<PAGE>
Filed with the Securities and Exchange Commission on August 20, 1998
File No. 33-48940
-----------------
File No. 811-6722
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __________ _
Post-Effective Amendment No. 10
--------- [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 [X]
-----------
(Check appropriate box or boxes.)
The HomeState Group
------------------------------------
(Exact Name of Registrant as Specified in Charter)
1857 William Penn Way, Suite 203, Lancaster, PA 17605
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (717) 396-7864
--------------
Scott L. Rehr
1857 William Penn Way, Suite 203, Lancaster, PA
------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
_ immediately upon filing pursuant to paragraph (b)
_ on ___________________ pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
_ on ___________________ pursuant to paragraph (a)(1)
_ 75 days after filing pursuant to paragraph (a)(2)
_ on ___________________ pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
_ This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:
An indefinite amount of securities is being registered under the Securities Act
of 1933 pursuant to Rule 24f-2 promulgated under the Investment Company Act of
1940.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
The HomeState Pennsylvania Growth Fund
The HomeState Select Banking and Finance Fund
The HomeState Year 2000 (Y2K) Fund
Items Required by Form N-1A
PART A -- INFORMATION REQUIRED
IN PROSPECTUS
The HomeState Pennsylvania Growth Fund
<TABLE>
<CAPTION>
Form N-1A Location in
Item Number Description Prospectus
- ----------- ----------- ------------
<S> <C> <C>
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investments FUND FACTS --
Risks, and Performance The HomeState Pennsylvania
Growth Fund -- Investment
Objective, Investment
Techniques, Primary Risk
Considerations
and Risk/Return Bar Chart and
Table
3. Risk/Return Summary: Fee Table FUND FACTS --The HomeState
Pennsylvania Growth
Fund -- Transaction Expenses
4. Investment Objectives, Principal FUND FACTS --
Investment Strategies, and The Pennsylvania HomeState
Related Risks Growth Fund -- Investment
Objective and Primary Risk
Considerations; ADDITIONAL
INVESTMENT
INFORMATION
5. Management's Discussion of Provided in Management's
Fund Performance Annual Report to Shareholders
6. Management, Organization GENERAL INFORMATION
and Capital Structure
7. Shareholder Information SHAREHOLDER
SERVICE INFORMATION
8. Distribution Arrangements SHAREHOLDER
SERVICE INFORMATION--
Sales Charges and Reduced
Sales
Charges; GENERAL
INFORMATION --
Distribution
Plans
9. Financial Highlights Information FUND FACTS --
The HomeState
Pennsylvania Growth
Fund -- Financial Highlights
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
The HomeState Pennsylvania Growth Fund
The HomeState Select Banking and Finance Fund
The HomeState Year 2000 (Y2K) Fund
Items Required by Form N-1A
PART A -- INFORMATION REQUIRED
IN PROSPECTUS
The HomeState Select Banking and Finance Fund
<TABLE>
<CAPTION>
Form N-1A Location in
Item Number Description Prospectus
- ----------- ----------- -----------
<S> <C> <C>
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investments FUND FACTS --
Risks, and Performance The HomeState Select
Banking and Finance Fund
-- Investment Objective,
Investment Techniques,
Primary Risk Considerations
and
Risk/Return Bar Chart and
Table
3. Risk/Return Summary: Fee Table FUND FACTS --
The HomeState Select
Banking and Finance Fund
-- Transaction Expenses
4. Investment Objectives, Principal FUND FACTS --
Investment Strategies, and The HomeState Select Banking
Related Risks and Finance Fund -- Investment
Objective and Primary Risk
Considerations; ADDITIONAL
INVESTMENT
INFORMATION
5. Management's Discussion of Provided in Management's
Fund Performance Annual Report to Shareholders
6. Management, Organization GENERAL INFORMATION
and Capital Structure
7. Shareholder Information SHAREHOLDER
SERVICE INFORMATION
8. Distribution Arrangements SHAREHOLDER
SERVICE INFORMATION--
Sales Charges and Reduced
Sales
Charges; GENERAL
INFORMATION --
Distribution
Plans
9. Financial Highlights Information FUND FACTS --
The HomeState Select
Banking
and Finance Fund -- Financial
Highlights
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
The HomeState Pennsylvania Growth Fund
The HomeState Select Banking and Finance Fund
The HomeState Year 2000 (Y2K) Fund
Items Required by Form N-1A
PART A -- INFORMATION REQUIRED
IN PROSPECTUS
The HomeState Pennsylvania Growth Fund
<TABLE>
<CAPTION>
Form N-1A Location in
Item Number Description Prospectus
- ----------- ----------- ----------
<S> <C> <C>
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investments FUND FACTS -- Risks,
and Performance The HomeState Pennsylvania Growth
Fund -- Investment Objective,
Investment Techniques,
Primary Risk Considerations and
Risk/Return Bar Chart and
Table
3. Risk/Return Summary: Fee Table FUND FACTS --
The HomeState Pennsylvania
Growth Fund -- Transaction
Expenses
4. Investment Objectives, Principal FUND FACTS --
Investment Strategies, and The Pennsylvania HomeState Growth
Related Risks Fund -- Investment Objective
and Primary Risk
Considerations; ADDITIONAL
INVESTMENT
INFORMATION
5. Management's Discussion of Provided in Management's
Fund Performance Annual Report to Shareholders
6. Management, Organization GENERAL INFORMATION
and Capital Structure
7. Shareholder Information SHAREHOLDER
SERVICE INFORMATION
8. Distribution Arrangements SHAREHOLDER
SERVICE INFORMATION--
Sales Charges and Reduced
Sales
Charges; GENERAL
INFORMATION --
Distribution
Plans
9. Financial Highlights Information FUND FACTS --
The HomeState
Pennsylvania Growth Fund --
Financial Highlights
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
WHERE TO FIND INFORMATION CONCERNING PAGE NUMBER
<S> <C>
SECTION 1: FUND FACTS
The HomeState Pennsylvania Growth Fund.................................... -1-
The HomeState Select Banking and Finance Fund............................. -7-
The HomeState Year 2000 (Y2K) Fund........................................ -12-
SECTION 2: ADDITIONAL INVESTMENT INFORMATION
"Hands-On" Research Techniques............................................ -18-
Fixed-Income/Debt Securities.............................................. -18-
Mortgage-Related Securities............................................... -19-
Short-Term Obligations.................................................... -19-
SECTION 3: SHAREHOLDER SERVICE INFORMATION
How to Buy Fund Shares.................................................... -20-
Purchase Price/Share Valuation............................................ -20-
Right to Refuse an Order.................................................. -21-
Stock Certificates........................................................ -21-
Sales Charges............................................................. -21-
Reduced Sales Charge ..................................................... -22-
Purchases at Net Asset Value.............................................. -22-
Buying Shares by Mail..................................................... -22-
Buying Shares by Overnight or Express Mail................................ -23-
Buying Shares by Wire..................................................... -23-
Additional Purchases ..................................................... -23-
Buying Shares by Telephone................................................ -23-
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
AutoInvest Plan................................................................ -24-
Retirement Plans............................................................... -24-
How to Redeem Fund Shares...................................................... -24-
Redeeming Shares by Mail....................................................... -24-
Redemption Order Amounts Above $10,000/Mailing to a Different Address.......... -25-
IRA Redemptions................................................................ -25-
Redemption Valuation........................................................... -25-
Payment for Shares............................................................. -25-
Wire Redemption................................................................ -26-
Redeeming Shares by Telephone.................................................. -26-
Systematic Withdrawal Plan..................................................... -26-
Funds' Right to Redeem an Account.............................................. -26-
How to Exchange Fund Shares.................................................... -26-
Firstar Funds.................................................................. -27-
Exchange Restriction........................................................... -27-
Dividends and Distributions.................................................... -27-
Taxes.......................................................................... -28-
SECTION 4: GENERAL INFORMATION
Fund Portfolio Management...................................................... -29-
Investment Adviser............................................................. -29-
Administrator, Accounting, Transfer Agent, and Custodian....................... -31-
Distributor.................................................................... -31-
Distribution Plans............................................................. -32-
Reporting...................................................................... -32-
Contacts ...................................................................... -33-
</TABLE>
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<PAGE>
APPENDIX: ADDITIONAL FUND INFORMATION
For PA Growth Fund Investors:
Summary of Information About the Pennsylvania Economy.................... A-1
For Banking and Finance Fund Investors:
Summary of Factors About the Banking and Financial Services Industries... B-1
For Y2K Fund Investors
Additional Information Regarding the Year 2000 Problem................... C-1
-iii-
<PAGE>
THE HOMESTATE GROUP
-------------------
THE HOMESTATE PENNSYLVANIA GROWTH FUND
The HomeState Select Banking and Finance Fund
The HomeState Year 2000 (Y2K) Fund
PROSPECTUS DATED OCTOBER 5, 1998
THE HOMESTATE GROUP
Mailing Address: 1857 William Penn Way, P.O. Box 10666
Lancaster, PA 17605-0666
Phone: 800 232-0224 -- Toll-Free
717 396-7864 -- Local & International
SHAREHOLDER SERVICES
Contact: Firstar Trust Company
Mailing Address: P.O. Box 701
Milwaukee, WI 53201-0701
Phone: (800) 232-0224 -- Toll-Free
INTRODUCTION TO THE HOMESTATE GROUP
This Prospectus introduces you to The HomeState Group (the "Trust"), an open-end
management company offering you shares of three equity mutual funds for
investment. Established on August 26, 1992 as a common law trust under
Pennsylvania law, the Trust is registered as a "series fund." Each individual
series of the Trust represents a separate mutual fund with its own investment
objectives and policies. Each Fund has varying possibilities for capital
appreciation or income and is subject to varying degrees of market risks.
The three mutual funds (collectively referred to as the "Funds") currently
offered and covered in this Prospectus are:
(i) The HomeState Pennsylvania Growth Fund;
(ii) The HomeState Select Banking and Finance Fund; and
(iii) The HomeState Year 2000 (Y2K) Fund.
<PAGE>
You can buy shares of each Fund through any independent securities dealer that
has a sales agreement with the Funds' Distributor. The share price is the net
asset value on the day of purchase, plus a sales charge of 4.75% for the
Pennsylvania Growth and the Select Banking and Finance Funds and a sales charge
of 2.90% for the Year 2000 (Y2K) Fund. There are several ways you can purchase
shares at a reduced sales charge. (See page 21 for "Reduced Sales Charge.")
The required minimum initial investment for each Fund is $500 and the minimum
additional investment is $50. The minimum initial and additional investment
amounts are $50 under the Funds' AutoInvest Plan. (See page 23 for "AutoInvest
Plan.")
This Prospectus provides you with the information you should know before
investing. Please read it carefully and keep it for future reference.
THE FUNDS'S INVESTMENT OBJECTIVES MAY NOT BE CHANGED WITHOUT A VOTE OF THE
HOLDER'S OF A MAJORITY OF THE OUTSTANDING SHARES OF THE FUNDS. THERE CAN BE NO
GUARANTEE THE INVESTMENT OBJECTIVES OF THE FUNDS WILL BE ACHIEVED. THE FUNDS
WILL BE ACTIVELY MANAGED BUT WILL LIMIT SHORT- TERM TRADING AND HIGH PORTFOLIO
TURNOVER RATES. THE FUNDS ARE ALSO SUBJECT TO SPECIFIC FUNDAMENTAL INVESTMENT
RESTRICTIONS, WHICH MAY NOT BE CHANGED WITHOUT A VOTE OF A MAJORITY OF THEIR
OUTSTANDING SHARES.
PLEASE NOTE THAT SHARES OF THE FUNDS ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND'S SHARES AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE
WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
SECTION 1: FUND FACTS
THE HOMESTATE PENNSLYVANIA GROWTH FUND
SYMBOL: HSPGX
FUND SUMMARY
The HomeState Pennsylvania Growth Fund (the "PA Growth Fund") seeks to provide
investors with long-term growth of capital by investing primarily in the stocks
of companies located in, or doing business in, Pennsylvania.
INVESTMENT OBJECTIVE
The PA Growth Fund's objective is long-term growth through capital appreciation.
The PA Growth Fund seeks to achieve this goal mainly by investing in a
diversified portfolio of companies that have their headquarters in the
Commonwealth of Pennsylvania, or companies that are based elsewhere but have
significant operations in the Commonwealth of Pennsylvania (i.e. at least 50% of
their revenues are derived from operating units located in Pennsylvania).
INVESTMENT TECHNIQUES
EQUITY SECURITIES
Under normal circumstances, the PA Growth Fund invests a minimum of 65% of its
total assets in common stocks, preferred stocks, and securities convertible into
common and preferred stocks. The PA Growth Fund strives to invest in companies
with strong balance sheets and dominant or leading positions in niche markets.
(See page 17 for ""Hands-On " Research Techniques.")
REGIONAL INVESTING
The PA Growth Fund focuses on companies whose headquarters are located in
Pennsylvania or companies that are based elsewhere but have significant
operations in Pennsylvania. The PA Growth Fund's Adviser, Emerald Advisers,
Inc., believes that Pennsylvania is positioned to provide publicly-traded
companies and their shareholders with significant opportunities for growth.
Located between two of the nation's most densely populated regions, the state's
industries are poised to take advantage of global markets. (See Appendix
"Summary of Information About the Pennsylvania Economy" on page A-1.)
SMALLER COMPANIES
-1-
<PAGE>
The PA Growth Fund can invest in companies from a wide range of industries and
of various sizes. This includes smaller companies. Smaller companies are those
defined by the PA Growth Fund's Adviser as having a market capitalization of
less than $1 billion. Smaller companies may offer more growth potential than
larger companies because smaller companies are generally not as widely followed
by institutional investment analysts as larger companies. The PA Growth Fund's
Adviser believes that this lack of available information about smaller companies
presents an opportunity for investment managers providing their own research
analysis.
PRIMARY RISK CONSIDERATIONS
MARKET RISK
The principal risk factor associated with an investment in the PA Growth Fund,
and every stock mutual fund, is that the market value of the portfolios'
securities may decrease and result in a decrease in the value of a shareholder's
investment. Historically, there have been times when stock prices have generally
risen and times when stock prices have generally declined. An investment in the
PA Growth Fund is not a deposit of any bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation (FDIC) or any other government agency.
-2-
<PAGE>
REGIONAL INVESTING RISK
Due to its geographic limitation, the PA Growth Fund's assets may be subject to
greater risk of loss from developments having an unfavorable impact upon
business located in Pennsylvania. These developments could be economic,
political, or other, such as natural disasters.
Because of its geographic limitation, the PA Growth Fund may be less diversified
than other funds with similar investment objectives but more geographic
representation. There can be no assurance that the economy of Pennsylvania or
the companies headquartered or operating in Pennsylvania will grow in the
future. (See Appendix "Summary of Information About the Pennsylvania Economy" on
page A-1.)
SMALL COMPANY RISK
Stocks of "small cap" companies tend to be more volatile and less liquid than
stocks of larger companies. "Small cap" companies, as compared to larger
companies:
(i) may have a shorter history of operations;
(ii) may not have as great an ability to raise additional capital;
(iii) may have a less diversified product line making them more
susceptible to market pressure;
(iv) may have a smaller public market for their shares; and
(v) may not be nationally recognized.
INVESTMENT SUITABILITY
All investments, including those in mutual funds, have risks, and no investment
is suitable for all investors. The PA Growth Fund is most suitable as part of a
diversified portfolio for long-term investors who are looking for the potential
for growth of their capital.
RISK AND RETURN BAR CHART AND TABLE
The following chart and table provide some indication of the risks of investing
in the PA Growth Fund by:
(i) showing changes in the PA Growth Fund's performance from year to
year; and
(ii) showing how the PA Growth Fund's average annual returns for 1 and 5
years and since its commencement of operations on October 1, 1992
compare with those of a broad measure of market performance.
-3-
<PAGE>
As you know, how the PA Growth Fund has performed in the past is not necessarily
an indication of how the PA Growth Fund will perform in the future.
[Bar Graph containing the following information:
PA Growth Fund Year-by-year total return as of 12/31/97 each year (%)
1993: 19.09%
1994: 1.90%
1995: 44.52%
1996: 21.45%
1997: 26.33% ]
The PA Growth Fund's best-performing calendar quarter was for the 3 months ended
September 30, 1997: +22.14%.
The PA Growth Fund's worst-performing quarter was for the 3 months ended March
31, 1997: -6.44%.
The PA Growth Fund's 1998 Year-to-date return of June 30, 1998 was +5.59%.
The above returns do not reflect the maximum 4.75% sale charge (load). If the
sales charge was reflected, returns would be less than those shown above.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997
---------------------------------------------------
Since Inception
---------------
1 Year 5 Year 10/1/92
------ ------ -------
<S> <C> <C> <C>
PA Growth Fund 26.33% 21.89% 22.66%
S&P 500 Index 33.36% 20.25% 20.29%
Russell 2000 Index 22.24% 15.29% 17.50%
</TABLE>
-4-
<PAGE>
TRANSACTION EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the PA Growth Fund.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%/1/
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None/2/
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses/3/ (expenses that are deducted from Fund assets)
Management Fee 0.75%
Distribution (12b-1) Fees/4/ 0.35%
Other Expenses 0.39%
Total Annual Fund Operating Expenses 1.49%
EXAMPLE
This Example is intended to help you compare the cost of investing in the PA
Growth Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the PA Growth Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the PA Growth Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 year 3 years 5 years 10 years
- ------ ------- ------- --------
$619 $924 $1,250 $2,170
/1/ The rules of the Securities and Exchange Commission (SEC) require that
the maximum sales charge be reflected in the above table. There are
several ways to reduce the sales charge. See "How to Buy Fund Shares"
for more information.
/2/ There is a $12 service fee for redemptions effected via wire transfer.
/3/ The table shows expenses based on the PA Growth Fund's management fees,
distribution service (12b-1) fees and other expenses on an annualized
basis for the period ended June 30, 1998.
/4/ Because of the 12b-1 fee, long-term shareholders may indirectly pay
more than the economic equivalent of the maximum permitted front-end
sales charge.
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the PA Growth
Fund's financial performance for the past five years. Certain information
reflects financial results for a single PA Growth Fund share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the PA Growth Fund (assuming the reinvestment of all dividends and
distributions). This information has been audited by Price Waterhouse LLP, whose
report, along with the PA Growth Fund's financial statements, are included in
the Statement of Additional Information (SAI) which is available upon request.
<TABLE>
<CAPTION>
Periods Ended***
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/30/98 6/30/97 6/30/96 6/30/95 6/30/94 6/30/93+
Net Asset Value, Beginning of Period $ $10.63 $ 7.84 $ 6.19 $ 5.49 $ 5.00
Income From Investment Operations
- ---------------------------------
Net investment income ( ) (0.03) (0.03) (0.01) (0.02) 0.02
Net realized and unrealized gain on investments 0.89 3.09 1.77 0.77 0.47
-------------------------------------------------
Total from investment operations 0.86 3.05 1.76 0.75 0.49
-------------------------------------------------
Less Distributions
- ------------------
Dividends from net investment income 0.00 0.00 (0.00) (0.01) 0.00
Distributions from net realized gains (0.71) (0.26) (0.11) (0.04) 0.00
-------------------------------------------------
Total distributions (0.71) (0.26) (0.11) (0.05) 0.00
-------------------------------------------------
Net asset value at end of period $10.78 $10.63 $ 7.84 $ 6.19 $ 5.49
===================================================
Total Return** 9.56% 39.94% 28.96% 13.75% 8.70%*
</TABLE>
+ From commencement of operations: October 1, 1992
* Not Annualized
**Total return does not reflect 4.75% maximum sales charge
***Data reflects 2 for 1 stock split which occurred on December 29, 1997.
-6-
<PAGE>
THE HOMESTATE SELECT BANKING AND FINANCE FUND
SYMBOL: HSSAX
FUND SUMMARY
The HomeState Select Banking and Finance Fund (the "Banking and Finance Fund")
works to provide investors with long-term growth of capital by investing
primarily in banking and financial services industries stocks. Generating income
is the Banking and Finance Fund's secondary goal.
INVESTMENT OBJECTIVE
The Banking and Finance Fund's objective is long-term growth through capital
appreciation. Income is a secondary objective.
To pursue its objective, the Banking and Finance Fund will invest at least 65%
of its total assets in banking and financial services companies. For investment
purposes, a company is defined as "principally engaged" in banking or financial
services industries if:
(i) at least 50% of either the revenues or earnings was derived from the
creation, purchase or sale of banking or financial services products, or
(ii) at least 50% of the assets was devoted to such activities, based on the
company's most recent fiscal year.
INVESTMENT TECHNIQUES
EQUITY SECURITIES
Under normal circumstances the Banking and Finance Fund invests a minimum of 65%
of its total assets in common stocks, preferred stocks, and securities
convertible into common and preferred stocks. The Banking and Finance Fund
strives to invest in companies with strong balance sheets and dominant or
leading positions in niche markets. (See page 17 for ""Hands-On " Research
Techniques ".)
SMALLER COMPANIES
The Banking and Finance Fund can invest in companies from a wide range of
industries and of various sizes. This includes smaller companies. Smaller
companies are those defined by the Banking and Finance Fund's Adviser, Emerald
Advisers, Inc., as having a market capitalization of less than $1 billion.
Smaller companies may offer more growth potential than larger companies because
smaller companies are generally not as widely followed by institutional
investment analysts as larger companies. The Banking
-7-
<PAGE>
and Finance Fund's Adviser believes that this lack of available information
about smaller companies presents an opportunity for investment managers
providing their own research analysis.
CONCENTRATION IN THE BANKING AND FINANCIAL SERVICES INDUSTRIES
The Banking and Finance Fund focuses on stocks and convertible securities issued
by companies principally engaged in the banking, finance, and financial services
industries. Companies in the banking industry include U.S. commercial and
industrial banking and savings institutions and their parent holding companies.
Companies in the financial services industry include commercial and industrial
finance companies, diversified financial services companies, investment banking,
securities brokerage and investment advisory companies, real estate investment
trusts, insurance and insurance holding companies, and leasing companies. The
Banking and Finance Fund normally emphasizes companies located in the Mid-
Atlantic states (Pennsylvania, New Jersey, New York, Delaware, Ohio, West
Virginia, Virginia, Maryland and Washington D.C.), but can invest in companies
headquartered anywhere in the U.S.
The Banking and Finance Fund's Adviser believes that this sector of the economy
will be an area of potential growth over the next several years because of:
(i) the recent wave of consolidations of commercial banks;
(ii) the recent acquisitions by companies in the banking and financial
services industries resulting from changes in traditional regulatory and
operating distinctions; and
(iii) an increase in interest in investments and savings as the American
"baby boomers" approach retirement.
(See Appendix "Summary of Factors About the Banking and Financial Services
Industries" on page B-1.)
PRIMARY RISK CONSIDERATIONS
MARKET RISK
The principal risk factor associated with an investment in the Banking and
Finance Fund, and every stock mutual fund, is that the market value of the
portfolios' securities may decrease and result in a decrease in the value of a
shareholder's investment. Historically, there have been times when stock prices
have generally risen and times when stock prices have generally declined. An
investment in the Banking and Finance Fund is not a deposit of any bank and is
not insured or guaranteed by the FDIC or any other government agency.
-8-
<PAGE>
SMALL COMPANY RISK
Stocks of "small cap" companies tend to be more volatile and less liquid than
stocks of larger companies. "Small cap" companies, as compared to larger
companies:
(i) may have a shorter history of operations;
(ii) may not have as great an ability to raise additional capital;
(iii) may have a less diversified product line making them more susceptible
to market pressure;
(iv) may have a smaller public market for their shares; and
(v) may not be nationally recognized.
INDUSTRY CONCENTRATION RISK
The Banking and Finance Fund concentrates 65% or more of its total assets in
securities of companies principally engaged in the banking or financial services
industries. As a result, the Banking and Finance Fund may be subject to greater
risks than a portfolio without such a concentration. This is especially true
with respect to the risks associated with regulatory developments in, or related
to, the banking and financial services industries.
INVESTMENT SUITABILITY
All investments, including those in mutual funds, have risks, and no investment
is suitable for all investors. The Banking and Finance Fund is most suitable as
part of a diversified portfolio for long-term investors who are looking for the
potential for growth of their capital.
RISK AND RETURN BAR CHART AND TABLE
Because the Banking and Finance Fund commenced operations on February 18, 1997,
the Banking and Finance Fund does not yet have annual returns for a full
calendar year. After December 31, 1998, a bar chart and table will show how the
Banking and Finance Fund has performed over the past calendar year, and in
relation to a broad measure of market performance. As you know, how the Banking
and Finance Fund performed in the past is not necessarily an indication of how
the Banking and Finance Fund will perform in the future.
-9-
<PAGE>
TRANSACTION EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Banking and Finance Fund.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%/1/
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None/2/
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses/3/ (expenses that are deducted from Fund assets)
Management Fee 1.00%
Distribution (12b-1) Fees/4/ 0.35%
Other Expenses 1.24%
Total Annual Fund Operating Expenses 2.59%/5/
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Banking and Finance Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Banking and Finance Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Banking and Finance Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$702 $1,174 $1,671 $3,034
/1/ The rules of the SEC require that the maximum sales charge be reflected in
the above table. There are several ways to reduce the sales charge. See
"How to Buy Fund Shares" for more information.
/2/ There is a $12 service fee for redemptions effected via wire transfer.
/3/ The table shows expenses based on the Banking and Finance Fund's management
fees, distribution service (12b-1) fees and other expenses on an annualized
basis for the period ended June 30, 1998.
/4/ Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the economic equivalent of the maximum permitted front-end sales
charge.
/5/ The Banking and Finance Fund's Adviser, has agreed to limit the Total
Annual Fund Operating Expenses to no more than 2.35% at least through June
30, 1999. The Adviser is reimbursing and/or waiving fees to the Banking and
Finance Fund so that you would pay no more than 2.35% on an annualized
basis at least through June 30, 1999.
-10-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Select
Banking and Finance Fund's financial performance since it commenced operations
on February 18, 1997. Certain information reflects financial results for a
single Banking and Finance Fund share. The total returns in the table represent
the rate that an investor would have earned on an investment in the Banking and
Finance Fund (assuming the reinvestment of all dividends and distributions).
This information has been audited by Price Waterhouse LLP, whose report, along
with the Banking and Finance Fund's financial statements, are included in the
SAI which is available upon request.
<TABLE>
<CAPTION>
Periods Ended
-----------------------------
<S> <C> <C>
6/30/98 6/30/97+
-------- ---------
Net Asset Value, Beginning of Period $ $ 10.00
Income From Investment Operations
- ---------------------------------
Net investment income ( ) (0.03)
Net realized and unrealized gain on investments 1.73
----- -------
Total from investment operations 1.70
----- -------
Less Distributions
- ------------------
Dividends from net investment income --
-----
Distributions from net realized gains --
-----
Total distributions --
-----
Net asset value at end of period $ 11.70
===== =======
Total Return** 17.00%*
</TABLE>
+ From commencement of operations: February 18, 1997
* Not Annualized
**Total return does not reflect 4.75% maximum sales charge
-11-
<PAGE>
THE HOMESTATE YEAR 2000 (Y2K) FUND
SYMBOL: HSYTX
FUND SUMMARY
The HomeState Year 2000 (Y2K) Fund (the "Y2K Fund") seeks to provide investors
with long-term growth of capital, by investing primarily in stocks of public
companies working toward marketable technological solutions to the Year 2000
Problem.
INVESTMENT OBJECTIVE
The investment objective of the Y2K Fund is to seek capital appreciation by
investing primarily in equity securities of public companies which have stated,
or been reported as possessing, an intention of developing or supporting
marketable solutions to problems stemming from the susceptibility of various
business and other computer application programs or systems to fail, or to
produce inappropriate results, regarding data, calculations or other processing
involving dates subsequent to December 31, 1999. The Y2K Fund can invest a
larger percentage of its assets in a particular company than the typical mutual
fund.
SPECIAL NOTE REGARDING THE Y2K FUND'S OBJECTIVE
The Y2K Fund's investment objective, for which there is no guarantee of
achievement, may not be changed without a vote of the holders of a majority of
the outstanding shares of the Y2K Fund. Before or during the last six months of
calendar year 2000, the Board of Directors of the Y2K Fund plan to consider:
(1) implementation of an offer of exchange whereby investors would be afforded
the opportunity to exchange shares of the Y2K Fund for shares of one or more
other registered investment companies, and/or
(2) solicitation of Y2K Fund shareholders for proxies regarding a vote upon one
or more of the following options, as the Board may then determine to be in the
best interests of all Y2K Fund shareholders, as a group:
(A) a change in the Y2K Fund's investment objective and/or fundamental
investment policies;
(B) a merger into or consolidation with another registered investment
company; or
(C) dissolution and liquidation of the Y2K Fund's assets.
Under current laws and regulations, proceeding pursuant to the exchange offer or
dissolution options (see (1) and (2.c) above) would result in taxable events,
for federal income tax purposes, to Y2K Fund investors. Changing the Y2K Fund's
investment objective and policies (see (2.a) above) would have no specific
federal income tax consequences at the Y2K Fund or investor level, while a
merger or consolidation transaction with another investment company (see (2.b)
above) might or might not constitute a federal income taxable event for the Y2K
Fund and Y2K Fund investors, depending upon how the transaction was structured
and pursued.
INVESTMENT TECHNIQUES
EQUITY SECURITIES
Under normal conditions, the Y2K Fund will invest at a minimum 65% of its total
assets in a non-diversified portfolio of equity securities of public companies
identified by the Y2K Fund's Adviser, Emerald Advisers, Inc., as being involved
in the "Year 2000 Industry." These are companies that are actively engaged in
developing, or supporting the development or implementation of, marketable
solutions to the "Year 2000 Problem." The Y2K Fund will invest principally in
common stocks, but may also invest in preferred stocks and convertible
securities of Y2K, as well as other, companies. (See page 17 for ""Hands-On"
Research Techniques.")
THE YEAR 2000 PROBLEM
The "Year 2000 Problem" stems mainly from computer system design decisions made
more than a decade ago. At that time, the requirement to save cost by storing
the year of date fields as two digits instead of four far outweighed the
consideration for what would happen in the year 2000. In these designs, the year
2000 ("00") will appear to be 1900 ("00"), 2001 will appear to be 1901, etc.
Some of the manifestations of the Year 2000 Problem may include: credit cards
with an expiration date of 01/00 will appear to have expired and will be
rejected; mortgages, interest payments, and forecasting systems where time
periods are calculated will all produce incorrect results. Left uncorrected, all
date-sensitive calculations involving the
-12-
<PAGE>
years 2000 or later can result in massive computer malfunctions. (See Appendix
"Additional Information About the Regarding the Year 2000 Problem" on page C-1.)
OPTIONS, FUTURES, AND SHORT-SELLING STRATEGIES
The Y2K Fund may invest a portion of its assets in options, futures and foreign
currencies. It may also sell short. These practices are used primarily to hedge
the Y2K Fund's portfolio but may be used to increase returns; however such
practices sometimes may reduce returns or increase volatility.
SMALLER COMPANIES
The Y2K Fund can invest in companies from a wide range of industries and of
various sizes. This includes smaller companies. Smaller companies are those
defined by the Y2K Fund's Adviser as having a market capitalization of less than
$1 billion. Smaller companies may offer more growth potential than larger
companies because smaller companies are generally not as widely followed by
institutional investment analysts as larger companies. The Y2K Fund's Adviser
believes that this lack of available information about smaller companies
presents an opportunity for investment managers providing their own research
analysis.
-13-
<PAGE>
PRIMARY RISK CONSIDERATIONS
MARKET RISK
The principal risk factor associated with an investment in the Y2K Fund, and
every stock mutual fund, is that the market value of the portfolios' securities
may decrease and result in a decrease in the value of a shareholder's
investment. Historically, there have been times when stock prices have generally
risen and times when stock prices have generally declined. An investment in the
Y2K Fund is not a deposit of any bank and is not insured or guaranteed by the
FDIC or any other government agency.
INDUSTRY CONCENTRATION RISK
Under normal market conditions, the Y2K Fund will concentrate its investments in
Year 2000 technology companies. By doing so, the Y2K Fund will be exposed to the
risk of incurring substantial losses, as well as the opportunity of earning
substantial gains, depending upon the markets' overall reception of these
companies. Factors other than a company's Y2K problem-solving activities will
impact value. Companies in the same industry are often faced with the same
obstacles, issues or regulatory burdens, and their securities may react
similarly to these or other market conditions. Equity securities of companies
within the technology industry may have increased price volatility due to the
heightened competition and rapid pace of change that is commonly experienced
within that industry sector. As a result, a portfolio of technology company
stocks is likely to be more volatile in price than one that includes investments
in companies operating in a wider number of industry sectors.
SMALL COMPANY RISK
Stocks of "small cap" companies tend to be more volatile and less liquid than
stocks of larger companies. "Small cap" companies, as compared to larger
companies:
(i) may have a shorter history of operations;
(ii) may not have as great an ability to raise additional capital;
(iii) may have a less diversified product line making them more susceptible
to market pressure;
(iv) may have a smaller public market for their shares; and
(v) may not be nationally recognized.
NON-DIVERSIFICATION
As a "non-diversified" fund, the Y2K Fund has the ability to invest a larger
percentage of its assets in the stock of a smaller number of companies than a
"diversified" fund. Because the appreciation or depreciation of a single
portfolio security may have a greater impact on the net asset value of the Y2K
Fund, the net
-14-
<PAGE>
asset value per share of the Y2K Fund can be expected to fluctuate more than
that of a comparable "diversified" fund. (See the SAI for additional
information.)
OPTIONS, FUTURES, AND SHORT-SELLING STRATEGIES RISKS
The Y2K Fund may invest a portion of its assets in options, futures and foreign
currencies. It may also sell short. These practices are used primarily to hedge
the Y2K Fund's portfolio but may be used to increase returns; however such
practices sometimes may reduce returns or increase volatility. (See the SAI for
additional information.)
INVESTMENT SUITABILITY
The Y2K Fund is an aggressive fund and may not be suitable for all investors.
The Y2K Fund is most suitable as part of a diversified portfolio for long-term
investors who are looking for the potential growth of their capital.
RISK AND RETURN BAR CHART AND TABLE
Because the Y2K Fund commenced operations on October 31, 1997, the Y2K Fund does
not yet have annual returns for a full calendar year. After December 31, 1998,
a bar chart and table will show how the Y2K Fund has performed over the past
calendar year, and in relation to a broad measure of market performance. As you
know, how the Y2K Fund performed in the past is not necessarily an indication of
how the Y2K Fund will perform in the future.
-15-
<PAGE>
TRANSACTION EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Y2K Fund.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 2.90%/1/
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None/2/
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses/3/ (expenses that are deducted from Fund assets)
Management Fee 1.00%
Distribution (12b-1) Fees/4/ 0.70%
Other Expenses 3.59%
Total Annual Fund Operating Expenses 5.29%/5/
EXAMPLE
This Example is intended to help you compare the cost of investing in the Y2K
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Y2K Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Y2K Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$575 $1,162 $1,774 $3,420
/1/ The rules of the SEC require that the maximum sales charge be reflected in
the above table. There are several ways to reduce the sales charge. See
"How to Buy Fund Shares" for more information.
/2/ There is a $12 service fee for redemptions effected via wire transfer.
/3/ The table shows expenses based on the Y2K Fund's management fees,
distribution service (12b-1) fees and other expenses on an annualized basis
for the period ended June 30, 1998.
/4/ Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the economic equivalent of the maximum permitted front-end sales
charge.
/5/ The Adviser has agreed to limit the Total Annual Fund Operating Expenses
to no more than 2.90% at least through June 30, 1999. The Adviser is
reimbursing and/or waiving fees to the Y2K Fund so that you would pay no
more than 2.90% on an annualized basis at least through June 30, 1999.
-16-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Y2K Fund's
financial performance since it commenced operations on October 31, 1997. Certain
information reflects financial results for a single Y2K Fund share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Y2K Fund (assuming the reinvestment of all dividends and
distributions). This information has been audited by Price Waterhouse LLP, whose
report, along with the Y2K Fund's financial statements, are included in the SAI
which is available upon request.
Period Ended
------------
6/30/98+
-------
Net Asset Value, Beginning of Period $10.00
Income From Investment Operations
- ---------------------------------
Net investment income
Net realized and unrealized gain on investments
Total from investment operations
Less Distributions
- ------------------
Dividends from net investment income
Distributions from net realized gains
Total distributions
Net asset value at end of period
Total Return**
+ From commencement of operations: October 31, 1997
* Not Annualized
**Total return does not reflect 4.75% maximum sales charge
-17-
<PAGE>
SECTION 2: ADDITIONAL INVESTMENT INFORMATION
"HANDS-ON" RESEARCH TECHNIQUES
"Hands-On" research is the driving force behind the Funds' stock selection
process. Stocks are chosen based primarily on fundamental analysis and, although
technical factors are not ignored, the main investment criteria focuses on an
evaluation of revenues, earnings, debt, capitalization, quality of management,
level of insider ownership, changing market conditions, past performance, and
future expectations. The Funds tend to choose companies with well-defined
business plans and long-term operating strategies designed to increase
shareholder value. When evaluating a company for possible inclusion in one of
the Funds' portfolios, a member of the Adviser's portfolio management or
research staff requests an in-person visit to the company whenever such a visit
is judged appropriate. Meeting with the company's management and surveying its
operations can provide important insights into a company.
The Adviser also tries to interview a cross section of the company's employees,
customers, suppliers, and competitors. The Adviser believes that this "hands-on"
approach to investing may give it an opportunity to spot developing trends in
these companies. The Adviser estimates that approximately 80 percent of the PA
Growth Fund's equity holdings have historically been a result of this intensive,
in-house research effort and that this percentage is similar in the Banking and
Finance Fund and the Y2K Fund.
Primary research is particularly important in the analysis of smaller companies.
Smaller companies are generally not as widely followed by institutional
investment analysts as larger companies such as those listed on the New York
Stock Exchange. According to surveys by brokerage firms, more than 60 percent of
all companies listed on the NASDAQ Stock Exchange and American Stock Exchange
have two or fewer analysts following the company. The Funds' Adviser believes
that this lack of generally available information about smaller companies
presents an opportunity for investment managers who are dedicated to providing
their own research analysis. "Hands-On" research analysis may help the Adviser
spot developing trends early, so the Adviser can work to take advantage of them
before they are seen by the larger investment community.
FIXED-INCOME/DEBT SECURITIES
Each Fund may also invest up to 35 percent of the value of its total assets in
preferred stocks, investment-grade corporate bonds and notes, and high-quality
short-term debt securities such as commercial paper, bankers' acceptances,
certificates of deposit, repurchase agreements, obligations insured or
guaranteed by the United States Government or its agencies, and demand and time
deposits of domestic banks and United States branches and subsidiaries of
foreign banks.
-18-
<PAGE>
The prices of debt securities in which the Funds invest are likely to decrease
in times of rising interest rates. Conversely, when rates fall, the value of the
Funds' debt securities may rise. Price changes of these debt securities held by
the Funds have a direct impact on the net asset value per share of the Funds.
(See SAI for additional information.)
MORTGAGE-RELATED SECURITIES
The Funds do not invest directly in real estate or real estate mortgage loans,
except those instruments issued or guaranteed by the United States Government.
The mortgage-related instruments in which the Funds may invest include those
issued by Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA"), and Federal Home Loan Mortgage Corporation
("FHLMC"). The underlying mortgages which collateralize mortgage-related
instruments issued by GNMA are fully guaranteed by the Federal Housing
Administration or Veteran's Administration, while those collateralizing
mortgage-related instruments issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
(See SAI for additional information.)
SHORT-TERM OBLIGATIONS
When, in the opinion of the Funds' Adviser, market conditions warrant a
temporary defensive approach, the Funds may invest more than 35 percent of their
total assets in short-term obligations. Short-term obligations include the
following: securities issued or guaranteed by the U.S. government, commercial
paper, and bankers acceptances. During intervals when the Funds adopt a
temporary defensive position they will not be achieving their stated investment
objective.
-19-
<PAGE>
SECTION 3: SHAREHOLDER SERVICE INFORMATION
HOW TO BUY FUND SHARES
You may buy shares of the Funds through selected financial service firms (such
as broker-dealer firms) that have signed a selling agreement with Rafferty
Capital Markets, Inc. (the "Distributor"), the Funds' principal distributor. If
you would like help finding a dealer, you should contact the Funds by calling
(800) 232-0224. Shares can be purchased by mail or by wire, as described in this
Prospectus.
The minimum initial investment is $500.
The minimum subsequent investment is $50.
PURCHASE PRICE/SHARE VALUATION
Purchase orders for shares of the Funds placed with a registered broker-dealer
must be received by the broker-dealer before the close of the New York Stock
Exchange (NYSE) to receive the Funds' valuation calculated that day. The broker-
dealer is responsible for the timely transmission of orders to the Distributor.
Orders placed with the registered broker-dealer after the close of the NYSE will
be executed based on the Funds' valuation calculated on the next business day.
The net asset value and offering price of the shares of the Funds are determined
once on each Business Day as of the close of the NYSE, which on a normal
Business Day is usually 4:00 p.m. Eastern Time. A "Business Day" is defined as a
day in which the NYSE is open for trading.
Each Fund's value is determined by adding the value of the portfolio securities
and other assets, subtracting its liabilities, and dividing the result by the
number of its shares outstanding. Net asset value includes interest on fixed-
income securities, which is accrued daily. Securities of the Funds listed or
traded on a securities exchange will be valued at the last quoted sales price on
the security's principal exchange. Listed securities not traded on an exchange
that day, and other securities which are not traded in the over-the-counter
market on any given day, will be valued at the mean between the last bid and ask
price on the market on that day. Debt securities that mature in sixty days or
less are valued at amortized cost, which approximates market value. Fair market
value for other securities without available market quotations will be valued by
the Board of Trustees.
(See the SAI for additional information.)
-20-
<PAGE>
The net asset value of the Funds fluctuates with market conditions as the value
of the investment portfolio changes. With approval of the Board of Trustees, the
Funds may use a pricing service, bank or broker-dealer experienced in such
matters to value the Funds' securities.
RIGHT TO REFUSE AN ORDER
The Funds may refuse any order for the purchase of shares which the Board of
Trustees deems as not in the best interests of the Funds.
STOCK CERTIFICATES
Stock certificates representing shares of the Funds are not issued except upon
written request. In order to facilitate redemptions and transfers, most
shareholders elect not to receive certificates. If you lose your certificate,
you may incur an expense to replace it.
SALES CHARGES
The maximum sales load on the purchase of shares is 4.75% for the PA Growth Fund
and the Banking and Finance Fund. The Offering Price is calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DEALER'S CONCESSION
-------------------------------- -------------------
DOLLAR AMOUNT INVESTED OFFERING PRICE N.A.V. (AS A % OF
- ---------------------- -------------- ------ ---------
OFFERING PRICE)
-------- -----
<S> <C> <C> <C>
Less Than $50,000 4.75% 4.99% 4.25%
$50,000 to $250,000 3.75 3.90 3.25
$250,000 to $500,000 2.75 2.83 2.50
$500,000 to $1,000,000 2.25 2.30 2.00
$1,000,000 & Above 0.00 0.00 0.50
</TABLE>
The maximum sales load on the purchase of shares of the Y2K Fund is 2.90%. The
Offering Price is calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DEALER'S CONCESSION
-------------------------------- -------------------
DOLLAR AMOUNT INVESTED OFFERING PRICE N.A.V. (AS A % OF
- ---------------------- -------------- ------ ----------
OFFERING PRICE)
-------- -----
<S> <C> <C> <C>
Less Than $100,000 2.90% 2.99% 2.40%
$100,000 to $250,000 1.90% 1.94% 1.40%
$250,000 to $500,000 1.00% 1.01% .90%
</TABLE>
-21-
<PAGE>
<TABLE>
<S> <C> <C> <C>
$500,000 & Above 0.00% 0.00% 0.50%
</TABLE>
-22-
<PAGE>
REDUCED SALES CHARGE
There are several ways for you the shareholder to reach a higher discount level
and qualify to pay a lower sales charge. Shareholders may qualify by combining
current or past investments in any of the Funds.
1. REACH "BREAK POINTS" -- Increase the initial investment amount.
2. RIGHT OF ACCUMULATION -- Add to an existing shareholder account.
3. SIGN A LETTER OF INTENT -- Inform the Funds that you wish to sign a
non-binding Letter of Intent to purchase an additional number of shares over a
13-month period.
4. COMBINED PURCHASE PRIVILEGE -- Combine investor accounts into one
"purchase" or "holding."
(See the SAI for additional information.)
PURCHASES AT NET ASSET VALUE
The Board of Trustees has determined that under certain conditions shareholders
shall be permitted to purchase shares of the Funds without paying a sales
charge. On purchases of $1,000,000 or more, shares are acquired at net asset
value with no sales charge or dealer concession charged to the investor. The
Distributor, however, may pay the broker-dealer up to 0.50% of the Offering
Price, from its own assets.
(See the SAI for additional information.)
BUYING SHARES BY MAIL
Please complete and sign the Purchase Application form included with this
Prospectus and send it, together with your check or money order, made payable to
The HomeState Group.
Mail to:
The HomeState Group
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
Please note that a different procedure is used for opening Individual Retirement
Accounts (IRAs). Please call Firstar Trust Company at (800) 232-0224 for
details.
-23-
<PAGE>
BUYING SHARES BY OVERNIGHT OR EXPRESS MAIL
Mail to:
Firstar Trust Company
Mutual Fund Services
3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202
800 232-0224
BUYING SHARES BY WIRE
Call Firstar Trust Company at (800) 232-0224 to advise of the investment and
dollar amount. Immediately after your investment is made send a completed
Purchase Application Form to Firstar Trust Company. Your purchase request should
be wired through the Federal Reserve Bank as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA Number 075000022
For credit to Firstar Trust M.F.S.
Account Number 112-952-137
For further credit to (Fund Name, Shareholder Account Number, Shareholder Name)
Include taxpayer identification number for new accounts.
ADDITIONAL PURCHASES
You may add to your account at any time by purchasing shares by mail (minimum
$50) or by wire (minimum $1,000). You must call to notify Firstar Trust Company
at 800 232-0224 before sending your wire. A remittance form which is attached to
your individual account statement should accompany any investments made through
the mail. All purchase requests must include your shareholder account number.
BUYING SHARES BY TELEPHONE
After your initial purchase, you may make additional purchases by telephone.
Simply call (800) 232-0224 and money can be transferred directly from your bank
account (domestic financial institutions only) through the Automated Clearing
House (ACH) to purchase Fund shares. The minimum amount you may transfer is
$100. To receive the daily net offering price both your purchase order and
Electronic Funds Transfer must be received before the close of regular trading
on the purchase day.
-24-
<PAGE>
AUTOINVEST PLAN
To invest a set amount on a regular monthly, bi-monthly, semi-annual, or annual
basis, you can sign up for the AutoInvest Plan. With a minimum investment of $50
per month, you can have money regularly transferred directly from your bank
account (domestic financial institutions that are ACH members only) through the
ACH to purchase fund shares. You choose the schedule. You may sign up for this
service on your Purchase Application Form. The minimum initial investment in the
Funds is $50 when using the AutoInvest Plan. Please note that the Funds may
change or terminate this service at any time.
RETIREMENT PLANS
Tax-deferred retirement plans provide qualified investors with the benefit of
tax-free compounding of income dividends and capital gains distributions. For
more information, applications, and brochures please contact us at (800) 232-
0024. HomeState Group Funds may be used in tax-deferred retirement plans such
as:
(i) Individual Retirement Accounts (IRAs), including the "Traditional"
IRA, Roth IRA, and Education IRA,
(ii) employer-sponsored defined contribution plans (including 401(k)
plans), and
(iii) tax-sheltered custodial accounts as described in Section 403(b)(7)
of the Internal Revenue Code.
(See the SAI for additional information.)
HOW TO REDEEM FUND SHARES
REDEEMING SHARES BY MAIL
You may mail your redemption request to:
The HomeState Group
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
It is important to mail your redemption request to the correct address and in
"Good Order." If it is sent in error to the Fund, it will be forwarded to
Firstar Trust Company, but the effective date of the redemption will be delayed.
Redemption instructions with special conditions, or which specify an effective
date, can not be honored.
-25-
<PAGE>
"Good Order" means that your request includes:
(i) the name of the Fund;
(ii) the number of shares or dollar amount to be redeemed;
(iii) signature of all registered shareholders as registered; and
(iv) account registration number.
In addition:
(i) If the account is registered to a corporation or association, the
redemption request and a corporate resolution must be signed by whomever is
authorized and required to sign for the account, with a signature guarantee.
(ii) If the account is registered to a Trust, the redemption request
must be signed by the Trustee(s) with a signature guarantee. If the Trustee's
name is not registered on the account, a copy of the trust document certified
within the last 60 days is also required.
REDEMPTION ORDER AMOUNTS ABOVE $10,000/MAILING TO A DIFFERENT ADDRESS
A redemption request for amounts above $10,000, or redemption requests for which
payment is to be mailed somewhere other than the address of record, must be
accompanied by signature guarantees.
(See the SAI for additional information.)
IRA REDEMPTIONS
If you are an IRA shareholder, you must indicate on your redemption request
whether or not to withhold federal income tax. Requests that do not indicate a
preference will be subject to withholding.
REDEMPTION VALUATION
The redemption price is the next determined net asset value after Firstar Trust
Company receives a redemption request in "Good Order." The net asset value may
be more or less than the initial cost of the shares redeemed.
PAYMENT FOR SHARES
Payment for the redeemed shares will be mailed to you, typically within one or
two days, but no later than seven days, or earlier if required by law. If the
shares were purchased by check, payment for redeemed shares will be delayed
until the purchase check has cleared, which may take up to 12 days. Your payment
can be made to you by mail, wire, or ACH transfer. There are no fees for ACH
transfers, however there is a $100 minimum.
-26-
<PAGE>
WIRE REDEMPTION
Wire transfers may be arranged to redeem shares, however a $12 fee per wire
transfer will be assessed against your account if you decide to redeem shares
through wire transfer. The minimum wire redemption is $100 and the maximum is
$10,000.
REDEEMING SHARES BY TELEPHONE
You may arrange for telephone redemption privileges on the Purchase Application
form, or by writing or calling the transfer agent at (800) 232-0224. However,
any redemption of more than $10,000 must be requested in writing. A written
request and signature guarantee is required of all shareholders to change
telephone redemption privileges. Neither the Funds nor any or its service
contractors will be liable for any loss or expense in acting upon any telephone
instructions that are reasonably believed to be genuine.
(See the SAI for additional information.)
SYSTEMATIC WITHDRAWAL PLAN
If the value of your shares is $10,000 or more you may arrange to systematically
withdraw money from your Fund account on a scheduled basis and have it
automatically deposited into your bank account. Please note that if you plan to
purchase additional Fund shares, it may not be to your advantage to choose this
option due to the tax implications of buying and selling shares at the same
time. To sign up for the Systematic Withdrawal Plan, check the appropriate box
on your Purchase Application Form or call (800) 232-0224.
FUNDS' RIGHT TO REDEEM AN ACCOUNT
The Funds reserve the right to redeem the shares of any shareholder whose
account has a value of less than $500, other than as a result of a decline in
the value per share of the Funds or if the shareholder is an active participant
in the AutoInvest Plan. The Funds will provide a 30-day written notice to a
shareholder prior to redeeming the account.
HOW TO EXCHANGE FUND SHARES
Fund shares may be exchanged between the PA Growth Fund and the Banking and
Finance Fund at the current net asset value by calling the Funds' transfer
agent, Firstar Trust Company, by 4:00 p.m. Eastern Time on a Normal Business Day
(a day in which the New York Stock Exchange is open for business). Note that any
exchange of shares involves the redemption of shares from one Fund and the
purchase of shares of another Fund. This may cause the realization of gains or
losses for income tax purposes.
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<PAGE>
FIRSTAR FUNDS
In addition, you may exchange shares of the PA Growth Fund and the Banking and
Finance Fund for Firstar Money Market Fund and Firstar U.S. Government Money
Market Fund (the Firstar Funds) which are managed by Firstar Investment Research
and Management Company, LLC, and distributed by B.C. Ziegler and Company. Shares
of the Firstar Funds acquired through direct purchase, or shares gained from
dividends earned on these shares, may be exchanged for shares of any HomeState
Group Fund at the net asset value plus the normal fund sales charge. The minimum
initial investment is $1,000. You may establish an account in the Firstar Funds
by telephone exchange or written request. This exchange privilege may be changed
by the Firstar Funds and the transfer agent with 60 days notice to shareholders.
EXCHANGE RESTRICTION
You may not exchange shares between the Y2K Fund and the other HomeState Group
---
Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains, if any, realized by the Funds will be declared and
paid semi-annually, in the months of July and December.
Keep in mind the following dates and note that any dates that fall on the
weekend or a recognized holiday will be the next business day:
(i) Record Date and Declaration Date for payments to shareholders will
normally be the 15th of the month;
(ii) Ex-Dividend dates will normally be the 16th of the month; and
(iii) Reinvest Date and Payable Date dates will normally be the 20th of the
month.
The net asset value price of the Funds will be reduced by the corresponding
amount of the per-share payment declared on the Ex-Dividend Date. Since dividend
income is not a primary objective of the Funds, the Funds do not anticipate
paying substantial income dividends to shareholders.
A shareholder will automatically receive all dividends and capital gains
distributions in additional full and fractional shares of the Funds at net asset
value as of the date of payment, unless the shareholder chooses to receive these
distributions in cash. To change the distribution option chosen, the shareholder
should write to the Funds' transfer agent, Firstar Trust Company, P.O. Box 701,
Milwaukee, WI 53201-0701. The request will become effective with respect to
distributions having record dates after its receipt by the transfer agent.
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<PAGE>
If a shareholder elects to receive distributions in cash, and the check is
returned by the United States Postal Service, the Funds reserve the right to
invest the amount of the returned check in additional shares of the Funds at the
then existing net asset value and to convert the shareholder's election to
automatic reinvestment of all distributions.
TAXES
Reinvested dividends and capital gains distributions will receive the same tax
treatment as dividends and distributions paid in cash. Because the Funds are
each a series of a Pennsylvania common law trust, shares of the Funds are exempt
from Pennsylvania personal property taxes.
The Taxpayer Relief Act of 1997 created a new category of long-term capital
gains for individuals that are now taxed at new lower rates. For investors who
are in the 28% or higher federal income tax brackets, these gains are taxed at a
maximum of 20%. For investors who are in the 15% federal income tax bracket,
these gains are taxed at a maximum of 10%. Capital gain distributions will
qualify for these maximum tax rates, depending on when the Funds' securities
were sold and how long they were held by the Fund before they were sold.
Distributions out of the "net capital gain" (the excess of net long-term capital
gain over net short-term capital loss), if any, of the Funds will be taxed to
shareholders as long-term capital gain in the year in which it was received.
This is regardless of the length of time a shareholder has owned the shares and
whether or not such gain was reflected in the price paid for the shares. All
other distributions, to the extent they are taxable, are taxed to shareholders
as ordinary income.
Redemptions and exchanges from the Funds are each taxable events. A statement
- -----------------------------------------------------------------
detailing the federal income tax status of all distributions made during a
taxable year will be sent to shareholders of record no later than January 31 of
the following year.
Shareholders must furnish to the Funds a certified taxpayer identification
number ("TIN"). The Funds are required to withhold 31% from reportable payments
including ordinary income dividends, capital gains distributions, and
redemptions occurring in accounts where the shareholder has failed to furnish a
certified TIN and has not certified that a withholding does not apply. Any
shareholders who are non-resident alien individuals, or foreign corporations,
partnerships, trusts or estates, may be subject to different federal income tax
treatment.
-29-
<PAGE>
The tax information presented here is based on federal and state tax laws and
regulations effective as of the date of this Prospectus, and are subject to
change. Because the information presented here is only a very brief summary of
some of the important tax considerations for shareholders, shareholders are
urged to consult their tax advisers for more specific professional advice,
especially as it relates to local and state tax regulations. (See the SAI for
additional information.)
SECTION 4: GENERAL INFORMATION
FUND PORTFOLIO MANAGEMENT
Kenneth G. Mertz II, CFA, President of Emerald Advisers, Inc., and Vice
President and Chief Investment Officer of the Funds, is primarily responsible
for the day-to-day management of the Funds' portfolios. Mr. Mertz has managed
the PA Growth Fund since it began operating on October 1, 1992. He has also
managed the Banking and Finance Fund and the Y2K Fund since their inception
dates. Before managing the HomeState Group Funds, Mr. Mertz was the Chief
Investment Officer to the $12 billion Pennsylvania State Employees' Retirement
System.
INVESTMENT ADVISER
Emerald Advisers, Inc. serves as investment adviser to the Funds. The Adviser
was organized as a Pennsylvania corporation on November 14, 1991, and is
registered with the SEC under the Investment Advisers Act of 1940 and with the
Pennsylvania Securities Commission under the Pennsylvania Securities Act of
1972.
Total assets managed by the Adviser exceeded $400 million at June 30, 1998. The
three principal officers of the Adviser combine over 40 years of experience in
the mutual fund, investment advisory, pension funds management, and securities
brokerage industries.
Under the investment advisory agreements (the "Advisory Agreements"), the
Adviser furnishes each Fund with investment advisory and administrative services
which are necessary to conduct the Fund's business. Specifically, the Adviser
manages the Funds' investment operations and furnishes advice with respect to
the purchase and sale of securities on a daily basis. The PA Growth Fund
agreement is dated September 1, 1992, the Banking and Finance Fund agreement is
dated February 1, 1997, and the Y2K Fund agreement is dated September 12, 1997.
Under the terms of the Advisory Agreements, the Funds pay the Adviser an annual
fee based on a percentage of the net assets under management. The fees are
computed daily and paid monthly as follows:
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<PAGE>
PA GROWTH FUND: for assets up to and including $250 million: 0.75%; for assets
in excess of $250 million and up to and including $500 million: 0.65%; for
assets in excess of $500 million and up to and including $750 million: 0.55%;
for assets in excess of $750 million: 0.45%. The PA Growth Fund paid the Adviser
$528,528, $246,310 and $106,017 in advisory fees for the fiscal years ended June
30 1997, 1996 and 1995, respectively.
BANKING AND FINANCE FUND: for assets up to and including $100 million: 1.0%; for
assets in excess of $100 million: 0.90%. The Banking and Finance Fund paid the
Adviser $11,200 in advisory fees for the fiscal year ended June 30, 1997. The
Adviser waived this entire amount and also reimbursed the Banking and Finance
Fund an additional $47,862 in fees and expenses.
Y2K FUND: for assets up to and including $100 million: 1.0%; for assets in
excess of $100 million: 0.90%.
These fees are higher than most other registered investment companies but
comparable to fees paid by equity funds of a similar investment objective and
size.
The Funds pay all of its expenses other than those expressly assumed by the
Adviser. Specifically, the Funds pay the fees and expenses of their transfer
agent, custodian, independent auditors, and legal counsel. These fees are
generally for the costs of necessary professional services, regulatory
compliance, and those pertaining to maintaining the Funds' organizational
standing. The fees may include, but are not limited to: brokerage commissions,
taxes and organizational fees, bonding and insurance, custody, auditing and
accounting services, shareholder communications and shareholder servicing, and
the cost of financial reports and prospectuses sent to shareholders.
The Adviser will reimburse its fee to the Funds to the extent that the fee
exceeds the most restrictive expense limitation in effect by a state regulatory
agency where the Funds' shares are registered for purchase. The Adviser reserves
the right to voluntarily waive any portion of its advisory fee at any time. The
Adviser has agreed to waive its advisory fee and/or reimburse other expenses for
the Banking and Finance Fund for the period at least through and including June
30, 1999 so that total Fund operating expenses are capped at 2.35% or less. The
Adviser has agreed to waive its advisory fee and/or reimburse other expenses for
the Y2K Fund for the period at least through and including June 30, 1999 so that
total Fund operating expenses are capped at 2.90% or less.
-31-
<PAGE>
The Adviser has agreed that a percentage of its net advisory fee income earned
from the PA Growth Fund (less any fee waivers and expense reimbursements made by
the Adviser to the Fund) will be contributed annually by the Adviser on behalf
of the Fund to provide scholarship funding that will specifically benefit
Pennsylvania residents who have graduated from a Pennsylvania high school and
are attending an accredited Pennsylvania college, university or trade school.
The current year's contribution is 1/2 of 1% of the PA Growth Fund's net
advisory fee income.
ADMINISTRATOR, ACCOUNTING, TRANSFER AGENT, AND CUSTODIAN
The Fund has entered into an administration agreement (the Administration
Agreement) with Firstar Trust Company (the Administrator) 615 E. Michigan
Street, Milwaukee, WI 53202. Under the Administration Agreement, the
Administrator:
(i) maintains the books, accounts, and other documents required under the 1940
Act;
(ii) responds to shareholder inquiries, prepares the Funds' financial
statements and tax returns;
(iii) prepares certain reports and filings with the SEC and with state
securities authorities; and
(iv) furnishes statistical and research data, clerical accounting and
bookkeeping services and stationery and office supplies.
Firstar maintains the Funds' financial and accounting records and generally
assists in all aspects of the Funds' operations.
The Administrator, at its own expense and without reimbursement from the Funds,
furnishes office space and all necessary office facilities, equipment and
executive personnel for performing the services required to be performed by it
under the Administration Agreement. The Administrator receives from the Fund a
fee, paid monthly, at an annual rate of .06% of the first $200 million of each
Fund's average net assets, .05% of the next $500 million of each Fund's average
net assets, and .03% of each Fund's average net assets in excess of $700
million. The Administrator's minimum annual fee is $30,000. Firstar Trust
Company also provides custodial, transfer agency, and accounting services for
the Funds.
(See the SAI for additional information.)
DISTRIBUTOR
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<PAGE>
Rafferty Capital Markets, Inc. (the Distributor), 550 Mamaroneck Avenue,
Harrison, NY 10528, is the sole distributor of shares of the Funds. The
Distributor is a New York corporation, a broker-dealer registered with the SEC,
and a member of the National Association of Securities Dealers. Officers and
employees of the Adviser may also serve as registered representatives of the
Distributor to sell shares of the Funds.
DISTRIBUTION PLANS
The Distributor will incur certain expenses while providing selling and sales
distribution services for the Funds, including such costs as compensation to
broker-dealers for (i) selling shares of the Funds, and (ii) providing
information and advice to their shareholder clients regarding ongoing investment
in the Funds, as well as advertising, promotional and printing expenses.
To promote shares of the Funds to the general public, each Fund has adopted a
distribution services plan (the "Plans") under Rule 12b-1 of the Investment
Company Act of 1940 (the "Act"). The Plans allow the Funds to reimburse the
Distributor for costs specifically described in this section. The Distributor
receives no other compensation from the Funds, except that (i) any sales charge
collected will be paid to the Distributor, and (ii) the minimum total dollar
amount paid to the Distributor on an annual basis (net of the amount paid to
broker-dealers and/or service organizations) will be $21,000. The Distributor
may pay these sales charges to broker-dealers who have entered into a Selling
Agreement with the Distributor as a commission paid for selling the Funds'
shares. (See page 20 for "Sales Charges.")
The Funds pay the Distributor on a monthly basis at an annual rate not to exceed
0.35% of the series' average net assets for the PA Growth Fund and Banking and
Finance Fund, and 0.70% for the Y2K Fund. Expenses acceptable for reimbursement
under the Plan include compensation of broker-dealers or other persons for
providing assistance in distribution and for promotion of the sale of the shares
of the Funds. The Funds' Adviser is responsible for paying the Distributor for
any unreimbursed distribution expenses.
According to the Plans, a broker-dealer may receive a maintenance commission in
the amount of 0.25% (annualized) of the average net assets maintained by their
clients in the PA Growth Fund and Banking and Finance Fund and 0.50% in the Y2K
Fund.
The Funds may also compensate a bank under the Plans only to the extent that a
bank may serve as a "service organization," providing administrative and
accounting services for the Funds' shareholders.
REPORTING
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<PAGE>
Shareholders will receive an annual report containing financial statements which
have been audited by the Funds' independent accountants, and a semi-annual
report containing unaudited financial statements. Each report will include a
list of investment securities held by the Funds. Shareholders may contact the
Funds for additional information.
CONTACTS
LEGAL COUNSEL:
Duane, Morris & Heckscher LLP, 305 North Front Street, Harrisburg, PA 17108
INDEPENDENT ACCOUNTANTS:
Price Waterhouse LLP, 100 East Wisconsin Avenue, Milwaukee, WI 53202
TRUSTEES:
Bruce E. Bowen
Kenneth G. Mertz II, C.F.A.
Scott C. Penwell, Esq.
Scott L. Rehr
H.J. Zoffer, Ph.D.
OFFICERS:
Scott L. Rehr, President
Kenneth G. Mertz II, C.F.A., Vice President and Chief Investment Officer
Daniel W. Moyer IV, Vice President and Secretary
Joseph C. Neuberger, Assistant Secretary
Jeffrey T. Rauman, Assistant Secretary
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<PAGE>
APPENDIX: ADDITIONAL FUND INFORMATION
FOR PA GROWTH FUND INVESTORS:
SUMMARY OF INFORMATION ABOUT THE PENNSYLVANIA ECONOMY
The following is a brief summary of certain factors affecting the Pennsylvania
economy. The summary is based upon information derived from publicly available
documents and is not intended to provide complete coverage of the subject.
Pennsylvania is the nation's fifth-ranked state in terms of population, behind
California, New York, Texas, and Florida. Pennsylvania's population notched up
to 11.9 million in 1990 from 11.8 million in 1980. Pennsylvania's population is
evenly split between the metropolitan areas of Philadelphia and Pittsburgh and
the rest of the State.
Pennsylvania boasts the nation's highest personal savings rate and the least
transitory population of any state in the nation (81% of the current population
was born in the State). The State's workforce totals more than 5.9 million,
ranking it as the sixth largest labor pool in the nation. The State's seasonally
adjusted unemployment rate stood at 5.1% in July 1996, versus 5.4% for the U.S.
economy as a whole. By comparison, neighboring New Jersey's rate was 6.1%.
Pennsylvania has a lower per capita state tax burden than the surrounding states
of New York, New Jersey, Maryland and Ohio.
Pennsylvania has ports accessing the Great Lakes system, the Mississippi and
Ohio rivers to the Gulf of Mexico, and the Atlantic Ocean. At the heart of the
State is an expansive railroad system and a major network of inter-connecting
interstate highways.
Pennsylvania has historically been a leading state in manufacturing and mining.
The coal and steel industries have declined in national importance in recent
years, but remain a major component of the Pennsylvania economy. Due to the
cyclical nature of these businesses, Pennsylvania may be more vulnerable to the
industries' economic fluctuations and downturns.
In part because of the decline in the heavy manufacturing sector, Pennsylvania's
economy has diversified beyond the traditional "smoke stack" industries. Major
new sources for growth are in the service sector, including medical and health
services, trade, education, and financial institutions. The State's workforce
has diversified so that it is almost evenly divided between the services
(24.4%), wholesale and retail trade (23.9%) and manufacturing (23.3%) employment
sectors. The State is home to the nation's third largest number of technology
companies, and the greater Philadelphia area is ranked as the nation's number-
two region for biotechnology companies.
Pennsylvania's agriculture industries have also historically played a prominent
role in the State's economy. Crop and livestock products add an annual $3.5
billion to the State's economy, while agribusiness and food-related industries
as a whole support $38 billion in annual economic activity. Agribusiness
activities can be detrimentally affected by consistently poor weather
conditions.
Pennsylvania's economy is home to 33 Fortune 500 corporations and more than
237,000 public and private businesses. Pennsylvania is the only state in the
nation with two cities (Philadelphia and Pittsburgh) listed in Fortune's top ten
cities with the largest number of Fortune 500 companies. Since the PA Growth
Fund began operations in 1992, the number of Pennsylvania-based, publicly-traded
companies it has identified has grown from 440 to over 500 companies.
(See SAI for a complete listing of these companies.)
Pennsylvania's corporate profile is diverse: from high-tech biopharmaceutical
firms headquartered in the State's southeast corner, to rich farmlands in
central Pennsylvania, to the growing financial and commercial center of the
west. From Erie to Philadelphia and from Pittsburgh to the Poconos, the four
corners of Pennsylvania frame a $244 billion economy. If Pennsylvania were a
freestanding country, its Gross Domestic Product would rank it similar in size
to such countries as Mexico or the Republic of Korea. The Adviser believes that
the Fund will provide a positive influence on the Pennsylvania economy by
stimulating investor interest and awareness in Pennsylvania companies.
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<PAGE>
number of technology companies, and the greater Philadelphia area is ranked as
the nation's number-two region for biotechnology companies.
Pennsylvania's agriculture industries have also historically played a prominent
role in the State's economy. Crop and livestock products add an annual $3.5
billion to the State's economy, while agribusiness and food-related industries
as a whole support $38 billion in annual economic activity. Agribusiness
activities can be detrimentally affected by consistently poor weather
conditions.
Pennsylvania's economy is home to 33 Fortune 500 corporations and more than
237,000 public and private businesses. Pennsylvania is the only state in the
nation with two cities (Philadelphia and Pittsburgh) listed in Fortune's top ten
cities with the largest number of Fortune 500 companies. Since the PA Growth
Fund began operations in 1992, the number of Pennsylvania-based, publicly-traded
companies it has identified has grown from 440 to over 500 companies.
(See SAI for a complete listing of these companies.)
Pennsylvania's corporate profile is diverse: from high-tech biopharmaceutical
firms headquartered in the State's southeast corner, to rich farmlands in
central Pennsylvania, to the growing financial and commercial center of the
west. From Erie to Philadelphia and from Pittsburgh to the Poconos, the four
corners of Pennsylvania frame a $244 billion economy. If Pennsylvania were a
freestanding country, its Gross Domestic Product would rank it similar in size
to such countries as Mexico or the Republic of Korea. The Adviser believes that
the Fund will provide a positive influence on the Pennsylvania economy by
stimulating investor interest and awareness in Pennsylvania companies.
A-2
<PAGE>
FOR BANKING AND FINANCE FUND INVESTORS:
SUMMARY OF FACTORS ABOUT THE BANKING AND FINANCIAL SERVICES INDUSTRIES
(I) WAVE OF CONSOLIDATIONS
At the end of 1997, there were 9,943 commercial banks chartered in the United
States. By comparison, there were 121 banks in all of Canada. The FDIC has
reported that the total number of U.S. banks and savings and loans has declined
from over 17,300 in 1987 to 10,500 in 1997. Emerald Advisers, Inc., the Fund's
investment adviser, expects this consolidation trend to continue as banks seek
economies of scale and rely more heavily on expensive technologies as they
expand their market share and geographic reach.
(II) CHANGES IN TRADITIONAL BANKING AND FINANCIAL SERVICE INDUSTRIES' REGULATORY
AND OPERATING DISTINCTIONS
There are current regulatory proposals which would make significant changes in
the federal laws which govern the range of business and services in which
federally regulated banks can engage. Some of these proposals would eliminate
most of the distinctions between commercial and investment banks and would allow
certain banks and their holding companies the ability to offer financial
products and services such as insurance, mutual fund underwriting, and
securities underwriting. These new opportunities may make some companies more
attractive acquisition candidates.
(III) CHANGING DEMOGRAPHICS
As the large demographic segment of the American population known as "Baby
Boomers" (traditionally defined as the 76.1 million Americans born between the
years of 1946 and 1964) move nearer to their retirement years, much more
attention has been focused on investments and savings. For example, according to
the Investment Company Institute, the amount of money invested in U.S. mutual
funds has grown from $51 billion in 1976 to $716 billion in 1986 to over $3.5
trillion in 1996.
(IV) SECURITIES OF COMPANIES IN THE FINANCIAL SERVICES INDUSTRY
Federal regulations limit investments in the securities of companies that derive
more than 15% of their gross revenues from securities-related activities
(including activities as a broker, dealer, underwriter, or investment adviser).
The Competitive Equality Banking Act of 1987 requires that with respect to at
least 75% of the total assets of a fund, investments in bank securities are
limited to no more than 5% of the fund's total assets. The Fund intends to
comply with these restrictions.
(V) SPECIAL FACTORS AFFECTING INVESTMENTS IN BANKING AND FINANCIAL SERVICES
COMPANIES
The Fund's investments and performance returns will be affected by general
market and economic conditions as well as other risks specific to the banking
and financial services industries. Banking and financial services companies are
subject to extensive government regulation. This regulation may limit
B-1
<PAGE>
both the amount and types of loans and other financial commitments a banking or
financial services company (such as an insurance company) can make as well as
the interest rates and fees it can charge.
These limitations may have a significant impact on the profitability of a
banking or financial services company since that company's profitability is
attributable, at least in part, to its ability to make financial commitments
such as loans. Profitability is to a significant degree dependent upon the
availability and cost of capital funds. The financial difficulties of borrowers
can negatively impact the industry to the extent that borrowers may not be able
to repay loans made by banking or financial services companies. Economic
conditions in the real-estate market may have a particularly strong impact on
certain banks and savings associations.
Insurance companies may be subject to severe price competition, claims activity,
marketing competition, and general economic conditions. Particular insurance
lines will also be influenced by specific circumstances. For example, property
and casualty insurer profits may be affected by weather catastrophes or other
disasters, while life and health insurer profits may be affected by mortality
risks and morbidity rates. Also, individual insurance companies may be subject
to material risks including reserve funds which are inadequate to pay claims and
failures by reinsurance carriers. Investment banking, securities brokerage and
investment advisory companies are particularly subject to government regulation
and the risk inherent in securities trading and underwriting activities.
There are current legislative proposals to reduce the separation between
commercial and investment banking businesses. If enacted, the legislation could
significantly impact the industry. While banks may be able to expand the
services they offer (which are currently typically limited to certain non-
securities activities such as making loans and accepting deposits), expanded
powers related to securities activities could expose banks to well-established
competitors, particularly as the distinctions between banks and other financial
services companies erode. The broadening of bank powers to include multi-state
operations and diversification of operations can also expose certain banks to
well-established competitors in new areas of operations. The financial services
industry itself continues to undergo significant change, resulting from
industry-wide consolidation as well as continuing new product development and
further regulatory initiatives.
B-2
<PAGE>
FOR Y2K FUND INVESTORS
ADDITIONAL INFORMATION REGARDING THE YEAR 2000 PROBLEM
The costs of correcting the problem have been estimated at anywhere from $200
billion to $1 trillion or more worldwide. The estimate given greatest
credibility by The Y2K Fund's Adviser is the range of $300 billion to $600
billion, generated by the Gartner Group, a computer/technology consulting firm
of which representatives testified before a U.S. House of Representatives
subcommittee exploring the Y2K issue. Total costs include hardware and software
conversion, replacement systems, lost productivity and litigation.
The Y2K Fund primarily targets small systems integrators, tool vendors and
conversion factories. Companies targeted as possible investment opportunities
include computer/technology firms and others which support the Y2K solutions
offered.
Computer/technology companies may increase revenues through the following Y2K-
related activities:
1. Assessment of a company's potential Y2K impact on systems;
2. Planning to correct/prioritize Y2K problems;
3. Actual correction of Y2K problems;
4. Testing of Y2K solutions.
Many different firms may be involved in each of these tasks for any one
company's Y2K problems. Companies which may increase revenues based on Y2K work
also include staffing companies to provide information technology workers to
assist in the correction process and disaster recovery companies which can sell
excess system time to customers at premium prices.
The Y2K Fund's Adviser has identified over 100 publicly-traded companies that
have stated, or been reported as possessing, an intention of developing or
supporting marketable solutions to Year 2000 computer-related problems. A full
listing of these companies appears in the SAI.
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(back cover)
THE HOMESTATE GROUP (logo)
FOR MORE INFORMATION
--------------------
THE HOMESTATE GROUP
SEC FILE NUMBER: 811-6722
Additional information about The HomeState Group mutual funds is available free
upon request. Annual Report and Semi-Annual Report: Describes the funds'
performance, lists portfolio holdings and contains a letter from the funds'
portfolio manager discussing recent market conditions, economic trends and fund
strategies.
Statement of Additional Information (SAI): The SAI includes a description
of the Funds' trustees and officers, a list of investment
policies and restrictions, as well as more detail about the
management and operations of each Fund. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is
incorporated by reference (is legally considered part of this
prospectus).
TO RECEIVE ANY OF THESE DOCUMENTS:
BY TELEPHONE
------------
Toll-Free in the U.S.
(800) 232-0224
Overseas and Local (Lancaster, PA)
(717) 396-1116
BY MAIL
- --------
Firstar Trust Company
Mutual Fund Services
P.O. Box 701
Milwaukee, WI 53201-0701
ON THE INTERNET
- ----------------
Text-only versions of fund documents can be viewed online or downloaded from
the SEC's website at: http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, 450 5th Street, N.W.,
Washington, DC 20549-6009.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Rule 481(a)
The HomeState Group
The HomeState Pennsylvania Growth Fund
The HomeState Select Banking ad Finance Fund
The HomeState Year 2000 (Y2K) Fund
Items Required by Form N-1A
PART B -- STATEMENT OF ADDITIONAL
INFORMATION
<TABLE>
<CAPTION>
Form N-1A Location in
Item Number Description Prospectus
- ----------- ----------- -----------
<S> <C> <C>
10.a Cover Page Cover Page
b. Table of Contents Table of Contents
11. Fund History ADDITIONAL
GENERAL FUND
INFORMATION --
Description of Shares and
Voting Rights
12. Description of Funds and ADDITIONAL
their Investments and Risks INFORMATION
CONCERNING
INVESTMENT
OBJECTIVES AND
POLICIES; ADDITIONAL
INFORMATION ABOUT
OTHER INVESTMENT
TECHNIQUES
13. Management of the Funds MANAGEMENT OF THE
FUNDS -- Board of Trustees
and Other Officers of the Trust
14. Control Persons and Principal MANAGEMENT OF THE
Holders of Securities FUNDS -- Persons Controlling
the Funds
15. Investment Advisory and MANAGEMENT OF THE
Other Services FUNDS -- Investment Adviser
and Other Service Providers
16. Brokerage Allocation and ADDITIONAL BROKERAGE
Other Practices ALLOCATION
INFORMATION
17. Capital Stock and Other Securities ADDITIONAL GENERAL
FUND INFORMATION --
Description of Shares and
Voting Rights; ADDITIONAL
PURCHASE AND
REDEMPTION
INFORMATION -- Additional
Redemption Information
18. Purchase, Redemption, and ADDITIONAL PURCHASE
Pricing of Shares AND REDEMPTION
INFORMATION
19. Taxation of the Funds ADDITIONAL DIVIDEND,
DISTRIBUTIONS & TAXES
INFORMATION -- Taxes,
Other Tax Information
20. Underwriters MANAGEMENT OF THE
FUNDS -- Investment Adviser
and Other Service Providers
- - Investment Adviser and
Principal Underwriter
21. Calculation of Performance Data MEASURING
PERFORMANCE
22. Financial Statements FINANCIAL STATEMENTS
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THE HOMESTATE GROUP
HomeState Pennsylvania Growth Fund
HomeState Select Banking and Finance Fund
HomeState Year 2000 ("Y2K") Fund
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1857 William Penn Way
P.O. Box 10666
Lancaster, PA 17605-0666
INVESTMENT ADVISER
GENERAL FUND INFORMATION
EMERALD ADVISERS, INC.
P.O. Box 10666
Lancaster, PA 17605-0666
DISTRIBUTOR
RAFFERTY CAPITAL MARKETS, INC.
550 Mamaroneck Avenue
Harrison, NY 10528
ADMINISTRATOR,
TRANSFER AGENT AND
ACCOUNTING AGENT
FIRSTAR TRUST COMPANY
P.O. Box 701
615 E. Michigan Street
Milwaukee, WI 53201-0701
CUSTODIAN
FIRSTAR TRUST COMPANY
777 E. Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
DUANE, MORRIS & HECKSCHER LLP
305 North Front Street
Harrisburg, PA 17108
INDEPENDENT ACCOUNTANT
PRICE WATERHOUSE LLP
30 South Seventeenth Street
Philadelphia, PA 19103
STATEMENT OF
ADDITIONAL INFORMATION
THE HOMESTATE GROUP
-------------------
THE HOMESTATE PENNSYLVANIA
GROWTH FUND
THE HOMESTATE SELECT
BANKING AND FINANCE FUND
THE HOMESTATE YEAR 2000 ("Y2K") FUND
DATED OCTOBER 5, 1998
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STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 5, 1998
THE HOMESTATE GROUP
This Statement of Additional Information contains information which may be
useful to investors but which is not included in the Prospectus of The HomeState
Group (the "Trust"), and its three operating series funds: The HomeState
Pennsylvania Growth Fund, The HomeState Select Banking and Finance Fund and The
HomeState Year 2000 ("Y2K") Fund (the "Funds"). This Statement is not a
Prospectus and should be read in conjunction with the Funds' Prospectus. This
Statement is only authorized for distribution when accompanied or preceded by a
copy of the Funds' Prospectus dated October 5, 1998. You may obtain a free copy
of the Prospectus by writing the Funds, c/o Firstar Trust Company, Mutual Fund
Services, P.O. Box 701, Milwaukee, WI 53201-0701, or by calling (800) 722-4123.
TABLE OF CONTENTS
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Additional Information Concerning Investment Objectives and Policies.................... 3
General............................................................................ 3
Fundamental Investment Restrictions................................................ 3
Other Investment Policies.......................................................... 5
Additional Information About Other Investment Techniques................................ 8
Additional Fund Valuation Information................................................... 9
Additional General Fund Information..................................................... 9
Description of Shares and Voting Rights............................................ 9
Additional Purchase and Redemption Information.......................................... 10
Reduced Sales Charge Plans......................................................... 11
Other Purchase Information......................................................... 13
Additional Redemption Information.................................................. 16
Systematic Withdrawal Plan......................................................... 18
Additional Dividend, Distributions & Taxes Information.................................. 19
Dividends & Distributions.......................................................... 19
Taxes.............................................................................. 19
Other Tax Information.............................................................. 20
Management of the Funds................................................................. 20
Board of Trustees and Officers of the Trust........................................ 20
Persons Controlling the Funds...................................................... 22
Investment Adviser and Other Service Providers..................................... 23
The Distribution Plans............................................................. 25
Additional Brokerage Allocation Information............................................. 27
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Measuring Performance.................................................................. 28
Financial Statements................................................................... 29
Appendix A - Description of Ratings.................................................... A-1
Appendix B - Options and Short Selling Strategies For The HomeState Select
Banking and Finance Fund and The HomeState Year 2000 ("Y2K") Fund.................... B-1
Appendix C - Pennsylvania-Based Corporations........................................... C-1
Appendix D - Year 2000 Industry Companies.............................................. D-1
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ADDITIONAL INFORMATION CONCERNING INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The HomeState Group, an open-end management investment company, is
registered as a "series" fund, whereby each individual series of the Trust, in
effect, represents a separate mutual fund with its own objectives and policies.
Currently, there are three series: The HomeState Pennsylvania Growth Fund (the
"PA Growth Fund"), The HomeState Select Banking and Finance Fund (the "Banking
and Finance Fund") and The HomeState Year 2000 ("Y2K") Fund (the "Y2K Fund").
Information about all three series is contained herein. In the likely event that
further series' of the Trust are introduced, these new series would have their
own separate objectives and policies and would be disclosed here as such.
The PA Growth Fund's objective is long-term growth through capital
appreciation. The Fund seeks to achieve this goal mainly by investing in a
diversified portfolio of companies that have their headquarters or principal
operations in the Commonwealth of Pennsylvania, or companies that are based
elsewhere but whose business in the Commonwealth of Pennsylvania contributes
significantly to their overall performance. To pursue its objective, the Fund
will invest at least 65% of the value of its total assets in common stocks,
preferred stocks and securities convertible into common and preferred stocks
issued by firms whose headquarters are located in Pennsylvania or companies that
are based elsewhere but have significant operations in Pennsylvania (i.e. at
least 50% of their revenues are derived from operating units headquartered in
Pennsylvania). The Fund's annual portfolio turnover rate is not anticipated to
exceed eighty percent.
The Banking and Finance Fund's objective is long-term growth through
capital appreciation. Income is a secondary objective. To pursue its objective,
the Fund will, under normal circumstances, invest at least 65% of its total
assets in the equity securities of companies principally engaged in the banking
and financial services industries. While the Fund can invest in companies
headquartered anywhere in the United States and of varying size, it will usually
emphasize companies located in the Mid-Atlantic states (defined by the Adviser
as Pennsylvania, Maryland, New Jersey, Delaware, Virginia, Ohio, West Virginia
and New York) and smaller companies: those with a market capitalization of less
than $1 billion. The Fund's annual portfolio turnover rate is not anticipated to
exceed eighty percent. Prior to October 5, 1998, the Banking and Finance Fund
was named the HomeState Select Opportunities Fund, and was a non-diversified
fund which did not focus on the banking and financial services industries.
The Y2K Fund's objective is capital appreciation by investing primarily in
equity securities of public companies involved in "The Year 2000 Industry" - a
grouping of companies which the Fund's Adviser shall identify as having stated
an intention, or been reported as intending, to develop or support marketable
solutions to problems stemming from the susceptibility of certain business and
other computer application programs or systems to fail, or to produce
inappropriate results with respect to, data, calculations and other processing
involving dates subsequent to December 31, 1999 (collectively, the "Year 2000 --
or Y2K -- Problem"). The Fund can invest a larger percentage of its assets in a
particular company, and will focus on those companies identified by the Fund's
Adviser as having what it believes are superior prospects for price
appreciation. The Fund's annual portfolio turnover rate is expected to not
exceed two hundred percent.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment policies and restrictions may not be changed
without the approval of a majority of each Fund's outstanding shares. For these
purposes, a majority of shares of each Fund is defined as the vote, at a special
meeting of the shareholders of the Fund duly called, of more than fifty percent
(50%) of the Fund's outstanding voting securities.
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The PA Growth Fund may not:
1. Invest more than 5% of the value of its assets in the equity or debt of
one issuer (other than obligations issued or guaranteed by the United States
Government).
2. Invest more than 15% of total assets in one industry.
3. Invest in, write, or sell put or call options, straddles, spreads or
combinations thereof.
4. Make short sales.
5. Borrow money, except from a bank. Such borrowing shall be permitted for
temporary or emergency purposes only (to facilitate the meeting of redemption
requests), and not for investment purposes. Such borrowing cannot exceed fifteen
percent (15%) of the PA Growth Fund's current total assets, and will be repaid
before any additional investments are purchased. The PA Growth Fund will not
purchase securities when borrowing exceeds 5% of total assets;
6. Pledge, mortgage or hypothecate assets, except to secure borrowings
permitted by Item (5) above, and then only pledge securities not exceeding ten
percent (10%) of the PA Growth Fund's total assets (at current value);
7. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities; and
8. Purchase or sell commodities, commodity contracts or futures contracts.
The Banking and Finance Fund may not:
1. Invest more than 5% of the value of its assets in the equity or debt of
one issuer (other than obligations issued or guaranteed by the U.S. Government).
2. Invest more than 25% of total assets in one industry, except that the
Banking and Finance 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.
3. Borrow money, except from a bank or for purposes of purchasing
securities on margin (provided that such purchases may not exceed 120% of total
assets taken at current value); such borrowing will be limited to no more than
5% of net assets.
The Y2K Fund may not:
1. Invest more than 25% of the value of its assets in the equity or debt
of one issuer (other than obligations issued or guaranteed by the United States
Government), nor, with respect to at least 50% of its total assets, invest more
than 5% of the value of such assets in the equity or debt of one issuer (other
than obligations issued or guaranteed by the U.S. Government).
2. Invest more than 25% of total assets in one industry, except that the
Y2K Fund shall, under normal conditions, invest not less than 25% of its total
assets in securities of companies operating within the information technology
group.
3. Issue or sell senior securities, except that the Y2K Fund may engage
in options, futures and/or short-selling strategies provided the Y2K Fund either
(i) sets aside liquid, unencumbered, daily marked-to-market assets in a
segregated account with its custodian in amounts as prescribed by pertinent
U.S. Securities and Exchange Commission (the "SEC") guidelines, or (ii) holds
securities or other options or futures contracts whose values are expected to
offset ("cover") its obligations thereunder. Securities or other options or
futures
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contracts used for cover will not be sold or closed out while such strategies
are outstanding, unless they are replaced with similar assets.
4. Borrow money, except from a bank or for purposes of purchasing
securities on margin (provided that such purchases may not exceed 120% of total
assets taken at current value). Such borrowing will be limited to no more than
5% of total net assets.
The Funds may not :
1. Issue or sell senior securities;
2. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of their portfolio investments, the
Funds may be deemed to be an underwriter under certain federal securities laws;
3. Purchase or sell real estate, although they may purchase securities
which are secured by or represent interests in real estate that are issued or
backed by the United States Government, its agencies or instrumentalities;
4. Purchase or hold the securities of any issuer if the officers or
directors of the Funds or their investment adviser (i) individually own more
than one-half of one percent (0.5%) of the outstanding securities of the issuer,
or (ii) collectively own more than five percent (5%) of the outstanding
securities;
5. Acquire more than ten percent (10%) of the voting securities of any
issuer; or make investments for the purpose of gaining control of a company's
management;
6. Invest in the securities of other investment companies (except in no-
load, open-end money market mutual funds, and except in the case of acquiring
such companies through merger, consolidation or acquisition of assets). The
Funds will not invest more than ten percent (10%) of their total current assets
in shares of other investment companies nor invest more than five percent (5%)
of their total current assets in a single investment company. (When investing in
a money market mutual fund, the Funds will incur duplicate fees and expenses);
or
7. Make loans, except by purchase of debt obligations in which the Funds
may invest in accordance with their investment policies, or except by entering
into qualified repurchase agreements with respect to not more than twenty-five
percent (25%) of their total assets (taken at current value).
The aforementioned investment limitations are considered at the time the
investment securities are purchased.
OTHER INVESTMENT POLICIES
In addition to the fundamental investment restrictions listed above, the
Funds have also adopted the following non-fundamental investment policies. These
policies may be changed by the Funds' Board of Trustees without shareholder
approval.
The PA Growth Fund:
1. Will not buy or sell oil, gas or other mineral leases, rights or
royalty contracts;
2. Will not invest in illiquid securities (including illiquid equity
securities, repurchase agreements and time deposits with maturities or notice
periods of more than 7 days, and other securities which are not readily
marketable, including securities subject to legal or contractual restrictions on
resale);
3. Will not invest in warrants (a warrant is an option issued by a
corporation that gives the holder the right to buy a stated number of shares of
common stock of the corporation at a specified price within a designated time
period); and
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4. Will not invest more than five percent (5%) of its total assets (at
current value) in securities of companies, including predecessor companies or
controlling persons, having a record of less than three years of continuous
operation.
The Banking and Finance Fund:
1. Will not invest more than 15% in illiquid securities (including
illiquid equity securities, repurchase agreements and time deposits with
maturities or notice periods of more than 7 days, and other securities which are
not readily marketable, including securities subject to legal or contractual
restrictions on resale);
2. May engage in options strategies with respect to less than 5% of the
Banking and Finance Fund's net assets, in which the Banking and Finance Fund
will either: (i) set aside liquid, unencumbered, daily marked-to-market assets
in a segregated account with the Baning and Finance Fund's custodian in the
prescribed amount; or (ii) hold securities or other options or futures contracts
whose values are expected to offset ("cover") its obligations thereunder.
Securities, currencies or other options or futures contracts used for cover
cannot be sold or closed out while the strategy is outstanding, unless they are
replaced with similar assets;
3. May not write put or call options having aggregate exercise prices
equal to or greater than 5% of the Banking and Finance Fund's net assets, except
with respect to options attached to or acquired with or traded together with
their underlying securities and securities that incorporate features similar to
options;
4. May make short sales in total amounts that equal less than 5% of the
Banking and Finance Fund's net assets.
The Y2K Fund:
1. Will not invest more than 15% of net assets in illiquid securities
(including illiquid equity securities, repurchase agreements and time deposits
with maturities or notice periods of more than 7 days, and other securities
which are not readily marketable, including securities subject to legal or
contractual restrictions on resale);
2. May not write options (whether on securities or securities indexes) or
initiate further short-sale positions if aggregate exercise prices of previously
written outstanding options, together with the value of assets used to cover
outstanding short-sale positions, would exceed 25% of the Y2K Fund's total net
assets.
3. Will not purchase or sell non-hedging futures contracts or related
options if aggregate initial margin and premiums required to establish such
positions would exceed 5% of the Y2K Fund's total assets. For purposes of this
limitation, unrealized profits and unrealized losses on any open contracts are
taken into account, while the in-the-money amount of an option that is, or was,
in-the-money at the time of purchase is excluded.
The Funds:
1. Will not invest in foreign currencies or foreign options;
2. Will not issue long-term debt securities;
3. Will not invest more than ten percent (10%) of their total assets (at
current value) in repurchase agreements, and will not invest in repurchase
agreements maturing in more than seven days. (A repurchase agreement is a
contract under which the Fund acquires a security for a relatively short time
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Fund to resell such security at a fixed time and price
which represents the Fund's cost plus interest. The arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
period that the underlying security is held by the Funds. Repurchase agreements
involve certain risks, including seller's default on its obligation to
repurchase or seller's bankruptcy. The Funds will enter into such agreements
only with commercial banks and registered
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broker-dealers. In these transactions, the securities issued by the Funds will
have a total value in excess of the value of the repurchase agreement during the
term of the agreement. If the seller defaults, the Funds could realize a loss on
the sale of the underlying security to the extent that the proceeds of the sale,
including accrued interest, are less than the resale price provided in the
agreement including interest, and the Funds may incur expenses in selling the
security. In addition, if the other party to the agreement becomes insolvent and
subject to liquidation or reorganization under the United States Bankruptcy Code
of 1983 or other laws, a court may determine that the underlying security is
collateral for a loan by the Funds not within the control of the Funds and
therefore the Funds may not be able to substantiate their interest in the
underlying security and may be deemed an unsecured creditor of the other party
to the agreement. While the Funds' management acknowledges these risks, it is
expected that they can be controlled through careful monitoring procedures.)
4. May invest their cash for temporary purposes in commercial paper,
certificates of deposit, money market mutual funds, repurchase agreements (as
set forth in Item 7 above) or other appropriate short-term investments
(commercial paper must be rated A-1 or A-2 by Standard & Poor's Corporation ("S
& P") or Prime-1 or Prime-2 by Moody's Investor Services ("Moody's"), or issued
by a company with an unsecured debt issue currently outstanding rated AA by S &
P or Aa by Moody's, or higher. For more information on ratings, see "Appendix
A: Description of Ratings" in this Statement. Certificates of Deposit ("CDs")
must be issued by banks or thrifts which have total assets of at least $1
billion. In the case of a bank or thrift with assets of less than $1 billion,
the Funds will only purchase CD's from such institutions covered by FDIC
insurance, and only to the dollar amount insured by the FDIC.)
5. May invest in securities convertible into common stock, but only when
the Funds' investment adviser believes the expected total return of such a
security exceeds the expected total return of common stocks eligible for
investment. (In carrying out this policy, the Funds may purchase convertible
bonds and convertible preferred stock which may be exchanged for a stated number
of shares of the issuer's common stock at a price known as the conversion price.
The conversion price is usually greater than the price of the common stock at
the time of purchase of the convertible security. The interest rate of
convertible bonds and the yield of convertible preferred stock will generally be
lower than that of the non-convertible securities. While the value of the
convertible securities will usually vary with the value of the underlying common
stock and will normally fluctuate inversely with interest rates, it may show
less volatility in value than the non-convertible securities. A risk associated
with the purchase of convertible bonds and convertible preferred stock is that
the conversion price of the common stock will not be attained. The Funds will
purchase only those convertible securities which have underlying common stock
with potential for long-term growth in the Adviser's opinion. The Funds will
only invest in investment-grade convertible securities (Those rated in the top
four categories by either Standard & Poor's Corporation ("S & P") or Moody's
Investor Services, Inc. ("Moody's") - See "Appendix: Description of Ratings" in
this statement).
6. Will maintain their portfolio turnover rate at a percentage consistent
with their investment objective, in the case of the PA Growth Fund and Banking
and Finance Fund: long-term growth, in the case of the Y2K Fund: appreciation of
capital. The Funds will not engage primarily in trading for short-term profits,
but they may from time to time make investments for short-term purposes when
such trading is believed by the Funds' investment adviser to be desirable and
consistent with a sound investment policy. The Funds may dispose of securities
whenever the investment adviser deems advisable without regard to the length of
time held. The PA Growth Fund and Banking and Finance Fund are not expected to
exceed a portfolio turnover rate of 80% on an annual basis; The Y2K Fund is not
expected to exceed a portfolio turnover rate of 200% on an annual basis.
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ADDITIONAL INFORMATION ABOUT OTHER INVESTMENT TECHNIQUES
Both the Banking and Finance Fund and the Y2K Fund can utilize certain
options and short-selling strategies. See "Appendix B: Options and Short-Selling
Strategies" for a complete discussion of these strategies and the risks
involved.
The Funds may also invest up to 35 percent of the value of their total
assets in preferred stocks, investment-grade corporate bonds and notes, and
high-quality short-term debt securities such as commercial paper, bankers'
acceptances, certificates of deposit, repurchase agreements, obligations insured
or guaranteed by the United States Government or its agencies, and demand and
time deposits of domestic banks and United States branches and subsidiaries of
foreign banks. (The price of debt securities in which the Funds invest are
likely to decrease in times of rising interest rates. Conversely, when rates
fall, the value of the Funds' debt securities may rise. Price changes of these
debt securities held by the Funds have a direct impact on the net asset value
per share of the Funds. Investment grade corporate bonds are generally defined
by the four highest rating categories by Standard & Poor's Corporation ("S & P")
and Moody's Investors Services ("Moody's"): AAA, AA, A or BBB by S & P and Aaa,
Aa, A and Baa by Moody's. Corporate bonds rated BBB by S & P or Baa by Moody's
are regarded as having an adequate capacity to pay principal and interest but
with greater vulnerability to adverse economic conditions and speculative
characteristics (See "Appendix A" for further information). The Funds will make
use of these short-term instruments primarily under those circumstances where it
has cash to manage for a brief time period (i.e. after receiving dividend
distributions, proceeds from the sale of portfolio securities or money from the
sale of Fund shares to investors).
The Funds will not engage in direct investment in real estate or real
estate mortgage loans, except those instruments issued or guaranteed by the
United States Government. The mortgage-related instruments in which the Funds
may invest include those issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") (collectively, the "Mortgage-Related
Instruments"). The underlying mortgages which collateralize mortgage-related
instruments issued by GNMA are fully guaranteed by the Federal Housing
Administration or Veteran's Administration, while those collateralizing
mortgage-related instruments issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints. Mortgage-Related Instruments provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Funds as income and the capital portion will
be reinvested. Unlike conventional bonds, Mortgage-Related Instruments pay back
principal over the life of the Mortgage-Related Instrument rather than at
maturity. At the time that a holder of a Mortgage-Related Instrument reinvests
the payments and any unscheduled prepayment of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate of
interest paid on the existing Mortgage-Related Instruments. As a consequence,
Mortgage-Related Instruments may be a less effective means of "locking-in" long-
term interest rates than other types of U.S. government securities. While
Mortgage-Related Instruments generally entail less risk of a decline during
periods of rapidly rising interest rates, they may also have less potential for
capital appreciation than other investments with comparable maturities because
as interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if Mortgage-Related Instruments are purchased at a
premium, mortgage foreclosures and unscheduled principal payments may result in
some loss of a holder's principal investment to the extent of premium paid.
Conversely, if Mortgage-Related Instruments are purchased at a discount, both a
scheduled payment of principal and an unscheduled payment of principal would
increase current and total returns and would be taxed as ordinary income when
distributed to shareholders.
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ADDITIONAL FUND VALUATION INFORMATION
Each Fund determines its net asset value per share daily by subtracting its
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities the Fund holds plus cash or other
assets, including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding. Each Fund's net asset value per share
is calculated as of the close of trading on the New York Stock Exchange (the
"Exchange") every day the Exchange is open for trading. The Exchange closes at
4:00 p.m. Eastern Time on a normal business day. Presently, the Exchange is
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Securities of the Funds listed or traded on a securities exchange for which
representative market quotations are available will be valued at the last quoted
sales price on the security's principal exchange on that day. Listed securities
not traded on an exchange that day, and other securities which are not traded in
the over-the-counter market on any given day will be valued at the mean between
the last bid and ask price in the market on that day, if any. Securities for
which market quotations are not readily available or not deemed representative
of actual market values and all other assets will be valued at their respective
fair market value as determined in good faith by, or under procedures
established by, the Board of Trustees. In determining fair market value, the
Trustees may employ an independent pricing service.
Short-term investments with less than sixty days remaining to maturity when
acquired by the Funds will be valued on an amortized cost basis by the Funds,
excluding unrealized gains or losses thereon from the valuation. This is
accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If the Funds acquire a
short-term security with more than sixty days to maturity, it will be valued at
current market value until the 60/th/ day prior to maturity, and will then be
valued on an amortized cost basis based upon the value on such date unless the
Trustees determine during such sixty day period that this amortized cost value
does not represent fair market value.
ADDITIONAL GENERAL FUND INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The HomeState Group was organized as a Pennsylvania common law trust on
August 26, 1992. Shares of the Trust do not have preemptive or conversion
rights, and are fully-paid and non-assessable when issued.
Since The HomeState Group is organized as a Pennsylvania common law trust,
it is not required to hold annual meetings, and does not intend to do so, except
as required by the Act or other applicable Federal or state law. The Trust will
assist in shareholder communications as required by Section 16(c) of
the Investment Company Act of 1940 (the "Act"). The Act does require initial
shareholder approval of each investment advisory agreement and election of
Trustees. Under certain circumstances, the law provides shareholders with the
right to call for a special shareholders meeting for the purpose of removing
Trustees or for other proper purposes. Shares are entitled to one vote per
share, and do not have cumulative voting rights.
The Declaration of Trust permits the Board of Trustees to issue an
unlimited number of shares of beneficial interest without par value from
separate classes ("Series") of shares. Currently the Trust is offering shares
of three Series. Additional series may be added in the future by the Board of
Trustees. Each share of each Fund has pro rata distribution rights, and shares
equally in dividends and distributions of the respective Fund series.
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The shares of the Trust are fully paid and nonassessable except as set
forth under "Shareholder and Trustee Liability" and have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of the
Trust have no preemptive rights. The shares of the Trust have non-cumulative
voting rights which means that the holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trustees if they choose to do
so. A shareholder is entitled to one vote for each full share held (and a
fractional vote for each fractional share held), then standing in his name on
the books of the Trust. On any matter submitted to a vote of shareholders, all
shares of the Trust then issued and outstanding and entitled to vote,
irrespective of the class, shall be voted in the aggregate and not by class
except that shares shall be voted as a separate class with to respect matters
affecting that class or as otherwise required by applicable law.
The Trust will continue without limitation of time, provided however that:
1) Subject to the majority vote of the holders of shares of any Series of
the Trust outstanding, the Trustees may sell or convert the assets of such
Series to another investment company in exchange for shares of such investment
company and distribute such shares ratably among the shareholders of such
Series;
2) Subject to the majority vote of shares of any Series of the Trust
outstanding, the Trustees may sell and convert into money the assets of such
Series and distribute such assets ratably among the shareholders of such Series;
and
3) Without the approval of the shareholders of any Series, unless
otherwise required by law, the Trustees may combine the assets of any two or
more Series into a single Series so long as such combination will not have a
material adverse effect upon the shareholders of such Series.
Upon completion of the distribution of the remaining proceeds or the
remaining assets of any Series as provided in paragraphs 1), 2), and 3) above,
the Trust shall terminate as to that Series and the Trustees shall be discharged
of any and all further liabilities and duties hereunder and the right, title and
interest of all parties shall be canceled and discharged.
Shareholder and Trustee Liability - Under Pennsylvania law, shareholders of such
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a Trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. Therefore, the Declaration of Trust contains
an express disclaimer of shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees.
The Declaration of Trust provides for indemnification out of the Trust property
of any shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim against any shareholder for any act or obligation of
the Trust and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful malfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds' shares are sold at net asset value with a sales charge payable
at the time of purchase. The Prospectus contains a general description of how
investors may buy shares of the Funds, as well as a table of applicable sales
charges for the Funds. The following is additional information which may be of
interest to investors.
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<PAGE>
The Funds are currently making a continuous offering of their shares. The
Funds receive the entire net asset value of shares sold. The Funds will accept
unconditional orders for shares to be executed at the public offering price
based on the net asset value per share next determined after the order is
placed. The public offering price is the net asset value plus the applicable
sales charge, if any.
For orders placed through the Funds' established broker-dealer network, the
public offering price will be based on the net asset value determined on the day
the order is placed, but only if (i) the dealer has received the order before
the close of the Exchange, and (ii) the dealer transmits it to the Funds'
Distributor prior to the close of the Exchange that same day (normally 4:00 p.m.
Eastern time). The dealer is responsible for transmitting this order by 4:00
p.m. Eastern time, and if the dealer fails to do so, the customer's entitlement
to that day's closing price must be settled between the customer and the dealer.
If the dealer receives the order after the close of the Exchange, the price will
be based on the net asset value determined as of the close of the Exchange on
the next day it is open.
REDUCED SALES CHARGE PLANS
Shares of series of the Trust may be purchased at a reduced sales charge to
certain investors listed below. The shareholders' purchases in the series of the
Trust may be aggregated in order to qualify for reduced sales charges.
1. REACH "BREAK POINTS" -- Increase the initial investment amount to reach a
higher discount level, as listed in the Funds' prospectus.
2. RIGHT OF ACCUMULATION -- Add to an existing shareholder account so that the
current offering price value of the total combined holdings reach a higher
discount level (see more information below).
3. SIGN A LETTER OF INTENT -- Inform the Funds or their Agent that you wish to
sign a non-binding "Letter of Intent" (the "Letter") to purchase an
additional number of shares so that the total equals at least $50,000 over
the following 13-month period ($100,000 in the case of the Y2K Fund). Upon
the Funds' receipt of the signed Letter, the shareholder will receive a
discount equal to the dollar level specified in the Letter. If, however,
the purchase level specified by the shareholder's Letter has not been
reached at the conclusion of the 13-month period, each purchase will be
deemed made at the sales charge appropriate for the actual purchase amount
(see more information below).
4. COMBINED PURCHASE PRIVILEGE -- Combine the following investor accounts into
one "purchase" or "holding" to qualify for a reduced sales charge:
(i) An individual or "company," as defined in Section 2(a)(8) of the
Act;
(ii) An individual, his spouse and children under age 21;
(iii) A trustee or other fiduciary for certain trusts, estates, and
certain fiduciary accounts; or
(iv) The employee benefit plans of a single employer. The Funds' Transfer
Agent, Firstar Trust Company, must be advised of the related
accounts at the time the purchase is made.
(See more information below.)
5. PURCHASES AT NET ASSET VALUE -- Additionally, the Board of Trustees has
determined that the following shareholders shall be permitted to purchase
shares of the Funds without paying a sales charge:
(i) Existing shareholders, upon reinvestment of their dividend income or
capital gains distributions as dividends and capital gains
distributions are reinvested in shares of the Funds at the net asset
value without sales charge;
(ii) Shareholders who have redeemed any or all of their shares of the
Funds within the past 120 days may purchase shares at the net asset
value without sales charge. The amount which may be
16
<PAGE>
reinvested is limited to the amount up to but not exceeding the
redemption proceeds (or to the nearest full share if fractional
shares are not purchased) and is limited to shareholders who have
not previously exercised this right. The Transfer Agent must be
notified of the exercise of this privilege when shares are being
purchased (see more information below);
(iii) Shareholders of the PA Growth Fund or the Banking and Finance Fund
may exchange their Fund shares into shares of the other Fund at net
asset value without sales charge;
(iv) Certain "Institutional Investors" -- PA Growth Fund Only:
Corporations with headquarters or significant operations in the
Commonwealth of Pennsylvania having a minimum of $5 million in
annual sales and fifteen full-time employees, and the retirement
plans of each of the above may purchase at net asset value without
sales charge. For these purposes, "significant operations" is
defined as having a material impact on the corporation's financial
condition or profitability in the discretion of the investment
adviser; For all Funds: State and local government-affiliated
agencies, non-profit and charitable organizations, and the
retirement plans of each of the above may purchase at net asset
value without sales charge.
(v) Investor's shares purchased by advisory accounts managed by SEC-
registered investment advisers or bank trust departments;
(vi) Trustees, Officers, Employees (and those retired) of the Funds,
their services providers and their affiliates, for their own
accounts and for their spouse and children, and employees of such
broker-dealer firms that have executed a Selling Agreement with the
Funds may purchase shares at net asset value without a sales charge.
6. On purchases of $1,000,000 or more, shares are acquired at net asset value
with no sales charge or dealer concession charged to the investor. The
Distributor, however, may pay the broker-dealer up to 0.50% of the Offering
Price, from its own assets.
Combined Purchase Privilege - Certain investors may qualify for a reduced sales
- ---------------------------
charge by combining purchases into a single "purchase" if the resulting
"purchase" totals at least $50,000. The applicable sales charge for such a
"purchase" is based on the combined purchases of the following: (i) an
individual, or a "company," as defined in section 2(a)(8) of the Act (which
includes corporations which are corporate affiliates of each other, but does not
include those companies in existence less than six months or which have no
purpose other than the purchase of shares of the Funds or other registered
investment companies at a discount); (ii) an individual, their spouse and their
children under age twenty-one, purchasing for his, her or their own account;
(iii) a single purchase by a trustee or other fiduciary purchasing shares for a
single trust, estate or single fiduciary account although more than one
beneficiary is involved; or (iv) a single purchase for the employee benefit
plans of a single employer. Firstar Trust Company, the Funds' Transfer Agent,
must be advised of the related accounts at the time the purchase is made.
Right of Accumulation - An investor's purchase of additional shares may qualify
- ---------------------
for a cumulative quantity discount by combining a current purchase with certain
other shares already owned ("Right of Accumulation"). The applicable shares
charge is based on the total of: (i) the investor's current purchase; (ii) the
net asset value (valued at the close of business on the previous day of (a.) all
shares of the series held by the investor, and (b.) all shares of any other
series fund of the HomeState Group which may be introduced and held by the
investor); and (iii) the net asset value of all shares described in section (ii)
above owned by another shareholder eligible to combine their purchase with that
of the investor into a single "purchase" (See "Combined Purchase Privilege"
above).
To qualify for the Combined Purchase Privilege or obtain the Right of
Accumulation on a purchase through a broker-dealer, when each such purchase is
made the investor or dealer must provide the Distributor with sufficient
information to verify that the purchase qualifies for the privilege or discount.
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<PAGE>
Letter of Intent - Investors may purchase shares at a reduced sales charge by
- ----------------
means of a written Letter of Intent (a "Letter"), which expresses the investor's
intention to invest a minimum of $50,000 within a period of 13 months in shares
of the PA Growth Fund and Banking and Finance Fund, or a minimum of $100,000 in
the Y2K Fund.
Each purchase of shares under a Letter will be made at the public offering
price applicable at the time of such purchase to a single transaction of the
dollar amount indicated in such Letter. At the investor's option, a Letter may
include purchases of shares made not more than ninety days prior to the date the
investor signed the Letter; however, the 13-month period during which the Letter
is in effect will then begin on the date of the earliest purchase to be
included. Investors do not receive credit for shares purchased by the
reinvestment of distributions. Investors qualifying for the Combined Purchase
Privilege (see above) may purchase shares under a single Letter. The Letter is
not a binding obligation upon the investor to purchase the full amount
indicated. The minimum initial investment under a Letter is 20% of such stated
amount. Shares purchased with the first 5% of such amount will be held in escrow
(while remaining registered in the name of the investor) to secure payment of
the higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrow accounts will be
involuntarily redeemed to pay the additional sales charge, if necessary.
To the extent that an investor purchases more than the dollar amount
indicated in the Letter and qualifies for a further reduction in the sales
charge, the sales charge will be adjusted for the entire amount purchased at the
end of the 13-month period, upon recovery from the investor's dealer of its
portion of the sales charge adjustment. Once received from the dealer, the sales
charge adjustment will be used to purchase additional shares of the Trust's
series at the then-current offering price applicable to the actual amount of the
aggregate purchases. No sales charge adjustment will be made until the
investor's dealer returns any excess commissions previously received. Dividends
and distributions on shares held in escrow, whether paid in cash or reinvested
in additional Fund shares, are not subject to escrow. The escrow will be
released when the full amount indicated has been purchased. Investors making
initial purchases who wish to enter into a Letter may complete the appropriate
section of the Subscription Application Form. Current shareholders may call the
Fund at (800) 232-0224 to receive the appropriate form.
Reinstatement Privilege - An investor who has sold shares of the Funds may
- -----------------------
reinvest the proceeds of such sale in shares of the series within 120 days of
the sale, and any such reinvestment will be made at the Funds' then-current net
asset value, so that no sales charge will be levied. Investors should call the
Funds for additional information.
By exercising this reinstatement privilege, the investor does not alter the
federal income tax treatment of any capital gains realized on the previous sale
of shares of the series, but to the extent that any shares are sold at a loss
and proceeds are reinvested in shares of the series, some or all of the loss may
be disallowed as a deduction. Please contact your tax adviser for more
information concerning tax treatment of such transactions.
OTHER PURCHASE INFORMATION
The underwriter's commission (paid to the Distributor) is the sales charge
shown in the Prospectus, less any applicable dealer concession. The dealer
concession is paid to those firms selling shares as a member of the Funds'
broker-dealer network. The dealer concession is the same for all dealers, except
that the Distributor retains the entire sales charge on any retail sales made by
it. For the fiscal years ended June 30, 1997 and 1996, Rodney Square
Distributors, Inc., the Fund's previous distributor, received $166,908 and
$105,374, respectively. For the period ended June 30, 1995, Fund/Plan Broker
Services, Inc., the Funds' distributor prior to Rodney Square Distributors,
Inc., received $263,145 in sales charges on sales of shares of the PA Growth
Fund, of which it retained $35,601 after reallowance of dealer concessions.
18
<PAGE>
The Distributor may from time to time allow broker-dealers selling shares
of the Funds to retain 100% of the sales charge. In such cases, the broker-
dealer may be deemed an "underwriter" under the Securities Act of 1933, as
amended.
In addition to the commission paid to broker-dealers selling Funds shares
by way of a selling agreement, the Distributor may also from time to time pay
additional cash bonuses or other incentives to selected broker-dealers in
connection with their registered representatives selling Funds shares. Such
compensation will be paid solely by the Distributor, and may be conditioned upon
the sale by the broker-dealer's representatives of a specified minimum dollar
amount of shares. Compensation may include payment for travel expenses,
including lodging, incurred in connection with trips taken by registered
representatives and members of their families to locations within or outside the
United States for meetings of a business nature.
Shares of the Funds may be purchased for your account directly by your
financial services firm representative, and may be purchased by mail or wire.
INVESTING BY MAIL - Please complete and sign the Subscription Application Form
included with this Prospectus and send it, together with your check or money
order ($500 minimum; any lesser amount must be approved by the Fund), made
payable to The HomeState Group, To: The HomeState Group, c/o Firstar Trust
Company, P.O. Box 701, Milwaukee, WI 53210-0701. Note: A different procedure is
used for establishing Individual Retirement Accounts. Please call the Firstar
Trust Company at (800) 232-0224 for details. All purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks. No cash will be accepted.
Firstar Trust Company will charge a $20 fee against a shareholder's account for
any check returned to it for insufficient funds. The shareholder will also be
responsible for any losses suffered by the Fund as a result.
INVESTING BY OVERNIGHT OR EXPRESS MAIL - Please use the following address to
insure proper delivery: Firstar Trust Company, Mutual Fund Services, 3/rd/
Floor, 615 E. Michigan Street, Milwaukee, WI 53202.
INVESTING BY WIRE - To establish a new account by wire please first call Firstar
Trust Company at (800) 232-0224 to advise it of the investment and dollar
amount. This will ensure prompt and accurate handling of your investment. A
completed Subscription Application Form must also be sent to the Fund at the
address above immediately after your investment is made so the necessary
remaining information can be recorded to your account. Your purchase request
should be wired through the Federal Reserve Bank as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA Number 075000022
For credit to Firstar Trust M.F.S.
Account Number 112-952-137
For further credit to (Fund Name, Shareholder Account Number, Shareholder
Name)
((For new accounts, include taxpayer identification number))
ADDITIONAL PURCHASES - You may add to your account at any time by purchasing
shares by mail (minimum $50) or by wire (minimum $1,000) according to the
aforementioned wiring instructions. You must notify Firstar Trust Company at
(800) 232-0224 prior to sending your wire. A remittance form which is attached
to your individual account statement should accompany any investments made
through the mail, when possible. All purchase requests must include your
shareholder account number in order to assure that your funds are credited
properly.
PURCHASES BY TELEPHONE - By using the Funds' telephone purchase option you may
move money from your bank account to your Fund account at your request. Only
bank accounts held at domestic financial institutions that are
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<PAGE>
Automated Clearing House (ACH) members may be used for telephone transactions.
To have your Fund shares purchased at the offering price determined at the close
of regular trading on a given date, Firstar Trust Company must receive both your
purchase order and payment by Electronic Funds Transfer through the ACH System
before the close of regular trading on such a date. Most transfers are completed
within one business day. You may not use telephone purchase transactions for
initial purchases of Fund shares. The minimum amount that can be transferred by
telephone is $100.
AUTOINVEST PLAN
Shares of the Funds may be purchased through the AutoInvest Plan. The Plan
provides a convenient method by which investors may have monies deducted
directly from their checking, savings or bank money market accounts for an
investment in the Funds on a monthly, bi-monthly, quarterly, semi-annual or
annual basis. The minimum investment pursuant to this Plan is $50 per month.
The account designated will be debited in the specified amount, on the schedule
you select, and Fund shares will be purchased. Only an account maintained at a
domestic financial institution which is an ACH member may be so designated. The
Funds may alter, modify or terminate this Plan at any time. You may establish
this option by completing the appropriate section of the Subscription
Application Form. For more information about participating in the AutoInvest
Plan, call the Fund at (800) 232-0224.
RETIREMENT PLANS
Shares of the Funds are also available for use in all types of tax-deferred
retirement plans such as IRAs, employer-sponsored defined contribution plans
(including 401(k) plans) and tax-sheltered custodial accounts described in
Section 403(b)(7) of the Internal Revenue Code. Qualified investors benefit
from the tax-free compounding of income dividends and capital gains
distributions. Application forms and brochures describing investments in the
Funds for retirement plans can be obtained from the Funds by calling (800) 232-
0224.
The following is a description of the types of retirement plans for which
the Funds' shares may be used for investment.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") - Individuals, who are not active
participants (and, when a joint return is filed, who do not have a spouse who is
an active participant) in an employer maintained retirement plan are eligible to
contribute on a deductible basis to an IRA account. The IRA deduction is also
retained for individual taxpayers and married couples with adjusted gross
incomes not in excess of certain specified limits. All individuals who have
earned income may make nondeductible IRA contributions to the extent that they
are not eligible for a deductible contribution. Income earned by an IRA account
will continue to be tax deferred. A special IRA program is available for
employers under which the employers may establish IRA accounts for their
employees in lieu of establishing tax qualified retirement plans. Known as SEP-
IRA's (Simplified Employee Pension-IRA), they free the employer of many of the
recordkeeping requirements of establishing and maintaining a tax qualified
retirement plan trust.
If you are entitled to receive a distribution from a qualified retirement
plan, you may rollover all or part of that distribution into the Funds' IRA.
Your rollover contribution is not subject to the limits on annual IRA
contributions. You can continue to defer Federal income taxes on your
contribution and on any income that is earned on that contribution.
Firstar Trust Company makes available its services as an IRA Custodian for
each shareholder account that is established as an IRA. For these services,
Firstar Trust Company receives an annual fee of $12.50 per account with a cap of
$25.00 per social security number, which fee is paid directly to Firstar Trust
Company by the IRA shareholder. If the fee is not paid by the due date, shares
of the Fund owned by the shareholder in the IRA account will be redeemed
automatically for purposes of making the payment.
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<PAGE>
The Taxpayer Relief Act of 1997 (The "1997 Act") also creates several new
or expanded IRAs which will be available to Fund shareholders beginning on March
16, 1998.
The 1997 Act creates a new "Roth IRA" which will permit tax-free
distributions of account balances if the assets have been invested for five
years or more, and the distributions meet certain qualifying restrictions.
Investors filing as single taxpayers who have adjusted gross incomes ("AGI") of
$95,000 or more, and investors filing as joint taxpayers with adjusted gross
incomes of $150,000 or more may find their participation in this IRA to be
restricted.
The 1997 Act also creates a new education IRA to help parents fund their
children's post secondary school education. Parents or others may contribute up
to $500 annually to an education IRA on behalf of any child under age 18. This
IRA is subject to the same AGI limits as the Roth IRA above, and there are other
contribution restrictions that may apply. The education IRA earnings accumulate
tax free, and assets that have accumulated in the IRA may be distributed tax
free when used to pay qualified higher education expenses.
Both new IRAs are subject to special rules and conditions that must be
reviewed by the investor when opening a new account.
401(K) PLANS AND OTHER DEFINED CONTRIBUTION PLANS - The Funds' shares may also
be used for investment in defined contribution plans by both self-employed
individuals (sole proprietorships and partnerships) and corporations who wish to
use shares of the Funds as a funding medium for a retirement plan qualified
under the Internal Revenue Code. Such plans typically allow investors to make
annual deductible contributions, which may be matched by their employers up to
certain percentages based on the investor's pre-contribution earned income.
403(B)(7) RETIREMENT PLANS - The Funds' shares are also available for use by
schools, hospitals, and certain other tax-exempt organizations or associations
who wish to use shares of the Funds as a funding medium for a retirement plan
for their employees. Contributions are made to the 403(b)(7) Plan as a
reduction to the employee's regular compensation. Such contributions, to the
extent they do not exceed applicable limitations (including a generally
applicable limitation of $9,500 per year), are excludable from the gross income
of the employee for Federal Income tax purposes.
ADDITIONAL REDEMPTION INFORMATION
Shareholders may redeem their shares of the Fund on any business day that
the Fund calculates its net asset value. See "Valuing the Funds' Shares."
Redemptions will be effected at the net asset value per share next determined
after the receipt by the transfer agent of a redemption request meeting the
requirements described below. The Funds normally send redemption proceeds on
the next business day, but in any event redemption proceeds are sent within
seven calendar days of receipt of a redemption request in proper form, or sooner
if required under applicable law. Payment may also be made by wire directly to
any bank previously designated by the shareholder in a shareholder account
application. The Fund's custodian or the shareholder's bank may impose a fee
for wire service. The Fund will honor redemption requests of shareholders who
recently purchased shares by check, but will not mail the proceeds attributable
to such purchase until it is reasonably satisfied that the purchase check has
cleared, which may take up to twelve days from the purchase date, at which time
the redemption proceeds will be sent to the shareholder. Purchases made with a
check that does not clear will be canceled and the investor will be responsible
for any losses or fees incurred in the transaction.
REDEMPTION BY MAIL - At any time during normal business hours you may request
that the Funds redeem your shares in whole or part. Written redemption requests
must be directed to The HomeState Group, c/o Firstar Trust Company, P.O. Box
701, Milwaukee, WI 53201-0701. If a redemption request is inadvertently sent to
the Fund at its corporate address, it will be forwarded to Firstar Trust
Company, but the effective date of the redemption
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<PAGE>
will be delayed until the request is received by Firstar Trust Company. Requests
for redemption which are subject to any special conditions or which specify an
effective date other than provided herein cannot be honored.
A redemption request must be received in "Good Order" by Firstar Trust
Company for the request to be processed. "Good Order" means the request for
redemption must include: Your letter of instruction specifying the name of the
Fund and either the number of shares or the dollar amount of shares to be
redeemed. The letter of instruction must be signed by all registered
shareholders exactly as the shares are registered and must include your account
registration number and the additional requirements listed below that apply to
the particular account.
<TABLE>
<CAPTION>
Type of Registration Requirements
-------------------- ------------
<S> <C>
Individual, Joint Tenants, Sole Proprietorship, Redemption requests must be signed by all person(s)
Custodial (Uniform Gift To Minors Act), required to sign for the account,
registered exactly as it is
General Partners
Corporations, Associations Redemption request and a corporate resolution, signed
by the person(s) required to sign for the account,
accompanied by signature guarantee(s)
Trusts Redemption request signed by the trustee(s), with a
signature guarantee. (If the Trustee's name is not
registered on the account, a copy of the trust document
certified within the last 60 days is also required.)
</TABLE>
A redemption request for amounts above $10,000, or redemption requests for
which proceeds are to be mailed somewhere other than the address of record, must
be accompanied by signature guarantees. Signatures must be guaranteed by an
"eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934. Eligible guarantor institutions include banks, brokers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. The
transfer agent may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees and guardians.
If you have an IRA, you must indicate on your redemption request whether or
not to withhold federal income tax. Redemption requests not indicating an
election to have federal tax withheld will be subject to withholding. If you are
uncertain of the redemption requirements, please contact, in advance, Firstar
Trust Company.
The redemption price is the next determined net asset value after Firstar
Trust Company receives a redemption request in "Good Order." The amount paid
will depend on the market value of the investments in the Funds' portfolio at
the time of determination of net asset value, and may be more or less than the
initial cost of the shares redeemed. Payment for shares redeemed will be mailed
to you typically within one or two days, but no later than the seventh day (or
earlier if required under applicable law) after receipt by Firstar Trust Company
of the redemption request in "Good Order" unless the Fund is requested to redeem
shares purchased by check. In such an event the Funds may delay the mailing of a
redemption check until the purchase check has cleared which
22
<PAGE>
may take up to 12 days. Wire transfers may be arranged through Firstar Trust
Company, which will assess a $12.00 wire fee against your account.
REDEMPTION BY TELEPHONE - Shareholders who have so indicated on the Subscription
Application Form, or have subsequently arranged in writing to do so, may redeem
shares in any amount up to $10,000 by instructing the transfer agent by
telephone at (800) 232-0224. If proceeds are sent by wire, a $12.00 wire fee
will apply, and there is a $100 minimum per telephone redemption required.
Redemption requests for amounts exceeding $10,000 must be made in writing. In
order to arrange for redemption by wire or telephone after an account has been
opened, or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to the transfer agent at the address
listed above. A signature guarantee is required of all shareholders in order to
change telephone redemption privileges.
Neither the Fund(s) nor any of its service contractors will be liable for
any loss or expense in acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
requests are genuine, the Fund will use such procedures as are considered
reasonable, including requesting a shareholder to correctly state his or her
Fund account number, the name in which his or her account is registered, his or
her banking institution, bank account number and the name in which his or her
bank account is registered. To the extent that the Funds fail to use reasonable
procedures to verify the genuineness of telephone instructions, it and/or its
service contractors may be liable for any such instructions that prove to be
fraudulent or unauthorized.
Redemption proceeds can be sent to your bank account by ACH transfer. You
can elect this option by completing the appropriate section of the Subscription
Application Form. If money is moved by ACH transfer, you will not be charged by
the Fund for these services. There is a $100 minimum per ACH transfer.
During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to implement. In the event that you are
unable to reach Firstar Trust Company by telephone, you may make a redemption
request by mail. The Fund and Firstar Trust Company each reserve the right to
refuse a wire or telephone redemption if it is believed advisable to do so.
Procedures for redeeming Funds shares by wire or telephone may be modified or
terminated at any time by the Funds.
Checks will be made payable to you and will be sent to your address of
record. If the proceeds of the redemption are requested to be sent to other
than the address of record or if the address of record has been changed within
15 days of the redemption request, the request must be in writing with your
signature(s) guaranteed.
The Funds also reserve the right to involuntarily redeem an investor's
account where the account is worth less than the minimum initial account
investment required when the account is established, presently $500 for all
accounts except AutoInvest Plan accounts, where the minimum is presently $50.
The shares will not be redeemed solely due to market fluctuations and the effect
such fluctuations may have on an investor's account balance. (Any redemption of
shares from an inactive account established with a minimum investment may reduce
the account below the minimum initial investment, and could subject the account
to redemption initiated by the Fund). The Funds will advise the shareholder of
such intention in writing at least sixty (60) days prior to effecting such
redemption, during which time the shareholder may purchase additional shares in
any amount necessary to bring the account back to the minimum.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who own shares with a value of $10,000 or more may participate
in the Systematic Withdrawal Plan. If you select the Funds' systematic
withdrawal option, you may move money automatically from your Fund account to
your bank account according to the schedule you select. The systematic
withdrawal
23
<PAGE>
option may be in any amount subject to a $50 minimum. To select the option you
must check the appropriate box on the Subscription Application Form. If you
expect to purchase additional Fund shares, it may not be to your advantage to
participate in the Systematic Withdrawal Plan because contemporary purchases and
redemption may result in adverse tax consequences. For further details, see the
application form or call the Fund at (800) 232-0224.
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<PAGE>
ADDITIONAL DIVIDEND, DISTRIBUTIONS & TAXES INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Dividends, if any, will be declared and paid in July and December. Capital
gains, if any, will be declared and paid in July and December. All such payments
will be declared on the 15th of the month and paid on the 20th of the month. If
any of these dates falls on a weekend, both the declaration and payment dates
will be moved accordingly to the next business day.
If you elect to receive cash dividends and/or capital gains distributions
and a check is returned as undelivered by the United States Postal Service, the
Funds reserve the right to invest the check in additional shares of the Funds at
the then-current net asset value and to convert your account's election to
automatic reinvestment of all distributions, until the Funds' Transfer Agent
receives a corrected address in writing from the number of account owners
authorized on your application to change the registration. If the Transfer Agent
receives no written communication from the account owner(s) and there are no
purchases, sales or exchanges in your account for a period of time mandated by
state law, then that state may require the Transfer Agent to turn over to state
government the value of the account as well as any dividends or distributions
paid.
After a dividend or capital gains distribution is paid, the Funds' share
price will drop by the amount of the dividend or distribution. If you have
chosen to have your dividends or distributions paid to your account in
additional shares, the total value of your account will not change after the
dividend or distribution is paid. In such cases, while the value of each share
will be lower, each reinvesting shareholder will own more shares. Reinvested
shares will be purchased at the price in effect at the close of business on the
day after the record date.
TAXES
Each series of the Trust is treated as a separate Fund for federal income
tax purposes. Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to qualify, and, therefore to qualify for the special tax
treatment accorded regulated investment companies and their shareholders, each
Fund must, among other things:
(1) Derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities, loans, and gains from the sale of
stock and securities, or other income derived with respect to its business of
investing in such stock or securities;
(2) Derive less than 30% of its gross income from gains from the sale or
other disposition of certain assets (including stock or securities) held for
less than three months;
(3) Distribute with respect to each taxable year at least 90% of its
taxable and tax-exempt income for such year; and
(4) Diversify its holdings so that, at the end of each fiscal quarter, (i)
at least 50% of the market value of the Fund's assets is represented by cash and
cash items, United States Government securities, securities of other investment
companies, and other securities limited in respect of any one issuer to a value
not greater than 5% of the value of the Fund's total assets and 10% of the
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the United States
Government or other regulated investment companies) of any one issuer or of two
or more issuers which the Fund controls and which are engaged in the same,
similar, or related types of businesses.
If each Fund qualifies to be taxed as a regulated investment company it is
accorded special tax treatment and will not be subject to federal income tax on
income distributed to its shareholders in the form of dividends (including both
capital gain and ordinary income dividends). If, however, a Fund does not
qualify for such special tax treatment, that Fund will be subject to tax on its
taxable income at corporate rates, and could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial distributions
25
<PAGE>
before requalifying as a regulated investment company that is accorded special
tax treatment. In addition, if a Fund fails to distribute in a calendar year
substantially all of its ordinary income for such year and substantially all of
its net capital gain for the year ending October 31 (or later if the Fund is
permitted so to elect and so elects), plus any retained amount from the prior
year, that Fund will be subject to a 4% excise tax on the undistributed amounts.
Each Fund intends generally to make distributions sufficient to avoid imposition
of the 4% excise tax. In calculating its income, each Fund must include
dividends in income not when received, but on the date when the stock in
question is acquired or becomes ex-dividend, whichever is later.
OTHER TAX INFORMATION
Return of Capital Distributions - If a Fund makes a distribution to you in
- -------------------------------
excess of its accumulated earnings and profits in any taxable year, the excess
distribution will be treated as a return of capital to the extent of your tax
basis in your shares, and thereafter as capital gain. A return of capital is not
taxable, but it reduces your tax basis in your shares.
Capital Gains - When you purchase shares of a Fund, the Fund's then-current net
- -------------
asset value may reflect undistributed capital gains or net unrealized
appreciation of securities held by the Fund. If the Fund subsequently
distributed such amounts to you, the distribution would be taxable, although it
constituted a return of your investment. For federal income tax purposes, each
Fund is permitted to carry forward net realized capital losses, if any, and
realize net capital gains up to the amount of such losses without being required
to pay taxes on or distribute such gains which, if distributed, might be taxable
to you.
Dividends - The Code provides a 70% deduction for dividends received by
- ---------
corporate shareholders, with certain exceptions. It is expected that only part
of each Fund's investment income will be derived from dividends qualifying as
such and, therefore, not all dividends received will be subject to the
deduction.
Shares Purchased through Retirement Plans - Special tax rules and fiduciary
- -----------------------------------------
responsibility requirements apply to investments made through retirement plans
which satisfy the requirements of Section 401(a) of the Code. Shareholders of
the Funds should consult with their tax adviser to determine the suitability of
shares of the Funds as an investment through such plans, and the precise effect
of such an investment on their particular tax situation.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES AND OFFICERS OF THE TRUST
The HomeState Group is organized as a Pennsylvania common law trust. The
operations and management of the Trust are the responsibility of the Board of
Trustees. Pursuant to that responsibility, the Board of Trustees has approved
contracts with organizations to provide, among other things, day-to-day
investment advisory and administrative management services.
The following individuals hold positions as Trustees and/or Officers of the
Trust. Their position with the Trust is listed along with their business
occupations for the previous five years:
Name, Position and Occupation for previous Five Years
SCOTT L. REHR*, 1857 William Penn Way, Lancaster, PA 17601, President and
Trustee, age 35, has been Senior Vice President and Treasurer of Emerald
Advisers, Inc. since 1991. He was Vice President of Weik Investment Services,
Inc. from 1990 to 1991. He was Vice President of Penn Square Mutual Fund and
the William Penn Interest Income Fund from 1989 to 1990 and Director of Investor
Services, Penn Square Management Corp. from 1986 to 1989.
26
<PAGE>
BRUCE E. BOWEN, 1536 Buttonbush Circle, Palm City, Fl 34990, Trustee, age 59, is
currently a private investor. He retired as Vice Chairman and Secretary of Penn
Square Mutual Fund, positions he held from 1968 to 1988 and Vice Chairman and
Secretary of William Penn Interest Income Fund positions he held from 1987 to
1988. He also served as Vice President and Secretary of Penn Square Management
Corp. from 1964 to 1988.
KENNETH G. MERTZ II, C.F.A.*, 1857 William Penn Way, Lancaster, PA 17601,
Trustee, Vice President and Chief Financial Officer, age 45, has been President
and Chief Investment Officer of Emerald Advisers, Inc. since 1992. He was Chief
Investment Officer for the Pennsylvania State Employees Retirement System from
1985 to 1992. He was a Member of the National Advisory Board, Northwest Center
for Professional Education/Real Estate Investment for Pension Funds from 1991 to
1992 and a Member of the Advisory Board, APA/Fostin Pennsylvania Venture Capital
Fund from 1987 to 1992.
DANIEL W. MOYER IV*, 1857 William Penn Way, Lancaster, PA 17601, Vice President
and Secretary, age 43, has been Vice President of Emerald Advisers, Inc. since
1992 as well as a Registered Representative for First Montauk Securities Corp.
since 1992. He was the Branch Office Manager for Keogler Morgan & Co. and a
Registered Representative and Director for Financial Management Group from 1988
to 1992.
SCOTT C. PENWELL, ESQ.**, 305 North Front Street, Harrisburg, PA 17108, Trustee,
age 45, has been a partner at Duane, Morris & Heckscher LLP since 1981. He has
also been Chairman of the Securities Regulation Committee of the Corporation,
Banking and Business Law Section of the Pennsylvania Bar Association since 1994.
DR. H. J. ZOFFER, Joseph M. Katz School of Business, 366 Mervis Hall,
Pittsburgh, PA 15260, Trustee, age 67, has been Professor of Business
Administration at Joseph M. Katz School of Business since 1966. He was Dean of
Joseph M. Katz School of Business, University of Pittsburgh from 1966 to 1996.
He is also a Director of Penwood Savings Association.
* Employee of Emerald Advisers, Inc. and "Interested Person" within the meaning
of the Investment Company Act of 1940.
** Employee of the Trust's Legal Counsel and therefore an "Interested Person"
within the meaning of the Investment Company Act of 1940.
The Trustees of the Funds who are not employed by the Adviser, the
Distributor, or their affiliates (the "Disinterested Trustees") receive an
annual retainer of $2,500 for the HomeState Pennsylvania Growth Fund and $1,000
for the HomeState Select Banking and Finance Fund, $350 for each Trustees
meeting attended, and $100 for each Audit Committee meeting attended. For the
year ended June 30, 1997, the Trustees received fees totaling $18,150 for their
services. The Funds will also reimburse the Independent Trustees' travel
expenses incurred attending Board meetings.
27
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
NAME AND TITLE AGGREGATE PAY AGGREGATE PAY AGGREGATE PAY TOTAL PAY FROM
FROM PA GROWTH FROM BANKING AND FROM THE YEAR FUND COMPLEX (1)
FUND FINANCE FUND 2000 FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scott L. Rehr, $ 0 $ 0 $ 0 $ 0
Trustee and President
- -------------------------------------------------------------------------------------------------------
Bruce E. Bowen, 4,000 2,050 2,500 8,550
Trustee
- -------------------------------------------------------------------------------------------------------
Daniel W. Moyer, IV, 0 0 0 0
Vice-President and
Secretary
- -------------------------------------------------------------------------------------------------------
Kenneth G. Mertz, II, 0 0 0 0
Trustee, Vice-
President and Chief
Investment Officer
- -------------------------------------------------------------------------------------------------------
Scott C. Penwell, 4,000 2,050 2,500 8,550
Trustee
Dr. H. J. Zoffer 4,000 2,050 2,500 8,550
Trustee
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) No pension or retirement benefits are provided for trustees or officers of
the Funds.
The Officers of the Funds receive no compensation for their services
as such.
As of September 30, 1997 the Trustees and Officers of the Funds owned,
as a group, less than one percent of the outstanding shares of the Funds.
The Declaration of Trust provides that the Trust will indemnify the
Trustees and may indemnify its officers and employees against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust, except if it is determined in the
manner specified in the Trust that they have acted in bad faith, with reckless
disregard of his/her duties, willful misconduct or gross negligence. The Trust,
at its expense, may provide liability insurance for the benefit of its Trustees,
officers and employees.
PERSONS CONTROLLING THE FUNDS
To the knowledge of the Funds, no person owned of record or
beneficially 25% or more of each Fund's outstanding shares as of September 30,
1997.
To the knowledge of the Funds, no person owned of record or
beneficially 5% or more of HomeState Select Banking and Finance Fund's
outstanding shares as of September 30, 1997.
The following persons owned of record or beneficially 5% or more of
the HomeState Pennsylvania Growth Fund's outstanding shares as of September 30,
1997:
NAME ADDRESS % OF OWNERSHIP
Smith Barney Inc. 388 Greenwich St., NY, NY 10013 12.4%
28
<PAGE>
INVESTMENT ADVISER AND OTHER SERVICE PROVIDERS
INVESTMENT ADVISER AND PRINCIPAL UNDERWRITER
Emerald Advisers, Inc (the "Adviser"), 1857 William Penn Way, Lancaster, PA
17601, and Rafferty Capital Markets, Inc., 550 Mamaroneck Avenue, Harrison, NY
10528, are the Funds' investment adviser and distributor, respectively. The
Distributor is not obligated to sell any specific amount of shares of the Funds
and will purchase shares for resale only against orders for shares. The
Distributor is a New York corporation, a broker-dealer registered with the
Securities and Exchange Commission, and a member of the National Association of
Securities Dealers, Inc., (the "NASD"). Some officers of the Funds are employed
by the Adviser and may also distribute shares of the Funds as registered
representatives of the Distributor.
The Advise is a wholly-owned subsidiary of Emerald Asset Management, Inc.
("EAM"), 1857 William Penn Way, Lancaster, PA 17601. The shareholders of EAM
are: Joseph E. Besecker, James Brubaker, Stanley Corker, Joseph W. Garner,
Kenneth G. Mertz II, Daniel W. Moyer IV, Scott L. Rehr, Stacey L. Stichter, Paul
W. Ware and Judy S. Ware. The following individuals have the following
positions and offices with the Trust and the Adviser:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NAME POSITION(S) WITH ADVISER POSITION(S) WITH TRUST
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Scott L. Rehr Senior Vice President; Treasurer; Trustee; President
Director
- ----------------------------------------------------------------------------------------------------------------
Kenneth G. Mertz II, C.F.A. President; Director Trustee; Vice President; Chief
Investment Officer
- ----------------------------------------------------------------------------------------------------------------
Daniel W. Moyer, IV Vice President; Director Vice President; Secretary
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
In carrying out its responsibilities under the investment advisory contract
with the Funds, the Adviser furnishes or pays for all facilities and services
furnished or performed for, or on behalf of, the Funds. Such items may include,
but are not limited to: office facilities, office support materials and
equipment, records and personnel necessary to manage the Funds' daily affairs.
In return for these services, the Funds have agreed to pay the Adviser an
annualized fee, based on the average market value of the net assets of the
Funds, computed each business day and paid to the Adviser monthly. The fee is
paid as follows:
HOMESTATE PENNSYLVANIA GROWTH FUND:
Assets $0 to $250 Million.......... 0.75%
Over $250 MM to $500 MM............ 0.65%
Over $500 MM to $750 MM............ 0.55%
Over $750 Million.................. 0.45%
HOMESTATE SELECT BANKING AND FINANCE FUND and
HOMESTATE YEAR 2000 ("Y2K") FUND:
Assets $0 to $100 Million.......... 1.00%
Over $100 Million.................. 0.90%
29
<PAGE>
These fees are higher than most other registered mutual funds but
comparable to fees paid by equity funds of a similar investment objective and
size. For the fiscal years ended June 30, 1997, 1996 and 1995, the Adviser
received management fees from the HomeState Pennsylvania Growth Fund, before
voluntary reimbursement of expenses, totaling $528,528, $246,310, and $106,017,
respectively. For the period ended June 30, 1997, the Adviser received
management fees from the HomeState Select Banking and Finance Fund, before
voluntary reimbursement of expenses, totaling $11,200. For the period ended
June 30, 1997, the Adviser waived its entire fee, $11,200 and reimbursed the
HomeState Select Banking and Finance Fund $47,862.
The Funds pay all of their expenses other than those expressly assumed by
the Adviser. Specifically, the Funds pay the fees and expenses of their
transfer agent, custodian, independent accountants and legal counsel. These fees
are generally for the costs of necessary professional services, regulatory
compliance, and those pertaining to maintaining the Funds' organizational
standing. The resulting fees may include, but are not limited to: brokerage
commissions, taxes and organizational fees, bonding and insurance, custody,
auditing and accounting services, shareholder communications and shareholder
servicing, and the cost of financial reports and prospectuses sent to
Shareholders. t will reimburse its fee to a Fund to the extent such fee exceeds
the most restrictive expense limitation in effect by a state regulatory agency
where that Fund's shares are registered for purchase. The Adviser reserves the
right to voluntarily waive any portion of its advisory fee at any time.
ADMINISTRATOR, ACCOUNTING AGENT AND TRANSFER AGENT
The Funds have entered into an administration agreement (the
"Administration Agreement") with Firstar Trust Company (the "Administrator"),
615 E. Michigan Street, Milwaukee, WI 53202. Under the Administrative Agreement,
the administrator: (1) coordinates with the Custodian and monitors the
custodial, transfer agency and accounting services provided to the Funds; (2)
coordinates with and monitors any other third parties furnishing services to the
Funds; (3) provides the Funds with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions; (4) maintains such books and records of the Funds as may be
required by applicable federal or state law and supervises the maintenance of
such books and records if maintained by third parties; (5) prepares or
supervises the preparation by third parties of all federal, state and local tax
returns and reports of the Funds required by applicable law; (6) prepares and,
after approval by the Funds, files and arranges for the distribution of proxy
materials and periodic reports to shareholders of the Funds as required by
applicable law; (7) prepares and, after approval by the Funds, arranges for the
filing of such registration statements and other documents with the SEC and
other federal and state regulatory authorities as may be required by applicable
law; (8) reviews and submits to the officers of the Trust for their approval
invoices or other requests for payment of the Funds' expenses and instructs the
Custodian to issue checks in payment thereof; (9) assists the Funds in the
preparation of documents and information needed for meetings of the Board of
Trustees and prepares the minutes of Board meetings; (10) monitors the Funds'
compliance with applicable state securities laws; (11) assists the Distributor
with the review of advertising literature and the submission of such advertising
literature to the NASD for review and approval under applicable NASD rules; (12)
assists the Distributor with the preparation of quarterly reports to the Board
of Trustees relating to the distribution plan adopted by the Funds pursuant to
Rule 12b-1; and (13) takes other such action with respect to the Funds as may be
necessary in the opinion of the Administrator to perform its duties under the
agreement.
The Administrator, at its own expense and without reimbursement from the
Funds, furnishes office space and all necessary office facilities, equipment and
executive personnel for performing the services required to be performed by it
under the Administration Agreement. For the foregoing, the Administrator
receives from the Fund a fee, paid monthly, at an annual rate of .06% of the
first $200,000,000 of each Fund's average net assets, .05% of the next
$500,000,000 of each Fund's average net assets, and .03% of each Fund's average
net assets in excess of $700,000,000. Notwithstanding the foregoing, the
Administrator's minimum annual fee is $30,000.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
30
<PAGE>
Firstar Trust Company serves as custodian of the Trust's assets pursuant to
a Custody Agreement. Under the Custody Agreement, Firstar Trust Company has
agreed to (i) maintain a separate account in the name of each of the Funds, (ii)
make receipts and disbursements of money on behalf of the Funds, (iii) collect
and receive all income and other payments and distributions on account of the
Funds' portfolio investments, (iv) respond to correspondence from shareholders,
security brokers and others relating to its duties and (v) make periodic reports
to the Funds concerning the Funds' operations. Firstar Trust Company does not
exercise any supervisory function over the purchase and sale of securities.
Firstar Trust Company also serves as transfer agent and dividend disbursing
agent for the Funds under a Shareholder Services Agreement. As transfer agent
and dividend disbursing agent, Firstar Trust Company has agreed to (i) issue and
redeem shares of the Funds, (ii) make dividend and other distributions to
shareholders of the Funds, (iii) respond to correspondence by Fund shareholders
and others relating to its duties, (iv) maintain shareholder accounts and (v)
make periodic reports to the Funds.
In addition, the Trust has entered into a Fund Accounting Servicing
Agreement with Firstar Trust Company pursuant to which Firstar Trust Company has
agreed to maintain the financial accounts and records of the Funds and provide
other accounting services to the Funds. For its accounting services, Firstar
Trust Company is entitled to receive fees, payable monthly, based on the total
annual rate of $24,000 for the first $40 million in average net assets of the
Funds, 0.01% on the next $200 million of average net assets and 0.005% on
average net assets exceeding $240 million (subject to an annual minimum of
$24,000). Firstar Trust Company is also entitled to certain out of pocket
expenses, including pricing expenses.
Prior to March of 1998, Rodney Square Management Corp. ("Rodney Square")
performed administrative, accounting and transfer agency services for the Funds.
For the fiscal years ended June 30, 1997 Rodney Square received fees totaling
$302,133 and for the period from November 20, 1995 through June 30, 1996, Rodney
Square received fees totaling $106,524. For the period from July 1, 1995
through November 19, 1995, the fiscal year ended June 30, 1995, Fund/Plan
Services, Inc., The HomeState Pennsylvania Growth Fund's previous transfer and
accounting agent, received fees from the Fund totaling $21,022 and $80,253,
respectively.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 30 South Seventeenth Street, Philadelphia, PA 19103,
are the independent accountants which audit the annual financial statements of
the Funds.
THE DISTRIBUTION PLANS
General Information. In order to compensate investment dealers (including for
- -------------------
this purpose certain financial institutions) for services provided in connection
with sales of shares of certain series of the Trust and maintenance of
shareholder accounts within these series, the Distributor makes quarterly
payments to qualifying dealers based on the average net asset value of shares of
the Funds' specified series which are attributable to shareholders for whom the
dealers are designated as the dealer of record. The Distributor makes such
payments at the annual rate of 0.25% of the average net asset value of the PA
Growth Fund and Banking and Finance Fund and an annual rate of 0.50% of the Y2K
Fund, with "average net asset value" attributable to a shareholder account
meaning the product of (i) the average daily share balance of the account
multiplied by (ii) the series' average daily net asset value per share.
For administrative reasons, the Distributor may enter into agreements with
certain dealers providing for the calculation of "average net asset value" on
the basis of assets of the accounts of the dealer's customers on an established
day in each quarter. The Distributor may suspend or modify these payments at
any time. Payments are subject to the continuation of the Series' Plan
described below and the terms of service agreements between dealers and the
Distributor.
31
<PAGE>
The PA Growth Fund, the Banking and Finance Fund and the Y2K Fund are all
currently operating with Distribution Plans (the "Plans"). Each Fund has
adopted a Plan pursuant to Rule 12b-1 under the Act. The purpose of the Plans
are to permit the Funds to compensate the Distributor for services provided and
expenses incurred by it in promoting the sale of shares of the Series, reducing
redemptions, or maintaining or improving services provided to shareholders by
the Distributor or dealers. By promoting the sale of shares and/or reducing
redemptions, the Plan should help provide a continuous cash flow, affording the
Adviser the ability to purchase and redeem securities without forcing the
Adviser to make unwanted redemptions of existing portfolio securities.
The Plans provide for quarterly payments by each Fund to the Distributor at
the annual rate of up to 0.35% of the Series' average net assets for the PA
Growth Fund and Banking and Finance Fund and the annual rate of up to 0.70% for
the Y2K Fund, subject to the authority of the Trust's Board of Trustees to
reduce the amount of payments or to suspend the Plans for such periods as they
may determine. Subject to these limitations, the amount of such payments and the
specific purposes for which they are made shall be determined by the Board of
Trustees. At present, the Trustees have approved payments under the Plans for
the purpose of reimbursing the Distributor for payments made by it to dealers
under the service agreements referred to above as well as for certain additional
expenses related to shareholder services and the distribution of shares, subject
to the maximum annual rate of 0.35% of each Fund's average net assets.
Continuance of the Plans is subject to annual approval by a vote of the Board of
Trustees, including a majority of the Trustees who are not interested persons of
the Fund and who have no direct or indirect interest in the Plan or related
arrangements (these Trustees are known as "Disinterested Trustees"), cast in
person at a meeting called for that purpose. All material amendments to the
Plans must be likewise approved by separate votes of the Trustees and the
Disinterested Trustees of the Trust. The Plans may not be amended in order to
increase materially the costs which the Funds bear for distribution pursuant to
the Plans without also being approved by a majority of the outstanding voting
securities of a Fund. The Plans terminate automatically in the event of their
assignment and may be terminated without penalty, at any time, by a vote of the
majority of (i) the outstanding voting securities of a Fund, or (ii) the
Disinterested Trustees.
The Glass-Steagall Act and other applicable laws and regulations prohibit a
bank from acting as underwriter or distributor of securities. If a bank were
prohibited from providing certain administrative services, shareholders would be
permitted to remain as the Funds' shareholders and alternate means for
continuing the servicing of such shareholders would be sought. It is not
expected that shareholders would suffer any financial consequences as a result
of any of those occurrences.
Future regulatory review and revision of Rule 12b-1 by the SEC, of Rule
2830 of the Rules of Fair Practice by the NASD, or any similar review and
revision of other applicable regulations by other regulatory agencies could
affect the Funds' Plans. The Board of Trustees will promptly modify the Plans
if such action is warranted.
For the fiscal year ended June 30, 1997, the PA Growth Fund incurred
expenses totaling $249,651 pursuant to the Distribution Plan. The Banking and
Finance Fund incurred expenses totaling $3,920.
32
<PAGE>
ADDITIONAL BROKERAGE ALLOCATION INFORMATION
The Adviser is responsible for selecting brokers and dealers to effect
portfolio securities transactions and for negotiating brokerage commissions and
dealers' charges. The Adviser places orders for the purchase or sale of
portfolio securities of the Funds. In choosing a particular broker to execute a
given transaction, the Adviser uses the following criteria: (1) the past
capabilities of that broker in executing such types of trades; (2) the quality
and speed of executing trades; (3) competitive commission rates; and (4) all
other factors being equal, useful research services provided by the brokerage
firm. The research services provided to the Adviser are used to advise all of
its clients, including the Funds, but not all such services furnished are used
to advise the Funds. Research services can include written reports and
interviews by analysts on a particular industry or company or on economic
factors, and other such services which can enhance the Adviser's ability to
gauge the potential investment worthiness of companies and/or industries, such
as evaluation of investments, recommendations as to the purchase or sale of
investments, newspapers, magazines, quotation services and news services. If
these services are not used exclusively by the Adviser for Funds' research
purposes, then Adviser, based upon allocations of expected use, bears that
portion of the service's cost that directly relates to non-Funds research use.
The management fee paid by the Funds to the Adviser is not reduced because the
Adviser receives these services even though the Adviser might otherwise be
required to purchase some of these services for cash. The Adviser does not pay
excess commissions to any broker for research services provided or for any other
reason. Consistent with the Rules of Fair Practice of the NASD and subject to
seeking the most favorable price and execution available and such other policies
as the Board of Trustees may determine, the Adviser may consider sales of shares
of front-end load series of the Funds as a factor in the selection of broker-
dealers to execute portfolio transactions for the Funds.
To the extent consistent with applicable provisions of the Act, Rule 17e-1,
and other rules and exemptions adopted by the SEC under that Act, the Board of
Trustees has determined that transactions for the Funds may be executed by
affiliated brokers if, in the judgment of the Adviser, the use of an affiliated
broker is likely to result in price and execution at least as favorable as those
qualified brokers. The Adviser will not execute principal transactions by use of
an affiliated broker.
For the fiscal years ended June 30, 1997, 1996 and 1995, the PA Growth Fund
incurred brokerage commissions aggregating $208,752, $127,600 and $91,506,
respectively. During the fiscal year ended June 30, 1997, transactions of the
PA Growth Fund aggregating $46,908,216 were allocated to brokers providing
research, statistical and other related services and $187,194 in brokerage
commissions were paid on these transactions. For the period ended June 30,
1997, the Banking and Finance Fund incurred brokerage commissions aggregating
$21,558.
Portfolio Turnover Rate. The portfolio turnover rate is calculated by
-----------------------
dividing the lesser of each Fund's annual purchases and sales of portfolio
securities for the particular fiscal year by the monthly average value of the
portfolio securities owned by each Fund during the year. All securities,
including options, whose maturity or expiration date at the time of acquisition
was one year or less are to be excluded from both the numerator and the
denominator. The portfolio turnover rate of the PA Growth Fund for the fiscal
years ended June 30, 1997 and 1996 was 50% and 66%, respectively. The portfolio
turnover rate for the Banking and Finance Fund for the period ended June 30,
1997 was 59%.
33
<PAGE>
MEASURING PERFORMANCE
Average annual total return data ("Standardized Return") for the Funds may
from time to time be presented in the Prospectus, this Statement and in
advertisements. Each Fund's "average annual total return" is an average annual
compounded rate of return. It is the rate of return based on factors that
include a hypothetical investment of $1,000 held for a number of years with an
Ending Redeemable Value of that investment, according to the following formula:
(ERV/P)/1/n/ - 1 = T
where: P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at end of the
period of a hypothetical $1,000 payment
made at the beginning of that period.
HomeState Pennsylvania Growth Fund
AVERAGE ANNUAL TOTAL
RETURN SINCE INCEPTION
1 YEAR OCTOBER 1, 1992
ENDED THROUGH
SALES LOAD JUNE 30, 1997 JUNE 30, 1997
----------- ------------- --------------
4.75% 4.36% 19.73%
NONE 9.56% 20.96%
HomeState Select Banking and Finance Fund
AGGREGATE RETURN
SINCE INCEPTION
FEBRUARY 18, 1997
THROUGH
SALES LOAD JUNE 30, 1997
---------- -------------
4.75% 11.44%
NONE 17.00%
Total return data ("Non-Standardized Return") may also be presented from
time to time. The calculation of each Fund's "total return" uses some of the
same factors as the calculation of the average annual total return, but does not
average the rate of return on an annual basis. Total return measures the
cumulative (rather than average) change in value of a hypothetical investment in
a Fund over a stated period. Total return is stated as follows:
P(1 + T)/(n)/ = ERV
Both methods of total return calculation assume: (i) deduction of the
Fund's maximum sales charge, if applicable, and (ii) reinvestment of all Fund
distributions at net asset value on the respective date. Average
34
<PAGE>
annual total return and total return calculation is a measurement of past
performance, and is not indicative of future results. Share prices will
fluctuate so that an investor's shares in the Fund may be worth more or less
than their original purchase cost when redeemed.
Each Fund may periodically compare its performance to that of other mutual
funds tracked by mutual fund ratings services (such as Lipper Analytical
Services, Inc.), financial and business publications and periodicals, of broad
groups of comparable mutual funds or of unmanaged indices (such as the Standard
& Poor's 500, Dow Jones Industrial Average, NASDAQ Composite, Russell 2000,
Wilshire 5000 or Wilshire 4500 indices), which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs. A Fund may quote Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance. A Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
FINANCIAL STATEMENTS
The Schedule of Investments as of June 30, 1997; the Statement of Assets
and Liabilities as of June 30, 1997; the Statement of Operations for the fiscal
year ended June 30, 1997; the Statement of Changes in Net Assets for the fiscal
years ended June 30, 1997 and June 30, 1996 for the PA Growth Fund and for the
fiscal year ended June 30, 1997 for the Banking and Finance Fund (formerly the
HomeState Select Opportunities Fund); the Financial Highlights for the fiscal
years ended June 30, 1997, 1996, 1995, 1994, and for the period October 1, 1992
(commencement of operations) to June 30, 1993 for the PA Growth Fund and for the
fiscal year ended June 30, 1997 for the Banking and Finance Fund; and the Notes
to the Financial Statements and the Report of Independent Accountants, each of
which is included in the Annual Report to the shareholders of the Funds as of
and for the fiscal year ended June 30, 1997, are attached hereto.
35
<PAGE>
APPENDIX A:
DESCRIPTION OF RATINGS
Following are descriptions of investment securities ratings from Moody's
Investor Services ("Moody's") and Standard & Poor's Corporation ("S & P"). See
pages 4 and 5 of this Statement for how these ratings relate to investments in
the Funds' portfolio.
I. COMMERCIAL PAPER RATINGS:
A. Moody's: Issuers rated Prime-1 have a superior capacity, issuers rated
Prime-2 have a strong capacity, and issuers rated Prime-3 have an acceptable
capacity for the repayment of short-term promissory obligations.
B. S & P: Issues rated A are the highest quality obligations. Issues in this
category are regarded as having the greatest capacity for timely payment. For
issues designated A-1 the degree of safety regarding timely payment is very
strong. For issues designated A-2 the capacity for timely payment is also
strong, but not as high as for A-1 issues. Issues designated A-3 have a
satisfactory capacity for timely payment.
II. CORPORATE BOND RATINGS:
A. Moody's:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there maybe other elements present which
make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
These categories are considered to be of "Investment Grade" by Moody's.
Moody's applies numerical modifiers "1," "2," and "3" in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
B. S & P:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal &
interest.
A-1
<PAGE>
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category.
S & P classifies corporate bonds of these ratings to be of "Investment
Grade." Plus (+) or Minus (-): The ratings from AA to B may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
III. PREFERRED STOCK RATINGS:
Both Moody's and S & P use the same designations for corporate bonds as
they do for preferred stock except in the case of Moody's preferred stock
ratings, the initial letter rating is not capitalized. While the descriptions
are tailored for preferred stocks, the relative quality descriptions are
comparable to those described above for corporate bonds.
Ratings by Moody's and S & P represent their respective opinions as to the
investment quality of the rated obligations. These ratings do not constitute a
guarantee that the principal and interest payable under these obligations will
be paid when due, but rather serve as a general guide in comparing prospective
investments.
A-2
<PAGE>
APPENDIX B
OPTIONS AND SHORT SELLING STRATEGIES FOR
THE HOMESTATE SELECT BANKING AND FINANCE FUND AND
THE HOMESTATE YEAR 2000 ("Y2K") FUND
Regulation of the Use of Options Strategies. As discussed in the
Prospectus, in managing the Banking and Finance Fund and the Y2K Fund
(collectively, the "Funds"), the Adviser may engage in certain options and short
selling strategies to hedge various market risks or to enhance potential gain.
Certain special characteristics of and risks associated with using these
instruments are discussed below. Use of options and short selling is subject to
applicable regulations of the SEC, the several options exchanges upon which
these instruments may be traded, and the various state regulatory authorities.
The Board of Trustees has adopted investment guidelines (described below)
reflecting those option trading regulations. The discussion below relates to
each of the two Funds.
COVER FOR OPTIONS STRATEGIES. The Funds will not use leverage in their
options strategies. Accordingly, the Funds will comply with guidelines
established by the SEC with respect to coverage of these strategies and will
either (1) set aside liquid, unencumbered, daily marked-to-market assets in a
segregated account with the Funds' custodian in the prescribed amount; or (2)
hold securities or other options or futures contracts whose values are expected
to offset ("cover") its obligations thereunder. Securities or other options
used for cover cannot be sold or closed out while the strategy is outstanding,
unless they are replaced with similar assets. As a result, there is a
possibility that the use of cover involving a large percentage of the Funds'
assets could impede portfolio management or the Funds' ability to meet
redemption requests or other current obligations.
OPTIONS STRATEGIES. The Funds may purchase and write (sell) options on
securities and securities indices that are traded on U.S. exchanges and in the
over-the-counter ("OTC") market. Currently, options on debt securities are
primarily traded on the OTC market. Exchange-traded options in the U.S. are
issued by a clearing organization affiliated with the exchange on which the
option is listed, which, in effect, guarantees completion of every exchange-
traded option transaction. In contrast, OTC options are contracts between the
Funds and their contra-party with no clearing organization guarantee unless the
parties provide for it. Thus, when the Funds purchase an OTC option, they rely
on the dealer from which they have purchased the OTC option to make or take
delivery of the securities underlying the option. Failure by the dealer to do
so would result in the loss of any premium paid by the Funds as well as the loss
of the expected benefit of the transaction. Accordingly, before the Funds
purchase or sell an OTC option, the Adviser assesses the creditworthiness of
each counterparty and any guarantor or credit enhancement of the counterparty's
credit to determine whether the terms of the option are likely to be satisfied.
The Funds may purchase call options on securities in which they are
authorized to invest in order to fix the cost of a future purchase. Call
options also may be used as a means of enhancing returns by, for example,
participating in an anticipated price increase of a security. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the potential loss to the Funds to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Funds either sell or exercise the option, any profit
eventually realized would be reduced by the premium paid.
The Funds may purchase put options on securities that they hold in order to
hedge against a decline in the market value of the securities held or to enhance
return. The put option enables the Funds to sell the underlying security at the
predetermined exercise price; thus, the potential for loss to the Funds below
the exercise price is limited to the option premium paid. If the market price
of the underlying security is higher than the exercise price of the put option,
any profit the Funds realize on the sale of the security is reduced by the
premium paid for the put option less any amount for which the put option may be
sold.
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<PAGE>
The Funds may on certain occasions wish to hedge against a decline in the
market value of securities that they hold at a time when put options on those
particular securities are not available for purchase. At those times, the Funds
may purchase a put option on other carefully selected securities in which they
are authorized to invest, the values of which historically have a high degree of
positive correlation to the value of the securities actually held. If the
Adviser's judgment is correct, changes in the value of the put options should
generally offset changes in the value of the securities being hedged. However,
the correlation between the two values may not be as close in these transactions
as in transactions in which the Funds purchase a put option on a security that
they hold. If the value of the securities underlying the put option falls below
the value of the portfolio securities, the put option may not provide complete
protection against a decline in the value of the portfolio securities.
The Funds may write covered call options on securities in which they are
authorized to invest for hedging purposes or to increase return in the form of
premiums received from the purchasers of the options. A call option gives the
purchaser of the option the right to buy, and the writer (seller) the obligation
to sell, the underlying security at the exercise price during the option period.
The strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price
of the underlying security held by the Funds declines, the amount of the decline
will be offset wholly or in part by the amount of the premium received by the
Funds. If, however, there is an increase in the market price of the underlying
security and the option is exercised, the Funds will be obligated to sell the
security at less than its market value.
Securities used to cover OTC call options written by the Funds are
considered illiquid and therefore subject to the Funds' limitations on investing
in illiquid securities, unless the OTC options are sold to qualified dealers who
agree that the Funds may repurchase any OTC options they write for a maximum
price to be calculated by a formula set forth in the option agreement. The
cover for an OTC call option written subject to this procedure is considered
illiquid only to the extent that the maximum repurchase price under the formula
exceeds the intrinsic value of the option. The Funds could lose the ability to
participate in an increase in the value of the underlying securities above the
exercise price because the increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the current market value).
The Funds may also write covered put options on securities in which they
are authorized to invest. A put option gives the purchaser of the option the
right to sell, and the writer (seller) the obligation to buy, the underlying
security at the exercise price during the option period. So long as the
obligation of the writer continues, the writer may be assigned an exercise
notice by the broker-dealer through whom such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. If the put
option is not exercised, the Funds will realize income in the amount of the
premium received. This technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the
market price of the underlying securities would decline below the exercise price
less the premiums received, in which case the Funds would expect to suffer a
loss.
The Funds may purchase put and call options and write covered put and call
options on indexes in much the same manner as the more traditional options
discussed above, except that index options may serve as a hedge against overall
fluctuations in the securities markets (or a market sector) rather than
anticipated increases or decreases in the value of a particular security. An
index assigns values to the securities included in the index and fluctuates with
changes in such values. Settlements of index options are effected with cash
payments and do not involve delivery of securities. Thus, upon settlement of an
index option, the purchaser will realize, and the writer will pay, an amount
based on the difference between the exercise price and the closing price of the
index. The effectiveness of hedging techniques using index options will depend
on the extent to which price movements in the index selected correlate with
price movements of the securities in which the Funds invest. Perfect
correlation is not possible because the securities held or to be acquired by the
Funds will not exactly match the composition of indexes on which options are
purchased or written.
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<PAGE>
The Funds may purchase and write covered straddles on securities or
indexes. A long straddle is a combination of a call and a put purchased on the
same security where the exercise price of the put is less than or equal to the
exercise price on the call. The Funds would enter into a long straddle when the
Adviser believes that it is likely that prices will be more volatile during the
term of the options than is implied by the option pricing. A short straddle is
a combination of a call and a put written on the same security where the
exercise price on the put is less than or equal to the exercise price of the
call where the same issue of the security is considered "cover" for both the put
and the call. The Funds would enter into a short straddle when the Adviser
believes that it is unlikely that prices will be as volatile during the term of
the options as is implied by the option pricing. In such case, the Funds will
set aside cash and/or liquid, high-grade debt securities in a segregated account
with its custodian equivalent in value to the amount, if any, by which the put
is "in-the-money," that is, that amount by which the exercise price of the put
exceeds the current market value of the underlying security. Because straddles
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
The Funds may purchase put and call warrants with values that vary
depending on the change in the value of one or more specified indexes ("index
warrants"). An index warrant is usually issued by a bank or other financial
institution and gives the Funds the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment from the issuer
of the warrant based on the value of the underlying index at the time of
exercise. In general, if the Funds hold a call warrant and the value of the
underlying index rises above the exercise price of the warrant, the Funds will
be entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant.
If the Funds hold a put warrant and the value of the underlying index falls, the
Funds will be entitled to receive a cash payment from the issuer upon exercise
based on the difference between the exercise price of the warrant and the value
of the index. The Funds holding a call warrant would not be entitled to any
payments from the issuer at any time when the exercise price is greater than the
value of the underlying index. The Funds holding a put warrant would not be
entitled to any payments when the exercise price is less than the value of the
underlying index. If the Funds do not exercise an index warrant prior to its
expiration, then the Funds lose the amount of the purchase price that they paid
for the warrant.
The Funds will normally use index warrants as they may use index options.
The risks of the Funds' use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options, however, index
warrants are issued in limited amounts and are not obligations of a regulated
clearing agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally have
longer terms than index options. Index warrants are not likely to be as liquid
as index options backed by a recognized clearing agency. In addition, the terms
of index warrants may limit the Funds' ability to exercise the warrants at any
time or in any quantity.
OPTIONS GUIDELINES. In view of the risks involved in using the options
strategies described above, the Funds have adopted the following investment
guidelines to govern their use of such strategies; these guidelines may be
modified by the Board of Trustees without shareholder approval:
(1) the Funds will write only covered options, and each such option will
remain covered so long as the Funds are obligated under the option; and
(2) the Y2K Fund will not write put or call options having aggregate
exercise prices greater than 25% of its net assets and the Banking and Finance
Fund will not write put or call options having aggregate exercise prices of 5%
or greater of its net assets.
These guidelines do not apply to options attached to or acquired with or
traded together with their underlying securities and do not apply to securities
that incorporate features similar to options.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Funds may
effectively terminate their right or obligation under an option by entering into
a closing transaction. If the Funds wish to terminate their
B-3
<PAGE>
obligation to purchase or sell securities under a put or a call option it has
written, the Funds may purchase a put or a call option of the same series (that
is, an option identical in its terms to the option previously written); this is
known as a closing purchase transaction. Conversely, in order to terminate their
right to purchase or sell specified securities under a call or put option they
have purchased, the Funds may sell an option of the same series as the option
held; this is known as a closing sale transaction. Closing transactions
essentially permit the Funds to realize profits or limit losses on their options
positions prior to the exercise or expiration of the option. If the Funds are
unable to effect a closing purchase transaction with respect to options they
have acquired, the Funds will have to allow the options to expire without
recovering all or a portion of the option premiums paid. If the Funds are unable
to effect a closing purchase transaction with respect to covered options they
have written, the Funds will not be able to sell the underlying securities or
dispose of assets used as cover until the options expire or are exercised, and
the Funds may experience material losses due to losses on the option transaction
itself and in the covering securities.
In considering the use of options to enhance returns or for hedging
purposes, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security or index, the time remaining
until expiration, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security or index and general
market conditions. For this reason, the successful use of options depends upon
Adviser's ability to forecast the direction of price fluctuations in the
underlying securities markets or, in the case of index options, fluctuations in
the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior to expiration. The exercise price of
the options may be below, equal to or above the current market value of the
underlying security or index. Purchased options that expire unexercised have no
value. Unless an option purchased by the Funds is exercised or unless a closing
transaction is effected with respect to that position, the Funds will realize a
loss in the amount of the premium paid and any transaction costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Although the
Funds intend to purchase or write only those exchange-traded options for which
there appears to be a liquid secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any particular
time. A liquid market may be absent if: (i) there is insufficient trading
interest in the option; (ii) the exchange has imposed restrictions on trading,
such as trading halts, trading suspensions or daily price limits; (iii) normal
exchange operations have been disrupted; or (iv) the exchange has inadequate
facilities to handle current trading volume.
Closing transactions may be effected with respect to options traded in
the OTC markets only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market exists.
Although the Funds will enter into OTC options with dealers that agree to enter
into, and that are expected to be capable of entering into, closing transactions
with the Funds, there can be no assurance that the Funds will be able to
liquidate an OTC option at a favorable price at any time prior to expiration.
In the event of insolvency of the contra-party, the Funds may be unable to
liquidate an OTC option. Accordingly, it may not be possible to effect closing
transactions with respect to certain options, which would result in the Funds
having to exercise those options that they have purchased in order to realize
any profit. With respect to options written by the Funds, the inability to
enter into a closing transaction may result in material losses to the Funds.
(4) With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security. Index options are settled
exclusively in cash for the net amount, if any, by which the option is "in-the-
money" (where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. If the Funds write a call
option on an index, the Funds will not know in advance the difference, if any,
between the closing
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<PAGE>
value of the index on the exercise date and the exercise price of the call
option itself and thus will not know the amount of cash payable upon settlement.
If the Funds hold an index option and exercise it before the closing index value
for that day is available, the Funds run the risk that the level of the
underlying index may subsequently change.
The Funds' activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Funds also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation of, or as a result of, market
movements.
SHORT-SELLING
If the Funds anticipate that the price of a security will decline, they may
sell the security short and borrow the same security from a broker or other
institution to complete the sale. The Funds 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 Funds must replace
the borrowed security. As a hedging technique, the Funds may purchase options
to buy securities sold short by the Funds. Such options would lock in a future
purchase price and protect the Funds in case of an unanticipated increase in the
price of a security sold short by the Funds. Short-selling is a technique that
may be considered speculative and involves risk beyond the initial capital
necessary to secure each transaction. In addition, the technique could result
in higher operating costs for the Funds and have adverse tax effects for the
investor. Investors should consider the risks of such investments before
investing in the Funds.
Whenever the Funds effect a short sale, they will set aside in segregated
accounts cash, U.S. Government Securities or other liquid assets equal to the
difference between (i) the market value of the securities sold short; and (ii)
any cash or U.S. Government Securities required to be deposited with the broker
in connection with the short sale (but not including the proceeds of the short
sale.) Until the Funds replace the security they borrowed to make the short
sale they must maintain daily the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short. No more than
25% of the value of the Y2K Fund's, or 5% or more of the value of the Banking
and Finance Fund's total net assets will be, when added together, (i) deposited
as collateral for the obligation to replace securities borrowed to effect short
sales; and (ii) allocated to segregated accounts in connection with short sales.
The Funds' ability to make short sales may be limited by a requirement
applicable to "regulated investment companies" under Subchapter M of the
Internal Revenue Code that no more than 30% of the Funds' respective gross
income in any year may be the result of gains from the sale of property held for
the less than three months.
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APPENDIX C
PENNSYLVANIA-BASED CORPORATIONS
In order to present a prospective investor in the PA Growth Fund with a general
idea of the size and composition of the universe of Pennsylvania-based
publicly-traded companies, this Appendix provides a listing of such companies
identified by the Adviser as: 1. Being available for purchase by the general
public, either as listed on major exchanges (New York Stock Exchange, American
Stock Exchange, or NASDAQ Stock Market), or available over the counter; and 2.
Having their principal headquarters located in Pennsylvania. This listing does
not purport to be complete and is based on information derived from publicly
available documents. The listing is a general guide of Pennsylvania-based
companies and is not meant to serve as a listing of companies whose stocks are
currently held or may be held in the future by the PA Growth Fund. See "FUND
FACTS --- the HomeState Pennsylvania Growth Fund" in the Prospectus and
"Additional Information Concerning Investment Objectives and Policies" in this
Additional Statement of Information for an explanation how portfolio investments
are chosen, and certain limitations on what investments this Fund can purchase.
Appendix C information is presented as follows:
COMPANY NAME SYMBOL
------------ ------
202 Data ..................................................... TOOT
Acap Corp..................................................... ACAP
ACNB Corp..................................................... ACNB
Acrodyne...................................................... ACRO
Action Industries............................................. ACX
ADAGE......................................................... ADGE
Adelphia Communication........................................ ADLA.C
Adience....................................................... NONE
Advanta....................................................... ADVN.A
10 AEL Industries............................................ AELN.A
11 Aero Services International............................... AERO
12 Air Products.............................................. APD
13 Airgas.................................................... ARG
14 Alco Standard............................................. ASN
15 Alcoa..................................................... AA
16 Allegheny Ludlum.......................................... ALS
17 Allegheny Valley Bancorp.................................. NONE
18 Allen Organ............................................... AORG.B
19 Aloette Cosmetics......................................... ALET
20 AM Communications......................................... AMCI
21 Amalgamated Automotive.................................... AAI
22 Ambassador Bank of the Commonwealth....................... NONE
23 American Eagle Outfitters................................. AEOS
24 American Travellers....................................... ATVC
25 AmeriSource............................................... ASHC
26 Ametek.................................................... AME
27 AMP Incorporated.......................................... AMP
28 Ampco-Pittsburgh.......................................... AP
29 Amsco International....................................... ASZ
30 Apogee Inc................................................ APGG
31 Apollo Bancorp, Inc....................................... NONE
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32 Arco Chemical............................................ RCM
33 Armco.................................................... AS
34 Armstrong County Trust Company........................... NONE
35 Armstrong World.......................................... ACK
36 Arnold Industries........................................ AIND
37 Arrow International...................................... ARRO
38 Associated Communication................................. ACCM.A
39 Astea International, Inc................................. ATEA
40 Astrotech International.................................. AIX
41 Atlantic Central Bankers Bank............................ NONE
42 Autoclave Engineers...................................... ACLV
43 Aydin Corp............................................... AYD
44 Baker, Michael Corp...................................... BKR
45 Bank of Landisburg....................................... NONE
46 Bankers" Financial Services Corporation................. BKSV*
47 Bankvest Inc............................................. NONE
48 BCB Financial Services Corp.............................. NONE
49 Bell Atlantic............................................ BEL
50 Berger Holdings Ltd...................................... BGRH
51 Bethlehem Corp........................................... BET
52 Bethlehem Steel ......................................... BS
53 Betz Labs................................................ BTL
54 BHC Financial............................................ BHCF
55 Biocontrol Tech.......................................... BICO
56 Black Box Corp........................................... BBOX
57 Blair.................................................... BL
58 Blue Ridge Real Estate Co................................ BLRGZ
59 Bon Ton.................................................. BONT
60 Bowline Corp............................................. BOLN*
61 Brandywine Realty Trust ................................. BDN
62 Bridgeville Savings...................................... BRFC
63 Bryn Mawr Bank Corp...................................... BMTC
64 BT Financial............................................. BTFC
65 Buck Hill Falls Co....................................... NONE
66 Buckeye Partners, L.P.................................... BPL
67 Buffalo Valley Telephone................................. BUFF*
68 Burnham.................................................. BURCA*
69 C Cor Electronics........................................ CCBL
70 C-Tec.................................................... CTEX
71 Cable Design Technologies................................ CDTC
72 Cabot Medical............................................ CBOT
73 Calgon Carbon............................................ CCC
74 Canondale Corp........................................... BIKE
75 Carbide/Graphite Group................................... CGGI
76 Cardinal Bancorp Inc. PA................................. NONE
77 Carpenter Technology..................................... CRS
78 Castle Energy Corp....................................... CECX
79 CCFNB Bancorp Inc........................................ NONE
80 CDI Corp................................................. CDI
81 Ceco Filters Inc......................................... CEC
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82 Cedar Group Inc.......................................... CGMV
83 Centercore............................................... CCOR
84 Centocor................................................. CNTO
85 Central Sprinkler........................................ CNSP
86 Century Financial Corp................................... CYFN*
87 Cephalon................................................. CEPH
88 CGS Scientific Corp...................................... CGSC
89 Chambers Development..................................... CDV/A
90 Charming Shoppes......................................... CHRS
91 Charter Power System 1................................... CHP
92 Chemcial Leaman.......................................... CLEA
93 Chester Valley Bancorp................................... CVAL
94 Cigna.................................................... CI
95 Citizen and Northern Corp................................ CZNC
96 Citizens Bankcorp........................................ NONE
97 Citizens Bank and Trust Company.......................... CZNP*
98 Citizens Financial Services Inc.......................... NONE
99 Citizens, Inc............................................ NONE
100 Citizens National Bank of Ashland........................ CIZP*
101 Citizens National Bank of Meyersdale..................... CZNS*
102 Clearfield Bank & Trust Company.......................... CLFD*
103 CMAC Investment Corp..................................... CMT
104 CNB Financial Corp....................................... CNBB
105 Codorus Valley Bancorp Inc............................... CVLY*
106 Columbia Financial Corporation........................... CLBF*
107 Comcast.................................................. CMCSK
108 Comm Bancorp............................................. NONE
109 Commerce Bank/Harrisburg................................. COBH
110 Commercial National Financial Corp....................... CNAF*
111 Commonwealth Federal Savings Bank........................ CMSB
112 Communciations Group..................................... CMGI
113 Community Bankers Corp................................... NONE
114 Community Banks.......................................... CBKI
115 Community Bank, National Association..................... CMYN*
116 Community Independent Bank............................... CMYI*
117 Community Ntl. Bank of Northwestern PA................... NONE
118 Computer Research Inc.................................... CORE
119 Concord Health........................................... CHGR
120 Conestoga Enterprises Inc................................ NONE
121 Conrail.................................................. CRR
122 Consolidated Natural Gas................................. CNG
123 Constitution Bancorp, Inc................................ NONE
124 Consumers Financial Corp................................. CFIN
125 CoreStates............................................... CFL
126 Craftmatic Contour Industries Inc........................ CRCC
127 Crown American Realty Trust.............................. CWN
128 Crown Cork & Seal........................................ CCK
129 CSS Industries........................................... CSS
130 Dauphin Deposit.......................................... DAPN
131 Deb Shops................................................ DEBS
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<PAGE>
132 Dentsply................................................. XRAY
133 Derma Sciences........................................... DSCI
134 Digimetrics Inc.......................................... DIGMC
135 Digital Descriptor Systems............................... DDSI
136 DiMark................................................... DMK
137 Dimeco................................................... NONE
138 DNB Financial Corp....................................... NONE
139 Donegal Group ......................................... DGIC
140 DQE...................................................... DQE
141 Dravo.................................................... DRV
142 Drovers Bancshares Corp. ................................ DROV*
143 Eagle National Bank...................................... NONE
144 East Penn Bank........................................... NONE
145 East Prospect State Bank................................. NONE
146 Eastern Environmental.................................... EESI
147 ECC International........................................ ECC
148 Ecogen................................................... EECN
149 Elderton State Bank...................................... NONE
150 Electro Kinetic Systems.................................. EKSIA
151 Emcee Broadcast Products ............................... ECIN
152 Elverson National Bank................................... ELVN*
153 Emclaire Financial Corp.................................. NONE
154 Emons Transportation Group............................... EMHO
155 Environmental Tectonics ................................. ETC
156 Ephrata National Bank.................................... EPNB*
157 Equitable Resources...................................... EQT
158 Erie Family Life Insurance............................... ERIF*
159 ExecuFirst ............................................. FXBC
160 Exide.................................................... EX
161 Extended Product Life.................................... EXED
162 Farmers National Bank of Kittanning...................... NONE
163 Farmers National Bank of Newville........................ NONE
164 Farmers & Merchants Bank................................. FMMB*
165 FedOne Savings Bank, F.A................................. NONE
166 Fidelity Bancorp......................................... FSBI
167 Fidelity Deposit and Discount Bank....................... FDDB*
168 Financial Trust.......................................... FITC
169 First Bank of Philadelphia............................... FBKP
170 First Bell Bancorp Inc................................... FBBC
171 First Capitol............................................ FCYP*
172 First Colonial Group Inc................................. FTCG
173 First Commercial Bank of Philadelphia.................... NONE
174 First Commonwealth Financial............................. FCF
175 First Harrisburg Bancorp................................. FFHP
176 First Jermyn............................................. FJMY*
177 First Keystone Corp...................................... FKYS*
178 First Leesport Bancorp, Inc.............................. FLPB*
179 First Lehigh Corporation................................. FLHI*
180 First National Bancorp................................... NONE
181 First National Bank of Gallitzin......................... FIGA*
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<PAGE>
182 First National Bank of Canton............................ FINC*
183 First National Bank of Fredicksburg...................... NONE
184 First National Bank of Lilly............................. NONE
185 First National Bank of Liverpool......................... NONE
186 First National Bank of Marysville........................ FNBM*
187 First National Bank of Newport........................... FNBT*
188 First National Bank of Port Allegheny.................... FIPG*
189 First National Bank of Reynoldsville..................... NONE
190 First National Bank of Slippery Rock..................... FNSL*
191 First National Bank of Spangler.......................... FNBG*
192 First National Bank of Spring Mills...................... NONE
193 First National Community Bank............................ NONE
194 First Philson Financial Corp............................. FPHN*
195 First Shenango Bancorp, Inc.............................. SHEN
196 First Star Savings Bank.................................. FSRS
197 First Sterling Bancorp................................... NONE
198 First United National Bank............................... NONE
199 First West Chester Corp.................................. FWCC
200 First Western............................................ FWBI
201 FJF Financial Mutual Holding Company..................... NONE
202 Fleetwood Bank Corporation............................... NONE
203 FNB Bancorp, Inc......................................... NONE
204 FNB Financial Corporation................................ FBAN
205 FNBM Financial Corporation............................... NONE
206 FNH Corporation.......................................... NONE
207 Foamex International..................................... FMXI
208 Fore Systems............................................. FORE
209 Foster, L.B. ............................................ FSTRA
210 Founders Bank............................................ NONE
211 FPA Bank .............................................. FPO
212 Franklin First Financial Services........................ FRAF
213 Freda Corp............................................... FRDA
214 Fulton Bancshares........................................ NONE
215 Fulton Financial......................................... FULT
216 General Devices.......................................... GDIC
217 General Nutrition Corp. ................................. GNCI
218 Genesis Health Ventures ................................. GHV
219 Geriatric & Medical...................................... GEMC
220 Giant Cement............................................. GCHI
221 Gilbert Associates....................................... GILB.A
222 Glatfelter, P.H. ........................................ GLT
223 Glen Rock State Bank..................................... GLRO*
224 Global Environmental Corp................................ GLEN
225 Global Spill Management.................................. GSMI
226 GMIS..................................................... GMIS
227 Gracecare Health Systems Inc............................. GCHS*
228 Grant Street National Bank............................... GSNB
229 Greater Pottsville Federal S&LA.......................... NONE
230 Guaranty Bancshares...................................... GBNC
231 Halifax National Bank.................................... NONE
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<PAGE>
232 Hamlin Bank and Trust Company............................ NONE
233 Hanover Bancorp.......................................... HOVB*
234 Hanover Foods Corp....................................... NONE
235 Harleysville Group....................................... HGIC
236 Harleysville Nat'l Corp.................................. HNBC
237 Harleysville Savings..................................... HARL
238 Harris Savings Bank...................................... HARS
239 Harsco Corporation....................................... HSC
240 Healthcare Services Group................................ HCSG
241 Health Rite.............................................. HLRT
242 Heinz.................................................... HNZ
243 Herley Industries........................................ HRLY
244 Herndon National Bank.................................... NONE
245 Hershey Foods............................................ HSY
246 Hoblitzell National Bank of Hyndman...................... NONE
247 Honat Bancorp............................................ HONT*
248 Hope Technologies........................................ HOPK*
249 Horsehead Resources Development.......................... HHRD
250 Hunt Manufacturing ..................................... HUN
251 IBAH, Inc................................................ BAH
252 IBT Bancorp, Inc......................................... IBTB
253 ICC Technology........................................... ICGN
254 II VI.................................................... IIVI
255 Independent American Financial Corp...................... NONE
256 Industrial Scientific.................................... ISCX
257 Inertial Motors Corp..................................... IMTS*
258 Information Systems Acquisitions Corp.................... ISAC
259 Innovative Tech Systems.................................. ITSY
260 Integra Financial........................................ ITG
261 Integrated Circuit Systems............................... ICST
262 Intelligent Electronics.................................. INEL
263 InterDigital Communications.............................. IDC
264 International Canine Genetics............................ ICGI
265 Irex Corp................................................ IREX
266 Iron & Glass Bancorp, Inc................................ IRGB*
267 J & L Specialty Steels................................... JL
268 Jetronic Industries...................................... JET
269 JLG Industries........................................... JLGI
270 Johnstown America........................................ JAII
271 Jones Apparel Group...................................... JNY
272 Jonestown Bank & Trust Company........................... NONE
273 JTNB Bancorp............................................. NONE
274 Judicate Inc............................................. JUDG
275 Juniata Valley Financial Corp. .......................... JUVF*
276 Kennametal Inc........................................... KMT
277 Keystone Financial Inc................................... KSTN
278 Keystone Heritage Group Inc.............................. KHGI
279 Kish Bancorp, Inc........................................ KISB*
280 Kleinerts................................................ KLRT
281 Kranzco Realty Trust..................................... KRT
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<PAGE>
282 Kulicke Soffa............................................ KLIC
283 Lake Ariel Bancorp, Inc.................................. LABN*
284 Lannett Co. Inc. ........................................ LANN*
285 Laurel Capital Group..................................... LARL
286 Laurentian Capital....................................... LQ
287 Lewistown Trust Company.................................. LEWI*
288 Liberty Property Trust................................... LRY
289 Liberty Technology....................................... LIBT
290 Lock Haven Savings Bank.................................. NONE
291 Lukens................................................... LUC
292 Luzerne National Bank Corporation........................ NONE
293 Madison Bancshares Group LTD............................. NONE
294 Magainin Pharmaceuticals................................. MAGN
295 Mainline Bancorp......................................... NONE
296 Manor National Bank ..................................... MANR*
297 Mark Centers Trust....................................... MCT
298 Marlton Technology....................................... MTY
299 Mars National Bank....................................... MNBP*
300 Masland.................................................. MSLD
301 Matthews International Corporation....................... MATW
302 Mauch Chunk Trust Company................................ NONE
303 Medco Group Inc. ........................................ NONE
304 Med-Design............................................... MEDD
305 Mellon Bank.............................................. MEL
306 Menley & James........................................... MENJ
307 Mercer County State Bancorp.............................. MCSB*
308 Mercersburg Financial Corporation........................ NONE
309 Merchants National Bank of Bangor........................ MCHT*
310 Merchants National Bank of Kittanning.................... NONE
311 Merchants of Shenandoah Ban-Corp ....................... MSHN*
312 Meridian Bancorp......................................... MRDN
313 Met-Pro.................................................. MPR
314 Metrobank of Philadelphia, N.A........................... NONE
315 Mid Penn Bancorp......................................... MPEN*
316 Mifflinburg Bancorp, Inc................................. NONE
317 Mine Safety Appliances .................................. MNES
318 Miners Bank of Lykens ................................... MNRB*
319 Miners Nat'l Bancorp..................................... MNBC
320 MK Rail.................................................. MKRL
321 Montour Bank............................................. NONE
322 Moore Products........................................... MORP
323 Mother's Work............................................ MWRK
324 Mountbatten, Inc......................................... MTBN
325 Moxham Bank Corporation.................................. MOXM*
326 Moyco Industries......................................... MOYC*
327 Muncy Bank Financial..................................... MNCY*
328 Musicom.................................................. MUSO
329 Mylan Labs............................................... MYL
330 National American Bancorp................................ NABN*
331 National Bank of Malvern................................. NONE
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<PAGE>
332 National Bank of Olyphant................................ NONE
333 National Media........................................... NM
334 National Penn Bancshares................................. NPBC
335 National Record Mart..................................... NRMI
336 Neffs Bancorp, Inc....................................... NEFF*
337 New Bethelem Bank........................................ NBET*
338 New Tripoli Bancorp...................................... NETN*
339 Nobel Education Dynamics................................. NEDI
340 Nocopi................................................... NOOP*
341 North East Bancshares, Inc............................... NONE
342 North Pittsburgh System.................................. NORY*
343 Northern Lehigh Bancorp, Inc............................. NOLE*
344 NorthStar Health Services .............................. NSTR
345 Northumberland National Bank............................. NONE
346 Novacare................................................. NOV
347 Noxso.................................................... NOXO
348 NSD Bancorp.............................................. NONE
349 Nuclear Research Corp. .................................. NONE
350 Nuclear Support.......................................... NSSI
351 Numar ................................................ NUMR
352 Numerex.................................................. NMRX
353 Nutrition Management .................................... NMSCA
354 Oakhurst Company......................................... OAK
355 O'Brien Energy System.................................... OBS
356 Old Forge Bank........................................... OLDF*
357 OMEGA.................................................... OMEF
358 Orbisonia Community Bancorp, Inc......................... NONE
359 Orrstown Financial Services.............................. ORRB*
360 Owosso Corp.............................................. OWOS
361 Palm Bancorp............................................. NONE
362 Parkvale Financial....................................... PVSA
363 PCI Services............................................. PCIS
364 PDG Environmental........................................ PDGE
365 Penn American Group...................................... PAGI
366 Penn Engineering & Mfg................................... PNN
367 Penn First Bancorp....................................... PWBC
368 Penn Laurel Financial Corporation........................ NONE
369 Penn National Gaming ................................ PENN
370 Penn Security Bank and Trust Company .................. PSBT*
371 Penn Virginia............................................ PVIR
372 Penncore Financial Services Corporation.................. NONE
373 Pennrock Finanical Services Corp......................... PRFS*
374 Penns Woods Bancorp Inc. ................................ PWOD*
375 Pennsylvania Capital Bank ............................. NONE
376 Pennsylvania Enterprises................................. PNT
377 Pennsylvania Power & Light............................... PPL
378 Pennsylvania Real Estate Inv. Trust...................... PEI
379 Pennsylvania State Bank.................................. NONE
380 PennTreaty American Corp................................. PTAC
381 Peoples Bank of Oxford................................... PPBK*
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<PAGE>
382 Peoples Bank of Unity.................................... NONE
383 Peoples Financial Corporation, Inc....................... NONE
384 Peoples Financial Services Corporation, Inc.............. NONE
385 Peoples Ltd. ............................................ NONE
386 Peoples National Bank of Rural Valley.................... NONE
387 Peoples State Bank....................................... PSEB
388 Pep Boys ............................................. PBY
389 Phoenix Bancorp, Inc..................................... NONE
390 Philadelphia Consolidated Holding Corp................... PHLY
391 PECO..................................................... PE
392 Philadelphia Suburban.................................... PSC
393 Piercing Pagoda.......................................... PGDA
394 Pioneer American Holding Company Corp.................... NONE
395 Pitt-Desmoines........................................... PDM
396 PNC Financial............................................ PNC
397 PPG Industries........................................... PPG
398 Premier Bank .......................................... NONE
399 Prime Bancorp............................................ PSAB
400 Progress Financial....................................... PFNC
401 Prophet 21............................................... PXXI
402 Provident American....................................... PAMC
403 QNB Corp................................................. QNBC*
404 Quad Systems ........................................... QSYS
405 Quaker Chemical.......................................... QCHM
406 Quigley Corp............................................. QGYC
407 QVC Network.............................................. QVCN
408 Reading Co............................................... RDGCA
409 Regent Bancshares........................................ RBNK
410 Renal Treatment Centers.................................. RXTC
411 Rent Way................................................. RWAY
412 Resource America......................................... REXI
413 Respironics.............................................. RESP
414 Rhone Poulac-Rorer .................................... RPR
415 Right Management Consultants............................. RMCI
416 Rite Aid................................................. RAD
417 Robec.................................................... ROBC
418 Robroy Industries........................................ RROYA*
419 Rochester & Pittsburgh Coal Company...................... REPT
420 Rohm & Haas.............................................. ROH
421 Royal Bank............................................... RBPA.A
422 R&B Inc.................................................. RBIN
423 Safeguard Scientifics.................................... SFE
424 Salem.................................................... SBS
425 Scan Graphics............................................ SCNG
426 Scanforms Inc. .......................................... CFM
427 Scott Paper ............................................. PP
428 Second National Bank of Masontown........................ NONE
429 Security First Bank...................................... SFMP
430 SEI Corp. ............................................... SEIC
431 Selas.................................................... SLS
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<PAGE>
432 Shared Medical Systems ................................. SMED
433 Shawnee Financial Services Corporation.................. NONE
434 SI Handling............................................. SIHS
435 Sigma Alpha Entertainment Group LTD..................... SAEG
436 Sinter Metals........................................... SNM
437 Smithfield State Bank of Smithfield..................... NONE
438 SMT Health Services..................................... SHED
439 Somerset Trust Company.................................. SOMT*
440 Southwest National...................................... SWPA
441 Sovereign Bancorp....................................... SVRN
442 Spectrum Control ...................................... SPEC
443 SPS Technologies........................................ ST
444 State Bancshares........................................ SBNP
445 Steel City Products..................................... SCPI
446 Sterling Financial Corp................................. SLFI*
447 Strawbridge & Clother................................... STRW.A
448 STV Group .............................................. STVI
449 SubMicron............................................... SUBM
450 Suburban Federal Savings Bank........................... SUBF*
451 Sulcus Computer......................................... SUL
452 Summit Bancorp.......................................... NONE
453 Sun Bancorp............................................. SUBI
454 Sun Company............................................. SUN
455 Sungard Data Systems.................................... SNDT
456 Super Rite.............................................. SUPR
457 Supra Medical........................................... SUM
458 Surgical Laser Technologies............................. SLTI
459 Susquehanna Bancshares.................................. SUSQ
460 Sylvan Foods............................................ SYLN
461 Systems & Computer Tehcnology........................... SCTC
462 S&T Bancorp............................................. STBA
463 Tasty Baking............................................ TBC
464 Technitrol.............................................. TNL
465 Teleflex................................................ TFX
466 Tel-Save Holdings....................................... TALK
467 TF Financial Corp....................................... NONE
468 Thermal Industries...................................... THMP
469 Toll Brothers........................................... TOL
470 Total Containment, Inc.................................. TCIX
471 Tower Bancorp........................................... TOBC*
472 Transducer Systems...................................... TSIC
473 Troy Hill Bancorp....................................... THBC
474 Tseng Labs.............................................. TSNG
475 Turbotville National Bank............................... TVNB*
476 Tuscarora Plastics...................................... TUSC
477 UGI Corp................................................ UGI
478 UNB Corporation......................................... NONE
479 Uni-Marts............................................... UNI
480 Union Bancorp........................................... UBTP*
481 Union National Financial Corp........................... NONE
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<PAGE>
482 Union Pacific........................................... UNP
483 Unisys.................................................. UIS
484 United Bank of Philadelphia............................. NONE
485 United Valley Bank...................................... NONE
486 Universal Health Services............................... UHS
487 Univest Corporation of Pennsylvania..................... UVSP
488 Urban Outfitters ..................................... URBN
489 USA BancShares.......................................... USAB
490 USA Technologies........................................ USAN
491 US Wats Inc............................................. USWI
492 USBANCorp............................................... UBAN
493 USX - Marathon.......................................... MRO
494 USX Delhi............................................... DGP
495 USX - U.S. Steel........................................ X
496 UTI Energy Corporation.................................. UTI
497 U.S. Bioscience......................................... UBS
498 U.S. Healthcare......................................... USHC
499 Valley Forge Scientific................................. VLFG
500 Vineyard Oil and Gas.................................... NONE
501 Vishay Intertechnology.................................. VSH
502 VWR..................................................... VWRX
503 V. F. Corp.............................................. VFC
504 Walshire Inc............................................ WALS
505 Wayne County Bank & Trust Company....................... WYBP*
506 Weis Markets............................................ WMK
507 West.................................................... WST
508 West Milton State Bank.................................. NONE
509 Westinghouse............................................ WX
510 Westinghouse Airbrake................................... WAB
511 Westmoreland Coal....................................... WCX
512 Weston Roy F............................................ WSTN.A
513 Woodlands Bank.......................................... NONE
514 WVS Financial Corp...................................... WVFC
515 York Financial.......................................... YFED
516 York International...................................... YRK
517 York Water.............................................. YWTR
518 Zurn Ind................................................ ZRN
519 Zynaxis................................................. ZNXS
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<PAGE>
APPENDIX D: YEAR 2000 INDUSTRY COMPANIES
The following is a listing of companies' (1) common stock of which is (A)
available for purchase and sale upon either the New York Stock Exchange ("NYSE")
or the American Stock Exchange ("AMEX"), (B) regularly quoted on either the
National Market ("NNM") or Small-Cap ("NSC") level of the NASDAQ Automated Quote
System ("NASDAQ") of the National Association of Securities Dealers,
Inc.("NASD"), or (C) otherwise traded in the over-the-counter dealer market
("OTC") by NASD member firms; and (2) which the Y2K Fund's Adviser has
identified as having stated, or been reported as possessing, an intention of
developing or supporting marketable solutions to Year 2000 computer-related
problems.
The listing is based on information derived from publicly available
sources, is furnished only as a present illustrative guide to the Y2K industry,
and does not purport to be a complete listing of either the Y2K industry as a
whole or of the companies which are currently (or which may, at any time in the
future) be represented within the portfolio of the Y2K Fund. The Y2K Fund's
Adviser reserves the right to engage in short, as well as long options and
short-selling strategies when investing, on behalf of the Y2K Fund, in
securities issued by these, and other, Y2K companies. For a complete description
of the Y2K Fund's investment objective and policies, see the Prospectus and
accompanying Statement of Additional Information.
<TABLE>
<CAPTION>
Company Trading Symbol Primary Trading Market
- ------- -------------- -----------------------
<S> <C> <C>
Accelr8 Technology Corp. ACLY NNM
AccuStaff, Inc. ASI NYSE
AGISS Corporation AGCR OTC
ALLTEL Corp. AT NYSE
Alternative Resources Corp. ALRC NNM
Alydaar Software Corp. ALYD OTC
Amdahl Corp. AMH AMEX
American Management Systems AMSY NNM
American Software AMSWA NNM
SABRE Group Holdings 'A' TSG NYSE
Analysts International Corp. ANLY NNM
Automatic Data Processing AUD NYSE
Baan Company BAANF NNM
BDM International Inc. BDMI NNM
BRC Holdings Inc. BRCP NNM
BTG Incorporated BTGI NNM
CACI International Inc. CACI NNM
Cambridge Technology Partners CATP NNM
Cayenne Software Inc. CAYN NNM
CIBER Inc. CBR NYSE
Claremont Technology Group CLMT NNM
Cognizant Corporation CZT NYSE
Cognos COGNF NNM
Comdisco Inc. CDO NYSE
Comforce Corporation CFS AMEX
Complete Business Solutions Inc. CBSL NNM
Computer Associates International CA NYSE
Computer Concepts Corp. CCEE NSC
Computer Horizons Corp. CHRZ NNM
Computer Management Sciences Inc. CMSX NNM
</TABLE>
D-1
<PAGE>
<TABLE>
<S> <C> <C>
Computer Sciences CSC NYSE
Computer Task Group Inc. TSK NYSE
Compuware Corp. CPWR NNM
ConSyGen, Inc. CSGI OTC
COREStaff Inc. CSTF NNM
Crystal Systems Solutions CRYSF NNM
Data Dimensions DDIM NNM
Data Systems Network Corp. DSYS NSM
DelSoft Consulting Inc. DSFT OTC
Digital Equipment Corp. DEC NYSE
Egan Systems Inc. EGNS OTC
Electronic Data Systems Corp. EDS NYSE
Forrester Research, Inc. FORR NNM
Gartner Group 'A' GART NNM
GTE Corp. GTE NYSE
Hitachi, Ltd. ADR HIT NYSE
Intl. Business Machines IBM NYSE
Infinium Software INFM NNM
Information Analysis Inc. IAIC NNM
Information Management Resources IMRS NNM
Informix Corp. IFMX NNM
International Veronex Resources Ltd. IVXR OTC
Intersolv ISLI NSM
Keane Inc. KEA AMEX
Logicon Inc. LGN NYSE
MAPICS Inc. MAPX NNM
Mastech Corporation MAST NNM
Mercury Interactive MERQ NNM
MCI Communications MCIC NNM
Micro Focus Group ADS MIFGY NNM
NeoMedia Technologies Inc. NEOM NSM
Neoware Systems Inc. NWRE NNM
The NetPlex Group Inc. NTPL NSM
New Dimension Software DDDDF NNM
Norrell Corp. NRL NYSE
Olsten Corp. OLS NYSE
Oracle Corp. ORCL NNM
PeopleSoft Inc. PSFT NNM
Peritus Software Services PTUS NNM
PLATINUM technology Inc. PLAT NNM
Policy Management Systems PMS NYSE
Reliance Group Holdings REL NYSE
Robert Half International RHI NYSE
Romac International Inc. ROMC NNM
Safeguard Scientifics Inc. SFE NYSE
SAP AG - Sponsored ADR SAPHY OTC
Sapiens International Corp. N.V. SPNSF NNM
SCB Computer Technology Inc. SCBI NNM
SEEC Inc. SEEC NNM
Sterling Software SSW NYSE
</TABLE>
D-2
<PAGE>
<TABLE>
<S> <C> <C>
Strategia Corp. STGI OTC
SunGard Data Systems SDS NYSE
Sun Microsystems SUNW NNM
Sybase Inc. SYBS NNM
Systems & Computer Technology Corp. SCTC NNM
Systems Software Associates Inc. SSAX NNM
Tandem Computers TDM NYSE
Tangram Enterprise Solutions, Inc. TESI NSM
Techforce Corp. TFRC NNM
Thinking Tools Inc. TSIM NSM
Titan Corporation TTN NYSE
Topro Inc. TPRO NSM
Transformation Processing Inc. TPII OTC
TSR Inc. TSRI NNM
Unicomp Inc. UCMP NNM
Unisys Corp. UIS NYSE
VIASOFT Inc. VIAS NNM
Walker Interactive Systems WALK NNM
Wang Laboratories Inc. WANG NNM
Whittman-Hart Inc. WHIT NNM
Zitel Corp. ZITL NNM
ZMAX Corp. ZMAX OTC
</TABLE>
D-3
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits
(a)(1) The HomeState Group's (the "Registrant") Declaration of Trust,
dated August 26, 1992 and Addendum to the Declaration of Trust,
dated November 21, 1996 and Joinder of Additional Trustees
(a)(2) Addendum to the Declaration of Trust, dated August 1, 1997
(a)(3) (Proposed ) Amendment to the Declaration of Trust dated August 31,
1998
(b) None.
(c) Form of Certificate of Common Stock. (Incorporated by
reference to Exhibit 4 to Pre-Effective Amendment No. 3 to
this Registration Statement filed with the Commission
on September 22, 1992.)
(d)(1) Investment Advisory Agreement between the Registrant,
on behalf of The HomeState Pennsylvania Growth Fund,
and Emerald Advisers, Inc., dated September 1, 1992
(Incorporated by reference to Exhibit 5(a) to Post-Effective
Amendment No. 5 to this Registration Statement filed with
the Commission on November 27, 1996.)
(d)(2) Investment Advisory Agreement between the Registrant, on
behalf of The HomeState Select Banking and Finance Fund,
and Emerald Advisers, Inc., dated September 1, 1992
(Incorporated by reference to Exhibit 5(b) to Post-Effective
Amendment No. 5 to this Registration Statement filed
with the Commission on November 27, 1996.)
(d)(3) Investment Advisory Agreement between the Registrant,
on behalf of The Year 2000 ("Y2K") Fund, and Emerald
Advisers, Inc., dated September 11, 1997 (Incorporated by
reference to Exhibit 5(c) to Post-Effective Amendment No. 8
to this Registration Statement filed with the Commission
on September 15, 1997.)
(e) Distribution Agreement between the Registrant and Rafferty
Capital Markets, Inc., dated May 19, 1998
(f) None.
(g)(1) Custodian Servicing Agreement between the Registrant
and Firstar Trust Company dated March 1, 1998
(g)(2) Firstar Trust Company Mutual Fund Services Fee
Schedules for Registrant
<PAGE>
(h)(1) Transfer Agent Servicing Agreement between the Registrant
and Firstar Trust Company dated March 1, 1998
(h)(2) Fund Administration Servicing Agreement between the
Registrant and Firstar Trust Company dated March 1, 1998
(h)(3) Fund Account Servicing Agreement between the Registrant
and Firstar Trust Company dated March 1, 1998
(h)(4) Fulfillment Servicing Agreement between the Registrant
and Firstar Trust Company dated March 1, 1998
(i) [NEED LEGAL OPINION]
(j) Consent of Independent Accountants....................................
(k) Financial Statements
HomeState Pennsylvania Growth Fund
----------------------------------
Schedule of Investments as of June 30, 1997*
Statement of Assets and Liabilities as of June 30, 1997*
Statement of Operations for the fiscal year ended June 30, 1997*
Statement of Changes in Net Assets for the fiscal years ended June 30,
1997 and June 30, 1996*
Financial Highlights for the fiscal years ended June 30, 1997, 1996,
1995, 1994 and for the period October 1, 1992 (commencement of
operations) to June 30, 1993*
Notes to the Financials*
Report of Independent Accountants*
HomeState Banking and Finance Fund
----------------------------------
Schedule of Investments as of June 30, 1997*
Statement of Assets and Liabilities as of June 30, 1997*
Statement of Operations for the fiscal year ended June 30, 1997*
Statement of Changes in Net Assets for the fiscal year ended June 30,
1997*
Financial Highlights for the fiscal year ended June 30, 1997*
Notes to Financials*
Report of Independent Accountants*
* Incorporated by Reference to Post-Effective Amendment No. 9 filed on
October 30, 1997.
(l) Initial Capital Agreement (Incorporated by Reference to Exhibit 13 to
Post-Effective Amendment No. 9 to this Registration
Statement filed on October 30, 1997.)
(m)(1) Rule 12b-1 Plan for The HomeState Pennsylvania Growth
Fund (Incorporated by Reference to Exhibit 15(a) to
Post-Effective Amendment No. 5 to this Registration
Statement filed on November 27, 1996.)
(2) Rule 12b-1 Plan for The HomeState Banking and Finance
Fund (Incorporated by Reference to Exhibit 15(b) to
Post-Effective Amendment No. 5 to this Registration
Statement filed on November 27, 1996.)
(3) Rule 12b-1 Plan for The Year 2000 ("Y2K") Fund
<PAGE>
(Incorporated by Reference to Exhibit 15(c) to
Post-Effective Amendment No. 8 to this Registration
Statement filed on September 15, 1997.)
(n) Financial Data Schedule (Incorporated by Reference to
Exhibit 17 to Post Effective Amendment No. 7 filed on August
18, 1997.)
(o) None.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUNDS
None.
ITEM 25. INDEMNIFICATION
The Declaration of Trust (filed as Exhibit 23(a)(1)) provides for
indemnification of Trustees, as set forth in Section 13 thereof.
The Distribution Agreement (filed as Exhibit 23(e)) provides for
indemnification of Rafferty Capital Markets, Inc., its officers and directors
and any person who controls Rafferty Capital Markets, Inc.
The Registrant has in effect a directors' and officers' liability
policy covering specific types of errors and omissions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to such provisions of the Declaration of
Trust, Distribution Agreement, or statutes or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any such action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the shares of the
Registrant, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Emerald Advisers, Inc. also serves as General Partner to Emerald
Partners, L.P., a Pennsylvania-chartered investment limited partnership. As
Emerald Advisers, Inc. is a wholly-owned corporation (incorporated on November
14, 1991), each director and officer of the corporation has held various
positions with other companies prior to the founding of Emerald Advisers, Inc.
Information as to the directors and officers of Emerald Advisors, Inc. is
included in its Form ADV filed on November 14, 1991, and most recently
supplemented on August 11, 1997, with the Securities and Exchange Commission
(File No. 801-40263) and is incorporated herein by reference.
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Investment Companies for which Rafferty Capital Markets, Inc.
also acts a principal underwriter: Potomac Funds, Badgley Funds (as of August
17, 1998).
(b) The following table sets forth certain information for each
director, officer or partner of Rafferty Capital Markets, Inc., the principal
underwriter of the Funds.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
- ------------------------------------------------------------------------------------------------------------------
Name and Principal Positions and Offices Positions and Officers
Business Address with Rafferty Capital with Funds
Markets, Inc.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lawrence Rafferty Owner Partner of Potomac Funds,
550 Mamaroneck Avenue Not Involved with other Fund
Harrison, NY 10528 Duties
- ------------------------------------------------------------------------------------------------------------------
Thomas Mulrooney President General Securities Principal
550 Mamaroneck Avenue
Harrison, NY 10528
- ------------------------------------------------------------------------------------------------------------------
Derek Park Senior Vice President General Securities Principal
550 Mamaroneck Avenue
Harrison, NY 10528
- ------------------------------------------------------------------------------------------------------------------
Brendan Moyna Vice President Series 7 Representative
550 Mamaroneck Avenue
Harrison, NY 10528
- ------------------------------------------------------------------------------------------------------------------
Richard Buhr Head Trader None
550 Mamaroneck Avenue
Harrison, NY 10528
- ------------------------------------------------------------------------------------------------------------------
Philip Harding Vice President Series 7 Representative
550 Mamaroneck Avenue
Harrison, NY 10528
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Certain accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder and the records relating to the duties of the Registrant's transfer
agent are maintained by Firstar Trust Company, P.O. Box 701, 615 E. Michigan
Street, Milwaukee, WI 53201-0701. Records relating to the duties of the
Registrant's custodian are maintained by Firstar Trust Company, P.O. Box 701,
615 E. Michigan Street, Milwaukee, WI 53201-0701.
ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act, the
Registrant certifies that it has duly caused this Post-Effective Amendment No.
10 to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Lancaster, and the Commonwealth of
Pennsylvania on the 20th day of August, 1998.
The HomeState Group
By: /s/ Scott L. Rehr
_________________________________
Scott L. Rehr
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Bruce E. Bowen Trustee August , 1998
Kenneth G. Mertz II, C.F.A. Trustee, Vice August , 1998
President and
Chief Investment
Officer
Daniel W. Moyer IV Trustee, Vice August , 1998
President and
Secretary
Scott C. Penwell Trustee August , 1998
Scott L. Rehr Trustee and
President
Dr. H.J. Zoffer Trustee August , 1998
Dated: August 20, 1998
_________________
By: Scott L. Rehr
_________________________________
Scott L. Rehr
President and Trustee
(Power of Attorney*)
* (Incorporated by Reference to the Signature Page of Post-Effective
Amendment No. 9 to this Registration Statement filed with the
Commission on October 30, 1997.)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Description of Exhibit No.
<S> <C>
(a)(1) The HomeState Group's (the "Registrant") Declaration of Trust, dated
August 26, 1992 and Addendum to the Declaration of Trust,
dated November 21, 1996 and Joinder of Additional Trustees .....................................
(a)(2) Addendum to the Declaration of Trust, dated August 1, 1997 .....................................
(a)(3) (Proposed ) Amendment to the Declaration of Trust dated August 31, 1998..........................
(b) None.
(c) Form of Certificate of Common Stock. (Incorporated by
reference to Exhibit 4 to Pre-Effective Amendment No. 3 to
this Registration Statement filed with the Commission
on September 22, 1992.)
(d)(1) Investment Advisory Agreement between the Registrant,
on behalf of The HomeState Pennsylvania Growth Fund,
and Emerald Advisers, Inc., dated September 1, 1992
(Incorporated by reference to Exhibit 5(a) to Post-Effective Amendment
No. 5 to this Registration Statement filed with the Commission on
November 27, 1996.)
(d)(2) Investment Advisory Agreement between the Registrant, on
behalf of The HomeState Select Banking and Finance Fund,
and Emerald Advisers, Inc., dated September 1, 1992
(Incorporated by reference to Exhibit 5(b) to Post-Effective Amendment
No. 5 to this Registration Statement filed with the Commission on
November 27, 1996.)
(d)(3) Investment Advisory Agreement between the Registrant, on behalf of The
Year 2000 ("Y2K") Fund, and Emerald Advisers, Inc., dated September 11,
1997 (Incorporated by reference to Exhibit 5(c) to Post-Effective
Amendment No. 8 to this Registration Statement filed with the
Commission on September 15, 1997.)
(e) Distribution Agreement between the Registrant and Rafferty
Capital Markets, Inc., dated May 19, 1998.......................................................
(f) None.
(g)(1) Custodian Servicing Agreement between the Registrant and
Firstar Trust Company dated March 1, 1998.......................................................
(g)(2) Firstar Trust Company Mutual Fund Services Fee
Schedules for Registrant........................................................................
(h)(1) Transfer Agent Servicing Agreement between the Registrant
and Firstar Trust Company dated March 1, 1998...................................................
(h)(2) Fund Administration Servicing Agreement between the
Registrant and Firstar Trust Company dated March 1, 1998........................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(h)(3) Fund Account Servicing Agreement between the Registrant
and Firstar Trust Company dated March 1, 1998...................................................
(h)(4) Fulfillment Servicing Agreement between the Registrant
and Firstar Trust Company dated March 1, 1998...................................................
(i) [NEED LEGAL OPINION]............................................................................
(j) Consent of Independent Accountants..............................................................
(k) Financial Statements
HomeState Pennsylvania Growth Fund
----------------------------------
Schedule of Investments as of June
30, 1997* Statement of Assets and Liabilities as of June 30, 1997*
Statement of Operations for the fiscal year ended June 30, 1997*
Statement of Changes in Net Assets for the fiscal years ended June 30,
1997 and June 30, 1996*
Financial Highlights for the fiscal years ended June 30, 1997, 1996,
1995, 1994 and for the period October 1, 1992 (commencement of
operations) to June 30, 1993*
Notes to the Financials*
Report of Independent Accountants*
HomeState Banking and Finance Fund
----------------------------------
Schedule of Investments as of June
30, 1997* Statement of Assets and Liabilities as of June 30, 1997*
Statement of Operations for the fiscal year ended June 30, 1997*
Statement of Changes in Net Assets for the fiscal year ended June 30,
1997*
Financial Highlights for the fiscal year ended June 30, 1997*
Notes to Financials*
Report of Independent Accountants*
* Incorporated by Reference to Post-Effective Amendment No. 9 filed on
October 30, 1997.
(l) Initial Capital Agreement (Incorporated by Reference to Exhibit 13 to
Post-Effective Amendment No. 9 to this Registration
Statement filed on October 30, 1997.)
(m)(1) Rule 12b-1 Plan for The HomeState Pennsylvania Growth
Fund (Incorporated by Reference to Exhibit 15(a) to
Post-Effective Amendment No. 5 to this Registration
Statement filed on November 27, 1996.)
(2) Rule 12b-1 Plan for The HomeState Banking and Finance Fund
(Incorporated by Reference to Exhibit 15(b) to Post-Effective Amendment
No. 5 to this Registration Statement filed on November 27, 1996.)
(3) Rule 12b-1 Plan for The Year 2000 ("Y2K") Fund (Incorporated by
Reference to Exhibit 15(c) to Post-Effective Amendment No. 8 to this
Registration Statement filed on September 15, 1997.)
(n) Financial Data Schedule (Incorporated by Reference to
Exhibit 17 to Post Effective Amendment No. 7 filed on August
18, 1997.)
(o) None.
</TABLE>
<PAGE>
THE HOMESTATE GROUP
DECLARATION OF TRUST
On the 26th day of August, 1992, Bruce E. Bowen, Scott L. Rehr, and H.J.
Zoffer declare themselves to be trustees (the "Trustees") of a trust to be known
as the HomeState Group (the "Fund"); and further declare that they and their
successors as Trustees shall invest and reinvest all sums received in the Fund
for the benefit of all shareholders of the Fund in accordance with the laws of
the United States and of the Commonwealth of Pennsylvania, in trust, as follows:
1. PURPOSE
The Fund is a Pennsylvania common law trust formed for the purpose of acting
as an open-end, diversified management investment company of the series type
under and pursuant to the Investment Company Act of 1940 (the "1940 Act"),
except that an individual Series need not be diversified. It is hereby expressly
declared that a common law trust and not a partnership is created hereby.
2. SERIES OF THE FUND
A. The Fund shall initially be composed of one Series. Each Series will
have separate investment objectives and policies, and shares of the Fund will be
identified as being shares of one of the Series. Shares of each Series represent
interests in that Series only, and will be entitled to all income and gains (or
losses) and bear all of the expenses associated with the operations of that
specific Series. Common expenses of the Fund will be allocated among all of the
Series based upon the respective net assets of each Series.
B. The initial Series of the Fund shall be the HomeState Pennsylvania
Growth Fund ("HPGF").
(i) The investment objective of the HPGF will be long-term growth
of capital through investments primarily in the common stock of companies with
headquarters or significant operations in the Commonwealth of Pennsylvania.
(ii) The following investment policies and restrictions may not be
changed without the approval of a majority of the shares of HPGF. For these
purposes, a majority of the shares of HPGF is defined as the vote, at a special
meeting of the shareholders of the HPGF duly called, of more than fifty percent
(50%) of the HPGF's outstanding voting securities.
<PAGE>
The HPGF may not under any circumstances:
(a) Purchase the securities of any issuer (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities)
if as a result more than five percent (5%) of the value of the HPGF's total
assets at the time of such purchase would be invested in the securities of the
issuer;
(b) Invest more than fifteen percent (15%) of its total assets in any one
industry;
(c) Invest in, write, or sell put or call options, straddles, spreads or
combinations thereof;
(d) Borrow money, except from a bank. Such borrowing shall be permitted for
temporary or emergency purposes only (to facilitate the meeting of redemption
requests), and not for investment purposes. Such borrowing cannot exceed fifteen
percent (15%) of the HPGF's current total assets, and will be repaid before any
additional investments are purchased. The Fund will not purchase securities when
borrowing exceeds five percent (5%) of total assets;
(e) Pledge, mortgage or hypothecate assets, except to secure borrowings
permitted by Item (d) above, and then only pledge securities not exceeding ten
percent (10%) of the HPGF's total assets (at current value);
(f) Issue or sell senior securities;
(g) Make short sales;
(h) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities;
(i) Underwrite securities issued by other persons except to the extent that,
in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under certain federal securities laws;
(j) Purchase or sell real estate, although it may purchase securities which
are secured by or represent interests in real estate that are issued or backed
by the United States Government, its agencies or instrumentalities;
(k) Make loans, except by purchase of debt obligations in which the HPGF may
invest in accordance with its investment policies, or except by entering into
qualified repurchase agreements with respect to not more than twenty-five
percent (25%) of its total assets (taken at current value).
(l) Purchase or sell commodities, commodity contracts or futures contracts;
-2-
<PAGE>
(m) Purchase or hold the securities of any issuer if the officers or
directors of the HPGF or its investment adviser (i) individually own more than
one-half of one percent (0.5%) of the outstanding securities of the issuer, or
(ii) collectively own more than five percent (5%) of the outstanding securities;
(n) Acquire more than ten percent (10%) of the voting securities of any
issuer; or make investments for the purpose of gaining control of a company's
management;
(o) Invest in the securities of other investment companies (excepting no-
load, open-end money market mutual funds, and excepting the case of acquiring
such companies through merger, consolidation or acquisition of assets). The HPGF
will not invest more than ten percent (10%) of its total current assets in
shares of other investment companies nor invest more than five percent (5%) of
its total current assets in a single investment company.
C. The assets and liabilities of each Series will be segregated on the
Fund's books and records. The assets of each Series will be separately invested
and reinvested without regard to the other Series.
D. The shares of each Series will be entitled to vote as a separate
class with respect to matters affecting that Series or as otherwise required by
applicable law. Where not so required, the shares of all Series will vote
together as a single class.
E. The voting rights of each share of each Series will be identical to
the rights of all other shares within that Series, and, with respect to matters
affecting the Fund generally, identical to the rights of all other shares of the
Fund. Each share of a Series will entitle the holder thereof to one vote (and a
fractional share shall entitle the holder to a corresponding fractional vote).
Shareholders shall not be entitled to cumulate votes and shall not have
preemptive rights. Special meetings may be called by holders of at least 10% of
the shares of (i) a singe Series, if the meeting relates to that Series, or (ii)
the entire Fund, if the meeting relates to the Fund as a whole.
F. The Trustees may create additional Series of the Fund at any time,
each Series having such objectives, policies, terms and provisions as the
Trustees, in their sole discretion, may determine, provided, however, that each
Series must be consistent with the other provisions of this Declaration of
Trust.
3. SHARES OF THE FUND
Each investor in a Series of the Fund shall have a beneficial interest in such
Series measured by the number of shares which he owns, and all shares shall be
equal in value. The shares shall be fully paid and non-assessable when issued
and have no preference as to conversion, exchange, dividends or retirement. The
Fund shall be entitled to issue an
-3-
<PAGE>
unlimited number of shares. The Trustees may, from time to time, divide or
combine the shares of any Series into a greater or lesser number of shares. An
account will be maintained for each shareholder indicating the number of shares
(including fractions) such shareholder owns. Certificates for shares shall not
be issued unless specifically requested by a purchaser of shares.
4. VALUATION
(a) Date of Valuation: The Trustees will cause the assets of each Series of
-----------------
the Fund, together with accrued income, to be valued once on each Business Day
as of the close of the New York Stock Exchange ("NYSE") and before any admission
or withdrawal as of that day. A "Business Day" is defined as a day in which the
NYSE is open for trading.
(b) Method of Valuation: Valuation of the assets of each Series of the Fund
-------------------
will be made using a method which the Board of Trustees believes in good faith
accurately reflects fair value and will include adjustment for incomplete
settlements, for securities bought and sold, for accrued interest, for dividends
receivable on stocks quoted ex dividend, and for reserves. Securities that are
traded on an exchange or over-the-counter will be valued at market value
according to the broadest and most representative market. Bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service acceptable to the Trustees. Short-term investments may be valued at
cost.
(c) Net Asset Value Per Share: The net asset value per share of each share
-------------------------
of each Series shall be determined by adding the value of the Series' securities
and other assets, subtracting its liabilities, and dividing the result by the
number of its shares outstanding at the close of business on each Business Day.
5. ADMISSIONS AND WITHDRAWALS
(a) Admissions: A person may, with the consent of and in accordance with
----------
guidelines established from time to time by the Trustees, acquire shares of a
Series as of any day by tendering to the Trustees or their agent before the
close of business on such day a sum equal to the net asset value per share of
the requested Series as of the close of business that day.
(b) Withdrawals: A shareholder may withdraw shares as of any day if he has
-----------
given the Trustees or their agent notice not later than the close of business
that day of his intention to do so. Such notice shall be given in the manner and
form prescribed by the Trustees, and may include withdrawals pursuant to check
writing plans authorized by the Trustees from time to time. For each share
withdrawn, the Custodian shall mail to the shareholder within seven (7) days
thereafter a check representing the net asset value of each share withdrawn as
of that day, less any transaction charge that may then be in effect.
-4-
<PAGE>
6. TRANSFER OF SHARES
Shares in the Fund may be transferred in accordance with such reasonable rules
and regulations as may be adopted by the Trustee from time to time, which rules
may be different for certificated and non-certificated shares. Shareholders will
be permitted to exchange shares between Series by giving such notice as the
Trustees may from time to time require. Replacement of lost or destroyed
certificates will be subject to such rules as the Trustees may deem necessary
and proper.
7. INCOME DISTRIBUTION
A. Dividends declared will be accrued and credited to each
shareholder's account daily at such other times as the Trustees may determine in
accordance with law. Net capital gains will be distributed at such times as the
Trustees may determine in accordance with law. All capital gains and dividends
will be automatically reinvested in additional shares of the same Series at the
net asset value per share unless the shareholder has specified he wants
dividends and/or capital gains paid to him in cash.
B. Shareholders who have elected to receive net capital gains and/or
dividends in cash will receive payments of such amounts due them, if any,
monthly (with respect to dividends) and annually (with respect to capital
gains), or at such other times established by the Trustees.
8. CUSTODIAN
The Trustees shall, at all times, employ a bank, a trust company, or a bank
and trust company as Custodian of the Fund. The Custodian shall receive, hold,
and disburse all securities and cash of the Fund and the Trustees shall not,
themselves, receive, hold, or disburse any such securities or cash. The
Custodian shall perform such other services with respect to recordkeeping,
valuation, and other matters pertaining to the Fund as the Trustees and
Custodian shall agree.
9. APPOINTMENT OF ACCOUNTANT
The Trustees shall from time to time select an independent certified public
accountant who will annually prepare a financial statement of the Fund as
required by law. The holders of record of not less than two-thirds of the
outstanding shares of the Fund may have the appointed accountant removed by
filing a declaration with the Custodian or by a vote at a meeting called for
such purpose. The Trustees shall promptly call a meeting of shareholders for the
purpose of voting upon the removal of such accountant when requested in writing
by holders of at least 10% of the Fund's outstanding shares.
-5-
<PAGE>
10. APPOINTMENT, RESIGNATION, AND REMOVAL OF TRUSTEES
(a) Number of Trustees: The number of Trustees shall not be less than three
------------------
(3) and not more than twelve (12), the exact number to be set from time to time
by the action of the Trustees or by a vote of the holders of a majority of the
outstanding shares.
(b) Initial Appointment: All of the Trustees named in this Declaration of
-------------------
Trust, and all Trustees subsequently appointed or elected in accordance with
this Declaration of Trust, shall serve until their successors have been elected
and qualified, they resign, or they are removed in accordance with the
provisions of this Declaration of Trust.
(c) Resignation, Removal, and Death: A majority of the Trustees may, at any
-------------------------------
time, accept the written resignation of another Trustee or may remove him from
office by written notice to him and to the Custodian. In addition, the holders
of record of not less than two-thirds of the outstanding shares of the Fund may
have a trustee removed by filling a declaration with the Custodian or by a vote
at a meeting called for such purpose. The Trustees shall promptly call a meeting
of shareholders for the purpose of voting upon removal of such Trustee(s) when
requested in writing by holders of at least 10% of the Fund's outstanding
shares. Pending the filling of any vacancy or vacancies caused by death,
resignation, or removal, the remaining Trustee or Trustees shall have all the
powers and duties of the whole number of Trustees.
(d) Filling Vacancies: If a vacancy occurs in the office of a Trustee for
-----------------
any reason, including an increase in the number of Trustees, the other Trustees
shall by written notice delivered to the Custodian appoint a Trustee to fill the
vacancy and will promptly notify the shareholders that they have done so,
subject to the provisions of Section 16(a) of the 1940 Act. The agreement to be
entered into with the Custodian will provide that, if at any time the Custodian
decides that there is no Trustee available or able to serve, it will call a
meeting of the shareholders to elect at least three (3) Trustees.
(e) Acceptance by Trustees: Any person appointed to the office of Trustee
----------------------
will execute and file with the Custodian a writing agreeing to the terms and
conditions of this Declaration of Trust, but this provision shall not apply to
reappointments and reelections of Trustees.
11. POWERS OF TRUSTEES
In addition to any other powers herein expressly or impliedly given to them,
and in addition to such powers as may be vested in the Trustees by applicable
law, the Trustees shall have the power, in their discretion:
(a) To cause the principal of each Series of the Fund to be invested and
reinvested in bonds, notes, stocks, and other securities, within the investment
objective and policies of each particular Series, except for a reasonable amount
which may be kept in cash, without
-6-
<PAGE>
being confined to legal investments as defined under Pennsylvania law, but
subject to the provisions of the 1940 Act relating to the diversification of
investments of diversified management companies, the rules and regulations of
the Securities and Exchange Commission pursuant to such Act as well as other
federal law pertinent thereto, and other provisions and limitations contained in
this Declaration of Trust, and to do anything required for the protection of any
investments;
(b) To employ and remove the Custodian of the Fund, counsel, an independent
certified public accountant, a distributor, transfer agent, pricing agent, and
employees and officers of the Fund, and such other persons as shall be required
for the proper administration of the Fund, such persons to have such duties,
responsibilities, and authority with respect to the Fund as the Trustee may
determine, except that the Trustees shall not have the power to employ an
independent certified public accountant rejected by the shareholders of the
Fund;
(c) To employ and remove investment advisor(s) with whom the Trustees shall
enter into written contracts setting forth all compensatory arrangements and
other matters agreed upon between the Trustees and such investment advisor(s);
(d) To cause the Custodian to pay from the Fund all proper charges against
it, and, in their discretion, to make proper reserves for such charges,
including, without limitation: taxes; commissions and other expenses in
connection with the purchase and sale of securities held by the Fund; the
compensation of the Trustees, officers and employees of the Fund, of the
Investment Advisor, of the Distributor of the Fund's shares, of the Custodian,
of counsel, and of the independent certified public accountant; premiums on the
fidelity bond of the Trustees; fees paid to the Securities and Exchange
Commission and other regulatory agencies; costs of transfer and registration of
new and transferred certificates; costs for the purchase, printing, or for the
mailing of, share certificates of the Fund, periodic reports to shareholders of
the Fund, notices to shareholders of the Fund, proxies and proxy material;
amounts required to effectuate the indemnification of the Trustees and others
and of those who have ceased to be Trustees as provided herein; and any other
sums necessary for the proper conduct of the Fund;
(e) To allocate any such charge to principal or to income or partly to each;
(f) To allocate stock dividends and extraordinary dividends to principal or
to income or partly to each;
(g) To delegate in writing to one or more of the Trustees and at any time to
assume any or all of the powers of the full Board of Trustees, including
discretionary powers, except that the following powers may not be so delegated:
the powers to appoint or remove a Trustee, to employ or remove a Custodian or an
independent certified public accountant, to liquidate the Fund or to amend this
Declaration of Trust;
-7-
<PAGE>
(h) To advance cash from the principal account of the Fund to the income
account and vice versa; and
(i) Generally, except as herein restricted, to do anything with respect to
the property of the Fund that an absolute owner could do, subject to the duty of
acting only for the benefit of the shareholders.
12. GENERAL RESTRICTIONS ON POWERS
(a) No person or organization having a contract to furnish or furnishing
managerial, supervisory, distributing, underwriting, or investment advisory
services to the Fund shall receive any commission, fee, or other payment or
otherwise profit directly or indirectly from sales or purchases by the Fund of
securities, provided, however, that nothing in this paragraph shall prevent or
prohibit payment of a fee to any person for services rendered to the Fund.
(b) The Trustees shall not cause the Fund to make investments in violation of
the 1940 Act or any regulations of the Securities and Exchange Commission
adopted pursuant thereto, or in contravention of the provisions of the Internal
Revenue Code of 1986, as amended, with respect to regulated investment
companies.
13. LIMITATION OF LIABILITY AND INDEMNIFICATION
(a) Limitation of Trustee Liability. Every act or thing done or omitted, and
-------------------------------
every power exercised or obligation incurred by the Trustees or any of them in
the administration of this Fund or in connection with any affairs, property, or
concerns of the Fund, whether ostensibly in their own names or in their Fund
capacity, shall be done, omitted, exercised or incurred by them as Trustees and
not as individuals; and every person contracting or dealing with the Trustees or
having any debt, claim, or judgment against them or any of them shall look only
to the assets of the Fund for payment or satisfaction. No Trustee or Trustees of
the Fund shall ever be personally liable for or on account of any contract,
debt, tort, claim, damage, judgment, or decree arising out of or connected with
the administration or preservation of the Fund estate or the conduct of any
other affairs of the Fund.
It is the intention of this Section 13(a) that no Trustee shall be subject to
any personal liability whatsoever to any person for errors of judgment, mistakes
of fact or law, or any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of trust) and that all persons shall look solely to the Fund assets for
satisfaction of claims of any nature arising in connection with the affairs of
the Fund; except that nothing in this Declaration of Trust shall protect any
Trustee from any liability to the Fund or its shareholders to which he would
otherwise be subject by reason of willful malfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
-8-
<PAGE>
(b) Indemnification of Trustees, Officers and Employees. The Fund shall
---------------------------------------------------
indemnify each of its Trustees against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by him in connection with
the defense or disposition of any action, suit, or other proceeding, whether
civil or criminal, in which he may be involved or with which he may be
threatened, while as a Trustee or thereafter, by reason of his being or having
been such a Trustee; except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith or reckless disregard of his duties,
or with willful misconduct or gross negligence. The rights accruing to any
person under these provisions shall not exclude any other right to which he may
be lawfully entitled; provided, however, that no person may satisfy any right of
indemnity or reimbursement except out of the property of the Fund.
The Trustees shall have the power, but not the duty, in their sole discretion,
to indemnify officers and employees of the Fund to the same extent that
Trustees are entitled to indemnification pursuant to this Section 13(b).
In addition to such rights of indemnification as may be provided hereunder,
the Trustees may purchase insurance against the risk of liability imposed
against Trustees, officers, or employees by reason of their services on behalf
of the Fund.
(c) Reliance on Experts, Etc. Each Trustee, officer, and representative of
-------------------------
the Fund shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Fund, upon an opinion of counsel satisfactory to the Fund, or upon reports made
to the Fund by any of its officers, representatives, or employees or by the
investment advisor, the principal underwriter, selected dealers, accountants,
appraisers, or other experts or consultants selected with reasonable care by the
Trustees or officers of the Fund, regardless of whether such counsel or expert
may also be a Trustee.
(d) Limitation of Shareholder Liability. Shareholders shall not be subject
-----------------------------------
to any personal liability for the acts or obligations of the Fund and notice of
this disclaimer shall be given in each agreement, obligation or instrument
entered into or executed by the Fund or the Trustees. The Trustees shall have
no power to bind any shareholder personally or to call upon any shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
shareholder may at any time personally agree to pay by way of subscription to
any shares or otherwise.
(e) Indemnification of Shareholders. In case any shareholder or former
-------------------------------
shareholder shall be held to be personally liable solely by reason of his being
or having been a shareholder and not because of his acts or omissions or for
some other reason, the shareholder or former shareholder (or his heirs,
executors, administrators, or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the Fund's assets to be held harmless from and indemnified
-9-
<PAGE>
against all loss and expense arising from such liability. The Fund shall, upon
request by the shareholder, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
thereon.
14. COMPENSATION OF TRUSTEES
Each Trustee who shall be affiliated with the Fund's investment advisor or the
fund's legal counsel or who shall be an officer or employee of the Fund shall
serve without compensation, and each Trustee who is not so affiliated shall be
compensated as determined from time to time by the Trustees.
15. TAXES
The Trustees will pay from the Fund any tax assessed with respect to the Fund
or any asset of it or the income from it, and shall, in their discretion, charge
this tax to income or to principal, or partly to both.
16. REPORTS
The Trustees will send to each shareholder, at least semi-annually, a report
of the Fund, containing information and financial statements required by law,
and they will send to each shareholder, from time to time, the information
required for preparation of individual income tax returns.
17. NOTICES
Any notice or report provided for herein shall be considered as given to each
shareholder if mailed to him at the address appearing on the Transfer Agent's
records for the distribution of income, with first-class postage affixed.
18. TERMINATION
The Fund will continue without limitation of time, provided however that:
1) Subject to the majority vote of the holders of shares of any Series of
the Fund outstanding, the Trustees may sell or convert the assets of such Series
to another investment company in exchange for shares of such investment company
and distribute such shares ratably among the shareholders of such Series;
2) Subject to the majority vote of shares of any Series of the Fund
outstanding, the Trustees may sell and convert into money the assets of such
Series and distribute such assets ratably among the shareholders of such Series;
and
-10-
<PAGE>
3) Without the approval of the shareholders of any Series, unless otherwise
required by law, the Trustees may combine the assets of any two or more Series
into a single Series so long as such combination will not have a material
adverse effect upon the shareholders of such Series.
Upon completion of the distribution of the remaining proceeds or the remaining
assets of any Series as provided in paragraphs 1), 2), and 3) above, the Fund
shall terminate as to that Series and the Trustees shall be discharged of any
and all further liabilities and duties hereunder and the right, title and
interest of all parties shall be canceled and discharged.
19. PERSONS DEALING WITH TRUSTEES
Anyone dealing with the Trustees shall be entitled to rely upon the written or
oral statement of any one or more of the Trustees to whom authority has been
delegated to act on behalf of all the Trustees, or upon his or their
representation that such authority has been delegated to him or them.
20. AMENDMENTS
This Declaration of Trust may be amended from time to time by all the Trustees
with the written consent of the holders of a majority of the outstanding shares
or with the consent of such holders voting in person or by proxy at a meeting
called to pass upon such amendment; but no amendment shall give any share
preference over any other share. An amendment shall be effective upon delivery
of an appropriate writing to the Custodian, notice of which will then be given
immediately to all the shareholders.
21. SITUS OF TRUST
The situs of this Fund shall be East Lampeter Township, Lancaster County,
Pennsylvania and this Declaration of Trust shall be governed and controlled by
the laws and statutes of the Commonwealth of Pennsylvania.
22. MISCELLANEOUS
(a) Close of Business. As used in this Declaration of Trust, the phrase
-----------------
"close of business," whether with respect to determining net asset value per
share, effecting purchases or redemptions of shares, or any other purpose, shall
be deemed to mean the close of business of the New York Stock Exchange on the
applicable day unless the Trustees specify another time.
(b) Other Capacities. Any Trustee, officer, representative, employee, or
----------------
agent of the Fund, including any investment advisor, distributor, custodian, or
transfer agent, may serve in multiple capacities for the Fund, and may engage in
other business activities in addition
-11-
<PAGE>
to his or its services on behalf of the Fund, provided, however, that any such
business activities not related to the Fund do not interfere with the
performance of such person's responsibilities and duties for or on behalf of the
Fund.
(c) Conformance with Law. This Fund has been created to be an investment
--------------------
company under the 1940 Act. To the extent that any provision of this
Declaration of Trust is inconsistent with the 1940 Act or any regulation
thereunder, the regulated investment company provisions of the Internal Revenue
Code of 1986 or any regulation thereunder, or with other applicable laws or
regulations, such inconsistent provision of this Declaration of Trust shall be
deemed to be amended to so be consistent, or deemed to be severed from this
Declaration of Trust, as appropriate, without any action by the Trustees or
shareholders. Notwithstanding the foregoing, Section 13 of this Declaration of
Trust shall not be affected in any manner that would increase the liability of
Trustees or shareholders or decrease the indemnification available to such
persons.
(d) Actions by Written Consent; Telephonic Meetings. Any action that may be
-----------------------------------------------
taken by the Trustees may be taken by a writing signed by all of them. Trustees
may participate in meetings by means of a conference telephone or other similar
equipment pursuant to which each person participating in the meeting may hear
all other persons participating.
IN WITNESS WHEREOF, the undersigned Trustees have signed their names and
affixed their seals the day and year first above written.
/s/ Bruce E. Bowen
- ----------------------------------------(SEAL)
Bruce E. Bowen
/s/ Scott L. Rehr
- ----------------------------------------(SEAL)
Scott L. Rehr
/s/H.J. Zoffer
----------------------------------
(SEAL)
H. J. Zoffer
-12-
<PAGE>
THE HOMESTATE GROUP
Pennsylvania Growth Fund
Joinder of New Trustees
WHEREAS, the undersigned, Kenneth G. Mertz, II and Scott C. Penwell desire
to become and serve as Trustees of The HomeState Group (the "Fund")); and
WHEREAS, on August 26, 1992, the Trustees of the Fund, pursuant to the
Fund's organization, adopted, approved, executed, ratified and joined the
following, all of which the undersigned have reviewed (the "Organizational
Actions"):
1. A consent to act as Trustee of the Fund:
2. Organizational Resolutions;
3. A uniform resolution for filing with state securities
commissions;
4. An authorization of Scott L. Rehr to make written and oral
instructions on behalf of the Fund;
5. A determination of a charitable contribution policy;
6. Execution of the Declaration of Trust; and
7. Execution of the Fund's registration statement on Form N-1A.
NOW THEREFORE, BE IT RESOLVED, that the undersigned hereby join in, adopt,
approve, ratify, and where appropriate execute the Organizational Actions as if
the undersigned were present at the organizational meeting of the Trustees held
on August 26, 1992.
IN WITNESS WHEREOF, we set forth our hands and seals this 31st day of
August, 1992.
/s/ Kenneth G. Mertz, II (SEAL)
------------------------
Kenneth G. Mertz, II
/s/ Scott C. Penwell (SEAL)
--------------------
Scott C. Penwell
-13-
<PAGE>
THE HOMESTATE GROUP
DECLARATION OF TRUST
Addendum 1
----------
HomeState Select Opportunities Fund
-----------------------------------
On the 21st day of November, 1996, pursuant to Section 2(f) of the
Declaration of Trust (the "Declaration of Trust") of the HomeState Group (the
"Fund"), the trustees of the Trust (the "Trustees") created an additional Series
of the Fund, to be known hereafter as the HomeState Select Opportunities Fund
("HSOF"). With respect to HSOF, the Trustees further determined:
Fundamental Investment Restrictions:
- ------------------------------------
HSOF may not:
(1) Invest more than 25% of the value of its assets in the equity or debt
of one issuer (other than obligations issued or guaranteed by the U.S.
Government), nor, in respect of at least 50% of its assets, invest
more than 5% of the value of its assets in the equity or debt of one
issuer (other than obligations issued or guaranteed by the U.S.
Government).
(2) Invest more than 25% of total assets in one industry.
(3) Issue or sell senior securities, subject to policy (a) below (relating
to the ability to borrow money for certain purposes);
(4) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investment,
it may be deemed to be an underwriter under certain federal securities
laws;
(5) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate that are
issued or backed by the United States Government, its agencies or
instrumentalities;
(6) Make loan, except by purchase of debt obligations in which the HSOF
may invest in accordance with its investment policies, or except by
entering into qualified repurchase agreements with respect to not more
than twenty-five percent (25%) of its total assets (taken at current
value);
-14-
<PAGE>
(7) Purchase or hold the securities of any issuer if the officers or
directors of HSOF or its investment adviser (i) individually own more
than one-half of one percent (0.5%) of the outstanding securities of
the issuer, or (ii) collectively own more than five percent (5%) of
the outstanding securities;
(8) Acquire more than ten percent (10%) of the voting securities of any
issuer; or make investments for the purpose of gaining control of a
company's management;
(9) Invest in the securities of other investment companies (excepting no-
load, open-end money market mutual funds, and excepting the case of
acquiring such companies through merger, consolidation or acquisition
of assets). HSOF will not invest more than ten percent (10%) of its
total current assets in shares of other investment companies nor
invest more than five percent (5%) of its total current assets in a
single investment company. When investing in a money market mutual
fund, HSOF will incur duplicate fees and expenses; and
(10) May not borrow money, except from a bank, or for purposes purchasing
securities on margin (provided that such purchases may not exceed 120%
of total assets taken at current value).
Investment Policies (which may be changed by HSOF's Board of Trustees):
- -----------------------------------------------------------------------
(a) Will not invest in foreign currencies or foreign options;
(b) Will not invest more than 15% of total assets (taken at current value)
in illiquid securities (including illiquid equity securities,
repurchase agreements and time deposits with maturities or notice
periods of more than 7 days, and other securities which are not
readily marketable, including securities subject to legal or
contractual restrictions on resale);
(c) Will not issue long-term debt securities (except pursuant to policy
(a) above relating to borrowing for certain purposes;
(d) Will not invest more than ten percent (10%) of its total assets (at
current value) in repurchase agreements, and will not invest in
repurchase agreements maturing in more than seven days;
(e) May invest its cash for temporary purposes in commercial paper,
certificates of deposit, money market mutual funds, repurchase
agreements (as set forth in Item g above) or other appropriate short-
term investments;
-15-
<PAGE>
(f) May invest in securities convertible into common stock, but only when
HSOF's investment adviser believes the expected total return of such a
security exceeds the expected total return of common stocks eligible
for investment;
(g) Will maintain its portfolio turnover rate at a percentage consistent
with its investment objective of long-term appreciation of capital.
HSOF will not engage primarily in trading for short-term profits, but
it may from time to time make investments for short-term purposes when
such trading is believed by HSOF's Adviser to be desirable and
consistent with a sound investment policy. HSOF may dispose of
securities whenever the Adviser deems advisable without regard to the
length of time held. HSOF is not expected to exceed a portfolio
turnover rate of 150% on an annual basis.
(h) May engage in options strategies. HSOF will either: (i) set aside
cash, U.S. Government or other liquid, high-grade debt securities in a
segregated account with HSOF's custodian in the prescribed amount; or
(ii) hold securities or other options or futures contracts whose
values are expected to offset ("cover") its obligations thereunder.
Securities, currencies or other options or futures contracts used for
cover cannot be sold or closed out while the strategy is outstanding,
unless they are replaced with similar assets;
(i) May not write put or call options having aggregate exercise prices
greater than 25% of HSOF's net assets, except with respect to options
attached to or acquired with or traded together with their underlying
securities and securities that incorporate features similar to
options; and
(j) May make short sales.
-16-
<PAGE>
THE HOMESTATE GROUP
DECLARATION OF TRUST
Addendum 2
----------
Year 2000 Fund
--------------
On the 1st day of August, 1997, pursuant to Section 2(f) of the Declaration
of Trust (the "Declaration of Trust") of the HomeState Group (the "Trust"), the
trustees of the Trust (the "Trustees") created an additional Series of the Fund,
to be known hereafter as the Year 200 Fund (the "Y2K Fund"). With respect to
the Y2K Fund, the Trustees further determined:
Fundamental Investment Restrictions:
- -----------------------------------
The Y2K Fund may not:
(1) Invest more than 25% of the value of its assets in the equity or debt
of one issuer (other than obligations issued or guaranteed by the
United States Government), nor, with respect to at least 50% of its
total assets, invest more than 5% of the value of such assets in the
equity or debt of one issuer (other than obligations issued or
guaranteed by the U.S. Government);
(2) Invest more than 25% of total assets in one industry, except that the
Y2K Fund shall, under normal conditions, invest not less than 25% of
its total assets in securities of companies operating within the
information technology group;
(3) Issue or sell senior securities, except that the Y2K Fund may engage
in options, futures and/or short-selling strategies provided the Y2K
Fund either (i) sets aside liquid, unencumbered, daily marked-to-
market assets in a segregated account with its custodian in amounts as
prescribed by pertinent U.S. Securities and Exchange Commission
guidelines, or (ii) holds securities or other options or futures
contracts whose values are expected to offset ("cover") its
obligations thereunder. Securities or other options or futures
contracts used for cover will not be sold or closed out while such
strategies are outstanding, unless they are replaced with similar
assets;
(4) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws;
<PAGE>
(5) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate that are
issued or backed by the United States Government, its agencies or
instrumentalities;
(6) Make loans, except by purchase of debt obligations in which the Y2K
Fund may invest in accordance with its investment policies, or except
by entering into qualified repurchase agreements with respect to not
more than twenty-five percent (25%) of its total assets (taken at
current value);
(7) Purchase or hold the securities of any issuer if the officers or
directors of the Y2K Fund or its investment adviser (i) individually
own more than one-half of one percent (0.5%) of the outstanding
securities of the issuer, or (ii) collectively own more than five
percent (5%) of the outstanding securities;
(8) Acquire more than ten percent (10%) of the voting securities of any
issuer; or make investments for the purpose of gaining control of a
company's management;
(9) Invest in the securities of other investment companies (excepting no-
load, open-end money market mutual funds, and excepting the case of
acquiring such companies through merger, consolidation or acquisition
of assets). The Y2K Fund will not invest more than ten percent (10%)
of its total current assets in shares of other investment companies
nor invest more than five percent (5%) of its total current assets in
a single investment company. When investing in a money market mutual
fund, the Y2K Fund may incur duplicate fees and expenses; or
(10) Borrow money, except from a bank or for the purposes of purchasing
securities on margin (provided that such purchases may not exceed 120%
of total assets taken at current value). Such borrowing will be
limited to no more than 5% of total net assets.
Investment Policies (which may be changed by the Y2K Fund's Board of Trustees):
- ------------------------------------------------------------------------------
The Y2K Fund:
(a) Will not invest in foreign currencies or foreign options;
(b) Will not invest more than 15% of net assets (taken at current value)
in illiquid securities (including illiquid equity securities,
repurchase agreements and time deposits with maturities or notice
periods of more than seven days, and other securities which are not
readily marketable, including securities subject to legal or
contractual restrictions on resale);
(c) Will not issue long-term debt securities;
<PAGE>
(d) Will not invest more than ten percent (10%) of its total assets (at
current value) in repurchase agreements, and will not invest in
repurchase agreements maturing in more than seven days;
(e) May invest its cash for temporary purposes in commercial paper,
certificates of deposit, money market mutual funds, repurchase
agreements (as set forth in Item d above) or other appropriate short-
term investments;
(f) May invest in securities convertible into common stock, but only when
the Y2K Fund's investment adviser believes the expected total return
of such a security exceeds the expected total return of common stocks
eligible for investment;
(g) Will maintain its portfolio turnover rate at a percentage consistent
with its investment objective of appreciation of capital. The Y2K Fund
will not engage primarily in trading for short-term profits, but it
may from time to time make investments for short-term purposes when
such trading is believed by the Y2K Fund's investment adviser to be
desirable and consistent with a sound investment policy. The Y2K Fund
may dispose of securities whenever the investment adviser deems
advisable without regard to the length of time held. The Y2K Fund is
not expected to exceed a portfolio turnover rate of 200% on an annual
basis;
(h) May not write options (whether on securites or securities indexes) or
initiate further short-sale positions if aggregate exercise prices of
previously written outstanding options, together with the value of
assets used to cover outstanding short-sale positions, would exceed
25% of the Y2K Fund's total net assets; and
(i) Will not purchase or sell non-hedging futures contracts or related
options if aggregate initial margin and premiums required to establish
such positions would exceed 5% of the Y2K Fund's total assets. For
purposes of this limitation, unrealized profits and unrealized losses
on any open contracts are taken into account, while the in-the-money
amount of an option that is, or was, in-the-money at the time of
purchase is excluded.
<PAGE>
THE HOMESTATE GROUP
DECLARATION OF TRUST
PROPOSED
Restated Addendum 1
-----------------------
HomeState Select Banking and Finance Fund
-----------------------------------------
On the 31st day of August, 1998, pursuant to a special meeting of the
shareholders of the HomeState Select Banking and Finance Fund (the "Banking and
Finance Fund"), formerly known as the HomeState Select Opportunities Fund,
Addendum 1, dated November 21, 1996, to the Declaration of Trust (the
"Declaration of Trust") of the HomeState Group (the "Trust"), has been amended
and restated as follows:
Fundamental Investment Restrictions:
- -----------------------------------
The Banking and Finance Fund may not:
(1) Invest more than 5% of the value of its assets in the equity or debt of
one issuer (other than obligations issued or guaranteed by the U.S.
Government);
(2) Invest more than 25% of total assets in one industry, except that the
Banking and Finance 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;
(3) Issue or sell senior securities;
(4) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws;
(5) Purchase or sell real estate, although it may purchase securities which
are secured by or represent interests in real estate that are issued or
backed by the United States Government, its agencies or
instrumentalities;
(6) Make loans, except by purchase of debt obligations in which it may
invest in accordance with its investment policies, or except by
entering into qualified repurchase agreements with respect to not more
than twenty-five percent (25%) of its total assets (taken at current
value);
<PAGE>
(7) Purchase or hold the securities of any issuer if the officers or
directors of the Banking and Finance Fund or its investment adviser (i)
individually own more than one-half of one percent (0.5%) of the
outstanding securities of the issuer, or (ii) collectively own more
than five percent (5%) of the outstanding securities;
(8) Acquire more than ten percent (10%) of the voting securities of any
issuer; or make investments for the purpose of gaining control of a
company's management;
(9) Invest in the securities of other investment companies (excepting no-
load, open-end money market mutual funds, and except in the case of
acquiring such companies through merger, consolidation or acquisition
of assets). The Banking and Finance Fund will not invest more than ten
percent (10%) of its total current assets in shares of other investment
companies nor invest more than five percent (5%) of its total current
assets in a single investment company. When investing in a money market
mutual fund, the Banking and Finance Fund may incur duplicate fees and
expenses; or
(10) Borrow money, except from a bank or for the purposes of purchasing
securities on margin (provided that such purchases may not exceed 120%
of total assets taken at current value); such borrowing will be limited
to no more than 5% of net assets.
Investment Policies (which may be changed by the Banking and Finance Fund's
- ---------------------------------------------------------------------------
Board of Trustees):
- ------------------
The Banking and Finance Fund:
(a) Will not invest in foreign currencies or foreign options;
(b) Will not invest more than 15% of total assets (taken at current value)
in illiquid securities (including illiquid equity securities,
repurchase agreements and time deposits with maturities or notice
periods of more than seven days, and other securities which are not
readily marketable, including securities subject to legal or
contractual restrictions on resale);
(c) Will not issue long-term debt securities;
(d) Will not invest more than ten percent (10%) of its total assets (at
current value) in repurchase agreements, and will not invest in
repurchase agreements maturing in more than seven days;
(e) May invest its cash for temporary purposes in commercial paper,
certificates of deposit, money market mutual funds, repurchase
agreements (as set forth in Item d above) or other appropriate short-
term investments;
<PAGE>
(f) May invest in securities convertible into common stock, but only when
the Banking and Finance Fund's investment adviser believes the expected
total return of such a security exceeds the expected total return of
common stocks eligible for investment;
(g) Will maintain its portfolio turnover rate at a percentage consistent
with its investment objective of long-term growth. The Banking and
Finance Fund will not engage primarily in trading for short-term
profits, but it may from time to time make investments for short-term
purposes when such trading is believed by the Banking and Finance
Fund's investment adviser to be desirable and consistent with a sound
investment policy. The Banking and Finance Fund may dispose of
securities whenever the investment adviser deems advisable without
regard to the length of time held. The Banking and Finance Fund is not
expected to exceed a portfolio turnover rate of 80% on an annual basis;
(h) May engage in options strategies with respect to less than 5% of the
Banking and Finance Fund's net assets, in which the Banking and Finance
Fund will either: (i) set aside liquid, unencumbered, daily marked to
market assets in a segregated account with the Banking and Finance
Fund's custodian in the prescribed amount; or (ii) hold securities or
other options or futures contracts whose values are expected to offset
("cover") its obligations thereunder. Securities, currencies or other
options or futures contracts used for cover cannot be sold or closed
out while the strategy is outstanding, unless they are replaced with
similar assets;
(i) May not write put or call options having aggregate exercise prices
equal to or greater than 5% of the Banking and Finance Fund's net
assets, except with respect to options attached to or acquired with or
traded together with their underlying securities and securities that
incorporate features similar to options; and
(j) May make short sales in total amounts less than 5% of the Banking and
Finance Fund's net assets.
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of May 14, 1998, between HomeState Group
("Trust"), a Pennsylvania Common Law Trust and Rafferty Capital Markets, Inc.
("RCM"), a corporation organized and existing under the laws of the State of New
York.
WHEREAS the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company, and has
registered one or more distinct series of shares of beneficial interest
("Shares") for sale to the public under the Securities Act of 1933, as amended
("1933 Act"), and has qualified its shares for sale to the public under various
state securities laws, and
WHEREAS the Trust desires to retain RCM as principal underwriter in
connection with the offering and sale of the Shares of each series listed on
Schedule A (as amended from time to time) to this Agreement; and
WHEREAS this Agreement has been approved by a vote of the Trust's board of
trustees or directors ("Board") and its disinterested trustees/directors in
conformity with Section 15(c) under the 1940 Act; and
WHEREAS RCM is willing to act as principal underwriter for the Trust on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints RCM as its agent to be the
-----------
principle underwriter so as to hold itself out as available to receive and
accept orders for the purchase and redemption of the Shares and redemption of
Shares on behalf of the Trust, subject to the terms and for the period set forth
in this Agreement. RCM hereby accepts such appointment and agrees to act
hereunder. The Trust understands that any solicitation activities conducted on
behalf of the Trust will be conducted primarily, if not exclusively, by
employees of the Trust's sponsor who shall become registered representative or
RCM.
2. SERVICES AND DUTIES OF RCM
--------------------------
(a) RCM agrees to sell Shares on a best efforts basis from time to
time during the term of this Agreement as agent for the Trust and upon the terms
described in the Registration Statement. As used in this Agreement, the term
"Registration Statement" shall mean the currently effective registration
statement of the Trust, and any supplements thereto, under the 1933 Act and the
1940 Act.
(b) RCM will hold itself available to receive purchase and redemption
orders satisfactory to RCM for Shares and will accept such orders on behalf of
the Trust. Such purchase orders shall be deemed effective at the time and in
the manner set forth in the Registration Statement.
<PAGE>
(c) RCM, with the operational assistance of the Trust's transfer
agent, shall make Shares available through the National Securities Clearing
Corporation's Trust/SERV System.
(d) RCM shall provide to investors and potential investors only such
information regarding the Trust as the Trust shall provide or approve. RCM
shall review and file all proposed advertisements and sales literature with
appropriate regulators and consult with the Trust regarding any comments
provided by regulators with respect to such materials.
(e) The offering price of the Shares shall be the price determined in
accordance with, and in the manner set forth in, the most-current Prospectus.
The Trust shall make available to RCM a statement of each computation of net
asset value and the details of entering into such computation.
(f) RCM at is sole discretion may repurchase Shares offered for sale
by the shareholders. Repurchase of Shares by RCM shall be at the price
determined in accordance with, and in the manner set forth in, the most-current
Prospectus. At the end of each business day, RCM shall notify, by any
appropriate means, the Trust and its transfer agent of the orders for repurchase
of Shares received by RCM since the last such report, the amount to be paid for
such Shares, and the identity of the shareholders offering Shares for
repurchase. The Trust reserves the right to suspend such repurchase right upon
written notice to RCM. RCM further agrees to act as agent for the Trust to
receive and transmit promptly to the Trust's transfer agent shareholder requests
for redemption of Shares.
(g) RCM shall not be obligated to sell any certain number of Shares.
(h) RCM shall prepare reports for the Board regarding its activities
under this Agreement as from time to time shall be reasonably requested by the
Board.
3. DUTIES OF THE TRUST
-------------------
(a) The Trust shall keep RCM fully informed of its affairs and shall
provide to RCM from time to time copies of all information, financial
statements, and other papers that RCM may reasonably request for use in
connection with the distribution of Shares, including, without limitation,
certified copies of any financial statements prepared for the Trust by its
independent public accountant and such reasonable number of copies of the most
current Prospectus, Statement of Additional Information ("SAI"), and annual and
interim reports as RCM may request, and the Trust shall fully cooperate in the
efforts of RCM to sell and arrange for the sale of Shares.
(b) The Trust shall maintain a currently effective Registration
Statement on Form N-1A with the Securities and Exchange Commission (the "SEC"),
maintain qualification with applicable states and file such reports and other
documents as may be required under applicable federal and state laws. The Trust
shall notify RCM in writing of the states in which the Shares may be sold and
shall notify RCM in writing of any changes to such information. The Trust shall
bear
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<PAGE>
all expenses related to preparing and typesetting such Prospectuses, SAI and
other materials required by law and such other expenses, including printing and
mailing expenses, related to the Trust's communication with persons who are
shareholders.
(c) The Trust shall not use any advertisements or other sales
materials that have not been (i) submitted to RCM for its review and approval,
and (ii) filed with the appropriate regulators.
(d) The Trust represents and warrants that its Registration Statement
and any advertisements and sales literature (excluding statements relating to
RCM and the services it provides that are based upon written information
furnished by RCM expressly for inclusion therein) of the Trust shall not contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that all statements or information furnished to RCM, pursuant to
Section 3(a) hereof, shall be true and correct in all material respects.
4. OTHER BROKER-DEALERS. RCM in its discretion may enter into agreements
--------------------
to sell Shares to such registered and qualified retail dealers, as reasonably
requested by the Trust. The form of any such dealer agreement shall be mutually
agreed upon and approved by the Trust and RCM.
5. WITHDRAWAL OF OFFERING. The Trust reserves the right at any time to
----------------------
withdraw all offerings of any or all Shares by written notice to RCM at its
principal office. No Shares shall be offered by either RCM or the Trust under
any provisions of this Agreement and no orders for the purchase or sale of
Shares hereunder shall be accepted by the Trust if and so long as effectiveness
of the Registration Statement then in effect or any necessary amendments thereto
shall be suspended under any of the provisions of the 1933 Act, or if and so
long as a current prospectus as required by Section 5(b)(2) of the 1933 Act is
not on file with the SEC.
6. SERVICES NOT EXCLUSIVE. The services furnished by RCM hereunder are
----------------------
not to be deemed exclusive and RCM shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
7. EXPENSES OF THE TRUST. The Trust shall bear all costs and expenses of
---------------------
registering the Shares with the SEC and state and other regulatory bodies, and
shall assume expenses related to communications with shareholders of the Trust
including, but not limited to, (i) fees and disbursements of its counsel and
independent public accountant; (ii) the preparation, filing, and printing of
Registration Statements and/or Prospectuses or SAIs; (iii) the preparation and
mailing of annual and interim reports, Prospectuses, SAIs, and proxy materials
to shareholders; (iv) such other expenses related to the communications with
persons who are shareholders of the Trust, and (v) the qualifications of Shares
for sale under the securities laws of such jurisdictions as shall be selected by
the Trust pursuant to Paragraph 3(b) hereof; and the costs and expenses payable
to each such jurisdiction for continuing qualification therein. In addition,
the Trust shall bear all costs of
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<PAGE>
preparing, printing, mailing and filing any advertisements and sales literature.
RCM does not assume responsibility for any expenses not assumed hereunder.
8. COMPENSATION. As compensation for the services performed and the
------------
expenses assumed by RCM under this Agreement including, but not limited to, any
commissions paid for sales of Shares, the Trust shall pay RCM, as promptly as
possible after the last day of each month, a fee as set forth in Schedule B to
this Agreement.
9. SHARE CERTIFICATES. The Trust shall not issue certificates
------------------
representing Shares unless requested to do so by a shareholder. If such request
is transmitted through RCM, the Trust will cause certificates evidencing the
Shares owned to be issued in such names and denominations as RCM shall from time
to time direct.
10. STATUS OF RCM. RCM is an independent contractor and shall be agent of
-------------
the Trust only with respect to the sale and redemption of Shares.
11. INDEMNIFICATION.
---------------
(a) The Trust agrees to indemnify, defend, and hold RCM, its officers
and directors, and any person who controls RCM within the meaning of Section 15
of the 1933 Act, free and harmless from and against any and all claims, demands,
liabilities, and expenses (including the cost of investigating or defending such
claims, demands, or liabilities and any counsel fees incurred in connection
therewith) that RCM, its officers, directors, or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any (i) alleged untrue statement of a material fact contained in the
Registration Statement, Prospectus, SAI or sales literature, (ii) Alleged
omission to state a material fact required to be stated in the either thereof or
necessary to make the statements therein not misleading, or (iii) failure by the
Trust to comply with the terms of the Agreement; provided, that in no event
shall anything contained herein be so construed as to protect RCM against any
liability to the Trust or its shareholders to which RCM would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations under this Agreement.
(b) The Trust shall not be liable to RCM under this Agreement with
respect to any claim made against RCM or any person indemnified unless RCM or
other such person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon RCM or such
other person (or after RCM or the person shall have received notice of service
on any designated agent). However, failure to notify the Trust of any claim
shall not relieve the Trust from any liability that it may have to RCM or any
person against who such action is brought otherwise than on account of this
Agreement.
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<PAGE>
(c) The Trust shall be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this Agreement. If the Trust elects to assume the
defense of any such claim, the defense shall be conducted by counsel chosen by
the Trust and satisfactory to indemnified defendants in the suit whose approval
shall not be unreasonably withheld. In the event that the Trust elects to
assume the defense of any suit and retain counsel, the indemnified defendants
shall bear the fees and expenses of any additional counsel retained by them. If
the Trust does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Trust agrees to promptly notify RCM
of the commencement of any litigation or proceedings against it or any of its
offices or directors in connection with the issuance or sale of any of its
Shares.
(d) RCM agrees to indemnify, defend, and hold the Trust, its officers
and directors, and any person who controls the Trust within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any all claims,
demands, liabilities, and expenses (including the cost of investigating or
defending against such claims, demands, or liabilities and any counsel fees
incurred in connection therewith) that the Trust, its directors or officers, or
any such controlling person may incur under the 1933 Act, or under common law or
otherwise, resulting from RCM's willful misfeasance, bad faith or gross
negligence in the performance of its obligations and duties under this
Agreement, or arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by RCM to the Trust
for use in the Registration Statement, Prospectus or SAI arising out of or based
upon any alleged omission to state a material fact in connection with such
information required to be stated in either thereof or necessary to make such
information not misleading.
(e) RCM shall be entitled to participate, at its own expense, in the
defense or, if it so elects, the defense shall be conducted by counsel chosen by
RCM and satisfactory to the indemnified defendants whose approval shall not be
unreasonably withheld. In the event that RCM elects to assume the defense of
any suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If RCM does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
12. DURATION AND TERMINATION
------------------------
(a) This Agreement shall become effective on the date first written
above or such later date as indicated in Schedule A and, unless sooner
terminated as provided herein, will continue in effect for two years from the
above written date. Thereafter, if not terminated this Agreement shall continue
in effect for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of the
Trust's Board who are neither interested persons (as defined in the 1940 Act) of
the Trust ("Independent trustees/directors") or RCM, cast in person at a meeting
called for the purpose of voting on such approval, and (ii) by the Board or by
vote of a majority of the outstanding voting securities of the Trust.
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<PAGE>
(b) Notwithstanding the foregoing, this Agreement may be terminated in
its entirety at any time, without the payment of any penalty, by vote of the
Board, by vote of a majority of the Independent trustees/directors, or by vote
of a majority of the outstanding voting securities of the Trust on sixty days
written notice to RCM or by RCM at any time, without the payment of any penalty,
on sixty days' written notice to the Trust. This Agreement will automatically
terminate in the event of its assignment.
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
---------------------------
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought. This Agreement may be amended with the
approval of the Board or of a majority of the outstanding voting securities of
the Trust; provided, that in either case, such amendment also shall be approved
by a majority of the Independent trustees/directors.
14. LIMITATION OF LIABILITY. The Board and shareholders of the Trust
-----------------------
shall not be personally liable for obligations of the Trust in connection with
any matter arising from or in connection with this Agreement. If the Trust is a
Massachusetts business trust, this Agreement is not binding upon any trustees,
officer or shareholder of the Trust individually, and no such person shall be
individually liable with respect to any action or inaction resulting from this
Agreement.
15. NOTICE. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. MISCELLANEOUS. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit and of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
state, rule, or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Agreement,
the terms "majority of the outstanding voting securities," "interested person,"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
17. GOVERNING LAW. This Agreement shall be construed in accordance with
-------------
the laws of the State of New York and the 1940 Act. To the extent that the
applicable laws of the State of New York conflict with the applicable provisions
of the 1940 Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
executed by their officers designated as of the day and year first above
written.
ATTEST: HomeState Group
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<PAGE>
_________________________ By: /s/ Scott L. Rehr
--------------------------
ATTEST: RAFFERTY CAPITAL MARKETS, INC.
________________________ By:__________________________
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<PAGE>
SCHEDULE A
to the
DISTRIBUTION AGREEMENT
Between
HomeState Group
and
RAFFERTY CAPITAL MARKETS, INC.
Pursuant to section 1 of the Distribution Agreement among the HomeState
Group ("Trust") and Rafferty Capital Markets, Inc. ("RCM"), the Trust hereby
appoints RCM as its agent to be the principal underwriter of the Trust with
respect to its following series:
. HomeState Pennsylvania Growth Trust
. HomeState Select Opportunities Trust
. Year 2000 ("Y2K")
Dated_____________, 1998
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<PAGE>
SCHEDULE B
to the
DISTRIBUTION AGREEMENT
between
HomeState Group
and
RAFFERTY CAPITAL MARKETS, INC.
As compensation pursuant to section 8 of the Distribution Agreement between
HomeState Group the ("Trust") and Rafferty Capital Markets, Inc. ("RCM"), the
Trust shall pay to RCM the sum of:
1. an annual fee of $15,000 for the first series of the Trust and $6,000
for each series thereafter or 0.02% of the average daily net assets of
each series, computed daily and paid monthly whichever is greater,
2. the ongoing licensing fees and incidental costs of those employees of
HomeState Group who are designated by HomeState Group to become
registered representatives of RCM;
3. the compensation paid by RCM to such registered representatives in
accordance with compensation schedules, as agreed upon by RCM and
HomeState Group from time to time;
4. the reasonable fees associated with listing and maintaining shares on
the National Securities Clearing Corporation's Trust/SERV System, as
agreed upon by RCM and HomeState Group from time to time;
5. incidental expenses associated with printing and distributing
advertising and sales literature, such as filings with the National
Association of Securities Dealers, Inc.
6. please see Distribution Fee Schedule for more details.
Date: _____________________, 1998
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<PAGE>
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT made on March 1st, 1998, between The HomeState Group, a
Pennsylvania common law trust (hereinafter called the "Trust"), and FIRSTAR
TRUST COMPANY, a corporation organized under the laws of the State of Wisconsin
(hereinafter called "Custodian").
WHEREAS, the Trust desires that its securities and cash shall be
hereafter held and administered by Custodian pursuant to the terms of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Trust by any two of the
President, a Vice President, the Secretary and the Treasurer of the Trust, or
any other persons duly authorized to sign by the Board of Trustees.
The word "Board" shall mean Board of Trustees of The HomeState Group.
2. NAMES, TITLES, AND SIGNATURES OF THE TRUST'S OFFICERS
An officer of the Trust will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Trustees, together with any changes which may occur from time to time.
ADDITIONAL SERIES. The HomeState Group is authorized to issue
separate classes of shares of beneficial interest representing interests in
separate investment portfolios. The parties intend that each portfolio
established by the Trust, now or in the future, be covered by the terms and
conditions of this Agreement.
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts
in the name of the Trust, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof,
<PAGE>
all cash received by it from or for the account of the Trust. Custodian shall
make payments of cash to, or for the account of, the Trust from such cash only:
(a) for the purchase of securities for the portfolio of the Trust
upon the delivery of such securities to Custodian, registered in
the name of the Trust or of the nominee of Custodian referred to
in Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of the Trust upon
delivery thereof to Custodian, or upon proper instructions from
The HomeState Group;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and
custodian services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Trust held
by or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of
the Board of Trustees of the Trust.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper trust
purpose, and naming the person or persons to whom such payment is to be made,
provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Trust.
C. Custodian shall, upon receipt of proper instructions, make
federal funds available to the Trust as of specified times agreed upon from time
to time by the Trust and the Custodian in the amount of checks received in
payment for shares of the Trust which are deposited into the Trust's account.
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<PAGE>
4. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of each portfolio, into which
account(s) may be transferred cash and/or securities.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any securities
of the Trust held by it pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Trust upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of
the Trust upon delivery thereof to Custodian; or
(i) for other proper trust purposes.
As to any deliveries made by Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefor shall
be deliverable to Custodian.
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<PAGE>
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper trust
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Trust, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Trust; (b) collect interest and cash dividends received, with notice to
the Trust, for the account of the Trust; (c) hold for the account of the Trust
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Trust, all necessary ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States Treasury Department or
under the laws of any state now or hereafter in effect, inserting the Trust's
name on such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so.
7. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued hereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall use its best efforts to the end that the
specific securities held by it hereunder shall be at all times identifiable in
its records.
The Trust shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Trust and which may from time to time be
registered in the name of the Trust.
8. VOTING AND OTHER ACTION
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<PAGE>
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Trust, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the Trust all
notices, proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Trust), but without
indicating the manner in which such proxies are to be voted.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
The Trust shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement provided, however, no payments or
reimbursements shall be made for Custodian's normal operating overhead.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptible transfers and/or deliveries of any such securities.
10. CONCERNING CUSTODIAN
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.
The Trust agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct.
In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Trust, or in the event that
Custodian or its nominee shall incur
-5-
<PAGE>
or be assessed any taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of this Agreement, except such as may arise
from its or its nominee's own negligent action, negligent failure to act or
willful misconduct. Assets in the amount of the taxes, charges, expenses,
assessments, claims, or liabilities shall be specifically identified and
segregated as collateral for these enumerated items as agreed upon by the Trust
and Custodian.
Custodian agrees to indemnify and hold harmless Trust from all
charges, expenses, assessments, and claims/liabilities (including counsel fees)
incurred or assessed against it in connection with the performance of this
Agreement, except such as may arise from the Trust's own negligent action,
negligent failure to act, or willful misconduct.
11. SUBCUSTODIANS
Custodian is hereby authorized to engage another bank or trust company
as a Subcustodian for all or any part of the Trust's assets, so long as any such
bank or trust company is a bank or trust company organized under the laws of any
state of the United States, having an aggregate capital, surplus and undivided
profit, as shown by its last published report, of not less than One Hundred
Million Dollars ($100,000,000) and provided further that, if the Custodian
utilizes the services of a Subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to the Trust by the Subcustodian as fully
as if the Custodian was directly responsible for any such losses under the terms
of the Custodian Agreement.
Notwithstanding anything contained herein, if the Trust requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Trust agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodian in regard to the Trust's assets, except as may
arise from its own negligent action, negligent failure to act or willful
misconduct.
12. REPORTS BY CUSTODIAN
Custodian shall furnish the Trust periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Trust.
Custodian shall furnish to the Trust, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Trust.
13. EFFECTIVE PERIOD; TERMINATION; AMENDMENT
This Agreement will become effective as of the date hereof and remain
effective until terminated as provided herein. This Agreement may be amended at
any time only by written instrument signed by both parties. This Agreement may
be terminated at any time on ninety (90) days' written notice by either party;
provided that the Trust will not amend or
-6-
<PAGE>
terminate the Agreement in contravention of any applicable federal or state
regulations, or any provision of the governing documents of the Trust, and
further provided, that the Trust may, at any time by action of its Board of
Trustees, immediately terminate this Agreement in the event of the appointment
of a conservator or receiver for the Custodian by the applicable federal
regulator or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction. Upon
termination of this Agreement, the Trust will pay to the Custodian any fees
incurred as a result of the termination transfer of assets, and reimburse the
Custodian for all costs, expenses, and disbursements that are due as of the date
of such termination.
14. SUCCESSOR CUSTODIAN
If a successor custodian is appointed by the Board of Trustees of the
Trust, the Custodian will, upon termination, deliver to such successor custodian
at the office of the Custodian, duly endorsed and in the form for transfer, all
securities and other assets of the Trust then held by it hereunder. The
Custodian will also deliver to such successor custodian copies of such books and
records relating to the Trust as the Trust and Custodian may mutually agree.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees will have been delivered to
the Custodian on or before the date when such termination will become effective,
then the Custodian will have the right to deliver to a bank or trust company of
its own selection, doing business in the state in which either the principal
place of business of the Trust or the Custodian is located and having an
aggregate capital, surplus, and undivided profits of not less than $25,000,000,
all securities, funds and other properties held by the Custodian under this
Agreement. Thereafter, such bank or trust company will be the successor of the
Custodian under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of vote referred to, or of
the Board of Trustees to appoint a successor custodian, the Custodian will be
entitled to fair compensation for its services during such period as the
Custodian and retain possession of such securities, funds and other properties,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian will remain in full force and effect.
15. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Trustees of the Trust approves by resolution the
use of such central securities clearing agency or securities depository.
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<PAGE>
16. RECORDS
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Trust pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder, Custodian agrees to make any such records
available to the Trust upon request and to preserve such records for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.
17. YEAR 2000. FIRSTAR WARRANTS THAT:
(a) Occurrence in or use by Firstar's internal computing system and
all systems utilized by Firstar in servicing the Trust
(collectively the "Systems") of dates on or after January 1, 2000
("Millennium Dates") or the occurrence of the year 2000 will not
adversely affect the performance of Firstar's services hereunder
in any manner including, but not limited to, performance with
respect to date-dependent data, computations, output,
calculating, comparing, and sequencing. The core systems to which
this warranty relates are:
The PAR System - Transfer agent shareholder accounting and
shareholder servicing
The CPORT System - Fund Accounting
The AMtrust System - Custody
The Blue2System - Blue Sky
The Mutual Direct System - Fulfillment
(b) The Systems will create, store, process, and output information
related to or including Millennium Dates without errors or
omissions and at no additional cost to the Trust.
(c) The Systems will be Year 2000 compliant on or before January 31,
1999 and, if such compliance will not be achieved by such date,
Firstar will provide written notice of such noncompliance to the
Trust on or before January 31, 1999 along with a detailed
description of the status of such Y2K remediation and an expected
date of compliance, which the Trust shall consider and determine
in its sole discretion whether to terminate the Agreement. If the
Trust determines to terminate the Agreement for such
noncompliance, there shall be no additional cost or expense to
the Trust related to such termination.
(d) The Systems will not disturb the Trust's computer system
regarding date-related issues.
-8-
<PAGE>
At the Trust's request, Firstar will provide evidence sufficient
to demonstrate that the Systems meet the foregoing requirements
including, but not limited to, evidence of testing and
performance. This warranty and covenant shall remain in effect
during the term of this Agreement. In the event of a breach of
this warranty, the Trust shall have available all remedies under
the law or equity, including, but not limited to, direct,
incidental, and/or consequential damages. This warranty and this
remedy provision shall supersede other clauses in this Agreement
or other agreements between the Trust and Firstar which are
inconsistent with this clause and in the case of inconsistency,
the warranty and remedy provisions in this clause shall be
controlling.
18. LIMITATION OF LIABILITY
FTC hereby acknowledges that it has received notice of and accepts the
limitations of the Trust's liability set forth in Section 13 of its Declaration
of Trust. FTC agrees that the Fund's obligations under this agreement with
respect to the Trust and any other specific funds shall be limited to such Trust
and to its assets, and that FTC shall not seek satisfaction of any obligation
from the shareholders of the Trust nor from any trustee, officer, employee or
agent of the Trust, nor from the assets of shareholders of any other funds.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and their respective corporate seals to be affixed hereto as of the
date first above written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Attest: FIRSTAR TRUST COMPANY
Gail Zess By /s/ Michael C. McVoy
------------------------------ ----------------------------------
Assistant Secretary Vice President
Attest: THE HOMESTATE GROUP
Daniel W. Moyer By /s/ Scott L.Rehr
----------------------------- ---------------------------------
Scott L. Rehr
-9-
<PAGE>
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
FEE SCHEDULES
FOR
THE HOMESTATE FUNDS
12.1.0 FIRSTAR
<PAGE>
Mutual Fund Services
SHAREHOLDER ACCOUNTING SERVICES
LOAD FUNDS
ANNUAL FEE SCHEDULE
. $16.00 per shareholder account
. Minimum annual fee of $24,000 for the first fund and $10,000 for each
additional fund.
. Plus out-of-pocket expenses, including but not limited to:
. Conversion Costs approximately $120,000
. Telephone - toll-free lines
. Postage
. Programming
. Stationery/envelopes
. Mailing
. Insurance
. Proxies
. Retention of records
. Microfilm/fiche of records
. Special reports
. All other out-of-pocket expenses
. ACH fees
12.2.0 FIRSTAR
<PAGE>
Mutual Fund Services
SHAREHOLDER FEES
(CHARGED TO INVESTORS)
<TABLE>
<CAPTION>
Defined Contribution
403(b)(7), 401(k)
IRA ACCOUNTS PLAN ACCOUNTS
------------------ -------------
<S> <C> <C>
I. Qualified Plan Fees
Annual maintenance fee per account $12.50 $12.50
Transfer to successor trustee 15.00 15.00
Distribution to a participant (exclusive
of systematic withdrawal plans) 15.00 15.00
Refund of excess contribution 15.00 15.00
</TABLE>
<TABLE>
<CAPTION>
II. Additional Shareholder Fees AMOUNT
------
<S> <C>
Any outgoing wire $ 10.00/wire
Telephone exchange 5.00/telephone exchange
Return check fee 20.00/return check
Stop payment fee (liquidation, dividend, draft check) 20.00/stop payment
Research fee 5.00/research item
(For requested items of the second calendar year [or
previous] to the request)
</TABLE>
These fees are subject to change upon notification by
Firstar Trust Company to the Mutual Fund client.
12.4.0 FIRSTAR
<PAGE>
Mutual Fund Services
SHAREHOLDER ACCOUNTING SERVICES
AUTOMATIC INVESTMENT PLAN PROCESSING
ACH SERVICE
-----------
. Automatic Investment Plan
. Telephone Purchase, Liquidation
. EFT Payments of Dividends, Capital Gains, SWP's
. $125.00 per month
. $0.50 per account set-up and/or change
. $0.50 per item for EFT payments, purchases
. $3.50 per correction, reversal, or return item
. $0.50 per item for AIP Purchases
. Fees are billed monthly
12.6.0 FIRSTAR
<PAGE>
Exhibit A Mutual Fund Services
FUND VALUATION AND ACCOUNTING
DOMESTIC PORTFOLIOS
ANNUAL FEE SCHEDULE
Fixed Income Funds
- ------------------
. Annual fee per fund based on market value of assets:
. $25,000 for the first $40,000,000
. 2/100 of 1% (2 basis points) on the next $200,000,000
. 1/100 or 1% (1 basis point) on the balance
. Out-of-pocket expenses, including daily pricing service
Equity Funds
- ------------
. Annual fee per fund based on market value of assets:
. $24,000 for the first $40,000,000
. 1/100 of 1% (1 basis point) on the next $200,000,000
. 5/1000 of 1% (1/2 basis point) on the balance
. Out-of-pocket expenses, including daily pricing service
Money Market Funds
- ------------------
. Annual fee per fund based on market value of assets:
. $25,000 for the first $40,000,000
. 1/100 of 1% (1 basis point) on the next $200,000,000
. 5/1000 of 1% (1/2 basis point) on the balance
. Out-of-pocket expenses, including daily pricing service
All fees and out-of-pocket expenses are billed monthly.
-------
12.8.0 FIRSTAR
<PAGE>
Exhibit A Mutual Fund Services
FUND VALUATION AND ACCOUNTING
ASSET PRICING COST
CHARGE PER ITEM PER VALUATION
-----------------------------
ASSET TYPE (DAILY, WEEKLY, ETC.)
- ---------- ---------------------
Domestic and Canadian Equities $0.15
Options $0.15
Corporate/Government/Agency Bonds $0.50
CMOs $0.80
International Equities and Bonds $0.50
Municipal Bonds $0.80
Money Market Instruments $0.80
Pricing costs are billed monthly.
--------
12.9.0 FIRSTAR
<PAGE>
Mutual Fund Services
FUND ADMINISTRATION AND COMPLIANCE
ANNUAL FEE SCHEDULE
. Minimum annual fee per fund: $30,000
. 6 basis points (.0006) on the first $200,000,000
. 5 basis points (.0005) on the next $500,000,000
. 3 basis points (.0003) on the balance
. Out-of-Pocket expenses, including, but not limited to:
. Postage
. Stationery
. Programming
. Proxies
. Retention of records
. Special reports
. Federal and state regulatory filing fees
. Certain insurance premiums
. All other out-of-pocket expenses
. Expenses from Board of Directors meetings
. Auditing and legal expenses
. Fees are billed monthly
-------
FIRSTAR
<PAGE>
Exhibit A Mutual Fund Services
MUTUAL FUND CUSTODIAL AGENT SERVICE
DOMESTIC PORTFOLIOS
ANNUAL FEE SCHEDULE
.HOMESTATE FUNDS
. Annual fee based on market value of assets:
. $0.20 per $1,000 (2.0 basis points)
. Minimum annual fee per fund: $3,000
. Investment transactions: (purchase, sale, exchange, tender, redemption,
maturity, receipt delivery)
. $12.00 per book entry security (depository or Federal Reserve system)
. $25.00 per definitive security (physical)
. $75.00 per Euroclear
. $ 8.00 per principal reduction on pass-through certificates
. $35.00 per option/future contracts
. Variable Amount Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which
is 1/4 of 1%, is deducted from the variable amount note income at the time
it is credited to your account.
. Extraordinary expenses: Based on time and complexity involved.
. Out-of-pocket expenses: Charged to the account, including but not limited
to:
. $ 10.00 per variation margin transaction
. $ 10.00 per Fed wire deposit or withdrawal
. Fees are billed monthly, based on market value at the beginning of the
month
12.13.0 FIRSTAR
<PAGE>
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into on this 1st day of March, 1998, by
and between The HomeState Group (hereinafter referred to as the "Trust") and
Firstar Trust Company, a corporation organized under the laws of the State of
Wisconsin (hereinafter referred to as the "Agent").
WHEREAS, the Trust is an open-ended management investment company which is
registered under the Investment Company Act of 1940; and
WHEREAS, the Agent is a trust company and, among other things, is in the
business of administering transfer and dividend disbursing agent functions for
the benefit of its customers;
NOW, THEREFORE, the Trust and the Agent do mutually promise and agree as
follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE AGENT
Subject to the terms and conditions set forth in this Agreement, the Trust
hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent.
The Agent shall perform all of the customary services of a transfer agent
and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to those items set forth on the attached Schedule A and the following:
A. Receive orders for the purchase of shares;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated shares
being held in the appropriate shareholder account;
C. Process redemption requests received in good order;
D. Pay monies in accordance with the instructions of redeeming
shareholders;
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between funds within the same family of funds;
G. Issue and/or cancel certificates as instructed; replace lost, stolen
or destroyed certificates upon receipt of satisfactory indemnification
or surety bond;
<PAGE>
H. Prepare and transmit payments for dividends and distributions declared
by the Trust;
I. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Trust and maintain, pursuant to
Securities Exchange Act of 1934 Rule 17ad-10(e), a record of the total
number of shares of the Trust which are authorized, issued and
outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail, receive
and tabulate proxies;
L. Mail shareholder reports and prospectuses to current shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
N. Provide shareholder account information upon request and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed
upon with the Trust; and
O. Provide a Blue Sky System which will enable the Trust to monitor the
total number of shares sold in each state. In addition, the Trust
shall identify to the Agent in writing those transactions and assets
to be treated as exempt from the Blue Sky reporting to the Trust for
each state. The responsibility of the Agent for the Trust's Blue Sky
state registration status is solely limited to the initial compliance
by the Trust and the reporting of such transactions to the Trust.
2. COMPENSATION
The Trust agrees to pay the Agent for performance of the duties listed in
this Agreement; the fees and out-of-pocket expenses including, but not limited
to the following: printing, postage, forms, stationery, record retention,
mailing, insertion, programming, labels, shareholder lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Trust and the Agent.
The Trust agrees to pay all fees and reimbursable expenses within ten (10)
business days following the mailing of the billing notice.
<PAGE>
3. REPRESENTATIONS OF AGENT
The Agent represents and warrants to the Trust that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered transfer agent under the Securities Exchange Act of
1934 as amended.
C. It is duly qualified to carry on its business in the state of
Wisconsin;
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement; and
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
G. It will comply with all applicable requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934, as amended, the
Investment Company Act of 1940, as amended, and any laws, rules, and
regulations of governmental authorities having jurisdiction.
4. REPRESENTATIONS OF THE TRUST
The Trust represents and warrants to the Agent that:
A. The Trust is an open-ended diversified investment company under the
Investment Company Act of 1940;
B. The Trust is a trust organized, existing, and in good standing under
the laws of Pennsylvania;
C. The Trust is empowered under applicable laws and by its Declaration of
Trust and bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Declaration of Trust have
been taken to authorize it to enter into and perform this Agreement;
-3-
<PAGE>
E. The Trust will comply with all applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, and any laws,
rules and regulations of governmental authorities having jurisdiction;
and
F. A registration statement under the Securities Act of 1933 is currently
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Trust being offered for sale.
5. COVENANTS OF TRUST AND AGENT
The Trust shall furnish the Agent a certified copy of the resolution of the
Board of Trustees of the Trust authorizing the appointment of the Agent and the
execution of this Agreement. The Trust shall provide to the Agent a copy of the
Declaration of Trust, and all amendments.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Trust and will be preserved, maintained and
made available in accordance with such section and rules and will be surrendered
to the Trust on and in accordance with its request.
6. INDEMNIFICATION; REMEDIES UPON BREACH
The Agent shall exercise reasonable care in the performance of its duties
under this Agreement. The Agent shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with matters
to which this Agreement relates, including losses resulting from mechanical
breakdowns or the failure of communication or power supplies beyond the Agent's
control, except a loss resulting from the Agent's refusal or failure to comply
with the terms of this Agreement or from bad faith, negligence, or willful
misconduct on its part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Fund shall indemnify
and hold harmless the Agent from and against any and all claims, demands,
losses, expenses, and liabilities (whether with or without basis in fact or law)
of any and every nature (including reasonable attorneys' fees) which the Agent
may sustain or incur or which may be asserted against the Agent by any person
arising out of any action taken or omitted to be taken by it in performing the
services hereunder (i) in accordance with the foregoing standards, or (ii) in
reliance upon any written or oral instruction provided to the Agent by any duly
authorized officer of the Fund, such duly authorized officer to be included in a
list of authorized officers furnished to the Agent and as amended from time to
time in writing by resolution of the Board of Trustees of the Fund.
-4-
<PAGE>
Further, the Fund will indemnify and hold the Agent harmless against any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action, or suit as
a result of the negligence of the Fund or the principal underwriter (unless
contributed to by the Agent's breach of this Agreement or other agreements
between the Fund and the Agent, or the Agent's own negligence or bad faith); or
as a result of the Agent acting upon telephone instructions relating to the
exchange or redemption of shares received by the Agent and reasonably believed
by the Agent under a standard of care customarily used in the industry to have
originated from the record owner of the subject shares; or as a result of acting
in reliance upon any genuine instrument or stock certificate signed,
countersigned, or executed by any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or power
supplies beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond the Agent's control. The Agent will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect the Agent's premises and operating capabilities at
any time during regular business hours of the Agent, upon reasonable notice to
the Agent.
Regardless of the above, the Agent reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the Fund may be asked to
indemnify or hold the Agent harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Agent will use all reasonable care to notify the
Fund promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Fund.
The Fund shall have the option to defend the Agent against any claim which may
be the subject of this indemnification. In the event that the Fund so elects, it
will so notify the Agent and thereupon the Fund shall take over complete defense
of the claim, and the Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this section. The
Agent shall in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Agent except with the Fund's prior
written consent.
The Agent shall indemnify and hold the Fund harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which may be asserted against the
-5-
<PAGE>
Fund by any person arising out of any action taken or omitted to be taken by the
Agent as a result of the Agent's refusal or failure to comply with the terms of
this Agreement, its bad faith, negligence, or willful misconduct.
7. CONFIDENTIALITY
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Trust and its
shareholders and shall not disclose such information to any other party, except
after prior notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld where the Agent may
be exposed to civil or criminal contempt proceedings for failure to comply after
being requested to divulge such information by duly constituted authorities.
Additional Series. The Trust is authorized to issue separate classes of
shares of beneficial interest representing interests in separate investment
portfolios. The parties intend that each portfolio established by the Trust, now
or in the future, be covered by the terms and conditions of this Agreement.
8. RECORDS
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem advisable
and is agreeable to the Trust but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act of 1940 as amended (the "Investment Company Act"),
and the rules thereunder. The Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Trust and will be preserved, maintained, and
made available with such section and rules of the Investment Company Act and
will be promptly surrendered to the Trust on and in accordance with its request.
YEAR 2000. FIRSTAR WARRANTS THAT:
(a) Occurrence in or use by Firstar's internal computing system and all
systems utilized by Firstar in servicing the Trust (collectively the "Systems")
of dates on or after January 1, 2000 ("Millennium Dates") or the occurrence of
the Year 2000 will not adversely affect the performance of Firstar's services
hereunder in any manner including, but not limited to, performance with respect
to date-dependent data, computations, output, calculating, comparing, and
sequencing. The core systems to which this warranty relates are:
The PAR System - Transfer agent shareholder accounting and shareholder
servicing
The CPORT System - Fund Accounting
The AMtrust System - Custody
-6-
<PAGE>
The Blue2 System - Blue Sky
The Mutual Direct System - Fulfillment
(b) The Systems will create, store, process, and output information
related to or including Millennium Dates without errors or omissions and at no
additional cost to the Trust.
(c) The Systems will be Year 2000 compliant on or before January 31, 1999
and, if such compliance will not be achieved by such date, Firstar will provide
written notice of such noncompliance to the Trust on or before January 31, 1999
along with a detailed description of the status of such Y2K remediation and an
expected date of compliance, which the Trust shall consider and determine in its
sole discretion whether to terminate the Agreement. If the Trust determines to
terminate the Agreement for such noncompliance, there shall be no additional
cost or expense to the Trust related to such termination.
(d) The Systems will not disturb the Trust's computer system regarding
date-related issues.
At the Trust's request, Firstar will provide evidence sufficient to
demonstrate that the Systems meet the foregoing requirements including, but not
limited to, evidence of testing and performance. This warranty and covenant
shall remain in effect during the term of this Agreement. In the event of a
breach of this warranty, the Trust shall have available all remedies under the
law or equity, including, but not limited to, direct, incidental, and/or
consequential damages. This warranty and this remedy provision shall supersede
other clauses in this Agreement or other agreements between the Trust and
Firstar which are inconsistent with this clause and in the case of
inconsistency, the warranty and remedy provisions in this clause shall be
controlling.
9. WISCONSIN LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the state of Wisconsin.
10. AMENDMENT, ASSIGNMENT, TERMINATION AND NOTICE
A. This Agreement may be amended by the mutual written consent of the
parties.
B. This Agreement may be terminated upon ninety (90) days' written notice
given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of the
other party.
-7-
<PAGE>
D. Any notice required to be given by the parties to each other under the
terms of this Agreement shall be in writing, addressed and delivered,
or mailed to the principal place of business of the other party. If to
the Agent, such notice should be sent to:
Firstar Trust Company
615 East Michigan Street
Milwaukee, WI 53202
If to the Trust, such notice should be sent to:
1857 William Penn Way, Suite 203
Lancaster, PA 17601
E. In the event that the Trust gives to the Agent its written intention
to terminate and appoint a successor transfer agent, the Agent agrees
to cooperate in the transfer of its duties and responsibilities to the
successor, including any and all relevant books, records and other
data established or maintained by the Agent under this Agreement.
F. Should the Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and materials will be
paid by the Trust.
11. LIMITATION OF LIABILITY
The Agent hereby acknowledges that it has received notice of and accepts
the limitations of the Trust's liability set forth in Section 13 of its
Declaration of Trust. The Agent agrees that the Fund's obligations under this
Agreement with respect to the Trust and any other specific funds shall be
limited to such Trust and to its assets, and that the Agent shall not seek
satisfaction of any such obligation from the shareholders of the Trust nor from
any trustee, officer, employee or agent of the trust, nor from the assets of
shareholders of any other funds.
The HomeState Group Firstar Trust Company
By: /s/ Scott L. Rehr By: /s/ Michael C. McVoy
------------------------------- ------------------------------------
Attest: Dan Moyer Attest: Gail M. Zees
-------------------------- -------------------------------
Assistant Secretary
-8-
<PAGE>
MUTUAL FUND SERVICES
TRANSFER AGENT SERVICE FEATURES
<TABLE>
<S> <C>
. Shareholder Account Set-up and Maintenance . Complete Shareholder Option Processing
. Transaction and Distribution Processing . Automatic Investment Plan
. Legal Compliance Review of All Legal Transfer Requests . Systematic Withdrawal Plan
. Complete Retirement Plan Processing . Telephone Purchase/Exchange/Liq
. Statement Printing and Mailing . Asset Allocation Service
. Complete Customer Service . Wire Transfers or ACH
. Experienced Service Agents . Directed Dividend and SWP's
. 24-Hour Voice Response Service . Certificate Processing
. Correspondence Services . Check Writing
. Shareholder Tax Reporting . Letter of Intent
. IRS Tax Reporting . Right of Accumulation
. Backup, Pension, NRA Withholding and Filing . Reinvest Redemption
. Client System Interfaces . Maintain Dealer/Office/Rep Files
. Daily Cash Reporting . Complete NSCC Processing Interfaces
. Daily and Periodic Reporting . Fund/SERV
. Sales Reports . ACATS
. Account Base Analysis . Networking
. Complete Blue Sky Tracking and Automated System Edits . Exchanges
. Shareholder Reporting . Commissions
. Transaction Statements . Load Share Tracking
. Combined Statements . Multiple Loan Table Processing
. Combined Statement/Check . Wire Order Tracking and Reporting
. Combined Tax Advices . Complete Broker/Dealer Support
. Automatic Duplicate Statements . Dealer, Office, Rep Reporting
. Cost Basis Statements . Institutional Customer Service Staff
. Complete Banking Interfaces . Dealer/Distributor Commission Tracking and Reporting
. Check Reconciliation . Trail Commission Tracking and Reporting
. ACH . Multiple Copies of Shareholder Statements for Sales Rep,
. Wire Transfer Dealer, etc.
</TABLE>
-9-
<PAGE>
SCHEDULE A
-10-
<PAGE>
FUND ADMINISTRATION SERVICING AGREEMENT
This Agreement is made and entered into on this 1st day of March, 1998, by and
between The HomeState Group (hereinafter referred to as the "Trust") and Firstar
Trust Company, a corporation organized under the laws of the State of Wisconsin
(hereinafter referred to as "FTC").
WHEREAS, the Trust is an open-ended management investment company which is
registered under the Investment Company Act of 1940;
WHEREAS, FTC is a trust company and, among other things, is in the business of
providing fund administration services for the benefit of its customers;
NOW, THEREFORE, the Trust and FTC do mutually promise and agree as follows:
I. Appointment of Administrator
The Trust hereby appoints FTC as Administrator of the Trust on the terms
and conditions set forth in this Agreement, and FTC hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement and on Schedule A attached hereto in consideration of the
compensation provided for herein.
II. Duties and Responsibilities of FTC
A. General Fund Management
1. Act as liaison among all fund service providers
2. Coordinate board communication by:
a. Assisting fund counsel in establishing meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director and
officers' liability coverage, and making the necessary SEC
filings relating thereto
3. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Trust
<PAGE>
B. Compliance
1. Regulatory Compliance
a. Periodically monitor compliance with Investment 1940
requirements Company Act of
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of ethics
b. Periodically monitor Fund's compliance with the policies and
investment limitations of the Fund as set forth in its prospectus
and statement of additional information
2. Blue Sky Compliance
a. Prepare and file with the appropriate state securities
authorities any and all required compliance filings relating
to the registration of the securities of the Fund so as to
enable the Fund to make a continuous offering of its shares.
b. Monitor status and maintain registrations in each state
3. SEC Registration and Reporting
a. Assisting Trust's counsel in updating prospectus and
statement of additional information; and in preparing proxy
statements, and Rule 24f-2 notice
b. Annual and semiannual reports
4. IRS Compliance
a. Periodically monitor Trust's status as a regulated
investment company under Subchapter M through review of the
following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Monitor short short testing
c. Calculate required distributions (including excise tax
distributions)
<PAGE>
C. Financial Reporting
1. Provide financial data required by fund prospectus and statement
of additional information
2. Prepare financial reports for shareholders, the board, the SEC,
and independent auditors
3. Supervise the Fund's Custodian and Fund Accountants in the
maintenance of the Fund's general ledger and in the preparation of
the Fund's financial statements including oversight of expense
accruals and payments, of the determination of net asset value of
the Fund's net assets and of the Fund's shares, and of the
declaration and payment of dividends and other distributions to
shareholders
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and state
tax returns including forms 1120/8610 with any necessary schedules
2. Prepare state income breakdowns where relevant
3. File 1099 Miscellaneous for payments to directors and other
service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
III. Compensation
The Trust agrees to pay FTC for performance of the duties listed in this
Agreement and the fees and out-of-pocket expenses as set forth in the
attached Schedule B.
These fees may be changed from time to time, subject to mutual written
Agreement between the Trust and FTC.
The Trust agrees to pay all fees and reimbursable expenses within ten (10)
business days following the mailing of the billing notice.
IV. Additional Series
In the event that The HomeState Group establishes one or more series of
shares with respect to which it desires to have FTC render fund
administration services, under the terms hereof, it shall so notify FTC in
writing, and if FTC agrees in writing to provide such services, such
<PAGE>
series will be subject to the terms and conditions of this Agreement, and
shall be maintained and accounted for by FTC on a discrete basis. The funds
currently covered by this Agreement are: The Pennsylvania Growth Fund, The
Select Opportunities Fund and The Y2k Fund.
V. Performance of Service; Limitation of Liability
A. FTC shall exercise reasonable care in the performance of its
duties under this Agreement. FTC shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or
power supplies beyond FTC's control, except a loss resulting from FTC's
refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in the performance of
its duties under this Agreement. Notwithstanding any other provision of
this Agreement, the Fund shall indemnify and hold harmless FTC from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FTC may sustain or incur or
which may be asserted against FTC by any person arising out of any action
taken or omitted to be taken by it in performing the services hereunder (i)
in accordance with the foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to FTC by any duly authorized officer
of the Fund, such duly authorized officer to be included in a list of
authorized officers furnished to FTC and as amended from time to time in
writing by resolution of the Board of Directors of the Fund.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FTC shall take all reasonable steps to
minimize service interruptions for any period that such interruption
continues beyond FTC's control. FTC will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such
a breakdown at the expense of FTC. FTC agrees that it shall, at all times,
have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available. Representatives
of the Fund shall be entitled to inspect FTC's premises and operating
capabilities at any time during regular business hours of FTC, upon
reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the Fund may be
asked to indemnify or hold FTC harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that FTC will use all reasonable
care to notify the Fund promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the option to defend
FTC against any claim which may be the subject of this
<PAGE>
indemnification. In the event that the Fund so elects, it will so notify
FTC and thereupon the Fund shall take over complete defense of the claim,
and FTC shall in such situation initiate no further legal or other expenses
for which it shall seek indemnification under this section. FTC shall in no
case confess any claim or make any compromise in any case in which the Fund
will be asked to indemnify FTC except with the Fund's prior written
consent.
C. FTC shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature (including
reasonable attorneys' fees) which may be asserted against the Fund by any
person arising out of any action taken or omitted to be taken by FTC as a
result of FTC's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
VI. Confidentiality
FTC shall handle, in confidence, all information relating to the Trust's
business which is received by FTC during the course of rendering any
service hereunder.
VII. Data Necessary to Perform Service
The Trust or its agent, which may be FTC, shall furnish to FTC the data
necessary to perform the services described herein at times and in such
form as mutually agreed upon.
VIII. Terms of Agreement
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue automatically in
effect for successive annual periods. The Agreement may be terminated by
either party upon giving ninety (90) days prior written notice to the
other party or such shorter period as is mutually agreed upon by the
parties.
IX. Duties in the Event of Termination
In the event that, in connection with termination, a successor to any of
FTC's duties or responsibilities hereunder is designated by the Trust by
written notice to FTC, FTC will promptly, upon such termination and at the
expense of the Trust, transfer to such successor all relevant books,
records, correspondence, and other data established or maintained by FTC
under this Agreement in a form reasonably acceptable to the Trust (if such
form differs from the form in which FTC has maintained, the Trust shall
pay any expenses associated with transferring the data to such form), and
will cooperate in the transfer of such duties and responsibilities,
including provision for assistance from FTC's personnel in the
establishment of books, records, and other data by such successor.
X. Choice of Law
This Agreement shall be construed in accordance with the laws of the State
of Wisconsin.
<PAGE>
XI. Notices
Notices of any kind to be given by either party to the other party shall
be in writing and shall be duly given if mailed or delivered as follows:
Notice to FTC shall be sent to:
Firstar Trust Company
615 East Michigan Street
Milwaukee, WI 53202
and notice to Trust shall be sent to:
1857 William Penn Way, Suite 203
Lancaster, PA 17601
XII. Records
FTC shall keep records relating to the services to be performed hereunder,
in the form and manner, and for such period as it may deem advisable and
is agreeable to the Trust but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section
31 of the Investment Company Act of 1940 as amended (the "Investment
Company Act"), and the rules thereunder. FTC agrees that all such records
prepared or maintained by FTC relating to the services to be performed by
FTC hereunder are the property of the Trust and will be preserved,
maintained, and made available with such section and rules of the
Investment Company Act and will be promptly surrendered to the Trust on
and in accordance with its request.
XIII. Year 2000. Firstar Warrants That:
(a) Occurrence in or use by Firstar's internal computing system and all
systems utilized by Firstar in servicing the Trust (collectively the
"Systems") of dates on or after January 1, 2000 ("Millennium Dates")
or the occurrence of the year 2000 will not adversely affect the
performance of Firstar's services hereunder in any manner including,
but not limited to, performance with respect to date-dependent data,
computations, output, calculating, comparing, and sequencing. The
core systems to which this warranty relates are:
The PAR System - Transfer agent shareholder accounting and
shareholder servicing
The CPORT System - Fund Accounting
The AMtrust System - Custody
The Blue2 System - Blue Sky
The Mutual Direct System - Fulfillment
(b) The Systems will create, store, process, and output information
related to or including Millennium dates without errors or omissions
and at no additional cost to the Trust.
<PAGE>
(c) The Systems will be Year 2000 compliant on or before January 31, 1999
and, if such compliance will not be achieved by such date, Firstar
will provide written notice of such noncompliance to the Trust on or
before January 31, 1999 along with a detailed description of the
status of such Y2K remediation and an expected date of compliance,
which the Trust shall consider and determine in its sole discretion
whether to terminate the Agreement. If the Trust determines to
terminate the Agreement for such noncompliance, there shall be no
additional cost or expense to the Trust related to such termination.
(d) The Systems will not disturb the Trust's computer system regarding
date-related issues.
At the Trust's request, Firstar will provide evidence sufficient to
demonstrate that the Systems meet the foregoing requirements
including, but not limited to, evidence of testing and performance.
This warranty and covenant shall remain in effect during the term of
this Agreement. In the event of a breach of this warranty, the trust
shall have available all remedies under the law or equity, including,
but not limited to, direct, incidental, and/or consequential damages.
This warranty and this remedy provision shall supersede other clauses
in this Agreement or other agreements between the Trust and Firstar
which are inconsistent with this clause and in the case of
inconsistency, the warranty and remedy provisions in this clause
shall be controlling.
XIV. Limitation of Liability
FTC hereby acknowledges that it has received notice of and accepts the
limitations of the Trust's liability set forth in Section 13 of its
Declaration of Trust. FTC agrees that the Fund's obligations under this
Agreement with respect to the Trust and any other specific funds shall be
limited to such Trust and to its assets, and that FTC shall not seek
satisfaction of any such obligation from the shareholders of the Trust nor
from any trustee, officer, employee or agent of the Trust, nor from the
assets of shareholders of any other funds.
THE HOMESTATE GROUP FIRSTAR TRUST COMPANY
By: /s/ Scott L. Rehr By: /s/ Michael C. McVoy
----------------------------- --------------------------
Scott L. Rehr
Attest: Daniel W. Moyer Attest: Gail M. Zess
----------------------- -----------------------
<PAGE>
FUND ACCOUNTING SERVICING AGREEMENT
This contract between The HomeState Group, a Pennsylvania common trust,
hereinafter called the "Trust," and Firstar Trust Company, a Wisconsin
corporation, hereinafter called "FTC," is entered into on this 1st day of March,
1998.
WHEREAS, The HomeState Group, is an open-ended management investment
company registered under the Investment Company Act of 1940; and
WHEREAS, Firstar Trust Company ("FTC") is in the business of providing,
among other things, mutual fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. SERVICES. FTC agrees to provide the mutual fund accounting services
described on Schedule A and herein to the Fund:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date + 1 basis using
security trade information communicated from the investment manager on
a timely basis.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Trustees and apply those prices to the
portfolio positions. For those securities where market quotations are
not readily available, the Board of Trustees shall approve the method
for determining the fair value for such securities in accordance with
the then-current prospectus for the portfolios.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and identify them as
to short-short, short- or long-term status; account for periodic
distributions of gains or losses to shareholders and maintain
undistributed gain or loss balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Trust as to methodology, rate or dollar
amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Trust.
<PAGE>
(3) Account for fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FTC and
the Trust.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other fund share activity as
reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Trust.
(3) Determine net investment income/earnings for the Trust as of
each valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income balances
as of each valuation date.
(4) Maintain a general ledger for the Trust in the form as
agreed upon.
(5) For each day the Trust is open as defined in the prospectus,
determine the net asset value of the according to the accounting
policies and procedures set forth in the prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of fund operation at such time
as required by the nature and characteristics of the Trust and in
accordance with the then-current prospectus for the portfolios.
(7) Communicate, at an agreed upon time, the per share price for
each valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of
the Trust to support the tax reporting required for IRS-defined
regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
-2-
<PAGE>
(3) Calculate taxable gain/loss on security sales using the tax
lot relief method designated by the Trust.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the fund accounting records available
to The HomeState Group, the Securities and Exchange Commission, and
the outside auditors.
(2) Maintain accounting records according to the Investment
Company Act of 1940 and regulations provided thereunder.
2. PRICING OF SECURITIES. For each valuation date, obtain prices from a
pricing source selected by FTC but approved by the Trust's Board and apply those
prices to the portfolio positions. For those securities where market quotations
are not readily available, the Fund's Board shall approve the method for
determining the fair value for such securities in accordance with the then-
current prospectus for the portfolios.
If the Trust desires to provide a price which varies from the pricing
source, the Trust shall promptly notify and supply FTC with the valuation of any
such security on each valuation date. All pricing changes made by the Trust will
be in writing and must specifically identify the securities to be changed by
CUSIP, name of security, new price or rate to be applied, and, if applicable,
the time period for which the new price(s) is/are effective.
3. CHANGES IN ACCOUNTING PROCEDURES. Any resolution passed by the Board
of Trustees that affects accounting practices and procedures under this
Agreement shall be effective upon written receipt and acceptance by the FTC.
4. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC. FTC reserves the right to
make changes from time to time, as it deems advisable, relating to its services,
systems, programs, rules, operating schedules and equipment, so long as such
changes do not adversely affect the service provided to the Trust under this
Agreement.
5. COMPENSATION. FTC shall be compensated for providing the services set
forth in this Agreement in accordance with the Fee Schedule attached hereto as
Schedule B and as mutually agreed upon and amended from time to time.
6. PERFORMANCE OF SERVICE.
-3-
<PAGE>
A. FTC shall exercise reasonable care in the performance of its
duties under this Agreement. FTC shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
communication or power supplies beyond FTC's control, except a loss
resulting from FTC's refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or willful misconduct on
its part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless FTC from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which FTC may sustain or incur or which may be
asserted against FTC by any person arising out of any action taken or
omitted to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to FTC by any duly authorized
officer of the Fund, such duly authorized officer to be included in a
list of authorized officers furnished to FTC and as amended from time
to time in writing by resolution of the Board of Directors of the
Fund.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FTC shall take all
reasonable steps to minimize service interruptions for any period that
such interruption continues beyond FTC's control. FTC will make every
reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of FTC. FTC
agrees that it shall, at all times, have reasonable contingency plans
with appropriate parties, making reasonable provision for emergency
use of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Fund shall be entitled
to inspect FTC's premises and operating capabilities at any time
during regular business hours of FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in
this section shall apply, it is understood that if in any case the
Fund may be asked to indemnify or hold FTC harmless, the Fund shall be
fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that FTC will use
all reasonable care to notify the Fund promptly concerning any
situation which presents or appears likely to present the probability
of such a claim for indemnification against the Fund. The Fund shall
have the option to defend FTC against any claim which may be the
subject of this indemnification. In the event that the Fund so elects,
it will so notify FTC and thereupon the Fund shall take over complete
defense of the claim, and FTC shall in such situation initiate no
further
-4-
<PAGE>
legal or other expenses for which it shall seek indemnification under
this section. FTC shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify
FTC except with the Fund's prior written consent.
C. FTC shall indemnify and hold the Fund harmless from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which may be asserted against
the Fund by any person arising out of any action taken or omitted to
be taken by FTC as a result of FTC's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence, or willful
misconduct.
7. RECORDS. FTC shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Trust but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act of 1940 as amended (the "Investment Company Act"),
and the rules thereunder. FTC agrees that all such records prepared or
maintained by FTC relating to the services to be performed by FTC hereunder are
the property of the Trust and will be preserved, maintained, and made available
with such section and rules of the Investment Company Act and will be promptly
surrendered to the Trust on and in accordance with its request.
YEAR 2000. FIRSTAR WARRANTS THAT:
(a) Occurrence in or use by Firstar's internal computing system and all
systems utilized by Firstar in servicing the Trust (collectively the
"Systems") of dates on or after January 1, 2000 ("Millennium Dates")
or the occurrence of the year 2000 will not adversely affect the
performance of Firstar's services hereunder in any manner including,
but not limited to, performance of Firstar's services hereunder in any
manner including, but not limited to, performance with respect to
date-dependent data, computations, output, calculating, comparing, and
sequencing. The core systems to which this warranty relates are:
The PAR System - Transfer agent shareholder accounting and shareholder
servicing
The CPORT System - Fund Accounting
The AMtrust System - Custody
The Blue2 System - Blue Sky
The Mutual Direct System - Fulfillment
(b) The Systems will create, store, process, and output information
related to or including Millennium Dates without errors or omissions
and at no additional cost to the Trust.
-5-
<PAGE>
(c) The Systems will be Year 2000 compliant on or before January 31, 1999
and, if such compliance will not be achieved by such date, Firstar
will provide written notice of such noncompliance to the Trust on or
before January 31, 1999 along with a detailed description of the
status of such Y2K remediation and an expected date of compliance,
which the Trust shall consider and determine in its sole discretion
whether to terminate the Agreement. If the Trust determines to
terminate the Agreement for such noncompliance, there shall be no
additional cost or expense to the Trust related to such termination.
(d) The Systems will not disturb the Trust's computer system regarding
date-related issues.
At the Trust's request, Firstar will provide evidence sufficient to
demonstrate that the Systems meet the foregoing requirements including, but not
limited to, evidence of testing and performance. This warranty and covenant
shall remain in effect during the term of this Agreement. In the event of a
breach of this warranty, the Trust shall have available all remedies under the
law or equity, including, but not limited to, direct, incidental, and/or
consequential damages. This warranty and this remedy provision shall supersede
other clauses in this Agreement or other agreements between the Trust and
Firstar which are inconsistent with this clause and in the case of
inconsistency, the warranty and remedy provisions in this clause shall be
controlling.
8. CONFIDENTIALITY. FTC shall handle in confidence all information
relating to the Trust business, which is received by FTC during the course of
rendering any service hereunder.
9. DATA NECESSARY TO PERFORM SERVICES. The Trust or its agent, which may
be FTC, shall furnish to FTC the data necessary to perform the services
described herein at times and in such form as mutually agreed upon.
10. NOTIFICATION OF ERROR. The Trust will notify FTC of any balancing or
control error caused by FTC within three (3) business days after receipt of any
reports rendered by FTC to the Trust, or within three (3) business days after
discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
11. ADDITIONAL SERIES. In the event that The HomeState Group establishes
one or more series of shares with respect to which it desires to have FTC render
accounting services, under the terms hereof, it shall so notify FTC in writing,
and if FTC agrees in writing to provide such services, such series will be
subject to the terms and conditions of this Agreement, and shall be maintained
and accounted for by the FTC on a discrete basis. The portfolios currently
covered by this Agreement are: The Pennsylvania Growth Fund; The Select
Opportunities Fund; The Y2K Fund.
12. TERM OF AGREEMENT. This Agreement may be terminated by either party
upon giving ninety (90) days prior written notice to the other party or such
shorter period as is mutually
-6-
<PAGE>
agreed upon by the parties. However, this Agreement may be replaced or modified
by a subsequent agreement between the parties.
13. DUTIES IN THE EVENT OF TERMINATION. In the event that in connection
with termination a Successor to any of FTC's duties or responsibilities
hereunder is designated by The HomeState Group by written notice to FTC, FTC
will promptly, upon such termination and at the expense of The HomeState Group,
transfer to such Successor all relevant books, records, correspondence and other
data established or maintained by FTC under this Agreement in a form reasonably
acceptable to The HomeState Group (if such form differs from the form in which
FTC has maintained the same, The HomeState Group shall pay any expenses
associated with transferring the same to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from FTC's personnel in the establishment of books, records and other data by
such successor.
14. NOTICES. Notices of any kind to be given by either party to the other
party shall be in writing and shall be duly given if mailed or delivered as
follows: Notice to FTC shall be sent to:
Firstar Trust Company
615 East Michigan Street
Milwaukee, WI 53202
and notice to Trust shall be sent to:
1857 William Penn Way, Suite 203
Lancaster, PA 17601
15. CHOICE OF LAW. This Agreement shall be construed in accordance with
the laws of the State of Wisconsin.
16. LIMITATION OF LIABILITY. FTC hereby acknowledges that it has received
notice of and accepts the limitations of the Trust's liability set forth in
Section 13 of its Declaration of Trust. FTC agrees that the Fund's obligations
under this Agreement with respect to the Trust and any other specific funds
shall be limited to such Trust and to its assets, and that FTC shall not seek
satisfaction of any such obligation from the shareholders of the Trust nor from
any trustee, officer, employee or agent of the Trust, nor from the assets of
shareholders of any other funds.
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
ATTEST: FIRSTAR TRUST COMPANY
Gail Zess By: Michael C. McVoy
- ---------------------------- ------------------------------
-7-
<PAGE>
ATTEST: THE HOMESTATE GROUP
Daniel W. Moyer By: /s/ Scott L. Rehr
- ---------------------------- ------------------------------
Scott L. Rehr
-8-
<PAGE>
FULFILLMENT SERVICING AGREEMENT
This Agreement between Firstar Trust Company (FTC) and The HomeState Group
(hereafter referred to as the "Trust") is entered into on this 1st day of March,
1998.
WHEREAS, The Trust provides investment opportunities to prospective shareholders
through an open end mutual fund; and
WHEREAS, FTC provides fulfillment services to mutual funds;
NOW THEREFORE, the parties agree as follows:
DUTIES AND RESPONSIBILITIES OF FTC
1. Answer all prospective shareholder calls concerning any of the Trust
funds listed in the attached Schedule A which may be modified from
time to time.
2. Send all available fund materials requested by the prospect within 24
hours from time of call.
3. Receive and update all Trust fulfillment literature so that most
current information is sent and quoted.
4. Provide 24 hour answering service to record prospect calls made after
hours (7 p.m. to 8 a.m. CT).
5. Maintain and store Trust fulfillment inventory.
6. Send periodic fulfillment reports to the Fund as agreed upon between
the parties.
7. As otherwise provided on the attached Schedule B.
DUTIES AND RESPONSIBILITIES OF TRUST
1. Provide Trust fulfillment literature updates to FTC as necessary.
2. File with the NASD, SEC and State Regulatory Agencies, as appropriate,
all fulfillment literature that the Company requests FTC send to
prospective shareholders.
3. Supply FTC with sufficient inventory of fulfillment materials as
requested from time to time by FTC.
<PAGE>
4. Provide FTC with any sundry information about the Trust in order to
answer prospect questions.
COMPENSATION
The Company agrees to compensate FTC for the services performed under this
agreement in accordance with the attached Schedule C; Trust agrees to pay all
invoices within ten days of receipt.
PROPRIETARY AND CONFIDENTIAL INFORMATION
FTC agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of the Fund all records and
other information relative to the Fund and prior, present, or potential
shareholders of the Fund (and clients of said shareholders), and not to use such
records and information for any purpose other than performance of its
responsibilities and duties thereunder, except after prior notification to and
approval in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where FTC may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Fund.
YEAR 2000. FIRSTAR WARRANTS THAT:
(a) Occurrence in or use by Firstar's internal computing system and all
systems utilized by Firstar in servicing the Trust (collectively the
"Systems") of dates on or after January 1, 2000 ("Millennium Dates")
or the occurrence of the Year 2000 will not adversely affect the
performance of Firstar's services hereunder in any manner including,
but not limited to, performance with respect to date-dependent data,
computations, output, calculating, comparing, and sequencing. The core
systems to which this warranty relates are:
The PAR System - Transfer agent shareholder accounting and shareholder
servicing
The CPORT System - Fund Accounting
The AMtrust System - Custody
The Blue2 System - Blue Sky
The Mutual Direct System - Fulfillment
(b) The Systems will create, store, process, and output information
related to or including Millennium Dates without errors or omissions
and at no additional cost to the Trust.
(c) The Systems will be Year 2000 compliant on or before January 31, 1999
and, if such compliance will not be achieved by such date, Firstar
will provide written notice of such noncompliance to the Trust on or
before January 31, 1999 along with a detailed description of the
status of such Y2K remediation and an expected
<PAGE>
date of compliance, which the Trust shall consider and determine in
its sole discretion whether to terminate the Agreement. If the Trust
determines to terminate the Agreement for such noncompliance, there
shall be no additional cost or expense to the Trust related to such
termination.
(d) The Systems will not disturb the Trust's computer system regarding
date-related issues.
At the Trust's request, Firstar will provide evidence sufficient to
demonstrate that the Systems meet the foregoing requirements including, but not
limited to, evidence of testing and performance. This warranty and covenant
shall remain in effect during the term of this Agreement. In the event of a
breach of this warranty, the Trust shall have available all remedies under the
law or equity, including, but not limited to, direct, incidental, and/or
consequential damages. This warranty and this remedy provision shall supersede
other clauses in this Agreement or other agreements between the Trust and
Firstar which are inconsistent with this clause and in the case of
inconsistency, the warranty and remedy provisions in this clause shall be
controlling.
TERMINATION
This agreement may be terminated by either party upon 30 days' written notice.
LIMITATION OF LIABILITY
FTC hereby acknowledges that it has received notice of and accepts the
limitations of the Trust's liability set forth in Section 13 of its Declaration
of Trust. FTC agrees that the Fund's obligations under this agreement with
respect to the Trust and any other specific funds shall be limited to such Trust
and to its assets, and that FTC shall not seek satisfaction of any such
obligation from the shareholders of the Trust nor from any trustee, officer,
employee or agent of the Trust, nor from the assets of shareholders of any other
funds.
Dated this 1st day of March, 1998.
FIRSTAR TRUST COMPANY THE HOMESTATE GROUP
By: /s/ Michael C. McVoy By: /s/ Scott L. Rehr
--------------------------------- -----------------------------
Attest: /s/ Gail Zess Attest: /s/ Daniel Moyer
----------------------------- -------------------------
<PAGE>
MUTUAL FUND SERVICES
FULFILLMENT SERVICE FEATURES
. Respond to prospective customer telephone calls and
written requests for literature
. Communicate fund information to prospects
. Record prospect leads to lead file database
Name and address
Source of lead
Telephone number
. Fulfill prospect requests - insert and mail requested literature
. Maintain and track inventory of all fund forms
. Laser printed customized prospect letter
. Customized fund group letter
. Automated edit for blue sky state registration
. Interface with zip/city/state database
Automated, accurate population of city, state
. Track and report sources of leads
. Customized lead file reporting
By lead type
By lead source
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 10 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated August
7, 1997, relating to the financial statements and financial highlights of The
HomeState Pennsylvania Growth Fund and The HomeState Select Opportunities Fund,
constituting The HomeState Group, which appears in such statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information and to the references to us under the
headings "Financial Highlights" and "General Information" in such Prospectus.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
