ANNUAL REPORT
(HOMESTATE LOGO)
MUTUAL FUNDS
JUNE 30, 1999
www.homestatefunds.com
THE HOMESTATE GROUP
-------------------
WELCOME TO THE HOMESTATE MUTUAL FUNDS
--------------------------------------
HomeState offers three mutual funds: The Pennsylvania (PA) Growth Fund, The
Select Banking and Finance Fund and The Year 2000 Fund. The Funds offer
investors a unique investment strategy aimed at pursuing long-term growth: what
we call "The HomeState Advantage."
IN-DEPTH, ON-SITE RESEARCH
--------------------------
HomeState's own in-house team of research analysts believes in a common-sense,
fundamental approach to choosing investments. Whenever we can, we visit a
company before investing, talking to its management and employees, as well as
its suppliers, customers and competitors.
PROFESSIONAL PORTFOLIO MANAGEMENT
------------------------------------
HomeState's chief investment officer, Kenneth G. Mertz II, CFA, has over twenty
years' experience in the money management industry, including seven years as
chief investment officer of a $12 billion public pension fund. Ken has managed
portfolios in both "up" and "down" markets and this experience guides him as he
seeks to actively reduce risk.
UNIQUE INVESTMENT OPPORTUNITIES
-------------------------------
HomeState's mutual funds each focus on areas we feel are largely ignored by
other institutional money managers:
- companies based in our home state of Pennsylvania,
- technology and "Year 2000 Problem-solving" companies,
- smaller-sized banking & financial services companies.
(HomeState Pennsylvania Invests a minimum 65% of its assets in companies
Growth Fund Logo) headquartered or with significant operations in
the Commonwealth of Pennsylvania.
(HomeState Banking Invests a minimum 65% of its assets in companies in
and Finance Fund Logo) the banking and financial services industries, with a
focus on smaller companies in the Mid-Atlantic states.
(HomeState The Y2K Invests a minimum 65% of its assets in companies
Fund Logo) identified by the Fund's adviser as working to provide
solutions to the Year 2000 Problem.
In-Depth, On-Site Research. Professional Portfolio Management. Unique Investment
Opportunities. That's The HomeState Advantage.
Funds that invest in a particular state or region, or in a specific
industry, may involve a greater degree of risk than funds with a more
diversified portfolio. Investing in smaller companies' stock can involve
higher risk and increased volatility than larger stocks. This report
contains information about the Funds' performance. Past performance is no
guarantee of future results. An investment in the Funds will fluctuate in
value so that your account, when redeemed, may be worth more or less than
your original purchase price.
THE HOMESTATE GROUP
- -------------------
REPORT FROM MANAGEMENT
July 31, 1999
Dear Shareholder:
The first six months of 1999 brought welcome news to HomeState shareholders.
The U.S. stock market finally began broadening out and all three HomeState Funds
enjoyed a performance turnaround from the bleak months of 1998, when small-
company stocks underperformed large-company stocks by historic margins. All
three HomeState Funds outperformed their benchmark Russell 2000 Index in the six
months ended June 30, 1999, and also outperformed the large-cap Standard &
Poor's 500 Index for the three months ended June 30th. Please read the complete
performance results of each HomeState Fund beginning on page 6, which include
the Fund's one- five- and since inception average annual returns (where
appropriate).
With better news across the board, I'd like to pass along a potpourri of items
in my letter. Ken Mertz and Steve Russell provide full coverage of each Fund's
strategies and results in the pages that follow.
o In April, Standard & Poor's honored the PA Growth Fund as a "S&P Select
-----------------------------------------------------------------------
Fund" - one of the top 21 small-cap growth funds out of 323 such funds
----------------------------------------------------------------------
surveyed.1<F1> We are extremely proud that Standard & Poor's has recognized
--------
our flagship fund for its long-term results and extend our congratulations
to manager Ken Mertz and the Emerald research team.
o The new Select Banking & Finance Fund was the #1 ranked financial services
----------------------------------------------------------------------------
sector fund for the 1999 year-to-date period through June 30, 1999.
-----------------------------------------------------------------
Morningstar ranked 58 financial services funds for total return without
regard to sales charges. Since its changeover from the Select Opportunities
Fund in October of 1998, the Fund has benefited from consolidation in the
Mid-Atlantic bank marketplace (a trend we expect to continue) and the
experience and hard work of its portfolio management and research teams.
o You can now find "The HomeState Advantage" on-line. Updated information is
--------------------------------------------------
available at www.homestatefunds.com, including top holdings, manager
----------------------
commentary, the aforementioned S&P Select Fund report and e-mailing to the
Fund. Individual account information via the Internet is among the options
we will explore in 1999/2000.
o The Year 2000 Fund's prospectus states that the Fund's Year 2000 (Y2K)
Problem focus has always been a temporary strategy, subject to change as the
year 2000 nears. We are in the process of mailing a proxy statement to all
Year 2000 Fund shareholders of record as of August 11th to implement changes
proposed by the Fund's Board of Trustees. Upon completion of the proxy vote,
we will provide all HomeState shareholders with information about how the
changes will lead technology-sector investors into the new millennium.
o Speaking of the Y2K problem, I am pleased to report that HomeState's primary
service providers, including investment management (Emerald Advisers, Inc.),
transfer agent and accounting services agent (Firstar Mutual Fund Services
LLC) and custodian (Firstar Bank Milwaukee, N.A.) have all successfully
completed Y2K-related correction and testing for mission critical programs
and systems, and have Y2K contingency plans in place.
History will record 1998 as one of the worst years ever for small-cap investing
relative to large-cap investing. As I said in the opening of this letter, 1999
has begun on a much better (and more historically normal) note. Many small-cap
managers faced massive outflows in 1998, with some losing over half of their
total managed assets. While the HomeState Funds experienced net redemptions at
times throughout the year, they never approached the levels seen elsewhere. In
fact, total assets managed by Emerald Advisers, Inc., the Fund's adviser,
actually rose throughout 1998, topping $500 million in early 1999. We thank our
fund family of shareholders for taking the long-term view during the turbulent
months of 1998. As the Standard & Poor's "Select Fund" award demonstrates, we
are committed to providing "The HomeState Advantage" to our shareholders and
work to build a long-term record worthy of such recognition. We thank you for
your continuing support.
Sincerely,
/s/Scott L. Rehr
Scott L. Rehr
President
1<F1> For a class A shares, among 323 small cap growth funds, as of 4/7/99.
A Select Fund designation is based on a six month moving average of three years
of absolute and volatility adjusted performance. Select funds must also
demonstrate an appropriate level of management skill and experience, consistency
of investment process and depth of organization. Standard & Poor's Select Fund
evaluations are not a recommendation to buy, sell or hold. Nor is it a guaranty
of any investment's net asset value. Select Fund evaluations are based on
information available to Standard & Poor's and may change at any time. Complete
and current information can be found at www.standardandpoors.com/onfunds.
ABOUT THE PERFORMANCE INFORMATION APPEARING IN THE LETTERS TO SHAREHOLDERS:
All performance information is presented on a total return basis unless
otherwise noted and reflects the reinvestment of distributions. Past
performance is no guarantee of future results. Investment return and principal
value of an investment will fluctuate with market conditions so that shares may
be worth more or less than their original cost when redeemed. Funds that invest
in a particular industry or geographic region may involve a greater degree of
risk than funds with a more diversified portfolio. All three HomeState Funds
invest in the stocks of smaller-sized companies, which may involve higher risk
and increased volatility than the stocks of larger companies. The Russell 2000
Index, Russell 2000 Growth Index, the Russell 2000 Value Index, S&P 500 Index,
NASDAQ Composite Index and the NASDAQ Financial Index are all unmanaged indices
of domestic common stocks. The Morningstar Small Company Funds Average and the
Morningstar Financial Funds Average measure the performance returns of all
mutual funds investing primarily in small company stocks and financial services
company stocks, respectively. The Morningstar Small Company Funds Average
included 710, 677, 180 and 139 funds for the six-month, one year, five year and
PA Growth Fund since-inception periods ended June 30, 1999. The Morningstar
Financial Funds Average includes 58 and 55 funds for the six month and one year
periods ended June 30, 1999. Write or call for a free copy of the Funds'
current prospectus, which contains more complete information including
management fees, sales charges and other charges and expenses, and which you
should read carefully before investing.
THE HOMESTATE GROUP
- -------------------
MARKET AND ECONOMIC REVIEW
July 31, 1999
Dear Shareholder:
The U.S. economy continues to represent the most exciting investing environment
in the world. Strong economic growth combined with growing productivity, a
strong currency and declining interest rates, the environment for investors was
almost perfect. The key to the future is whether this marketplace has fully
discounted this bright picture of the last nine months. Of course, not all
sectors or categories have participated in the equity rebound since last
October. As you are aware, all HomeState Funds tend to concentrate on the small
company sector of the U.S. marketplace. These stocks have underperformed their
large cap counterparts (the S&P 500) over the past five years.
In the 4th quarter of 1998, it appeared these companies were gathering strength,
but after lagging considerably in the 1st quarter of 1999 it became apparent
that the 4th quarter represented just a snapback from the horrendous performance
of the 3rd quarter. We now believe, however, that the broadening of the market
and the outperformance in the 2nd quarter of 1999 represent the beginning of a
new cycle of outperformance for small cap equities. Large cap companies have
had a tremendous run over the past five years which was perpetuated by its own
momentum. Strength in these stocks was met with continued index fund buying and
then kept alive by momentum investors who pushed their valuations to new highs.
With small cap stocks selling at a discount to their large cap peers rather than
their historic 18-20% premium, these stocks represent an incredible value which
can grow on itself as it has done in past cycles. It also appears the momentum
has been broken as flows into aggressive funds have increased since the end of
the first quarter.
Lastly, corporate America's obsession with market share gains is expected to
continue. This means productivity enhancements remains the most important by-
product of corporate decision making leading to continued low inflation and low
interest rates. Therefore, the environment for investors remains positive for
the next few months.
Please continue to read along as we describe how these events and circumstances
effected the three HomeState Funds during the six months ended June 30th.
Sincerely,
/s/Kenneth G. Mertz II, CFA
Kenneth G. Mertz II, CFA
Chief Investment Officer
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
THE FUND AT A GLANCE
HomeState Pennsylvania Growth Fund Performance Comparison vs. Russell 2000*<F2>
Growth of Hypothetical $10,000 Investment
AVG. ANNUAL TOTAL RETURN+
1 YEAR 5 YEAR INCEPTION
HomeState PA (load adjusted)**<F3> (13.55)% 16.42% 15.66%
HomeState PA (without load) (9.24)% 17.55% 16.49%
Russell 2000 1.45% 13.75%*** 14.61%***
<F4> <F4>
date The HomeState The HomeState Russell 2000
Pennsylvania Pennsylvania Index
Growth Fund Growth Fund
(load adjusted) (without load)
10/1/92 $9,525 $10,000 $10,000
6/30/93 $10,449 $10,970 $12,096
6/30/94 $11,897 $12,490 $12,455
6/30/95 $15,344 $16,109 $14,702
6/30/96 $21,471 $22,542 $18,231
6/30/97 $23,524 $24,697 $21,186
6/30/98 $29,415 $30,881 $24,745
6/30/99 $26,699 $28,030 $25,104
*<F2> The Russell 2000 Index is an unmanaged index of 2000 stocks weighted
by market capitalization.
**<F3> The Fund's total returns since Inception (October 1, 1992) and for one
and five years reflect the effect of the maximum sales load charge of 4.75%.
***<F4> Return does not include continuous dividend reinvestments as
information is not available.
+<F5> Past performance is not indicative of future performance.
THE HOMESTATE PENNSYLVANIA GROWTH FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1999
ISSUE % OF FUND
- ----- ---------
1. Sanchez Computer Associates, Inc. 5.49%
2. Laser Vision Centers, Inc. 2.63%
3. Vishay Intertechnology, Inc. 2.39%
4. C&D Technologies, Inc. 2.35%
5. 4Kids Entertainment, Inc. 2.32%
6. IGEN International, Inc. 2.31%
7. Concentric Network Corporation 2.28%
8. The Associated Group, Inc. -- Class A 2.17%
9. Prime Bancorp, Inc. 2.13%
10.Vitesse Semiconductor Corporation 2.04%
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
REPORT FROM MANAGEMENT
July 31, 1999
Dear Shareholder:
The second half of our fiscal year finally saw the awakening of the small cap
sector with most of the gain in the final quarter. The Russell 2000 Index
advanced 15.5% for the quarter ended June 30th versus a 6.7% gain for the S&P
500. It is interesting to note that this reversal of fortune started with large
cap value stocks exploding in April. We then witnessed the trickle down theory
as the broadening of the market carried over into small caps in general and
small cap value in particular. For the quarter ended June 30th, the Russell
2000 Growth Index rose 14.8% but lagged the 16.7% rise in the Russell 2000 Value
Index.
PERFORMANCE RESULTS FOR PERIODS ENDED JUNE 30, 1999
----------------------------------------------------
AVERAGE ANNUAL RETURN
TOTAL RETURN ----------------------------------- TOTAL RETURN
FUND/INDEX SIX MONTHS ONE YEAR FIVE YEAR SINCE INCEPTION SINCE INCEPTION
- ---------- ---------- -------- --------- --------------- ---------------
HomeState PA
Growth Fund:
At NAV: +9.45% -9.24% +17.55% +16.49% +180.28%
At MOP: +4.28% -13.55% +16.42% +15.66% +166.94%
Russell 2000
Index +9.24% +1.45% +13.75% +14.61% +151.04%
Morningstar
Small-Company
Funds Average + 9.36% + 2.58% + 17.87% + 16.79% + 185.17%
See information relating to performance results on page 4.
This movement to value stocks in the quarter was a double edge sword. A
broadening of the marketplace removes the total negative sentiment of 1998. At
the same time our emphasis on higher P/E ratio stocks did not fully pay off in
the 2nd Quarter. This was especially true in June as the Federal Reserve's
prelude to a rate hike trimmed the gains made earlier in the quarter. The
correction in mid-June was concentrated in the highest growth stocks as the
anticipation of higher rates would have a greater impact on these stocks.
The valuation of this marketplace remains the key question for equity investors.
We are not concerned over the market's overall valuation because of our positive
view-point on inflation, resulting in lower interest rates. In a low inflation,
low interest rate environment, investors are willing to pay substantially higher
multiples for S&P type growth (6.5% for '99) than in a higher rate environment.
For example, market participants should be willing to pay over 50 times earnings
for a consistent 15% grower in a 2% environment. Our interest is enhanced when
we analyze the Russell 2000's price/earnings multiple trading at an 11% discount
to the S&P 500. Historically, small caps have traded at premiums ranging from
10% to 40% with an average of 20%. With a near perfect investment environment
of low inflation, declining interest rates, increasing productivity and
corporate profits, we remain upbeat for the balance of 1999. If any problems do
exist, it remains confined to the millennium bug (Y2K). We believe the Y2K
problem can cause disruptions but that a great deal of the work has already been
accomplished. The greatest problem that we see is one of perception. We remain
on guard but we have not yet seen our own shadow.
During the latest quarter, two of our largest holdings were exceptional
performers. Laser Vision Centers was up 65% and Sanchez Computer Associates up
198%. In addition, Net.B@nk, an Internet bank, had a tremendous quarter in
which we were able to capture most of the upside with some profit taking.
Laser Vision provides mobile laser eye surgery, which is a business model we
understand because of a prior holding whose product was different but used a
similar delivery method. The demographics for laser surgery are tremendous and
has translated into EBITDA growth of 500% and revenue growth of 120%. Sanchez
Computer is being recognized as the backbone for Internet banking. This leading
position has enabled Sanchez to win contracts with Citibank, ING Bank, and the
newest entry from Bank One, WingspanBank.com. Both of these companies are still
not followed by many major firms and their prospects are not fully reflective in
their price.
These stocks have a lot in common and can give us some insight into why these
companies are "HomeState Picks."
A.) Top line growth
B.) Dominant market share
C.) Providing new, innovative products
D.) Impenetrable business plans
E.) Attractively priced due to lack of "Wall Street" research
We are positioning the portfolio to have a greater consumer weighting than in
the past. Specifically, we expect to increase this economic sector near our 35%
limit. We have increased our "teen" retailing exposure as well as our overall
exposure to consumer spending. As disposable income continues to increase, we
expect the consumer to be the driving force in the economy for the balance of
the year.
The Pennsylvania economy remains a compelling investment environment. We expect
many new initial public offerings in the second half of the year that should
represent good investment opportunities for our investors. Recently the
Pennsylvania Department of Community and Economic Development drafted a list of
key Pennsylvania facts.
o At 2.8%, Pennsylvania has one of the lowest personal income taxes in the
nation.
o Median housing costs are $20,000 below the national average.
o Pennsylvania has the nation's eighth-highest number of high technology
employees.
o With more than 160 companies, Pennsylvania has the country's second-highest
number of biopharmaceutical and biotech funds.
o With 158 laboratories - the fourth most in the U.S. - Pennsylvania is one
of the nation's leaders in overall federal research funds for research and
development.
As we begin a new fiscal year, we continue our work in providing our
shareholders with "The HomeState Advantage."
Sincerely,
/s/Kenneth G. Mertz II, CFA
Kenneth G. Mertz II, CFA
Portfolio Manager
Chief Investment Officer
THE HOMESTATE SELECT BANKING AND FINANCE FUND
- ---------------------------------------------
THE FUND AT A GLANCE
HomeState Select Banking and Finance Fund Performance Comparison vs. Russell
2000*<F6> Growth of Hypothetical $10,000 Investment
AVG. ANNUAL TOTAL RETURN+<F8>
1 YEAR INCEPTION
HomeState Sel (load adjusted)**<F7> (5.18)% 12.68%
HomeState Sel (without load) (0.45)% 15.03%
Russell 2000 1.45% 11.02%
date The HomeState Select The HomeState Select Russell
Banking and Finance Banking and Finance 2000 Index
Fund(load adjusted) Fund (without load)
2/18/97 $9,525 $10,000 $10,000
3/31/97 $9,249 $9,710 $9,301
6/30/97 $11,144 $11,700 $10,804
9/30/97 $14,207 $14,916 $12,409
12/31/97 $12,757 $13,393 $11,988
3/31/98 $14,027 $14,727 $13,224
6/30/98 $13,323 $13,988 $12,620
9/30/98 $9,679 $10,162 $10,063
12/31/98 $10,136 $10,642 $11,720
3/31/99 $10,643 $11,174 $11,083
6/30/99 $13,264 $13,926 $12,803
*<F6>The Russell 2000 Index is an unmanaged index of 2000 stocks weighted by
market capitalization.
**<F7>TheFund's total returns since Inception (February 18, 1997) and for one
year reflect the effect of the maximum sales load charge of 4.75%.
+<F8>Past performance is not indicative of future performance.
THE HOMESTATE SELECT BANKING AND FINANCE FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1999
ISSUE % OF FUND
- ----- ---------
1. JeffBanks, Inc. 4.36%
2. Sanchez Computer Associates, Inc. 3.74%
3. Mercantile Bankshares Corporation 3.23%
4. Progress Financial Corporation 3.04%
5. Commerce Bancorp, Inc. 2.95%
6. S&T Bancorp, Inc. 2.69%
7. First Sierra Financial, Inc. 2.67%
8. Liberty Property Trust 2.46%
9. Federated Investors, Inc. 2.46%
10.Fulton Financial Corporation 2.44%
THE HOMESTATE SELECT BANKING AND FINANCE FUND
- ---------------------------------------------
REPORT FROM MANAGEMENT
July 31, 1999
Dear Shareholder:
As we approach the midway point of calendar 1999, the HomeState Select Banking
and Finance Fund (the Fund) is currently ranked by Morningstar as the number one
banking and financial services mutual fund in the nation for the first six
months of 1999 ended June 30th, having outperformed the NASDAQ Financial Index
by more than 22% over the same period. Morningstar surveyed the total return of
58 such funds without regard to sales charges. We would like to extend a
special thanks to our fellow shareholders that have been with the Fund since its
successful transition to a banking and financial services fund on October 20,
1998. We are proud to say that since the transition, the Fund has returned an
impressive 45% to our shareholders and has outpaced the NASDAQ Financial Index
by 30%, again for the period ended June 30th.
PERFORMANCE RESULTS FOR PERIODS ENDED JUNE 30, 1999
---------------------------------------------------
AVERAGE ANNUAL RETURN
TOTAL RETURN ------------------------- TOTAL RETURN
FUND/INDEX SIX MONTHS ONE YEAR SINCE INCEPTION SINCE INCEPTION
- ---------- ---------- -------- --------------- ---------------
HomeState Select Banking
& Finance Fund*<F9>:
At NAV +30.85% - 0.45% +15.03% +39.26%
At MOP +24.63% - 5.18% +12.68% +32.62%
Russell 2000 Index + 9.24% + 1.45% +11.02% +28.03%
Morningstar - Financial
Funds Average + 8.12% + 2.35% n/a n/a
*<F9> Prior to 10/20/98 the Fund was called the Select Opportunities Fund
and pursued a different objective.
See information relating to performance results on page 4.
How have we been so successful in a market where the banking and financial
services sectors have remained out of favor with the NASDAQ Financial Index
still 7% off of its April 22, 1998 high? The answer is very simple, it is the
"HomeState touch," the hands-on fundamental bottom-up research that has been the
HomeState trademark for years and will continue to bring our fellow shareholders
success in the future. The challenge was issued to our research and portfolio
management teams to discover superior banks and financial institutions
possessing superior earnings growth potential, improving operating efficiencies
and excellent asset quality and we dare say we have been successful to date and
will continue to maintain the same diligence in the future for our fellow
shareholders.
Three themes have driven the banking and financial services market in the first
half of 1999 and will continue to do so for the remainder of the calendar year.
These themes are the Internet, Year 2000 (Y2K) challenges and the elimination of
the "pooling-of-interest" method of accounting.
The Internet has created a paradigm shift in banking and will continue to spur
debate over the benefits of Internet banking. Internet banking has allowed both
traditional banks, as well as Internet start-ups, to lower their expenses while
offering customers higher rates on CDs and checking and money market accounts
than what their peers, the pure brick and mortar banks, can offer. In fact,
rates for interest bearing checking accounts at an Internet bank are typically
at least 3% compared with the industry average of about 1%. How the Internet
will be best utilized in the banking and financial services sectors is yet to be
determined, but what is evident is that banking will not be the same. Though
the Internet has significantly influenced the banking and financial services
sectors in the first half of 1999, other technology concerns, such as Y2K
concerns, have preoccupied the minds of many management teams.
The passage of the interstate banking legislation in 1985 sparked a wave of
banking mergers that has continued for well over a decade. Since 1990, the
number of banks has decreased nationally from 12,230 to 8,688. In 1998 bank
mergers began to slow as banks and financial institutions have had to focus
their attention to resolving Y2K concerns. Y2K involves the inability of
computers to distinguish between the dates 1900 and 2000. As a result, at the
turn of the new millennium, these systems could cease operating.
It has been estimated that the U.S. banking and financial services industries
will spend $9 billion to prepare for computer issues related to Y2K, making them
among the best prepared businesses in the world. FDIC Chairman Donna Tanoue has
made Y2K her top priority. In fact, federal examiners have completed two
extensive sweeps through the nation's banks, thrifts and credit unions and gave
97% of the institutions their highest rankings.
Having addressed the Y2K concerns expeditiously, banks are now poised to
continue their torrid pace of mergers and acquisitions. Spawning a more rapid
pace of mergers and acquisitions in the banking and financial services sector in
the second half of 1999 and through the year 2000 is the recent announcement by
the Securities and Exchange Commission (SEC) and the Financial Accounting
Standards Board (FASB) that the pooling-of-interest method of accounting for
takeovers will be eliminated as of January 1st in the year 2001.
Currently, there are two accounting methodologies to accomplish mergers:
pooling-of-interest and purchase accounting. In purchase accounting, goodwill
(the excess of the price paid over the book value of the assets) is amortized
over as many as 40 years. The new guidelines will reduce the period which
goodwill may be amortized to 20 years, thus reducing earnings of the acquiring
company each year by the amortized goodwill amount. With the elimination of the
pooling-of-interest method of accounting imminent, we expect that the pace of
consolidation in the banking and financial services sector will certainly
escalate.
An attractive investment environment in the banking and financial services
industry remains soundly in place as second quarter earnings grew by greater
than 10%. We expect the banking industry to continue to deliver strong
financial results in the second half of 1999 supported by strong economic
growth, excellent asset quality trends, continued stock buybacks and strong
growth in fee-based revenue. Though we can not predict the future, the
HomeState portfolio management team remains extremely excited about the
potential of the Fund and look forward to sharing our continued success with our
fellow shareholders.
Sincerely,
/s/Steven E. Russell, Esq.
Steven E. Russell, Esq.
Vice President
Co-Portfolio Manager
THE HOMESTATE YEAR 2000 FUND
- ----------------------------
THE FUND AT A GLANCE
HomeState Year 2000 Fund Performance Comparison vs. Russell 2000*<F10>
Growth of Hypothetical $10,000 Investment
AVG. ANNUAL TOTAL RETURN+<F12>
1 YEAR INCEPTION
HomeState Y2K (load adjusted)**<F11> (2.25)% 10.53%
HomeState Y2K (without load) 0.66% 12.51%
Russell 2000 1.45% 5.39%
date The HomeState The HomeState Russell 2000 Index
Year 2000 Fund Year 2000 Fund
(load adjusted) (without load)
10/31/97 $9,710 $10,000 $10,000
12/31/97 $10,341 $10,650 $10,220
3/31/98 $11,797 $12,150 $11,274
6/30/98 $11,739 $12,090 $10,758
9/30/98 $8,661 $8,920 $8,579
12/31/98 $10,555 $10,870 $9,991
3/31/99 $10,157 $10,460 $9,448
6/30/99 $11,817 $12,170 $10,914
*<F10>The Russell 2000 Index is an unmanaged index of 2000 stocks weighted by
market capitalization.
**<F11>The Fund's total returns from Inception (October 31, 1997) and for one
year reflect the effect of the maximum sales load charge of 2.90%.
+<F12>Past performance is not indicative of future performance.
THE HOMESTATE YEAR 2000 FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1999
ISSUE % OF FUND
- ----- ---------
1.Cisco Systems, Inc. 4.98%
2.Mastech Corporation 4.98%
3.Unisys Corporation 4.73%
4.Exodus Communications, Inc. 3.97%
5.Sanchez Computer Associates, Inc. 3.75%
6.Diamond Technology Partners Incorporated 3.46%
7.Complete Business Solutions, Inc. 3.37%
8.Apple Computer, Inc. 3.07%
9.Vishay Intertechnology, Inc. 2.90%
10.Mercury Interactive Corporation 2.89%
THE HOMESTATE YEAR 2000 FUND
- ----------------------------
REPORT FROM MANAGEMENT
July 31, 1999
Dear Shareholder:
As the calendar moves closer and closer to the new millennium, America, and yes
the world, remains concerned about whether our computer-led world is ready for
the simple turn of the clock from 11:59 p.m. to 12:00 a.m. on January 1, 2000.
Of course, it is not the clock which is our concern, but that internal processor
which is moving from '99 to '00. While we have previously discussed the
magnitude of the issue reaching from $600 billion to $1 trillion, it now appears
the work is getting done faster than expected and the bill is expected to be
less than anticipated - closer to $450 billion.
Is the job done and will everything be okay come the first of January? "No" is
the answer to both questions. Corporate America, while mostly completing
mission critical applications, will have many non-critical projects to complete
after the year-end has come and gone. In addition, testing will be going on
right up until the clock strikes midnight. Problems may still arise in local
government, supply chains, foreign countries/corporations and embedded chips.
The Y2K problem has, of course, been very profitable for the many companies we
now hold or have held since inception of your Fund in 1997. Not only have these
companies seen top-line and bottom-line growth of extraordinary proportion, but
the successful companies, such as Complete Business Solutions, Mastech and
Mercury Interactive, have leveraged their Y2K business to move to new platforms
such as e-commerce which will propel their future growth.
PERFORMANCE RESULTS FOR PERIODS ENDED JUNE 30, 1999
-----------------------------------------------------
AVERAGE ANNUAL RETURN
TOTAL RETURN ------------------------ TOTAL RETURN
FUND/INDEX SIX MONTHS ONE YEAR SINCE INCEPTION SINCE INCEPTION
- ---------- ------------ -------- --------------- ---------------
HomeState Year 2000 Fund:
At NAV +11.96% + 0.66% +12.51% +21.70%
At MOP + 8.76% - 2.25% +10.53% +18.16%
Russell 2000 Index + 9.24% + 1.45% + 5.39% + 9.14%
See information relating to performance results on page 4.
Since the Y2K business is winding down, we believe it is imperative to broaden
our guidelines. Our emphasis has been mostly on a sub-sector of the technology
world. While this has served us well as we move closer to the end of '99, a
broadening of our technology focus will allow us to fully participate in many
more "tech" opportunities available to us. These could include, but will not be
limited to, the telecom industry, software, Internet technology, integrated
circuits, semiconductor chips, electronics, etc. Of course, we will continue to
emphasize our Emerald in-house research team, which is dedicated to discovering
new emerging technology before they are fully appreciated by the marketplace.
Shareholders of record on August 11, 1999 will be receiving more information on
our impending changes and we hope you will continue with us on this beneficial
path.
Sincerely,
/s/Kenneth G. Mertz II, CFA
Kenneth G. Mertz II, CFA
Portfolio Manager
Chief Investment Officer
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 1999
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 93.2%
COMMUNICATIONS & BROADCASTING -- 3.4%
Comcast Corporation -- Class A*<F13>............ 14,900 $ 572,719
FlashNet Communications, Inc.*<F13>^<F14>....... 6,000 176,625
4Kids Entertainment, Inc.*<F13>^<F14>........... 129,525 2,299,069
WorldGate Communications, Inc.*<F13>............ 6,000 307,500
-----------
TOTAL COMMUNICATIONS & BROADCASTING............. 3,355,913
-----------
FINANCE & INSURANCE -- 14.7%
INSURANCE CARRIERS -- 4.7%
Donegal Group Inc............................... 106,510 1,211,551
Penn Treaty American Corporation*<F13>.......... 65,250 1,570,078
Penn-America Group, Inc......................... 123,250 1,278,719
Provident American Corporation*<F13>............ 20,700 577,012
-----------
4,637,360
-----------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 1.8%
Progress Financial Corporation.................. 85,350 1,248,244
SEI Investments Company......................... 6,700 591,275
-----------
1,839,519
-----------
STATE & NATIONAL BANKS -- 8.2%
BT Financial Corporation........................ 23,710 581,636
First Colonial Group, Inc....................... 31,757 758,204
JeffBanks, Inc.................................. 59,683 1,697,235
Main Street Bancorp, Inc........................ 69,129 1,002,371
Net.B@nk, Inc.*<F13>^<F14>...................... 22,000 836,000
Prime Bancorp, Inc.............................. 76,310 2,108,064
Republic First Bancorp, Inc.*<F13>.............. 2,000 16,000
Royal Bancshares of Pennsylvania, Inc.
-- Class A 14,404 234,065
Sun Bancorp, Inc................................ 26,505 639,433
Susquehanna Bancshares, Inc..................... 13,604 240,621
-----------
8,113,629
-----------
TOTAL FINANCE & INSURANCE............................... 14,590,508
-----------
MANUFACTURING -- 32.7%
BUILDING & HOUSING -- 0.1%
Berger Holdings, Ltd.*<F13>..................... 21,600 66,150
-----------
CHEMICALS & ALLIED PRODUCTS -- 1.0%
OM Group, Inc.^<F14>............................ 30,000 1,035,000
-----------
COMPUTER & OFFICE EQUIPMENT -- 2.0%
Safeguard Scientifics, Inc.*<F13>............... 32,150 1,993,300
-----------
DIVERSIFIED OPERATIONS -- 0.5%
Matthews International Corporation -- Class A... 15,900 471,038
-----------
IRON & STEEL -- 0.1%
Carpenter Technology Corporation................ 2,000 57,125
-----------
MISCELLANEOUS ELECTRICAL MACHINERY,
EQUIPMENT & SUPPLIES -- 14.3%
Allen Organ Company -- Class B.................. 9,864 361,269
Applied Micro Circuits Corporation*<F13>^<F14>.. 1,000 82,250
Bel Fuse Inc. -- Class A*<F13>^<F14>............ 19,300 540,400
C&D Technologies, Inc........................... 76,000 2,327,500
C-COR Electronics, Inc.*<F13>................... 67,100 1,870,413
Herley Industries, Inc*<F13>.................... 93,600 1,222,650
The JPM Company*<F13>........................... 30,000 390,000
Kulicke and Soffa Industries, Inc.*<F13>........ 10,000 268,125
TB Wood's Corporation........................... 10,600 115,937
Technitrol, Inc................................. 1,200 38,700
Teleflex Incorporated........................... 33,000 1,433,437
TranSwitch Corporation*<F13>^<F14>.............. 23,400 1,108,575
Vishay Intertechnology, Inc.*<F13>.............. 112,500 2,362,500
Vitesse Semiconductor Corporation*<F13>^<F14>... 30,000 2,023,125
-----------
14,144,881
-----------
MISCELLANEOUS INDUSTRIAL MACHINERY
& EQUIPMENT -- 4.9%
JLG Industries, Inc............................. 80,200 1,634,075
Met-Pro Corporation............................. 107,150 1,339,375
SI Handling Systems, Inc........................ 177,125 1,859,812
-----------
4,833,262
-----------
PAPER & FOREST PRODUCTS -- 0.7%
P.H. Glatfelter Company......................... 50,000 731,250
-----------
PHARMACEUTICAL PREPARATIONS -- 4.1%
Biomatrix, Inc.*<F13>^<F14>..................... 18,000 389,250
Celgene Corporation*<F13>^<F14>................. 99,350 1,744,834
CollaGenex Pharmaceuticals, Inc.*<F13>.......... 28,100 281,000
Coulter Pharmaceutical, Inc.*<F13>^<F14>........ 20,000 451,250
Neose Technologies, Inc.*<F13>.................. 113,440 1,155,670
-----------
4,022,004
-----------
PRECISION INSTRUMENTS
& MEDICAL SUPPLIES -- 4.9%
ChromaVision Medical Systems, Inc.*<F13>^<F14>.. 100,460 992,042
Environmental Tectonics Corporation*<F13>....... 139,200 1,322,400
IGEN International, Inc.*<F13>^<F14>............ 78,500 2,286,313
Medical Technology & Innovations, Inc.*<F13>....1,460,789 219,118
-----------
4,819,873
-----------
TELECOMMUNICATIONS EQUIPMENT -- 0.1%
InterDigital Communications Corporation*<F13>... 5,000 23,125
Pinnacle Holdings Inc.*<F13>^<F14>.............. 5,000 122,500
-----------
145,625
-----------
TOTAL MANUFACTURING .................................... 32,319,508
-----------
REAL ESTATE INVESTMENT TRUSTS -- 4.7%
Brandywine Realty Trust......................... 62,500 1,238,281
Crown American Realty Trust..................... 90,000 658,125
Liberty Property Trust.......................... 50,000 1,243,750
Resource Asset Investment Trust................. 116,000 1,464,500
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS .................... 4,604,656
-----------
SERVICES -- 25.5%
BUSINESS SERVICES -- 2.1%
Diamond Technology Partners
Incorporated*<F13>^<F14> 71,130 1,591,534
Marlton Technologies, Inc.*<F13>................ 24,200 90,750
VerticalNet, Inc.*<F13>......................... 4,300 451,500
-----------
2,133,784
-----------
COMPUTER SERVICES -- 15.5%
AboveNet Communications Inc.*<F13>^<F14>........ 45,200 1,824,950
Amkor Technology, Inc.*<F13>.................... 82,900 849,725
Ansoft Corporation*<F13>........................ 84,000 682,500
Concentric Network Corporation*<F13>^<F14>...... 56,800 2,257,800
CustomTracks Corporation^<F14>.................. 9,250 517,422
DocuCorp International, Inc.*<F13>^<F14>........ 43,910 181,129
Mastech Corporation*<F13>....................... 92,000 1,713,500
Prophet 21, Inc.*<F13>.......................... 2,500 18,125
Sanchez Computer Associates, Inc.*<F13>......... 157,100 5,439,587
SunGard Data Systems Inc.*<F13>................. 41,400 1,428,300
Tangram Enterprise Solutions, Inc.*<F13>^<F14>.. 85,150 250,128
Verio Inc.*<F13>^<F14>.......................... 2,400 166,800
-----------
15,329,966
-----------
FINANCIAL SERVICES -- 0.5%
The Ashton Technology Group, Inc.*<F13>......... 20,100 251,250
Towne Services, Inc.*<F13>^<F14>................ 32,400 255,150
506,400
-----------
MEDICAL & HEALTH SERVICES -- 2.7%
CoreCare Systems, Inc.*<F13>.................... 127,000 43,656
Laser Vision Centers, Inc.*<F13>^<F14>.......... 41,300 2,601,900
-----------
2,645,556
-----------
PERSONAL SERVICES -- 1.3%
Education Management Corporation*<F13>.......... 15,500 321,625
InfoSpace.com, Inc.*<F13>^<F14>................. 7,000 329,000
Right Management Consultants, Inc.*<F13>........ 39,400 610,700
-----------
1,261,325
-----------
TELECOMMUNICATION SERVICES -- 3.4%
The Associated Group, Inc. -- Class A*<F13>..... 33,000 2,149,125
D&E Communications, Inc. ....................... 6,955 150,402
Hyperion Telecommunications, Inc.
-- Class A*<F13> 55,000 1,034,688
-----------
3,334,215
-----------
TOTAL SERVICES.......................................... 25,211,246
-----------
TRANSPORTATION -- 0.5%
Arnold Industries, Inc. ........................ 33,450 516,384
-----------
UTILITIES -- 1.4%
Philadelphia Suburban Corporation............... 62,166 1,433,703
-----------
WHOLESALE & RETAIL TRADE -- 10.3%
MISCELLANEOUS RETAIL STORES -- 2.7%
Brookstone, Inc.*<F13>^<F14>.................... 78,600 1,218,300
Electronics Boutique Holdings Corp.*<F13>....... 101,250 1,442,813
-----------
2,661,113
-----------
RETAIL APPAREL & ACCESSORY STORES -- 6.0%
The Buckle, Inc.*<F13>^<F14>.................... 29,900 859,625
Charming Shoppes, Inc.*<F13>.................... 117,500 716,016
Chico's Fas, Inc.*<F13>^<F14>................... 15,000 352,500
David's Bridal, Inc.*<F13>...................... 10,000 155,625
Hot Topic, Inc.*<F13>^<F14>..................... 33,500 904,500
Pacific Sunwear of California, Inc.*<F13>^<F14>. 45,000 1,096,875
Piercing Pagoda, Inc.*<F13>..................... 127,200 1,605,900
Urban Outfitters, Inc.*<F13>.................... 9,000 226,125
-----------
5,917,166
-----------
WHOLESALE MISCELLANEOUS -- 1.6%
The Boyds Collection, Ltd.*<F13>................ 60,000 1,038,750
Creative Master International, Inc.*<F13>^<F14>. 70,000 358,750
OroAmerica, Inc.*<F13>^<F14>.................... 35,000 245,000
-----------
1,642,500
-----------
TOTAL WHOLESALE & RETAIL TRADE.......................... 10,220,779
-----------
TOTAL COMMON STOCKS (COST $70,094,556).................. 92,252,697
-----------
PRINCIPAL MARKET
AMOUNT VALUE
------ ------
SHORT-TERM INVESTMENTS -- 3.6%
VARIABLE RATE DEMAND NOTES # -- 3.6%
Firstar Bank, 4.9700%........................$3,544,676 3,544,676
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $3,544,676).......... 3,544,676
-----------
TOTAL INVESTMENTS (COST OF $73,639,232) -- 96.8%.............. 95,797,373
-----------
OTHER ASSETS AND LIABILITIES, NET -- 3.2%..................... 3,179,186
-----------
NET ASSETS -- 100.0%.......................................... $98,976,559
-----------
-----------
*<F13> Non-income producing security.
^<F14> Non-Pennsylvania Company as defined in the Fund's current prospectus
(the aggregate value of such securities amounted to $29,098,596 as of June 30,
1999).
#<F15> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on specified dates.
The rates listed are as of June 30, 1999.
See accompanying Notes to Financial Statements
THE HOMESTATE SELECT BANKING AND FINANCE FUND
- ---------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 1999
MARKET
SHARES VALUE
------ -------
COMMON STOCKS -- 97.0%
FINANCE & INSURANCE -- 82.1%
INSURANCE CARRIERS -- 8.1%
Donegal Group Inc............................... 8,000 $ 91,000
Harleysville Group Inc.......................... 9,000 184,500
Motor Club of America *<F16>.................... 2,500 32,656
Penn Treaty American Corporation *<F16>......... 11,600 279,125
Philadelphia Consolidated Holding Corp. *<F16>.. 12,100 296,450
Provident American Corporation *<F16>........... 6,700 186,763
-----------
1,070,494
-----------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 19.6%
Brookline Bancorp, Inc.......................... 10,000 115,625
Federated Investors, Inc........................ 18,000 322,875
First Keystone Financial, Inc................... 9,000 118,125
First Sierra Financial, Inc. *<F16>............. 14,000 350,000
Gabelli Asset Management Inc. -- Class A<F16>*.. 3,600 56,925
Knight/Trimark Group, Inc. -- Class A*<F16>..... 500 30,500
Laurel Capital Group, Inc....................... 4,750 76,297
Medallion Financial Corp........................ 4,000 76,250
Ocean Financial Corp............................ 5,600 101,500
Prime Bancorp, Inc.............................. 8,500 234,813
Progress Financial Corporation.................. 27,300 399,263
PSB Bancorp, Inc. *<F16>........................ 15,500 94,938
SEI Investments Company......................... 3,400 300,050
Southwest Securities Group, Inc................. 700 50,225
Sovereign Bancorp, Inc.......................... 15,000 181,875
Telebanc Financial Corporation*<F16>............ 1,560 60,450
-----------
2,569,711
-----------
STATE & NATIONAL BANKS -- 54.4%
AmSouth Bancorporation.......................... 6,750 156,516
BankFirst Corporation*<F16>..................... 10,000 92,500
Banknorth Group, Inc............................ 7,500 247,500
BT Financial Corporation........................ 5,900 144,734
CCB Financial Corporation....................... 4,000 211,500
CENIT Bancorp, Inc.............................. 3,500 66,828
Commerce Bancorp, Inc........................... 9,055 387,101
Community Independent Bank Inc.................. 1,200 14,325
Drovers Bancshares Corporation.................. 11,025 250,819
FCNB Corp....................................... 14,000 306,250
First Charter Corporation....................... 11,000 272,250
First Colonial Group, Inc....................... 3,150 75,206
First Western Bancorp, Inc...................... 6,000 201,000
Fulton Financial Corporation.................... 15,510 320,863
Greater Bay Bancorp............................. 8,500 282,625
Harleysville National Corporation............... 2,000 71,500
Hudson United Bancorp........................... 4,000 122,500
JeffBanks, Inc.................................. 20,133 572,532
Main Street Bancorp, Inc........................ 13,555 196,548
Mercantile Bankshares Corporation............... 12,000 424,500
National Penn Bancshares, Inc................... 5,000 117,656
Net.B@nk, Inc.*<F16>............................ 7,950 302,100
PNC Bank Corp................................... 4,000 230,500
Regions Financial Corporation................... 6,000 230,625
Republic First Bancorp, Inc.*<F16>.............. 14,100 112,800
Royal Bancshares of Pennsylvania, Inc. -- Class A 16,116 261,885
Royal Bank of Canada............................ 2,800 124,250
S&T Bancorp, Inc................................ 14,000 353,500
Silicon Valley Bancshares....................... 10,000 247,500
Sun Bancorp, Inc................................ 10,588 255,435
Sun Bancorp, Inc. -- New Jersey *<F16>.......... 15,225 266,437
Yardville National Bancorp...................... 17,500 218,750
-----------
7,139,035
-----------
TOTAL FINANCE & INSURANCE............................... 10,779,240
-----------
MANUFACTURING -- 2.3%
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT -- 0.5%
SI Handling Systems, Inc........................ 5,850 61,425
-----------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 1.8%
Environmental Tectonics Corporation *<F16>...... 25,400 241,300
-----------
TOTAL MANUFACTURING..................................... 302,725
-----------
REAL ESTATE INVESTMENT TRUSTS -- 7.0%
Brandywine Realty Trust......................... 12,000 237,750
Crown American Realty Trust..................... 14,000 102,375
Liberty Property Trust.......................... 13,000 323,375
Resource Asset Investment Trust................. 20,000 252,500
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS..................... 916,000
-----------
SERVICES -- 5.6%
COMPUTER SERVICES -- 3.9%
DocuCorp International, Inc.*<F16>.............. 6,300 25,987
Sanchez Computer Associates, Inc. *<F16>........ 14,200 491,675
-----------
517,662
-----------
FINANCIAL SERVICES -- 1.7%
The Ashton Technology Group, Inc.*<F16>......... 7,000 87,500
Towne Services, Inc.*<F16>...................... 16,300 128,362
-----------
215,862
-----------
TOTAL SERVICES.......................................... 733,524
-----------
TOTAL COMMON STOCKS (COST $12,110,214).................. 12,731,489
-----------
SHORT-TERM INVESTMENTS -- 0.9%
MONEY MARKET MUTUAL FUNDS -- 0.9%
Firstar Institutional Money Market Fund......... 64,817 64,817
Firstar U.S. Government Money Market Fund....... 60,436 60,436
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $125,253)............ 125,253
-----------
TOTAL INVESTMENTS (COST $12,235,467) -- 97.9%........... 12,856,742
-----------
OTHER ASSETS AND LIABILITIES, NET -- 2.1%..................... 274,661
-----------
NET ASSETS -- 100.0%.......................................... $13,131,403
-----------
-----------
*<F16> Non-income producing security.
See accompanying Notes to Financial Statements
THE HOMESTATE YEAR 2000 FUND
- ----------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 1999
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 79.1%
COMMUNICATIONS & BROADCASTING -- 2.6%
FlashNet Communications, Inc.*<F17>............. 2,000 $ 58,875
4Kids Entertainment, Inc.*<F17>................. 6,600 117,150
OneMain.com, Inc.*<F17>......................... 2,300 54,337
-----------
TOTAL COMMUNICATIONS & BROADCASTING..................... 230,362
-----------
FINANCE & INSURANCE -- 0.8%
Progress Financial Corporation.................. 4,000 58,500
Wit Capital Group, Inc.*<F17>................... 500 17,000
-----------
TOTAL FINANCE & INSURANCE............................... 75,500
-----------
MANUFACTURING -- 29.1%
COMPUTER & OFFICE EQUIPMENT -- 20.8%
Apple Computer, Inc.*<F17>...................... 6,000 277,875
Cisco Systems, Inc.*<F17>1<F19>................. 7,000 451,063
Hewlett-Packard Company......................... 2,100 211,050
Microsoft Corporation*<F17>..................... 1,000 90,188
Novell, Inc.*<F17>.............................. 8,000 212,000
Safeguard Scientifics, Inc.*<F17>1<F19>......... 3,400 210,800
Unisys Corporation*<F17>........................ 11,000 428,312
-----------
1,881,288
-----------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 8.3%
Applied Micro Circuits Corporation*<F17>........ 2,300 189,175
Herley Industries, Inc.*<F17>................... 15,000 195,937
The Titan Corporation*<F17>..................... 10,000 110,000
Vishay Intertechnology, Inc.*<F17>.............. 12,500 262,500
-----------
757,612
-----------
TOTAL MANUFACTURING..................................... 2,638,900
-----------
SERVICES -- 46.6%
BUSINESS SERVICES -- 3.5%
Diamond Technology Partners Incorporated*<F17>.. 14,000 313,250
-----------
COMPUTER SERVICES -- 35.8%
Alloy Online, Inc.*<F17>........................ 4,000 45,750
BroadVision, Inc.*<F17>......................... 1,800 132,750
Cognicase Inc.*<F17>............................ 9,100 149,012
Complete Business Solutions, Inc.*<F17>1<F19>... 17,000 304,937
Compuware Corporation*<F17>..................... 4,000 127,250
Concentric Network Corporation*<F17>............ 1,000 39,750
DocuCorp International, Inc.*<F17>.............. 5,800 23,925
Exodus Communications, Inc.*<F17>............... 3,000 359,813
Javelin Systems, Inc.*<F17>..................... 6,500 79,625
Juno Online Services, Inc.*<F17>................ 500 11,500
Mastech Corporation*<F17>1<F19>................. 24,200 450,725
Mercury Interactive Corporation*<F17>........... 7,400 261,775
Metamor Worldwide, Inc.*<F17>................... 4,000 96,250
Sanchez Computer Associates, Inc.*<F17>......... 9,800 339,325
Sapiens International Corporation N.V.*<F17>.... 5,000 49,688
Segue Software, Inc.*<F17>...................... 10,700 77,575
SunGard Data Systems Inc.*<F17>1<F19>........... 7,000 241,500
Tangram Enterprise Solutions, Inc.*<F17>........ 21,000 61,688
TAVA Technologies, Inc.*<F17>................... 14,500 111,469
USinternetworking, Inc.*<F17>................... 2,500 105,000
Verio Inc.*<F17>................................ 1,600 111,200
Whittman-Hart, Inc.*<F17>....................... 2,000 63,500
-----------
3,244,007
-----------
MEDICAL HEALTH & SERVICES -- 1.4%
Colorado MEDtech, Inc.*<F17>.................... 6,000 131,625
-----------
TELECOMMUNICATION SERVICES -- 5.9%
Allegiance Telecom, Inc.*<F17>.................. 1,500 82,312
Hyperion Telecommunications, Inc.-- Class A*<F17> 3,800 71,487
Intermedia Communications Inc.*<F17>............ 3,000 90,000
NEXTLINK Communications, Inc. -- Class A*<F17>.. 1,000 74,375
Qwest Communications International Inc.*<F17>... 3,900 128,944
RCN Corporation*<F17>........................... 2,000 83,250
-----------
530,368
-----------
TOTAL SERVICES.......................................... 4,219,250
-----------
TOTAL COMMON STOCKS (COST $5,724,666)................... 7,164,012
-----------
SHORT-TERM INVESTMENTS -- 25.8%
MONEY MARKET MUTUAL FUNDS -- 4.7%
Firstar Institutional Money Market Fund......... 394,205 394,205
Firstar U.S. Government Money Market Fund....... 32,625 32,625
-----------
TOTAL MONEY MARKET MUTUAL FUNDS......................... 426,830
-----------
PRINCIPAL MARKET
AMOUNT VALUE
---------- -------
VARIABLE RATE DEMAND NOTES #<F18> -- 21.1%
Firstar Bank, 4.9700%...........................$399,333 399,333
General Mills, Inc., 4.8250%.................... 400,566 400,566
Pitney Bowes, Inc., 4.8250%..................... 388,424 388,424
Warner-Lambert Co., 4.7010%..................... 319,579 319,579
Wisconsin Electric Power Co., 4.7006%........... 398,921 398,921
-----------
TOTAL VARIABLE RATE DEMAND NOTES........................ 1,906,823
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $2,333,653).......... 2,333,653
-----------
TOTAL INVESTMENTS (COST $8,058,319) -- 104.9%........... 9,497,665
-----------
SHARES
-------
SECURITIES SOLD SHORT -- (3.6%)
Intel Corporation............................... 2,000 (119,000)
Micron Technology, Inc.......................... 2,000 (80,625)
Tupperware Corporation.......................... 5,000 (127,500)
-----------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $291,578)......... (327,125)
-----------
OTHER ASSETS AND LIABILITIES, NET -- (1.3%)................... (114,867)
-----------
NET ASSETS -- 100.0%.......................................... $9,055,673
-----------
-----------
*<F17> Non-income producing security.
#<F18> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on specified dates.
The rates listed are as of June 30, 1999.
1<F19> All or a portion of the securities have been committed as collateral
for open short positions.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1999
PENNSYLVANIA SELECT BANKING YEAR 2000
GROWTH FUND AND FINANCE FUND FUND
------------- ---------------- ----
ASSETS
Investments in securities at
market value (identified cost
$73,639,232,$12,235,467, and
$8,058,319,respectively) (Note 2)... $ 95,797,373 $12,856,742 $9,497,665
Cash................................ -- 93,422 --
Deposits with brokers and custodian
bank for securities sold short.... -- -- 291,578
Receivables for:
Dividends and interest............ 60,574 27,066 7,835
Investment securities sold........ 4,560,198 263,519 53,081
Capital shares sold............... 116,251 49,320 --
Other assets........................ 10,615 6,525 3,622
------------ ----------- ----------
Total assets................... 100,545,011 13,296,594 9,853,781
------------ ----------- ----------
LIABILITIES
Securities sold short at market
value (proceeds $0, $0 and $291,578,
respectively) (Note 2).............. -- -- 327,125
Payables for:
Investment securities purchased... 1,090,398 44,104 275,767
Capital shares repurchased........ 140,695 48,514 128,037
Payable to Adviser................ 59,401 10,247 5,058
Accrued expenses and other
liabilities 277,958 62,326 62,121
----------- ----------- ----------
Total Liabilities.............. 1,568,452 165,191 798,108
----------- ----------- ----------
NET ASSETS.......................... $98,976,559 $13,131,403 $9,055,673
----------- ----------- ----------
----------- ----------- ----------
NET ASSETS CONSIST OF:
Shares of beneficial interest.......$ 75,135,661 $12,860,958 8,146,139
Accumulated net investment income... 60,157 16,540 --
Accumulated net realized gain
(loss) on investments............... 1,622,600 (367,370) (494,265)
Net unrealized appreciation
on investments...................... 22,158,141 621,275 1,439,346
Net unrealized depreciation
on securities sold short............ -- -- (35,547)
------------- ------------ -----------
Net assets.....................$ 98,976,559 $13,131,403 $9,055,673
------------- ----------- ----------
------------- ----------- ----------
NET ASSETS VALUE AND REDEMPTION
PRICE PER SHARE
($98,976,559/8,457,754 issued
and outstanding shares, no par
value; $13,131,403/983,217 issued
and outstanding shares, no par value;
and $9,055,673/743,796 issued and
outstanding shares, no par value,
respectively)..................... $11.70 $13.36 $12.17
------ ------ ------
------ ------ ------
Maximum offering price per share
(100/95.25 of $11.70, 100/95.25
of $13.36, and 100/97.10 of
$12.17, respectively)............. $12.28 $14.03 $12.53
------ ------ ------
------ ------ ------
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1999
PENNSYLVANIA SELECT BANKING YEAR 2000
GROWTH FUND AND FINANCE FUND FUND
----------- ---------------- ---------
INVESTMENT INCOME:
Dividends (net of foreign taxes
withheld of $0, $129 and $0
respectively).....................$ 1,361,926 $ 235,994 $ 6,516
Interest.......................... 150,244 39,554 65,781
------------ ------------ ---------
Total investment income........ 1,512,170 275,548 72,297
------------- ------------ ---------
EXPENSES:
Investment Advisory fees.......... 784,190 119,952 92,173
12b-1 fees........................ 365,956 41,984 64,521
Shareholder servicing
and accounting.................... 250,115 59,353 51,180
Professional fees................. 56,935 26,681 11,227
Trustees' fees and expenses....... 10,274 4,917 4,915
Administration fees............... 65,533 28,520 28,140
Reports to shareholders........... 27,332 6,843 1,584
Federal and state
registration fees................. 27,250 15,597 15,749
Custody fees...................... 38,395 8,408 7,595
Other............................. 1,252 63 68
------------- ------------ ---------
Total expenses before
fee waivers.................... 1,627,232 312,318 277,152
Advisory fee waived............... -- (30,430) (9,851)
------------- ------------ ---------
Total operating expenses before
dividends on short positions.... 1,627,232 281,888 267,301
Dividends on short positions...... -- -- 4,120
------------- ------------ ---------
Total expenses................. 1,627,232 281,888 271,421
------------ ------------ ---------
NET INVESTMENT LOSS................ (115,062) (6,340) (199,124)
------------- ------------ ---------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Realized gain (loss) on:
Long transactions.............. 1,882,775 1,155,621 (63,236)
Short transactions............. -- 78,861 85,575
Options contracts
expired or closed............ -- (51,020) (74,901)
Change in unrealized
appreciation/depreciation on:
Investments.................... (15,945,518) (2,201,340) 93,933
Short positions................ -- 29,325 (64,759)
------------- ------------ ---------
Net realized and unrealized
loss on investments............. (14,062,743) (988,553) (23,388)
------------- ------------ ---------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS.........$(14,177,805) $ (994,893) $(222,512)
------------- ------------ ---------
------------- ------------ ---------
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
STATEMENTS OF CHANGES IN NET ASSETS JUNE 30, 1999
FOR THE FISCAL YEAR ENDED PENNSYLVANIA SELECT BANKING YEAR 2000
JUNE 30, 1999 GROWTH FUND AND FINANCE FUND FUND**<F21>
------------ ---------------- ----------
OPERATIONS:
Net investment loss.............. $ (115,062) $ (6,340) $ (199,124)
Net realized gain (loss):
Long transactions............... 1,882,775 1,155,621 (63,236)
Short transactions.............. -- 78,861 85,575
Option contracts expired
or closed..................... -- (51,020) (74,901)
Change in unrealized
appreciation/depreciation on:
Investments..................... (15,945,518) (2,201,340) 93,933
Short positions................. -- 29,325 (64,759)
------------ ----------- ----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS..... (14,177,805) (994,893) (222,512)
------------ ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain from
investment transactions........ (1,454,374) -- --
------------ ----------- ----------
CAPITAL SHARE TRANSACTIONS: (NOTE 3)
Net decrease in net assets resulting
from capital share transactions (20,828,165) (3,299,623) (1,695,251)
------------ ----------- ----------
TOTAL DECREASE IN NET ASSETS....... (36,460,344) (4,294,516) (1,917,763)
NET ASSETS:
Beginning of period............... 135,436,903 17,425,919 10,973,436
------------ ----------- ----------
End of period..................... $98,976,559 $13,131,403 $9,055,673
------------ ----------- ----------
------------ ----------- ----------
FOR THE FISCAL YEAR SELECT BANKING
ENDED JUNE 30, 1998 PENNSYLVANIA AND FINANCE YEAR 2000
GROWTH FUND FUND**<F21> FUND*<F20>
------------ -------------- ----------
OPERATIONS:
Net investment loss .............. $ (520,439) $ (257,011) $ (80,621)
Net realized gain (loss):
Long transactions ............... 6,549,655 (947,726) (487,353)
Short transactions .............. -- (43,734) (48,650)
Option contracts
expired or closed ............. -- 76,123 94,300
Change in unrealized..............
appreciation/depreciation on:
Investments ..................... 17,298,591 2,218,095 1,345,413
Short positions ................. -- (31,446) 29,212
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..... 23,327,807 1,014,301 852,301
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain from
investment transactions ........ (3,611,930) (576,757) --
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS: (NOTE 3)
Net increase in net assets
resulting from capital
share transactions 26,144,053 11,360,600 10,121,135
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS ....... 45,859,930 11,798,144 10,973,436
NET ASSETS:
Beginning of period .............. 89,576,973 5,627,775 --
------------ ------------ ------------
End of period ....................$135,436,903 $ 17,425,919 $ 10,973,436
------------ ------------ ------------
------------ ------------ ------------
*<F20> For the period October 31, 1997 (commencement of operations) through
June 30, 1998.
**<F21> Prior to October 30, 1998 was known as the Select Opportunities Fund.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
PENNSYLVANIA GROWTH FUND**<F23>
<TABLE> PERIODS ENDED
---------------------------------------------------
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $13.03 $10.78 $10.63 $ 7.84 $ 6.19
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss (0.01)1 (0.05)1 (0.03) (0.04) (0.01)
<F24> <F24>
Net realized and unrealized gain
(loss) on investments (1.18) 2.70 0.89 3.09 1.77
------ ------ ------ ------ ------
Total from investment operations (1.19) 2.65 0.86 3.05 1.76
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income -- -- -- -- --
Distributions from net realized gains (0.14) (0.40) (0.71) (0.26) (0.11)
------ ------ ------ ------ ------
Total distributions (0.14) (0.40) (0.71) (0.26) (0.11)
------ ------ ------ ------ ------
Net asset value at end of period $11.70 $13.03 $10.78 $10.63 $ 7.84
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return*<F22> (9.24)% 25.04% 9.56% 39.94% 28.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $98,977 $135,437 $89,577 $55,828 $20,388
Ratio of expenses to average net assets
before reimbursement by Adviser 1.56% 1.49% 1.77% 1.85% 2.00%
Ratio of expenses to average
net assets after reimbursement
by Adviser na2 na2 na2 na2 1.91%
<F25> <F25> <F25> <F25>
Ratio of net investment loss
to average net assets before
reimbursement by Adviser (0.11)% (0.45)% (0.39)% (0.58)% (0.20)%
Ratio of net investment loss
to average net assets after
reimbursement by Adviser na2 na2 na2 na2 (0.10)%
<F25> <F25> <F25> <F25>
Portfolio turnover rate 88% 51% 50% 66% 51%
*<F22> Total return does not reflect 4.75% maximum sales charge.
**<F23> The per share data reflects 2 for 1 stock split which occurred
December 29, 1997.
1<F24> Net investment income per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax differences.
2<F25> Not applicable: no reimbursements were made by the Adviser.
</TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
SELECT BANKING AND FINANCE FUND
PERIODS ENDED
---------------------------------
6/30/99 6/30/98 6/30/97+
<F26>
------- ------- --------
Net asset value at beginning of period $13.42 $11.70 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss (0.01)1 (0.20)1 (0.03)
<F30> <F30>
Net realized and unrealized
gain (loss) on investments (0.05) 2.46 1.73
------ ------ ------
Total from investment operations (0.06) 2.26 1.70
------ ------ ------
LESS DISTRIBUTIONS
- ------------------
Distributions from net realized gains -- (0.54) --
------ ------ $11.70
------ ------ ------
Net asset value at end of period $13.36 $13.42 ------
------ ------ ------
Total return**<F28> (0.45)% 19.56% 17.00%***
<F29>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $13,131 $17,426 $5,628
Ratio of operating expenses to
average net assets before
reimbursement by Adviser
and waivers 2.60% 2.59% 8.10%*
<F27>
Ratio of operating expenses to
average net assets after
reimbursement by Adviser
and waivers2<F31> 2.35% 2.35% 2.35%*
<F27>
Ratio of dividends on short
positions to average net assets -- 0.02% --
Ratio of net investment loss to
average net assets before
reimbursement by Adviser and waivers (0.31)% (1.99)% (6.85)%*
<F27>
Ratio of net investment loss to
average net assets after
reimbursement by Adviser and waivers (0.05)% (1.75)% (1.10)%*
<F27>
Portfolio turnover rate 158% 115% 59%
+<F26> From commencement of operations: February 18, 1997.
*<F27> Annualized.
**<F28> Total return does not reflect 4.75% maximum sales charge.
***<F29> Not annualized.
1 <F30>Net investment income per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax differences.
2 <F31> The operating expense ratio excludes dividends on short positions.
The ratio including dividends on short positions for the periods ended June 30,
1999, 1998 and 1997 were 2.35%, 2.37% and 2.35%, respectively.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR 2000 FUND
PERIODS ENDED
-----------------------
6/30/99 6/30/98+<F32>
-------- --------
Net asset value at beginning of period.................. $12.09 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss1<F36>............................... (0.22) (0.16)
Net realized and unrealized gain on investments......... 0.30 2.25
------ ------
Total from investment operations..................... 0.08 2.09
------ ------
Net asset value at end of period........................ $12.17 $12.09
------ ------
------ ------
Total return**<F34>..................................... 0.66% 20.90%***
<F35>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)................ $9,056 $10,973
Ratio of operating expenses to
average net assets before
reimbursement by Adviser and waivers............... 3.01% 5.29%*
<F33>
Ratio of operating expenses to
..average net assets after reimbursement
by Adviser and waivers2<F37>....................... 2.90% 2.90%*
<F30>
Ratio of dividends on short positions
to average net assets.............................. 0.04% 0.03%*
<F33>
Ratio of net investment loss to
average net assets before
reimbursement by Adviser and waivers............... (2.27)% (4.56)%*
<F33>
Ratio of net investment loss to
average net assets after
reimbursement by Adviser and waivers............... (2.16)% (2.17)%*
<F33>
Portfolio turnover rate................................. 200% 44%
+<F32>From commencement of operations: October 31, 1997.
*<F33>Annualized.
**<F34>Total return does not reflect 2.90% maximum sales charge.
***<F35>Not annualized.
1<F36>Net investment income per share represents net investment income divided
by the average shares outstanding throughout the period.
2<F37>The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the periods ended
June 30, 1999 and 1998 were 2.94% and 2.93%, respectively.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999
NOTE 1 -- DESCRIPTION OF FUNDS
The HomeState Group (the "Trust"), an open-end management company, was
established as a Pennsylvania common law trust on August 26, 1992, and is
registered under the Investment Company Act of 1940, as amended. The Trust
has established three series: the HomeState Pennsylvania Growth Fund, the
HomeState Select Banking and Finance Fund and the HomeState Year 2000 Fund
(each a "Fund" and collectively, the "Funds"). The investment objectives of
the HomeState Funds are set forth below.
The HomeState Pennsylvania Growth Fund commenced operations on October 1,
1992. The investment objective of the Fund is long-term growth of capital
through investments primarily in the common stock of companies with
headquarters or significant operations in the Commonwealth of Pennsylvania.
To pursue its objective, the Fund will invest at least 65% of its total
assets in such companies. Consequently, the Fund may be subject to risk from
economic changes and political developments occurring within Pennsylvania.
The HomeState Select Banking and Finance Fund commenced operations on
February 18, 1997. The investment objective of the Fund is long-term growth
through capital appreciation. Income is a secondary objective. To pursue
its objective, the Fund will invest at least 65% of its total assets in
banking and financial services companies. Prior to October 20, 1998, the
Fund was named the HomeState Select Opportunities Fund and had a different
investment objective.
The Year 2000 Fund commenced operations on October 31, 1997. The investment
objective of the Fund is long-term growth of capital by investing in equity
securities of public companies which have stated, or been reported as
possessing, an intention of developing or supporting marketable solutions to
problems stemming from the susceptibility of various business and other
computer application programs or systems to fail, or to produce inappropriate
results, regarding data, calculations or other processing involving dates
subsequent to December 31, 1999. To pursue its objective, the Fund will
invest at least 65% of its total assets in such companies.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies, in conformity
with generally accepted accounting principles, which were consistently
followed by each Fund in the preparation of their financial statements.
SECURITY VALUATION -- Investment securities traded on a national securities
exchange are valued at the last reported sales price at 4:00 p.m. Eastern
time, unless there are no transactions on the valuation date, in which case
they are valued at the mean between the closing asked price and the closing
bid price. Securities traded over-the-counter are valued at the last
reported sales price unless there is no reported sales price, in which case
the mean between the closing asked price and the closing bid price is used.
Debt securities with maturities of sixty days or less are valued at amortized
cost, which approximates market value. Where market quotations are not
readily available, securities are valued using methods which the Board of
Trustees believe in good faith accurately reflects their fair value.
INCOME RECOGNITION -- Interest income is accrued as earned. Dividend income
is recorded on the ex-dividend date.
SECURITIES TRANSACTIONS -- Security transactions are accounted for on the
date the securities are purchased or sold. Realized gains and losses on
securities sold are determined using the first in, first out (FIFO) cost
method.
DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records distributions to
shareholders on the ex-dividend date. Net gains realized from securities
transactions, if any, will normally be distributed to shareholders in July
and December. The amounts of distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations, which may differ from those amounts determined under
generally accepted accounting principles. These book/tax differences are
either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in capital in the period that
the difference arises.
FEDERAL INCOME TAXES -- The Fund intends to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the distribution of substantially all of its taxable income. Accordingly, no
provision for federal income taxes is considered necessary in the financial
statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CALL AND PUT OPTIONS -- The HomeState Select Banking and Finance Fund and the
Year 2000 Fund may write and/or purchase exchange-traded call options and
purchase exchange-traded put options on securities in the Fund. When the
Funds write a call option, an amount equal to the premium received is
reflected as a liability. The amount of the liability is subsequently
"marked to market" to reflect the current market value of the option written.
If an option which the Funds have written either expires on its stipulated
expiration date, or if the Funds enter into a closing purchase transaction,
the Funds realize a gain (or loss if the cost of the closing transaction
exceeds the premium received when the option is sold), and the liability
related to such option is extinguished. If a call option which the Funds
have written is exercised, the Funds realize a gain or loss from the sale of
the underlying security, and the proceeds of which are increased by the
premium originally received. The Funds did not write any call options for
the periods ended June 30, 1999.
The premium paid by the Funds for the purchase of a put option is recorded as
an investment and subsequently marked to market to reflect the current market
value of the option purchased. If an option which the Funds have purchased
expires on the stipulated expiration date, the Funds realize a loss in the
amount of the cost of the option. If the Funds exercise a put option, they
realize a gain or loss from the sale of the underlying security, the proceeds
of which are decreased by the premium originally paid. The HomeState Select
Banking and Finance Fund and the Year 2000 Fund limit the aggregate value of
puts and call options to 5% and 25% of each Fund's net assets, respectively.
SHORT SALES -- The HomeState Select Banking and Finance Fund and the Year
2000 Fund may sell securities short. Short sales are transactions in which
the Funds sell a security they do not own, in anticipation of a decline in
the market value of that security. To complete such a transaction, the Funds
must borrow the security to deliver to the buyer upon the short sales; the
Funds then are obligated to replace the security borrowed by purchasing it in
the open market at some later date. The Funds will incur a loss if the
market price of the security increases between the date of the short sale and
the date on which the Funds replace the borrowed security. The Funds will
realize a gain if the security declines in value between those dates. All
short sales must be fully collateralized. The Funds maintain the collateral
in a segregated account consisting of cash, U.S. Government securities or
other liquid assets in an amount at least equal to the market value of their
respective short positions. The Funds are liable for any dividends payable
on securities while those securities are in a short position. The HomeState
Select Banking and Finance Fund and the Year 2000 Fund limit the value of
short positions to 5% and 25% of each Fund's net assets, respectively. At
June 30, 1999, the Year 2000 Fund had 3.6% of its net assets in short
positions.
NOTE 3 -- CAPITAL STOCK
At June 30, 1999, each Fund had an authorized unlimited number of shares of
beneficial interest with no par value.
The following table summarizes the capital share transactions of each Fund:
PENNSYLVANIA GROWTH FUND*<F38>
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, 1999 ENDED JUNE 30, 1998
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sales 1,098,267 $ 12,032,229 2,479,310 $31,272,950
Reinvested distributions 106,851 1,384,784 289,625 3,434,230
Redemptions (3,141,056) (34,245,178) (687,419) (8,563,127)
---------- ----------- --------- ---------
Net increase (decrease) (1,935,938)$(20,828,165) 2,081,516 $26,144,053
---------- ------------ --------- -----------
---------- ------------ --------- -----------
SHARES OUTSTANDING:
Beginning of period 10,393,692 8,312,176
---------- ----------
End of period 8,457,754 10,393,692
---------- ----------
---------- ----------
*<F38> Capital share transactions restated to reflect the 2 for 1 stock
split which occurred on December 29, 1997.
SELECT BANKING AND FINANCE FUND
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, 1999 ENDED JUNE 30, 1998
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ -------
Sales 231,262 $2,587,041 1,049,028 $14,439,121
Reinvested distributions -- -- 40,961 526,023
Redemptions (546,632) (5,886,664) (272,369) (3,604,544)
-------- ---------- --------- -----------
Net increase (decrease) (315,370) $(3,299,623) 817,620 $11,360,600
--------- ----------- --------- -----------
--------- ----------- --------- -----------
SHARES OUTSTANDING:
Beginning of period 1,298,587 480,967
--------- ---------
End of period 983,217 1,298,587
--------- ---------
--------- ---------
YEAR 2000 FUND FOR THE PERIOD
OCTOBER 31, 1997
(COMMENCEMENT OF
FOR THE YEAR OPERATIONS)
ENDED JUNE 30, 1999 THROUGH JUNE 30, 1998
------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sales 372,656 $ 3,852,170 986,236 $11,013,893
Redemptions (536,825) (5,547,421) (78,271) (892,758)
--------- ----------- -------- -----------
Net increase (decrease) (164,169) $(1,695,251) 907,965 $10,121,135
--------- ----------- -------- -----------
--------- ----------- -------- -----------
SHARES OUTSTANDING:
Beginning of period 907,965 --
-------- --------
End of period 743,796 907,965
-------- --------
-------- --------
NOTE 4 -- INVESTMENT TRANSACTIONS
During the periods ended June 30, 1999, purchases and sales of investment
securities (excluding securities sold short and short-term investments) were
as follows:
PENNSYLVANIA SELECT BANKING YEAR 2000
GROWTH FUND AND FINANCE FUND FUND
------------ ---------------- ---------
Purchases $ 89,490,360 $18,415,368 $16,177,213
Sales $113,223,041 $21,347,320 $19,468,057
The following balances for the Funds are as of June 30, 1999:
COST FOR NET TAX TAX BASIS TAX BASIS
FEDERAL UNREALIZED GROSS GROSS
INCOME APPRECIATION UNREALIZED UNREALIZED
TAX PURPOSES (DEPRECIATION) APPRECIATION DEPRECIATION
------------ -------------- ------------ ------------
Pennsylvania Growth
Fund $73,597,780 $22,199,593 $26,547,862 $(4,348,269)
Select Banking
and Finance Fund 12,218,927 637,815 1,362,101 (724,286)
Year 2000 Fund 8,093,347 1,404,318 1,726,133 (321,815)
At June 30, 1999, the HomeState Select Banking and Finance and Year 2000
Funds had accumulated net realized capital loss carryovers of $331,878 and
$457,119, respectively, expiring in 2007. To the extent these Funds realize
future net capital gains, taxable distributions to their shareholders will be
offset by any unused capital loss carryover for the respective Funds. In
addition, the HomeState Select Banking and Finance and Year 2000 Funds
realized, on a tax basis, post-October losses through June 30, 1999 of
$30,896 and $2,118, respectively, which are not recognized for tax purposes
until the first day of the following fiscal year.
NOTE 5 -- EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser (the "Adviser") to
the Funds for which it receives investment advisory fees from each Fund. The
fee for the HomeState Pennsylvania Growth Fund is based on average daily net
assets at the annual rate of 0.75% on assets up to and including $250
million, 0.65% for assets in excess of $250 million up to and including $500
million, 0.55% for assets in excess of $500 million up to and including $750
million, and 0.45% for assets in excess of $750 million. The fee for the
HomeState Select Banking and Finance Fund is based on average daily net
assets at the annual rate of 1.00% on assets up to and including $100 million
and 0.90% for assets in excess of $100 million. The fee for the Year 2000
Fund is based on average daily net assets at the annual rate of 1.00% on
assets up to and including $100 million, 0.90% for assets in excess of $100
million. Under the terms of the investment advisory agreement which expires
on December 31, 1999, Emerald Advisers, Inc. may also voluntarily reimburse
the Funds for certain expenses. Through June 30, 1999, the Adviser has
voluntarily agreed to waive its advisory fee and/or reimburse other expenses
for the HomeState Select Banking and Finance Fund and the Year 2000 Fund to
the extent that the Fund's total operating expenses exceeds 2.35% and 2.90%
of the average daily net assets of the Funds, respectively.
The following table summarizes the advisory fees and expense
waivers/reimbursements for the period ended June 30, 1999.
GROSS ADVISORY FEE
ADVISORY WAIVED
-------- ------------
Pennsylvania Growth Fund ..................... $784,190 $ --
Select Banking and Finance Fund ............. 119,952 30,430
Year 2000 Fund .............................. 92,173 9,851
NOTE 6 -- OTHER AGREEMENTS
Rafferty Capital Markets, Inc. (the Distributor), is the sole distributor of
the Trust shares pursuant to a Distribution Agreement with each Fund. Each
Fund has adopted a distribution services plan (the "Plan") under Rule 12b-1
of the Investment Company Act of 1940. The Plan allows each Fund to
reimburse the Distributor for a portion of the costs incurred in distributing
each Fund's shares, including amounts paid to brokers or dealers, at an
annual rate not to exceed 0.35% of the HomeState Pennsylvania Growth and
Select Banking and Finance Funds' average daily net assets and not to exceed
0.70% of the Year 2000 Fund. During the period ended June 30, 1999, the
HomeState Pennsylvania Growth Fund, Select Banking and Finance Fund and Year
2000 Fund incurred expenses of $365,956, $41,984 and $64,521, respectively,
pursuant to the Plan.
Firstar Mutual Fund Services, LLC serves as transfer agent, administrator and
accounting services agent for the Funds. Firstar Bank Milwaukee, N.A. serves
as custodian for the Funds.
The Funds' Declaration of Trust provides that each Trustee affiliated with
the Funds' Adviser shall serve without compensation and each Trustee who is
not so affiliated shall receive fees from each Fund and expense
reimbursements for each Trustees meeting attended. A member of the Fund's
Board of Trustees who is not affiliated with the Adviser is employed as a
practicing attorney and is a partner in the law firm of Duane, Morris &
Heckscher, the Fund's legal counsel. Legal fees aggregating $27,839, $10,840
and $5,038 were incurred by the HomeState Pennsylvania Growth Fund, the
HomeState Select Banking and Finance Fund and the Year 2000 Fund,
respectively, to Duane, Morris & Heckscher during the year ended June 30,
1999.
NOTE 7 -- SUBSEQUENT EVENTS
A special meeting of shareholders of the Year 2000 Fund will be held on
September 29, 1999. The purpose of the meeting will be to approve changes to
the investment objective and name. The Board has proposed broadening the
investment objective to invest primarily in companies principally engaged in
the technology sector and to modify the Fund's fundamental restrictions as
necessary to pursue this objective. The Board has recommended changing one
of the Fund's fundamental restrictions from investing a minimum of 25% of the
Fund's total assets in the "information technology group" to the broader
"technology sector" as required by the proposed investment objective. The
proposed name change is "The HomeState Emerging Technologies Fund."
THE HOMESTATE GROUP
- -------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The HomeState Group
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the HomeState Pennsylvania Growth
Fund, the HomeState Select Banking and Finance Fund (formerly known as the
HomeState Select Opportunities Fund) and the Year 2000 Fund (constituting The
HomeState Group, hereafter referred to as the "Funds") at June 30, 1999, the
results of each of their operations, the changes in each of their net assets and
the financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
/S/PRICEWATERHOUSECOOPERS LLC
Milwaukee, Wisconsin
July 30, 1999
THE HOMESTATE GROUP
- -------------------
TAX INFORMATION
REQUIRED INCOME TAX DISCLOSURES
In early 1999, shareholders received information regarding all distributions
paid to them by the Funds during the fiscal year ended June 30, 1999. The
Funds hereby designate the following amounts as long-term capital gains
distributions.
PENNSYLVANIA SELECT BANKING YEAR 2000
GROWTH FUND AND FINANCE FUND FUND
------------ ---------------- ---------
Capital Gains Taxed at 20% $1,454,574 $ -- $ --
THE HOME STATE GROUP
--------------------
INVESTMENT ADVISER
------------------
EMERALD ADVISERS, INC.
LANCASTER, PA
DISTRIBUTOR
-----------
RAFFERTY CAPITAL MARKETS, INC.
HARRISON, NY
ADMINISTRATOR AND
TRANSFER AGENT
--------------
FIRSTAR MUTUAL FUND SERVICES, LLC
MILWAUKEE, WI
CUSTODIAN
---------
FIRSTAR BANK MILWAUKEE, N.A.
MILWAUKEE, WI
INDEPENDENT ACCOUNTANTS
-----------------------
PRICEWATERHOUSECOOPERS LLP
MILWAUKEE, WI
LEGAL COUNSEL
-------------
DUANE, MORRIS & HECKSCHER
HARRISBURG, PA
BOARD OF TRUSTEES
-----------------
BRUCE E. BOWEN
KENNETH G. MERTZ II, CFA
SCOTT C. PENWELL, ESQ.
SCOTT L. REHR
H.J. ZOFFER, PHD
FUND MANAGEMENT
---------------
EMERALD ADVISERS, INC.
1857 WILLIAM PENN WAY
P.O. BOX 10666
LANCASTER, PA 17605
SHAREHOLDER SERVICES
--------------------
FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53210-0701
TELEPHONE NUMBERS
-----------------
THE FUND (800) 232-0224
MARKETING / BROKER SERVICES (800) 232-OK-PA
SHAREHOLDER SERVICES (800) 232-0224
24 HOUR PRICING INFORMATION
---------------------------
1-800-232-0224
This report is for the general information of Fund shareholders. For more
detailed information about the Fund, please consult a
copy of the Fund's current prospectus. This report is not authorized for
distribution to prospective investors in the Fund unless
preceded or accompanied by a copy of the current prospectus.
08/99
