ANNUAL REPORT
(HOMESTATE MUTUAL FUNDS LOGO)
JUNE 30, 1998
THE HOMESTATE GROUP
-------------------
WELCOME TO THE HOMESTATE MUTUAL FUNDS
--------------------------------------
HomeState currently offers three mutual funds: the HomeState Pennsylvania Growth
Fund, the HomeState Select Opportunities Fund and the HomeState Year 2000
("Y2K") Fund. All three funds offer investors a unique investment strategy
aimed at pursuing long-term growth: what we call "The HomeState Advantage."
IN-DEPTH, ON-SITE RESEARCH
---------------------------
HomeState's own in-house team of research analysts believes in a common-sense,
fundamental approach to choosing investments. Whenever we can, we visit a
company before investing, talking to its management and employees, as well as
its suppliers, customers and competitors.
PROFESSIONAL PORTFOLIO MANAGEMENT
----------------------------------
HomeState's chief investment officer is Kenneth G. Mertz II, CFA. Ken has over
eighteen years' experience in the money management industry, including seven
years as chief investment officer of a $12 billion public pension fund. Ken has
managed portfolios in both "up" and "down" markets and this experience guides
him as he seeks to actively reduce risk.
UNIQUE INVESTMENT OPPORTUNITIES
--------------------------------
HomeState's mutual funds focus on areas we feel are largely ignored by other
institutional money managers:
- companies based in our home state of Pennsylvania; and
- smaller-sized companies, with special attention to technology companies.
In-Depth, On-Site Research. Professional Portfolio Management. Unique Investment
Opportunities. That's The HomeState Advantage.
Funds that invest in a particular state or region may involve a greater
degree of risk than funds with a more geographically diversified portfolio.
Investing in smaller companies' stock can involve higher risk and increased
volatility than larger stocks. This report contains information about the
Funds' performance. Past performance is no guarantee of future results. An
investment in the Funds will fluctuate in value so that your account, when
redeemed, may be worth more or less than your original purchase price.
THE HOMESTATE GROUP
- --------------------
REPORT FROM MANAGEMENT
July 31, 1998
Dear Shareholder:
In the mid-1980's, I had the privilege of working with my father at the William
Penn family of mutual funds. The financial markets were quite different then,
but the relative circumstances of various investment alternatives during the
period can help shed some light on the markets of today.
Interest rates were near historic highs in 1984: the 30-year U.S. government
bond was yielding between 11% and 13%. At the same time, stocks were having a
difficult year following dramatic gains the prior year: large company stocks
(represented by the S&P 500) returned 6.3% in 1984, while small company stocks
(as charted by Ibbotson Associates) lost 6.7%. Following these trends,
investors poured money into short-term money market funds and certificates of
deposit during the year. A net $47 billion was invested into money market
mutual funds in 1984, compared to a net $25 billion in all other types of mutual
funds combined (by comparison, in 1995 investors did the opposite, putting 32%
less in money market funds than other fund types). Interest rates were topping
out, for in two years the long bond's yield would fall from over 13% to under
8%. Yet investors were not locking-in these historically high yields, instead
plowing money into short-term funds whose rates would drop significantly over
the next two years. Likewise, investors were not enthusiastically investing in
a stock market that was taking a breather in 1984: the very next year, in 1985,
large companies would rise by 32% and small companies by 25% (all figures used
in this discussion are courtesy of Ibbotson & Associates and reflect past
performance which is not indicative of future results. These results do not
reflect the results of any past or future investment in any HomeState mutual
fund).
So what can we learn from the markets of 1984 and 1985? Something that my father
was busy working into me during those same years: patience and a long-term view.
Too many investors seized on the attractive short-term rates in 1984, failing to
either lock-in these rates in longer-term products, or to invest in an equity
market that was simply resting along the way in a historic bull market.
Again, the markets are at a different place today. Interest rates are near
historic lows, and the stock market wears two different faces: large company
stocks have soared in the past two years while our smaller company stocks have
languished. But important conclusions can be drawn using the lessons of the
1980's:
1. PATIENCE IS REWARDED. Ibbotson (and most other market analysts) will tell
you that, over the long term, small company stocks have outperformed all other
investment alternatives (Ibbotson, in fact, goes back to 1926 through 1997).
Today, small company stocks exhibit many valuation characteristics that we at
HomeState see as much more attractive than large company stocks (see Ken Mertz's
commentary on pages 6 and 7 for a full discussion of this point). And yet,
funds like HomeState that invest in these small company stocks have
underperformed funds investing in large company stocks over the past year or
two. History and relative valuation tell us that this cannot continue
indefinitely. We are staying the course with our small company-oriented
portfolios. Patience is rewarded.
2. TAKE A LONG-TERM VIEW. Those same studies of market performance also tell us
that the stock market has returned somewhere around 10% per year over the long-
term. During the past five years, the return has been noticeably higher. So,
while we believe that small company stocks are poised to shine, we also believe
that investors can, and should, expect some more bumps along the way. This is
especially true because of the lofty prices being afforded some large company
stocks. When big company stocks fall, small company stocks will, initially at
least, fall in sympathy. But again, read Ken Mertz's commentary on the
following pages and you will see that we are excited about the long-term
prospects of our companies. And you can look on page 5 at the impressive
longer-term results compiled by the HomeState PA Growth Fund since its inception
in 1992. Take a long-term view.
The past two years have been quite busy for HomeState, with the introduction of
two new funds as assets continue to grow (total assets managed by Emerald
Advisers Inc., the Funds' adviser, grew to almost $400 million at June 30,
1998). We are digesting this growth by strengthening our organization on
several fronts. Steven Russell Esq. joined Emerald this Spring to assist Ken
Mertz in managing client portfolios and the hiring of Firstar Trust Company as
transfer agent has expanded shareholder servicing capabilities. In August, the
HomeState Select Opportunities Fund ("Select Fund") is engaging in a proxy vote
of its shareholders. We hope to re-position the Select Fund to do a better job
of providing "The HomeState Advantage" to its shareholders. We will furnish you
with full details of these changes soon, in a new simplified prospectus that
includes all three HomeState funds. As always, we welcome your comments and
questions, and thank you for your continuing confidence.
Sincerely,
/s/ Scott L. Rehr
Scott L. Rehr
President
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
THE FUND AT A GLANCE
HomeState Pennsylvania Growth Fund Performance Comparison vs. S&P 500*<F1>
and Russell 2000**<F2> Growth of Hypothetical $10,000 Investment
AVG. ANNUAL TOTAL RETURN+<F4>
1 YEAR INCEPTION
HomeState PA 19.02% 20.63%
S&P 500 30.16% 21.82%
Russell 2000 16.80% 17.06%***<F3>
<TABLE>
The HomeState
date Pennsylvania Growth Fund S&P 500 Index Russell 2000 Index
<S> <C> <C> <C>
10/1/92 $10,000 $10,000 $10,000
12/31/92 $10,870 $10,504 $11,456
6/30/93 $10,970 $11,016 $12,096
12/31/93 $12,945 $11,560 $13,404
6/30/94 $12,490 $11,169 $12,455
12/31/94 $13,191 $11,713 $12,977
6/30/95 $16,109 $14,080 $14,702
12/31/95 $19,053 $16,115 $16,499
6/30/96 $22,542 $17,741 $18,231
12/31/96 $23,151 $19,814 $19,230
6/30/97 $24,697 $23,898 $21,186
12/31/97 $29,247 $26,245 $23,506
6/30/98 $30,881 $31,106 $24,745
</TABLE>
*<F1> The S&P 500 Index is an unmanaged index of 500 stocks weighted by
market capitalization.
**<F2> The Russell 2000 Index is an unmanaged index of 2000 stocks weighted
by market capitalization.
***<F3> Return does not include continuous dividend reinvestments as
information is not available.
+<F4> Past performance is not indicative of future performance. The Fund's
total returns since Inception (October 1, 1992) and for one year reflect the
effect of the maximum sales load charge of 4.75%. Without the sales charge, the
total returns would have been 25.04% and 21.66%, respectively.
THE HOMESTATE PENNSYLVANIA GROWTH FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1998
ISSUE % OF FUND ISSUE % OF FUND
- ----- ---------- ------ ----------
1. Technitrol, Inc. 2.60% 6. Piercing Pagoda, Inc. 2.29%
2. Keane, Inc. 2.54% 7. Systems & Computer
Technology Corporation 2.05%
3. Mastech Corporation 2.53% 8. Prime Bancorp, Inc. 1.95%
4. Safeguard Scientifics, 9. C&D Technologies, Inc. 1.86%
Inc. 2.32%
5. IGEN 10. Resource America, Inc. -- Class A 1.84%
International, Inc. 2.29%
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- ---------------------------------------
REPORT FROM MANAGEMENT
July 31, 1998
Dear Shareholder:
We are pleased to report the performance results for the HomeState Pennsylvania
Growth Fund. The total return without adjustment for sales charges for the
twelve-month period ended June 30, 1998 was 25.04%. These results were achieved
in a dismal market for the smaller companies in which the Fund specializes.
Performance since inception (October 1, 1992) remains above comparable market
benchmarks as well as our mutual fund peer group averages.
Average Annual Returns for the Fund and comparable benchmarks for the periods
ended June 30, 1998 are as follows:
<TABLE>
CUMULATIVE
SINCE INCEPTION TOTAL RETURNS
FUND/INDEX ONE YEAR 1<F5> FIVE YEARS 1<F5> 10/1/92 1<F5> SINCE INCEPTION 1<F5>
- ----------- ---------- ------------ ---------------- -----------------
<S> <C> <C> <C> <C>
HomeState PA Growth (NAV) 25.04% 23.00% 21.66% 208.81%
HomeState PA Growth (MOP) 19.02% 21.80% 20.63% 194.10%
Russell 2000 Index 16.48% 16.05% 17.90% 157.76%
Morningstar: Small Company Fund Avg. 18.49% 17.78% 19.31% 175.95%
</TABLE>
1<F5> Past performance is no guarantee of future results. The value and
performance return of an investment in the Fund will fluctuate with market
conditions, so that shares, when redeemed, may be worth more or less than their
original purchase price.
The Russell 2000 Index is an unmanaged stock market index without any associated
expenses and its one year return assumes the reinvestment of all dividends,
information is not available for continuous reinvestment of dividends for the
five years and since inception returns. The Morningstar Small Company Funds
Average includes the total return (without effects of sales charges) for the
one-year, five-year and since inception periods ended June 30, 1998 for 555, 191
and 147 small company-oriented funds, respectively.
The latest market results continue to spotlight the differences in the
valuations between large and small cap issues. For instance, while the S&P
500's total return was a positive (+) 3.30% in the second quarter, the Russell
2000 index returned a negative (-)4.66%. This has created a very favorable
relative valuation for small cap stocks versus their larger blue chip brethren.
As of June 30th, we are now 4.3 years into the underperformance cycle of the
small cap universe. The average down cycle since 1926 has lasted 4.6 years,
while the longest cycle has lasted 7.3 years. This underperformance has
occurred even when the small cap earnings per share and revenue growth were
rising relative to the large caps. In fact, earnings growth for the smaller
companies has led that of the big stocks for 5 consecutive quarters. We expect
earnings growth rates for the Russell 2000 companies to be at least double the
S&P 500 earnings for both 1998 and 1999.
We believe the outperformance of the blue chip stocks over the past 6 to 12
month periods has been a result of the large cash flow into our market from
individual investors, as well as from Far East investors leaving their poorly
performing markets. Individual investors usually gravitate to funds which have
been the stellar performers. With the huge influx of cash into index funds,
this trend has generated its own momentum.
In addition, the weakness in the Far East has resulted in investors looking to
our markets for appreciation on both stock prices and currency gains. Japanese
and Far East investors are big cap players who may desire to leave the U.S.
market any time the U.S. dollar might weaken, or when there are signs that the
recession in the Far East is easing. Though the blue chips carried the market
to new highs, it is clear that the market was nervous about whether inflation
was under control, whether profit growth could continue, and whether the Fed
would "take away the punch bowl" by raising rates. The market place regarded
these issues as serious enough to be on guard, ready to exit this market at a
moment's notice. We believe these issues have little credibility.
First, inflation is not visible, even with an extremely low unemployment rate.
With the weakness in Asia affecting manufacturing, we believe pressures on wages
and employment, except for information technology workers (Y2K problem), is
easing. If inflation has not been visible so far, we see little chance for a
change to occur at this point.
Secondly, the profit picture is good, except for multi-national companies
affected by Asia. This is just another point favoring the small cap market
place since small cap companies are generally less influenced by Far Eastern
factors. With this in mind, we believe the Fed is on hold and will be forced by
the bond market to lower rates in the second half of the year if the economy and
inventories continue to weaken from earlier levels.
<TABLE>
Relative Valuation For Russell 2000 Index (Relative to the Large Company Russell 1000 Index)
% DIFFERENCE FROM
VALUATION MEASURES 5/29/98 LEVEL LONG TERM AVG. LONG TERM AVG.
- ------------------ ------------- -------------- ------------------
<S> <C> <C> <C>
Price to Earnings (P/E)
On Trailing EPS 1.00 1.22 -18.16%
On I/B/E/S Forecast 0.89 1.05 -15.50%
Price to Book 0.65 0.88 -25.98%
Price to Sales 0.82 0.87 -5.74%
Price to Growth (PEG) 0.63 0.79 -20.48%
Source: Frank Russell Co; Prudential Securities, Inc.
</TABLE>
It is difficult to find a time when Small Company stocks were so undervalued
compared to Large Company stocks. By almost all historical measures, Small
Company stocks are extremely cheap relative to their Large Company counterparts.
At some point, investors will seize upon the relative value in Small Company
stocks. Money flow trends will reverse, sending Small Company stock prices
higher.
We believe that given the historical out-performance of Small Company stocks and
the current relative "cheapness" of these same stocks, the market will return to
more historical norms. When that happens, Small Company stocks should move
higher. We don't know when it will happen, if the market as a whole moves
higher or lower in the meantime, or if it will happen slowly or all at once.
But we are continuing on the same investment course we set in 1992: investing in
the stocks of small companies that our research team has identified as having
superior prospects for long-term growth.
As of the end of June, the Pennsylvania Growth portfolio was widely diversified
among seven economic sectors and numerous industry classifications. We believe
our concentrated research inside Pennsylvania, as well as our non-PA holdings,
will continue to provide excellent returns for you, our shareholder.
Sincerely,
/s/ Kenneth G. Mertz II
Kenneth G. Mertz II, CFA
Portfolio Manager
THE HOMESTATE SELECT OPPORTUNITIES FUND
- ----------------------------------------
THE FUND AT A GLANCE
HomeState Select Opportunities Fund Performance Comparison vs. Russell 2000*<F6>
Growth of Hypothetical $10,000 Investment
AVG. ANNUAL TOTAL RETURN+<F7>
1 YEAR INCEPTION
HomeState Sel 13.91% 23.40%
Russell 2000 16.80% 18.59%
The HomeState Select
date Opportunities Fund Russell 2000 Index
2/18/97 $10,000 $10,000
3/31/97 $9,710 $9,301
6/30/97 $11,700 $10,804
9/30/97 $14,916 $12,409
12/31/97 $13,393 $11,988
3/31/98 $14,727 $13,224
6/30/98 $13,965 $12,620
<F6> The Russell 2000 Index is an unmanaged index of 2000 stocks weighted by
market capitalization.
+<F7> Past performance is not indicative of future performance. The Fund's
total returns since Inception (February 18, 1997) and for one year reflect the
effect of the maximum sales load charge of 4.75%. Without the sales charge, the
total returns would have been 19.56% and 27.89%, respectively.
THE HOMESTATE SELECT OPPORTUNITIES FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1998
ISSUE % OF FUND ISSUE % OF FUND
- ----- ---------- ------ ----------
1. Keane, Inc. 5.46% 6. Technitrol, Inc. 3.78%
2. Safeguard Scientifics, Inc. 5.29% 7. Mastech Corporation 3.63%
3. IGEN International, Inc. 5.16% 8. VioPharma Incorporated 2.94%
4. Jones Apparel Group, Inc. 5.04% 9. Media Arts Group, Inc. 2.87%
5. Systems & Computer 10.Piercing Pagoda, Inc. 2.81%
Technology Corporation 4.71%
THE HOMESTATE SELECT OPPORTUNITIES FUND
- ----------------------------------------
REPORT FROM MANAGEMENT
July 31, 1998
Dear Shareholder:
We are pleased to report the Select Opportunities Fund ("Select Fund") continues
to outperform our benchmarks. The total return without adjustments for sales
charges through June 30 1998 was 19.56%. This was substantially better than the
Russell 2000 Index (a small company index) which was up 16.56% including
reinvested dividends.
Performance results for the Fund for the periods ended June 30, 1998 are as
follows:
<TABLE>
AVERAGE ANNUAL RETURNS CUMULATIVE
SINCE INCEPTION TOTAL RETURNS
ONE YEAR 1<F8> 2/18/97 1<F8> SINCE INCEPTION 1<F8>
------------- -------------------- ---------------------
<S> <C> <C> <C>
HomeState Select Opportunities (NAV) 19.56% 27.89% 39.88%
HomeState Select Opportunities (MOP) 13.91% 23.40% 33.22%
Russell 2000 Index 16.48% 25.88% 36.35%
Morningstar: Small Company Fund Avg. 18.49% N.A. N.A.
</TABLE>
1<F8> Past performance is no guarantee of future results. The value and
performance return of an investment in the Fund will fluctuate with market
conditions, so that shares, when redeemed, may be worth more or less than their
original purchase price.
The Russell 2000 Index is an unmanaged stock market index without any associated
expenses and its returns assume the reinvestment of all dividends. The
Morningstar Small Company Funds Average includes the total return (without
effects of sales charges) for the one year period ended June 30, 1998 for 555
small company-oriented funds. Since Inception returns are not shown for the
Morningstar Average because Morningstar only reports month-end statistics.
This portfolio is more concentrated than the Pennsylvania Growth Fund portfolio
but is still well diversified. Our heaviest concentration is in the Technology
sector, especially information technology and Year 2000 consultants and
solutions providers. Our retail exposure helped our returns during the last six
months.
Our intensive approach is to find growth opportunities in companies which have
little research coverage by Wall Street-type firms. This lack of research
coverage we believe creates investment opportunities. Our ability to spot new
industries, market leaders, new solution providers, and undervalued growth
leaders has enabled us to pick these "select opportunities" and hopefully reward
our investors with above market rate of returns. The Fund depends on uncovering
growth opportunities which, because of their lack of research coverage, are
inefficiently priced for their growth opportunities. In October of 1997,
HomeState introduced the Year 2000 ("Y2K") Fund, investing primarily in
technology companies. A cursory examination of all three HomeState Funds' top
10 holdings shows a greater degree of repetition than we would like. In fact,
during several months the Select Fund's top holdings duplicate the stocks found
in the other two HomeState Funds. This runs against our goal of providing
shareholders with unique mutual fund portfolios which provide diversification in
an overall investment portfolio. Therefore, we have determined a Select Banking
and Financial Fund would provide greater diversification for our shareholders as
well as an attractive sector of the universe. The financial services sector has
always been a key focus of the HomeState Pennsylvania Growth Fund and our
research team. We believe this area represents attractive opportunities today,
as the demographics trend points to a greater savings rate going forward.
Our focus will be on earnings growth companies with exceptional valuations. On
the top of our list is the REIT industry. The average REIT is down 6% for the
year and is 16% off of its 52-week high. We believe REITs represent a
compelling investment opportunity that is currently out of favor with the
"Street". Growth in FFO (REIT's equivalent to EPS) has been quite impressive
due to accreditive acquisitions and general rent increases in retail, suburban
office and industrial sectors. With the recent sell-off in banks and savings
institutions, quality companies are available at attractive valuation levels.
In summary, our continuing dedication to an under-researched universe enables us
to provide you with our "Select" list of companies as one of your portfolio
choices.
Sincerely,
/s/ Kenneth G. Mertz II
Kenneth G. Mertz II
Portfolio Manager
THE HOMESTATE YEAR 2000 FUND
- ------------------------------
THE FUND AT A GLANCE
HomeState Year 2000 Fund Performance Comparison vs. Russell 2000*<F9>
Growth of Hypothetical $10,000 Investment
AGGREGATE TOTAL RETURN+<F10
SINCE INCEPTION
10/31/97
HomeState Y2K 17.38%
Russell 2000 6.43%
date The HomeState Year 2000 Fund Russell 2000 Index
10/31/97 $10,000 $10,000
12/31/97 $10,650 $10,111
3/31/98 $12,150 $11,153
6/30/98 $12,100 $10,643
*<F9> The Russell 2000 Index is an unmanaged index of 2000 stocks weighted
by market capitalization.
+<F10> Past performance is not indicative of future performance. The Fund's
total returns from Inception (October 31, 1997) through June 30, 1998 reflect
the effect of the maximum sales load charge of 2.90%. Without the sales charge,
the total return would have been 20.90%.
THE HOMESTATE YEAR 2000 FUND TOP
TEN HOLDINGS AS OF JUNE 30, 1998
ISSUE % OF FUND ISSUE % OF FUND
- ------ --------- ------ ----------
1. Keane, Inc. 5.82% 6. Unisys Corporation 3.86%
2. Systems & Computer 7. Compuware Corporation 3.26%
Technology Corporation 4.67% 8. AccuStaff
3. Mercury Interactive Corporation 4.55% Incorporated 3.13%
4. Mastech Corporation 4.49% 9. Sapient Corporation 3.12%
5. Cambridge 10. CIBER, Inc. 3.12%
Technology Partners, Inc. 4.48%
THE HOMESTATE YEAR 2000 FUND
- ----------------------------
REPORT FROM MANAGEMENT
July 31, 1998
Dear Shareholder:
We are pleased to report the HomeState Year 2000 ("Y2K") Fund performance versus
its peer group and benchmark for the first six months of 1998 and since
inception on October 31, 1997. The total return without adjustment for sales
charges for the Fund was 20.90% since inception.
AGGREGATE RETURNS
-------------------------------------
PRIOR 6 MONTHS SINCE INCEPTION
THRU 6/30/98 1<F11> 10/31/97 1<F11>
--------------- ---------------
The Y2K Fund (NAV) 13.52% 20.90%
The Y2K Fund (MOP) 10.21% 17.38%
Russell 2000 Index 4.90% 6.04%
Morningstar Technology
Fund Avg. 19.53% 12.91%
1<F11> Past performance is no guarantee of future results. The value and
performance return of an investment in the Fund will fluctuate with market
conditions, so that shares, when redeemed, may be worth more or less than their
original purchase price.
The Russell 2000 Index is an unmanaged stock market index without any associated
expenses and its returns assume the reinvestment of all dividends. The
Morningstar Technology Funds Average includes the total return (without the
effect of sales charges) for the six-month and Y2K Fund since inception periods
ended June 30, 1998 for 57 and 60 technology mutual funds, respectively.
The "Year 2000" is serious, scary and indeed extremely large (Gartner Group
estimated between $300 and $600 billion will be spent correcting the problem).
We believe the market for the third party vendors of code conversion products
and services could exceed $100 billion.
"It's one of the most expensive, labor-intensive, time-consuming problems
mankind has ever faced," said Ann K. Coffou, a Y2K analyst at the Giga
Information Group, a consulting firm in Cambridge, Mass.
Among the companies already reporting to the SEC, some staggering repair bills
are anticipated. For example, General Motors Corp., the nation's largest
company expects to spend $565 million. The expenses are forecasted to reach
$500 million at Philip Morris Co., $600 million at Citicorp, and $400 million at
MCI Communications Corp. At the same time, those firms and others say they are
on track to have the problem licked before December 1999.
Y2K problems stem from the decision to represent the year using two digits
instead of four. In many cases, these problem-creating hardware and software
design decisions were made over 10 years ago when it was more important to curb
costs than to consider the consequences of errors that wouldn't occur until the
turn of the century. Because of the 2-digit representation, computers cannot
differentiate between the years 1900 ('00") and 2000 ("00"), between 1901 and
2001, etc. This leads to potential errors in the data calculations, i.e., the
period between the years 2006 and 1996 in a four digit system is 10 years (2006-
1996, whereas in a two digit system it is -90 (6-96).
The U.S. government lags woefully behind. In April of this year, IRS
Commissioner Charles Rossotti stated, "If we don't fix the century date problem,
we will have a situation scarier than the average disaster movie you might see
on a Sunday night. Twenty-one months from now, there could be 90 million
taxpayers who won't get their refunds, and 95% of the revenue stream of the U.S.
could be jeopardized."
Dr. Edward Yardeni, the Chief Economist at Deutsche Morgan Grenfell, has been
warning about the dire consequences of not being Year 2000 prepared. In
testimony before the Senate he stated, "The Year 2000 problem is a very serious
threat to the global economy. If the supply of information is disrupted, many
economic activities will be impaired, if not entirely halted."
While we can provide additional insight and background on the Year 2000 problem,
the key is how to turn this information into investment gains. Year 2000 is
driving revenues to new business heights in our companies, thereby driving total
revenue growth and earnings per share growth. For example, Y2K revenues growth
in the 1st quarter were 223% at Complete Business Solutions, 180% at Information
Management Resources, 259% at Keane, 385% at Mastech, and 100% at Metamore
Worldwide. Some of the better EPS growth was reported in the 1st quarter at the
following companies:
EPS GROWTH
-----------
Compuware 60%
Keane 87%
Mastech 180%
Metamore 133%
These growth rates are driving stock prices, and therefore rewarding
shareholders for their Y2K exposure.
Since inception, HomeState's team of analysts has concentrated significant
efforts to find the winning combination of solutions and opportunistic
strategies in the Y2K arena. HomeState uses a number of criteria when
determining solid Y2K investment opportunities. In addition to a solid
management team, a strong product or services offering, sufficient financing,
and large market opportunity, we look for the following strengths:
o Companies that can leverage an existing business providing a similar product
or service.
o Companies that can obtain a meaningful increase in earnings as a result of a
Y2K product or service offering.
o Companies with a product or service that is already available to customers, or
is in a late development stage.
o Companies with a solid business model after the year 2000.
o Management with experience in related business.
o Companies that can manage to finance a steep revenue ramp.
o Attractive valuation given the company's growth prospects and market
opportunity.
Our largest exposure and our best results to date have been concentrated in
systems integrators and full service providers such as Keane and Mastech who are
receiving a solid stream of Year 2000 contracts. Outsourcing information
technology projects will not only be a continuing trend, but we expect will be
an extremely strong trend as we enter the new millennium. It is for this reason
that post year 2000 strategy is so important to our investment thesis. We are
excited by the prospects of our top ten list, as well as our entire portfolio,
as these companies seek to leverage their Year 2000 revenues in to new contracts
in the immediate future.
Sincerely,
/s/ Kenneth G. Mertz II
Kenneth G. Mertz II
Portfolio Manager
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- ---------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 1998
MARKET
SHARES VALUE
------ -------
COMMON STOCKS -- 96.2%
COMMUNICATIONS & BROADCASTING -- 1.0%
Comcast Corporation -- Class A 33,650 $ 1,365,980
------------
FINANCE & INSURANCE -- 18.9%
INSURANCE CARRIERS -- 4.3%
Donegal Group Inc. 110,711 2,075,825
Penn Treaty American Corporation*<F12> 58,250 1,834,875
Penn-America Group, Inc. 108,250 1,461,375
Reliance Group Holdings, Inc.^<F13> 30,000 525,000
------------
5,897,075
------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 8.4%
Parkvale Financial Corporation 27,683 892,777
Patriot Bank Corp. 78,858 1,301,157
Prime Bancorp, Inc. 106,910 2,646,023
Progress Financial Corporation 63,000 1,204,875
Resource America, Inc. -- Class A 84,000 2,488,500
Sovereign Bancorp, Inc. 107,012 1,748,977
TF Financial Corporation 9,800 251,125
York Financial Corp. 39,518 824,938
------------
11,358,372
------------
STATE & NATIONAL BANKS -- 6.2%
BT Financial Corporation 23,710 628,315
Commerce Bancorp, Inc.^<F13> 13,045 763,132
First Capitol Bank*<F12> 7,300 339,450
First Colonial Group, Inc. 30,245 1,066,145
JeffBanks, Inc. 16,100 790,913
Main Street Bancorp, Inc. 62,507 1,328,274
Republic First Bancorp, Inc.*<F12> 40,560 425,880
Sun Bancorp, Inc. 25,243 782,533
Susquehanna Bancshares, Inc. 59,400 2,220,075
------------
8,344,717
------------
TOTAL FINANCE & INSURANCE 25,600,164
------------
MANUFACTURING -- 36.6%
CHEMICALS & ALLIED PRODUCTS -- 2.8%
MacDermid, Inc.^<F13> 48,600 1,372,950
OM Group, Inc.^<F13> 59,500 2,454,375
------------
3,827,325
------------
COMPUTER & OFFICE EQUIPMENT -- 2.5%
FORE Systems, Inc.*<F12> 10,000 265,000
Safeguard Scientifics, Inc.*<F12> 75,300 3,139,069
------------
3,404,069
------------
FOOD & BEVERAGES -- 1.0%
Hershey Foods Corporation 20,000 1,380,000
------------
IRON & STEEL -- 1.0%
Carpenter Technology Corporation 28,100 1,412,025
------------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 11.6%
Allen Organ Company -- Class B 9,864 397,026
AMETEK, Inc. 17,500 512,969
C&D Technologies, Inc. 43,500 2,523,000
C-COR Electronics, Inc.*<F12> 24,800 471,200
Cable Design Technologies*<F12> 108,300 2,233,688
Harsco Corporation 38,600 1,768,362
Herley Industries, Inc*<F12> 70,500 872,438
TB Wood's Corporation 17,000 357,000
Technitrol, Inc. 88,100 3,518,494
Teleflex, Incorporated 37,400 1,421,200
Triumph Group, Inc.^*<F13><F12> 37,000 1,554,000
TurboChef, Inc.^*<F13><F12> 10,000 90,000
------------
15,719,377
------------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT -- 4.2%
JLG Industries, Inc. 36,300 735,075
Met-Pro Corporation 107,150 1,600,553
SI Handling Systems, Inc. 178,925 2,348,391
SPS Technologies, Inc.* <F12> 17,100 1,000,350
------------
5,684,369
------------
PETROLEUM REFINING -- 0.7%
Tesoro Petroleum Corporation^*<F13<F12> 55,500 881,062
------------
PHARMACEUTICAL PREPARATIONS -- 4.9%
ArQule, Inc.^*<F13><F12> 40,000 517,500
Aviron^*<F13><F12> 60,000 1,871,250
Ligand Pharmaceuticals
Incorporated -- Class B^*<F13><F12> 41,000 527,875
Magainin Pharmaceuticals, Inc.*<F12> 96,600 513,188
Neose Technologies, Inc.*<F12> 40,000 640,000
SONUS Pharmaceuticals, Inc.^*<F13><F12> 27,500 338,594
Texas Biotechnology Corporation^*<F13><F12> 81,000 369,562
ViroPharma Incorporated*<F12> 78,000 1,813,500
------------
6,591,469
------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 4.7%
Arrow International, Inc. 9,500 260,656
Bionx Implants, Inc.*<F12> 31,250 474,609
ChromaVision Medical Systems, Inc.^*<F13><F12> 72,660 558,574
Environmental Tectonics Corporation*<F12> 36,900 410,513
IGEN International, Inc.^*<F13><F12> 76,000 3,106,500
Kensey Nash Corporation*<F12> 7,500 71,250
Medical Technology & Innovations, Inc.*<F12> 1,460,789 409,021
Respironics, Inc.*<F12> 65,000 1,011,562
------------
6,302,685
------------
TELECOMMUNICATIONS EQUIPMENT -- 0.8%
The Associated Group, Inc. -- Class A*<F12> 11,600 475,600
InterDigital Communications Corporation*<F12> 5,000 26,875
Tollgrade Communications, Inc.*<F12> 22,350 575,512
------------
1,077,987
------------
TEXTILES & APPAREL -- 2.4%
Jones Apparel Group, Inc.* 89,200 3,261,375
------------
TOTAL MANUFACTURING 49,541,743
------------
REAL ESTATE INVESTMENT TRUSTS -- 5.5%
Brandywine Realty Trust 88,000 1,969,000
Crown American Realty Trust 100,500 973,594
First Industrial Realty Trust, Inc.^<F13> 32,000 1,018,000
Liberty Property Trust 67,600 1,728,025
Resource Asset Investment Trust 110,000 1,753,125
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS 7,441,744
------------
SERVICES -- 16.8%
BUSINESS SERVICES -- 1.0%
Diamond Technology Partners
Incorporated^*<F13><F12> 25,130 760,183
Marlton Technologies, Inc.*<F12> 4,300 27,950
SOS Staffing Services, Inc.^*<F13><F12> 36,600 642,787
------------
1,430,920
------------
COMPUTER SERVICES -- 14.3%
Ansoft Corporation*<F12> 97,000 1,127,625
Best Software, Inc.^*<F13><F12> 45,250 955,906
DAOU Systems, Inc.^*<F13><F12> 58,000 1,326,750
DocuCorp International, Inc.^*<F13><F12> 13,160 86,362
Integrated Systems Consulting Group, Inc.*<F12> 21,700 298,375
International Network Services^*<F13><F12> 27,000 1,107,000
Keane, Inc.^*<F13><F12> 61,500 3,444,000
Mastech Corporation*<F12> 122,000 3,431,250
Sanchez Computer Associates, Inc.*<F12> 48,500 988,188
SunGard Data Systems Inc.*<F12> 62,400 2,394,600
Systems & Computer Technology
Corporation*<F12> 103,000 2,781,000
Tangram Enterprise Solutions, Inc.^*<F13><F12> 108,950 735,413
UBICS, Inc.*<F12> 43,000 591,250
Zitel Corporation^*<F13><F12> 20,000 85,000
------------
19,352,719
------------
MEDICAL & HEALTH SERVICES -- 0.8%
CoreCare Systems, Inc.*<F12> 127,000 138,906
Laser Vision Centers, Inc.^*<F13><F12> 30,000 363,750
Medical Manager Corporation^*<F13><F12> 20,000 552,500
------------
1,055,156
------------
OIL & GAS SERVICES -- 0.5%
UTI Energy Corp.^*<F13<F12> 55,000 708,125
------------
PERSONAL SERVICES -- 0.1%
Nobel Education Dynamics, Inc.*<F12> 11,000 99,000
------------
TELECOMMUNICATION SERVICES -- 0.1%
Metrocall, Inc.^*<F13><F12> 13,500 81,844
------------
TOTAL SERVICES 22,727,764
------------
TRANSPORTATION -- 0.4%
Arnold Industries, Inc. 32,450 478,637
------------
UTILITIES -- 1.2%
NRG Generating (U.S.) Inc.^*<F13><F12> 15,000 213,750
Philadelphia Suburban Corporation 67,166 1,469,256
------------
1,683,006
------------
WHOLESALE & RETAIL TRADE -- 15.8%
MISCELLANEOUS RETAIL STORES -- 5.6%
A.C. Moore Arts & Crafts, Inc.^*<F13><F12> 55,550 902,687
Borders Group, Inc.^*<F13><F12> 62,000 2,294,000
Brookstone, Inc.^*<F13><F12> 92,600 1,389,000
National Record Mart, Inc.*<F12> 10,000 98,125
Rite Aid Corporation 52,000 1,953,250
U.S. Vision, Inc.^*<F13><F12> 82,500 1,020,937
------------
7,657,999
------------
RETAIL APPAREL & ACCESSORY STORES -- 6.3%
The Bon-Ton Stores, Inc.*<F12> 88,700 1,424,744
Chico's Fas, Inc.^*<F13><F12> 12,500 193,750
The Finish Line, Inc. -- Class A^*<F13><F12> 75,000 2,109,375
Gadzooks, Inc.^*<F13><F12> 50,000 1,378,125
Hot Topic, Inc.^*<F13><F12> 11,500 273,125
Piercing Pagoda, Inc.*<F12> 85,600 3,103,000
------------
8,482,119
------------
RETAIL EATING & DRINKING PLACES -- 1.2%
Apple South, Inc.^<F13> 64,700 845,144
Schlotzsky's, Inc.^*<F13><F12> 45,250 724,000
------------
1,569,144
------------
WHOLESALE MISCELLANEOUS -- 1.6%
Media Arts Group, Inc.^*<F13><F12> 100,000 1,925,000
PacificHealth Laboratories, Inc.^*<F13><F12> 80,000 310,000
------------
2,235,000
------------
WHOLESALE-PETROLEUM & PRODUCTS -- 0.4%
Harken Energy Corporation*<F12> 100,000 481,250
------------
WHOLESALE ELECTRONIC EQUIPMENT & COMPUTERS -- 0.7%
CHS Electronics, Inc.^*<F13><F12> 56,000 1,001,000
------------
TOTAL WHOLESALE & RETAIL TRADE 21,426,512
------------
TOTAL COMMON STOCKS (COST $92,161,891) 130,265,550
------------
MONEY MARKET MUTUAL FUNDS -- 4.1%
Firstar Institutional Money Market Fund 2,538,272 2,538,272
Firstar U.S. Government Money Market Fund 3,000,000 3,000,000
------------
TOTAL MONEY MARKET MUTUAL FUNDS (COST $5,538,272) 5,538,272
------------
TOTAL INVESTMENTS (COST $97,700,163) -- 100.3% 135,803,822
OTHER ASSETS AND LIABILITIES, NET -- (0.3%) (366,919)
------------
NET ASSETS -- 100.0% $135,436,903
------------
------------
*<F12> Non-income producing security.
^<F13> Non-Pennsylvania Company as defined in the Fund's current prospectus
(the aggregate value of such securities amounted to $41,377,887 as of June 30,
1998).
See accompanying Notes to Financial Statements
THE HOMESTATE SELECT OPPORTUNITIES FUND
- ---------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 1998
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 95.6%
FINANCE & INSURANCE -- 12.0%
INSURANCE CARRIERS -- 2.7%
Donegal Group Inc. 4,400 $ 82,500
Penn-America Group, Inc. 19,250 259,875
Provident American Corporation*<F14> 22,500 129,375
------------
471,750
------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 5.4%
Prime Bancorp, Inc. 16,000 396,000
Progress Financial Corporation 16,000 306,000
Sovereign Bancorp, Inc. 15,000 245,156
------------
947,156
------------
STATE & NATIONAL BANKS -- 3.9%
JeffBanks, Inc. 5,000 245,625
Main Street Bancorp, Inc. 19,935 423,619
------------
669,244
------------
TOTAL FINANCE & INSURANCE 2,088,150
------------
MANUFACTURING -- 32.6%
COMPUTER & OFFICE EQUIPMENT -- 0.8%
Tangram Enterprise Solutions, Inc.*<F14> 19,200 129,600
------------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 7.3%
Cable Design Technologies*<F14> 12,750 262,969
Herley Industries, Inc.*<F14> 28,333 350,621
Technitrol, Inc. 16,500 658,969
------------
1,272,559
------------
MISCELLANEOUS INDUSTRIAL MACHINERY &, EQUIPMENT -- 2.3%
SI Handling Systems, Inc. 30,450 399,656
------------
PHARMACEUTICAL PREPARATIONS -- 4.2%
ArQule, Inc.*<F14> 5,000 64,687
Aviron*<F14> 4,000 124,750
Boston Life Sciences, Inc.*<F14> 10,000 31,250
ViroPharma Incorporated*<F14> 22,000 511,500
------------
732,187
------------
PRECISION INSTRUMENTS & MEDICAL & SUPPLIES -- 10.8%
Bionx Implants, Inc.*<F14> 23,000 349,313
ChromaVision Medical Systems, Inc.*<F14> 43,000 330,563
Environmental Tectonics Corporation*<F14> 27,500 305,937
IGEN International, Inc.*1<F14><F15> 22,000 899,250
------------
1,885,063
------------
TELECOMMUNICATIONS EQUIPMENT -- 2.2%
Orbital Sciences Corporation*<F14> 10,000 373,750
------------
TEXTILES & APPAREL -- 5.0%
Jones Apparel Group, Inc.*<F14> 24,000 877,500
------------
TOTAL MANUFACTURING 5,670,315
------------
REAL ESTATE INVESTMENT TRUSTS -- 5.4%
Crown American Realty Trust 8,000 77,500
Home Properties of New York, Inc. 8,000 213,500
Resource Asset Investment Trust 20,000 318,750
Wilshire Real Estate Investment Trust Inc. 20,000 338,750
------------
948,500
------------
SERVICES -- 28.5%
BUSINESS SERVICES -- 1.5%
Diversified Corporate Resources, Inc.*<F14> 13,000 147,875
Marlton Technologies, Inc.*<F14> 17,400 113,100
------------
260,975
------------
COMPUTER SERVICES -- 25.6%
Best Software, Inc.*<F14> 10,000 211,250
CPS Systems, Inc.*<F14> 30,000 181,875
DAOU Systems, Inc.*<F14> 19,000 434,625
Integrated Systems Consulting Group, Inc.*<F14> 22,700 312,125
Keane, Inc.*<F14> 17,000 952,000
Mastech Corporation*<F14> 22,500 632,812
Safeguard Scientifics, Inc.*<F14> 22,100 921,294
Systems & Computer Technology Corporation*<F14> 30,400 820,800
------------
4,466,781
------------
PERSONAL SERVICES -- 0.2%
Nobel Education Dynamics, Inc.*<F14> 4,000 36,000
------------
TELECOMMUNICATION SERVICES -- 1.2%
InterDigital Communications Corporation*<F14> 10,000 53,750
Metrocall, Inc.*<F14> 25,000 151,563
------------
205,313
------------
TOTAL SERVICES 4,969,069
------------
WHOLESALE & RETAIL TRADE -- 17.1%
MISCELLANEOUS RETAIL STORES -- 6.1%
Borders Group, Inc.*<F14> 12,000 444,000
Brookstone, Inc.*<F14> 31,300 469,500
National Record Mart, Inc.*<F14> 15,000 147,187
------------
1,060,687
------------
RETAIL APPAREL & ACCESSORY STORES -- 4.7%
The Bon-Ton Stores, Inc.*<F14> 16,000 257,000
Chico's Fas, Inc.*<F14> 5,000 77,500
Piercing Pagoda, Inc.*1<F14><F15> 13,500 489,375
------------
823,875
------------
RETAIL EATING & DRINKING PLACES -- 2.3%
Apple South, Inc. 31,000 404,937
------------
WHOLESALE MISCELLANEOUS -- 2.9%
Media Arts Group, Inc.*<F14> 26,000 500,500
------------
WHOLESALE PETROLEUM & PRODUCTS -- 1.1%
Harken Energy Corporation*<F14> 40,000 192,500
------------
TOTAL WHOLESALE & RETAIL TRADE 2,982,499
------------
TOTAL COMMON STOCKS (COST $13,886,545) 16,658,533
------------
CONTRACTS
(100 shares
per contract)
-------------
PUT OPTIONS PURCHASED -- 0.4%
Zoltek Companies, Inc., Expiration July 1998,
Exercise Price $30.00 (Cost $19,373) 70 70,000
------------
SHARES
------
MONEY MARKET MUTUAL FUNDS -- 0.3%
Firstar Institutional Money Market Fund
(Cost $46,474) 46,474 46,474
------------
TOTAL INVESTMENTS (COST $13,952,392) -- 96.3% 16,775,007
------------
SECURITIES SOLD SHORT -- (2.4%)
8X8, Inc.*<F14> 10,000 (48,750)
Shared Medical Systems Corporation 5,000 (367,187)
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $386,612) (415,937)
------------
RECEIVABLES FROM BROKERS FOR SECURITIES SOLD SHORT -- 2.6% 452,604
------------
OTHER ASSETS AND LIABILITIES, NET -- 3.5% 614,245
------------
NET ASSETS -- 100.0% $ 17,425,919
------------
------------
*<F14> Non-income producing security.
1<F15> All or a portion of the securities have been committed as collateral
for open short positions.
See accompanying Notes to Financial Statements
THE HOMESTATE YEAR 2000 FUND
- ----------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 1998
MARKET
SHARES VALUE
----- -------
COMMON STOCKS -- 94.8%
FINANCE & INSURANCE -- 3.5%
INSURANCE CARRIERS -- 2.1%
Reliance Group Holdings, Inc. 13,300 $ 232,750
------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 1.4%
Prime Bancorp, Inc. 6,000 148,500
------------
TOTAL FINANCE & INSURANCE 381,250
------------
MANUFACTURING -- 12.9%
COMPUTER & OFFICE EQUIPMENT -- 7.3%
Network Associates, Inc.*<F16> 3,000 143,625
PeopleSoft, Inc.*<F16> 2,000 94,000
Tangram Enterprise Solutions, Inc.*<F16> 21,000 141,750
Unisys Corporation*<F16> 15,000 423,750
------------
803,125
------------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 3.4%
Herley Industries, Inc.*<F16> 15,000 185,625
Technitrol, Inc. 3,500 139,781
The Titan Corporation*<F16> 8,000 48,000
------------
373,406
------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 1.5%
IGEN International, Inc.*<F16> 4,000 163,500
------------
TEXTILES & APPAREL -- 0.7%
Jones Apparel Group, Inc.*<F16> 2,000 73,125
------------
TOTAL MANUFACTURING 1,413,156
------------
RETAIL TRADE -- 1.2%
Rite Aid Corporation 3,500 131,469
------------
SERVICES -- 77.2%
BUSINESS SERVICES -- 15.8%
AccuStaff Incorporated*<F16> 11,000 343,750
Data Processing Resources Corporation*<F16> 10,000 310,625
Diamond Technology Partners Incorporated*<F16> 4,000 121,000
Gartner Group, Inc. -- Class A*<F16> 6,500 227,500
General Employment Enterprises, Inc.*<F16> 7,000 65,625
Metamor Worldwide, Inc.*<F16> 9,200 323,725
Renaissance Worldwide, Inc.*<F16> 2,500 54,375
Robert Half International Inc.*<F16> 4,700 262,612
SOS Staffing Services, Inc.*<F16> 1,200 21,075
------------
1,730,287
------------
COMPUTER SERVICES -- 57.8%
CPS Systems, Inc.*<F16> 30,000 181,875
Cambridge Technology Partners, Inc.*<F16> 9,000 491,625
CIBER, Inc.*<F16> 9,000 342,000
Cognicase Inc.*<F16> 3,000 44,625
Complete Business Solutions, Inc.*<F16> 8,500 305,469
Computer Management Sciences, Inc.*<F16> 7,400 175,750
Compuware Corporation*<F16> 7,000 357,875
Information Analysis Incorporated*<F16> 1,500 21,188
Information Management Resources, Inc.*<F16> 4,500 152,156
Keane, Inc.*1<F16><F17> 11,400 638,400
MAPICS, Inc.*<F16> 11,000 216,562
Mastech Corporation*1<F16><F17> 17,500 492,188
Mercury Interactive Corporation*<F16> 11,200 499,800
Micro Focus Group PLC - ADR*<F16> 8,000 269,000
Platinum Technology, Inc.*<F16> 10,500 299,906
SEEC Inc.*<F16> 3,400 36,975
Safeguard Scientifics, Inc.*<F16> 5,500 229,281
Sapient Corporation*<F16> 6,500 342,875
SunGard Data Systems Inc.*<F16> 6,000 230,250
Systems & Computer Technology Corporation*<F16> 19,000 513,000
UBICS, Inc.*<F16> 10,000 137,500
Whittman-Hart, Inc.*<F16> 7,000 338,625
Zitel Corporation*<F16> 7,500 31,875
------------
6,348,800
------------
MEDICAL & HEALTH SERVICES -- 2.5%
Medical Manager Corporation*<F16> 10,000 276,250
------------
TELECOMMUNICATION SERVICES -- 1.1%
Metrocall, Inc.*<F16> 20,000 121,250
------------
TOTAL SERVICES 8,476,587
------------
TOTAL COMMON STOCKS (COST $9,078,747) 10,402,462
------------
CONTRACTS
(100 shares
per contract)
-----------
PUT OPTIONS PURCHASED -- 0.3%
Zoltek Companies, Inc., Expiration July 1998,
Exercise Price $30.00 (Cost $8,302) 30 30,000
------------
MONEY MARKET MUTUAL FUNDS -- 5.5%
Firstar Institutional Money Market Fund
(Cost $605,613) 605,613 605,613
------------
TOTAL INVESTMENTS (COST $9,692,662) -- 100.6% 11,038,075
------------
SECURITIES SOLD SHORT -- (1.6%)
Accelr8 Technology Corporation*<F16> 10,000 (122,500)
Unisource Worldwide, Inc. 5,000 (54,062)
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $205,774) (176,562)
------------
RECEIVABLES FROM BROKERS FOR SECURITIES SOLD SHORT -- 1.8% 196,142
------------
OTHER LIABILITIES AND ASSETS, NET -- (0.8%) (84,219)
------------
NET ASSETS -- 100.0% $ 10,973,436
------------
------------
*<F16> Non-income producing security.
1<F17> All or a portion of the securities have been committed as collateral
for open short positions.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1998
<TABLE>
PENNSYLVANIA SELECT OPPORTUNITIES YEAR 2000
GROWTH FUND FUND FUND
----------------- --------------------- ---------
<S> <C> <C> <C>
ASSETS
Investments in securities at market value (identified
cost $97,700,163, $13,952,392, and $9,692,662,
respectively) (Note 2) $ 135,803,822 $ 16,775,007 $ 11,038,075
Cash -- 259,842 95,952
Deposits with brokers for securities sold short -- 452,604 196,142
Receivables for:
Dividends and interest 122,967 11,705 5,879
Investment securities sold 423,544 678,977 --
Capital shares sold 90,474 32,168 174,659
Other assets 9,271 8,377 11,986
------------ ------------ ------------
Total assets 136,450,078 18,218,680 11,522,693
------------ ------------ ------------
LIABILITIES
Securities sold short at market value (proceeds
$386,612 and $205,774, respectively) (Note 2) -- 415,937 176,562
Payables for:
Investment securities purchased 481,712 -- 75,750
Capital shares repurchased 163,411 265,778 205,660
Payable to Adviser 78,145 9,851 2,888
Accrued expenses and other liabilities 289,907 101,195 88,397
------------ ------------ ------------
Total liabilities 1,013,175 792,761 549,257
------------ ------------ ------------
NET ASSETS $135,436,903 $ 17,425,919 $ 10,973,436
------------ ------------ ------------
------------ ------------ ------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 96,093,571 $ 16,183,461 $ 10,040,514
Accumulated net realized gain (loss) on investments 1,239,673 (1,550,832) (441,703)
Net unrealized appreciation on investments 38,103,659 2,822,615 1,345,413
Net unrealized appreciation (depreciation) on securities
sold short -- (29,325) 29,212
------------ ------------ ------------
Net assets $ 135,436,903 $ 17,425,919 $ 10,973,436
------------ ------------ ------------
------------ ------------ ------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE
($135,436,903/10,393,692 issued and outstanding
shares, no par value; $17,425,919/1,298,587 issued
and outstanding shares, no par value; and
$10,973,436/907,965 issued and outstanding shares,
no par value, respectively) $13.03 $13.42 $12.09
------------ ------------ ------------
------------ ------------ ------------
Maximum offering price per share
(100/95.25 of $13.03, 100/95.25 of $13.42, and
100/97.10 of $12.09, respectively) $13.68 $14.09 $12.45
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- ------------------
STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1998
<TABLE>
PENNSYLVANIA SELECT OPPORTUNITIES YEAR 2000
GROWTH FUND FUND FUND*<F18>
----------------- --------------------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,021,720 $ 43,220 $ 3,747
Interest 187,193 47,835 24,139
------------ ------------ ------------
Total investment income 1,208,913 91,055 27,886
------------ ------------ ------------
EXPENSES
Investment Advisory fees 869,718 146,960 37,072
12b-1 fees 405,868 51,429 25,910
Shareholder servicing and accounting 189,439 86,370 44,794
Professional fees 35,838 24,376 20,437
Directors' fees and expenses 12,088 7,355 8,771
Administration fees 107,288 23,183 17,627
Reports to shareholders 32,245 8,977 18,745
Federal and state registration fees 23,122 12,214 14,018
Custody fees 34,638 14,982 5,690
Other 19,108 5,194 2,920
------------ ------------ ------------
Total expenses before fee waivers 1,729,352 381,040 195,984
Advisory fee waived -- (36,124) (88,477)
------------ ------------ ------------
Total operating expenses before dividends
on short positions 1,729,352 344,916 107,507
Dividends on short positions -- 3,150 1,000
------------ ------------ ------------
Total expenses 1,729,352 348,066 108,507
------------ ------------ ------------
NET INVESTMENT LOSS (520,439) (257,011) (80,621)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) on:
Long transactions 6,549,655 (947,726) (487,353)
Short transactions -- (43,734) (48,650)
Option contracts expired or closed -- 76,123 94,300
Change in unrealized appreciation (depreciation) on:
Investments 17,298,591 2,218,095 1,345,413
Short positions -- (31,446) 29,212
------------ ------------ ------------
Net realized and unrealized gain on investments 23,848,246 1,271,312 932,922
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 23,327,807 $ 1,014,301 $ 852,301
------------ ------------ ------------
------------ ------------ ------------
*<F18> For the period October 31, 1997 (commencement of operations) through June 30, 1998.
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- --------------------
STATEMENTS OF CHANGES IN NET ASSETS JUNE 30, 1998
<TABLE>
PENNSYLVANIA SELECT OPPORTUNITIES YEAR 2000
FOR THE FISCAL YEAR ENDED JUNE 30, 1998 GROWTH FUND FUND FUND**<F20>
----------- ------------------- --------
<S> <C> <C> <C>
OPERATIONS
Net investment loss $ (520,439) $ (257,011) $ (80,621)
Net realized gain (loss):
Long transactions 6,549,655 (947,726) (487,353)
Short transactions -- (43,734) (48,650)
Option contracts expired or closed -- 76,123 94,300
Change in unrealized appreciation (depreciation) on:
Investments 17,298,591 2,218,095 1,345,413
Short positions -- (31,446) 29,212
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 23,327,807 1,014,301 852,301
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from investment transactions (3,611,930) (576,757) --
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net increase in net assets resulting from
capital share transactions 26,144,053 11,360,600 10,121,135
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 45,859,930 11,798,144 10,973,436
NET ASSETS:
Beginning of period 89,576,973 5,627,775 --
------------ ------------ ------------
End of period $135,436,903 $ 17,425,919 $ 10,973,436
------------ ------------ ------------
------------ ------------ ------------
PENNSYLVANIA SELECT OPPORTUNITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 1997 GROWTH FUND FUND*<F19>
---------------- -------------------
OPERATIONS
Net investment loss $ (273,934) $ (12,334)
Net realized gain (loss):
Long transactions (1,094,445) 48,541
Short transactions -- 12,015
Change in unrealized appreciation (depreciation) on:
Investments 9,793,385 604,520
Short positions -- 2,121
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 8,425,006 654,863
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from investment transactions (3,944,375) --
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net increase in net assets resulting from
capital share transactions 29,268,289 4,972,912
------------ ------------
TOTAL INCREASE IN NET ASSETS 33,748,920 5,627,775
NET ASSETS:
Beginning of period 55,828,053 --
------------ ------------
End of period $ 89,576,973 $ 5,627,775
------------ ------------
------------ ------------
</TABLE>
*<F19> For the period February 18, 1997 (commencement of operations) through
June 30, 1997.
**<F20> For the period October 31, 1997 (commencement of operations) through
June 30, 1998.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
PENNSYLVANIA GROWTH FUND**<F22>
<TABLE>
PERIODS ENDED
----------------------------------------------------------------------
6/30/98 6/30/97 6/30/96 6/30/95 6/30/94
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $10.78 $10.63 $ 7.84 $ 6.19 $ 5.49
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income (0.05)1<F23> (0.03) (0.03) (0.01) (0.02)
Net realized and unrealized gain on investments 2.70 0.89 3.09 1.77 0.77
------ ------ ------ ------ ------
Total from investment operations 2.65 0.86 3.05 1.76 0.75
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- -------------------
Dividends from net investment income -- 0.00 0.00 (0.00) (0.01)
Distributions from net realized gains (0.40) (0.71) (0.26) (0.11) (0.04)
------ ------ ------ ------ ------
Total distributions (0.40) (0.71) (0.26) (0.11) (0.05)
------ ------ ------ ------ ------
Net asset value at end of period $13.03 $10.78 $10.63 $ 7.84 $ 6.19
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return*<F21> 25.04% 9.56% 39.94% 28.96% 13.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $135,437 $89,577 $55,828 $20,388 $9,892
Ratio of expenses to average net assets before
reimbursement by Adviser 1.49% 1.77% 1.85% 2.00% 2.67%
Ratio of expenses to average net assets after
reimbursement by Adviser na2<F24> na2<F24> na2<F24> 1.91% 2.23%
Ratio of net investment loss to average net
assets before reimbursement by Adviser (0.45)% (0.39)% (0.58)% (0.20)% (0.76)%
Ratio of net investment loss to average
net assets after reimbursement by Adviser na2<F24> na2<F24> na2<F24> (0.10)% (0.32)%
Portfolio turnover rate 51% 50% 66% 51% 51%
*<F21> Total return does not reflect 4.75% maximum sales charge.
**<F22> The per share data reflects 2 for 1 stock split which occurred December 29, 1997.
1<F23> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent
book and tax differences.
2<F24> Not applicable: no reimbursements were made by the Adviser.
</TABLE>
See accompanying Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
SELECT OPPORTUNITIES FUND
<TABLE>
PERIODS ENDED
----------------------------
6/30/98 6/30/97+<F25>
-------- --------
<S> <C> <C>
Net asset value at beginning of period $11.70 $10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss (0.20)1<F29> (0.03)
Net realized and unrealized gain on investments 2.46 1.73
-------- --------
Total from investment operations 2.26 1.70
-------- --------
LESS DISTRIBUTIONS
- -------------------
Distributions from net realized gains (0.54) --
-------- --------
Net asset value at end of period $13.42 $11.70
-------- --------
-------- --------
Total return**<F27> 19.56% 17.00%***<F28>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $17,426 $5,628
Ratio of operating expenses to average net assets before reimbursement
by Adviser and waivers 2.59% 8.10%*<F26>
Ratio of operating expenses to average net assets after reimbursement
by Adviser and waivers2<F30> 2.35% 2.35%*<F26>
Ratio of dividends on short positions to average net assets 0.02% --
Ratio of net investment loss to average net assets before reimbursement
by Adviser and waivers (1.99)% (6.85)%*<F26>
Ratio of net investment loss to average net assets after reimbursement
by Adviser and waivers (1.75)% (1.10)%*<F26>
Portfolio turnover rate 115% 59%
</TABLE>
+<F25> From commencement of operations: February 18, 1997.
*<F26> Annualized.
**<F27> Total return does not reflect 4.75% maximum sales charge.
***<F28> Not annualized.
1<F29> Net investment income per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax differences.
2<F30> The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the periods ended June 30, 1998
and June 30, 1997 were 2.37% and 2.35%, respectively.
See accompanying Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR 2000 FUND
FOR THE
PERIOD ENDED
JUNE 30, 1998+<F31>
---------------
Net asset value at beginning of period $10.00
-------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment loss1<F35> (0.16)
Net realized and unrealized gain on investments 2.25
-------
Total from investment operations 2.09
-------
Net asset value at end of period $12.09
-------
-------
Total return**<F33> 20.90%***<F34>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $10,973
Ratio of operating expenses to average net
assets before reimbursements by Adviser and waivers 5.29%*<F32>
Ratio of operating expenses to average net
assets after reimbursements by Adviser and waivers2<F36> 2.90%*<F32>
Ratio of dividends on short positions to average net assets 0.03%*<F32>
Ratio of net investment loss to average net asset
before reimbursement by Adviser and waivers (4.56)%*<F32>
Ratio of net investment loss to average net
assets after reimbursement by Adviser and waivers (2.17)%*<F32>
Portfolio turnover rate 44%
+<F31> From commencement of operations: October 31, 1997.
*<F32> Annualized.
**<F33>Total return does not reflect 2.90% maximum sales charge.
***<F34> Not annualized.
1<F35> Net investment income per share represents net investment income divided
by the average shares outstanding throughout the period.
2<F36> The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the period ended June 30, 1998
was 2.93%.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998
NOTE 1 -- DESCRIPTION OF FUNDS
The HomeState Group (the "Trust"), an open-end management company, was
established as a Pennsylvania common law trust on August 26, 1992, and is
registered under the Investment Company Act of 1940, as amended. The Trust
has established three series: the HomeState Pennsylvania Growth Fund, the
HomeState Select Opportunities Fund and the HomeState Year 2000 ("Y2K") Fund
(each a "Fund" and collectively, the "Funds"). The investment objectives of
the HomeState Funds are set forth below.
The HomeState Pennsylvania Growth Fund commenced operations on October 1,
1992. The investment objective of the Fund is long-term growth of capital
through investments primarily in the common stock of companies with
headquarters or significant operations in the Commonwealth of Pennsylvania.
To pursue its objective, the Fund will invest at least 65% of its total
assets in such companies. Consequently, the Fund may be subject to risk from
economic changes and political developments occurring within Pennsylvania.
The HomeState Select Opportunities Fund commenced operations on February 18,
1997. The investment objective of the Fund is long-term appreciation of
capital through investments in a nondiversified portfolio of U.S. securities,
without regard to any further issuer location limitations. The Fund will
typically invest in the common stock of no more than fifty U.S. companies.
It will usually emphasize companies having a market capitalization of less
than $1 billion. To pursue its objective, the Fund will invest at least 65%
of its total assets in such companies.
The Y2K Fund commenced operations on October 31, 1997. The investment
objective of the Fund is long-term growth of capital by investing 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. To pursue its objective, the Fund will
invest at least 65% of its total assets in such companies.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies, in conformity
with generally accepted accounting principles, which were consistently
followed by each Fund in the preparation of their financial statements.
SECURITY VALUATION -- Investment securities traded on a national securities
exchange are valued at the last reported sales price at 4:00 p.m. Eastern
time, unless there are no transactions on the valuation date, in which case
they are valued at the mean between the closing asked price and the closing
bid price. Securities traded over-the-counter are valued at the last
reported sales price unless there is no reported sales price, in which case
the mean between the closing asked price and the closing bid price is used.
Debt securities with maturities of sixty days or less are valued at amortized
cost, which approximates market value. Where market quotations are not
readily available, securities are valued using methods which the Board of
Trustees believe in good faith accurately reflects their fair value.
INCOME RECOGNITION -- Interest income is accrued as earned. Dividend income
is recorded on the ex-dividend date.
SECURITIES TRANSACTIONS -- Security transactions are accounted for on the
date the securities are purchased or sold. Realized gains and losses on
securities sold are determined using the first in first out (FIFO) cost
method.
DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records distributions to
shareholders on the ex-dividend date. Net gains realized from securities
transactions, if any, will normally be distributed to shareholders in July
and December. The amounts of distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations, which may differ from those amounts determined under
generally accepted accounting principles. These book/tax differences are
either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in capital in the period that
the difference arises.
FEDERAL INCOME TAXES -- The Fund intends to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the distribution of substantially all of its taxable income. Accordingly, no
provision for federal income taxes is considered necessary in the financial
statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CALL AND PUT OPTIONS -- The HomeState Select Opportunities Fund and the Y2K
Fund may write and/or purchase exchange-traded call options and purchase
exchange-traded put options on securities in the Fund. When the Funds write
a call option, an amount equal to the premium received is reflected as a
liability. The amount of the liability is subsequently "marked to market" to
reflect the current market value of the option written. If an option which
the Funds have written either expires on its stipulated expiration date, or
if the Funds enter into a closing purchase transaction, the Funds realize a
gain (or loss if the cost of the closing transaction exceeds the premium
received when the option is sold), and the liability related to such option
is extinguished. If a call option which the Funds have written is exercised,
the Funds realize a gain or loss from the sale of the underlying security,
and the proceeds of which are increased by the premium originally received.
The Funds did not write any call options for the periods ended June 30, 1998.
The premium paid by the Funds for the purchase of a put option is recorded as
an investment and subsequently marked to market to reflect the current market
value of the option purchased. If an option which the Funds have purchased
expires on the stipulated expiration date, the Funds realize a loss in the
amount of the cost of the option. If the Funds exercise a put option, they
realize a gain or loss from the sale of the underlying security, the proceeds
of which are decreased by the premium originally paid. The Funds limit the
aggregate value of puts and call options to 25% of each Fund's net assets.
At June 30, 1998, the HomeState Select Opportunities Fund and the Y2K Fund
had 0.4% and 0.3% of their net assets in put options, respectively.
SHORT SALES -- The HomeState Select Opportunities Fund and the Y2K Fund may
sell securities short. Short sales are transactions in which the Funds sell
a security they do not own, in anticipation of a decline in the market value
of that security. To complete such a transaction, the Funds must borrow the
security to deliver to the buyer upon the short sales; the Funds then are
obligated to replace the security borrowed by purchasing it in the open
market at some later date. The Funds will incur a loss if the market price
of the security increases between the date of the short sale and the date on
which the Funds replace the borrowed security. The Funds will realize a gain
if the security declines in value between those dates. All short sales must
be fully collateralized. The Funds maintain the collateral in a segregated
account consisting of cash, U.S. Government securities or other liquid assets
in an amount at least equal to the market value of its short positions. The
Funds limit the value of short positions to 25% of each Fund's net assets.
At June 30, 1998, the HomeState Select Opportunities Fund and the Y2KFund had
2.4% and 1.6% of their net assets in short positions, respectively.
NOTE 3 -- CAPITAL STOCK
At June 30, 1998, each Fund had an authorized unlimited number of shares of
beneficial interest with no par value.
The following table summarizes the capital share transactions of each Fund:
PENNSYLVANIA GROWTH FUND*<F37>
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, 1998 ENDED JUNE 30, 1997
-------------------------- --------------------------
Shares Amount Shares Amount
--------- ------------ --------- ------------
Sales 2,479,310 $ 31,272,950 3,406,244 $33,155,509
Reinvested
distributions 289,625 3,434,230 410,366 3,636,915
Redemptions (687,419) (8,563,127) (758,774) (7,524,135)
--------- ------------ --------- ------------
Net increase 2,081,516 $ 26,144,053 3,057,836 $29,268,289
--------- ------------ --------- ------------
--------- ------------ --------- ------------
SHARES OUTSTANDING:
Beginning of
period 8,312,176 5,254,340
--------- ---------
End of period 10,393,692 8,312,176
--------- ---------
--------- ---------
*<F37> Capital share transactions restated to reflect the 2 for 1 stock split
which occurred on December 29, 1997.
SELECT OPPORTUNITIES FUND
FOR THE PERIOD FEBRUARY 18, 1997
FOR THE YEAR (COMMENCEMENT OF OPERATIONS)
ENDED JUNE 30, 1998 THROUGH JUNE 30, 1997
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
Sales 1,049,028 $ 14,439,121 488,935 $ 5,056,927
Reinvested
distributions 40,961 526,023 -- --
Redemptions (272,369) (3,604,544) (7,968) (84,015)
--------- ------------ --------- ------------
Net increase 817,620 $ 11,360,600 480,967 $ 4,972,912
--------- ------------ --------- ------------
--------- ------------ --------- ------------
SHARES OUTSTANDING:
Beginning
of period 480,967 --
--------- ---------
End of period 1,298,587 480,967
--------- ---------
--------- ---------
Y2K FUND
FOR THE PERIOD OCTOBER 31, 1997
(COMMENCEMENT OF OPERATIONS)
THROUGH JUNE 30, 1998
-------------------------
SHARES AMOUNT
--------- ------------
Sales 986,236 $ 11,013,893
Redemptions (78,271) (892,758)
--------- ------------
Net increase 907,965 $ 10,121,135
--------- ------------
--------- ------------
NOTE 4 -- INVESTMENT TRANSACTIONS
During the periods ended June 30, 1998, purchases and sales of investment
securities (excluding securities sold short and short-term investments) were
as follows:
PENNSYLVANIA SELECT YEAR 2000
GROWTH FUND OPPORTUNITIES FUND FUND
-------------- ------------------- -------------
Purchases $74,878,840 $25,365,371 $11,678,279
Sales $57,257,579 $15,432,618 $ 2,128,078
The following balances for the Funds are as of June 30, 1998:
<TABLE>
COST FOR NET TAX TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED UNREALIZED
TAX PURPOSES APPRECIATION APPRECIATION DEPRECIATION
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Pennsylvania Growth Fund $97,700,163 $38,103,659 $42,465,117 $4,361,458
Select Opportunities Fund 13,956,465 2,818,542 3,657,411 838,869
Year 2000 Fund 9,753,179 1,284,896 1,692,086 407,190
</TABLE>
The Select Opportunities and Year 2000 Funds realized, on a tax basis, post-
October losses of $1,546,759 and $381,186, respectively, which are not
recognized for tax purposes until the first day of the following fiscal year.
NOTE 5 -- REQUIRED INCOME TAX DISCLOSURES
In early 1998, shareholders received information regarding all distributions
paid to them by the Funds during the fiscal year ended June 30, 1998. The
Funds hereby designate the following amounts as long-term capital gains
distributions.
PENNSYLVANIA SELECT YEAR 2000
GROWTH FUND OPPORTUNITIES FUND FUND
-------------- ------------------- -------
Capital Gains Taxed at 20% $2,133,611 $ -- $ --
Capital Gains Taxed at 28% 1,498,319 -- --
----------- --------- --------
Total Long-term Capital Gains $3,611,930 -- --
----------- --------- --------
----------- --------- --------
NOTE 6 -- EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser (the "Adviser") to
the Funds for which it receives investment advisory fees from each Fund. The
fee for the HomeState Pennsylvania Growth Fund is based on average daily net
assets at the annual rate of 0.75% on assets up to and including $250
million, 0.65% for assets in excess of $250 million up to and including $500
million, 0.55% for assets in excess of $500 million up to and including $750
million, and 0.45% for assets in excess of $750 million. The fee for the
HomeState Select Opportunities Fund is based on average daily net assets at
the annual rate of 1.00% on assets up to and including $100 million and 0.90%
for assets in excess of $100 million. The fee for the Y2K Fund is based on
average daily net assets at the annual rate of 1.0% on assets up to and
including $100 million, 0.90% for assets in excess of $100 million. Under
the terms of the investment advisory agreement which expires on December 31,
1998, Emerald Advisers, Inc. may also voluntarily reimburse the Funds for
certain expenses. Through June 30, 1998, the Adviser has voluntarily agreed
to waive its advisory fee and/or reimburse other expenses for the HomeState
Select Opportunities Fund and the Y2K Fund to the extent that the Fund's
total operating expenses exceeds 2.35% and 2.90% of the average daily net
assets of the Funds, respectively.
The following table summarizes the advisory fees and expense
waivers/reimbursements for the period ended June 30, 1998.
GROSS ADVISORY FEE REIMBURSEMENT
ADVISORY WAIVED FROM ADVISER
----------- ------------ -----------
Pennsylvania Growth Fund $869,718 $ -- $ --
Select Opportunities Fund 146,960 36,124 --
Year 2000 Fund 37,072 37,072 51,405
NOTE 7 -- OTHER AGREEMENTS
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of
Wilmington Trust Company, was the sole distributor of the Trust shares
pursuant to a Distribution Agreement with each Fund through May 28, 1998 and
Rafferty Capital Markets, Inc. ("RCM") from May 29, 1998 through June 30,
1998. Each Fund has adopted a distribution services plan (the "Plan") under
Rule 12b-1 of the Investment Company Act of 1940. The Plan allows each Fund
to reimburse RSD and RCM for a portion of the costs incurred in distributing
each Fund's shares, including amounts paid to brokers or dealers, at an
annual rate not to exceed 0.35% of the HomeState Pennsylvania Growth and
Select Opportunities Fund's average daily net assets and not to exceed 0.70%
of the Y2K Fund. During the period ending June 30, 1998, the HomeState
Pennsylvania Growth Fund, Select Opportunities Fund and Y2K Fund incurred
expenses of $405,868, $51,429 and $25,910, respectively, pursuant to the
Plan.
Rodney Square Management Corporation, a wholly owned subsidiary of Wilmington
Trust Company, served as administrator and accounting services agent from
July 1, 1997 through February 13, 1998 and transfer agent from July 1, 1997
through March 15, 1998. Firstar Trust Company, a subsidiary of Firstar
Corporation, a publicly held bank holding company, served as administrator,
accounting services agent and custodian from February 14, 1998 through June
30, 1998 and transfer agent from March 16, 1998 through June 30, 1998.
The Funds' Declaration of Trust provides that each Trustee affiliated with
the Funds' Adviser shall serve without compensation and each Trustee who is
not so affiliated shall receive fees from each Fund and expense
reimbursements for each Trustees meeting attended. A member of the Fund's
Board of Trustees who is not affiliated with the Adviser is employed as a
practicing attorney and is a partner in the law firm of Duane, Morris &
Heckscher, the Fund's legal counsel. Legal fees aggregating $9,921, $8,661
and $10,086 were incurred by the HomeState Pennsylvania Growth Fund, the
HomeState Select Opportunities Fund, and the Year 2000 Fund, respectively, to
Duane, Morris & Heckscher during the year ending June 30, 1998.
NOTE 8 -- SUBSEQUENT EVENTS
A special meeting of shareholders of the Select Opportunities Fund will be
held on August 31, 1998. The purpose of the meeting will be to approve
changes to the investment objective, name and fundamental investment
restrictions of the the Fund. The Board has proposed changing the investment
objective to long-term growth of capital through investments primarily in the
common stock of companies principally engaged in the banking and financial
services industries. The proposed name change is The HomeState Select
Banking and Finance Fund. The Board proposes to change the fundamental
restrictions on portfolio diversification so that the Fund may not invest
more than 5% of the value of its assets in the equity or debt of one issuer
(other than obligations issued or guaranteed by the United States
government). The Board also proposes to change the fundamental restriction
on concentration so that the Fund may not invest more than 25% of total
assets in any one industry, except that the Fund shall, under normal
conditions, invest not less than 25% of its total assets in securities of
companies principally engaged in the banking industry and not less than 25%
of its total assets in securities of companies principally engaged in the
financial services industry.
THE HOMESTATE GROUP
- --------------------
REPORT OF INDEPENDENT ACCOUNTANTS
August 21, 1998
To the Board of Trustees and Shareholders of The HomeState Group
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the HomeState Pennsylvania Growth
Fund, the HomeState Select Opportunities Fund and the Year 2000 ("Y2K") Funds
(constituting The HomeState Group, hereafter referred to as the "Funds") at June
30, 1998, the results of each of their operations, the changes in each of their
net assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
/S/ PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
THE HOME STATE GROUP
--------------------
INVESTMENT ADVISER
---------------------
EMERALD ADVISERS, INC.
LANCASTER, PA
DISTRIBUTOR
------------
RAFFERTY CAPITAL MARKETS, INC.
HARRISON, NY
ADMINISTRATOR AND
TRANSFER AGENT
------------------
FIRSTAR TRUST COMPANY
MILWAUKEE, WI
CUSTODIAN
-----------
FIRSTAR TRUST COMPANY
MILWAUKEE, WI
INDEPENDENT ACCOUNTANTS
---------------------
PRICEWATERHOUSECOOPERS LLP
MILWAUKEE, WI
LEGAL COUNSEL
-------------
DUANE, MORRIS & HECKSCHER
HARRISBURG, PA
BOARD OF TRUSTEES
----------------
BRUCE E. BOWEN
KENNETH G. MERTZ II, CFA
SCOTT C. PENWELL, ESQ.
SCOTT L. REHR
H.J. ZOFFER, PHD
FUND MANAGEMENT
----------------
EMERALD ADVISERS, INC.
1857 WILLIAM PENN WAY
P.O. BOX 10666
LANCASTER, PA 17605
SHAREHOLDER SERVICES
--------------------
FIRSTAR TRUST COMPANY
P.O. BOX 701
MILWAUKEE, WI 53210-0701
TELEPHONE NUMBERS
------------------
THE FUND (800) 232-0224
MARKETING / BROKER SERVICES (800) 232-OK-PA
SHAREHOLDER SERVICES (800) 232-0224
24 HOUR PRICING INFORMATION
-------------------------
1-800-232-0224
This report is for the general information of Fund shareholders. For more
detailed information about the Fund, please consult a copy of the Fund's current
prospectus. This report is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by a copy of the current
prospectus.
08/98
