custodian under this
Agreement. Such reports will be of sufficient scope
and in sufficient detail as may reasonably be
required by the Trust to provide reasonable assurance
that any material inadequacies would be disclosed,
will state in detail material inadequacies disclosed
by such examination, and if there are no such
inadequacies, will so state.
VII. Compensation of Custodian
-------------------------
For the normal services the Custodian provides under
this Custody Agreement, the Custodian will be entitled to
reasonable compensation as agreed to between the
Trust and the Custodian from time to time. Until
agreed otherwise, the compensation will be as set
forth on Schedule A attached hereto and made part
hereof, as such Schedule may be amended from time to
time. The fee set forth in Schedule A hereto is
subject to an annual review and adjustment process.
In the event the Custodian provides any extraordinary
services hereunder, it will be entitled to additional
reasonable compensation.
VIII.Responsibility of Custodian/Indemnification
-------------------------------------------
So long as and to the extent that it has
exercised reasonable care, the Custodian will not be
responsible for the title, validity or genuineness of
any property or evidence of title thereto received by
it or delivered by it pursuant to this Agreement and
will be held harmless in acting upon any notice,
request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be
signed by the proper party or parties.
The Custodian will be entitled to rely on and
may act upon advice of counsel (who may be counsel
for the Trust) on all matters, and will be without
liability for any action reasonably taken or omitted
pursuant to such advice.
The Custodian will exercise reasonable care in
carrying out the provisions of this Agreement and
shall be without liability for any action taken or
omitted by it in good faith and without negligence.
The Trust will indemnify the Custodian and hold it
harmless from and against all claims, liabilities,
and expenses (including attorneys' fees) which the
Custodian may suffer or incur on account of being
Custodian hereunder, except to the extent such
claims, liabilities and expenses are caused by the
Custodian's own negligence or bad faith.
Notwithstanding the foregoing, nothing contained in
this paragraph is intended to nor will it be
construed to modify the standards of care and
responsibility set forth in Article II, Section I
hereof with respect to sub-custodians and in Article
II, Section J(5) hereof with respect to the
Securities System.
If the Trust requires the Custodian to take any
action,which involves the payment of money or which may,
in the reasonable opinion of the Custodian, result in
liability or expense to the Custodian or its nominee,
the Trust, as a prerequisite to requiring the
Custodian to take such action, will provide indemnity
to the Custodian in an amount and form satisfactory
to it.
IX. Effective Period; Termination; Amendment
----------------------------------------
This Agreement will become effective as of the
date hereof and remain effective until terminated as
provided herein. This Agreement may be amended at
any time only by written instrument signed by both
parties. This Agreement may be terminated at any
time on ninety (90) days' written notice by either
party; provided that the Trust will not amend or
terminate the Agreement in contravention of any
applicable federal or state regulations, or any
provision of the governing documents of the Trust,
and further provided, that the Trust may at any time
by action of its Board of Trustees immediately
terminate this Agreement in the event of the
appointment of a conservator or receiver for the
Custodian by the applicable federal regulator or upon
the happening of a like event at the direction of an
appropriate regulatory agency or court of competent
jurisdiction. Upon termination of this Agreement,
the Trust will pay to the Custodian any fees incurred
as a result of the termination transfer of assets,
and reimburse the Custodian for all costs, expenses
and disbursements that are due as of the date of such
termination.
<PAGE>
X. Successor Custodian
-------------------
If a successor custodian is appointed by the Board of
Trustees of the Trust, the Custodian will, upon
termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the
form for transfer, all securities and other assets of
the Trust then held by it hereunder. The Custodian
will also deliver to such successor custodian copies
of such books and records relating to the Trust as
the Trust and Custodian may mutually agree.
In the event that no written order designating a
successor custodian or certified copy of a vote of
the Board of Trustees will have been delivered to the
Custodian on or before the date when such termination
will become effective, then the Custodian will have
the right to deliver to a bank or trust company of
its own selection, doing business in the state in
which either the principal place of business of the
Trust or the Custodian is located and having an
aggregate capital, surplus, and undivided profits of
not less than $25,000,000, all securities, funds and
other properties held by the Custodian under this
Agreement. Thereafter, such bank or trust company
will be the successor of the Custodian under this
Agreement.
In the event that securities, funds and other
properties remain in the possession of the Custodian
after the date of termination hereof owing to failure
of the Trust to procure the certified copy of vote
referred to, or of the Board of Trustees to appoint a
successor custodian, the Custodian will be entitled
to fair compensation for its services during such
period as the Custodian and retain possession of such
securities, funds and other properties and the
provisions of this Agreement relating to the duties
and obligations of the Custodian will remain in full
force and effect.
XI. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Agreement,
the Custodian and the Trust may from time to time agree
on such provisions interpretive of, or in addition
to, the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of
this Agreement. Any such interpretive or additional
provisions will be in writing signed by both parties,
provided that no such interpretive or additional
provisions will contravene any applicable federal or
state regulations or any provision of the governing
documents of the Trust. No interpretive or
additional provisions made as provided in the
preceding sentence will be deemed to be an amendment
of this Agreement.
XII. Delaware Law to Apply
---------------------
This Agreement will be deemed to be a contract made
in Delaware and governed by the internal laws of the
State of Delaware without giving effect to the
principles of conflicts of law thereof. If any
provision of this Agreement will be held or made
invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement will not
be affected thereby. This Agreement will be binding
and will inure to the benefit of the parties hereto
and their respective successors.
<PAGE>
IN WITNESS WHEREOF, each of the parties has
caused this instrument to be executed in its name and
on behalf by its duly authorized representative and
its seal to be hereunder affixed as of the date first
written above.
[SEAL] THE HOMESTATE GROUP a Pennsylvania common
law trust
By:/s/ Kenneth G. Mertz, II, its Trustee
------------------------
By: /s/ Scott L. Rher
------------------
(Scott L. Rehr),President
[SEAL] WILMINGTON TRUST COMPANY
By: /s/ Lario Marini
-----------------
(Lario Marini), Vice President
<PAGE>
SCHEDULE A
THE HOMESTATE GROUP
FEE SCHEDULE
For the services Custodian provides under this Custody
Agreement, the Trust, on behalf of the Fund(s) listed below,
agrees to pay to the Custodian with respect to each Fund a
fee, payable monthly, determined as follows:
NAME OF FUND(S) FEE SCHEDULE
- --------------- ------------
An annual fee for each Fund based
upon the average daily net assets
of each Fund as follows:
HomeState Pennsylvania Growth Fund 0.015% on the first $100 million
HomeState Select Opportunities Fund 0.010% on the assets in excess of
$100 million, subject to a minimum
fee of $300 per month,
The Year 2000 ("Y2K") Fund plus, $12 per purchase, sale or
maturity of a portfolio security,
except those requiring physical
delivery, which will be charged at
$50 per purchase, sale or maturity,
plus, $7 for each incoming wire of
funds and $12 for each outgoing wire
of funds,
plus any out-of-pocket expenses.
<PAGE>
Exhibit 9a
TRANSFER AGENCY AGREEMENT
AMENDED SCHEDULE A
THE HOMESTATE GROUP
PORTFOLIO LISTING
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE HOMESTATE SELECT OPPORTUNITIES FUND
THE YEAR 2000 ("Y2K") FUND
Exhibit 9b
FUND ACCOUNTING SERVICES AGREEMENT
AMENDED SCHEDULE A
THE HOMESTATE GROUP
PORTFOLIO LISTING AND FEE SCHEDULE
PORTFOLIO LISTING
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE HOMESTATE SELECT OPPORTUNITIES FUND
THE YEAR 2000 ("Y2K") FUND
FEE SCHEDULE
For the services Rodney Square provides under the Fund
Accounting Services Agreement dated November 20, 1995, The
HomeState Group (the "Trust") on behalf of the Portfolios
listed above agrees to pay Rodney Square an Annual Fund
Accounting Fee per Portfolio equal to the following:
Year One
--------
$45,000 for the initial Portfolio (The HomeState
Pennsylvania Growth Fund) assets up to $50 million, and
$40,000 for each additional Portfolio's assets up to
$50 million, plus;
0.03% of each Portfolio assets of $50 million to
$100 million, plus;
0.02% of each Portfolio assets in excess of $100
million; and
* less $5,000 for The HomeState Pennsylvania
Growth Fund.
Year Two
--------
*$5,000 for The HomeState Pennsylvania Growth Fund, plus
$45,000 for each Portfolio's assets up to $50 million, plus;
0.03% of each Portfolio's assets of $50 million to $100
million, plus;
0.02% of each Portfolio's assets in excess of $100 million.
This accounting fee shall be pro rated and payable monthly
as soon as practicable after the last day of each month
based on the average of the daily net assets of each
Portfolio listed below, as determined at the close of
business on each day throughout the month.
Out of pocket expenses shall be reimbursed by the Trust to
Rodney Square or paid directly by the Trust.
<PAGE>
LIQUIDATED DAMAGES
- ------------------
Upon the termination of the Accounting Services Agreement
within the initial three (3) year term by the Trust or the
Trust's Board of Trustees, the Trust shall pay to Rodney
Square six (6) months of base fees in liquidated damages
with respect to each Portfolio.
<PAGE>
Exhibit 9c
FUND ADMINISTRATION AGREEMENT
AMENDED SCHEDULE A
THE HOMESTATE GROUP
PORTFOLIO LISTING AND FEE SCHEDULE
PORTFOLIO LISTING
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE HOMESTATE SELECT OPPORTUNITIES FUND
THE YEAR 2000 ("Y2K") FUND
FEE SCHEDULE
For the services Rodney Square provides under the Fund
Administration Agreement dated November 20, 1995, The
HomeState Group (the "Trust") agrees to pay Rodney Square an
Annual Fund Administration Fee as listed below equal to:
Year One
--------
$0 million to $50 million 0.15%
$50 million to $200 million 0.10%
In excess of $200 million 0.07%
calculated on a group basis and subject to the following minimums:
$50,000 for the initial Portfolio of Series (The
HomeState Pennsylvania Growth Fund)
$20,000 for each additional Portfolio of the Series
Year Two
--------
* $5,000 for The HomeState Pennsylvania Growth Fund, plus
$0 million to $50 million 0.15%
$50 million to $200 million 0.10%
In excess of $200 million 0.07%
calculated on a group basis and subject to the following minimums:
* $5,000 for The HomeState Pennsylvania Growth Fund plus,
$50,000 for the initial Portfolio of Series (The HomeState
Pennsylvania Growth Fund)
$25,000 for each additional Portfolio of the Series
This administration fee shall be pro rated and payable
monthly as soon as practicable after the last day of each
month based on the average of the daily net assets of each
Portfolio, as determined at the close of business on each
day throughout the month.
Out of pocket expenses shall be reimbursed by the Trust to
Rodney Square or paid directly by the Trust.
LIQUIDATED DAMAGES:
- ------------------
Upon the termination of the Administration Agreement within
the initial three (3) year term by the Trust or the Trust's
Board of Trustees, the Trust shall pay to Rodney Square six
(6) months of base fees in liquidated damages with respect
to each Portfolio.
<PAGE>
Exhibit 15c
DISTRIBUTION SERVICES AGREEMENT (RULE 12b-1 PLAN)
This Distribution Services Agreement (the "Plan") is adopted
by The HomeState Group (the "Fund"), a Pennsylvania Common Law
Trust organized under the Investment Company Act of 1940 (the
"Act") as an open-end mutual fund, with respect to the
distribution of its shares of the HomeState Year 2000 "Y2K" Fund
(the "Shares") by Rodney Square Distributor, Inc., the principal
underwriter and distributor for the Fund (the "Distributor").
WITNESSETH:
WHEREAS, the Fund is an open-end management company, and
WHEREAS, it has been proposed that the Fund make payments to
the Distributor out of the Fund's net assets for distribution
services rendered to the Fund; and
WHEREAS, the Fund intends to distribute its Shares in
accordance with Rule 12b-1 under the Act and desires to adopt a
distribution plan pursuant to such rule; and
WHEREAS, the Fund's Board of Trustees at a meeting held on
August 1, 1997, in considering whether the Fund should adopt and
implement a written plan, has evaluated such information as it
deemed necessary to make an informed determination as to whether
a written plan should be adopted and implemented and has
considered such pertinent factors as it deemed necessary to form
the basis for a decision to use assets of the Fund for such
purposes and has determined that there is a reasonable likelihood
that adoption and implementation of a plan will benefit the Fund
and is shareholders.
NOW, THEREFORE, the Fund hereby adopts a distribution plan
in accordance with Rule 12b-1 under the Act, having the following
terms and conditions:
1. The Distributor shall pay all costs and expenses
incurred in connection with (i) advertising and marketing the
Shares; (ii) payments of servicing fees to one or more securities
dealers (which may include the Distributor itself but only to the
extent necessary to reimburse the Distributor for its costs and
expenses incurred in connection with such servicing), financial
institutions or other industry professionals, such as investment
advisers, accountants, and estate planning firms (individually, a
"Service Organization"), in respect of the average daily net
asset value of the Shares owned by shareholders for whom the
Service Organization is the dealer of record or holder of record
and with whom the Service Organization has a servicing
relationship pursuant to the Fund's related Rule 12b-1 Service
Agreement; (iii) printing any Prospectuses, Statements of
Additional Information, or reports prepared for the Distributor's
use in connection with the offering of the Fund's Shares (except
those used for regulatory purposes or for distribution to
existing shareholders); and (iv) with implementing and operating
this Plan.
2. Each of the Fund's respective series will
reimburse the Distributor as appropriate for its out-of-pocket
costs and expenses described in Section (1) on a monthly basis at
an annual rate of not more than .50% of such Series net assets as
of the close of the last business day of the month. To determine
the maximum amount of the costs and expenses reimbursable
hereunder, the value of the Fund's net assets shall be computed
in the manner specified in the Fund's Prospectus and/or Statement
of Additional Information for the determination of the net asset
value of the Shares. The Distributor may incur additional
unreimbursed costs and expense in connection with the
distribution of Shares and may utilize its capital or any other
resources to pay for such costs and expenses.
3. The Fund shall, from time to time, furnish or
otherwise make available to the Distributor such financial
reports, proxy statements, and other information relating to the
business and affairs of the Fund as the Distributor may
reasonably require in order to discharge its duties and
obligations hereunder.
4. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Declaration
of Trust, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or relieve or
deprive the Board of Trustees of the Fund of the responsibility
for and control of the conduct of the affairs of the Fund.
5. This Plan shall become effective when executed
following approval by a vote of at least a majority of the
outstanding voting securities of the Fund and by a vote of the
Trustees of the Fund and of those Trustees who are not interested
persons of the Fund and who have no direct or indirect financial
interest in the Plan or in any agreements relating to the Plan
(the "Independent Trustees), cast in person at a meeting called
for the purpose of voting on the Plan.
<PAGE>
6. This Plan shall remain in effect until June 30,
1999 and for successive annual periods of twelve months each
thereafter; provided, however, that such continuance is subject
to approval annually by a vote of the Trustees of the Fund and of
the Independent Trustees cast in person at a meeting called for
the purpose of voting on this Plan. If such annual approval is
not obtained, the Plan shall expire twelve months after the date
of the last approval. This Plan may be amended at any time by
the Board of Trustees; provided that (a) any amendment to
increase materially the amount to be spent for the services
described herein shall be effective only upon approval by a vote
of a majority of the outstanding Shares, and (b) any material
amendment of this Plan shall be effective only upon approval in
the manner provided in the first sentence of this paragraph.
7. This Plan may be terminated as to any Series at
any time, without the payment of any penalty, by a vote of a
majority of the Independent Trustees or by a vote of a majority
of the outstanding voting securities of such Series, and shall
automatically terminate in the event of its assignment.
8. Nothing herein contained shall prohibit the
Distributor or any "affiliated person" of the Distributor to act
as distributor for other persons, firms, or corporations or to
engage in other business activities.
9. Neither the Distributor nor any of its employees
or agents is authorized to make any representations concerning
the Shares except those contained in the Prospectus, Statement of
Additional Information, or such supplemental sales literature as
the Fund may approve.
10. The Distributor shall be required to use its best
efforts in rendering distribution services but shall not be
liable for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with matters to which the
Fund's distribution agreement with the Distributor relates except
a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Distributor in the performance of
its duties as Distributor of from reckless disregard by the
Distributor of its obligations and duties under such distribution
agreement.
11. The Distributor shall provide the Fund, for review by
the Fund's Board of Trustees, and the Directors shall review, at
least quarterly, a written report of the amounts expended
pursuant to this Plan and the purposes for which such
expenditures were made. Such written report shall be in a form
satisfactory to the Fund and shall supply all information
necessary for the Board to discharge its responsibilities,
including its responsibilities pursuant to Rule 12b-1.
12. While this Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the
discretion of such Independent Trustees.
13. The Fund shall preserve copies of this Plan, any
related agreements, and all reports made pursuant to Section 11
hereof for a period of not less than six years from the date of
this Plan, or any such agreement or report, as the case may be,
the first two years, in an easily accessible place.
14. In the event that the Fund establishes additional
classes of shares evidencing interests in other series with
respect to which it desires the Plan to apply, it shall notify
the Distributor in writing. If the Distributor is willing to act
hereunder it shall notify the Fund in writing whereupon such
series shall become a series hereunder and the compensation
payable by such new series to the Distributor will be as agreed
in writing at the time. Payments made by a series to the
Distributor pursuant to this Plan must be to reimburse the
Distributor for reimbursable costs and expenses incurred in
connection with the distribution of such series shares only.
15. If any provision of this Plan shall be held or made
invalid by a court decision statute, rule or otherwise, the
remainder of the Plan shall not be affected thereby.
16. For the purposes of this Plan, the terms "interested
persons," "assignment," "affiliated person" and "majority of the
outstanding voting securities" are used as defined in the Act.
IN WITNESS WHEREOF, this Plan has been executed by the Fund
effective as of September 12, 1997.
THE HOMESTATE GROUP
By: /s/ Scott L. Rehr
-------------------
President
Attest: /s/ Daniel W. Moyer IV
------------------------
Secretary
