SEMI-ANNUAL REPORT
(HOMESTATE MUTUAL FUNDS LOGO)
DECEMBER 31, 1998
THE HOME STATE GROUP
---------------------
WELCOME TO THE HOMESTATE MUTUAL FUNDS
---------------------------------------------
HomeState offers three mutual funds: The PA Growth Fund, The Banking and
Finance Fund and The Y2K (Year 2000) Fund. The Funds offer investors a unique
investment strategy aimed at pursuing long-term growth: what we call "The
HomeState Advantage."
IN-DEPTH, ON-SITE RESEARCH
-----------------------------
HomeState's own in-house team of research analysts believes in a common-sense,
fundamental approach to choosing investments. Whenever we can, we visit a
company before investing, talking to its management and employees, as well as
its suppliers, customers and competitors.
PROFESSIONAL PORTFOLIO MANAGEMENT
---------------------------------
HomeState's chief investment officer, Kenneth G. Mertz II, CFA, has over twenty
years' experience in the money management industry, including seven years as
chief investment officer of a $12 billion public pension fund. Ken has managed
portfolios in both "up" and "down" markets and this experience guides him as he
seeks to actively reduce risk.
UNIQUE INVESTMENT OPPORTUNITIES
-------------------------------
HomeState's mutual funds each focus on areas we feel are largely ignored by
other institutional money managers:
- companies based in our home state of Pennsylvania,
- technology and "Year 2000 Problem-solving" companies,
- smaller-sized banking & financial services companies.
(HomeState
Pennsylvania Invests a minimum 65% of its assets in companies headquartered or
Growth Fund with significant operations in the Commonwealth of Pennsylvania.
Logo)
(HomeState
Banking & Invests a minimum 65% of its assets in companies in the banking
Finance and financial services industries, with a focus on smaller
Fund Logo) companies in the Mid-Atlantic states.
(HomeState
The Y2K Fund Invests a minimum 65% of its assets in companies identified by
Logo) the Fund's adviser as working to provide solutions to the Year
2000 Problem.
In-Depth, On-Site Research. Professional Portfolio Management. Unique Investment
Opportunities. That's The HomeState Advantage.
Funds that invest in a particular state or region, or in a specific
industry, may involve a greater degree of risk than funds with a more
diversified portfolio. Investing in smaller companies' stock can involve
higher risk and increased volatility than larger stocks. This report
contains information about the Funds' performance. Past performance is no
guarantee of future results. An investment in the Funds will fluctuate in
value so that your account, when redeemed, may be worth more or less than
your original purchase price.
THE HOMESTATE GROUP
- -------------------
REPORT FROM MANAGEMENT
January 21, 1999
Dear Shareholder:
So how does it feel to be making history? Everywhere you turn these days, we
seem to be in a "history making" event of one kind or another. Bill Clinton is
the first-ever elected U.S. president to face a Senate impeachment trial. We
are on the brink of a new millennium. Our economy continues to chug along with
the longest economic expansion in history. The Internet is breaking decades-old
paradigms on several fronts (not the least of which is the incredible valuations
investors are willing to pay for many Internet companies). And then there's the
stock market itself. Never in recent history has there been such a wide
performance disparity between the stocks of companies of differing size.
1998 will certainly be remembered by investors for two primary reasons: the
aforementioned Internet stocks, and the narrowly-based run-up of the stocks of
large companies. Simply put, unless you were invested in the biggest of the big
companies, you probably didn't have a very good year. We at HomeState, as
small-cap investors, did not have a very good year. 1998 was the first year
since our founding that any HomeState Fund finished a calendar year with a
negative return. Chief investment officer Ken Mertz frames the circumstances
very nicely in his overview report beginning on page 5: the average company with
a market capitalization (a company's total value: its outstanding shares
multiplied by its share price) of less than $250 million finished 1998 down
24.1%. By contrast, the average company with a market cap of more than $6
billion ended 1998 up by 25.9%. The Wall Street Journal reported in late
December that five stocks were responsible for a full 25% of the S&P 500 Index's
1998 rise: five stocks of 500. A historic divergence, indeed.
We've been reporting on (and fretting about) the underperformance of small-cap
stocks for some time now. Are we finally rounding a corner? Some key points:
o Over the long-term, small-cap stocks have outperformed their large-cap
competitors (Ibbotson Associates published the landmark study on this). It
makes sense: they typically grow at much faster rates than larger, more
established companies. History, long-term history, is on our side.
o Look again at the numbers above. Relatively speaking, small-cap stocks are
quite the bargain. The old adage "Buy Low, Sell High" will bring buyers
into small-cap stocks. We see tremendous opportunities in the companies in
our portfolios.
o We hit a definite market bottom on October 8th of 1998. Since then, small
caps have recovered quite nicely. Is it the beginning of a trend? Too
early to tell. But. . .
o We at HomeState are small-cap investors, long-term small-cap investors.
However agonizing this big cap/small cap divergence may be, it is a
temporary event in the long timeline of U.S. equity markets. We will
continue our long-term small-cap focus and expect to be rewarded when
valuations fall back in place with historic norms.
The past year was no fun for small-cap investors, HomeState shareholders (and
management) included. But twelve months does not a mutual fund's reputation
make. The relative underperformance of small-cap stocks in 1998 will pass into
the history books, and the longer-term record will emerge. We have been hard at
work for our shareholders since 1992 to ensure that our long-term record is one
to be proud of.
As 1999 begins, we note another record for 1998: total assets managed by Emerald
Advisers, Inc., the Funds' adviser, increased for the sixth consecutive year, to
over $420 million at year-end. We thank you for your support and confidence.
As always, please don't hesitate to contact me or your HomeState representative
with any comments or questions. We wish you a prosperous and healthy New Year.
Sincerely,
/s/ Scott L. Rehr
Scott L. Rehr
President
THE HOMESTATE GROUP
- -------------------
MARKET AND ECONOMIC REVIEW
January 21, 1999
Dear Shareholder:
The disparities of market performance in 1998 have set records that will go
unbroken for many years. While the S&P 500 was up 26.7% in 1998, the Russell
2000 was down 2.6%. This point gap, while extraordinary, does little to tell
the full story of performance disparity. For the year, the only attribute that
determined performance was cap size. A straight linear relationship existed, as
each segment of the cap size resulted in lower/less performance.
TABLE ONE
YTD DECLINE/GAIN (UNWEIGHTED AVERAGE) THRU 12/29/98
---------------------------------------------------
MARKET CAPITALIZATION % CHANGE
--------------------- ---------
$20 billion > +25.9%
$5 bill to $20 bill +6.2%
$2 bill to $5 bill -6.1%
$250 to $2 bill -16.6%
<250 million -24.1%
As a small capitalization manager (especially for our flagship PA Growth Fund)
whose median market cap is below the median of the Russell 2000 and generally
below $250 million, our results for 1998 have been defined by the results of the
bottom capitalization segment in the chart above. Please note that the Banking
and Finance Fund also focuses on smaller issues, as was the Y2K Fund until we
started to focus on favorably valued larger companies during the 4th quarter of
the year.
ECONOMIC CONDITIONS
- -------------------
The key to the continuation of our worldwide economic expansion was the
decisiveness of 3 rate cuts by the Federal Reserve in 1998. As the markets
faced the possibility of a worldwide economic meltdown and various currency
crises, the Fed took quick action by lowering rates 3 times. The most important
of these was the interim rate cut which sent a strong signal to the market that
the Federal Reserve would not allow recessionary and market shocks to affect
world economic growth. This provided a floor for the market and restored
confidence in both individual and institutional investors. This was the sorely
needed medicine, as the Russell 2000 Index hit 304 on October 8th, which was
down 28% for the year and 36% since the April 21st high. Economic growth was
threatened in the U.S. from problems in Asia (specifically Japan), in Russia and
lastly in Brazil. While the Fed's move brought back investor confidence, the
long-term problems from 1998 will still be lurking in the background for 1999.
Japan still has a shaky economy (expect negative growth and a difficult
investment climate) and as the linchpin for the entirety of Asia, we have not
heard the last of the Asian contagion. While a "credit crunch" almost occurred
in the U.S., Japan may be undergoing its own, with little relief available.
Therefore, we should expect more Japanese imports, more deflation being imported
(especially hitting the manufacturing sector) and tougher competition for U.S.
multi-national large cap companies. Lack of pricing power, and therefore
earnings, will bring earning estimates down for these companies in 1999.
Brazil's currency remains under attack in 1999, as foreign investment dollars
look for an exit. IMF policy dictates austerity measures be undertaken before a
bailout package can be secured. While this is a start, the long-term solution
is greater growth, as Salomon Smith Barney expects a 3% drop in Brazilian GDP.
Since Brazil is so important to Latin America, our exports to this region must
be affected. While Brazil has recently decided to have their currency on a
freely floating basis, only growth stimulated by lower interest rates worldwide
will keep investors capital in Brazil and restore full confidence in their
economy.
In addition, the Russian economy has many serious problems which could affect
global stability. Also China's currency will be under pressure sometime in
1999. With these worldwide problems still a factor in 1999 and with inflation
under control, we have plenty of room for the Federal Reserve to release a new
series of rate cuts in 1999.
We continue to believe inflation remains under control (less than 1.5% increase
over the last 12 months) because of all the worldwide problems listed above.
Also capacity utilization continues to be less than 81% versus 83% recorded last
year. With technological improvements continuing, capacity pressures appear
non-existent for the year unless capital spending stops completely. We also
foresee little pressure from consumer spending. The market valuations for
consumer stocks were so low in the 3rd quarter, that one had to believe that all
consumer spending would stop and 1999 would see a full-fledged recession. While
the demise of 1998 never occurred, we now believe several factors are building
that will lead to slower spending patterns over the next 12 months:
1.Increased layoffs
2.Stock Market gains decelerating in '99
3.Mortgage refinancing slowing
4.Consumer needs already met in terms of housing, cars, apparel and other
essentials
5.Continuing buildup of consumer debt
Given weak consumer demand trends, complex worldwide problems, a weak
manufacturing sector and the Y2K situation, we expect the Fed will not only
provide a floor for equity investors, but provide a worldwide stimulus package
beginning in the spring. Since recent history indicates rate cuts are in groups
of three, we will follow suit with our prediction of 3 cuts in 1999.
Our performance for all three Funds for the year was pretty closely aligned with
the average performance of like size companies. As we stated earlier, our
fourth quarter move in The Y2K Fund to larger companies based on their more
favorable fundamentals (companies such as IBM, Microsoft, Intel, Dell, Compaq,
EMC, etc. - see the Fund's schedule of investments on the following pages)
greatly enhanced the Fund's performance results. The fourth quarter rally,
namely from the October 8th low, showed great strength, but only returned the
value of small cap stocks to the levels of July 1998. The current valuation is
not really indicative of small caps growth prospects or valuation, especially
since the small cap segment has under-performed their large cap indices for the
fifth straight year.
We remain disappointed in the recovery, though, as the market, which broadened
in late October and November became very narrow again in December and early
January. The cap-weighted S&P 500 was up 26.7% for the year, but the equal
weighted index was up only 13%. For the OTC marketplace, only 1261 issues were
up and 2360 were lower. This 2-1 ratio was very difficult to overcome in the
small cap arena. In fact, most of the S&P 500 return was attributed to just 14
of the largest capitalization stocks. The rest of the investable universe did
much worse than the cap-weighted indices would lead one to believe.
Sector results also indicated the substantial differences between the largest
stocks versus the average stock.
TABLE TWO
"THE "MARKET CAP EFFECT" ON SECTORS YTD THRU 12/29/98
--------------------------------------------------------------
YEAR-TO-DATE RETURN YEAR-TO-DATE RETURN
SECTOR SIMPLE AVERAGE CAP-WEIGHTED AVERAGE
------ ------------------- --------------------
Utilities +8.0% +12.0%
Energy -36.4% +7.2%
Financials -6.4% +10.7%
Industrials -14.7% +9.8%
Durables -1.1% +25.2%
Staples -5.0% +10.9%
Services -0.9% +37.5%
Retail +13.3% +68.0%
Health -13.7% +39.3%
Technology -0.5% +71.1%
1998 Calendar Year returns through 12/29/98
Source: Pat Dorsey, Morningstar.net
These results are extraordinary, especially when you consider that it is the
exact same stocks in the simple average calculation as in the cap-weighted
average. The most remarkable sector was Technology, as the big cap stocks
created a cap-weighted return of 71.1% versus a negative return of 0.5% for the
average stock in this sector.
Given that HomeState still believes that the best long-term results are in
discovering under-researched small cap growth opportunities, we have not changed
our disciplines or our cap size at all. Our performance in 1998 is wholly
explained by the cap size position of our portfolios. Which leads us to the
inevitable question of when does the superior growth and valuation
characteristics of the small cap sector become so compelling that investors can
no longer ignore them. First, we don't believe it will be a result of changes
in supply/demand factors in the mutual fund segment. Momentum remains firmly
behind the indexing trend (feeding the biggest 14 stocks) and last year's
winners (concentrated funds as well as Internet funds). In addition, the small
cap sector had significant outflows of funds during the second half of 1998.
The catalyst for small cap stocks will be the pension plan sponsors and their
consultants who have established long-term asset allocation targets which are
now severely out of balance because of the extraordinary disparity of returns
over the last few years, especially 1998. Just a reallocation to offset the
year's performance results will result in a large amount of capital being
reallocated to the small cap sector.
Sincerely,
/s/Kenneth G. Mertz II
Kenneth G. Mertz II
Chief Investment Officer
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
REPORT FROM MANAGEMENT
January 21, 1999
Dear Shareholder:
The HomeState Pennsylvania Growth Fund suffered its worst performance since its
inception in 1992. This was a result of the U.S. Economy nearly entering a
"credit crunch" and the world economy suffering a possible currency "meltdown"
in the Far East, Russia and Latin America. Add to this the fifth consecutive
year of small capitalization stocks underperforming their large cap counterparts
and we have the most difficult investment environment in history for our small
growth company style of investing. The excess return of large companies as
represented by the S&P 500 over the small cap index of the Russell 2000 for the
last 12 months was greater than 25%, the largest in history. Since these
results have historically been shown to be cyclical and this cycle is now 5
years old, small cap stocks will be the place to be invested as the cycle
shifts.
Average Annual Returns for the Fund and comparable benchmarks for periods ended
December 31, 1998 are as follows:
<TABLE>
CUMULATIVE
SINCE INCEPTION TOTAL RETURNS
FUND/INDEX SIX MONTHS1<F1> ONE YEAR1<F1> FIVE YEAR1<F1> 10/1/921<F1> SINCE INCEPTION1<F1>
- ---------- -------------- ------------- -------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
PA Growth (NAV) -17.07% -12.44% +14.62% +16.22% +156.09%
PA Growth (MOP) -21.01% -16.62% +13.51% +15.32% +143.89%
Russell 2000 Index -7.12% -2.57% +11.87% +14.99% +139.40%
1<F1> Past performance is no guarantee of future results. The value and performance return of an investment in the Fund will
fluctuate with market conditions, so that shares, when redeemed, may be worth more or less than their original purchase
price.
</TABLE>
While we do not know when the small cap cycle will turn,we believe the current
valuation levels are clearly in our favor. We ended the year with an emphasis
on technology (33% of portfolio) and consumer oriented shares (29% of
portfolio). Specifically for 1999 we expect to benefit by emphasizing biotech
stocks, e-commerce-enhanced retailers, Internet service providers,
telecommunications stocks and information technology stocks. By utilizing our
own in-house research team to uncover exciting small growth opportunities before
the rest of the world, we have created a portfolio that is long on earnings
growth but extremely unrecognized by the market. When sentiment turns around,
our undervalued growth companies will be the prime beneficiary of the move to
small cap growth companies.
Our emphasis remains on niche companies who are dominate in their categories,
and can grow their revenues by capturing market share and grow their bottom line
earnings by being superior financial leaders. These leaders may be new public
companies such as Electronic Boutique (ELBO), companies with expanding new
technologies such as Associated Group (AGRPA), IT service providers such as
Mastech (MAST) or Internet service enablers such as Sanchez Computer (SCAI).
While 1999 was a disappointment for small cap growth investors, we remain
convinced our emphasis in our home-state of Pennsylvania and by adding selected
national companies as undercovered by our own research team will create
excellent opportunities. The companies in which we have your Fund invested are
the superior companies, which have created the "HomeState Advantage".
Sincerely,
/s/Kenneth G. Mertz II
Kenneth G. Mertz II, CFA
Portfolio Manager
Chief Investment Officer
THE HOMESTATE SELECT BANKING AND FINANCE FUND
- ---------------------------------------------
REPORT FROM MANAGEMENT
January 21, 1999
Dear Shareholder:
As we close the books on a tumultuous 1998 and start the last year of the
millennium, we, the managers of The HomeState Select Banking and Finance Fund
and your fellow shareholders, are extremely enthusiastic about the new focus of
the Fund and its forward potential. Let's revisit a few of last year's events,
as it was a year to remember, before discussing the future.
PERFORMANCE RESULTS AS OF DECEMBER 31, 1998
AVERAGE
ANNUAL RETURN
SINCE INCEPTION
SIX MONTHS1<F2> ONE YEAR1<F2> 2/18/971<F2>
--------------- ------------- ---------------
Banking and Finance
Fund (NAV) -23.92% -20.54% +3.39%
Banking and Finance
Fund (MOP) -27.59% -24.31% +0.72%
Russell 2000 Index -7.12% -2.57% N.A.
1<F2> Past performance is no guarantee of future results. The value and
performance return of an investment in the Fund will fluctuate with
market conditions, so that shares, when redeemed, may be worth more or
less than their original purchase price.
Please note that these numbers were principally compiled while the Fund pursued
a different investment objective; from its founding in February of 1997 until
October 20, 1998, the Fund was named The HomeState Select Opportunities Fund and
did not focus on banking or financial services companies. Since its change on
October 20th through December 31, 1998, the Fund returned +10.75%.
Simply put, 1998 market participants fell for the old cliche that "bigger is
better." It was troubling to see that the only attribute that determined
performance was cap size. As Kenneth G. Mertz II, CFA discusses in his overview
report beginning on page 5: the market strongly rewarded the largest companies
and, in particular, the large cap companies in the technology sector. In fact,
a straight linear relationship existed between performance and cap size, with
the micro caps (defined as stocks with a market cap of less than $250 million)
significantly underperforming the large cap segment by more than 30%.
The "intelligent investor" (our fellow shareholders) must ask, "How can this
occur at a time when small and midcap companies continue to sell at a discount
to their large cap brethren while producing larger earnings gains than their
larger counterparts?"
As managers of your Fund, we are faced with the question of what to do going
forward. The answer is simple, and will always be the same. Our shareholders
can rest assured that we will continue to maximize returns to them while
minimizing risk through our fundamental bottom-up management style. We will
continue to uncover small to mid cap stocks priced below the market due to the
fact that Wall Street has yet to discover them. In addition, these companies
will have a compelling growth catalyst. A portfolio combining these
characteristics is well positioned to perform competitively over the long term,
while seeking to exhibit less risk than the overall stock market.
In 1998, global market turmoil sent U.S. bank stocks into a tailspin, even those
with no international exposure. While the market has recovered significantly
from its absolute low of early October, relative valuations remain extremely
attractive in the banking and finance sector. Growth, diversification and
valuations make the banking and finance sector attractive in 1999. Earnings
growth in the banking sector should continue to grow at double-digit rates, with
growth being produced by the Internet and inroads into non-traditional banking
businesses such as insurance and asset management. This expansion not only
serves to diversify business lines, but also strengthen customer relations, and
increase customer retention while increasing revenue.
Much like the banking sector the REIT (real estate investment trust) market took
no prisoners in 1998. While psychology and fear ruled the REIT sector in 1998,
ultimately the fundamentals will be the catalyst for price performance in 1999
(and the fundamentals are strong). The S&P 500 is now trading at approximately
3x the average REIT multiple, as compared to trading at approximately 2x the
average REIT multiple at the beginning of 1998. This while FFO growth continued
at a 10% rate and same-store net operating income (NOI) remained strong across
the REIT universe driven by increasing rents, occupancies and moderating
expenses. With this said, it is unlikely that investor sentiment towards this
sector will remain at an all time low.
As we bring in the New Year, small and mid cap investors can continue to be
confident that once again small and mid cap companies will continue to produce
larger earnings growth than their peers. The ultimate question remains "When
will the market value a dollar of future earnings by a small cap company the
same as a dollar of future earnings by their large cap peers?"
Sincerely,
/s/Steven E. Russell
Steven E. Russell, Esq.
Co-Portfolio Manager
The Select Banking and Finance Fund
THE HOMESTATE YEAR 2000 FUND
- ----------------------------
REPORT FROM MANAGEMENT
January 21, 1999
Dear Shareholder:
Your HomeState Year 2000 ("Y2K") Fund had a difficult first six months of the
new fiscal year.
PERFORMANCE RESULTS AS OF DECEMBER 31, 1998
AVERAGE
ANNUAL RETURN
SINCE INCEPTION
SIX MONTHS1<F3> ONE YEAR1<F3> 10/31/971<F3>
--------------- ------------- --------------
The Y2K Fund (NAV) -10.09% +2.07% +7.39%
The Y2K Fund (MOP) -12.69% -0.91% +4.71%
Russell 2000 Index -7.12% -2.57% -1.30%
1<F3>Past performance is no guarantee of future results. The value and
performance return of an investment in the Fund will fluctuate with market
conditions, so that shares, when redeemed, may be worth more or less than
their original purchase price.
The Russell 2000 is an unmanaged index of 2000 smaller sized companies.
HomeState believes the simple change of the calendar, which will occur on
January 1, 2000, presents a technological problem of momentous proportion.
Estimates for correcting the "Y2K" problem has been increased from $600 billion
to $1 trillion by the Gartner Group. Even more important than this increase is
the fact that only 43% of this money had been spent by September 30, 1998.
Since this amount of unspent dollars is so large and the time to Year 2000 is so
short, we expect a last minute surge will occur to the benefit of full service
providers such as Complete Business Solutions, Keane, Mastech and Metamor
Worldwide, etc. While these firms' profits have benefited from their Y2K
contracts in '97 and '98, "Wall Street" actually penalized these earnings as
unsustainable. Our position has always been that superior companies such as
those listed above will not only grow their earnings by 30% or greater because
of the Y2K problem, but also enhance their future business through leverage and
greater IT penetration. In addition, we believe these diversified IT service
providers will not see their profits lowered by a corporate profit slowdown. A
contracting economy would push corporations to enhance technology spending to
hold up profit margins and enhance earnings. Our viewpoint was counter to the
Street's almost total annihilation of these stocks during the 3rd Quarter of
1998. While these stocks will probably not return to their highs anytime soon,
their prospects remain quite significant and therefore justify our current
holdings.
Since the sentiment had turned so negative for our Information Technology
holdings, we started to emphasize the replacement cycle, at the beginning of the
4th Quarter. The hardware replacement cycle has benefited our holdings such as
Dell Computer, Apple Computer, Compaq, IBM and Intel. In addition, other
companies replacing non-Y2K compliant products include Microsoft and Cisco.
Our third major theme which we are concentrating on is the testing phase. In
this area we have concentrated on Mercury Interactive, Compuware and Crystal
Systems Solutions. Inevitably, the Y2K problem will generate some profit
problems for individual companies as well as business disruptions. Therefore,
we anticipate making a bigger commitment to companies which benefit from being
Y2K compliant in contrast to their competition.
While the Y2K fund will remain highly volatile because of our narrow focus on a
sub-sector of technology industry, our outperformance since the market lows of
October 8th indicate our Y2K focus can prosper when the market shows a little
strength. For example, the Fund was up 41.72% from the Russell 2000 low on
October 8th through December 31, 1998, while the Russell 2000 was up 36.43% and
the S&P 500 was up 28.52% during the same period. Our broader cap size
dispersion certainly helped (approximately 30% in large caps added for the 4th
Quarter) and should provide more opportunities in 1999.
Sincerely,
/s/Kenneth G. Mertz II
Kenneth G. Mertz II, CFA
Portfolio Manager
Chief Investment Officer
THE HOMESTATE PENNSYLVANIA GROWTH FUND
- --------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1998
MARKET
SHARES VALUE
------ -------
COMMON STOCKS -- 97.8%
COMMUNICATIONS & BROADCASTING -- 3.0%
CD Radio Inc.^<F5>*<F4>......................... 20,000 $ 685,000
Comcast Corporation -- Class A ................. 33,650 1,974,834
National Media Corporation^<F5>*<F4>............ 50,000 534,375
------------
Total Communications & Broadcasting 3,194,209
------------
FINANCE & INSURANCE -- 16.7%
INSURANCE CARRIERS -- 4.6%
Donegal Group Inc............................... 110,710 1,729,844
Penn Treaty American Corporation*<F4>........... 68,250 1,838,484
Penn-America Group, Inc. ...................... 128,250 1,162,266
Provident American Corporation*<F4>............. 24,200 242,000
------------
4,972,594
------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 3.7%
Patriot Bank Corp. ............................. 11,358 133,456
Progress Financial Corporation ................. 83,350 1,031,456
Resource America, Inc. -- Class A .............. 84,000 761,250
Sovereign Bancorp, Inc.......................... 80,862 1,152,283
Thistle Group Holdings, Co. .................... 20,000 192,500
York Financial Corp. ........................... 41,493 656,108
------------
3,927,053
------------
STATE & NATIONAL BANKS -- 8.4%
BT Financial Corporation........................ 23,710 649,061
Commerce Bancorp, Inc.^<F5>..................... 28,606 1,501,815
First Capitol Bank*<F4>......................... 7,300 295,650
First Colonial Group, Inc. ..................... 30,245 880,886
JeffBanks, Inc. ................................ 31,833 628,702
Main Street Bancorp, Inc. ...................... 69,129 1,287,528
Prime Bancorp, Inc. ............................ 106,910 1,683,833
Sun Bancorp, Inc................................ 25,243 700,493
Susquehanna Bancshares, Inc. ................... 70,300 1,438,953
------------
9,066,921
------------
TOTAL FINANCE & INSURANCE............................... 17,966,568
------------
MANUFACTURING -- 38.3%
CHEMICALS & ALLIED PRODUCTS -- 1.1%
OM Group, Inc.^<F5>............................. 31,700 1,157,050
------------
COMPUTER & OFFICE EQUIPMENT -- 3.1%
FORE Systems, Inc.*<F4>......................... 60,000 1,098,750
Iomega Corporation^<F5>*<F4>.................... 150,000 1,096,875
Safeguard Scientifics, Inc.*<F4>................ 42,950 1,178,441
------------
3,374,066
------------
DIVERSIFIED OPERATIONS -- 0.5%
Matthews International Corporation -- Class A... 18,700 589,050
------------
FOOD & BEVERAGES -- 1.9%
Hershey Foods Corporation....................... 20,000 1,243,750
Tootsie Roll Industries, Inc.^<F5>.............. 20,000 782,500
------------
2,026,250
------------
IRON & STEEL -- 0.9%
Carpenter Technology Corporation................ 28,100 953,644
------------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 16.8%
Allen Organ Company -- Class B ................. 9,864 374,832
Bel Fuse Inc. -- Class A^<F5>*<F4>.............. 20,000 800,000
C&D Technologies, Inc. ......................... 87,000 2,392,500
C-COR Electronics, Inc.*<F4>.................... 45,300 622,875
Cable Design Technologies*<F4>.................. 115,800 2,142,300
Cubic Corporation^<F5>.......................... 14,900 279,375
Harsco Corporation ............................. 38,600 1,174,887
Herley Industries, Inc*<F4>..................... 80,000 960,000
Integrated Circuit Systems, Inc.*<F4>........... 41,500 731,437
The JPM Company*<F4>............................ 20,000 280,000
Kulicke and Soffa Industries, Inc.*<F4>......... 7,500 133,125
SCI Systems, Inc.^<F5>*<F4>..................... 25,000 1,443,750
TB Wood's Corporation .......................... 17,000 205,063
Technitrol, Inc................................. 73,700 2,349,187
Teleflex Incorporated........................... 37,400 1,706,375
Triumph Group, Inc.^<F5>*<F4>................... 37,000 1,184,000
TurboChef, Inc.^<F5>*<F4>....................... 10,000 91,250
Vitesse Semiconductor Corporation^<F5>*<F4>..... 28,000 1,277,500
------------
18,148,456
------------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT -- 4.0%
JLG Industries, Inc. ........................... 36,300 567,188
Met-Pro Corporation............................. 107,150 1,339,375
SI Handling Systems, Inc........................ 174,125 2,437,750
------------
4,344,313
------------
PHARMACEUTICAL PREPARATIONS -- 5.8%
Agouron Pharmaceuticals, Inc. ^<F5>*<F4>........ 24,850 1,459,937
CollaGenex Pharmaceuticals, Inc.*<F4>........... 28,100 270,462
Cypros Pharmaceutical Corporation^<F5>*<F4>..... 700 2,275
Emisphere Technologies, Inc.^<F5>*<F4>.......... 33,600 525,000
Magainin Pharmaceuticals, Inc.*<F4>............. 48,000 153,000
Maxim Pharmaceuticals, Inc.^<F5>*<F4>........... 27,300 419,737
MedImmune, Inc.^<F5>*<F4>....................... 6,000 596,625
Neose Technologies, Inc.*<F4>................... 65,290 918,141
PharmaPrint Inc.^<F5>*<F4>...................... 89,000 1,168,125
ViroPharma Incorporated*<F4>.................... 73,700 686,331
------------
6,199,633
------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 3.9%
ArthroCare Corporation^<F5>*<F4>................ 15,000 326,250
ChromaVision Medical Systems, Inc.^<F5>*<F4>.... 99,460 497,300
Environmental Tectonics Corporation*<F4>........ 67,100 679,388
IGEN International, Inc.^<F5>*<F4>.............. 78,500 2,404,063
Medical Technology & Innovations, Inc.*<F4>.....1,460,789 262,942
------------
4,169,943
------------
TELECOMMUNICATIONS EQUIPMENT -- 0.0%
InterDigital Communications Corporation*<F4>.... 5,000 22,813
------------
TEXTILES & APPAREL -- 0.3%
Jones Apparel Group, Inc.*<F4>.................. 15,960 352,118
------------
TOTAL MANUFACTURING .................................... 41,337,336
------------
REAL ESTATE INVESTMENT TRUSTS -- 5.4%
Brandywine Realty Trust ........................ 90,500 1,617,687
Crown American Realty Trust .................... 160,500 1,243,875
Liberty Property Trust.......................... 67,600 1,664,650
Resource Asset Investment Trust ................ 120,000 1,320,000
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS .................... 5,846,212
------------
SERVICES -- 19.7%
BUSINESS SERVICES -- 0.8%
Diamond Technology Partners
Incorporated^<F5>*<F4>........................ 37,530 717,761
Marlton Technologies, Inc.*<F4>................. 48,300 199,238
------------
916,999
------------
COMPUTER SERVICES -- 15.0%
Amkor Technology, Inc.*<F4>..................... 77,400 836,888
Ansoft Corporation*<F4>......................... 97,000 472,875
Best Software, Inc.^<F5>*<F4>................... 40,650 965,438
CMGI Inc.^<F5>*<F4>............................. 500 53,250
CPS Systems, Inc.^<F5>*<F4>..................... 50,000 40,625
Complete Business Solutions, Inc.^<F5>*<F4>..... 49,800 1,686,975
Concentric Network Corporation^<F5>*<F4>........ 9,900 329,175
DocuCorp International, Inc.^<F5>*<F4>.......... 86,660 525,376
Jack Henry & Associates, Inc.^<F5>.............. 10,000 497,500
Javelin Systems, Inc.^<F5>*<F4>................. 35,000 525,000
Keane, Inc.^<F5>*<F4>........................... 54,780 2,187,776
Mastech Corporation*<F4>........................ 108,000 3,091,500
Mercury Interactive Corporation^<F5>*<F4>....... 10,000 632,500
Prophet 21, Inc.*<F4>........................... 5,000 53,437
Sanchez Computer Associates, Inc.*<F4>.......... 63,750 1,864,688
SunGard Data Systems Inc.*<F4>.................. 48,400 1,920,875
Tangram Enterprise Solutions, Inc.^<F5>*<F4>.... 108,950 435,800
------------
16,119,678
------------
MEDICAL & HEALTH SERVICES -- 2.2%
Balanced Care Corporation....................... 36,000 288,000
CoreCare Systems, Inc.*<F4>..................... 127,000 128,270
Laser Vision Centers, Inc.^<F5>*<F4>............ 76,600 1,697,169
Universal Health Services, Inc. -- Class B ..... 5,000 259,375
------------
2,372,814
------------
PERSONAL SERVICES -- 0.3%
Nobel Learning Communities, Inc.*<F4>........... 49,660 273,130
Right Management Consultants, Inc.*<F4>......... 5,000 73,750
------------
346,880
------------
TELECOMMUNICATION SERVICES -- 1.4%
The Associated Group, Inc. -- Class A*<F4>...... 34,700 1,492,100
------------
TOTAL SERVICES.......................................... 21,248,471
------------
TRANSPORTATION -- 0.5%
Arnold Industries, Inc. ........................ 32,450 523,256
------------
UTILITIES -- 2.0%
Philadelphia Suburban Corporation .............. 67,166 1,985,595
UGI Corporation................................. 7,000 166,250
------------
TOTAL UTILITIES......................................... 2,151,845
------------
WHOLESALE & RETAIL TRADE -- 12.2%
MISCELLANEOUS RETAIL STORES -- 7.2%
A.C. Moore Arts & Crafts, Inc.^<F5>*<F4>........ 88,850 544,206
Borders Group, Inc.^<F5>*<F4>................... 57,000 1,421,438
Brookstone, Inc.^<F5>*<F4>...................... 78,600 1,346,025
Electronics Boutique Holdings Corp.*<F4>........ 49,900 1,016,712
National Record Mart, Inc.*<F4>................. 26,800 244,550
Rite Aid Corporation............................ 51,500 2,552,469
U.S. Vision, Inc.^<F5>*<F4>..................... 82,500 639,375
------------
7,764,775
------------
RETAIL APPAREL & ACCESSORY STORES -- 1.9%
Charming Shoppes, Inc.*<F4>..................... 20,000 86,250
Chico's Fas, Inc.^<F5>*<F4>..................... 12,500 292,187
Hot Topic, Inc.^<F5>*<F4>....................... 33,500 431,312
Piercing Pagoda, Inc.*<F4>...................... 130,900 1,276,275
------------
2,086,024
------------
RETAIL EATING & DRINKING PLACES -- 0.3%
Schlotzsky's, Inc.^<F5>*<F4>.................... 26,000 256,750
------------
WHOLESALE MISCELLANEOUS -- 2.6%
Creative Master International, Inc.^<F5>*<F4>... 70,000 420,000
Media Arts Group, Inc.^<F5>*<F4>................ 117,500 1,652,344
OroAmerica, Inc.^<F5>*<F4>...................... 56,700 559,913
PacificHealth Laboratories, Inc.^<F5>*<F4>...... 50,400 170,100
------------
2,802,357
------------
WHOLESALE-PETROLEUM & PRODUCTS -- 0.2%
Harken Energy Corporation*<F4>.................. 100,000 193,750
------------
TOTAL WHOLESALE & RETAIL TRADE ......................... 13,103,656
------------
TOTAL COMMON STOCKS (COST $88,675,306) ................. 105,371,553
------------
MONEY MARKET MUTUAL FUNDS -- 0.8%
Firstar Institutional Money Market Fund ........ 516,561 516,561
Firstar U.S. Government Money Market Fund ...... 392,277 392,277
------------
TOTAL MONEY MARKET MUTUAL FUNDS (COST $908,838) ........ 908,838
------------
TOTAL INVESTMENTS (COST $89,584,144) -- 98.6% ................ 106,280,391
OTHER ASSETS AND LIABILITIES, NET -- 1.4% .................... 1,519,097
------------
NET ASSETS -- 100.0%.......................................... $ 107,799,488
------------
------------
*<F4>Non-income producing security.
^<F5>Non-Pennsylvania Company as defined in the Fund's current prospectus (the
aggregate value of such securities amounted to $36,260,797 as of December
31, 1998).
See accompanying Notes to Financial Statements.
THE HOMESTATE SELECT BANKING AND FINANCE FUND
- ---------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1998
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 97.1%
FINANCE & INSURANCE -- 69.9%
INSURANCE CARRIERS -- 10.9%
Donegal Group Inc............................... 9,500 $ 148,438
Harleysville Group Inc.......................... 3,700 95,506
Motor Club of America*<F6> ..................... 2,500 35,781
Penn Treaty American Corporation*<F6>........... 11,600 312,475
Penn-America Group, Inc......................... 19,750 178,984
Philadelphia Consolidated Holding Corp.*<F6>.... 12,100 273,763
Provident American Corporation*<F6>............. 14,000 140,000
------------
1,184,947
------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 16.1%
The CIT Group, Inc. -- Class A ................. 3,750 119,297
Federated Investors, Inc........................ 10,000 181,250
First Sierra Financial, Inc.*<F6>............... 10,000 122,500
Knight/Trimark Group, Inc. -- Class A*<F6>...... 8,500 203,469
Prime Bancorp, Inc. ............................ 19,000 299,250
Progress Financial Corporation ................. 21,100 261,113
PSB Bancorp, Inc.*<F6>.......................... 15,500 118,188
Resource America, Inc. -- Class A .............. 15,000 135,938
Sovereign Bancorp, Inc.......................... 8,500 121,125
Thistle Group Holdings, Co. .................... 20,000 192,500
------------
1,754,630
------------
STATE & NATIONAL BANKS -- 42.9%
AmSouth Bancorporation ......................... 9,500 433,437
BT Financial Corporation........................ 11,900 325,762
CENIT Bancorp, Inc. ............................ 3,500 75,250
Commerce Bancorp, Inc........................... 9,100 477,750
Community Independent Bank Inc. ................ 1,200 14,325
Drovers Bancshares Corporation.................. 10,500 255,937
FCNB Corp. ..................................... 12,000 266,250
First Colonial Group, Inc....................... 3,000 87,375
First Western Bancorp, Inc...................... 6,000 190,500
Fulton Financial Corporation.................... 14,100 317,250
Greater Bay Bancorp............................. 8,500 286,875
HUBCO, Inc. ................................... 8,200 247,025
JeffBanks, Inc. ................................ 15,333 302,827
Main Street Bancorp, Inc........................ 27,603 514,106
Mercantile Bankshares Corporation .............. 10,000 385,000
National Penn Bancshares, Inc................... 2,500 68,125
Sun Bancorp, Inc................................ 8,584 238,206
Sun Bancorp, Inc. - New Jersey*<F6>............. 10,000 185,000
------------
4,671,000
------------
TOTAL FINANCE & INSURANCE .............................. 7,610,577
------------
MANUFACTURING -- 5.3%
COMPUTER & OFFICE EQUIPMENT -- 0.7%
Tangram Enterprise Solutions, Inc.*<F6>......... 19,200 76,800
------------
CONSUMER PRODUCTS -- 0.7%
OroAmerica, Inc.*<F6>........................... 8,100 79,988
------------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT -- 1.4%
SI Handling Systems, Inc........................ 10,450 146,300
------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 2.5%
Environmental Tectonics Corporation*<F6>........ 27,300 276,412
------------
TOTAL MANUFACTURING..................................... 579,500
------------
REAL ESTATE INVESTMENT TRUSTS -- 17.5%
Brandywine Realty Trust ........................ 15,700 280,637
Crown American Realty Trust .................... 24,000 186,000
Developers Diversified Realty Corporation....... 1,000 17,750
Duke Realty Investments, Inc. .................. 11,800 274,350
First Industrial Realty Trust, Inc. ............ 9,000 241,312
Liberty Property Trust.......................... 16,000 394,000
Resource Asset Investment Trust ................ 20,000 220,000
The Rouse Company............................... 10,500 288,750
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS .................... 1,902,799
------------
SERVICES -- 3.5%
BUSINESS SERVICES -- 0.5%
Marlton Technologies, Inc.*<F6>................. 13,300 54,863
------------
COMPUTER SERVICES -- 3.0%
Jack Henry & Associates, Inc. ................. 3,000 149,250
Sanchez Computer Associates, Inc.*<F6>.......... 6,000 175,500
------------
324,750
------------
TOTAL SERVICES.......................................... 379,613
------------
WHOLESALE & RETAIL TRADE -- 0.9%
MISCELLANEOUS RETAIL STORES -- 0.9%
Electronics Boutique Holdings Corp. *<F6>....... 5,000 101,875
------------
TOTAL COMMON STOCKS (COST $10,668,777) ................. 10,574,364
------------
CONTRACTS
(100 shares
per contract)
-------------
CALL OPTIONS PURCHASED -- 0.1%
IGEN International, Inc., Expiration March 1999,
Exercise Price $35.00 (Cost $27,650) ........... 50 15,000
------------
SHARES
------
MONEY MARKET MUTUAL FUNDS -- 4.3%
Firstar Institutional Money Market Fund ........ 255,535 255,535
Firstar U.S. Government Money Market Fund ...... 206,611 206,611
------------
TOTAL MONEY MARKET MUTUAL FUNDS (COST $462,146) ........ 462,146
------------
TOTAL INVESTMENTS (COST $11,158,573) -- 101.5% ......... 11,051,510
------------
OTHER LIABILITIES AND ASSETS, NET -- (1.5)% .................. (160,617)
------------
NET ASSETS -- 100.0%.......................................... $ 10,890,893
------------
------------
*<F6> Non-income producing security.
See accompanying Notes to Financial Statements
THE HOMESTATE YEAR 2000 FUND
- ----------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1998
MARKET
SHARES VALUE
------ -------
COMMON STOCKS -- 99.7%
MANUFACTURING -- 37.6%
COMPUTER & OFFICE EQUIPMENT -- 33.7%
Apple Computer, Inc.*<F7>....................... 2,000 $ 81,875
Cisco Systems, Inc.*<F7>........................ 3,000 278,438
Compaq Computer Corporation .................... 3,200 134,200
Dell Computer Corporation*<F7>.................. 4,000 292,750
EMC Corporation*<F7>............................ 2,400 204,000
Intel Corporation............................... 3,000 355,688
International Business Machines Corporation..... 2,600 480,350
Iomega Corporation*<F7>......................... 12,000 87,750
Microsoft Corporation*<F7>...................... 2,800 388,325
Network Associates, Inc.*<F7>................... 5,000 331,250
Novell, Inc.*<F7>............................... 8,000 145,000
Tangram Enterprise Solutions, Inc.*<F7>......... 21,000 84,000
Unisys Corporation*<F7>......................... 15,000 516,562
------------
3,380,188
------------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 3.9%
Cable Design Technologies Corporation*<F7>...... 7,500 138,750
Herley Industries, Inc.*<F7>.................... 15,000 180,000
The Titan Corporation*<F7> ..................... 12,000 66,000
------------
384,750
------------
TOTAL MANUFACTURING..................................... 3,764,938
------------
RETAIL TRADE -- 3.2%
Rite Aid Corporation1<F8>...................... 6,500 322,156
------------
SERVICES -- 58.9%
BUSINESS SERVICES -- 11.5%
Data Processing Resources Corporation*<F7>...... 12,500 365,625
Diamond Technology Partners Incorporated*<F7>... 11,000 210,375
Metamor Worldwide, Inc.*<F7>.................... 5,700 142,500
Modis Professional Services, Inc.*<F7>.......... 14,500 210,250
Robert Half International Inc.*<F7>............. 5,000 223,437
------------
1,152,187
------------
COMPUTER SERVICES -- 46.1%
CPS Systems, Inc.*<F7>.......................... 18,500 15,031
CIBER, Inc.*<F7>................................ 13,000 363,187
Cognicase Inc.*<F7>............................. 6,000 133,406
Comdisco, Inc. ................................. 10,000 168,750
Complete Business Solutions, Inc.*<F7>1<F8>..... 12,800 433,600
Compuware Corporation*<F7>...................... 7,500 585,938
Crystal Systems Solutions Ltd.*<F7>............. 12,000 123,750
DocuCorp International, Inc.*<F7>............... 7,500 45,469
Jack Henry & Associates, Inc. .................. 4,700 233,825
Keane, Inc.*<F7>................................ 11,500 459,281
Mastech Corporation*<F7>1<F8>................... 17,500 500,938
Mercury Interactive Corporation*<F7>............ 11,200 708,400
Platinum Technology, Inc.*<F7>.................. 12,000 229,500
Sanchez Computer Associates, Inc.*<F7>.......... 4,500 131,625
SunGard Data Systems Inc.*<F7>1<F8>............. 6,000 238,125
TAVA Technologies, Inc.*<F7>.................... 22,500 171,563
Viasoft, Inc.*<F7>.............................. 11,200 78,400
------------
4,620,788
------------
MEDICAL & HEALTH SERVICES -- 1.3%
Colorado MEDtech, Inc.*<F7>..................... 10,000 132,500
------------
TOTAL SERVICES.......................................... 5,905,475
------------
TOTAL COMMON STOCKS (COST $8,294,283)................... 9,992,569
------------
MONEY MARKET MUTUAL FUNDS -- 4.0%
Firstar Institutional Money Market Fund ........ 202,091 202,091
Firstar U.S. Government Money Market Fund ...... 199,461 199,461
------------
TOTAL MONEY MARKET MUTUAL FUNDS (COST $401,552) ........ 401,552
------------
TOTAL INVESTMENTS (COST $8,695,835) -- 103.7% .......... 10,394,121
------------
SECURITIES SOLD SHORT -- (4.2%)
AnswerThink Consulting Group, Inc.*<F7>......... 12,000 (322,500)
H.T.E., Inc.*<F7>............................... 1,500 (7,500)
QuadraMed Corporation*<F7>...................... 2,500 (51,250)
. Venator Group, Inc.*<F7>........................ 6,000 (38,625)
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $356,951)......... (419,875)
------------
RECEIVABLES FROM BROKERS FOR SECURITIES SOLD SHORT -- 3.6% ... 356,951
------------
OTHER LIABILITIES AND ASSETS, NET -- (3.1%) .................. (306,253)
------------
NET ASSETS -- 100.0%.......................................... $ 10,024,944
------------
------------
*<F7> Non-income producing security.
1<F8> All or a portion of the securities have been committed as collateral for
open short positions.
See accompanying Notes to Financial Statements.
THE HOMESTATE GROUP
- -------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) DECEMBER 31, 1998
<TABLE>
PENNSYLVANIA SELECT BANKING AND YEAR 2000
GROWTH FUND FINANCE FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investments in securities at market value (identified
cost $89,584,144, $11,158,573, and $8,695,835,
respectively) (Note 2) ................................. $ 106,280,391 $ 11,051,510 $10,394,121
Deposits with brokers and custodian bank for
securities sold short ................................... -- 121,496 356,951
Receivables for:
Dividends and interest .................................. 117,400 37,936 2,702
Investment securities sold ............................. 4,356,631 73,857 --
Capital shares sold .................................... 18,082 3,809 7,989
Other assets................................................ 21,329 8,985 11,978
------------ ------------ ------------
Total assets ............................................ 110,793,833 11,297,593 10,773,741
------------ ------------ ------------
LIABILITIES
Securities sold short at market value (proceeds
$0, $0 and $356,951, respectively) (Note 2) ............. -- -- 419,875
Payables for:
Investment securities purchased ........................ 2,482,297 304,541 95,610
Capital shares repurchased .............................. 255,332 38,123 139,448
Payable to Adviser ..................................... 66,279 17,662 33,354
Accrued expenses and other liabilities ..................... 190,437 46,374 60,510
------------ ------------ ------------
Total Liabilities ...................................... 2,994,345 406,700 748,797
------------ ------------ ------------
NET ASSETS ................................................. $ 107,799,488 $ 10,890,893 $ 10,024,944
------------ ------------ ------------
------------ ------------ ------------
NET ASSETS CONSIST OF:
Shares of beneficial interest............................... $93,094,607 $13,696,753 $10,210,722
Accumulated net realized loss on investments................ (1,991,366) (2,698,797) (1,821,140)
Net unrealized appreciation (depreciation) on
investments ............................................. 16,696,247 (107,063) 1,698,286
Net unrealized depreciation on securities sold short........ -- -- (62,924)
------------ ------------ ------------
Net assets ............................................. $107,799,488 $ 10,890,893 $ 10,024,944
------------ ------------ ------------
------------ ------------ ------------
NET ASSETS VALUE AND REDEMPTION
PRICE PER SHARE
($107,799,488/10,083,655 issued and outstanding
shares, no par value; $10,890,893/1,067,205 issued
and outstanding shares, no par value; and
$10,024,944/922,306 issued and outstanding shares,
no par value, respectively) ............................. $10.69 $10.21 $10.87
------ ------ ------
------ ------ ------
Maximum offering price per share
(100/95.25 of $10.69, 100/95.25 of $10.21, and
100/97.10 of $10.87, respectively) ..................... $11.22 $10.72 $11.19
------ ------ ------
------ ------ ------
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
<TABLE>
PENNSYLVANIA SELECT BANKING AND YEAR 2000
GROWTH FUND FINANCE FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends .............................................. $ 626,012 $ 118,489 $ 3,495
Interest ............................................... 112,367 24,621 26,656
------------ ------------ ------------
Total investment income .......................... 738,379 143,110 30,151
------------ ------------ ------------
EXPENSES:
Investment Advisory fees ................................ 408,419 62,818 46,458
12b-1 fees .............................................. 190,595 21,986 32,521
Shareholder servicing and accounting ................... 180,049 28,555 24,951
Professional fees ...................................... 16,750 11,685 5,936
Directors' fees and expenses ........................... 5,006 2,202 2,758
Administration fees ..................................... 32,472 13,135 13,298
Reports to shareholders ................................ 16,542 2,663 2,330
Federal and state registration fees .................... 12,876 7,175 7,599
Custody fees ........................................... 14,880 4,447 2,848
Other ................................................... 985 265 140
------------ ------------ ------------
Total expenses before fee waivers ................ 878,574 154,931 138,839
Advisory fee waived ..................................... -- (7,309) (4,110)
------------ ------------ ------------
Total operating expenses before
dividends on short positions .......................... 878,574 147,622 134,729
Dividends on short positions ............................ -- -- 1,120
------------ ------------ ------------
Total expenses.................................... 878,574 147,622 135,849
------------ ------------ ------------
NET INVESTMENT LOSS......................................... (140,195) (4,512) (105,698)
------------ ------------ ------------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Realized gain (loss) on:
Long transactions ................................ (1,776,768) (1,203,456) (1,461,863)
Short transactions................................ -- 78,861 157,327
Options contracts expired or closed............... -- (23,370) (74,901)
Change in unrealized appreciation (depreciation) on:
Investments....................................... (21,407,412) (2,929,678) 352,873
Short positions .................................. -- 29,325 (92,136)
------------ ------------ ------------
Net realized and unrealized loss on investments ......... (23,184,180) (4,048,318) (1,118,700)
------------ ------------ ------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $(23,324,375) $ (4,052,830) $ (1,224,398)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
STATEMENTS OF CHANGES IN NET ASSETS DECEMBER 31, 1998
<TABLE>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 PENNSYLVANIA SELECT BANKING AND YEAR 2000
(UNAUDITED) GROWTH FUND FINANCE FUND**<F10> FUND
-------------- ------------------- ---------
<S> <C> <C> <C>
OPERATIONS
Net investment loss ..................................... $ (140,195) $ (4,512) $ (105,698)
Net realized gain (loss):
Long transactions ................................ (1,776,768) (1,203,456) (1,461,863)
Short transactions ............................... -- 78,861 157,327
Option contracts expired or closed ............... -- (23,370) (74,901)
Change in unrealized appreciation (depreciation) on:
Investments ...................................... (21,407,412) (2,929,678) 352,873
Short positions .................................. -- 29,325 (92,136)
------------ ------------ ------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... (23,324,375) (4,052,830) (1,224,398)
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain from investment transactions .......... (1,454,271) -- --
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net increase (decrease) in net assets resulting from
capital share transactions .............................. (2,858,769) (2,482,196) 275,906
------------ ------------ ------------
TOTAL DECREASE IN NET ASSETS ............................... (27,637,415) (6,535,026) (948,492)
NET ASSETS:
Beginning of period ..................................... 135,436,903 17,425,919 10,973,436
------------ ------------ ------------
End of period ........................................... $107,799,488 $ 10,890,893 $ 10,024,944
------------ ------------ ------------
------------ ------------ ------------
PENNSYLVANIA SELECT BANKING AND YEAR 2000
FOR THE FISCAL YEAR ENDED JUNE 30, 1998 GROWTH FUND FINANCE FUND**<F10> FUND*<F9>
-------------- ------------------- ---------
<S> <C> <C> <C>
OPERATIONS
Net investment loss ..................................... $ (520,439) $ (257,011) $ (80,621)
Net realized gain (loss):
Long transactions ................................ 6,549,655 (947,726) (487,353)
Short transactions ............................... -- (43,734) (48,650)
Option contracts expired or closed ............... -- 76,123 94,300
Change in unrealized appreciation (depreciation) on:
Investments ...................................... 17,298,591 2,218,095 1,345,413
Short positions .................................. -- (31,446) 29,212
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... 23,327,807 1,014,301 852,301
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain from investment transactions .......... (3,611,930) (576,757) --
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net increase in net assets resulting from
capital share transactions .............................. 26,144,053 11,360,600 10,121,135
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS ............................... 45,859,930 11,798,144 10,973,436
NET ASSETS:
Beginning of period ..................................... 89,576,973 5,627,775 --
------------ ------------ ------------
End of period ........................................... $135,436,903 $ 17,425,919 $ 10,973,436
------------ ------------ ------------
------------ ------------ ------------
*<F9> For the period November 3, 1997 (commencement of operations) through June 30, 1998.
**<F10>Prior to October 20, 1998 was known as the Select Opportunities Fund.
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
- -------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
PENNSYLVANIA GROWTH FUND***<F13>
PERIODS ENDED
---------------------------------------------------------------------
12/31/98 6/30/98 6/30/97 6/30/96 6/30/95 6/30/94
--------- -------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................ $13.03 $10.78 $10.63 $ 7.84 $ 6.19 $ 5.49
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss................................... (0.01)1<F14> (0.05)1<F14>(0.03) (0.03) (0.01) (0.02)
Net realized and unrealized gain (loss) on investments (2.19) 2.70 0.89 3.09 1.77 0.77
------ ------ ------ ------ ------ ------
Total from investment operations .................. (2.20) 2.65 0.86 3.05 1.76 0.75
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income.................. -- -- 0.00 0.00 (0.00) (0.01)
Distributions from net realized gains................. (0.14) (0.40) (0.71) (0.26) (0.11) (0.04)
------ ------ ------ ------ ------ ------
Total distributions ............................... (0.14) (0.40) (0.71) (0.26) (0.11) (0.05)
------ ------ ------ ------ ------ ------
Net asset value at end of period...................... $10.69 $13.03 $10.78 $10.63 $ 7.84 $ 6.19
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return**<F12>................................... (17.07)%2<F15>25.04% 9.56% 39.94% 28.96% 13.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ............. $107,799 $135,437 $89,577 $55,828 $20,388 $9,892
Ratio of expenses to average net assets before
reimbursement by Adviser .......................... 1.61%*<F11> 1.49% 1.77% 1.85% 2.00% 2.67%
Ratio of expenses to average net assets after
reimbursement by Adviser .......................... na3<F16> na3<F16> na3<F16> na3<F16> 1.91% 2.23%
Ratio of net investment loss to average net
assets before reimbursement by Adviser ............. (0.26)%*<F11>(0.45)% (0.39)% (0.58)% (0.20)% (0.76)%
Ratio of net investment loss to average
net assets after reimbursement by Adviser ......... na3<F16> na3<F16> na3<F16> na3 (0.10)% (0.32)%
Portfolio turnover rate .............................. 35% 51% 50% 66% 51% 51%
*<F11> Annualized.
**<F12> Total return does not reflect 4.75% maximum sales charge.
***<F13>The per share data reflects 2 for 1 stock split which occurred December 29, 1997.
1<F14> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent
book and tax differences.
2<F15> Not annualized.
3<F16> Not applicable: no reimbursements were made by the Adviser.
</TABLE>
See accompanying Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
SELECT BANKING AND FINANCE FUND#<F17>
<TABLE>
PERIODS ENDED
----------------------------------------
12/31/98 6/30/98 6/30/97+<F18>
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value at beginning of period................................ $13.42 $11.70 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss .................................................. -- (0.20)1<F21> (0.03)
Net realized and unrealized gain (loss) on investments................ (3.21) 2.46 1.73
------ ------ ------
Total from investment operations................................. (3.21) 2.26 1.70
------ ------ ------
LESS DISTRIBUTIONS
- ------------------
Distributions from net realized gains................................. -- (0.54) --
------ ------ ------
Net asset value at end of period...................................... $10.21 $13.42 $11.70
------ ------ ------
------ ------ ------
Total return**<F20>................................................... (23.92)%2<F22> 19.56% 17.00%2<F22>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted).............................. $10,891 $17,426 $5,628
Ratio of operating expenses to average
net assets before reimbursement
by Adviser and waivers............................................. 2.47%*<F19> 2.59% 8.10%*<F19>
Ratio of operating expenses to average
net assets after reimbursement
by Adviser and waivers3<F23>....................................... 2.35%*<F19> 2.35% 2.35%*<F19>
Ratio of dividends on short positions to average net assets........... -- 0.02% --
Ratio of net investment loss to average
net assets before reimbursement
by Adviser and waivers............................................. (0.19)%*<F19> (1.99)% (6.85)%*<F19>
Ratio of net investment loss to average
net assets after reimbursement
by Adviser and waivers............................................. (0.07)%*<F19> (1.75)% (1.10)%*<F19>
Portfolio turnover rate............................................... 91% 115% 59%
#<F17> Prior to October 20, 1998 was known as the Select Opportunities Fund.
+<F18> From commencement of operations: February 18, 1997.
*<F19> Annualized.
**<F20> Total return does not reflect 4.75% maximum sales charge.
1<F21> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent
book and tax differences.
2<F22> Not annualized.
3<F23> The operating expense ratio excludes dividends on short positions. The ratio including dividends on short positions for
the periods ended December 31, 1998, June 30, 1998 and June 30, 1997 were 2.35%, 2.37% and 2.35%, respectively.
</TABLE>
See accompanying Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR 2000 FUND
<TABLE>
PERIODS ENDED
--------------------------
12/31/98 6/30/98+<F24>
----------- ----------
(UNAUDITED)
<S> <C> <C>
Net asset value at beginning of period....................................................... $12.09 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment loss.......................................................................... (0.11)2<F28> (0.16)1<F27>
Net realized and unrealized gain on investments.............................................. (1.11) 2.25
------ ------
Total from investment operations ......................................................... (1.22) 2.09
------ ------
Net asset value at end of period............................................................. $10.87 $12.09
------ ------
------ ------
Total return**<F236>3<F29>................................................................... (10.09)% 20.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)..................................................... $10,025 $10,973
Ratio of operating expenses to average net assets before reimbursement
by Adviser and waivers.................................................................... 2.99%*<F25> 5.29%*<F25>
Ratio of operating expenses to average net assets after reimbursement
by Adviser and waivers4<F30>.............................................................. 2.90%*<F25> 2.90%*<F25>
Ratio of dividends on short positions to average net assets.................................. 0.02%*<F25> 0.03%*<F25>
Ratio of net investment loss to average net assets before reimbursement
by Adviser and waivers.................................................................... (2.36)%*<F25> (4.56)%*<F25>
Ratio of net investment loss to average net assets after reimbursement
by Adviser and waivers.................................................................... (2.27)%*<F25> (2.17)%*<F25>
Portfolio turnover rate...................................................................... 80% 44%
+<F24> From commencement of operations: October 31, 1997.
*<F25> Annualized.
**<F26>Total return does not reflect 2.90% maximum sales charge.
1<F27> Net investment income per share represents net investment income divided by the average shares outstanding throughout the
period.
2<F28> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
3<F29> Not annualized.
4<F30> The operating expense ratio excludes dividends on short positions. The ratio including dividends on short positions for the
periods ended December 31, 1998 and June 30, 1998 were 2.92% and 2.93%, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
THE HOMESTATE GROUP
- -------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1998
NOTE 1 -- DESCRIPTION OF FUNDS
The HomeState Group (the "Trust"), an open-end management company, was
established as a Pennsylvania common law trust on August 26, 1992, and is
registered under the Investment Company Act of 1940, as amended. The Trust
has established three series: the HomeState Pennsylvania Growth Fund, the
HomeState Select Banking and Finance Fund and the HomeState Year 2000 ("Y2K")
Fund (each a "Fund" and collectively, the "Funds"). The investment
objectives of the HomeState Funds are set forth below.
The HomeState Pennsylvania Growth Fund commenced operations on October 1,
1992. The investment objective of the Fund is long-term growth of capital
through investments primarily in the common stock of companies with
headquarters or significant operations in the Commonwealth of Pennsylvania.
To pursue its objective, the Fund will invest at least 65% of its total
assets in such companies. Consequently, the Fund may be subject to risk from
economic changes and political developments occurring within Pennsylvania.
The HomeState Select Banking and Finance Fund commenced operations on
February 18, 1997. The investment objective of the Fund is long-term growth
through capital appreciation. Income is a secondary objective. To pursue
its objective, the Fund will invest at least 65% of its total assets in
banking and financial services companies. Prior to October 20, 1998, the
Fund was named the HomeState Select Opportunities Fund and had a different
investment objective.
The Y2K Fund commenced operations on October 31, 1997. The investment
objective of the Fund is long-term growth of capital by investing in equity
securities of public companies which have stated, or been reported as
possessing, an intention of developing or supporting marketable solutions to
problems stemming from the susceptibility of various business and other
computer application programs or systems to fail, or to produce inappropriate
results, regarding data, calculations or other processing involving dates
subsequent to December 31, 1999. To pursue its objective, the Fund will
invest at least 65% of its total assets in such companies.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies, in conformity
with generally accepted accounting principles, which were consistently
followed by each Fund in the preparation of their financial statements.
SECURITY VALUATION -- Investment securities traded on a national securities
exchange are valued at the last reported sales price at 4:00 p.m. Eastern
time, unless there are no transactions on the valuation date, in which case
they are valued at the mean between the closing asked price and the closing
bid price. Securities traded over-the-counter are valued at the last
reported sales price unless there is no reported sales price, in which case
the mean between the closing asked price and the closing bid price is used.
Debt securities with maturities of sixty days or less are valued at amortized
cost, which approximates market value. Where market quotations are not
readily available, securities are valued using methods which the Board of
Trustees believe in good faith accurately reflects their fair value.
INCOME RECOGNITION -- Interest income is accrued as earned. Dividend income
is recorded on the ex-dividend date.
SECURITIES TRANSACTIONS -- Security transactions are accounted for on the
date the securities are purchased or sold. Realized gains and losses on
securities sold are determined using the first in first out (FIFO) cost
method.
DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records distributions to
shareholders on the ex-dividend date. Net gains realized from securities
transactions, if any, will normally be distributed to shareholders in July
and December. The amounts of distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations, which may differ from those amounts determined under
generally accepted accounting principles. These book/tax differences are
either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in capital in the period that
the difference arises.
FEDERAL INCOME TAXES -- The Fund intends to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the distribution of substantially all of its taxable income. Accordingly, no
provision for federal income taxes is considered necessary in the financial
statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CALL AND PUT OPTIONS -- The HomeState Select Banking and Finance Fund and the
Y2K Fund may write and/or purchase exchange-traded call options and purchase
exchange-traded put options on securities in the Fund. When the Funds write
a call option, an amount equal to the premium received is reflected as a
liability. The amount of the liability is subsequently "marked to market" to
reflect the current market value of the option written. If an option which
the Funds have written either expires on its stipulated expiration date, or
if the Funds enter into a closing purchase transaction, the Funds realize a
gain (or loss if the cost of the closing transaction exceeds the premium
received when the option is sold), and the liability related to such option
is extinguished. If a call option which the Funds have written is exercised,
the Funds realize a gain or loss from the sale of the underlying security,
and the proceeds of which are increased by the premium originally received.
The Funds did not write any call options for the periods ended December 31,
1998.
The premium paid by the Funds for the purchase of a put option is recorded as
an investment and subsequently marked to market to reflect the current market
value of the option purchased. If an option which the Funds have purchased
expires on the stipulated expiration date, the Funds realize a loss in the
amount of the cost of the option. If the Funds exercise a put option, they
realize a gain or loss from the sale of the underlying security, the proceeds
of which are decreased by the premium originally paid. The HomeState Select
Banking and Finance Fund and the Y2K Fund limit the aggregate value of puts
and call options to 5% and 25% of each Fund's net assets, respectively. At
December 31, 1998, the HomeState Select Banking and Finance Fund had 0.1% of
its net assets in call options.
SHORT SALES -- The HomeState Select Banking and Finance Fund and the Y2K Fund
may sell securities short. Short sales are transactions in which the Funds
sell a security they do not own, in anticipation of a decline in the market
value of that security. To complete such a transaction, the Funds must
borrow the security to deliver to the buyer upon the short sales; the Funds
then are obligated to replace the security borrowed by purchasing it in the
open market at some later date. The Funds will incur a loss if the market
price of the security increases between the date of the short sale and the
date on which the Funds replace the borrowed security. The Funds will
realize a gain if the security declines in value between those dates. All
short sales must be fully collateralized. The Funds maintain the collateral
in a segregated account consisting of cash, U.S. Government securities or
other liquid assets in an amount at least equal to the market value of its
short positions. The HomeState Select Banking and Finance Fund and the Y2K
Fund limit the value of short positions to 5% and 25% of each Fund's net
assets, respectively. At December 31, 1998, the Y2K Fund had 4.2% of its net
assets in short positions.
NOTE 3 -- CAPITAL STOCK
At December 31, 1998, each Fund had an authorized unlimited number of shares
of beneficial interest with no par value.
The following table summarizes the capital share transactions of each Fund:
PENNSYLVANIA GROWTH FUND*<F31>
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, 1998 ENDED JUNE 30, 1998
----------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ------ ------ ------
Sales 488,854 $5,175,589 2,479,310 $31,272,950
Reinvested distributions 106,843 1,384,680 289,625 3,434,230
Redemptions (905,734) (9,419,038) (687,419) (8,563,127)
---------- ----------- --------- -----------
Net increase (decrease) (310,037) (2,858,769) 2,081,516 $26,144,053
---------- ----------- --------- -----------
---------- ----------- --------- -----------
SHARES OUTSTANDING:
Beginning of period 10,393,692 8,312,176
---------- ---------
End of period 10,083,655 10,393,692
---------- ---------
---------- ---------
*<F31> Capital share transactions restated to reflect the 2 for 1 stock split
which occurred on December 29, 1997.
SELECT BANKING AND FINANCE FUND
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, 1998 ENDED JUNE 30, 1998
----------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ------ ------ ------
Sales 86,773 $ 893,696 1,049,028 $14,439,121
Reinvested distributions -- -- 40,961 526,023
Redemptions (318,155) (3,375,892) (272,369) (3,604,544)
---------- ----------- --------- -----------
Net increase (decrease) (231,382) $(2,482,196) 817,620 $11,360,600
---------- ----------- --------- -----------
---------- ----------- --------- -----------
SHARES OUTSTANDING:
Beginning of period 1,298,587 480,967
---------- ---------
End of period 1,067,205 1,298,587
---------- ---------
---------- ---------
Y2K FUND FOR THE PERIOD OCTOBER 31, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF OPERATIONS)
ENDED DECEMBER 31, 1998 THROUGH JUNE 30, 1998
----------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sales 239,188 $ 2,446,117 986,236 $11,013,893
Redemptions (224,847) (2,170,211) (78,271) (892,758)
--------- ----------- --------- ------------
Net increase 14,341 $ 275,906 907,965 $10,121,135
--------- ----------- --------- ------------
--------- ----------- --------- ------------
SHARES OUTSTANDING:
Beginning of period 907,965 --
--------- ---------
End of period 922,306 907,965
--------- ---------
--------- ---------
NOTE 4 -- INVESTMENT TRANSACTIONS
During the periods ended December 31, 1998, purchases and sales of investment
securities (excluding securities sold short and short-term investments) were
as follows:
PENNSYLVANIA SELECT BANKING YEAR 2000
GROWTH FUND AND FINANCE FUND FUND
----------- ---------------- ---------
Purchases $36,907,820 $10,857,451 $7,509,938
Sales $38,205,976 $12,871,763 $6,832,539
The following balances for the Funds are as of December 31, 1998:
<TABLE>
NET TAX
COST FOR UNREALIZED TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME APPRECIATION UNREALIZED UNREALIZED
TAX PURPOSES (DEPRECIATION) APPRECIATION DEPRECIATION
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Pennsylvania Growth Fund $89,438,934 $16,841,457 $26,563,946 $(9,722,489)
Select Banking and Finance Fund 11,158,573 (107,063) 919,583 (1,026,646)
Year 2000 Fund 8,918,918 1,475,203 2,345,883 (870,680)
</TABLE>
The Select Banking and Finance and Year 2000 Funds realized, on a tax basis,
post-October losses through June 30, 1998 of $1,546,759 and $381,186,
respectively, which are not recognized for tax purposes until the first day
of the following fiscal year.
NOTE 5 -- EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser (the "Adviser") to
the Funds for which it receives investment advisory fees from each Fund. The
fee for the HomeState Pennsylvania Growth Fund is based on average daily net
assets at the annual rate of 0.75% on assets up to and including $250
million, 0.65% for assets in excess of $250 million up to and including $500
million, 0.55% for assets in excess of $500 million up to and including $750
million, and 0.45% for assets in excess of $750 million. The fee for the
HomeState Select Banking and Finance Fund is based on average daily net
assets at the annual rate of 1.00% on assets up to and including $100 million
and 0.90% for assets in excess of $100 million. The fee for the Y2K Fund is
based on average daily net assets at the annual rate of 1.00% on assets up to
and including $100 million, 0.90% for assets in excess of $100 million.
Under the terms of the investment advisory agreement which expires on
December 31, 1999, Emerald Advisers, Inc. may also voluntarily reimburse the
Funds for certain expenses. Through December 31, 1998, the Adviser has
voluntarily agreed to waive its advisory fee and/or reimburse other expenses
for the HomeState Select Banking and Finance Fund and the Y2K Fund to the
extent that the Fund's total operating expenses exceeds 2.35% and 2.90% of
the average daily net assets of the Funds, respectively.
The following table summarizes the advisory fees and expense
waivers/reimbursements for the period ended December 31, 1998.
GROSS ADVISORY FEE
ADVISORY WAIVED
----------- ------------
Pennsylvania Growth Fund ..............................$408,419 $ --
Select Banking and Finance Fund ...................... 62,818 7,309
Year 2000 Fund ....................................... 46,458 4,110
NOTE 6 -- OTHER AGREEMENTS
Rafferty Capital Markets, Inc. (the Distributor), is the sole distributor of
the Trust shares pursuant to a Distribution Agreement with each Fund. Each
Fund has adopted a distribution services plan (the "Plan") under Rule 12b-1
of the Investment Company Act of 1940. The Plan allows each Fund to
reimburse the Distributor for a portion of the costs incurred in distributing
each Fund's shares, including amounts paid to brokers or dealers, at an
annual rate not to exceed 0.35% of the HomeState Pennsylvania Growth and
Select Banking and Finance Fund's average daily net assets and not to exceed
0.70% of the Y2K Fund. During the period ending December 31, 1998, the
HomeState Pennsylvania Growth Fund, Select Banking and Finance Fund and Y2K
Fund incurred expenses of $190,595, $21,986 and $32,521, respectively,
pursuant to the Plan.
Firstar Mutual Fund Services, LLC serves as transfer agent, administrator and
accounting services agent for the Funds. Firstar Bank Milwaukee, N.A. serves
as custodian for the Funds.
The Funds' Declaration of Trust provides that each Trustee affiliated with
the Funds' Adviser shall serve without compensation and each Trustee who is
not so affiliated shall receive fees from each Fund and expense
reimbursements for each Trustees meeting attended. A member of the Fund's
Board of Trustees who is not affiliated with the Adviser is employed as a
practicing attorney and is a partner in the law firm of Duane, Morris &
Heckscher, the Fund's legal counsel. Legal fees aggregating $7,793, $5,308
and $2,843 were incurred by the HomeState Pennsylvania Growth Fund, the
HomeState Select Banking and Finance Fund and the Year 2000 Fund,
respectively, to Duane, Morris & Heckscher during the six months ending
December 31, 1998.
NOTE 7 -- PROXY RESULTS - HOMESTATE SELECT OPPORTUNITIES FUND
Following are results from the shareholder vote taken on August 25, 1998 to
change the investment objective and name of the HomeState Select
Opportunities Fund.
1. To change the Fund's investment objective to companies principally
engaged in the banking and financial services industries.
NUMBER OF % OF OUTSTANDING% OF SHARES
SHARES SHARES PRESENT
------- ------- -------
Affirmative......................525,723.785 40.585% 55.140%
Against ......................... 17,659.397 1.363% 1.852%
Abstain.......................... 12,271.293 0.947% 1.287%
Broker Non-votes.................397,776.000 30.708% 41.721%
TOTAL ...........................953,430.475 73.603% 100.000%
2. To modify the Fund's fundamental restriction on concentration to provide
that the Fund may not invest more than 25% of total assets in any one
industry, except that the Fund shall, under normal conditions invest not less
than 25% of its total assets in securities of companies principally engaged
in the banking industry and not less than 25% of its total assets in
securities of companies principally engaged in the financial services
industry.
Affirmative......................531,100.535 41.000% 55.704%
Against ......................... 14,996.218 1.158% 1.573%
Abstain.......................... 9,557.722 0.737% 1.002%
Broker Non-votes.................397,776.000 30.708% 41.721%
TOTAL...........................953,430.475 73.603% 100.000%
3. To modify the fundamental restriction on portfolio diversification to
provide that the Fund may not invest more than 5% of the value of its assets
in the equity or debt of one issuer (other than obligations issued or
guaranteed by the United States Government).
Affirmative......................537,579.110 41.500% 56.384%
Against ......................... 10,829.902 0.836% 1.136%
Abstain.......................... 7,245.463 0.559% 0.760%
Broker Non-votes.................397,776.000 30.708% 41.721%
TOTAL............................953,430.475 73.603% 100.000%
4. To change the name of the Fund to "HomeState Select Banking and Finance
Fund".
Affirmative......................923,743.325 71.311% 96.886%
Against ......................... 16,828.382 1.299% 1.765%
Abstain.......................... 12,858.768 0.993% 1.349%
TOTAL............................953,430.475 73.603% 100.000%
THE HOME STATE GROUP
--------------------
INVESTMENT ADVISER
-------------------
EMERALD ADVISERS, INC.
LANCASTER, PA
DISTRIBUTOR
------------
RAFFERTY CAPITAL MARKETS, INC.
HARRISON, NY
ADMINISTRATOR AND
TRANSFER AGENT
------------------
FIRSTAR MUTUAL FUND SERVICES, LLC
MILWAUKEE, WI
CUSTODIAN
------------
FIRSTAR BANK MILWAUKEE, N.A.
MILWAUKEE, WI
INDEPENDENT ACCOUNTANTS
-------------------------
PRICEWATERHOUSECOOPERS LLP
MILWAUKEE, WI
LEGAL COUNSEL
--------------
DUANE, MORRIS & HECKSCHER
HARRISBURG, PA
BOARD OF TRUSTEES
-----------------
BRUCE E. BOWEN
KENNETH G. MERTZ II, CFA
SCOTT C. PENWELL, ESQ.
SCOTT L. REHR
H.J. ZOFFER, PHD
FUND MANAGEMENT
---------------
EMERALD ADVISERS, INC.
1857 WILLIAM PENN WAY
P.O. BOX 10666
LANCASTER, PA 17605
SHAREHOLDER SERVICES
----------------------
FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53210-0701
TELEPHONE NUMBERS
-----------------
THE FUND (800) 232-0224
MARKETING / BROKER SERVICES(800) 232-OK-PA
SHAREHOLDER SERVICES (800) 232-0224
24 HOUR PRICING INFORMATION
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1-800-232-0224
This report is for the general information of Fund shareholders. For more
detailed information about the Fund, please consult a copy of the Fund's current
prospectus. This report is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by a copy of the current
prospectus.
02/99
