ANNUAL REPORT
(HOMESTATE LOGO)
MUTUAL FUNDS
JUNE 30, 2000
www.emeraldmutualfunds.com
THE HOME STATE GROUP
WELCOME TO THE HOMESTATE MUTUAL FUNDS
-------------------------------------
HomeState offers three mutual funds: The Pennsylvania (PA) Growth Fund, The
Select Banking and Finance Fund and The Select Technology 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,
- companies involved in the technology sector,
- smaller-sized banking & financial services companies.
THE PA Invests a minimum 65% of its assets in companies
GROWTH FUND headquartered or with significant operations in the
Commonwealth of Pennsylvania.
THE SELECT BANKING Invests a minimum 65% of its assets in companies in the
AND FINANCE FUND banking and financial services industries, with a focus on
smaller companies in the Mid-Atlantic states.
THE SELECT Invests a minimum 65% of its assets in companies in the
TECHNOLOGY FUND technology sector (changed from The Year 2000 Fund to The
Select Technology Fund on 2/29/00).
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
August 21, 2000
Dear Shareholder:
This report is one marked by transition, as both the U.S. equity markets and
your HomeState Mutual Funds are in the midst of changes. For the stock market,
an unsure rotation seems to be taking hold. Last year's winners -- growth
stocks and technology stocks -- have been usurped in favor of more staid value
stocks. The markets have turned their collective eyes to Washington, and wonder
with worry. Is Alan Greenspan finished raising interest rates and will the
public's mood propel Al Gore or George W. Bush to the presidencyo While not
brazen enough to tackle the last question, our seasoned duo of portfolio
managers review the conditions and results of the last twelve months and offer a
peek into the market's future in their commentaries beginning on Page 5.
With such a degree of uncertainty clouding the stock market's near-term future,
there is one "sure thing" found within these pages: this is the last shareholder
report to bear the "HomeState" name on the cover. Effective July 1, 2000, the
HomeState Funds officially became the Emerald Mutual Funds. There was no change
in ownership of the Funds' adviser, no change in portfolio management. Instead,
we feel the "new" name actually does a better job of describing to the investing
public what these three mutual funds are all about.
Emerald Advisers, Inc., has always managed the HomeState Funds, but when the
first HomeState Fund -- the PA Growth Fund -- began its registration process in
early 1992, there was an existing group of funds bearing the Emerald name. So,
with its first fund focusing on the local Pennsylvania economy, the name
"HomeState" was chosen. Today, eight years later, the PA Growth Fund remains
our only product with a specific regional focus. Assets managed by Emerald
Advisers -- including accounts in and outside of the mutual funds -- have grown
to over $1 billion as of June 30, 2000. And the research team dedicated to
uncovering exceptional growth companies -- Emerald Research -- has grown in size
and reputation. Our twelve analysts are quoted and seen in such outlets as The
Wall Street Journal, Investors Business Daily, Bloomberg, CNBC and CNNfn.
So with the "other" Emerald funds since merged away, our board decided to adopt
the Emerald Mutual Funds name for our fund family. We believe it better
reflects the strength of our organization -- the experienced portfolio
management team (Emerald Advisers), the in-depth, on-site research (Emerald
Research), and the unique opportunities these two teams work together to exploit
in the technology, and banking and finance sectors and on a regional basis in
Pennsylvania. (As this letter is written a new, fourth Emerald Fund is in
registration, and we look forward to the new U.S. small-cap fund debuting later
this year.)
You will also note that the three "original" HomeState Funds carry the letter
"A" behind their name, and, concurrent with the adoption of the Emerald name on
July 1st, they were joined by new "C" share classes. We have added the new
class of shares to give investors a wider choice in how they would like to
purchase their shares. Further information can be found in the Funds'
prospectus or by talking with your financial adviser.
Finally, with all of these changes, we've upgraded our website to keep you in
touch with the Emerald Mutual Funds on a more frequent basis. At
www.emeraldmutualfunds.com you will find an all-new site that includes daily
--------------------------
pricing updates, quarterly holdings and performance information and ongoing
audio and written commentary from portfolio managers, research analysts and fund
management. At www.teamemerald.com you will find a gateway to all of Emerald's
-------------------
Internet sites.
While the name change may take some getting used to, I think you'll find
something familiar and reassuring in the newly termed "Emerald Advantage" -- In-
depth, on-site research and experienced portfolio management of unique
investment opportunities. Our name has changed, but our focus and dedication
has remained the same since 1992. We thank you for your support and welcome
your questions, comments and suggestions.
Sincerely,
/s/ Scott L. Rehr
Scott L. Rehr
President
(EMERALD MUTUAL FUNDS LOGO)
ABOUT THE PERFORMANCE INFORMATION APPEARING IN THE LETTERS TO SHAREHOLDERS:
All performance information is presented on a total return basis unless
otherwise noted and reflects the reinvestment of distributions. Past
performance is no guarantee of future results. Investment return and principal
value of an investment will fluctuate with market conditions so that shares may
be worth more or less than their original cost when redeemed. Funds that invest
in a particular industry or geographic region may involve a greater degree of
risk than funds with a more diversified portfolio. All three HomeState Funds
invest in the stocks of smaller-sized companies, which may involve higher risk
and increased volatility than the stocks of larger companies. Write or call for
a free copy of the Funds' current prospectus, which contains more complete
information including management fees, sales charges and other charges and
expenses, and which you should read carefully before investing.
THE HOMESTATE GROUP
MARKET AND ECONOMIC REVIEW
August 21, 2000
Dear Shareholder:
VOLATILITY GRIPS THE MARKET
While the volatility continues, in contrast to the past few quarters we have now
experienced bad volatility -- the market lingo for a down quarter. This
downside actually began on March 10th and despite our great consternation,
lasted through May 23rd. The Nasdaq Composite Index (the home of technology
innovators) declined by 37% during this time frame. Volatility hit peak levels
in the first quarter as the average daily price change for the Nasdaq was 2.17%,
making the long-term average 0.61%. This increased volatility and the worst
correction since 1973-74, caused by sentiment and momentum changes, nervousness,
fear, greed, etc. was centered in technology and biotech stocks and extended
into small-cap growth stocks, in general.
Several sub-groups present an even clearer picture of the magnitude of the
decline.
PERFORMANCE
3/10/00 TO 5/23/00
------------------
Bloomberg Business to Business Index - 68%
Bloomberg Software Index - 61%
Bloomberg E-Commerce Index - 56%
Nasdaq Telecom Index - 43%
Nasdaq Computer Index - 37%
The giddy valuations accorded to technology stocks in the beginning of the year
could not be realistically sustained and something had to give. The
biotechnology sector began to sell off in March on investors' unfounded concerns
about government intervention in biotech research, specifically Genomics.
Subsequently, concerns about the sustainability of business models without near-
term profit, and the realization that the Fed would not be done raising interest
rates pushed us into a major valuation correction.
On the positive side, the plethora of new technology companies indicates
exciting new things on the tech frontier. Yes, in many ways, the much-heralded
digital highway is being formed and technology stocks will continue to be
volatile until it is clear that Alan Greenspan has engineered a soft landing and
the economy is in fact slowing.
Though the Federal Reserve raised rates again in 2000, after three rate hikes in
1999, we believe the positives in the market remain in place. The Fed wanted to
prevent a Japanese type market bubble. Indeed it did. The Fed wanted to target
the market's more speculative areas (IPO's, Internet companies, E-commerce etc.)
Indeed it did. The Fed wanted to slow consumer spending, not productivity
growth, technology spending, or capital goods purchases. Indeed it appears to
have been successful. In May, we started to see a consumer goods slowdown and
it wasn't a coincidence that the market bottomed at the same time. Consumer
spending fell 0.3% in May. Housing and durable goods orders actually started
falling in April. We must note that energy costs started rising in the spring,
which in effect is a tax on consumers and acts to slow the economy in a gradual
manner.
Rising interest rates are perceived as a negative for the stock market as a
whole, and thus, there is a negative correlation between interest rates and
overall equity performance. Investors believe that as interest rates rise,
financing costs for businesses also rise, resulting in a slow down in the growth
of businesses. Many investors believe that small and mid-cap stocks are
especially vulnerable during periods of rising interest rates as investors flee
to the perceived safety found in the liquidity of large-cap stocks.
Looking back over the past 20 years, there were three distinct periods of rising
interest rates: 1979-1981, 1988-1989, and 1999- Present. During two of the
three aforementioned periods of rising interest rates, small-cap growth stocks
actually outperformed large-cap stocks. While the impact of interest rates on
the performance of small to mid-cap stocks is mixed, it is wrong to think that
any period of rising interest rates is particularly bad for the asset class.
Until investors come to accept this reality, rising interest rates will add to
the volatility of this market.
THE FUTURE
The increased volatility will be with us for quite some time. Year-to-date, the
NASDAQ has seen 13 days on which the index fluctuated by more than 5%, compared
with just one day in 1999. A review of the Russell 2000 Growth Index indicates
significant volatility, with 9 days of 5% or more change, which never happened
in 1999.
Given a possible future increase in interest rates and the recent volatility,
Emerald will continue to focus on companies with experienced management teams,
low debt levels, strong top and bottom-line growth, widening margins, a
compelling growth catalyst and leading positions in their industries. Gone are
the days when all stocks rose with rising tides. The stage is set for a
sustainable, significant rally in small-cap names, but the rally will be
selective.
Emerald remains convinced this market represents real opportunities in small-cap
stocks, especially technology and biotech companies, and will reward superior
stock picking. Through fundamental bottom-up research, Emerald will continue to
find small-cap growth stocks to guide our portfolios to superior performance in
the future.
Sincerely,
/s/ Kenneth G. Mertz
Kenneth G. Mertz II, CFA
Chief Investment Officer
The HomeState Group
THE HOMESTATE PENNSYLVANIA GROWTH FUND
THE FUND AT A GLANCE
HomeState Pennsylvania Growth Fund Performance Comparison vs. Russell 2000*<F1>
Growth of Hypothetical $10,000 Investment
The HomeState The HomeState
Pennsylvania Growth Pennsylvania Growth
Date Fund (load adjusted) Fund (without load) Russell 2000 Index
10/1/92 $9,525 $10,000 $10,000
6/30/93 $10,449 $10,970 $12,096
6/30/94 $11,897 $12,490 $12,455
6/30/95 $15,344 $16,109 $14,702
6/30/96 $21,471 $22,542 $18,231
6/30/97 $23,524 $24,697 $21,186
6/30/98 $29,415 $30,881 $24,745
6/30/99 $26,699 $28,030 $25,104
6/30/00 $44,465 $46,689 $28,738
AVG. ANNUAL TOTAL RETURN+<F4>
1 YEAR 5 YEAR INCEPTION
HomeState PA (load adjusted)**<F2> 58.71% 22.52% 21.22%
HomeState PA (without load) 66.58% 23.72% 21.99%
Russell 2000 14.48% 14.29%***<F3> 14.59%***<F3>
*<F1> The Russell 2000 Index is an unmanaged index of 2000 stocks weighted
by market capitalization.
**<F2> The Fund's total returns since Inception (October 1, 1992) and for one
and five years reflect the effect of the maximum sales load charge of
4.75%.
***<F3> Return does not include continuous dividend reinvestments as
information is not available.
+<F4> Past performance is not indicative of future performance.
THE HOMESTATE PENNSYLVANIA GROWTH FUND
TOP TEN HOLDINGS AS OF JUNE 30, 2000
<TABLE>
ISSUE % OF FUND ISSUE % OF FUND
----- --------- ----- ---------
<S> <C> <C> <C>
1. C&D Technologies, Inc. 3.93% 6. Diamond Technology Partners Incorporated 2.53%
2. Neose Technologies, Inc. 3.61% 7. Cable Design Technologies Corporation 2.18%
3. Cephalon, Inc. 3.49% 8. Safeguard Scientifics, Inc. 2.18%
4. Technitrol, Inc. 3.23% 9. Kulicke and Soffa Industries, Inc. 2.08%
5. Celgene Corporation 2.53% 10. Equitable Resources, Inc. 1.94%
</TABLE>
THE HOMESTATE PENNSYLVANIA GROWTH FUND
REPORT FROM MANAGEMENT
August 21, 2000
Dear Shareholder:
The beginning of 2000 saw last year's momentum-based rally carry the market to
new highs through March 10th. Then the bubble burst and market participants
once again understood the meaning of downside risk as the market quickly
retreated, with the greatest pain centered in small-cap growth stocks, Emerald's
specialty.
<TABLE>
PERFORMANCE RESULTS FOR PERIODS ENDED JUNE 30, 2000
-----------------------------------------------------------------------------
AVERAGE ANNUAL RETURN
--------------------------------------------------- TOTAL RETURN
FUND/INDEX ONE YEAR FIVE YEARS SINCE INCEPTION*<F5> SINCE INCEPTION*<F5>
---------- -------- ---------- -------------------- --------------------
<S> <C> <C> <C> <C>
HomeState PA Growth Fund:
At NAV: + 66.58% + 23.72% + 21.99% +366.89%
At MOP: + 58.71% + 22.52% + 21.22% +344.65%
Russell 2000 Index + 14.48% + 14.29% + 14.59% +187.38%
Morningstar Small-Company
Funds Average + 31.53% + 19.62% + 18.83% +280.76%
</TABLE>
*<F5> Inception Date: 10/1/92
Past performance is no guarantee of future results. HomeState returns at NAV do
not include the effects of the Fund's maximum 4.75% sales charge; returns at MOP
do. The Russell 2000 Index measures the performance returns of 2000 small-cap
companies. Investments cannot be made in an index. The Morningstar Small-
Company Funds Average represents 721, 305 and 134 small-company funds,
respectively, for total return without regard to sales charge for the One Year,
Five Year and Since Inception (10/1/92) periods. All performance results assume
reinvestment of dividends. As you review the results above, please note that
the Fund has invested in a variety of initial public offerings (IPO's). The
performance of IPO's may have a greater impact on the performance results of a
smaller fund, and may lessen as the Fund's assets grow. The Fund may not
receive the same IPO allocations in the future.
As the returns indicate, even given the spring correction, our One Year returns
were substantially better than the small-cap Russell 2000 benchmark and
considerably above the long-term average expected for this asset class.
As noted in our Market and Economic Review volatility should continue to be much
greater than normal, and growth probably lower than normal if the Federal
Reserve continues to pressure rates. We see entrepreneurial opportunities
continuing at a high level, but investment returns constrained to more normal
long term averages in the range of 10 to 12%.
We continue to populate the Pennsylvania Growth Fund with the best growth
companies in the Commonwealth. We maintain our diversified approach even while
the market remains very narrow. Our fundamental research team continues to find
opportunities in the market where others find little. Our best performer for
the past six months has been Neose Technologies (up 192%), a little known
pharmaceutical preparation company/ (Biotech) but without the typical biotech
risk level. Another relatively unknown PA company, C & D Technologies, rose
164% over the past six months. C & D is a leading producer of electrical power
storage products for the telecommunication and data transmission industry and is
a company we have owned since the beginning of your Fund. Leading the way
recently is Technitrol, no stranger to our top ten list, which was up 117% in
the last six months. Electronic components firms have been in the sweet spot of
the Technology sector, benefiting from supply/demand imbalances as well as
favorable pricing opportunities.
While volatility will cause nervousness over the next six to twelve months, we
see the favorable market conditions of productivity spending centered in the
tech sector, new drugs approved in the biotech area and an ever growing
Pennsylvania economy as the underpinnings for the HomeState PA Growth Fund.
Sincerely,
/s/ Kenneth G. Mertz
Kenneth G. Mertz II, CFA
Portfolio Manager
Chief Investment Officer
THE HOMESTATE SELECT BANKING AND FINANCE FUND
THE FUND AT A GLANCE
HomeState Select Banking and Finance Fund Performance Comparison vs. Russell
2000*<F6>
Growth of Hypothetical $10,000 Investment
The HomeState The HomeState
Select Banking and Select Banking and
Finance Fund Finance Fund
Date (load adjusted) (without load) Russell 2000 Index
2/18/97 $9,525 $10,000 $10,000
6/30/97 $11,144 $11,700 $10,804
12/31/97 $12,757 $13,393 $11,988
6/30/98 $13,323 $13,988 $12,620
12/31/98 $10,136 $10,642 $11,720
6/30/99 $13,264 $13,926 $12,803
12/31/99 $11,821 $12,410 $14,222
6/30/00 $11,153 $11,710 $14,656
AVG. ANNUAL TOTAL RETURN+<F8>
1 YEAR INCEPTION
HomeState Sel (load adjusted)**<F7> (19.92)% 3.29%
HomeState Sel (without load) (15.91)% 4.80%
Russell 2000 14.48% 12.02%
*<F6> The Russell 2000 Index is an unmanaged index of 2000 stocks weighted
by market capitalization.
**<F7> The Fund's total returns since Inception (February 18, 1997) and for
one year reflect the effect of the maximum sales load charge of 4.75%.
+<F8> Past performance is not indicative of future performance.
THE HOMESTATE SELECT BANKING AND FINANCE FUND
TOP TEN HOLDINGS AS OF JUNE 30, 2000
<TABLE>
ISSUE % OF FUND ISSUE % OF FUND
----- --------- ----- ---------
<S> <C> <C> <C>
1. Harleysville National Corporation 3.75% 6. Hudson United Bancorp 3.03%
2. Progress Financial Corporation 3.38% 7. Keystone Financial, Inc. 3.03%
3. Mercantile Bankshares Corporation 3.27% 8. Commerce Bancorp, Inc. 3.03%
4. Greater Bay Bancorp 3.25% 9. Yardville National Bancorp 3.00%
5. Hudson City Bancorp, Inc. 3.12% 10. PNC Financial Services Group 3.00%
</TABLE>
THE HOMESTATE SELECT BANKING AND FINANCE FUND
REPORT FROM MANAGEMENT
August 21, 2000
Dear Shareholder:
The Banking / Financial Sector continues to be out of favor with the market. We
believe the rate hikes orchestrated by the Federal Reserve in 1999 and 2000 have
put incredible pressure on this sector.
<TABLE>
PERFORMANCE RESULTS FOR PERIODS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN
---------------------------------------------------- TOTAL RETURN
FUND/INDEX ONE YEAR THREE YEARS SINCE INCEPTION**<F10> SINCE INCEPTION**<F10>
---------- -------- ----------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
HomeState Select Banking
& Finance Fund:*<F9>
At NAV: - 15.91% + 0.03% + 4.80% + 17.10%
At MOP: - 19.92% - 1.57% + 3.29% + 11.53%
Russell 2000 Index + 14.48% + 10.66% + 12.02% + 46.56%
Morningstar -
Financial Funds Average - 10.00% + 8.06% N/A N/A
</TABLE>
*<F9> Prior to 10/20/98 the Fund, called the Select Opportunities Fund,
pursued a different objective.
**<F10> Inception Date: 2/18/97
Past performance is no guarantee of future results. The Select Banking and
Finance Fund returns at NAV do not include the effects of the Fund's maximum
4.75% sales charge; returns at MOP do. The Russell 2000 Index measures the
performance returns of 2000 small-cap companies. Investments cannot be made in
an index. The Morningstar Financial Funds Average represents 68 and 34
financial services funds for total return without regard to sales charges for
the One Year and Three Year periods, respectively. All performance results
assume reinvestment of dividends.
Over the past year small-cap comparable indices have performed quite poorly.
Over the past year the NASDAQ Other Financial Index (a cap-weighted index
measuring the performance of all NASDAQ stocks in the finance sector, excluding
banks) declined 32.8% including a decline of 25% in the last six months. The
NASDAQ Bank Index declined 17.7% in the last 12 months including a 10% decline
in just the last six months. Big capitalization stock did better, declining only
8.3% during the previous 12 months as measured by the S&P Financial Index.
We believe the Financial sector will recover as soon as the market is confident
that the Fed is done raising rates. Since the economy is slowing and the Fed is
in the 8th inning of their rate increases, this sector should have a good
relative return over the next 12 months. Since our year-end of June 30, 2000,
this sector has indeed started its recovery from its severe under valuation.
Over the past six months we have had several winners in different sectors of the
market.
PERFORMANCE
COMPANY SECTOR 1/1/00 - 6/30/00
------- ------ ----------------
Federated Investors Asset Management + 74%
Silicon Valley Bancshares Banking + 72%
Gabelli Asset Management Asset Management + 53%
UCBH Holdings Banking + 29%
Hudson City Bancorp Savings & Loan + 26%
While our emphasis on the small cap sector has hurt our performance in the past
twelve months, we believe it will once again prove to be beneficial as the
market turns to positive returns. First, the wave of consolidation is just
starting again, (for example Keystone Financial's takeover by M&T Bancorp of
Buffalo). The United States remains "over banked" and the only way banking can
increase/maintain their earnings growth level is to consolidate. Almost two
thirds of your Fund is invested in the banking sector, which we believe is the
most undervalued, and almost all of our holdings could be merged into other
institutions over the next few years.
Insurance companies have also been severe under performers in the last few
years. We foresee this changing as the underwriting cycle appears to be
changing as insurance rates are increasing to cover past underwriting losses.
Our participation in this sector should be one of the key leaders in this Fund
in the next 12 to 18 months.
Sincerely,
/s/ Kenneth G. Mertz /s/ Steven E. Russell
Kenneth G. Mertz II, CFA Steven E. Russell, Esq.
Portfolio Manager Portfolio Manager
THE HOMESTATE SELECT TECHNOLOGY FUND
THE FUND AT A GLANCE
HomeState Select Technology Fund Performance Comparison vs. Russell 2000*<F38>
Growth of Hypothetical $10,000 Investment
The HomeState Select The HomeState Select
Technology Fund Technology Fund
Date (load adjusted) (without load) Russell 2000 Index
10/31/97 $9,525 $10,000 $10,000
12/31/97 $10,144 $10,650 $10,220
6/30/98 $11,516 $12,090 $10,758
12/31/98 $10,354 $10,870 $9,991
6/30/99 $11,592 $12,170 $10,914
12/31/99 $29,628 $31,105 $12,124
6/30/00 $28,854 $30,297 $12,494
AVG. ANNUAL TOTAL RETURN+<F40>
1 YEAR INCEPTION
HomeState Select Technology (load adjusted)**<F39> 137.07% 48.75%
HomeState Select Technology (without load) 148.95% 51.50%
Russell 2000 14.48% 8.70%
*<F38> The Russell 2000 Index is an unmanaged index of 2000 stocks weighted
by market capitalization.
**<F39> The Fund's total returns from Inception (October 31, 1997) and for one
year reflect the effect of the maximum sales load charge of 4.75%.
+<F40> Past performance is not indicative of future performance.
THE HOMESTATE SELECT TECHNOLOGY FUND
TOP TEN HOLDINGS AS OF JUNE 30, 2000
<TABLE>
ISSUE % OF FUND ISSUE % OF FUND
----- --------- ----- ---------
<S> <C> <C> <C>
1. Extreme Networks, Inc. 3.32% 6. Diamond Technology Partners Incorporated 3.09%
2. Mercury Interactive Corporation 3.29% 7. Brocade Communications Systems, Inc. 2.84%
3. CIENA Corporation 3.27% 8. Clarent Corporation 2.40%
4. Neose Technologies, Inc. 3.23% 9. Technitrol, Inc. 2.35%
5. CV Therapeutics, Inc. 3.11% 10. Cephalon, Inc. 2.32%
</TABLE>
THE HOMESTATE SELECT TECHNOLOGY FUND
REPORT FROM MANAGEMENT
August 21, 2000
Dear Shareholder:
Over 200 years ago, Thomas Jefferson captured the special quality of "knowledge"
as an economic good: "He who receives an idea from me, receives instruction
himself without lessening mine; as he who lights his taper at mine, receives
light without darkening me." However, Jefferson failed to inform investors just
what value to place on the technology fueling the knowledge economy.
The last twelve months for technology investors has been a tumultuous time. The
most volatile markets in history have been experienced over the last twelve
months, having been spawned by the technology revolution and the Federal Reserve
raising interest rates six times.
<TABLE>
PERFORMANCE RESULTS FOR
PERIODS ENDED JUNE 30, 2000
---------------------------------------------------------------
AVERAGE ANNUAL RETURN
------------------------------------ TOTAL RETURN
FUND/INDEX ONE YEAR SINCE INCEPTION**<F42> SINCE INCEPTION**<F42>
---------- -------- ---------------------- ----------------------
<S> <C> <C> <C>
HomeState Technology Fund*<F41>
At NAV: +148.95% + 51.50% +202.97%
At MOP: +137.07% + 48.75% +188.54%
Russell 2000 Index + 14.48% + 8.70% + 24.94%
Morningstar -
Technology Funds Average + 91.24% + 65.12% +280.87%
</TABLE>
*<F41> Prior to 2/29/00 the Fund, called the Year 2000 Fund, focused on a
specific industry within the technology sector.
**<F42> Inception Date: 10/31/97
As you review the results above, please note that the Fund has invested in a
variety of initial public offerings (IPO's). The performance of IPO's may have
a greater impact on the performance results of a smaller fund, and may lessen as
the Fund's assets grow. The Fund may not receive the same IPO allocations in
the future. Past performance is no guarantee of future results. HomeState
returns at NAV do not include the effects of the Fund's maximum 4.75% sales
charge; returns at MOP do. The Russell 2000 Index measures the performance
returns of 2000 small-cap companies. Investments cannot be made in an index.
The Morningstar Technology Funds Average represents 101 and 64 technology funds,
respectively, for total return without regard to sales charges for the One Year
and Since Inception (10/31/97) periods. All performance results assume
reinvestment of dividends.
The latest productivity report shows a stunning 5.3% growth rate for the second
quarter, which supports the theory that technology driven productivity gains can
blunt inflation, while the economy continues to expand. The vigorously
expanding economy by many estimates has more than ten years of strong growth
left, powered in large part by the expansion of communications bandwidth and the
economic transformation enabled by the Internet.
The first growth wave of the new economy was set off by the dramatic reduction
in the cost of computing power, increasing productivity growth over the past
year to 5.1%, the strongest one-year growth rate in 17 years. With that pace
exceeding the growth in pay, unit labor costs are down 0.4% from the year
before.
These signs of increased productivity cannot be disputed but many economists
continue to argue whether the results of new technologies are lasting or subject
to the ups and downs of economic growth.
The answer will not be known for years but just as oil fueled the old industrial
economy, bandwidth will fuel the new knowledge economy. To put it in
perspective, compare the Internet and its effect on the economy over the last
five years to the personal computer industry. In its first ten years, the PC
industry created $100 billion of new wealth in new companies. The Internet
crossed the $100 billion mark in just four years and indeed the productivity
growth rate has doubled since 1995, to 2.8% per year, the best such showing
since the 1960s. If you take technology growth out of the equation, the US
economy looks much like the European economy and not much better than the
Japanese. By traditional measures, about 40% of our GDP growth is coming out of
the technology sector.
It is difficult to measure the real effects of technology on the economy because
traditional measures of the economy are industrial measures; they miss what's
really going on. There is a fundamental change in the structure of our economy;
this type of change has not been experienced since manufacturing displaced
agriculture in the economy. One hundred years ago agriculture accounted for
more than half of the jobs in the United States. Today, it accounts for only
about 3%. Twenty years ago, manufacturing was the biggest employer, accounting
for half of all jobs. In 30 years, manufacturing will account for less than 10%
of all jobs and the knowledge economy will be the new employer.
In the knowledge economy, the Internet destroys corporate pricing power. It
rapidly commoditizes all that is new, reducing prices fast. It quickly bids
down prices toward marginal cost. In the knowledge economy, companies will gain
an edge through new ideas and products that increase in value as more people use
them. There is no limit to how many people can use knowledge-based assets.
Knowledge based products can reward early leaders with temporary monopolies and
huge profits and these are the types of companies that Emerald will continue to
uncover for its fellow shareholders. Over the long run, we believe that people
who invest in the technology sector can earn substantial returns because the
winners will be big winners.
Sincerely,
/s/ Steven E. Russell /s/ Kenneth G. Mertz
Steven E. Russell, Esq. Kenneth G. Mertz II, CFA
Portfolio Manager Portfolio Manager
THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS JUNE 30, 2000
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 95.1%
COMMUNICATIONS & BROADCASTING -- 5.5%
Comcast Corporation -- Class A*<F11> 13,280 $ 537,840
Entercom Communications Corp.*<F11> 51,270 2,499,413
4Kids Entertainment, Inc.*<F11>^<F12> 83,955 2,188,077
Pegasus Communications Corporation*<F11> 46,400 2,276,500
------------
TOTAL COMMUNICATIONS & BROADCASTING 7,501,830
------------
FINANCE & INSURANCE -- 6.6%
INSURANCE CARRIERS -- 0.9%
Penn-America Group, Inc. 95,420 751,433
Philadelphia Consolidated Holding Corp.*<F11> 25,000 420,313
------------
1,171,746
------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 2.6%
Federated Investors, Inc. 12,300 431,269
Parkvale Financial Corporation 23,750 409,688
Progress Financial Corporation 108,827 1,346,734
SEI Investments Company 34,710 1,381,892
------------
3,569,583
------------
STATE & NATIONAL BANKS -- 3.1%
BT Financial Corporation 61,985 1,069,241
Drovers Bancshares Corporation 13,738 212,939
First Colonial Group, Inc. 29,711 415,954
Harleysville National Corporation 22,300 730,325
Republic First Bancorp, Inc.*<F11> 77,400 357,975
Royal Bancshares of Pennsylvania, Inc. -- Class A 28,919 484,393
S&T Bancorp, Inc. 32,150 586,738
Sun Bancorp, Inc. 24,101 355,490
------------
4,213,055
------------
TOTAL FINANCE & INSURANCE 8,954,384
------------
FOOD, BEVERAGES & TOBACCO -- 1.4%
Hershey Foods Corporation 40,300 1,954,550
------------
MANUFACTURING -- 47.6%
BUILDING & HOUSING -- 0.0%
Berger Holdings, Ltd.*<F11> 29,050 65,362
------------
CHEMICALS & ALLIED PRODUCTS -- 1.1%
OM Group, Inc. 32,730 1,440,120
------------
COMPUTER & OFFICE EQUIPMENT -- 4.4%
Extended Systems Incorporated*<F11>^<F12> 22,550 2,164,800
Safeguard Scientifics, Inc.*<F11> 93,090 2,984,698
Silicon Storage Technology, Inc.*<F11>^<F12> 10,000 883,125
------------
6,032,623
------------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 17.6%
8x8, Inc.*<F11>^<F12> 57,300 687,600
Allen Organ Company -- Class B 8,794 513,350
C&D Technologies, Inc. 95,140 5,375,410
Herley Industries, Inc*<F11> 83,410 1,574,364
Kopin Corporation*<F11>^<F12> 15,690 1,086,533
Kulicke and Soffa Industries, Inc.*<F11> 47,770 2,836,344
Semitool, Inc.*<F11>^<F12> 6,250 108,203
Technitrol, Inc. 45,500 4,407,813
Teleflex Incorporated 39,410 1,408,908
TranSwitch Corporation*<F11>^<F12> 18,310 1,413,303
TriQuint Semiconductor, Inc.*<F11>^<F12> 21,390 2,046,756
Vishay Intertechnology, Inc.*<F11> 66,825 2,535,173
------------
23,993,757
------------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT -- 1.1%
Paragon Technologies, Inc. 204,715 1,535,363
------------
PAPER & FOREST PRODUCTS -- 0.4%
P.H. Glatfelter Company 50,560 515,080
------------
PHARMACEUTICAL PREPARATIONS -- 12.7%
Celgene Corporation*<F11>^<F12> 58,630 3,451,841
Cephalon, Inc.*<F11> 79,700 4,772,037
Cubist Pharmaceuticals, Inc.*<F11>^<F12> 31,010 1,527,243
Emisphere Technologies, Inc.*<F11>^<F12> 47,140 2,008,606
Matrix Pharmaceutical, Inc.*<F11>^<F12> 55,700 727,581
Neose Technologies, Inc.*<F11> 117,310 4,934,352
------------
17,421,660
------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 2.8%
ChromaVision Medical Systems, Inc.*<F11>^<F12> 87,830 1,158,258
Environmental Tectonics Corporation*<F11> 133,850 1,229,747
Kensey Nash Corporation*<F11> 117,500 1,307,187
Medical Technology & Innovations, Inc.*<F11> 1,301,779 133,432
------------
3,828,624
------------
SOFTWARE -- 0.5%
MSC. Software Corp.^<F12> 27,000 251,437
Puma Technology, Inc.*<F11>^<F12> 15,100 404,869
------------
656,306
------------
TELECOMMUNICATIONS EQUIPMENT -- 7.0%
Aware, Inc.*<F11>^<F12> 20,590 1,052,664
C-COR.net Corp.*<F11> 66,610 1,798,470
Cable Design Technologies Corporation*<F11> 89,110 2,985,185
Clarent Corporation*<F11>^<F12> 23,080 1,650,220
SeaChange International, Inc.*<F11>^<F12> 72,900 2,104,987
------------
9,591,526
------------
TOTAL MANUFACTURING 65,080,421
------------
REAL ESTATE INVESTMENT TRUSTS -- 2.5%
Brandywine Realty Trust 80,000 1,530,000
Crown American Realty Trust 55,000 295,625
Liberty Property Trust 59,560 1,544,837
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS 3,370,462
------------
SERVICES -- 24.0%
BUSINESS SERVICES -- 6.7%
Diamond Technology Partners
Incorporated*<F11>^<F12> 39,215 3,450,920
Sanchez Computer Associates, Inc.*<F11> 105,750 2,511,562
U.S. Interactive, Inc.*<F11> 99,725 1,290,186
VerticalNet, Inc.*<F11> 53,320 1,969,507
------------
9,222,175
------------
COMPUTER SERVICES -- 6.4%
Amkor Technology, Inc.*<F11> 71,880 2,538,262
Ansoft Corporation*<F12> 77,060 770,600
AXENT Technologies, Inc.*<F11>^<F12> 10,000 248,125
Black Box Corporation*<F11> 11,010 871,682
Clarus Corporation*<F11>^<F12> 33,310 1,294,926
Infonautics, Inc. -- Class A*<F11> 200,880 878,850
SunGard Data Systems Inc.*<F11> 66,880 2,073,280
------------
8,675,725
------------
OIL & GAS SERVICES -- 5.8%
Equitable Resources, Inc. 55,000 2,653,750
Horizon Offshore, Inc.*<F11>^<F12> 13,300 206,150
Lone Star Technologies, Inc.*<F11>^<F12> 12,400 573,500
Maverick Tube Corporation*<F11>^<F12> 20,000 582,500
NS Group, Inc.*<F11>^<F12> 37,600 787,250
UTI Energy Corp.*<F11>^<F12> 55,500 2,226,938
Unit Corporation*<F11>^<F12> 70,000 945,000
------------
7,975,088
------------
PERSONAL SERVICES -- 1.2%
Education Management Corporation*<F11> 88,350 1,595,822
------------
TELECOMMUNICATION SERVICES -- 3.9%
Adelphia Business Solutions, Inc.*<F11> 49,010 1,136,419
D&E Communications, Inc. 6,195 120,802
Pac-West Telecomm, Inc.*<F11>^<F12> 106,955 2,139,100
Triton PCS Holdings, Inc. -- Class A*<F11> 34,200 1,975,050
------------
5,371,371
------------
TOTAL SERVICES 32,840,181
------------
UTILITIES -- 0.8%
Philadelphia Suburban Corporation 55,396 1,135,618
------------
WHOLESALE & RETAIL TRADE -- 6.7%
MISCELLANEOUS RETAIL STORES -- 1.3%
Brookstone, Inc.*<F11>^<F12> 5,050 48,448
Electronics Boutique Holdings Corp.*<F11> 100,310 1,642,576
------------
1,691,024
------------
RETAIL APPAREL & ACCESSORY STORES -- 4.2%
Charming Shoppes, Inc.*<F11> 239,590 1,220,412
David's Bridal, Inc.*<F11> 106,030 1,225,972
Hot Topic, Inc.*<F11>^<F12> 40,700 1,302,400
Piercing Pagoda, Inc.*<F11> 137,860 1,998,970
------------
5,747,754
------------
WHOLESALE MISCELLANEOUS -- 1.2%
AmeriSource Health Corporation -- Class A*<F11> 54,280 1,682,680
------------
TOTAL WHOLESALE & RETAIL TRADE 9,121,458
------------
TOTAL COMMON STOCKS (COST $85,954,668) 129,958,904
------------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 7.8%
VARIABLE RATE DEMAND NOTES #<F13> -- 7.8%
American Family Financial Services Inc., 6.31% $2,959,073 $ 2,959,073
General Mills, Inc., 6.28% 1,113,700 1,113,700
Sara Lee Corporation, 6.27% 4,073,061 4,073,061
Wisconsin Corporate Central Credit Union, 6.34% 761,193 761,193
Wisconsin Electric Power Company, 6.31% 1,728,428 1,728,428
------------
TOTAL SHORT-TERM INVESTMENTS (COST $10,635,455) 10,635,455
------------
TOTAL INVESTMENTS (COST OF $96,590,123) -- 102.9% 140,594,359
------------
OTHER ASSETS AND LIABILITIES, NET -- (2.9%) (3,945,095)
------------
NET ASSETS -- 100.0% $136,649,264
------------
------------
*<F11> Non-income producing security.
^<F12> Non-Pennsylvania Company as defined in the Fund's current prospectus
(the aggregate value of such securities amounted to $38,721,360 as of
June 30, 2000).
#<F13> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on specified
dates. The rates listed are as of June 30, 2000.
See accompanying Notes to Financial Statements
THE HOMESTATE SELECT BANKING AND FINANCE FUND
SCHEDULE OF INVESTMENTS JUNE 30, 2000
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 91.3%
FINANCE & INSURANCE -- 81.8%
INSURANCE CARRIERS -- 2.3%
Motor Club of America *<F14> 2,500 $ 20,781
Penn Treaty American Corporation *<F14> 1,800 30,600
Philadelphia Consolidated Holding Corp. *<F14> 12,100 203,431
-----------
254,812
-----------
INVESTMENT COMPANIES -- 2.0%
Federated Investors, Inc. 3,800 133,238
Gabelli Asset Management Inc. -- Class A*<F14> 3,600 90,000
-----------
223,238
-----------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 13.2%
Brookline Bancorp, Inc. 11,600 132,675
First Keystone Financial, Inc. 9,000 90,844
Hudson City Bancorp, Inc. 20,000 341,250
Laurel Capital Group, Inc. 4,750 62,641
Medallion Financial Corp. 4,000 61,750
Net.B@nk, Inc.*<F14> 6,000 74,625
OceanFirst Financial Corp. 8,900 164,094
Progress Financial Corporation 29,865 369,579
PSB Bancorp, Inc. *<F14> 15,500 67,328
Sovereign Bancorp, Inc. 12,000 84,375
-----------
1,449,161
-----------
STATE & NATIONAL BANKS -- 64.3%
Alabama National BanCorporation 8,000 158,500
AmSouth Bancorporation 8,000 126,000
BankFirst Corporation*<F14> 10,000 82,500
Banknorth Group, Inc. 13,687 209,582
BT Financial Corporation 14,695 253,489
CCB Financial Corporation 4,000 148,000
CENIT Bancorp, Inc. 3,500 41,562
Centura Banks, Inc. 3,150 106,903
Commerce Bancorp, Inc. 7,200 331,200
Community Independent Bank Inc. 3,200 32,000
Drovers Bancshares Corporation 11,576 179,428
FCNB Corp. 14,000 252,875
First Charter Corporation 11,000 173,250
First Colonial Group, Inc. 3,307 46,298
Fulton Financial Corporation 13,135 232,325
Greater Bay Bancorp 7,600 355,300
Harleysville National Corporation 12,525 410,194
Hudson United Bancorp 14,807 332,232
Keystone Financial, Inc. 15,600 331,500
Mercantile Bankshares Corporation 12,000 357,750
National Penn Bancshares, Inc. 5,250 108,281
Oak Hill Financial, Inc. 10,000 140,000
PNC Financial Services Group 7,000 328,125
Regions Financial Corporation 10,000 198,750
Republic First Bancorp, Inc.*<F14> 21,800 100,825
Royal Bancshares of Pennsylvania, Inc. - Class A 16,921 283,427
S&T Bancorp, Inc. 15,400 281,050
Silicon Valley Bancshares 6,200 264,275
Sky Financial Group, Inc. 7,992 127,372
Summit Bancorp. 7,737 190,524
Sun Bancorp, Inc. 8,088 119,298
Sun Bancorp, Inc. - New Jersey *<F14> 17,981 107,888
UCBH Holdings, Inc.*<F14> 11,000 293,563
Yardville National Bancorp 30,900 328,312
-----------
7,032,578
-----------
TOTAL FINANCE & INSURANCE 8,959,789
-----------
REAL ESTATE INVESTMENT TRUSTS -- 8.0%
Brandywine Realty Trust 15,000 286,875
Crown American Realty Trust 10,000 53,750
Liberty Property Trust 12,000 311,250
Resource Asset Investment Trust 20,000 220,000
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS 871,875
-----------
SERVICES -- 1.5%
COMPUTER SERVICES -- 0.5%
Sanchez Computer Associates, Inc. *<F14> 2,100 49,875
-----------
FINANCIAL SERVICES -- 1.0%
LendingTree, Inc.*<F14> 15,000 112,500
-----------
TOTAL SERVICES 162,375
-----------
TOTAL COMMON STOCKS (COST $11,285,588) 9,994,039
-----------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 8.8%
VARIABLE RATE DEMAND NOTES #<F15> -- 8.8%
American Family Financial Services Inc., 6.31% $109,361 109,361
General Mills, Inc., 6.28% 83,384 83,384
Sara Lee Corporation, 6.27% 13,547 13,547
Wisconsin Corporate Central Credit Union, 6.34% 430,122 430,122
Wisconsin Electric Power Company, 6.31% 322,915 322,915
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $959,329) 959,329
-----------
TOTAL INVESTMENTS (COST $12,244,917) -- 100.1% 10,953,368
-----------
OTHER ASSETS AND LIABILITIES, NET -- (0.1%) (6,016)
-----------
NET ASSETS -- 100.0% $10,947,352
-----------
-----------
*<F14> Non-income producing security.
#<F15> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on
specified dates. The rates listed are as of June 30, 2000.
See accompanying Notes to Financial Statements
THE HOMESTATE SELECT TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS JUNE 30, 2000
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 92.6%
MANUFACTURING -- 68.8%
COMPUTER & OFFICE EQUIPMENT -- 10.3%
Brocade Communications Systems, Inc.*<F16> 3,000 $ 550,453
Cisco Systems, Inc.*<F16>1<F18> 7,000 444,938
Extended Systems Incorporated*<F16> 4,400 422,400
Safeguard Scientifics, Inc.*<F16> 11,400 365,513
Silicon Storage Technology, Inc.*<F16> 2,350 207,534
-----------
1,990,838
-----------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 19.6%
8x8, Inc.*<F16> 6,300 75,600
ACT Manufacturing, Inc.*<F16> 4,000 185,750
ANADIGICS, Inc.*<F16> 3,000 102,188
Bel Fuse Inc. - Class A*<F16> 1,100 29,700
Benchmark Electronics, Inc.*<F16> 5,000 182,813
Cree, Inc.*<F16> 2,000 267,000
Cypress Semiconductor Corporation*<F16>1<F18> 10,000 422,500
Kopin Corporation*<F16> 6,450 446,663
Photronics, Inc.*<F16> 9,100 258,213
Semitool, Inc.*<F16> 16,200 280,462
Technitrol, Inc. 4,700 455,312
Three-Five Systems, Inc.*<F16> 1,500 88,500
The Titan Corporation*<F16> 7,000 313,250
TranSwitch Corporation*<F16> 3,700 285,594
TriQuint Semiconductor, Inc.*<F16> 800 76,550
Vishay Intertechnology, Inc.*<F16> 8,550 324,366
-----------
3,794,461
-----------
PHARMACEUTICAL PREPARATIONS -- 19.0%
Abgenix, Inc.*<F16> 3,350 401,529
Biopure Corporation*<F16> 3,800 71,488
Celgene Corporation*<F16> 7,500 441,562
Cephalon, Inc.*<F16> 7,500 449,062
Connetics Corporation*<F16> 8,800 129,250
Cubist Pharmaceuticals, Inc.*<F16> 8,050 396,462
CV Therapeutics, Inc.*<F16> 8,695 602,672
Emisphere Technologies, Inc.*<F16> 8,500 362,180
Matrix Pharmaceutical, Inc.*<F16> 16,000 209,000
Neose Technologies, Inc.*<F16> 14,900 626,731
-----------
3,689,936
-----------
SOFTWARE -- 3.2%
Netopia, Inc.*<F16> 2,300 92,575
Puma Technology, Inc.*<F16> 6,000 160,875
Vignette Corporation*<F16> 7,000 364,109
-----------
617,559
-----------
TELECOMMUNICATIONS EQUIPMENT -- 16.7%
Aether Systems, Inc.*<F16> 500 102,500
AudioCodes Ltd.*<F16>+<F19> 3,200 384,000
CIENA Corporation*<F16> 3,800 633,413
Clarent Corporation*<F16> 6,500 464,750
Ditech Communications Corporation*<F16> 3,300 312,056
MRV Communications, Inc.*<F16> 6,600 443,850
Powerwave Technologies, Inc.*<F16> 4,700 206,800
SeaChange International, Inc.*<F16> 8,700 251,212
Terayon Communication Systems, Inc.*<F16> 6,800 436,794
-----------
3,235,375
-----------
TOTAL MANUFACTURING 13,328,169
-----------
SERVICES -- 23.8%
BUSINESS SERVICES -- 4.7%
Celestica Inc.*<F16> 2,000 99,250
Diamond Technology Partners
Incorporated*<F16>1<F18> 6,800 598,400
Sanchez Computer Associates, Inc.*<F16>1<F18> 3,100 73,625
U.S. Interactive, Inc.*<F16> 10,370 134,162
-----------
905,437
-----------
COMPUTER SERVICES -- 13.3%
AXENT Technologies, Inc.*<F16> 1,000 24,812
Clarus Corporation*<F16> 5,600 217,700
Critical Path, Inc.*<F16> 3,800 221,587
Digital Island*<F16> 7,500 364,687
Extreme Networks, Inc.*<F16> 6,100 643,550
Mercury Interactive Corporation*<F16>1<F18> 6,600 638,550
Redback Networks Inc.*<F16> 2,400 427,200
Websense, Inc.*<F16> 2,000 50,250
-----------
2,588,336
-----------
TELECOMMUNICATION SERVICES -- 5.8%
AT&T Corp. 200 6,325
Adelphia Business Solutions, Inc.*<F16> 5,000 115,938
Copper Mountain Networks, Inc.*<F16> 3,600 317,250
Pac-West Telecomm, Inc.*<F16> 12,840 256,800
Powertel, Inc.*<F16> 6,000 425,625
-----------
1,121,938
-----------
TOTAL SERVICES 4,615,711
-----------
TOTAL COMMON STOCKS (COST $12,099,244) 17,943,880
-----------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 9.2%
VARIABLE RATE DEMAND NOTES #<F17> -- 9.2%
American Family Financial Services Inc, 6.31% $365,379 365,379
General Mills, Inc., 6.28% 36,053 36,053
Sara Lee Corporation, 6.27% 567,906 567,906
Wisconsin Corporate Central Credit Union, 6.34% 469,880 469,880
Wisconsin Electric Power Company, 6.31% 346,679 346,679
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,785,897) 1,785,897
-----------
TOTAL INVESTMENTS (COST $13,885,141) -- 101.8% 19,729,777
-----------
CONTRACTS
(100 SHARES
PER CONTRACT)
-------------
SCHEDULE OF CALL OPTIONS WRITTEN -- (0.1%)
Cree, Inc.
Expiration July 22, 2000, Exercise Price $150.00 20 (7,250)
Emisphere Technologies, Inc.
Expiration July 22, 2000, Exercise Price $50.00 40 (3,500)
-----------
TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED $53,818) (10,750)
-----------
SHARES
------
SECURITIES SOLD SHORT -- (2.6%)
EntreMed, Inc. 8,000 (239,500)
Intelidata Technologies Corporation 15,000 (154,688)
Systems & Computer Technology Corporation 5,000 (100,000)
-----------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $378,219) (494,188)
-----------
OTHER ASSETS AND LIABILITIES, NET -- 0.9% 164,930
-----------
NET ASSETS -- 100.0% $19,389,769
-----------
-----------
*<F16> Non-income producing security.
#<F17> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on
specified dates. The rates listed are as of June 30, 2000.
1<F18> All or a portion of the securities have been committed for collateral
for open short positions.
+<F19> Foreign Security.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 2000
<TABLE>
PENNSYLVANIA SELECT BANKING AND SELECT TECHNOLOGY
GROWTH FUND FINANCE FUND FUND
------------ ------------------ -----------------
<S> <C> <C> <C>
ASSETS
Investments in securities at market value
(identified cost $96,590,123, $12,244,917 and
$13,885,141, respectively) (Note 2) $140,594,359 $ 10,953,368 $ 19,729,777
Deposits with brokers and custodian bank for
securities sold short -- -- 378,219
Receivables for:
Dividends and interest 90,402 40,245 36,558
Investment securities sold 698,576 - 748,060
Capital shares sold 176,267 55,506 65,502
Other assets 17,456 15,884 32,343
------------ ------------ ------------
Total assets 141,577,060 11,065,003 20,990,459
------------ ------------ ------------
LIABILITIES
Securities sold short at market value (proceeds
$0, $0 and $378,219, respectively) (Note 2) -- -- 494,188
Options written, at value (premiums received
$0, $0 and $53,818) -- -- 10,750
Payables for:
Investment securities purchased 4,461,342 18,301 953,295
Capital shares repurchased 96,788 22,637 16,056
Payable to Adviser 82,005 11,399 15,129
Accrued expenses and other liabilities 287,661 65,314 111,272
------------ ------------ ------------
Total liabilities 4,927,796 117,651 1,600,690
------------ ------------ ------------
NET ASSETS $136,649,264 $ 10,947,352 $ 19,389,769
------------ ------------ ------------
------------ ------------ ------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 67,678,897 $ 12,791,856 $ 11,402,492
Accumulated net investment income 8,825 57,932 --
Accumulated net realized gain (loss) on investments 24,957,306 (610,887) 2,215,542
Net unrealized appreciation (depreciation)
on investments 44,004,236 (1,291,549) 5,844,636
Net unrealized depreciation on securities sold short -- -- (115,969)
Net unrealized appreciation on written options -- -- 43,068
------------ ------------ ------------
Net assets $136,649,264 $ 10,947,352 $ 19,389,769
------------ ------------ ------------
------------ ------------ ------------
NET ASSETS VALUE AND REDEMPTION
PRICE PER SHARE
($136,649,264/7,462,064 issued and outstanding
shares, no par value; $10,947,352/977,119 issued
and outstanding shares, no par value; and $19,389,769/
655,233 issued and outstanding shares, no par value,
respectively) $18.31 $11.20 $29.59
------ ------ ------
------ ------ ------
Maximum offering price per share
(100/95.25 of $18.31, 100/95.25 of $11.20, and
100/97.10 of $29.59, respectively) $19.22 $11.76 $30.47
------ ------ ------
------ ------ ------
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2000
<TABLE>
PENNSYLVANIA SELECT BANKING AND SELECT TECHNOLOGY
GROWTH FUND FINANCE FUND FUND
------------ ------------------ -----------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of
$0, $370 and $0, respectively) $ 706,054 $ 313,452 $ 790
Interest 356,803 53,888 86,205
----------- ----------- -----------
Total investment income 1,062,857 367,340 86,995
----------- ----------- -----------
EXPENSES:
Investment Advisory fees 1,020,630 118,017 168,725
12b-1 fees 476,294 41,275 118,108
Shareholder servicing and accounting 207,613 64,681 66,249
Professional fees 49,731 21,944 21,989
Trustees' fees and expenses 11,364 4,798 4,971
Administration fees 84,801 30,481 28,697
Reports to shareholders 38,855 3,237 8,219
Federal and state registration fees 23,040 15,727 19,141
Custody fees 42,140 5,454 13,059
Other 7,514 1,041 759
----------- ----------- -----------
Total expenses before fee waivers 1,961,982 306,655 449,917
Advisory fee waived -- (29,517) --
----------- ----------- -----------
Total operating expenses before
dividends on short positions 1,961,982 277,138 449,917
Dividends on short positions -- -- 2,780
----------- ----------- -----------
Total expenses 1,961,982 277,138 452,697
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) (899,125) 90,202 (365,702)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) on:
Long transactions 41,756,079 (256,917) 7,097,220
Short transactions -- -- (174,975)
Options contracts expired or closed -- -- 106,649
Change in unrealized appreciation/depreciation on:
Investments 21,846,095 (1,912,824) 4,405,290
Short positions -- -- (80,422)
Written options -- -- 43,068
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments 63,602,174 (2,169,741) 11,396,830
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $62,703,049 $(2,079,539) $11,031,128
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
STATEMENTS OF CHANGES IN NET ASSETS JUNE 30, 2000
<TABLE>
FOR THE FISCAL YEAR ENDED JUNE 30, 2000 PENNSYLVANIA SELECT BANKING AND SELECT TECHNOLOGY
GROWTH FUND FINANCE FUND*<F20> FUND**<F21>
------------ ----------------- -----------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (899,125) $ 90,202 $ (365,702)
Net realized gain (loss):
Long transactions 41,756,079 (256,917) 7,097,220
Short transactions -- -- (174,975)
Option contracts expired or closed -- -- 106,649
Change in unrealized appreciation/depreciation on:
Investments 21,846,095 (1,912,824) 4,405,290
Short positions -- -- (80,422)
Written options -- -- 43,068
------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 62,703,049 (2,079,539) 11,031,128
------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (35,485) --
Net realized gain on investment transactions (8,460,931) -- (450,023)
------------ ----------- -----------
(8,460,931) (35,485) (450,023)
------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS: (NOTE 3)
Net decrease in net assets resulting from
capital share transactions (16,569,413) (69,027) (247,009)
------------ ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 37,672,705 (2,184,051) 10,334,096
NET ASSETS:
Beginning of period 98,976,559 13,131,403 9,055,673
------------ ----------- -----------
End of period $136,649,264 $10,947,352 $19,389,769
------------ ----------- -----------
------------ ----------- -----------
PENNSYLVANIA SELECT BANKING AND SELECT TECHNOLOGY
FOR THE FISCAL YEAR ENDED JUNE 30, 1999 GROWTH FUND FINANCE FUND*<F20> FUND**<F21>
------------ ------------------ -----------------
OPERATIONS:
Net investment loss $ (115,062) $ (6,340) $ (199,124)
Net realized gain (loss):
Long transactions 1,882,775 1,155,621 (63,236)
Short transactions -- 78,861 85,575
Option contracts expired or closed -- (51,020) (74,901)
Change in unrealized appreciation/depreciation on:
Investments (15,945,518) (2,201,340) 93,933
Short positions -- 29,325 (64,759)
------------ ----------- -----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS (14,177,805) (994,893) (222,512)
------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investment transactions (1,454,374) -- --
------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS: (NOTE 3)
Net decrease in net assets resulting from
capital share transactions (20,828,165) (3,299,623) (1,695,251)
------------ ----------- -----------
TOTAL DECREASE IN NET ASSETS (36,460,344) (4,294,516) (1,917,763)
NET ASSETS:
Beginning of period 135,436,903 17,425,919 10,973,436
------------ ----------- -----------
End of period $ 98,976,559 $13,131,403 $ 9,055,673
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
*<F20> Prior to October 30, 1998 was known as the Select Opportunities Fund.
**<F21> Prior to February 29, 2000 was known as the Year 2000 (Y2K) Fund.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
PENNSYLVANIA GROWTH FUND**<F23>
<TABLE>
PERIODS ENDED
-------------------------------------------------------------------
6/30/00 6/30/99 6/30/98 6/30/97 6/30/96
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $11.70 $13.03 $10.78 $10.63 $ 7.84
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------
Net investment loss (0.12)1<F24> (0.01)1<F24> (0.05)1<F24> (0.03) (0.04)
Net realized and unrealized gain (loss) on investments 7.79 (1.18) 2.70 0.89 3.09
------ ------ ------ ------ ------
Total from investment operations 7.67 (1.19) 2.65 0.86 3.05
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
-------------------
Distributions from net realized gains (1.06) (0.14) (0.40) (0.71) (0.26)
------ ------ ------ ------ ------
Net asset value at end of period $18.31 $11.70 $13.03 $10.78 $10.63
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return*<F22> 66.58% (9.24)% 25.04% 9.56% 39.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $136,649 $98,977 $135,437 $89,577 $55,828
Ratio of expenses to average net assets 1.45% 1.56% 1.49% 1.77% 1.85%
Ratio of net investment loss to average net assets (0.66)% (0.11)% (0.45)% (0.39)% (0.58)%
Portfolio turnover rate 102% 88% 51% 50% 66%
</TABLE>
*<F22> Total return does not reflect 4.75% maximum sales charge.
**<F23> The per share data reflects 2 for 1 stock split which occurred
December 29, 1997.
1<F24> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
See accompanying Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
SELECT BANKING AND FINANCE FUND
<TABLE>
PERIODS ENDED
-------------------------------------------------------
6/30/00 6/30/99 6/30/98 6/30/97+<F25>
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $13.36 $13.42 $11.70 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------
Net investment income (loss) 0.08 (0.01)1<F29> (0.20)1<F29> (0.03)
Net realized and unrealized gain (loss) on investments (2.20) (0.05) 2.46 1.73
------ ------ ------ ------
Total from investment operations (2.12) (0.06) 2.26 1.70
------ ------ ------ ------
LESS DISTRIBUTIONS
-------------------
Dividends from net investment income (0.03) -- -- --
Dividends in excess of net investment income (0.01) -- -- --
Distributions from net realized gains -- -- (0.54) --
------ ------ ------ ------
(0.04) -- (0.54) --
------ ------ ------ ------
Net asset value at end of period $11.20 $13.36 $13.42 $11.70
------ ------ ------ ------
------ ------ ------ ------
Total return**<F27> (15.91)% (0.45)% 19.56% 17.00%***<F28>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $10,947 $13,131 $17,426 $5,628
Ratio of operating expenses to average net assets
before reimbursement by Adviser and waivers 2.60% 2.60% 2.59% 8.10%*<F26>
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers2<F30> 2.35% 2.35% 2.35% 2.35%*<F26>
Ratio of dividends on short positions to average net assets -- -- 0.02% --
Ratio of net investment income (loss) to average net assets
before reimbursement by Adviser and waivers 0.51% (0.31)% (1.99)% (6.85)%*<F26>
Ratio of net investment income (loss) to average net assets
after reimbursement by Adviser and waivers 0.76% (0.05)% (1.75)% (1.10)%*<F26>
Portfolio turnover rate 46% 158% 115% 59%
</TABLE>
+<F25> From commencement of operations: February 18, 1997.
*<F26> Annualized.
**<F27> Total return does not reflect 4.75% maximum sales charge.
***<F28> Not annualized.
1<F29> Net investment income per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
2<F30> The operating expense ratio excludes dividends on short positions.
The ratio including dividends on short positions for the periods
ended June 30, 2000, 1999, 1998 and 1997 were 2.35%, 2.35%, 2.37%
and 2.35%, respectively.
See accompanying Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
SELECT TECHNOLOGY FUND
<TABLE>
PERIODS ENDED
------------------------------------------
6/30/00 6/30/99 6/30/98+<F31>
------- ------- -------------
<S> <C> <C> <C>
Net asset value at beginning of period $12.17 $12.09 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------
Net investment loss1<F35> (0.55) (0.22) (0.16)
Net realized and unrealized gain on investments 18.62 0.30 2.25
------ ------ ------
Total from investment operations 18.07 0.08 2.09
------ ------ ------
LESS DISTRIBUTIONS
------------------
Distributions from net realized gains (0.65) -- --
------ ------ ------
Net asset value at end of period $29.59 $12.17 $12.09
------ ------ ------
------ ------ ------
Total return**<F33> 148.95% 0.66% 20.90%***<F34>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $19,390 $9,056 $10,973
Ratio of operating expenses to average net assets before
Reimbursement by Adviser and waivers 2.67%2<F36> 3.01% 5.29%*<F32>
Ratio of operating expenses to average net assets after
Reimbursement by Adviser and waivers na3<F37> 2.90%2<F36> 2.90%*<F32>2<F36>
Ratio of dividends on short positions to average net assets 0.02% 0.04% 0.03%*<F32>
Ratio of net investment loss to average net assets before
Reimbursement by Adviser and waivers (2.17)% (2.27)% (4.56)%*<F32>
Ratio of net investment loss to average net assets after
Reimbursement by Adviser and waivers na3<F37> (2.16)% (2.17)%*<F32>
Portfolio turnover rate 199% 200% 44%
</TABLE>
+<F31> From commencement of operations: October 31, 1997.
*<F32> Annualized.
**<F33> Total return does not reflect 4.75% maximum sales charge.
***<F34> Not annualized.
1<F35> Net investment loss per share represents net investment loss divided
by the average shares outstanding throughout the period.
2<F36> The operating expense ratio excludes dividends on short positions.
The ratio including dividends on short positions for the periods
ended June 30, 2000, 1999 and 1998 were 2.69%, 2.94% and 2.93%,
respectively.
3<F37> Not applicable: no reimbursements were made by the Adviser.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2000
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 Select Technology
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 a diversified portfolio of 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 a
diversified portfolio of 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 HomeState Select Technology Fund commenced operations on October 31,
1997. The investment objective of the Fund is to seek capital appreciation
by investing in a non-diversified portfolio of equity securities of public
companies in the technology sector. To pursue its objective, the Fund will
invest at least 65% of its total assets in such companies. Prior to February
29, 2000, the Fund was named the HomeState Year 2000 Fund and had a narrower
investment objective.
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 and bid prices.
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 and 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 Funds record distributions to
shareholders on the ex-dividend date. Net gains realized from securities
transactions, if any, will normally be distributed to shareholders in August
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. The Funds may utilize earnings and profits
distributed to shareholders on redemption of shares as part of the dividends
paid deduction. For the year ended June 30, 2000, the HomeState Pennsylvania
Growth and HomeState Select Technology Funds utilized earnings and profits
distributed to shareholders on redemption of shares of $2,496,226 and
$3,503,363, respectively.
FEDERAL INCOME TAXES -- The Funds intend to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the distribution of substantially all of their 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
HomeState Select Technology 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 HomeState Select Banking and Finance
Fund did not write any call options for the year ended June 30, 2000. See
Note 7 for options written by the HomeState Select Technology Fund for the
year ended June 30, 2000.
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 HomeState Select Technology Fund limit the
aggregate value of puts and call options to 5% and 25% of each Fund's net
assets, respectively.
SHORT SALES -- The HomeState Select Banking and Finance Fund and the
HomeState Select Technology Fund may sell securities short. Short sales are
transactions in which the Funds sell a security they do not own, in
anticipation of a decline in the market value of that security. To complete
such a transaction, the Funds must borrow the security to deliver to the
buyer upon the short sales; the Funds then are obligated to replace the
security borrowed by purchasing it in the open market at some later date.
The Funds will incur a loss if the market price of the security increases
between the date of the short sale and the date on which the Funds replace
the borrowed security. The Funds will realize a gain if the security
declines in value between those dates. All short sales must be fully
collateralized. The Funds maintain the collateral in a segregated account
consisting of cash, U.S. Government securities or other liquid assets in an
amount at least equal to the market value of their respective short
positions. The Funds are liable for any dividends payable on securities
while those securities are in a short position. The HomeState Select Banking
and Finance Fund and the HomeState Select Technology Fund limit the value of
short positions to 5% and 25% of each Fund's net assets, respectively. At
June 30, 2000, the HomeState Select TechnologyFund had 2.6% of its net assets
in short positions.
NOTE 3 -- CAPITAL STOCK
At June 30, 2000, each Fund had an authorized unlimited number of shares of
beneficial interest with no par value.
The following table summarizes the capital share transactions of each Fund:
PENNSYLVANIA GROWTH FUND
<TABLE>
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, 2000 ENDED JUNE 30, 1999
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 728,849 $ 13,594,972 1,098,267 $ 12,032,229
Reinvested distributions 482,225 8,015,501 106,851 1,384,784
Redemptions (2,206,764) (38,179,886) (3,141,056) (34,245,178)
---------- ------------ ---------- ------------
Net decrease (995,690) $(16,569,413) (1,935,938) $(20,828,165)
---------- ------------ ---------- ------------
------------ ------------
SHARES OUTSTANDING:
Beginning of period 8,457,754 10,393,692
---------- ----------
End of period 7,462,064 8,457,754
---------- ----------
---------- ----------
</TABLE>
SELECT BANKING AND FINANCE FUND
<TABLE>
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, 2000 ENDED JUNE 30, 1999
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 387,410 $ 4,465,476 231,262 $ 2,587,041
Reinvested distributions 2,766 32,713 -- --
Redemptions (396,274) (4,567,216) (546,632) (5,886,664)
---------- ------------ ---------- ------------
Net decrease (6,098) $ (69,027) (315,370) $ (3,299,623)
---------- ------------ ---------- ------------
------------ ------------
SHARES OUTSTANDING:
Beginning of period 983,217 1,298,587
---------- ----------
End of period 977,119 983,217
---------- ----------
---------- ----------
</TABLE>
SELECT TECHNOLOGY FUND
<TABLE>
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, 2000 ENDED JUNE 30, 1999
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 625,902 $ 18,771,493 372,656 $ 3,852,170
Reinvested distributions 15,755 426,362 -- --
Redemptions (730,220) (19,444,864) (536,825) (5,547,421)
---------- ------------ ---------- ------------
Net decrease (88,563) $ (247,009) (164,169) $ (1,695,251)
---------- ------------ ---------- ------------
------------ ------------
SHARES OUTSTANDING:
Beginning of period 743,796 907,965
---------- ----------
End of period 655,233 743,796
---------- ----------
---------- ----------
</TABLE>
NOTE 4 -- INVESTMENT TRANSACTIONS
During the year ended June 30, 2000, purchases and sales of investment
securities (excluding securities sold short and short-term investments) were
as follows:
PENNSYLVANIA SELECT BANKING SELECT TECHNOLOGY
GROWTH FUND AND FINANCE FUND FUND
------------ ---------------- -----------------
Purchases $130,075,106 $5,459,869 $30,475,197
Sales $155,971,073 $6,027,578 $31,197,839
The following balances for the Funds are as of June 30, 2000:
<TABLE>
TAX BASIS NET
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 $96,581,298 $44,013,061 $48,239,552 $(4,226,491)
Select Banking and Finance Fund 12,234,373 (1,281,005) 816,727 (2,097,732)
Select Technology Fund 14,171,076 5,558,701 6,652,664 (1,093,963)
</TABLE>
At June 30, 2000, the HomeState Select Banking and Finance Fund had an
accumulated net realized capital loss carryover of $610,886 with $331,878
expiring in 2007 and $279,008 expiring in 2008. To the extent the Fund
realizes future net capital gains, taxable distributions to its shareholders
will be offset by any unused capital loss carryover for the Fund.
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 HomeState
Select Technology Fund is based on average daily net assets at the annual
rate of 1.00% on assets up to and including $100 million and 0.90% for assets
in excess of $100 million. Under the terms of the investment advisory
agreement which expires on December 31, 2000, Emerald Advisers, Inc. may also
voluntarily reimburse the Funds for certain expenses. Through June 30, 2000,
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
HomeState Select Technology 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 year ended June 30, 2000.
GROSS ADVISORY FEE
ADVISORY WAIVED
-------- ------------
Pennsylvania Growth Fund $1,020,630 $ --
Select Banking and Finance Fund 118,017 29,517
Select Technology Fund 168,725 --
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%, 0.35% and 0.70%, respectively, of the
HomeState Pennsylvania Growth, Select Banking and Finance and Select
Technology Funds' average daily net assets. During the year ended June 30,
2000, the HomeState Pennsylvania Growth, Select Banking and Finance and
Select Technology Funds incurred expenses of $476,294, $41,275 and $118,108,
respectively, pursuant to the Plan. Effective July 1, 2000, the HomeState
Select Technology Fund's 12b-1 rate was lowered to 0.50% of its average daily
net assets.
Firstar Mutual Fund Services, LLC serves as transfer agent, administrator and
accounting services agent for the Funds. Firstar Bank, 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 Funds'
Board of Trustees who is not affiliated with the Adviser is employed as a
practicing attorney and is a partner in the law firm of Duane, Morris &
Heckscher, the Funds' legal counsel. Legal fees aggregating $26,529, $3,676
and $4,890 were incurred by the HomeState Pennsylvania Growth Fund, the
HomeState Select Banking and Finance Fund and the HomeState Select Technology
Fund, respectively, to Duane, Morris & Heckscher during the year ended June
30, 2000.
NOTE 7 -- OPTION CONTRACTS WRITTEN
The premium amount and the number of option contracts written by the
HomeState Select Technology Fund during the year ended June 30, 2000, were as
follows:
PREMIUM AMOUNT NUMBER OF CONTRACTS
-------------- -------------------
Options outstanding at June 30, 1999 $ 0 0
Options written 63,258 80
Options closed (9,440) (20)
Options exercised 0 0
Options expired 0 0
------- ---
Options outstanding at June 30, 2000 $53,818 60
------- ---
------- ---
NOTE 8 -- SUBSEQUENT EVENTS
Effective July 1, 2000, the Trust has added Class C shares to each of the
Funds and the initial shares were renamed Class A shares. The Class C shares
charge a 1.00% front-end sales load on purchases up to $1 million. Investors
purchasing Class C shares also pay a contingent deferred sales charge of
1.00% if shares are held for less than one year. The Funds have each adopted
a distribution services plan (the "Plans") under Rule 12b-1 of the Investment
Company Act of 1940. The Plans allow the Funds 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
1.00% of each Fund's average daily net assets. The Board of Trustees also
approved changing the Fund family name from The HomeState Group to Emerald
Mutual Funds effective July 1, 2000.
The Board of Trustees authorized the officers of the Trust to establish and
designate a new series of the Trust. The new Fund will offer both Class A
and Class C shares and will focus on small cap companies across the nation.
The new Fund is expected to be available later this year.
THE HOMESTATE GROUP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The HomeState Group
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the HomeState Pennsylvania Growth
Fund, the HomeState Select Banking and Finance Fund and the HomeState Select
Technology Fund (formerly known as the HomeState Year 2000 Fund) (constituting
The HomeState Group, hereafter referred to as the "Funds") at June 30, 2000, the
results of each of their operations, the changes in each of their net assets and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
August 9, 2000
THE HOMESTATE GROUP
TAX INFORMATION
REQUIRED INCOME TAX DISCLOSURES
In early 2000, shareholders received information regarding all distributions
paid to them by the Funds during the fiscal year ended June 30, 2000. The
Funds hereby designate the following amounts, including the utilization of
earnings and profits distributed to shareholders on redemption of shares as
part of the dividends paid deduction, as long-term capital gains
distributions.
<TABLE>
PENNSYLVANIA SELECT BANKING SELECT TECHNOLOGY
GROWTH FUND AND FINANCE FUND FUND
------------ ---------------- ----------------
<S> <C> <C> <C>
Capital Gains Taxed at 20% $4,744,325 $ -- $322,233
</TABLE>
THE HOME STATE GROUP
INVESTMENT ADVISER
------------------
EMERALD ADVISERS, INC.
LANCASTER, PA
DISTRIBUTOR
-----------
RAFFERTY CAPITAL MARKETS, INC.
WHITE PLAINS, NY
ADMINISTRATOR AND
TRANSFER AGENT
--------------
FIRSTAR MUTUAL FUND SERVICES, LLC
MILWAUKEE, WI
CUSTODIAN
---------
FIRSTAR BANK, N.A.
CINCINNATI, OH
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.
1703 OREGON PIKE, SUITE 101
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) 232-6572
SHAREHOLDER SERVICES (800) 232-0224
24 HOUR PRICING INFORMATION
---------------------------
1-800-232-0224
www.emeraldmutualfunds.com
This report is for the general information of Fund shareholders. For more
detailed information about the Fund, please consult a copy of the Fund's current
prospectus. This report is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by a copy of the current
prospectus.
08/00
