SEMI-ANNUAL REPORT
(HOMESTATE LOGO)
MUTUAL FUNDS
DECEMBER 31, 1999
www.homestatefunds.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.
(HOMESTATE PENNSYLVANIA GROWTH FUND LOGO)
Invests a minimum 65% of its assets in companies headquartered or
with significant operations in the Commonwealth of Pennsylvania.
(HOMESTATE BANKING AND FINANCE FUND LOGO)
Invests a minimum 65% of its assets in companies in the banking
and financial services industries, with a focus on smaller
companies in the Mid-Atlantic states.
(HOMESTATE THE Y2K FUND LOGO)
Invests a minimum 65% of its assets in companies in the
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
February 15, 2000
Dear Shareholder:
When I began working in the mutual fund industry in the mid 1980's, we would
market our products with cute slogans made for public seminars like "It's not
TIMING the market, it's TIME IN the market." Such thoughts are well heeded in
the volatile markets of the new millennium.
The fact of the matter is that the Internet, extended trading hours, the
integration of overseas markets and the general "what's hot on CNBC this hour"
mentality of the marketplace has sped up the pace and increased the volatility
of the U.S. stock markets. You will see, for example, that the portfolio
turnover rates for our HomeState Funds have generally increased from levels of
two and three years ago. Unfortunately, this quickened buying and selling has
caused most individual investors to shorten their time horizons as well. Mutual
fund industry sales are now reported on a weekly basis, with net inflows or
outflows teetering back and forth based on the last few days of market action.
Never focused far enough in the future to begin with, domestic investors are
losing their last grasps at a long-term investment strategy. "Buy and Hold" has
become "Buy and Hold the phone, I may sell."
Every investor needs to have a long-term strategy, one that weighs current
resources and future needs. Every investor should regularly review their
portfolio holdings, monitoring how specific holdings are measuring up to pre-
stated goals. Most investors should have an investment professional at their
side throughout this process. Ten thousand mutual funds is too many for any
lone investor to sort though; tax strategies and the nuances of varied asset
classes demand the resources and experience of a paid professional. In fact, an
analyst with mutual fund industry tracker Morningstar told Bloomberg Business
News, "I don't think anyone who has a day job can do enough research to produce
a diversified portfolio on his or her own."
Our HomeState Funds should be viewed for the long-term as well, as our recent
history suggests. On October 8, 1998, the PA Growth Fund hit a low of $8.21
(after a 2 for 1 split in late 1997), before climbing back to the $20 a share
level (the Fund's net asset value stands at $21.83 as I write this letter.
Please read the complete performance information appearing at the end of my
letter and on pages 8, 10, and 12, and remember that past performance is not
indicative of future results). On that day, the Fund experienced net outflows:
more people took money out than put money in, a circumstance that continued as
the Fund fought back up past the $9.00 a share mark and into the $10's (Today,
the Fund again enjoys healthy inflows). And so, unfortunately, many investors
missed the opportunity to buy the Fund at or near its 52-week lows. With a
consistent, long-term strategy, however, an investor can maintain a steady hand
through turbulent markets.
As an example, let's look at two possible investment strategies: (1) Someone
who invested $10,000 into the PA Growth Fund on January 1, 1998, and held it
until December 31, 1998; and (2) Someone who also invested $10,000 on January 1,
1998, but continued to hold their shares through December 31, 1999. We'll
assume that each investor paid the Fund's maximum 4.75% sales charge and
reinvested all capital gains distributions. How did they do?
INVESTOR #1 invested $10,000 on January 1, 1998, and saw the small-cap
marketplace suffer one of its worst relative years ever. Disgusted, they
redeemed on December 31, 1998, with an ending balance of only $8,383, or a loss
for the year of 16.17%.
INVESTOR #2 invested the same $10,000 on January 1, 1998, and, despite their
loss, decided to hold on, still owning their original investment on December 31,
1999 (They obviously attended one of my seminars in the mid-80's). At year-end
1999, their $10,000 had grown to $16,459 or an annualized 28.29% per year.
Obviously, 1999 was an extraordinary year and investors should not expect such
growth on an ongoing basis. That said, 1998 was an extraordinary year, too, only
in the opposite direction. And that's the point.
Successful investing means setting goals, sticking to your plan and seeking
professional advice when needed. The bottom line is that investing for the long-
term works. Despite the many ups and downs, bull and bear markets, corrections
and recoveries, U.S. equity markets have risen substantially over the long-term.
Investors should plan accordingly.
As for your HomeState Funds, the last year of the twentieth century was a good
one. Total assets managed by the Funds' adviser, Emerald Advisers, Inc., topped
$987 million at December 31, 1999 and crossed the $1 billion mark in early
January, 2000. We welcome our many new clients and will work hard to provide
you with "the HomeState Advantage" into the new millennium. We thank you for
your support.
Sincerely,
/s/ Scott L. Rehr
Scott L. Rehr
President
ABOUT THE PERFORMANCE INFORMATION APPEARING IN THE LETTERS TO SHAREHOLDERS:
All performance information is presented on a total return basis unless
otherwise noted and reflects the reinvestment of distributions. Past
performance is no guarantee of future results. Investment return and principal
value of an investment will fluctuate with market conditions so that shares may
be worth more or less than their original cost when redeemed. Funds that invest
in a particular industry or geographic region may involve a greater degree of
risk than funds with a more diversified portfolio. All three HomeState Funds
invest in the stocks of smaller-sized companies, which may involve higher risk
and increased volatility than the stocks of larger companies. The Russell 2000
Index is an unmanaged index of domestic common stocks. The Morningstar Small
Company Funds Average, the Morningstar Financial Funds Average and the
Morningstar Technology Funds Average measure the performance returns of all
mutual funds investing primarily in small company stocks, financial services
company and technology company stocks, respectively. The Morningstar Small
Company Funds Average included 709, 283 and 133 funds for the one year, five
year and PA Growth Fund since inception periods ended December 31, 1999. The
Morningstar Financial Funds Average includes 61 funds for the one year period
ended December 31, 1999. The Morningstar Technology Funds Average includes 91
and 63 funds for the one year and the Select Technology Fund (formerly Year 2000
Fund) since inception periods ended December 31, 1999. Write or call for a free
copy of the Funds' current prospectus, which contains more complete information
including management fees, sales charges and other charges and expenses, and
which you should read carefully before investing.
THE HOMESTATE GROUP
MARKET AND ECONOMIC REVIEW
February 15, 2000
Dear Shareholder:
THE TIDE HAS TURNED.
The move to growth stocks and small-cap stocks has been confirmed in the year-
end results. Given a dramatic second-half rally in small-cap stocks culminating
in a 4.7% rise during the last week of '99 and the millennium, the Russell 2000
outperformed the S&P 500 21.4% vs. 21.0% for the year. Growth stocks dominated
the market in all cap sizes, even to the point of Barron's questioning the value
approach of Warren Buffet.
Whether this is a small-cap rally or part of the technology rally is yet to be
seen. Over 94% of the Russell 2000's gain in 1999 came from technology stocks
and the bifurcated market is poised to continue in the year 2000. Extending
last year's terrific run, small and mid-cap growth stocks will lead their market
segments once again carrying their value stock brethren on their proverbial
backs. Small-cap stock investors are finding two very different small stock
experiences. The average small-cap growth fund has returned over 56% during the
past 12 months, according to Lipper, Inc. Unfortunately, the typical small-cap
value fund is less than 10%. This is the type of market in which stock pickers
thrive and Emerald Advisers, Inc. (or Emerald), investment adviser to the
HomeState Funds, has done just that, having amassed fourth quarter and annual
results we are quite proud of and that you will find on the following pages.
The economic support underpinning the strength of this marketplace is two-fold,
earnings and productivity. In the third quarter, the Russell 2000 companies
averaged over a 25% increase in earnings. For the fourth quarter, small cap
stocks should exceed 20% growth. Technology exhibited the greatest growth,
substantiating our overweighting in this sector in both the PA Growth Fund and
Technology/Year 2000 Fund.
Productivity is still increasing. Corporate America has been increasing
productivity at such substantial proportions that inflation remains under
control. The Federal Reserve ended the year with three rate increases, but none
were based on actual inflation in the economy. The Fed raised rates based on a
shrinking labor pool, strong demand (based on a strong economy, a strong
consumer) and a strong market. We believe the Federal Reserve did not raise
rates a fourth time in 1999, due to the Y2K concerns. Since these concerns have
passed, the Fed has raised rates once again in February as a result of continued
strength in the economy and a robust year-end in the stock market.
Since both the stock and bond markets have already priced this increase into the
market, our risks would involve further rate hikes later in the year. A
mitigating factor in the economic statistics is the spending increases,
occurring in the technology and Internet sectors. This spending only enhances
productivity and limits inflation. Therefore, growth is not the problem, only
the result of the positive economic influences over the last few years.
Although the market leadership has been narrow on the upside, concentrated on
technology stocks, Emerald believes these stocks will continue to lead the
market. In 1999, one of the two technology corrections was a valuation
correction caused by higher rates. The year 2000 will bring us more
opportunities in technology, but investors should be prepared for at least one
significant correction in the first six months of the new year. Once interest
rate fears begin to diminish, the bulls will once again take control of the
market and the move will be explosive. There is cash that has built up on the
sidelines and, as the market moves higher, the fund managers are almost forced
to get involved, because they can't miss the game. Since the severe
underperformance in small-cap stocks began in 1996, there appears to have been a
fairly massive migration by small-cap portfolios into larger-cap stocks in
search of liquidity and performance. As most ERISA and pension assets remain
significantly underweighted in small-cap stocks, the recent outperformance by
the small-cap group clearly places pressure on the plan sponsors to return to
their original mandate, thus fueling the small-cap rally into the new
millennium.
Emerald needs to be ever vigilant to the risks as well as the rewards of the
marketplace. While we pride ourselves on being stock pickers and creating non-
conforming portfolios (compared to benchmarks or peers), we also seek to
diversify away systematic risks. As fundamental managers, we do not manage
individual stocks by absolute trading rules, such as selling when a stock
declines 10% or 20%, or taking profits when our small cap success stories turn
into mid-cap winners. But, it is always important to us to maintain our
portfolio construction (diversification) values.
These rules prevent excessive enthusiasm for any one set of stocks and challenge
us to find appropriate growth opportunities in all corners of our marketplace.
We are aware, of course, that diversification does not prevent "free falls" in
portfolio valuations, especially during the early stages of any market
correction or the longer term bear market. (Unfortunately, corrections and bear
markets have not been outlawed by the Internet gods.) The key to our continued
success will be making proper risk/reward decisions on a stock by stock basis.
In 1998, when small-cap investing was out of flavor and growth stocks were
undergoing a P/E correction, we determined internally that we would not go into
a shell, avoiding the "trap" of being too cautious. Today, our "trap" would be
to throw caution to the wind and "swing for the fences." Or it could be to
assume a capital preservation mode. With 1999 returns for one of our Funds in
the triple digit arena (the best that any HomeState has ever seen), it would be
only human to seek to protect those returns at the cost of missed opportunities.
HomeState will not be "trapped" in either of these scenarios, as we remind
ourselves everyday "what is past is past." We must learn from the past, but we
must not be trapped by it. Our success will continue to come from providing
superior growth opportunities based on our own fundamental research, blended
into a reasonable risk/reward portfolio structure to assure participation in the
economic opportunities of today and tomorrow at reasonable risk levels. Our
goal remains finding these opportunities before the rest of the world.
Sincerely,
/s/ Kenneth G. Mertz II
Kenneth G. Mertz II, CFA
Chief Investment Officer
The HomeState Group
THE HOMESTATE PENNSYLVANIA GROWTH FUND
REPORT FROM MANAGEMENT
February 15, 2000
Dear Shareholder:
The marketplace for the last six months of 1999 has changed to a momentum-based
rally focused on rapidly growing companies, both small and large cap. For the
first time in six years, small-cap stocks outperformed large-cap stocks during a
calendar year. This phenomenon benefited your Pennsylvania Growth Fund, which,
of course, is concentrated in smaller-cap growth companies.
<TABLE>
PERFORMANCE RESULTS FOR PERIODS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
AVERAGE ANNUAL RETURN
-------------------------------------------- CUMULATIVE RETURN
FUND/INDEX ONE YEAR FIVE YEAR SINCE INCEPTION SINCE INCEPTION
- ----------- -------- --------- --------------- ------------------
<S> <C> <C> <C> <C>
HomeState PA Growth Fund:
At NAV: + 96.35% + 30.69% + 24.94% +402.84%
At MOP: + 87.08% + 29.42% + 24.10% +378.89%
Russell 2000 Index + 21.26% + 16.70% + 15.84% +190.36%
Morningstar Small-Company
Funds Average + 32.51% + 20.95% + 18.84% +249.60%
</TABLE>
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 709, 283 and 133 small-company funds,
respectively, for total return without regard to sales charges for the One Year,
Five Year and Since Inception (10/1/92) periods. All performance results assume
reinvestment of dividends.
Our continued research, concentrating on finding the best growth companies in
Pennsylvania, pinpointed two spin-offs from Safeguard Scientifics Inc. in
August. Internet Capital Group and U.S. Interactive both came public in August
of 1999 and appreciated 2,733% and 330%, respectively, through year-end. 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.
Biotechnology stocks represent an ever increasing position for us with major
commitments invested in Celegene, Cephalon, Neose and Viropharma. Our
overweighting in business services and computer services represented very
attractive industries in 1999 that led to performance gains for the Fund (at net
asset value) of 79% for the last six months of 1999 (7/1 - 12/31/99) and 65% for
the last three months (9/1 - 12/31/99).
While we are certainly pleased with these results, several segments of the
portfolio have not performed well during the fourth quarter and the beginning of
the first quarter of 2000. These include financial stocks, such as banks,
savings and loans and insurance companies, and retail stocks. Both of these
segments have been negatively affected by the increase in interest rates. While
we believe the physical economy will slow due to further rate hikes, our
emphasis on regional banks and specialty retail stocks (especially teen
retailers like American Eagle Outfitters, Hot Topic and Pacific Swimwear) will
be attractive stocks in 2000.
First, the Federal Reserve may raise rates at least two more times in 2000, but
then the pain will be over. Since the stocks in these sectors already reflect
the worst, we will be adding to these positions throughout the year. As for more
specifics on our bank exposure, please see our Banking and Finance Fund report
that follows.
As you review our individual holdings in the pages that follow, please note our
diversified approach to this portfolio. While the overall market is
concentrated in just a few sectors, we remain dedicated to finding the best
growth opportunities across all market segments. Our results over the past
seven years (a since-inception return of almost 25% per year at net asset value)
show our dedication to providing a portfolio that seeks to maximize returns
while keeping risks at a reasonable level.
As we begin the year 2000, we continue our work in providing our shareholders
with "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
February 15, 2000
Dear Shareholder:
What a year, technology stocks are on fire, Greenspan is raising rates and many
investors at one point believed that the Internet would be the end of your
traditional brick and mortar banks. Through all of this the HomeState Select
Banking and Finance Fund (the Fund) continued to remain focused and outperformed
the NASDAQ Financial Index for the calendar year ended December 31, 1999, while
ranked by Morningstar as one of the top ten banking and financial services fund
in the nation for the same period. The Fund outperformed the NASDAQ Financial
Index by more than twenty-three percent in 1999. Since its successful
transition to a banking and financial services fund on October 20, 1998 the Fund
has returned +29.32% to our shareholders and has outpaced the NASDAQ Financial
Index, which has returned +1.66% over the same period (10/20/98 - 12/31/99).
<TABLE>
PERFORMANCE RESULTS FOR
PERIODS ENDED DECEMBER 31, 1999
-----------------------------------------------------------
AVERAGE ANNUAL RETURN
---------------------------------- CUMULATIVE RETURN
FUND/INDEX ONE YEAR SINCE INCEPTION**<F2> SINCE INCEPTION**<F2>
- ---------- -------- --------------------- ---------------------
<S> <C> <C> <C>
HomeState Select Banking & Finance Fund:*<F1>
At NAV + 16.62% + 7.82% + 24.11%
At MOP + 11.07% + 6.00% + 18.20%
Russell 2000 Index + 21.26% + 13.06% + 42.22%
Morningstar - Financial Funds Average - 0.94% n/a n/a
</TABLE>
*<F1> Prior to 10/20/98 the Fund was called the Select Opportunities Fund
and pursued a different objective.
**<F2> February 18, 1997.
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 61 financial
services funds for total return without regard to sales charges for the One Year
period. All performance results assume reinvestment of dividends.
How have we been so successful in a market where the banking and financial
services sectors have remained out of favor with the NASDAQ Financial Index
ending December 31, 1999 still over 14% off of its April 22, 1998 high? The
answer is very simple, it is the "HomeState Advantage," the hands-on fundamental
bottom-up research that has been the HomeState trademark for years and will
continue to bring our fellow shareholders success in the future. The challenge
was issued to our research and portfolio management teams to discover superior
banks and financial institutions possessing superior earnings growth potential,
improving operating efficiencies and excellent asset quality. We have
tenaciously pursued this goal to date and will continue to maintain the same
diligence in the future for our fellow shareholders.
After the strong performance of the banking and financial services stocks in the
middle of the Nineties, investors never could have imagined the degree to which
these stocks have been decimated over the past 12 months.
As we enter the new millennium, the banking and financial services sector is
trading at a significant discount to the S&P 500. In fact, the banking sector
is trading at just 11.9 times 2000 EPS projections, a 46% P/E multiple relative
to the S&P 500 Index, down from a peak of 83% two years ago.
Why have investors shied away from this once hot sector? Many have flocked to
the allure of the technology sector and its seemingly never-ending revenue
growth rates. That's right: revenue growth rates not earnings growth rates. It
seems that in this fast food, day trading investment world that we live in,
investors value revenue growth much greater than earnings growth. This change
in investment behavior has not been based upon current earnings fundamentals but
upon the belief that at some point in the future some of these emerging
companies may command a dominant market position and achieve profitability.
Meanwhile, the performance of the banking sector has gone virtually unnoticed.
In the year 2000, banks will continue to achieve double digit EPS growth rates
and an average return on equity of 19% - 20%.
It has been well established that credit quality and interest rate cycles are
the two most influential macroeconomic determinants of banking sector
performance. In the second half of 1999, investors began to anticipate a
deterioration in the asset quality of financial institutions. The HomeState
research team observed something very different. Instead of following investor
sentiment, our research team, led by Joe Garner and Myong Lee, contacted many
of the financial institutions which we follow and have determined that there is
not yet any need for concern, asset quality currently remains intact.
Academically, it is unlikely that asset quality will deteriorate unless the
United States economy enters into a prolonged recession. A recession is not
likely to occur unless Mr. Greenspan takes his eye off of the proverbial ball.
But that begs the question, "What does Mr. Greenspan have in store for us in the
year 2000?" The team here at the HomeState Funds certainly expect to see two
federal fund rate increases of 25 basis points in the first six months of 2000,
but what remains uncertain is whether Greenspan will perceive the need for more.
If rates can stabilize after two 25 basis point increases in the federal fund
rates, we believe that a sustainable bank stock rally will commence in the
second half of 2000.
Given this favorable outlook, the investment team at the Banking & Finance Fund
will continue to uncover new investment opportunities in those companies with
good management, sound asset quality and the prospects for solid earnings growth
going forward.
Sincerely,
/s/ Steven E. Russell
Steven E. Russell, Esq.
Vice President
Co-Portfolio Manager
THE HOMESTATE SELECT TECHNOLOGY FUND (FORMERLY THE HOMESTATE YEAR 2000 FUND)
REPORT FROM MANAGEMENT
February 15, 2000
Dear Shareholder:
This report to shareholders straddles the Fund's transition from the HomeState
Year 2000 Fund, investing primarily in "Year 2000 problem-solving" stocks, to
the HomeState Select Technology Fund, investing primarily in companies engaged
in the much broader technology sector. The necessary regulatory approval for
the change is expected on February 29, 2000 and details will be available at the
Fund group's website at www.homestatefunds.com.
----------------------
The Year 2000 Fund was cited by Money Magazine as the second worst idea for a
mutual fund in 1998. In 1999, it finished the calendar year up over 186% at net
asset value.
<TABLE>
PERFORMANCE RESULTS FOR
PERIODS ENDED DECEMBER 31, 1999
-------------------------------------------------------
AVERAGE ANNUAL RETURN
------------------------------ CUMULATIVE RETURN
FUND/INDEX ONE YEAR SINCE INCEPTION SINCE INCEPTION
- ---------- -------- --------------- ---------------
<S> <C> <C> <C>
HomeState Year 2000 Fund:
At NAV +186.16% + 68.71% +211.06%
At MOP +177.98% + 66.42% +202.00%
Russell 2000 Index + 21.26% + 8.55% + 19.45%
Morningstar - Technology Funds Average +141.30% + 79.49% +255.18%
</TABLE>
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. Past performance is no guarantee of future results.
HomeState returns at NAV do not include the effects of the Fund's maximum 2.90%
sales charge (which is increasing to 4.75% effective 2/29/2000); 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 91 and 63 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.
While the Year 2000 Problem demanded billions of dollars in management,
remediation, assessment, testing and, of course, upgrading and replacement, many
pundits felt the problem was overblown, especially since January 1st came
without any major problem in the U.S. or even worldwide.
Unlike those citing Y2K as overblown, we firmly believe that the emphasis placed
on the problem was the key to preventing a "corporate meltdown" or recession.
In fact, by creating a Y2K-related mutual fund to invest in companies benefiting
from the billions being spent, we believe we played at least a small part in
raising the consciousness of our society to the ramifications of NOT spending
our resources on Y2K. Instead of incurring a recession or even a slowdown
because of the Y2K problem, the U.S. benefited from what we call "the Y2K
dividend." Billions of dollars were spent on upgrading and for the replacement
of entire enterprise computer systems, as well as the replacement that took
place on the desktop. These replacements have undoubtedly aided in the huge
growth in productivity, (4th quarter 1999 productivity was up 5.0%), which has
led to the longest peacetime expansion in history.
As per our individual selections, we must point out that these companies also
had a tremendous Y2K dividend, as many of these companies leveraged their Y2K
programs into new business for 2000 and beyond, especially in the areas of e-
commerce and e-solutions for the Internet. Without their Y2K programs, many
companies would not be successful in the "new economy" of the Internet.
Since you, our shareholders, voted to change and expand our mandate to a
technology fund in a vote in the fall of 1999, this area has been the leading
sector in the market. We believe the expansion occurred at the most exciting
time in our nation's history for technological changes. Whether we look at
telecommunications (wireless, CLEC's, etc.) or the Internet, we see dynamic
changes occurring almost overnight. Whether we invest in digital solutions
companies, Business-to-Business (or B-to-B) Internet companies or semiconductor
companies, we find tremendous opportunities for both the short- and long-term.
For example, the Gartner Group has predicted $1.3 trillion of B-to-B
expenditures over the Internet by 2003. But not to be outdone, Forrester
Research recently upped the ante with their prediction of over $7 trillion B-to-
B spending by 2004. Either way, tremendous opportunities exist for investment
in Internet infrastructure and B-to-B stocks. In addition, we have carved out a
portion of the Fund to be invested in the biotechnology sector. For the past
sixty days, this sector has exploded with wealth creation characteristics that
have not been seen in this or any other sector for quite some time.
While the frequent mentions in the press that the Fund's performance results
over the last year have generated are exciting, the future, with our broadened
mandate, appears to us to be equally, if not even more, exciting. We look
forward to continuing to serve you and your technology investments in the months
and years to come.
Sincerely,
/s/ Kenneth G. Mertz II
Kenneth G. Mertz II, CFA
Portfolio Manager
Chief Investment Officer
<TABLE>
THE HOMESTATE PENNSYLVANIA GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1999
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS -- 96.0%
COMMUNICATIONS & BROADCASTING -- 5.1%
Adelphia Communications Corporation -- Class A*<F3> 15,000 $ 984,375
Comcast Corporation -- Class A*<F3> 14,900 753,381
Entercom Communications Corp.*<F3> 29,700 1,960,200
4Kids Entertainment, Inc.*<F3>^<F4> 94,215 2,638,020
Pegasus Communications Corporation*<F3> 20,000 1,955,000
-----------
TOTAL COMMUNICATIONS & BROADCASTING 8,290,976
-----------
FINANCE & INSURANCE -- 7.0%
INSURANCE CARRIERS -- 2.1%
Donegal Group Inc. 88,819 566,221
Penn Treaty American Corporation*<F3> 65,250 1,027,688
Penn-America Group, Inc. 28,300 219,325
Provident American Corporation*<F3> 45,700 1,608,069
-----------
3,421,303
-----------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 1.6%
Federated Investors, Inc. 13,800 276,863
First Sierra Financial, Inc.*<F3>^<F4> 22,290 381,716
Progress Financial Corporation 89,617 1,131,415
SEI Investments Company 6,700 797,405
-----------
2,587,399
-----------
STATE & NATIONAL BANKS -- 3.3%
BT Financial Corporation 24,895 547,701
Drovers Bancshares Corporation 4,000 82,000
First Colonial Group, Inc. 31,757 551,778
Harleysville National Corporation 12,000 390,000
Hudson United Bancorp^<F4> 19,259 492,308
Keystone Financial, Inc. 71,600 1,508,075
Republic First Bancorp, Inc.*<F3> 65,300 338,744
Royal Bancshares of Pennsylvania, Inc. -- Class A 32,449 486,738
S&T Bancorp, Inc. 18,800 435,925
Silicon Valley Bancshares^<F4> 2,500 123,750
Sun Bancorp, Inc. 27,041 520,539
-----------
5,477,558
-----------
TOTAL FINANCE & INSURANCE 11,486,260
-----------
MANUFACTURING -- 37.4%
BUILDING & HOUSING -- 0.1%
Berger Holdings, Ltd.*<F3> 32,600 84,556
-----------
CHEMICALS & ALLIED PRODUCTS -- 0.6%
OM Group, Inc.^<F4> 30,000 1,033,125
-----------
COMPUTER & OFFICE EQUIPMENT -- 4.2%
Safeguard Scientifics, Inc.*<F3> 42,450 6,879,553
-----------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 12.0%
8x8, Inc.*<F3>^<F4> 9,000 46,125
Allen Organ Company -- Class B 9,864 374,832
Applied Micro Circuits Corporation*<F3>^<F4> 15,000 1,908,750
C&D Technologies, Inc. 68,700 2,919,750
DII Group, Inc.*<F3>^<F4> 7,900 560,653
Herley Industries, Inc*<F3> 93,600 1,421,550
Kulicke and Soffa Industries, Inc.*<F3> 20,000 851,250
Technitrol, Inc. 71,800 3,195,100
Teleflex Incorporated 33,000 1,033,313
TranSwitch Corporation*<F3>^<F4> 13,700 994,106
TriQuint Semiconductor, Inc.*<F3>^<F4> 12,000 1,335,000
Vishay Intertechnology, Inc.*<F3> 90,500 2,862,063
Vitesse Semiconductor Corporation*<F3>^<F4> 39,500 2,071,281
-----------
19,573,773
-----------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT -- 1.9%
Met-Pro Corporation 107,150 1,071,500
SI Handling Systems, Inc. 208,825 1,990,363
-----------
3,061,863
-----------
PAPER & FOREST PRODUCTS -- 0.4%
P.H. Glatfelter Company 50,000 728,125
-----------
PHARMACEUTICAL PREPARATIONS -- 8.6%
Celgene Corporation*<F3>^<F4> 70,350 4,924,500
Cephalon, Inc.*<F3> 90,000 3,110,625
CollaGenex Pharmaceuticals, Inc.*<F3> 48,100 1,202,500
Matrix Pharmaceutical, Inc.*<F3>^<F4> 62,500 296,875
Neose Technologies, Inc.*<F3> 126,040 1,811,825
Tularik Inc.*<F3>^<F4> 26,800 867,650
ViroPharma Incorporated*<F3> 49,410 1,828,170
-----------
14,042,145
-----------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 3.7%
ChromaVision Medical Systems, Inc.*<F3>^<F4> 98,560 1,503,040
Environmental Tectonics Corporation*<F3> 150,200 2,271,775
IGEN International, Inc.*<F3>^<F4> 49,300 1,466,675
Kensey Nash Corporation*<F3> 57,600 684,000
Medical Technology & Innovations, Inc.*<F3> 1,460,789 36,520
-----------
5,962,010
-----------
TELECOMMUNICATIONS EQUIPMENT -- 5.9%
C-COR.net Corp.*<F3> 41,800 3,202,925
Cable Design Technologies Corporation*<F3> 65,000 1,495,000
Clarent Corporation*<F3>^<F4> 25,900 2,013,725
SeaChange International, Inc.*<F3>^<F4> 82,800 2,929,050
-----------
9,640,700
-----------
TOTAL MANUFACTURING 61,005,850
-----------
REAL ESTATE INVESTMENT TRUSTS -- 0.8%
Brandywine Realty Trust 2,000 32,750
Liberty Property Trust 50,000 1,212,500
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS 1,245,250
-----------
SERVICES -- 33.9%
BUSINESS SERVICES -- 14.8%
Diamond Technology Partners Incorporated*<F3>^<F4> 77,245 6,638,242
Internet Capital Group, Inc.*<F3> 39,530 6,720,100
Sanchez Computer Associates, Inc.*<F3> 66,065 2,721,052
U.S. Interactive, Inc.*<F3> 72,645 3,123,714
VerticalNet, Inc.*<F3> 27,200 4,460,800
Workflow Management, Inc.*<F3>^<F4> 17,600 503,800
-----------
24,167,708
-----------
COMPUTER SERVICES -- 13.5%
Allaire Corporation*<F3>^<F4> 4,900 716,931
Amkor Technology, Inc.*<F3> 82,900 2,341,925
Ansoft Corporation*<F3> 84,000 504,000
Brio Technology, Inc.*<F3>^<F4> 5,900 247,800
Clarus Corporation*<F3>^<F4> 46,800 3,088,800
DocuCorp International, Inc.*<F3>^<F4> 41,530 292,008
Infonautics, Inc. -- Class A*<F3> 150,000 1,050,000
Keynote Systems, Inc.*<F3>^<F4> 11,100 818,625
MapQuest.com, Inc.*<F3> 105,450 2,379,216
Net Perceptions, Inc*<F3>^<F4> 26,800 1,125,600
Packeteer, Inc.*<F3>^<F4> 16,900 1,199,900
Predictive Systems, Inc.*<F3>^<F4> 6,400 419,200
RAVISENT Technologies Inc.*<F3> 152,700 5,869,406
SportsLine.com, Inc.*<F3>^<F4> 10,100 506,263
SunGard Data Systems Inc.*<F3> 25,000 593,750
Viador Inc.*<F3>^<F4> 5,500 233,063
Vixel Corporation*<F3>^<F4> 33,400 569,887
-----------
21,956,374
-----------
FINANCIAL SERVICES -- 0.0%
The Ashton Technology Group, Inc.* 2,500 16,094
-----------
PERSONAL SERVICES -- 2.4%
Education Management Corporation*<F3> 90,500 1,267,000
InfoSpace.com, Inc.*<F3>^<F4> 12,750 2,728,500
-----------
3,995,500
-----------
TELECOMMUNICATION SERVICES -- 3.2%
Adelphia Business Solutions, Inc.*<F3> 55,000 2,640,000
D&E Communications, Inc. 6,955 132,145
iBasis, Inc.*<F3>^<F4> 17,900 514,625
Pac-West Telecomm, Inc.*<F3>^<F4> 71,315 1,889,847
-----------
5,176,617
-----------
TOTAL SERVICES 55,312,293
-----------
UTILITIES -- 0.8%
Philadelphia Suburban Corporation 62,166 1,286,059
-----------
WHOLESALE & RETAIL TRADE -- 11.0%
MISCELLANEOUS RETAIL STORES -- 2.1%
Brookstone, Inc.*<F3>^<F4> 78,600 1,380,412
Electronics Boutique Holdings Corp.*<F3> 103,580 1,864,440
Zany Brainy, Inc.*<F3> 20,000 205,000
-----------
3,449,852
-----------
RETAIL APPAREL & ACCESSORY STORES -- 7.4%
American Eagle Outfitters, Inc.*<F3> 50,000 2,250,000
Charlotte Russe Holding Inc.*<F3>^<F4> 61,000 1,281,000
Charming Shoppes, Inc.*<F3> 211,610 1,401,916
The Children's Place Retail Stores, Inc.*<F3>^<F4> 24,700 406,006
David's Bridal, Inc.*<F3> 114,850 1,284,884
Hot Topic, Inc.*<F3>^<F4> 47,000 1,092,750
Pacific Sunwear of California, Inc.*<F3>^<F4> 38,100 1,214,437
Piercing Pagoda, Inc.*<F3> 137,800 2,084,225
Urban Outfitters, Inc.*<F3> 36,000 1,048,500
-----------
12,063,718
-----------
WHOLESALE MISCELLANEOUS -- 1.5%
The Boyds Collection, Ltd.*<F3> 30,000 208,125
Jones Apparel Group, Inc.*<F3> 75,000 2,034,375
The Topps Company, Inc.*<F3>^<F4> 24,600 255,225
-----------
2,497,725
-----------
TOTAL WHOLESALE & RETAIL TRADE 18,011,295
-----------
TOTAL COMMON STOCKS (COST $84,698,105) 156,637,983
-----------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENT -- 4.2%
VARIABLE RATE DEMAND NOTE #<F5> -- 4.2%
Firstar Bank, 6.24% $6,814,929 6,814,929
------------
TOTAL SHORT-TERM INVESTMENT (COST $6,814,929) 6,814,929
------------
TOTAL INVESTMENTS (COST OF $91,513,034) -- 100.2% 163,452,912
------------
OTHER ASSETS AND LIABILITIES, NET -- (0.2%) (389,173)
------------
NET ASSETS -- 100.0% $163,063,739
------------
------------
*<F3> Non-income producing security.
^<F4> Non-Pennsylvania Company as defined in the Fund's current prospectus (the aggregate value of such securities amounted to
$52,709,270 as of December 31, 1999).
#<F5> 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 December 31, 1999.
See accompanying Notes to Financial Statements
THE HOMESTATE SELECT BANKING AND FINANCE FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1999
MARKET
SHARES VALUE
------ -----
COMMON STOCKS -- 96.4%
FINANCE & INSURANCE -- 85.7%
INSURANCE CARRIERS -- 5.8%
Donegal Group Inc. 3,500 $ 22,313
Motor Club of America *<F6> 2,500 20,938
Penn Treaty American Corporation *<F6> 1,800 28,350
Philadelphia Consolidated Holding Corp. *<F6> 12,100 175,450
Provident American Corporation *<F6> 12,700 446,881
-----------
693,932
-----------
INVESTMENT COMPANIES -- 7.2%
Federated Investors, Inc. 18,000 361,125
Gabelli Asset Management Inc. -- Class A*<F6> 3,600 58,500
SEI Investments Company 3,600 428,456
-----------
848,081
-----------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 16.6%
Brookline Bancorp, Inc. 10,000 97,500
First Keystone Financial, Inc. 9,000 87,750
First Sierra Financial, Inc. *<F6> 15,400 263,725
Hudson City Bancorp, Inc. 20,000 268,750
Laurel Capital Group, Inc. 4,750 71,250
Medallion Financial Corp. 4,000 71,750
OceanFirst Financial Corp. 5,600 96,950
Progress Financial Corporation 28,665 361,896
PSB Bancorp, Inc. *<F6> 15,500 67,812
Sovereign Bancorp, Inc. 12,000 89,438
WSFS Financial Corporation 10,000 126,250
-----------
1,971,071
-----------
STATE & NATIONAL BANKS -- 56.1%
BankFirst Corporation*<F6> 10,000 86,250
Banknorth Group, Inc. 7,500 200,625
BT Financial Corporation 6,195 136,290
CCB Financial Corporation 4,000 174,250
CENIT Bancorp, Inc. 3,500 60,594
Commerce Bancorp, Inc. 9,055 366,162
Community Independent Bank Inc. 3,200 35,600
Drovers Bancshares Corporation 11,025 226,012
FCNB Corp. 14,000 213,500
First Charter Corporation 11,000 163,625
First Colonial Group, Inc. 3,150 54,731
Fulton Financial Corporation 12,510 225,180
Greater Bay Bancorp 10,100 433,037
Harleysville National Corporation 9,325 303,062
Hudson United Bancorp 14,807 378,504
Keystone Financial, Inc. 10,600 223,263
Mercantile Bankshares Corporation 12,000 383,250
National Penn Bancshares, Inc. 5,250 131,906
Oak Hill Financial, Inc. 10,000 146,250
PNC Bank Corp. 5,000 222,500
Republic First Bancorp, Inc.*<F6> 19,800 102,712
Royal Bancshares of Pennsylvania, Inc. -- Class A 16,922 253,827
S&T Bancorp, Inc. 14,000 324,625
Silicon Valley Bancshares 12,500 618,750
Sky Financial Group, Inc. 7,992 160,839
Summit Bancorp. 5,737 175,696
Sun Bancorp, Inc. 8,088 155,694
Sun Bancorp, Inc. -- New Jersey *<F6> 15,725 156,267
Triangle Bancorp, Inc. 7,000 135,625
UCBH Holdings, Inc.*<F6> 10,000 205,625
Yardville National Bancorp 17,500 203,437
-----------
6,657,688
-----------
TOTAL FINANCE & INSURANCE 10,170,772
-----------
REAL ESTATE INVESTMENT TRUSTS -- 5.3%
Brandywine Realty Trust 10,000 163,750
Crown American Realty Trust 10,000 55,000
Liberty Property Trust 8,000 194,000
Resource Asset Investment Trust 20,000 216,250
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS 629,000
-----------
SERVICES -- 5.4%
COMPUTER SERVICES -- 3.2%
Sanchez Computer Associates, Inc. *<F6> 9,072 373,653
-----------
FINANCIAL SERVICES -- 2.2%
Ameritrade Holding Corporation -- Class A*<F6> 10,000 216,875
Knight/Trimark Group, Inc. -- Class A*<F6> 8,000 368,000
The Ashton Technology Group, Inc.*<F6> 7,000 45,063
-----------
261,938
-----------
TOTAL SERVICES 635,591
-----------
TOTAL COMMON STOCKS (COST $11,905,324) 11,435,363
-----------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 4.7%
VARIABLE RATE DEMAND NOTES -- 4.7%
Firstar Bank, 6.24% $549,318 549,318
Wisconsin Corporate Central Credit Union, 6.16% 6,520 6,520
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $555,838) 555,838
-----------
TOTAL INVESTMENTS (COST $12,461,162) -- 101.1% 11,991,201
-----------
OTHER ASSETS AND LIABILITIES, NET -- (1.1%) (125,087)
-----------
NET ASSETS -- 100.0% $11,866,114
-----------
-----------
*<F6> Non-income producing security.
See accompanying Notes to Financial Statements
THE HOMESTATE YEAR 2000 FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1999
MARKET
SHARES VALUE
------ -----
COMMON STOCKS -- 96.1%
ENTERTAINMENT & LEISURE -- 1.0%
MGM Grand, Inc.*<F7> 4,500 $ 226,406
-----------
MANUFACTURING -- 30.7%
COMPUTER & OFFICE EQUIPMENT -- 11.1%
Apple Computer, Inc.*<F7> 5,000 514,062
Cisco Systems, Inc.*<F7>(1)<F9> 5,000 535,625
Concurrent Computer Corporation*<F7> 10,000 186,875
Gadzoox Networks, Inc.*<F7> 1,800 78,412
Immersion Corporation*<F7> 3,000 115,125
Microsoft Corporation*<F7> 1,000 116,750
Safeguard Scientifics, Inc.*<F7> 4,300 696,869
Unisys Corporation*<F7> 6,000 191,625
-----------
2,435,343
-----------
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 5.5%
Applied Micro Circuits Corporation*<F7> 3,000 381,750
Cypress Semiconductor Corporation*<F7>(1)<F9> 10,000 323,750
Herley Industries, Inc.*<F7> 6,000 91,125
The Titan Corporation*<F7> 7,000 329,875
TranSwitch Corporation*<F7> 1,000 72,562
-----------
1,199,062
-----------
PHARMACEUTICAL PREPARATIONS -- 8.1%
Celgene Corporation*<F7> 4,500 315,000
Cephalon, Inc.*<F7> 11,800 407,837
Collateral Therapeutics, Inc.*<F7> 700 13,388
Connetics Corporation*<F7> 5,000 52,500
CuraGen Corporation*<F7> 1,600 111,600
CV Therapeutics, Inc.*<F7> 4,295 111,938
Emisphere Technologies, Inc.*<F7> 9,400 282,587
Matrix Pharmaceutical, Inc.*<F7> 16,000 76,000
Medarex, Inc.*<F7> 500 18,625
Neose Technologies, Inc.*<F7> 7,500 107,812
Tularik Inc.*<F7> 3,000 97,125
ViroPharma Incorporated*<F7> 5,200 192,400
-----------
1,786,812
-----------
TELECOMMUNICATIONS EQUIPMENT -- 6.0%
CIENA Corporation*<F7> 3,500 201,250
Clarent Corporation*<F7> 7,000 544,250
Research in Motion Limited*<F7> 500 23,094
SeaChange International, Inc.*<F7> 12,000 424,500
Terayon Communication Systems, Inc.*<F7> 2,000 125,625
-----------
1,318,719
-----------
TOTAL MANUFACTURING 6,739,936
-----------
SERVICES -- 64.4%
BUSINESS SERVICES -- 9.2%
Celestica Inc.*<F7> 4,000 222,000
Clarify, Inc.*<F7> 500 63,000
Diamond Technology Partners Incorporated*<F7>(1)<F9> 7,500 644,531
Internet Capital Group, Inc.*<F7> 1,480 251,600
Modem Media . Poppe Tyson, Inc.*<F7> 2,500 175,937
Sanchez Computer Associates, Inc.*<F7>(1)<F9> 7,372 303,634
U.S. Interactive, Inc.*<F7> 8,170 351,310
-----------
2,012,012
-----------
COMPUTER SERVICES -- 48.6%
Allaire Corporation*<F7> 2,000 292,625
Aspect Development, Inc.*<F7> 4,000 274,000
Bluestone Software, Inc.*<F7> 1,200 138,000
BroadVision, Inc.*<F7> 3,050 518,691
C-bridge Internet Solutions, Inc.*<F7> 7,500 364,688
Clarus Corporation*<F7> 5,600 369,600
Complete Business Solutions, Inc.*<F7> (1)<F9> 21,000 527,625
Compuware Corporation*<F7> 4,000 149,000
Critical Path, Inc.*<F7> 6,300 594,563
Digital Island*<F7> 5,500 523,188
Extreme Networks, Inc.*<F7> 3,400 283,900
InterVU Inc.*<F7> 5,000 525,000
Mastech Corporation*<F7>(1)<F9> 5,000 123,750
Mediaplex, Inc.*<F7> 9,600 602,400
Mercury Interactive Corporation*<F7>(1)<F9> 5,000 539,688
NaviSite, Inc.*<F7> 1,500 150,000
Net Perceptions, Inc.*<F7>(1)<F9> 10,000 420,000
OnDisplay, Inc.*<F7> 3,200 290,800
Packeteer, Inc.*<F7> 5,200 369,200
RAVISENT Technologies Inc.*<F7> 8,000 307,500
Redback Networks Inc.*<F7> 2,300 408,250
Sapiens International Corporation N.V. 5,000 82,188
Sapient Corporation*<F7>(1)<F9> 5,000 704,688
SciQuest.com, Inc.*<F7> 1,000 79,500
Segue Software, Inc.*<F7> 10,700 267,500
Sterling Software, Inc.(1)<F9> 24,800 781,200
SunGard Data Systems Inc.*<F7> 16,000 380,000
Viador Inc.*<F7> 3,000 127,125
Vixel Corporation*<F7>(1)<F9> 6,400 109,200
Whittman-Hart, Inc.*<F7> 6,800 364,650
-----------
10,668,519
-----------
MEDICAL & HEALTH SERVICES -- 0.2%
Colorado MEDtech, Inc.*<F7> 5,600 44,800
-----------
TELECOMMUNICATION SERVICES -- 6.4%
Adaptive Broadband Corporation*<F7> 3,300 243,581
Adelphia Business Solutions, Inc.*<F7> 4,500 216,000
Allegiance Telecom, Inc.*<F7> 1,500 138,375
iBasis, Inc.*<F7> 11,000 316,250
NEXTLINK Communications, Inc. -- Class A*<F7> 2,000 166,125
Pac-West Telecomm, Inc.*<F7> 9,840 260,760
RCN Corporation*<F7> 1,100 53,350
-----------
1,394,441
-----------
TOTAL SERVICES 14,119,772
-----------
TOTAL COMMON STOCKS (COST $10,797,925) 21,086,114
-----------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 5.2%
VARIABLE RATE DEMAND NOTES #<F8> -- 5.2%
Firstar Bank, 6.24% $991,061 991,061
Pitney Bowes, Inc., 6.095% 138,788 138,788
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,129,849) 1,129,849
-----------
TOTAL INVESTMENTS (COST $11,927,774) -- 101.3% 22,215,963
-----------
SHARES
------
SECURITIES SOLD SHORT -- (3.0%)
CIBER, Inc. 8,200 (225,500)
Computer Task Group, Incorporated 8,000 (118,500)
NVIDIA Corporation 5,000 (234,688)
Tupperware Corporation 5,000 (84,687)
-----------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $465,714) (663,375)
-----------
OTHER ASSETS AND LIABILITIES, NET -- 1.7% 382,345
-----------
NET ASSETS -- 100.0% $21,934,933
-----------
-----------
*<F7> Non-income producing security.
#<F8> 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 December 31, 1999.
1<F9> All or a portion of the securities have been committed as collateral for open short positions.
See accompanying Notes to Financial Statements
</TABLE>
THE HOMESTATE GROUP
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) DECEMBER 31, 1999
<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 $91,513,034, $12,461,162, and
$11,927,774, respectively) (Note 2) $163,452,912 $11,991,201 $22,215,963
Deposits with brokers and custodian bank for
securities sold short -- -- 465,714
Receivables for:
Dividends and interest 71,426 23,839 1,737
Investment securities sold 1,021,215 -- 1,072,699
Capital shares sold 113,588 59,273 111,077
Other assets 22,569 6,832 11,890
------------ ----------- -----------
Total assets 164,681,710 12,081,145 23,879,080
------------ ----------- -----------
LIABILITIES
Securities sold short at market value (proceeds
$0, $0 and $465,714, respectively) (Note 2) -- -- 663,375
Payables for:
Investment securities purchased 1,231,106 126,411 1,030,438
Capital shares repurchased 78,974 32,741 176,946
Payable to Adviser 95,507 5,795 20,838
Accrued expenses and other liabilities 212,384 50,084 52,550
------------ ----------- -----------
Total Liabilities 1,617,971 215,031 1,944,147
------------ ----------- -----------
NET ASSETS $163,063,739 $11,866,114 $21,934,933
------------ ----------- -----------
------------ ----------- -----------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 74,899,120 $13,041,006 $ 8,305,681
Accumulated net investment income -- 7,636 --
Accumulated net realized gain (loss) on investments 16,224,741 (712,567) 3,538,724
Net unrealized appreciation (depreciation)
on investments 71,939,878 (469,961) 10,288,189
Net unrealized depreciation on securities sold short -- -- (197,661)
------------ ----------- -----------
Net assets $163,063,739 $11,866,114 $21,934,933
------------ ----------- -----------
------------ ----------- -----------
NET ASSETS VALUE AND REDEMPTION
PRICE PER SHARE
($163,063,739/8,267,973 issued and outstanding
shares, no par value; $11,866,114/999,842 issued
and outstanding shares, no par value; and
$21,934,933/722,066 issued and outstanding
shares, no par value, respectively) $19.72 $11.87 $30.38
------ ------ ------
------ ------ ------
Maximum offering price per share
(100/95.25 of $19.72, 100/95.25 of $11.87, and
100/97.10 of $30.38, respectively) $20.70 $12.46 $31.29
------ ------ ------
------ ------ ------
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
PENNSYLVANIA SELECT BANKING AND YEAR 2000
GROWTH FUND FINANCE FUND FUND
----------- ----------------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of
$0, $370 and $0, respectively) $ 385,070 $ 158,247 $ 746
Interest 103,352 11,598 17,514
----------- ----------- -----------
Total investment income 488,422 169,845 18,260
----------- ----------- -----------
EXPENSES:
Investment Advisory fees 431,188 60,950 60,392
12b-1 fees 201,221 21,333 42,274
Shareholder servicing and accounting 103,947 33,115 28,049
Professional fees 29,757 13,100 6,356
Trustees' fees and expenses 5,749 2,560 2,560
Administration fees 33,995 14,967 14,638
Reports to shareholders 18,060 2,033 1,593
Federal and state registration fees 12,642 7,900 7,120
Custody fees 21,400 3,098 3,600
Other 4,612 316 406
----------- ----------- -----------
Total expenses before fee waivers 862,571 159,372 166,988
Advisory fee waived -- (16,133) --
----------- ----------- -----------
Total operating expenses before
dividends on short positions 862,571 143,239 166,988
Dividends on short positions -- -- 2,380
----------- ----------- -----------
Total expenses 862,571 143,239 169,368
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) (374,149) 26,606 (151,108)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) on:
Long transactions 23,377,814 (345,197) 4,717,613
Short transactions -- -- (189,082)
Options contracts expired or closed -- -- 106,649
Change in unrealized appreciation/depreciation on:
Investments 49,781,737 (1,091,236) 8,848,843
Short positions -- -- (162,114)
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments 73,159,551 (1,436,433) 13,321,909
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $72,785,402 $(1,409,827) $13,170,801
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
STATEMENTS OF CHANGES IN NET ASSETS DECEMBER 31, 1999
<TABLE>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
PENNSYLVANIA SELECT BANKING AND YEAR 2000
GROWTH FUND FINANCE FUND*<F10> FUND
------------ ------------------ ---------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (374,149) $ 26,606 $ (151,108)
Net realized gain (loss):
Long transactions 23,377,814 (345,197) 4,717,613
Short transactions -- -- (189,082)
Option contracts expired or closed -- -- 106,649
Change in unrealized appreciation/depreciation on:
Investments 49,781,737 (1,091,236) 8,848,843
Short positions -- -- (162,114)
------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 72,785,402 (1,409,827) 13,170,801
------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (35,510) --
Net realized gain from investment transactions (8,461,680) -- (451,083)
------------ ----------- -----------
(8,461,680) (35,510) (451,083)
------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS: (NOTE 3)
Net increase (decrease) in net assets resulting from
capital share transactions (236,542) 180,048 159,542
------------ ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 64,087,180 (1,265,289) 12,879,260
NET ASSETS:
Beginning of period 98,976,559 13,131,403 9,055,673
------------ ----------- -----------
End of period $163,063,739 $11,866,114 $21,934,933
------------ ----------- -----------
------------ ----------- -----------
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
PENNSYLVANIA SELECT BANKING AND YEAR 2000
GROWTH FUND FINANCE FUND*<F10> FUND
------------ ------------------ ---------
OPERATIONS:
Net investment loss $ (115,062) $ (6,340) $ (199,124)
Net realized gain (loss):
Long transactions 1,882,775 1,155,621 (63,236)
Short transactions -- 78,861 85,575
Option contracts expired or closed -- (51,020) (74,901)
Change in unrealized appreciation/depreciation on:
Investments (15,945,518) (2,201,340) 93,933
Short positions -- 29,325 (64,759)
------------ ----------- -----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS (14,177,805) (994,893) (222,512)
------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain from investment transactions (1,454,374) -- --
------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS: (NOTE 3)
Net decrease in net assets resulting from
capital share transactions (20,828,165) (3,299,623) (1,695,251)
------------ ----------- -----------
TOTAL DECREASE IN NET ASSETS (36,460,344) (4,294,516) (1,917,763)
NET ASSETS:
Beginning of period 135,436,903 17,425,919 10,973,436
------------ ----------- -----------
End of period $ 98,976,559 $13,131,403 $ 9,055,673
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
*<F10> Prior to October 30, 1998 was known as the Select Opportunities Fund.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
PENNSYLVANIA GROWTH FUND**<F12>
<TABLE>
PERIODS ENDED
---------------------------------------------------------------------
12/31/99 6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
-------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $11.70 $13.03 $10.78 $10.63 $ 7.84 $ 6.19
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment loss (0.05)1 (0.01)1 (0.05)1 (0.03) (0.04) (0.01)
<F14> <F14> <F14>
Net realized and unrealized gain (loss) on investments 9.13 (1.18) 2.70 0.89 3.09 1.77
------ ------ ------ ------ ------ ------
Total from investment operations 9.08 (1.19) 2.65 0.86 3.05 1.76
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- -------------------
Distributions from net realized gains (1.06) (0.14) (0.40) (0.71) (0.26) (0.11)
------ ------ ------ ------ ------ ------
Net asset value at end of period $19.72 $11.70 $13.03 $10.78 $10.63 $ 7.84
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return*<F11> 79.40%3 (9.24)% 25.04% 9.56% 39.94% 28.96%
<F16>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $163,064 $98,977 $135,437 $89,577 $55,828 $20,388
Ratio of expenses to average net assets before
reimbursement by Adviser 1.50%*** 1.56% 1.49% 1.77% 1.85% 2.00%
<F13>
Ratio of expenses to average net assets after
reimbursement by Adviser na2 na2 na2 na2 na2 1.91%
<F15> <F15> <F15> <F15> <F15>
Ratio of net investment loss to average net
assets before reimbursement by Adviser (0.65)%*** (0.11)% (0.45)% (0.39)% (0.58)% (0.20)%
<F13>
Ratio of net investment loss to average
net assets after reimbursement by Adviser na2 na2 na2 na2 na2 (0.10)%
<F15> <F15> <F15> <F15> <F15>
Portfolio turnover rate 55% 88% 51% 50% 66% 51%
</TABLE>
*<F11> Total return does not reflect 4.75% maximum sales charge.
**<F12> The per share data reflects 2 for 1 stock split which occurred
December 29, 1997.
***<F13> Annualized.
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 applicable: no reimbursements were made by the Adviser.
3<F16> Not annualized.
See accompanying Notes to Financial Statements
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
SELECT BANKING AND FINANCE FUND
<TABLE>
PERIODS ENDED
--------------------------------------------------------
12/31/99 6/30/99 6/30/98 6/30/97+<F17>
-------- ------- ------- -------------
(UNAUDITED)
<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) 0.03 (0.01)1<F21> (0.20)1<F21> (0.03)
Net realized and unrealized gain (loss) on investments (1.48) (0.05) 2.46 1.73
------ ------ ------ ------
Total from investment operations (1.45) (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 $11.87 $13.36 $13.42 $11.70
------ ------ ------ ------
------ ------ ------ ------
Total return**<F19> (10.88)%*** (0.45)% 19.56% 17.00%***
<F20> <F20>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $11,866 $13,131 $17,426 $5,628
Ratio of operating expenses to average net assets
before reimbursement by Adviser and waivers 2.61%*<F18> 2.60% 2.59% 8.10%*<F18>
Ratio of operating expenses to average net assets
after reimbursement by Adviser and waivers2<F22> 2.35%*<F18> 2.35% 2.35% 2.35%*<F18>
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 0.17%*<F18> (0.31)% (1.99)% (6.85)%*<F18>
Ratio of net investment income (loss) to average net assets
after reimbursement by Adviser and waivers 0.43%*<F18> (0.05)% (1.75)% (1.10)%*<F18>
Portfolio turnover rate 25% 158% 115% 59%
</TABLE>
+<F17> From commencement of operations: February 18, 1997.
*<F18> Annualized.
**<F19> Total return does not reflect 4.75% maximum sales charge.
***<F20> Not annualized.
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> The operating expense ratio excludes dividends on short positions.
The ratio including dividends on short positions for the periods ended
December 31, 1999, June 30, 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:
YEAR 2000 FUND
<TABLE>
PERIODS ENDED
---------------------------------------------------
12/31/99 6/30/99 6/30/98+<F23>
-------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value at beginning of period $12.17 $12.09 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment loss1<F27> (0.22) (0.22) (0.16)
Net realized and unrealized gain on investments 19.08 0.30 2.25
------ ------ ------
Total from investment operations 18.86 0.08 2.09
------ ------ ------
LESS DISTRIBUTIONS
- -------------------
Distributions from net realized gains (0.65) -- --
------ ------ ------
Net asset value at end of period $30.38 $12.17 $12.09
------ ------ ------
------ ------ ------
Total return**<F25> 155.59%***<F26> 0.66% 20.90%***<F26>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $21,935 $9,056 $10,973
Ratio of operating expenses to average net assets before reimbursement
by Adviser and waivers 2.77%*<F24> 3.01% 5.29%*<F24>
Ratio of operating expenses to average net assets after reimbursement
by Adviser and waivers2<F28> na3<F29> 2.90% 2.90%*<F24>
Ratio of dividends on short positions to average net assets 0.04%*<F24> 0.04% 0.03%*<F24>
Ratio of net investment loss to average net assets before reimbursement
by Adviser and waivers (2.50)%*<F24> (2.27)% (4.56)%*<F24>
Ratio of net investment loss to average net assets after reimbursement
by Adviser and waivers na3<F29> (2.16)% (2.17)%*<F24>
Portfolio turnover rate 99% 200% 44%
</TABLE>
+<F23> From commencement of operations: October 31, 1997.
*<F24> Annualized.
**<F25> Total return does not reflect 2.90% maximum sales charge.
***<F26> Not annualized.
1<F27> Net investment loss per share represents net investment loss divided
by the average shares outstanding throughout the period.
2<F28> The operating expense ratio excludes dividends on short positions.
The ratio including dividends on short positions for the periods ended
December 31, 1999, June 30, 1999 and 1998 were 2.81%, 2.94% and
2.93%, respectively.
3<F29> Not applicable: no reimbursements were made by the Adviser.
See accompanying Notes to Financial Statements
THE HOMESTATE GROUP
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1999
NOTE 1 -- DESCRIPTION OF FUNDS
The HomeState Group (the "Trust"), an open-end management company, was
established as a Pennsylvania common law trust on August 26, 1992, and is
registered under the Investment Company Act of 1940, as amended. The Trust
has established three series: the HomeState Pennsylvania Growth Fund, the
HomeState Select Banking and Finance Fund and the HomeState Year 2000 Fund
(each a "Fund" and collectively, the "Funds"). The investment objectives of
the HomeState Funds are set forth below.
The HomeState Pennsylvania Growth Fund commenced operations on October 1,
1992. The investment objective of the Fund is long-term growth of capital
through investments primarily in the common stock of companies with
headquarters or significant operations in the Commonwealth of Pennsylvania.
To pursue its objective, the Fund will invest at least 65% of its total
assets in such companies. Consequently, the Fund may be subject to risk from
economic changes and political developments occurring within Pennsylvania.
The HomeState Select Banking and Finance Fund commenced operations on
February 18, 1997. The investment objective of the Fund is long-term growth
through capital appreciation. Income is a secondary objective. To pursue
its objective, the Fund will invest at least 65% of its total assets in
banking and financial services companies. Prior to October 20, 1998, the
Fund was named the HomeState Select Opportunities Fund and had a different
investment objective.
The Year 2000 Fund commenced operations on October 31, 1997. The investment
objective of the Fund is long-term growth of capital by investing in equity
securities of public companies which have stated, or been reported as
possessing, an intention of developing or supporting marketable solutions to
problems stemming from the susceptibility of various business and other
computer application programs or systems to fail, or to produce inappropriate
results, regarding data, calculations or other processing involving dates
subsequent to December 31, 1999. To pursue its objective, the Fund will
invest at least 65% of its total assets in such companies.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies, in conformity
with generally accepted accounting principles, which were consistently
followed by each Fund in the preparation of their financial statements.
SECURITY VALUATION -- Investment securities traded on a national securities
exchange are valued at the last reported sales price at 4:00 p.m. Eastern
time, unless there are no transactions on the valuation date, in which case
they are valued at the mean between the closing asked price and the closing
bid price. Securities traded over-the-counter are valued at the last
reported sales price unless there is no reported sales price, in which case
the mean between the closing asked price and the closing bid price is used.
Debt securities with maturities of sixty days or less are valued at amortized
cost, which approximates market value. Where market quotations are not
readily available, securities are valued using methods which the Board of
Trustees believe in good faith accurately reflects their fair value.
INCOME RECOGNITION -- Interest income is accrued as earned. Dividend income
is recorded on the ex-dividend date.
SECURITIES TRANSACTIONS -- Security transactions are accounted for on the
date the securities are purchased or sold. Realized gains and losses on
securities sold are determined using the first in, first out (FIFO) cost
method.
DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records distributions to
shareholders on the ex-dividend date. Net gains realized from securities
transactions, if any, will normally be distributed to shareholders in July
and December. The amounts of distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations, which may differ from those amounts determined under
generally accepted accounting principles. These book/tax differences are
either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in capital in the period that
the difference arises.
FEDERAL INCOME TAXES -- The Fund intends to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the distribution of substantially all of its taxable income. Accordingly, no
provision for federal income taxes is considered necessary in the financial
statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CALL AND PUT OPTIONS -- The HomeState Select Banking and Finance Fund and the
Year 2000 Fund may write and/or purchase exchange-traded call options and
purchase exchange-traded put options on securities in the Fund. When the
Funds write a call option, an amount equal to the premium received is
reflected as a liability. The amount of the liability is subsequently
"marked to market" to reflect the current market value of the option written.
If an option which the Funds have written either expires on its stipulated
expiration date, or if the Funds enter into a closing purchase transaction,
the Funds realize a gain (or loss if the cost of the closing transaction
exceeds the premium received when the option is sold), and the liability
related to such option is extinguished. If a call option which the Funds
have written is exercised, the Funds realize a gain or loss from the sale of
the underlying security, and the proceeds of which are increased by the
premium originally received. The Select Banking and Finance Fund did not
write any call options for the period ended December 31, 1999. See Note 7
for options written by the Year 2000 Fund for the period ended December 31,
1999.
The premium paid by the Funds for the purchase of a put option is recorded as
an investment and subsequently marked to market to reflect the current market
value of the option purchased. If an option which the Funds have purchased
expires on the stipulated expiration date, the Funds realize a loss in the
amount of the cost of the option. If the Funds exercise a put option, they
realize a gain or loss from the sale of the underlying security, the proceeds
of which are decreased by the premium originally paid. The HomeState Select
Banking and Finance Fund and the Year 2000 Fund limit the aggregate value of
puts and call options to 5% and 25% of each Fund's net assets, respectively.
SHORT SALES -- The HomeState Select Banking and Finance Fund and the Year
2000 Fund may sell securities short. Short sales are transactions in which
the Funds sell a security they do not own, in anticipation of a decline in
the market value of that security. To complete such a transaction, the Funds
must borrow the security to deliver to the buyer upon the short sales; the
Funds then are obligated to replace the security borrowed by purchasing it in
the open market at some later date. The Funds will incur a loss if the
market price of the security increases between the date of the short sale and
the date on which the Funds replace the borrowed security. The Funds will
realize a gain if the security declines in value between those dates. All
short sales must be fully collateralized. The Funds maintain the collateral
in a segregated account consisting of cash, U.S. Government securities or
other liquid assets in an amount at least equal to the market value of their
respective short positions. The Funds are liable for any dividends payable
on securities while those securities are in a short position. The HomeState
Select Banking and Finance Fund and the Year 2000 Fund limit the value of
short positions to 5% and 25% of each Fund's net assets, respectively. At
December 31, 1999, the Year 2000 Fund had 3.0% of its net assets in short
positions.
NOTE 3 -- CAPITAL STOCK
At December 31, 1999, each Fund had an authorized unlimited number of shares
of beneficial interest with no par value.
The following table summarizes the capital share transactions of each Fund:
<TABLE>
PENNSYLVANIA GROWTH FUND
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, 1999 ENDED JUNE 30, 1999
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 205,904 $ 3,178,086 1,098,267 $ 12,032,229
Reinvested distributions 482,267 8,016,250 106,851 1,384,784
Redemptions (877,952) (11,430,878) (3,141,056) (34,245,178)
--------- ------------ ---------- ------------
Net decrease (189,781) $ (236,542) (1,935,938) $(20,828,165)
--------- ------------ ---------- ------------
--------- ------------ ---------- ------------
SHARES OUTSTANDING:
Beginning of period 8,457,754 10,393,692
--------- ----------
End of period 8,267,973 8,457,754
--------- ----------
--------- ----------
SELECT BANKING AND FINANCE FUND
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, 1999 ENDED JUNE 30, 1999
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Sales 136,129 $ 1,670,590 231,262 $ 2,587,041
Reinvested distributions 2,767 32,731 -- --
Redemptions (122,271) (1,523,273) (546,632) (5,886,664)
--------- ------------ ---------- ------------
Net increase (decrease) 16,625 $ 180,048 (315,370) $(3,299,623)
--------- ------------ ---------- ------------
--------- ------------ ---------- ------------
SHARES OUTSTANDING:
Beginning of period 983,217 1,298,587
--------- ----------
End of period 999,842 983,217
--------- ----------
--------- ----------
YEAR 2000 FUND
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, 1999 ENDED JUNE 30, 1999
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Sales 282,197 $ 5,940,019 372,656 $ 3,852,170
Reinvested distributions 15,715 426,362 -- --
Redemptions (319,642) (6,206,839) (536,825) (5,547,421)
--------- ------------ ---------- ------------
Net increase (decrease) (21,730) $ 159,542 (164,169) $(1,695,251)
--------- ------------ ---------- ------------
--------- ------------ ---------- ------------
SHARES OUTSTANDING:
Beginning of period 743,796 907,965
--------- ----------
End of period 722,066 743,796
--------- ----------
--------- ----------
</TABLE>
NOTE 4 -- INVESTMENT TRANSACTIONS
During the periods ended December 31, 1999, purchases and sales of investment
securities (excluding securities sold short and short-term investments) were
as follows:
<TABLE>
PENNSYLVANIA SELECT BANKING YEAR 2000
GROWTH FUND AND FINANCE FUND FUND
------------ ---------------- ---------
<S> <C> <C> <C>
Purchases $60,935,091 $3,125,678 $11,863,775
Sales $69,709,357 $2,985,372 $11,508,128
The following balances for the Funds are as of December 31, 1999:
NET TAX
COST FOR UNREALIZED TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME APPRECIATION UNREALIZED UNREALIZED
TAX PURPOSES (DEPRECIATION) APPRECIATION DEPRECIATION
--------------- -------------- ------------- -------------
Pennsylvania Growth Fund $91,576,266 $71,876,646 $76,203,066 $(4,326,420)
Select Banking and Finance Fund 12,453,418 (462,217) 1,192,159 (1,654,376)
Year 2000 Fund 11,931,125 10,284,838 10,476,875 (192,037)
</TABLE>
At June 30, 1999, the HomeState Select Banking and Finance and Year 2000
Funds had accumulated net realized capital loss carryovers of $331,878 and
$457,119, respectively, expiring in 2007. To the extent these Funds realize
future net capital gains, taxable distributions to their shareholders will be
offset by any unused capital loss carryover for the respective Funds. In
addition, the HomeState Select Banking and Finance and Year 2000 Funds
realized, on a tax basis, post-October losses through June 30, 1999 of
$30,896 and $2,118, respectively, which are not recognized for tax purposes
until the first day of the following fiscal year.
NOTE 5 -- EXPENSES AND TRANSACTIONS WITH AFFILIATED PARTIES
Emerald Advisers, Inc. serves as the investment adviser (the "Adviser") to
the Funds for which it receives investment advisory fees from each Fund. The
fee for the HomeState Pennsylvania Growth Fund is based on average daily net
assets at the annual rate of 0.75% on assets up to and including $250
million, 0.65% for assets in excess of $250 million up to and including $500
million, 0.55% for assets in excess of $500 million up to and including $750
million, and 0.45% for assets in excess of $750 million. The fee for the
HomeState Select Banking and Finance Fund is based on average daily net
assets at the annual rate of 1.00% on assets up to and including $100 million
and 0.90% for assets in excess of $100 million. The fee for the Year 2000
Fund is based on average daily net assets at the annual rate of 1.00% on
assets up to and including $100 million, 0.90% for assets in excess of $100
million. Under the terms of the investment advisory agreement which expires
on December 31, 2000, Emerald Advisers, Inc. may also voluntarily reimburse
the Funds for certain expenses. Through December 31, 1999, the Adviser has
voluntarily agreed to waive its advisory fee and/or reimburse other expenses
for the HomeState Select Banking and Finance Fund and the Year 2000 Fund to
the extent that the Fund's total operating expenses exceeds 2.35% and 2.90%
of the average daily net assets of the Funds, respectively.
The following table summarizes the advisory fees and expense
waivers/reimbursements for the period ended December 31, 1999.
GROSS ADVISORY FEE
ADVISORY WAIVED
-------- ------------
Pennsylvania Growth Fund ............ $431,188 $ --
Select Banking and Finance Fund .... 60,950 15,783
Year 2000 Fund ..................... 60,392 --
NOTE 6 -- OTHER AGREEMENTS
Rafferty Capital Markets, Inc. (the Distributor), is the sole distributor of
the Trust shares pursuant to a Distribution Agreement with each Fund. Each
Fund has adopted a distribution services plan (the "Plan") under Rule 12b-1
of the Investment Company Act of 1940. The Plan allows each Fund to
reimburse the Distributor for a portion of the costs incurred in distributing
each Fund's shares, including amounts paid to brokers or dealers, at an
annual rate not to exceed 0.35% of the HomeState Pennsylvania Growth and
Select Banking and Finance Funds' average daily net assets and not to exceed
0.70% of the Year 2000 Fund. During the period ended December 31, 1999, the
HomeState Pennsylvania Growth Fund, Select Banking and Finance Fund and Year
2000 Fund incurred expenses of $201,221, $21,333 and $42,275, respectively,
pursuant to the Plan.
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 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 $14,888, $4,822
and $1,596 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 period ended December
31, 1999.
NOTE 7 -- OPTION CONTRACTS WRITTEN
The premium amount and the number of option contracts written by the Year
2000 Fund during the six months ended December 31, 1999, were as follows:
PREMIUM AMOUNT NUMBER OF CONTRACTS
-------------- -------------------
Options outstanding at June 30, 1999 $ 0 0
Options written 9,440 20
Options closed (9,440) (20)
Options exercised 0 0
Options expired 0 0
------- ----
Options outstanding at December 31, 1999 $ 0 0
------- ----
------- ----
NOTE 8 -- PROXY RESULTS - HOMESTATE YEAR 2000 FUND
Following are results from the shareholder vote taken on October 15, 1999 to
change the investment objective and name of the HomeState Year 2000 Fund.
1. To change the Fund's investment objective to invest primarily in
companies principally engaged in the technology sector and to change a
fundamental restriction of the Fund to invest no more than 25% of total
assets in one industry, except that the Fund will invest not less 25% of
its total assets in companies engaged in the technology sector under
normal conditions.
NUMBER OF % OF OUTSTANDING % OF SHARES
SHARES SHARES VOTED
--------- ---------------- -----------
Affirmative 341,635.429 52.120% 94.207%
Against 13,015.285 1.986% 3.589%
Abstain 7,991.671 1.219% 2.204%
----------- ------- --------
TOTAL 362,642.385 55.325% 100.000%
2. To change the name of the Fund to "HomeState Select Technology Fund".
Affirmative 336,873.509 51.393% 92.894%
Against 12,823.868 1.957% 3.536%
Abstain 12,945.008 1.975% 3.570%
----------- ------- --------
TOTAL 362,642.385 55.325% 100.000%
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.
MILWAUKEE, WI
INDEPENDENT ACCOUNTANTS
-----------------------
PRICEWATERHOUSECOOPERS LLP
MILWAUKEE, WI
LEGAL COUNSEL
-------------
DUANE, MORRIS & HECKSCHER
HARRISBURG, PA
BOARD OF TRUSTEES
-----------------
BRUCE E. BOWEN
KENNETH G. MERTZ II, CFA
SCOTT C. PENWELL, ESQ.
SCOTT L. REHR
H.J. ZOFFER, PHD
FUND MANAGEMENT
---------------
EMERALD ADVISERS, INC.
1857 WILLIAM PENN WAY
P.O. BOX 10666
LANCASTER, PA 17605
SHAREHOLDER SERVICES
--------------------
FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53210-0701
TELEPHONE NUMBERS
-----------------
THE FUND (800) 232-0224
MARKETING / BROKER SERVICES (800) 232-OK-PA
SHAREHOLDER SERVICES (800) 232-0224
24 HOUR PRICING INFORMATION
---------------------------
1-800-232-0224
This report is for the general information of Fund shareholders. For more
detailed information about the Fund, please consult a
copy of the Fund's current prospectus. This report is not authorized for
distribution to prospective investors in the Fund unless
preceded or accompanied by a copy of the current prospectus.
02/00
