<PAGE>
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 Year 2000 ("Y2K")
Fund. The 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 each focus on areas we feel are largely ignored by
other institutional money managers:
- companies based in our home state of Pennsylvania; and
- smaller-sized companies, with special attention to technology companies.
Invests a minimum 65% of its assets in companies headquartered or with
significant operations in Pennsylvania.
Invests in a portfolio of no more than 50 U.S. companies, emphasizing
those with a market capitalization of less than $1 billion.
In-Depth, On-Site Research. Professional Portfolio Management. Unique Investment
Opportunities. That's The HomeState Advantage.
Funds that invest in a particular state or region may involve a greater
degree of risk than funds with a more geographically diversified portfolio.
Investing in smaller companies' stock can involve higher risk and increased
volatility than larger stocks. This report contains information about the
Funds' performance. Past performance is no guarantee of future results. An
investment in the Funds will fluctuate in value so that your account, when
redeemed, may be worth more or less than your original purchase price.
<PAGE>
The HomeState Group
-- --- ---- ----
Report from Management -- continued
January 15, 1998
Dear Shareholder:
Welcome to the HomeState Group semi-annual report for the HomeState Pennsylvania
Growth Fund and the HomeState Select Opportunities Fund, containing a complete
review of the Funds' operations for the six months ended December 31, 1997. I
hope you'll pay particular attention to the management letters from chief
investment officer Ken Mertz, found on page 5 for the PA Growth Fund and page 8
for the Select Opportunities Fund.
By any measure, 1997 will be remembered as a year of growth for the HomeState
Group. The PA Growth Fund marked its fifth anniversary in October with a five-
year track record that bests its mutual fund peer-group and comparable market
indices averages, while 1997's annual return topped the Fund's overall since-
inception average annual return. (See page 5 for complete performance numbers.)
In February we launched the Select Opportunities Fund, applying our in-depth,
on-site research coverage to small-companies nationwide, via a concentrated
portfolio of no more than fifty stocks. Again, the performance chart on page 8
tells the story: superior returns from the Fund's inception through December
31st.
As 1997 drew to a close, we introduced the HomeState Year 2000 ("Y2K") Fund, the
nation's first fund to specifically focus on the "Year 2000 Problem." Beginning
with the Funds' June 30th annual report you will be able to read about the Y2K
Fund here as well. While each of our three funds offers a unique investment
objective, they all share some very important family traits: all focus primarily
on the smaller sized companies which have historically received less attention
from other institutional money managers; all rely upon the hard work of our in-
house research team; and all are guided by the investment experience and acumen
of Ken Mertz.
Emerald Advisers, Inc., the Funds' investment adviser, now manages approximately
$340 million in total assets for more than 8,000 investors nationwide. We are
proud of the confidence you have placed in us and continue to strive to give
"The HomeState Advantage" to each of our shareholders. Please don't hesitate to
contact us at (800) 232-0224 with any questions or concerns about your HomeState
investment.
<PAGE>
3
Report from Management -- continued
Finally, we note that 1998 begins with some operational changes for the Funds.
Rodney Square Management Corp., which has provided our transfer agency,
accounting and administration services for the past two years, is leaving the
mutual funds servicing business, and we will soon be welcoming Firstar Trust
Company to fulfill these responsibilities. On a personal note, I can tell you
that throughout my career in the fund industry, I have never worked with a more
capable third-party provider than Rodney Square. We thank our Rodney Square
friends and wish them well.
Sincerely,
Scott L. Rehr
President
<PAGE>
4
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Report from Management -- continued
January 15, 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 December 31, 1997 was 26.33%. These results were
achieved in a volatile market, especially for the smaller companies in which the
Fund specializes.
Performance since inception remains above comparable market benchmarks as well
as our mutual fund peer group.
Average Annual Returns for the Fund and comparable benchmarks for periods ended
December 31, 1997 are as follows:
Average Annualized Returns*
- --------------------------
<TABLE>
<CAPTION>
Since Cumulative
Inception Total Returns
Fund/Index One Year Five Years 10/1/92 Since 10/1/92
<S> <C> <C> <C> <C>
HomeState PA Growth (at N.A.V.) 26.33% 21.87% 22.66% 192.46%
HomeState PA Growth
(at Maximum Offering Price) 20.33% 20.69% 21.53% 178.56%
Russell 2000 Index 22.37% 16.41% 18.68% 145.72%
Wilshire 5000 Index 31.29% 19.28% 19.88% 159.03%
Morningstar Small Company
Fund Average 21.36% 17.39% 19.75% 157.56%
</TABLE>
The Wilshire 5000 and Russell 2000 are unmanaged stock market indices without
any associated expenses and their returns assume the reinvestment of all
dividends. The Morningstar Small Company Funds average includes the total return
(without effects of sales charges) for the one-year, five-year and HomeState
Fund since inception periods ended December 31, 1997 for 504, 325 and 166 small
company-oriented funds, respectively. Please remember that past performance is
no guarantee of future results.
* 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.
<PAGE>
5
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Report from Management -- continued
Since our June 30, 1997 report, we have seen the best of times and the worst of
times. During the third quarter of 1997 we had an almost perfect environment
for investors: low inflation, a corresponding lowering of interest rates and
substantial growth in corporate profits. Against this backdrop the small
capitalization growth stocks in which we specialize were the big winners. Total
return performance in the third quarter was 22.1% versus just 14.8% for the
Russell 2000 and 7.5% for the Standard and Poor's 500. In fact, this was the
only quarter of 1997 that small cap stocks outperformed large caps. Therefore,
we believe 1997 will be remembered as the year of the big cap stocks.
While for the 4th quarter we slightly outperformed our index, the sentiment of
this market changed significantly from the positive trends of the third quarter.
The Russell 2000 peaked on October 13, 1997 which was its high for the year.
Since then, we have endured the Asian crisis which will have an effect on the
U.S. economy and has already caused a lack of confidence in the equity market.
Whenever there is a lack of confidence, the small cap market place will be hurt
to a much greater extent than their large cap counterparts.
The Asian crisis will affect the U.S. in two ways. First, as currencies are
devalued overseas the dollar will gain strength, making U.S. goods exported to
the Far East much more expensive. The lack of demand in the Asian market for
Asian goods will cause these goods to be dumped on the U.S. markets. The most
obvious of these would be commodity steel products and automobiles, along with
many consumer goods. Secondly, the U.S. dollar's appreciation will cause
currency problems for those firms with overseas plants. The U.S. companies which
will exhibit the greatest negative impact to their potential earnings stream
will be the multinationals. Why then have the small caps exhibited the worst
performance through late December? This has more to do with confidence and
sentiment than reality. Because of this we believe the crisis will take short-
term prisoners in the small cap sector, but these stocks will be the long-term
winners in 1998. Valuations and lack of Asian exposure overall still favor the
small cap stocks in which HomeState invests. We are constantly looking at the
Asian question for potential earnings problems and have decided to cut back on
those stocks considered vulnerable, for instance the semiconductor capital
equipment group.
While the fourth quarter registered a negative for small cap stocks in general
and HomeState in particular, we believe this sector will outperform in 1998
barring a complete collapse of the economy. The risk we see is deflation of 4-5%
which goes unrecognized by the Federal Reserve. If this scenario becomes
apparent in early `98, the Fed must lower rates to stimulate demand. Earnings
growth under any scenario (deflation or just low inflation) will be centered in
more domestic-based companies which hold dominant market positions. These are
the stocks which HomeState continues to invest in.
As of the end of the year, the Pennsylvania Growth portfolio had 27.9% invested
in technology companies, 26.2% in financials and 25.1% in consumer non-durables.
We remain deeply committed to managing a diversified portfolio (currently 118
issues) with exposure to seven economic sectors and further divided into
multiple industries within each sector. We believe our research-intensive
process focusing on management, leadership in market share, solid growth in both
revenues and bottom line earnings, and innovative new products will continue to
lead us into the superior growth opportunities.
<PAGE>
6
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Report from Management -- continued
Your fund has received national recognition from several publications over the
past few weeks, including mentions in Fortune Magazine, USA Today, and
Investor's Business Daily. We are pleased that our unique investment approach
and its resulting performance results continue to attract attention from the
financial media.
In conclusion, we believe our focus on individual companies' prospects combined
with our risk-averse diversified portfolio will continue to provide you, the
investor, with the "HomeState Advantage".
Sincerely,
Kenneth G. Mertz II, CFA
Chief Investment Officer
<PAGE>
7
The HomeState Select Opportunities Fund
-- --- ---- ----- ------------ ---
Report from Management -- continued
January 15, 1998
Dear Shareholder:
We are pleased to report that The HomeState Select Opportunities Fund continues
to outperform its broad market benchmark. Since the inception of this fund on
February 18, 1997, the total return without adjustments for sales charges
through December 31, 1997 was 33.94%. This was substantially better than the
Russell 2000 Index (a small company index) which was up 19.58% including
reinvested dividends.
Performance results for the Fund for the period ended December 1997 are as
follows:/1/
Aggregate Returns
Since Inception
2/18/97
HomeState Select Opportunities (at N.A.V.) 33.94%
HomeState Select Opportunities
(at Maximum Offering Price) 27.58%
Russell 2000 Index 19.58%
The unique characteristics of the Fund has enabled it to benefit from both
rising and falling stocks. The Fund may sell "short" or buy put options on
securities which it believes are overvalued based on fundamentals*. This allows
the Select Opportunities Fund an opportunity to perform in poor markets, as well
as good markets. The Fund benefited in the fourth quarter just as it did in the
first half of the year by finding companies with fundamental flaws and/or
overvaluations.
This portfolio is more concentrated than the HomeState Pennsylvania Growth Fund
portfolio, but was still well diversified. Our heaviest concentration was in the
Technology sector (31%) especially information technology and Year 2000
consultants and solutions providers. Our retail exposure (12.8%) helped our
returns earlier in the year, but had a rough month in December. We believe this
sector has been oversold and our holdings represent attractive opportunities in
1998.
/1/ 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 that
their original purchase price.
* If the advisor anticipates that the price of a security will decline, the
advisor may sell the security short and borrow the same security from a broker
or other institution to complete the sale. The Fund may realize a profit or
loss depending upon whether the market price of a security decreases or
increases between the date of the short sale and the date on which the Fund must
replace the borrowed security. Short-selling is a technique that may be
considered speculative and involves risk beyond the initial capital necessary to
secure each transaction. Short-selling could result in higher operating costs
for the Fund and have adverse tax effects for the investor. If the Fund is
unable to effect a closing transaction, which essentially permits the Fund to
realize a profit or limit losses, with respect to options it has acquired, the
Fund will have to allow the options to expire without recovering all or a
portion of the option premiums paid.
<PAGE>
8
The HomeState Select Opportunities Fund
-- --- ---- ----- ------------ ---
Report from Management -- continued
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 rates of return.
At year end the portfolio held 47 long positions (stocks) and was short or owned
puts with respect to 3.4% of the portfolio. The Fund depends on our own in-house
research analysts to discover growth opportunities which, because of their lack
of research coverage, are inefficiently priced for their growth positions. Our
"short" and put-option positions are based on companies which we believe have
fundamental flaws and/or the market has pushed their prices to extreme levels.
We believe these valuation "shorts" can be difficult because overvaluations can
last a long time. While these may play a role in the portfolio, we would prefer,
and we have concentrated so far on, companies whose fundamentals do not measure
up to their market position versus their competitors.
The ability to short selected issues can indeed offset some market risk
associated with the stocks that we have invested in on the "long" side. Overall
this portfolio allows us to concentrate on our best small cap names and offset
market volatility.
Our top ten holdings represent over 36% of the portfolio but are divided between
a diversified REIT (real estate investment trust) Crescent Real Estate, Year
2000 solution providers, Keane, various technology stocks, various consumer non-
durables, and a materials & services stock. We believe these stocks represent
very attractive growth opportunities at a reasonable valuation level.
This portfolio has no geographic limitations within the U.S, and much more
leeway than the normal "diversified" stock fund in terms of sector or industry
limitations. Individual stocks can exceed 5% if deemed attractive by the
portfolio manager. This allows the portfolio to receive the maximum benefit of
our best ideas.
In summary, our dedication to the under-researched small and micro-company
universe enables us to provide you with our "Select" list of companies as one of
your portfolio choices.
Sincerely,
Kenneth G. Mertz II, CFA
Chief Investment Officer
<PAGE>
9
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
COMMON STOCK -- 96.2%
Communications & Broadcasting -- 1.5%
Comcast Corp. (A Shares)*...................... 55,150 $1,740,671
----------------------------------------------------------------------
Finance & Insurance -- 20.3%
Insurance Carriers -- 5.4%
Donegal Group, Inc. ........................... 86,533 1,914,543
Penn Treaty American Corp.* ................... 65,750 2,087,562
Penn-America Group, Inc. ...................... 98,250 2,014,125
Reliance Group Holdings, Inc.++ ............... 30,000 423,750
----------------------------------------------------------------------
6,439,980
----------------------------------------------------------------------
National Commercial Banks -- 0.2%
First Capitol Bank/York, PA.................... 5,800 210,250
----------------------------------------------------------------------
Savings, Credit & Other Financial Institutions -- 8.3%
BankAtlantic Bancorp, Inc. (A Shares)++........ 80,000 1,305,000
Parkvale Financial Corp. ...................... 32,683 1,119,393
Patriot Bank Corp. ............................ 63,087 1,340,599
Prime Bancorp, Inc. ........................... 39,155 1,458,524
Progress Financial Corp.* ..................... 13,500 222,750
Resource America, Inc. ........................ 18,000 823,500
Sovereign Bancorp, Inc. ....................... 105,844 2,196,263
TF Financial Corp. ............................ 9,800 294,000
York Financial Corp. .......................... 39,518 1,017,588
----------------------------------------------------------------------
9,777,617
----------------------------------------------------------------------
State & National Banks -- 6.4%
BT Financial Corp. ............................ 17,055 869,805
Commerce Bancorp, Inc.++....................... 37,091 1,891,641
First Colonial Group, Inc. .................... 28,805 1,011,776
Omega Financial Corp. ......................... 13,500 452,250
Republic First Bancorp, Inc.* ................. 33,800 443,625
Sun Bancorp, Inc. ............................. 19,041 675,956
Susquehanna Bancshares, Inc. .................. 59,400 2,272,050
----------------------------------------------------------------------
7,617,103
----------------------------------------------------------------------
Total Finance & Insurance...................... 24,044,950
----------------------------------------------------------------------
Manufacturing -- 37.5%
Chemicals & Allied Products -- 3.2%
MacDermid, Inc.++.............................. 20,200 1,714,475
OM Group, Inc.++............................... 57,000 2,087,625
----------------------------------------------------------------------
3,802,100
<PAGE>
10
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
Computer & Office Equipment -- 2.0%
Iomega Corp.++*................................ 186,000 $2,313,375
Tangram Enterprise Solutions*.................. 5,000 32,812
----------------------------------------------------------------------
2,346,187
----------------------------------------------------------------------
Electrical Measurement & Test Instruments -- 2.9%
Genrad, Inc.++*................................ 66,300 2,001,431
Integrated Circuit Systems, Inc.*.............. 48,400 1,379,400
----------------------------------------------------------------------
3,380,831
----------------------------------------------------------------------
Food & Beverage -- 2.2%
Hershey Foods Corp. ........................... 20,000 1,238,750
Quigley Corp.*................................. 91,800 1,325,363
----------------------------------------------------------------------
2,564,113
----------------------------------------------------------------------
Iron & Steel -- 1.0%
Carpenter Technology Corp. .................... 23,600 1,134,275
----------------------------------------------------------------------
Miscellaneous Electrical Machinery, Equipment & Supplies -- 11.0%
Allen Organ Co. (B Shares)..................... 9,864 409,356
C & D Technology, Inc. ........................ 43,500 2,098,875
Cable Design Technologies*..................... 48,200 1,873,775
Emcee Broadcast Products, Inc.*................ 96,900 290,700
Harsco Corp. .................................. 38,600 1,664,625
Herley Industries, Inc.*....................... 47,500 572,969
JPM Co.*....................................... 36,600 777,750
TBWood's Corp. ................................ 7,000 148,750
Technitrol, Inc. .............................. 85,100 2,553,000
Teleflex, Inc. ................................ 37,400 1,411,850
Triumph Group, Inc.++*......................... 37,000 1,230,250
----------------------------------------------------------------------
13,031,900
----------------------------------------------------------------------
Miscellaneous Industrial Machinery & Equipment -- 3.8%
JLG Industries, Inc. .......................... 26,300 371,487
Met-Pro Corp. ................................. 107,150 1,767,975
Owosso Corp. .................................. 250 1,969
SI Handling Systems, Inc. ..................... 174,925 2,405,219
----------------------------------------------------------------------
4,546,650
----------------------------------------------------------------------
Miscellaneous Manufacturing Industries -- 0.3%
Penn Engineering & Manufacturing Corp.*........ 16,600 398,400
----------------------------------------------------------------------
Optical & Ophthalmic Goods, Photographic Equipment & Supplies -- 1.2%
II-VI, Inc.*................................... 58,000 1,392,000
See accompanying Notes to Financial Statements
<PAGE>
11
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
................................................
Glatfelter (P.H.) Co. .......................... 15,200 $ 283,100
-----------------------------------------------------------------------------
Petroleum Refining -- 0.7%
Tesoro Petroleum Corp.++* 55,500 860,250
-----------------------------------------------------------------------------
Pharmaceutical Preparations -- 3.4%
Ligand Pharmaceuticals (B Shares)++*............... 41,000 527,875
Magainin Pharmaceuticals, Inc.*.................... 110,000 886,875
Neose Technologies, Inc.*.......................... 40,000 610,000
PacificHealth Laboratories, Inc.*.................. 80,000 480,000
Scios, Inc.++*..................................... 17,000 170,000
Texas Biotechnology Corp.++*....................... 81,000 501,188
Viropharma, Inc.*.................................. 46,000 810,750
-----------------------------------------------------------------------------
3,986,688
-----------------------------------------------------------------------------
Precision Instruments & Medical Supplies -- 3.1%
Abiomed, Inc.++*................................... 10,000 163,750
Arrow International, Inc........................... 9,500 351,500
Bionx Implants, Inc.*.............................. 21,250 456,875
Chromovision Medical Systems, Inc.++*.............. 34,460 310,140
Environmental Tectonics Corp.*..................... 19,900 176,613
Igen International, Inc.++*........................ 37,500 496,875
Medical Technology and Innovations*................ 1,460,789 496,668
Respironics, Inc.*................................. 55,000 1,230,625
-----------------------------------------------------------------------------
3,683,046
-----------------------------------------------------------------------------
Telecommunications Equipment -- 0.9%
Associated Group, Inc. (A Shares)*................. 11,600 343,650
C-Cor Electronics, Inc.*........................... 13,800 212,175
Tollgrade Communications, Inc.*.................... 22,350 530,812
-----------------------------------------------------------------------------
1,086,637
-----------------------------------------------------------------------------
Textiles & Apparel -- 1.6%
Jones Apparel Group, Inc.*......................... 44,600 1,917,800
-----------------------------------------------------------------------------
Total Manufacturing............................................. 44,413,977
-----------------------------------------------------------------------------
Mining -- 0.8%
UTI Energy Corp.*.................................. 35,000 905,625
-----------------------------------------------------------------------------
Real Estate Investment Trusts -- 5.0%
Brandywine Realty Trust............................ 64,000 1,608,000
Crescent Real Estate Equities Co.++................ 18,500 728,437
Crown American Realty Trust 80,500
749,656
<PAGE>
12
See accompanying Notes to Financial Statements
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
................................................ Shares Value+
Liberty Property Trust............................. 57,600 1,645,200
-----------------------------------------------------------------------------
Total Real Estate Investment Trusts............................. 5,887,293
-----------------------------------------------------------------------------
Services -- 17.2%
Business Services -- 0.9%
Diamond Technology Partners Inc.++*................ 25,130 389,515
SOS Staffing Services, Inc.++*..................... 36,600 690,825
-----------------------------------------------------------------------------
1,080,340
-----------------------------------------------------------------------------
Computer Services -- 13.0%
Ansoft Corp.*...................................... 67,000 728,625
International Network Services++*.................. 27,000 624,375
Keane, Inc.++*..................................... 61,500 2,498,438
Mastech Corp.*..................................... 69,000 2,190,750
Microleague Multimedia, Inc.*...................... 25,000 2,344
OAO Technology Solutions, Inc.++*.................. 63,160 584,230
Safeguard Scientifics, Inc.*....................... 65,800 2,064,475
Sanchez Computer Associates, Inc.*................. 12,000 349,500
SEEC, Inc.*........................................ 21,000 339,938
Sungard Data Systems, Inc.*........................ 62,400 1,934,400
Systems & Computer Technology Corp.*............... 48,000 2,382,000
Topro, Inc.++*..................................... 26,500 172,250
UBICS, Inc.*....................................... 43,000 645,000
Unicomp Inc.++*.................................... 12,000 94,500
Viasoft, Inc.++*................................... 10,000 422,500
Zitel Corp.++*..................................... 30,000 285,000
-----------------------------------------------------------------------------
15,318,325
-----------------------------------------------------------------------------
Home Healthcare Services -- 0.3%
Home Health Corp.*................................. 35,700 370,388
-----------------------------------------------------------------------------
Medical & Health Services -- 1.4%
CoreCare Systems, Inc.*............................ 107,000 93,625
Dental Care Alliance, Inc.*........................ 25,000 262,500
Genesis Health Ventures, Inc.*..................... 26,700 704,212
PMR Corp.++*....................................... 27,000 540,000
-----------------------------------------------------------------------------
1,600,337
-----------------------------------------------------------------------------
Personal Services -- 1.6%
BCB Financial Services Corp........................ 42,000 1,039,500
Sonus Pharmaceuticals, Inc.+*...................... 27,500 910,937
-----------------------------------------------------------------------------
1,950,437
-----------------------------------------------------------------------------
Total Services 20,319,827
<PAGE>
13
See accompanying Notes to Financial Statements
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
Transportation -- 0.4%
Arnold Industries, Inc. ........................ 25,000 $ 431,250
--------------------------------------------------------------------
Utilities -- 1.1%
Philadelphia Suburban Corp. .................... 42,500 1,251,094
--------------------------------------------------------------------
Wholesale & Retail Trade -- 12.4%
Miscellaneous Retail Stores -- 4.5%
A.C. Moore Arts & Crafts, Inc.++*............... 55,550 631,881
Borders Group, Inc.++*.......................... 65,000 2,035,313
Rite Aid Corp. ................................. 30,500 1,789,969
U.S. Vision, Inc.++*............................ 90,000 798,750
--------------------------------------------------------------------
5,255,913
--------------------------------------------------------------------
Retail Apparel & Accessory Stores -- 3.9%
Bon-Ton Stores, Inc.*........................... 68,200 1,023,000
Paul Harris Stores, Inc.++*..................... 56,000 563,500
Piercing Pagoda, Inc.*.......................... 82,600 2,374,750
The Finish Line, Inc.++*........................ 52,000 682,500
--------------------------------------------------------------------
4,643,750
--------------------------------------------------------------------
Retail Eating & Drinking Places -- 1.7%
Apple South, Inc.++............................. 52,700 691,687
Schlotzsky's, Inc.++*........................... 90,500 1,323,562
--------------------------------------------------------------------
2,015,249
--------------------------------------------------------------------
Retail Furniture & Appliance Stores -- 0.3%
Brookstone, Inc.++*............................. 31,300 391,250
--------------------------------------------------------------------
Wholesale - Petroleum & Products -- 0.6%
Harken Energy Corp.*............................ 100,000 700,000
--------------------------------------------------------------------
Wholesale Electronic Equip. & Computers -- 0.9%
CHS Electronics, Inc.++*........................ 46,000 787,750
ITEQ, Inc.++*................................... 27,868 320,486
--------------------------------------------------------------------
1,108,236
--------------------------------------------------------------------
Wholesale Miscellaneous -- 0.5%
JLK Direct Distribution, Inc. (A Shares)*....... 21,000 588,000
--------------------------------------------------------------------
Total Wholesale & Retail Trade.......................... 14,702,398
--------------------------------------------------------------------
Total Common Stock (Cost $83,381,972) 113,697,085
<PAGE>
14
See accompanying Notes to Financial Statements
The HomeState Pennsylvania Growth Fund
-- --- ---- ----------- ----- ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
Money Market Mutual Fund -- 3.7%
Scudder Managed Cash Fund (Cost $4,403,931)..... 4,403,931 $ 4,403,931
------------------------------------------------------------------------
Total Investments (Cost $87,785,903)+ -- 99.9%................... 118,101,016
Other Assets and Liabilities, Net -- 0.1%........................ 126,452
- ------------------------------------------------------------------------------
Net Assets -- 100.0%............................................. $118,227,468
==============================================================================
+ See Note 2 to Financial Statements.
* Non-income producing security.
++ Non-Pennsylvania Company as defined in the Fund's current prospectus (the
aggregate value of such securities amounted to $33,321,312 as of December 31,
1997).
<PAGE>
15
See accompanying Notes to Financial Statements
The HomeState Select Opportunities Fund
-- --- ---- ----- ------------ ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
Common Stock -- 92.0%
Finance & Insurance -- 4.8%
Insurance Carriers -- 2.5%
Penn-America Group, Inc. ....................... 19,250 $394,625
---------------------------------------------------------------------
Savings, Credit & Other Financial Institutions -- 2.3%
BankAtlantic Bancorp, Inc. (A Shares)........... 5,000 81,563
Prime Bancorp, Inc. ............................ 5,000 186,250
USABancShares, Inc.*............................ 10,100 101,000
---------------------------------------------------------------------
368,813
---------------------------------------------------------------------
Total Finance & Insurance............................... 763,438
---------------------------------------------------------------------
Manufacturing -- 36.1%
Computer & Office Equipment -- 4.7%
Information Analysis, Inc.*..................... 6,500 91,000
Iomega Corp.*................................... 50,000 621,875
Tangram Enterprise Solutions*................... 5,000 32,812
---------------------------------------------------------------------
745,687
---------------------------------------------------------------------
Food & Beverage -- 2.8%
Quigley Corp.*.................................. 31,000 447,563
---------------------------------------------------------------------
Miscellaneous Electrical Machinery, Equipment & Supplies -- 6.2%
Cable Design Technologies*...................... 8,500 330,438
Herley Industries, Inc.*........................ 23,333 281,454
Technitrol, Inc. ............................... 12,500 375,000
---------------------------------------------------------------------
986,892
---------------------------------------------------------------------
Miscellaneous Industrial Machinery & Equipment -- 5.8%
Met-Pro Corp. .................................. 17,500 288,750
Owosso Corp. ................................... 27,800 218,925
SI Handling Systems, Inc. ...................... 30,450 418,687
---------------------------------------------------------------------
926,362
---------------------------------------------------------------------
Pharmaceutical Preparations -- 2.7%
Halsey Drug Company, Inc.*...................... 30,000 46,875
Viropharma, Inc.*............................... 22,000 387,750
---------------------------------------------------------------------
434,625
---------------------------------------------------------------------
Precision Instruments & Medical Supplies -- 9.7%
ABIOMED, Inc.*.................................. 16,000 262,000
Bionx Implants, Inc.*........................... 13,000 279,500
Chromovision Medical Systems, Inc.*............. 31,000 279,000
Environmental Tectonics Corp.*.................. 24,500 217,437
IGEN International, Inc.*....................... 17,000 225,250
<PAGE>
16
See accompanying Notes to Financial Statements
The HomeState Select Opportunities Fund
-- --- ---- ----- ------------ ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
Respironics, Inc.* 13,000 $ 290,875
---------------------------------------------------------------------
1,554,062
---------------------------------------------------------------------
Telecommunications Equipment -- 1.0%
8X8, Inc.*...................................... 15,000 164,062
---------------------------------------------------------------------
Textiles & Apparel -- 3.2%
Jones Apparel Group, Inc.*...................... 12,000 516,000
---------------------------------------------------------------------
Total Manufacturing..................................... 5,775,253
---------------------------------------------------------------------
Real Estate Investment Trusts -- 4.9%
Crescent Real Estate Equities Co. .............. 20,000 787,500
---------------------------------------------------------------------
Services -- 28.0%
Business Services -- 3.7%
Diversified Corporate Resources, Inc.*.......... 15,000 120,000
SOS Staffing Services, Inc.*.................... 25,000 471,875
---------------------------------------------------------------------
591,875
---------------------------------------------------------------------
Computer Services -- 19.1%
International Network Services*................. 17,000 393,125
Keane, Inc. .................................... 17,000 690,625
Mastech Corp.*.................................. 11,250 357,187
OAO Technology Solutions, Inc.*................. 14,220 131,535
Safeguard Scientifics, Inc.*.................... 19,600 614,950
Systems & Computer Technology Corp.*............ 11,200 555,800
Topro, Inc.*.................................... 33,000 214,500
Zitel Corp.*.................................... 9,500 90,250
---------------------------------------------------------------------
3,047,972
---------------------------------------------------------------------
Medical & Health Services -- 1.1%
PMR Corp.*...................................... 9,000 180,000
---------------------------------------------------------------------
Personal Services -- 4.1%
BCB Financial Services Corp. ................... 10,000 247,500
Sonus Pharmaceuticals, Inc.*.................... 12,500 414,063
---------------------------------------------------------------------
661,563
---------------------------------------------------------------------
Total Services.......................................... 4,481,410
---------------------------------------------------------------------
Wholesale & Retail Trade -- 18.2%
Miscellaneous Retail Stores -- 3.4%
A.C. Moore Arts & Crafts, Inc.*................. 14,700 167,213
Borders Group, Inc.*............................ 12,000 375,750
---------------------------------------------------------------------
542,963
<PAGE>
17
See accompanying Notes to Financial Statements
The HomeState Select Opportunities Fund
-- --- ---- ----- ------------ ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
Retail Apparel & Accessory Stores -- 7.0%
Bon-Ton Stores, Inc.*........................... 35,000 $ 525,000
Paul Harris Stores, Inc.*....................... 20,000 201,250
Piercing Pagoda, Inc.*.......................... 13,500 388,125
----------------------------------------------------------------------
1,114,375
----------------------------------------------------------------------
Retail Eating & Drinking Places -- 2.5%
Apple South, Inc. .............................. 31,000 406,875
----------------------------------------------------------------------
Retail Furniture & Appliance Stores -- 2.4%
Brookstone, Inc.*............................... 31,300 391,250
----------------------------------------------------------------------
Wholesale - Petroleum & Products -- 1.8%
Harken Energy Corp.*............................ 40,000 280,000
----------------------------------------------------------------------
Wholesale Electronic Equipment & Computers -- 1.1%
CHS Electronics, Inc.*.......................... 10,000 171,250
----------------------------------------------------------------------
Total Wholesale & Retail Trade.......................... 2,906,713
----------------------------------------------------------------------
Total Common Stock(Cost $14,403,168).................... 14,714,314
----------------------------------------------------------------------
PUT options -- 1.4%
Zolt Put Options, January 1998 @ $30............ 5,000 16,875
Zolt Put Options, January 1998 @ $35............ 1,100 83,875
Zolt Put Options, January 1998 @ $40............ 1,100 120,000
----------------------------------------------------------------------
Total Put Options ($150,715)............................ 220,750
----------------------------------------------------------------------
Commercial Paper -- 2.2%
American Express 6.25%, 01/02/98
(Cost $350,000)................................$350,000 350,000
----------------------------------------------------------------------
Money Market Mutual Fund -- 2.4%
Scudder Managed Cash Fund, (Cost $384,787)...... 384,787 384,787
----------------------------------------------------------------------
Total Investments (Cost $15,288,670) -- 98.0% 15,669,851
<PAGE>
18
See accompanying Notes to Financial Statements
The HomeState Select Opportunities Fund
-- --- ---- ----- ------------ ---
Schedule of Investments (Unaudited) -- continued
December 31, 1997
Market
Shares Value+
Securities Sold Short -- (2.1)%
GTI Corp*....................................... 2,500 $ (12,188)
Shared Medical Systems Corp. ................... 5,000 (330,000)
-------------------------------------------------------------------------
Total Securities Sold Short (Proceeds $331,333).......... (342,188)
-------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Deposits with brokers and custodian fOR securities sold short -- 1.6% 258,006
- -------------------------------------------------------------------------------
Other Assets and Liabilities, Net -- 2.5%...................... 403,582
- -------------------------------------------------------------------------------
Net Assets -- 100.0% $ 15,989,251
+ See Note 2 to Financial Statements.
* Non-income producing security.
<PAGE>
19
See accompanying Notes to Financial Statements
The HomeState Group
-- --- ---- ----
Statements of Assets and Liabilities (Unaudited)
December 31, 1997
Pennsylvania Select Opportunities
Growth Fund Fund
ASSETS
Investments in securities at market value
(identified cost $87,785,903 and
$15,288,670, respectively) (Note 2)................ $118,101,016 $15,669,851
Cash................................................. 1,180 --
Deposits with brokers and custodian bank for
securities sold short.............................. -- 258,006
Receivables for:
Dividends and interest............................. 110,312 5,931
Investment securities sold......................... 682,950 533,264
Capital shares sold................................ 195,707 61,100
Other assets......................................... -- 11,625
- --------------------------------------------------------------------------------
Total assets................................... 119,091,165 16,539,777
- --------------------------------------------------------------------------------
LIABILITIES
Securities sold short at market value
(proceeds $331,333) (Note 2)....................... -- 342,188
Payables for:
Investment securities purchased.................... 564,949 125,938
Capital shares repurchased......................... 8,316 --
Accrued expenses..................................... 290,432 82,400
- --------------------------------------------------------------------------------
Total liabilities.............................. 863,697 550,526
- --------------------------------------------------------------------------------
NET ASSETS........................................... $118,227,468 $15,989,251
================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest........................ $ 86,037,029 $15,632,089
Accumulated net investment loss...................... (223,039) (104,696)
Accumulated net realized gain on investments......... 2,098,365 91,532
Net unrealized appreciation on investments (Note 4).. 30,315,113 381,181
Net unrealized depreciation on securities sold short. -- (10,855)
- --------------------------------------------------------------------------------
Net assets..................................... $118,227,468 $15,989,251
================================================================================
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($118,227,468/9,581,150 issued and outstanding
shares, no par value; and $15,989,251/1,243,906
issued and outstanding shares, no par value,
respectively)...................................... $12.34 $12.85
Maximum offering price per share
(100/95.25 of $12.34 and 100/95.25 of $12.85,
respectively)...................................... $12.96 $13.49
<PAGE>
20
See accompanying Notes to Financial Statements
The HomeState Group
-- --- ---- ----
Statements of Operations (Unaudited) for the Six-Month Period Ended
December 31, 1997
Select
Pennsylvania Opportunities
Growth Fund Fund
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends...................................... $ 515,734 $ 13,088
Interest....................................... 97,247 28,156
- --------------------------------------------------------------------------------
Total investment income 612,981 41,244
- --------------------------------------------------------------------------------
EXPENSES
Advisory fees.................................. 400,691 62,102
12b-1 fees..................................... 186,989 21,736
Administration fees............................ 65,843 10,081
Transfer agent fees............................ 63,349 15,021
Custodial fees................................. 19,874 8,994
Accounting services fees....................... 30,733 20,165
Professional fees.............................. 27,949 13,669
Printing expenses.............................. 9,795 8,181
Registration fees.............................. 14,669 6,715
Trustees fees and expenses..................... 6,041 3,625
Miscellaneous expenses......................... 10,087 2,873
- --------------------------------------------------------------------------------
Total expenses before fee waivers......... 836,020 173,162
- --------------------------------------------------------------------------------
Advisory fee waived (Note 5)................... -- (27,222)
- --------------------------------------------------------------------------------
Total expenses, net............................ 836,020 145,940
- --------------------------------------------------------------------------------
Net investment loss.............................. (223,039) (104,696)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions... 7,156,003 649,221
Net realized loss on securities sold short..... -- (29,154)
Net unrealized appreciation (depreciation)
on investments............................... 9,510,045 (223,339)
Net unrealized depreciation on securities
sold short.................................... -- (12,976)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on
investments..................................... 16,666,048 383,752
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................... $16,443,009 $ 279,056
================================================================================
<PAGE>
21
See accompanying Notes to Financial Statements
The HomeState Group
-- --- ---- ----
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Select
Pennsylvania Opportunities
Growth Fund Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
For the Six-Month Period Ended December 31, 1997 (unaudited)
OPERATIONS
Net investment loss.................................................. $ (223,039) $(104,696)
Net realized gain on investment transactions......................... 7,156,003 649,221
Net realized loss on securities sold short........................... -- (29,154)
Net unrealized appreciation (depreciation) on investments............ 9,510,045 (223,339)
Net unrealized depreciation on securities sold short................. -- (12,976)
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations................. 16,443,009 279,056
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain from investment transactions....................... (3,611,930) (576,757)
- ----------------------------------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS (Note 3).......................................... 15,819,416 10,659,177
- ----------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS.......................................... 28,650,495 10,361,476
NET ASSETS:
Beginning of period.................................................. 89,576,973 5,627,775
- ----------------------------------------------------------------------------------------------------------
End of period........................................................ $118,227,468 $15,989,251
==========================================================================================================
For the Fiscal Year Ended June 30, 1997*
OPERATIONS
Net investment loss.................................................. $ (273,934) $ (12,334)
Net realized gain (loss) on investment transactions.................. (1,094,445) 48,541
Net realized gain on securities sold short........................... -- 12,015
Change in unrealized net appreciation on investments................. 9,793,385 604,520
Change in unrealized net appreciation on securities sold short....... -- 2,121
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations................. 8,425,006 654,863
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS+:
Net realized gain from investment transactions....................... (3,944,375) --
- ----------------------------------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS (Note 3).......................................... 29,268,289 4,972,912
- ----------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS.......................................... 33,748,920 5,627,775
NET ASSETS:
Beginning of period.................................................. 55,828,053 --
- ----------------------------------------------------------------------------------------------------------
End of period........................................................ $ 89,576,973 $ 5,627,775
==========================================================================================================
</TABLE>
* For the period February 18, 1997 (commencement of operations) through
June 30, 1997 for the Select Opportunities Fund.
+ Does not include $829,465 long-term capital gain ($0.20) per share for the
Pennsylvania Growth Fund and $55,890 short-term capital gain ($0.11 per share)
for the Select Opportunities Fund distributed July 21, 1997 to shareholders of
record as of July 15, 1997.
<PAGE>
22
See accompanying Notes to Financial Statements
The HomeState Group
-- --- ---- ----
Financial Highlights
For a share outstanding throughout each period:
Pennsylvania Growth Fund***
<TABLE>
<CAPTION>
Periods Ended
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/97++ 6/30/97 6/30/96 6/30/95 6/30/94 6/30/93+
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................ $ 10.78 $ 10.63 $ 7.84 $ 6.19 $ 5.49 $ 5.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income................................. (0.02) (0.03) (0.03) (0.01) (0.02) 0.02
Net realized and unrealized gain on investments....... 1.98 0.89 3.09 1.77 0.77 0.47
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations................. 1.96 0.86 3.05 1.76 0.75 0.49
- ---------------------------------------------------------------------------------------------------------------------------------
Less Distributions
Dividends from net investment income.................. 0.00 0.00 0.00 (0.00) (0.01) 0.00
Distributions from net realized gains................. (0.40) (0.71) (0.26) (0.11) (0.04) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions.............................. (0.40) (0.71) (0.26) (0.11) (0.05) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period...................... $ 12.34 $ 10.78 $ 10.63 $ 7.84 $ 6.19 $ 5.49
- ---------------------------------------------------------------------------------------------------------------------------------
Total return**................................... 18.36% 9.56% 39.94% 28.96% 13.75% 13.07%
=================================================================================================================================
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (000s omitted).............. $ 118,227 $ 89,577 $ 55,828 $ 20,388 $ 9,892 $ 3,026
Ratio of expenses to average net assets before
reimbursement by Adviser........................... 1.57%* 1.77% 1.85% 2.00% 2.67% 7.85%*
Ratio of expenses to average net assets after
reimbursement by Adviser........................... na/1/ na/1/ na/1/ 1.91% 2.23% 1.87%*
Ratio of net investment loss to average net assets
before reimbursement by Adviser.................... (0.42)%* (0.39)% (0.58)% (0.20)% (0.76)% (5.24)%*
Ratio of net investment income (loss) to average
net assets after reimbursement by Adviser.......... na/1/ na/1/ na/1/ (0.10)% (0.32)% 0.74%*
Average commission rate paid.......................... $ 0.0983 $ 0.0941 $ 0.0961 -- -- --
Portfolio turnover rate............................... 32% 50% 66% 51% 51% 63%
</TABLE>
+ From commencement of operations: October 1, 1992.
++ For the six-month period ended December 31, 1997 (Unaudited)
* Annualized
** Total return does not reflect 4.75% maximum sales charge.
*** The par share data reflects 2 for 1 stock split which occurred December 29,
1997.
1 Not applicable: no reimbursements were made by the Adviser.
<PAGE>
23
See accompanying Notes to Financial Statements
The HomeState Group
-- --- ---- ----
Financial Highlights -- continued
For a share outstanding throughout each period:
Select Opportunities Fund
<TABLE>
<CAPTION>
Periods Ended
12/31/97++ 6/30/97+
<S> <C> <C>
Net asset value at beginning of period......... $ 11.70 $ 10.00
Income from Investment Operations
Net investment loss............................ (0.08) (0.03)
Net realized and unrealized gain on investments 1.77 1.73
Total from investment operations.............. 1.69 1.70
Less Distributions
Distributions from net realized gains.......... (0.54) --
Net asset value at end of period............... $ 12.85 $ 11.70
Total return**................................. 14.48% 17.00%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)....... $ 15,989 $ 5,628
Ratio of expenses to average net assets before
reimbursement by Adviser and waivers.......... 2.79%* 8.10%*
Ratio of expenses to average net assets after
reimbursement by Adviser and waivers.......... 2.35%* 2.35%*
Ratio of net investment loss to average net
assets before reimbursement by Adviser and
waivers...................................... (2.12)%* (6.85)%*
Ratio of net investment loss to average net
assets after reimbursement by Adviser and
waivers....................................... (1.69)%* (1.10)%*
Average commission rate paid................... $ 0.0987 $ 0.0983
Portfolio turnover rate........................ 56% 59%
</TABLE>
+ From commencement of operations: February 18, 1997.
++ For the six-month period ended December 31, 1997 (Unaudited).
* Annualized.
** Total return does not reflect 4.75% maximum sales charge.
<PAGE>
24
See accompanying Notes to Financial Statements
The HomeState Group
-- --- ---- ----
Notes to Financial Statements (Unaudited) -- continued
December 31, 1997
NOTE 1 -- DESCRIPTION OF FUNDS
The HomeState Group (the "Trust"), an open-end management company, was
established as a Pennsylvania common law trust on August 26, 1992, and is
registered under the Investment Company Act of 1940, as amended. The Trust
has established three series: the HomeState Pennsylvania Growth Fund, the
HomeState Select Opportunities Fund and the HomeState Year 2000 Fund (each a
"Fund" and collectively, the "Funds"). Only the HomeState Pennsylvania Growth
Fund and the HomeState Select Opportunities Fund are contained in this
report. The investment objectives of the HomeState Pennsylvania Growth Fund
and the HomeState Select Opportunities Fund are set forth below.
The HomeState Pennsylvania Growth Fund commenced operations on October 1,
1992. Operations up to October 1, 1992 were limited to issuance of 10,000
shares at $10.00 per share to the Fund's investment adviser. The investment
objective of the Fund is long-term growth of capital through investments
primarily in the common stock of companies with headquarters or significant
operations in the Commonwealth of Pennsylvania. To pursue its objective, the
Fund will invest at least 65% of its total assets in such companies.
Consequently, the Fund may be subject to risk from economic changes and
political developments occurring within Pennsylvania.
The HomeState Select Opportunities Fund commenced operations on February 18,
1997. The investment objective of the Fund is long-term appreciation of
capital through investments in a non-diversified portfolio of U.S.
securities, without regard to any further issuer location limitations. The
Fund will typically invest in the common stock of no more than fifty U.S.
companies. It will usually emphasize companies having a market capitalization
of less than $1 billion. To pursue its objective, the Fund will invest at
least 65% of its total assets in such companies.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies, in conformity
with generally accepted accounting principles, which were consistently
followed by each Fund in the preparation of their financial statements.
Security Valuation -- Investment securities traded on a national securities
exchange are valued at the last reported sales price at 4:00 p.m. Eastern time,
unless there are no transactions on the valuation date, in which case they are
valued at the mean between the closing asked price and the closing bid price.
Securities traded over-the-counter are valued at the last reported sales price
unless there is no reported sales price, in which case the mean between the
closing asked price and the closing bid price is used. Debt securities with
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Where market quotations are not readily available,
securities are valued using methods which the Board of Trustees believe in good
faith accurately reflects their fair value.
<PAGE>
25
The HomeState Group
-- --- ---- ----
Notes to Financial Statements (Unaudited) -- continued
December 31, 1997
Income Recognition -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date.
Securities Transactions -- Security transactions are accounted for on the date
the securities are purchased or sold. Realized gains and losses on securities
sold are determined using the identified cost method.
Distributions to Shareholders -- 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 may write
and/or purchase exchange-traded call options and purchase exchange-traded put
options on securities in the Fund. When the Fund writes a call option, an
amount equal to the premium received is reflected as a liability. The amount
of the liability is subsequently "marked to market" to reflect the current
market value of the option written. If an option which the Fund has written
either expires on its stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or loss if the cost of
the closing transaction exceeds the premium received when the option is sold),
and the liability related to such option is extinguished. If a call option
which the Fund has written is exercised, the Fund realizes a gain or loss from
the sale of the underlying security, and the proceeds of which are increased
by the premium originally received.
The premium paid by the Fund for the purchase of a put option is recorded as an
investment and subsequently marked to market to reflect the current market value
of the option purchased. If an option which the Fund has purchased expires on
the stipulated expiration date, the Fund realizes
<PAGE>
26
The HomeState Group
-- --- ---- ----
Notes to Financial Statements (Unaudited) -- continued
December 31, 1997
a loss in the amount of the cost of the option. If the Fund exercises a put
option, it realizes a gain or loss from the sale of the underlying security,
the proceeds of which are decreased by the premium originally paid. The Fund
limits the aggregate value of puts and call options to 25% of the Fund's net
assets. At December 31, 1997, the HomeState Select Opportunities Fund had
1.38% of its net assets in put options.
Short Sales -- The HomeState Select Opportunities Fund may sell securities
short. Short sales are transactions in which the Fund sells a security it does
not own, in anticipation of a decline in the market value of that security. To
complete such a transaction, the Fund must borrow the security to deliver to
the buyer upon the short sale; the Fund then is obligated to replace the
security borrowed by purchasing it in the open market at some later date. The
Fund will incur a loss if the market price of the security increases between
the date of the short sale and the date on which the Fund replaces the
borrowed security. The Fund will realize a gain if the security declines in
value between those dates. All short sales must be fully collateralized. The
Fund maintains the collateral in a segregated account consisting of cash, U.S.
Government securities or other liquid assets in an amount at least equal to
the market value of its short positions. The Fund limits the value of short
positions to 25% of the Fund's net assets. At December 31, 1997, the HomeState
Select Opportunities Fund had 2.14% of its net assets in short positions.
NOTE 3 -- CAPITAL STOCK
At December 31, 1997, each Fund had an authorized unlimited number of shares
of beneficial interest with no par value.
The following table summarizes the capital share transactions of each Fund:
Pennsylvania Growth Fund *
<TABLE>
<CAPTION>
For the Six-Month Period For the Year
Ended December 31, 1997 (Unaudited) Ended June 30, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sales.................... 1,308,501 $16,335,103 3,406,244 $33,155,509
Reinvested distributions. 289,625 3,434,230 410,366 3,636,915
Redemptions.............. (329,152) (3,949,917) (758,774) (7,524,135)
Net increase............. 1,268,974 $15,819,416 3,057,836 $29,268,289
</TABLE>
* Capital share transactions restated to reflect the 2 for 1 stock split which
occurred on December 29, 1997.
<PAGE>
27
The HomeState Group
-- --- ---- ----
Notes to Financial Statements (Unaudited) -- continued
December 31, 1997
Select Opportunities Fund
<TABLE>
<CAPTION>
For the Period February 18, 1997
For the Six-Month Period (Commencement of Operations)
Ended December 31, 1997 (Unaudited) Through June 30, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sales......................... 826,246 $11,522,034 488,935 $5,056,927
Reinvested distributions...... 40,961 526,023 -- --
Redemptions................... (104,268) (1,388,880) (7,968) (84,015)
Net increase.................. 762,939 $10,659,177 480,967 $4,972,912
</TABLE>
NOTE 4 -- INVESTMENT TRANSACTIONS
During the periods ended December 31, 1997, purchases and sales of investment
securities (excluding securities sold short and short-term investments) were as
follows:
Pennsylvania Select
Growth Fund Opportunities Fund
Purchases.................. $40,723,962 $15,298,000
Sales...................... $32,501,895 $ 6,118,608
The following balances for the Funds are as of December 31, 1997:
<TABLE>
<CAPTION>
Cost For Net Tax Tax Basis Gross Tax Basis Gross
Federal Income Unrealized Unrealized Unrealized
Tax Purposes Appreciation Appreciation Depreciation
<S> <C> <C> <C> <C>
Pennsylvania Growth Fund... $87,871,336 $30,229,680 $34,527,665 $4,297,985
Select Opportunities Fund.. 15,288,670 381,181 1,698,252 1,317,071
</TABLE>
At December 31, 1997, The HomeState Select Opportunities Fund had 2.1% of its
net assets in short positions. For the period ended December 31, 1997, the
cost of investments purchased to cover short sales and the proceeds from those
investments sold short were $359,478 and $330,324, respectively.
<PAGE>
28
The HomeState Group
-- --- ---- ----
Notes to Financial Statements (Unaudited) -- continued
December 31, 1997
NOTE 5 -- EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser (the "Adviser") to the
Funds for which it receives investment advisory fees from each Fund. The fee
for the HomeState Pennsylvania Growth Fund is based on average daily net
assets at the annual rate of 0.75% on assets up to and including $250 million,
0.65% for assets in excess of $250 million up to and including $500 million,
0.55% for assets in excess of $500 million up to and including $750 million,
and 0.45% for assets in excess of $750 million. The fee for the HomeState
Select Opportunities Fund is based on average daily net assets at the annual
rate of 1.00% on assets up to and including $100 million and 0.90% for assets
in excess of $100 million. Under the terms of the investment advisory
agreement which expires on December 31, 1997, Emerald Advisers, Inc. may also
voluntarily reimburse the Funds for certain expenses. Through June 30, 1998,
the Adviser has voluntarily agreed to waive its advisory fee and/or reimburse
other expenses for the HomeState Select Opportunities Fund to the extent that
the Fund's total operating expenses exceeds 2.35% of the average daily net
assets of the Fund. At December 31, 1997, Emerald Advisers, Inc. owned 238
shares of The HomeState Pennsylvania Growth Fund and 104 shares of the
HomeState Select Opportunities Fund.
The following table summarizes the advisory fees and expense
waivers/reimbursements for the period ended December 31, 1997:
Gross Advisory Fee
Advisory waived
Pennsylvania Growth Fund $400,691 $ --
Select Opportunities Fund 62,102 27,222
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of
Wilmington Trust Company, is the sole distributor of the Trust shares pursuant
to a Distribution Agreement with each Fund. Each Fund has adopted a
distribution services plan (the "Plan") under Rule 12b-1 of the Investment
Company Act of 1940. The Plan allows each Fund to reimburse RSD for a portion
of the costs incurred in distributing each Fund's shares, including amounts
paid to brokers or dealers, at an annual rate not to exceed 0.35% of each
Fund's average daily net assets. During the period ending December 31, 1997,
the HomeState Pennsylvania Growth Fund and the HomeState Select Opportunities
Fund incurred expenses of $186,989 and $21,736, respectively, pursuant to the
Plan.
Pursuant to separate Administration, Accounting Services and Transfer Agency
Agreements with each Fund, Rodney Square Management Corporation ("RSMC"), a
wholly owned subsidiary of Wilmington Trust Company, serves as administrator,
accounting and transfer agent. During the period ending December 31, 1997, the
HomeState Pennsylvania Growth Fund and the HomeState Select Opportunities Fund
incurred administration fees totaling $65,843 and $10,081, respectively,
accounting service fees totaling $30,733 and $20,165, respectively, and transfer
agent fees totaling $63,349 and $15,021, respectively.
<PAGE>
29
The HomeState Group
-- --- ---- ----
Notes to Financial Statements (Unaudited) -- continued
December 31, 1997
The Funds' Declaration of Trust provides that each Trustee affiliated with the
Funds' Adviser shall serve without compensation and each Trustee who is not so
affiliated shall receive fees from the income of each Fund, and expense
reimbursements for each Trustees meeting attended. An unaffiliated Trustee's
annual fee shall not exceed $1,000. A member of the Funds' Board of Trustees
who is not affiliated with the Adviser is employed as a practicing attorney
and is a partner in the law firm of Duane, Morris & Heckscher, the Fund's
legal counsel. Legal fees aggregating $18,117 and $9,061 were incurred by the
HomeState Pennsylvania Growth Fund and the HomeState Select Opportunities
Fund, respectively, to Duane, Morris & Heckscher during the period ending
December 31, 1997.
<PAGE>
30
The HomeState Group
-- --- ---- ----
I N V E S T M E N T A D V I S E R
- --------------------------------------------------------------------------------
Emerald Advisers, Inc.
Lancaster, PA
D I S T R I B U T O R
- --------------------------------------------------------------------------------
Rodney Square Distributors, Inc.
Wilmington, DE
A D M I N I S T R A T O R A N D
T R A N S F E R A G E N T
- --------------------------------------------------------------------------------
Rodney Square Management Corporation
Wilmington, DE
C U S T O D I A N
- --------------------------------------------------------------------------------
Wilmington Trust Company
Wilmington, DE
I N D E P E N D E N T A C C O U N T A N T S
- --------------------------------------------------------------------------------
Price Waterhouse LLP
Philadelphia, PA
L E G A L C O U N S E L
- --------------------------------------------------------------------------------
Duane, Morris & Heckscher
Harrisburg, PA
B O A R D O F T R U S T E E S
- --------------------------------------------------------------------------------
Bruce E. Bowen
Kenneth G. Mertz II, CFA
Scott C. Penwell, Esq.
Scott L. Rehr
H.J. Zoffer, PhD
F U N D M A N A G E M E N T
- --------------------------------------------------------------------------------
Emerald Advisers, Inc.
1857 William Penn Way
P.O. Box 10666
Lancaster, PA 17605
S H A R E H O L D E R S E R V I C E S
- --------------------------------------------------------------------------------
Rodney Square Management Corporation
P.O. Box 8987
Wilmington, DE 19899-9752
T E L E P H O N E N U M B E R S
- --------------------------------------------------------------------------------
The Fund (800) 232-0224
Marketing / Broker Services (800) 232-OK-PA
Shareholder Services (800) 892-1351
24 H O U R P R I C I N G I N F O R M A T I O N
- --------------------------------------------------------------------------------
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.
