Filed with the Securities and Exchange Commission on December 30, 1999
File No. 33-48940
-----------------
File No. 811-6722
-----------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __________
Post-Effective Amendment No. 12 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12
(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
- ------------------------------------------------ ----------
(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)
___ 60 days after filing pursuant to paragraph (a)(1)
_X_ on February 29, 2000 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 Select Technology 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
Strategy, Primary Risk
Considerations and
Risk and 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 Charge; GENERAL
INFORMATION --
Distributor
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 Select Technology 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 Strategy,
Primary Risk Considerations
and Risk and 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 Charge; GENERAL
INFORMATION --
Distributor
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 Select Technology Fund
Items Required by Form N-1A
PART A -- INFORMATION REQUIRED
IN PROSPECTUS
The HomeState Select Technology 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 Technology
Fund -- Investment Objective,
Investment Strategy,
Primary Risk Considerations and
Risk and Return Bar Chart
and Table
3. Risk/Return Summary: Fee Table FUND FACTS --
The HomeState Select Technology
Fund -- Transaction
Expenses
4. Investment Objectives, Principal FUND FACTS --
Investment Strategies, and The HomeState Select Technology
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 Charge; GENERAL
INFORMATION --
Distributor
9. Financial Highlights Information FUND FACTS --
The HomeState Select Technology
Fund -- Financial Highlights
</TABLE>
<PAGE>
[LOGO]
HOMESTATE
MUTUAL FUND
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE HOMESTATE SELECT BANKING AND FINANCE FUND
THE HOMESTATE SELECT TECHNOLOGY FUND
PROSPECTUS
DATED FEBRUARY 29, 2000
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND'S SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
WHERE TO FIND INFORMATION CONCERNING PAGE NUMBER
FUND FACTS
The HomeState Pennsylvania Growth Fund - 3 -
The HomeState Select Banking and Finance Fund - 7 -
The HomeState Select Technology Fund -12-
ADDITIONAL INVESTMENT INFORMATION -17-
SHAREHOLDER SERVICE INFORMATION
How to Buy Fund Shares -18-
Retirement Plans -20-
How to Redeem Fund Shares -20-
How to Exchange Fund Shares -21-
Dividends and Distributions -22-
Taxes -22-
GENERAL INFORMATION -23-
APPENDIX
Additional Information About the Pennsylvania Economy -25-
Additional Information About the Banking and Financial
Services Industries -26-
Additional Information About the Technology Sector -28-
<PAGE>
THE HOMESTATE GROUP
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE HOMESTATE SELECT BANKING AND FINANCE FUND
THE HOMESTATE SELECT TECHNOLOGY FUND
PROSPECTUS DATED FEBRUARY 29, 2000
THE HOMESTATE GROUP
<PAGE>
FUND MANAGEMENT
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 Mutual Fund Services, LLC
Mailing
Address: P.O. Box 701
Milwaukee, WI 53201-0701
Phone: (800) 232-0224 -- Toll-Free
SHAREHOLDER SERVICES
Contact: Firstar Mutual Fund Services, LLC
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, an open-end management
company offering you shares of three equity mutual funds for investment.
The three mutual funds (the Funds) currently offered and covered in this
Prospectus are:
The HomeState Pennsylvania Growth Fund
The HomeState Select Banking and Finance Fund
The HomeState Select Technology Fund
This Prospectus provides you with the information you should know before
investing. Please read it carefully and keep it for future reference.
<PAGE>
SECTION 1: FUND FACTS
THE HOMESTATE PENNSYLVANIA
GROWTH FUND
SYMBOL: HSPGX
INVESTMENT OBJECTIVE
The objective of HomeState Pennsylvania Growth Fund (the PA Growth Fund) is
long-term growth through capital appreciation.
INVESTMENT STRATEGY
REGIONAL INVESTING
The PA Growth Fund seeks to achieve this goal by investing a minimum 65% of its
total assets 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, or at least 1,000
employees are based at, operating units located in Pennsylvania). The Funds'
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 page 25 for "Summary of Information About the Pennsylvania
Economy.")
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.")
SMALLER COMPANIES
The 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 Funds' adviser as having a market capitalization of less than $1.4 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 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. Loss of money is a risk of investing in the Fund. An investment in
the 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.
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 page 26 for "Summary of
Information About the Pennsylvania Economy.")
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:
- may have a shorter history of operations;
- may not have as great an ability to raise additional capital;
- may have a less diversified product line making them more susceptible to
market pressure; - may have a smaller public market for their shares; and
- may not be nationally recognized.
<PAGE>
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.
<PAGE>
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:
- - showing changes in the Fund's performance from year to year;
- - showing how the 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.
As you know, how the PA Growth Fund has performed in the past is not necessarily
an indication of how the Fund will perform in the future.
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
September 30, 1998: -26.46%.
The PA Growth Fund's 1999 Year-to-date return as of September 30, 1999
was +18.55%.
CALENDAR YEAR END TOTAL RETURN
----------------- ------------
1993 19.09%
1994 1.90%
1995 44.52%
1996 21.45%
1997 26.33%
1998 -12.44%
The above returns do not reflect the maximum 4.75% sales charge (load). If the
sales charge was reflected, returns would be less than those shown above.
<PAGE>
The following chart compares the Fund's average annual returns (including the
effects of its 4.75% maximum sales charge) to that of the Russell 2000 index.
The Russell 2000 is an unmanaged index of mostly smaller-sized companies. Note
that the Russell index measures gross returns and does not reflect deduction of
expenses.
Average Annual Total Return as of December 31, 1998
Since Inception
1 Year 5 Years 10/1/92
------ ------- -------
PA Growth Fund - 16.62% +13.51% +15.32%
Russell 2000 Index - 2.55% +11.86% +14.98%
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 EXPENSES3 (expenses that are deducted from Fund assets)
Management Fee 0.75%
Distribution (12b-1) Fees4 0.35%
Other Expenses 0.46%
-----
Total Annual Fund Operating Expenses 1.56%
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 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
------ ------- ------- --------
$626 $944 $1,285 $2,243
(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 Fund's management fees, distribution
service (12b-1) fees and other expenses for the period ended June 30,
1999.
(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.
<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 PricewaterhouseCoopers 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**
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, 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)
Net realized and unrealized gain 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* (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 na(2) na(2) na(2) na(2) 1.91%
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 na(2) na(2) na(2) na(2) (0.10)%
Portfolio turnover rate 88% 51% 50% 66% 51%
<FN>
* Total return does not reflect 4.75% maximum sales charge
** Data reflects 2 for 1 stock split which occurred on December 29, 1997
(1) Net investment income per share is calculated using ending balances
prior to consideration of adjustments for
permanent book and tax differences.
(2) Not applicable: no reimbursements were made by the Adviser.
</FN>
</TABLE>
<PAGE>
THE HOMESTATE SELECT BANKING AND FINANCE FUND
SYMBOL: HSSAX
INVESTMENT OBJECTIVE
The objective of the HomeState Select Banking and Finance Fund (the Banking and
Finance Fund) is long-term growth through capital appreciation. Income is a
secondary objective.
INVESTMENT STRATEGY
- - CONCENTRATION IN THE BANKING AND FINANCIAL SERVICES INDUSTRIES
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.
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 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
- (iii) an increase in interest in investments and savings as the American
"baby boomers" approach retirement.
(See page 27 for "Summary of Information About the Banking and Financial
Services Industries.")
- - EQUITY SECURITIES
Under normal circumstances the Banking and Finance Fund invests in common
stocks, preferred stocks, and securities convertible into common and preferred
stocks. The 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 Funds' adviser as having a market
capitalization of less than $1.4 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 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 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. Loss of money is a risk of investing in the Fund. An
investment in the Banking and Finance 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.
- - 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:
- may have a shorter history of operations;
- may not have as great an ability to raise additional capital;
- may have a less diversified product line making them more susceptible to
market pressure; - may have a smaller public market for their shares;
and - may not be nationally recognized.
<PAGE>
- - 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
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
The following chart and table provide some indication of the
risks of investing in the Banking & Finance Fund by:
- showing changes in the Fund's performance from year to year;
- showing how the Fund's average annual returns for 1 year and since its
commencement of operations on February 18, 1997 compare with those of a
broad measure of market performance.
Prior to October 20, 1998, the Fund was named the HomeState Select
Opportunities Fund and pursued a different objective.
As you know, how the Banking & Finance Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
CALENDAR YEAR END TOTAL RETURN
----------------- ------------
1998 -20.54%
<PAGE>
The Banking & Finance Fund's best-performing calendar quarter was for the
3 months ended September 30, 1997: +27.49%. The Banking & Finance Fund's
worst-performing quarter was for the 3 months ended September 30, 1998:
-27.35%.
The Banking & Finance Fund's 1999 Year-to-date return as of September 30,
1999 was +14.99%.
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.
The following chart compares the Fund's average annual returns (including
the effects of its 4.75% maximum sales charge) to that of the Russell
2000 index. The Russell 2000 is an unmanaged index of mostly
smaller-sized companies. Note that the Russell index measures gross
returns and does not reflect deduction of expenses.
Average Annual Total Return as of December 31, 1998
Since Inception
1 Year 2/18/97
------ -------
Banking & Finance Fund - 24.31% + 0.72%
Russell 2000 Index - 2.55% + 8.73%
TRANSACTION EXPENSES
This table describes the fees and expenses that you may pay if
you buy and hold shares of the 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) Fees4 0.35%
Other Expenses 1.25%
-----
Total Annual Fund Operating Expenses 2.60%
-----
Expenses Reimbursed by the Fund's Adviser (0.25%)(5)
-----
Net Operating Expenses 2.35%
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of
investing in the Banking & Finance Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the 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 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(6) 3 YEARS(7) 5 YEARS(7) 10 YEARS(7)
$702 $1,221 $1,766 $3,246
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 Fund's management fees, distribution
service (12b-1) fees and other expenses on an annualized basis for the
period ended June 30, 1999.
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 2.35% at least through October 30, 2000. The Adviser is
reimbursing and/or waiving fees to the Fund so that you would pay no more
than 2.35% on an annualized basis at least through October 30, 2000.
6 The Expense Example shown for One Year includes the effects of the
Adviser's reimbursement of Fund operating expenses in excess of 2.35% on an
annualized basis.
7 The Three, Five and Ten Year Expense Examples do not show the effects of
any waiver or reimbursement of operating expenses after the first year
because the Adviser is obligated to waive and/or reimburse expenses only
through the period ended October 30, 2000.
<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. Prior to October 20, 1998, the Fund was named the
HomeState Select Opportunities Fund and pursued a different objective. 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 PricewaterhouseCoopers 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
-------------
6/30/99 6/30/98 6/30/97+
------- ------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.42 $11.70 $10.00
Income from Investment Operations
Net investment income (0.01)(1) (0.20 )(1) (0.03)
Net realized and unrealized gain 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) --
-----------------------------
Total distributions -- (0.54) --
-----------------------------
Net asset value at end of period $13.36 $13.42 $11.70
===========================
Total Return** (0.45)% 19.56% 17.00%***
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $13,131 $17,426 $5,628
Ratio of expenses to average net assets
before reimbursement by Adviser 2.60% 2.59% 8.10%*
Ratio of expenses to average net assets
after reimbursement by Adviser2 2.35% 2.35% 2.35%*
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 (0.31%) (1.99)% (6.85)%*
Ratio of net investment loss to average net
assets after reimbursement by Adviser (0.05%) (1.75)% (1.10)%*
Portfolio turnover rate 158% 115% 59%
<FN>
+ From commencement of operations: February 18, 1997
* Annualized
** Total return does not reflect 4.75% maximum sales charge
*** Not Annualized
1 Net investment income per share is calculated using ending
balances prior to consideration of adjustments for permanent
book and tax differences.
2 The operating expense ratio excludes dividends on short
positions. The ratio including dividends on short positions for
the periods ended June 30, 1999, June 30, 1998 and June 30,
1997 were 2.35%, 2.37% and 2.35%, respectively.
</FN>
</TABLE>
<PAGE>
THE HOMESTATE SELECT TECHNOLOGY FUND
SYMBOL: HSYTX
INVESTMENT OBJECTIVE
The investment objective of the HomeState Select Technology Fund (the Technology
Fund) is to seek capital appreciation.
INVESTMENT STRATEGY
- - CONCENTRATION IN THE TECHNOLOGY SECTOR
Under normal conditions, the Technology Fund will invest at a minimum 65% of its
total assets in a non-diversified portfolio of equity securities of public
companies in the technology sector. For investment purposes, the technology
sector is defined as a broad range of industries comprised of companies that
produce and/or develop products, processes or services that will provide or will
benefit significantly from technological advances and improvements (i.e.
research and development).
The Technology Fund's adviser believes that this sector of the economy will
continue to be an area of potential growth over the next several years because
of:
- - (i) Increasing spending by U.S. corporations to achieve technological
advances and efficiencies for increased earnings;
- - (ii) the exporting of U.S. technology overseas, and the continuing
worldwide consolidation of technology companies; and
- - (iii) the continuing growth and acceptance of the Internet as a means of
commerce, communication and information on a global basis.
(See page 27 for "Additional Information About the Technology Sector.")
- - EQUITY SECURITIES
The Technology Fund will invest principally in common stocks, but may also
invest in preferred stocks and convertible securities of technology, as well as
other, companies. (See page 17 for "Hands-On" Research Techniques.") The Fund
can invest a larger percentage of its assets in a particular company than the
typical mutual fund.
- - OPTIONS, FUTURES, AND SHORT-SELLING STRATEGIES
The Technology 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 Fund's portfolio but may be used to increase returns; however such
practices sometimes may reduce returns or increase volatility.
- - SMALLER COMPANIES
The Technology 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 Funds' adviser as having a market capitalization of less than
$1.4 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 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 Technology 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. Loss of money is a risk of investing in the Fund. An investment in
the Technology 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.
<PAGE>
- - INDUSTRY CONCENTRATION RISK
Under normal market conditions, the Technology Fund will concentrate its
investments in technology companies. By doing so, the 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 to companies'
technology-related products or services. 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:
- - may have a shorter history of operations;
- - may not have as great an ability to raise additional capital;
- - may have a less diversified product line making them more susceptible to
market pressure; - may have a smaller public market for their shares; and -
may not be nationally recognized.
- - NON-DIVERSIFICATION
As a "non-diversified" mutual fund, the Technology 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 Technology Fund, the net asset value per share of the 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 Technology 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 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 Technology Fund is an aggressive fund and may not be suitable for all
investors. This Fund is most suitable as part of a diversified portfolio for
long-term investors who are looking for the potential growth of their capital.
<PAGE>
RISK AND RETURN BAR CHART AND TABLE
The following chart and table provide some indication of the
risks of investing in the Technology Fund by:
- - showing changes in the Fund's performance from year to year;
- - showing how the Fund's average annual returns for 1 year and since its
commencement of operations on October 31, 1997 compare with those of a
broad measure of market performance.
Prior to February 29, 2000, the Fund was named the HomeState Year 2000 Fund
and its investment objective focused on a specific industry within the
technology sector.
As you know, how the Technology Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.
CALENDAR YEAR END TOTAL RETURN
----------------- ------------
1998 2.07%
The Technology Fund's best-performing calendar quarter was for the 3 months
ended September 30, 1999: +25.55%.
The Technology Fund's worst-performing quarter was for the 3 months ended
September 30, 1998: -26.22%.
The Technology Fund's 1999 Year-to-date return as of September 30, 1999 was
+40.57%.
The above returns do not reflect the maximum 4.75% sales charge
(load). If the sales charge was reflected, returns would be less
than those shown above. Effective February 29, 2000, the maximum
sales charge was increased to 4.75%.
<PAGE>
The following chart compares the Fund's average annual returns
(including the effects of its 4.75% maximum sales charge) to
that of the Russell 2000 index. The Russell 2000 is an unmanaged
index of mostly smaller-sized companies. Note that the Russell
index measures gross returns and does not reflect deduction of
expenses.
Average Annual Total Return as of December 31, 1998
Since Inception
1 Year 10/31/97
------ --------
Year 2000 Fund - 0.91% + 4.71%
Russell 2000 Index - 2.55% - 1.27%
TRANSACTION EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Technology 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 EXPENSES3 (expenses that are deducted from Fund assets)
Management Fee 1.00%
Distribution (12b-1) Fees4 0.70%
Other Expenses 1.31%
-----
Total Annual Fund Operating Expenses 3.01%
-----
Expenses Reimbursed by the Fund's Adviser (0.11%)(5)
-----
Net Operating Expenses 2.90%
EXAMPLE
This Example is intended to help you compare the cost of
investing in the Technology Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the 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 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(6) 3 YEARS(7) 5 YEARS(7) 10 YEARS(7)
$754 $1,350 $1,971 $3,633
(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 Fund's management fees,
distribution service (12b-1) fees and other expenses on an annualized basis for
the period ended June 30, 1999.
(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 October 30, 2000. The Adviser is
reimbursing and/or waiving fees to the Fund so that you would pay no more than
2.90% on an annualized basis at least through October 30, 2000.
(6) The Expense Example shown for One Year includes the effects of the
Adviser's reimbursement of Fund operating expenses to no more than 2.90% on an
annualized basis.
(7) The Three, Five and Ten Year Expense Examples do not show the
effects of any waiver or reimbursement because the Adviser is obligated to waive
and/or reimburse expenses only through the period ended October 30, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Technology
Fund's financial performance since it commenced operations on October 31, 1997.
(Prior to February 29, 2000, the Fund was named the HomeState Year 2000 Fund and
its investment objective focused on a specific industry within the technology
sector.) Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would have
earned on an investment in the Fund (assuming the reinvestment of all dividends
and distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Technology Fund's financial statements, are
included in the SAI which is available upon request.
PERIOD ENDED
-------------------
6/30/99 6/30/98+
------- --------
Net Asset Value, Beginning of Period $12.09 $10.00
Income From Investment Operations
Net investment loss(1) (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** 0.66% 20.90%***
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 9,056 $ 10,973
Ratio of expenses to average net assets
before reimbursement by Adviser 3.01% 5.29%*
Ratio of expenses to average net assets
after reimbursement by Adviser(2) 2.90% 2.90%*
Ratio of dividends on short positions to
average net assets 0.04% 0.03%*
Ratio of net investment loss to average net
assets before reimbursement by Adviser (2.27%) (4.56)%*
Ratio of net investment loss to average net
assets after reimbursement by Adviser (2.16%) (2.17)%*
Portfolio turnover rate 200% 44%
+ From commencement of operations: October 31, 1997
* Annualized
** Total return does not reflect 2.90% maximum sales charge
*** Not Annualized
(1) Net investment income per share represents net investment income
divided by the average shares outstanding throughout the period.
(2) The operating expense ratio excludes dividends on short
positions. The ratio including dividends on short positions for
the periods ended June 30, 1999 and June 30, 1998 were 2.94% and
2.93%, respectively.
<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 Technology 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.
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") (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. (See SAI for additional information.)
<PAGE>
SHORT-TERM OBLIGATIONS
When, in the opinion of the Funds' investment 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.
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. Investors may be charged a fee if they effect transactions
through a broker or dealer.
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.)
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.
<PAGE>
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, the Banking and Finance Fund and the Technology Fund. The Offering Price
is the net asset value per share plus the front-end sales load, and is
calculated as follows:
SALES CHARGE AS A PERCENTAGE OF: DEALER'S
-------------------------------- --------
CONCESSION (AS A % OF
DOLLAR AMOUNT INVESTED OFFERING PRICE N.A.V. OFFERING PRICE)
- ---------------------- -------------- ------ ---------------
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
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 purchases 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.)
DISTRIBUTION PLANS
Rafferty Capital Markets, Inc. (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 18 for "Sales Charges.")
<PAGE>
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 Technology 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. Because these fees are
paid out of the Funds' assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
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
Technology 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.
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 MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53201-0701
Please note that a different procedure is used for opening Individual Retirement
Accounts (IRA's). Please call Firstar Mutual Fund Services, LLC (Firstar) at
(800) 232-0224 for details. Firstar will charge $25 against a shareholder's
account for any check returned for insufficient funds.
BUYING SHARES BY OVERNIGHT OR EXPRESS MAIL
Mail to:
Firstar Mutual Fund Services, LLC
3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202
(800) 232-0224
BUYING SHARES BY WIRE
1. Call Firstar at (800) 232-0224 to advise of the investment and dollar amount.
2. Immediately after your investment is made send a completed Purchase
Application Form to Firstar.
3. 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 Mutual Fund Services LLC 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 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.
<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:
- -- Individual Retirement Accounts (IRA's), including the "Traditional" IRA, Roth
IRA, and Education IRA
- -- employer-sponsored defined contribution plans (including 401(k) plans)
- -- 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 MUTUAL FUND SERVICES, LLC
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, 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.
"Good Order" means that your request includes:
- -- the name of the Fund
- -- the number of shares or dollar amount to be redeemed
- -- signature of all registered shareholders as registered
- -- account registration number
In addition:
- -- If the account is registered to a corporation or association, the
redemption request and a corporate resolution must be signed by whomever
is required to sign for the account, with a signature guarantee.
- -- 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.)
REDEMPTIONS IN KIND
If your redemption request exceeds the lesser of $250,000 or 1% of the Fund's
total net assets, the Fund reserves the right to make a "redemption in-kind." A
redemption in-kind is a payment in portfolio securities rather than cash. The
portfolio securities would be valued using the same method as the Fund uses to
calculate its net asset value. You may experience additional expenses such as
brokerage commissions in order to sell the securities received from the Fund.
In-kind payments do not have to constitute a cross-section of the Fund's
portfolio. The Fund will not recognize gain or loss for federal income tax
purposes on the securities used to complete an in-kind redemption, but you will
recognize gain or loss equal to the difference between the fair market value of
the securities received and the shareholder's basis in the Fund shares redeemed.
<PAGE>
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
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.
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 $1,000.
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, the Banking and Finance
Fund or the Technology Fund at the current net asset value by calling the Funds'
transfer agent 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.
- -- FIRSTAR FUNDS
In addition, you may exchange shares of the Funds 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.
<PAGE>
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 that fall on the weekend or a
recognized holiday will be the next business day:
- -- Record Date and Declaration Date for payments to shareholders will normally
be the 15th of the month
- -- Ex-Dividend dates will normally be the 16th of the month
- -- Reinvest Dates and Payable 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 Mutual Fund Services, LLC,
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.
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 they are 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.
<PAGE>
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.
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. Steven E. Russell, Esq.
serves as co-manager of the Banking and Finance Fund, a post he has held since
October, 1998. 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
Technology Fund since their inception dates. Before managing the HomeState Group
Funds, Mr. Mertz was the Chief Investment Officer to the $12 billion
Pennsylvania State Employes' Retirement System. Mr. Russell joined the Fund's
Adviser in March, 1998. He previously served as a portfolio manager for the $40
billion Pennsylvania Public School Employes' 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 $500 million at June 30, 1999. The
four principal officers of the Adviser combine over 50 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 Technology Fund agreement is dated September 12,
1997.
<PAGE>
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:
- -- 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 $784,190, $869,718 and $528,528 in advisory fees for the fiscal
years ended June 30 1999, 1998 and 1997, 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 Fund paid the Adviser
$119,952 and $146,960 in advisory fees for the fiscal years ended June 30,
1999 and 1998, respectively. The Adviser waived $30,430 and $36,124 of these
amounts in 1999 and 1998, respectively. 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 Fund an additional
$47,862 in fees and expenses.
_ TECHNOLOGY FUND: for assets up to and including $100 million: 1.0%; for
assets in excess of $100 million: 0.90%. The Fund paid the Adviser $92,173 in
advisory fees for the Fiscal Year ended June 30, 1999. The Adviser waived
$9,851 of this amount. The Technology Fund paid the Adviser $37,072 in
advisory fees for the fiscal year ended June 30, 1998. The Adviser waived
this entire amount and also reimbursed the Fund an additional $51,405 in fees
and expenses.
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 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 October 30, 2000 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 Technology Fund for the
period at least through and including October 30, 2000 so that total Fund
operating expenses are capped at 2.90% or less.
DISTRIBUTOR
Rafferty Capital Markets, Inc. (the Distributor), 1311 Mamaroneck Avenue, White
Plains, NY 10605, 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.
REPORTING
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.
<PAGE>
CONTACTS
LEGAL COUNSEL:
Duane, Morris & Heckscher LLP,
305 North Front Street, Harrisburg, PA 17108
INDEPENDENT ACCOUNTANTS:
PricewaterhouseCoopers 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
Steven E. Russell, Esq., VICE PRESIDENT AND PORTFOLIO MANAGER
Joseph C. Neuberger, ASSISTANT SECRETARY
Jeffrey T. Rauman, ASSISTANT SECRETARY
<PAGE>
APPENDIX: ADDITIONAL FUND INFORMATION
FOR PA GROWTH FUND INVESTORS:
ADDITIONAL 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.
The State's workforce totals more than 5.9 million, ranking it as the sixth
largest labor pool in the nation. The State's unemployment rate stood at 4.3% in
September, 1999, versus 4.4% for the U.S. economy as a whole. Pennsylvania has a
personal income tax rate of 2.8%, ranking it among the lowest in the nation.
Almost 300,000 new jobs were created in the State between 1995 and 1999.
Pennsylvania's median housing costs are $20,000 below the national average and
crime rates in the State are 40% below the national average.
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's economy is home to more than 237,000 public and private
businesses. 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.
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 has the nation's eighth highest number of high-technology
employees and the nation's second-highest number of biopharmaceutical and
biotech firms.
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 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 $339 billion economy. If Pennsylvania were a
freestanding country, its Gross Domestic Product would rank it larger than 90%
of national economies worldwide.
The Adviser believes that the Fund will provide a positive influence on the
Pennsylvania economy by stimulating investor interest and awareness in
Pennsylvania companies.
<PAGE>
FOR BANKING AND FINANCE FUND INVESTORS:
ADDITIONAL INFORMATION ABOUT THE BANKING AND FINANCIAL SERVICES INDUSTRIES
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN FACTORS AND STATISTICAL DATA
DESCRIBING THE BANKING AND FINANCIAL SERVICES INDUSTRIES. THE SUMMARY IS BASED
UPON INFORMATION DERIVED FROM PUBLICLY AVAILABLE DOCUMENTS AND IS NOT INTENDED
TO PROVIDE COMPLETE COVERAGE OF THE SUBJECT.
(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
Recent legislation has made significant changes in the federal laws which govern
the range of business and services in which federally regulated banks can
engage. This legislation eliminates most of the distinctions between commercial
and investment banks and allows 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.
<PAGE>
(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 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.
<PAGE>
The financial services industry may be significantly impacted as a result of the
recent legislation which reduces the separation between commercial and
investment banking businesses. While banks may be able to expand the services
they offer, 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.
<PAGE>
FOR TECHNOLOGY FUND INVESTORS;
ADDITIONAL INFORMATION ABOUT THE TECHNOLOGY SECTOR
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN FACTORS AND STATISTICAL DATA
DESCRIBING THE TECHNOLOGY SECTOR. THE SUMMARY IS BASED UPON INFORMATION DERIVED
FROM PUBLICLY AVAILABLE DOCUMENTS AND IS NOT INTENDED TO PROVIDE COMPLETE
COVERAGE OF THE SUBJECT.
The Fund's Adviser has identified the following industries as components of the
technology sector:
- - AEROSPACE AND DEFENSE
- - BIOTECHNOLOGY
- - COMPUTERS (such as companies involved in information technology, memory
devices, LANs, mainframes, personal computers, peripheral equipment, voice
recognition, networking products, virtual reality products, etc.)
- - OFFICE AND BUSINESS EQUIPMENT
- - SEMICONDUCTORS
- - SOFTWARE (such as companies involved in applications, communications,
educational, entertainment, Internet, network, Year 2000 and optical
recognition software, computer graphics, data processing and management,
Internet content and medical information systems)
- - TELECOMMUNICATIONS (such as companies involved in cellular, digital and
satellite telecommunications and voice processing)
- - TELECOMMUNICATIONS EQUIPMENT (such as companies involved in fiber optics and
wireless equipment).
This listing is not meant to be all-inclusive, as newer technologies are
continually being developed and introduced.
The Fund's Adviser believes that the technology sector will continue to grow
over the long-term based on three major thematic trends:
INCREASING SPENDING BY U.S. CORPORATIONS to achieve technological advances and
efficiencies for increased earnings. In September of 1999, the unemployment rate
in the U.S. stood at 4.3%, and in 1999 equaled its lowest rate in 30 years. This
"tight" labor market has made it increasingly difficult for corporations to hire
and retain skilled workers. Instead, many corporations direct working capital to
fund technology-based solutions that make existing workers more productive. Due
in part to technology adopted by U.S. corporations, the U.S. worker is ranked as
the most productive in the world (as measured by GDP per worker). According to a
study by the U.S. Department of Commerce, by 2006 almost half of the U. S.
workforce will be employed by industries that are either major producers or
intensive users of information technology ("IT") products and services. Between
1995 and 1998 IT-producing industries (i.e., producers of computer and
communications hardware, software, and services), while accounting for only
about 8 percent of U.S. GDP, contributed on average 35 percent of the nation's
real economic growth.
THE EXPORTING OF U.S. TECHNOLOGY OVERSEAS, and the continuing worldwide
expansion of technology companies. Emergence of the "global economy" in the
1990's has accelerated the pace of exporting of U.S. technology-based goods and
services. International trade agreements like NAFTA and the emergence of
Western-style open market economies in Eastern Europe has opened new markets for
U.S. companies. According to a study by the Department of Commerce, between 1993
and 1998, exports of goods by IT-producing industries registered 11.9 percent
annual growth (against 7.6 percent for all other types of goods). U.S. firms
have continued to make a strong showing in the high-end segments of the IT
product market: computers, semiconductor devices, and instruments, according to
the study.
THE CONTINUING GROWTH AND ACCEPTANCE OF THE INTERNET as a means of commerce,
communication and information on a global basis. According to Nua, an Internet
strategy firm, as of May 1999, 171 million people across the globe had access to
the Internet, over half of them in the United States and Canada. Over 100
million American adults were estimated to be using the Internet in a November,
1999 study. The U.S. ranked first in a 1998 study measuring the percentage of a
nation's population with Internet access. The worldwide Internet economy will
pass the $1 trillion mark in 2001. By 2003, it will be approximately $3
trillion, according to a 1999 report. The report stated that Western Europe
e-commerce spending will increase at a compound annual growth rate of 138% from
$5.6 billion in 1998 to $430 billion by 2003, and in Asia the number of Internet
users will almost quadruple from 21 million in 1998 to more than 81 million by
2003. During the same time, e-commerce spending in Asia will surge from $2.7
billion to $72 billion
<PAGE>
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<PAGE>
HOMESTATE 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 fund's 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 Mutual Fund Services, LLC
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, Washington, DC20549-6009.
<PAGE>
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 INFORMATION
CONCERNING INVESTMENT
OBJECTIVES AND POLICIES
-- General
12. Description of Funds ADDITIONAL INFORMATION
and their Investments CONCERNING INVESTMENT
and risks OBJECTIVES AND POLICIES;
ADDITIONAL INFORMATION
ABOUT OTHER INVESTMENT
TECHNIQUES; ADDITIONAL
GENERAL FUND INFORMATION
13. Management of the Funds MANAGEMENT OF THE FUNDS
-- Board of Trustees
and Other Officers of
the Trust
14. Control Persons and MANAGEMENT OF THE FUNDS
Principal Holders -- Persons Controlling
of Securities the Funds
15. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services -- Investment Adviser
and Other Service
Providers
16. Brokerage Allocation ADDITIONAL BROKERAGE
and Other Practices ALLOCATION INFORMATION
17. Capital Stock and ADDITIONAL GENERAL
and Other Securities FUND INFORMATION --
Description of Shares
and Voting Rights;
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION
-- Additional Redemption
Information
<PAGE>
18. Purchase, Redemption, ADDITIONAL PURCHASE
and 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 MEASURING PERFORMANCE
Performance Data
22. Financial Statements FINANCIAL STATEMENTS
</TABLE>
<PAGE>
THE HOMESTATE GROUP
HomeState Pennsylvania Growth Fund
HomeState Select Banking and Finance Fund
HomeState Select Technology Fund
1857 William Penn Way
P.O. Box 10666
Lancaster, PA 17605-0666
INVESTMENT ADVISER
General Fund Information
Emerald Advisers, Inc. STATEMENT OF
P.O. Box 10666 ADDITIONAL INFORMATION
Lancaster, PA 17605-0666
THE HOMESTATE GROUP
DISTRIBUTOR THE HOMESTATE PENNSYLVANIA
RAFFERTY CAPITAL MARKETS, INC. GROWTH FUND
1311 Mamaroneck Avenue THE HOMESTATE SELECT
White Plains, NY 10605 BANKING AND FINANCE FUND
THE HOMESTATE SELECT
TECHNOLOGY FUND
ADMINISTRATOR
TRANSFER AGENT AND
ACCOUNTING AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC DATED FEBRUARY 29, 2000
P.O. Box 701
615 E. Michigan Street
Milwaukee, WI 53201-0701
CUSTODIAN
Firstar Bank Milwaukee, N.A.
777 E. Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Duane, Morris & Heckscher LLP
305 North Front Street
Harrisburg, PA 17108
INDEPENDENT ACCOUNTANT
PricewaterhouseCoopers LLP
100 E. Wisconsin Avenue
Milwaukee, WI 53202
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STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 29, 2000
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 Select Technology 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 February 29, 2000. You may obtain a free
copy of the Prospectus by writing the Funds,c/o Firstar Mutual Fund Services,
LLC, P.O. Box 701, Milwaukee, WI 53201-0701, or by calling (800)232-0224.
TABLE OF CONTENTS
Additional Information Concerning Investment Objectives and Policies..........2
Fundamental Investment Restrictions.................................2
Other Investment Policies...........................................4
Additional Information About Other Investment Techniques......................7
Additional Fund Valuation Information.........................................8
Additional General Fund Information...........................................8
Additional Purchase and Redemption Information................................9
Reduced Sales Charge Plans ........................................10
Additional Dividend, Distributions & Taxes Information.......................18
Dividends & Distributions..........................................18
Taxes..............................................................18
Management of the Funds......................................................19
Board of Trustees and Officers of the Funds........................19
Persons Controlling the Funds......................................22
Investment Adviser and Other Services Providers ...................22
The Distribution Plans.............................................25
Additional Brokerage Allocation Information..................................26
Measuring Performance........................................................27
Financial Statements.........................................................29
Appendix A - Description of Ratings.........................................A-i
Appendix B - Hedging Strategies.............................................B-i
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ADDITIONAL INFORMATION CONCERNING INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The HomeState Group, an open-end management 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 Select Technology Fund (the "Technology
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 Funds' investment adviser is Emerald Advisers, Inc. ("Emerald" or the
"Adviser").
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, or at least 1,000 employees are
based at, operating units headquartered in the state). The Fund's annual
portfolio turnover rate is not anticipated to exceed one hundred percent, but
was 88% for the fiscal year ended June 30, 1999.
The Banking and Finance Fund's objective is long-term growth through
capital apreciation. 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 20, 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
Banking and Finance Fund had a higher portfolio rate of 158% in the fiscal year
ended June 30, 1999 during a substantial portion of which it was pursuing its
prior objective.
The Technology Fund's investment objective is to seek capital
appreciation. To pursue its objective, the Fund will, under normal conditions,
invest at a minimum 65% of its total assets in a non-diversified portfolio of
equity securities of public companies in the technology sector. For investment
purposes, the technology sector is defined as a broad range of industries
comprised of companies that produce and/or develop products, processes or
services that will provide or will benefit significantly from technological
advances and improvements (i.e. research and development). 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. Prior to February 29, 2000, the Fund
was named the HomeState Year 2000 Fund and its investment objective focused on a
specific industry within the technology sector. 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.
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).
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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 Fund's current total assets, and will be
repaid before any additional investments are purchased. The 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 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 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.
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 Technology Fund may not:
1. Invest more than 25% of the value of its assets in the equity or
debt of one issuer (other than obligations issued or guaranteed by the United
States Government), nor, with respect to at least 50% of its total assets,
invest more than 5% of the value of such assets in the equity or debt of one
issuer (other than obligations issued or guaranteed by the U.S. Government).
2. Invest more than 25% of total assets in one industry, except that
the Fund shall, under normal conditions, invest not less than 25% of its total
assets in securities of companies principally engaged in the technology sector.
3. Issue or sell senior securities, except that the Fund may engage in
options, futures and/or short-selling strategies provided the Fund either (i)
sets aside liquid, unencumbered, daily marked-to-market assets in a segregated
account with its custodian in amounts as prescribed by pertinent SEC guidelines,
or (ii) holds securities or other options or futures contracts whose values are
expected to offset ("cover") its obligations thereunder. Securities or other
options or futures contracts used for cover will not be sold or closed out while
such strategies are outstanding, unless they are replaced with similar assets.
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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 its portfolio investments, it may be
deemed to be an underwriter under certain federal securities laws;
3. 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;
4. Purchase or hold the securities of any issuer if the officers or
directors of the 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;
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 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 Fund will incur duplicate fees and expenses; or
7. Make loans, except by purchase of debt obligations in which the Fund
may invest in accordance with its investment policies, or except by entering
into qualified repurchase agreements with respect to not more than twenty-five
percent (25%) of its 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
Fund's net assets, in which the Fund will either: (i) set aside liquid,
unencumbered, daily marked-to-market assets in a segregated account with the
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 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;
May make short sales in total amounts that equal less than 5% of the
Fund's net assets.
The Technology 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 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 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 its 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 Fund will enter into such agreements only
with commercial banks and registered broker-dealers. In these transactions, the
securities issued by the Fund will have a total value in excess of the value of
the repurchase agreement during the term of the agreement. If the seller
defaults, the Fund could realize a loss on the sale of the underlying security
to the extent that the proceeds of the sale, including accrued interest, are
less than the resale price provided in the agreement including interest, and it
may incur expenses in selling the security. In addition, if the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the United States Bankruptcy Code of 1983 or other laws, a court may
determine that the underlying security is collateral for a loan by the Fund not
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within the control of the Fund and therefore the Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the 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 ("CD's") must
be issued by banks or thrifts which have total assets of at least $1 billion. In
the case of a bank or thrift with assets of less than $1 billion, the 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' 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 Technology
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' Adviser to be
desirable and consistent with a sound investment policy. The Funds may dispose
of securities whenever the Adviser deems advisable without regard to the length
of time held. The Funds are not expected to exceed the following portfolio
turnover rates on an annualized basis: PA Growth Fund - 100%; Banking and
Finance Fund - 80%; Technology Fund 200%.
ADDITIONAL INFORMATION ABOUT OTHER INVESTMENT TECHNIQUES
Both the Banking and Finance Fund and the Technology 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
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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" of the Funds' Statement of Additional
Information 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 Fund as income and the capital portion will
be reinvested. Unlike conventional bonds, Mortgage-Related Instruments pay back
principal over the life of the Mortgage-Related Instrument rather than at
maturity. At the time that a holder of a Mortgage-Related Instrument reinvests
the payments and any unscheduled prepayment of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate of
interest paid on the existing Mortgage-Related Instruments. As a consequence,
Mortgage-Related Instruments may be a less effective means of "locking-in"
long-term interest rates than other types of U.S. government securities. While
Mortgage-Related Instruments generally entail less risk of a decline during
periods of rapidly rising interest rates, they may also have less potential for
capital appreciation than other investments with comparable maturities because
as interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if Mortgage-Related Instruments are purchased at a
premium, mortgage foreclosures and unscheduled principal payments may result in
some loss of a holder's principal investment to the extent of premium paid.
Conversely, if Mortgage-Related Instruments are purchased at a discount, both a
scheduled payment of principal and an unscheduled payment of principal would
increase current and total returns and would be taxed as ordinary income when
distributed to shareholders.
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.
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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 60th 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 SHARE 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 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.
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 respect to 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;
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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 a Trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Trust. Therefore, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of the Trust property of any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust also provides that the Trust
shall, upon request, assume the defense of any claim against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The 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.
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.
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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. 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:
An individual or "company," as defined in Section 2(a)(8) of the Act;
An individual, his spouse and children under age 21;
A trustee or other fiduciary for certain trusts, estates, and certain fiduciary
accounts; or
The employee benefit plans of a single employer. The Funds' Transfer Agent,
Firstar Mutual Fund Services, LLC ("Firstar"), 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 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 Funds may exchange their Fund shares into shares of
the other two HomeState Funds 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 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.
<PAGE>
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 Investment
Company Act of 1940 (which includes corporations which are corporate affiliates
of each other, but does not include those companies in existence less than six
months or which have no purpose other than the purchase of shares of the 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, 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.
LETTER OF INTENT - Investors may purchase shares of the Funds 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.
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.
<PAGE>
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, 1999 and 1998 Rafferty Capital
Markets, Inc., the Fund's distributor, received $78,896 and $11,035,
respectively. For the fiscal years ended June 30, 1998 and 1997 Rodney Square
Distributors, Inc., the Fund's previous distributor, received $648,549 and
$166,908, respectively.
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 the 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 HomeStateGroup, c/o Firstar Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, WI 53210-0701. Note: A different
procedure is used for establishing Individual Retirement Accounts. Please call
Firstar 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 will charge a $25 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 Mutual Fund Services, LLC, 3rd Floor, 615 E.
Michigan Street, Milwaukee, WI 53202.
INVESTING BY WIRE - To establish a new account by wire please first call Firstar
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 Mutual Fund Services, LLC
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 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 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 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 IRA's, 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.
<PAGE>
Firstar makes available its services as an IRA Custodian for each
shareholder account that is established as an IRA. For these services, Firstar
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 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.
The Taxpayer Relief Act of 1997 (The "1997 Act") also created several
new or expanded IRAs which were available to Fund shareholders beginning on
March 16, 1998.
The 1997 Act created 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 created 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, 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 Mutual Fund Services, LLC,
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, but
the effective date of the redemption will be delayed until the request is
received by Firstar. Requests for redemption which are subject to any special
conditions or which specify an effective date other than provided herein cannot
be honored.
<PAGE>
A redemption request must be received in "Good Order" by Firstar 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.
TYPE OF REGISTRATION REQUIREMENTS
Individual, Joint Tenants, Redemption requests must be signed by all
Sole Proprietorship, person(s) required to sign for the
Custodial (Uniform Gift To account, exactly as it is registered
Minors Act), 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.)
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.
The redemption price is the next determined net asset value after
Firstar 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 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 may take up to 12
days. Wire transfers may be arranged through Firstar, which will assess a $12.00
wire fee against your account.
<PAGE>
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 $1,000 minimum per telephone redemption required. 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 by telephone, you may make a redemption request by mail.
The Fund and Firstar 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 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.
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, go ex-dividend on the 16th
of the month and be paid on the 20th of the month. If any of these dates falls
on a weekend, the declaration, ex-dividend and payment dates will be moved
accordingly to the next business day.
<PAGE>
If you elect to receive cash dividends and/or capital gains
distributions and a check is returned as undelivered by the United States Postal
Service, the 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) Distribute with respect to each taxable year at least 90% of its
taxable and tax-exempt income for such year; and
(3) 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
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.
<PAGE>
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 36, has been Senior Vice President and Treasurer of Emerald
Advisers, Inc. since 1991. He was Vice President of Weik Investment Services,
Inc. from 1990 to 1991. He was Vice President of Penn Square Mutual Fund and the
William Penn Interest Income Fund from 1989 to 1990 and Director of Investor
Services, Penn Square Management Corp. from 1986 to 1989.
BRUCE E. BOWEN, 1536 Buttonbush Circle, Palm City, Fl 34990, Trustee, age 60, is
currently a private investor. He retired as Vice Chairman and Secretary of Penn
Square Mutual Fund, positions he held from 1968 to 1988 and Vice Chairman and
Secretary of William Penn Interest Income Fund positions he held from 1987 to
1988. He also served as Vice President and Secretary of Penn Square Management
Corp. from 1964 to 1988. He also was a Director of Berk-Tek, Inc. from 1987 to
1991 and Director of Morgan Corporation, from 1989 to 1991.
KENNETH G. MERTZ II, C.F.A.*, 1857 William Penn Way, Lancaster, PA 17601,
Trustee, Vice President and Chief Financial Officer, age 47, has been President
and Chief Investment Officer of Emerald Advisers, Inc. since 1992. He was Chief
Investment Officer for the Pennsylvania State Employes Retirement System from
1985 to 1992. He was a Member of the National Advisory Board, Northwest Center
for Professional Education/Real Estate Investment for Pension Funds from 1991 to
1992 and a Member of the Advisory Board, APA/Fostin Pennsylvania Venture Capital
Fund from 1987 to 1992.
<PAGE>
DANIEL W. MOYER IV*, 1857 William Penn Way, Lancaster, PA 17601, Vice President
and Secretary, age 44, 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 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.
STEVEN E. RUSSELL, ESQ.*, 1857 William Penn Way, Lancaster, PA 17601, Vice
President and Portfolio Manager, age 31, has been a Vice President of Emerald
Advisers, Inc. since March, 1998. He was a senior equity analyst with the
Pennsylvania Public School Employes Retirement System from 1996 to 1998, a
financial manager for Harrah's Entertainment Inc. from 1995 to 1996, an account
executive with United Way of Southeastern Pennsylvania and an ensign in the U.S.
Navy in 1995. He attended Temple University from 1992 to 1995, receiving an MBA
in Business Administration and a JD in Law in 1995.
DR. H. J. ZOFFER, Joseph M. Katz School of Business, 366 Mervis Hall,
Pittsburgh, PA 15260, Trustee, age 68, 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 PA Growth Fund and $ 1,000 each for the
Banking and Finance Fund and the Technology Fund, $350 for each Trustees meeting
attended, and $100 for each Audit Committee meeting attended. For the year ended
June 30, 1999, the Funds incurred Trustees fees and expenses totaling $18,000.
The Funds will also reimburse the Independent Trustees' travel expenses incurred
attending Board meetings.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------ -------------- -------------- -------------- ---------------
NAME AND TITLE AGGREGATE AGGREGATE AGGREGATE TOTAL PAY
PAY FROM PAY FROM PAY FROM FROM FUND
PA GROWTH BANKING TECHNOLOGY COMPLEX (1)
FUND AND FUND
FINANCE
FUND
- ------------------ -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Scott L. Rehr, $0 $0 $0 $0
Trustee and
President
- ------------------ -------------- -------------- -------------- ---------------
Bruce E. Bowen, 3,000 1,500 1,500 6,000
Trustee
- ------------------ -------------- -------------- -------------- ---------------
Kenneth G. 0 0 0 0
Mertz, II,
Trustee,
Vice-President
and Chief
Investment
Officer
- ------------------ -------------- -------------- -------------- ---------------
Scott C. Penwell, 3,000 1,500 1,500 6,000
Trustee
- ------------------ -------------- -------------- -------------- ---------------
Dr. H. J. Zoffer 3,000 1,500 1,500 6,000
Trustee
- ------------------ -------------- -------------- -------------- ---------------
<FN>
(1) No pension or retirement benefits are provided for trustees or officers of
the Funds.
</FN>
</TABLE>
<PAGE>
The Officers of the Funds receive no compensation for their services as
such.
As of November 30, 1999 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 November 30,
1999. To the knowledge of the Funds, no person owned of record or beneficially
5% or more of the Banking and Finance Fund's outstanding shares as of November
30, 1999.
The following persons owned of record or beneficially 5% or more of the
PA Growth Fund's outstanding shares as of November 30, 1999:
- ---------------------- ------------------------------------ --------------------
NAME ADDRESS % OF OWNERSHIP
- ---------------------- ------------------------------------ --------------------
Smith Barney Inc. 333 W. 34th St., 3rd Floor, 14.0%
NY, NY 10001
FMB Trust Company P.O.Box 1596, Baltimore, MD 21203 10.9%
The following persons owned of record or beneficially 5% or more of the
Technology Fund's outstanding shares as of November 30, 1999:
- ---------------------- ------------------------------------ --------------------
NAME ADDRESS % OF OWNERSHIP
- ---------------------- ------------------------------------ --------------------
Dancor Limited Grand Cayman, Cayman Islands 16.8%
- ---------------------- ------------------------------------ --------------------
INVESTMENT ADVISER AND OTHER SERVICE PROVIDERS
INVESTMENT ADVISER AND PRINCIPAL UNDERWRITER
Emerald Advisers, Inc., 1857 William Penn Way, Lancaster, PA 17601, and
Rafferty Capital Markets, Inc., 1311 Mamaroneck Avenue, White Plains, NY 10605,
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.
<PAGE>
Emerald Advisers, Inc. 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:
- ------------------------------ --------------------------- ---------------------
NAME POSITION(S) WITH ADVISER POSITION(S)
WITH TRUST
- ------------------------------ --------------------------- ---------------------
Scott L. Rehr Senior Vice President; Trustee; President
Treasurer; 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
- ------------------------------ --------------------------- ---------------------
Steven E. Russell, Esq. Vice President Vice President,
Portfolio Manager
- ------------------------------ --------------------------- ---------------------
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 SELECT TECHNOLOGY FUND:
Assets $0 to $100 Million....1.00%
Over $100 Million............0.90%
These fees are higher than most other registered mutual funds but
comparable to fees paid by equity funds of a similar investment objective and
size. For the fiscal years ended June 30, 1999, 1998 and 1997, the Adviser
received management fees from the PA Growth Fund totaling $784,190, $869,718 and
$528,528, respectively. For the period ended June 30, 1999, the Adviser received
management fees from the Banking and Finance Fund, before reimbursement of
expenses, totalling $119,952, of which the Adviser waived $30,430. For the
period ended June 30, 1998, the Adviser received management fees from the
Banking and Finance Fund, before reimbursement of expenses, totalling $146,960,
of which the Adviser waived $36,124. For the period ended June 30, 1997, the
Adviser received management fees from the Banking and Finance Fund, before
reimbursement of expenses, totaling $11,200 of which the Adviser waived the
<PAGE>
entire fee, or $11,200 and reimbursed the Banking and Finance Fund for
additional expenses totalling $47,862. For the period ended June 30, 1999, the
Adviser received management fees from the Technology Fund, before reimbursement
of expenses, totalling $92,173, of which the Adviser waived $9,851. For the
period ended June 30, 1998, the Adviser received management fees from the
Technology Fund, before reimbursement of expenses, totaling $37,072 of which the
Adviser waived the entire fee, or $37,072 and reimbursed the Technology Fund for
additional expenses totalling $51,405.
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. The Adviser reserves the right to voluntarily waive any portion of
its advisory fee at any time.
ADMINISTRATOR, ACCOUNTING AGENT AND TRANSFER AGENT
The Fund has entered into an administration agreement (the
"Administration Agreement") with Firstar Mutual Fund Services, LLC (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 U.S. Securities and Exchange Commission (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 preparation of quarterly reports to the Board of Trustees
relating to the distribution plan adopted by the Funds pursuant to Rule 12b-1;
and (12) 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 .07% of the
first $200,000,000 of each Fund's average net assets, .06% of the next
$500,000,000 of each Fund's average net assets, and .04% 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
Firstar Bank Milwaukee serves as custodian of the Trust's assets
pursuant to a Custody Agreement. Under the Custody Agreement, Firstar Bank
Milwaukee 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 Bank
Milwaukee does not exercise any supervisory function over the purchase and sale
of securities.
<PAGE>
Firstar Mutual Fund Services, LLC serves as transfer agent and dividend
disbursing agent for the Funds under a Shareholder Services Agreement. As
transfer agent and dividend disbursing agent, Firstar 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 Mutual Fund Services, LLC pursuant to which Firstar 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 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 is
also entitled to certain out of pocket expenses, including pricing expenses.
For the fiscal year ended June 30, 1999, Firstar received fees
totalling $505,929 from the Funds for performing administrative, accounting and
transfer agency services. For the fiscal year ended June 30, 1998, Firstar
received fees totalling $218,011 from the Funds for performing these services.
Prior to March of 1998, Rodney Square Management Corp. ("Rodney Square")
performed administrative, accounting and transfer agency services for the Funds.
For the fiscal year ended June 30, 1998 and before March, 1998, Rodney Square
received fees totaling $256,690. 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.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 E. Wisconsin Avenue, Milwaukee, WI
53202, 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
Technology 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.
The PA Growth Fund, the Banking and Finance Fund and the Technology
Fund are all currently operating with Distribution Plans (the "Plans"). Each
Fund has adopted a Plan pursuant to Rule 12b-1 under the Investment Company Act
of 1940. 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 Technology 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
<PAGE>
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.
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, 1999, the PA Growth Fund incurred
expenses totaling $365,956 pursuant to the Distribution Plan, the Banking and
Finance Fund incurred expenses totaling $41,984, and the Technology Fund
incurred expenses totaling $64,521.
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 the 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 National Association
of Securities Dealers, Inc. (the "NASD") and subject to seeking the most
favorable price and execution available and such other policies as the Board of
Trustees may determine, 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.
<PAGE>
To the extent consistent with applicable provisions of the Investment
Company Act of 1940, Rule 17e-1, and other rules and exemptions adopted by the
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, 1999, 1998 and 1997, the PA Growth
Fund incurred brokerage commissions aggregating $358,774, $224,379 and $208,752,
respectively. For the fiscal years ended June 30, 1999 and 1998 and the period
ended June 30, 1997, the Select Banking and Finance Fund incurred brokerage
commissions aggregating $80,701, $80,299 and $21,558, respectively. For the
fiscal year ended June 30, 1999 and the period ended June 30, 1998, the
Technology Fund incurred brokerage commissions aggregating $65,475 and $20,756,
respectively.
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, 1999 and 1998 was 88% and 51%, respectively. The portfolio
turnover rate for the Banking and Finance Fund for the fiscal years ended June
30, 1999 and 1998 was 158% and 115%, respectively. Prior to October 20, 1998,
the Banking and Finance Fund was pursuing a different investment objective. The
portfolio turnover rate for the Technology Fund for the fiscal year ended June
30, 1999 and the period ended June 30, 1998 was 200% and 44%, respectively. All
three funds experienced higher portfolio turnover rates as s result of generally
more volatile market conditions in 1998 and 1999, and the Banking and Finance
Fund's turnover rate was higher in part due to its transition from its prior
objective.
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.
<PAGE>
HOMESTATE PENNSYLVANIA GROWTH FUND
AVERAGE ANNUAL TOTAL
RETURN SINCE INCEPTION
1 YEAR OCTOBER 1, 1992
ENDED THROUGH
SALES LOAD JUNE 30, 1999 JUNE 30, 1999
---------- ------------- -------------
4.75% - 13.55% 15.66%
NONE - 9.24% 16.49%
HOMESTATE SELECT BANKING AND FINANCE FUND
AVERAGE ANNUAL TOTAL
RETURN SINCE INCEPTION
1 YEAR FEBRUARY 18, 1997
ENDED THROUGH
SALES LOAD JUNE 30, 1999 JUNE 30, 1999
---------- ------------- -------------
4.75% -5.18% 12.68%
NONE -0.45% 15.03%
HOMESTATE SELECT TECHNOLOGY FUND
AVERAGE ANNUAL TOTAL
RETURN SINCE INCEPTION
1 YEAR OCTOBER 31, 1997
ENDED THROUGH
SALES LOAD JUNE 30, 1999 JUNE 30, 1999
---------- ------------- -------------
2.90%+ - 2.25% 10.53%
NONE 0.66% 12.51%
+ Effective February 29, 2000, the Technology Fund's maximum sales load
increased to 4.75%
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 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.
<PAGE>
FINANCIAL STATEMENTS
The Schedule of Investments as of June 30, 1999; the Statement of
Assets and Liabilities as of June 30, 1999; the Statement of Operations for the
fiscal year ended June 30, 1999; the Statement of Changes in Net Assets for the
fiscal years ended June 30, 1999, 1998 and 1997 for the PA Growth Fund and the
Banking and Finance Fund (formerly the HomeState Select Opportunities Fund) and
the fiscal years ended June 30, 1999 and 1998 for the Technology Fund (formerly
the HomeState Year 2000 Fund); the Financial Highlights for the fiscal years
ended June 30, 1999, 1998, 1997, 1996, and 1995, for the PA Growth Fund, for the
fiscal years ended June 30, 1999, 1998 and 1997 for the Banking and Finance Fund
and for the fiscal years ended June 30, 1999 and 1998 for the Technology 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, 1999, are incorporated
herein by reference from the Form N-30D filed with the Securities and Exchange
Commission on September 10, 1999.
<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.
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.
<PAGE>
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.
<PAGE>
APPENDIX B
OPTIONS AND SHORT SELLING STRATEGIES FOR
THE HOMESTATE SELECT BANKING AND FINANCE FUND AND
THE HOMESTATE SELECT TECHNOLOGY FUND
Regulation of the Use of Options Strategies. In managing the Banking
and Finance Fund and the Technology Fund, 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 unless otherwise noted. (The two Funds are collectively
referred to as the "Fund".)
Cover for Options Strategies. The Fund will not use leverage in its
options strategies. Accordingly, the Fund will comply with guidelines
established by the SEC with respect to coverage of these strategies and will
either (1) set aside liquid, unencumbered, daily marked-to-market assets in a
segregated account with the Fund's 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 Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options Strategies. The Fund may purchase and write (sell) options on
securities and securities indices that are traded on U.S. exchanges and in the
over-the-counter ("OTC") market. Currently, options on debt securities are
primarily traded on the OTC market. Exchange-traded options in the U.S. are
issued by a clearing organization affiliated with the exchange on which the
option is listed, which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its contra-party with no clearing organization guarantee
unless the parties provide for it. Thus, when the Fund purchases an OTC option,
it relies on the dealer from which it has purchased the OTC option to make or
take delivery of the securities underlying the option. Failure by the dealer to
do so would result in the loss of any premium paid by the Fund as well as the
loss of the expected benefit of the transaction. Accordingly, before the Fund
purchases or sells an OTC option, the Adviser assesses the creditworthiness of
each counterparty and any guarantor or credit enhancement of the counterparty's
credit to determine whether the terms of the option are likely to be satisfied.
The Fund may purchase call options on securities in which it is
authorized to invest in order to fix the cost of a future purchase. Call options
also may be used as a means of enhancing returns by, for example, participating
in an anticipated price increase of a security. In the event of a decline in the
price of the underlying security, use of this strategy would serve to limit the
potential loss to the Fund to the option premium paid; conversely, if the market
price of the underlying security increases above the exercise price and the Fund
either sells or exercises the option, any profit eventually realized would be
reduced by the premium paid.
The Fund may purchase put options on securities that it holds in order
to hedge against a decline in the market value of the securities held or to
enhance return. The put option enables the Fund to sell the underlying security
at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale of the security is reduced by
the premium paid for the put option less any amount for which the put option may
be sold.
<PAGE>
The Fund may on certain occasions wish to hedge against a decline in
the market value of securities that it holds at a time when put options on those
particular securities are not available for purchase. At those times, the Fund
may purchase a put option on other carefully selected securities in which it is
authorized to invest, the values of which historically have a high degree of
positive correlation to the value of the securities actually held. If the
Adviser's judgment is correct, changes in the value of the put options should
generally offset changes in the value of the securities being hedged. However,
the correlation between the two values may not be as close in these transactions
as in transactions in which the Fund purchases a put option on a security that
it holds. If the value of the securities underlying the put option falls below
the value of the portfolio securities, the put option may not provide complete
protection against a decline in the value of the portfolio securities.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging purposes or to increase return in the form of
premiums received from the purchasers of the options. A call option gives the
purchaser of the option the right to buy, and the writer (seller) the obligation
to sell, the underlying security at the exercise price during the option period.
The strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by the Fund declines, the amount of the decline
will be offset wholly or in part by the amount of the premium received by the
Fund. If, however, there is an increase in the market price of the underlying
security and the option is exercised, the Fund will be obligated to sell the
security at less than its market value.
Securities used to cover OTC call options written by the Fund are
considered illiquid and therefore subject to the Fund's limitations on investing
in illiquid securities, unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC options it writes for a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC call option written subject to this procedure is considered illiquid only
to the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option. The Fund could lose the ability to participate in
an increase in the value of the underlying securities above the exercise price
because the increase would likely be offset by an increase in the cost of
closing out the call option (or could be negated if the buyer chose to exercise
the call option at an exercise price below the current market value).
The Fund may also write covered put options on securities in which it
is authorized to invest. A put option gives the purchaser of the option the
right to sell, and the writer (seller) the obligation to buy, the underlying
security at the exercise price during the option period. So long as the
obligation of the writer continues, the writer may be assigned an exercise
notice by the broker-dealer through whom such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. If the put
option is not exercised, the Fund will realize income in the amount of the
premium received. This technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the
market price of the underlying securities would decline below the exercise price
less the premiums received, in which case the Fund would expect to suffer a
loss.
<PAGE>
The Fund may purchase put and call options and write covered put and
call options on indexes in much the same manner as the more traditional options
discussed above, except that index options may serve as a hedge against overall
fluctuations in the securities markets (or a market sector) rather than
anticipated increases or decreases in the value of a particular security. An
index assigns values to the securities included in the index and fluctuates with
changes in such values. Settlements of index options are effected with cash
payments and do not involve delivery of securities. Thus, upon settlement of 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 Fund invests. Perfect correlation
is not possible because the securities held or to be acquired by the Fund will
not exactly match the composition of indexes on which options are purchased or
written.
The Fund may purchase and write covered straddles on securities or
indexes. A long straddle is a combination of a call and a put purchased on the
same security where the exercise price of the put is less than or equal to the
exercise price on the call. The Fund would enter into a long straddle when the
Adviser believes that it is likely that prices will be more volatile during the
term of the options than is implied by the option pricing. A short straddle is a
combination of a call and a put written on the same security where the exercise
price on the put is less than or equal to the exercise price of the call where
the same issue of the security is considered "cover" for both the put and the
call. The Fund would enter into a short straddle when the Adviser believes that
it is unlikely that prices will be as volatile during the term of the options as
is implied by the option pricing. In such case, the Fund will set aside cash
and/or liquid, 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 Fund may purchase put and call warrants with values that vary
depending on the change in the value of one or more specified indexes ("index
warrants"). An index warrant is usually issued by a bank or other financial
institution and gives the Fund the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment from the issuer
of the warrant based on the value of the underlying index at the time of
exercise. In general, if the Fund holds a call warrant and the value of the
underlying index rises above the exercise price of the warrant, the Fund will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant;
if the Fund holds a put warrant and the value of the underlying index falls, the
Fund will be entitled to receive a cash payment from the issuer upon exercise
based on the difference between the exercise price of the warrant and the value
of the index. The Fund holding a call warrant would not be entitled to any
payments from the issuer at any time when the exercise price is greater than the
value of the underlying index; the Fund holding a put warrant would not be
entitled to any payments when the exercise price is less than the value of the
underlying index. If the Fund does not exercise an index warrant prior to its
expiration, then the Fund loses the amount of the purchase price that it paid
for the warrant.
The Fund will normally use index warrants as it may use index options.
The risks of the Fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options, however, index
warrants are issued in limited amounts and are not obligations of a regulated
clearing agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally have longer
terms than index options. Index warrants are not likely to be as liquid as index
options backed by a recognized clearing agency. In addition, the terms of index
warrants may limit the Fund's ability to exercise the warrants at any time or in
any quantity.
<PAGE>
Options Guidelines. In view of the risks involved in using the options
strategies described above, the Fund has adopted the following investment
guidelines to govern its use of such strategies; these guidelines may be
modified by the Board of Trustees without shareholder approval:
(1) the Fund will write only covered options, and each such option will
remain covered so long as the Fund is obligated under the option; and
(2) the Technology 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 Fund
may effectively terminate its right or obligation under an option by
entering into a closing transaction. If the Fund wishes to terminate
its obligation to purchase or sell securities under a put or a call
option it has written, the Fund may purchase a put or a call option of
the same series (that is, an option identical in its terms to the
option previously written); this is known as a closing purchase
transaction. Conversely, in order to terminate its right to purchase or
sell specified securities under a call or put option it has purchased,
the Fund may sell an option of the same series as the option held; this
is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its
options positions prior to the exercise or expiration of the option. If
the Fund is unable to effect a closing purchase transaction with
respect to options it has acquired, the Fund will have to allow the
options to expire without recovering all or a portion of the option
premiums paid. If the Fund is unable to effect a closing purchase
transaction with respect to covered options it has written, the Fund
will not be able to sell the underlying securities or dispose of assets
used as cover until the options expire or are exercised, and the Fund
may experience material losses due to losses on the option transaction
itself and in the covering securities.
In considering the use of options to enhance returns or for
hedging purposes, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things,
the current market price of the underlying security or index, the time remaining
until expiration, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security or index and general
market conditions. For this reason, the successful use of options depends upon
Adviser's ability to forecast the direction of price fluctuations in the
underlying securities markets or, in the case of index options, fluctuations in
the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior to expiration. The exercise price of
the options may be below, equal to or above the current market value of the
underlying security or index. Purchased options that expire unexercised have no
value. Unless an option purchased by the Fund is exercised or unless a closing
transaction is effected with respect to that position, the Fund will realize a
loss in the amount of the premium paid and any transaction costs.
(3) A position in an exchange-listed option may be closed out only on
an exchange that provides a secondary market for identical options. Although the
Fund intends to purchase or write only those exchange-traded options for which
there appears to be a liquid secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any particular
time. A liquid market may be absent if: (i) there is insufficient trading
interest in the option; (ii) the exchange has imposed restrictions on trading,
such as trading halts, trading suspensions or daily price limits; (iii) normal
exchange operations have been disrupted; or (iv) the exchange has inadequate
facilities to handle current trading volume.
<PAGE>
Closing transactions may be effected with respect to options traded in
the OTC markets only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market exists. Although
the Fund will enter into OTC options with dealers that agree to enter into, and
that are expected to be capable of entering into, closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate an OTC
option at a favorable price at any time prior to expiration. In the event of
insolvency of the contra-party, the Fund may be unable to liquidate an OTC
option. Accordingly, it may not be possible to effect closing transactions with
respect to certain options, which would result in the Fund having to exercise
those options that it has purchased in order to realize any profit. With respect
to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund.
(4) With certain exceptions, exchange listed options generally settle
by physical delivery of the underlying security. Index options are settled
exclusively in cash for the net amount, if any, by which the option is
"in-the-money" (where the value of the underlying instrument exceeds, in the
case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. If the Fund
writes a call option on an index, the Fund will not know in advance the
difference, if any, between the closing value of the index on the exercise date
and the exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. If the Fund holds an index option and
exercises it before the closing index value for that day is available, the Fund
runs the risk that the level of the underlying index may subsequently change.
The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Fund also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation of, or as a result of, market
movements.
SHORT-SELLING
If the Fund anticipates that the price of a security will decline, it
may sell the security short and borrow the same security from a broker or other
institution to complete the sale. The Fund may realize a profit or loss
depending upon whether the market price of a security decreases or increases
between the date of the short sale and the date on which the Fund must replace
the borrowed security. As a hedging technique, the Fund may purchase options to
buy securities sold short by the Fund. Such options would lock in a future
purchase price and protect the Fund in case of an unanticipated increase in the
price of a security sold short by the Fund. Short-selling is a technique that
may be considered speculative and involves risk beyond the initial capital
necessary to secure each transaction. In addition, the technique could result in
higher operating costs for the Fund and have adverse tax effects for the
investor. Investors should consider the risks of such investments before
investing in the Fund.
Whenever the Fund effects a short sale, it 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 Fund replaces the security it borrowed to make the short sale
it 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 Technology 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.
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) The HomeState Group's (the "Registrant") Declaration of Trust, dated
August 26, 1992 and Joinder of Additional Trustees (Incorporated by
reference to Exhibit 23(a)(1) to the Post-Effective No. 10 to this
Registration Statement filed with the Commission on August 20, 1998)
(a)(2) Addendum 2 to the Declaration of Trust, dated August 1, 1999
(Incorporated by reference to Exhibit 23(a)(2) to the Post-Effective No.
10 to this Registration Statement filed with the Commission on August 20,
1998)
(a)(3) Amendment to the Declaration of Trust dated August 31, 1998 restating
Addendum 1 thereto (Incorporated by reference to Exhibit 23(a)(1) to the
Post-Effective No. 10 to this Registration Statement filed with the
Commission on August 20, 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.)
<PAGE>
(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
HomeState 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 (Incorporated by reference to Exhibit
23(e) to the Post- Effective No. 10 to this Registration Statement filed
with the Commission on August 20, 1998)
<PAGE>
(f) None.
(g)(1) Custodian Servicing Agreement between the Registrant and Firstar Trust
Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(g)(1) to the Post-Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
(g)(2) Firstar Trust Company Mutual Fund Services Fee Schedules for Registrant
(Incorporated by reference to Exhibit 23(g)(2) to the Post-Effective No.
10 to this Registration Statement filed with the Commission on August 20,
1998)
(h)(1) Transfer Agent Servicing Agreement between the Registrant and Firstar
Trust Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(h)(1) to the Post-Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
(h)(2) Fund Administration Servicing Agreement between the Registrant and
Firstar Trust Company dated March 1, 1998 (Incorporated by reference to
Exhibit 23(h)(2) to the Post-Effective No. 10 to this Registration
Statement filed with the Commision on August 20, 1998)
<PAGE>
(h)(3) Fund Account Servicing Agreement between the Registrant and Firstar Trust
Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(h)(3) to the Post- Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
(h)(4) Fulfillment Servicing Agreement between the Registrant and Firstar Trust
Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(h)(4) to the Post-Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
(i) Not Applicable
(j) Consent of Independent Accountants
(k) Financial Statements for The HomeState Pennsylvania Growth Fund, The
HomeState Select Banking and Finance Fund, and The HomeState Year 2000
Fund (Y2K) Fund are Incorporated by Reference to the Form N-30D filed on
September 10, 1999.
(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.)
<PAGE>
(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) None.
(o) None.
(p) Code of Business Ethics
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUNDS
None.
ITEM 25. INDEMNIFICATION
The Declaration of Trust incorporated by reference to Exhibit 23(a)(1)
to the Post-Effective No. 10 to this Registration Statement filed with the
Commission on August 20, 1998 provides for indemnification of Trustees, as set
forth in Section 13 thereof.
The Distribution Agreement incorporated by reference to Exhibit 23(e)
to the Post-Effective No. 10 to this Registration Statement filed with the
Commission on August 20, 1998 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.
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
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 September 20, 1999, with the Securities and Exchange Commission
(File No. 801-40263) and is incorporated herein by reference.
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.
<PAGE>
- --------------------------------------------------------------------------------
(1) (2) (3)
- --------------------------------------------------------------------------------
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICERS
BUSINESS ADDRESS ITH RAFFERTY CAPITAL WITH FUNDS
MARKETS, INC.
- --------------------------------------------------------------------------------
LAWRENCE RAFFERTY OWNER PARTNER OF POTOMAC FUNDS,
550 MAMARONECK AVENUE NOT INVOLVED WITH OTHER
HARRISON, NY 10528 FUND DUTIES
- --------------------------------------------------------------------------------
THOMAS MULROONEY PRESIDENT GENERAL SECURITIES
550 MAMARONECK AVENUE PRINCIPAL
HARRISON, NY 10528
- --------------------------------------------------------------------------------
DEREK PARK SENIOR VICE PRESIDENT GENERAL SECURITIES
550 MAMARONECK AVENUE PRINCIPAL
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
- --------------------------------------------------------------------------------
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.
<PAGE>
ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act, the
Registrant certifies that it has duly caused this Post-Effective Amendment No.
11 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 30th day of December, 1999.
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. 11 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
BRUCE E. BOWEN TRUSTEE DECEMBER 30, 1999
KENNETH G. MERTZ II, C.F.A. TRUSTEE, VICE DECEMBER 30, 1999
PRESIDENT AND
CHIEF INVESTMENT
OFFICER
DANIEL W. MOYER IV TRUSTEE, VICE DECEMBER 30, 1999
PRESIDENT AND
SECRETARY
SCOTT C. PENWELL TRUSTEE DECEMBER 30, 1999
SCOTT L. REHR TRUSTEE AND DECEMBER 30, 1999
PRESIDENT
DR. H.J. ZOFFER TRUSTEE DECEMBER 30, 1999
DATED: DECEMBER 30, 1999
BY: /S/ 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
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.
(a)(1) The HomeState Group's (the "Registrant") Declaration of Trust, dated
August 26, 1992 and Joinder of Additional Trustees (Incorporated by
reference to Exhibit 23(a)(1) to the Post-Effective No. 10 to this
Registration Statement filed with the Commission on August 20, 1998)
(a)(2) Addendum 2 to the Declaration of Trust, dated August 1, 1999
(Incorporated by reference to Exhibit 23(a)(2) to the Post- Effective
No. 10 to this Registration Statement filed with the Commission on
August 20, 1998)
(a)(3) Amendment to the Declaration of Trust dated August 31, 1998 restating
Addendum 1 thereto (Incorporated by reference to Exhibit 23(a)(1) to the
Post-Effective No. 10 to this Registration Statement filed with the
Commission on August 20, 1998)
<PAGE>
(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
HomeState 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.)
<PAGE>
(e) Distribution Agreement between the Registrant and Rafferty Capital
Markets, Inc., dated May 19, 1998 (Incorporated by reference to Exhibit
23(e) to the Post-Effective No. 10 to this Registration Statement filed
with the Commission on August 20, 1998)
(f) None.
(g)(1)Custodian Servicing Agreement between the Registrant and Firstar Trust
Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(g)(1) to the Post-Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
(g)(2) Firstar Trust Company Mutual Fund Services Fee Schedules for Registrant
(Incorporated by reference to Exhibit 23(g)(2) to the Post-Effective No.
10 to this Registration Statement filed with the Commission on August
20, 1998)
(h)(1) Transfer Agent Servicing Agreement between the Registrant and Firstar
Trust Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(h)(1) to the Post-Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
(h)(2) Fund Administration Servicing Agreement between the Registrant and
Firstar Trust Company dated March 1, 1998 (Incorporated by reference to
Exhibit 23(h)(2) to the Post-Effective No. 10 to this Registration
Statement filed with the Commision on August 20, 1998)
(h)(3)Fund Account Servicing Agreement between the Registrant and Firstar Trust
Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(h)(3) to the Post-Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
<PAGE>
(h)(4)Fulfillment Servicing Agreement between the Registrant and Firstar Trust
Company dated March 1, 1998 (Incorporated by reference to Exhibit
23(h)(4) to the Post-Effective No. 10 to this Registration Statement
filed with the Commission on August 20, 1998)
(i) Not Applicable
(j) Consent of Independent Accountants.................................
(k) Financial Statements for The HomeState Pennsylvania Growth Fund, The
HomeState Select Banking and Finance Fund, and The HomeState Year 2000
Fund (Y2K) Fund are Incorporated by Reference to the Form N-30D filed on
September 10, 1999.
(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) None.
(o) None.
(p) Code of Business Ethics.......................................
Exhibit (j) Consent of Independent Accountants
To the Board of Trustees of
The HomeState Group
We consent to the incorporation by reference in Post-Effective Amendment No.12
to the Registration Statement of The HomeState Group on Form N-1A of our report
dated July 30, 1999, on our audit of the financial statements and financial
highlights of The HomeState Pennsylvania Growth Fund, The HomeState Select
Banking and Finance Fund, and The HomeState Select Technology Fund (formerly
known as The HomeState Year 2000 (Y2K) Fund), which report is included in the
Annual Report to Shareholders for the year ended June 30, 1999, which is
incorporated by reference in the Post-Effective Amendment to the Registration
Statement. We also consent to the reference to our Firm under the captions
"Independent Accountants" and "Financial Statements" in the Statement of
Additional Information and "Financial Highlights" in the Prospectus.
PriceWaterhouseCoopers LLP
December 29, 1999
Milwaukee, Wisconsin
EXHIBIT (P) CODE OF BUSINESS ETHICS
CODE OF BUSINESS ETHICS Officers and employees Emerald Advisers, Inc. ("EAI")
and the officers of the HomeState Group mutual funds ("HomeState" or "Fund") are
expected to adhere to the highest ethical standards of the profession and the
strictest principles of good business practice. The following specific
requirements, which may be changed from time to time, are set forth as
guidelines to be followed, but which by their nature cannot be all-inclusive.
Officers and employees of both the advisory firm and the mutual fund are
expected to maintain the highest ethical standards in all dealings whether or
not specifically covered by this Code of Business Ethics. All questions relating
to the application or interpretation of the following requirements should be
directed to the Compliance Officer. References to "officers", the "Company" and
"employees" in this Code pertain both to EAI and HomeState, even though there
are no Fund "employees" as such.
CLIENT RELATIONS
1. The company stands in a fiduciary relationship to its clients;
consequently, all officers and employees shall carry out their duties with
utmost fidelity to the client and solely in the client's best interests. In this
regard, the professional judgment of all officers and employees shall be
exercised free of all compromising influences and loyalties.
2. Officers and employees shall treat all information received from
clients or information relating to client accounts with utmost confidentiality
and shall not, without prior written consent of the client, disclose such
information to any other person except required by law. In no case may
information about a client be used for the personal benefit of any person other
than the client.
3. No officer or employee shall take or receive, directly or
indirectly, any share in the profits (whether by income, appreciation, or
otherwise) or losses of any client account.
4. No officer or employee shall except any orders or directions with
respect to a client's account from any non-client source without the prior
written authorization of the client.
<PAGE>
5. No officer or employee shall warrant or guarantee the present or
future value or price of, or return on, any securities, or that any company or
issuer will fulfill its representations, promises or obligations. For purposes
of this Code of Business Ethics, the word "securities" includes stocks, bonds,
notes, options, futures contracts, commodities, certificates of interest and any
interest or instrument commonly known as a "security".
6. No officer or employee shall agree to purchase any security from a
client's account for the officer's or employee's account. Notwithstanding this
prohibition, registered portfolio managers may arrange for agency cross trades
between clients' accounts in accordance with law and Company policy.
7. No officer or employee shall act, or agree to act as the personal
custodian, trustee, personal representative or other fiduciary for a client or
with respect to the securities, funds or other property of a client.
8. No officer or employee shall lend or borrow money or securities to
or from a client or a client's account.
9. No officer or employee shall forward, or agree to forward, original
confirmations, statements of account, recommendations or other communications
from the Company to a client to any address other than the client's post office
address.
10. No officer or employee shall accept or hold in his individual name
discretionary authority or a discretionary power of attorney for a client or a
client's account.
GENERAL BUSINESS PRACTICES
1. No officer or employee shall, directly or indirectly authorize or
pay any rebate, bonus, fee or other consideration, to any person for business
sought or procured or to any official of any governmental or regulatory body
except as expressly authorized by the Company. The conditions under which EAI
may pay cash fees for client referrals are generally described in Section A.2.
of the Company's Compliance Procedures.
2. No officer or employee shall be a director, officer, employee or
agent of any company or person supplying goods or services to any client of the
Company; nor shall any officer, employee or member of the immediate family of an
officer or employee own or hold any securities issued by any such company in
excess of 1% of its outstanding shares except as permitted by the Compliance
Officer or otherwise in accordance with this Code of Business Ethics.
<PAGE>
3. No officer or employee shall serve as a director or officer or hold
a control position, whether through security ownership or otherwise, in any
company having publicly traded securities without the written approval of the
President or Compliance Officer.
4. Officers and employees will, in the course of their employment,
receive confidential information, including the recommendations and investment
advice developed for clients, which is proprietary to the Company. No officer or
employee shall disclose any such confidential or proprietary information except
in the course of regular performance of such officers or employee's duties. To
assist in the conducting of investment advisory activities in the strictest of
confidence, EAI will maintain office space that is physically separate and
distinct form its lessor, an affiliated brokerage firm. These "Chinese Wall"
procedures will help to reduce the likelihood of insider trading violations,
breeches of client confidentially, and confusion on the part of EAI clients.
5. No officer or employee shall render investment advice for
compensation to any person or persons other than clients of the Company and then
only in the normal course of the performance of his duties as an officer or
employee of the Company without the written approval of the President or
Compliance Officer.
6. No officer or employee shall take any action inconsistent with the
maintenance and retention of books, records and accounts which accurately and
fairly reflect financial transactions undertaken on behalf of the Company or a
client. No officer or employee shall make or cause to be made any false or
misleading entry or record in the books, records, or accounts of the Company or
a client. In all cases, except upon the written authorization of the President
or Compliance Officer, all transactions, whether for the company or a client,
shall be executed and recorded in accordance with established procedures, which
are designed to comply with applicable law.
SECURITIES TRADING
1. OFFICERS AND EMPLOYEES MUST CONDUCT THEIR INVESTMENTS AND
TRADING IN SECURITIES IN A MANNER SO AS TO AVOID NOT ONLY ACTUAL
IMPROPRIETIES BUT EVEN THE APPEARANCE OF IMPROPRIETY.
2. AT THE TIME OF THEIR ASSOCIATION WITH THE COMPANY, OFFICERS
AND EMPLOYEES SHALL PROVIDE THE COMPLIANCE OFFICER WITH A LIST OF ALL
SECURITIES INVESTMENTS WHICH THEY OR MEMBERS OF THEIR IMMEDIATE FAMILY
THEN HOLD. THIS LIST MUST BE CURRENT AT ALL TIMES BY ADVISING THE
COMPLIANCE OFFICER OF ALL INVESTMENT TRANSACTIONS WITHIN 10 DAYS OF
SUCH TRANSACTIONS, AND OFFICERS AND EMPLOYEES MUST ARRANGE FOR THEIR
BROKERS TO SUPPLY THE COMPLIANCE OFFICER WITH COPIES OF ALL MONTHLY
STATEMENTS FOR ALL BROKERAGE ACCOUNTS MAINTAINED BY THEM AND MEMBERS OF
THEIR IMMEDIATE FAMILY.
<PAGE>
3. NO OFFICER OF EMPLOYEE SHALL TRADE IN ANY SECURITY BEING
CONSIDERED BY THE PORTFOLIO MANAGER, UNTIL ALL CONTEMPLATED CLIENT
TRANSACTIONS WITH RESPECT TO EACH SECURITY HAVE BEEN COMPLETED; NOR
SHALL ANY OFFICER OR EMPLOYEE PERMIT ANY MEMBER OF HIS OR HER IMMEDIATE
FAMILY TO ENGAGE IN ANY SUCH TRADE.
4. NO OFFICER OR EMPLOYEE SHALL ENGAGE IN ANY SECURITIES
TRANSACTION WHILE IN POSSESSION OF MATERIAL NONPUBLIC INFORMATION
RELATING TO THE BUSINESS OR AFFAIRS OF THE ISSUER OF SECURITIES, MARKET
ACTIVITY OR CONDITIONS OR OTHER MATTERS.
5. IF ANY EMPLOYEE DETERMINES THAT HE OR SHE HAS LEARNED
MATERIAL, NONPUBLIC INSIDE OR MARKET INFORMATION, HE OR SHE MUST NOTIFY
EAI'S COMPLIANCE OFFICER OF THIS FACT IMMEDIATELY. IN THIS CASE,
NEITHER EAI NOR ITS EMPLOYEES MAY EFFECT TRANSACTIONS IN THE SECURITIES
OF THE SUBJECT ISSUER, EITHER FOR THEMSELVES OR FOR ANY CLIENT, UNTIL
SUCH INFORMATION HAS BEEN PUBLICLY DISSEMINATED. FOR MORE INFORMATION
ON WHAT CONSTITUTES RESTRICTED INSIDE OR MARKET INFORMATION, SEE
SECTION D OF EAI'S COMPLIANCE PROCEDURES.
BECAUSE EAI SERVES AS INVESTMENT ADVISER TO A REGISTERED
INVESTMENT COMPANY (THE HOMESTATE GROUP), EAI HAS ADOPTED THE FOLLOWING
PERSONAL TRADING POLICY INTO ITS CODE OF ETHICS ON BEHALF OF BOTH EAI
AND HOMESTATE ("H.S."):
PERSONAL INVESTING POLICY STATEMENT
1. SUBSTANTIVE RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
A. INITIAL PUBLIC OFFERINGS
EAI AND H.S. FLATLY PROHIBIT INVESTMENT PERSONNEL FROM ACQUIRING
ANY SECURITIES IN AN INITIAL PUBLIC OFFERING, IN ORDER TO PRECLUDE ANY
POSSIBILITY OF THEIR PROFITING IMPROPERLY FROM THEIR POSITIONS ON
BEHALF OF AN INVESTMENT COMPANY.
<PAGE>
B. PRIVATE PLACEMENTS
EAI AND H.S. (A) REQUIRE EXPRESS PRIOR APPROVAL OF ANY
ACQUISITION OF SECURITIES BY INVESTMENT PERSONNEL IN A PRIVATE
PLACEMENT. THIS PRIOR APPROVAL SHOULD TAKE INTO ACCOUNT, AMONG OTHER
FACTORS, WHETHER THE INVESTMENT OPPORTUNITY SHOULD BE RESERVED FOR THE
INVESTMENT COMPANY AND ITS SHAREHOLDERS, AND WHETHER THE OPPORTUNITY IS
BEING OFFERED TO AN INDIVIDUAL BY VIRTUE OF HIS OR HER POSITION WITH
THE INVESTMENT COMPANY. (B) INVESTMENT PERSONNEL WHO HAVE BEEN
AUTHORIZED TO ACQUIRE SECURITIES IN A PRIVATE PLACEMENT SHOULD BE
REQUIRED TO DISCLOSE THAT INVESTMENT WHEN THEY PLAY A PART IN ANY
INVESTMENT COMPANY'S SUBSEQUENT CONSIDERATION OF AN INVESTMENT IN THE
ISSUER. (C) IN SUCH CIRCUMSTANCES, THE INVESTMENT COMPANY'S DECISION TO
PURCHASE SECURITIES OF THE ISSUER SHOULD BE SUBJECT TO AN INDEPENDENT
REVIEW BY INVESTMENT PERSONNEL WITH NO PERSONAL INTEREST IN THE ISSUER.
C. BLACKOUT PERIODS
EAI AND H.S. PROHIBIT ANY ACCESS PERSON FROM EXECUTING A
SECURITIES TRANSACTION ON A DAY DURING WHICH ANY INVESTMENT COMPANY IN
HIS OR HER COMPLEX HAS A PENDING "BUY" OR "SELL" ORDER IN THAT SAME
SECURITY UNTIL THAT ORDER IS EXECUTED OR WITHDRAWN. IN ADDITION, EAI
AND H.S. SHOULD PROHIBIT ANY PORTFOLIO MANAGER FROM BUYING OR SELLING A
SECURITY WITHIN AT LEAST SEVEN CALENDAR DAYS BEFORE AND AFTER AN
INVESTMENT COMPANY THAT HE OR SHE MANAGES TRADES IN THAT SECURITY. ANY
PROFITS REALIZED ON TRADES WITHIN THE PROSCRIBED PERIODS MUST BE
DISGORGED.
D. BAN ON SHORT-TERM TRADING PROFITS
IN ADDITION TO THE BLACKOUT PERIODS DESCRIBED ABOVE, EAI AND H.S.
PROHIBIT ALL INVESTMENT PERSONNEL FROM PROFITING IN THE PURCHASE AND
SALE, OR SALE AND PURCHASE, OF THE SAME (OR EQUIVALENT) SECURITIES
WITHIN 60 CALENDAR DAYS. ANY PROFITS REALIZED ON SUCH SHORT-TERM TRADES
MUST BE DISGORGED.
E. GIFTS
EAI AND H.S. PROHIBIT INVESTMENT PERSONNEL FROM RECEIVING ANY
GIFT OR OTHER THING OF MORE THAN DE MINIMIS VALUE FROM ANY PERSON OR
ENTITY THAT DOES BUSINESS WITH OR ON BEHALF OF THE INVESTMENT COMPANY.
<PAGE>
F. SERVICE AS A DIRECTOR
EAI AND H.S. PROHIBIT INVESTMENT PERSONNEL FROM SERVING ON THE
BOARDS OF DIRECTORS OF PUBLICLY TRADED COMPANIES, ABSENT PRIOR
AUTHORIZATION BASED UPON A DETERMINATION THAT THE BOARD SERVICE WOULD
BE CONSISTENT WITH THE INTERESTS OF THE INVESTMENT COMPANY AND ITS
SHAREHOLDERS. IN THE RELATIVELY SMALL NUMBER OF INSTANCES IN WHICH
BOARD SERVICE IS AUTHORIZED, INVESTMENT PERSONNEL SERVING AS DIRECTORS
NORMALLY WILL BE ISOLATED FROM THOSE MAKING INVESTMENT DECISIONS
THROUGH "CHINESE WALL" OR OTHER PROCEDURES.
2. COMPLIANCE PROCEDURES
A. PRECLEARANCE
EAI AND H.S. REQUIRE ALL ACCESS PERSONS TO "PRECLEAR" PERSONAL
SECURITIES INVESTMENTS. THESE PRECLEARANCE REQUIREMENTS AND ASSOCIATED
PROCEDURES ARE REASONABLY DESIGNED TO IDENTIFY ANY PROHIBITION OR
LIMITATION APPLICABLE TO THE PROPOSED INVESTMENT.
B. RECORDS OF SECURITIES TRANSACTION
EAI AND H.S. REQUIRE ALL ACCESS PERSONS TO DIRECT THEIR BROKERS
TO SUPPLY TO A DESIGNATED COMPLIANCE OFFICIAL, ON A TIMELY BASIS,
DUPLICATE COPIES OF CONFIRMATIONS OF ALL PERSONAL SECURITIES
TRANSACTIONS AND COPIES OF PERIODIC STATEMENTS FOR ALL SECURITIES
ACCOUNTS.
C. NASD RULEMAKING -- OPENING OF ACCOUNTS
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") HAS
ADOPTED A RULE REQUIRING ALL BROKER-DEALERS TO NOTIFY A REGISTERED
INVESTMENT ADVISER WHEN ANY OF ITS EMPLOYEES OPENS A BROKERAGE ACCOUNT.
D. POST-TRADE MONITORING
THE HOMESTATE GROUP SHALL IMPLEMENT APPROPRIATE PROCEDURES TO
MONITOR PERSONAL INVESTMENT ACTIVITY BY ACCESS PERSONS AFTER
PRECLEARANCE HAS BEEN GRANTED.
<PAGE>
E. DISCLOSURE OF PERSONAL HOLDINGS
EAI AND H.S. REQUIRE ALL INVESTMENT PERSONNEL TO DISCLOSE ALL
PERSONAL SECURITIES HOLDINGS UPON COMMENCEMENT OF EMPLOYMENT AND
THEREAFTER ON AN ANNUAL BASIS.
F. CERTIFICATION OF COMPLIANCE WITH CODES OF ETHICS
ALL ACCESS PERSONS ARE REQUIRED TO CERTIFY ANNUALLY THAT THEY
HAVE READ AND UNDERSTOOD THE CODE OF ETHICS AND RECOGNIZE THAT THEY ARE
SUBJECT THERETO. FURTHER, ACCESS PERSONS ARE REQUIRE TO CERTIFY
ANNUALLY THAT THEY HAVE COMPLIES WITH THE REQUIREMENTS OF THE CODE OF
ETHICS AND THAT THEY HAVE DISCLOSED OR REPORTED PURSUANT TO THE
REQUIREMENTS OF THE CODE.
G. REVIEW BY THE BOARD OF DIRECTORS
EAI'S MANAGEMENT SHALL PREPARE AN ANNUAL REPORT TO THE INVESTMENT
COMPANY'S BOARD OF DIRECTORS THAT AT A MINIMUM -
-- SUMMARIZES EXISTING PROCEDURES CONCERNING PERSONAL INVESTING
AND ANY CHANGES IN THE PROCEDURES MADE DURING THE PAST YEAR;
-- IDENTIFIES ANY VIOLATIONS REQUIRING SIGNIFICANT REMEDIAL
ACTION DURING THE PAST YEAR; AND
-- IDENTIFIES ANY RECOMMENDED CHANGES IN EXISTING RESTRICTIONS OR
PROCEDURES BASED UPON THE INVESTMENT COMPANY'S EXPERIENCE UNDER ITS
CODE OF ETHICS, EVOLVING INDUSTRY PRACTICES, OR DEVELOPMENTS IN
APPLICABLE LAWS OR REGULATIONS.
