<PAGE>
As filed with the Securities and Exchange Commission on January 11, 1996
Registration No. 33-26305
----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
PRE-EFFECTIVE AMENDMENT NO. __ [_]
POST-EFFECTIVE AMENDMENT NO. 20 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 22 [x]
______________________________
COMPASS CAPITAL FUNDS(R)
(Formerly, The PNC(R) Fund)
(Exact Name of Registrant as Specified in Charter)
Bellevue Corporate Center Edward J. Roach
400 Bellevue Parkway Bellevue Corporate Center
Suite 100 400 Bellevue Parkway
Wilmington, Delaware 19809 Suite 100
(Address of Principal Executive Wilmington, Delaware 19809
Offices) (Name and Address of Agent
Registrant's Telephone Number: for Service)
(302) 792-2555
Copies to:
Morgan R. Jones, Esq.
DRINKER BIDDLE & REATH
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
____________________________
It is proposed that this filing will become effective (check appropriate box)
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has previously registered an indefinite number of shares of
beneficial interest under the Securities Act of 1933, as amended, pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant's
initial 24f-2 Notice for its fiscal year ended September 30, 1995 was filed on
November 14, 1995.
This Registration Statement has also been executed by The DFA Investment
Trust Company.
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
INSTITUTIONAL SHARES OF THE
MONEY MARKET PORTFOLIO,
U.S. TREASURY MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO,
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO,
OHIO MUNICIPAL MONEY MARKET PORTFOLIO,
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO AND
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................ Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities.... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered.. How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase.............. How Are Shares Purchased
and Redeemed?
9. Legal Proceedings..................... Inapplicable
<PAGE>
[ART]
PROSPECTUS
MONEY MARKET
PORTFOLIOS
Institutional Shares
COMPASS
--------------------
[LOGO] CAPITAL FUNDS
N O T Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
INSURED and involve risk including
possible loss of principal.
<PAGE>
The Money Market Portfolios Institutional Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This Prospectus
describes the Institutional Shares of eight of those portfo-
lios (the "Portfolios"):
Money Market Portfolio
U.S. Treasury Money Market Portfolio
Municipal Money Market Portfolio
New Jersey Municipal Money Market Portfolio
North Carolina Municipal Money Market Portfolio
Ohio Municipal Money Market Portfolio
Pennsylvania Municipal Money Market Portfolio
Virginia Municipal Money Market Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7764. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OBLI-
GATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE
PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO ASSURANCE THAT
THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC MUNICIPAL PORTFOLIOS LISTED
ABOVE ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
<PAGE>
The Money Market Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Money Market Portfolios of COMPASS CAPITAL FUNDS consist of
eight short-term investment alternatives. Two of these Portfo-
lios invest solely in taxable instruments, and six of these
Portfolios invest in tax-exempt instruments. A detailed descrip-
tion of each Portfolio begins on page 15.
COMPASS
CAPITAL
PORTFOLIO LIPPER PEER GROUP
Money Market Institutional Money Market Instrument Funds
U.S. Treasury Institutional U.S. Treasury Money Market Funds
Money Market
Municipal Institutional Tax-Exempt Money Market Funds
Money Market
NJ Municipal NJ Tax-Exempt Money Market Funds
Money Market
NC Municipal Other States Tax-Exempt Money Market Funds
Money Market
OH Municipal Ohio Tax-Exempt Money Market Funds
Money Market
PA Municipal PA Tax-Exempt Money Market Funds
Money Market
VA Municipal Other States Tax-Exempt Money Market Funds
Money Market
PNC Asset Management Group, Inc. ("PAMG") serves as the Fund's
investment adviser. PNC Institutional Management Corporation
("PIMC") serves as the sub-adviser to the Portfolios as de-
scribed in this Prospectus.
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
MONEY different directions in money market investing. You may wish to
MARKET use the table of contents on page 4 to find descriptions of the
PORTFOLIOS Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS investment objective, or that any Portfolio will be able to
IN MONEY maintain a stable net asset value of $1.00 per share. Certain
MARKET Portfolios may invest in U.S. dollar-denominated instruments of
INVESTING foreign issuers or municipal securities backed by the credit of
foreign banks, which may be subject to risks in addition to
those inherent in U.S. investments. Each state-specific munici-
pal Portfolio will concentrate in the securities of issuers lo-
cated in a particular state, and is non-diversified, which means
that its performance may be dependent upon the performance of a
smaller number of securities than the other Portfolios, which
are considered diversified. See "What Additional Investment Pol-
icies And Risks Apply?"
INVESTING For information on how to purchase and redeem shares of the
IN THE Portfolios, see "How Are Shares Purchased And Redeemed?"
COMPASS
CAPITAL
FUNDS
3
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 5
What Are The Portfolios' Financial Highlights?............... 7
What Are The Portfolios?..................................... 15
What Additional Investment Policies And Risks Apply?......... 19
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 25
Who Manages The Fund?........................................ 27
How Are Shares Purchased And Redeemed?....................... 30
How Is Net Asset Value Calculated?........................... 32
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 33
How Are Fund Distributions Taxed?............................ 34
How Is The Fund Organized?................................... 39
How Is Performance Calculated?............................... 40
How Can I Get More Information?.............................. 41
</TABLE>
4
<PAGE>
What Are The Expenses Of The Portfolios?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Institutional Shares of the Portfolios after fee waivers for the current fiscal
year ending September 30, 1996 as a percentage of average daily net assets. An
example based on the summary is also shown.
<TABLE>
<CAPTION>
NEW
JERSEY
U.S. TREASURY MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Advisory fees (after fee
waivers) (/1/) .06% .06% .06% .05%
Other operating expenses .23 .23 .23 .24
---- ------ ------ ----
Administration fees (after
fee waivers)(/1/) .13 .12 .11 .02
Other expenses .10 .11 .12 .22
---- ------ ------ ----
Total Portfolio operating
expenses (after fee
waivers)(/1/) .29% .29% .29% .29%
==== ====== ====== ====
<CAPTION>
NORTH
CAROLINA OHIO PENNSYLVANIA VIRGINIA
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .06% .06% .06% .05%
Other operating expenses .23 .23 .23 .24
---- ------ ------ ----
Administration fees (after
fee waivers)(/1/) .05 .10 .12 .02
Other expenses .18 .13 .11 .22
---- ------ ------ ----
Total Portfolio operating
expenses (after fee
waivers)(/1/) .29% .29% .29% .29%
==== ====== ====== ====
</TABLE>
(1) Without waivers, advisory fees would be .44% for the Money Market Portfolio
and .45% for each of the other Portfolios and administration fees would be
.17% for the Money Market Portfolio and .18% for each of the other Portfo-
lios. PAMG and the Portfolios' administrators are under no obligation to
waive or continue waiving their fees, but have informed the Fund that they
expect to waive fees as necessary to maintain the Portfolios' total operat-
ing expenses during the remainder of the current fiscal year at the levels
set forth in the table. The information in the table is based on the advi-
sory fees, administration fees and other expenses payable after fee waivers
for the fiscal year ended September 30, 1995, as restated to reflect cur-
rent expenses and revised fee waivers. Without waivers, "Other operating
expenses" would be .26%, .28%, .29%, .39%, .35%, .30%, .28% and .39%, re-
spectively, and "Total Portfolio operating expenses" would be .70%, .73%,
.74%, .84%, .80%, .75%, .73% and .84%, respectively.
5
<PAGE>
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment assuming (1) a 5% annual return, and (2) redemption at the
end of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Money Market $ 3 $ 9 $16 $37
U.S. Treasury Money
Market 3 9 16 37
Municipal Money Market 3 9 16 37
New Jersey Municipal
Money Market 3 9 16 37
North Carolina Municipal
Money Market 3 9 16 37
Ohio Municipal Money
Market 3 9 16 37
Pennsylvania Municipal
Money Market 3 9 16 37
Virginia Municipal Money
Market 3 9 16 37
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the expenses the Portfolios pay. Investors bear these expenses either di-
rectly or indirectly. They do not reflect any charges that may be imposed by
affiliates of the Portfolios' investment adviser or other institutions directly
on their customer accounts in connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
6
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and, except for the period March
1, 1995 through August 31, 1995 with respect to the New Jersey
Municipal Money Market Portfolio, has been audited by the Port-
folios' independent accountant. This financial information
should be read together with those financial statements. For the
periods shown, the New Jersey Municipal Money Market Portfolio
offered only one class of shares to both institutional and re-
tail investors. Further information about the performance of the
Portfolios is available in the Fund's annual shareholder re-
ports. Both the Statement of Additional Information and the an-
nual shareholder reports may be obtained from the Fund free of
charge by calling (800) 441-7764.
7
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 8/2/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0564 0.0359 0.0054
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0564 0.0359 0.0054
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0564) (0.0359) (0.0054)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0564) (0.0359) (0.0054)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 5.79% 3.64% 0.54%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $654,157 $502,972 $435,586
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.27% 0.25% 0.27%/2/
Before advisory/administration fee waivers 0.64% 0.66% 0.38%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 5.66% 3.64% 3.01%/2/
Before advisory/administration fee waivers 5.28% 3.23% 2.90%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
8
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
U.S. TREASURY MONEY MARKET PORTFOLIO
(FORMERLY, THE GOVERNMENT MONEY MARKET PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 8/2/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0555 0.0357 0.0049
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0555 0.0357 0.0049
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0555) (0.0357) (0.0049)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0555) (0.0357) (0.0049)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 5.69% 3.63% 0.49%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $120,540 $ 37,519 $ 13,513
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.27% 0.25% 0.25%/2/
Before advisory/administration fee waivers 0.69% 0.70% 0.38%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 5.64% 3.69% 3.01%/2/
Before advisory/administration fee waivers 5.22% 3.24% 2.88%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
9
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 8/2/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0364 0.0246 0.0040
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0364 0.0246 0.0040
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0364) (0.0246) (0.0040)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0364) (0.0246) (0.0040)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 3.70% 2.48% 0.40%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 53,778 $ 30,608 $ 39,148
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.27% 0.25% 0.25%/2/
Before advisory/administration fee waivers 0.71% 0.73% 0.36%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.64% 2.48% 2.45%/2/
Before advisory/administration fee waivers 3.20% 2.01% 2.34%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
10
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 6/10/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0363 0.0252 0.0073
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0363 0.0252 0.0073
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0363) (0.0252) (0.0073)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0363) (0.0252) (0.0073)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 3.69% 2.55% 0.73%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 23,679 $ 10,521 $ 12,026
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.27% 0.13% 0.10%/2/
Before advisory/administration fee waivers 0.73% 0.77% 0.83%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.66% 2.56% 2.45%/2/
Before advisory/administration fee waivers 3.20% 1.93% 1.72%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
11
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 6/1/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0355 0.0247 0.0078
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0355 0.0247 0.0078
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0355) (0.0247) (0.0078)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0355) (0.0247) (0.0078)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 3.61% 2.49% 0.78%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $233,414 $158,102 $ 2,242
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.26% 0.16% 0.09%/2/
Before advisory/administration fee waivers 0.68% 0.73% 0.97%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.54% 2.64% 2.15%/2/
Before advisory/administration fee waivers 3.12% 2.07% 1.27%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 5/4/93/1/ YEAR 7/25/94/1/
ENDED ENDED THROUGH ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------- -----------
Income from investment
operations
Net investment income 0.0359 0.0249 0.0097 0.0368 0.0053
Net realized gain (loss)
on investments - - - - - - - - - -
-------- -------- -------- ----------- -----------
Total from investment
operations 0.0359 0.0249 0.0097 0.0368 0.0053
-------- -------- -------- ----------- -----------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0359) (0.0249) (0.0097) (0.0368) (0.0053)
Distributions from net
realized capital gains - - - - - - - - - -
-------- -------- -------- ----------- -----------
Total distributions (0.0359) (0.0249) (0.0097) (0.0053)
-------- -------- -------- ----------- -----------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =========== ===========
Total return 3.65% 2.52% 0.97% 3.74% 0.53%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 76,673 $ 69,673 $ 34,135 $ 24,409 $ 13,831
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.21% 0.10% 0.10%/2/ 0.10% 0.10%/2/
Before
advisory/administration
fee waivers 0.74% 0.76% 0.81%/2/ 0.95% 1.02%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.61% 2.53% 2.35%/2/ 3.71% 2.89%/2/
Before
advisory/administration
fee waivers 3.08% 1.87% 1.64%/2/ 2.86% 1.97%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE
PERIOD PERIOD
ENDED FISCAL YEAR FISCAL YEAR FISCAL YEAR 7/1/91/1/
8/31/95 ENDED ENDED ENDED TO
(UNAUDITED) 02/28/95 02/28/94 02/28/93 02/28/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.02 0.02 0.02 0.02 0.02
Net realized gain (loss)
on investments - - - - - - - - - -
------- ------- ------- ------- -------
Total from investment
operations 0.02 0.02 0.02 0.02 0.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.02) (0.02) (0.02) (0.02) (0.02)
------- ------- ------- ------- -------
Distributions from net
realized capital gains - - - - - - - - - -
------- ------- ------- ------- -------
Total distributions (0.02) (0.02) (0.02) (0.02) (0.02)
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return 3.36% 2.46% 1.79% 2.19% 3.53%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $49,628 $43,610 $39,408 $38,836 $35,005
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.68%/2/ 0.63% 0.65% 0.73% 0.47%/2/
Before
advisory/administration
fee waivers 0.68%/2/ 0.70% 0.72% 0.76% 0.62%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.30%/2/ 2.46% 1.77% 2.17% 3.44%/2/
Before
advisory/administration
fee waivers 3.30%/2/ 2.39% 1.70% 2.14% 3.29%/2/
</TABLE>
+The Portfolio commenced operations on July 1, 1991 as the New Jersey Municipal
Money Market Fund, a separate investment portfolio (the "Predecessor New Jersey
Municipal Money Market Portfolio") of Compass Capital Group, which was orga-
nized as a Massachusetts business trust. On January 12, 1996, the assets and
liabilities of the Predecessor New Jersey Municipal Money Market Portfolio were
transferred to this Portfolio, and were combined with the assets of a pre-ex-
isting portfolio of investments maintained by the Fund.
/1/Commencement of operations.
/2/Annualized.
14
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO. The investment objective of the Money
Market Portfolio is to provide as high a level of current inter-
est income as is consistent with maintaining liquidity and sta-
bility of principal. The Portfolio may invest in a broad range
of short-term, high quality, U.S. dollar-denominated instru-
ments, such as government, bank, commercial and other obliga-
tions, that are available in the money markets. In particular,
the Portfolio may invest in:
(A) U.S. dollar-denominated obligations issued or supported by
the credit of U.S. or foreign banks or savings institutions
with total assets in excess of $1 billion (including obliga-
tions of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued
or guaranteed by U.S. and foreign corporations and other is-
suers rated (at the time of purchase) A-2 or higher by Stan-
dard & Poor's Ratings Group ("S&P"), Prime-2 or higher by
Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Co. ("D&P"), F-2 or higher by
Fitch Investors Service, Inc. ("Fitch") or TBW-2 or higher
by Thomson BankWatch, Inc. ("TBW"), as well as high quality
corporate bonds rated (at the time of purchase) AA or higher
by S&P, D&P, Fitch or TBW or Aa or higher by Moody's;
(C) unrated notes, paper and other instruments that are of com-
parable quality as determined by the Portfolio's sub-adviser
under guidelines established by the Fund's Board of Trust-
ees;
(D) asset-backed securities (including interests in pools of as-
sets such as mortgages, installment purchase obligations and
credit card receivables);
(E) securities issued or guaranteed as to principal and interest
by the U.S. Government or by its agencies or instrumentali-
ties and related custodial receipts;
(F) dollar-denominated securities issued or guaranteed by for-
eign governments or their political subdivisions, agencies
or instrumentalities;
(G) guaranteed investment contracts issued by highly-rated U.S.
insurance companies;
(H) securities issued or guaranteed by state or local governmen-
tal bodies; and
(I) repurchase agreements relating to the above instruments.
15
<PAGE>
U.S. TREASURY MONEY MARKET PORTFOLIO. The investment objective
of the U.S. Treasury Money Market Portfolio is to provide as
high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It pursues
this objective by investing exclusively in short-term bills,
notes and other obligations issued or guaranteed by the U.S.
Treasury and repurchase agreements relating to such obliga-
tions.
MUNICIPAL PORTFOLIOS. The investment objective of the Munici-
pal Money Market Portfolio is to provide as high a level of
current interest income exempt from Federal income taxes as is
consistent with maintaining liquidity and stability of princi-
pal. It pursues this objective by investing substantially all
of its assets in short-term obligations issued by or on behalf
of states, territories and possessions of the United States,
the District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities ("Municipal Obli-
gations").
The investment objective of the New Jersey Municipal Money
Market Portfolio, North Carolina Municipal Money Market Port-
folio, Ohio Municipal Money Market Portfolio, Pennsylvania Mu-
nicipal Money Market Portfolio and Virginia Municipal Money
Market Portfolio (the "State-Specific Municipal Portfolios")
is, for each Portfolio, to seek as high a level of current in-
come exempt from Federal, and to the extent possible, state
income tax of the specific state in which a Portfolio concen-
trates, as is consistent with maintaining liquidity and sta-
bility of principal.
The Municipal Money Market Portfolio and the State-Specific
Municipal Portfolios (together, the "Municipal Portfolios")
seek to achieve their investment objectives by primarily in-
vesting in:
(A) fixed and variable rate notes and similar debt instruments
rated MIG-2, VMIG-2 or Prime-2 or higher by Moody's, SP-2
or A-2 or higher by S&P, AA or higher by D&P or F-2 or
higher by Fitch;
(B) tax-exempt commercial paper and similar debt instruments
rated Prime-2 or higher by Moody's, A-2 or higher by S&P,
Duff 2 or higher by D&P or F-2 or higher by Fitch;
(C) municipal bonds rated Aa or higher by Moody's or AA or
higher by S&P, D&P or Fitch;
(D) unrated notes, paper or other instruments that are of com-
parable quality as determined by the Portfolios' sub-ad-
viser under guidelines established by the Fund's Board of
Trustees; and
(E) municipal bonds and notes which are guaranteed as to prin-
cipal and interest by the U.S. Government or an agency or
instrumentality thereof or which otherwise depend directly
or indirectly on the credit of the United States.
16
<PAGE>
During normal market conditions, at least 80% of each Municipal
Portfolio's net assets will be invested in securities which are
Municipal Obligations. In addition, under normal conditions each
State-Specific Municipal Portfolio intends to invest at least
65% of its net assets in Municipal Obligations of issuers lo-
cated in the particular state indicated by its name ("State-Spe-
cific Obligations"). The Municipal Money Market Portfolio in-
tends, on the other hand, to invest less than 25% of its total
assets in Municipal Obligations of issuers located in the same
state. During temporary defensive periods, each Municipal Port-
folio may invest without limitation in obligations that are not
Municipal Obligations and may hold without limitation uninvested
cash reserves.
Each State-Specific Portfolio may invest without limitation in
private activity bonds the interest on which is an item of tax
preference for purposes of the Federal alternative minimum tax
("AMT Paper"). The Municipal Money Market Portfolio may invest
up to 20% of its total assets in AMT Paper when added together
with any taxable investments held by the Portfolio. Interest on
AMT Paper that is received by taxpayers subject to the Federal
alternative minimum tax is taxable.
Each Municipal Portfolio may invest 25% or more of its net as-
sets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. To the extent a Port-
folio's assets are invested in Municipal Obligations payable
from the revenues of similar projects or are invested in private
activity bonds, the Portfolio will be subject to the peculiar
risks presented by the laws and economic conditions relating to
such projects and bonds to a greater extent than it would be if
its assets were not so invested.
QUALITY, MATURITY AND DIVERSIFICATION. All securities acquired
by the Portfolios will be determined at the time of purchase by
the Portfolios' sub-adviser, under guidelines established by the
Fund's Board of Trustees, to present minimal credit risks and
will be "Eligible Securities" as defined by the SEC. Eligible
Securities are (a) securities that either (i) have short-term
debt ratings at the time of purchase in the two highest rating
categories by at least two unaffiliated nationally recognized
statistical rating organizations ("NRSROs") (or one NRSRO if the
security is rated by only one NRSRO), or (ii) are comparable in
priority and security with an instrument issued by an issuer
which has such ratings, and (b) securities that are unrated (in-
cluding securities of issuers that have long-term but not short-
term ratings) but are of comparable quality as determined in ac-
cordance with guidelines approved by the Board of Trustees.
17
<PAGE>
Each Portfolio is managed so that the average maturity of all
instruments held by it (on a dollar-weighted basis) will not
exceed 90 days. In no event will a Portfolio purchase securi-
ties which mature more than 397 days from the date of purchase
(except for certain variable and floating rate instruments and
securities collateralizing repurchase agreements). Securities
in which the Portfolios invest may not earn as high a level of
income as longer term or lower quality securities, which gen-
erally have greater market risk and more fluctuation in market
value.
The Money Market, U.S. Treasury Money Market and Municipal
Money Market Portfolios are classified as diversified portfo-
lios, and the State-Specific Municipal Portfolios are classi-
fied as non-diversified portfolios, under the Investment Com-
pany Act of 1940 (the "1940 Act"). Investment returns on a
non-diversified portfolio typically are dependent upon the
performance of a smaller number of securities relative to the
number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall
value of a non-diversified portfolio more than it would a di-
versified portfolio.
18
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Portfolios may invest in debt obligations of domes-
tic or foreign corporations and banks, and may acquire commercial obligations
issued by Canadian corporations and Canadian counterparts of U.S. corporations,
as well as Europaper, which is U.S. dollar-denominated commercial paper of a
foreign issuer. Bank obligations may include certificates of deposit, notes,
bankers' acceptances and fixed time deposits. These obligations may be general
obligations of the parent bank or may be limited to the issuing branch or sub-
sidiary by the terms of the specific obligation or by government regulation.
The Money Market Portfolio may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its total as-
sets. For purposes of determining the permissibility of an investment in bank
obligations, the total assets of a bank are determined on the basis of the
bank's most recent annual financial statements.
Commercial paper issues include securities issued by corporations without reg-
istration under the Securities Act of 1933 (the "1933 Act") in reliance on the
exemption in Section 3(a)(3), and commercial paper issued in reliance on the
so-called "private placement" exemption in Section 4(2) ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws in that any resale must similarly be made in an exempt transaction. Sec-
tion 4(2) paper is normally resold to other institutional investors through or
with the assistance of investment dealers which make a market in Section 4(2)
paper, thus providing liquidity.
U.S. GOVERNMENT OBLIGATIONS. To the extent consistent with their respective in-
vestment objectives, the Portfolios may also purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities. Obli-
gations of certain agencies and instrumentalities of the U.S. Government are
backed by the full faith and credit of the United States. Others are backed by
the right of the issuer to borrow from the U.S. Treasury or are backed only by
the credit of the agency or instrumentality issuing the obligation.
MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved. Municipal Obligations may also in-
clude "moral obligation" bonds, which are normally issued by special purpose
public authorities. If the issuer of moral obligation bonds is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
19
<PAGE>
Also included within the general category of Municipal Obligations are partici-
pation certificates in a lease, an installment purchase contract, or a condi-
tional sales contract ("lease obligations") entered into by a state or politi-
cal subdivision to finance the acquisition or construction of equipment, land
or facilities. Although lease obligations are not general obligations of the
issuer for which the state or other governmental body's unlimited taxing power
is pledged, certain lease obligations are backed by a covenant to appropriate
money to make the lease obligation payments. However, under certain lease obli-
gations, the state or governmental body has no obligation to make these pay-
ments in future years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property, dis-
position of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
as marketable as more conventional securities.
Each Municipal Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase at the Portfolio's option specific Municipal Obligations at a speci-
fied price. The acquisition of a stand-by commitment may increase the cost, and
thereby reduce the yield, of the Municipal Obligation to which such commitment
relates. Each Municipal Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may not be as extensive as that which is made available by
public corporations, and the secondary market for Municipal Obligations may be
less liquid than that for taxable obligations. Accordingly, the ability of a
Municipal Portfolio to buy and sell tax-exempt securities may, at any particu-
lar time and with respect to any particular securities, be limited.
The Municipal Portfolios may invest in tax-exempt derivative securities relat-
ing to Municipal Obligations, including tender option bonds, participations,
beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal or state income tax are rendered by counsel to
the respective issuers or sponsors at the time of issuance. The Fund and its
investment adviser will rely on such opinions and will not review independently
the underlying proceedings relating to the issuance of Municipal Obligations or
the bases for such opinions.
MORTGAGE-RELATED SECURITIES. Although under normal market conditions they do
not expect to do so, each Portfolio may invest in mortgage-related securities
issued by the U.S. Government or its agencies or instrumentalities or issued by
private companies. Mortgage-related securities may include collateralized mort-
gage obligations ("CMOs") issued by the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation or other U.S. Government agencies or
instrumentalities or issued by private companies. The average life of mortgage-
related securities is likely to be less than the original maturity of the mort-
gage pools underlying the securities as a result of mortgage prepayments. For
this and other reasons, a mortgage-related security's stated maturity may be
shortened and, therefore, it may be difficult to predict precisely the
security's total return to the particular Portfolio. In addition, in periods of
falling
20
<PAGE>
interest rates, the rate of mortgage prepayments tends to increase. During such
periods, the reinvestment of prepayment proceeds by the particular Portfolio
will generally be at lower rates than the rates on the prepaid obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated and
unrated variable and floating rate instruments, which may have a stated matu-
rity in excess of 13 months but will, in any event, permit a Portfolio to de-
mand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). These instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the in-
terest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the particular Portfolio.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase securities from
broker-dealers and financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, so long as the repurchase agreement itself matures in less
than 13 months. Default by or bankruptcy of the seller would, however, expose
the Portfolio to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Under these contracts, the Portfolio makes cash con-
tributions to a deposit fund of the insurance company's general account. The
insurance company then credits interest to the Portfolio on a monthly basis,
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The Money Market Portfo-
lio does not expect to invest more than 5% of its net assets in GICs at any
time during the current fiscal year.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security it owns or intends to pur-
chase, regardless of future changes in interest rates. When-issued and forward
commitment transactions involve the risk, however, that the price or yield ob-
tained in a transaction may be less favorable than the price or yield available
in the market when the delivery takes place.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans
21
<PAGE>
involve risks of delay in receiving additional collateral or in recovering the
loaned securities, or possibly loss of rights in the collateral if the borrower
of the securities becomes insolvent.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse repurchase
agreements for temporary purposes (such as to obtain cash to meet redemption
requests when the liquidation of portfolio securities is deemed disadvantageous
or inconvenient). A reverse repurchase agreement involves a sale by a Portfolio
of securities that it holds concurrently with an agreement by the Portfolio to
repurchase the same securities at an agreed-upon price and date. Reverse repur-
chase agreements involve the risk that the market value of the securities sold
by a Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, each Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation. Securities of other investment companies will be
acquired by a Portfolio within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's ex-
penses, including advisory fees. These expenses would be in addition to the ad-
visory fees and other expenses the Portfolio bears directly in connection with
its own operations.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods or if, in the opinion of
the Portfolios' sub-adviser, suitable obligations are unavailable. During nor-
mal market periods, no more than 20% of a Portfolio's assets will be held
uninvested. Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of the
value of its net assets in securities that are illiquid. Variable and floating
rate instruments that cannot be disposed of within seven days, GICs, and repur-
chase agreements and time deposits that do not provide for payment within seven
days after notice, without taking a reduced price, are subject to this 10% lim-
it. Each Portfolio may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accor-
dance with Rule 144A under the 1933 Act. These securities will not be consid-
ered illiquid so long as the sub-adviser determines, acting under guidelines
approved and monitored by the Board, that an adequate trading market exists for
that security. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified institu-
tional buyers become uninterested in purchasing these restricted securities.
STATE-SPECIFIC MUNICIPAL PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The con-
centration of investments by the State-Specific Municipal Portfolios in State-
Specific Obligations raises special investment considerations. Changes in the
economic condition and governmental policies of a state and its political sub-
divisions could adversely affect the value of a Portfolio's shares. Certain
matters relating to the states in which the State-Specific Municipal Portfolios
invest are described below. For further information, see "Special Consideration
Regarding State-Specific Obligations" in the Statement of Additional
Information.
22
<PAGE>
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 15% of total employment in agribusiness. In prior
years, the State's overall unemployment rate was commonly somewhat higher than
the national figure. For example, the reported 1990 average monthly State rate
was 5.7%, compared to the 5.5% national figure. However, for the last four
years the State rates were below the national rates (5.5% versus 6.1% in 1994).
The unemployment rate and its effects vary among particular geographic areas of
the State. There can be no assurance that future national, regional or state-
wide economic difficulties and the resulting impact on State or local govern-
ment finances generally will not adversely affect the market value of Ohio Mu-
nicipal Obligations held in the Portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following three
years; as of June 30, 1994, the General Fund has a surplus of $892.9 million.
The deficit in the Commonwealth's unreserved/undesignated funds also has been
eliminated, and there was a surplus of $79.2 million as of June 30, 1994. Ris-
ing unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates
place increased pressures on the tax resources of the Commonwealth and its mu-
nicipalities. The Commonwealth has sold a substantial amount of bonds over the
past several years, but the debt burden remains moderate. The recession has af-
fected Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service sec-
tors, with losses in more high-paid manufacturing positions. A new governor
took office in January 1995, but the Commonwealth is likely to continue to show
fiscal restraint.
North Carolina. Growth of North Carolina tax revenues slowed considerably dur-
ing fiscal 1990-92 requiring tax increases and budget adjustments, including
hiring freezes and restrictions, spending constraints, changes in the timing of
certain collections and payments, and other short-term budget adjustments, that
were needed to comply with North Carolina's constitutional mandate for a bal-
anced budget. Fiscal years 1993, 1994 and 1995, however, ended with a positive
General Fund balance each year. By law, 25% of such positive fund balance was
required to be reserved in the General Fund of North Carolina as part of a
"Savings Reserve" (subject to a maximum reserve of 5% of the preceding fiscal
year's operating appropriation). An additional portion of such positive fund
balance was reserved in the General Fund as part of a "Reserve for Repair and
Renovation of State Facilities," leaving the remaining unrestricted fund bal-
ance at the end of each such year available for future appropriations.
Virginia. Because of Northern Virginia, with its proximity to Washington, DC,
and Hampton Roads, which has the nation's largest concentration of military in-
stallations, the Federal govern-
23
<PAGE>
ment has a greater impact on Virginia relative to its size than any states
other than Alaska and Hawaii. Virginia's economy has continued to grow over the
last decade, and while per capita income has grown both faster and slower than
the U.S. average from year to year, per capita income continues to be above the
national average. Virginia's unreserved general fund balances have continued to
grow in recent years from a low in 1991. The Virginia Constitution requires a
balanced budget and, since 1993, the funding of a Revenue Stabilization Fund.
Current debt levels are well below limits established by the Constitution.
New Jersey. The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective commer-
cial agriculture, insurance, tourism, petroleum refining and manufacturing, al-
though New Jersey's manufacturing industry has experienced a downward trend in
the last few years. New Jersey is a major recipient of Federal assistance and,
of all the states, is among the highest in the amount of Federal aid received.
Therefore, a decrease in Federal financial assistance may adversely affect the
financial condition of New Jersey and its political subdivisions and instrumen-
talities. While New Jersey's economic base has become more diversified over
time and thus its economy appears to be less vulnerable during recessionary pe-
riods, a recurrence of high levels of unemployment could adversely affect New
Jersey's overall economy and the ability of New Jersey and its political subdi-
visions and instrumentalities to meet their financial obligations. In addition,
New Jersey maintains a balanced budget which restricts total appropriation in-
creases to only 5% annually with respect to any municipality or county, the
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
24
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days' notice before any such change. No assurance can be pro-
vided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry, except that the
Money Market Portfolio will invest at least 25% of its total assets in ob-
ligations of issuers in the banking industry or instruments secured by such
obligations except during temporary defensive periods;
(3) borrow money except for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not
make any additional investments; and
(4) in the case of the Municipal Money Market Portfolio, invest less than 80%
of its net assets in instruments the interest on which is exempt from regu-
lar Federal income tax, except during defensive periods or during periods
of unusual market conditions; and
(5) in the case of each State-Specific Municipal Portfolio, invest less than
80% of its net assets in instruments the interest on which is exempt from
regular Federal income tax or in instruments which are subject to AMT, ex-
cept during defensive periods or during periods of unusual market condi-
tions.
Restriction 1 does not apply to the State-Specific Municipal Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Munici-
pal Portfolio will not hold any securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter, more than 5% of its total assets to be invested in securities of any
one issuer, except that up to 50% of a Portfolio's total assets may be invested
without regard to this limitation so long as no more than 25% of the Portfo-
lio's total assets are invested in any one issuer (except U.S. Government secu-
rities and related repurchase agreements).
In accordance with current SEC regulations, the Money Market Portfolio intends,
as a non-fundamental policy, to limit its investments in the securities of any
single issuer (other than U.S.
25
<PAGE>
Government securities and related repurchase agreements) to not more than 5% of
the value of its total assets at the time of purchase, except that 25% of the
value of its total assets may be invested in any one issuer for a period of up
to three business days. The Money Market Portfolio will also limit its invest-
ments in Eligible Securities that are not in the highest rating category as de-
termined by two NRSROs (or one NRSRO if the security is rated by only one
NRSRO) or, if unrated, are not of comparable quality, to 5% of its total as-
sets, with investments in any one such issuer being limited to no more than 1%
of its total assets or $1 million, whichever is greater, measured at the time
of purchase.
The investment limitations stated above are applied at the time investment se-
curities are purchased.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any commitment is no
longer in the best interests of a Portfolio, it will revoke the commitment by
terminating sales of shares of the Portfolio in the state involved.
26
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the di-
TRUSTEES rection of the Fund's Board of Trustees. The following individu-
als were elected by shareholders on January 4, 1996 to serve as
trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Officer
of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School, Uni-
versity of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
INVESTMENT The Adviser to Compass Capital Funds is PNC Asset Management
ADVISER AND Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform ad-
SUB-ADVISER visory services for investment companies, and has its principal
offices at 1835 Market Street, Philadelphia, Pennsylvania 19103.
PAMG is an indirect wholly-owned subsidiary of PNC Bank Corp., a
multi-bank holding company. PNC Institutional Management Corpo-
ration ("PIMC"), a wholly-owned subsidiary of PAMG, serves as
each Portfolio's sub-adviser. PIMC's principal business address
is 400 Bellevue Parkway, Wilmington, Delaware 19809.
As adviser, PAMG is responsible for the overall investment man-
agement of the Portfolios. As sub-adviser, PIMC is responsible
for the day-to-day management of the Portfolios, and generally
makes all purchase and sale investment decisions for the Portfo-
lios. PIMC also provides research and credit analysis. Portfolio
transactions for a Portfolio may be directed through
broker/dealers who sell Fund shares, subject to the requirements
of best execution.
For their investment advisory and sub-advisory services, PAMG
and PIMC are entitled to fees, computed daily on a Portfolio-by-
Portfolio basis and payable monthly, at the annual rates set
forth below. All sub-advisory fees payable to PIMC are paid by
PAMG, and do not represent an extra charge to the Portfolios.
27
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH
PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
Average Daily Net Investment Sub-Advisory
Assets Advisory Fee Fee
----------------- ------------ ------------
<S> <C> <C>
first $1 billion .450% .400%
$1 billion--$2 billion .400 .350
$2 billion--$3 billion .375 .325
greater than $3 billion .350 .300
</TABLE>
For more information about the advisory fees the Portfolios
expect to pay for the current fiscal year, see "What Are The
Expenses Of The Portfolios?" For the fiscal year ended Septem-
ber 30, 1995, the Portfolios (other than the New Jersey Munic-
ipal Money Market Portfolio) paid investment advisory fees at
the following annual rates (expressed as a percentage of aver-
age daily net assets) after voluntary fee waivers: Money Mar-
ket Portfolio, .08%; U.S. Treasury Money Market Portfolio,
.08%; Municipal Money Market Portfolio, .08%; Ohio Municipal
Money Market Portfolio, .07%; Pennsylvania Municipal Money
Market Portfolio, .09%; North Carolina Municipal Money Market
Portfolio, .05%; and Virginia Municipal Money Market Portfo-
lio, 0%. For the fiscal year ended February 28, 1995, the
Predecessor New Jersey Municipal Money Market Portfolio paid
investment advisory fees, after voluntary fee waivers, to
Midlantic Bank, N.A., its former adviser, pursuant to the ad-
visory agreement then in effect, at the annual rate of .40% of
its average daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC"), and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the Fund's co-administrators. CCG and PFPC are indi-
rect wholly-owned subsidiaries of PNC Bank Corp. CDI is a
wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). A majority of the outstanding stock of PDI is owned
by its officers and the remaining outstanding stock is owned
by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating
to the maintenance of financial records and fund accounting.
As compensation for these services, CCG is entitled to receive
a fee, computed daily and payable monthly, at an annual rate
of .03% of each Portfolio's average daily net assets, and PFPC
and CDI are entitled to receive a combined fee, computed daily
and payable monthly, at an annual rate of .15% of the first
$500 million of each Portfolio's average daily net assets,
.13% of the next $500 million of each Portfolio's average
daily net assets, .11% of
28
<PAGE>
the next $1 billion of each Portfolio's average daily net assets
and .10% of each Portfolio's average daily net assets in excess
of $2 billion. From time to time the Administrators may waive
some or all of their administration fees from a Portfolio.
For information about the operating expenses the Portfolios ex-
pect to pay for the current fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, shareholder servicing and process-
ing fees, fees and expenses in registering and qualifying the
Portfolios and their shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and dis-
tributing prospectuses and statements of additional information
to existing shareholders, expenses relating to shareholder re-
ports, shareholder meetings and proxy solicitations, insurance
premiums, the expense of independent pricing services, and other
expenses which are not expressly assumed by PAMG or the Fund's
service providers under their agreements with the Fund. Any gen-
eral expenses of the Fund that do not belong to a particular in-
vestment portfolio will be allocated among all investment port-
folios by or under the direction of the Board of Trustees in a
manner the Board determines to be fair and equitable.
29
<PAGE>
How Are Shares Purchased And Redeemed?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Plan permits CDI, PAMG, the Administrators and other
companies that receive fees from the Fund to make payments relating to distri-
bution and sales support activities out of their past profits or other sources
available to them. The Fund is not required or permitted under the Plan to make
distribution payments with respect to Institutional Shares.
PURCHASE OF SHARES. Institutional Shares are offered to institutional
investors, including registered investment advisers with a minimum investment
of $500,000 and individuals with a minimum investment of $2,000,000.
Institutional Shares are sold at their net asset value per share next deter-
mined after an order is received by PFPC. Shares may be purchased on any Busi-
ness Day. A "Business Day" is any weekday that the New York Stock Exchange (the
"NYSE") and the Federal Reserve Bank of Philadelphia (the "FRB") are open for
business.
Purchase orders for each Portfolio except the U.S. Treasury Money Market Port-
folio may be placed by telephoning PFPC at (800) 441-7450 not later than 12:00
noon (Eastern Time) on a Business Day. Orders received before 12:00 noon (East-
ern Time) will be executed at 12:00 noon (Eastern Time). If payment for an or-
der is not received by 4:00 p.m. (Eastern Time), the order will be cancelled
and notice thereof will be given to the investor placing the order. Orders re-
ceived after 12:00 noon (Eastern Time) will not be accepted.
Purchase orders for the U.S. Treasury Money Market Portfolio may be placed by
telephoning PFPC at (800) 441-7450 no later than 4:00 p.m. (Eastern Time) on a
Business Day. Orders received before 12:00 noon (Eastern Time) will be executed
at 12:00 noon (Eastern Time); orders received after 12:00 noon (Eastern Time)
but before 4:00 p.m. (Eastern Time) will be executed at 4:00 p.m. (Eastern
Time). If payment for an order is not received by 4:00 p.m. (Eastern Time), the
order will be cancelled and notice thereof will be given to the investor plac-
ing the order. Orders will not be accepted after 4:00 p.m. (Eastern Time). Un-
der certain circumstances, the Fund may reject large individual purchase orders
received after 12:00 noon (Eastern Time).
Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Fund's custodian. Payment may also, in
the discretion of the Fund, be made in the form of securities that are permis-
sible investments for the respective Portfolios. For further information, see
the Statement of Additional Information. The minimum initial investment for in-
stitutions is $5,000. There is no minimum subsequent investment requirement.
30
<PAGE>
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Institutional Shares.
REDEMPTION OF SHARES. Redemption orders for Institutional Shares may be placed
by telephoning PFPC at (800) 441-7450. Institutional Shares are redeemed at
their net asset value per share next determined after PFPC's receipt of the re-
demption order. The Fund, the Administrators and the Distributor will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Fund and its service providers will not be liable for any
loss, liability, cost or expense for acting upon telephone instructions that
are reasonably believed to be genuine in accordance with such procedures. While
the Fund intends to use its best efforts to maintain each Portfolio's net asset
value per share at $1.00, the proceeds paid upon redemption may be more or less
than the amount invested depending upon the net asset value of an Institutional
Share at the time of redemption.
Payment for redeemed shares for which a redemption order is received by PFPC
before 12:00 noon (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming institution on the same Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received between 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) or
on a day when the Fund's custodian is closed is normally wired in Federal funds
on the next Business Day following redemption on which the Fund's custodian is
open for business. The Fund reserves the right to wire redemption proceeds
within seven days after receiving a redemption order if, in the judgment of
PAMG, an earlier payment could adversely affect a Portfolio. No charge for wir-
ing redemption payments is imposed by the Fund.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund may redeem Institutional Shares in any Portfolio account if the ac-
count balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 on thirty days'
written notice.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
31
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Institutional Shares of each Port-
folio as of 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) on each
Business Day by dividing the value of all securities and other assets owned by
a Portfolio that are allocated to its Institutional Shares, less the liabili-
ties charged to its Institutional Shares, by the number of its Institutional
Shares that are outstanding.
Each Portfolio seeks to maintain a net asset value of $1.00 per share for pur-
poses of purchases and redemptions, and values its portfolio securities based
on the amortized cost method of valuation described in the Statement of Addi-
tional Information under "Valuation of Shares." A Portfolio may use a pricing
service, bank or broker/dealer to value its securities.
32
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Shareholders are entitled to dividends and distributions arising from the net
income and capital gains, if any, earned on investments held by the Portfolio
in which they invest. Each Portfolio's net income is declared daily as a divi-
dend. Shareholders whose purchase orders are executed at 12:00 noon (Eastern
Time), 4:00 p.m. (Eastern Time) for the U.S. Treasury Money Market Portfolio,
receive dividends for that day. On the other hand, shareholders whose redemp-
tion orders have been received by 12:00 noon (Eastern Time) do not receive div-
idends for that day, while shareholders of each Portfolio whose redemption or-
ders are received after 12:00 noon (Eastern Time) do receive dividends for that
day.
Dividends are paid monthly by check, or by wire transfer if requested in writ-
ing by the shareholder, within five business days after the end of the month.
Net short-term capital gains, if any, will be distributed at least annually.
The period for which dividends are payable and the time for payment are subject
to change by the Fund's Board of Trustees. The Portfolios do not expect to re-
alize net long-term capital gains.
Dividends are reinvested in additional full and fractional Institutional Shares
of the same Portfolio which pays the dividends, unless a shareholder elects to
receive dividends in cash. Such election, or any revocation thereof, must be
made in writing to PFPC, and will become effective with respect to dividends
paid after receipt by PFPC.
33
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
a Portfolio qualifies, it generally will be relieved of Federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise exempt,
will pay income or capital gains taxes on distributions (except distributions
that are "exempt interest dividends" or are treated as a return of capital),
whether the distributions are paid in cash or reinvested in additional shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Municipal Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns for
informational purposes and in two circumstances such amounts, while exempt from
regular Federal income tax, are taxable to persons subject to alternative mini-
mum and environmental taxes. First, "exempt interest dividends" derived from
certain private activity bonds generally will constitute an item of tax prefer-
ence for taxpayers in determining alternative minimum tax liability. Second,
all "exempt interest dividends" must be taken into account by corporate taxpay-
ers in determining certain adjustments for alternative minimum and environmen-
tal tax purposes. In addition, investors should be aware of the possibility of
state and local alternative minimum or minimum income tax liability on interest
from private activity bonds. Shareholders who are recipients of Social Security
Act or Railroad Retirement Act benefits should note that "exempt interest divi-
dends" will be taken into account in determining the taxability of their bene-
fit payments.
Each Municipal Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions from net investment income during that year and may differ
significantly from the actual percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of such dividends may be derived from interest
34
<PAGE>
on obligations which, if realized directly, would be exempt from such income
taxes. In addition, shareholders who are non-resident alien individuals, for-
eign trusts or estates, foreign corporations or foreign partnerships may be
subject to different Federal income tax treatment. Future legislative or admin-
istrative changes or court decisions may materially affect the tax consequences
of investing in the Portfolios.
OHIO TAXES. Individuals and estates that are subject to Ohio personal income
tax or municipal or school district income taxes in Ohio will not be subject to
such taxes on distributions from the Ohio Municipal Money Market Portfolio to
the extent that such distributions are properly attributable to interest on
Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States)
("U.S. Obligations"), if (a) the Portfolio continues to qualify as a regulated
investment company for Federal income tax purposes and (b) at all times at
least 50% of the value of the total assets of the Portfolio consists of Ohio
Municipal Obligations or similar obligations of other states or their subdivi-
sions. Corporations that are subject to the Ohio corporation franchise tax will
not have to include distributions from the Ohio Municipal Money Market Portfo-
lio in their net income base for purposes of calculating their Ohio corporation
franchise tax liability to the extent that such distributions either constitute
exempt-interest dividends for Federal income tax purposes or are properly at-
tributable to interest on Ohio Municipal Obligations or U.S. Obligations. How-
ever, shares of the Ohio Municipal Money Market Portfolio will be included in a
corporation's net worth base for purposes of calculating the Ohio corporation
franchise tax. Distributions properly attributable to gain on the sale, ex-
change or other disposition of Ohio Municipal Obligations will not be subject
to the Ohio personal income tax, or municipal or school district income taxes
in Ohio and will not be included in the net income base of the Ohio corporation
franchise tax. Distributions attributable to other sources will be subject to
the Ohio personal income tax and the Ohio corporation franchise tax.
PENNSYLVANIA TAXES. Income received by a shareholder attributable to interest
realized by the Pennsylvania Municipal Money Market Portfolio from Pennsylvania
State-Specific Obligations or attributable to insurance proceeds on account of
such interest is not taxable to individuals, estates or trusts under the Per-
sonal Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for Federal income tax purposes); to corporations under the Corporate Net
Income Tax (in the case of insurance proceeds, to the extent they are exempt
for Federal income tax purposes); nor to individuals under the Philadelphia
School District Net Investment Income Tax ("School District Tax").
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Portfolio of Pennsylvania State-Specific Obligations is taxable
under the Personal Income Tax, the Corporate Net Income Tax, and, unless these
assets were held by the Portfolio for more than six months, the School District
Tax.
This discussion does not address the extent, if any, to which shares of the
Pennsylvania Municipal Money Market Portfolio, and interest and gain earned by
the Portfolio, is subject to, or included in the measure of, special taxes im-
posed by the Commonwealth of Pennsylvania
35
<PAGE>
on banks and other financial institutions or with respect to any privilege, ex-
cise, franchise or other tax imposed on business entities not discussed above
(including the Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not sub-
ject to the Pennsylvania County Personal Property Tax to the extent that the
Portfolio is comprised of Pennsylvania state-specific obligations and Federal
obligations (if the interest on such obligations is exempt from state and local
taxation under the laws of the United States).
NORTH CAROLINA TAXES. Interest received in the form of dividends from the North
Carolina Municipal Money Market Portfolio is exempt from North Carolina state
income tax to the extent the distributions represent interest on direct obliga-
tions of the U.S. Government or North Carolina State-Specific Obligations. Dis-
tributions derived from interest earned on obligations of political subdivi-
sions of Puerto Rico, Guam and the U.S. Virgin Islands, including the govern-
ments thereof and their agencies, instrumentalities and authorities, are also
exempt from North Carolina state income tax. Distributions paid out of interest
earned on obligations that are merely backed or guaranteed by the U.S. Govern-
ment (e.g., GNMAs, FNMAs), on repurchase agreements collateralized by U.S. Gov-
ernment securities or on obligations of other states (which the Portfolio may
acquire and hold for temporary or defensive purposes) are not exempt from North
Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of certain obligations of the
State of North Carolina or its subdivisions that were issued before July 1,
1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
VIRGINIA TAXES. Subject to the provisions discussed below, dividends paid to
shareholders by the Virginia Municipal Money Market Portfolio and derived from
interest on obligations of the Commonwealth of Virginia or of any political
subdivision or instrumentality of the Commonwealth or derived from interest or
dividends on obligations of the United States excludable from Virginia taxable
income under the laws of the United States, which obligations are issued in the
exercise of the borrowing power of the Commonwealth or the United States and
are backed by the full faith and credit of the Commonwealth or the United
States, will be exempt from the Virginia income tax. Dividends paid to share-
holders by the Portfolio and derived from interest on debt obligations of cer-
tain territories and possessions of the United States (those issued by Puerto
Rico, the Virgin Islands and Guam) will be exempt from the Virginia income tax.
To the extent a portion of the dividends are derived from interest on debt ob-
ligations other than those described above, such portion will be subject to the
Virginia income tax even though it may be excludable from gross income for Fed-
eral income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and derived
from capital gains will be taxable to the shareholders. To the extent any por-
tion of the dividends are derived from taxable interest for Virginia purposes
or from net short-term capital gains, such portion will be
36
<PAGE>
taxable to the shareholders as ordinary income. The character of long-term cap-
ital gains realized and distributed by the Portfolio will flow through to its
shareholders regardless of how long the shareholders have held their shares.
Capital gains distributed to shareholders derived from Virginia obligations is-
sued pursuant to special Virginia enabling legislation which provides a spe-
cific exemption for such gains will be exempt from Virginia income tax. Gener-
ally, interest on indebtedness incurred by shareholders to purchase or carry
shares of the Portfolio will not be deductible for Virginia income tax purpos-
es.
As a regulated investment company, the Portfolio may distribute dividends that
are exempt from the Virginia income tax to its shareholders if the Portfolio
satisfies all requirements for conduit treatment under Federal law and, at the
close of each quarter of its taxable year, at least 50% of the value of its to-
tal assets consists of obligations the interest on which is exempt from taxa-
tion under Federal law. If the Portfolio fails to qualify, no part of its divi-
dends will be exempt from the Virginia income tax.
When taxable income of a regulated investment company is commingled with exempt
income, all distributions of the income are presumed taxable to the sharehold-
ers unless the portion of income that is exempt from Virginia income tax can be
determined with reasonable certainty and substantiated. Generally, this deter-
mination must be made for each distribution to each shareholder. The Virginia
Department of Taxation has adopted a policy, however, of allowing shareholders
to exclude from their Virginia taxable income the exempt portion of distribu-
tions from a regulated investment company even though the shareholders receive
distributions monthly but receive reports substantiating the exempt portion of
such distributions at less frequent intervals. Accordingly, if the Portfolio
receives taxable income, the Portfolio must determine the portion of income
that is exempt from Virginia income tax and provide such information to the
shareholders in accordance with the foregoing so that the shareholders may ex-
clude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
NEW JERSEY TAXES. It is anticipated that substantially all dividends paid by
the New Jersey Municipal Money Market Portfolio will not be subject to New Jer-
sey personal income tax. In accordance with the provisions of New Jersey law as
currently in effect, distributions paid by a "qualified investment fund" will
not be subject to the New Jersey personal income tax to the extent that the
distributions are attributable to income received as interest or gain from New
Jersey State-Specific Obligations, or as interest or gain from direct U.S. Gov-
ernment obligations. Distributions by a qualified investment fund that are at-
tributable to most other sources will be subject to the New Jersey personal in-
come tax. To be classified as a qualified investment fund, at least 80% of the
Portfolio's investments must consist of New Jersey State-Specific Obligations
or direct U.S. Government obligations; it must have no investments other than
interest-bearing obligations, obligations issued at a discount, and cash and
cash items (including receivables); and it must satisfy certain reporting obli-
gations and provide certain information to its shareholders. Shares of the
Portfolio are not subject to property taxation by New Jersey or its political
subdivisions.
37
<PAGE>
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
38
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Institutional Shares of the eight money market portfo-
lios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. Because of these "class expenses", the
performance of a Portfolio's Institutional Shares is expected to be higher than
the performance of the Portfolio's Service Shares, and the performance of both
the Institutional Shares and Service Shares of a Portfolio is expected to be
higher than the performance of the Portfolio's three classes of Investor
Shares. The Fund offers various services and privileges in connection with its
Investor Shares that are not generally offered in connection with its Institu-
tional and Service Shares, including an automatic investment plan, automatic
withdrawal plan and checkwriting. For further information regarding the Fund's
Service or Investor Share classes, contact PFPC at (800) 441-7764 (Service
Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
39
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
From time to time each Portfolio may advertise its "yield" and "effective
yield" for Institutional Shares. Both yield figures are based on historical
earnings and are not intended to indicate future performance. "Yield" refers to
the income generated by an investment in a Portfolio's Institutional Shares
over a seven-day period. This income is then "annualized." That is, the amount
of income generated by the investment during that week is assumed to be gener-
ated each week over a 52-week period and is shown as a percentage of the in-
vestment. "Effective yield" is calculated similarly but, when annualized, the
income earned by an investment in a Portfolio's Institutional Shares is assumed
to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment. A Mu-
nicipal Portfolio's "tax equivalent yield" may also be quoted, which shows the
level of taxable yield needed to produce an after-tax equivalent to the Portfo-
lio's tax-free yield for a particular class of Investor Shares.
The performance of Institutional Shares of a Portfolio may be compared to the
performance of mutual funds with similar investment objectives and to relevant
indices, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the yield of Institutional Shares of a Portfolio may be
compared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service. Performance in-
formation may also include evaluations of the Portfolios published in nation-
ally recognized ranking services, and information as reported by financial pub-
lications such as Business Week, Fortune, Institutional Investor, Money Maga-
zine, Forbes, Barron's, The Wall Street Journal and The New York Times, or in
publications of a local or regional nature.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered as representative of future results. The yield of any
investment is generally a function of portfolio quality and maturity, type of
investment and operating expenses. Yields will fluctuate and are not necessar-
ily representative of future results. Any fees charged by affiliates of the
Portfolios' investment adviser or other institutions directly to their custom-
ers' accounts in connection with investments in the Portfolios will not be in-
cluded in the Portfolios' calculations of yield and performance.
40
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current
dividend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call COMPASS CAPITAL
FUNDS at (800) 441-7450.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7764.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
41
<PAGE>
The Compass Capital Funds
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
----------------
MONEY MARKET PORTFOLIO
U.S. TREASURY MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
THE MONEY
MARKET
PORTFOLIOS
INSTITUTIONAL SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(SERVICE SHARES OF THE
MONEY MARKET PORTFOLIO,
U.S. TREASURY MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO,
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO,
OHIO MUNICIPAL MONEY MARKET PORTFOLIO,
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO AND
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- ----------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
[ART]
PROSPECTUS
MONEY MARKET
PORTFOLIOS
Service
Shares
COMPASS
--------------------
[LOGO] CAPITAL FUNDS
N O T Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
INSURED and involve risk including
possible loss of principal.
<PAGE>
The Money Market Portfolios Service Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This Prospectus
describes the Service Shares of eight of those portfolios (the
"Portfolios"):
Money Market Portfolio
U.S. Treasury Money Market Portfolio
Municipal Money Market Portfolio
New Jersey Municipal Money Market Portfolio
North Carolina Municipal Money Market Portfolio
Ohio Municipal Money Market Portfolio
Pennsylvania Municipal Money Market Portfolio
Virginia Municipal Money Market Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7764. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OBLI-
GATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE
PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO ASSURANCE THAT
THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC MUNICIPAL PORTFOLIOS LISTED
ABOVE ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
<PAGE>
The Money Market Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Money Market Portfolios of COMPASS CAPITAL FUNDS consist of
eight short-term investment alternatives. Two of these Portfo-
lios invest solely in taxable instruments, and six of these
Portfolios invest in tax-exempt instruments. A detailed descrip-
tion of each Portfolio begins on page 16.
COMPASS
CAPITAL
PORTFOLIO LIPPER PEER GROUP
Money Market Money Market Instrument Funds
U.S. Treasury U.S. Treasury Money Market Funds
Money Market
Municipal Tax-Exempt Money Market Funds
Money Market
NJ Municipal NJ Tax-Exempt Money Market Funds
Money Market
NC Municipal Other States Tax-Exempt Money Market Funds
Money Market
OH Municipal Ohio Tax-Exempt Money Market Funds
Money Market
PA Municipal PA Tax-Exempt Money Market Funds
Money Market
VA Municipal Other States Tax-Exempt Money Market Funds
Money Market
PNC Asset Management Group, Inc. ("PAMG") serves as the Fund's
investment adviser. PNC Institutional Management Corporation
("PIMC") serves as the sub-adviser to the Portfolios as de-
scribed in this Prospectus.
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
MONEY different directions in money market investing. You may wish to
MARKET use the table of contents on page 5 to find descriptions of the
PORTFOLIOS Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective, or that any Portfolio will be able
MONEY MARKET to maintain a stable net asset value of $1.00 per share. Cer-
INVESTING tain Portfolios may invest in U.S. dollar-denominated instru-
ments of foreign issuers or municipal securities backed by the
credit of foreign banks, which may be subject to risks in ad-
dition to those inherent in U.S. investments. Each state-spe-
cific municipal Portfolio will concentrate in the securities
of issuers located in a particular state, and is non-diversi-
fied, which means that its performance may be dependent upon
the performance of a smaller number of securities than the
other Portfolios, which are considered diversified. See "What
Additional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?" and
CAPITAL FUNDS "What Special Purchase And Redemption Procedures May Apply?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 8
What Are The Portfolios?..................................... 16
What Additional Investment Policies And Risks Apply?......... 20
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 26
Who Manages The Fund?........................................ 28
How Are Shares Purchased And Redeemed?....................... 32
What Special Purchase And Redemption Procedures May Apply?... 35
How Is Net Asset Value Calculated?........................... 37
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 38
How Are Fund Distributions Taxed?............................ 39
How Is The Fund Organized?................................... 44
How Is Performance Calculated?............................... 45
How Can I Get More Information?.............................. 46
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Service Shares of the Portfolios after fee waivers for the current fiscal year
ending September 30, 1996 as a percentage of average daily net assets. An exam-
ple based on the summary is also shown.
<TABLE>
<CAPTION>
NEW NORTH
U.S. JERSEY CAROLINA OHIO PENNSYLVANIA VIRGINIA
TREASURY MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees
(after fee
waivers)(/1/) .06% .06% .06% .05% .06% .06% .06% .05%
Other operating expenses .53 .53 .53 .54 .53 .53 .53 .54
---- ---- ---- ---- ---- ---- ------ ----
Administration fees
(after fee
waivers)(/1/) .13 .12 .11 .02 .05 .10 .12 .02
Shareholder servicing
fee .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .25 .26 .27 .37 .33 .28 .26 .37
---- ---- ---- ---- ---- ---- ------ ----
Total Portfolio
operating expenses
(after fee
waivers)(/1/) .59% .59% .59% .59% .59% .59% .59% .59%
==== ==== ==== ==== ==== ==== ====== ====
</TABLE>
(1) Without waivers, advisory fees would be .44% for the Money Market Portfolio
and .45% for each of the other Portfolios and administration fees would be
.17% for the Money Market Portfolio and .18% for each of the other Portfo-
lios. PAMG and the Portfolios' administrators are under no obligation to
waive or continue waiving their fees, but have informed the Fund that they
expect to waive fees as necessary to maintain the Portfolios' total operat-
ing expenses during the remainder of the current fiscal year at the levels
set forth in the table. The information in the table is based on the advi-
sory fees, administration fees and other expenses payable after fee waivers
for the fiscal year ended September 30, 1995, as restated to reflect cur-
rent expenses and fee waivers. Without waivers, "Other operating expenses"
would be .56%, .58%, .59%, .69%, 65%, .60%, .58% and .69%, respectively,
and "Total Portfolio operating expenses" would be 1.00%, 1.03%, 1.04%,
1.14%, 1.04%, 1.05%, 1.03% and 1.14%, respectively.
6
<PAGE>
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) a 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Money Market $ 6 $19 $33 $74
U.S. Treasury Money
Market 6 19 33 74
Municipal Money Market 6 19 33 74
New Jersey Municipal
Money Market 6 19 33 74
North Carolina Municipal
Money Market 6 19 33 74
Ohio Municipal Money
Market 6 19 33 74
Pennsylvania Municipal
Money Market 6 19 33 74
Virginia Municipal Money
Market 6 19 33 74
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the expenses the Portfolios pay. Investors bear these expenses either di-
rectly or indirectly. They do not reflect any charges that may be imposed by
affiliates of the Portfolios' investment adviser or other institutions directly
on their customer accounts in connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
7
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and, except for the period
March 1, 1995 through August 31, 1995 with respect to the New
Jersey Municipal Money Market Portfolio, has been audited by
the Portfolio's independent accountant. This financial infor-
mation should be read together with those financial state-
ments. For the periods shown, the New Jersey Municipal Money
Market Portfolio offered only one class of shares to both in-
stitutional and retail investors. Further information about
the performance of the Portfolios is available in the Fund's
annual shareholder reports. Both the Statement of Additional
Information and the annual shareholder reports may be obtained
from the Fund free of charge by calling (800) 441-7764.
8
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR 10/4/89/1/
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0534 0.0333 0.0274 0.0391 0.0645 0.0778
Net realized gain (loss)
on investments - - - - - - - - - - - -
---------- -------- -------- -------- -------- --------
Total from investment
operations 0.0534 0.0333 0.0274 0.0391 0.0645 0.0778
---------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0534) (0.0333) (0.0274) (0.0391) (0.0645) (0.0778)
Distributions from net
realized capital gains - - - - - - - - - - - -
---------- -------- -------- -------- -------- --------
Total distributions (0.0534) (0.0333) (0.0274) (0.0391) (0.0645) (0.0778)
---------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ======== ========
Total return 5.48% 3.37% 2.77% 4.05% 6.64% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $1,194,017 $575,948 $415,328 $838,012 $637,076 $628,075
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.57% 0.51% 0.59% 0.61% 0.62% 0.62%/2/
Before
advisory/administration
fee waivers 0.94% 0.92% 0.70% 0.66% 0.67% 0.70%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.35% 3.35% 2.73% 3.86% 6.45% 7.83%/2/
Before
advisory/administration
fee waivers 4.98% 2.95% 2.62% 3.81% 6.40% 7.75%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
9
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
U.S. TREASURY MONEY MARKET PORTFOLIO
(FORMERLY, THE GOVERNMENT MONEY MARKET PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0525 0.0331 0.0269 0.0394 0.0627 0.0697
Net realized gain (loss)
on investments - - - - - - - - - - - -
-------- -------- -------- -------- -------- --------
Total from investment
operations 0.0525 0.0331 0.0269 0.0394 0.0627 0.0697
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0525) (0.0331) (0.0269) (0.0394) (0.0627) (0.0697)
Distributions from net
realized capital gains - - - - - - - - - - - -
-------- -------- -------- -------- -------- --------
Total distributions (0.0525) (0.0331) (0.0269) (0.0394) (0.0627) (0.0697)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return 5.38% 3.36% 2.72% 4.01% 6.46% 7.29%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $550,959 $372,883 $185,400 $160,269 $180,776 $146,148
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.57% 0.52% 0.60% 0.62% 0.65% 0.65%/2/
Before
advisory/administration
fee waivers 0.98% 0.97% 0.73% 0.67% 0.70% 0.70%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.27% 3.42% 2.68% 3.91% 6.27% 7.62%/2/
Before
advisory/administration
fee waivers 4.85% 2.97% 2.55% 3.86% 6.22% 7.57%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
10
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- ------- --------
Income from investment
operations
Net investment income 0.0334 0.0219 0.0205 0.0281 0.0438 0.0486
Net realized gain (loss)
on investments - - - - - - - - - - - -
-------- -------- ------- -------- ------- --------
Total from investment
operations 0.0334 0.0219 0.0205 0.0281 0.0438 0.0486
-------- -------- ------- -------- ------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0334) (0.0219) (0.0205) (0.0281) (0.0438) (0.0486)
Distributions from net
realized capital gains - - - - - - - - - - - -
-------- -------- ------- -------- ------- --------
Total distributions (0.0334) (0.0219) (0.0205) (0.0281) (0.0438) (0.0486)
-------- -------- ------- -------- ------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======== ======= ========
Total return 3.39% 2.20% 2.10% 2.85% 4.47% 4.97%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $265,629 $133,358 $93,937 $125,152 $89,312 $112,108
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.57% 0.51% 0.61% 0.63% 0.65% 0.65%/2/
Before
advisory/administration
fee waivers 1.01% 0.99% 0.72% 0.68% 0.70% 0.70%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.35% 2.18% 2.02% 2.78% 4.40% 5.31%/2/
Before
advisory/administration
fee waivers 2.91% 1.71% 1.91% 2.73% 4.35% 5.26%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
11
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 6/1/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0333 0.0225 0.0074
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0333 0.0225 0.0074
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0333) (0.0225) (0.0074)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0333) (0.0225) (0.0074)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 3.38% 2.27% 0.75%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 49,857 $ 44,066 $ 15,239
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.57% 0.40% 0.23%/2/
Before advisory/administration fee waivers 1.03% 1.04% 0.96%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.35% 2.29% 2.23%/2/
Before advisory/administration fee waivers 2.89% 1.65% 1.50%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 6/11/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- ------- --------
Income from investment operations
Net investment income 0.0325 0.0221 0.0074
Net realized gain (loss) on investments - - - - - -
-------- ------- --------
Total from investment operations 0.0325 0.0221 0.0074
-------- ------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0325) (0.0221) (0.0074)
Distributions from net realized capital gains - - - - - -
-------- ------- --------
Total distributions (0.0325) (0.0221) (0.0074)
-------- ------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======= ========
Total return 3.33% 2.24% 0.74%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $147,739 $60,560 $ 8,919
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.57% 0.42% 0.32%/2/
Before advisory/administration fee waivers 0.99% 0.99% 1.20%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.29% 2.31% 2.42%/2/
Before advisory/administration fee waivers 2.87% 1.75% 1.54%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA VIRGINIA
MUNICIPAL MONEY MUNICIPAL MONEY
MARKET PORTFOLIO MARKET PORTFOLIO
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
11/01/94/4/ 4/29/94/1/ 10/11/94/1/
THROUGH THROUGH THROUGH
9/30/95 9/30/94 9/30/95
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0305 0.0099 0.0330
Net realized gain (loss) on
investments - - - - - -
-------- -------- --------
Total from investment operations 0.0305 0.0099 0.0330
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0305) (0.0099) (0.0330)
Distributions from net realized
capital gains - - - - - -
-------- -------- --------
Total distributions (0.0305) (0.0099) (0.0330)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 3.11% 0.99% 3.35%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 1,841 $ - - /3/ $ 821
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.55%/2/ 0.36%/2/ 0.40%/2/
Before advisory/administration
fee waivers 1.08%/2/ 1.02%/2/ 1.25%/2/
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 3.34%/2/ 2.54%/2/ 3.50%/2/
Before advisory/administration
fee waivers 2.81%/2/ 1.87%/2/ 2.65%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/There were no Service Shares outstanding as of September 30, 1994.
/4/Reissuance of shares.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE
PERIOD PERIOD
ENDED FISCAL YEAR FISCAL YEAR FISCAL YEAR 7/1/91/1/
8/31/95 ENDED ENDED ENDED TO
(UNAUDITED) 02/28/95 02/28/94 02/28/93 02/28/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.02 0.02 0.02 0.02 0.02
Net realized gain (loss)
on investments - - - - - - - - - -
------- ------- ------- ------- -------
Total from investment
operations 0.02 0.02 0.02 0.02 0.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.02) (0.02) (0.02) (0.02) (0.02)
------- ------- ------- ------- -------
Distributions from net
realized capital gains - - - - - - - - - -
------- ------- ------- ------- -------
Total distributions (0.02) (0.02) (0.02) (0.02) (0.02)
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return 3.36% 2.46% 1.79% 2.19% 3.53%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $49,628 $43,610 $39,408 $38,836 $35,005
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.68%/2/ 0.63% 0.65% 0.73% 0.47%/2/
Before
advisory/administration
fee waivers 0.68%/2/ 0.70% 0.72% 0.76% 0.62%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.30%/2/ 2.46% 1.77% 2.17% 3.44%/2/
Before
advisory/administration
fee waivers 3.30%/2/ 2.39% 1.70% 2.14% 3.29%/2/
</TABLE>
+ The Portfolio commenced operations on July 1, 1991 as the New Jersey Munici-
pal Money Market Fund, a separate investment portfolio (the "Predecessor New
Jersey Municipal Money Market Portfolio") of Compass Capital Group, which was
organized as a Massachusetts business trust. On January 12, 1996, the assets
and liabilities of the Predecessor New Jersey Municipal Money Market Portfo-
lio were transferred to this Portfolio.
/1/Commencement of operations.
/2/Annualized.
15
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
MONEY MARKET The investment objective of the Money Market Portfolio is to
PORTFOLIO provide as high a level of current interest income as is con-
sistent with maintaining liquidity and stability of principal.
The Portfolio may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as govern-
ment, bank, commercial and other obligations, that are avail-
able in the money markets. In particular, the Portfolio may
invest in:
(A) U.S. dollar-denominated obligations issued or supported by
the credit of U.S. or foreign banks or savings institu-
tions with total assets in excess of $1 billion (including
obligations of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued
or guaranteed by U.S. and foreign corporations and other
issuers rated (at the time of purchase) A-2 or higher by
Standard & Poor's Ratings Group ("S&P"), Prime-2 or higher
by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Co. ("D&P"), F-2 or higher
by Fitch Investors Service, Inc. ("Fitch") or TBW-2 or
higher by Thomson BankWatch, Inc. ("TBW"), as well as high
quality corporate bonds rated (at the time of purchase) AA
or higher by S&P, D&P, Fitch or TBW or Aa or higher by
Moody's;
(C) unrated notes, paper and other instruments that are of
comparable quality as determined by the Portfolio's sub-
adviser under guidelines established by the Fund's Board
of Trustees;
(D) asset-backed securities (including interests in pools of
assets such as mortgages, installment purchase obligations
and credit card receivables);
(E) securities issued or guaranteed as to principal and inter-
est by the U.S. Government or by its agencies or instru-
mentalities and related custodial receipts;
(F) dollar-denominated securities issued or guaranteed by for-
eign governments or their political subdivisions, agencies
or instrumentalities;
(G) guaranteed investment contracts issued by highly-rated
U.S. insurance companies;
(H) securities issued or guaranteed by state or local govern-
mental bodies; and
(I) repurchase agreements relating to the above instruments.
16
<PAGE>
U.S. The investment objective of the U.S. Treasury Money Market Port-
TREASURY folio is to provide as high a level of current interest income
MONEY as is consistent with maintaining liquidity and stability of
MARKET principal. It pursues this objective by investing exclusively in
PORTFOLIO short-term bills, notes and other obligations issued or guaran-
teed by the U.S. Treasury and repurchase agreements relating to
such obligations.
MUNICIPAL The investment objective of the Municipal Money Market Portfolio
PORTFOLIOS is to provide as high a level of current interest income exempt
from Federal income taxes as is consistent with maintaining li-
quidity and stability of principal. It pursues this objective by
investing substantially all of its assets in short-term obliga-
tions issued by or on behalf of states, territories and posses-
sions of the United States, the District of Columbia, and their
political subdivisions, agencies, instrumentalities and authori-
ties ("Municipal Obligations").
The investment objective of the New Jersey Municipal Money Mar-
ket Portfolio, North Carolina Municipal Money Market Portfolio,
Ohio Municipal Money Market Portfolio, Pennsylvania Municipal
Money Market Portfolio and Virginia Municipal Money Market Port-
folio (the "State-Specific Municipal Portfolios") is, for each
Portfolio, to seek as high a level of current income exempt from
Federal, and to the extent possible, state income tax of the
specific state in which a Portfolio concentrates, as is consis-
tent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio and the State-Specific Mu-
nicipal Portfolios (together, the "Municipal Portfolios") seek
to achieve their investment objectives by primarily investing
in:
(A) fixed and variable rate notes and similar debt instruments
rated MIG-2, VMIG-2 or Prime-2 or higher by Moody's, SP-2 or
A-2 or higher by S&P, AA or higher by D&P or F-2 or higher
by Fitch;
(B) tax-exempt commercial paper and similar debt instruments
rated Prime-2 or higher by Moody's, A-2 or higher by S&P,
Duff 2 or higher by D&P or F-2 or higher by Fitch;
(C) municipal bonds rated Aa or higher by Moody's or AA or
higher by S&P, D&P or Fitch;
(D) unrated notes, paper or other instruments that are of compa-
rable quality as determined by the Portfolios' sub-adviser
under guidelines established by the Fund's Board of Trust-
ees; and
(E) municipal bonds and notes which are guaranteed as to princi-
pal and interest by the U.S. Government or an agency or in-
strumentality thereof or which otherwise depend directly or
indirectly on the credit of the United States.
17
<PAGE>
During normal market conditions, at least 80% of each Munici-
pal Portfolio's net assets will be invested in securities
which are Municipal Obligations. In addition, under normal
conditions each State-Specific Municipal Portfolio intends to
invest at least 65% of its net assets in Municipal Obligations
of issuers located in the particular state indicated by its
name ("State-Specific Obligations"). The Municipal Money Mar-
ket Portfolio intends, on the other hand, to invest less than
25% of its total assets in Municipal Obligations of issuers
located in the same state. During temporary defensive periods,
each Municipal Portfolio may invest without limitation in ob-
ligations that are not Municipal Obligations and may hold
without limitation uninvested cash reserves.
Each State-Specific Portfolio may invest without limitation in
private activity bonds the interest on which is an item of tax
preference for purposes of the Federal alternative minimum tax
("AMT Paper"). The Municipal Money Market Portfolio may invest
up to 20% of its total assets in AMT Paper when added together
with any taxable investments held by the Portfolio. Interest
on AMT Paper that is received by taxpayers subject to the Fed-
eral alternative minimum tax is taxable.
Each Municipal Portfolio may invest 25% or more of its net as-
sets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. To the extent a
Portfolio's assets are invested in Municipal Obligations pay-
able from the revenues of similar projects or are invested in
private activity bonds, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions
relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested.
QUALITY, All securities acquired by the Portfolios will be determined
MATURITY AND at the time of purchase by the Portfolios' sub-adviser, under
DIVERSIFICATION guidelines established by the Fund's Board of Trustees, to
present minimal credit risks and will be "Eligible Securities"
as defined by the SEC. Eligible Securities are (a) securities
that either (i) have short-term debt ratings at the time of
purchase in the two highest rating categories by at least two
unaffiliated nationally recognized statistical rating organi-
zations ("NRSROs") (or one NRSRO if the security is rated by
only one NRSRO), or (ii) are comparable in priority and secu-
rity with an instrument issued by an issuer which has such
ratings, and (b) securities that are unrated (including secu-
rities of issuers that have long-term but not short-term rat-
18
<PAGE>
ings) but are of comparable quality as determined in accordance
with guidelines approved by the Board of Trustees.
Each Portfolio is managed so that the average maturity of all
instruments held by it (on a dollar-weighted basis) will not ex-
ceed 90 days. In no event will a Portfolio purchase securities
which mature more than 397 days from the date of purchase (ex-
cept for certain variable and floating rate instruments and se-
curities collateralizing repurchase agreements). Securities in
which the Portfolios invest may not earn as high a level of in-
come as longer term or lower quality securities, which generally
have greater market risk and more fluctuation in market value.
The Money Market, U.S. Treasury Money Market and Municipal Money
Market Portfolios are classified as diversified portfolios, and
the State-Specific Municipal Portfolios are classified as non-
diversified portfolios, under the Investment Company Act of 1940
(the "1940 Act"). Investment returns on a non-diversified port-
folio typically are dependent upon the performance of a smaller
number of securities relative to the number held in a diversi-
fied portfolio. Consequently, the change in value of any one se-
curity may affect the overall value of a non-diversified portfo-
lio more than it would a diversified portfolio.
19
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Portfolios may invest in debt obligations of domes-
tic or foreign corporations and banks, and may acquire commercial obligations
issued by Canadian corporations and Canadian counterparts of U.S. corporations,
as well as Europaper, which is U.S. dollar-denominated commercial paper of a
foreign issuer. Bank obligations may include certificates of deposit, notes,
bankers' acceptances and fixed time deposits. These obligations may be general
obligations of the parent bank or may be limited to the issuing branch or sub-
sidiary by the terms of the specific obligation or by government regulation.
The Money Market Portfolio may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its total as-
sets. For purposes of determining the permissibility of an investment in bank
obligations, the total assets of a bank are determined on the basis of the
bank's most recent annual financial statements.
Commercial paper issues include securities issued by corporations without reg-
istration under the Securities Act of 1933 (the "1933 Act") in reliance on the
exemption in Section 3(a)(3), and commercial paper issued in reliance on the
so-called "private placement" exemption in Section 4(2) ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws in that any resale must similarly be made in an exempt transaction. Sec-
tion 4(2) paper is normally resold to other institutional investors through or
with the assistance of investment dealers which make a market in Section 4(2)
paper, thus providing liquidity.
U.S. GOVERNMENT OBLIGATIONS. To the extent consistent with their respective in-
vestment objectives, the Portfolios may also purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities. Obli-
gations of certain agencies and instrumentalities of the U.S. Government are
backed by the full faith and credit of the United States. Others are backed by
the right of the issuer to borrow from the U.S. Treasury or are backed only by
the credit of the agency or instrumentality issuing the obligation.
MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved. Municipal Obligations may also in-
clude "moral obligation" bonds, which are normally issued by special purpose
public authorities. If the issuer of moral obligation bonds is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
20
<PAGE>
Also included within the general category of Municipal Obligations are partici-
pation certificates in a lease, an installment purchase contract, or a condi-
tional sales contract ("lease obligations") entered into by a state or politi-
cal subdivision to finance the acquisition or construction of equipment, land
or facilities. Although lease obligations are not general obligations of the
issuer for which the state or other governmental body's unlimited taxing power
is pledged, certain lease obligations are backed by a covenant to appropriate
money to make the lease obligation payments. However, under certain lease obli-
gations, the state or governmental body has no obligation to make these pay-
ments in future years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property, dis-
position of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
as marketable as more conventional securities.
Each Municipal Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase at the Portfolio's option specific Municipal Obligations at a speci-
fied price. The acquisition of a stand-by commitment may increase the cost, and
thereby reduce the yield, of the Municipal Obligation to which such commitment
relates. Each Municipal Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may not be as extensive as that which is made available by
public corporations, and the secondary market for Municipal Obligations may be
less liquid than that for taxable obligations. Accordingly, the ability of a
Municipal Portfolio to buy and sell tax-exempt securities may, at any particu-
lar time and with respect to any particular securities, be limited.
The Municipal Portfolios may invest in tax-exempt derivative securities relat-
ing to Municipal Obligations, including tender option bonds, participations,
beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal or state income tax are rendered by counsel to
the respective issuers or sponsors at the time of issuance. The Fund and its
investment adviser will rely on such opinions and will not review independently
the underlying proceedings relating to the issuance of Municipal Obligations or
the bases for such opinions.
MORTGAGE-RELATED SECURITIES. Although under normal market conditions they do
not expect to do so, each Portfolio may invest in mortgage-related securities
issued by the U.S. Government or its agencies or instrumentalities or issued by
private companies. Mortgage-related securities may include collateralized mort-
gage obligations ("CMOs") issued by the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation or other U.S. Government agencies or
instrumentalities or issued by private companies. The average life of mortgage-
related securities is likely to be less than the original maturity of the mort-
gage pools underlying the securities as a result of mortgage prepayments. For
this and other reasons, a mortgage-
21
<PAGE>
related security's stated maturity may be shortened and, therefore, it may be
difficult to predict precisely the security's total return to the particular
Portfolio. In addition, in periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During such periods, the reinvestment
of prepayment proceeds by the particular Portfolio will generally be at lower
rates than the rates on the prepaid obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated and
unrated variable and floating rate instruments, which may have a stated matu-
rity in excess of 13 months but will, in any event, permit a Portfolio to de-
mand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). These instru-
ments may include variable amount master demand notes that permit the indebt-
edness thereunder to vary in addition to providing for periodic adjustments in
the interest rate. Issuers of unrated variable and floating rate instruments
must satisfy the same criteria as set forth above for the particular Portfo-
lio.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase securities from
broker-dealers and financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements").
The securities held subject to a repurchase agreement may have stated maturi-
ties exceeding 13 months, so long as the repurchase agreement itself matures
in less than 13 months. Default by or bankruptcy of the seller would, however,
expose the Portfolio to possible loss because of adverse market action or de-
lays in connection with the disposition of the underlying obligations.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Under these contracts, the Portfolio makes cash con-
tributions to a deposit fund of the insurance company's general account. The
insurance company then credits interest to the Portfolio on a monthly basis,
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The Money Market Port-
folio does not expect to invest more than 5% of its net assets in GICs at any
time during the current fiscal year.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security it owns or intends to pur-
chase, regardless of future changes in interest rates. When-issued and forward
commitment transactions involve the risk, however, that the price or yield ob-
tained in a transaction may be less favorable than the price or yield avail-
able in the market when the delivery takes place.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require
that the loans be secured by collateral in cash, U.S. Government securities or
irrevocable bank letters of credit maintained on a
22
<PAGE>
current basis equal in value to at least the market value of the loaned securi-
ties. A Portfolio may not make such loans in excess of 33 1/3% of the value of
its total assets. Securities loans involve risks of delay in receiving addi-
tional collateral or in recovering the loaned securities, or possibly loss of
rights in the collateral if the borrower of the securities becomes insolvent.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse repurchase
agreements for temporary purposes (such as to obtain cash to meet redemption
requests when the liquidation of portfolio securities is deemed disadvantageous
or inconvenient). A reverse repurchase agreement involves a sale by a Portfolio
of securities that it holds concurrently with an agreement by the Portfolio to
repurchase the same securities at an agreed-upon price and date. Reverse repur-
chase agreements involve the risk that the market value of the securities sold
by a Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, each Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation. Securities of other investment companies will be
acquired by a Portfolio within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's ex-
penses, including advisory fees. These expenses would be in addition to the ad-
visory fees and other expenses the Portfolio bears directly in connection with
its own operations.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods or if, in the opinion of
the Portfolios' sub-adviser, suitable obligations are unavailable. During nor-
mal market periods, no more than 20% of a Portfolio's assets will be held
uninvested. Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of the
value of its net assets in securities that are illiquid. Variable and floating
rate instruments that cannot be disposed of within seven days, GICs, and repur-
chase agreements and time deposits that do not provide for payment within seven
days after notice, without taking a reduced price, are subject to this 10% lim-
it. Each Portfolio may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accor-
dance with Rule 144A under the 1933 Act. These securities will not be consid-
ered illiquid so long as the sub-adviser determines, acting under guidelines
approved and monitored by the Board, that an adequate trading market exists for
that security. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified institu-
tional buyers become uninterested in purchasing these restricted securities.
STATE-SPECIFIC MUNICIPAL PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The con-
centration of investments by the State-Specific Municipal Portfolios in State-
Specific Obligations raises special investment considerations. Changes in the
economic condition and governmental policies of a state and its political sub-
divisions could adversely affect the value of a Portfolio's shares.
23
<PAGE>
Certain matters relating to the states in which the State-Specific Municipal
Portfolios invest are described below. For further information, see "Special
Consideration Regarding State-Specific Obligations" in the Statement of Addi-
tional Information.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 15% of total employment in agribusiness. In prior
years, the State's overall unemployment rate was commonly somewhat higher than
the national figure. For example, the reported 1990 average monthly State rate
was 5.7%, compared to the 5.5% national figure. However, for the last four
years the State rates were below the national rates (5.5% versus 6.1% in 1994).
The unemployment rate and its effects vary among particular geographic areas of
the State. There can be no assurance that future national, regional or state-
wide economic difficulties and the resulting impact on State or local govern-
ment finances generally will not adversely affect the market value of Ohio Mu-
nicipal Obligations held in the Portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following three
years; as of June 30, 1994, the General Fund has a surplus of $892.9 million.
The deficit in the Commonwealth's unreserved/undesignated funds also has been
eliminated, and there was a surplus of $79.2 million as of June 30, 1994. Ris-
ing unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates
place increased pressures on the tax resources of the Commonwealth and its mu-
nicipalities. The Commonwealth has sold a substantial amount of bonds over the
past several years, but the debt burden remains moderate. The recession has af-
fected Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service sec-
tors, with losses in more high-paid manufacturing positions. A new governor
took office in January 1995, but the Commonwealth is likely to continue to show
fiscal restraint.
North Carolina. Growth of North Carolina tax revenues slowed considerably dur-
ing fiscal 1990-92 requiring tax increases and budget adjustments, including
hiring freezes and restrictions, spending constraints, changes in the timing of
certain collections and payments, and other short-term budget adjustments, that
were needed to comply with North Carolina's constitutional mandate for a bal-
anced budget. Fiscal years 1993, 1994 and 1995, however, ended with a positive
General Fund balance each year. By law, 25% of such positive fund balance was
required to be reserved in the General Fund of North Carolina as part of a
"Savings Reserve" (subject to a maximum reserve of 5% of the preceding fiscal
year's operating appropriation). An additional portion of such positive fund
balance was reserved in the General Fund as
24
<PAGE>
part of a "Reserve for Repair and Renovation of State Facilities," leaving the
remaining unrestricted fund balance at the end of each such year available for
future appropriations.
Virginia. Because of Northern Virginia, with its proximity to Washington, DC,
and Hampton Roads, which has the nation's largest concentration of military in-
stallations, the Federal government has a greater impact on Virginia relative
to its size than any states other than Alaska and Hawaii. Virginia's economy
has continued to grow over the last decade, and while per capita income has
grown both faster and slower than the U.S. average from year to year, per cap-
ita income continues to be above the national average. Virginia's unreserved
general fund balances have continued to grow in recent years from a low in
1991. The Virginia Constitution requires a balanced budget and, since 1993, the
funding of a Revenue Stabilization Fund. Current debt levels are well below
limits established by the Constitution.
New Jersey. The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective commer-
cial agriculture, insurance, tourism, petroleum refining and manufacturing, al-
though New Jersey's manufacturing industry has experienced a downward trend in
the last few years. New Jersey is a major recipient of Federal assistance and,
of all the states, is among the highest in the amount of Federal aid received.
Therefore, a decrease in Federal financial assistance may adversely affect the
financial condition of New Jersey and its political subdivisions and instrumen-
talities. While New Jersey's economic base has become more diversified over
time and thus its economy appears to be less vulnerable during recessionary pe-
riods, a recurrence of high levels of unemployment could adversely affect New
Jersey's overall economy and the ability of New Jersey and its political subdi-
visions and instrumentalities to meet their financial obligations. In addition,
New Jersey maintains a balanced budget which restricts total appropriation in-
creases to only 5% annually with respect to any municipality or county, the
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
25
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days' notice before any such change. No assurance can be pro-
vided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry, except that the
Money Market Portfolio will invest at least 25% of its total assets in ob-
ligations of issuers in the banking industry or instruments secured by such
obligations except during temporary defensive periods;
(3) borrow money except for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not
make any additional investments; and
(4) in the case of the Municipal Money Market Portfolio, invest less than 80%
of its net assets in instruments the interest on which is exempt from regu-
lar Federal income tax, except during defensive periods or during periods
of unusual market conditions; and
(5) in the case of each State-Specific Municipal Portfolio, invest less than
80% of its net assets in instruments the interest on which is exempt from
regular Federal income tax or in instruments which are subject to AMT, ex-
cept during defensive periods or during periods of unusual market
conditions.
Restriction 1 does not apply to the State-Specific Municipal Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Munici-
pal Portfolio will not hold any securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter, more than 5% of its total assets to be invested in securities of any
one issuer, except that up to 50% of a Portfolio's total assets may be invested
without regard to this limitation so long as no more than 25% of the Portfo-
lio's total assets are invested in any one issuer (except U.S. Government secu-
rities and related repurchase agreements).
In accordance with current SEC regulations, the Money Market Portfolio intends,
as a non-fundamental policy, to limit its investments in the securities of any
single issuer (other than U.S.
26
<PAGE>
Government securities and related repurchase agreements) to not more than 5% of
the value of its total assets at the time of purchase, except that 25% of the
value of its total assets may be invested in any one issuer for a period of up
to three business days. The Money Market Portfolio will also limit its invest-
ments in Eligible Securities that are not in the highest rating category as de-
termined by two NRSROs (or one NRSRO if the security is rated by only one
NRSRO) or, if unrated, are not of comparable quality, to 5% of its total as-
sets, with investments in any one such issuer being limited to no more than 1%
of its total assets or $1 million, whichever is greater, measured at the time
of purchase.
The investment limitations stated above are applied at the time investment se-
curities are purchased.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any commitment is no
longer in the best interests of a Portfolio, it will revoke the commitment by
terminating sales of shares of the Portfolio in the state involved.
27
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the di-
TRUSTEES rection of the Fund's Board of Trustees. The following indi-
viduals were elected by shareholders on January 4, 1996 to
serve as trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Offi-
cer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School,
University of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
INVESTMENT The Adviser to Compass Capital Funds is PNC Asset Management
ADVISER AND Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform
SUB-ADVISER advisory services for investment companies, and has its prin-
cipal offices at 1835 Market Street, Philadelphia, Pennsylva-
nia 19103. PAMG is an indirect wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company. PNC Institutional
Management Corporation ("PIMC"), a wholly-owned subsidiary of
PAMG, serves as each Portfolio's sub-adviser. PIMC's principal
business address is 400 Bellevue Parkway, Wilmington, Delaware
19809.
As adviser, PAMG is responsible for the overall investment
management of the Portfolios. As sub-adviser, PIMC is respon-
sible for the day-to-day management of the Portfolios, and
generally makes all purchase and sale investment decisions for
the Portfolios. PIMC also provides research and credit analy-
sis. Portfolio transactions for a Portfolio may be directed
through broker/dealers who sell Fund shares, subject to the
requirements of best execution.
For their investment advisory and sub-advisory services, PAMG
and PIMC are entitled to fees, computed daily on a Portfolio-
by-Portfolio basis and payable monthly, at the annual rates
set forth below. All sub-advisory fees payable to PIMC are
paid by PAMG, and do not represent an extra charge to the
Portfolios.
28
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE
FOR EACH PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion .450% .400%
$1 billion--$2 billion .400 .350
$2 billion--$3 billion .375 .325
greater than $3 billion .350 .300
</TABLE>
For more information about the advisory fees the Portfolios ex-
pect to pay for the current fiscal year, see "What Are The Ex-
penses Of The Portfolios?" For the fiscal year ended September
30, 1995, the Portfolios (other than the New Jersey Municipal
Money Market Portfolio) paid investment advisory fees at the
following annual rates (expressed as a percentage of average
daily net assets) after voluntary fee waivers: Money Market
Portfolio, .08%; U.S. Treasury Money Market Portfolio, .08%; Mu-
nicipal Money Market Portfolio, .08%; Ohio Municipal Money Mar-
ket Portfolio, .07%; Pennsylvania Municipal Money Market Portfo-
lio, .09%; North Carolina Municipal Money Market Portfolio,
.05%; and Virginia Municipal Money Market Portfolio, 0%. For the
fiscal year ended February 28, 1995, the Predecessor New Jersey
Municipal Money Market Portfolio paid investment advisory fees,
after voluntary fee waivers, to Midlantic Bank, N.A., its former
adviser, pursuant to the advisory agreement then in effect, at
the annual rate of .40% of its average daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC"), and
Compass Distributors, Inc. ("CDI") (the "Administrators") serve
as the Fund's co-administrators. CCG and PFPC are indirect whol-
ly-owned subsidiaries of PNC Bank Corp. CDI is a wholly-owned
subsidiary of Provident Distributors, Inc. ("PDI"). A majority
of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant
Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500
million of each Portfolio's average daily net assets, .13% of
the next $500 million of each Portfolio's average daily net as-
sets, .11% of
29
<PAGE>
the next $1 billion of each Portfolio's average daily net as-
sets and .10% of each Portfolio's average daily net assets in
excess of $2 billion. From time to time the Administrators may
waive some or all of their administration fees from a Portfo-
lio.
For information about the operating expenses the Portfolios
expect to pay for the current fiscal year, see "What Are The
Expenses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves
AGENT, as their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
SHAREHOLDER The Fund intends to enter into service agreements with insti-
SERVICING tutional investors ("Institutions") (including PNC Bank, Na-
tional Association and its affiliates) which provide that the
Institutions will render support services to their customers
who are the beneficial owners of Service Shares. These serv-
ices are intended to supplement the services provided by the
Fund's Administrators and transfer agent to the Fund's share-
holders of record. In consideration for payment of a share-
holder processing fee of up to .15% (on an annualized basis)
of the average daily net asset value of Service Shares owned
beneficially by their customers, Institutions may provide one
or more of the following services: processing purchase and re-
demption requests from customers and placing orders with the
Fund's transfer agent or the distributor; processing dividend
payments from the Fund on behalf of customers; providing sub-
accounting with respect to Service Shares beneficially owned
by customers or the information necessary for sub-accounting;
and other similar services. In consideration for payment of a
separate shareholder servicing fee of up to .15% (on an
annualized basis) of the average daily net asset value of
Service Shares owned beneficially by their customers, Institu-
tions may provide one or more of these additional services to
such customers: responding to customer inquiries relating to
the services performed by the Institution and to customer in-
quiries concerning their investments in Service Shares; pro-
viding information periodically to customers showing their po-
sitions in Service Shares; and other similar shareholder liai-
son services. Customers who are beneficial owners of Service
Shares should read this Prospectus in light of the terms and
fees governing their accounts with Institutions.
Conflict-of-interest restrictions may apply to the receipt of
compensation paid by the Fund in connection with the invest-
ment of fiduciary funds in Portfolio shares. Institutions, in-
cluding banks regulated by the
30
<PAGE>
Comptroller of the Currency, Federal Reserve Board and state
banking commissions, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department
of Labor or state securities commissions, are urged to consult
their legal counsel before entering into agreements with the
Fund.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided by
Institutions under their service agreements will not be prohib-
ited under these laws. However, state securities laws may differ
from the interpretations of Federal law on this issue, and banks
and financial institutions may be required to register as deal-
ers pursuant to state law.
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, shareholder servicing and process-
ing fees, fees and expenses in registering and qualifying the
Portfolios and their shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and dis-
tributing prospectuses and statements of additional information
to existing shareholders, expenses relating to shareholder re-
ports, shareholder meetings and proxy solicitations, insurance
premiums, the expense of independent pricing services, and other
expenses which are not expressly assumed by PAMG or the Fund's
service providers under their agreements with the Fund. Any gen-
eral expenses of the Fund that do not belong to a particular in-
vestment portfolio will be allocated among all investment port-
folios by or under the direction of the Board of Trustees in a
manner the Board determines to be fair and equitable.
31
<PAGE>
How Are Shares Purchased And Redeemed?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Plan permits CDI, PAMG, the Administrators and other
companies that receive fees from the Fund to make payments relating to distri-
bution and sales support activities out of their past profits or other sources
available to them. The Fund is not required or permitted under the Plan to make
distribution payments with respect to Service Shares.
PURCHASE OF SHARES. Service Shares are offered without a sales load to Institu-
tions acting on behalf of their customers, as well as to certain persons who
were shareholders of Compass Capital Group of Funds at the time of its combina-
tion with The PNC Fund during the first quarter of 1996. Service Shares will
normally be held of record by Institutions or in the names of nominees of In-
stitutions. Share purchases are normally effected through a customer's account
at an Institution through procedures established in connection with the re-
quirements of the account. In these cases, confirmations of share purchases and
redemptions will be sent to the Institutions. Beneficial ownership of shares
will be recorded by the Institutions and reflected in the account statements
provided by such Institutions to their customers. Investors wishing to purchase
shares should contact their Institutions.
Service Shares are sold at the net asset value per share next determined after
an order is received by PFPC Inc. ("PFPC"), the Fund's transfer agent. Shares
may be purchased by Institutions on any Business Day. A "Business Day" is any
weekday that the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open for business.
Purchase orders for each Portfolio except the U.S. Treasury Money Market Port-
folio may be placed by telephoning PFPC at (800) 441-7450 no later than 12:00
noon (Eastern Time) on a Business Day. Orders received before 12:00 noon (East-
ern Time) will be executed at 12:00 noon (Eastern Time). If payment for such
orders is not received by 4:00 p.m. (Eastern Time), the order will be cancelled
and notice thereof will be given to the Institution placing the order. Orders
received after 12:00 noon (Eastern Time) will not be accepted.
Purchase orders for the U.S. Treasury Money Market Portfolio may be placed by
telephoning PFPC at (800) 441-7450 no later than 4:00 p.m. (Eastern Time) on a
Business Day. Orders received before 12:00 noon (Eastern Time) will be executed
at 12:00 noon (Eastern Time); orders received after 12:00 noon (Eastern Time)
but before 4:00 p.m. (Eastern Time) will be executed at 4:00 p.m. (Eastern
Time). If payment for such orders is not received by 4:00 p.m. (Eastern Time),
the order will be cancelled and notice thereof will be given to the Institution
placing the order. Orders will not be accepted after 4:00 p.m. (Eastern Time).
Under certain circumstances, the Fund may reject large individual purchase or-
ders received after 12:00 noon (Eastern Time).
32
<PAGE>
Payment for Service Shares must normally be made only in Federal funds or other
funds immediately available to the Fund's custodian. Payment may also, in the
discretion of the Fund, be made in the form of securities that are permissible
investments for the respective Portfolios. For further information, see the
Statement of Additional Information. The minimum initial investment is $5,000;
however, Institutions may set a higher minimum for their customers. There is no
minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Service Shares.
REDEMPTION OF SHARES. Customers of Institutions may redeem Service Shares in
accordance with the procedures applicable to their accounts with the Institu-
tions. These procedures will vary according to the type of account and the In-
stitution involved, and customers should consult their account managers in this
regard. It is the responsibility of Institutions to transmit redemption orders
to PFPC and credit their customers' accounts with the redemption proceeds on a
timely basis. In the case of shareholders holding share certificates, the cer-
tificates must accompany the redemption request.
Institutions may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The Fund, the Administrators and the
Distributor will employ reasonable procedures to confirm that instructions com-
municated by telephone are genuine. The Fund and its service providers will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such
procedures. While the Fund intends to use its best efforts to maintain each
Portfolio's net asset value per share at $1.00, the proceeds paid upon redemp-
tion may be more or less than the amount invested depending upon the net asset
value of a Service Share at the time of redemption.
Payment for redeemed shares for which a redemption order is received by PFPC
before 12:00 noon (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the same Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received between 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) or
on a day when the Fund's custodian is closed is normally wired in Federal funds
on the next Business Day following redemption on which the Fund's custodian is
open for business. The Fund reserves the right to wire redemption proceeds
within seven days after receiving a redemption order if, in the judgment of
PAMG, an earlier payment could adversely affect a Portfolio. No charge for wir-
ing redemption payments is imposed by the Fund, although Institutions may
charge their customer accounts for redemption services. Information relating to
such redemption services and charges, if any, should be obtained by customers
from their Institution.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
400 Bellevue Parkway, Wilmington, DE 19809.
33
<PAGE>
The Fund may redeem Service Shares in any Portfolio account if the account bal-
ance drops below $5,000 as the result of redemption requests and the share-
holder does not increase the balance to at least $5,000 upon thirty days' writ-
ten notice. If a customer has agreed with an Institution to maintain a minimum
balance in his or her account with the Institution, and the balance in the ac-
count falls below that minimum, the customer may be obligated to redeem all or
part of his or her shares in the Portfolios to the extent necessary to maintain
the minimum balance required.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
34
<PAGE>
What Special Purchase And Redemption Procedures May Apply?
- --------------------------------------------------------------------------------
Persons who were shareholders of an investment portfolio of Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC Fund(R)
may also purchase and redeem Service Shares of the same Portfolio and for the
same account in which they held shares on that date through the procedures de-
scribed in this section.
PURCHASES. Purchase orders may be placed through PFPC. The minimum investment
is $100. Purchases through the Automatic Investment Plan described below are
subject to a lower purchase minimum. The name of the Portfolio with respect to
which shares are purchased must appear on the check or Federal Reserve Draft.
Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, class of
the Portfolio, the name of the account registration, and the shareholder ac-
count number. Before wiring any funds, however, an investor must call PFPC at
(800) 441-7762 in order to confirm the wire instructions. Purchase orders for
shares of the Portfolios that are in proper form are executed at their net as-
set value per share next determined after receipt by the Fund; however, orders
will not be executed until payments not made in Federal funds are converted to
Federal funds (which normally occurs within two Business Days of receipt) un-
less a creditworthy financial institution undertakes to pay for an order in
Federal funds by 4:00 p.m. (Eastern Time) the same Business Day an order is
placed. Under certain circumstances, the Fund may reject large individual pur-
chase orders received after 12:00 noon. The Fund may in its discretion reject
any order for shares.
The Portfolios offer an Automatic Investment Plan ("AIP") whereby an investor
in shares of a Portfolio may arrange for periodic investments in that Portfolio
through automatic deductions from a checking or savings account by completing
the AIP Application Form. The minimum pre-authorized investment amount is $50.
REDEMPTIONS. Shareholders may redeem for cash some or all of their shares of
the Portfolios at any time by sending a written redemption request in proper
form to Compass Capital Funds c/o PFPC Inc., P.O. Box 8907, Wilmington, Dela-
ware 19899-8907.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding share certificates must send
their certificates with the redemption request. Additional documentary evidence
of authority is required by PFPC in the event redemption is requested by a cor-
poration, partnership, trust, fiduciary, executor or administrator.
35
<PAGE>
If a shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or
by Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone
at (800) 441-7762 (in Delaware call collect (302) 791-1194) or other means.
The minimum amount that may be sent by check is $500, while the minimum amount
that may be wired is $10,000. Compass Capital reserves the right to change
these minimums or to terminate these redemption privileges. If the proceeds of
a redemption would exceed $25,000, the redemption request must be in writing
and will be subject to the signature guarantee requirement described above.
This privilege may not be used to redeem Shares in certificated form.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC
at P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital is not responsible for the efficiency of the Federal wire sys-
tem or the shareholder's firm or bank. Compass Capital does not currently
charge for wire transfers. The shareholder is responsible for any charges im-
posed by the shareholder's bank. To change the name of the single designated
bank account to receive wire redemption proceeds, it is necessary to send a
written request (with a guaranteed signature as described above) to Compass
Capital Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital reserves the right to refuse a telephone redemption if it be-
lieves it advisable to do so. The Fund, the Administrators and the Distributor
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Compass Capital, the Administrators and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions reasonably believed to be genuine in accordance with
such procedures.
Compass Capital offers a Systematic Withdrawal Plan ("SWP") which may be used
by investors who wish to receive regular distributions from their accounts.
Upon commencement of the SWP, the account must have a current value of $10,000
or more in a Portfolio. Shareholders may elect to receive automatic cash pay-
ments of $100 or more either monthly, every other month, quarterly, three
times a year, semi-annually, or annually. Automatic withdrawals are normally
processed on the 25th day of the applicable month or, if such day is not a
Business Day, on the next Business Day and are paid promptly thereafter. An
investor may utilize the SWP by completing the SWP Application Form which may
be obtained from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC.
36
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Service Shares of each Portfolio
as of 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) on each Business
Day by dividing the value of all securities and other assets owned by a Portfo-
lio that are allocated to its Service Shares, less the liabilities charged to
its Service Shares, by the number of Service Shares outstanding.
Each Portfolio seeks to maintain a net asset value of $1.00 per share for pur-
poses of purchases and redemptions, and values its portfolio securities based
on the amortized cost method of valuation described in the Statement of Addi-
tional Information under "Valuation of Shares." A Portfolio may use a pricing
service, bank or broker/dealer to value its securities.
37
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- -------------------------------------------------------------------------------
Shareholders are entitled to dividends and distributions arising from the net
income and capital gains, if any, earned on investments held by the Portfolio
in which they invest. Each Portfolio's net income is declared daily as a divi-
dend. Shareholders whose purchase orders are executed at 12:00 noon (Eastern
Time), 4:00 p.m. (Eastern Time) for the U.S. Treasury Money Market Portfolio,
receive dividends for that day. On the other hand, shareholders whose redemp-
tion orders have been received by 12:00 noon (Eastern Time) do not receive
dividends for that day, while shareholders of each Portfolio whose redemption
orders are received after 12:00 noon (Eastern Time) do receive dividends for
that day.
Dividends are paid monthly by check, or by wire transfer if requested in writ-
ing by the shareholder, within five business days after the end of the month.
Net short-term capital gains, if any, will be distributed at least annually.
The period for which dividends are payable and the time for payment are sub-
ject to change by the Fund's Board of Trustees. The Portfolios do not expect
to realize net long-term capital gains.
Dividends are reinvested in additional full and fractional Service Shares of
the same Portfolio which pays the dividends, unless a shareholder elects to
receive dividends in cash. Such election, or any revocation thereof, must be
made in writing to PFPC, and will become effective with respect to dividends
paid after receipt by PFPC.
38
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
a Portfolio qualifies, it generally will be relieved of Federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise exempt,
will pay income or capital gains taxes on distributions (except distributions
that are "exempt interest dividends" or are treated as a return of capital),
whether the distributions are paid in cash or reinvested in additional shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Municipal Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns for
informational purposes and in two circumstances such amounts, while exempt from
regular Federal income tax, are taxable to persons subject to alternative mini-
mum and environmental taxes. First, "exempt interest dividends" derived from
certain private activity bonds generally will constitute an item of tax prefer-
ence for taxpayers in determining alternative minimum tax liability. Second,
all "exempt interest dividends" must be taken into account by corporate taxpay-
ers in determining certain adjustments for alternative minimum and environmen-
tal tax purposes. In addition, investors should be aware of the possibility of
state and local alternative minimum or minimum income tax liability on interest
from private activity bonds. Shareholders who are recipients of Social Security
Act or Railroad Retirement Act benefits should note that "exempt interest divi-
dends" will be taken into account in determining the taxability of their bene-
fit payments.
Each Municipal Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions from net investment income during that year and may differ
significantly from the actual percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of such dividends may be derived from interest
39
<PAGE>
on obligations which, if realized directly, would be exempt from such income
taxes. In addition, shareholders who are non-resident alien individuals, for-
eign trusts or estates, foreign corporations or foreign partnerships may be
subject to different Federal income tax treatment. Future legislative or admin-
istrative changes or court decisions may materially affect the tax consequences
of investing in the Portfolios.
OHIO TAXES. Individuals and estates that are subject to Ohio personal income
tax or municipal or school district income taxes in Ohio will not be subject to
such taxes on distributions from the Ohio Municipal Money Market Portfolio to
the extent that such distributions are properly attributable to interest on
Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States)
("U.S. Obligations"), if (a) the Portfolio continues to qualify as a regulated
investment company for Federal income tax purposes and (b) at all times at
least 50% of the value of the total assets of the Portfolio consists of Ohio
Municipal Obligations or similar obligations of other states or their subdivi-
sions. Corporations that are subject to the Ohio corporation franchise tax will
not have to include distributions from the Ohio Municipal Money Market Portfo-
lio in their net income base for purposes of calculating their Ohio corporation
franchise tax liability to the extent that such distributions either constitute
exempt-interest dividends for Federal income tax purposes or are properly at-
tributable to interest on Ohio Municipal Obligations or U.S. Obligations. How-
ever, shares of the Ohio Municipal Money Market Portfolio will be included in a
corporation's net worth base for purposes of calculating the Ohio corporation
franchise tax. Distributions properly attributable to gain on the sale, ex-
change or other disposition of Ohio Municipal Obligations will not be subject
to the Ohio personal income tax, or municipal or school district income taxes
in Ohio and will not be included in the net income base of the Ohio corporation
franchise tax. Distributions attributable to other sources will be subject to
the Ohio personal income tax and the Ohio corporation franchise tax.
PENNSYLVANIA TAXES. Income received by a shareholder attributable to interest
realized by the Pennsylvania Municipal Money Market Portfolio from Pennsylvania
State-Specific Obligations or attributable to insurance proceeds on account of
such interest is not taxable to individuals, estates or trusts under the Per-
sonal Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for Federal income tax purposes); to corporations under the Corporate Net
Income Tax (in the case of insurance proceeds, to the extent they are exempt
for Federal income tax purposes); nor to individuals under the Philadelphia
School District Net Investment Income Tax ("School District Tax").
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Portfolio of Pennsylvania State-Specific Obligations is taxable
under the Personal Income Tax, the Corporate Net Income Tax, and, unless these
assets were held by the Portfolio for more than six months, the School District
Tax.
This discussion does not address the extent, if any, to which shares of the
Pennsylvania Municipal Money Market Portfolio, and interest and gain earned by
the Portfolio, is subject to, or included in the measure of, special taxes im-
posed by the Commonwealth of Pennsylvania on
40
<PAGE>
banks and other financial institutions or with respect to any privilege, ex-
cise, franchise or other tax imposed on business entities not discussed above
(including the Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not sub-
ject to the Pennsylvania County Personal Property Tax to the extent that the
Portfolio is comprised of Pennsylvania state-specific obligations and Federal
obligations (if the interest on such obligations is exempt from state and local
taxation under the laws of the United States).
NORTH CAROLINA TAXES. Interest received in the form of dividends from the North
Carolina Municipal Money Market Portfolio is exempt from North Carolina state
income tax to the extent the distributions represent interest on direct obliga-
tions of the U.S. Government or North Carolina State-Specific Obligations. Dis-
tributions derived from interest earned on obligations of political subdivi-
sions of Puerto Rico, Guam and the U.S. Virgin Islands, including the govern-
ments thereof and their agencies, instrumentalities and authorities, are also
exempt from North Carolina state income tax. Distributions paid out of interest
earned on obligations that are merely backed or guaranteed by the U.S. Govern-
ment (e.g., GNMAs, FNMAs), on repurchase agreements collateralized by U.S. Gov-
ernment securities or on obligations of other states (which the Portfolio may
acquire and hold for temporary or defensive purposes) are not exempt from North
Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of certain obligations of the
State of North Carolina or its subdivisions that were issued before July 1,
1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
VIRGINIA TAXES. Subject to the provisions discussed below, dividends paid to
shareholders by the Virginia Municipal Money Market Portfolio and derived from
interest on obligations of the Commonwealth of Virginia or of any political
subdivision or instrumentality of the Commonwealth or derived from interest or
dividends on obligations of the United States excludable from Virginia taxable
income under the laws of the United States, which obligations are issued in the
exercise of the borrowing power of the Commonwealth or the United States and
are backed by the full faith and credit of the Commonwealth or the United
States, will be exempt from the Virginia income tax. Dividends paid to share-
holders by the Portfolio and derived from interest on debt obligations of cer-
tain territories and possessions of the United States (those issued by Puerto
Rico, the Virgin Islands and Guam) will be exempt from the Virginia income tax.
To the extent a portion of the dividends are derived from interest on debt ob-
ligations other than those described above, such portion will be subject to the
Virginia income tax even though it may be excludable from gross income for Fed-
eral income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and derived
from capital gains will be taxable to the shareholders. To the extent any por-
tion of the dividends are derived from taxable interest for Virginia purposes
or from net short-term capital gains, such portion will be
41
<PAGE>
taxable to the shareholders as ordinary income. The character of long-term cap-
ital gains realized and distributed by the Portfolio will flow through to its
shareholders regardless of how long the shareholders have held their shares.
Capital gains distributed to shareholders derived from Virginia obligations is-
sued pursuant to special Virginia enabling legislation which provides a spe-
cific exemption for such gains will be exempt from Virginia income tax. Gener-
ally, interest on indebtedness incurred by shareholders to purchase or carry
shares of the Portfolio will not be deductible for Virginia income tax purpos-
es.
As a regulated investment company, the Portfolio may distribute dividends that
are exempt from the Virginia income tax to its shareholders if the Portfolio
satisfies all requirements for conduit treatment under Federal law and, at the
close of each quarter of its taxable year, at least 50% of the value of its to-
tal assets consists of obligations the interest on which is exempt from taxa-
tion under Federal law. If the Portfolio fails to qualify, no part of its divi-
dends will be exempt from the Virginia income tax.
When taxable income of a regulated investment company is commingled with exempt
income, all distributions of the income are presumed taxable to the sharehold-
ers unless the portion of income that is exempt from Virginia income tax can be
determined with reasonable certainty and substantiated. Generally, this deter-
mination must be made for each distribution to each shareholder. The Virginia
Department of Taxation has adopted a policy, however, of allowing shareholders
to exclude from their Virginia taxable income the exempt portion of distribu-
tions from a regulated investment company even though the shareholders receive
distributions monthly but receive reports substantiating the exempt portion of
such distributions at less frequent intervals. Accordingly, if the Portfolio
receives taxable income, the Portfolio must determine the portion of income
that is exempt from Virginia income tax and provide such information to the
shareholders in accordance with the foregoing so that the shareholders may ex-
clude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
NEW JERSEY TAXES. It is anticipated that substantially all dividends paid by
the New Jersey Municipal Money Market Portfolio will not be subject to New Jer-
sey personal income tax. In accordance with the provisions of New Jersey law as
currently in effect, distributions paid by a "qualified investment fund" will
not be subject to the New Jersey personal income tax to the extent that the
distributions are attributable to income received as interest or gain from New
Jersey State-Specific Obligations, or as interest or gain from direct U.S. Gov-
ernment obligations. Distributions by a qualified investment fund that are at-
tributable to most other sources will be subject to the New Jersey personal in-
come tax. To be classified as a qualified investment fund, at least 80% of the
Portfolio's investments must consist of New Jersey State-Specific Obligations
or direct U.S. Government obligations; it must have no investments other than
interest-bearing obligations, obligations issued at a discount, and cash and
cash items (including receivables); and it must satisfy certain reporting obli-
gations and provide certain information to its shareholders. Shares of the
Portfolio are not subject to property taxation by New Jersey or its political
subdivisions.
42
<PAGE>
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
43
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Service Shares of the eight money market portfolios de-
scribed herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. Because of these "class expenses," the
performance of a Portfolio's Institutional Shares is expected to be higher than
the performance of the Portfolio's Service Shares, and the performance of both
the Institutional Shares and Service Shares of a Portfolio is expected to be
higher than the performance of the Portfolio's three classes of Investor
Shares. The Fund offers various services and privileges in connection with its
Investor Shares that are not generally offered in connection with its Institu-
tional and Service Shares, including an automatic investment plan, automatic
withdrawal plan and checkwriting. For further information regarding the Fund's
Institutional or Investor Share classes, contact PFPC at (800) 441-7764 (Insti-
tutional Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
44
<PAGE>
How is Performance Calculated?
- --------------------------------------------------------------------------------
From time to time each Portfolio may advertise its "yield" and "effective
yield" for Service Shares. Both yield figures are based on historical earnings
and are not intended to indicate future performance. "Yield" refers to the in-
come generated by an investment in a Portfolio's Service Shares over a seven-
day period. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. "Ef-
fective yield" is calculated similarly but, when annualized, the income earned
by an investment in a Portfolio's Service Shares is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. A Municipal Portfolio's "tax
equivalent yield" may also be quoted, which shows the level of taxable yield
needed to produce an after-tax equivalent to the Portfolio's tax-free yield for
Service Shares.
The performance of Service Shares of a Portfolio may be compared to the perfor-
mance of mutual funds with similar investment objectives and to relevant indi-
ces, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the yield of Service Shares of a Portfolio may be compared
to data prepared by Lipper Analytical Services, Inc., CDA Investment Technolo-
gies, Inc. and Weisenberger Investment Company Service. Performance information
may also include evaluations of the Portfolios published in nationally recog-
nized ranking services, and information as reported by financial publications
such as Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered as representative of future results. The yield of any
investment is generally a function of portfolio quality and maturity, type of
investment and operating expenses. Yields will fluctuate and are not necessar-
ily representative of future results. Any fees charged by affiliates of the
Portfolios' investment adviser or other institutions directly to their custom-
ers' accounts in connection with investments in the Portfolios will not be in-
cluded in the Portfolios' calculations of yield and performance.
45
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call COMPASS CAPITAL
FUNDS at (800) 441-7450.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7764.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
46
<PAGE>
The Compass Capital Funds
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DIS-
TRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
-----------------
MONEY MARKET PORTFOLIO
U.S. TREASURY MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
THE MONEY
MARKET
PORTFOLIOS
SERVICE SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INVESTOR A, INVESTOR B AND INVESTOR C SHARES OF THE
MONEY MARKET PORTFOLIO,
U.S. TREASURY MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO,
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO,
OHIO MUNICIPAL MONEY MARKET PORTFOLIO,
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO AND
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
[ART]
PROSPECTUS
MONEY MARKET
PORTFOLIOS
Investor
Shares
COMPASS
--------------------
[LOGO] CAPITAL FUNDS
N O T Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
INSURED and involve risk including
possible loss of principal.
<PAGE>
The Money Market Portfolios Investor Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital Funds (SM) ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This Prospectus
describes the Investor Shares of eight of those portfolios
(the "Portfolios"):
. Money Market Portfolio
. U.S. Treasury Money Market Portfolio
. Municipal Money Market Portfolio
. New Jersey Municipal Money Market Portfolio
. North Carolina Municipal Money Market Portfolio
. Ohio Municipal Money Market Portfolio
. Pennsylvania Municipal Money Market Portfolio
. Virginia Municipal Money Market Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7762. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OBLI-
GATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE
PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO ASSURANCE THAT
THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC MUNICIPAL PORTFOLIOS LISTED
ABOVE ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
<PAGE>
The Money Market Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Money Market Portfolios of COMPASS CAPITAL FUNDS consist of
eight short-term investment alternatives. Two of these Portfo-
lios invest solely in taxable instruments, and six of these
Portfolios invest in tax-exempt instruments. A detailed descrip-
tion of each Portfolio begins on page 18.
COMPASS LIPPER PEER GROUP
CAPITAL
PORTFOLIO
Money Market Money Market Instrument Funds
U.S. Treasury U.S. Treasury Money Market Funds
Money Market
Municipal Tax-Exempt Money Market Funds
Money Market
NJ Municipal NJ Tax-Exempt Money Market Funds
Money Market
NC Municipal Other States Tax-Exempt Money Market Funds
Money Market
OH Municipal Ohio Tax-Exempt Money Market Funds
Money Market
PA Municipal PA Tax-Exempt Money Market Funds
Money Market
VA Municipal Other States Tax-Exempt Money Market Funds
Money Market
PNC Asset Management Group, Inc. ("PAMG") serves as the Fund's
investment adviser. PNC Institutional Management Corporation
("PIMC") serves as the sub-adviser to the Portfolios as de-
scribed in this Prospectus.
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
MONEY different directions in money market investing. You may wish to
MARKET use the table of contents on page 5 of to find descriptions of
PORTFOLIOS the Portfolios, including the investment objectives, portfolio
management styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective, or that any Portfolio will be able
MONEY MARKET to maintain a stable net asset value of $1.00 per share. Cer-
INVESTING tain Portfolios may invest in U.S. dollar-denominated instru-
ments of foreign issuers or municipal securities backed by the
credit of foreign banks, which may be subject to risks in ad-
dition to those inherent in U.S. investments. Each state-spe-
cific municipal Portfolio will concentrate in the securities
of issuers located in a particular state, and is non-diversi-
fied, which means that its performance may be dependent upon
the performance of a smaller number of securities than the
other Portfolios, which are considered diversified. See "What
Additional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased" and "How Are Shares
CAPITAL FUNDS Redeemed?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 10
What Are The Portfolios?..................................... 18
What Additional Investment Policies And Risks Apply?......... 22
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 28
Who Manages The Fund?........................................ 30
How Are Shares Purchased?.................................... 34
How Are Shares Redeemed?..................................... 36
What Are The Shareholder Features Of The Fund?............... 38
How Is Net Asset Value Calculated?........................... 41
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 42
How Are Fund Distributions Taxed?............................ 43
How Is The Fund Organized?................................... 48
How Is Performance Calculated?............................... 49
How Can I Get More Information?.............................. 50
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- -------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Investor Shares of the Portfolios after fee waivers for the current fiscal
year ending September 30, 1996 as a percentage of average daily net assets. An
example based on the summary is also shown.
<TABLE>
<CAPTION>
MONEY U.S. TREASURY MUNICIPAL
MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory fees
(after fee
waivers)(/1/) .06% .06% .06% .06% .06% .06% .06% .06% .06%
12b-1 fees(/2/) .10 .75 .75% .10 .75 .75 .10 .75 .75
Other operating
expenses (after
fee
waivers)(/1/) .70 .55 .55 .70 .55 .55 .70 .55 .55
--- --- --- --- --- --- --- --- ---
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .00 .00 .15 .00 .00 .15 .00 .00
Other expenses .30 .30 .30 .30 .30 .30 .30 .30 .30
----- ---- ---- ----- ---- ---- ----- ---- ----
Total Portfolio
operating
expense (after
fee
waivers)(/1/) .86% 1.36% 1.36% .86% 1.36% 1.36% .86% 1.36% 1.36%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
(1) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .45% for each class of each
Portfolio (.44% for the Investor A Shares of the Money Market Portfolio)
and administration fees would be .17% for each class of the Money Market
Portfolio and .18% for each class of the U.S. Treasury Money Market and
Municipal Money Market Portfolios. PAMG and the Portfolios' administrators
are under no obligation to waive or continue waiving their fees, but have
informed the Fund that they expect to waive fees as necessary to maintain
the Portfolios' total operating expenses during the remainder of the cur-
rent fiscal year at the levels set forth in the table. The information in
the table is based on the advisory fees, administration fees and other ex-
penses payable after fee waivers for the fiscal year ended September 30,
1995, as restated to reflect current expenses and fee waivers. Without
waivers, "Other operating expenses" would be: (i) .73%, .75% and .76%, re-
spectively, for Investor A Shares; (ii) .58% .60% and .61%, respectively,
for Investor B Shares; and (iii) .58%, .60% and .61%, respectively, for
Investor C Shares; and "Total Portfolio Operating Expenses" would be:
(iv) 1.27%, 1.29% and 1.30%, respectively, for Investor A Shares; (v)
1.77%, 1.79% and 1.80%, respectively, for Investor B Shares; and (vi)
1.77%, 1.79% and 1.80%, respectively, for Investor C Shares.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National As-
sociation of Securities Dealers, Inc. ("NASD").
6
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY NORTH CAROLINA OHIO
MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory Fees
(after fee
waivers)(/1/) .05% .05% .05% .06% .06% .06% .06% .06% .06%
12b-1 fees(/2/) .10 .75 .75 .10 .75 .75 .10 .75 .75
Other operating
expenses (after
fee
waivers)(/1/) .71 .56 .56 .70 .55 .55 .70 .55 .55
----- ----- ----- ----- ----- ----- ----- ----- -----
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .00 .00 .15 .00 .00 .15 .00 .00
Other expenses .31 .31 .31 .30 .30 .30 .30 .30 .30
----- ---- ---- ----- ---- ---- ----- ---- ----
Total Portfolio
operating
expenses (after
fee
waivers)(/1/) .86% 1.36% 1.36% .86% 1.36% 1.36% .86% 1.36% 1.36%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
(1) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .45% and administration fees
would be .18% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive or continue waiving their
fees, but have informed the Fund that they expect to waive fees as neces-
sary to maintain the Portfolios' total operating expenses during the re-
mainder of the current fiscal year at the levels set forth in the table.
The information in the table is based on the advisory fees, administration
fees and other expenses payable after fee waivers for the fiscal year ended
September 30, 1995, as restated to reflect current expenses and fee waiv-
ers. Without waivers, "Other operating expenses" would be: (i) .86%, .82%
and .77%, respectively, for Investor A Shares; (ii) .71%, .67% and .62%,
respectively, for Investor B Shares; and (iii) .71%, .67% and .62%, respec-
tively, for Investor C Shares; and "Total Portfolio operating expenses"
would be: (iv) 1.41%, 1.37%, and 1.32%, respectively, for Investor A
Shares; (v) 1.91%, 1.87%, and 1.82%, respectively, for Investor B Shares;
and (vi) 1.91%, 1.87% and 1.82%, respectively, for Investor C Shares.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the NASD.
7
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA VIRGINIA
MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)(/1/) .06% .06% .06% .05% .05% .05%
12b-1 fees(/2/) .10 .75 .75 .10 .75 .75
Other operating expenses
(after fee
waivers)(/1/) .70 .55 .55 .71 .56 .56
----- ------ ------ ----- ------ ------
Shareholder servicing
fee .25 .25 .25 .25 .25 .25
Shareholder processing
fee .15 .00 .00 .15 .00 .00
Other expenses .30 .30 .30 .31 .31 .31
---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/1/) .86% 1.36% 1.36% .86% 1.36% 1.36%
===== ====== ====== ===== ====== ======
</TABLE>
(1) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .45% and administration fees
would be .18% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive or continue waiving their
fees, but have informed the Fund that they expect to waive fees as neces-
sary to maintain the Portfolios' total operating expenses during the re-
mainder of the current fiscal year at the levels set forth in the table.
The information in the table is based on the advisory fees, administration
fees and other expenses payable after fee waivers for the fiscal year ended
September 30, 1995, as restated to reflect current expenses and fee waiv-
ers. Without waivers, "Other operating expenses" would be: (i) .75% and
.86%, respectively, for Investor A Shares; (ii) .60% and .71%, respective-
ly, for Investor B Shares; and (iii) .60% and .71%, respectively, for In-
vestor C Shares; and "Total Portfolio operating expenses" would be: (iv)
1.30% and 1.41%, respectively, for Investor A Shares; (v) 1.80% and 1.91%,
respectively, for Investor B Shares; and (vi) 1.80% and 1.91%, respective-
ly, for Investor C Shares.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the NASD.
8
<PAGE>
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Money Market
A Shares $ 9 $27 $48 $106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
U.S. Treasury Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Municipal Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
New Jersey Municipal Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
North Carolina Municipal Money
Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Ohio Municipal Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Pennsylvania Municipal Money
Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Virginia Municipal Money
Portfolio
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor C
Shares of a Portfolio received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Fund.
See "What Are The Shareholder Features Of The Fund?--Exchange Privilege."
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for In-
vestor B Shares of an equity portfolio of the Fund).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for In-
vestor B Shares of a fixed income portfolio of the Fund).
The foregoing Tables and Example are intended to assist investors in under-
standing the expenses the Portfolios pay. Investors bear these expenses either
directly or indirectly. They do not reflect any charges that may be imposed by
brokers or other institutions directly on their customer accounts in connection
with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
9
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and, except for the period
March 31, 1995 through August 31, 1995 with respect to the New
Jersey Municipal Money Market Portfolio, has been audited by
the Portfolios' independent accountants. This financial infor-
mation should be read together with those financial state-
ments. For the periods shown, the New Jersey Municipal Money
Market Portfolio offered only one class of shares to both in-
stitutional and retail investors. For the period shown there
were no outstanding Investor Shares of the Virginia Municipal
Money Market Portfolio. Further information about the perfor-
mance of the Portfolios is available in the annual shareholder
reports. Both the Statement of Additional Information and the
annual shareholder reports may be obtained from the Fund free
of charge by calling (800) 441-7762.
10
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE AND INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH
PERIOD)
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 1/13/93/1/ 9/15/95/1/
ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/95
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment
operations
Net investment income 0.0511 0.0308 0.0188 0.0020
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment
operations 0.0511 0.0308 0.0188 0.0020
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0511) (0.0308) (0.0188) (0.0020)
Distributions from net
realized capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0511) (0.0308) (0.0188) (0.0020)
-------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 5.23% 3.12% 1.89% 0.20%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $ 10,185 $ 4,342 $ 49 $ 27
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.81% 0.75% 0.67%/2/ 1.34%/2/
Before advisory/administration
fee waivers 1.19% 1.16% 0.78%/2/ 1.72%/2/
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 5.15% 3.39% 2.62%/2/ 4.58%/2/
Before advisory/administration
fee waivers 4.78% 2.98% 2.51%/2/ 4.20%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
11
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR 11/2/92/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0311 0.0193 0.0181
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0311 0.0193 0.0181
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0311) (0.0193) (0.0181)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0311) (0.0193) (0.0181)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 3.15% 1.95% 1.83%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 20 $ 41 $ 15
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.79% 0.75% 0.72%/2/
Before advisory/administration fee waivers 1.23% 1.23% 0.83%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.08% 2.05% 2.23%/2/
Before advisory/administration fee waivers 2.64% 1.58% 2.12%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
U.S. TREASURY MONEY MARKET PORTFOLIO
(FORMERLY, THE GOVERNMENT MONEY MARKET PORTFOLIO)
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR 1/14/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0501 0.0309 0.0183
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0501 0.0309 0.0183
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0501) (0.0309) (0.0183)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0501) (0.0309) (0.0183)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 5.13% 3.11% 1.85%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 1,285 $ 1,656 $ 50
Ratios of expenses to average net assets
After advisory/administration fee
waivers 0.80% 0.75% 0.65%/2/
Before advisory/administration fee
waivers 1.21% 1.20% 0.78%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 5.03% 3.60% 2.57%/2/
Before advisory/administration fee
waivers 4.62% 3.14% 2.44%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR 10/5/93/1/
ENDED THROUGH
9/30/95 9/30/94
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00
-------- --------
Income from investment operations
Net investment income 0.0310 0.0199
Net realized gain (loss) on investments - - - -
-------- --------
Total from investment operations 0.0310 0.0199
-------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0310) (0.0199)
Distributions from net realized capital gains - - - -
-------- --------
Total distributions (0.0310) (0.0199)
-------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00
======== ========
Total return 3.15% 2.01%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 75 $ 28
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.80% 0.62%/2/
Before advisory/administration fee waivers 1.26% 1.26%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 3.02% 1.94%/2/
Before advisory/administration fee waivers 2.56% 1.30%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR 12/28/93/1/
ENDED THROUGH
9/30/95 9/30/94
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00
-------- --------
Income from investment operations
Net investment income 0.0302 0.0153
Net realized gain (loss) on investments - - - -
-------- --------
Total from investment operations 0.0302 0.0153
-------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0302) (0.0153)
Distributions from net realized capital gains - - - -
-------- --------
Total distributions (0.0302) (0.0153)
-------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00
======== ========
Total return 3.06% 1.58%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 750 $ 139
Ratios of expenses to average net assets
After advisory/administration fee waivers .82% 0.65%/2/
Before advisory/administration fee waivers 1.24% 1.22%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.03% 2.11%/2/
Before advisory/administration fee waivers 2.61% 1.54%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
15
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
2/14/95/1/
THROUGH
9/30/95
<S> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00
-------
Income from investment operations
Net investment income 0.0194
Net realized gain (loss) on investments - -
-------
Total from investment operations 0.0194
-------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0194)
Distributions from net realized capital gains - -
-------
Total distributions (0.0194)
-------
NET ASSET VALUE AT END OF PERIOD $ 1.00
=======
Total return 1.95%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 53
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.83%/2/
Before advisory/administration fee waivers 1.36%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 3.05%/2/
Before advisory/administration fee waivers 2.52%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
16
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO+
<TABLE>
<CAPTION>
PERIOD FOR THE PERIOD
ENDED FISCAL YEAR FISCAL YEAR FISCAL YEAR JULY 1, 1991/1/
AUGUST 31, 1995 ENDED ENDED ENDED TO
(UNAUDITED) FEBRUARY 28, 1995 FEBRUARY 28, 1994 FEBRUARY 28, 1993 FEBRUARY 28, 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.02 0.02 0.02 0.02 0.02
Net realized gain (loss)
on investments - - - - - - - - - -
------- ------- ------- ------- -------
Total from investment
operations 0.02 0.02 0.02 0.02 0.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.02) (0.02) (0.02) (0.02) (0.02)
Distributions from net
realized capital gains - - - - - - - - - -
------- ------- ------- ------- -------
Total distributions (0.02) (0.02) (0.02) (0.02) (0.02)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return 3.36% 2.46% 1.79% 2.19% 3.53%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $49,628 $43,610 $39,408 $38,836 $35,005
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.68%/2/ 0.63% 0.65% 0.73% 0.47%/2/
Before
advisory/administration
fee waivers 0.68%/2/ 0.70% 0.72% 0.76% 0.62%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.30%/2/ 2.46% 1.77% 2.17% 3.44%/2/
Before
advisory/administration
fee waivers 3.30%/2/ 2.39% 1.70% 2.14% 3.29%/2/
</TABLE>
+The Portfolio commenced operations on July 1, 1991 as the New Jersey Municipal
Money Market Fund, a separate investment portfolio (the "Predecessor New Jersey
Municipal Money Market Portfolio") of Compass Capital Group, which was orga-
nized as a Massachusetts business trust. On January 12, 1996, the assets and
liabilities of the Predecessor New Jersey Municipal Money Market Portfolio were
transferred to this Portfolio, which had no prior operating history.
/1/Commencement of operations.
/2/Annualized.
17
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
MONEY MARKET The investment objective of the Money Market Portfolio is to
PORTFOLIO provide as high a level of current interest income as is con-
sistent with maintaining liquidity and stability of principal.
The Portfolio may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as govern-
ment, bank, commercial and other obligations, that are avail-
able in the money markets. In particular, the Portfolio may
invest in:
(A) U.S. dollar-denominated obligations issued or supported by
the credit of U.S. or foreign banks or savings institu-
tions with total assets in excess of $1 billion (including
obligations of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued
or guaranteed by U.S. and foreign corporations and other
issuers rated (at the time of purchase) A-2 or higher by
Standard & Poor's Ratings Group ("S&P"), Prime-2 or higher
by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Co. ("D&P"), F-2 or higher
by Fitch Investors Service, Inc. ("Fitch") or TBW-2 or
higher by Thomson BankWatch, Inc. ("TBW"), as well as high
quality corporate bonds rated (at the time of purchase) AA
or higher by S&P, D&P, Fitch or TBW or Aa or higher by
Moody's;
(C) unrated notes, paper and other instruments that are of
comparable quality as determined by the Portfolio's sub-
adviser under guidelines established by the Fund's Board
of Trustees;
(D) asset-backed securities (including interests in pools of
assets such as mortgages, installment purchase obligations
and credit card receivables);
(E) securities issued or guaranteed as to principal and inter-
est by the U.S. Government or by its agencies or instru-
mentalities and related custodial receipts;
(F) dollar-denominated securities issued or guaranteed by for-
eign governments or their political subdivisions, agencies
or instrumentalities;
(G) guaranteed investment contracts issued by highly-rated
U.S. insurance companies;
(H) securities issued or guaranteed by state or local govern-
mental bodies; and
(I) repurchase agreements relating to the above instruments.
18
<PAGE>
U.S. The investment objective of the U.S. Treasury Money Market Port-
TREASURY folio is to provide as high a level of current interest income
MONEY as is consistent with maintaining liquidity and stability of
MARKET principal. It pursues this objective by investing exclusively in
PORTFOLIO short-term bills, notes and other obligations issued or guaran-
teed by the U.S. Treasury and repurchase agreements relating to
such obligations.
MUNICIPAL The investment objective of the Municipal Money Market Portfolio
PORTFOLIOS is to provide as high a level of current interest income exempt
from Federal income taxes as is consistent with maintaining li-
quidity and stability of principal. It pursues this objective by
investing substantially all of its assets in short-term obliga-
tions issued by or on behalf of states, territories and posses-
sions of the United States, the District of Columbia, and their
political subdivisions, agencies, instrumentalities and authori-
ties ("Municipal Obligations").
The investment objective of the New Jersey Municipal Money Mar-
ket Portfolio, North Carolina Municipal Money Market Portfolio,
Ohio Municipal Money Market Portfolio, Pennsylvania Municipal
Money Market Portfolio and Virginia Municipal Money Market Port-
folio (the "State-Specific Municipal Portfolios") is, for each
Portfolio, to seek as high a level of current income exempt from
Federal, and to the extent possible, state income tax of the
specific state in which a Portfolio concentrates, as is consis-
tent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio and the State-Specific Mu-
nicipal Portfolios (together, the "Municipal Portfolios") seek
to achieve their investment objectives by primarily investing
in:
(A) fixed and variable rate notes and similar debt instruments
rated MIG-2, VMIG-2 or Prime-2 or higher by Moody's, SP-2 or
A-2 or higher by S&P, AA or higher by D&P or F-2 or higher
by Fitch;
(B) tax-exempt commercial paper and similar debt instruments
rated Prime-2 or higher by Moody's, A-2 or higher by S&P,
Duff 2 or higher by D&P or F-2 or higher by Fitch;
(C) municipal bonds rated Aa or higher by Moody's or AA or
higher by S&P, D&P or Fitch;
(D) unrated notes, paper or other instruments that are of compa-
rable quality as determined by the Portfolios' sub-adviser
under guidelines established by the Fund's Board of Trust-
ees; and
(E) municipal bonds and notes which are guaranteed as to princi-
pal and interest by the U.S. Government or an agency or in-
strumentality thereof or which otherwise depend directly or
indirectly on the credit of the United States.
19
<PAGE>
During normal market conditions, at least 80% of each Munici-
pal Portfolio's net assets will be invested in securities
which are Municipal Obligations. In addition, under normal
conditions each State-Specific Municipal Portfolio intends to
invest at least 65% of its net assets in Municipal Obligations
of issuers located in the particular state indicated by its
name ("State-Specific Obligations"). The Municipal Money Mar-
ket Portfolio intends, on the other hand, to invest less than
25% of its total assets in Municipal Obligations of issuers
located in the same state. During temporary defensive periods,
each Municipal Portfolio may invest without limitation in ob-
ligations that are not Municipal Obligations and may hold
without limitation uninvested cash reserves.
Each State-Specific Portfolio may invest without limitation in
private activity bonds the interest on which is an item of tax
preference for purposes of the Federal alternative minimum tax
("AMT Paper"). The Municipal Money Market Portfolio may invest
up to 20% of its total assets in AMT Paper when added together
with any taxable investments held by the Portfolio. Interest
on AMT Paper that is received by taxpayers subject to the Fed-
eral alternative minimum tax is taxable.
Each Municipal Portfolio may invest 25% or more of its net as-
sets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. To the extent a
Portfolio's assets are invested in Municipal Obligations pay-
able from the revenues of similar projects or are invested in
private activity bonds, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions
relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested.
QUALITY, All securities acquired by the Portfolios will be determined
MATURITY AND at the time of purchase by the Portfolios' sub-adviser, under
DIVERSIFICATION guidelines established by the Fund's Board of Trustees, to
present minimal credit risks and will be "Eligible Securities"
as defined by the SEC. Eligible Securities are (a) securities
that either (i) have short-term debt ratings at the time of
purchase in the two highest rating categories by at least two
unaffiliated nationally recognized statistical rating organi-
zations ("NRSROs") (or one NRSRO if the security is rated by
only one NRSRO), or (ii) are comparable in priority and secu-
rity with an instrument issued by an issuer which has such
ratings, and (b) securities that are unrated (including secu-
rities of issuers that have long-term but not short-term rat-
ings) but are of comparable quality as determined in accor-
dance with guidelines approved by the Board of Trustees.
20
<PAGE>
Each Portfolio is managed so that the average maturity of all
instruments held by it (on a dollar-weighted basis) will not ex-
ceed 90 days. In no event will a Portfolio purchase securities
which mature more than 397 days from the date of purchase (ex-
cept for certain variable and floating rate instruments and se-
curities collateralizing repurchase agreements). Securities in
which the Portfolios invest may not earn as high a level of in-
come as longer term or lower quality securities, which generally
have greater market risk and more fluctuation in market value.
The Money Market, U.S. Treasury Money Market and Municipal Money
Market Portfolios are classified as diversified portfolios, and
the State-Specific Municipal Portfolios are classified as non-
diversified portfolios, under the Investment Company Act of 1940
(the "1940 Act"). Investment returns on a non-diversified port-
folio typically are dependent upon the performance of a smaller
number of securities relative to the number held in a diversi-
fied portfolio. Consequently, the change in value of any one se-
curity may affect the overall value of a non-diversified portfo-
lio more than it would a diversified portfolio.
21
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Portfolios may invest in debt obligations of domes-
tic or foreign corporations and banks, and may acquire commercial obligations
issued by Canadian corporations and Canadian counterparts of U.S. corporations,
as well as Europaper, which is U.S. dollar-denominated commercial paper of a
foreign issuer. Bank obligations may include certificates of deposit, notes,
bankers' acceptances and fixed time deposits. These obligations may be general
obligations of the parent bank or may be limited to the issuing branch or sub-
sidiary by the terms of the specific obligation or by government regulation.
The Money Market Portfolio may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its total as-
sets. For purposes of determining the permissibility of an investment in bank
obligations, the total assets of a bank are determined on the basis of the
bank's most recent annual financial statements.
Commercial paper issues include securities issued by corporations without reg-
istration under the Securities Act of 1933 (the "1933 Act") in reliance on the
exemption in Section 3(a)(3), and commercial paper issued in reliance on the
so-called "private placement" exemption in Section 4(2) ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws in that any resale must similarly be made in an exempt transaction. Sec-
tion 4(2) paper is normally resold to other institutional investors through or
with the assistance of investment dealers which make a market in Section 4(2)
paper, thus providing liquidity.
U.S. GOVERNMENT OBLIGATIONS. To the extent consistent with their respective in-
vestment objectives, the Portfolios may also purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities. Obli-
gations of certain agencies and instrumentalities of the U.S. Government are
backed by the full faith and credit of the United States. Others are backed by
the right of the issuer to borrow from the U.S. Treasury or are backed only by
the credit of the agency or instrumentality issuing the obligation.
MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved. Municipal Obligations may also in-
clude "moral obligation" bonds, which are normally issued by special purpose
public authorities. If the issuer of moral obligation bonds is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
22
<PAGE>
Also included within the general category of Municipal Obligations are partici-
pation certificates in a lease, an installment purchase contract, or a condi-
tional sales contract ("lease obligations") entered into by a state or politi-
cal subdivision to finance the acquisition or construction of equipment, land
or facilities. Although lease obligations are not general obligations of the
issuer for which the state or other governmental body's unlimited taxing power
is pledged, certain lease obligations are backed by a covenant to appropriate
money to make the lease obligation payments. However, under certain lease obli-
gations, the state or governmental body has no obligation to make these pay-
ments in future years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property, dis-
position of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
as marketable as more conventional securities.
Each Municipal Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase at the Portfolio's option specific Municipal Obligations at a speci-
fied price. The acquisition of a stand-by commitment may increase the cost, and
thereby reduce the yield, of the Municipal Obligation to which such commitment
relates. Each Municipal Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may not be as extensive as that which is made available by
public corporations, and the secondary market for Municipal Obligations may be
less liquid than that for taxable obligations. Accordingly, the ability of a
Municipal Portfolio to buy and sell tax-exempt securities may, at any particu-
lar time and with respect to any particular securities, be limited.
The Municipal Portfolios may invest in tax-exempt derivative securities relat-
ing to Municipal Obligations, including tender option bonds, participations,
beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal or state income tax are rendered by counsel to
the respective issuers or sponsors at the time of issuance. The Fund and its
investment adviser will rely on such opinions and will not review independently
the underlying proceedings relating to the issuance of Municipal Obligations or
the bases for such opinions.
MORTGAGE-RELATED SECURITIES. Although under normal market conditions they do
not expect to do so, each Portfolio may invest in mortgage-related securities
issued by the U.S. Government or its agencies or instrumentalities or issued by
private companies. Mortgage-related securities may include collateralized mort-
gage obligations ("CMOs") issued by the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation or other U.S. Government agencies or
instrumentalities or issued by private companies. The average life of mortgage-
related securities is likely to be less than the original maturity of the mort-
gage pools underlying the securities as a result of mortgage prepayments. For
this and other reasons, a mortgage-
23
<PAGE>
related security's stated maturity may be shortened and, therefore, it may be
difficult to predict precisely the security's total return to the particular
Portfolio. In addition, in periods of falling interest rates, the rate of mort-
gage prepayments tends to increase. During such periods, the reinvestment of
prepayment proceeds by the particular Portfolio will generally be at lower
rates than the rates on the prepaid obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated and
unrated variable and floating rate instruments, which may have a stated matu-
rity in excess of 13 months but will, in any event, permit a Portfolio to de-
mand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). These instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the in-
terest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the particular Portfolio.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase securities from
broker-dealers and financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, so long as the repurchase agreement itself matures in less
than 13 months. Default by or bankruptcy of the seller would, however, expose
the Portfolio to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Under these contracts, the Portfolio makes cash con-
tributions to a deposit fund of the insurance company's general account. The
insurance company then credits interest to the Portfolio on a monthly basis,
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The Money Market Portfo-
lio does not expect to invest more than 5% of its net assets in GICs at any
time during the current fiscal year.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security it owns or intends to pur-
chase, regardless of future changes in interest rates. When-issued and forward
commitment transactions involve the risk, however, that the price or yield ob-
tained in a transaction may be less favorable than the price or yield available
in the market when the delivery takes place.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a
24
<PAGE>
current basis equal in value to at least the market value of the loaned securi-
ties. A Portfolio may not make such loans in excess of 33 1/3% of the value of
its total assets. Securities loans involve risks of delay in receiving addi-
tional collateral or in recovering the loaned securities, or possibly loss of
rights in the collateral if the borrower of the securities becomes insolvent.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse repurchase
agreements for temporary purposes (such as to obtain cash to meet redemption
requests when the liquidation of portfolio securities is deemed disadvantageous
or inconvenient). A reverse repurchase agreement involves a sale by a Portfolio
of securities that it holds concurrently with an agreement by the Portfolio to
repurchase the same securities at an agreed-upon price and date. Reverse repur-
chase agreements involve the risk that the market value of the securities sold
by a Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, each Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation. Securities of other investment companies will be
acquired by a Portfolio within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's ex-
penses, including advisory fees. These expenses would be in addition to the ad-
visory fees and other expenses the Portfolio bears directly in connection with
its own operations.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods or if, in the opinion of
the Portfolios' sub-adviser, suitable obligations are unavailable. During nor-
mal market periods, no more than 20% of a Portfolio's assets will be held
uninvested. Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of the
value of its net assets in securities that are illiquid. Variable and floating
rate instruments that cannot be disposed of within seven days, GICs, and repur-
chase agreements and time deposits that do not provide for payment within seven
days after notice, without taking a reduced price, are subject to this 10% lim-
it. Each Portfolio may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accor-
dance with Rule 144A under the 1933 Act. These securities will not be consid-
ered illi-quid so long as the sub-adviser determines, acting under guidelines
approved and monitored by the Board, that an adequate trading market exists for
that security. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified institu-
tional buyers become uninterested in purchasing these restricted securities.
STATE-SPECIFIC MUNICIPAL PORTFOLIOS-ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Municipal Portfolios in State-Spe-
cific Obligations raises special investment considerations. Changes in the eco-
nomic condition and governmental policies of a state and its political subdivi-
sions could adversely affect the value of a Portfolio's shares.
25
<PAGE>
Certain matters relating to the states in which the State-Specific Municipal
Portfolios invest are described below. For further information, see "Special
Considerations Regarding State-Specific Obligations" in the Statement of Addi-
tional Information.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cycli-
cal than in some other states and in the nation as a whole. Agriculture is an
important segment of the Ohio economy with over half the State's area devoted
to farming and approximately 15% of total employment in agribusiness. In prior
years, the State's overall unemployment rate was commonly somewhat higher than
the national figure. For example, the reported 1990 average monthly State rate
was 5.7%, compared to the 5.5% national figure. However, for the last four
years the State rates were below the national rates (5.5% versus 6.1% in
1994). The unemployment rate and its effects vary among particular geographic
areas of the State. There can be no assurance that future national, regional
or state-wide economic difficulties and the resulting impact on State or local
government finances generally will not adversely affect the market value of
Ohio Municipal Obligations held in the Portfolio or the ability of particular
obligors to make timely payments of debt service on (or lease payments relat-
ing to) those obligations.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and
1991, tax increases and spending decreases resulted in surpluses the following
three years; as of June 30, 1994, the General Fund has a surplus of $892.9
million. The deficit in the Commonwealth's unreserved/undesignated funds also
has been eliminated, and there was a surplus of $79.2 million as of June 30,
1994. Rising unemployment, a relatively high proportion of persons 65 and
older in the Commonwealth and court ordered increases in healthcare reimburse-
ment rates place increased pressures on the tax resources of the Commonwealth
and its municipalities. The Commonwealth has sold a substantial amount of
bonds over the past several years, but the debt burden remains moderate. The
recession has affected Pennsylvania's economic base, with income and job
growth at levels below national averages. Employment growth has shifted to the
trade and service sectors, with losses in more high-paid manufacturing posi-
tions. A new governor took office in January 1995, but the Commonwealth is
likely to continue to show fiscal restraint.
North Carolina. Growth of North Carolina tax revenues slowed considerably dur-
ing fiscal 1990-92 requiring tax increases and budget adjustments, including
hiring freezes and restrictions, spending constraints, changes in the timing
of certain collections and payments, and other short-term budget adjustments,
that were needed to comply with North Carolina's constitutional mandate for a
balanced budget. Fiscal years 1993, 1994 and 1995, however, ended with a posi-
tive General Fund balance each year. By law, 25% of such positive fund balance
was required to be reserved in the General Fund of North Carolina as part of a
"Savings Reserve" (subject to a maximum reserve of 5% of the preceding fiscal
year's operating appropriation). An additional portion of such positive fund
balance was reserved in the General Fund as
26
<PAGE>
part of a "Reserve for Repair and Renovation of State Facilities," leaving the
remaining unrestricted fund balance at the end of each such year available for
future appropriations.
Virginia. Because of Northern Virginia, with its proximity to Washington, DC
and Hampton Roads, which has the nation's largest concentration of military in-
stallations, the Federal government has a greater impact on Virginia relative
to its size than any states other than Alaska and Hawaii. Virginia's economy
has continued to grow over the last decade, and while per capita income has
grown both faster and slower than the U.S. average from year to year, per cap-
ita income continues to be above the national average. Virginia's unreserved
general fund balances have continued to grow in recent years from a low in
1991. The Virginia Constitution requires a balanced budget and, since 1993, the
funding of a Revenue Stabilization Fund. Current debt levels are well below
limits established by the Constitution.
New Jersey. The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective commer-
cial agriculture, insurance, tourism, petroleum refining and manufacturing, al-
though New Jersey's manufacturing industry has experienced a downward trend in
the last few years. New Jersey is a major recipient of Federal assistance and,
of all the states, is among the highest in the amount of Federal aid received.
Therefore, a decrease in Federal financial assistance may adversely affect the
financial condition of New Jersey and its political subdivisions and instrumen-
talities. While New Jersey's economic base has become more diversified over
time and thus its economy appears to be less vulnerable during recessionary pe-
riods, a recurrence of high levels of unemployment could adversely affect New
Jersey's overall economy and the ability of New Jersey and its political subdi-
visions and instrumentalities to meet their financial obligations. In addition,
New Jersey maintains a balanced budget which restricts total appropriation in-
creases to only 5% annually with respect to any municipality or county, the
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
27
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days' notice before any such change. No assurance can be pro-
vided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry, except that the
Money Market Portfolio will invest at least 25% of its total assets in ob-
ligations of issuers in the banking industry or instruments secured by such
obligations except during temporary defensive periods;
(3) borrow money except for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not
make any additional investments; and
(4) in the case of the Municipal Money Market Portfolio, invest less than 80%
of its net assets in instruments the interest on which is exempt from regu-
lar Federal income tax, except during defensive periods or during periods
of unusual market conditions; and
(5) in the case of each State-Specific Municipal Portfolio, invest less than
80% of its net assets in instruments the interest on which is exempt from
regular Federal income tax or in instruments which are subject to AMT, ex-
cept during defensive periods or during periods of unusual market condi-
tions.
Restriction 1 does not apply to the State-Specific Municipal Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Munici-
pal Portfolio will not hold any securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter, more than 5% of its total assets to be invested in securities of any
one issuer, except that up to 50% of a Portfolio's total assets may be invested
without regard to this limitation so long as no more than 25% of the Portfo-
lio's total assets are invested in any one issuer (except U.S. Government secu-
rities and related repurchase agreements).
In accordance with current SEC regulations, the Money Market Portfolio intends,
as a non-fundamental policy, to limit its investments in the securities of any
single issuer (other than U.S.
28
<PAGE>
Government securities and related repurchase agreements) to not more than 5% of
the value of its total assets at the time of purchase, except that 25% of the
value of its total assets may be invested in any one issuer for a period of up
to three business days. The Money Market Portfolio will also limit its invest-
ments in Eligible Securities that are not in the highest rating category as de-
termined by two NRSROs (or one NRSRO if the security is rated by only one
NRSRO) or, if unrated, are not of comparable quality, to 5% of its total as-
sets, with investments in any one such issuer being limited to no more than 1%
of its total assets or $1 million, whichever is greater, measured at the time
of purchase.
The investment limitations stated above are applied at the time investment se-
curities are purchased.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any commitment is no
longer in the best interests of a Portfolio, it will revoke the commitment by
terminating sales of shares of the Portfolio in the state involved.
29
<PAGE>
Who Manages The Fund?
- -------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the
TRUSTEES direction of the Fund's Board of Trustees. The following in-
dividuals were elected by shareholders on January 4, 1996 to
serve as trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief
Financial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Of-
ficer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School,
University of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
INVESTMENT The Adviser to Compass Capital Funds is PNC Asset Management
ADVISER AND Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform
SUB-ADVISER advisory services for investment companies, and has its prin-
cipal offices at 1835 Market Street, Philadelphia, Pennsylva-
nia 19103. PAMG is an indirect wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company. PNC Institutional
Management Corporation ("PIMC"), a wholly-owned subsidiary of
PAMG, serves as each Portfolio's sub-adviser. PIMC's princi-
pal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809.
As adviser, PAMG is responsible for the overall investment
management of the Portfolios. As sub-adviser, PIMC is respon-
sible for the day-to-day management of the Portfolios, and
generally makes all purchase and sale investment decisions
for the Portfolios. PIMC also provides research and credit
analysis. Portfolio transactions for a Portfolio may be di-
rected through broker/dealers who sell Fund shares, subject
to the requirements of best execution.
For their investment advisory and sub-advisory services, PAMG
and PIMC are entitled to fees, computed daily on a Portfolio-
by-Portfolio basis and payable monthly, at the annual rates
set forth below. All sub-advisory fees payable to PIMC are
paid by PAMG, and do not represent an extra charge to the
Portfolios.
30
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL
FEE RATE FOR EACH PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
SUB-
AVERAGE DAILY NET INVESTMENT ADVISORY
ASSETS ADVISORY FEE FEE
----------------- ------------ --------
<S> <C> <C>
first $1 billion .450% .400%
$1 billion--$2 billion .400 .350
$2 billion--$3 billion .375 .325
greater than $3 billion .350 .300
</TABLE>
For more information about the advisory fees the Portfolios ex-
pect to pay for the current fiscal year, see "What Are the Ex-
penses of the Portfolios?" For the fiscal year ended September
30, 1995, the Portfolios (other than the New Jersey Municipal
Money Market Portfolio) paid investment advisory fees at the
following annual rates (expressed as a percentage of average
daily net assets) after voluntary fee waivers: Money Market
Portfolio, .08%; U.S. Treasury Money Market Portfolio, .08%; Mu-
nicipal Money Market Portfolio, .08%; Ohio Municipal Money Mar-
ket Portfolio, .07%; Pennsylvania Municipal Money Market Portfo-
lio, .09%; North Carolina Municipal Money Market Portfolio,
.05%; and Virginia Municipal Money Market Portfolio, 0%. For the
fiscal year ended February 28, 1995, the Predecessor New Jersey
Municipal Money Market Portfolio paid investment advisory fees,
after voluntary fee waivers, to Midlantic Bank, N.A., its former
adviser, pursuant to the advisory agreement then in effect, at
the annual rate of .40% of its average daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC"), and
Compass Distributors, Inc. ("CDI") (the "Administrators") serve
as the Fund's co-administrators. CCG and PFPC are indirect whol-
ly-owned subsidiaries of PNC Bank Corp. CDI is a wholly-owned
subsidiary of Provident Distributors, Inc. ("PDI"). A majority
of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant
Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500
million of each Portfolio's average daily net assets, .13% of
the next $500 million of each Portfolio's average daily net as-
sets, .11% of
31
<PAGE>
the next $1 billion of each Portfolio's average daily net as-
sets and .10% of each Portfolio's average daily net assets in
excess of $2 billion. From time to time the Administrators
may waive some or all of their administration fees from a
Portfolio.
For information about the operating expenses the Portfolios
expect to pay for the current fiscal year, see "What Are The
Expenses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves
AGENT, as their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
DISTRIBUTION Under the Fund's Distribution and Service Plan (the "Plan"),
AND SERVICE Investor Shares of the Portfolios bear the expense of pay-
PLAN ments ("distribution fees") made to CDI, as the Fund's dis-
tributor (the "Distributor"), or affiliates of PNC Bank, Na-
tional Association ("PNC Bank") for distribution and sales
support services. The distribution fees will be used primar-
ily to compensate the Distributor for distribution services
and to compensate the Distributor and PNC Bank affiliates for
sales support services provided in connection with the offer-
ing and sale of Investor Shares. The distribution fees may
also be used to reimburse the Distributor and PNC Bank affil-
iates for related expenses, including payments to brokers,
dealers, financial institutions and industry professionals
("Service Organizations") for sales support services and re-
lated expenses. Distribution fees payable under the Plan will
not exceed .10% (annualized) of the average daily net asset
value of each Portfolio's outstanding Investor A Shares and
.75% (annualized) of the average daily net asset value of
each Portfolio's outstanding Investor B Shares and Investor C
Shares. Payments under the Plan are not tied directly to out-
of-pocket expenses and therefore may be used by the recipi-
ents as they choose (for example, to defray their overhead
expenses).
Under the Plan, the Fund intends to enter into service agree-
ments with Service Organizations (including PNC Bank and its
affiliates) with respect to each class of Investor Shares
pursuant to which Service Organizations will render certain
support services to their customers who are the beneficial
owners of Investor Shares. In consideration for a shareholder
servicing fee of up to .25% (annualized) of the average daily
net asset value of Investor Shares owned by their customers,
Service Organizations may provide one or more of the follow-
ing services: responding to customer inquiries relating to
the services performed by the Service Organization and to
customer inquiries concerning their in-
32
<PAGE>
vestments in Investor Shares; providing information periodically
to customers showing their positions in Investor Shares; and
other similar shareholder liaison services. In consideration for
a separate shareholder processing fee of up to .15% (annualized)
of the average daily net asset value of Investor Shares owned by
their customers, Service Organizations may provide one or more
of these additional services to such customers: processing pur-
chase and redemption requests from customers and placing orders
with the Fund's transfer agent or the Distributor; processing
dividend payments from the Fund on behalf of customers; provid-
ing sub-accounting with respect to Investor Shares beneficially
owned by customers or the information necessary for sub-
accounting; and other similar services.
Service Organizations may charge their clients additional fees
for account services. Customers who are beneficial owners of In-
vestor Shares should read this Prospectus in light of the terms
and fees governing their accounts with Service Organizations.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided by
Service Organizations under their service agreements will not be
prohibited under these laws. However, state securities laws may
differ from the interpretations of Federal law on this issue,
and banks and financial institutions may be required to register
as dealers pursuant to state law.
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, shareholder servicing and process-
ing fees, fees and expenses in registering and qualifying the
Portfolios and their shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and dis-
tributing prospectuses and statements of additional information
to existing shareholders, expenses relating to shareholder re-
ports, shareholder meetings and proxy solicitations, insurance
premiums, the expense of independent pricing services, and other
expenses which are not expressly assumed by PAMG or the Fund's
service providers under their agreements with the Fund. Any gen-
eral expenses of the Fund that do not belong to a particular in-
vestment portfolio will be allocated among all investment port-
folios by or under the direction of the Board of Trustees in a
manner the Board determines to be fair and equitable.
33
<PAGE>
How Are Shares Purchased?
- -------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor Shares through a
broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-advisers, Distributor or transfer agent or em-
ployees of their affiliates is $100.
PURCHASES THROUGH BROKERS. Shares may be purchased through brokers which have
entered into dealer agreements with the Distributor.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described below,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its sharehold-
ers. Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it
to the transfer agent, together with a check in at least the minimum initial
purchase amount payable to Compass Capital Funds. An Account Application Form
may be obtained by calling (800) 441-7762. The name of the Portfolio with re-
spect to which shares are purchased must also appear on the check or Federal
Reserve Draft. Investors may also wire Federal funds in connection with the
purchase of shares. The wire instructions must include the name of the Portfo-
lio and include the name of the account registration, and the shareholder ac-
count number. Before wiring any funds, an investor must call PFPC at (800)
441-7762 in order to confirm the wire instructions.
OTHER PURCHASE INFORMATION. Purchase orders for Investor Shares of the Portfo-
lios that are in proper form are executed at their net asset value per share
next determined after receipt by the Fund; however, orders will not be exe-
cuted until payments not made in Federal funds are converted to Federal funds
(which normally occurs within two Business Days of receipt) unless a credit-
worthy financial institution undertakes to pay for an order in Federal funds
by 4:00 p.m. (Eastern Time) the same Business Day an order is placed.
Under certain circumstances, the Fund may reject large individual purchase or-
ders received after 12:00 noon. The Fund may in its discretion reject any or-
der for shares.
34
<PAGE>
Investor B Shares and Investor C Shares of the Portfolios are available only to
the holders of Investor B Shares or Investor C Shares, respectively, in the
Fund's non-money market portfolios who wish to exchange their shares in such
portfolios for Shares in a Portfolio described in this Prospectus. Investor B
Shares of a Portfolio will automatically convert to Investor A Shares at the
time the Investor B Shares of the non-money market portfolio that were previ-
ously purchased would have converted. The purpose of the conversion is to re-
lieve the holders of Investor B Shares of the higher operating expenses charged
to Investor B Shares. The conversion from Investor B Shares to Investor A
Shares will take place at the net asset value of each class of shares at the
time of the conversion. After such conversion, an investor would hold Investor
A Shares subject to the operating expenses for Investor A Shares discussed be-
low. Upon each conversion of Investor B Shares that were not acquired through
reinvestment of dividends or distributions, a proportionate amount of Investor
B Shares that were acquired through reinvestment of dividends or distributions
will likewise automatically convert to Investor A Shares.
Shares of each Portfolio are sold on a continuous basis by CDI as the Distribu-
tor. CDI maintains its principal offices at 259 Radnor-Chester Road, Suite 120,
Radnor, Pennsylvania 19087. Purchases may be effected on weekdays on which both
the New York Stock Exchange and the Federal Reserve Bank of Philadelphia are
open for business (a "Business Day"). Payment for orders which are not received
or accepted will be returned after prompt inquiry. The issuance of shares is
recorded on the books of the Fund. No certificates will be issued for shares.
Payments for shares of a Portfolio may, in the discretion of the Fund's invest-
ment adviser, be made in the form of securities that are permissible invest-
ments for that Portfolio. Compass Capital reserves the right to reject any pur-
chase order or to waive the minimum initial investment requirement.
35
<PAGE>
How Are Shares Redeemed?
- --------------------------------------------------------------------------------
REDEMPTION. Shareholders may redeem their shares for cash at any time. A writ-
ten redemption request in proper form must be sent directly to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. Except for the
contingent deferred sales charge that may be charged with respect to Investor B
and Investor C Shares, there is no charge for a redemption. Shareholders may
also place redemption requests through a broker or other institution, which may
charge a fee for this service. When redeeming Investor Shares in the Portfo-
lios, shareholders should indicate whether they are redeeming Investor A
Shares, Investor B Shares or Investor C Shares. If a redeeming shareholder owns
both Investor A Shares and Investor B or Investor C Shares in the same Portfo-
lio, the Investor A Shares will be redeemed first unless the shareholder indi-
cates otherwise. Except as noted below, a request for redemption must be signed
by all persons in whose names the shares are registered. Signatures must con-
form exactly to the account registration. If the proceeds of the redemption
would exceed $25,000, or if the proceeds are not to be paid to the record owner
at the record address, or if the shareholder is a corporation, partnership,
trust or fiduciary, signature(s) must be guaranteed by any eligible guarantor
institution. Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding Investor A Share certificates
must send their certificates with the redemption request. Additional documen-
tary evidence of authority is required by PFPC in the event redemption is re-
quested by a corporation, partnership, trust, fiduciary, executor or adminis-
trator.
REDEMPTION BY CHECK. Upon request, the Fund will provide the holders of In-
vestor A Shares with checkwriting privileges. An investor wishing to use this
checkwriting redemption procedure must complete the checkwriting application
and signature card when completing the account application. Investors inter-
ested in obtaining the checkwriting option on existing accounts may contact
PFPC at (800) 441-7762 and application forms will be provided. The checkwriting
option is not available in connection with the redemption of Investor B or In-
vestor C Shares.
Upon receipt of the checkwriting application and signature card by PFPC, checks
will be forwarded to the investor. The minimum amount of a check is $100.
Checks may be made payable to anyone and are negotiated according to bank
clearing procedures. If more than one shareholder owns the account, each share-
holder must sign each check, unless an election has been made to permit
checkwriting by a limited number of signatures and such election is on file
with PFPC. Investor A Shares represented by a check redemption will continue to
earn daily income until the check is presented for payment. PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of Investor
A Shares owned to cover the check. When redeeming Investor A Shares by check,
an investor should make certain that there is an adequate number of Investor A
Shares in the account to cover the amount of the check. If an insufficient num-
ber of Investor A Shares is held or if checks are not properly endorsed, they
may not be honored and a service charge may be incurred. Checks may not be pre-
sented for cash payments at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by
36
<PAGE>
Federal wire transfer to a single previously designated bank account. Once au-
thorization is on file, PFPC will honor requests by any person by telephone at
(800) 441-7762 (in Delaware call collect (302) 791-1194) or other means. The
minimum amount that may be sent by check is $500, while the minimum amount that
may be wired is $10,000. The Fund reserves the right to change these minimums
or to terminate these redemption privileges. If the proceeds of a redemption
would exceed $25,000, the redemption request must be in writing and will be
subject to the signature guarantee requirement described above. This privilege
may not be used to redeem Investor A Shares in certificated form. During peri-
ods of substantial economic or market change, telephone redemptions may be dif-
ficult to complete. Redemption requests may also be mailed to PFPC at P.O. Box
8907, Wilmington, Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single designated bank account to re-
ceive wire redemption proceeds, it is necessary to send a written request (with
a guaranteed signature as described above) to Compass Capital Funds c/o PFPC,
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so. The Fund, the Administrators and the Distributor will em-
ploy reasonable procedures to confirm that instructions communicated by tele-
phone are genuine. The Fund, the Administrators and the Distributor will not be
liable for any loss, liability, cost or expense for acting upon telephone in-
structions reasonably believed to be genuine in accordance with such proce-
dures.
ACCOUNTS WITH LOW BALANCES. The Fund reserves the right to redeem a sharehold-
er's account in any Portfolio at any time the net asset value of the account in
such Portfolio falls below the minimum initial investment requirement amount as
the result of a redemption or an exchange request. A shareholder will be noti-
fied in writing that the value of the shareholder's account in a Portfolio is
less than the required amount and will be allowed 30 days to make additional
investments before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by Compass Capital Funds c/o PFPC, P.O. Box 8907, Wil-
mington, Delaware 19899-8907. While the Fund intends to use its best efforts to
maintain each Portfolio's net asset value per share at $1.00, the proceeds paid
on redemption may be more or less than the amount invested depending on a
share's net asset value at the time of redemption. Proceeds from the redemption
of Investor B and Investor C Shares will be reduced by the amount of any appli-
cable contingent deferred sales charge. Unless another payment option is used
as described above, payment for redeemed shares is normally made by check
mailed within seven days after acceptance by PFPC of the request and any other
necessary documents in proper order. Payment may, however, be postponed or the
right of redemption suspended as provided by the rules of the SEC. If the
shares to be redeemed have been recently purchased by check, the Fund's trans-
fer agent may delay the payment of redemption proceeds, which may be a period
of up to 15 days after the purchase date, pending a determination that the
check has cleared.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
37
<PAGE>
What Are The Shareholder Features Of The Fund?
- --------------------------------------------------------------------------------
Compass Capital Funds offers shareholders many special features which enable an
investor to have greater investment flexibility as well as greater access to
information about the Fund throughout the investment period.
Additional information on each of these features is available from PFPC by
calling (800) 441-7762 (in Delaware call collect (302) 791-1194).
EXCHANGE PRIVILEGE. Investor A Shares, B Shares and C Shares of each Portfolio
may be exchanged for shares of the same class of other portfolios of the Fund
which offer that class of shares, based on their respective net asset values,
subject to any applicable sales charge.
Unless an exemption applies, a front-end sales charge will be charged in con-
nection with exchanges for Investor A Shares of the Fund's non-money market in-
vestment portfolios. Similarly, exchanges of Series A Shares of a Portfolio for
Series B or Series C Shares of a non-money market portfolio of the Fund will
also be subject to a CDSC, unless an exemption applies. Investor B Shares of
the Portfolios are only exchangeable for Investor B Shares of the Fund's other
investment portfolios, and Investor C Shares of the Portfolios are only ex-
changeable for Investor C Shares of the Fund's other investment portfolios. In-
vestor B and Investor C Shares are exchangeable without the payment of any con-
tingent deferred sales charge at the time the exchange is made. In determining
the holding period for calculating the contingent deferred sales charge payable
on redemption of Investor B and Investor C Shares, the holding period of the
Investor B or Investor C Shares originally held will be added to the holding
period of the Investor B or Investor C Shares acquired through exchange. No ex-
change fee is imposed by the Fund.
Investor A Shares of money market portfolios of the Fund that were (1) acquired
through the use of the exchange privilege and (2) can be traced back to a pur-
chase of shares in one or more investment portfolios of the Fund for which a
sales charge was paid, can be exchanged for Investor A Shares of a non-money
market portfolio based on their respective net asset values. Such exchanges of
Investor A Shares may be subject to the difference between the sales charge
previously paid and the higher sales charge (if any) payable with respect to
the shares acquired in the exchange.
A shareholder wishing to make an exchange may do so by sending a written re-
quest to PFPC at the address given above. Shareholders are automatically pro-
vided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege. Share-
holders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange re-
quests. To add this feature to an existing account that previously did not pro-
vide this option, a Telephone Exchange Authorization Form must be filed with
PFPC. This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone at (800) 441-7762 (in Delaware
call collect (302) 791-1194) to request the exchange.
38
<PAGE>
During periods of substantial economic or market change, telephone exchanges
may be difficult to complete and shareholders may have to submit exchange re-
quests to PFPC in writing.
If the exchanging shareholder does not currently own shares of the investment
portfolio whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and broker of
record as the account from which shares are exchanged, unless otherwise speci-
fied in writing by the shareholder with all signatures guaranteed by an eligi-
ble guarantor institution as defined above. In order to participate in the Au-
tomatic Investment Program or establish a Systematic Withdrawal Plan for the
new account, however, an exchanging shareholder must file a specific written
request.
Any share exchange must satisfy the requirements relating to the minimum ini-
tial investment requirement, and must be legally available for sale in the
state of the investor's residence. For Federal income tax purposes, a share ex-
change is a taxable event and, accordingly, a capital gain or loss may be real-
ized. Before making an exchange request, shareholders should consult a tax or
other financial adviser and should consider the investment objective, policies
and restrictions of the investment portfolio into which the shareholder is mak-
ing an exchange, as set forth in the applicable Prospectus. Brokers may charge
a fee for handling exchanges.
The Fund reserves the right to modify or terminate the exchange privilege at
any time. Notice will be given to shareholders of any material modification or
termination except where notice is not required.
The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine in accordance with such procedures. Exchange orders may also be
sent by mail to the shareholder's broker or to PFPC at P.O. Box 8907, Wilming-
ton, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts.
39
<PAGE>
Upon commencement of the SWP, the account must have a current value of $10,000
or more in a Portfolio. Shareholders may elect to receive automatic cash pay-
ments of $100 or more either monthly, every other month, quarterly, three times
a year, semi-annually, or annually. Automatic withdrawals are normally proc-
essed on the 25th day of the applicable month or, if such day is not a Business
Day, on the next Business Day and are paid promptly thereafter. An investor may
utilize the SWP by completing the SWP Application Form which may be obtained
from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC. No contingent deferred sales charge will be as-
sessed on redemptions of Investor B and Investor C Shares made through the SWP
that do not exceed 12% of an account's net asset value on an annualized basis.
For example, monthly, quarterly and semi-annual SWP redemptions of Investor B
and Investor C Shares will not be subject to the CDSC if they do not exceed 1%,
3% and 6%, respectively, of an account's net asset value on the redemption
date. SWP redemptions of Investor B and Investor C Shares in excess of this
limit are still subject to the applicable CDSC.
40
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for each class of Investor Shares of
each Portfolio as of 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) on
each Business Day by dividing the value of all securities and other assets
owned by a Portfolio that are allocated to a particular class of shares, less
the liabilities charged to that class, by the number of shares of the class
that are outstanding.
Each Portfolio seeks to maintain a net asset value of $1.00 per share for pur-
poses of purchases and redemptions, and values its portfolio securities based
on the amortized cost method of valuation described in the Statement of Addi-
tional Information under "Valuation of Shares." A Portfolio may use a pricing
service, bank or broker/dealer to value its securities.
41
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- -------------------------------------------------------------------------------
Shareholders are entitled to dividends and distributions arising from the net
income and capital gains, if any, earned on investments held by the Portfolio
in which they invest. Each Portfolio's net income is declared daily as a divi-
dend. Shareholders whose purchase orders are executed at 12:00 noon (Eastern
Time), 4:00 p.m. (Eastern Time) for the U.S. Treasury Money Market Portfolio,
receive dividends for that day. On the other hand, shareholders whose redemp-
tion orders have been received by 12:00 noon (Eastern Time)do not receive div-
idends for that day, while shareholders of each Portfolio whose redemption or-
ders are received after 12:00 noon (Eastern Time) do receive dividends for
that day.
Dividends are paid monthly by check, or by wire transfer if requested in writ-
ing by the shareholder, within five business days after the end of the month.
Net short-term capital gains, if any, will be distributed at least annually.
The period for which dividends are payable and the time for payment are sub-
ject to change by the Fund's Board of Trustees. The Portfolios do not expect
to realize net long-term capital gains.
Dividends are reinvested in additional full and fractional Investor Shares of
the same class on which the dividends are paid, unless a shareholder elects to
receive dividends in cash. Such election, or any revocation thereof, must be
made in writing to PFPC, and will become effective with respect to dividends
paid after receipt by PFPC.
42
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
a Portfolio qualifies, it generally will be relieved of Federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise exempt,
will pay income or capital gains taxes on distributions (except distributions
that are "exempt interest dividends" or are treated as a return of capital),
whether the distributions are paid in cash or reinvested in additional shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Municipal Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns for
informational purposes and in two circumstances such amounts, while exempt from
regular Federal income tax, are taxable to persons subject to alternative mini-
mum and environmental taxes. First, "exempt interest dividends" derived from
certain private activity bonds generally will constitute an item of tax prefer-
ence for taxpayers in determining alternative minimum tax liability. Second,
all "exempt interest dividends" must be taken into account by corporate taxpay-
ers in determining certain adjustments for alternative minimum and environmen-
tal tax purposes. In addition, investors should be aware of the possibility of
state and local alternative minimum or minimum income tax liability on interest
from private activity bonds. Shareholders who are recipients of Social Security
Act or Railroad Retirement Act benefits should note that "exempt interest divi-
dends" will be taken into account in determining the taxability of their bene-
fit payments.
Each Municipal Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions from net investment income during that year and may differ
significantly from the actual percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of such dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In addi-
43
<PAGE>
tion, shareholders who are non-resident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to differ-
ent Federal income tax treatment. Future legislative or administrative changes
or court decisions may materially affect the tax consequences of investing in
the Portfolios.
OHIO TAXES. Individuals and estates that are subject to Ohio personal income
tax or municipal or school district income taxes in Ohio will not be subject to
such taxes on distributions from the Ohio Municipal Money Market Portfolio to
the extent that such distributions are properly attributable to interest on
Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States)
("U.S. Obligations"), if (a) the Portfolio continues to qualify as a regulated
investment company for Federal income tax purposes and (b) at all times at
least 50% of the value of the total assets of the Portfolio consists of Ohio
Municipal Obligations or similar obligations of other states or their subdivi-
sions. Corporations that are subject to the Ohio corporation franchise tax will
not have to include distributions from the Ohio Municipal Money Market Portfo-
lio in their net income base for purposes of calculating their Ohio corporation
franchise tax liability to the extent that such distributions either constitute
exempt-interest dividends for Federal income tax purposes or are properly at-
tributable to interest on Ohio Municipal Obligations or U.S. Obligations. How-
ever, shares of the Ohio Municipal Money Market Portfolio will be included in a
corporation's net worth base for purposes of calculating the Ohio corporation
franchise tax. Distributions properly attributable to gain on the sale, ex-
change or other disposition of Ohio Municipal Obligations will not be subject
to the Ohio personal income tax, or municipal or school district income taxes
in Ohio and will not be included in the net income base of the Ohio corporation
franchise tax. Distributions attributable to other sources will be subject to
the Ohio personal income tax and the Ohio corporation franchise tax.
PENNSYLVANIA TAXES. Income received by a shareholder attributable to interest
realized by the Pennsylvania Municipal Money Market Portfolio from Pennsylvania
State-Specific Obligations or attributable to insurance proceeds on account of
such interest is not taxable to individuals, estates or trusts under the Per-
sonal Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for Federal income tax purposes); to corporations under the Corporate Net
Income Tax (in the case of insurance proceeds, to the extent they are exempt
for Federal income tax purposes); nor to individuals under the Philadelphia
School District Net Investment Income Tax ("School District Tax").
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Portfolio of Pennsylvania State-Specific Obligations is taxable
under the Personal Income Tax, the Corporate Net Income Tax, and, unless these
assets were held by the Portfolio for more than six months, the School District
Tax.
This discussion does not address the extent, if any, to which shares of the
Pennsylvania Municipal Money Market Portfolio, and interest and gain earned by
the Portfolio, is subject to, or included in the measure of, special taxes im-
posed by the Commonwealth of Pennsylvania on banks and other financial institu-
tions or with respect to any privilege, excise, franchise or other
44
<PAGE>
tax imposed on business entities not discussed above (including the Corporate
Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not sub-
ject to the Pennsylvania County Personal Property Tax to the extent that the
Portfolio is comprised of Pennsylvania state-specific obligations and Federal
obligations (if the interest on such obligations is exempt from state and local
taxation under the laws of the United States).
NORTH CAROLINA TAXES. Interest received in the form of dividends from the North
Carolina Municipal Money Market Portfolio is exempt from North Carolina state
income tax to the extent the distributions represent interest on direct obliga-
tions of the U.S. Government or North Carolina State-Specific Obligations. Dis-
tributions derived from interest earned on obligations of political subdivi-
sions of Puerto Rico, Guam and the U.S. Virgin Islands, including the govern-
ments thereof and their agencies, instrumentalities and authorities, are also
exempt from North Carolina state income tax. Distributions paid out of interest
earned on obligations that are merely backed or guaranteed by the U.S. Govern-
ment (e.g., GNMAs, FNMAs), on repurchase agreements collateralized by U.S. Gov-
ernment securities or on obligations of other states (which the Portfolio may
acquire and hold for temporary or defensive purposes) are not exempt from North
Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of certain obligations of the
State of North Carolina or its subdivisions that were issued before July 1,
1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
VIRGINIA TAXES. Subject to the provisions discussed below, dividends paid to
shareholders by the Virginia Municipal Money Market Portfolio and derived from
interest on obligations of the Commonwealth of Virginia or of any political
subdivision or instrumentality of the Commonwealth or derived from interest or
dividends on obligations of the United States excludable from Virginia taxable
income under the laws of the United States, which obligations are issued in the
exercise of the borrowing power of the Commonwealth or the United States and
are backed by the full faith and credit of the Commonwealth or the United
States, will be exempt from the Virginia income tax. Dividends paid to share-
holders by the Portfolio and derived from interest on debt obligations of cer-
tain territories and possessions of the United States (those issued by Puerto
Rico, the Virgin Islands and Guam) will be exempt from the Virginia income tax.
To the extent a portion of the dividends are derived from interest on debt ob-
ligations other than those described above, such portion will be subject to the
Virginia income tax even though it may be excludable from gross income for Fed-
eral income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and derived
from capital gains will be taxable to the shareholders. To the extent any por-
tion of the dividends are derived from taxable interest for Virginia purposes
or from net short-term capital gains, such portion will be taxable to the
shareholders as ordinary income. The character of long-term capital
45
<PAGE>
gains realized and distributed by the Portfolio will flow through to its share-
holders regardless of how long the shareholders have held their shares. Capital
gains distributed to shareholders derived from Virginia obligations issued pur-
suant to special Virginia enabling legislation which provides a specific exemp-
tion for such gains will be exempt from Virginia income tax. Generally, inter-
est on indebtedness incurred by shareholders to purchase or carry shares of the
Portfolio will not be deductible for Virginia income tax purposes.
As a regulated investment company, the Portfolio may distribute dividends that
are exempt from the Virginia income tax to its shareholders if the Portfolio
satisfies all requirements for conduit treatment under Federal law and, at the
close of each quarter of its taxable year, at least 50% of the value of its to-
tal assets consists of obligations the interest on which is exempt from taxa-
tion under Federal law. If the Portfolio fails to qualify, no part of its divi-
dends will be exempt from the Virginia income tax.
When taxable income of a regulated investment company is commingled with exempt
income, all distributions of the income are presumed taxable to the sharehold-
ers unless the portion of income that is exempt from Virginia income tax can be
determined with reasonable certainty and substantiated. Generally, this deter-
mination must be made for each distribution to each shareholder. The Virginia
Department of Taxation has adopted a policy, however, of allowing shareholders
to exclude from their Virginia taxable income the exempt portion of distribu-
tions from a regulated investment company even though the shareholders receive
distributions monthly but receive reports substantiating the exempt portion of
such distributions at less frequent intervals. Accordingly, if the Portfolio
receives taxable income, the Portfolio must determine the portion of income
that is exempt from Virginia income tax and provide such information to the
shareholders in accordance with the foregoing so that the shareholders may ex-
clude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
NEW JERSEY TAXES. It is anticipated that substantially all dividends paid by
the New Jersey Municipal Money Market Portfolio will not be subject to New Jer-
sey personal income tax. In accordance with the provisions of New Jersey law as
currently in effect, distributions paid by a "qualified investment fund" will
not be subject to the New Jersey personal income tax to the extent that the
distributions are attributable to income received as interest or gain from New
Jersey State-Specific Obligations, or as interest or gain from direct U.S. Gov-
ernment obligations. Distributions by a qualified investment fund that are at-
tributable to most other sources will be subject to the New Jersey personal in-
come tax. To be classified as a qualified investment fund, at least 80% of the
Portfolio's investments must consist of New Jersey State-Specific Obligations
or direct U.S. Government obligations; it must have no investments other than
interest-bearing obligations, obligations issued at a discount, and cash and
cash items (including receivables); and it must satisfy certain reporting obli-
gations and provide certain information to its shareholders. Shares of the
Portfolio are not subject to property taxation by New Jersey or its political
subdivisions.
46
<PAGE>
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
47
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Investor Shares of the eight money market portfolios
described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. Because of these "class expenses", the
performance of a Portfolio's Institutional Shares is expected to be higher than
the performance of the Portfolio's Service Shares, and the performance of both
the Institutional Shares and Service Shares of a Portfolio is expected to be
higher than the performance of the Portfolio's three classes of Investor
Shares. The Fund offers various services and privileges in connection with its
Investor Shares that are not generally offered in connection with its Institu-
tional and Service Shares, including an automatic investment plan, automatic
withdrawal plan and checkwriting. For further information regarding the Fund's
Service and Institutional share classes, contact PFPC at (800) 441-7762.
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
48
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
From time to time each Portfolio may advertise its "yield" and "effective
yield" for each class of Investor Shares. Both yield figures are based on his-
torical earnings and are not intended to indicate future performance. "Yield"
refers to the income generated by an investment in a particular class of a
Portfolio's Investor Shares over a seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. "Effective yield" is calculated simi-
larly but, when annualized, the income earned by an investment in a particular
class of a Portfolio's Investor Shares is assumed to be reinvested. The "effec-
tive yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. A Municipal Portfolio's "tax equivalent
yield" may also be quoted, which shows the level of taxable yield needed to
produce an after-tax equivalent to the Portfolio's tax-free yield for a partic-
ular class of Investor Shares.
The performance of each class of Investor Shares of a Portfolio may be compared
to the performance of mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the yield of a particular class of Investor
Shares of a Portfolio may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Performance information may also include evaluations of the
Portfolios published in nationally recognized ranking services, and information
as reported by financial publications such as Business Week, Fortune, Institu-
tional Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered as representative of future results. The yield of any
investment is generally a function of portfolio quality and maturity, type of
investment and operating expenses. Yields will fluctuate and are not necessar-
ily representative of future results. Any fees charged by affiliates of the
Portfolios' investment adviser or other institutions directly to their custom-
ers' accounts in connection with investments in the Portfolios will not be in-
cluded in the Portfolios' calculations of yield and performance.
49
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions, dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call your investment
adviser or COMPASS CAPITAL FUNDS at (800) 441-7762.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7762.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
50
<PAGE>
The Compass Capital Funds
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DIS-
TRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
-----------------
MONEY MARKET PORTFOLIO
U.S. TREASURY MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
THE MONEY
MARKET
PORTFOLIOS
INVESTOR SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INSTITUTIONAL SHARES OF THE
SHORT GOVERNMENT BOND PORTFOLIO,
INTERMEDIATE GOVERNMENT PORTFOLIO,
INTERMEDIATE BOND PORTFOLIO,
CORE BOND PORTFOLIO,
MANAGED INCOME PORTFOLIO
INTERNATIONAL BOND PORTFOLIO,
TAX-FREE INCOME PORTFOLIO,
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO,
NEW JERSEY TAX-FREE INCOME PORTFOLIO AND
OHIO TAX-FREE INCOME PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The
Expenses Of The
Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
[ART]
PROSPECTUS
THE BOND
PORTFOLIOS
Institutional
Shares
COMPASS
--------------------
[LOGO] CAPITAL FUNDS
N O T Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
INSURED and involve risk including
possible loss of principal.
<PAGE>
The Bond Portfolios Institutional Shares January 16, 1996
- -------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This Prospec-
tus describes the Institutional Shares of ten of those port-
folios (the "Portfolios"):
Short Government Bond Portfolio
Intermediate Government Bond Portfolio
Intermediate Bond Portfolio
Core Bond Portfolio
Managed Income Portfolio
International Bond Portfolio
Tax-Free Income Portfolio
Pennsylvania Tax-Free Income Portfolio
New Jersey Tax-Free Income Portfolio
Ohio Tax-Free Income Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional
Information may be obtained free of charge from the Fund by
calling (800) 441-7764. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OB-
LIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RE-
SERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN
THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC TAX-FREE PORTFOLIOS
ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
<PAGE>
The Bond Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of ten in-
vestment portfolios that provide investors with a broad spectrum
of investment alternatives within the fixed income sector. Six
of these Portfolios invest in taxable bonds, and four of these
Portfolios invest in tax-exempt bonds. A detailed description of
each Portfolio begins on page 20.
COMPASS CAPITAL PORTFOLIO PERFORMANCE BENCHMARK LIPPER PEER GROUP
Short Government Bond Merrill 1-3 Year Short U.S. Government
Treasury Index
Intermediate Government Lehman Brothers
Bond Intermediate Government Intermediate U.S.
Government
Intermediate Bond Lehman Brothers Intermediate
Intermediate Government/Corporate
Government/Corporate
Core Bond Lehman Aggregate Intermediate Investment
Grade Debt
Managed Income Salomon BIG Corporate Debt A-Rated
International Bond Salomon Non-U.S. Hedged General World Income
World Government Bond
Index
Tax-Free Income Lehman Municipal Bond General Municipal Debt
Index
PA Tax-Free Income Lehman Local GO Index PA Municipal Debt
NJ Tax-Free Income Lehman Local GO Index NJ Municipal Debt
OH Tax Free Income Lehman Local GO Index OH Municipal Debt
PNC Asset Management Group, Inc. ("PAMG") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc.
("BlackRock") serves as sub-adviser to each Portfolio except the
International Bond Portfolio, which is sub-advised by Morgan
Grenfell Investment Services Limited ("Morgan Grenfell").
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
BOND different directions in fixed income investing. You may wish to
PORTFOLIOS use the table of contents on page 5 to find descriptions of the
Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. Some or all of the Portfolios may
BOND INVESTING purchase mortgage-related, asset-backed, foreign and illiquid
securities; enter into repurchase and reverse repurchase
agreements and engage in leveraging techniques; lend portfo-
lio securities to third parties; and enter into futures con-
tracts and options. Each of the Pennsylvania, New Jersey and
Ohio Tax-Free Income Portfolios (the "State-Specific Tax-Free
Portfolios") concentrates in the securities of issuers lo-
cated in a particular state, and is non-diversified, which
means that its performance may be dependent upon the perfor-
mance of a smaller number of securities than the other Port-
folios, which are considered diversified. See "What Addi-
tional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?"
CAPITAL FUNDS
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 9
What Are The Portfolios?..................................... 20
What Are The Differences Among The Portfolios?............... 21
What Types Of Securities Are In The Portfolios?.............. 22
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 23
What Additional Investment Policies and Risks Apply?......... 24
Who Manages The Fund?........................................ 37
How Are Shares Purchased And Redeemed?....................... 41
How Is Net Asset Value Calculated?........................... 43
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 44
How Are Fund Distributions Taxed?............................ 45
How Is The Fund Organized?................................... 49
How Is Performance Calculated?............................... 50
How Can I Get More Information?.............................. 52
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- -------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Institutional Shares of the Portfolios after fee waivers for the current fis-
cal year ending September 30, 1996 as a percentage of average daily net as-
sets. An example based on the summary is also shown.
<TABLE>
<CAPTION>
SHORT INTERMEDIATE
GOVERNMENT GOVERNMENT INTERMEDIATE
BOND BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/1/) .30% .30% .30%
Other operating expenses .25 .25 .25
----- ------ ------
Administration fees
(after fee waivers)(/1/) .15 .15 .13
Other expenses .10 .10 .12
---- ----- -----
Total Portfolio operating expenses (after
fee waivers)(/1/) .55% .55% .55%
===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
CORE BOND MANAGED INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Advisory fees
(after fee waivers)(/1/) .30% .35%
Other operating expenses .25 .23
----- -------
Administration fees (after fee waivers)(/1/) .15 .12
Other expenses .10 .11
---- ------
Total Portfolio operating expenses (after fee
waivers)(/1/) .55% .58%
===== =======
</TABLE>
(1) Without waivers, advisory fees would be .50% and administration fees would
be .23% for each Portfolio. PAMG and the Portfolios' administrators are
under no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
remainder of the current fiscal year as necessary to maintain the Portfo-
lios' total operating expenses at the levels set forth in the table. The
information in the table is based on the advisory and administration fees
and other expenses payable after fee waivers for the fiscal year ended
September 30, 1995, as restated to reflect current expenses and fee waiv-
ers. Without waivers, "Other operating expenses" would be .33%, .33%,
.35%, .33% and .34%, respectively, and "Total Portfolio operating ex-
penses" would be .83%, .83%, .85%, .83% and .84%, respectively.
6
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA
INTERNATIONAL BOND TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .55% .30% .30%
Other operating expenses .43 .25 .25
--------- -------- ---------
Administration fees
(after fee
waivers)(/1/) .15 .13 .13
Other expenses .28 .12 .12
-------- ------- --------
Total Portfolio
operating expenses
(after fee
waivers)(/1/) .98% .55% .55%
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY OHIO
TAX- TAX-
FREE INCOME FREE INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)(/1/) .30% .30%
Other operating expenses .25 .25
------ ------
Administration fees (after fee waivers)(/1/) .10 .10
Other expenses .15 .15
----- -----
Total Portfolio operating expenses (after fee
waivers)(/1/) .55% .55%
====== ======
</TABLE>
(1) Without waivers, advisory fees would be .55%, .50%, .50%, .50% and .50%,
respectively, and administration fees would be .23% for each Portfolio. In
addition, the Expense Summary reflects reimbursements made to the Tax-Free
Income Portfolio by the adviser. PAMG and the Portfolios' administrators
are under no obligation to waive fees or reimburse expenses, but have in-
formed the Fund that they expect to waive fees and reimburse expenses dur-
ing the remainder of the current fiscal year as necessary to maintain the
Portfolios' total operating expenses at the levels set forth in the table.
The information in the table is based on the advisory and administration
fees and other expenses payable after fee waivers for the fiscal year ended
September 30, 1995, as restated to reflect current expenses and fee waiv-
ers. Without waivers, "Other operating expenses" would be .51%, .51%, .35%,
.38% and .38%, respectively, and "Total Portfolio operating expenses" would
be 1.06%, .85%, .85%, .88% and .88% respectively.
7
<PAGE>
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return, and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Short Government Bond Portfolio $ 6 $18 $31 $ 69
Intermediate Government Bond
Portfolio 6 18 31 69
Core Bond Portfolio 6 18 31 69
Intermediate Bond Portfolio 6 18 31 69
Managed Income Portfolio 6 19 32 73
International Bond Portfolio 10 31 54 120
Tax-Free Income Portfolio 6 18 31 69
Pennsylvania Tax-Free Income
Portfolio 6 18 31 69
New Jersey Tax-Free Income Portfolio 6 18 31 69
Ohio Tax-Free Income Portfolio 6 18 31 69
</TABLE>
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses that an investor in the Portfolios will bear
either directly or indirectly. They do not reflect any charges that may be im-
posed by brokers or other institutions directly on their customer accounts in
connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERAT-
ING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
8
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and, except for the period March
1, 1995 through August 31, 1995 with respect to the Interna-
tional Bond Portfolio and the New Jersey Tax-Free Income Portfo-
lio, has been audited by the Portfolios' independent accountant
(or former accountant with respect to the Short Government Bond
and Core Bond Portfolios). This financial information should be
read together with those financial statements. For the periods
shown, the Short Government Bond Portfolio and Core Bond Portfo-
lio offered only one class of shares to institutional investors,
and the New Jersey Tax-Free Income and International Bond Port-
folio offered one class of shares to both institutional and re-
tail investors. Further information about the performance of the
Portfolios is available in the Fund's annual shareholder re-
ports. Both the Statement of Additional Information and the an-
nual shareholder reports may be obtained from the Fund free of
charge by calling (800) 441-7764.
9
<PAGE>
Financial Highlights
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SHORT GOVERNMENT BOND PORTFOLIO+
(FORMERLY, THE SHORT-TERM BOND PORTFOLIO)
<TABLE>
<CAPTION>
YEAR YEAR JULY 17, 1992(*)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 9.71 $ 9.96 $ 10.00
------- ------- -------
Net investment income (net of
$.014, $.011 and $.005
respectively, of interest
expense)(**) 0.58 0.48 0.51
Net realized and unrealized
loss on investments 0.13 (0.25) (0.06)
------- ------- -------
Net increase from investment
operations 0.71 0.23 0.45
------- ------- -------
Dividends from net investment
income (0.58) (0.48) (0.49)
Distributions from net realized
capital gains (0.01) - - - -
------- ------- -------
Total dividends and
distributions (0.59) (0.48) (0.49)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.83 $ 9.71 $ 9.96
======= ======= =======
Total investment return(***) 6.99% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Expenses(**) 0.57% 0.57% 0.56%(****)
Net investment income(**) 6.08% 4.70% 5.32%(****)
SUPPLEMENTAL DATA:
Average net assets (in
thousands) $34,236 $36,686 $67,540
Portfolio turnover 586% 455% 513%
Net assets, end of period (in
thousands) $44,486 $31,265 $51,611
</TABLE>
+ This Portfolio commenced operations on July 17, 1992 as the Short Duration
Portfolio, a separate investment portfolio (the "Predecessor Short Govern-
ment Bond Portfolio") of The BFM Institutional Trust Inc., which was orga-
nized as a Maryland business corporation. On January 12, 1996, the assets
and liabilities of the Predecessor Short Government Bond Portfolio were
transferred to this Portfolio, and were combined with the assets of a pre-
existing portfolio investment maintained by the Fund.
(*) Commencement of investment operations.
(**) The investment adviser of the Predecessor Short Government Bond Portfolio
waived fees amounting to $102,707 and $110,232 and reimbursed expenses
amounting to $61,195 and $55,582, for the periods ended June 30, 1995 and
June 30, 1994, respectively. For the period July 17, 1992 through June
30, 1993, the administrator of the Predecessor Short Bond Portfolio
waived fees amounting to $64,580. If all expenses had been borne, the ex-
pense ratios would have been 1.05%, 1.02% and 0.66% for the periods ended
June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The net in-
vestment income ratios would have been 5.60%, 4.25% and 5.22% for the pe-
riods ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively.
The net investment income on a per share basis would have been $0.53,
$0.43 and $0.49 for the periods ended June 30, 1995, June 30, 1994 and
June 30, 1993, respectively.
(***) Total investment return is calculated assuming a purchase of common
stock at net asset value per share on the first day and a sale at net
asset value per share on the last day of the period reported. Dividends
are assumed, for purposes of this calculation, to be reinvested at the
net asset value per share on the payment date.
(****) Annualized.
10
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
(FORMERLY, THE INTERMEDIATE GOVERNMENT PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 4/20/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 9.64 $ 10.60 $ 10.46 $ 10.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.58 0.55 0.54 0.24
Net gain (loss) on investments
(both realized and unrealized) 0.38 (0.86) 0.16 0.46
-------- -------- -------- --------
Total from investment operations 0.96 (0.31) 0.70 0.70
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.58) (0.55) (0.54) (0.24)
Distributions from net realized
capital gains - - (0.10) (0.02) - -
-------- -------- -------- --------
Total distributions (0.58) (0.65) (0.56) (0.24)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.02 $ 9.64 $ 10.60 $ 10.46
======== ======== ======== ========
Total return 10.28% (3.08)% 6.88% 7.14%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $134,835 $128,974 $137,065 $105,620
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.42% 0.40% 0.73% 0.80%/2/
Before advisory/administration
fee waivers 0.79% 0.80% 0.81% 0.80%/2/
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers 5.94% 5.48% 5.23% 5.28%/2/
Before advisory/administration
fee waivers 5.57% 5.08% 5.15% 5.28%/2/
PORTFOLIO TURNOVER RATE 247% 9% 80% 38%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
11
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE BOND PORTFOLIO
(FORMERLY, THE INTERMEDIATE-TERM BOND PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 9/17/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.05 $ 10.01 $ 10.00
-------- ------- -------
Income from investment operations
Net investment income 0.56 0.54 0.02
Net gain (loss) on investments (both realized
and unrealized) 0.38 (0.88) (0.01)
-------- ------- -------
Total from investment operations 0.94 (0.34) 0.01
-------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.56) (0.56) - -
Distributions from net realized capital gains - - (0.06) - -
-------- ------- -------
Total distributions (0.56) (0.62) - -
-------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 9.43 $ 9.05 $ 10.01
======== ======= =======
Total return 10.76% (3.52)% 0.10%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $124,979 $71,896 $56,713
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.55% 0.45% 0.45%/2/
Before advisory/administration fee waivers 0.89% 0.88% 0.84%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 6.18% 5.54% 4.72%/2/
Before advisory/administration fee waivers 5.84% 5.11% 4.33%/2/
PORTFOLIO TURNOVER RATE 262% 92% 4%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CORE BOND PORTFOLIO+
<TABLE>
<CAPTION>
YEAR YEAR DECEMBER 9, 1992(*)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 9.36 $ 10.37 $10.00
------- ------- ------
Net investment income (net of
$.004, $.003 and $.001,
respectively, of interest
expense)(**) 0.62 0.55 0.32
Net realized and unrealized
gains on investments 0.50 (0.60) 0.37
------- ------- ------
Net (decrease) increase from
investment operations 1.12 (0.05) 0.69
------- ------- ------
Dividends from net investment
income (0.62) (0.55) (0.32)
Distributions from net realized
capital gains (0.01) (0.41)
------- -------
Total dividends and
distributions (0.63) (0.96) (0.32)
------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.36 $10.37
======= ======= ======
Total investment return(***) 11.79% (0.69)% 6.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses(*) 0.55% 0.55% 0.55%(****)
Net investment income(**) 6.62% 5.61% 5.57%(****)
SUPPLEMENTAL DATA:
Average net assets (in
thousands) $16,247 $ 9,702 $6,622
Portfolio turnover 435% 722% 354%
Net assets, end of period (in
thousands) $32,191 $12,507 $7,803
</TABLE>
+ This Portfolio commenced operations on December 9, 1992 as the Core Fixed
Income Portfolio, a separate investment portfolio (the "Predecessor Core
Bond Portfolio") of The BFM Institutional Trust Inc., which was organized as
a Maryland business corporation. On January 12, 1996, the assets and liabil-
ities of the Predecessor Core Bond Portfolio were transferred to this Port-
folio, which had no prior operating history.
(*) Commencement of investment operations.
(**) The investment adviser of the Predecessor Core Bond Portfolio waived fees
amounting to $56,894, $34,010 and $24,761 and reimbursed expenses amount-
ing to $137,364, $137,179 and $0 for the periods ended June 30, 1995, June
30, 1994 and June 30, 1993, respectively. The administrator of the Prede-
cessor Core Bond Portfolio waived fees amounting to $32,500 and $3,701 for
the periods ended June 30, 1994 and June 30, 1993, respectively. For the
period ended June 30, 1993, the custodian and transfer agent of the Prede-
cessor Core Bond Portfolio waived fees amounting to $24,272 and $17,283,
respectively. If the Predecessor Core Bond Portfolio had borne all ex-
penses for the periods ended June 30, 1995, 1994 and 1993, the expense ra-
tios would have been 1.75%, 2.65% and 2.44%, respectively; the net invest-
ment income ratios would have been 5.43%, 3.51% and 3.68%, respectively;
and the net investment income on a per share basis would have been $0.51,
$0.34 and $0.22, respectively.
(***) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are as-
sumed, for purposes of this calculation, to be reinvested at the net as-
set value per share on the payment date.
(****) Annualized.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MANAGED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70 $ 10.00
-------- -------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.65 0.64 0.67 0.69 0.74 0.66
Net gain (loss) on
investments (both
realized and
unrealized) 0.60 (1.21) 0.56 0.48 0.63 (0.29)
-------- -------- -------- -------- ------- -------
Total from investment
operations 1.25 (0.57) 1.23 1.17 1.37 0.37
-------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.65) (0.64) (0.67) (0.69) (0.73) (0.66)
Distribution in excess
of net investment
income (0.01) (0.02) - - - - (0.08) (0.01)
Distributions from net
realized capital gains - - (0.14) (0.13) - - - - - -
Distributions in excess
of net realized gains - - (0.01) - - - - - - - -
-------- -------- -------- -------- ------- -------
Total distributions (0.66) (0.81) (0.80) (0.69) (0.81) (0.67)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 10.38 $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70
======== ======== ======== ======== ======= =======
Total return 13.27% (5.27)% 12.13% 11.80% 14.74% 3.80%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $443,148 $395,060 $341,791 $314,075 $52,802 $38,328
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.57% 0.55% 0.74% 0.80% 0.80% 0.80%/2/
Before
advisory/administration
fee waivers 0.77% 0.77% 0.78% 0.80% 0.84% 0.82%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.44% 6.11% 6.25% 6.28% 7.36% 7.31%/2/
Before
advisory/administration
fee waivers 6.24% 5.89% 6.21% 6.28% 7.32% 7.29%/2/
PORTFOLIO TURNOVER RATE 203% 61% 72% 56% 38% 18%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL BOND PORTFOLIO+
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR YEAR YEAR PERIOD
8/31/95 ENDED ENDED ENDED ENDED
(UNAUDITED) 2/28/95 2/28/94 2/28/93 2/28/92**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 10.52 $ 10.75 $ 10.76 $ 10.21 $ 10.00
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.39 0.62 0.65 0.52 0.31
Net (loss) gain on
investments (both realized
and unrealized) 0.55 (0.48) 0.46 0.47 0.26
------- ------- ------- ------- -------
Total from investment
operations 0.94 (0.14) 1.11 0.99 0.57
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.04) (0.13) (0.90) (0.30) - -
Distributions from net
realized capital gains - - (0.24) (0.22) (0.14) (0.06)
------- ------- ------- ------- -------
In Excess of Net Realized
Gains - - - - - - - - (0.30)
Total distributions (0.04) (0.37) 1.12 (0.44) (0.36)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 11.42 $ 10.52 $ 10.75 $ 10.76 $ 10.21
======= ======= ======= ======= =======
Total return 8.96%* 1.50% 10.24% 9.55% 8.92%*
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $45,242 $45,657 $46,888 $38,257 $27,744
Ratios of expenses to
average net assets 1.18%* 1.24% 1.38% 1.30% 1.33%*
Excluding waivers 1.18%* 1.24% 1.38% 1.30% 1.37%*
Ratios of net investment
income to average net
assets 5.75%* 5.96% 6.00% 6.31% 6.79%*
Excluding waivers 5.75%* 5.96% 6.00% 6.31% 6.75%*
PORTFOLIO TURNOVER RATE 58.50% 130.64% 128.14% 115.25% 110.13%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the Compass Interna-
tional Fixed Income Fund, a separate investment portfolio (the "Predecessor
International Bond Portfolio") of Compass Capital Group, which was organized
as a Massachusetts business trust. It is expected that the assets and liabil-
ities of the Predecessor International Bond Portfolio will be transferred to
this Portfolio, which has no prior operating history, on or about February
10, 1996.
* Annualized.
** Commenced operations on July 1, 1991.
15
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 1/21/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $10.04 $11.31 $10.61
------ ------ ------
Income from investment operations
Net investment income 0.53 0.53 0.42
Net gain (loss) on investments (both realized
and unrealized) 0.59 (0.93) 0.70
------ ------ ------
Total from investment operations 1.12 (0.40) 1.12
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.53) (0.53) (0.42)
Distributions from net realized capital gains (0.02) (0.34) - -
------ ------ ------
Total distributions (0.55) (0.87) (0.42)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.61 $10.04 $11.31
====== ====== ======
Total return 11.54% (3.77)% 10.72%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 271 $ 132 $ 675
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.52% 0.50% 0.50%/2/
Before advisory/administration fee waivers 1.30% 1.73% 1.28%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 5.19% 4.97% 5.14%/2/
Before advisory/administration fee waivers 4.41% 3.74% 4.36%/2/
PORTFOLIO TURNOVER RATE 92% 40% 71%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
16
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 12/1/92/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.82 $10.70 $10.00
------ ------ ------
Income from investment operations
Net investment income 0.52 0.53 0.39
Net gain (loss) on investments (both realized
and unrealized) 0.51 (0.85) 0.73
------ ------ ------
Total from investment operations 1.03 (0.32) 1.12
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.52) (0.53) (0.39)
Distributions from net realized capital gains - - (0.03) (0.03)
------ ------ ------
Total distributions (0.52) (0.56) (0.42)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.33 $ 9.82 $10.70
====== ====== ======
Total return 10.81% (2.96)% 11.69%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $2,092 $ 639 $ 256
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.52% 0.39% 0.09%/2/
Before advisory/administration fee waivers 0.84% 0.99% 0.97%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 5.23% 5.27% 5.19%/2/
Before advisory/administration fee waivers 4.91% 4.67% 4.31%/2/
PORTFOLIO TURNOVER RATE 66% 30% 40%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
17
<PAGE>
Financial Highlights (continued)
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY TAX-FREE INCOME PORTFOLIO+
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR YEAR YEAR PERIOD
8/31/95 ENDED ENDED ENDED ENDED
(UNAUDITED) 2/28/95 2/28/94 2/28/93 2/28/92**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 10.94 $ 11.31 $ 11.30 $ 10.46 $ 10.00
------- ------- -------- ------- -------
Income from investment
operations
Net investment income 0.25 0.51 0.54 0.52 0.34
Net (loss) gain on
investments (both realized
and unrealized) 0.28 (0.36) 0.04 0.85 0.45
------- ------- -------- ------- -------
Total from investment
operations 0.53 0.15 0.58 1.37 0.79
------- ------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.25) (0.51) (0.54) (0.53) (0.33)
Distributions from net
realized capital gains - - (0.01) (0.03) - - - -
------- ------- -------- ------- -------
Total distributions (0.25) (0.52) (0.57) (0.53) (0.33)
------- ------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 11.22 $ 10.94 $ 11.31 $ 11.30 $ 10.46
======= ======= ======== ======= =======
Total return 4.90% 1.49% 5.18% 13.48% 12.33%*
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $97,752 $96,857 $111,354 $47,169 $10,673
Ratios of expenses to
average net assets 0.88%* 0.79% 0.38% 0.48% 0.52%*
Excluding waivers 0.88%* 0.87% 0.86% 1.04% 1.29%*
Ratios of net investment
income to average net
assets 4.51%* 4.71% 4.75% 5.04% 5.35%*
Excluding waivers 4.51%* 4.63% 4.27% 4.48% 4.58%*
PORTFOLIO TURNOVER RATE 18.47% 28.43% 12.05% 16.09% 0.00%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the New Jersey Munic-
ipal Bond Fund, a separate investment portfolio (the "Predecessor New Jersey
Tax-Free Income Portfolio") of Compass Capital Group, which was organized as
a Massachusetts business trust. On January 12, 1996, the assets and liabili-
ties of the Predecessor New Jersey Tax-Free Income Portfolio were trans-
ferred to this Portfolio, which had no prior operating history.
* Annualized.
** Commenced operations on July 1, 1991.
18
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 12/1/92/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.60 $10.53 $10.00
------ ------ ------
Income from investment operations
Net investment income 0.55 0.53 0.36
Net gain (loss) on investments (both realized
and unrealized) 0.45 (0.91) 0.53
------ ------ ------
Total from investment operations 1.00 (0.38) 0.89
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.55) (0.53) (0.36)
Distributions from net realized capital gains - - (0.02) - -
------ ------ ------
Total distributions (0.55) (0.55) (0.36)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.05 $ 9.60 $10.53
====== ====== ======
Total return 10.75% (3.75)% 9.10%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 200 $ 127 $1,676
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.12% 0.10% 0.08%/2/
Before advisory/administration fee waivers 1.19% 1.49% 2.59%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 5.61% 5.16% 4.99%/2/
Before advisory/administration fee waivers 4.54% 3.77% 2.48%/2/
PORTFOLIO TURNOVER RATE 63% 61% 36%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
19
<PAGE>
What Are The Portfolios?
- -------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 28 portfolios and
has been structured to include many different investment
styles across the spectrum of fixed income investments so
that investors may participate across multiple disciplines in
order to seek their long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of ten
investment portfolios that provide investors with a broad
spectrum of investment alternatives within the fixed income
sector. Six of these Portfolios invest solely in taxable
bonds and four of these Portfolios invest in tax-exempt
bonds.
In certain investment cycles and over certain holding peri-
ods, a fund that invests in any one of these styles may per-
form above or below the market. An investment program that
combines these multiple disciplines allows investors to se-
lect from among these various product options in the way that
most closely fits the investor's goals and sentiments.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Short Government Bond To realize a rate of return that
exceeds the total return of the
Merrill Lynch 1-3 year Treasury Index.
Intermediate Government To seek current income consistent with
Bond, Intermediate Bond, the preservation of capital.
Managed Income and
International Bond
Core Bond To realize a total rate of return that
exceeds the total return of the Lehman
Brothers Aggregate Index.
Tax-Free Income, To seek as high a level of current
Pennsylvania Tax-Free income exempt from Federal income tax
Income, New Jersey Tax- and, to the extent possible for each
Free Income and Ohio State-Specific Tax-Free Portfolio,
Tax-Free Income income tax of the specific state in
which the Portfolio concentrates, as
is consistent with preservation of
capital.
</TABLE>
20
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS:
<TABLE>
<CAPTION>
DOLLAR-
WEIGHTED
AVERAGE MIN
PERFORMANCE MATURITY CREDIT QUALITY CREDIT
PORTFOLIO BENCHMARK* (APPROXIMATE)** CONCENTRATION QUALITY
<S> <C> <C> <C> <C>
Short Gov't Merrill 1-3 Year 3-5 Years Gov't/Agency AAA
Bond Treasury Index
Intermediate Lehman Brothers 5-10 Years Gov't/Agency AAA
Gov't Bond Intermediate Gov't
Intermediate Lehman Brothers 5-10 Years Investment Grade BBB
Bond Intermediate Spectrum
Gov't/Corp
Core Bond Lehman Aggregate 5-10 Years Investment Grade BBB
Spectrum
Managed Salomon BIG 5-10 Years Investment Grade BBB
Income Spectrum
International Salomon Non-U.S. 5-15 Years AA, AAA, BBB
Bond Hedged World Gov't/Agency
Government Bond Index
Tax-Free Lehman Municipal Bond 10-15 Years Investment Grade BBB
Income Index Spectrum
PA Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
NJ Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
OH Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the
back of this Prospectus.
** The Portfolios are structured to have comparable durations to the bench-
marks. Duration, which measures price sensitivity to interest rate changes,
is not necessarily equal to average maturity.
21
<PAGE>
What Types Of Securities Are In The Portfolios?
- --------------------------------------------------------------------------------
The following table summarizes the types of securities found in each Portfolio,
according to the following designations:
Yes:The Portfolio will hold a significant concentration of these securities
at all times.
Elig.: Eligible; the Portfolio may purchase these securities, but they may or
may not be a significant holding at a given time.
Temp.: Temporary; the Portfolio may purchase these securities, but under nor-
mal market conditions is not expected to do so.
No:The Portfolio may not purchase these securities.
<TABLE>
<CAPTION>
NON FOREIGN
AGENCY/ SECURITIES/
AGENCY COMMERCIAL CURRENCY
TREASURIES AGENCIES MBS/1/ MBS/1/ CORP. ABS/2/ RISK MUNICIPALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Gov't Yes Yes Yes Elig. Elig. Elig. No Elig.
Bond
Intermediate Yes Yes Yes Elig. Yes Elig. No Elig.
Gov't Bond
Intermediate Yes Yes Yes Elig. Yes Yes No Elig.
Bond
Core Bond Yes Yes Yes Elig. Yes Yes No Elig.
Managed Yes Yes Yes Elig. Yes Yes Elig. Elig.
Income
International Elig. Elig. Elig. Elig. Elig. Elig. Yes Elig.
Bond
Tax-Free Temp. No No No No No No Yes
Income
PA Tax-Free Temp. No No No No No No Yes
Income
NJ Tax-Free Temp. No No No No No No Yes
Income
OH Tax Free Temp. No No No No No No Yes
Income
</TABLE>
/1/MBS = mortgage-backed securities
/2/ABS = asset-backed securities
22
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days' notice before any such change. No assurance can be pro-
vided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities) if more than 5% of
its total assets will be invested in the securities of any one issuer, ex-
cept that up to 25% of a Portfolio's total assets may be invested without
regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(3) in the case of each Tax-Free Portfolio, invest less than 80% of its net as-
sets in Municipal Obligations (as defined below), except during defensive
periods or during periods of unusual market conditions.
Restriction 1 does not apply to the State-Specific Tax-Free Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Tax-
Free Portfolio will not invest in securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter (plus any additional grace period), more than 5% of its total assets to
be invested in securities of any one issuer, except that up to 50% of a Portfo-
lio's total assets may be invested without regard to this limitation so long as
no more than 25% of the Portfolio's total assets are invested in any one issuer
(except U.S. Government securities and related repurchase agreements).
The investment limitations stated above are applied at the time investment se-
curities are purchased.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any such commitment is
no longer in the best interests of a Portfolio, it will revoke the commitment
by terminating sales of shares of the Portfolio in the state involved.
23
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
INVESTMENT QUALITY. Securities acquired by the Short Government Bond Portfolio
and Intermediate Government Bond Portfolio (the "Government Portfolios") will
be rated in the highest rating category at the time of purchase or, if unrated,
of comparable quality as determined by the Portfolios' sub-adviser. Securities
acquired by the other Portfolios will be rated investment grade at the time of
purchase (within the four highest voting categories by Standard & Poor's Rat-
ings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Co. or Fitch Investor Services, Inc.) or, if unrated, of comparable
quality as determined by a Portfolio's sub-adviser. Securities rated "Baa" on
"BBB" are generally considered to be investment grade although they have specu-
lative characteristics. If a security's rating is reduced below the minimum
rating that is permitted for a Portfolio, the Portfolio's sub-adviser will con-
sider whether the Portfolio should continue to hold the security.
INVESTMENT CONCENTRATION. Each Portfolio will normally invest at least 80% of
the value of its total assets in debt securities. The Government Portfolios
will invest at least 65% of their net assets in obligations issued or guaran-
teed by the U.S. Government, its agencies or instrumentalities and related re-
purchase agreements during normal market conditions. Under normal market condi-
tions, the International Bond Portfolio will invest at least 65% of its net as-
sets in the debt obligations of foreign issuers located in at least three dif-
ferent foreign countries. The Pennsylvania Tax-Free Income Portfolio, New Jer-
sey Tax-Free Income Portfolio and Ohio Tax-Free Income Portfolio (the "State-
Specific Tax-Free Portfolios") and the Tax-Free Income Portfolio (together with
the "State-Specific Tax-Free Portfolios," the "Tax-Free Portfolios") will in-
vest, during normal market conditions, at least 80% of their net assets in ob-
ligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political sub-divisions,
agencies, instrumentalities and authorities and related tax-exempt derivative
securities ("Municipal Obligations") the interest on which is exempt from regu-
lar Federal income tax and is not an item of tax preference for purposes of the
Federal alternative minimum tax. In addition, each State-Specific Tax-Free
Portfolio intends to invest at least 65% of its net assets in Municipal Obliga-
tions of issuers located in the particular state indicated by its name. The
Tax-Free Income Portfolio intends to invest no more than 25% of its net assets
in Municipal Obligations of issuers located in the same state. During temporary
defensive periods each Tax-Free Portfolio may invest without limitation in se-
curities that are not Municipal Obligations and may hold without limitation
uninvested cash reserves.
FOREIGN INVESTMENTS. The International Bond Portfolio will invest primarily in
foreign securities and currencies. The Managed Income Portfolio may invest up
to 10% of its total assets in debt securities of foreign issuers and may hold
from time to time various foreign currencies pending their investment or con-
version into U.S. dollars. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of compa-
nies organized and operated in the United States. Because foreign securities
generally are denominated and pay dividends or interest in foreign currencies,
the value of a Portfolio that invests in foreign securities will be affected
favorably or unfavorably by changes in currency exchange rates.
24
<PAGE>
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitations on the removal of funds or
assets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations. In
general, less information is publicly available with respect to foreign issuers
than is available with respect to U.S. companies. Most foreign companies are
also not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. While the volume of transactions
effected on foreign stock exchanges has increased in recent years, it remains
appreciably below that of the New York Stock Exchange. Accordingly, a Portfo-
lio's foreign investments may be less liquid and their prices may be more vola-
tile than comparable investments in securities in U.S. companies. In addition,
there is generally less government supervision and regulation of securities ex-
changes, brokers and issuers in foreign countries than in the United States.
Foreign investments may include: (a) debt obligations issued or guaranteed by
foreign sovereign governments or their agencies, authorities, instrumentalities
or political subdivisions, including a foreign state, province or municipality;
(b) debt obligations of supranational organizations such as the World Bank,
Asian Development Bank, European Investment Bank, and European Economic Commu-
nity; (c) debt obligations of foreign banks and bank holding companies; (d)
debt obligations of domestic banks and corporations issued in foreign curren-
cies; (e) debt obligations denominated in the European Currency Unit (ECU); and
(f) foreign corporate debt securities and commercial paper. Such securities may
include loan participations and assignments, convertible securities and zero-
coupon securities.
To maintain greater flexibility, the International Bond Portfolio may invest in
instruments which have the characteristics of futures contracts. Such instru-
ments may take a variety of forms, such as debt securities with interest or
principal payments determined by reference to the value of a currency or com-
modity at a future point in time. The risks of such investments could reflect
the risks of investing in futures, currencies and securities, including vola-
tility and illiquidity.
The expense ratio of the International Bond Portfolio can be expected to be
higher than those of Portfolios investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as higher investment research costs, higher foreign custody costs, higher
commission costs and additional costs arising from delays in settlements of
transactions involving foreign securities.
MUNICIPAL INVESTMENTS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer.
25
<PAGE>
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are nor-
mally issued by special purpose public authorities. If the issuer of moral ob-
ligation bonds is unable to meet its debt service obligations from current rev-
enues, it may draw on a reserve fund the restoration of which is a moral com-
mitment but not a legal obligation of the state or municipality which created
the issuer.
Also included within the general category of Municipal Obligations are partici-
pation certificates in a lease, an installment purchase contract, or a condi-
tional sales contract ("lease obligations") entered into by a state or politi-
cal subdivision to finance the acquisition or construction of equipment, land,
or facilities. Although lease obligations are not general obligations of the
issuer for which the state or other governmental body's unlimited taxing power
is pledged, certain lease obligations are backed by a covenant to appropriate
money to make the lease obligation payments. However, under certain lease obli-
gations, the state or governmental body has no obligation to make these pay-
ments in future years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property, dis-
position of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
as marketable as more conventional securities.
Each Tax-Free Portfolio may invest up to 20% of its total assets in private ac-
tivity bonds the interest on which is an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Paper") when added together with any
other taxable investments held by the Portfolio. In addition, each Tax-Free
Portfolio may invest 25% or more of its net assets in Municipal Obligations the
interest on which is paid solely from revenues of similar projects. To the ex-
tent a Portfolio's assets are invested in Municipal Obligations payable from
the revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the particular risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
The Tax-Free Income Portfolio is classified as a diversified portfolio, and the
State-Specific Tax-Free Portfolios are classified as non-diversified portfo-
lios, under the 1940 Act. Investment returns on a non-diversified portfolio
typically are dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall value of a non-di-
versified portfolio more than it would a diversified portfolio.
Each Tax-Free Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a spec-
ified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the commit-
ment relates. Each Tax-Free Portfolio will acquire stand-by commitments solely
to facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
26
<PAGE>
The Tax-Free Portfolios may invest in tax-exempt derivative securities relating
to Municipal Obligations, including tender option bonds, participations, bene-
ficial interests in trusts and partnership interests. The amount of information
regarding the financial condition of issuers of Municipal Obligations may not
be as extensive as that which is made available by public corporations and the
secondary market for Municipal Obligations may be less liquid than that for
taxable fixed-income securities. Accordingly, the ability of a Tax-Free Portfo-
lio to buy and sell tax-exempt securities may, at any particular time and with
respect to any particular securities, be limited.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal and state income tax are rendered by counsel
to the respective issuers and sponsors of the obligations at the time of issu-
ance. The Fund and its investment adviser and sub-adviser will rely on such
opinions and will not review independently the underlying proceedings relating
to the issuance of Municipal Obligations, the creation of any tax-exempt deriv-
ative securities, or the bases for such opinions.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. The Portfolios (except the Tax-
Free Portfolios) may purchase securities that are secured or backed by mort-
gages as well as other assets (e.g., automobile loans and credit card receiv-
ables). Issuers of these mortgage-related and asset-backed securities include
the U.S. Government, the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), and private issuers such as commercial banks, financial
companies, finance subsidiaries of industrial companies, savings and loan asso-
ciations, mortgage banks and investment banks.
The Portfolios may acquire several types of mortgage-related securities, in-
cluding guaranteed mortgage pass-through certificates, which provide the holder
with a pro rata interest in the underlying mortgages, adjustable rate mortgage-
related securities ("ARMs") and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways.
Non-mortgage asset-backed securities involve certain risks that are not pre-
sented by mortgage-related securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws, many of which
give debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of ve-
hicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of
27
<PAGE>
the automobile receivables may not have an effective security interest in all
of the obligations backing such receivables. Therefore, there is a possibility
that recoveries on repossessed collateral may not, in some cases, be able to
support payments on these securities.
The yield characteristics of mortgage-related and asset-backed securities dif-
fer from traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the underlying as-
sets (i.e., loans) generally may be prepaid at any time. As a result, if a
mortgage-related or asset-backed security is purchased at a premium, a prepay-
ment rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if one of these securities is pur-
chased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. In calculat-
ing the average weighted maturity of a Portfolio, the maturity of mortgage-re-
lated and asset-backed securities will be based on estimates of average life
which take prepayments into account.
Prepayments on mortgage-related and asset-backed securities generally increase
with falling interest rates and decrease with rising interest rates; further-
more, prepayment rates are influenced by a variety of economic and social fac-
tors. In general, the collateral supporting non-mortgage asset-backed securi-
ties is of shorter maturity than mortgage loans and is less likely to experi-
ence substantial prepayments. Like other fixed income securities, when interest
rates rise the value of a mortgage-related or asset-backed security generally
will decline; however, when interest rates decline, the value of these securi-
ties that have prepayment features may not increase as much as that of other
fixed income securities.
STRIPPED AND ZERO COUPON OBLIGATIONS. To the extent consistent with their in-
vestment objectives, the Portfolios may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. Government and other obliga-
tions. These participations, which may be issued by the U.S. Government (or a
U.S. Government agency or instrumentality) or by private issuers such as banks
and other institutions, are issued at a discount to their "face value," and may
include stripped mortgage-backed securities ("SMBS"). Stripped securities, par-
ticularly SMBS, may exhibit greater price volatility than ordinary debt securi-
ties because of the manner in which their principal and interest are returned
to investors. The International Bond Portfolio also may purchase "stripped" se-
curities that evidence ownership in the future interest payments or principal
payments on obligations of foreign governments.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of mort-
gage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class receives all of the principal. How-
ever, in some cases, one class will receive some of the interest and most of
the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Portfolio may fail to fully recoup
its initial investment. The market value of SMBS can be extremely volatile in
response to changes in interest rates. The yields on a class of SMBS
28
<PAGE>
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-related obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial invest-
ment will not be fully recouped.
SMBS issued by the U.S. Government (or a U.S. Government agency or instrumen-
tality) may be considered liquid under guidelines established by the Fund's
Board of Trustees if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a Port-
folio's per share net asset value.
Each Portfolio may invest in zero-coupon bonds, which are normally issued at a
significant discount from face value and do not provide for periodic interest
payments. Zero-coupon bonds may experience greater volatility in market value
than similar maturity debt obligations which provide for regular interest pay-
ments.
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Portfolios (except the Tax-Free Portfolios) may in-
vest in debt obligations of domestic or foreign corporations and banks, and may
acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. Bank obligations may include
certificates of deposit, notes, bankers' acceptances and fixed time deposits.
These obligations may be general obligations of the parent bank or may be lim-
ited to the issuing branch or subsidiary by the terms of a specific obligation
or by government regulation. The Portfolios may also make interest-bearing sav-
ings deposits in commercial and savings banks in amounts not in excess of 5% of
their respective total assets. For purposes of determining the permissibility
of an investment in bank obligations, the total assets of a bank are determined
on the basis of the bank's most recent annual financial statements.
U.S. GOVERNMENT OBLIGATIONS. Treasury obligations differ only in their interest
rates, maturities and times of issuance. Obligations of certain agencies and
instrumentalities of the U.S. Government such as the GNMA are supported by the
United States' full faith and credit; others such as those of the FNMA and the
Student Loan Marketing Association are supported by the right of the issuer to
borrow from the Treasury; others such as those of the Federal Farm Credit Banks
or the FHLMC are supported only by the credit of the instrumentality. No assur-
ance can be given that the U.S. Government would provide financial support to
U.S. Government-sponsored agencies or instrumentalities if it is not obligated
to do so by law.
INTEREST RATE AND CURRENCY TRANSACTIONS. The Portfolios may enter into interest
rate swaps and may purchase or sell interest rate caps and floors. The Portfo-
lios expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their holdings, as a duration
management technique or to protect against an increase in the price of securi-
ties a Portfolio anticipates purchasing at a later date. The Portfolios intend
to use these transactions as a hedge and not as a speculative investment.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a
29
<PAGE>
specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined interest rate,
to receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
In addition, the International Bond Portfolio may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future
exchange rates. The Portfolio may engage in foreign currency exchange transac-
tions in connection with the purchase and sale of portfolio securities (trans-
action hedging) and to protect the value of specific portfolio positions (po-
sition hedging). The Portfolio may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection with the set-
tlement of transactions in portfolio securities denominated in that foreign
currency, and may also enter into contracts to purchase or sell foreign cur-
rencies at a future date ("forward contracts") and purchase and sell foreign
currency futures contracts (futures contracts). The Portfolio may also pur-
chase exchange-listed and over-the-counter call and put options on futures
contracts and on foreign currencies, and may write covered call options on up
to 100% of the currencies in its portfolio. In order to protect against cur-
rency fluctuations, the International Bond Portfolio may enter into currency
swaps. Currency swaps involve the exchange of the rights of the Portfolio and
another party to make or receive payments in specified currencies.
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment
objective, each Portfolio may write covered call options, buy put options, buy
call options and write secured put options for the purpose of hedging or earn-
ing additional income, which may be deemed speculative or, with respect to the
International Bond Portfolio, cross-hedging. These options may relate to par-
ticular securities, financial instruments, foreign currencies, securities in-
dices or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corpora-
tion, which performs the obligations of its members if they default.
To the extent consistent with its investment objective, each Portfolio may
also invest in futures contracts and options on futures contracts for hedging
purposes or to maintain liquidity. The value of a Portfolio's contracts may
equal or exceed 100% of the Fund's total assets, although a Portfolio will not
purchase or sell a futures contract unless immediately afterwards the aggre-
gate amount of margin deposits on its existing futures positions plus the
amount of premiums paid for related futures options is 5% or less of its net
assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of certain securities, the cash value of a securities index or a stated quan-
tity of a foreign currency. A Portfolio may
30
<PAGE>
sell a futures contract in order to offset an expected decrease in the value of
its portfolio positions that might otherwise result from a market decline or
currency exchange fluctuation. A Portfolio may do so either to hedge the value
of its securities portfolio as a whole, or to protect against declines occur-
ring prior to sales of securities in the value of the securities to be sold. In
addition, a Portfolio may utilize futures contracts in anticipation of changes
in the composition of its holdings or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
GUARANTEED INVESTMENT CONTRACTS. The Portfolios may make limited investments in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies. Under these contracts, a Portfolio makes cash contributions to a de-
posit fund of the insurance company's general account. The insurance company
then credits to the Portfolio, on a monthly basis, interest which is based on
an index (such as the Salomon Brothers CD Index), but is guaranteed not to be
less than a certain minimum rate. Each Portfolio does not expect to invest more
than 5% of its net assets in GICs at any time during the current fiscal year.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans involve risks of delay in receiving additional collateral or in recover-
ing the loaned securities, or possibly loss of rights in the collateral if the
borrower of the securities becomes insolvent.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master
31
<PAGE>
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. The Portfolios may
invest up to 10% of their total assets in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate of an inverse floater re-
sets in the opposite direction from the market rate of interest to which it is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent
in inverse floaters is associated with greater volatility in their market val-
ues. Issuers of unrated variable and floating rate instruments must satisfy
the same criteria as set forth above for a Portfolio. The absence of an active
secondary market with respect to particular variable and floating rate instru-
ments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when the Portfolio is not entitled to exercise
its demand rights.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase debt securities
from financial institutions subject to the seller's agreement to repurchase
them at an agreed upon time and price ("repurchase agreements"). Repurchase
agreements are, in substance, loans. Default by or bankruptcy of a seller
would expose a Portfolio to possible loss because of adverse market action,
expenses and/or delays in connection with the disposition of the underlying
obligations.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made through reverse repurchase agreements under which a Portfolio
sells portfolio securities to financial institutions such as banks and broker-
dealers and agrees to repurchase them at a particular date and price. The
Portfolios may use the proceeds of reverse repurchase agreements to purchase
other securities either maturing, or under an agreement to resell, on a date
simultaneous with or prior to the expiration of the reverse repurchase agree-
ment. The Portfolios (except the Tax-Free Portfolios) may use reverse repur-
chase agreements when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the in-
terest expense of the transaction. This use of reverse repurchase agreements
may be regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds will be less than the interest expense, that the market value
of the securities sold by a Portfolio may decline below the price of the secu-
rities the Portfolio is obligated to repurchase and that the securities may
not be returned to the Portfolio. During the time a reverse repurchase agree-
ment is outstanding, a Portfolio will maintain a segregated account with the
Fund's custodian containing cash, U.S. Government or other appropriate liquid
high-grade debt securities having a value at least equal to the repurchase
price. A Portfolio's reverse repurchase agreements, together with any other
borrowings, will not exceed, in the aggregate, 33 1/3% of the value of its to-
tal assets. In addition, a Portfolio (except the Tax-Free Portfolios) may bor-
row up to an additional 5% of its total assets for temporary purposes.
32
<PAGE>
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by other
investment companies within the limits prescribed by the 1940 Act. As a share-
holder of another investment company, a Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that each Portfolio bears directly in connection with its
own operations.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of the
value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and re-
purchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to this
15% limit. Each Portfolio may purchase securities which are not registered un-
der the Securities Act of 1933 (the "1933 Act") but which can be sold to "qual-
ified institutional buyers" in accordance with Rule 144A under the 1933 Act.
Any such security will not be considered illiquid so long as it is determined
by a Portfolio's sub-adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become un-
interested in purchasing these restricted securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security that it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and for-
ward commitment transactions involve the risk, however, that the price or yield
obtained in a transaction may be less favorable than the price or yield avail-
able in the market when the securities delivery takes place. Each Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions.
DOLLAR ROLL TRANSACTIONS. To take advantage of attractive opportunities in the
mortgage market and to enhance current income, each Portfolio (except the Tax-
Free Portfolios) may enter into dollar roll transactions. A dollar roll trans-
action involves a sale by the Portfolio of a mortgage-backed or other security
concurrently with an agreement by the Portfolio to repurchase a similar secu-
rity at a later date at an agreed-upon price. The securities that are repur-
chased will bear the same interest rate and stated maturity as those sold, but
pools of mortgages collateralizing such securities may have different prepay-
ment histories than those sold. During the period between the sale and repur-
chase, a Portfolio will not be entitled to receive interest and principal pay-
ments on the securities sold. Proceeds of the sale will be invested in addi-
tional instruments for the Portfolio, and the income from these investments
will generate income for the Portfolio. If such income does not exceed the in-
come, capital appreciation and gain or loss that would have been realized on
the securities sold as part of the dollar roll, the use of this technique will
diminish the investment performance of a Portfolio compared with what the per-
formance would have been without the use of dollar rolls. At the time that a
Portfo-
33
<PAGE>
lio enters into a dollar roll transaction, it will place in a segregated ac-
count maintained with its custodian cash, U.S. Government securities or other
liquid high grade debt obligations having a value equal to the repurchase
price (including accrued interest) and will subsequently monitor the account
to ensure that its value is maintained. A Portfolio's dollar rolls, together
with its reverse repurchase agreements and other borrowings, will not exceed,
in the aggregate, 33 1/3% of the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties a Portfolio is required to purchase may decline below the agreed upon re-
purchase price of those securities. If the broker/dealer to whom a Portfolio
sells securities becomes insolvent, the Portfolio's right to purchase or re-
purchase securities may be restricted and the instruments which the Portfolio
is required to repurchase may be worth less than an instrument which the Port-
folio originally held when the Portfolio is able to complete the purchase.
Successful use of mortgage dollar rolls may depend upon a sub-adviser's abil-
ity to correctly predict interest rates and prepayments. There is no assurance
that dollar rolls can be successfully employed.
SHORT SALES. The Portfolios may only make short sales of securities "against-
the-box." A short sale is a transaction in which a Portfolio sells a security
it does not own in anticipation that the market price of that security will
decline. The Portfolios may make short sales both as a form of hedging to off-
set potential declines in long positions in similar securities and in order to
maintain portfolio flexibility. In a short sale "against-the-box," at the time
of sale, the Portfolio owns or has the immediate and unconditional right to
acquire the identical security at no additional cost. When selling short
"against-the-box," a Portfolio forgoes an opportunity for capital appreciation
in the security.
PORTFOLIO TURNOVER RATES. The past portfolio turnover rates of the Portfolios
are set forth above under "What Are the Portfolios' Financial Highlights?" A
Portfolio's annual portfolio turnover rate will not, however, be a factor pre-
venting a sale or purchase when the sub-adviser believes investment considera-
tions warrant such sale or purchase. Portfolio turnover may vary greatly from
year to year as well as within a particular year. High portfolio turnover
rates will generally result in higher transaction costs to a Portfolio.
INTEREST RATE RISK. The value of fixed income securities in the Portfolios can
be expected to vary inversely with changes in prevailing interest rates. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
securities with shorter maturities. The Portfolios are not restricted to any
maximum or minimum time to maturity in purchasing individual portfolio securi-
ties, and the average maturity of a Portfolio's assets will vary within the
limits stated above under "What Are the Differences Among the Portfolios?"
based upon its sub-adviser's assessment of economic and market conditions.
STATE-SPECIFIC TAX-FREE PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The con-
centration of investments by the State-Specific Tax-Free Portfolios in state-
specific Municipal Obligations raises special investment considerations. In
particular, changes in the economic condition and governmental policies of a
state and its political subdivisions could adversely affect the value
34
<PAGE>
of a Portfolio's shares. Certain matters relating to the states in which the
State-Specific Tax-Free Portfolios invest are described below. For further in-
formation, see "Special Considerations Regarding State-Specific Municipal Obli-
gations" in the Statement of Additional Information.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following three
years; as of June 30, 1994, the General Fund had a surplus of $892.9 million.
The deficit in the Commonwealth's unreserved/undesignated funds also have been
eliminated, and there was a surplus of $79.2 million as of June 30, 1994. Ris-
ing unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates
place increased pressures on the tax resources of the Commonwealth and its mu-
nicipalities. The Commonwealth has sold a substantial amount of bonds over the
past several years, but the debt burden remains moderate. The recession has af-
fected Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service sec-
tors, with losses in more high-paid manufacturing positions. A new governor
took office in January, 1995, but the Commonwealth is likely to continue to
show fiscal restraint.
New Jersey. The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective commer-
cial agriculture, insurance, tourism, petroleum refining and manufacturing, al-
though New Jersey's manufacturing industry has experienced a downward trend in
the last few years. New Jersey is a major recipient of Federal assistance and,
of all the states, is among the highest in the amount of Federal aid received.
Therefore, a decrease in Federal financial assistance may adversely affect the
financial condition of New Jersey and its political subdivisions and instrumen-
talities. While New Jersey's economic base has become more diversified over
time and thus its economy appears to be less vulnerable during recessionary pe-
riods, a recurrence of high levels of unemployment could adversely affect New
Jersey's overall economy and the ability of New Jersey and its political subdi-
visions and instrumentalities to meet their financial obligations. In addition,
New Jersey maintains a balanced budget which restricts total appropriation in-
creases to only 5% annually with respect to any municipality or county, the
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 15% of total employment in agribusiness. In prior
years, the State's overall unemployment rate was commonly somewhat higher than
the national figure. For example, the reported 1990 average monthly State rate
was 5.7%, compared to the 5.5% national figure. However, for the last four
years the State rates were below the national rates (5.5% versus 6.1% in 1994).
The unemployment rate and its effects vary among particular geographic areas of
the
35
<PAGE>
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government
finances generally will not adversely affect the market value of Ohio Munici-
pal Obligations held in the Portfolio or the ability of particular obligors to
make timely payments of debt service on (or lease payments relating to) those
obligations.
36
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the di-
TRUSTEES rection of its Board of Trustees. The following individuals were
elected by shareholders on January 4, 1996 to serve as trustees
of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Officer
of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School, Uni-
versity of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
ADVISER AND The Adviser to the Compass Capital Funds is PNC Asset Management
SUB- Group ("PAMG"). Each of the Portfolios within the Compass Capi-
ADVISERS tal Fund family, except the International Bond Portfolio, is
managed by a specialized portfolio manager who is a member of
PAMG's fixed income portfolio management subsidiary, BlackRock
Financial Management, Inc. ("BlackRock"). The sub-adviser of the
International Bond Portfolio is Morgan Grenfell Investment Serv-
ices Limited ("Morgan Grenfell").
The ten portfolios and their investment sub-advisers and portfo-
lio managers are as follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------- ------------------------------------
<S> <C> <C>
Short Government Bond BlackRock(/1/) Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-
manager since its inception.
Michael P. Lustig; Vice President of
BlackRock since 1989; Portfolio co-
manager since 1994.
Scott Amero; Managing Director of
BlackRock since 1990; Portfolio co-
manager since its inception.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------------- ------------------------------------
<S> <C> <C>
Intermediate Government BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
Bond and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Intermediate Bond BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Core Bond BlackRock(/1/) Scott Amero (see above); Mr. Amero
has been Portfolio manager since its
inception.
Managed Income BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
International Bond Morgan Grenfell(/2/) Martin A. Hall; Director of Morgan
Grenfell since 1991; Portfolio
manager since 1991.
Tax-Free Income BlackRock(/1/) Kevin Klingert; portfolio manager at
BlackRock since 1991; prior to
joining BlackRock, Assistant Vice
President, Merrill, Lynch, Pierce,
Fenner & Smith; Portfolio manager
since 1995.
Pennsylvania Tax-Free BlackRock(/1/) Kevin Klingert (see above);
Income Portfolio manager since 1995.
New Jersey Tax-Free In- BlackRock(/1/) Kevin Klingert (see above);
come Portfolio manager since 1995.
Ohio Tax-Free Income BlackRock(/1/) Kevin Klingert (see above);
Portfolio manager since 1995.
</TABLE>
(1) BlackRock has its primary offices at 345 Park Avenue, New York, New York
10154.
(2) Morgan Grenfell has its primary offices at 20 Finsbury Circus, London ECZM,
1NB England.
38
<PAGE>
PAMG was organized in 1994 to perform advisory services for in-
vestment companies, and has its principal offices at 1835 Market
Street, Philadelphia, Pennsylvania 19103. PAMG is an indirect
wholly-owned subsidiary of PNC Bank Corp., a multi-bank holding
company. Morgan Grenfell is an indirect wholly-owned subsidiary
of Deutsche Bank, A.G., a German financial services conglomer-
ate.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-advisers are entitled to fees, computed
daily on a Portfolio-by-Portfolio basis and payable monthly, at
the maximum annual rates set forth below. As stated under "What
Are The Expenses Of The Portfolios?" PAMG and the sub-advisers
intend to waive a portion of their fees during the current fis-
cal year. All sub-advisory fees are paid by PAMG, and do not
represent an extra charge to the Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)
<TABLE>
<CAPTION>
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL
BOND PORTFOLIO INTERNATIONAL BOND PORTFOLIO
------------------------- ----------------------------------
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE ADVISORY FEE FEE
- ----------------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
first $1 billion .500% .350% .550% .400%
$1 billion--$2 billion .450 .300 .500 .350
$2 billion--$3 billion .425 .275 .475 .325
greater than $3 billion .400 .250 .450 .300
</TABLE>
For their last fiscal years, the Portfolios paid investment ad-
visory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Short Government Bond Portfolio, .30%; Intermediate Govern-
ment Bond Portfolio, .20%; Intermediate Bond Portfolio, .25%;
Core Bond Portfolio, .35%; Managed Income Portfolio, .35%; In-
ternational Bond Portfolio, .80%; Tax-Free Income Portfolio, 0%;
Pennsylvania Tax-Free Income Portfolio, .27%; New Jersey Tax-
Free Income Portfolio, .60%; and Ohio Tax-Free Income Portfolio,
0%.
The sub-advisers to each Portfolio strive to achieve best execu-
tion on all transactions. Infrequently, brokerage transactions
for the Portfolios may be directed through registered
broker/dealers who have entered into dealer agreements with Com-
pass Capital's distributor, subject to the requirements of best
execution.
ADMINISTRATORSCompass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and Com-
pass Distributors, Inc. ("CDI") (the "Administrators") serve as
the
39
<PAGE>
Fund's co-administrators. CCG and PFPC are indirect wholly-
owned subsidiaries of PNC Bank Corp. CDI is a wholly-owned
subsidiary of Provident Distributors, Inc. ("PDI"). A major-
ity of the outstanding stock of PDI is owned by its officers
and the remaining outstanding stock is owned by Pennsylvania
Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects
of its administration and operation, including matters relat-
ing to the maintenance of financial records and fund account-
ing. As compensation for these services, CCG is entitled to
receive a fee, computed daily and payable monthly, at an an-
nual rate of .03% of each Portfolio's average daily net as-
sets, and PFPC and CDI are entitled to receive a combined
fee, computed daily and payable monthly, at an annual rate of
.20% of the first $500 million of each Portfolio's average
daily net assets, .18% of the next $500 million of each Port-
folio's average daily net assets, .16% of the next $1 billion
of each Portfolio's average daily net assets and .15% of each
Portfolio's average daily net assets in excess of $2 billion.
From time to time the Administrators may waive some or all of
their administration fees from a Portfolio.
For information about the operating expenses the Portfolios
expect to pay for the current fiscal year, see "What Are The
Expenses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves
AGENT, as their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses in-
clude, but are not limited to, fees paid to PAMG and the Ad-
ministrators, transfer agency and custodian fees, trustee
fees, taxes, interest, professional fees, shareholder servic-
ing and processing fees, fees and expenses in registering and
qualifying the Portfolios and their shares for distribution
under Federal and state securities laws, expenses of prepar-
ing prospectuses and statements of additional information and
of printing and distributing prospectuses and statements of
additional information to existing shareholders, expenses re-
lating to shareholder reports, shareholder meetings and proxy
solicitations, insurance premiums, the expense of independent
pricing services, and other expenses which are not expressly
assumed by PAMG or the Fund's service providers under their
agreements with the Fund. Any general expenses of the Fund
that do not belong to a particular investment portfolio will
be allocated among all investment portfolios by or under the
direction of the Board of Trustees in a manner the Board de-
termines to be fair and equitable.
40
<PAGE>
How Are Shares Purchased And Redeemed?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Plan permits CDI, PAMG, the Administrators and other
companies that receive fees from the Fund to make payments relating to distri-
bution and sales support activities out of their past profits or other sources
available to them. The Fund is not required or permitted under the Plan to make
distribution payments with respect to Institutional Shares.
PURCHASE OF SHARES. Institutional Shares are offered to institutional invest-
ors, including registered investment advisers with a minimum investment of
$500,000 and individuals with a minimum investment of $2,000,000.
Institutional Shares are sold at their net asset value per share next computed
after an order is received by PFPC. Orders received by PFPC by 4:00 p.m. (East-
ern Time) on a Business Day are priced the same day. A "Business Day" is any
weekday that the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open for business.
Purchase orders may be placed by telephoning PFPC at (800) 441-7450. Orders re-
ceived by PFPC after 4:00 p.m. (Eastern Time) are priced on the following Busi-
ness Day.
Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Fund's custodian. Payment may also, in
the discretion of the Fund, be made in the form of securities that are permis-
sible investments for the respective Portfolios. For further information, see
the Statement of Additional Information. The minimum initial investment for in-
stitutions is $5,000. There is no minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Institutional Shares.
REDEMPTION OF SHARES. Redemption orders for Institutional Shares may be placed
by telephoning PFPC at (800) 441-7450. Institutional Shares are redeemed at
their net asset value per share next determined after PFPC's receipt of the re-
demption order. The Fund, the Administrators and the Distributor will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Fund and its service providers will not be liable for any
loss, liability, cost or expense for acting upon telephone instructions that
are reasonably believed to be genuine in accordance with such procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeem-
41
<PAGE>
ing Institution on the next Business Day, provided that the Fund's custodian is
also open for business. Payment for redemption orders received after 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally
wired in Federal funds on the next Business Day following redemption on which
the Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of PAMG, an earlier payment could adversely affect a Portfolio. No
charge for wiring redemption payments is imposed by the Fund.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund may redeem Institutional Shares in any Portfolio account if the ac-
count balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 on thirty days'
written notice.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
42
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
The net asset value is calculated separately for Institutional Shares of each
Portfolio as of the close of regular trading hours on the NYSE (currently 4:00
p.m. Eastern Time) on each Business Day by dividing the value of all securities
and other assets owned by a Portfolio that are allocated to its Institutional
Shares, less the liabilities charged to its Institutional Shares, by the number
of its Institutional Shares that are outstanding.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees. The amortized cost method of valuation will also be used with re-
spect to debt obligations with sixty days or less remaining to maturity unless
a Portfolio's sub-adviser under the supervision of the Board of Trustees deter-
mines such method does not represent fair value.
43
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. All distributions are
reinvested at net asset value in the form of additional full and fractional
shares of Institutional Shares of the relevant Portfolio unless a shareholder
elects otherwise. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC. The net investment income of the Managed Income, Tax-Free
Income, Intermediate Government Bond, Intermediate Bond and International Bond
Portfolios is declared monthly as a dividend to investors who are shareholders
of such Portfolio at the close of business on the day of declaration. The net
investment income of the Pennsylvania Tax-Free Income, New Jersey Tax-Free In-
come, Ohio Tax-Free Income, Core Bond and Short Government Bond Portfolios is
declared daily as a dividend to investors who are shareholders of such Portfo-
lio at, and whose payment for share purchases are available to the particular
Portfolio in Federal funds by, the close of business on the day of declaration.
All dividends are paid within ten days after the end of each month and, in the
case of the Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Ohio Tax-
Free Income, Core Bond and Short Government Bond Portfolios, within seven days
after redemption of all of a shareholder's shares in a Portfolio. Net realized
capital gains (including net short-term capital gains), if any, will be dis-
tributed by each Portfolio at least annually.
44
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
"exempt interest dividends" or are treated as a return of capital), regardless
of whether the distributions are paid in cash or reinvested in additional
Shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Tax-Free Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns, and
in two circumstances such amounts, while exempt from regular Federal income
tax, are taxable to persons subject to alternative minimum and environmental
taxes. First, "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and non-corporate taxpayers in determining alternative
minimum and environmental tax liability. Second, "exempt interest dividends"
must be taken into account by corporate taxpayers in determining certain ad-
justments for alternative minimum and environmental tax purposes. Shareholders
who are recipients of Social Security Act or Railroad Retirement Act benefits
should note that "exempt interest dividends" will be taken into account in de-
termining the taxability of their benefit payments.
Each Tax-Free Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions declared from net investment income during that year and may
differ significantly from the actual percentages for any particular day.
Compass Capital will send written notices to shareholders annually regarding
the tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on
a specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during the
following January.
An investor considering buying shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
45
<PAGE>
A taxable gain or loss may be realized by a shareholder upon the redemption or
transfer of shares depending upon their tax basis and their price at the time
of redemption, or transfer. Generally, shareholders may include sales charges
paid on the purchase of Shares in their tax basis for the purposes of determin-
ing gain or loss on a redemption, transfer or exchange of such Shares. However,
if a shareholder exchanges the Shares for Shares of another Portfolio within 90
days of purchase and is able to reduce the sales charges applicable to the new
Shares (by virtue of the Fund's exchange privilege), the amount equal to such
reduction may not be included in the tax basis of the shareholder's exchanged
Shares for the purpose of determining gain or loss but may be included (subject
to the same limitation) in the tax basis of the new Shares.
Any loss upon the sale or exchange of shares held for six months or less will
be disallowed for Federal income tax purposes to the extent of any exempt in-
terest dividends received by the shareholder. For the Ohio Tax-Free Income
Portfolio, the loss will be disallowed for Ohio income tax purposes to the same
extent, even though, for Ohio income tax purposes, some portion of such divi-
dends actually may have been subject to Ohio income tax.
It is expected that dividends and certain interest income earned by the Inter-
national Bond Portfolio from foreign securities will be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of the taxable year in question consists
of stock or securities of foreign corporations, the Portfolio may elect, for
U.S. Federal income tax purposes, to treat certain foreign taxes paid by it,
including generally any withholding taxes and other foreign income taxes, as
paid by its shareholders. The Portfolio intends to make this election. As a re-
sult, the amount of such foreign taxes paid by the Portfolio will be included
in its shareholders' income pro rata (in addition to taxable distributions ac-
tually received by them), and each shareholder generally will be entitled ei-
ther (a) to credit a proportionate amount of such taxes against U.S. Federal
income tax liabilities, or (b) if a shareholder itemizes deductions, to deduct
such proportionate amounts from U.S. income.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of the dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In addi-
tion, future legislative or administrative changes or court decisions may mate-
rially affect the tax consequences of investing in a Portfolio. Shareholders
who are non-resident alien individuals, foreign trusts or estates, foreign cor-
porations or foreign partnerships may be subject to different U.S. Federal in-
come tax treatment.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder attributable
to interest realized by the Pennsylvania Tax-Free Income Portfolio from Penn-
sylvania Municipal Obligations or attributable to insurance proceeds on account
of such interest, is not taxable to individuals, estates or trusts under the
Personal Income Tax (in the case of insurance proceeds, to the extent they are
exempt for Federal Income Tax purposes); to corporations under the Corporate
Net Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for
46
<PAGE>
Federal Income Tax purposes); nor to individuals under the Philadelphia School
District Net Investment Income Tax ("School District Tax").
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Pennsylvania Tax-Free Income Portfolio of Pennsylvania Munici-
pal Obligations is taxable under the Personal Income Tax, the Corporate Net In-
come Tax, and, unless these assets were held by the Pennsylvania Tax-Free In-
come Portfolio for more than six months, the School District Tax.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Obligations held by the Pennsylvania Tax-Free Income
Portfolio, such gain may be subject to the Personal Income Tax and Corporate
Net Income Tax. Such gain may also be subject to the School District Tax, ex-
cept that gain realized with respect to a share held for more than six months
is not subject to the School District Tax.
This discussion does not address the extent, if any, to which shares, or inter-
est and gain thereon, is subject to, or included in the measure of, the special
taxes imposed by the Commonwealth of Pennsylvania on banks and other financial
institutions or with respect to any privilege, excise, franchise or other tax
imposed on business entities not discussed above (including the Corporate Capi-
tal Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Tax-Free Income Portfolio are not subject to
the Pennsylvania County Personal Property Tax to the extent that the Portfolio
is comprised of Pennsylvania Municipal Obligations and Federal obligations (if
the interest on such obligations is exempt from state and local taxation under
the laws of the United States).
NEW JERSEY TAX CONSIDERATIONS. It is anticipated that substantially all divi-
dends paid by the New Jersey Tax-Free Income Portfolio will not be subject to
New Jersey personal income tax. In accordance with the provisions of New Jersey
law as currently in effect, distributions paid by a "qualified investment fund"
will not be subject to the New Jersey personal income tax to the extent that
the distributions are attributable to income received as interest or gain from
New Jersey State-Specific Obligations, or as interest or gain from direct U.S.
Government obligations. Distributions by a qualified investment fund that are
attributable to most other sources will be subject to the New Jersey personal
income tax. To be classified as a qualified investment fund, at least 80% of
the Portfolio's investments must consist of New Jersey State-Specific Obliga-
tions or direct U.S. Government obligations; it must have no investments other
than interest-bearing obligations, obligations issued at a discount, and cash
and cash items (including receivables); and it must satisfy certain reporting
obligations and provide certain information to its shareholders. Shares of the
Portfolio are not subject to property taxation by New Jersey or its political
subdivisions.
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corpo-
47
<PAGE>
rate shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio per-
sonal income tax or municipal or school district income taxes in Ohio will not
be subject to such taxes on distributions from the Ohio Tax-Free Income Portfo-
lio to the extent that such distributions are properly attributable to interest
on Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States)
("U.S. Obligations"), if (a) the Portfolio continues to qualify as a regulated
investment company for Federal income tax purposes and (b) at all times at
least 50% of the value of the total assets of the Portfolio consists of Ohio
Municipal Obligations or similar obligations of other states or their subdivi-
sions. Corporations that are subject to the Ohio corporation franchise tax will
not have to include distributions from the Ohio Tax-Free Income Portfolio in
their net income base for purposes of calculating their Ohio corporation fran-
chise tax liability to the extent that such distributions either constitute ex-
empt-interest dividends for Federal income tax purposes or are properly attrib-
utable to interest on Ohio Municipal Obligations or U.S. Obligations. However,
Shares of the Ohio Tax-Free Income Portfolio will be included in a corpora-
tion's net worth base for purposes of calculating the Ohio corporation fran-
chise tax. Distributions properly attributable to gain on the sale, exchange or
other disposition of Ohio Municipal Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in Ohio and
will not be included in the net income base of the Ohio corporation franchise
tax. Distributions attributable to other sources will be subject to the Ohio
personal income tax and the Ohio corporation franchise tax.
48
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio, except the Intermediate Bond, Managed Income and Ohio Tax-Free In-
come Portfolios, offers five separate classes of shares--Institutional Shares,
Service Shares, Investor A Shares, Investor B Shares and Investor C Shares. The
Intermediate Bond, Managed Income and Ohio Tax-Free Income Portfolios offer In-
stitutional Shares, Service Shares and Investor A Shares and, in addition, the
Ohio Tax-Free Income Portfolio offers Investor B Shares. This prospectus re-
lates only to Investor Shares of the ten Portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's classes
of Investor Shares. The Fund offers various services and privileges in connec-
tion with its Investor Shares that are not generally offered in connection with
its Institutional and Service Shares, including an automatic investment plan,
automatic withdrawal plan and checkwriting. For further information regarding
the Fund's Service and Investor Share classes, contact PFPC at (800) 441-7764
(Service Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank holding company.
49
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for Institutional Shares of the Portfolios may be
quoted in advertisements and communications to shareholders. Total return will
be calculated on an average annual total return basis for various periods. Av-
erage annual total return reflects the average annual percentage change in
value of an investment in Institutional Shares of a Portfolio over the measur-
ing period. Total return may also be calculated on an aggregate total return
basis. Aggregate total return reflects the total percentage change in value
over the measuring period. Both methods of calculating total return assume that
dividend and capital gain distributions made by a Portfolio with respect to its
Institutional Shares are reinvested in Institutional Shares.
The yield of Institutional Shares is computed by dividing the Portfolio's net
income per share allocated to its Institutional Shares during a 30-day (or one
month) period by the net asset value per share on the last day of the period
and annualizing the result on a semi-annual basis. Each Tax-Free Portfolio's
"tax-equivalent yield" may also be quoted, which shows the level of taxable
yield needed to produce an after-tax equivalent to a Portfolio's tax-free
yield. This is done by increasing the Portfolio's yield (calculated above) by
the amount necessary to reflect the payment of Federal and/or state income tax
at a stated tax rate.
The performance of a Portfolio's Institutional Shares may be compared to the
performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the performance of a Portfolio's Institu-
tional Shares may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service, and with the performance of the Lehman GMNA Index, the T-Bill Index
and the "stocks, bonds and inflation index" published annually by Ibbotson As-
sociates and the Lehman Government Corporate Bond Index, as well as the bench-
marks attached to this Prospectus. Performance information may also include
evaluations of the Portfolios and their Institutional Shares published by na-
tionally recognized ranking services, and information as reported in financial
publications such as Business Week, Fortune, Institutional Investor, Money Mag-
azine, Forbes, Barron's, The Wall Street Journal and The New York Times, or in
publications of a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Institutional Shares of a particular Portfolio, a Portfolio
may provide other information demonstrating hypothetical investment returns.
This information may include, but is not limited to, illustrating the com-
pounding effects of a dividend in a dividend reinvestment plan or the impact of
tax-deferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Institutional Shares, when redeemed, may be worth more or less
than their original cost. Since performance will fluctuate, performance data
for Institutional Shares of a Portfolio cannot necessarily be used to compare
an
50
<PAGE>
investment in such shares with bank deposits, savings accounts and similar in-
vestment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Performance is generally a function of the kind
and quality of the instruments held in a portfolio, portfolio maturity, operat-
ing expenses and market conditions. Any fees charged by brokers or other insti-
tutions directly to their customer accounts in connection with investments in
Institutional Shares will not be included in the Portfolio performance calcula-
tions.
51
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week.The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call COMPASS CAPITAL
FUNDS at (800) 441-7450.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7764.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
52
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Short Government Bond Merrill 1-3 Year Treasuries with maturities ranging from 1
Treasury Index to 2.99 years
Intermediate Government Lehman Brothers Treasury and agency issues in the Lehman
Bond Intermediate Government Aggregate, excluding maturities above 9.99
years
Intermediate Bond Lehman Brothers Treasury, agency and corporate issues in
Intermediate Gov't/Corp the Lehman Aggregate, excluding maturities
above 9.99 years
Core Bond Lehman Aggregate The Lehman Aggregate contains issues that
meet the following criteria:
. At least $100 million par amount
outstanding for entry and exit
. Rated investment grade (at least Baa-3)
by Moody's or S&P (if not rated by
Moody's)
. At least one year at maturity
. Coupon must have a fixed rate
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of June 1995, the composition of the
Lehman Brothers Aggregate Index is:
54% allocation to Treasury and government
securities
28% allocation to mortgage-backed
securities
18% allocation to corporate and asset-
backed securities
Managed Income Salomon BIG Very similar to the Lehman Aggregate, the
Salomon BIG is a market-weighted index
comprised of U.S. Treasury, government-
sponsored, investment grade corporate (Baa-
3/BBB- or better), mortgage- and asset-
backed securities.
. Issues comprising the index have an
average life of at least 1 year, with no
maximum maturity
. Corporate and government-sponsored issues
have a minimum face amount of $100
million to qualify for entry, and a
minimum of $75 million face amount to
exit
. Treasury and mortgage issues have a
minimum face amount of $1 billion for
both entry and exit
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of June 1995, the composition of the
Index is:
53% allocation to Treasury and government
securities
29% allocation to mortgage-backed
securities
18% allocation to corporate and asset-
backed securities
International Bond Salomon Non-U.S. Hedged A market-capitalization weighted benchmark
World Government Bond that tracks the performance of the 13
Index Government bond markets of Australia,
Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands,
Spain, Sweden and the United Kingdom. The
currency-hedged return is computed by using
a rolling one-month forward exchange
contract as a hedging instrument.
Tax-Free Income Lehman Municipal Bond All of the bonds in the following Municipal
Index Indices possess the following
characteristics:
. A minimum credit rating of Baa-3
. Outstanding par value of at least $3
million
. Must be issued as part of a deal of at
least $50 million
. Individual bonds must have been issued
within the last 5 years
. Remaining maturity of not less than one
year
Excludes bonds subject to the alternative
minimum tax (AMT), taxable municipal bonds,
and floating-rate or zero coupon municipal
bonds
Pennsylvania Tax-Free Lehman Local GO Index Local general obligation bonds
Income
New Jersey Tax-Free Lehman Local GO Index Local general obligation bonds
Income
Ohio Tax-Free Income Lehman Local GO Index Local general obligation bonds
</TABLE>
53
<PAGE>
The Compass Capital Funds
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------
SHORT GOVERNMENT BOND PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO
CORE BOND PORTFOLIO
MANAGED INCOME PORTFOLIO
INTERNATIONAL BOND PORTFOLIO
TAX-FREE INCOME PORTFOLIO
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
NEW JERSEY TAX-FREE INCOME PORTFOLIO
OHIO TAX-FREE INCOME PORTFOLIO
THE BOND
PORTFOLIOS
INSTITUTIONAL SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(SERVICE SHARES OF THE
SHORT GOVERNMENT BOND PORTFOLIO,
INTERMEDIATE GOVERNMENT PORTFOLIO,
INTERMEDIATE BOND PORTFOLIO,
CORE BOND PORTFOLIO,
MANAGED INCOME PORTFOLIO,
INTERNATIONAL BOND PORTFOLIO,
TAX-FREE INCOME PORTFOLIO,
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO,
NEW JERSEY TAX-FREE INCOME PORTFOLIO AND
OHIO TAX-FREE INCOME PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The
Expenses Of The
Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
[ART]
PROSPECTUS
BOND
PORTFOLIOS
Service
Shares
COMPASS
--------------------
[LOGO] CAPITAL FUNDS
N O T Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
INSURED and involve risk including
possible loss of principal.
<PAGE>
The Bond Portfolios Service Shares January 16, 1996
- -------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This Prospec-
tus describes the Service Shares of ten of those portfolios
(the "Portfolios"):
Short Government Bond Portfolio
Intermediate Government Bond Portfolio
Intermediate Bond Portfolio
Core Bond Portfolio
Managed Income Portfolio
International Bond Portfolio
Tax-Free Income Portfolio
Pennsylvania Tax-Free Income Portfolio
New Jersey Tax-Free Income Portfolio
Ohio Tax-Free Income Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional
Information may be obtained free of charge from the Fund by
calling (800) 441-7764. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OB-
LIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RE-
SERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN
THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC TAX-FREE PORTFOLIOS
ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
<PAGE>
The Bond Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of ten in-
vestment portfolios that provide investors with a broad spectrum
of investment alternatives within the fixed income sector. Six
of these Portfolios invest in taxable bonds, and four of these
Portfolios invest in tax-exempt bonds. A detailed description of
each Portfolio begins on page 22.
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PERFORMANCE BENCEMARK LIPPER PEER GROUP
<S> <C> <C>
Short Government Bond Merrill 1-3 Year Treasury Short U.S. Government
Index
Intermediate Government Lehman Brothers Intermediate U.S.
Bond Intermediate Government Government
Intermeditate Bond Lehman Brothers Intermediate
Intermediate Government/Corporate
Government/Corporate
Core Bond Lehman Aggregate Intermediate Investment
Grade Debt
Managed Income Salomon BIG Corporate Debt A-Rated
International Bond Salomon Non-U.S. Hedged General World Income
World Government Bond
Index
Tax-Free Income Lehman Municipal Bond General Municipal Debt
Index
PA Tax-Free Income Lehman Local GO Index PA Municipal Debt
NJ Tax-Free Income Lehman Local GO Index NJ Municipal Debt
OH Tax Free Income Lehman Local GO Index OH Municipal Debt
</TABLE>
PNC Asset Management Group, Inc. ("PAMG") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc.
("BlackRock") serves as sub-adviser to each Portfolio except the
International Bond Portfolio, which is sub-advised by Morgan
Grenfell Investment Services Limited ("Morgan Grenfell").
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
BOND different directions in fixed income investing. You may wish to
PORTFOLIOS use the table of contents on page 5 to find descriptions of the
Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. Some or all of the Portfolios may
BOND INVESTING purchase mortgage-related, asset-backed, foreign and illiquid
securities; enter into repurchase and reverse repurchase
agreements and engage in leveraging techniques; lend portfo-
lio securities to third parties; and enter into futures con-
tracts and options. Each of the Pennsylvania, New Jersey and
Ohio Tax-Free Income Portfolios (the "State-Specific Tax-Free
Portfolios") concentrates in the securities of issuers lo-
cated in a particular state, and is non-diversified, which
means that its performance may be dependent upon the perfor-
mance of a smaller number of securities than the other Port-
folios, which are considered diversified. See "What Addi-
tional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?" and
CAPITAL FUNDS "What Special Purchase And Redemption Procedures May Apply?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 11
What Are The Portfolios?..................................... 22
What Are The Differences Among The Portfolios?............... 23
What Types of Securities Are In The Portfolios?.............. 24
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 25
What Additional Investment Policies And Risks Apply?......... 26
Who Manages The Fund?........................................ 38
How Are Shares Purchased And Redeemed?....................... 43
What Special Purchase And Redemption Procedures May Apply?... 45
How Is Net Asset Value Calculated?........................... 47
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 48
How Are Fund Distributions Taxed?............................ 49
How Is The Fund Organized?................................... 53
How Is Performance Calculated?............................... 54
How Can I Get More Information?.............................. 56
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- -------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Service Shares of the Portfolios after fee waivers for the current fiscal year
ending September 30, 1996 as a percentage of average daily net assets. An ex-
ample based on the summary is also shown.
<TABLE>
<CAPTION>
SHORT INTERMEDIATE INTERMEDIATE
GOVERNMENT BOND GOVERNMENT BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .30% .30% .30%
Other operating expenses .55 .55 .55
-------- -------- ------
Administration fees (after fee
waivers)(/1/) .15 .15 .13
Shareholder servicing fees .15 .15 .15
Other expenses .25 .25 .27
------- ------- -----
Total Portfolio operating
expenses (after fee
waivers)(/1/) .85% .85% .85%
======== ======== ======
</TABLE>
(1) Without waivers, advisory fees would be .50% and administration fees would
be .23% for each Portfolio. PAMG and the Portfolios' administrators are
under no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
remainder of the current fiscal year as necessary to maintain the Portfo-
lios' total operating expenses at the levels set forth in the table. The
information in the table is based on the advisory and administration fees
and other expenses payable after fee waivers for the fiscal year ended
September 30, 1995, as restated to reflect current expenses and fee waiv-
ers. Without waivers, "Other operating expenses" would be .63%, .63% and
.65%, respectively, and "Total Portfolio operating expenses" would be
1.13%, 1.13% and 1.15%, respectively.
6
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED INCOME
CORE PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/1/) .30% .35%
Other operating expenses .55 .53
------- -------
Administration fees (after fee waivers)(/1/) .15 .12
Shareholder servicing fees .15 .15
Other expenses .25 .26
------ ------
Total Portfolio operating expenses (after fee
waivers)(/1/) .85% .88%
======= =======
</TABLE>
(1) Without waivers, advisory fees would be .50% and administration fees would
be .23% for each Portfolio. PAMG and the Portfolios' administrators are un-
der no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
remainder of the current fiscal year as necessary to maintain the Portfo-
lios' total operating expenses at the levels set forth in the table. The
information in the table is based on the advisory and administration fees
and other expenses payable after fee waivers for the fiscal year ended Sep-
tember 30, 1995, as restated to reflect current expenses and fee waivers.
Without waivers, "Other operating expenses" would be .63% and .64%, respec-
tively, and "Total Portfolio operating expenses" would be 1.13% and 1.14%,
respectively.
7
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA
INTERNATIONAL BOND TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .55% .30% .30%
Other operating expenses .73 .55 .55
---------- -------- --------
Administration fees
(after fee
waivers)(/1/) .15 .13 .13
Shareholder servicing
fee .15 .15 .15
Other expenses .43 .27 .27
-------- ------- -------
Total Portfolio
operating expenses
(after fee
waivers)(/1/) 1.28% .85% .85%
========== ======== ========
</TABLE>
(1) Without waivers, advisory fees would be .55%, .50% and .50%, respectively,
and administration fees would be .23% for each Portfolio. In addition, the
Expense Summary reflects reimbursements made to the Tax-Free Income Port-
folio by the adviser. PAMG and the Portfolio's administrators are under no
obligation to waive fees or reimburse expenses, but have informed the Fund
that they expect to waive fees and reimburse expenses during the remainder
of the current fiscal year as necessary to maintain the Portfolios' total
operating expenses at the levels set forth in the table. The information
in the table is based on the advisory and administration fees and other
expenses payable after fee waivers for the fiscal year ended September 30,
1995, as restated to reflect current expenses and fee waivers. Without
waivers, "Other operating expenses" would be .81%, .65% and .65%, respec-
tively, and "Total Portfolio operating expenses" would be 1.36%, 1.15% and
1.15%, respectively.
8
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY OHIO
TAX-FREE TAX-FREE
INCOME INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)(/1/) .30% .30%
Other operating expenses .55 .55
----- -----
Administration fees (after fee waivers)(/1/) .10 .10
Shareholder servicing fees .15 .15
Other expenses .30 .30
---- ----
Total Portfolio operating expenses (after fee
waivers)(/1/) .85% .85%
===== =====
</TABLE>
(1) Without waivers, advisory fees would be .50% and administration fees would
be .23% for each Portfolio. PAMG and the Portfolios' administrators are un-
der no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
remainder of the current fiscal year as necessary to maintain the Portfo-
lios' total operating expenses at the levels set forth in the table. The
information in the tables is based on the advisory and administration fees
and other expenses payable after fee waivers for the fiscal year ended Sep-
tember 30, 1995, as restated to reflect current expenses and fee waivers.
Without waivers, "Other operating expenses" would be .68% and .68%, respec-
tively, and "Total Portfolio operating expenses" would be 1.18% and 1.18%,
respectively.
9
<PAGE>
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Short Government Bond Portfolio $ 9 $27 $47 $105
Intermediate Government Bond
Portfolio 9 27 47 105
Intermediate Bond Portfolio 9 27 47 105
Core Bond Portfolio 9 27 47 105
Managed Income Portfolio 9 28 49 108
International Bond Portfolio 13 41 70 155
Tax-Free Income Portfolio 9 27 47 105
Pennsylvania Tax-Free Income
Portfolio 9 27 47 105
New Jersey Tax-Free Income Portfolio 9 27 47 105
Ohio Tax-Free Income Portfolio 9 27 47 105
</TABLE>
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses that an investor in the Portfolios will bear
either directly or indirectly. They do not reflect any charges that may be im-
posed by brokers or other institutions directly on their customer accounts in
connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
10
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and, except for the period March
1, 1995 through August 31, 1995 with respect to the Interna-
tional Bond Portfolio and the New Jersey Tax-Free Income Portfo-
lio, has been audited by the Portfolios' independent accountant
(or former accountants with respect to the Short Government Bond
and Core Bond Portfolios). This financial information should be
read together with those financial statements. For the periods
shown, the Short Government Bond Portfolio and Core Bond Portfo-
lio offered only one class of shares to institutional investors,
and the New Jersey Tax-Free Income Portfolio and International
Bond Portfolio offered one class of shares to both institutional
and retail investors. Further information about the performance
of the Portfolios is available in the Fund's annual shareholder
reports. Both the Statement of Additional Information and the
annual shareholder reports may be obtained from the Fund free of
charge by calling (800) 441-7764.
11
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SHORT GOVERNMENT BOND PORTFOLIO+
(FORMERLY, THE SHORT-TERM BOND PORTFOLIO)
<TABLE>
<CAPTION>
YEAR YEAR JULY 17, 1992(*)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 9.71 $ 9.96 $ 10.00
------- ------- -------
Net investment income (net of
$.014, $.011 and $.005
respectively, of interest
expense)(**) 0.58 0.48 0.51
Net realized and unrealized
loss on investments 0.13 (0.25) (0.06)
------- ------- -------
Net increase from investment
operations 0.71 0.23 0.45
------- ------- -------
Dividends from net investment
income (0.58) (0.48) (0.49)
Distributions from net realized
capital gains (0.01) - - - -
------- ------- -------
Total dividends and
distributions (0.59) (0.48) (0.49)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.83 $ 9.71 $ 9.96
======= ======= =======
Total investment return(***) 6.99% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Expenses(**) 0.57% 0.57% 0.56%(****)
Net investment income(**) 6.08% 4.70% 5.32%(****)
SUPPLEMENTAL DATA:
Average net assets (in
thousands) $34,236 $36,686 $67,540
Portfolio turnover 586% 455% 513%
Net assets, end of period (in
thousands) $44,486 $31,265 $51,611
</TABLE>
+ This Portfolio commenced operations on July 17, 1992 as the Short Duration
Portfolio, a separate investment portfolio (the "Predecessor Short Govern-
ment Bond Portfolio") of The BFM Institutional Trust Inc., which was orga-
nized as a Maryland business corporation. On January 12, 1996, the assets
and liabilities of the Predecessor Short Government Bond Portfolio were
transferred to this Portfolio, and were combined with the assets of a pre-
existing portfolio investment maintained by the Fund.
(*) Commencement of investment operations.
(**) The investment adviser of the Predecessor Short Government Bond Portfolio
waived fees amounting to $102,707 and $110,232 and reimbursed expenses
amounting to $61,195 and $55,582, for the periods ended June 30, 1995 and
June 30, 1994, respectively. For the period July 17, 1992 through June 30,
1993, the administrator of the Predecessor Short Bond Portfolio waived
fees amounting to $64,580. If all expenses had been borne, the expense ra-
tios would have been 1.05%, 1.02% and 0.66% for the periods ended June 30,
1995, June 30, 1994 and June 30, 1993, respectively. The net investment
income ratios would have been 5.60%, 4.25% and 5.22% for the periods ended
June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The net in-
vestment income on a per share basis would have been $0.53, $0.43 and
$0.49 for the periods ended June 30, 1995, June 30, 1994 and June 30,
1993, respectively.
(***) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are as-
sumed, for purposes of this calculation, to be reinvested at the net as-
set value per share on the payment date. Total investment return does not
reflect sales load on Investor Shares.
(****) Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
(FORMERLY, THE INTERMEDIATE GOVERNMENT PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29//93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.64 $ 10.60 $ 10.45
------- ------- -------
Income from investment operations
Net investment income 0.56 0.53 0.09
Net gain (loss) on investments (both realized
and unrealized) 0.37 (0.86) 0.15
------- ------- -------
Total from investment operations 0.93 (0.33) 0.24
------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.55) (0.53) (0.09)
Distributions from net realized capital gains - - (0.10) - -
------- ------- -------
Total distributions (0.55) (0.63) (0.09)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.02 $ 9.64 $ 10.60
======= ======= =======
Total return 9.99% (3.31)% 2.30%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $49,762 $60,812 $15,035
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.69% 0.65% 0.67%/2/
Before advisory/administration fee waivers 1.06% 1.05% 0.75%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 5.67% 5.30% 5.14%/2/
Before advisory/administration fee waivers 5.30% 4.90% 5.06%/2/
PORTFOLIO TURNOVER RATE 247% 9% 80%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE BOND PORTFOLIO
(FORMERLY, THE INTERMEDIATE-TERM BOND PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 9/29//93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.05 $ 10.01 $ 9.99
------- ------- ------
Income from investment operations
Net investment income 0.54 0.54 - -
Net gain (loss) on investments (both realized
and unrealized) 0.38 (0.91) 0.02
------- ------- ------
Total from investment operations 0.92 (0.37) 0.02
------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.54) (0.53) - -
Distributions from net realized capital gains - - (0.06) - -
------- ------- ------
Total distributions (0.54) (0.59) - -
------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 9.43 $ 9.05 $10.01
======= ======= ======
Total return 10.46% (3.80)% 0.20%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $36,718 $35,764 $ 91
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.74% 0.70% 0.70%/2/
Before advisory/administration fee waivers 1.09% 1.13% 1.09%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 5.90% 5.33% 4.35%/2/
Before advisory/administration fee waivers 5.55% 4.90% 3.96%/2/
PORTFOLIO TURNOVER RATE 262% 92% 4%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CORE BOND PORTFOLIO+
<TABLE>
<CAPTION>
YEAR YEAR DECEMBER 9, 1992(*)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 9.36 $ 10.37 $10.00
------- ------- ------
Net investment income (net of
$.004, $.003 and $.001,
respectively, of interest
expense)(**) 0.62 0.55 0.32
Net realized and unrealized
gains on investments 0.50 (0.60) 0.37
------- ------- ------
Net (decrease) increase from
investment operations 1.12 (0.05) 0.69
------- ------- ------
Dividends from net investment
income (0.62) (0.55) (0.32)
Distributions from net realized
capital gains (0.01) (0.41)
Total dividends and
distributions (0.63) (0.96) (0.32)
------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.36 $10.37
======= ======= ======
Total investment return(***) 11.79% (0.69)% 6.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses(*) 0.55% 0.55% 0.55%(****)
Net investment income(**) 6.62% 5.61% 5.57%(****)
SUPPLEMENTAL DATA:
Average net assets (in
thousands) $16,247 $ 9,702 $6,622
Portfolio turnover 435% 722% 354%
Net assets, end of period (in
thousands) $32,191 $12,507 $7,803
</TABLE>
+ This Portfolio commenced operations on December 9, 1992 as the Core Fixed
Income Portfolio, a separate investment portfolio (the "Predecessor Core
Bond Portfolio") of The BFM Institutional Trust Inc., which was organized as
a Maryland business corporation. On January 12, 1996, the assets and liabil-
ities of the Predecessor Core Bond Portfolio were transferred to this Port-
folio, which had no prior operating history.
(*) Commencement of investment operations.
(**) The investment adviser of the Predecessor Core Bond Portfolio waived fees
amounting to $56,894, $34,010 and $24,761 and reimbursed expenses amount-
ing to $137,364, $137,179 and $0 for the periods ended June 30, 1995, June
30, 1994 and June 30, 1993, respectively. The administrator of the Prede-
cessor Core Bond Portfolio waived fees amounting to $32,500 and $3,701 for
the periods ended June 30, 1994 and June 30, 1993, respectively. For the
period ended June 30, 1993, the custodian and transfer agent of the Prede-
cessor Core Bond Portfolio waived fees amounting to $24,272 and $17,283,
respectively. If the Predecessor Core Bond Portfolio had borne all ex-
penses for the periods ended June 30, 1995, 1994 and 1993, the expense ra-
tios would have been 1.75%, 2.65% and 2.44%, respectively; the net invest-
ment income ratios would have been 5.43%, 3.51% and 3.68%, respectively;
and the net investment income on a per share basis would have been $0.51,
$0.34 and $0.22, respectively.
(***) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are as-
sumed, for purposes of this calculation, to be reinvested at the net as-
set value per share on the payment date.
(****) Annualized.
15
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MANAGED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.79 $ 11.17 $ 10.96
-------- ------- -------
Income from investment operations
Net investment income 0.63 0.59 0.11
Net gain (loss) on investments (both
realized and unrealized) 0.60 (1.18) 0.21
-------- ------- -------
Total from investment operations 1.23 (0.59) 0.32
-------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.63) (0.62) (0.11)
Distribution in excess of net investment
income (0.01) (0.02) - -
Distributions from net realized capital
gains - - (0.14) - -
Distributions in excess of net realized
gains - - (0.01) - -
-------- ------- -------
Total distributions (0.64) (0.79) (0.11)
-------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.38 $ 9.79 $ 11.17
======== ======= =======
Total return 12.97% (5.49)% 2.93%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $116,846 $67,655 $15,322
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.85% 0.80% 0.80%/2/
Before advisory/administration fee waivers 1.05% 1.02% 0.84%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 6.14% 5.95% 5.83%/2/
Before advisory/administration fee waivers 5.94% 5.73% 5.79%/2/
PORTFOLIO TURNOVER RATE 203% 61% 72%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
16
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL BOND PORTFOLIO+
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR YEAR YEAR PERIOD
8/31/95 ENDED ENDED ENDED ENDED
(UNAUDITED) 2/28/95 2/28/94 2/28/93 2/28/92**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 10.52 $ 10.75 $ 10.76 $ 10.21 $ 10.00
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.39 0.62 0.65 0.52 0.31
Net (loss) gain on
investments (both realized
and unrealized) 0.55 (0.48) 0.46 0.47 0.26
------- ------- ------- ------- -------
Total from investment
operations 0.94 (0.14) 1.11 0.99 0.57
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.04) (0.13) (0.90) (0.30) - -
Distributions from net
realized capital gains - - (0.24) (0.22) (0.14) (0.06)
------- ------- ------- ------- -------
In Excess of Net Realized
Gains - - - - - - - - (0.30)
Total distributions (0.04) (0.37) 1.12 (0.44) (0.36)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 11.42 $ 10.52 $ 10.75 $ 10.76 $ 10.21
======= ======= ======= ======= =======
Total return 8.96%* 1.50% 10.24% 9.55% 8.92%*
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $45,242 $45,657 $46,888 $38,257 $27,744
Ratios of expenses to
average net assets 1.18%* 1.24% 1.38% 1.30% 1.33%*
Excluding waivers 1.18%* 1.24% 1.38% 1.30% 1.37%*
Ratios of net investment
income to average net
assets 5.75%* 5.96% 6.00% 6.31% 6.79%*
Excluding waivers 5.75%* 5.96% 6.00% 6.31% 6.75%*
PORTFOLIO TURNOVER RATE 59% 131% 128% 115% 110%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the Compass Interna-
tional Fixed Income Fund, a separate investment portfolio (the "Predecessor
International Bond Portfolio") of Compass Capital Group, which was organized
as a Massachusetts business trust. It is expected that the assets and liabil-
ities of the Predecessor International Bond Portfolio will be transferred to
this Portfolio, which has no prior operating history, on or about February
10, 1996.
* Annualized.
** Commenced operations on July 1, 1991.
17
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $10.04 $11.31 $10.97
------ ------ ------
Income from investment operations
Net investment income 0.50 0.51 0.09
Net gain (loss) on investments (both realized
and unrealized) 0.59 (0.93) 0.34
------ ------ ------
Total from investment operations 1.09 (0.42) 0.43
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.50) (0.51) (0.09)
Distributions from net realized capital gains (0.02) (0.34) - -
------ ------ ------
Total distributions (0.52) (0.85) (0.09)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.61 $10.04 $11.31
====== ====== ======
Total return 11.24% (4.02)% 3.92%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $4,713 $2,109 $ 634
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.80% 0.75% 0.71%/2/
Before advisory/administration fee waivers 1.57% 1.98% 1.49%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 4.92% 4.75% 4.99%/2/
Before advisory/administration fee waivers 4.15% 3.52% 4.21%/2/
PORTFOLIO TURNOVER RATE 92% 40% 71%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
18
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/94
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.82 $ 10.70 $ 10.43
------- ------- -------
Income from investment operations
Net investment income 0.50 0.51 0.09
Net gain (loss) on investments (both realized
and unrealized) 0.51 (0.85) 0.28
------- ------- -------
Total from investment operations 1.01 (0.34) 0.37
------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.50) (0.51) (0.09)
Distributions from net realized capital gains - - (0.03) (0.01)
------- ------- -------
Total distributions (0.50) (0.54) (0.10)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.33 $ 9.82 $ 10.70
======= ======= =======
Total return 10.51% (3.20)% 3.54%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $13,815 $11,518 $ 3,894
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.79% 0.55% 0.34%/2/
Before advisory/administration fee waivers 1.11% 1.15% 1.22%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 5.04% 4.97% 4.90%/2/
Before advisory/administration fee waivers 4.72% 4.37% 4.02%/2/
PORTFOLIO TURNOVER RATE 66% 30% 40%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
19
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY TAX-FREE INCOME PORTFOLIO+
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR YEAR YEAR PERIOD
8/31/95 ENDED ENDED ENDED ENDED
(UNAUDITED) 2/28/95 2/28/94 2/28/93 2/28/92**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 10.94 $ 11.31 $ 11.30 $ 10.46 $ 10.00
------- ------- -------- ------- -------
Income from investment
operations
Net investment income 0.25 0.51 0.54 0.52 0.34
Net (loss) gain on
investments (both realized
and unrealized) 0.28 (0.36) 0.04 0.85 0.45
------- ------- -------- ------- -------
Total from investment
operations 0.53 0.15 0.58 1.37 0.79
------- ------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.25) (0.51) (0.54) (0.53) (0.33)
Distributions from net
realized capital gains - - (0.01) (0.03) - - - -
------- ------- -------- ------- -------
Total distributions (0.25) (0.52) (0.57) (0.53) (0.33)
------- ------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 11.22 $ 10.94 $ 11.31 $ 11.30 $ 10.46
======= ======= ======== ======= =======
Total return 4.90% 1.49% 5.18% 13.48% 12.33%*
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $97,752 $96,857 $111,354 $47,169 $10,673
Ratios of expenses to
average net assets 0.88%* 0.79% 0.38% 0.48% 0.52%*
Excluding waivers 0.88%* 0.87% 0.86% 1.04% 1.29%*
Ratios of net investment
income to average net
assets 4.51%* 4.71% 4.75% 5.04% 5.35%*
Excluding waivers 4.51%* 4.63% 4.27% 4.48% 4.58%*
PORTFOLIO TURNOVER RATE 18.47% 28.43% 12.05% 16.09% 0.00%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the New Jersey Munici-
pal Bond Fund, a separate investment portfolio (the "Predecessor New Jersey
Tax-Free Income Portfolio") of Compass Capital Group, which was organized as
a Massachusetts business trust. On January 12, 1996, the assets and liabili-
ties of the Predecessor New Jersey Tax-Free Income Portfolio were transferred
to this Portfolio, which had no prior operating history.
* Annualized.
** Commenced operations on July 1, 1991.
20
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/94
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.60 $10.53 $10.24
------ ------ ------
Income from investment operations
Net investment income 0.52 0.49 0.09
Net gain (loss) on investments (both realized
and unrealized) 0.45 (0.91) 0.29
------ ------ ------
Total from investment operations 0.97 (0.42) 0.38
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.52) (0.49) (0.09)
Distributions from net realized capital gains - - (0.02) - -
------ ------ ------
Total distributions (0.52) (0.51) (0.09)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.05 $ 9.60 $10.53
====== ====== ======
Total return 10.45% (4.00)% 3.68%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $5,150 $4,428 $ 907
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.39% 0.35% 0.32%/2/
Before advisory/administration fee waivers 1.46% 1.74% 2.83%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 5.39% 5.06% 4.71%/2/
Before advisory/administration fee waivers 4.31% 3.67% 2.20%/2/
PORTFOLIO TURNOVER RATE 63% 61% 36%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
21
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 28 portfolios and
has been structured to include many different investment
styles across the spectrum of fixed income investments so that
investors may participate across multiple disciplines in order
to seek their long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of ten
investment portfolios that provide investors with a broad
spectrum of investment alternatives within the fixed income
sector. Six of these Portfolios invest solely in taxable bonds
and four of these Portfolios invest in tax-exempt bonds.
In certain investment cycles and over certain holding periods,
a fund that invests in any one of these styles may perform
above or below the market. An investment program that combines
these multiple disciplines allows investors to select from
among these various product options in the way that most
closely fits the investor's goals and sentiments.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Short Government Bond To realize a rate of return that
exceeds the total return of the
Merrill Lynch 1-3 year Treasury Index.
Intermediate Government To seek current income consistent with
Bond, Intermediate Bond, the preservation of capital.
Managed Income and
International Bond
Core Bond To realize a total rate of return that
exceeds the total return of the Lehman
Brothers Aggregate Index.
Tax-Free Income, To seek as high a level of current
Pennsylvania Tax-Free income exempt from Federal income tax
Income, New Jersey Tax- and, to the extent possible for each
Free Income and Ohio State-Specific Tax-Free Portfolio,
Tax-Free Income income tax of the specific state in
which the Portfolio concentrates, as
is consistent with preservation of
capital.
</TABLE>
22
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS:
<TABLE>
<CAPTION>
DOLLAR-
WEIGHTED
AVERAGE MIN
PERFORMANCE MATURITY CREDIT QUALITY CREDIT
PORTFOLIO BENCHMARK* (APPROXIMATE)** CONCENTRATION QUALITY
<S> <C> <C> <C> <C>
Short Gov't Merrill 1-3 Year 3-5 Years Gov't/Agency AAA
Bond Treasury Index
Intermediate Lehman Brothers 5-10 Years Gov't/Agency AAA
Gov't Bond Intermediate Gov't
Intermediate Lehman Brothers 5-10 Years Investment Grade BBB
Bond Intermediate Spectrum
Gov't/Corp
Core Bond Lehman Aggregate 5-10 Years Investment Grade BBB
Spectrum
Managed Salomon BIG 5-10 Years Investment Grade BBB
Income Spectrum
International Salomon Non-U.S. 5-15 Years AA, AAA, BBB
Bond Hedged World Gov't/Agency
Government Bond Index
Tax-Free Lehman Municipal Bond 10-15 Years Investment Grade BBB
Income Index Spectrum
PA Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
NJ Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
OH Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the
back of this Prospectus.
** The Portfolios are structured to have comparable durations to the bench-
marks. Duration, which measures price sensitivity to interest rate changes,
is not necessarily equal to average maturity.
23
<PAGE>
What Types Of Securities Are In The Portfolios?
- --------------------------------------------------------------------------------
The following table summarizes the types of securities found in each Portfolio
according to the following designations:
Yes: The Portfolio will hold a significant concentration of these securities
at all times.
Elig.: Eligible; the Portfolio may purchase these securities, but they may or
may not be a significant holding at a given time.
Temp.: Temporary; the Portfolio may purchase these securities, but under
normal market conditions is not expected to do so.
No: The Portfolio may not purchase these securities.
<TABLE>
<CAPTION>
NON FOREIGN
AGENCY/ SECURITIES/
AGENCY COMMERCIAL CURRENCY
TREASURIES AGENCIES MBS/1/ MBS/1/ CORP. ABS/2/ RISK MUNICIPALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Gov't Yes Yes Yes Elig. Elig. Elig. No Elig.
Bond
Intermediate Yes Yes Yes Elig. Yes Elig. No Elig.
Gov't Bond
Intermediate Yes Yes Yes Elig. Yes Yes No Elig.
Bond
Core Bond Yes Yes Yes Elig. Yes Yes No Elig.
Managed Yes Yes Yes Elig. Yes Yes Elig. Elig.
Income
International Elig. Elig. Elig. Elig. Elig. Elig. Yes Elig.
Bond
Tax-Free Temp. No No No No No No Yes
Income
PA Tax-Free Temp. No No No No No No Yes
Income
NJ Tax-Free Temp. No No No No No No Yes
Income
OH Tax Free Temp. No No No No No No Yes
Income
</TABLE>
/1/MBS = mortgage-backed securities
/2/ABS = asset-backed securities
24
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days' notice before any such change. No assurance can be pro-
vided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities) if more than 5% of
its total assets will be invested in the securities of any one issuer, ex-
cept that up to 25% of a Portfolio's total assets may be invested without
regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(3) in the case of each Tax-Free Portfolio, invest less than 80% of its net as-
sets in Municipal Obligations (as defined below), except during defensive
periods or during periods of unusual market conditions.
Restriction 1 does not apply to the State-Specific Tax-Free Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Tax-
Free Portfolio will not invest in securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter (plus any additional grace period), more than 5% of its total assets to
be invested in securities of any one issuer, except that up to 50% of a Portfo-
lio's total assets may be invested without regard to this limitation so long as
no more than 25% of the Portfolio's total assets are invested in any one issuer
(except U.S. Government securities and related repurchase agreements).
The investment limitations stated above are applied at the time investment se-
curities are purchased.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any such commitment is
no longer in the best interests of a Portfolio, it will revoke the commitment
by terminating sales of shares of the Portfolio in the state involved.
25
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
INVESTMENT QUALITY. Securities acquired by the Short Government Bond Portfolio
and Intermediate Government Bond Portfolio (the "Government Portfolios") will
be rated in the highest rating category at the time of purchase or, if unrated,
of comparable quality as determined by the Portfolios' sub-adviser. Securities
acquired by the other Portfolios will be rated investment grade at the time of
purchase (within the four highest voting categories by Standard & Poor's Rat-
ings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Co. or Fitch Investor Services, Inc.) or, if unrated, of comparable
quality as determined by a Portfolio's sub-adviser. Securities rated "Baa" on
"BBB" are generally considered to be investment grade although they have specu-
lative characteristics. If a security's rating is reduced below the minimum
rating that is permitted for a Portfolio, the Portfolio's sub-adviser will con-
sider whether the Portfolio should continue to hold the security.
INVESTMENT CONCENTRATION. Each Portfolio will normally invest at least 80% of
the value of its total assets in debt securities. The Government Portfolios
will invest at least 65% of their net assets in obligations issued or guaran-
teed by the U.S. Government, its agencies or instrumentalities and related re-
purchase agreements during normal market conditions. Under normal market condi-
tions, the International Bond Portfolio will invest at least 65% of its net as-
sets in the debt obligations of foreign issuers located in at least three dif-
ferent foreign countries. The Pennsylvania Tax-Free Income Portfolio, New Jer-
sey Tax-Free Income Portfolio and Ohio Tax-Free Income Portfolio (the "State-
Specific Tax-Free Portfolios") and the Tax-Free Income Portfolio (together with
the "State-Specific Tax-Free Portfolios," the "Tax-Free Portfolios") will in-
vest, during normal market conditions, at least 80% of their net assets in ob-
ligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political sub-divisions,
agencies, instrumentalities and authorities and related tax-exempt derivative
securities ("Municipal Obligations") the interest on which is exempt from regu-
lar Federal income tax and is not an item of tax preference for purposes of the
Federal alternative minimum tax. In addition, each State-Specific Tax-Free
Portfolio intends to invest at least 65% of its net assets in Municipal Obliga-
tions of issuers located in the particular state indicated by its name. The
Tax-Free Income Portfolio intends to invest no more than 25% of its net assets
in Municipal Obligations of issuers located in the same state. During temporary
defensive periods each Tax-Free Portfolio may invest without limitation in se-
curities that are not Municipal Obligations and may hold without limitation
uninvested cash reserves.
FOREIGN INVESTMENTS. The International Bond Portfolio will invest primarily in
foreign securities and currencies. The Managed Income Portfolio may invest up
to 10% of its total assets in debt securities of foreign issuers and may hold
from time to time various foreign currencies pending their investment or con-
version into U.S. dollars. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of compa-
nies organized and operated in the United States. Because foreign securities
generally are denominated and pay dividends or interest in foreign currencies,
the value of a Portfolio that invests in foreign securities will be affected
favorably or unfavorably by changes in currency exchange rates.
26
<PAGE>
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitations on the removal of funds or
assets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations. In
general, less information is publicly available with respect to foreign issuers
than is available with respect to U.S. companies. Most foreign companies are
also not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. While the volume of transactions
effected on foreign stock exchanges has increased in recent years, it remains
appreciably below that of the New York Stock Exchange. Accordingly, a Portfo-
lio's foreign investments may be less liquid and their prices may be more vola-
tile than comparable investments in securities in U.S. companies. In addition,
there is generally less government supervision and regulation of securities ex-
changes, brokers and issuers in foreign countries than in the United States.
Foreign investments may include: (a) debt obligations issued or guaranteed by
foreign sovereign governments or their agencies, authorities, instrumentalities
or political subdivisions, including a foreign state, province or municipality;
(b) debt obligations of supranational organizations such as the World Bank,
Asian Development Bank, European Investment Bank, and European Economic Commu-
nity; (c) debt obligations of foreign banks and bank holding companies; (d)
debt obligations of domestic banks and corporations issued in foreign curren-
cies; (e) debt obligations denominated in the European Currency Unit (ECU); and
(f) foreign corporate debt securities and commercial paper. Such securities may
include loan participations and assignments, convertible securities and zero-
coupon securities.
To maintain greater flexibility, the International Bond Portfolio may invest in
instruments which have the characteristics of futures contracts. Such instru-
ments may take a variety of forms, such as debt securities with interest or
principal payments determined by reference to the value of a currency or com-
modity at a future point in time. The risks of such investments could reflect
the risks of investing in futures, currencies and securities, including vola-
tility and illiquidity.
The expense ratio of the International Bond Portfolio can be expected to be
higher than those of Portfolios investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as higher investment research costs, higher foreign custody costs, higher
commission costs and additional costs arising from delays in settlements of
transactions involving foreign securities.
MUNICIPAL INVESTMENTS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer.
27
<PAGE>
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are nor-
mally issued by special purpose public authorities. If the issuer of moral ob-
ligation bonds is unable to meet its debt service obligations from current rev-
enues, it may draw on a reserve fund the restoration of which is a moral com-
mitment but not a legal obligation of the state or municipality which created
the issuer.
Also included within the general category of Municipal Obligations are partici-
pation certificates in a lease, an installment purchase contract, or a condi-
tional sales contract ("lease obligations") entered into by a state or politi-
cal subdivision to finance the acquisition or construction of equipment, land,
or facilities. Although lease obligations are not general obligations of the
issuer for which the state or other governmental body's unlimited taxing power
is pledged, certain lease obligations are backed by a covenant to appropriate
money to make the lease obligation payments. However, under certain lease obli-
gations, the state or governmental body has no obligation to make these pay-
ments in future years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
as marketable as more conventional securities.
Each Tax-Free Portfolio may invest up to 20% of its total assets in private ac-
tivity bonds the interest on which is an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Paper") when added together with any
other taxable investments held by the Portfolio. In addition, each Tax-Free
Portfolio may invest 25% or more of its net assets in Municipal Obligations the
interest on which is paid solely from revenues of similar projects. To the ex-
tent a Portfolio's assets are invested in Municipal Obligations payable from
the revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the particular risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
The Tax-Free Income Portfolio is classified as a diversified portfolio, and the
State-Specific Tax-Free Portfolios are classified as non-diversified portfo-
lios, under the 1940 Act. Investment returns on a non-diversified portfolio
typically are dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall value of a non-di-
versified portfolio more than it would a diversified portfolio.
Each Tax-Free Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a spec-
ified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the commit-
ment relates. Each Tax-Free Portfolio will acquire stand-by commitments solely
to facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
28
<PAGE>
The Tax-Free Portfolios may invest in tax-exempt derivative securities relating
to Municipal Obligations, including tender option bonds, participations, bene-
ficial interests in trusts and partnership interests. The amount of information
regarding the financial condition of issuers of Municipal Obligations may not
be as extensive as that which is made available by public corporations and the
secondary market for Municipal Obligations may be less liquid than that for
taxable fixed-income securities. Accordingly, the ability of a Tax-Free Portfo-
lio to buy and sell tax-exempt securities may, at any particular time and with
respect to any particular securities, be limited.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal and state income tax are rendered by counsel
to the respective issuers and sponsors of the obligations at the time of issu-
ance. The Fund and its investment adviser and sub-adviser will rely on such
opinions and will not review independently the underlying proceedings relating
to the issuance of Municipal Obligations, the creation of any tax-exempt deriv-
ative securities, or the bases for such opinions.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. The Portfolios (except the Tax-
Free Portfolios) may purchase securities that are secured or backed by mort-
gages as well as other assets (e.g., automobile loans and credit card receiv-
ables). Issuers of these mortgage-related and asset-backed securities include
the U.S. Government, the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), and private issuers such as commercial banks, financial
companies, finance subsidiaries of industrial companies, savings and loan asso-
ciations, mortgage banks and investment banks.
The Portfolios may acquire several types of mortgage-related securities, in-
cluding guaranteed mortgage pass-through certificates, which provide the holder
with a pro rata interest in the underlying mortgages, adjustable rate mortgage-
related securities ("ARMs") and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways.
Non-mortgage asset-backed securities involve certain risks that are not pre-
sented by mortgage-related securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws, many of which
give debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of ve-
hicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of
29
<PAGE>
the automobile receivables may not have an effective security interest in all
of the obligations backing such receivables. Therefore, there is a possibility
that recoveries on repossessed collateral may not, in some cases, be able to
support payments on these securities.
The yield characteristics of mortgage-related and asset-backed securities dif-
fer from traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the underlying as-
sets (i.e., loans) generally may be prepaid at any time. As a result, if a
mortgage-related or asset-backed security is purchased at a premium, a prepay-
ment rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if one of these securities is pur-
chased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. In calculat-
ing the average weighted maturity of a Portfolio, the maturity of mortgage-re-
lated and asset-backed securities will be based on estimates of average life
which take prepayments into account.
Prepayments on mortgage-related and asset-backed securities generally increase
with falling interest rates and decrease with rising interest rates; further-
more, prepayment rates are influenced by a variety of economic and social fac-
tors. In general, the collateral supporting non-mortgage asset-backed securi-
ties is of shorter maturity than mortgage loans and is less likely to experi-
ence substantial prepayments. Like other fixed income securities, when interest
rates rise the value of a mortgage-related or asset-backed security generally
will decline; how-ever, when interest rates decline, the value of these securi-
ties that have prepayment features may not increase as much as that of other
fixed income securities.
STRIPPED AND ZERO COUPON OBLIGATIONS. To the extent consistent with their in-
vestment objectives, the Portfolios may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. Government and other obliga-
tions. These participations, which may be issued by the U.S. Government (or a
U.S. Government agency or instrumentality) or by private issuers such as banks
and other institutions, are issued at a discount to their "face value," and may
include stripped mortgage-backed securities ("SMBS"). Stripped securities, par-
ticularly SMBS, may exhibit greater price volatility than ordinary debt securi-
ties because of the manner in which their principal and interest are returned
to investors. The International Bond Portfolio also may purchase "stripped" se-
curities that evidence ownership in the future interest payments or principal
payments on obligations of foreign governments.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of mort-
gage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class receives all of the principal. How-
ever, in some cases, one class will receive some of the interest and most of
the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Portfolio may fail to fully recoup
its initial investment. The market value of SMBS can be extremely volatile in
response to changes in interest rates. The yields on a class of SMBS
30
<PAGE>
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-related obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial invest-
ment will not be fully recouped.
SMBS issued by the U.S. Government (or a U.S. Government agency or instrumen-
tality) may be considered liquid under guidelines established by the Fund's
Board of Trustees if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a Port-
folio's per share net asset value.
Each Portfolio may invest in zero-coupon bonds, which are normally issued at a
significant discount from face value and do not provide for periodic interest
payments. Zero-coupon bonds may experience greater volatility in market value
than similar maturity debt obligations which provide for regular interest pay-
ments.
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Portfolios (except the Tax-Free Portfolios) may in-
vest in debt obligations of domestic or foreign corporations and banks, and may
acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. Bank obligations may include
certificates of deposit, notes, bankers' acceptances and fixed time deposits.
These obligations may be general obligations of the parent bank or may be lim-
ited to the issuing branch or subsidiary by the terms of a specific obligation
or by government regulation. The Portfolios may also make interest-bearing sav-
ings deposits in commercial and savings banks in amounts not in excess of 5% of
their respective total assets. For purposes of determining the permissibility
of an investment in bank obligations, the total assets of a bank are determined
on the basis of the bank's most recent annual financial statements.
U.S. GOVERNMENT OBLIGATIONS. Treasury obligations differ only in their interest
rates, maturities and times of issuance. Obligations of certain agencies and
instrumentalities of the U.S. Government such as the GNMA are supported by the
United States' full faith and credit; others such as those of the FNMA and the
Student Loan Marketing Association are supported by the right of the issuer to
borrow from the Treasury; others such as those of the Federal Farm Credit Banks
or the FHLMC are supported only by the credit of the instrumentality. No assur-
ance can be given that the U.S. Government would provide financial support to
U.S. Government-sponsored agencies or instrumentalities if it is not obligated
to do so by law.
INTEREST RATE AND CURRENCY TRANSACTIONS. The Portfolios may enter into interest
rate swaps and may purchase or sell interest rate caps and floors. The Portfo-
lios expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their holdings, as a duration
management technique or to protect against an increase in the price of securi-
ties a Portfolio anticipates purchasing at a later date. The Portfolios intend
to use these transactions as a hedge and not as a speculative investment.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a
31
<PAGE>
specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to re-
ceive payments of interest on a notional principal amount from the party sell-
ing such interest rate floor.
In addition, the International Bond Portfolio may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future ex-
change rates. The Portfolio may engage in foreign currency exchange transac-
tions in connection with the purchase and sale of portfolio securities (trans-
action hedging) and to protect the value of specific portfolio positions (posi-
tion hedging). The Portfolio may purchase or sell a foreign currency on a spot
(or cash) basis at the prevailing spot rate in connection with the settlement
of transactions in portfolio securities denominated in that foreign currency,
and may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency
futures contracts (futures contracts). The Portfolio may also purchase ex-
change-listed and over-the-counter call and put options on futures contracts
and on foreign currencies, and may write covered call options on up to 100% of
the currencies in its portfolio. In order to protect against currency fluctua-
tions, the International Bond Portfolio may enter into currency swaps. Currency
swaps involve the exchange of the rights of the Portfolio and another party to
make or receive payments in specified currencies.
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, each Portfolio may write covered call options, buy put options, buy
call options and write secured put options for the purpose of hedging or earn-
ing additional income, which may be deemed speculative or, with respect to the
International Bond Portfolio, cross-hedging. These options may relate to par-
ticular securities, financial instruments, foreign currencies, securities indi-
ces or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corporation,
which performs the obligations of its members if they default.
To the extent consistent with its investment objective, each Portfolio may also
invest in futures contracts and options on futures contracts for hedging pur-
poses or to maintain liquidity. The value of a Portfolio's contracts may equal
or exceed 100% of the Fund's total assets, although a Portfolio will not pur-
chase or sell a futures contract unless immediately afterwards the aggregate
amount of margin deposits on its existing futures positions plus the amount of
premiums paid for related futures options is 5% or less of its net assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of certain securities, the cash value of a securities index or a stated quan-
tity of a foreign currency. A Portfolio may
32
<PAGE>
sell a futures contract in order to offset an expected decrease in the value of
its portfolio positions that might otherwise result from a market decline or
currency exchange fluctuation. A Portfolio may do so either to hedge the value
of its securities portfolio as a whole, or to protect against declines occur-
ring prior to sales of securities in the value of the securities to be sold. In
addition, a Portfolio may utilize futures contracts in anticipation of changes
in the composition of its holdings or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
GUARANTEED INVESTMENT CONTRACTS. The Portfolios may make limited investments in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies. Under these contracts, a Portfolio makes cash contributions to a de-
posit fund of the insurance company's general account. The insurance company
then credits to the Portfolio, on a monthly basis, interest which is based on
an index (such as the Salomon Brothers CD Index), but is guaranteed not to be
less than a certain minimum rate. Each Portfolio does not expect to invest more
than 5% of its net assets in GICs at any time during the current fiscal year.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans involve risks of delay in receiving additional collateral or in recover-
ing the loaned securities, or possibly loss of rights in the collateral if the
borrower of the securities becomes insolvent.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master
33
<PAGE>
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. The Portfolios may in-
vest up to 10% of their total assets in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate of an inverse floater re-
sets in the opposite direction from the market rate of interest to which it is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in their market values.
Issuers of unrated variable and floating rate instruments must satisfy the same
criteria as set forth above for a Portfolio. The absence of an active secondary
market with respect to particular variable and floating rate instruments, how-
ever, could make it difficult for the Portfolio to dispose of a variable or
floating rate instrument if the issuer defaulted on its payment obligation or
during periods when the Portfolio is not entitled to exercise its demand
rights.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase debt securities
from financial institutions subject to the seller's agreement to repurchase
them at an agreed upon time and price ("repurchase agreements"). Repurchase
agreements are, in substance, loans. Default by or bankruptcy of a seller would
expose a Portfolio to possible loss because of adverse market action, expenses
and/or delays in connection with the disposition of the underlying obligations.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made through reverse repurchase agreements under which a Portfolio sells
portfolio securities to financial institutions such as banks and broker-dealers
and agrees to repurchase them at a particular date and price. The Portfolios
may use the proceeds of reverse repurchase agreements to purchase other securi-
ties either maturing, or under an agreement to resell, on a date simultaneous
with or prior to the expiration of the reverse repurchase agreement. The Port-
folios (except the Tax-Free Portfolios) may use reverse repurchase agreements
when it is anticipated that the interest income to be earned from the invest-
ment of the proceeds of the transaction is greater than the interest expense of
the transaction. This use of reverse repurchase agreements may be regarded as
leveraging and, therefore, speculative. Reverse repurchase agreements involve
the risks that the interest income earned in the investment of the proceeds
will be less than the interest expense, that the market value of the securities
sold by a Portfolio may decline below the price of the securities the Portfolio
is obligated to repurchase and that the securities may not be returned to the
Portfolio. During the time a reverse repurchase agreement is outstanding, a
Portfolio will maintain a segregated account with the Fund's custodian contain-
ing cash, U.S. Government or other appropriate liquid high-grade debt securi-
ties having a value at least equal to the repurchase price. A Portfolio's re-
verse repurchase agreements, together with any other borrowings, will not ex-
ceed, in the aggregate, 33 1/3% of the value of its total assets. In addition,
a Portfolio (except the Tax-Free Portfolios) may borrow up to an additional 5%
of its total assets for temporary purposes.
34
<PAGE>
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by other
investment companies within the limits prescribed by the 1940 Act. As a share-
holder of another investment company, a Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that each Portfolio bears directly in connection with its
own operations.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of the
value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and re-
purchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to this
15% limit. Each Portfolio may purchase securities which are not registered un-
der the Securities Act of 1933 (the "1933 Act") but which can be sold to "qual-
ified institutional buyers" in accordance with Rule 144A under the 1933 Act.
Any such security will not be considered illiquid so long as it is determined
by a Portfolio's sub-adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become un-
interested in purchasing these restricted securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security that it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and for-
ward commitment transactions involve the risk, however, that the price or yield
obtained in a transaction may be less favorable than the price or yield avail-
able in the market when the securities delivery takes place. Each Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions.
DOLLAR ROLL TRANSACTIONS. To take advantage of attractive opportunities in the
mortgage market and to enhance current income, each Portfolio (except the Tax-
Free Portfolios) may enter into dollar roll transactions. A dollar roll trans-
action involves a sale by the Portfolio of a mortgage-backed or other security
concurrently with an agreement by the Portfolio to repurchase a similar secu-
rity at a later date at an agreed-upon price. The securities that are repur-
chased will bear the same interest rate and stated maturity as those sold, but
pools of mortgages collateralizing such securities may have different prepay-
ment histories than those sold. During the period between the sale and repur-
chase, a Portfolio will not be entitled to receive interest and principal pay-
ments on the securities sold. Proceeds of the sale will be invested in addi-
tional instruments for the Portfolio, and the income from these investments
will generate income for the Portfolio. If such income does not exceed the in-
come, capital appreciation and gain or loss that would have been realized on
the securities sold as part of the dollar roll, the use of this technique will
diminish the investment performance of a Portfolio compared with what the per-
formance would have been without the use of dollar rolls. At the time that a
Portfolio enters into a dollar roll transaction, it will place in a segregated
account maintained with its custodian cash, U.S. Government securities or other
liquid high grade debt obligations hav-
35
<PAGE>
ing a value equal to the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is maintained. A
Portfolio's dollar rolls, together with its reverse repurchase agreements and
other borrowings, will not exceed, in the aggregate, 33 1/3% of the value of
its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties a Portfolio is required to purchase may decline below the agreed upon re-
purchase price of those securities. If the broker/dealer to whom a Portfolio
sells securities becomes insolvent, the Portfolio's right to purchase or repur-
chase securities may be restricted and the instruments which the Portfolio is
required to repurchase may be worth less than an instrument which the Portfolio
originally held when the Portfolio is able to complete the purchase. Successful
use of mortgage dollar rolls may depend upon a sub-adviser's ability to cor-
rectly predict interest rates and prepayments. There is no assurance that dol-
lar rolls can be successfully employed.
SHORT SALES. The Portfolios may only make short sales of securities "against-
the-box." A short sale is a transaction in which a Portfolio sells a security
it does not own in anticipation that the market price of that security will de-
cline. The Portfolios may make short sales both as a form of hedging to offset
potential declines in long positions in similar securities and in order to
maintain portfolio flexibility. In a short sale "against-the-box," at the time
of sale, the Portfolio owns or has the immediate and unconditional right to ac-
quire the identical security at no additional cost. When selling short
"against-the-box," a Portfolio forgoes an opportunity for capital appreciation
in the security.
PORTFOLIO TURNOVER RATES. The past portfolio turnover rates of the Portfolios
are set forth above under "What Are the Portfolios' Financial Highlights?" A
Portfolio's annual portfolio turnover rate will not, however, be a factor pre-
venting a sale or purchase when the sub-adviser believes investment considera-
tions warrant such sale or purchase. Portfolio turnover may vary greatly from
year to year as well as within a particular year. High portfolio turnover rates
will generally result in higher transaction costs to a Portfolio.
INTEREST RATE RISK. The value of fixed income securities in the Portfolios can
be expected to vary inversely with changes in prevailing interest rates. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
securities with shorter maturities. The Portfolios are not restricted to any
maximum or minimum time to maturity in purchasing individual portfolio securi-
ties, and the average maturity of a Portfolio's assets will vary within the
limits stated above under "What Are the Differences Among the Portfolios?"
based upon its sub-adviser's assessment of economic and market conditions.
STATE-SPECIFIC TAX-FREE PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Tax-Free Portfolios in state-spe-
cific Municipal Obligations raises special investment considerations. In par-
ticular, changes in the economic condition and governmental policies of a state
and its political subdivisions could adversely affect the value of a Portfo-
lio's shares. Certain matters relating to the states in which the State-Spe-
cific Tax-Free Portfolios invest are described below. For further information,
see "Special Considerations Regarding State-Specific Municipal Obligations" in
the Statement of Additional Information.
36
<PAGE>
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following three
years; as of June 30, 1994, the General Fund had a surplus of $892.9 million.
The deficit in the Commonwealth's unreserved/undesignated funds also have been
eliminated, and there was a surplus of $79.2 million as of June 30, 1994. Ris-
ing unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates
place increased pressures on the tax resources of the Commonwealth and its mu-
nicipalities. The Commonwealth has sold a substantial amount of bonds over the
past several years, but the debt burden remains moderate. The recession has af-
fected Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service sec-
tors, with losses in more high-paid manufacturing positions. A new governor
took office in January, 1995, but the Commonwealth is likely to continue to
show fiscal restraint.
New Jersey. The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective commer-
cial agriculture, insurance, tourism, petroleum refining and manufacturing, al-
though New Jersey's manufacturing industry has experienced a downward trend in
the last few years. New Jersey is a major recipient of Federal assistance and,
of all the states, is among the highest in the amount of Federal aid received.
Therefore, a decrease in Federal financial assistance may adversely affect the
financial condition of New Jersey and its political subdivisions and instrumen-
talities. While New Jersey's economic base has become more diversified over
time and thus its economy appears to be less vulnerable during recessionary pe-
riods, a recurrence of high levels of unemployment could adversely affect New
Jersey's overall economy and the ability of New Jersey and its political subdi-
visions and instrumentalities to meet their financial obligations. In addition,
New Jersey maintains a balanced budget which restricts total appropriation in-
creases to only 5% annually with respect to any municipality or county, the
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 15% of total employment in agribusiness. In prior
years, the State's overall unemployment rate was commonly somewhat higher than
the national figure. For example, the reported 1990 average monthly State rate
was 5.7%, compared to the 5.5% national figure. However, for the last four
years the State rates were below the national rates (5.5% versus 6.1% in 1994).
The unemployment rate and its effects vary among particular geographic areas of
the State. There can be no assurance that future national, regional or state-
wide economic difficulties and the resulting impact on State or local govern-
ment finances generally will not adversely affect the market value of Ohio Mu-
nicipal Obligations held in the Portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
37
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the di-
TRUSTEES rection of its Board of Trustees. The following individuals
were elected by shareholders on January 4, 1996 to serve as
trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Offi-
cer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School,
University of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
ADVISER AND The Adviser to the Compass Capital Funds is PNC Asset Manage-
SUB-ADVISERS ment Group ("PAMG"). Each of the Portfolios within the Compass
Capital Fund family, except the International Bond Portfolio,
is managed by a specialized portfolio manager who is a member
of PAMG's fixed income portfolio management subsidiary, Black-
Rock Financial Management, Inc. ("BlackRock"). The sub-adviser
of the International Bond Portfolio is Morgan Grenfell Invest-
ment Services Limited ("Morgan Grenfell").
The ten portfolios and their investment sub-advisers and port-
folio managers are as follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------- ------------------------------------
<S> <C> <C>
Short Government Bond BlackRock(/1/) Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-
manager since its inception.
Michael P. Lustig; Vice President of
BlackRock since 1989; Portfolio co-
manager since 1994.
Scott Amero; Managing Director of
BlackRock since 1990; Portfolio co-
manager since its inception.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------------- ------------------------------------
<S> <C> <C>
Intermediate Government BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
Bond and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Intermediate Bond BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Core Bond BlackRock(/1/) Scott Amero (see above); Mr. Amero
has been Portfolio manager since its
inception.
Managed Income BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
International Bond Morgan Grenfell(/2/) Martin A. Hall; Director of Morgan
Grenfell since 1991; Portfolio
manager since 1991.
Tax-Free Income BlackRock(/1/) Kevin Klingert; portfolio manager at
BlackRock since 1991; prior to
joining BlackRock, Assistant Vice
President, Merrill, Lynch, Pierce,
Fenner & Smith; Portfolio manager
since 1995.
Pennsylvania Tax-Free BlackRock(/1/) Kevin Klingert (see above);
Income Portfolio manager since 1995.
New Jersey Tax-Free In- BlackRock(/1/) Kevin Klingert (see above);
come Portfolio manager since 1995.
Ohio Tax-Free Income BlackRock(/1/) Kevin Klingert (see above);
Portfolio manager since 1995.
</TABLE>
(1) BlackRock has its primary offices at 345 Park Avenue, New York, New York
10154.
(2) Morgan Grenfell has its primary offices at 20 Finsbury Circus, London ECZM,
1NB England.
39
<PAGE>
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1835
Market Street, Philadelphia, Pennsylvania 19103. PAMG is an
indirect wholly-owned subsidiary of PNC Bank Corp., a multi-
bank holding company. Morgan Grenfell is an indirect wholly-
owned subsidiary of Deutsche Bank, A.G., a German financial
services conglomerate.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-advisers are entitled to fees, com-
puted daily on a Portfolio-by-Portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are The Expenses Of The Portfolios?" PAMG
and the sub-advisers intend to waive a portion of their fees
during the current fiscal year. All sub-advisory fees are paid
by PAMG, and do not represent an extra charge to the Portfo-
lios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)
<TABLE>
<CAPTION>
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL
BOND PORTFOLIO INTERNATIONAL BOND PORTFOLIO
------------------------- ----------------------------------
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE ADVISORY FEE FEE
- ----------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
first $1 billion .500% .350% .550% .400%
$1 billion--$2 billion .450 .300 .500 .350
$2 billion--$3 billion .425 .275 .475 .325
greater than $3 billion .400 .250 .450 .300
</TABLE>
For their last fiscal years, the Portfolios paid investment
advisory fees at the following annual rates (expressed as a
percentage of average daily net assets) after voluntary fee
waivers: Short Government Bond Portfolio, .30%; Intermediate
Government Bond Portfolio, .20%; Intermediate Bond Portfolio,
.25%; Core Bond Portfolio, .35%; Managed Income Portfolio,
.35%; International Bond Portfolio, .80%; Tax-Free Income
Portfolio, 0%; Pennsylvania Tax-Free Income Portfolio, .27%;
New Jersey Tax-Free Income Portfolio, .60%; and Ohio Tax-Free
Income Portfolio, 0%.
The sub-advisers to each Portfolio strive to achieve best exe-
cution on all transactions. Infrequently, brokerage transac-
tions for the Portfolios may be directed through registered
broker/dealers who have entered into dealer agreements with
Compass Capital's distributor, subject to the requirements of
best execution.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the
40
<PAGE>
Fund's co-administrators. CCG and PFPC are indirect wholly-owned
subsidiaries of PNC Bank Corp. CDI is a wholly-owned subsidiary
of Provident Distributors, Inc. ("PDI"). A majority of the out-
standing stock of PDI is owned by its officers and the remaining
outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .20% of the first $500
million of each Portfolio's average daily net assets, .18% of
the next $500 million of each Portfolio's average daily net as-
sets, .16% of the next $1 billion of each Portfolio's average
daily net assets and .15% of each Portfolio's average daily net
assets in excess of $2 billion. From time to time the Adminis-
trators may waive some or all of their administration fees from
a Portfolio.
For information about the operating expenses the Portfolios ex-
pect to pay for the current fiscal year, see "What Are the Ex-
penses of the Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
SHAREHOLDER The Fund intends to enter into service agreements with institu-
SERVICING tional investors ("Institutions") (including PNC Bank, National
Association and its affiliates) which provide that the Institu-
tions will render support services to their customers who are
the beneficial owners of Service Shares. These services are in-
tended to supplement the services provided by the Fund's Admin-
istrators and transfer agent to the Fund's shareholders of rec-
ord. In consideration for payment of a shareholder processing
fee of up to .15% (on an annualized basis) of the average daily
net asset value of Service Shares owned beneficially by their
customers, Institutions may provide one or more of the following
services: processing purchase and redemption requests from cus-
tomers and placing orders with the Fund's transfer agent or the
distributor; processing dividend payments from the Fund on be-
half of customers; providing sub-accounting with respect to
Service Shares beneficially owned by customers or the informa-
tion necessary for sub-accounting; and other similar services.
In consideration for payment of a separate shareholder servicing
fee of up
41
<PAGE>
to .15% (on an annualized basis) of the average daily net as-
set value of Service Shares owned beneficially by their cus-
tomers, Institutions may provide one or more of these addi-
tional services to such customers: responding to customer in-
quiries relating to the services performed by the Institution
and to customer inquiries concerning their investments in
Service Shares; providing information periodically to custom-
ers showing their positions in Service Shares; and other simi-
lar shareholder liaison services. Customers who are beneficial
owners of Service Shares should read this Prospectus in light
of the terms and fees governing their accounts with Institu-
tions.
Conflict-of-interest restrictions may apply to the receipt of
compensation paid by the Fund in connection with the invest-
ment of fiduciary funds in Portfolio shares. Institutions, in-
cluding banks regulated by the Comptroller of the Currency,
Federal Reserve Board and state banking commissions, and in-
vestment advisers and other money managers subject to the ju-
risdiction of the SEC, the Department of Labor or state secu-
rities commissions, are urged to consult their legal counsel
before entering into agreements with the Fund.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Institutions under their service agreements will not be
prohibited under these laws. However, state securities laws
may differ from the interpretations of Federal law on this is-
sue, and banks and financial institutions may be required to
register as dealers pursuant to state law.
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, shareholder servicing and
processing fees, fees and expenses in registering and qualify-
ing the Portfolios and their shares for distribution under
Federal and state securities laws, expenses of preparing pro-
spectuses and statements of additional information and of
printing and distributing prospectuses and statements of addi-
tional information to existing shareholders, expenses relating
to shareholder reports, shareholder meetings and proxy solici-
tations, insurance premiums, the expense of independent pric-
ing services, and other expenses which are not expressly as-
sumed by PAMG or the Fund's service providers under their
agreements with the Fund. Any general expenses of the Fund
that do not belong to a particular investment portfolio will
be allocated among all investment portfolios by or under the
direction of the Board of Trustees in a manner the Board de-
termines to be fair and equitable.
42
<PAGE>
How Are Shares Purchased And Redeemed?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Plan permits CDI, PAMG, the Administrators and other
companies that receive fees from the Fund to make payments relating to distri-
bution and sales support activities out of their past profits or other sources
available to them. The Fund is not required or permitted under the Plan to make
distribution payments with respect to Service Shares.
PURCHASE OF SHARES. Service Shares are offered without a sales load to Institu-
tions acting on behalf of their customers, as well as certain persons who were
shareholders of Compass Capital Group of Funds at the time of its combination
with the PNC(R) Fund during the first quarter of 1996. Service Shares will nor-
mally be held of record by Institutions or in the names of nominees of Institu-
tions. Share purchases are normally effected through a customer's account at an
Institution through procedures established in connection with the requirements
of the account. In these cases, confirmations of share purchases and redemp-
tions will be sent to the Institutions. Beneficial ownership of shares will be
recorded by the Institutions and reflected in the account statements provided
by such Institutions to their customers. Investors wishing to purchase shares
should contact their Institutions.
Service Shares are sold at their net asset value per share next computed after
an order is received by PFPC. Orders received by PFPC by 4:00 p.m. (Eastern
Time) on a Business Day are priced the same day. A "Business Day" is any week-
day that the New York Stock Exchange (the "NYSE") and the Federal Reserve Bank
of Philadelphia (the "FRB") are open for business. Purchase orders may be
placed by telephoning PFPC at (800) 441-7450. Orders received by PFPC after
4:00 p.m. (Eastern Time) are priced on the following Business Day.
Payment for Service Shares must normally be made in Federal funds or other
funds immediately available to the Fund's custodian. Payment may also, in the
discretion of the Fund, be made in the form of securities that are permissible
investments for the respective Portfolios. For further information, see the
Statement of Additional Information. The minimum initial investment is $5,000;
however, Institutions may set a higher minimum for their customers. There is no
minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may in its discretion reject any order for Service Shares.
REDEMPTION OF SHARES. Customers of Institutions may redeem Service Shares in
accordance with the procedures applicable to their accounts with the Institu-
tions. These procedures will vary according to the type of account and the In-
stitution involved, and customers should consult their account managers in this
regard. It is the responsibility of Institutions to transmit redemption orders
to PFPC and credit their customers' accounts with redemption proceeds on
43
<PAGE>
a timely basis. In the case of shareholders holding share certificates, the
certificates must accompany the redemption request.
Institutions may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The Fund, the Administrators and the
Distributor will employ reasonable procedures to confirm that instructions com-
municated by telephone are genuine. The Fund and its service providers will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such
procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the next Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received after 4:00 p.m. (Eastern Time) or on a day when the Fund's custo-
dian is closed is normally wired in Federal funds on the next Business Day fol-
lowing redemption on which the Fund's custodian is open for business. The Fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgment of PAMG, an earlier payment could
adversely affect a Portfolio. No charge for wiring redemption payments is im-
posed by the Fund, although Institutions may charge their customer accounts for
redemption services. Information relating to such redemption services and
charges, if any, should be obtained by customers from their Institutions.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
400 Bellevue Parkway, Wilmington, DE 19809.
The Fund may redeem Service Shares in any Portfolio account if the account bal-
ance drops below $5,000 as the result of redemption requests and the share-
holder does not increase the balance to at least $5,000 upon thirty days' writ-
ten notice. If a customer has agreed with an Institution to maintain a minimum
balance in his or her account with the Institution, and the balance in the ac-
count falls below that minimum, the customer may be obligated to redeem all or
part of his or her shares in the Portfolios to the extent necessary to maintain
the minimum balance required.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
44
<PAGE>
What Special Purchase and Redemption Procedures May Apply?
- --------------------------------------------------------------------------------
Persons who were shareholders of an investment portfolio of the Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC(R) Fund
may also purchase and redeem Service Shares of the same Portfolio and for the
same account in which they held shares on that date through the procedures de-
scribed in this section.
PURCHASES. Purchase orders may be placed through PFPC. The minimum investment
is $100. Purchases through the Automatic Investment Plan described below are
subject to a lower purchase minimum. The name of the Portfolio with respect to
which shares are purchased must appear on the check or Federal Reserve Draft.
Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, class of
the Portfolio, the name of the account registration, and the shareholder ac-
count number. Before wiring any funds, however, an investor must call PFPC at
(800) 441-7762 in order to confirm the wire instructions. Purchase orders which
are received by PFPC, together with payment, before the close of regular trad-
ing hours on the NYSE (currently 4:00 p.m. Eastern Time) on any Business Day
(as defined above) are priced according to the net asset value next determined
on that day.
The Portfolios offer an Automatic Investment Plan ("AIP") whereby an investor
in shares of a Portfolio may arrange for periodic investments in that Portfolio
through automatic deductions from a checking or savings account by completing
the AIP Application Form which may be obtained from PFPC. The minimum pre-au-
thorized investment amount is $50.
REDEMPTIONS. Shareholders may redeem for cash some or all of their shares of
the Portfolios at any time by sending a written redemption request in proper
form to Compass Capital Funds c/o PFPC Inc., P.O. Box 8907, Wilmington, Dela-
ware 19899-8907.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding share certificates must send
their certificates with the redemption request. Additional documentary evidence
of authority is required by PFPC in the event redemption is requested by a cor-
poration, partnership, trust, fiduciary, executor or administrator.
If a shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or
by Federal wire transfer to a
45
<PAGE>
single previously designated bank account. Once authorization is on file, PFPC
will honor requests by any person by telephone at (800) 441-7762 (in Delaware
call collect (302) 791-1194) or other means. The minimum amount that may be
sent by check is $500, while the minimum amount that may be wired is $10,000.
Compass Capital reserves the right to change these minimums or to terminate
these redemption privileges. If the proceeds of a redemption would exceed
$25,000, the redemption request must be in writing and will be subject to the
signature guarantee requirement described above. This privilege may not be used
to redeem shares in certificated form.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital is not responsible for the efficiency of the Federal wire sys-
tem or the shareholder's firm or bank. Compass Capital does not currently
charge for wire transfers. The shareholder is responsible for any charges im-
posed by the shareholder's bank. To change the name of the single designated
bank account to receive wire redemption proceeds, it is necessary to send a
written request (with a guaranteed signature as described above, to Compass
Capital Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital reserves the right to refuse a telephone redemption if it be-
lieves it advisable to do so. The Fund, the Administrators and the Distributor
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Compass Capital, the Administrators and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions reasonably believed to be genuine in accordance with
such procedures.
Compass Capital offers a Systematic Withdrawal Plan ("SWP") which may be used
by investors who wish to receive regular distributions from their accounts.
Upon commencement of the SWP, the account must have a current value of $10,000
or more in a Portfolio. Shareholders may elect to receive automatic cash pay-
ments of $100 or more either monthly, every other month, quarterly, three times
a year, semi-annually, or annually. Automatic withdrawals are normally proc-
essed on the 25th day of the applicable month or, if such day is not a Business
Day, on the next Business Day and are paid promptly thereafter. An investor may
utilize the SWP by completing the SWP Application Form which may be obtained
from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC.
46
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
The net asset value is calculated separately for Service Shares of each Portfo-
lio as of the close of regular trading hours on the NYSE (currently 4:00 p.m.
Eastern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio that are allocated to its Service Shares,
less the liabilities charged to its Service Shares, by the number of its Serv-
ice Shares that are outstanding.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees. The amortized cost method of valuation will also be used with re-
spect to debt obligations with sixty days or less remaining to maturity unless
a Portfolio's sub-adviser under the supervision of the Board of Trustees deter-
mines such method does not represent fair value.
47
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. All distributions are
reinvested at net asset value in the form of additional full and fractional
Service Shares of the relevant Portfolio unless a shareholder elects otherwise.
Such election, or any revocation thereof, must be made in writing to PFPC, and
will become effective with respect to dividends paid after its receipt by PFPC.
The net investment income of the Managed Income, Tax-Free Income, Intermediate
Government Bond, Intermediate Bond and International Bond Portfolios is de-
clared monthly as a dividend to investors who are shareholders of such Portfo-
lio at the close of business on the day of declaration. The net investment in-
come of the Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Ohio Tax-
Free Income, Core Bond and Short Government Bond Portfolios is declared daily
as a dividend to investors who are shareholders of such Portfolio at, and whose
payment for share purchases are available to the particular Portfolio in Fed-
eral funds by, the close of business on the day of declaration. All dividends
are paid within ten days after the end of each month and, in the case of the
Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Ohio Tax-Free Income,
Core Bond and Short Government Bond Portfolios, within seven days after redemp-
tion of all of a shareholder's shares in a Portfolio. Net realized capital
gains (including net short-term capital gains), if any, will be distributed by
each Portfolio at least annually.
48
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
"exempt interest dividends" or are treated as a return of capital), regardless
of whether the distributions are paid in cash or reinvested in additional
shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Tax-Free Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns, and
in two circumstances such amounts, while exempt from regular Federal income
tax, are taxable to persons subject to alternative minimum and environmental
taxes. First, "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and non-corporate taxpayers in determining alternative
minimum and environmental tax liability. Second, "exempt interest dividends"
must be taken into account by corporate taxpayers in determining certain ad-
justments for alternative minimum and environmental tax purposes. Shareholders
who are recipients of Social Security Act or Railroad Retirement Act benefits
should note that "exempt interest dividends" will be taken into account in de-
termining the taxability of their benefit payments.
Each Tax-Free Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions declared from net investment income during that year and may
differ significantly from the actual percentages for any particular day.
Compass Capital will send written notices to shareholders annually regarding
the tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on
a specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during the
following January.
An investor considering buying shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption or
transfer of shares depending upon their tax basis and their price at the time
of redemption, or transfer.
49
<PAGE>
Generally, shareholders may include sales charges paid on the purchase of
Shares in their tax basis for the purposes of determining gain or loss on a re-
demption, transfer or exchange of such Shares. However, if a shareholder ex-
changes the Shares for Shares of another Portfolio within 90 days of purchase
and is able to reduce the sales charges applicable to the new Shares (by virtue
of the Fund's exchange privilege), the amount equal to such reduction may not
be included in the tax basis of the shareholder's exchanged Shares for the pur-
pose of determining gain or loss but may be included (subject to the same limi-
tation) in the tax basis of the new Shares.
Any loss upon the sale or exchange of shares held for six months or less will
be disallowed for Federal income tax purposes to the extent of any exempt in-
terest dividends received by the shareholder. For the Ohio Tax-Free Income
Portfolio, the loss will be disallowed for Ohio income tax purposes to the same
extent, even though, for Ohio income tax purposes, some portion of such divi-
dends actually may have been subject to Ohio income tax.
It is expected that dividends and certain interest income earned by the Inter-
national Bond Portfolio from foreign securities will be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of the taxable year in question consists
of stock or securities of foreign corporations, the Portfolio may elect, for
U.S. Federal income tax purposes, to treat certain foreign taxes paid by it,
including generally any withholding taxes and other foreign income taxes, as
paid by its shareholders. The Portfolio intends to make this election. As a re-
sult, the amount of such foreign taxes paid by the Portfolio will be included
in its shareholders' income pro rata (in addition to taxable distributions ac-
tually received by them), and each shareholder generally will be entitled ei-
ther (a) to credit a proportionate amount of such taxes against U.S. Federal
income tax liabilities, or (b) if a shareholder itemizes deductions, to deduct
such proportionate amounts from U.S. income.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of the dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In addi-
tion, future legislative or administrative changes or court decisions may mate-
rially affect the tax consequences of investing in a Portfolio. Shareholders
who are non-resident alien individuals, foreign trusts or estates, foreign cor-
porations or foreign partnerships may be subject to different U.S. Federal in-
come tax treatment.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder attributable
to interest realized by the Pennsylvania Tax-Free Income Portfolio from Penn-
sylvania Municipal Obligations or attributable to insurance proceeds on account
of such interest, is not taxable to individuals, estates or trusts under the
Personal Income Tax (in the case of insurance proceeds, to the extent they are
exempt for Federal Income Tax purposes); to corporations under the Corporate
Net Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for Federal Income Tax purposes); nor to individuals under the Philadel-
phia School District Net Investment Income Tax ("School District Tax").
50
<PAGE>
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Pennsylvania Tax-Free Income Portfolio of Pennsylvania Munici-
pal Obligations is taxable under the Personal Income Tax, the Corporate Net In-
come Tax, and, unless these assets were held by the Pennsylvania Tax-Free In-
come Portfolio for more than six months, the School District Tax.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Obligations held by the Pennsylvania Tax-Free Income
Portfolio, such gain may be subject to the Personal Income Tax and Corporate
Net Income Tax. Such gain may also be subject to the School District Tax, ex-
cept that gain realized with respect to a share held for more than six months
is not subject to the School District Tax.
This discussion does not address the extent, if any, to which shares, or inter-
est and gain thereon, is subject to, or included in the measure of, the special
taxes imposed by the Commonwealth of Pennsylvania on banks and other financial
institutions or with respect to any privilege, excise, franchise or other tax
imposed on business entities not discussed above (including the Corporate Capi-
tal Stock/Foreign Franchise Tax).
Shareholders of the Pennsylvania Tax-Free Income Portfolio are not subject to
the Pennsylvania County Personal Property Tax to the extent that the Portfolio
is comprised of Pennsylvania Municipal Obligations and Federal obligations (if
the interest on such obligations is exempt from state and local taxation under
the laws of the United States).
NEW JERSEY TAX CONSIDERATIONS. It is anticipated that substantially all divi-
dends paid by the New Jersey Tax-Free Income Portfolio will not be subject to
New Jersey personal income tax. In accordance with the provisions of New Jersey
law as currently in effect, distributions paid by a "qualified investment fund"
will not be subject to the New Jersey personal income tax to the extent that
the distributions are attributable to income received as interest or gain from
New Jersey State-Specific Obligations, or as interest or gain from direct U.S.
Government obligations. Distributions by a qualified investment fund that are
attributable to most other sources will be subject to the New Jersey personal
income tax. To be classified as a qualified investment fund, at least 80% of
the Portfolio's investments must consist of New Jersey State-Specific Obliga-
tions or direct U.S. Government obligations; it must have no investments other
than interest-bearing obligations, obligations issued at a discount, and cash
and cash items (including receivables); and it must satisfy certain reporting
obligations and provide certain information to its shareholders. Shares of the
Portfolio are not subject to property taxation by New Jersey or its political
subdivisions.
51
<PAGE>
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio per-
sonal income tax or municipal or school district income taxes in Ohio will not
be subject to such taxes on distributions from the Ohio Tax-Free Income Portfo-
lio to the extent that such distributions are properly attributable to interest
on Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States)
("U.S. Obligations"), if (a) the Portfolio continues to qualify as a regulated
investment company for Federal income tax purposes and (b) at all times at
least 50% of the value of the total assets of the Portfolio consists of Ohio
Municipal Obligations or similar obligations of other states or their subdivi-
sions. Corporations that are subject to the Ohio corporation franchise tax will
not have to include distributions from the Ohio Tax-Free Income Portfolio in
their net income base for purposes of calculating their Ohio corporation fran-
chise tax liability to the extent that such distributions either constitute ex-
empt-interest dividends for Federal income tax purposes or are properly attrib-
utable to interest on Ohio Municipal Obligations or U.S. Obligations. However,
Shares of the Ohio Tax-Free Income Portfolio will be included in a corpora-
tion's net worth base for purposes of calculating the Ohio corporation fran-
chise tax. Distributions properly attributable to gain on the sale, exchange or
other disposition of Ohio Municipal Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in Ohio and
will not be included in the net income base of the Ohio corporation franchise
tax. Distributions attributable to other sources will be subject to the Ohio
personal income tax and the Ohio corporation franchise tax.
52
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio, except the Intermediate Bond, Managed Income and Ohio Tax-Free In-
come Portfolios, offers five separate classes of shares--Institutional Shares,
Service Shares, Investor A Shares, Investor B Shares and Investor C Shares. The
Intermediate Bond, Managed Income and Ohio Tax-Free Income Portfolios each of-
fer Institutional Shares, Service Shares and Investor A Shares and, in addi-
tion, the Ohio Tax-Free Income Portfolio offers Investor B Shares. This pro-
spectus relates only to Service Shares of the ten Portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's classes
of Investor Shares. The Fund offers various services and privileges in connec-
tion with its Investor Shares that are not generally offered in connection with
its Institutional and Service Shares, including an automatic investment plan,
automatic withdrawal plan and checkwriting. For further information regarding
the Fund's Institutional or Investor Share classes, contact PFPC at (800) 441-
7764 (Institutional Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank holding company.
53
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for Service Shares of the Portfolios may be quoted in
advertisements and communications to shareholders. Total return will be calcu-
lated on an average annual total return basis for various periods. Average an-
nual total return reflects the average annual percentage change in value of an
investment in Service Shares of a Portfolio over the measuring period. Total
return may also be calculated on an aggregate total return basis. Aggregate to-
tal return reflects the total percentage change in value over the measuring pe-
riod. Both methods of calculating total return assume that dividend and capital
gain distributions made by a Portfolio with respect to its Service Shares are
reinvested in Service Shares.
The yield of Service Shares is computed by dividing the Portfolio's net income
per share allocated to its Service Shares during a 30-day (or one month) period
by the net asset value per share on the last day of the period and annualizing
the result on a semi-annual basis. Each Tax-Free Portfolio's "tax-equivalent
yield" may also be quoted, which shows the level of taxable yield needed to
produce an after-tax equivalent to a Portfolio's tax-free yield. This is done
by increasing the Portfolio's yield (calculated above) by the amount necessary
to reflect the payment of Federal and/or state income tax at a stated tax rate.
The performance of a Portfolio's Service Shares may be compared to the perfor-
mance of other mutual funds with similar investment objectives and to relevant
indices, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of a Portfolio's Service Shares may be com-
pared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service, and with the
performance of the Lehman GMNA Index, the T-Bill Index and the "stocks, bonds
and inflation index" published annually by Ibbotson Associates and the Lehman
Government Corporate Bond Index, as well as the benchmarks attached to this
Prospectus. Performance information may also include evaluations of the Portfo-
lios and their Service Shares published by nationally recognized ranking serv-
ices, and information as reported in financial publications such as Business
Week, Fortune, Institutional Investor, Money Magazine, Forbes, Barron's, The
Wall Street Journal and The New York Times, or in publications of a local or
regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Service Shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of a dividend in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Service Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for
Service Shares of a Portfolio cannot necessarily be used to compare an invest-
ment in
54
<PAGE>
such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other institu-
tions directly to their customer accounts in connection with investments in
Service Shares will not be included in the Portfolio performance calculations.
55
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call COMPASS CAPITAL
FUNDS at (800) 441-7450.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7764.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
56
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Short Government Bond Merrill 1-3 Year Treasuries with maturities ranging from 1
Treasury Index to 2.99 years
Intermediate Government Lehman Brothers Treasury and agency issues in the Lehman
Bond Intermediate Government Aggregate, excluding maturities above 9.99
years
Intermediate Bond Lehman Brothers Treasury, agency and corporate issues in
Intermediate Gov't/Corp the Lehman Aggregate, excluding maturities
above 9.99 years
Core Bond Lehman Aggregate The Lehman Aggregate contains issues that
meet the following criteria:
. At least $100 million par amount
outstanding for entry and exit
. Rated investment grade (at least Baa-3)
by Moody's or S&P (if not rated by
Moody's)
. At least one year at maturity
. Coupon must have a fixed rate
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of June 1995, the composition of the
Lehman Brothers Aggregate Index is:
54% allocation to Treasury and government
securities
28% allocation to mortgage-backed
securities
18% allocation to corporate and asset-
backed securities
Managed Income Salomon BIG Very similar to the Lehman Aggregate, the
Salomon BIG is a market-weighted index
comprised of U.S. Treasury, government-
sponsored, investment grade corporate (Baa-
3/BBB- or better), mortgage- and asset-
backed securities.
. Issues comprising the index have an
average life of at least 1 year, with no
maximum maturity
. Corporate and government-sponsored issues
have a minimum face amount of $100
million to qualify for entry, and a
minimum of $75 million face amount to
exit
. Treasury and mortgage issues have a
minimum face amount of $1 billion for
both entry and exit
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of June 1995, the composition of the
Index is:
53% allocation to Treasury and government
securities
29% allocation to mortgage-backed
securities
18% allocation to corporate and asset-
backed securities
International Bond Salomon Non-U.S. Hedged A market-capitalization weighted benchmark
World Government Bond that tracks the performance of the 13
Index Government bond markets of Australia,
Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands,
Spain, Sweden and the United Kingdom. The
currency-hedged return is computed by using
a rolling one-month forward exchange
contract as a hedging instrument.
Tax-Free Income Lehman Municipal Bond All of the bonds in the following Municipal
Index Indices possess the following
characteristics:
. A minimum credit rating of Baa-3
. Outstanding par value of at least $3
million
. Must be issued as part of a deal of at
least $50 million
. Individual bonds must have been issued
within the last 5 years
. Remaining maturity of not less than one
year
Excludes bonds subject to the alternative
minimum tax (AMT), taxable municipal bonds,
and floating-rate or zero coupon municipal
bonds
Pennsylvania Tax-Free Lehman Local GO Index Local general obligation bonds
Income
New Jersey Tax-Free Lehman Local GO Index Local general obligation bonds
Income
Ohio Tax-Free Income Lehman Local GO Index Local general obligation bonds
</TABLE>
57
<PAGE>
The Compass Capital Funds
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-----------------
SHORT GOVERNMENT BOND PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO
CORE BOND PORTFOLIO
MANAGED INCOME PORTFOLIO
INTERNATIONAL BOND PORTFOLIO
TAX-FREE INCOME PORTFOLIO
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
NEW JERSEY TAX-FREE INCOME PORTFOLIO
OHIO TAX-FREE INCOME PORTFOLIO
THE BOND
PORTFOLIOS
SERVICE SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INVESTOR A AND INVESTOR B SHARES OF THE
SHORT GOVERNMENT BOND PORTFOLIO,
INTERMEDIATE GOVERNMENT PORTFOLIO,
INTERMEDIATE BOND PORTFOLIO,
CORE BOND PORTFOLIO,
MANAGED INCOME PORTFOLIO,
GOVERNMENT INCOME PORTFOLIO,
INTERNATIONAL BOND PORTFOLIO,
TAX-FREE INCOME PORTFOLIO,
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO,
NEW JERSEY TAX-FREE INCOME PORTFOLIO AND
OHIO TAX-FREE INCOME PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
[ART]
PROSPECTUS
BOND
PORTFOLIOS
Investor
Shares
COMPASS
--------------------
[LOGO] CAPITAL FUNDS
N O T Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
INSURED and involve risk including
possible loss of principal.
<PAGE>
The Bond Portfolios Investor Shares January 16, 1996
- -------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This
Prospectus describes the Investor Shares of eleven of those
portfolios (the "Portfolios"):
Short Government Bond Portfolio
Intermediate Government Bond Portfolio
Intermediate Bond Portfolio
Core Bond Portfolio
Government Income Portfolio
Managed Income Portfolio
International Bond Portfolio
Tax-Free Income Portfolio
Pennsylvania Tax-Free Income Portfolio
New Jersey Tax-Free Income Portfolio
Ohio Tax-Free Income Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional
Information may be obtained free of charge from the Fund by
calling (800) 441-7762. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OB-
LIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RE-
SERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN
THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC TAX-FREE PORTFOLIOS
ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
<PAGE>
The Bond Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of eleven
investment portfolios that provide investors with a broad spec-
trum of investment alternatives within the fixed income sector.
Seven of these Portfolios invest in taxable bonds, and four of
these Portfolios invest in tax-exempt bonds. A detailed descrip-
tion of each Portfolio begins on page 23.
COMPASS PERFORMANCE LIPPER PEER GROUP
CAPITAL BENCHMARK
PORTFOLIO
Short Merrill 1-3 Short U.S. Government
Government Year
Bond Treasury
Index
Intermediate Lehman Intermediate U.S. Government
Government Brothers
Bond Intermediate
Government
Intermediate Lehman Intermediate Government/Corporate
Bond Brothers
Intermediate
Government/
Corporate
Core Bond Lehman Intermediate Investment Grade
Aggregate Debt
Government Lehman General U.S. Government
Income Mortgage/
10 Year
Treasury
Managed Salomon BIG Corporate Debt A-Rated
Income
International Salomon General World Income
Bond Non-U.S.
Hedged World
Government
Bond Index
Tax-Free Lehman General Municipal Debt
Income Municipal
Bond Index
PA Tax-Free Lehman PA Municipal Debt
Income Local GO
Index
NJ Tax-Free Lehman NJ Municipal Debt
Income Local GO
Index
OH Tax-Free Lehman OH Municipal Debt
Income Local GO
Index
PNC Asset Management Group, Inc. ("PAMG") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc.
("BlackRock") serves as sub-adviser to each Portfolio except the
International Bond Portfolio, which is sub-advised by Morgan
Grenfell Investment Services Limited ("Morgan Grenfell").
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
BOND different directions in fixed income investing. You may wish to
PORTFOLIOS use the table of contents on page 5 to find descriptions of the
Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. Some or all of the Portfolios may
BOND INVESTING purchase mortgage-related, asset-backed, foreign and illiquid
securities; enter into repurchase and reverse repurchase
agreements and engage in leveraging techniques; lend portfo-
lio securities to third parties; and enter into futures con-
tracts and options. Each of the Pennsylvania, New Jersey and
Ohio Tax-Free Income Portfolios (the "State-Specific Tax-Free
Portfolios") concentrates in the securities of issuers lo-
cated in a particular state, and is non-diversified, which
means that its performance may be dependent upon the perfor-
mance of a smaller number of securities than the other Port-
folios, which are considered diversified. See "What Addi-
tional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased" and "How Are
CAPITAL FUNDS Shares Redeemed?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 11
What Are The Portfolios?..................................... 23
What Are The Differences Among The Portfolios?............... 24
What Types Of Securities Are In The Portfolios?.............. 25
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 26
What Additional Investment Policies And Risks Apply?......... 27
Who Manages The Fund?........................................ 40
What Pricing Options Are Available To Investors?............. 46
What Are The Key Considerations In Selecting A Pricing
Option?..................................................... 48
How Are Shares Purchased?.................................... 49
How Are Shares Redeemed?..................................... 51
What Are The Shareholder Features Of The Fund?............... 53
What Is The Schedule Of Sales Charges And Exemptions?........ 56
How Is Net Asset Value Calculated?........................... 62
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 63
How Are Fund Distributions Taxed?............................ 64
How Is The Fund Organized?................................... 68
How Is Performance Calculated?............................... 69
How Can I Get More Information?.............................. 71
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- -------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Investor Shares of the Portfolios for the current fiscal year ending September
30, 1996 as a percentage of average daily net assets. An example based on the
summary is also shown.
<TABLE>
<CAPTION>
SHORT INTERMEDIATE INTERMEDIATE
GOVERNMENT BOND GOVERNMENT BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO+
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 3.0% None 4.0% None 4.0%
Sales Charge on
Reinvested Dividends None None None None None
Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) None 4.5% None 4.5% None
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/3/) .30% .30% .30% .30% .30%
12b-1 fees(/3/)(/4/) .00 .75 .00 .75 .00
Other operating expenses
(after fee
waivers)(/3/) .72 .72 .72 .72 .72
------ ------ ------ ------ -------
Shareholder servicing
fee .25 .25 .25 .25 .25
Shareholder processing
fee .15 .15 .15 .15 .15
Other expenses .32 .32 .32 .32 .32
---- ---- ---- ---- -----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.02% 1.77% 1.02% 1.77% 1.02%
====== ====== ====== ====== =======
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares
that are purchased with no initial sales charge as part of an investment
of $1,000,000 or more. See "What Is the Schedule of Sales Charges and Ex-
emptions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases for redemptions made in subsequent years. No de-
ferred sales charge is charged after the sixth year on Investor B Shares.
See "What Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .50% and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive fees or reimburse ex-
penses, but have informed the Fund that they expect to waive fees and re-
imburse expenses during the remainder of the current fiscal year as neces-
sary to maintain the Portfolios' total operating expenses at the levels
set forth in the table. The information in the table is based on the advi-
sory and administration fees and other expenses payable after fee waivers
for the fiscal year ended September 30, 1995, as restated to reflect cur-
rent expenses and fee waivers. Without waivers, "Other operating expenses"
would be: (i) .80%, .80% and .82%, respectively, for Investor A Shares;
and (ii) .80% and .80%, respectively, for Investor B shares; and "Total
Portfolio operating expenses" would be: (iii) 1.30%, 1.30% and 1.32%, re-
spectively, for Investor A Shares; and (iv) 2.06% and 2.05%, respectively,
for Investor B Shares. The Portfolios do not expect to incur any 12b-1
fees with respect to Investor A Shares (otherwise payable at the maximum
rate of .10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as
described under "What Are The Key Considerations In Selecting A Pricing
Option?" on page 48. Investor A Shares do not currently pay 12b-1 fees.
Long-term investors in Investor B Shares (as well as investors in Investor
A Shares if 12b-1 fees are charged in the future) may pay more than the
economic equivalent of the maximum front-end sales charges permitted by
the rules of the National Association of Securities Dealers, Inc.
("NASD").
+ The Intermediate Bond Portfolio does not currently offer Investor B Shares.
6
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT MANAGED
CORE BOND INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO+
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 4.0% None 4.5% None 4.5%
Sales Charge on
Reinvested Dividends None None None None None
Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) None 4.5% None 4.5% None
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/3/) .30% .30% .30% .30% .35%
12b-1 fees(/3/)(/4/) .00 .75 .00 .75 .00
Other operating expenses
(after fee
waivers)(/3/) .72 .72 .72 .72 .70
------ ------ ------ ------ ------
Shareholder servicing
fee .25 .25 .25 .25 .25
Shareholder processing
fee .15 .15 .15 .15 .15
Other expenses .32 .32 .32 .32 .30
---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.02% 1.77% 1.02% 1.77% 1.05%
====== ====== ====== ====== ======
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases for redemptions made in subsequent years. No de-
ferred sales charge is charged after the sixth year on Investor B Shares.
See "What Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .50% and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive fees or reimburse expenses,
but have informed the Fund that they expect to waive fees and reimburse ex-
penses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. The information in the table is based on the advisory and ad-
ministration fees and other expenses payable after fee waivers for the fis-
cal year ended September 30, 1995, as restated to reflect current expenses
and fee waivers. Without waivers, "Other operating expenses" would be: (i)
.80%, .80% and .81%, respectively, for Investor A Shares; and (ii) .80% and
.80%, respectively, for Investor B Shares; and "Total Portfolio operating
expenses" would be: (iii) 1.30%, 1.30% and 1.31%, respectively, for In-
vestor A Shares; and (iv) 2.05% and 2.05%, respectively, for Investor B
Shares. The Portfolios do not expect to incur any 12b-1 fees with respect
to Investor A Shares (otherwise payable at the maximum rate of .10%) during
the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" on page 48. Investor A Shares do not currently pay 12b-1 fees. Long-
term investors in Investor B Shares (as well as investors in Investor A
Shares if 12b-1 fees are charged in the future) may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
+ The Managed Income Portfolio does not currently offer Investor B Shares.
7
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA
INTERNATIONAL BOND TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 5.0% None 4.0% None 4.0% None
Sales Charge on
Reinvested Dividends None None None None None None
Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) None 4.5% None 4.5% None 4.5%
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/3/) .55% .55% .30% .30% .30% .30%
12b-1 fees(/3/)(/4/) .00 .75 .00 .75 .00 .75
Other operating expenses
(after fee waivers and
expense
reimbursements)(/3/) .90 .90 .72 .72 .67 .72
------ ------ ------ ------ ----- ------
Shareholder servicing
fee .25 .25 .25 .25 .25 .25
Shareholder processing
fee .15 .15 .15 .15 .15 .15
Other expenses .50 .50 .32 .32 .27 .32
---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee waivers and
expense
reimbursements)(/3/) 1.45% 2.20% 1.02% 1.77% .97% 1.77%
====== ====== ====== ====== ===== ======
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares
that are purchased with no initial sales charge as part of an investment
of $1,000,000 or more. See "What Is the Schedule of Sales Charges and Ex-
emptions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases for redemptions made in subsequent years. No de-
ferred sales charge is charged after the sixth year on Investor B Shares.
See "What Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55%, .50% and .50%, respec-
tively, and administration fees would be .23% for each class of each Port-
folio. In addition, the Expense Summary reflects reimbursements made to
the Tax-Free Income Portfolio by the adviser. PAMG and the Portfolios' ad-
ministrators are under no obligation to waive fees or reimburse expenses,
but have informed the Fund that they expect to waive fees and reimburse
expenses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. The information in the table is based on the advisory and
administration fees and other expenses payable after fee waivers for the
fiscal year ended September 30, 1995, as restated to reflect current ex-
penses and fee waivers. Without waivers, "Other operating expenses" would
be: (i) .98%, .82% and .77%, respectively, for Investor A Shares; and (ii)
.98%, .82% and .82%, respectively, for Investor B Shares; and "Total Port-
folio operating expenses" would be: (iii) 1.52%, 1.32% and 1.32%, respec-
tively, for Investor A Shares; and (iv) 2.27%, 2.07% and 2.07%, respec-
tively, for Investor B Shares. The Portfolios do not expect to incur any
12b-1 fees with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as
described under "What Are the Key Considerations in Selecting a Pricing
Option?" on page 48. Investor A Shares do not currently pay 12b-1 fees.
Long-term investors in Investor B Shares (as well as investors in Investor
A Shares if 12b-1 fees are charged in the future) may pay more than the
economic equivalent of the maximum front-end sales charges permitted by
the rules of the NASD.
8
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY OHIO
TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Charge(/1/)
(as a percentage of offering
price) 4.0% None 4.0% None
Sales Charge on Reinvested
Dividends None None None None
Deferred Sales
Charge(/1/)(/2/)
(as a percentage of original
purchase price or redemption
proceeds, whichever is
lower) None 4.5% None 4.5%
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fees (after fee
waivers)(/3/) .30% .30% .30% .30%
12b-1 fees(/3/)(/4/) .00 .75 .00 .75
Other operating expenses
(after fee waivers)(/3/) .72 .72 .72 .72
------ ------ ------ ------
Shareholder servicing fee .25 .25 .25 .25
Shareholder processing fee .15 .15 .15 .15
Other expenses .32 .32 .32 .32
---- ---- ---- ----
Total Portfolio operating
expenses (after fee
waivers)(/3/) 1.02% 1.77% 1.02% 1.77%
====== ====== ====== ======
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases for redemptions made in subsequent years. No de-
ferred sales charge is charged after the sixth year on Investor B Shares.
See "What Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the portfo-
lios. Without waivers, advisory fees would be .50% and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive fees or reimburse expenses,
but have informed the Fund that they expect to waive fees and reimburse ex-
penses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. The information in the table is based on the advisory and ad-
ministration fees and other expenses payable after fee waivers for the fis-
cal year ended September 30, 1995, as restated to reflect current expenses
and fee waivers. Without waivers, "Other operating expenses" would be: (i)
.85% and .85%, respectively, for Investor A Shares; and (ii) .85% and .85%,
respectively, for Investor B Shares; and "Total Portfolio operating ex-
penses" would be: (iii) 1.32% and 1.35% for Investor A Shares; and (iv)
2.07% and 2.10% for Investor B Shares. The Portfolios do not expect to in-
cur 12b-1 fees with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" on page 48. Investor A Shares do not currently pay 12b-1 fees. Long-
term investors in Investor B Shares (as well as investors in Investor A
Shares if 12b-1 fees are charged in the future) may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
9
<PAGE>
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Short Government Bond Portfolio
A Shares* $40 $61 $ 85 $151
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
Intermediate Government Bond
Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
Intermediate Bond Portfolio
A Shares* 50 71 94 160
Core Bond Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
Government Income Portfolio
A Shares* 55 76 99 164
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
Managed Income Portfolio
A Shares* 55 77 100 167
International Bond Portfolio
A Shares* 64 94 125 215
B Shares (Redemption)** 67 106 140 234
B Shares (No Redemption) 22 69 118 234
Tax-Free Income Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
Pennsylvania Tax-Free Income
Portfolio
A Shares* 50 70 91 154
B Shares (Redemption)** 63 93 119 177***
B Shares (No Redemption) 18 56 96 177***
New Jersey Tax-Free Income
Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
Ohio Tax-Free Income Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
</TABLE>
* Reflects the imposition of the maximum front-end sales charge at the begin-
ning of the period.
** Reflects the deduction of the deferred sales charge.
*** Based on the conversion of the Investor B Shares to Investor A Shares af-
ter seven years.
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses that an investor in the Portfolios will bear
either directly or indirectly. They do not reflect any charges that may be im-
posed by brokers or other institutions directly on their customer accounts in
connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERAT-
ING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
10
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and, except for the period March
31, 1995 through August 31, 1995 with respect to the Interna-
tional Bond Portfolio and the New Jersey Tax-Free Income Portfo-
lio, has been audited by the Portfolios' independent accoun-
tants' (or former accountants with respect to the Short Govern-
ment Bond and Core Bond Portfolios). This financial information
should be read together with those financial statements. For the
periods shown, the Short Government Bond Portfolio and Core Bond
Portfolio offered only one class of shares to institutional in-
vestors, and the New Jersey Tax-Free Income Portfolio and Inter-
national Bond Portfolio offered one class of shares to both in-
stitutional and retail investors. Further information about the
performance of the Portfolios is available in the Fund's annual
shareholder reports. Both the Statement of Additional Informa-
tion and the annual shareholder reports may be obtained from the
Fund free of charge by calling (800) 441-7762. During the peri-
ods shown, no Investor B Shares of the Short Government Bond,
Intermediate Government Bond, Intermediate Bond, Core Bond, Man-
aged Income, International Bond, Tax-Free Income and New-Jersey
Tax-Free Income Portfolios were outstanding. The Intermediate
Bond and Managed Income Portfolios do not currently offer In-
vestor B Shares.
11
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SHORT GOVERNMENT BOND PORTFOLIO+
(FORMERLY, THE SHORT-TERM BOND PORTFOLIO)
<TABLE>
<CAPTION>
YEAR YEAR JULY 17, 1992(*)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 9.71 $ 9.96 $ 10.00
------- ------- -------
Net investment income (net of
$.014, $.011 and $.005
respectively, of interest
expense)(**) 0.58 0.48 0.51
Net realized and unrealized
loss on investments 0.13 (0.25) (0.06)
------- ------- -------
Net increase from investment
operations 0.71 0.23 0.45
------- ------- -------
Dividends from net investment
income (0.58) (0.48) (0.49)
Distributions from net realized
capital gains (0.01) - - - -
------- ------- -------
Total dividends and
distributions (0.59) (0.48) (0.49)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.83 $ 9.71 $ 9.96
======= ======= =======
Total investment return(***) 6.99% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Expenses(**) 0.57% 0.57% 0.56%(****)
Net investment income(**) 6.08% 4.70% 5.32%(****)
SUPPLEMENTAL DATA:
Average net assets (in
thousands) $34,236 $36,686 $67,540
Portfolio turnover 586% 455% 513%
Net assets, end of period (in
thousands) $44,486 $31,265 $51,611
</TABLE>
+ This Portfolio commenced operations on July 17, 1992 as the Short Duration
Portfolio, a separate investment portfolio (the "Predecessor Short Govern-
ment Bond Portfolio") of The BFM Institutional Trust Inc., which was orga-
nized as a Maryland business corporation. On January 12, 1996, the assets
and liabilities of the Predecessor Short Government Bond Portfolio were
transferred to this Portfolio, and were combined with the assets of a pre-
existing portfolio investment maintained by the Fund.
(*) Commencement of investment operations.
(**) The investment adviser of the Predecessor Short Government Bond Portfolio
waived fees amounting to $102,707 and $110,232 and reimbursed expenses
amounting to $61,195 and $55,582, for the periods ended June 30, 1995 and
June 30, 1994, respectively. For the period July 17, 1992 through June 30,
1993, the administrator of the Predecessor Short Bond Portfolio waived
fees amounting to $64,580. If all expenses had been borne, the expense ra-
tios would have been 1.05%, 1.02% and 0.66% for the periods ended June 30,
1995, June 30, 1994 and June 30, 1993, respectively. The net investment
income ratios would have been 5.60%, 4.25% and 5.22% for the periods ended
June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The net in-
vestment income on a per share basis would have been $0.53, $0.43 and
$0.49 for the periods ended June 30, 1995, June 30, 1994 and June 30,
1993, respectively.
(***) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are as-
sumed, for purposes of this calculation, to be reinvested at the net as-
set value per share on the payment date. Total investment return does not
reflect sales load on Investor Shares.
(****) Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
(FORMERLY, THE INTERMEDIATE GOVERNMENT PORTFOLIO)
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR 5/11/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 9.64 $10.60 $10.46 $10.05
------ ------ ------ ------
Income from investment
operations
Net investment income 0.55 0.53 0.54 0.24
Net gain (loss) on
investments (both realized
and unrealized) 0.39 (0.87) 0.16 0.41
------ ------ ------ ------
Total from investment
operations 0.94 (0.34) 0.70 0.65
------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.55) (0.52) (0.54) (0.24)
Distributions from net
realized capital gains - - (0.10) (0.02) - -
------ ------ ------ ------
Total distributions (0.55) (0.62) (0.56) (0.24)
------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $10.03 $ 9.64 $10.60 $10.46
====== ====== ====== ======
Total return 9.98%/3/ (3.36)%/3/ 6.84%/3/ 6.64%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $9,802 $8,508 $7,666 $1,484
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 0.70% 0.65% 0.76% 0.80%/2/
Before
advisory/administration fee
waivers 1.07% 1.05% 0.84% 0.80%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers 5.67% 5.24% 5.19% 5.28%/2/
Before
advisory/administration fee
waivers 5.30% 4.84% 5.11% 5.28%/2/
PORTFOLIO TURNOVER RATE 247% 9% 80% 38%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE BOND PORTFOLIO
(FORMERLY, THE INTERMEDIATE-TERM BOND PORTFOLIO)
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR 5/20/94/1/
ENDED THROUGH
9/30/95 9/30/94
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.05 $ 9.23
------ ------
Income from investment operations
Net investment income 0.54 0.20
Net gain (loss) on investments (both realized and
unrealized) 0.38 (0.17)
------ ------
Total from investment operations 0.92 0.03
------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.54) (0.21)
Distributions from net realized capital gains - - - -
------ ------
Total distributions (0.54) (0.21)
------ ------
NET ASSET VALUE AT END OF PERIOD $ 9.43 $ 9.05
====== ======
Total return 10.35%/3/ 0.31%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 647 $ 87
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.84% 0.85%/2/
Before advisory/administration fee waivers 1.19% 1.28%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 5.89% 5.35%/2/
Before advisory/administration fee waivers 5.55% 4.92%/2/
PORTFOLIO TURNOVER RATE 262% 92%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CORE BOND PORTFOLIO+
<TABLE>
<CAPTION>
YEAR YEAR DECEMBER 9, 1992(*)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 9.36 $ 10.37 $10.00
------- ------- ------
Net investment income (net of
$.004, $.003 and $.001,
respectively, of interest
expense)(**) 0.62 0.55 0.32
Net realized and unrealized
gains on investments 0.50 (0.60) 0.37
------- ------- ------
Net (decrease) increase from
investment operations 1.12 (0.05) 0.69
------- ------- ------
Dividends from net investment
income (0.62) (0.55) (0.32)
Distributions from net realized
capital gains (0.01) (0.41)
Total dividends and
distributions (0.63) (0.96) (0.32)
------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.36 $10.37
======= ======= ======
Total investment return (***) 11.79% (0.69)% 6.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses (*) 0.55% 0.55% 0.55%(****)
Net investment income (**) 6.62% 5.61% 5.57%(****)
SUPPLEMENTAL DATA:
Average net assets (in
thousands) $16,247 $ 9,702 $6,622
Portfolio turnover 435% 722% 354%
Net assets, end of period (in
thousands) $32,191 $12,507 $7,803
</TABLE>
+ This Portfolio commenced operations on December 9, 1992 as the Core Fixed
Income Portfolio, a separate investment portfolio (the "Predecessor Core
Bond Portfolio") of The BFM Institutional Trust Inc., which was organized as
a Maryland business corporation. On January 12, 1996, the assets and liabil-
ities of the Predecessor Core Bond Portfolio were transferred to this Port-
folio, which had no prior operating history.
(*) Commencement of investment operations.
(**) The investment adviser of the Predecessor Core Bond Portfolio waived fees
amounting to $56,894, $34,010 and $24,761 and reimbursed expenses amount-
ing to $137,364, $137,179 and $0 for the periods ended June 30, 1995, June
30, 1994 and June 30, 1993, respectively. The administrator of the Prede-
cessor Core Bond Portfolio waived fees amounting to $32,500 and $3,701 for
the periods ended June 30, 1994 and June 30, 1993, respectively. For the
period ended June 30, 1993, the custodian and transfer agent of the Prede-
cessor Core Bond Portfolio waived fees amounting to $24,272 and $17,283,
respectively. If the Predecessor Core Bond Portfolio had borne all ex-
penses for the periods ended June 30, 1995, 1994 and 1993, the expense ra-
tios would have been 1.75%, 2.65% and 2.44%, respectively; the net invest-
ment income ratios would have been 5.43%, 3.51% and 3.68%, respectively;
and the net investment income on a per share basis would have been $0.51,
$0.34 and $0.22, respectively.
(***) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are as-
sumed, for purposes of this calculation, to be reinvested at the net as-
set value per share on the payment date. Total investment return does not
reflect sales load on Investor Shares.
(****) Annualized.
15
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE AND INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH
PERIOD)
GOVERNMENT INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE
PERIOD PERIOD
10/03/94/1/ 10/03/94
THROUGH THROUGH
9/30/95 9/30/95
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $10.00 $ 10.00
------ -------
Income from investment operations
Net investment income 0.55 0.50
Net gain (loss) on investments (both
realized and unrealized) 0.68 0.68
------ -------
Total from investment operations 1.23 1.18
------ -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.55) (0.50)
Distribution in excess of net investment
income
Distributions from net realized capital
gains - - - -
Distributions in excess of net realized
gains - - - -
------ -------
Total distributions (0.55) (0.50)
------ -------
NET ASSET VALUE AT END OF PERIOD $10.68 $ 10.68
====== =======
Total return 14.27%/3/ 13.52%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $2,990 $10,188
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.37%/2/ 1.05%/2/
Before advisory/administration fee waivers 1.81%/2/ 2.50%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 6.89%/2/ 6.17%/2/
Before advisory/administration fee waivers 5.44%/2/ 4.72%/2/
PORTFOLIO TURNOVER RATE 258% 258%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
16
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MANAGED INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR 2/05/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 9.79 $ 11.18 $10.74 $10.40
------- ------- ------ ------
Income from investment
operations
Net investment income 0.60 0.57 0.66 0.46
Net gain (loss) on
investments (both realized
and unrealized) 0.60 (1.19) 0.57 0.34
------- ------- ------ ------
Total from investment
operations 1.20 (0.62) 1.23 0.80
------- ------- ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.60) (0.60) (0.66) (0.46)
Distribution in excess of
net investment income (0.01) (0.02) - - - -
Distributions from net
realized capital gains - - (0.14) (0.13) - -
Distributions in excess of
net realized gains - - (0.01) - - - -
------- ------- ------ ------
Total distributions (0.61) (0.77) (0.79) (0.46)
------- ------- ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 10.38 $ 9.79 $11.18 $10.74
======= ======= ====== ======
Total return 12.74%/3/ (5.76)%/3/ 12.13%/3/ 7.86%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $11,977 $10,921 $7,252 $1,417
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 1.05% 1.00% 0.84% 0.80%/2/
Before
advisory/administration fee
waivers 1.25% 1.22% 0.88% 0.80%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers 5.96% 5.66% 6.09% 6.28%/2/
Before
advisory/administration fee
waivers 5.76% 5.44% 6.05% 6.28%/2/
PORTFOLIO TURNOVER RATE 203% 61% 72% 56%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
17
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL BOND PORTFOLIO+
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR YEAR YEAR PERIOD
8/31/95 ENDED ENDED ENDED ENDED
(UNAUDITED) 2/28/95 2/28/94 2/28/93 2/28/92**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 10.52 $ 10.75 $ 10.76 $ 10.21 $ 10.00
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.39 0.62 0.65 0.52 0.31
Net (loss) gain on
investments (both realized
and unrealized) 0.55 (0.48) 0.46 0.47 0.26
------- ------- ------- ------- -------
Total from investment
operations 0.94 (0.14) 1.11 0.99 0.57
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.04) (0.13) (0.90) (0.30) - -
Distributions from net
realized capital gains - - (0.24) (0.22) (0.14) (0.06)
------- ------- ------- ------- -------
In Excess of Net Realized
Gains - - - - - - - - (0.30)
Total distributions (0.04) (0.37) 1.12 (0.44) (0.36)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 11.42 $ 10.52 $ 10.75 $ 10.76 $ 10.21
======= ======= ======= ======= =======
Total return*** 8.96%* 1.50% 10.24% 9.55% 8.92%*
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $45,242 $45,657 $46,888 $38,257 $27,744
Ratios of expenses to
average net assets 1.18%* 1.24% 1.38% 1.30% 1.33%*
Excluding waivers 1.18%* 1.24% 1.38% 1.30% 1.37%*
Ratios of net investment
income to average net
assets 5.75%* 5.96% 6.00% 6.31% 6.79%*
Excluding waivers 5.75%* 5.96% 6.00% 6.31% 6.75%*
PORTFOLIO TURNOVER RATE 59% 131% 128% 115% 110%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the Compass Interna-
tional Fixed Income Fund, a separate investment portfolio (the "Predecessor
International Bond Portfolio") of Compass Capital Group, which was organized
as a Massachusetts business trust. It is expected that the assets and liabil-
ities of the Predecessor International Bond Portfolio will be transferred to
this Portfolio, which has no prior operating history, on or about February
10, 1996.
* Annualized.
** Commenced operations on July 1, 1991.
***Total return does not reflect sales load.
18
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR 5/14/90/1/
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.04 $11.31 $10.60 $10.33 $ 9.91 $10.00
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.48 0.48 0.55 0.58 0.64 0.25
Net gain (loss) on
investments (both
realized and
unrealized) 0.59 (0.93) 0.83 0.49 0.46 (0.11)
------ ------ ------ ------ ------ ------
Total from investment
operations 1.07 (0.45) 1.38 1.07 1.10 0.14
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.48) (0.48) (0.55) (0.59) (0.66) (0.23)
Distributions from net
realized capital gains (0.02) (0.34) (0.12) (0.21) (0.02) - -
------ ------ ------ ------ ------ ------
Total distributions (0.50) (0.82) (0.67) (0.80) (0.68) (0.23)
------ ------ ------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $10.61 $10.04 $11.31 $10.60 $10.33 $ 9.91
====== ====== ====== ====== ====== ======
Total return 10.99%/3/ (4.19)%/3/ 13.48%/3/ 10.67%/3/ 11.40%/3/ 1.40%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $6,591 $6,972 $7,831 $7,349 $3,510 $4,044
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.00% 0.95% 0.57% 0.53% 1.00% 1.00%/2/
Before
advisory/administration
fee waivers 1.78% 2.18% 1.36% 1.67% 1.89% 1.70%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.74% 4.53% 5.06% 5.56% 6.23% 6.56%/2/
Before
advisory/administration
fee waivers 3.96% 3.30% 4.27% 4.42% 5.34% 5.86%/2/
PORTFOLIO TURNOVER RATE 92% 40% 71% 38% 95% 18%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
19
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE AND INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH
PERIOD)
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 12/1/92/1/ 10/03/94/1/
ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/95
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.82 $ 10.70 $ 10.00 $ 9.82
------- ------- ------- ------
Income from investment
operations
Net investment income 0.48 0.52 0.42 0.42
Net gain (loss) on
investments (both
realized and
unrealized) 0.51 (0.85) 0.73 0.51
------- ------- ------- ------
Total from investment
operations 0.99 (0.33) 1.15 0.93
------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.48) (0.52) (0.42) (0.42)
Distributions from net
realized capital gains - - (0.03) (0.03) - -
------- ------- ------- ------
Total distributions (0.48) (0.55) (0.45) (0.42)
------- ------- ------- ------
NET ASSET VALUE AT END OF
PERIOD $ 10.33 $ 9.82 $ 10.70 $10.33
======= ======= ======= ======
Total return 10.30%/3/ (3.06)%/3/ 11.69%/3/ 9.69%/4/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $42,775 $46,563 $35,934 $4,008
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.98% 0.41% 0.07%/2/ 1.57%/2/
Before
advisory/administration
fee waivers 1.30% 1.01% 0.95%/2/ 1.89%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.88% 5.06% 5.19%/2/ 4.07%/2/
Before
advisory/administration
fee waivers 4.56% 4.46% 4.31%/2/ 3.75%/2/
PORTFOLIO TURNOVER RATE 66% 30% 40% 66%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
20
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY TAX-FREE INCOME PORTFOLIO+
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR YEAR YEAR PERIOD
8/31/95 ENDED ENDED ENDED ENDED
(UNAUDITED) 2/28/95 2/28/94 2/28/93 2/28/92**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 10.94 $ 11.31 $ 11.30 $ 10.46 $ 10.00
------- ------- -------- ------- -------
Income from investment
operations
Net investment income 0.25 0.51 0.54 0.52 0.34
Net (loss) gain on
investments (both realized
and unrealized) 0.28 (0.36) 0.04 0.85 0.45
------- ------- -------- ------- -------
Total from investment
operations 0.53 0.15 0.58 1.37 0.79
------- ------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.25) (0.51) (0.54) (0.53) (0.33)
Distributions from net
realized capital gains - - (0.01) (0.03) - - - -
------- ------- -------- ------- -------
Total distributions (0.25) (0.52) (0.57) (0.53) (0.33)
------- ------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 11.22 $ 10.94 $ 11.31 $ 11.30 $ 10.46
======= ======= ======== ======= =======
Total return*** 4.90% 1.49% 5.18% 13.48% 12.33%*
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $97,752 $96,857 $111,354 $47,169 $10,673
Ratios of expenses to
average net assets 0.88%* 0.79% 0.38% 0.48% 0.52%*
Excluding waivers 0.88%* 0.87% 0.86% 1.04% 1.29%*
Ratios of net investment
income to average net
assets 4.51%* 4.71% 4.75% 5.04% 5.35%*
Excluding waivers 4.51%* 4.63% 4.27% 4.48% 4.58%*
PORTFOLIO TURNOVER RATE 18% 28% 12% 16% 0%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the New Jersey Munici-
pal Bond Fund, a separate investment portfolio (the "Predecessor New Jersey
Tax-Free Income Portfolio") of Compass Capital Group, which was organized as
a Massachusetts business trust. On January 12, 1996, the assets and liabili-
ties of the Predecessor New Jersey Tax-Free Income Portfolio were transferred
to this Portfolio, which had no prior operating history.
* Annualized.
** Commenced operations on July 1, 1991.
*** Total return does not reflect sales load.
21
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE AND INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH
PERIOD)
OHIO TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 12/1/92/1/ 10/13/94/1/
ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/95
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.60 $ 10.53 $10.00 $ 9.58
-------- -------- ------ ------
Income from investment
operations
Net investment income 0.52 0.53 0.36 0.42
Net gain (loss) on
investments (both
realized and
unrealized) 0.45 (0.91) 0.53 0.47
-------- -------- ------ ------
Total from investment
operations 0.97 (0.38) 0.89 0.89
-------- -------- ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.52) (0.53) (0.36) (0.42)
Distributions from net
realized capital gains - - (0.02) - - - -
-------- -------- ------ ------
Total distributions (0.52) (0.55) (0.36) (0.42)
-------- -------- ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 10.05 $ 9.60 $10.53 $10.05
======== ======== ====== ======
Total return 10.46%/3/ (3.75)%/3/ 9.10%/3/ 9.33%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 3,303 $ 3,825 $2,386 $ 106
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.38% 0.10% 0.07%/2/ 1.17%/2/
Before
advisory/administration
fee waivers 1.45% 1.49% 2.58%/2/ 2.25%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.42% 5.18% 4.90%/2/ 4.48%/2/
Before
advisory/administration
fee waivers 4.35% 3.79% 2.39%/2/ 3.41%/2/
PORTFOLIO TURNOVER RATE 63% 61% 36% 63%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
22
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 28 portfolios and
has been structured to include many different investment styles
across the spectrum of fixed income investments so that invest-
ors may participate across multiple disciplines in order to seek
their long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of eleven
investment portfolios that provide investors with a broad spec-
trum of investment alternatives within the fixed income sector.
Seven of these Portfolios invest solely in taxable bonds and
four of these Portfolios invest in tax-exempt bonds.
In certain investment cycles and over certain holding periods, a
fund that invests in any one of these styles may perform above
or below the market. An investment program that combines these
multiple disciplines allows investors to select from among these
various product options in the way that most closely fits the
individual's investment goals and sentiments.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Short Government Bond To realize a rate of return that
exceeds the total return of the
Merrill Lynch 1-3 year Treasury Index.
Intermediate Government To seek current income consistent with
Bond, Intermediate Bond, the preservation of capital.
Government Income,
Managed Income and
International Bond
Core Bond To realize a total rate of return that
exceeds the total return of the Lehman
Brothers Aggregate Index.
Tax-Free Income, To seek as high a level of current
Pennsylvania Tax-Free income exempt from Federal income tax
Income, New Jersey Tax- and, to the extent possible for each
Free Income and Ohio Tax- State-Specific Tax-Free Portfolio,
Free Income income tax of the specific state in
which the Portfolio concentrates, as
is consistent with preservation of
capital.
</TABLE>
23
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS:
<TABLE>
<CAPTION>
DOLLAR-
WEIGHTED
AVERAGE MIN
PERFORMANCE MATURITY CREDIT QUALITY CREDIT
PORTFOLIO BENCHMARK* (APPROXIMATE)** CONCENTRATION QUALITY
<S> <C> <C> <C> <C>
Short Gov't Merrill 1-3 Year 3-5 Years Gov't/Agency AAA
Bond Treasury Index
Intermediate Lehman Brothers 5-10 Years Gov't/Agency AAA
Gov't Bond Intermediate Gov't
Intermediate Lehman Brothers 5-10 Years Investment Grade BBB
Bond Intermediate Spectrum
Gov't/Corp
Core Bond Lehman Aggregate 5-10 Years Investment Grade BBB
Spectrum
Gov't Income Lehman Mortgage/10 10-15 Years Gov't/Agency AAA
Year Treasury
Managed Salomon BIG 5-10 Years Investment Grade BBB
Income Spectrum
International Salomon Non-U.S. 5-15 Years AA, AAA, BBB
Bond Hedged World Gov't/Agency
Government Bond Index
Tax-Free Lehman Municipal Bond 10-15 Years Investment Grade BBB
Income Index Spectrum
PA Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
NJ Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
OH Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the
back of this Prospectus.
** The Portfolios are structured to have comparable durations to the bench-
marks. Duration, which measures price sensitivity to interest rate changes,
is not necessarily equal to average maturity.
24
<PAGE>
What Types Of Securities Are In The Portfolios?
- --------------------------------------------------------------------------------
The following table summarizes the types of securities found in each Portfolio
according to the following designations:
Yes: The Portfolio will hold a significant concentration of these securities
at all times.
Elig.: Eligible; the Portfolio may purchase these securities, but they may or
may not be a significant holding at a given time.
Temp.: Temporary; the Portfolio may purchase these securities, but under nor-
mal market conditions is not expected to do so.
No: The Portfolio may not purchase these securities.
<TABLE>
<CAPTION>
NON FOREIGN
AGENCY/ SECURITIES/
AGENCY COMMERCIAL CURRENCY
TREASURIES AGENCIES MBS/1/ MBS/1/ CORP. ABS/2/ RISK MUNICIPALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Gov't Yes Yes Yes Elig. Elig. Elig. No Elig.
Bond
Intermediate Yes Yes Yes Elig. Yes Elig. No Elig.
Gov't Bond
Intermediate Yes Yes Yes Elig. Yes Yes No Elig.
Bond
Core Bond Yes Yes Yes Elig. Yes Yes No Elig.
Gov't Income Yes Yes Yes Elig. Yes Yes No Elig.
Managed Yes Yes Yes Elig. Yes Yes Elig. Elig.
Income
International Elig. Elig. Elig. Elig. Elig. Elig. Yes Elig.
Bond
Tax-Free Temp. No No No No No No Yes
Income
PA Tax-Free Temp. No No No No No No Yes
Income
NJ Tax-Free Temp. No No No No No No Yes
Income
OH Tax Free Temp. No No No No No No Yes
Income
</TABLE>
/1/MBS = mortgage-backed securities
/2/ABS = asset-backed securities
25
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days' notice before any such change. No assurance can be pro-
vided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities) if more than 5% of
its total assets will be invested in the securities of any one issuer, ex-
cept that up to 25% of a Portfolio's total assets may be invested without
regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(3) in the case of each Tax-Free Portfolio, invest less than 80% of its net as-
sets in Municipal Obligations (as defined below), except during defensive
periods or during periods of unusual market conditions.
Restriction 1 does not apply to the State-Specific Tax-Free Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Tax-
Free Portfolio will not invest in securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter (plus any additional grace period), more than 5% of its total assets to
be invested in securities of any one issuer, except that up to 50% of a Portfo-
lio's total assets may be invested without regard to this limitation so long as
no more than 25% of the Portfolio's total assets are invested in any one issuer
(except U.S. Government securities and related repurchase agreements).
The investment limitations stated above are applied at the time investment se-
curities are purchased.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any such commitment is
no longer in the best interests of a Portfolio, it will revoke the commitment
by terminating sales of shares of the Portfolio in the state involved.
26
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
INVESTMENT QUALITY. Securities acquired by the Short Government Bond Portfolio,
Intermediate Government Bond Portfolio and Government Income Portfolio (the
"Government Portfolios") will be rated in the highest rating category at the
time of purchase or, if unrated, of comparable quality as determined by the
Portfolios' sub-adviser. Securities acquired by the other Portfolios will be
rated investment grade at the time of purchase (within the four highest voting
categories by Standard & Poor's Ratings Group ("S&P"), Moody's Investors Serv-
ice, Inc. ("Moody's"), Duff & Phelps Credit Co. or Fitch Investor Services,
Inc.) or, if unrated, of comparable quality as determined by a Portfolio's sub-
adviser. Securities rated "Baa" on "BBB" are generally considered to be invest-
ment grade although they have speculative characteristics. If a security's rat-
ing is reduced below the minimum rating that is permitted for a Portfolio, the
Portfolio's sub-adviser will consider whether the Portfolio should continue to
hold the security.
INVESTMENT CONCENTRATION. Each Portfolio will normally invest at least 80% of
the value of its total assets in debt securities. The Government Portfolios
will invest at least 65% of their net assets in obligations issued or guaran-
teed by the U.S. Government, its agencies or instrumentalities and related re-
purchase agreements during normal market conditions. Under normal market condi-
tions, the International Bond Portfolio will invest at least 65% of its net as-
sets in the debt obligations of foreign issuers located in at least three dif-
ferent foreign countries. The Pennsylvania Tax-Free Income Portfolio, New Jer-
sey Tax-Free Income Portfolio and Ohio Tax-Free Income Portfolio (the "State-
Specific Tax-Free Portfolios") and the Tax-Free Income Portfolio (together with
the "State-Specific Tax-Free Portfolios," the "Tax-Free Portfolios") will in-
vest, during normal market conditions, at least 80% of their net assets in ob-
ligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political sub-divisions,
agencies, instrumentalities and authorities and related tax-exempt derivative
securities ("Municipal Obligations") the interest on which is exempt from regu-
lar Federal income tax and is not an item of tax preference for purposes of the
Federal alternative minimum tax. In addition, each State-Specific Tax-Free
Portfolio intends to invest at least 65% of its net assets in Municipal Obliga-
tions of issuers located in the particular state indicated by its name. The
Tax-Free Income Portfolio intends to invest no more than 25% of its net assets
in Municipal Obligations of issuers located in the same state. During temporary
defensive periods each Tax-Free Portfolio may invest without limitation in se-
curities that are not Municipal Obligations and may hold without limitation
uninvested cash reserves.
FOREIGN INVESTMENTS. The International Bond Portfolio will invest primarily in
foreign securities and currencies. The Managed Income Portfolio may invest up
to 10% of its total assets in debt securities of foreign issuers and may hold
from time to time various foreign currencies pending their investment or con-
version into U.S. dollars. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of compa-
nies organized and operated in the United States. Because foreign securities
generally are denominated and pay dividends or interest in foreign currencies,
the value of a Portfolio that invests in foreign securities will be affected
favorably or unfavorably by changes in currency exchange rates.
27
<PAGE>
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitations on the removal of funds or
assets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations. In
general, less information is publicly available with respect to foreign issuers
than is available with respect to U.S. companies. Most foreign companies are
also not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. While the volume of transactions
effected on foreign stock exchanges has increased in recent years, it remains
appreciably below that of the New York Stock Exchange. Accordingly, a Portfo-
lio's foreign investments may be less liquid and their prices may be more vola-
tile than comparable investments in securities in U.S. companies. In addition,
there is generally less government supervision and regulation of securities ex-
changes, brokers and issuers in foreign countries than in the United States.
Foreign investments may include: (a) debt obligations issued or guaranteed by
foreign sovereign governments or their agencies, authorities, instrumentalities
or political subdivisions, including a foreign state, province or municipality;
(b) debt obligations of supranational organizations such as the World Bank,
Asian Development Bank, European Investment Bank, and European Economic Commu-
nity; (c) debt obligations of foreign banks and bank holding companies; (d)
debt obligations of domestic banks and corporations issued in foreign curren-
cies; (e) debt obligations denominated in the European Currency Unit (ECU); and
(f) foreign corporate debt securities and commercial paper. Such securities may
include loan participations and assignments, convertible securities and zero-
coupon securities.
To maintain greater flexibility, the International Bond Portfolio may invest in
instruments which have the characteristics of futures contracts. Such instru-
ments may take a variety of forms, such as debt securities with interest or
principal payments determined by reference to the value of a currency or com-
modity at a future point in time. The risks of such investments could reflect
the risks of investing in futures, currencies and securities, including vola-
tility and illiquidity.
The expense ratio of the International Bond Portfolio can be expected to be
higher than those of Portfolios investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as higher investment research costs, higher foreign custody costs, higher
commission costs and additional costs arising from delays in settlements of
transactions involving foreign securities.
MUNICIPAL INVESTMENTS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer.
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Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are nor-
mally issued by special purpose public authorities. If the issuer of moral ob-
ligation bonds is unable to meet its debt service obligations from current rev-
enues, it may draw on a reserve fund the restoration of which is a moral com-
mitment but not a legal obligation of the state or municipality which created
the issuer.
Also included within the general category of Municipal Obligations are partici-
pation certificates in a lease, an installment purchase contract, or a condi-
tional sales contract ("lease obligations") entered into by a state or politi-
cal subdivision to finance the acquisition or construction of equipment, land,
or facilities. Although lease obligations are not general obligations of the
issuer for which the state or other governmental body's unlimited taxing power
is pledged, certain lease obligations are backed by a covenant to appropriate
money to make the lease obligation payments. However, under certain lease obli-
gations, the state or governmental body has no obligation to make these pay-
ments in future years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property, dis-
position of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
as marketable as more conventional securities.
Each Tax-Free Portfolio may invest up to 20% of its total assets in private ac-
tivity bonds the interest on which is an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Paper") when added together with any
other taxable investments held by the Portfolio. In addition, each Tax-Free
Portfolio may invest 25% or more of its net assets in Municipal Obligations the
interest on which is paid solely from revenues of similar projects. To the ex-
tent a Portfolio's assets are invested in Municipal Obligations payable from
the revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the particular risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
The Tax-Free Income Portfolio is classified as a diversified portfolio, and the
State-Specific Tax-Free Portfolios are classified as non-diversified portfo-
lios, under the 1940 Act. Investment returns on a non-diversified portfolio
typically are dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall value of a non-di-
versified portfolio more than it would a diversified portfolio.
Each Tax-Free Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a spec-
ified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the commit-
ment relates. Each Tax-Free Portfolio will acquire stand-by commitments solely
to facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
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The Tax-Free Portfolios may invest in tax-exempt derivative securities relating
to Municipal Obligations, including tender option bonds, participations, bene-
ficial interests in trusts and partnership interests. The amount of information
regarding the financial condition of issuers of Municipal Obligations may not
be as extensive as that which is made available by public corporations and the
secondary market for Municipal Obligations may be less liquid than that for
taxable fixed-income securities. Accordingly, the ability of a Tax-Free Portfo-
lio to buy and sell tax-exempt securities may, at any particular time and with
respect to any particular securities, be limited.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal and state income tax are rendered by counsel
to the respective issuers and sponsors of the obligations at the time of issu-
ance. The Fund and its investment adviser and sub-adviser will rely on such
opinions and will not review independently the underlying proceedings relating
to the issuance of Municipal Obligations, the creation of any tax-exempt deriv-
ative securities, or the bases for such opinions.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. The Portfolios (except the Tax-
Free Portfolios) may purchase securities that are secured or backed by mort-
gages as well as other assets (e.g., automobile loans and credit card receiv-
ables). Issuers of these mortgage-related and asset-backed securities include
the U.S. Government, the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), and private issuers such as commercial banks, financial
companies, finance subsidiaries of industrial companies, savings and loan asso-
ciations, mortgage banks and investment banks.
The Portfolios may acquire several types of mortgage-related securities, in-
cluding guaranteed mortgage pass-through certificates, which provide the holder
with a pro rata interest in the underlying mortgages, adjustable rate mortgage-
related securities ("ARMs") and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways.
Non-mortgage asset-backed securities involve certain risks that are not pre-
sented by mortgage-related securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws, many of which
give debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of ve-
hicles involved in a typical issuance and technical requirements under state
laws, the trustee for the
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holders of the automobile receivables may not have an effective security inter-
est in all of the obligations backing such receivables. Therefore, there is a
possibility that recoveries on repossessed collateral may not, in some cases,
be able to support payments on these securities.
The yield characteristics of mortgage-related and asset-backed securities dif-
fer from traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the underlying as-
sets (i.e., loans) generally may be prepaid at any time. As a result, if a
mortgage-related or asset-backed security is purchased at a premium, a prepay-
ment rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if one of these securities is pur-
chased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. In calculat-
ing the average weighted maturity of a Portfolio, the maturity of mortgage-re-
lated and asset-backed securities will be based on estimates of average life
which take prepayments into account.
Prepayments on mortgage-related and asset-backed securities generally increase
with falling interest rates and decrease with rising interest rates; further-
more, prepayment rates are influenced by a variety of economic and social fac-
tors. In general, the collateral supporting non-mortgage asset-backed securi-
ties is of shorter maturity than mortgage loans and is less likely to experi-
ence substantial prepayments. Like other fixed income securities, when interest
rates rise the value of a mortgage-related or asset-backed security generally
will decline; however, when interest rates decline, the value of these securi-
ties that have prepayment features may not increase as much as that of other
fixed income securities.
STRIPPED AND ZERO COUPON OBLIGATIONS. To the extent consistent with their in-
vestment objectives, the Portfolios may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. Government and other obliga-
tions. These participations, which may be issued by the U.S. Government (or a
U.S. Government agency or instrumentality) or by private issuers such as banks
and other institutions, are issued at a discount to their "face value," and may
include stripped mortgage-backed securities ("SMBS"). Stripped securities, par-
ticularly SMBS, may exhibit greater price volatility than ordinary debt securi-
ties because of the manner in which their principal and interest are returned
to investors. The International Bond Portfolio also may purchase "stripped" se-
curities that evidence ownership in the future interest payments or principal
payments on obligations of foreign governments.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of mort-
gage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class receives all of the principal. How-
ever, in some cases, one class will receive some of the interest and most of
the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Portfolio may fail to fully recoup
its initial investment. The market value of SMBS can
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be extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-related obligations because
their cash flow patterns are also volatile and there is a greater risk that the
initial investment will not be fully recouped.
SMBS issued by the U.S. Government (or a U.S. Government agency or instrumen-
tality) may be considered liquid under guidelines established by the Fund's
Board of Trustees if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a Port-
folio's per share net asset value.
Each Portfolio may invest in zero-coupon bonds, which are normally issued at a
significant discount from face value and do not provide for periodic interest
payments. Zero-coupon bonds may experience greater volatility in market value
than similar maturity debt obligations which provide for regular interest pay-
ments.
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Portfolios (except the Tax-Free Portfolios) may in-
vest in debt obligations of domestic or foreign corporations and banks, and may
acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. Bank obligations may include
certificates of deposit, notes, bankers' acceptances and fixed time deposits.
These obligations may be general obligations of the parent bank or may be lim-
ited to the issuing branch or subsidiary by the terms of a specific obligation
or by government regulation. The Portfolios may also make interest-bearing sav-
ings deposits in commercial and savings banks in amounts not in excess of 5% of
their respective total assets. For purposes of determining the permissibility
of an investment in bank obligations, the total assets of a bank are determined
on the basis of the bank's most recent annual financial statements.
U.S. GOVERNMENT OBLIGATIONS. Treasury obligations differ only in their interest
rates, maturities and times of issuance. Obligations of certain agencies and
instrumentalities of the U.S. Government such as the GNMA are supported by the
United States' full faith and credit; others such as those of the FNMA and the
Student Loan Marketing Association are supported by the right of the issuer to
borrow from the Treasury; others such as those of the Federal Farm Credit Banks
or the FHLMC are supported only by the credit of the instrumentality. No assur-
ance can be given that the U.S. Government would provide financial support to
U.S. Government-sponsored agencies or instrumentalities if it is not obligated
to do so by law.
INTEREST RATE AND CURRENCY TRANSACTIONS. The Portfolios may enter into interest
rate swaps and may purchase or sell interest rate caps and floors. The Portfo-
lios expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their holdings, as a duration
management technique or to protect against an increase in the price of securi-
ties a Portfolio anticipates purchasing at a later date. The Portfolios intend
to use these transactions as a hedge and not as a speculative investment.
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Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of inter-
est on a notional principal amount from the party selling such interest rate
floor.
In addition, the International Bond Portfolio may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future ex-
change rates. The Portfolio may engage in foreign currency exchange transac-
tions in connection with the purchase and sale of portfolio securities (trans-
action hedging) and to protect the value of specific portfolio positions (posi-
tion hedging). The Portfolio may purchase or sell a foreign currency on a spot
(or cash) basis at the prevailing spot rate in connection with the settlement
of transactions in portfolio securities denominated in that foreign currency,
and may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency
futures contracts (futures contracts). The Portfolio may also purchase ex-
change-listed and over-the-counter call and put options on futures contracts
and on foreign currencies, and may write covered call options on up to 100% of
the currencies in its portfolio. In order to protect against currency fluctua-
tions, the International Bond Portfolio may enter into currency swaps. Currency
swaps involve the exchange of the rights of the Portfolio and another party to
make or receive payments in specified currencies.
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, each Portfolio may write covered call options, buy put options, buy
call options and write secured put options for the purpose of hedging or earn-
ing additional income, which may be deemed speculative or, with respect to the
International Bond Portfolio, cross-hedging. These options may relate to par-
ticular securities, financial instruments, foreign currencies, securities indi-
ces or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corporation,
which performs the obligations of its members if they default.
To the extent consistent with its investment objective, each Portfolio may also
invest in futures contracts and options on futures contracts for hedging pur-
poses or to maintain liquidity. The value of a Portfolio's contracts may equal
or exceed 100% of the Fund's total assets, although a Portfolio will not pur-
chase or sell a futures contract unless immediately afterwards the aggregate
amount of margin deposits on its existing futures positions plus the amount of
premiums paid for related futures options is 5% or less of its net assets.
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Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of certain securities, the cash value of a securities index or a stated quan-
tity of a foreign currency. A Portfolio may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, a Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
GUARANTEED INVESTMENT CONTRACTS. The Portfolios may make limited investments in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies. Under these contracts, a Portfolio makes cash contributions to a de-
posit fund of the insurance company's general account. The insurance company
then credits to the Portfolio, on a monthly basis, interest which is based on
an index (such as the Salomon Brothers CD Index), but is guaranteed not to be
less than a certain minimum rate. Each Portfolio does not expect to invest more
than 5% of its net assets in GICs at any time during the current fiscal year.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans involve risks of delay in receiving additional collateral or in recover-
ing the loaned securities, or possibly loss of rights in the collateral if the
borrower of the securities becomes insolvent.
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VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
The Portfolios may invest up to 10% of their total assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate of an
inverse floater resets in the opposite direction from the market rate of inter-
est to which it is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that ex-
ceeds the magnitude of the change in the index rate of interest. The higher de-
gree of leverage inherent in inverse floaters is associated with greater vola-
tility in their market values. Issuers of unrated variable and floating rate
instruments must satisfy the same criteria as set forth above for a Portfolio.
The absence of an active secondary market with respect to particular variable
and floating rate instruments, however, could make it difficult for the Portfo-
lio to dispose of a variable or floating rate instrument if the issuer de-
faulted on its payment obligation or during periods when the Portfolio is not
entitled to exercise its demand rights.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase debt securities
from financial institutions subject to the seller's agreement to repurchase
them at an agreed upon time and price ("repurchase agreements"). Repurchase
agreements are, in substance, loans. Default by or bankruptcy of a seller would
expose a Portfolio to possible loss because of adverse market action, expenses
and/or delays in connection with the disposition of the underlying obligations.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made through reverse repurchase agreements under which a Portfolio sells
portfolio securities to financial institutions such as banks and broker-dealers
and agrees to repurchase them at a particular date and price. The Portfolios
may use the proceeds of reverse repurchase agreements to purchase other securi-
ties either maturing, or under an agreement to resell, on a date simultaneous
with or prior to the expiration of the reverse repurchase agreement. The Port-
folios (except the Tax-Free Portfolios) may use reverse repurchase agreements
when it is anticipated that the interest income to be earned from the invest-
ment of the proceeds of the transaction is greater than the interest expense of
the transaction. This use of reverse repurchase agreements may be regarded as
leveraging and, therefore, speculative. Reverse repurchase agreements involve
the risks that the interest income earned in the investment of the proceeds
will be less than the interest expense, that the market value of the securities
sold by a Portfolio may decline below the price of the securities the Portfolio
is obligated to repurchase and that the securities may not be returned to the
Portfolio. During the time a reverse repurchase agreement is outstanding, a
Portfolio will maintain a segregated account with the Fund's custodian contain-
ing cash, U.S. Government or other appropriate liquid high-grade debt securi-
ties having a value at least equal to the repurchase price. A Portfolio's re-
verse repurchase agreements, together with any other borrowings, will not ex-
ceed, in the aggregate,
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33 1/3% of the value of its total assets. In addition, a Portfolio (except the
Tax-Free Portfolios) may borrow up to an additional 5% of its total assets for
temporary purposes.
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by other
investment companies within the limits prescribed by the 1940 Act. As a share-
holder of another investment company, a Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that each Portfolio bears directly in connection with its
own operations.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of the
value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and
repurchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to this
15% limit. Each Portfolio may purchase securities which are not registered un-
der the Securities Act of 1933 (the "1933 Act") but which can be sold to
"qualified institutional buyers" in accordance with Rule 144A under the 1933
Act. Any such security will not be considered illiquid so long as it is deter-
mined by a Portfolio's sub-adviser, acting under guidelines approved and moni-
tored by the Board, that an adequate trading market exists for that security.
This investment practice could have the effect of increasing the level of il-
liquidity in a Portfolio during any period that qualified institutional buyers
become uninterested in purchasing these restricted securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security that it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and for-
ward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the securities delivery takes place. Each Portfo-
lio's when-issued purchases and forward commitments are not expected to exceed
25% of the value of its total assets absent unusual market conditions.
DOLLAR ROLL TRANSACTIONS. To take advantage of attractive opportunities in the
mortgage market and to enhance current income, each Portfolio (except the Tax-
Free Portfolios) may enter into dollar roll transactions. A dollar roll trans-
action involves a sale by the Portfolio of a mortgage-backed or other security
concurrently with an agreement by the Portfolio to repurchase a similar secu-
rity at a later date at an agreed-upon price. The securities that are repur-
chased will bear the same interest rate and stated maturity as those sold, but
pools of mortgages collateralizing such securities may have different prepay-
ment histories than those sold. During the period between the sale and repur-
chase, a Portfolio will not be entitled to receive interest and principal pay-
ments on the securities sold. Proceeds of the sale will be invested in addi-
tional instruments for the Portfolio, and the income from these investments
will generate income for the Portfolio. If such income does not exceed the in-
come, capital appreciation and
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gain or loss that would have been realized on the securities sold as part of
the dollar roll, the use of this technique will diminish the investment perfor-
mance of a Portfolio compared with what the performance would have been without
the use of dollar rolls. At the time that a Portfolio enters into a dollar roll
transaction, it will place in a segregated account maintained with its custo-
dian cash, U.S. Government securities or other liquid high grade debt obliga-
tions having a value equal to the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure that its value is main-
tained. A Portfolio's dollar rolls, together with its reverse repurchase agree-
ments and other borrowings, will not exceed, in the aggregate, 33 1/3% of the
value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties a Portfolio is required to purchase may decline below the agreed upon re-
purchase price of those securities. If the broker/dealer to whom a Portfolio
sells securities becomes insolvent, the Portfolio's right to purchase or repur-
chase securities may be restricted and the instruments which the Portfolio is
required to repurchase may be worth less than an instrument which the Portfolio
originally held when the Portfolio is able to complete the purchase. Successful
use of mortgage dollar rolls may depend upon a sub-adviser's ability to cor-
rectly predict interest rates and prepayments. There is no assurance that dol-
lar rolls can be successfully employed.
SHORT SALES. The Portfolios may only make short sales of securities "against-
the-box." A short sale is a transaction in which a Portfolio sells a security
it does not own in anticipation that the market price of that security will de-
cline. The Portfolios may make short sales both as a form of hedging to offset
potential declines in long positions in similar securities and in order to
maintain portfolio flexibility. In a short sale "against-the-box," at the time
of sale, the Portfolio owns or has the immediate and unconditional right to ac-
quire the identical security at no additional cost. When selling short
"against-the-box," a Portfolio forgoes an opportunity for capital appreciation
in the security.
PORTFOLIO TURNOVER RATES. Under normal market conditions it is expected that
the annual portfolio turnover rate for the Government Income Portfolio will not
exceed 300%. The past portfolio turnover rates of the other Portfolios are set
forth above under "What Are the Portfolios' Financial Highlights?" A Portfo-
lio's annual portfolio turnover rate will not, however, be a factor preventing
a sale or purchase when the sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates will
generally result in higher transaction costs to a Portfolio.
INTEREST RATE RISK. The value of fixed income securities in the Portfolios can
be expected to vary inversely with changes in prevailing interest rates. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
securities with shorter maturities. The Portfolios are not restricted to any
maximum or minimum time to maturity in purchasing individual portfolio securi-
ties, and the average maturity of a Portfolio's assets will vary within the
limits stated above under "What Are the Differences Among the Portfolios?"
based upon its sub-adviser's assessment of economic and market conditions.
37
<PAGE>
STATE-SPECIFIC TAX-FREE PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Tax-Free Portfolios in state-spe-
cific Municipal Obligations raises special investment considerations. In par-
ticular, changes in the economic condition and governmental policies of a state
and its political subdivisions could adversely affect the value of a Portfo-
lio's shares. Certain matters relating to the states in which the State-Spe-
cific Tax-Free Portfolios invest are described below. For further information,
see "Special Considerations Regarding State-Specific Municipal Obligations" in
the Statement of Additional Information.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following three
years; as of June 30, 1994, the General Fund had a surplus of $892.9 million.
The deficit in the Commonwealth's unreserved/ undesignated funds also have been
eliminated, and there was a surplus of $79.2 million as of June 30, 1994. Ris-
ing unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates
place increased pressures on the tax resources of the Commonwealth and its mu-
nicipalities. The Commonwealth has sold a substantial amount of bonds over the
past several years, but the debt burden remains moderate. The recession has af-
fected Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service sec-
tors, with losses in more high-paid manufacturing positions. A new governor
took office in January, 1995, but the Commonwealth is likely to continue to
show fiscal restraint.
New Jersey. The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective commer-
cial agriculture, insurance, tourism, petroleum refining and manufacturing, al-
though New Jersey's manufacturing industry has experienced a downward trend in
the last few years. New Jersey is a major recipient of Federal assistance and,
of all the states, is among the highest in the amount of Federal aid received.
Therefore, a decrease in Federal financial assistance may adversely affect the
financial condition of New Jersey and its political subdivisions and instrumen-
talities. While New Jersey's economic base has become more diversified over
time and thus its economy appears to be less vulnerable during recessionary pe-
riods, a recurrence of high levels of unemployment could adversely affect New
Jersey's overall economy and the ability of New Jersey and its political subdi-
visions and instrumentalities to meet their financial obligations. In addition,
New Jersey maintains a balanced budget which restricts total appropriation in-
creases to only 5% annually with respect to any municipality or county, the
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and
38
<PAGE>
approximately 15% of total employment in agribusiness. In prior years, the
State's overall unemployment rate was commonly somewhat higher than the na-
tional figure. For example, the reported 1990 average monthly State rate was
5.7%, compared to the 5.5% national figure. However, for the last four years
the State rates were below the national rates (5.5% versus 6.1% in 1994). The
unemployment rate and its effects vary among particular geographic areas of the
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government fi-
nances generally will not adversely affect the market value of Ohio Municipal
Obligations held in the Portfolio or the ability of particular obligors to make
timely payments of debt service on (or lease payments relating to) those obli-
gations.
39
<PAGE>
Who Manages The Fund?
- -------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the
TRUSTEES direction of its Board of Trustees. The following individuals
were elected by shareholders on January 4, 1996 to serve as
trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief
Financial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Of-
ficer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School,
University of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
ADVISER AND The Adviser to the Compass Capital Funds is PNC Asset Manage-
SUB-ADVISERS ment Group ("PAMG"). Each of the Portfolios within the Com-
pass Capital Fund family, except the International Bond Port-
folio, is managed by a specialized portfolio manager who is a
member of PAMG's fixed income portfolio management subsidi-
ary, BlackRock Financial Management, Inc. ("BlackRock"). The
sub-adviser of the International Bond Portfolio is Morgan
Grenfell Investment Services Limited ("Morgan Grenfell").
The eleven portfolios and their investment sub-advisers and
portfolio managers are as follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------- ------------------------------------
<S> <C> <C>
Short Government Bond BlackRock(/1/) Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-
manager since its inception.
Michael P. Lustig; Vice President of
BlackRock since 1989; Portfolio co-
manager since 1994.
Scott Amero; Managing Director of
BlackRock since 1990; Portfolio co-
manager since its inception.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------------- ------------------------------------
<S> <C> <C>
Intermediate Government BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
Bond and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Intermediate Bond BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Core Bond BlackRock(/1/) Scott Amero (see above); Mr. Amero
has been Portfolio manager since its
inception.
Government Income BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Managed Income BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
International Bond Morgan Grenfell(/2/) Martin A. Hall; Director of Morgan
Grenfell since 1991; Portfolio
manager since 1991.
Tax-Free Income BlackRock(/1/) Kevin Klingert; portfolio manager at
BlackRock since 1991; prior to
joining BlackRock, Assistant Vice
President, Merrill, Lynch, Pierce,
Fenner & Smith; Portfolio manager
since 1995.
Pennsylvania Tax-Free BlackRock(/1/) Kevin Klingert (see above);
Income Portfolio manager since 1995.
New Jersey Tax-Free In- BlackRock(/1/) Kevin Klingert (see above);
come Portfolio manager since 1995.
Ohio Tax-Free Income BlackRock(/1/) Kevin Klingert (see above);
Portfolio manager since 1995.
</TABLE>
(1) BlackRock has its primary offices at 345 Park Avenue, New York, New York
10154.
(2) Morgan Grenfell has its primary offices at 20 Finsbury Circus, London ECZM,
1NB England.
41
<PAGE>
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1835
Market Street, Philadelphia, Pennsylvania 19103. PAMG is an
indirect wholly-owned subsidiary of PNC Bank Corp., a multi-
bank holding company. Morgan Grenfell is an indirect wholly-
owned subsidiary of Deutsche Bank, A.G., a German financial
services conglomerate.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-advisers are entitled to fees, com-
puted daily on a Portfolio-by-Portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are The Expenses Of The Portfolios?" PAMG
and the sub-advisers intend to waive a portion of their fees
during the current fiscal year. All sub-advisory fees are
paid by PAMG, and do not represent an extra charge to the
Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)
<TABLE>
<CAPTION>
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL
BOND PORTFOLIO INTERNATIONAL BOND PORTFOLIO
------------------------- ----------------------------------
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE ADVISORY FEE FEE
- ----------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
first $1 billion .500% .350% .550% .400%
$1 billion--$2 billion .450 .300 .500 .350
$2 billion--$3 billion .425 .275 .475 .325
greater than $3 billion .400 .250 .450 .300
</TABLE>
For their last fiscal years, the Portfolios paid investment
advisory fees at the following annual rates (expressed as a
percentage of average daily net assets) after voluntary fee
waivers: Short Government Bond Portfolio, .30%; Intermediate
Government Bond Portfolio, .20%; Intermediate Bond Portfolio,
.25%; Core Bond Portfolio, .35%; Government Income Portfolio,
0%; Managed Income Portfolio, .35%; International Bond Port-
folio, .80%; Tax-Free Income Portfolio, 0%; Pennsylvania Tax-
Free Income Portfolio, .27%; New Jersey Tax-Free Income Port-
folio, .60%; and Ohio Tax-Free Income Portfolio, 0%.
The sub-advisers to each Portfolio strive to achieve best ex-
ecution on all transactions. Infrequently, brokerage transac-
tions for the Portfolios may be directed through registered
broker/dealers who have entered into dealer agreements with
Compass Capital's distributor, subject to the requirements of
best execution.
42
<PAGE>
ADMINISTRATORSCompass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and Com-
pass Distributors, Inc. ("CDI") (the "Administrators") serve as
the Fund's co-administrators. CCG and PFPC are indirect wholly-
owned subsidiaries of PNC Bank Corp. CDI is a wholly-owned sub-
sidiary of Provident Distributors, Inc. ("PDI"). A majority of
the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant
Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .20% of the first $500
million of each Portfolio's average daily net assets, .18% of
the next $500 million of each Portfolio's average daily net as-
sets, .16% of the next $1 billion of each Portfolio's average
daily net assets and .15% of each Portfolio's average daily net
assets in excess of $2 billion. From time to time the Adminis-
trators may waive some or all of their administration fees from
a Portfolio.
For information about the operating expenses the Portfolios ex-
pect to pay for the current fiscal year, see "What Are the Ex-
penses of the Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
DISTRIBUTION Under the Fund's Distribution and Service Plan (the "Plan"), In-
AND SERVICE vestor Shares of the Portfolios bear the expense of payments
PLAN ("distribution fees") made to CDI, as the Fund's distributor
(the "Distributor"), or affiliates of PNC Bank, National Associ-
ation ("PNC Bank") for distribution and sales support services.
The distribution fees will be used primarily to compensate the
Distributor for distribution services and to compensate the Dis-
tributor and PNC Bank affiliates for sales support services pro-
vided in connection with the offering and sale of Investor
Shares. The distribution fees may also be used to reimburse the
Distributor and PNC Bank affiliates for related expenses, in-
cluding payments to brokers, dealers, financial institutions and
industry professionals ("Service Organizations") for sales sup-
port services and related expenses. Distribution fees payable
under the Plan will not exceed .10%
43
<PAGE>
(annualized) of the average daily net asset value of each
Portfolio's outstanding Investor A Shares and .75%
(annualized) of the average daily net asset value of each
Portfolio's outstanding Investor B Shares. Payments under the
Plan are not tied directly to out-of-pocket expenses and
therefore may be used by the recipients as they choose (for
example, to defray their overhead expenses).
Under the Plan, the Fund intends to enter into service agree-
ments with Service Organizations (including PNC Bank and its
affiliates) with respect to each class of Investor Shares
pursuant to which Service Organizations will render certain
support services to their customers who are the beneficial
owners of Investor Shares. In consideration for a shareholder
servicing fee of up to .25% (annualized) of the average daily
net asset value of Investor Shares owned by their customers,
Service Organizations may provide one or more of the follow-
ing services: responding to customer inquiries relating to
the services performed by the Service Organization and to
customer inquiries concerning their investments in Investor
Shares; providing information periodically to customers show-
ing their positions in Investor Shares; and other similar
shareholder liaison services. In consideration for a separate
shareholder processing fee of up to .15% (annualized) of the
average daily net asset value of Investor Shares owned by
their customers, Service Organizations may provide one or
more of these additional services to such customers: process-
ing purchase and redemption requests from customers and plac-
ing orders with the Fund's transfer agent or the Distributor;
processing dividend payments from the Fund on behalf of cus-
tomers; providing sub-accounting with respect to Investor
Shares beneficially owned by customers or the information
necessary for sub-accounting; and other similar services.
Service Organizations may charge their clients additional
fees for account services. Customers who are beneficial own-
ers of Investor Shares should read this Prospectus in light
of the terms and fees governing their accounts with Service
Organizations.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of un-
derwriting securities. It is intended that the services pro-
vided by Service Organizations under their service agreements
will not be prohibited under these laws. However, state secu-
rities laws may differ from the interpretations of Federal
law on this issue, and banks and financial institutions may
be required to register as dealers pursuant to state law.
44
<PAGE>
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, shareholder servicing and process-
ing fees, fees and expenses in registering and qualifying the
Portfolios and their shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and dis-
tributing prospectuses and statements of additional information
to existing shareholders, expenses relating to shareholder re-
ports, shareholder meetings and proxy solicitations, insurance
premiums, the expense of independent pricing services, and other
expenses which are not expressly assumed by PAMG or the Fund's
service providers under their agreements with the Fund. Any gen-
eral expenses of the Fund that do not belong to a particular in-
vestment portfolio will be allocated among all investment port-
folios by or under the direction of the Board of Trustees in a
manner the Board determines to be fair and equitable.
45
<PAGE>
What Pricing Options Are Available To Investors?
- --------------------------------------------------------------------------------
The Bond Portfolios of Compass Capital Funds offer different
pricing options to investors in the form of different share
classes+. These options are described below:
A SHARES (FRONT-END LOAD)
. One time, front-end sales charge at time of purchase
. No charges or fees at any time for redeeming shares
. Lower ongoing expenses
. Free exchanges with other A Shares in the Compass Capital
Funds family
A Shares may make sense for investors with a long-term in-
vestment horizon who prefer to pay a one-time front-end sales
charge and have reduced ongoing fees.
B SHARES (BACK-END LOAD)
. No front-end sales charge at time of purchase
. Contingent deferred sales charge (CDSC) if shares are re-
deemed, declining over 6 years from a high of 4.50%
. Automatically convert to A Shares seven years from purchase
B Shares may make sense for investors who prefer to pay for
professional investment advice on an ongoing basis (asset-
based sales charge) rather than with a traditional, one-time
front-end sales charge.
+The Intermediate Bond and Managed Income Portfolios do not currently offer In-
vestor B Shares.
46
<PAGE>
THE PRICING OPTIONS FOR EACH PORTFOLIO ARE DESCRIBED IN THE TABLES BELOW:
Intermediate Government Bond, Intermediate Bond, Core Bond, Tax-Free Income,
Pennsylvania Tax-Free Income, New Jersey Tax-Free Income and Ohio Tax-Free
Income Portfolios:
<TABLE>
<CAPTION>
A SHARES B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge 4.00% 0.00%
12b-1 Fee 0.00%* 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00%
(Depends on when
shares are redeemed)
</TABLE>
Government Income and Managed Income Portfolios:
<TABLE>
<CAPTION>
A SHARES B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge 4.50% 0.00%
12b-1 Fee 0.00%* 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00%
(Depends on when
shares are redeemed)
</TABLE>
Short Government Bond Portfolio:
<TABLE>
<CAPTION>
A SHARES B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge.................. 3.00% 0.00%
12b-1 Fee....................................... 0.00%* 0.75%
CDSC (Redemption Charge)........................ 0.00% 4.50%-0.00%
(Depends on when
shares are redeemed)
</TABLE>
International Bond Portfolio:
<TABLE>
<CAPTION>
A SHARES B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge.................. 5.00% 0.00%
12b-1 Fee....................................... 0.00%* 0.75%
CDSC (Redemption Charge)........................ 0.00% 4.50%-0.00%
(Depends on when
shares are redeemed)
</TABLE>
*The Portfolios do not expect to incur any 12b-1 fees with respect to Investor
A Shares during the current fiscal year.
Investors wishing to purchase shares of the Portfolios may do so either by
mailing the investment application attached to this Prospectus along with a
check or by wiring money as specified below under "How Are Shares Purchased?"
47
<PAGE>
What Are The Key Considerations In Selecting A Pricing Option?
- -------------------------------------------------------------------------------
In deciding which class of Investor Shares to purchase, investors should con-
sider the following:
Intended Holding Period. Over time, the cumulative distribution fees on a
Portfolio's Investor B Shares will exceed the expense of the maximum initial
sales charge on Investor A Shares. For example, if net asset value remains
constant, the Investor B Shares' aggregate distribution fees would be equal to
the Investor A Shares' initial maximum sales charge from four to seven years
after purchase (depending on the Portfolio). Thereafter, Investor B Shares
would bear higher aggregate expenses. Investor B shareholders, however, enjoy
the benefit of permitting all their dollars to work from the time the invest-
ments are made. Any positive investment return on the additional invested
amount would partially or wholly offset the higher annual expenses borne by
Investor B Shares.
Because the Portfolios' future returns cannot be predicted, however, there can
be no assurance that such a positive return will be achieved.
At the end of seven years after the date of purchase, Investor B Shares will
convert automatically to Investor A Shares, based on the relative net asset
values of shares of each class. Investor B Shares acquired through reinvest-
ment of dividends or distributions are also converted at the earlier of these
dates--seven years after the reinvestment date or the date of conversion of
the most recently purchased Investor B Shares that were not acquired through
reinvestment.
Investor B Shares of the Portfolios purchased on or before January 12, 1996
are subject to a CDSC of 4.50% of the lesser of the original purchase price or
the net asset value of Investor B Shares at the time of redemption. This de-
ferred sales charge is reduced for shares held more than one year. Investor B
Shares of a Portfolio purchased on or before January 12, 1996 convert to In-
vestor A Shares of the Portfolio at the end of six years after purchase. For
more information about Investor B Shares purchased before January 12, 1996 and
the deferred sales charge payable on their redemption, call PFPC at (800) 441-
7762.
Investor B shareholders also pay a contingent deferred sales charge if they
redeem during the first six years after purchase, unless a sales charge waiver
applies. Investors expecting to redeem during this period should consider the
cost of the applicable contingent deferred sales charge in addition to the ag-
gregate annual Investor B distribution fees, as compared with the cost of the
applicable initial sales charges applicable to the Investor A Shares.
Reduced Sales Charges. Because of reductions in the front-end sales charge
for purchases of Investor A Shares aggregating $25,000 or more, it may be ad-
vantageous for investors purchasing large quantities of Investor Shares to
purchase Investor A Shares. In any event, the Fund will not accept any pur-
chase order for $1,000,000 or more of Investor B Shares.
Waiver of Sales Charges. The entire initial sales charge on Investor A Shares
of a Portfolio may be waived for certain eligible purchasers allowing their
entire purchase price to be immediately invested in a Portfolio. The contin-
gent deferred sales charge may be waived upon redemption of certain Investor B
Shares.
48
<PAGE>
How Are Shares Purchased?
- --------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor Shares through a
broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-advisers, Distributor or transfer agent or em-
ployees of their affiliates is $100.
When placing purchase orders, investors should specify whether the order is for
Investor A or Investor B Shares of a Portfolio. All share purchase orders that
fail to specify a class will automatically be invested in Investor A Shares.
PURCHASES THROUGH BROKERS. Shares of the Portfolios may be purchased through
brokers which have entered into dealer agreements with the Distributor. Pur-
chase orders received by a broker and transmitted to the transfer agent before
the close of regular trading on the New York Stock Exchange (currently 4:00
p.m. Eastern time) on a Business Day will be effected at the net asset value
determined that day, plus any applicable sales charge. Payment for an order may
be made by the broker in Federal funds or other funds immediately available to
the Portfolios' custodian no later than 4:00 p.m. (Eastern time) on the third
Business Day following receipt of the purchase order.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described above,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial pur-
chase amount payable to Compass Capital Funds. An Account Application Form may
be obtained by calling (800) 441-7762. The name of the Portfolio with respect
to which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, specify
the class of Investor Shares, and include the name of the account registration
and the shareholder account number. Before wiring any funds, an investor must
call PFPC at (800) 441-7762 in order to confirm the wire instructions. Purchase
orders which are received by PFPC, together with payment, before the close of
regular trading hours on the New York Stock Exchange (currently 4:00 p.m. East-
ern time) on any Business Day (as defined below) are priced at the applicable
net asset value next determined on that day, plus any applicable sales charge.
49
<PAGE>
OTHER PURCHASE INFORMATION. Shares of each Portfolio are sold on a continuous
basis by CDI as the Distributor. CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Purchases may be
effected on weekdays on which both the New York Stock Exchange and the Federal
Reserve Bank of Philadelphia are open for business (a "Business Day"). Payment
for orders which are not received or accepted will be returned after prompt in-
quiry. The issuance of shares is recorded on the books of the Fund. No certifi-
cates will be issued for shares. Payments for shares of a Portfolio may, in the
discretion of the Fund's investment adviser, be made in the form of securities
that are permissible investments for that Portfolio. Compass Capital reserves
the right to reject any purchase order or to waive the minimum initial invest-
ment requirement.
50
<PAGE>
How Are Shares Redeemed?
- --------------------------------------------------------------------------------
REDEMPTION. Shareholders may redeem their shares for cash at any time. A writ-
ten redemption request in proper form must be sent directly to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. Except for the
contingent deferred sales charge that may be charged with respect to Investor B
Shares, there is no charge for a redemption. Shareholders may also place re-
demption requests through a broker or other institution, which may charge a fee
for this service.
WHEN REDEEMING INVESTOR SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD INDICATE
WHETHER THEY ARE REDEEMING INVESTOR A SHARES OR INVESTOR B SHARES. If a redeem-
ing shareholder owns both Investor A Shares and Investor B Shares in the same
Portfolio, the Investor A Shares will be redeemed first unless the shareholder
indicates otherwise.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding Investor A Share certificates
must send their certificates with the redemption request. Additional documen-
tary evidence of authority is required by PFPC in the event redemption is re-
quested by a corporation, partnership, trust, fiduciary, executor or adminis-
trator.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by Federal wire transfer to a single previously desig-
nated bank account. Once authorization is on file, PFPC will honor requests by
any person by telephone at (800) 441-7762 (in Delaware call collect (302) 791-
1194) or other means. The minimum amount that may be sent by check is $500,
while the minimum amount that may be wired is $10,000. The Fund reserves the
right to change these minimums or to terminate these redemption privileges. If
the proceeds of a redemption would exceed $25,000, the redemption request must
be in writing and will be subject to the signature guarantee requirement de-
scribed above. This privilege may not be used to redeem Investor A Shares in
certificated form. During periods of substantial economic or market change,
telephone redemptions may be difficult to complete. Redemption requests may
also be mailed to PFPC at P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single designated bank account to re-
ceive wire redemption proceeds, it is necessary to send a written re-
51
<PAGE>
quest (with a guaranteed signature as described above) to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so. The Fund, the Administrators and the Distributor will em-
ploy reasonable procedures to confirm that instructions communicated by tele-
phone are genuine. The Fund, the Administrators and the Distributor will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions reasonably believed to be genuine in accordance with such proce-
dures.
ACCOUNTS WITH LOW BALANCES. The Fund reserves the right to redeem a sharehold-
er's account in any Portfolio at any time the net asset value of the account
in such Portfolio falls below the minimum initial investment requirement
amount as the result of a redemption or an exchange request. A shareholder
will be notified in writing that the value of the shareholder's account in a
Portfolio is less than the required amount and will be allowed 30 days to make
additional investments before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by the Compass Capital Funds c/o PFPC, P.O. Box 8907,
Wilmington, Delaware 19899-8907. Proceeds from the redemption of Investor B
Shares will be reduced by the amount of any applicable contingent deferred
sales charge. Unless another payment option is used as described above, pay-
ment for redeemed shares is normally made by check mailed within seven days
after acceptance by PFPC of the request and any other necessary documents in
proper order. Payment may, however, be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed
have been recently purchased by check, the Fund's transfer agent may delay the
payment of redemption proceeds, which may be a period of up to 15 days after
the purchase date, pending a determination that the check has cleared.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities
or other property when determined appropriate in light of the Fund's responsi-
bilities under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
52
<PAGE>
What Are The Shareholder Features Of The Fund?
- --------------------------------------------------------------------------------
Compass Capital Funds offers shareholders many special features which enable an
investor to have greater investment flexibility as well as greater access to
information about the Fund throughout the investment period.
Additional information on each of these features is available from PFPC by
calling (800) 441-7762 (in Delaware call collect (302) 791-1194).
EXCHANGE PRIVILEGE. Investor A and Investor B Shares of each Portfolio may be
exchanged for shares of the same class of other portfolios of the Fund which
offer that class of shares, based on their respective net asset values. Ex-
changes of Investor A Shares may be subject to the difference between the sales
charge previously paid on the exchanged shares and the higher sales charge (if
any) payable with respect to the shares acquired in the exchange.
Investor A Shares of money market portfolios of the Fund that were (1) acquired
through the use of the exchange privilege and (2) can be traced back to a pur-
chase of shares in one or more investment portfolios of the Fund for which a
sales charge was paid, can be exchanged for Investor A Shares of a portfolio
subject to differential sales charges as applicable.
The exchange of Investor B Shares will not be subject to a CDSC, which will
continue to be measured from the date of the original purchase and will not be
affected by exchanges.
A shareholder wishing to make an exchange may do so by sending a written re-
quest to PFPC at the address given above. Shareholders are automatically pro-
vided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege. Share-
holders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange re-
quests. To add this feature to an existing account that previously did not pro-
vide for this option, a Telephone Exchange Authorization Form must be filed
with PFPC. This form is available from PFPC. Once this election has been made,
the shareholder may simply contact PFPC by telephone at (800) 441-7762 (in Del-
aware call collect (302) 791-1194) to request the exchange. During periods of
substantial economic or market change, telephone exchanges may be difficult to
complete and shareholders may have to submit exchange requests to PFPC in writ-
ing.
If the exchanging shareholder does not currently own shares of the investment
portfolio whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and broker of
record as the account from which shares are exchanged, unless otherwise speci-
fied in writing by the shareholder with all signatures guaranteed by an eligi-
ble guarantor institution as defined above. In order to participate in the Au-
tomatic Investment Program or establish a Systematic Withdrawal Plan for the
new account, however, an exchanging shareholder must file a specific written
request.
Any share exchange must satisfy the requirements relating to the minimum ini-
tial investment requirement, and must be legally available for sale in the
state of the investor's residence. For
53
<PAGE>
Federal income tax purposes, a share exchange is a taxable event and, accord-
ingly, a capital gain or loss may be realized. Before making an exchange re-
quest, shareholders should consult a tax or other financial adviser and should
consider the investment objective, policies and restrictions of the investment
portfolio into which the shareholder is making an exchange, as set forth in the
applicable Prospectus. Brokers may charge a fee for handling exchanges.
The Fund reserves the right to modify or terminate the exchange privilege at
any time. Notice will be given to shareholders of any material modification or
termination except where notice is not required.
The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine in accordance with such procedures. Exchange orders may also be
sent by mail to the shareholder's broker or to PFPC at P.O. Box 8907, Wilming-
ton, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts. Upon commencement of the SWP, the account must have a cur-
rent value of $10,000 or more in a Portfolio. Shareholders may elect to receive
automatic cash payments of $100 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC. Purchases of additional Investor A Shares of the
Fund concurrently with withdrawals may be disadvantageous to invest-
54
<PAGE>
ors because of the sales charges involved and, therefore, is discouraged. No
contingent deferred sales charge will be assessed on redemptions of Investor B
Shares made through the SWP that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
SWP redemptions of Investor B Shares will not be subject to the CDSC if they do
not exceed 1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. SWP redemptions of Investor B Shares in excess of this limit
are still subject to the applicable CDSC.
55
<PAGE>
What Is The Schedule Of Sales Charges And Exemptions?
- --------------------------------------------------------------------------------
INVESTOR A Investor A Shares are subject to a front-end sales charge de-
SHARES termined in accordance with the following schedules:
Short Government Bond Portfolio:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 3.00% 3.09% 2.50%
$25,000 but less than $50,000 2.75 2.83 2.25
$50,000 but less than $100,000 2.50 2.56 2.00
$100,000 but less than $250,000 2.00 2.04 1.75
$250,000 but less than $500,000 1.50 1.52 1.25
$500,000 but less than $1,000,000 1.00 1.01 0.75
$1,000,000 and over 0.00* 0.00* 0.75**
</TABLE>
Intermediate Government Bond, Intermediate Bond, Core Bond, Tax-Free Income,
Pennsylvania Tax-Free Income, New Jersey Tax-Free Income and Ohio Tax-Free
Income Portfolios:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 4.00% 4.17% 3.50%
$25,000 but less than $50,000 3.75 3.90 3.25
$50,000 but less than $100,000 3.50 3.63 3.00
$100,000 but less than $250,000 3.00 3.09 2.50
$250,000 but less than $500,000 2.00 2.04 1.50
$500,000 but less than $1,000,000 1.00 1.01 0.75
$1,000,000 and over 0.00* 0.00* 0.75**
</TABLE>
* There is no initial sales charge on purchase of $1,000,000 or more of In-
vestor A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the net asset value of the shares on the purchase or
redemption date for shares redeemed within 18 months after purchase.
** The Distributor may pay placement fees to dealers of up to 0.75% of the of-
fering price on purchases of Investor A Shares of $1,000,000 or more.
56
<PAGE>
Government Income and Managed Income Portfolios:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 4.50% 4.71% 4.00%
$25,000 but less than $50,000 4.25 4.70 3.75
$50,000 but less than $100,000 4.00 4.17 3.50
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 1.50 1.52 1.25
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
International Bond Portfolio:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$25,000 but less than $50,000 4.75 4.99 4.25
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 4.00 4.17 3.50
$250,000 but less than $500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.50
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
* There is no initial sales charge on purchase of $1,000,000 or more of In-
vestor A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the net asset value of the shares on the purchase or
redemption date for shares redeemed within 18 months after purchase.
** The Distributor may pay placement fees to dealers of up to 1.00% of the of-
fering price on purchases of Investor A Shares of $1,000,000 or more.
57
<PAGE>
During special promotions, the entire sales charge may be reallowed to dealers.
In addition, certain dealers who enter into an agreement to provide extra
training and information on products, or marketing and related services, and
who increase sales of shares may also receive additional payments from the Dis-
tributor. Dealers who receive 90% or more of the sales charge may be deemed to
be "underwriters" under the 1933 Act. The amount of the sales charge not
reallowed to dealers may be paid to broker-dealer affiliates of PNC Bank Corp.
who provide sales support services.
SALES CHARGE WAIVERS--INVESTOR A SHARES. The following persons associated with
the Fund, the Distributor, the Fund's investment adviser, sub-advisers or
transfer agent and their affiliates may buy Investor A Shares without paying a
sales charge to the extent permitted by these firms: (a) officers, directors
and partners (and their spouses and minor children); (b) full-time employees
and retirees (and their spouses and minor children); (c) registered representa-
tives of brokers who have entered into selling agreements with the Distributor;
(d) spouses or children of such persons; and (e) any trust, pension, profit-
sharing or other benefit plan for any of the persons set forth in (a) through
(c). The following persons may also buy Investor A Shares without paying a
sales charge: (a) persons investing through an authorized payroll deduction
plan; (b) persons investing through an authorized investment plan for organiza-
tions which operate under Section 501(c)(3) of the Internal Revenue Code; (c)
registered investment advisers, trust companies and bank trust departments ex-
ercising discretionary investment authority with respect to amounts to be in-
vested in a Portfolio, provided that the aggregate amount invested pursuant to
this exemption equals at least $250,000; and (d) persons participating in a
"wrap account" or similar program under which they pay advisory fees to a bro-
ker-dealer or other financial institution. INVESTORS WHO QUALIFY FOR ANY OF
THESE EXEMPTIONS FROM THE SALES CHARGE MUST PURCHASE INVESTOR A SHARES.
QUALIFIED PLANS. The sales charge (as a percentage of the offering price) pay-
able by qualified employee benefit plans ("Qualified Plans") having at least 20
employees eligible to participate on purchases of Investor A Investor Shares of
the Portfolios aggregating less than $500,000 will be 1.00%. No sales charge
will apply to purchases by Qualified Plans of Investor A Shares aggregating
$500,000 and above. The sales charge payable by Qualified Plans having less
than 20 employees eligible to participate on purchases of Investor A Shares of
the Portfolios aggregating less than $500,000 will be 2.50% (1.50% with respect
to shares of the Short Government Bond Portfolio.) The above schedules will ap-
ply to purchases by such Qualified Plans of Investor A Shares aggregating
$500,000 and above.
QUANTITY DISCOUNTS. As shown above, larger purchases may reduce the sales
charge price. Upon notice to the investor's broker or the transfer agent, pur-
chases of Investor A Shares made at any one time by the following persons may
be considered when calculating the sales charge: (a) an individual, his or her
spouse, and their children under the age of 21; (b) a trustee or fiduciary of a
single trust estate or single fiduciary account; or (c) any organized group
which has been in existence for more than six months, if it is not organized
for the purpose of buying redeemable securities of a registered investment com-
pany, and if the purchase is made through a central administrator, or through a
single dealer, or by other means which result in economy of sales effort or ex-
pense. An organized group does not include a group of
58
<PAGE>
individuals whose sole organizational connection is participation as credit
card holders of a company, policyholders of an insurance company, customers of
either a bank or broker/dealer or clients of an investment adviser. Purchases
made by an organized group may include, for example, a trustee or other fidu-
ciary purchasing for a single fiduciary account or other employee benefit plan
purchases made through a payroll deduction plan.
REDUCED SALES CHARGES--INVESTOR A SHARES
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of an
investor's existing Investor A Shares in any of the Portfolios that are subject
to a front-end sales charge may be combined with the amount of the investor's
current purchase in determining the applicable sales charge. IN ORDER TO RE-
CEIVE THE CUMULATIVE QUANTITY REDUCTION, PREVIOUS PURCHASES OF INVESTOR A
SHARES MUST BE CALLED TO THE ATTENTION OF PFPC BY THE INVESTOR AT THE TIME OF
THE CURRENT PURCHASE.
REINVESTMENT PRIVILEGE. Upon redemption of Investor A Shares of a Portfolio (or
Investor A Shares of another non-money market portfolio of the Fund), a share-
holder has a one-time right, to be exercised within 45 days, to reinvest the
redemption proceeds without any sales charges. PFPC must be notified of the re-
investment in writing by the purchaser, or by his or her broker, at the time
the purchase is made in order to eliminate a sales charge. An investor should
consult a tax adviser concerning the tax consequences of use of the reinvest-
ment privilege.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Investor A Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of any other investment company
which were sold with a sales charge or commission. This does not include shares
of an affiliated mutual fund which were or would be subject to a contingent de-
ferred sales charge upon redemption. Such purchases must be made within 60 days
of the redemption, and the Fund must be notified by the investor in writing, or
by his or her financial institution, at the time the purchase of Investor A
Shares is made.
LETTER OF INTENT. An investor may qualify for a reduced sales charge immedi-
ately by signing a non-binding Letter of Intent stating the investor's inten-
tion to invest during the next 13 months a specified amount in Investor A
Shares which, if made at one time, would qualify for a reduced sales charge.
The Letter of Intent may be signed at any time within 90 days after the first
investment to be included in the Letter of Intent. The initial investment must
meet the minimum initial investment requirement and represent at least 5% of
the total intended investment. THE INVESTOR MUST INSTRUCT PFPC UPON MAKING SUB-
SEQUENT PURCHASES THAT SUCH PURCHASES ARE SUBJECT TO A LETTER OF INTENT. All
dividends and capital gains of a Portfolio that are invested in additional In-
vestor A Shares of the same Portfolio are applied to the Letter of Intent.
During the term of a Letter of Intent, the Fund's transfer agent will hold In-
vestor A Shares representing 5% of the indicated amount in escrow for payment
of a higher sales load if the full amount indicated in the Letter of Intent is
not purchased. The escrowed Investor A Shares will
59
<PAGE>
be released when the full amount indicated has been purchased. Any redemptions
made during the 13-month period will be subtracted from the amount of purchases
in determining whether the Letter of Intent has been completed.
If the full amount indicated is not purchased within the 13-month period, the
investor will be required to pay an amount equal to the difference between the
sales charge actually paid and the sales charge the investor would have had to
pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the ex-
piration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Investor A
Shares held in escrow to realize the difference.
PURCHASES OF INVESTOR B SHARES. Investor B Shares are subject to a deferred
sales charge at the rates set forth in the chart below if they are redeemed
within six years of purchase. The deferred sales charge on Investor B Shares is
based on the lesser of the net asset value of the Investor B Shares on the pur-
chase date or redemption date. Brokers will receive commissions from the Dis-
tributor in connection with sales of Investor B Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in connec-
tion with sales of Investor A Shares.
The amount of any contingent deferred sales charge an investor must pay on In-
vestor B Shares depends on the number of years that elapse between the purchase
date and the date the Investor B Shares are redeemed as set forth in the fol-
lowing chart:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
<S> <C>
Less than one 4.50%
More than one, but less than two 4.00
More than two, but less than three 3.50
More than three, but less than four 3.00
More than four, but less than five 2.00
More than five, but less than six 1.00
More than six, but less than seven 0.00
</TABLE>
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The contingent deferred
sales charge on Investor B Shares is not charged in connection with: (1) ex-
changes described in "What Are the Shareholder Features of the Fund?--Exchange
Privilege"; (2) redemptions made
60
<PAGE>
in connection with minimum required distributions from IRA, 403(b)(7) and Qual-
ified Plan accounts due to the shareholder reaching age 70 1/2; (3) redemptions
in connection with a shareholder's death or disability (as defined in the In-
ternal Revenue Code) subsequent to the purchase of Investor B Shares; (4) in-
voluntary redemptions of Investor B Shares in accounts with low balances as de-
scribed in "How Are Shares Redeemed?"; and (5) redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth above under
"What Are the Shareholder Features of the Fund?--Systematic Withdrawal Plan."
In addition, no contingent deferred sales charge is charged on Investor B
Shares acquired through the reinvestment of dividends or distributions.
When an investor redeems Investor B Shares, the redemption order is processed
to minimize the amount of the contingent deferred sales charge that will be
charged. Investor B Shares are redeemed first from those shares that are not
subject to the deferred sales load (i.e., shares that were acquired through re-
investment of dividends or distributions) and after that from the shares that
have been held the longest.
61
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
The net asset value is calculated separately for each class of Investor Shares
of each Portfolio as of the close of regular trading hours on the NYSE (cur-
rently 4:00 p.m. Eastern Time) on each Business Day by dividing the value of
all securities and other assets owned by a Portfolio that are allocated to a
particular class of shares, less the liabilities charged to that class, by the
number of shares of the class that are outstanding.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees. The amortized cost method of valuation will also be used with re-
spect to debt obligations with sixty days or less remaining to maturity unless
a Portfolio's sub-adviser under the supervision of the Board of Trustees deter-
mines such method does not represent fair value.
62
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. All distributions are
reinvested at net asset value in the form of additional full and fractional
shares of the same class of shares of the relevant Portfolio unless a share-
holder elects otherwise. Such election, or any revocation thereof, must be made
in writing to PFPC, and will become effective with respect to dividends paid
after its receipt by PFPC. The net investment income of the Managed Income,
Tax-Free Income, Intermediate Government Bond, Intermediate Bond and Interna-
tional Bond Portfolios is declared monthly as a dividend to investors who are
shareholders of such Portfolio at the close of business on the day of declara-
tion. The net investment income of the Pennsylvania Tax-Free Income, New Jersey
Tax-Free Income, Ohio Tax-Free Income, Government Income, Core Bond and Short
Government Bond Portfolios is declared daily as a dividend to investors who are
shareholders of such Portfolio at, and whose payment for share purchases are
available to the particular Portfolio in Federal funds by, the close of busi-
ness on the day of declaration. All dividends are paid within ten days after
the end of each month and, in the case of the Pennsylvania Tax-Free Income, New
Jersey Tax-Free Income, Ohio Tax-Free Income, Government Income, Core Bond and
Short Government Bond Portfolios, within seven days after redemption of all of
a shareholder's shares in a Portfolio. Net realized capital gains (including
net short-term capital gains), if any, will be distributed by each Portfolio at
least annually.
63
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
"exempt interest dividends" or are treated as a return of capital), regardless
of whether the distributions are paid in cash or reinvested in additional
Shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Tax-Free Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns, and
in two circumstances such amounts, while exempt from regular Federal income
tax, are taxable to persons subject to alternative minimum and environmental
taxes. First, "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and non-corporate taxpayers in determining alternative
minimum and environmental tax liability. Second, "exempt interest dividends"
must be taken into account by corporate taxpayers in determining certain ad-
justments for alternative minimum and environmental tax purposes. Shareholders
who are recipients of Social Security Act or Railroad Retirement Act benefits
should note that "exempt interest dividends" will be taken into account in de-
termining the taxability of their benefit payments.
Each Tax-Free Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions declared from net investment income during that year and may
differ significantly from the actual percentages for any particular day.
Compass Capital will send written notices to shareholders annually regarding
the tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on
a specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during the
following January.
An investor considering buying shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption or
transfer of shares depending upon their tax basis and their price at the time
of redemption, or transfer.
64
<PAGE>
Generally, shareholders may include sales charges paid on the purchase of
Shares in their tax basis for the purposes of determining gain or loss on a re-
demption, transfer or exchange of such Shares. However, if a shareholder ex-
changes the Shares for Shares of another Portfolio within 90 days of purchase
and is able to reduce the sales charges applicable to the new Shares (by virtue
of the Fund's exchange privilege), the amount equal to such reduction may not
be included in the tax basis of the shareholder's exchanged Shares for the pur-
pose of determining gain or loss but may be included (subject to the same limi-
tation) in the tax basis of the new Shares.
Any loss upon the sale or exchange of shares held for six months or less will
be disallowed for Federal income tax purposes to the extent of any exempt in-
terest dividends received by the shareholder. For the Ohio Tax-Free Income
Portfolio, the loss will be disallowed for Ohio income tax purposes to the same
extent, even though, for Ohio income tax purposes, some portion of such divi-
dends actually may have been subject to Ohio income tax.
It is expected that dividends and certain interest income earned by the Inter-
national Bond Portfolio from foreign securities will be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of the taxable year in question consists
of stock or securities of foreign corporations, the Portfolio may elect, for
U.S. Federal income tax purposes, to treat certain foreign taxes paid by it,
including generally any withholding taxes and other foreign income taxes, as
paid by its shareholders. The Portfolio intends to make this election. As a re-
sult, the amount of such foreign taxes paid by the Portfolio will be included
in its shareholders' income pro rata (in addition to taxable distributions ac-
tually received by them), and each shareholder generally will be entitled ei-
ther (a) to credit a proportionate amount of such taxes against U.S. Federal
income tax liabilities, or (b) if a shareholder itemizes deductions, to deduct
such proportionate amounts from U.S. income.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of the dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In addi-
tion, future legislative or administrative changes or court decisions may mate-
rially affect the tax consequences of investing in a Portfolio. Shareholders
who are non-resident alien individuals, foreign trusts or estates, foreign cor-
porations or foreign partnerships may be subject to different U.S. Federal in-
come tax treatment.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder attributable
to interest realized by the Pennsylvania Tax-Free Income Portfolio from Penn-
sylvania Municipal Obligations or attributable to insurance proceeds on account
of such interest, is not taxable to individuals, estates or trusts under the
Personal Income Tax (in the case of insurance proceeds, to the extent they are
exempt for Federal Income Tax purposes); to corporations under the Corporate
Net Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for Federal Income Tax purposes); nor to individuals under the Philadel-
phia School District Net Investment Income Tax ("School District Tax").
65
<PAGE>
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Pennsylvania Tax-Free Income Portfolio of Pennsylvania Munici-
pal Obligations is taxable under the Personal Income Tax, the Corporate Net In-
come Tax, and, unless these assets were held by the Pennsylvania Tax-Free In-
come Portfolio for more than six months, the School District Tax.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Obligations held by the Pennsylvania Tax-Free Income
Portfolio, such gain may be subject to the Personal Income Tax and Corporate
Net Income Tax. Such gain may also be subject to the School District Tax, ex-
cept that gain realized with respect to a share held for more than six months
is not subject to the School District Tax.
This discussion does not address the extent, if any, to which shares, or inter-
est and gain thereon, is subject to, or included in the measure of, the special
taxes imposed by the Commonwealth of Pennsylvania on banks and other financial
institutions or with respect to any privilege, excise, franchise or other tax
imposed on business entities not discussed above (including the Corporate Capi-
tal Stock/Foreign Franchise Tax).
Shareholders of the Pennsylvania Tax-Free Income Portfolio are not subject to
the Pennsylvania County Personal Property Tax to the extent that the Portfolio
is comprised of Pennsylvania Municipal Obligations and Federal obligations (if
the interest on such obligations is exempt from state and local taxation under
the laws of the United States).
NEW JERSEY TAX CONSIDERATIONS. It is anticipated that substantially all divi-
dends paid by the New Jersey Tax-Free Income Portfolio will not be subject to
New Jersey personal income tax. In accordance with the provisions of New Jersey
law as currently in effect, distributions paid by a "qualified investment fund"
will not be subject to the New Jersey personal income tax to the extent that
the distributions are attributable to income received as interest or gain from
New Jersey State-Specific Obligations, or as interest or gain from direct U.S.
Government obligations. Distributions by a qualified investment fund that are
attributable to most other sources will be subject to the New Jersey personal
income tax. To be classified as a qualified investment fund, at least 80% of
the Portfolio's investments must consist of New Jersey State-Specific Obliga-
tions or direct U.S. Government obligations; it must have no investments other
than interest-bearing obligations, obligations issued at a discount, and cash
and cash items (including receivables); and it must satisfy certain reporting
obligations and provide certain information to its shareholders. Shares of the
Portfolio are not subject to property taxation by New Jersey or its political
subdivisions.
66
<PAGE>
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio per-
sonal income tax or municipal or school district income taxes in Ohio will not
be subject to such taxes on distributions from the Ohio Tax-Free Income Portfo-
lio to the extent that such distributions are properly attributable to interest
on Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States)
("U.S. Obligations"), if (a) the Portfolio continues to qualify as a regulated
investment company for Federal income tax purposes and (b) at all times at
least 50% of the value of the total assets of the Portfolio consists of Ohio
Municipal Obligations or similar obligations of other states or their subdivi-
sions. Corporations that are subject to the Ohio corporation franchise tax will
not have to include distributions from the Ohio Tax-Free Income Portfolio in
their net income base for purposes of calculating their Ohio corporation fran-
chise tax liability to the extent that such distributions either constitute ex-
empt-interest dividends for Federal income tax purposes or are properly attrib-
utable to interest on Ohio Municipal Obligations or U.S. Obligations. However,
Shares of the Ohio Tax-Free Income Portfolio will be included in a corpora-
tion's net worth base for purposes of calculating the Ohio corporation fran-
chise tax. Distributions properly attributable to gain on the sale, exchange or
other disposition of Ohio Municipal Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in Ohio and
will not be included in the net income base of the Ohio corporation franchise
tax. Distributions attributable to other sources will be subject to the Ohio
personal income tax and the Ohio corporation franchise tax.
67
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio, other than the Government Income, Intermediate Bond, Managed Income
and Ohio Tax-Free Income Portfolios, offers five separate classes of shares--
Institutional Shares, Service Shares, Investor A Shares, Investor B Shares. The
Government Income Portfolio offers Investor A Shares, Investor B Shares and In-
vestor C Shares; the Intermediate Bond, Managed Income and Ohio Tax-Free Income
Portfolios each offer Investor A Shares, Institutional Shares and Service
Shares and, in addition, the Ohio Tax-Free Income Portfolio offers Investor B
Shares. This prospectus relates only to Investor A Shares and Investor B Shares
of the eleven Portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The Fund offers various services and privileges in
connection with its Investor Shares that are not generally offered in connec-
tion with its Institutional and Service Shares, including an automatic invest-
ment plan, automatic withdrawal plan and checkwriting. For further information
regarding the Fund's Institutional and Service Share classes, contact PFPC at
(800) 441-7764.
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank holding company.
68
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for each class of Investor Shares of the Portfolios may
be quoted in advertisements and communications to shareholders. Total return
will be calculated on an average annual total return basis for various periods.
Average annual total return reflects the average annual percentage change in
value of an investment in Investor Shares of a Portfolio over the measuring pe-
riod. Total return may also be calculated on an aggregate total return basis.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return assume that dividend
and capital gain distributions made by a Portfolio with respect to a class of
shares are reinvested in shares of the same class, and also reflect the maximum
sales load charged by the Portfolio with respect to a class of shares. When,
however, a Portfolio compares the total return of a share class to that of
other funds or relevant indices, total return may also be computed without re-
flecting the sales load.
The yield of a class of shares is computed by dividing the Portfolio's net in-
come per share allocated to that class during a 30-day (or one month) period by
the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis. Each Tax-Free Portfolio's "tax-
equivalent yield" may also be quoted, which shows the level of taxable yield
needed to produce an after-tax equivalent to a Portfolio's tax-free yield. This
is done by increasing the Portfolio's yield (calculated above) by the amount
necessary to reflect the payment of Federal and/or state income tax at a stated
tax rate.
The performance of a class of a Portfolio's Investor Shares may be compared to
the performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the performance of a class of a Portfolio's
Investor Shares may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service, and with the performance of the Lehman GMNA Index, the T-Bill Index
and the "stocks, bonds and inflation index" published annually by Ibbotson As-
sociates and the Lehman Government Corporate Bond Index, as well as the bench-
marks attached to this Prospectus. Performance information may also include
evaluations of the Portfolios and their share classes published by nationally
recognized ranking services, and information as reported in financial publica-
tions such as Business Week, Fortune, Institutional Investor, Money Magazine,
Forbes, Barron's, The Wall Street Journal and The New York Times, or in publi-
cations of a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of a class of shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of a dividend in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
69
<PAGE>
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Investor Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for In-
vestor Shares of a Portfolio cannot necessarily be used to compare an invest-
ment in such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other institu-
tions directly to their customer accounts in connection with investments in In-
vestor Shares will not be included in the Portfolio performance calculations.
70
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call your investment
adviser or COMPASS CAPITAL FUNDS at (800) 441-7762.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7762.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
71
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Short Government Bond Merrill 1-3 Year Treasuries with maturities ranging from 1
Treasury Index to 2.99 years
Intermediate Government Lehman Brothers Treasury and agency issues in the Lehman
Bond Intermediate Government Aggregate, excluding maturities above 9.99
years
Intermediate Bond Lehman Brothers Treasury, agency and corporate issues in
Intermediate Gov't/Corp the Lehman Aggregate, excluding maturities
above 9.99 years
Core Bond Lehman Aggregate The Lehman Aggregate contains issues that
meet the following criteria:
. At least $100 million par amount
outstanding for entry and exit
. Rated investment grade (at least Baa-3)
by Moody's or S&P (if not rated by
Moody's)
. At least one year at maturity
. Coupon must have a fixed rate
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of June 1995, the composition of the
Lehman Brothers Aggregate Index is:
54% allocation to Treasury and government
securities
28% allocation to mortgage-backed
securities
18% allocation to corporate and asset-
backed securities
Government Income Lehman Mortgage/10 Year 50% allocation to the mortgage component of
Treasury the Lehman Aggregate Index and a 50%
allocation to the Merrill Lynch 10 Year
Index
Managed Income Salomon BIG Very similar to the Lehman Aggregate, the
Salomon BIG is a market-weighted index
comprised of U.S. Treasury, government-
sponsored, investment grade corporate (Baa-
3/BBB- or better), mortgage- and asset-
backed securities.
. Issues comprising the index have an
average life of at least 1 year, with no
maximum maturity
. Corporate and government-sponsored issues
have a minimum face amount of $100
million to qualify for entry, and a
minimum of $75 million face amount to
exit
. Treasury and mortgage issues have a
minimum face amount of $1 billion for
both entry and exit
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of June 1995, the composition of the
Index is:
53% allocation to Treasury and government
securities
29% allocation to mortgage-backed
securities
18% allocation to corporate and asset-
backed securities
International Bond Salomon Non-U.S. Hedged A market-capitalization weighted benchmark
World Government Bond that tracks the performance of the 13
Index Government bond markets of Australia,
Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands,
Spain, Sweden and the United Kingdom. The
currency-hedged return is computed by using
a rolling one-month forward exchange
contract as a hedging instrument.
Tax-Free Income Lehman Municipal Bond All of the bonds in the following Municipal
Index Indices possess the following
characteristics:
. A minimum credit rating of Baa-3
. Outstanding par value of at least $3
million
. Must be issued as part of a deal of at
least $50 million
. Individual bonds must have been issued
within the last 5 years
. Remaining maturity of not less than one
year
Excludes bonds subject to the alternative
minimum tax (AMT), taxable municipal bonds,
and floating-rate or zero coupon municipal
bonds
Pennsylvania Tax-Free Lehman Local GO Index Local general obligation bonds
Income
New Jersey Tax-Free Lehman Local GO Index Local general obligation bonds
Income
Ohio Tax-Free Income Lehman Local GO Index Local general obligation bonds
</TABLE>
72
<PAGE>
The Compass Capital Funds
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-----------------
SHORT GOVERNMENT BOND PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO
CORE BOND PORTFOLIO
GOVERNMENT INCOME PORTFOLIO
MANAGED INCOME PORTFOLIO
INTERNATIONAL BOND PORTFOLIO
TAX-FREE INCOME PORTFOLIO
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
NEW JERSEY TAX-FREE INCOME PORTFOLIO
OHIO TAX-FREE INCOME PORTFOLIO
THE BOND
PORTFOLIOS
INVESTOR SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INVESTOR C SHARES OF THE
SHORT GOVERNMENT BOND PORTFOLIO,
INTERMEDIATE GOVERNMENT PORTFOLIO,
CORE BOND PORTFOLIO,
GOVERNMENT INCOME PORTFOLIO,
INTERNATIONAL BOND PORTFOLIO,
TAX-FREE INCOME PORTFOLIO,
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO AND
NEW JERSEY TAX-FREE INCOME PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
The Bond Portfolios Investor C Shares
- --------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consists of twenty-eight investment portfolios. This Prospec-
tus describes the Investor Shares of eight of those portfolios
(the "Portfolios"):
Short Government Bond Portfolio
Intermediate Government Bond Portfolio
Core Bond Portfolio
Government Income Portfolio
International Bond Portfolio
Tax-Free Income Portfolio
Pennsylvania Tax-Free Income Portfolio
New Jersey Tax-Free Income Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7762. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
Shares of the Portfolios are not deposits or obligations of,
or guaranteed or endorsed by, PNC Bank, National Association
or any other bank and are not insured by, guaranteed by, obli-
gations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other governmental agency. Investments in the
Portfolios involve investment risks, including possible loss
of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC TAX-FREE PORTFOLIOS ARE INTENDED
ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
2
<PAGE>
The Bond Portfolios of Compass Capital Funds:
- --------------------------------------------------------------------------------
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of eight
investment portfolios that provide investors with a broad spec-
trum of investment alternatives within the fixed income sector.
Five of these Portfolios invest in taxable bonds, and three of
these Portfolios invest in tax-exempt bonds. A detailed descrip-
tion of each Portfolio begins on page .
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PERFORMANCE BENCHMARK LIPPER PEER GROUP
<S> <C> <C>
Short Government Bond Merrill 1-3 Year Short U.S. Government
Treasury Index
Intermediate Govern- Lehman Brothers Intermediate
ment Bond Intermediate U.S. Government
Government
Core Bond Lehman Aggregate Intermediate
Investment Grade Debt
Government Income Lehman Mortgage/10 General U.S. Government
Year Treasury
International Bond Salomon Non-U.S. General World Income
Hedged World
Government Bond
Index
Tax-Free Income Lehman Municipal Bond General Municipal Debt
Index
PA Tax-Free Income Lehman Local GO Index PA Municipal Debt
NJ Tax-Free Income Lehman Local GO Index NJ Municipal Debt
</TABLE>
PNC Asset Management Group, Inc. ("PAMG") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc.
("BlackRock") serves as sub-adviser to each Portfolio except the
International Bond Portfolio, which is sub-advised by Morgan
Grenfell Investment Services Limited ("Morgan Grenfell").
3
<PAGE>
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfo-
CAPITAL BOND lios. We intend this document to be an effective tool as you
PORTFOLIOS explore different directions in fixed income investing. You
may wish to use the table of contents on page 5 to find de-
scriptions of the Portfolios, including the investment objec-
tives, portfolio management styles, risks and charges and ex-
penses.
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. Some or all of the Portfolios may
BOND purchase mortgage- related, asset-backed, foreign and illiquid
INVESTING securities; enter into repurchase and reverse repurchase
agreements and engage in leveraging techniques; lend portfolio
securities to third parties; and enter into futures contracts
and options. Each of the Pennsylvania and New Jersey Tax-Free
Income Portfolios (the "State-Specific Tax-Free Portfolios")
concentrates in the securities of issuers located in a partic-
ular state, and is non-diversified, which means that its per-
formance may be dependent upon the performance of a smaller
number of securities than the other Portfolios, which are con-
sidered diversified. See "What Additional Investment Policies
And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased?" and "How Are
CAPITAL FUNDS Shares Redeemed?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are the Expenses of the Portfolios?..................... 6
What Are the Portfolios?..................................... 11
What Are the Differences Among the Portfolios?............... 12
What Types of Securities Are in the Portfolios?.............. 13
What Are the Portfolios' Fundamental Investment
Limitations?................................................ 14
What Additional Investment Policies Apply?................... 15
Who Manages the Fund?........................................ 27
What Pricing Options Are Available to Investors?............. 32
How Are Shares Purchased?.................................... 33
How Are Shares Redeemed?..................................... 35
What Are the Shareholder Features of the Fund?............... 37
What Sales Charge and Exemptions Apply to Investor C Shares.. 39
How Is Net Asset Value Calculated?........................... 40
How Frequently Are Dividends and Distributions Made to
Investors?.................................................. 41
How Are Fund Distributions Taxed?............................ 42
How Is the Fund Organized?................................... 46
How Is Performance Calculated?............................... 47
How Can I Get More Information?.............................. 49
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
What Are The Expenses Of The Portfolios?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Investor C Shares of the Portfolios for the current fiscal year ending Septem-
ber 30, 1996 as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
SHORT INTERMEDIATE
GOVERNMENT BOND GOVERNMENT BOND
PORTFOLIO PORTFOLIO
INVESTOR C INVESTOR C
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge
(as a percentage of offering
price) None None
Sales Charge on Reinvested
Dividends None None
Deferred Sales Charge(/1/)
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower) 1.0% 1.0%
ANNUAL PORTFOLIO OPERATING EXPENSES
(AFTER FEE WAIVERS AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)/2/ .30% .30%
12b-1 fees (after fee
waivers)(/2/)(/3/) .75 .75
Other operating expenses (after fee
waivers)/2/ .72 .72
----- ---------
Shareholder servicing fee .25 .25
Shareholder processing fee .15 .15
Other expenses .32 .32
--- -------
Total Portfolio operating expenses
(after fee waivers)(/2/) 1.77% 1.77%
===== =========
</TABLE>
(1) This amount applies to redemptions during the first year. No deferred sales
charge is charged after the first 18 months on Investor C Shares. See "What
Sales Charge and Exemptions Apply to Investor C Shares?"
(2) "Other expenses" includes the administration fees payable by the
Portfolios. Without waivers, advisory fees would be .50% and administration
fees would be .23% for each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive fees or reimburse expenses,
but have informed the Fund that they expect to waive fees and reimburse
expenses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. The information in the table is based on the advisory and
administration fees and other expenses payable after fee waivers for the
fiscal year ended September 30, 1995, as restated to reflect current
expenses and fee waivers. Without waivers, "Other operating expenses" would
be % and %, respectively, and "Total Portfolio operating expenses"
would be: 2.06% and 2.05%, respectively, for Investor C Shares.
(3) Long-term investors in Investor C Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the National Association of Securities Dealers, Inc. ("NASD").
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORE BOND GOVERNMENT INCOME
PORTFOLIO PORTFOLIO
INVESTOR C INVESTOR C
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge
(as a percentage of offering price) None None
Sales Charge on Reinvested Dividends None None
Deferred Sales Charge(/1/)
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower) 1.0% 1.0%
ANNUAL PORTFOLIO OPERATING EXPENSES
(AFTER FEE WAIVERS AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/2/) .30% .30%
12b-1 fees(/2/)(/3/) .75 .75
Other operating expenses (after fee
waivers)(/2/) .72 .72
----- ---------
Shareholder servicing fee .25 .25
Shareholder processing fee .15 .15
Other expenses .32 .32
----- ---------
Total Portfolio operating expenses
(after fee waivers)(/2/) 1.77% 1.77%
===== =========
</TABLE>
(1) This amount applies to redemptions during the first year. No deferred sales
charge is charged after the first 18 months on Investor C Shares. See "What
Sales Charge and Exemptions Apply to Investor C Shares?"
(2) "Other expenses" includes the administration fees payable by the Portfolio.
Without waivers, advisory fees would be .50% and administration fees would
be .23% for each Portfolio. PAMG and the Portfolios' administrators are un-
der no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
current fiscal year as necessary to maintain the Portfolios' total operat-
ing expenses at the levels set forth in the table. The information in the
table is based on the advisory and administration fees and other expenses
payable after fee waivers for the remainder of the fiscal year ended Sep-
tember 30, 1995, as restated to reflect current expenses and fee waivers.
Without waivers, "Other operating expenses" would be % and %, respec-
tively, and "Total Portfolio operating expenses" would be: 2.06% and 2.05%,
respectively, for Investor C Shares.
(3) Long-term investors in Investor C Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the NASD.
7
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA
INTERNATIONAL BOND TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR C INVESTOR C INVESTOR C
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Charge
(as a percentage of
offering price) None None None
Sales Charge on
Reinvested Dividends None None None
Deferred Sales
Charge(/1/)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) 1.0% 1.0% 1.0%
ANNUAL PORTOLIO
OPERATING EXPENSES
(AFTER FEE WAIVERS AS A
PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/2/) .55% .30% .30%
12b-1 fees(/2/)(/3/) .75% .75 .75
Other operating expenses
(after fee waivers and
expense
reimbursements)(/2/) .90 .72 .72
---------- ----- -----
Shareholder servicing
fee .25 .25 .25
Shareholder processing
fee .15 .15 .15
Other expenses(/2/) .50 .32 .32
---------- ----- -----
Total Portfolio
operating expenses
(after fee waivers and
expense
reimbursements)(/2/) 2.20% 1.77% 1.77%
========== ===== =====
</TABLE>
(1) This amount applies to redemptions during the first year. No deferred sales
charge is charged after the first 18 months on Investor C Shares. See "What
Sales Charge and Exemptions Apply to Investor C Shares?"
(2) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55%, .50% and .50%, respec-
tively, and administration fees would be .23% for each Portfolio. In addi-
tion, the Expense Summary reflects reimbursements made to the Tax-Free In-
come Portfolio by the adviser. PAMG and the Portfolios' administrators are
under no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
remainder of the current fiscal year as necessary to maintain the Portfo-
lios' total operating expenses at the levels set forth in the table. The
information in the table is based on the advisory and administration fees
and other expenses payable after fee waivers for the fiscal year ended Sep-
tember 30, 1995, as restated to reflect current expenses and fee waivers.
Without waivers, "other operating expenses" would be %, % and %, re-
spectively, and "Total Portfolio operating expenses" would be 2.27%, 2.07%,
and 2.07%, respectively, for Investor C Shares.
(3) Long-term investors in Investor C Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the NASD.
8
<PAGE>
<TABLE>
<CAPTION>
NEW JERSEY
TAX-FREE INCOME
PORTFOLIO
INVESTOR C
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge
(as a percentage of offering price) None
Sales Charge on Reinvested Dividends None
Deferred Sales Charge(/1/)
(as a percentage of original purchase price or redemption
proceeds, whichever is lower) 1.0%
ANNUAL PORTFOLIO OPERATING EXPENSES (AFTER FEE WAIVERS
AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/2/) .30%
12b-1 fees(/2/)(/3/) .75
Other operating expenses (after fee waivers)/2/ .72
Shareholder servicing fee .25
Shareholder processing fee .15
Other expenses .32
-----
Total Portfolio operating expenses (after fee waivers)(/2/) 1.77%
=====
</TABLE>
(1) This amount applies to redemptions during the first year. No deferred sales
charge is charged after the first 18 months on Investor C Shares. See "What
Sales Charge and Exemptions Apply to Investor C Shares?"
(2) "Other expenses" includes the administration fees payable by the Portfolio.
Without waivers, advisory fees would be .50% and administration fees would
be .23% for the Portfolio. PAMG and the Portfolio's administrators are un-
der no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
remainder of the current fiscal year as necessary to maintain the Portfo-
lio's total operating expenses at the levels set forth in the table. The
information in the table is based on the advisory and administration fees
and other expenses payable after fee waivers for the fiscal year ended Sep-
tember 30, 1995, as restated to reflect current expenses and fee waivers.
Without waivers, "Other operating expenses" would be % and "Total Portfo-
lio operating expenses" would be 2.07% for Investor C Shares.
(3) Long-term investors in Investor C Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the NASD.
9
<PAGE>
EXAMPLE
An investor in Investor C Shares would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Short Government Bond Portfolio
C Shares (Redemption)* $28 $56 $96 $208
C Shares (No Redemption) 18 56 96 208
Intermediate Government Bond
Portfolio
C Shares (Redemption)* 28 56 96 208
C Shares (No Redemption) 18 56 96 208
Core Bond Portfolio
C Shares (Redemption)* 28 56 96 208
C Shares (No Redemption) 18 56 96 208
Government Income Portfolio
C Shares (Redemption)* 28 56 96 208
C Shares (No Redemption) 18 56 96 208
International Bond Portfolio
C Shares (Redemption)* 32 69 -- --
C Shares (No Redemption) 22 69 -- --
Tax-Free Income Portfolio
C Shares (Redemption)* 28 56 96 208
C Shares (No Redemption) 18 56 96 208
Pennsylvania Tax-Free Income
Portfolio
C Shares (Redemption)* 28 56 96 208
C Shares (No Redemption) 18 56 96 208
New Jersey Tax-Free Income
Portfolio
C Shares (Redemption)* 28 56 96 208
C Shares (No Redemption) 18 56 96 208
</TABLE>
* Reflects the deduction of the deferred sales charge.
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses that an investor in the Portfolios will bear
either directly or indirectly. They do not reflect any charges that may be im-
posed by brokers or other institutions directly on their customer accounts in
connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
10
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
COMPASS CAPITAL FUNDS consists of 28 portfolios and has been
structured to include many different investment styles across
the spectrum of fixed income investments so that investors may
participate across multiple disciplines in order to seek their
long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of eight
investment portfolios that provide investors with a broad spec-
trum of investment alternatives within the fixed income sector.
Five of these Portfolios invest solely in taxable bonds, and
three of these Portfolios invest in tax-exempt bonds.
In certain investment cycles and over certain holding periods, a
fund that invests in any one of these styles may perform above
or below the market. An investment program that combines these
multiple disciplines allows investors to select from among these
various product options in the way that most closely fits the
individual's investment goals and sentiments.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Short Government Bond To realize a rate of return that
exceeds the total return of the
Merrill Lynch 1-3 year Treasury Index.
Intermediate Government To seek current income consistent with
Bond, Government Income the preservation of capital.
and International Bond
Core Bond To realize a total rate of return that
exceeds the total return of the Lehman
Brothers Aggregate Index.
Tax-Free Income, To seek as high a level of current
Pennsylvania Tax-Free income exempt from Federal income tax
Income and New Jersey and, to the extent possible for each
Tax-Free Income State-Specific Tax-Free Portfolio,
income tax of the specific state in
which the Portfolio concentrates, as
is consistent with preservation of
capital.
</TABLE>
11
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS:
<TABLE>
<CAPTION>
DOLLAR-
WEIGHTED
AVERAGE MIN
PERFORMANCE MATURITY CREDIT QUALITY CREDIT
PORTFOLIO BENCHMARK* (APPROXIMATE) CONCENTRATION QUALITY
<S> <C> <C> <C> <C>
Short Gov't Merrill 1-3 Year 3-5 Years Gov't/Agency AAA
Bond Treasury Index
Intermediate Lehman Brothers 5-10 Years Gov't/Agency AAA
Gov't Bond Intermediate Gov't
Core Bond Lehman Aggregate 5-10 Years Investment Grade BBB
Spectrum
Gov't Income Lehman Mortgage/10 10-15 Years Gov't/Agency AAA
Year Treasury
International Salomon Non-U.S. 5-15 Years AA, AAA, BBB
Bond Hedged World Gov't/Agency
Government Bond Index
Tax-Free Lehman Municipal Bond 10-15 Years Investment Grade BBB
Income Index Spectrum
PA Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
NJ Tax-Free 10-15 Years Investment Grade BBB
Income Lehman Local GO Index Spectrum
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
12
<PAGE>
What Types Of Securities Are In The Portfolios?
- --------------------------------------------------------------------------------
Yes: The Portfolio will hold a significant concentration of these securities at
all times.
Elig.: The Portfolio may purchase these securities, but they may or may not be
a significant holding at a given time.
Temp.: The Portfolio may purchase these securities, but under normal market
conditions is not expected to do so.
No: The Portfolio may not purchase these securities.
<TABLE>
<CAPTION>
NON FOREIGN
AGENCY/ SECURITIES/
AGENCY COMMERCIAL CURRENCY
TREASURIES AGENCIES MBS/1/ MBS/1/ CORP. ABS/2/ RISK MUNICIPALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Gov't Yes Yes Yes Elig. Elig. Elig. No Elig.
Bond
Intermediate Yes Yes Yes Elig. Yes Elig. No Elig.
Gov't Bond
Core Bond Yes Yes Yes Elig. Yes Yes No Elig.
Gov't Income Yes Yes Yes Elig. Yes Yes No Elig.
International Elig. Elig. Elig. Elig. Elig. Elig. Yes Elig.
Bond
Tax-Free Temp. No No No No No No Yes
Income
PA Tax-Free Temp. No No No No No No Yes
Income
NJ Tax-Free Temp. No No No No No No Yes
Income
</TABLE>
/1/ MBS = mortgage-backed securities
/2/ ABS = asset-backed securities
13
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days notice before any such change. No assurance can be pro-
vided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities) if more than 5% of
its total assets will be invested in the securities of any one issuer, ex-
cept that up to 25% of a Portfolio's total assets may be invested without
regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(3) in the case of each Tax-Free Portfolio, invest less than 80% of its net as-
sets in Municipal Obligations (as defined below), except during defensive
periods or during periods of unusual market conditions.
Restriction 1 does not apply to the State-Specific Tax-Free Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Tax-
Free Portfolio will not invest in securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter (plus any additional grace period), more than 5% of its total assets to
be invested in securities of any one issuer, except that up to 50% of a Portfo-
lio's total assets may be invested without regard to this limitation so long as
no more than 25% of the Portfolio's total assets are invested in any one issuer
(except U.S. Government securities and related repurchase agreements).
The investment limitations stated above are applied at the time investment se-
curities are purchased.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any such commitment is
no longer in the best interests of a Portfolio, it will revoke the commitment
by terminating sales of shares of the Portfolio in the state involved.
14
<PAGE>
What Additional Investment Policies Apply?
- --------------------------------------------------------------------------------
INVESTMENT QUALITY. Securities acquired by the Short Government Bond Portfolio,
Intermediate Government Bond Portfolio and Government Income Portfolio (the
"Government Portfolios") will be rated in the highest rating category at the
time of purchase or, if unrated, of comparable quality as determined by the
Portfolios' sub-adviser. Securities acquired by the other Portfolios will be
rated investment grade at the time of purchase (within the four highest voting
categories by Standard & Poor's Ratings Group ("S&P"), Moody's Investors Serv-
ice, Inc. ("Moody's"), Duff & Phelps Credit Co. or Fitch Investor Services,
Inc.) or, if unrated, of comparable quality as determined by a Portfolio's sub-
adviser. Securities rated "Baa" on "BBB" are generally considered to be invest-
ment grade although they have speculative characteristics. If a security is re-
duced below the minimum rating that is permitted for a Portfolio, the Portfo-
lio's sub-adviser will consider whether the Portfolio should continue to hold
the security.
INVESTMENT CONCENTRATION. Each Portfolio will normally invest at least 80% of
the value of its total assets in debt securities. The Government Portfolios
will invest at least 65% of their net assets in obligations issued or guaran-
teed by the U.S. Government, its agencies or instrumentalities and related re-
purchase agreements during normal market conditions. Under normal market condi-
tions, the International Bond Portfolio will invest at least 65% of its net as-
sets in the debt obligations of foreign issuers located in at least three dif-
ferent foreign countries. The Pennsylvania Tax-Free Income Portfolio and New
Jersey Tax-Free Income Portfolio (the "State-Specific Tax-Free Portfolios") and
the Tax-Free Income Portfolio (together with the "State-Specific Tax-Free Port-
folios," the "Tax-Free Portfolios") will invest, during normal market condi-
tions, at least 80% of their net assets in obligations issued by or on behalf
of states, territories and possessions of the United States, the District of
Columbia and their political sub-divisions, agencies, instrumentalities and au-
thorities and related tax-exempt derivative securities ("Municipal Obliga-
tions") the interest on which is exempt from regular Federal income tax and is
not an item of tax preference for purposes of the Federal alternative minimum
tax. In addition, each State-Specific Tax-Free Portfolio intends to invest at
least 65% of its net assets in Municipal Obligations of issuers located in the
particular state indicated by its name. The Tax-Free Income Portfolio intends
to invest less than 25% of its net assets in Municipal Obligations of issuers
located in the same state. During temporary defensive periods each Tax-Free
Portfolio may invest without limitation in securities that are not Municipal
Obligations and may hold without limitation uninvested cash reserves.
FOREIGN INVESTMENTS. The International Bond Portfolio will invest primarily in
foreign securities and currencies. Investing in securities of foreign issuers
involves considerations not typically associated with investing in securities
of companies organized and operated in the United States. Because foreign secu-
rities generally are denominated and pay dividends or interest in foreign cur-
rencies, the value of a Portfolio that invests in foreign securities will be
affected favorably or unfavorably by changes in currency exchange rates.
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation,
15
<PAGE>
limitations on the removal of funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administra-
tions or economic or monetary policies in the U.S. or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or ad-
versely affect a Portfolio's operations. In general, less information is pub-
licly available with respect to foreign issuers than is available with respect
to U.S. companies. Most foreign companies are also not subject to the uniform
accounting and financial reporting requirements applicable to issuers in the
United States. While the volume of transactions effected on foreign stock ex-
changes has increased in recent years, it remains appreciably below that of the
New York Stock Exchange. Accordingly, a Portfolio's foreign investments may be
less liquid and their prices may be more volatile than comparable investments
in securities in U.S. companies. In addition, there is generally less govern-
ment supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.
Foreign investments may include: (a) debt obligations issued or guaranteed by
foreign sovereign governments or their agencies, authorities, instrumentalities
or political subdivisions, including a foreign state, province or municipality;
(b) debt obligations of supranational organizations such as the World Bank,
Asian Development Bank, European Investment Bank, and European Economic Commu-
nity; (c) debt obligations of foreign banks and bank holding companies; (d)
debt obligations of domestic banks and corporations issued in foreign curren-
cies; (e) debt obligations denominated in the European Currency Unit (ECU); (f)
foreign corporate debt securities and commercial paper; and (g) private place-
ments. Such securities may include loan participations and assignments, con-
vertible securities and zero-coupon securities.
To maintain greater flexibility, the International Bond Portfolio may invest in
instruments which have the characteristics of futures contracts. Such instru-
ments may take a variety of forms, such as debt securities with interest or
principal payments determined by reference to the value of a currency or com-
modity at a future point in time. The risks of such investments could reflect
the risks of investing in futures, currencies and securities, including vola-
tility and illiquidity.
The expense ratio of the International Bond Portfolio can be expected to be
higher than those of Portfolios investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as higher investment research costs, higher foreign custody costs, higher
commission costs and additional costs arising from delays in settlements of
transactions involving foreign securities.
MUNICIPAL INVESTMENTS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved. Municipal Obligations may also in-
clude
16
<PAGE>
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are partici-
pation certificates in a lease, an installment purchase contract, or a condi-
tional sales contract ("lease obligations") entered into by a state or politi-
cal subdivision to finance the acquisition or construction of equipment, land,
or facilities. Although lease obligations are not general obligations of the
issuer for which the state or other governmental body's unlimited taxing power
is pledged, certain lease obligations are backed by a covenant to appropriate
money to make the lease obligation payments. However, under certain lease obli-
gations, the state or governmental body has no obligation to make these pay-
ments in future years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property, dis-
position of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
as marketable as more conventional securities.
Each Tax-Free Portfolio may invest up to 20% of its total assets in private ac-
tivity bonds the interest on which is an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Paper") when added together with any
other taxable investments held by the Portfolio. In addition, each Tax-Free
Portfolio may invest 25% or more of its net assets in Municipal Obligations the
interest on which is paid solely from revenues of similar projects. To the ex-
tent a Portfolio's assets are invested in Municipal Obligations payable from
the revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and eco-
nomic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested.
The Tax-Free Income Portfolio is classified as a diversified portfolio, and the
State-Specific Tax-Free Portfolios are classified as non-diversified portfo-
lios, under the 1940 Act. Investment returns on a non-diversified portfolio
typically are dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall value of a non-di-
versified portfolio more than it would a diversified portfolio.
Each Tax-Free Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a spec-
ified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the commit-
ment relates. Each Tax-Free Portfolio will acquire stand-by commitments solely
to facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The Tax-Free Portfolios may invest in tax-exempt derivative securities relating
to Municipal Obligations, including tender option bonds, participations, bene-
ficial interests in trusts and partnership interests. The amount of information
regarding the financial condition of issuers of
17
<PAGE>
Municipal Obligations may not be as extensive as that which is made available
by public corporations and the secondary market for Municipal Obligations may
be less liquid than that for taxable fixed-income securities. Accordingly, the
ability of a Tax-Free Portfolio to buy and sell tax-exempt securities may, at
any particular time and with respect to any particular securities, be limited.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal and state income tax are rendered by counsel
to the respective issuers and sponsors of the obligations at the time of issu-
ance. The Fund and its investment adviser and sub-adviser will rely on such
opinions and will not review independently the underlying proceedings relating
to the issuance of Municipal Obligations, the creation of any tax-exempt deriv-
ative securities, or the bases for such opinions.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. The Portfolios (except the Tax-
Free Portfolios) may purchase securities that are secured or backed by mort-
gages as well as other assets (e.g., automobile loans and credit card receiv-
ables). These mortgage-related and asset-backed securities may be issued by the
U.S. Government, the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), and private issuers such as commercial banks, financial
companies, finance subsidiaries of industrial companies, savings and loan asso-
ciations, mortgage banks and investment banks.
The Portfolios may acquire several types of mortgage-related securities, in-
cluding guaranteed mortgage pass-through certificates, which provide the holder
with a pro rata interest in the underlying mortgages, adjustable rate mortgage-
related securities ("ARMs") and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways.
Non-mortgage asset-backed securities involve certain risks that are not pre-
sented by mortgage-related securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws, many of which
give debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of ve-
hicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
18
<PAGE>
The yield characteristics of mortgage-related and asset-backed securities dif-
fer from traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the underlying as-
sets (i.e., loans) generally may be prepaid at any time. As a result, if a
mortgage-related or asset-backed security is purchased at a premium, a prepay-
ment rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if one of these securities is pur-
chased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. In calculat-
ing the average weighted maturity of a Portfolio, the maturity of mortgage-re-
lated and asset-backed securities will be based on estimates of average life
which take prepayments into account.
Prepayments on mortgage-related and asset-backed securities generally increase
with falling interest rates and decrease with rising interest rates; further-
more, prepayment rates are influenced by a variety of economic and social fac-
tors. In general, the collateral supporting non-mortgage asset-backed securi-
ties is of shorter maturity than mortgage loans and is less likely to experi-
ence substantial prepayments. Like other fixed income securities, when interest
rates rise the value of a mortgage-related or asset-backed security generally
will decline; however, when interest rates decline, the value of these securi-
ties that have prepayment features may not increase as much as that of other
fixed income securities.
STRIPPED AND ZERO COUPON OBLIGATIONS. To the extent consistent with their in-
vestment objectives, the Portfolios may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. Government and other obliga-
tions. These participations, which may be issued by the U.S. Government (or a
U.S. Government agency or instrumentality) or by private issuers such as banks
and other institutions, are issued at a discount to their "face value," and may
include stripped mortgage-backed securities ("SMBS"). Stripped securities, par-
ticularly SMBSs, may exhibit greater price volatility than ordinary debt secu-
rities because of the manner in which their principal and interest are returned
to investors. The International Bond Portfolio also may purchase "stripped" se-
curities that evidence ownership in the future interest payments or principal
payments on obligations of foreign governments.
SMBSs are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of mort-
gage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class receives all of the principal. How-
ever, in some cases, one class will receive some of the interest and most of
the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Portfolio may fail to fully recoup
its initial investment. The market value of SMBS can be extremely volatile in
response to changes in interest rates. The yields on a class of SMBS that re-
ceives all or most of the interest are generally higher than prevailing market
yields on other mortgage-related obligations because their cash flow patterns
are also volatile and there is a greater risk that the initial investment will
not be fully recouped.
19
<PAGE>
SMBSs issued by the U.S. Government (or a U.S. Government agency or instrumen-
tality) may be considered liquid under guidelines established by the Fund's
Board of Trustees if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a Port-
folio's per share net asset value.
Each Portfolio may invest in zero-coupon bonds, which are normally issued at a
significant discount from face value and do not provide for periodic interest
payments. Zero-coupon bonds may experience greater volatility in market value
than debt obligations which provide for regular interest payments.
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their respective
investment objectives, the Portfolios (except the Tax-Free Portfolios) may in-
vest in debt obligations of domestic or foreign corporations and banks, and may
acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. Bank obligations may include
certificates of deposit, notes, bankers' acceptances and fixed time deposits.
These obligations may be general obligations of the parent bank or may be lim-
ited to the issuing branch or subsidiary by the terms of a specific obligation
or by government regulation. The Portfolios may also make interest-bearing sav-
ings deposits in commercial and savings banks in amounts not in excess of 5% of
their respective total assets. For purposes of determining the permissibility
of an investment in bank obligations, the total assets of a bank are determined
on the basis of the bank's most recent annual financial statements.
U.S. GOVERNMENT OBLIGATIONS. Treasury obligations differ only in their interest
rates, maturities and times of issuance. Obligations of certain agencies and
instrumentalities of the U.S. Government such as the GNMA are supported by the
United States' full faith and credit; others such as those of the FNMA and the
Student Loan Marketing Association are supported by the right of the issuer to
borrow from the Treasury; others such as those of the Federal Farm Credit Banks
or the FHLMC are supported only by the credit of the instrumentality. No assur-
ance can be given that the U.S. Government would provide financial support to
U.S. Government-sponsored agencies or instrumentalities if it is not obligated
to do so by law.
INTEREST RATE AND CURRENCY TRANSACTIONS. The Portfolios may enter into interest
rate swaps and may purchase or sell interest rate caps and floors. The Portfo-
lios expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their holdings, as a duration
management technique or to protect against an increase in the price of securi-
ties a Portfolio anticipates purchasing at a later date. The Portfolios intend
to use these transactions as a hedge and not as a speculative investment.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a prede-
20
<PAGE>
termined interest rate, to receive payments of interest on a notional principal
amount from the party selling such interest rate floor.
In addition, the International Bond Portfolio may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future ex-
change rates. The Portfolio may engage in foreign currency exchange transac-
tions in connection with the purchase and sale of portfolio securities (trans-
action hedging) and to protect the value of specific portfolio positions (posi-
tion hedging). The Portfolio may purchase or sell a foreign currency on a spot
(or cash) basis at the prevailing spot rate in connection with the settlement
of transactions in portfolio securities denominated in that foreign currency,
and may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency
futures contracts (futures contracts). The Portfolio may also purchase ex-
change-listed and over-the-counter call and put options on futures contracts
and on foreign currencies, and may write covered call options on up to 100% of
the currencies in its portfolio. In order to protect against currency fluctua-
tions, the International Bond Portfolio may enter into currency swaps. Currency
swaps involve the exchange of the rights of the Portfolio and another party to
make or receive payments in specified currencies.
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, each Portfolio may write covered call options, buy put options, buy
call options and write secured put options for the purpose of hedging or earn-
ing additional income, which may be deemed speculative or, with respect to the
International Bond Portfolio, cross-hedging. These options may relate to par-
ticular securities, financial instruments, foreign currencies, securities indi-
ces or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corporation,
which performs the obligations of its members if they default.
To the extent consistent with its investment objective, each Portfolio may also
invest in futures contracts and options on futures contracts for hedging pur-
poses or to maintain liquidity. The value of a Portfolio's contracts may equal
or exceed 100% of the Fund's total assets, although a Portfolio will not pur-
chase or sell a futures contract unless immediately afterwards the aggregate
amount of margin deposits on its existing futures positions plus the amount of
premiums paid for related futures options is 5% or less of its net assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of certain securities, the cash value of a securities index or a stated quan-
tity of a foreign currency. A Portfolio may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect
21
<PAGE>
against declines occurring prior to sales of securities in the value of the se-
curities to be sold. In addition, a Portfolio may utilize futures contracts in
anticipation of changes in the composition of its holdings or in currency ex-
change rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When Portfolio sells an option on a futures contract, it becomes obli-
gated to sell or buy a futures contract if the option is exercised. In connec-
tion with a Portfolio's position in a futures contract or related option, the
Fund will create a segregated account of liquid high grade assets or will oth-
erwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
GUARANTEED INVESTMENT CONTRACTS. The Portfolios may make limited investments in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies. Under these contracts, a Portfolio makes cash contributions to a de-
posit fund of the insurance company's general account. The insurance company
then credits to the Portfolio, on a monthly basis, interest which is based on
an index (such as the Salomon Brothers CD Index), but is guaranteed not to be
less than a certain minimum rate. Each Portfolio does not expect to invest more
than 5% of its net assets in GICs at any time during the current fiscal year.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans involve risks of delay in receiving additional collateral or in recover-
ing the loaned securities, or possibly loss of rights in the collateral if the
borrower of the securities becomes insolvent.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
The Portfolios may invest up to 10% of their total assets
22
<PAGE>
in leveraged inverse floating rate debt instruments ("inverse floaters"). The
interest rate of an inverse floater resets in the opposite direction from the
market rate of interest to which it is indexed. An inverse floater may be con-
sidered to be leveraged to the extent that its interest rate varies by a magni-
tude that exceeds the magnitude of the change in the index rate of interest.
The higher degree of leverage inherent in inverse floaters is associated with
greater volatility in their market values. Issuers of unrated variable and
floating rate instruments must satisfy the same criteria as set forth above for
a Portfolio. The absence of an active secondary market with respect to particu-
lar variable and floating rate instruments, however, could make it difficult
for the Portfolio to dispose of a variable or floating rate instrument if the
issuer defaulted on its payment obligation or during periods when the Portfolio
is not entitled to exercise its demand rights.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase debt securities
from financial institutions subject to the seller's agreement to repurchase
them at an agreed upon time and price ("repurchase agreements"). Repurchase
agreements are, in substance, loans. Default by or bankruptcy of a seller would
expose a Portfolio to possible loss because of adverse market action, expenses
and/or delays in connection with the disposition of the underlying obligations.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made through reverse repurchase agreements under which a Portfolio sells
portfolio securities to financial institutions such as banks and broker-dealers
and agrees to repurchase them at a particular date and price. The Portfolios
may use the proceeds of reverse repurchase agreements to purchase other securi-
ties either maturing, or under an agreement to resell, on a date simultaneous
with or prior to the expiration of the reverse repurchase agreement. The Port-
folios (except the Tax-Free Portfolios) may use reverse repurchase agreements
when it is anticipated that the interest income to be earned from the invest-
ment of the proceeds of the transaction is greater than the interest expense of
the transaction. This use of reverse repurchase agreements may be regarded as
leveraging and, therefore, speculative. Reverse repurchase agreements involve
the risks that the interest income earned in the investment of the proceeds
will be less than the interest expense, that the market value of the securities
sold by a Portfolio may decline below the price of the securities the Portfolio
is obligated to repurchase and that the securities may not be returned to the
Portfolio. During the time a reverse repurchase agreement is outstanding, a
Portfolio will maintain a segregated account with the Fund's custodian contain-
ing cash, U.S. Government or other appropriate liquid high-grade debt securi-
ties having a value at least equal to the repurchase price. A Portfolio's re-
verse repurchase agreements, together with any other borrowings, will not ex-
ceed, in the aggregate, 33 1/3% of the value of its total assets. In addition,
a Portfolio (except the Tax-Free Portfolios) may borrow up to an additional 5%
of its total assets for temporary purposes.
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by other
investment companies within the limits prescribed by the 1940 Act. As a share-
holder of another investment company, a Portfolio would bear, along with other
shareholders, its pro rata portion of
23
<PAGE>
the other investment company's expenses, including advisory fees. These ex-
penses would be in addition to the advisory and other expenses that each Port-
folio bears directly in connection with its own operations.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of the
value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and re-
purchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to this
15% limit. Each Portfolio may purchase securities which are not registered un-
der the Securities Act of 1933 (the "1933 Act") but which can be sold to "qual-
ified institutional buyers" in accordance with Rule 144A under the 1933 Act.
Any such security will not be considered illiquid so long as it is determined
by a Portfolio's sub-adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become un-
interested in purchasing these restricted securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security that it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and for-
ward commitment transactions involve the risk, however, that the price or yield
obtained in a transaction may be less favorable than the price or yield avail-
able in the market when the securities delivery takes place. Each Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions.
DOLLAR ROLL TRANSACTIONS. To take advantage of attractive opportunities in the
mortgage market and to enhance current income, each Portfolio (except the Tax-
Free Portfolios) may enter into dollar roll transactions. A dollar roll trans-
action involves a sale by the Portfolio of a mortgage-backed or other security
concurrently with an agreement by the Portfolio to repurchase a similar secu-
rity at a later date at an agreed-upon price. The securities that are repur-
chased will bear the same interest rate and stated maturity as those sold, but
pools of mortgages collateralizing such securities may have different prepay-
ment histories than those sold. During the period between the sale and repur-
chase, a Portfolio will not be entitled to receive interest and principal pay-
ments on the securities sold. Proceeds of the sale will be invested in addi-
tional instruments for the Portfolio, and the income from these investments
will generate income for the Portfolio. If such income does not exceed the in-
come, capital appreciation and gain or loss that would have been realized on
the securities sold as part of the dollar roll, the use of this technique will
diminish the investment performance of a Portfolio compared with what the per-
formance would have been without the use of dollar rolls. At the time that a
Portfolio enters into a dollar roll transaction, it will place in a segregated
account maintained with its custodian cash, U.S. Government securities or other
liquid high grade debt obligations having
24
<PAGE>
a value equal to the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is maintained. A
Portfolio's dollar rolls, together with its reverse repurchase agreements and
other borrowings, will not exceed, in the aggregate, 33 1/3% of the value of
its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties a Portfolio is required to purchase may decline below the agreed upon re-
purchase price of those securities. If the broker/dealer to whom a Portfolio
sells securities becomes insolvent, the Portfolio's right to purchase or repur-
chase securities may be restricted and the instruments which the Portfolio is
required to repurchase may be worth less than an instrument which the Portfolio
originally held when the Portfolio is able to complete the purchase. Successful
use of mortgage dollar rolls may depend upon a sub-adviser's ability to cor-
rectly predict interest rates and prepayments. There is no assurance that dol-
lar rolls can be successfully employed.
SHORT SALES. The Portfolios may only make short sales of securities "against-
the-box." A short sale is a transaction in which a Portfolio sells a security
it does not own in anticipation that the market price of that security will de-
cline. The Portfolios may make short sales both as a form of hedging to offset
potential declines in long positions in similar securities and in order to
maintain portfolio flexibility. In a short sale "against-the-box," at the time
of sale, the Portfolio owns or has the immediate and unconditional right to ac-
quire the identical security at no additional cost. When selling short
"against-the-box," a Portfolio forgoes an opportunity for capital appreciation
in the security.
PORTFOLIO TURNOVER RATES. Under normal market conditions it is expected that
the annual portfolio turnover rate for the Government Income Portfolio will not
exceed 300%. The past portfolio turnover rates of the other Portfolios are set
forth above under "What Are the Portfolios' Financial Highlights?" A Portfo-
lio's annual portfolio turnover rate will not, however, be a factor preventing
a sale or purchase when the sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates will
generally result in higher transaction costs to a Portfolio.
INTEREST RATE RISK. The value of fixed income securities in the Portfolios can
be expected to vary inversely with changes in prevailing interest rates. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
securities with shorter maturities. The Portfolios are not restricted to any
maximum or minimum time to maturity in purchasing individual portfolio securi-
ties, and the average maturity of a Portfolio's assets will vary within the
limits stated above under "What Are the Differences Among the Portfolios?"
based upon its sub-adviser's assessment of economic and market conditions.
STATE-SPECIFIC TAX-FREE PORTFOLIOS-ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Tax-Free Portfolios in state-spe-
cific Municipal Obligations raises special investment considerations. In par-
ticular, changes in the economic condition and governmental policies of a state
and its political subdivisions could adversely affect the value of a Portfo-
lio's shares. Certain matters relating to the states in which the State-Spe-
cific Tax-Free Portfolios invest are described below. For further information,
see "Special Considerations Regarding State-Specific Municipal Obligations" in
the Statement of Additional Information.
25
<PAGE>
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following three
years; as of June 30, 1994, the General Fund had a surplus of $892.9 million.
The deficit in the Commonwealth's unreserved/ undesignated funds also have been
eliminated, and there was a surplus of $79.2 million as of June 30, 1994. Ris-
ing unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates
place increased pressures on the tax resources of the Commonwealth and its mu-
nicipalities. The Commonwealth has sold a substantial amount of bonds over the
past several years, but the debt burden remains moderate. The recession has af-
fected Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service sec-
tors, with losses in more high-paid manufacturing positions. A new governor
took office in January, 1995, but the Commonwealth is likely to continue to
show fiscal restraint.
New Jersey. The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective commer-
cial agriculture, insurance, tourism, petroleum refining and manufacturing, al-
though New Jersey's manufacturing industry has experienced a downward trend in
the last few years. New Jersey is a major recipient of Federal assistance and,
of all the states, is among the highest in the amount of Federal aid received.
Therefore, a decrease in Federal financial assistance may adversely affect the
financial condition of New Jersey and its political subdivisions and instrumen-
talities. While New Jersey's economic base has become more diversified over
time and thus its economy appears to be less vulnerable during recessionary pe-
riods, a recurrence of high levels of unemployment could adversely affect New
Jersey's overall economy and the ability of New Jersey and its political subdi-
visions and instrumentalities to meet their financial obligations. In addition,
New Jersey maintains a balanced budget which restricts total appropriation in-
creases to only 5% annually with respect to any municipality or county, the
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
26
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the di-
rection of its Board of Trustees. The following individuals were
elected by shareholders on January 4, 1996 to serve as trustees
of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Finan-
cial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Officer
of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School, Uni-
versity of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
ADVISER AND The Adviser to the COMPASS CAPITAL FUNDS is PNC Asset Management
SUB-ADVISERS Group ("PAMG"). Each of the Portfolios within the Compass Capi-
tal Fund family, except the International Bond Portfolio, is
managed by a specialized portfolio manager who is a member of
PAMG's fixed income portfolio management subsidiary, BlackRock
Financial Management, Inc. ("BlackRock"). The sub-adviser of the
International Bond Portfolio is Morgan Grenfell Investment Serv-
ices Limited ("Morgan Grenfell").
The eight portfolios and their investment sub-advisers and port-
folio managers are as follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------- ------------------------------------
<S> <C> <C>
Short Government Bond BlackRock(/1/) Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-
manager since its inception.
Michael P. Lustig; Vice President of
BlackRock since 1989; Portfolio co-
manager since 1994.
Scott Amero; Managing Director of
BlackRock since 1990; Portfolio co-
manager since its inception.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------------- ------------------------------------
<S> <C> <C>
Intermediate Government BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
Bond and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
Core Bond BlackRock(/1/) Scott Amero (see above); Mr. Amero
has been Portfolio manager since its
inception.
Government Income BlackRock(/1/) Robert S. Kapito, Michael P. Lustig
and Scott Amero (see above); Messrs.
Kapito, Lustig and Amero have been
Portfolio co-managers since 1995.
International Bond Morgan Grenfell(/2/) Martin A. Hall; Director of Morgan
Grenfell since 1991; Portfolio
manager since 1991.
Tax-Free Income BlackRock(/1/) Kevin Klingert; portfolio manager at
BlackRock since 1991; prior to
joining BlackRock, Assistant Vice
President, Merrill, Lynch, Pierce,
Fenner & Smith; Portfolio manager
since 1995.
Pennsylvania Tax-Free BlackRock(/1/) Kevin Klingert (see above);
Income Portfolio manager since 1995.
New Jersey Tax-Free BlackRock(/1/) Kevin Klingert (see above);
Income Portfolio manager since 1995.
</TABLE>
(1) BlackRock has its primary offices at 345 Park Avenue, New York, New York
10154.
(2) Morgan Grenfell has its primary offices at 20 Finsbury Circus, London ECZM,
1NB England.
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1835
Market Street, Philadelphia, Pennsylvania 19103. PAMG is an
indirect wholly-owned subsidiary of PNC Bank Corp., a multi-
bank holding company. Morgan
Grenfell is an indirect wholly-owned subsidiary of Deutsche
Bank, A.G., a German financial services conglomerate.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-advisers are entitled to fees, com-
puted daily on a Portfolio-by-Portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG
and the sub-advisers intend to waive a portion of their fees
during the current fiscal year. All sub-advisory fees are paid
by PAMG, and do not represent an extra charge to the Portfo-
lios.
28
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)
<TABLE>
<CAPTION>
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL
BOND PORTFOLIO INTERNATIONAL BOND PORTFOLIO
------------------------- ---------------------------------
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE ADVISORY FEE FEE
- ----------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
first $1 billion .50% .35% .55% .40%
$1 billion--$2 billion .45 .30 .50 .35
$2 billion--$3 billion .425 .275 .475 .325
greater than $3 billion .40 .25 .45 .30
</TABLE>
For their last fiscal years, the Portfolios paid investment ad-
visory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Short Government Bond Portfolio, .30%; Intermediate Govern-
ment Bond Portfolio, .20%; Core Bond Portfolio, .35%; Government
Income Portfolio, 0%; International Bond Portfolio, .80%; Tax-
Free Income Portfolio, 0%; Pennsylvania Tax-Free Income Portfo-
lio, .27%; and New Jersey Tax-Free Income Portfolio, .60%.
Brokerage transactions for the Portfolios may be directed
through registered broker/dealers who have entered into dealer
agreements with Compass Capital's distributor, subject to the
requirements of best execution.
ADMINISTRATORSCompass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and Com-
pass Distributors, Inc. ("CDI") (the "Administrators") serve as
the Fund's co-administrators. CCG and PFPC are indirect wholly-
owned subsidiaries of PNC Bank Corp. CDI is a wholly-owned sub-
sidiary of Provident Distributors, Inc. ("PDI"). A majority of
the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant
Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .20% of the first $500
million of each Portfolio's average daily net assets, .18% of
the next $500 million of each Portfolio's average daily net as-
sets, .16% of the next $1 billion of each Portfolio's average
daily net assets and .15% of each Portfolio's average daily net
assets in excess of $2 billion. From
29
<PAGE>
time to time the Administrators may waive some or all of their
administration fees from a Portfolio.
For information about the operating expenses the Portfolios
expect to pay for the current fiscal year, see "What Are the
Expenses of the Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves
AGENT, as their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
DISTRIBUTION
AND SERVICE
PLAN
Under the Fund's Distribution and Service Plan (the "Plan"),
Investor C Shares of the Portfolios bear the expense of pay-
ments ("distribution fees") made to CDI, as the Fund's dis-
tributor (the "Distributor"), or affiliates of PNC Bank, Na-
tional Association ("PNC Bank") for distribution and sales
support services. The distribution fees will be used primarily
to compensate the Distributor for distribution services and to
compensate the Distributor and PNC Bank affiliates for sales
support services provided in connection with the offering and
sale of Investor C Shares. The distribution fees may also be
used to reimburse the Distributor and PNC Bank affiliates for
related expenses, including payments to brokers, dealers, fi-
nancial institutions and industry professionals ("Service Or-
ganizations") for sales support services and related expenses.
Distribution fees payable under the Plan will not exceed .75%
(annualized) of the average daily net asset value of each
Portfolio's outstanding Investor C Shares. Payments under the
Plan are not tied directly to out-of-pocket expenses and
therefore may be used by the recipients as they choose (for
example, to defray their overhead expenses).
Under the Plan, the Fund intends to enter into service agree-
ments with Service Organizations (including PNC Bank and its
affiliates) with respect to Investor C Shares pursuant to
which Service Organizations will render certain support serv-
ices to their customers who are the beneficial owners of In-
vestor C Shares. In consideration for a shareholder servicing
fee of up to .25% (annualized) of the average daily net asset
value of Investor C Shares owned by their customers, Service
Organizations may provide one or more of the following servic-
es: responding to customer inquiries relating to the services
performed by the Service Organization and to customer inqui-
ries concerning their investments in Investor C Shares; pro-
viding information periodically to customers showing their po-
sitions in Investor C Shares; and other similar shareholder
liaison services. In consideration for a separate shareholder
processing
30
<PAGE>
fee of up to .15% (annualized) of the average daily net asset
value of Investor C Shares owned by their customers, Service Or-
ganizations may provide one or more of these additional services
to such customers: processing purchase and redemption requests
from customers and placing orders with the Fund's transfer agent
or the Distributor; processing dividend payments from the Fund
on behalf of customers; providing sub-accounting with respect to
Investor C Shares beneficially owned by customers or the infor-
mation necessary for sub-accounting; and other similar services.
Service Organizations may charge their clients additional fees
for account services. Customers who are beneficial owners of In-
vestor C Shares should read this Prospectus in light of the
terms and fees governing their accounts with Service Organiza-
tions.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided by
Service Organizations under their service agreements will not be
prohibited under these laws. However, state securities laws may
differ from the interpretations of Federal law on this issue,
and banks and financial institutions may be required to register
as dealers pursuant to state law.
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, shareholder servicing and process-
ing fees, fees and expenses in registering and qualifying the
Portfolios and their shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and dis-
tributing prospectuses and statements of additional information
to existing shareholders, expenses relating to shareholder re-
ports, shareholder meetings and proxy solicitations, insurance
premiums, the expense of independent pricing services, and other
expenses which are not expressly assumed by PAMG or the Fund's
service providers under their agreements with the Fund. Any gen-
eral expenses of the Fund that do not belong to a particular in-
vestment portfolio will be allocated among all investment port-
folios by or under the direction of the Board of Trustees in a
manner the Board determines to be fair and equitable.
31
<PAGE>
What Pricing Options Are Available To Investors?
- --------------------------------------------------------------------------------
The Bond Portfolios of Compass Capital Funds offer different
pricing options to investors in the form of different share
classes. The Investor C Share pricing option is described be-
low:
C SHARES (LEVEL LOAD)
Contingent deferred sales charge (CDSC) of 1.00% if shares
are redeemed within 18 months of purchase
Investor C Shares of all Portfolios:
<TABLE>
<S> <C>
Maximum Front-End Sales Charge 0.00%
12b-1 Fee 0.75%
CDSC (Redemption Charge) 1.00%
(If redeemed within 18
months of purchase)
</TABLE>
The Fund also offers two additional pricing options for shares
of the Portfolios--Investor A Shares (which are sold with a
front-end load) and Investor B Shares (which are subject to a
back-end load if redeemed within six years of purchase). C
Shares may make sense for shorter term (relative to both B
Shares and A Shares) investors who prefer to pay for profes-
sional investment advice on an ongoing basis (asset-based
sales charge) rather than with a traditional, one-time front-
end sales charge. Such investors may plan to make substantial
redemptions within 6 years of purchase. For more information
on A Shares and B Shares of the Portfolios, call (800) 441-
7762.
Investors wishing to purchase or redeem shares of the Portfo-
lios may do so either by mailing the investment application
attached to this Prospectus along with a check or by wiring
money as specified below.
32
<PAGE>
How Are Shares Purchased?
- --------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor C Shares through
a broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-advisers, Distributor or transfer agent or em-
ployees of their affiliates is $100.
PURCHASES THROUGH BROKERS. Shares of the Portfolios may be purchased through
brokers which have entered into dealer agreements with the Distributor. Pur-
chase orders received by a broker and transmitted to the transfer agent before
the close of regular trading on the New York Stock Exchange (currently 4:00
p.m. Eastern time) on a Business Day will be effected at the net asset value
determined that day, plus any applicable sales charge. Payment for an order may
be made by the broker in Federal funds or other funds immediately available to
the Portfolios' custodian no later than 4:00 p.m. (Eastern time) on the third
Business Day following receipt of the purchase order.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described above,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor C
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial pur-
chase amount payable to Compass Capital Funds. An Account Application Form may
be obtained by calling (800) 441-7762. The name of the Portfolio with respect
to which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, specify
the class of Investor Shares, and include the name of the account registration
and the shareholder account number. Before wiring any funds, an investor must
call PFPC at (800) 441-7762 in order to confirm the wire instructions. Purchase
orders which are received by PFPC, together with payment, before the close of
regular trading hours on the New York Stock Exchange (currently 4:00 p.m. East-
ern time) on any Business Day (as defined below) are priced at the applicable
net asset value next determined on that day.
33
<PAGE>
OTHER PURCHASE INFORMATION. Shares of each Portfolio are sold on a continuous
basis by CDI as the Distributor. CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Purchases may be
effected on weekdays on which both the New York Stock Exchange and the Federal
Reserve Bank of Philadelphia are open for business (a "Business Day"). Payment
for orders which are not received or accepted will be returned after prompt in-
quiry. The issuance of shares is recorded on the books of the Fund. No certifi-
cates will be issued for shares. Payments for shares of a Portfolio may, in the
discretion of the Fund's investment adviser, be made in the form of securities
that are permissible investments for that Portfolio. Compass Capital reserves
the right to reject any purchase order or to waive the minimum initial invest-
ment requirement.
34
<PAGE>
How Are Shares Redeemed?
- --------------------------------------------------------------------------------
REDEMPTION. Shareholders may redeem their shares for cash at any time. A writ-
ten redemption request in proper form must be sent directly to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. Except for the
contingent deferred sales charge that may be charged with respect to Investor C
Shares, there is no charge for a redemption. Shareholders may also place re-
demption requests through a broker or other institution, which may charge a fee
for this service.
WHEN REDEEMING SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD INDICATE THAT THEY
ARE REDEEMING INVESTOR C SHARES. If a redeeming shareholder owns both Investor
A Shares and Investor B or Investor C Shares in the same Portfolio, the
Investor A Shares will be redeemed first unless the shareholder indicates
otherwise.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Additional documentary evidence of authority is re-
quired by PFPC in the event redemption is requested by a corporation, partner-
ship, trust, fiduciary, executor or administrator.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by Federal wire transfer to a single previously desig-
nated bank account. Once authorization is on file, PFPC will honor requests by
any person by telephone at (800) 441-7762 (in Delaware call collect (302) 791-
1194) or other means. The minimum amount that may be sent by check is $500,
while the minimum amount that may be wired is $10,000. The Fund reserves the
right to change these minimums or to terminate these redemption privileges. If
the proceeds of a redemption would exceed $25,000, the redemption request must
be in writing and will be subject to the signature guarantee requirement de-
scribed above. During periods of substantial economic or market change, tele-
phone redemptions may be difficult to complete. Redemption requests may also be
mailed to PFPC at P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single designated bank account to re-
ceive wire redemption proceeds, it is necessary to send a written re-
35
<PAGE>
quest (with a guaranteed signature as described above) to Compass Capital Funds
c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so. The Fund, the Administrators and the Distributor will em-
ploy reasonable procedures to confirm that instructions communicated by tele-
phone are genuine. The Fund, the Administrators and the Distributor will not be
liable for any loss, liability, cost or expense for acting upon telephone in-
structions reasonably believed to be genuine in accordance with such proce-
dures.
ACCOUNTS WITH LOW BALANCES. The Fund reserves the right to redeem a sharehold-
er's account in any Portfolio at any time the net asset value of the account in
such Portfolio falls below the minimum initial investment requirement amount as
the result of a redemption or an exchange request. A shareholder will be noti-
fied in writing that the value of the shareholder's account in a Portfolio is
less than the required amount and will be allowed 30 days to make additional
investments before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by the Compass Capital Funds c/o PFPC, P.O. Box 8907,
Wilmington, Delaware 19899-8907. Proceeds from the redemption of Investor C
Shares will be reduced by the amount of any applicable contingent deferred
sales charge. Unless another payment option is used as described above, payment
for redeemed shares is normally made by check mailed within seven days after
acceptance by PFPC of the request and any other necessary documents in proper
order. Payment may, however, be postponed or the right of redemption suspended
as provided by the rules of the SEC. If the shares to be redeemed have been re-
cently purchased by check, the Fund's transfer agent may delay the payment of
redemption proceeds, which may be a period of up to 15 days after the purchase
date, pending a determination that the check has cleared.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
36
<PAGE>
What Are The Shareholder Features Of The Fund?
- --------------------------------------------------------------------------------
COMPASS CAPITAL FUNDS offers shareholders many special features which enable an
investor to have greater investment flexibility as well as greater access to
information about the Fund throughout the investment period.
Additional information on each of these features is available from PFPC by
calling (800) 441-7762 (in Delaware call collect (302) 791-1194).
EXCHANGE PRIVILEGE. Investor C Shares of each Portfolio may be exchanged for
Investor C Shares of other portfolios of the Fund which offer that class of
shares, based on their respective net asset values.
The exchange of Investor C Shares will not be subject to a CDSC, which will
continue to be measured from the date of the original purchase and will not be
affected by exchanges.
A shareholder wishing to make an exchange may do so by sending a written re-
quest to PFPC at the address given above. Shareholders are automatically pro-
vided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege. To add
this feature to an existing account that previously did not provide for this
option, a Telephone Exchange Authorization Form must be filed with PFPC. This
form is available from PFPC. Once this election has been made, the shareholder
may simply contact PFPC by telephone at (800) 441-7762 (in Delaware call col-
lect (302) 791-1194) to request the exchange. During periods of substantial
economic or market change, telephone exchanges may be difficult to complete and
shareholders may have to submit exchange requests to PFPC in writing.
If the exchanging shareholder does not currently own shares of the investment
portfolio whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and broker of
record as the account from which shares are exchanged, unless otherwise speci-
fied in writing by the shareholder with all signatures guaranteed by an eligi-
ble guarantor institution as defined above. In order to participate in the Au-
tomatic Investment Program or establish a Systematic Withdrawal Plan for the
new account, however, an exchanging shareholder must file a specific written
request.
Any share exchange must satisfy the requirements relating to the minimum ini-
tial investment requirement, and must be legally available for sale in the
state of the investor's residence. For Federal income tax purposes, a share ex-
change is a taxable event and, accordingly, a capital gain or loss may be real-
ized. Before making an exchange request, shareholders should consult a tax or
other financial adviser and should consider the investment objective, policies
and restrictions of the investment portfolio into which the shareholder is mak-
ing an exchange, as set forth in the applicable Prospectus. Brokers may charge
a fee for handling exchanges.
37
<PAGE>
The Fund reserves the right to modify or terminate the exchange privilege at
any time. Notice will be given to shareholders of any material modification or
termination except where notice is not required.
The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine in accordance with such procedures. Exchange orders may also be
sent by mail to the shareholder's broker or to PFPC at P.O. Box 8907, Wilming-
ton, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts. Upon commencement of the SWP, the account must have a cur-
rent value of $10,000 or more in a Portfolio. Shareholders may elect to receive
automatic cash payments of $100 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC. No con-
tingent deferred sales charge will be assessed on redemptions of Investor C
Shares made through the SWP that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
SWP redemptions of Investor C Shares will not be subject to the CDSC if they do
not exceed 1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. SWP redemptions of Investor C Shares in excess of this limit
are still subject to the applicable CDSC.
38
<PAGE>
What Sales Charge And Exemptions Apply To Investor C Shares?
- --------------------------------------------------------------------------------
PURCHASES OF INVESTOR C SHARES. Investor C Shares are subject to a deferred
sales charge of 1.00% based on the lesser of the net asset value of the In-
vestor C Shares on the purchase date or redemption date if redeemed within
eighteen months after purchase. Brokers will receive commissions from the Dis-
tributor in connection with sales of Investor C Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in connec-
tion with sales of Investor A Shares and Investor B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The contingent deferred
sales charge on Investor C Shares is not charged in connection with: (1) ex-
changes described in "What Are the Shareholder Features of the Fund?--Exchange
Privilege;" (2) redemptions made in connection with minimum required distribu-
tions from IRA, 403(b)(7) and Qualified Plan accounts due to the shareholder
reaching age 70 1/2; (3) redemptions in connection with a shareholder's death
or disability (as defined in the Internal Revenue Code) subsequent to the pur-
chase of Investor C Shares; (4) involuntary redemptions of Investor C Shares in
accounts with low balances as described in "How Are Shares Redeemed?"; and (5)
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth above under "What Are the Shareholder Features of the
Fund?--Systematic Withdrawal Plan." In addition, no contingent deferred sales
charge is charged on Investor C Shares acquired through the reinvestment of
dividends or distributions.
When an investor redeems Investor C Shares, the redemption order is processed
to minimize the amount of the contingent deferred sales charge that will be
charged. Investor C Shares are redeemed first from those shares that are not
subject to the deferred sales load (i.e., shares that were acquired through re-
investment of dividends or distributions) and after that from the shares that
have been held the longest.
39
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
The net asset value is calculated separately for Investor C Shares of each
Portfolio as of the close of regular trading hours on the NYSE (currently 4:00
p.m. Eastern Time) on each Business Day by dividing the value of all securities
and other assets owned by a Portfolio that are allocated to its Investor C
Shares, less the liabilities charged to its Investor C Shares, by the number of
its Investor C Shares that are outstanding.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees. The amortized cost method of valuation will also be used with re-
spect to debt obligations with sixty days or less remaining to maturity unless
a Portfolio's sub-adviser under the supervision of the Board of Trustees deter-
mines such method does not represent fair value.
40
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. All distributions are
reinvested at net asset value in the form of additional full and fractional
shares of Investor C Shares of the relevant Portfolio unless a shareholder
elects otherwise. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC. The net investment income of the Tax-Free Income, Interme-
diate Government Bond and International Bond Portfolios is declared monthly as
a dividend to investors who are shareholders of such Portfolio at the close of
business on the day of declaration. The net investment income of the Pennsylva-
nia Tax-Free Income, New Jersey Tax-Free Income, Government Income, Core Bond
and Short Government Bond Portfolios is declared daily as a dividend to invest-
ors who are shareholders of such Portfolio at, and whose payment for share pur-
chases are available to the particular Portfolio in Federal funds by, the close
of business on the day of declaration. All dividends are paid within ten days
after the end of each month and, in the case of the Pennsylvania Tax-Free In-
come, New Jersey Tax-Free Income, Government Income, Core Bond and Short Gov-
ernment Bond Portfolios, within seven days after redemption of all of a share-
holder's shares in a Portfolio. Net realized capital gains (including net
short-term capital gains), if any, will be distributed by each Portfolio at
least annually.
41
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
"exempt interest dividends" or are treated as a return of capital), regardless
of whether the distributions are paid in cash or reinvested in additional
Shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Tax-Free Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns, and
in two circumstances such amounts, while exempt from regular Federal income
tax, are taxable to persons subject to alternative minimum and environmental
taxes. First, "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and non-corporate taxpayers in determining alternative
minimum and environmental tax liability. Second, "exempt interest dividends"
must be taken into account by corporate taxpayers in determining certain ad-
justments for alternative minimum and environmental tax purposes. Shareholders
who are recipients of Social Security Act or Railroad Retirement Act benefits
should note that "exempt interest dividends" will be taken into account in de-
termining the taxability of their benefit payments.
Each Tax-Free Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions declared from net investment income during that year and may
differ significantly from the actual percentages for any particular day.
Compass Capital will send written notices to shareholders annually regarding
the tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on
a specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during the
following January.
An investor considering buying shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
42
<PAGE>
A taxable gain or loss may be realized by a shareholder upon the redemption or
transfer of shares depending upon their tax basis and their price at the time
of redemption, or transfer. Generally, shareholders may include sales charges
paid on the purchase of Shares in their tax basis for the purposes of determin-
ing gain or loss on a redemption, transfer or exchange of such Shares. However,
if a shareholder exchanges the Shares for Shares of another Portfolio within 90
days of purchase and is able to reduce the sales charges applicable to the new
Shares (by virtue of the Fund's exchange privilege), the amount equal to such
reduction may not be included in the tax basis of the shareholder's exchanged
Shares for the purpose of determining gain or loss but may be included (subject
to the same limitation) in the tax basis of the new Shares.
Any loss upon the sale or exchange of shares held for six months or less will
be disallowed for Federal income tax purposes to the extent of any exempt in-
terest dividends received by the shareholder. For the Ohio Tax-Free Income
Portfolio, the loss will be disallowed for Ohio income tax purposes to the same
extent, even though, for Ohio income tax purposes, some portion of such divi-
dends actually may have been subject to Ohio income tax.
It is expected that dividends and certain interest income earned by the Inter-
national Bond Portfolio from foreign securities will be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of the taxable year in question consists
of stock or securities of foreign corporations, the Portfolio may elect, for
U.S. Federal income tax purposes, to treat certain foreign taxes paid by it,
including generally any withholding taxes and other foreign income taxes, as
paid by its shareholders. The Portfolio intends to make this election. As a re-
sult, the amount of such foreign taxes paid by the Portfolio will be included
in its shareholders' income pro rata (in addition to taxable distributions ac-
tually received by them), and each shareholder generally will be entitled ei-
ther (a) to credit a proportionate amount of such taxes against U.S. Federal
income tax liabilities, or (b) if a shareholder itemizes deductions, to deduct
such proportionate amounts from U.S. income.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of the dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In addi-
tion, future legislative or administrative changes or court decisions may mate-
rially affect the tax consequences of investing in a Portfolio. Shareholders
who are non-resident alien individuals, foreign trusts or estates, foreign cor-
porations or foreign partnerships may be subject to different U.S. Federal in-
come tax treatment.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder attributable
to interest realized by the Pennsylvania Tax-Free Income Portfolio from Penn-
sylvania Municipal Obligations or attributable to insurance proceeds on account
of such interest, is not taxable to individuals, estates or trusts under the
Personal Income Tax (in the case of insurance proceeds, to
43
<PAGE>
the extent they are exempt for Federal Income Tax purposes); to corporations
under the Corporate Net Income Tax (in the case of insurance proceeds, to the
extent they are exempt for Federal Income Tax purposes); nor to individuals un-
der the Philadelphia School District Net Investment Income Tax ("School Dis-
trict Tax").
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Pennsylvania Tax-Free Income Portfolio of Pennsylvania Munici-
pal Obligations is taxable under the Personal Income Tax, the Corporate Net In-
come Tax, and, unless these assets were held by the Pennsylvania Tax-Free In-
come Portfolio for more than six months, the School District Tax.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Obligations held by the Pennsylvania Tax-Free Income
Portfolio, such gain may be subject to the Personal Income Tax and Corporate
Net Income Tax. Such gain may also be subject to the School District Tax, ex-
cept that gain realized with respect to a share held for more than six months
is not subject to the School District Tax.
This discussion does not address the extent, if any, to which shares, or inter-
est and gain thereon, is subject to, or included in the measure of, the special
taxes imposed by the Commonwealth of Pennsylvania on banks and other financial
institutions or with respect to any privilege, excise, franchise or other tax
imposed on business entities not discussed above (including the Corporate Capi-
tal Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Tax-Free Income Portfolio are not subject to
the Pennsylvania County Personal Property Tax to the extent that the Portfolio
is comprised of Pennsylvania Municipal Obligations and Federal obligations (if
the interest on such obligations is exempt from state and local taxation under
the laws of the United States).
NEW JERSEY TAX CONSIDERATIONS. It is anticipated that substantially all divi-
dends paid by the New Jersey Tax-Free Income Portfolio will not be subject to
New Jersey personal income tax. In accordance with the provisions of New Jersey
law as currently in effect, distributions paid by a "qualified investment fund"
will not be subject to the New Jersey personal income tax to the extent that
the distributions are attributable to income received as interest or gain from
New Jersey State-Specific Obligations, or as interest or gain from direct U.S.
Government obligations. Distributions by a qualified investment fund that are
attributable to most other sources will be subject to the New Jersey personal
income tax. If the New Jersey Tax-Free Income Portfolio qualifies as a quali-
fied investment fund under New Jersey law, any gain on the redemption or sale
of the Portfolio's shares will not be subject to the New Jersey personal income
tax. To be classified as a qualified investment fund, at least 80% of the Port-
folio's investments must consist of New Jersey State-Specific Obligations or
direct U.S. Government obligations; it must have no investments other than in-
terest-bearing obligations, obligations issued at a discount, and cash and cash
items (including receivables); and it must satisfy certain report-
44
<PAGE>
ing obligations and provide certain information to its shareholders. Shares of
the Portfolio are not subject to property taxation by New Jersey or its politi-
cal subdivisions.
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
45
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC Fund to Com-
pass Capital Funds. The Declaration of Trust authorizes the Board of Trustees
to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio, other than the Government Income Portfolio, offers five separate
classes of shares--Institutional Shares, Service Shares, Investor A Shares, In-
vestor B Shares and Investor C Shares. The Government Income Portfolio offers
Investor A Shares, Investor B Shares and Investor C Shares. This prospectus re-
lates only to Investor C Shares of the eight Portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The Fund offers various services and privileges in
connection with its Investor Shares that are not generally offered in connec-
tion with its Institutional and Service Shares, including an automatic invest-
ment plan, automatic withdrawal plan and checkwriting. For further information
regarding the Fund's Institutional and Service Share classes, contact PFPC at
(800) 441-7764.
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, and may be deemed a controlling person of the Fund under
the 1940 Act. PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank holding
company.
46
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for Investor C Shares of the Portfolios may be quoted
in advertisements and communications to shareholders. Total return will be cal-
culated on an average annual total return basis for various periods. Average
annual total return reflects the average annual percentage change in value of
an investment in Investor C Shares of a Portfolio over the measuring period.
Total return may also be calculated on an aggregate total return basis. Aggre-
gate total return reflects the total percentage change in value over the mea-
suring period. Both methods of calculating total return assume that dividend
and capital gain distributions made by a Portfolio with respect to Investor C
Shares are reinvested in Investor C Shares, and also reflect the maximum sales
load charged by the Portfolio with respect to Investor C Shares. When, however,
a Portfolio compares the total return of Investor C Shares to that of other
funds or relevant indices, total return may also be computed without reflecting
the sales load.
The yield of Investor C Shares is computed by dividing the Portfolio's net in-
come per share allocated to Investor C Shares during a 30-day (or one month)
period by the net asset value per share on the last day of the period and
annualizing the result on a semi-annual basis. Each Tax-Free Portfolio's "tax-
equivalent yield" may also be quoted, which shows the level of taxable yield
needed to produce an after-tax equivalent to a Portfolio's tax-free yield. This
is done by increasing the Portfolio's yield (calculated above) by the amount
necessary to reflect the payment of Federal and/or state income tax at a stated
tax rate.
The performance of a Portfolio's Investor C Shares may be compared to the per-
formance of other mutual funds with similar investment objectives and to rele-
vant indices, as well as to ratings or rankings prepared by independent serv-
ices or other financial or industry publications that monitor the performance
of mutual funds. For example, the performance of a Portfolio's Investor C
Shares may be compared to data prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc. and Weisenberger Investment Company Service,
and with the performance of the Lehman GMNA Index, the T-Bill Index and the
"stocks, bonds and inflation index" published annually by Ibbotson Associates
and the Lehman Government Corporate Bond Index, as well as the benchmarks at-
tached to this Prospectus. Performance information may also include evaluations
of the Portfolios and their Investor C Shares published by nationally recog-
nized ranking services, and information as reported in financial publications
such as Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Investor C Shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of a dividend in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an in-
47
<PAGE>
vestment in a Portfolio will fluctuate so that an investor's Investor C Shares,
when redeemed, may be worth more or less than their original cost. Since per-
formance will fluctuate, performance data for Investor C Shares of a Portfolio
cannot necessarily be used to compare an investment in such shares with bank
deposits, savings accounts and similar investment alternatives which often pro-
vide an agreed or guaranteed fixed yield for a stated period of time. Perfor-
mance is generally a function of the kind and quality of the instruments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Any fees charged by brokers or other institutions directly to their customer
accounts in connection with investments in Investor C Shares will not be in-
cluded in the Portfolio performance calculations.
48
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. COMPASS CAPITAL FUNDS
has an investor information line that can provide such access.
In addition to account information, COMPASS CAPITAL FUNDS has other sources of
information regarding each Portfolio and its portfolio holdings, strategy and
current dividend and performance levels.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions, dial (800) FUTURE4.
For Information Related to Share Purchase and Redemptions call your investment
adviser or Compass Capital Funds at (800) 441-7762.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7762.
Information is also available on the Internet through the World Wide Web at
http://www.compassfunds.com.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
49
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Short Government Bond Merrill 1-3 Year Treasuries with maturities ranging from 1
Treasury Index to 2.99 years
Intermediate Government Lehman Brothers Treasury and agency issues in the Lehman
Bond Intermediate Government Aggregate, excluding maturities above 9.99
years
Core Bond Lehman Aggregate The Lehman Aggregate contains issues that
meet the following criteria:
. At least $100 million par amount
outstanding for entry and exit
. Rated investment grade (at least Baa-3)
by Moody's or S&P (if not rated by
Moody's)
. At least one year at maturity
. Coupon must have a fixed rate
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of June 1995, the composition of the
Lehman Brothers Aggregate Index is:
54% allocation to Treasury and government
securities
28% allocation to mortgage-backed
securities
18% allocation to corporate and asset-
backed securities
Government Income Lehman Mortgage/10 Year 50% allocation to the mortgage component of
Treasury the Lehman Aggregate Index and a 50%
allocation to the Merrill Lynch 10 Year
Index
International Bond Salomon Non-U.S. Hedged A market-capitalization weighted benchmark
World Government Bond that tracks the performance of the 13
Index Government bond markets of Australia,
Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands,
Spain, Sweden and the United Kingdom. The
currency-hedged return is computed by using
a rolling one-month forward exchange
contract as a hedging instrument.
Tax-Free Income Lehman Municipal Bond All of the bonds in the following Municipal
Index Indices possess the following
characteristics:
. A minimum credit rating of Baa-3
. Outstanding par value of at least $3
million
. Must be issued as part of a deal of at
least $50 million
. Individual bonds must have been issued
within the last 5 years
. Remaining maturity of not less than one
year
Excludes bonds subject to the alternative
minimum tax (AMT), taxable municipal bonds,
and floating-rate or zero coupon municipal
bonds
Pennsylvania Tax-Free Lehman Local GO Index local general obligation bonds
Income
New Jersey Tax-Free Lehman Local GO Index local general obligation bonds
Income
</TABLE>
50
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------
PROSPECTUS
SHORT GOVERNMENT BOND PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
CORE BOND PORTFOLIO
GOVERNMENT INCOME PORTFOLIO
INTERNATIONAL BOND PORTFOLIO
TAX-FREE INCOME PORTFOLIO
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
NEW JERSEY TAX-FREE INCOME PORTFOLIO
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ART]
THE BOND
PORTFOLIOS
INVESTOR C SHARES
January 16, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INSTITUTIONAL SHARES OF THE
VALUE EQUITY PORTFOLIO,
GROWTH EQUITY PORTFOLIO,
SMALL CAP VALUE EQUITY PORTFOLIO,
SMALL CAP GROWTH EQUITY PORTFOLIO,
INTERNATIONAL EQUITY PORTFOLIO,
INTERNATIONAL EMERGING MARKETS PORTFOLIO,
SELECT EQUITY PORTFOLIO,
INDEX EQUITY PORTFOLIO AND
BALANCED PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
PROSPECTUS
EQUITY
PORTFOLIOS
Institutional
Shares
COMPASS
-----------------------
[LOGO] CAPITAL FUNDS
NOT Investments are not FDIC insured, are not deposits
FDIC or obligations of any bank, and involve risk
INSURED including possible loss of principal
<PAGE>
The Equity Portfolios Institutional Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital Funds(SM) ("Compass Capital" or the "Fund")
consists of twenty-eight investment portfolios. This Prospec-
tus describes the Institutional Shares of nine of those port-
folios (the "Portfolios"):
. Value Equity Portfolio
. Growth Equity Portfolio
. Small Cap Value Equity Portfolio
. Small Cap Growth Equity Portfolio
. International Equity Portfolio
. International Emerging Markets Portfolio
. Select Equity Portfolio
. Index Equity Portfolio
. Balanced Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7764. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OBLI-
GATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE
PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
Currently, the Index Equity Portfolio invests its assets di-
rectly in common stocks of companies included in the Standard
& Poor's 500 (R) Composite Stock Price Index. The Portfolio's
shareholders have, however, approved a change, which the Port-
folio expects to implement during the first half of 1996,
whereby the Index Equity Portfolio will seek to achieve its
investment objective by investing all of its investable assets
in a series of shares (the "Index Master Portfolio") of The
DFA Investment Trust Company, another open-end management in-
vestment company rather than through a portfolio of various
securities. The investment experience of the Index Equity
Portfolio will correspond directly with the investment experi-
ence of the Index Master Portfolio. The Index Master Portfolio
has substantially the same investment objective, policies and
limitations as the Index Equity Portfolio and, except as spe-
cifically noted, is also referred to as a "Portfolio" in this
Prospectus. For additional information, see "How Is The Fund
Organized?"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Equity Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of nine
diversified investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity sec-
tor. Six of these Portfolios invest solely in U.S. stocks, two
Portfolios invest in non-U.S. international stocks and one Port-
folio invests in a combination of U.S. stocks and bonds. A de-
tailed description of each Portfolio begins on page 18 and a
summary of each Performance Benchmark is contained in the Appen-
dix.
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PERFORMANCE BENCHMARK LIPPER PEER GROUP
<S> <C> <C>
Value Equity Russell 1000 Value Growth and Income
Index
Growth Equity Russell 1000 Growth Growth
Index
Small Cap Value Equity Russell 2000 Index Small Company Growth
Small Cap Growth Equity Russell 2000 Growth Small Company Growth
Index
International Equity EAFE Index International
International Emerging MSCI Emerging Markets
Markets Emerging Markets Free
Index
Select Equity S&P 500 Index Growth and Income
Index Equity S&P 500 Index S&P 500 Index
Balanced S&P 500 Index and Balanced
Salomon Broad
Investment Grade
Index
</TABLE>
PNC Asset Management Group, Inc. ("PAMG") serves as the invest-
ment adviser to each portfolio except the Index Equity Portfo-
lio, which is currently advised by PNC Institutional Management
Corporation ("PIMC"). Provident Capital Management, Inc.
("PCM"), PNC Equity Advisers Company ("PEAC") and BlackRock Fi-
nancial Management, Inc. ("BlackRock") serve as sub-advisers to
different Portfolios as described in this Prospectus. Dimen-
sional Fund Advisors, Inc. ("DFA") serves as investment adviser
to the Index Master Portfolio.
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
EQUITY different directions in equity investing. You may wish to use
PORTFOLIOS the table of contents on page 5 to find descriptions of the
Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. The Portfolios will hold equity se-
EQUITY curities, and some or all of the Portfolios may acquire war-
INVESTING rants, foreign securities and illiquid securities; enter into
repurchase and reverse repurchase agreements; lend portfolio
securities to third parties; and enter into futures contracts
and options and forward currency exchange contracts. These and
the other investment practices set forth below, and their as-
sociated risks, deserve careful consideration. Certain risks
associated with international investments are heightened be-
cause of currency fluctuations and investments in emerging
markets. See "What Additional Investment Policies And Risks
Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?"
CAPITAL FUNDS
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 8
What Are The Portfolios?..................................... 18
What Are The Differences Among The Portfolios?............... 19
What Additional Investment Policies And Risks Apply?......... 21
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 31
Who Manages The Fund?........................................ 32
How Are Shares Purchased And Redeemed?....................... 39
How Is Net Asset Value Calculated?........................... 41
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 42
How Are Fund Distributions Taxed?............................ 43
How Is The Fund Organized?................................... 45
How Is Performance Calculated?............................... 48
How Can I Get More Information?.............................. 50
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Institutional Shares of the Portfolios after fee waivers for the current fiscal
year ending September 30, 1996 as a percentage of average daily net assets. An
example based on the summary is also shown.
<TABLE>
<CAPTION>
SMALL SMALL INTER-
CAP CAP INTER- NATIONAL
VALUE GROWTH VALUE GROWTH NATIONAL EMERGING SELECT INDEX
EQUITY EQUITY EQUITY EQUITY EQUITY MARKETS EQUITY EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO+ PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory fees
(after fee
waivers)(/1/)(/2/) .50% .50% .53% .53% .70% 1.15% .50% .025% .50%
Operating
Expenses of the
Index Master
Portfolio N/A N/A N/A N/A N/A N/A N/A .038 N/A
Other operating
expenses .25 .25 .33 .33 .36 .63 .25 .117 .30
---- ---- ---- ---- ----- ----- ---- ----- ----
Administration
fees (after fee
waivers)(/1/) .17 .15 .22 .22 .16 .18 .15 .045 .17
Other expenses .08 .10 .11 .11 .20 .45 .10 .072 .13
---- ---- ---- ---- ---- ---- ---- ----- ----
Total Portfolio
operating
expenses (after
fee
waivers)(/1/) .75% .75% .86% .86% 1.06% 1.78% .75% .18% .80%
==== ==== ==== ==== ===== ===== ==== ===== ====
</TABLE>
(1) Without waivers, advisory fees would be .75%, 1.25%, and .025%, respective-
ly, for the International Equity, International Emerging Markets and Index
Equity Portfolios and .55% for each of the other Portfolios and administra-
tion fees would be .23% for each Portfolio. PAMG and the Portfolios' admin-
istrators are under no obligation to waive or continue waiving their fees,
but have informed the Fund that they expect to waive fees as necessary to
maintain the Portfolios' total operating expenses during the remainder of
the current fiscal year at the levels set forth in the table. The informa-
tion in the table is based on the advisory fees, administration fees and
other expenses payable after fee waivers with respect to the particular
Portfolios for the fiscal year ended September 30, 1995, as restated to re-
flect current expenses and fee waivers. Without waivers, "Other operating
expenses" would be .31%, .33%, .34%, .34% .43%, .68%, .33%, .30% and .36%,
respectively, and "Total Portfolio operating expenses" would be .86%, .88%,
.89%, .89%, 1.18%, 1.93%, .88%, .37% and .91%, respectively.
(2) Advisory fees with respect to the Index Equity Portfolio represent advisory
fees of the Index Master Portfolio.
+ Includes the operating expenses of the Index Master Portfolio that are allo-
cable to the Index Equity Portfolio after the Portfolio's conversion as de-
scribed in the Prospectus. The total operating expenses of the Index Equity
Portfolio before and after its conversion are expected to be substantially
the same.
6
<PAGE>
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return, and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Value Equity $ 8 $24 $42 $ 93
Growth Equity 8 24 42 93
Small Cap Value Equity 9 27 48 106
Small Cap Growth Equity 9 27 48 106
International Equity 11 34 58 129
International Emerging Markets 18 56 96 209
Select Equity 8 24 42 93
Index Equity 2 6 10 23
Balanced 8 26 44 99
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the costs and expenses (including the Index Equity Portfolio's pro rata
share of the Index Master Portfolio's advisory fees and operating expenses) an
investor will bear either directly or indirectly. They do not reflect any
charges that may be imposed by affiliates of the Portfolios' investment adviser
or other institutions directly on their customer accounts in connection with
investments in the Portfolios.
The Board of Trustees of the Fund believes that the aggregate per share ex-
penses of the Index Equity Portfolio and the Index Master Portfolio in which
the Index Equity Portfolio's assets are invested will be approximately equal to
the expenses which the Index Equity Portfolio would incur if the Fund retained
the services of an investment adviser for the Index Equity Portfolio and the
assets of the Index Equity Portfolio were invested directly in the type of se-
curities held by the Index Master Portfolio.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
7
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and has been audited by the
Portfolios' independent accountant. This financial information
should be read together with those financial statements. Fur-
ther information about the performance of the Portfolios is
available in the Fund's annual shareholder reports. Both the
Statement of Additional Information and the annual shareholder
reports may be obtained from the Fund free of charge by call-
ing (800) 441-7764. Information concerning the historical in-
vestment results of Institutional Shares of the Index Equity
Portfolio is intended to give investors a longer term perspec-
tive of its financial history and reflects the financial expe-
rience of that Portfolio prior to its conversion (which is ex-
pected to occur in the first half of 1996) into a feeder port-
folio of the Index Master Portfolio.
8
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 4/20/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 11.62 $ 11.68 $ 9.78 $ 10.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.34 0.27 0.22 0.12
Net gain (loss) on investments (both
realized and unrealized) 2.54 0.16 1.91 (0.24)
-------- -------- -------- --------
Total from investment operations 2.88 0.43 2.13 (.12)
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.33) (0.27) (0.23) (0.10)
Distributions from net realized
capital gains (0.25) (0.22) - - - -
-------- -------- -------- --------
Total distributions (0.58) (0.49) (0.23) (0.10)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 13.92 $ 11.62 $ 11.68 $ 9.78
======== ======== ======== ========
Total return 25.73 3.76% 21.92% 1.19%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $508,273 $577,996 $432,776 $322,806
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.67% 0.65% 0.80% 0.85%/2/
Before advisory/administration fee
waivers 0.81% 0.81% 0.83% 0.85%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.68% 2.44% 2.07% 2.62%/2/
Before advisory/administration fee
waivers 2.53% 2.28% 2.04% 2.62%/2/
PORTFOLIO TURNOVER RATE 12% 11% 11% 13%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
9
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.19 $ 11.58 $ 9.92 $ 10.28 $ 9.98 $ 10.00
-------- ------- -------- ------- ------- -------
Income from investment
operations
Net investment income 0.13 0.06 0.06 0.21 0.24 0.31
Net gain (loss) on
investments (both
realized and
unrealized) 2.88 (1.34) 2.07 0.30 1.51 (0.26)
-------- ------- -------- ------- ------- -------
Total from investment
operations 3.01 (1.28) 2.13 0.51 1.75 0.05
-------- ------- -------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.17) (0.01) (0.07) (0.37) (0.32) (0.07)
Distributions from
capital - - - - (0.01) - - - - - -
Distributions from net
realized capital gains - - (0.10) (0.39) (0.50) (1.13) - -
-------- ------- -------- ------- ------- -------
Total distributions (0.17) (0.11) (0.47) (0.87) (1.45) (0.07)
-------- ------- -------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 13.03 $ 10.19 $ 11.58 $ 9.92 $ 10.28 $ 9.98
======== ======= ======== ======= ======= =======
Total return 29.88% (11.14)% 22.18% 4.98% 19.47% 0.40%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $211,543 $97,834 $100,049 $58,372 $54,912 $39,790
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.67% 0.65% 0.81% 0.85% 0.85% 0.85%/2/
Before
advisory/administration
fee waivers 0.85% 0.89% 0.87% 0.86% 0.91% 0.88%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.20% 0.62% 0.50% 2.07% 2.59% 2.75%/2/
Before
advisory/administration
fee waivers 1.01% 0.38% 0.44% 2.06% 2.53% 2.72%/2/
PORTFOLIO TURNOVER RATE 55% 212% 175% 162% 211% 149%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
10
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 4/13/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.62 $ 13.08 $ 10.14 $ 10.00
-------- -------- -------- -------
Income from investment operations
Net investment income 0.06 0.04 0.04 0.02
Net gain (loss) on investments
(both realized and unrealized) 2.17 0.77 3.02 0.13
-------- -------- -------- -------
Total from investment operations 2.23 0.81 3.06 0.15
-------- -------- -------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.08) (0.02) (0.04) (0.01)
Distributions from net realized
capital gains (0.61) (0.25) (0.08) - -
-------- -------- -------- -------
Total distributions (0.69) (0.27) (0.12) (0.01)
-------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD $ 15.16 $ 13.62 $ 13.08 $ 10.14
======== ======== ======== =======
Total return 17.43% 6.28% 30.36% 1.50%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $168,334 $168,360 $128,805 $75,045
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.75% 0.73% 0.83% 0.85%/2/
Before advisory/administration fee
waivers 0.84% 0.85% 0.87% 0.89%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.44% 0.28% 0.31% 0.51%/2/
Before advisory/administration fee
waivers 0.35% 0.16% 0.27% 0.47%/2/
PORTFOLIO TURNOVER RATE 31% 18% 41% 17%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
11
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 9/14/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.16 $ 10.47 $ 10.00
-------- ------- -------
Income from investment operations
Net investment income 0.02 0.03 - -
Net gain (loss) on investments (both
realized and unrealized) 4.90 (0.33) 0.47
-------- ------- -------
Total from investment operations 4.92 (0.30) 0.47
-------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) (0.01) - -
Distributions from net realized capital
gains - - - - - -
-------- ------- -------
Total distributions (0.02) (0.01) - -
-------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 15.06 $ 10.16 $ 10.47
======== ======= =======
Total return 48.50% (2.89)% 4.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $145,915 $65,612 $11,310
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.75% 0.48% 0.73%/2/
Before advisory/administration fee waivers 0.88% 1.04% 1.42%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 0.22% 0.45% (0.11)%/2/
Before advisory/administration fee waivers 0.09% (0.10)% (0.80)%/2/
PORTFOLIO TURNOVER RATE 74% 89% 9%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 4/27/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.44 $ 12.48 $ 9.87 $ 10.00
-------- -------- -------- -------
Income from investment operations
Net investment income 0.17 0.15 0.11 0.11
Net realized gain (loss) on
investments 0.13 1.17 2.61 (0.17)
-------- -------- -------- -------
Total from investment operations 0.30 1.32 2.72 (0.06)
-------- -------- -------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.11) (0.11) (0.11) (0.07)
Distributions from net realized
capital gains (0.36) (0.25) - - - -
-------- -------- -------- -------
Total distributions (0.47) (0.36) (0.11) (0.07)
-------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.27 $ 13.44 $ 12.48 $ 9.87
======== ======== ======== =======
Total return 2.46% 10.71% 27.72% (0.61)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $312,588 $284,905 $131,052 $60,357
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.97% 0.95% 1.10% 1.20%/2/
Before advisory/administration fee
waivers 1.14% 1.14% 1.16% 1.21%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 1.42% 1.27% 1.17% 2.59%/2/
Before advisory/administration fee
waivers 1.24% 1.08% 1.11% 2.58%/2/
PORTFOLIO TURNOVER RATE 105% 37% 31% 15%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR 6/17/94/1/
ENDED THROUGH
9/30/95 9/30/94
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.56 $10.00
------- ------
Income from investment operations
Net investment income 0.08 0.03
Net gain (loss) on investments (both realized and
unrealized) (2.15) 0.53
------- ------
Total from investment operations 2.07 0.56
------- ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.10) - -
Distributions from Capital (0.01) - -
Distributions from net realized capital gains (0.19) - -
------- ------
Total distributions (0.30) - -
------- ------
NET ASSET VALUE AT END OF PERIOD $ 8.19 $10.56
======= ======
Total return (19.72)% 5.60%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $29,319 $2,511
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.78% 1.75%/2/
Before advisory/administration fee waivers 2.02% 2.73%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 1.90% 1.19%/2/
Before advisory/administration fee waivers 1.66% 0.21%/2/
PORTFOLIO TURNOVER RATE 75% 4%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SELECT EQUITY PORTFOLIO
(FORMERLY, THE CORE EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 9/13/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.92 $ 9.97 $ 10.00
-------- ------- -------
Income from investment operations
Net investment income 0.22 0.22 0.01
Net gain (loss) on investments (both realized
and unrealized) 2.08 (0.04) (0.04)
-------- ------- -------
Total from investment operations 2.30 0.18 (0.03)
-------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.22) (0.23) - -
Distributions from net realized capital gains (0.12) - - - -
-------- ------- -------
Total distributions (0.34) (0.23) - -
-------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 11.88 $ 9.92 $ 9.97
======== ======= =======
Total return 23.76% 1.79% (.30)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $238,813 $48,123 $69,268
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.67% 0.65% 0.65%/2/
Before advisory/administration fee waivers 0.85% 0.93% 0.87%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 2.35% 2.11% 2.17%/2/
Before advisory/administration fee waivers 2.17% 1.82% 1.95%/2/
PORTFOLIO TURNOVER RATE 51% 88% 2%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
15
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 4/20/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 10.93 $ 11.02 $ 10.06 $ 10.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.38 0.31 0.27 0.13
Net realized gain (loss) on
investments 2.73 0.03 0.97 0.03
-------- -------- -------- --------
Total from investment operations 3.11 0.34 1.24 0.16
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.34) (0.32) (0.28) (0.10)
Distributions from net realized
capital gains (0.12) (0.11) - - - -
-------- -------- -------- --------
Total distributions (0.46) (0.43) (0.28) (0.10)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 13.58 $ 10.93 $ 11.02 $ 10.06
======== ======== ======== ========
Total return 29.30% 3.07% 12.40% 1.62%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $109,433 $147,746 $186,163 $175,888
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.17% 0.15% 0.40% 0.45%/2/
Before advisory/administration fee
waivers 0.50% 0.52% 0.52% 0.64%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.92% 2.72% 2.46% 2.85%/2/
Before advisory/administration fee
waivers 2.59% 2.35% 2.34% 2.66%/2/
PORTFOLIO TURNOVER RATE 18% 17% 8% 23%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
16
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 5/1/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 11.98 $ 12.42 $ 11.53 $11.01
------- ------- ------- ------
Income from investment operations
Net investment income 0.46 0.38 0.30 0.17
Net realized gain (loss) on
investments 1.90 (0.39) 1.15 0.51
------- ------- ------- ------
Total from investment operations 2.36 (0.01) 1.45 0.68
------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.47) (0.37) (0.30) (0.16)
Distributions from net realized
capital gains (0.14) (0.06) (0.26) - -
------- ------- ------- ------
Total distributions (0.61) (0.43) (0.56) (0.16)
------- ------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 13.73 $ 11.98 $ 12.42 $11.53
======= ======= ======= ======
Total return 20.32% (0.11)% 12.86% 6.23%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $24,525 $17,610 $12,928 $2,501
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.67% 0.65% 0.80% 0.95%/2/
Before advisory/administration fee
waivers 0.88% 0.91% 0.98% 1.51%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.78% 3.16% 2.89% 3.28%/2/
Before advisory/administration fee
waivers 3.56% 2.89% 2.71% 2.72%/2/
PORTFOLIO TURNOVER RATE 154% 54% 32% 36%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
17
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 28 portfolios and
has been structured to include many different investment
styles so that investors may participate across multiple dis-
ciplines in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of nine
investment portfolios that provide investors with a broad
spectrum of investment alternatives within the equity sector.
Six of these Portfolios invest primarily in U.S. stocks, two
Portfolios invest in non-U.S. international stocks and one
Portfolio invests in a combination of U.S. stocks and bonds.
In certain investment cycles and over certain holding periods,
an equity fund that invests according to a "value" style or a
"growth" style may perform above or below the market. An in-
vestment program that combines these multiple disciplines al-
lows investors to select from among these various product op-
tions in the way that most closely fits the investor's goals
and sentiments.
INVESTMENT Each of the nine Compass Capital Equity Portfolios seeks to
OBJECTIVES provide long-term Capital Appreciation.
The Select Equity and Value Equity Portfolios pursue a second-
ary objective of Current Income from dividends.
The Balanced Portfolio pursues a secondary objective of Cur-
rent Income from an allocation to fixed income securities.
To meet its investment objective, each Portfolio employs a
specific investment style, as described below. No assurance
can be made that a Portfolio will achieve its investment ob-
jective.
18
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<S> <C> <C> <C>
Value Equity Pursues equity securities Stocks with price/earnings Russell 1000
(defined as common stocks or and price/book ratios at Value Index
securities convertible into time of purchase below
common stocks) which the average for benchmark and
sub-adviser believes are capitalization in excess of
undervalued. A security's $1 billion.
earnings trend and its
dividend growth rate will
also be factors considered
in security selection.
Growth Equity Pursues stocks with earnings Stocks with growth rate Russell 1000
growth potential. Emphasizes estimates in excess of Growth Index
stocks which the sub-adviser average for benchmark and
considers to have favorable capitalization in excess of
and above-average earnings $1 billion.
growth prospects.
Small Cap Value Equity Pursues small cap stocks Stocks with price/earnings Russell 2000
which the sub-adviser and price/book ratios at Index
believes are undervalued. A time of purchase below
security's earnings trend average for benchmark and
and its dividend growth rate capitalization below $1
will also be factors billion.
considered in security
selection.
Small Cap Growth Equity Pursues small cap stocks Stocks with growth rate Russell 2000
with earnings growth estimates in excess of Growth Index
potential. Emphasizes small average for benchmark and
cap stocks which the sub- capitalization below $1
adviser considers to have billion.
favorable and above-average
earnings growth prospects.
International Equity Pursues non-dollar Portfolio assets are EAFE Index
denominated stocks of primarily invested in
issuers in countries international stocks.
included in the Morgan
Stanley Capital Stocks with price/earnings
International Europe, ratios below average for a
Australia and the Far East security's home market or
Index ("EAFE"). Within this stock exchange.
universe, a value style of
investing is employed to Diversification across
select stocks which the sub- countries, industry groups
adviser believes are and companies with
undervalued. A security's investment at all times in
earnings trend and its at least three foreign
dividend growth rate will countries.
also be factors considered
in security selection. The
sub-adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign countries,
expected levels of
inflation, government
policies influencing
business conditions and the
outlook for currency
relationships.
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
19
<PAGE>
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<S> <C> <C> <C>
International Emerging Pursues non-dollar Portfolio assets are MSCI
Markets denominated stocks of primarily invested in stocks International
issuers in emerging country of emerging market issuers. Emerging
markets (generally any Markets Free
country considered to be Stocks with price/earnings Index
emerging or developing by ratios below average for a
the World Bank, the security's home market or
International Finance stock exchange.
Corporation or the United
Nations). Within this Ordinarily, stocks of
universe, a value style of issuers in at least three
investing is employed to emerging markets will be
select stocks which the sub- held.
adviser believes are
undervalued. The sub-adviser
will also consider
macroeconomic factors such
as the prospects for
relative economic growth
among certain foreign
countries, expected levels
of inflation, government
policies influencing
business conditions and the
outlook for currency
relationships.
Select Equity Combines value and growth Similar sector weightings as S&P 500 Index
style as sub-adviser benchmark, with over- or
identifies market under-weighting in
opportunity. particular securities within
those sectors.
Index Equity Invests all of its assets Holds substantially all the S&P 500 Index
directly or, after the 1996 stocks of the S&P 500 Index
conversion, indirectly in approximately the same
through the U.S. Large proportions as they are
Company Series (the "Index represented in the Index.
Master Portfolio") of The
DFA Investment Trust Company
in the stocks of the S&P 500
Index using a passive
investment style that
pursues the replication of
the S&P 500 Index return.
Balanced Holds a blend of equity and Maintains a minimum 25% S&P 500 and
fixed income securities to investment in fixed income Salomon Broad
deliver total return through senior securities. Investment
capital appreciation and Grade Index
current income.
Equity Portion: Equity Portion:
Combines value and growth Similar sector weightings as
style as sub-adviser benchmark, with over- or
identifies market under- weighting in
opportunity. particular securities within
those sectors.
Fixed Income Portion: Fixed Income Portion:
Combines sector rotation and Dollar-denominated
security selection across a investment grade bonds,
broad universe of fixed including U.S. Government,
income securities. mortgage-backed, asset-
backed and corporate debt
securities.
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
20
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
The discussion below applies to each of the Portfolios (and, with respect to
the Index Equity Portfolio, its investment in the Index Master Portfolio) un-
less otherwise noted.
EQUITY SECURITIES. During normal market conditions each Portfolio, except the
Balanced Portfolio, will normally invest at least 80% of the value of its total
assets in equity securities. The Portfolios will invest primarily in equity se-
curities of U.S. issuers, except the International Equity and International
Emerging Markets Portfolios, which will invest primarily in foreign issuers.
Equity securities include common stock and preferred stock (including convert-
ible preferred stock); bonds, notes and debentures convertible into common or
preferred stock; stock purchase warrants and rights; equity interests in trusts
and partnerships; and depositary receipts of companies.
ADRS, EDRS AND GDRS. Each Portfolio (other than the Index Master Portfolio) may
invest in both sponsored and unsponsored American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar global instruments. ADRs typically are issued by an American bank
or trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental De-
pository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic un-
derlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR
and GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information con-
cerning the issuer may not be as current as for sponsored ADRs, EDRs and GDRs,
and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if
such instruments were sponsored by the issuer. Investments in ADRs, EDRs and
GDRs present additional investment considerations as described below under "In-
ternational Portfolios."
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, each Portfolio (other than the Index Master Portfolio) may write cov-
ered call options, buy put options, buy call options and write secured put op-
tions for the purpose of hedging or earning additional income, which may be
deemed speculative or, with respect to the International Equity and Interna-
tional Emerging Markets Portfolios, cross-hedging. These options may relate to
particular securities, financial instruments, foreign currencies, stock or bond
indices or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corporation,
which performs the obligations of its members if they default.
21
<PAGE>
To the extent consistent with its investment objective, each Portfolio may also
invest in futures contracts and options on futures contracts to commit funds
awaiting investment in stocks or maintain cash liquidity or, except with re-
spect to the Index Master Portfolio, for other hedging purposes. The value of a
Portfolio's contracts may equal or exceed 100% of the Fund's total assets, al-
though a Portfolio will not purchase or sell a futures contract unless immedi-
ately afterwards the aggregate amount of margin deposits on its existing
futures positions plus the amount of premiums paid for related futures options
entered into for other than bona fide hedging purposes is 5% or less of its net
assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of securities, the cash value of a securities index or a stated quantity of a
foreign currency. A Portfolio may sell a futures contract in order to offset an
expected decrease in the value of its portfolio positions that might otherwise
result from a market decline or currency exchange fluctuation. A Portfolio may
do so either to hedge the value of its securities portfolio as a whole, or to
protect against declines occurring prior to sales of securities in the value of
the securities to be sold. In addition, a Portfolio may utilize futures con-
tracts in anticipation of changes in the composition of its holdings or in cur-
rency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
LIQUIDITY MANAGEMENT. Pending investment, to meet anticipated redemption re-
quests, or, in the case of all Portfolios except the Index Master Portfolio, as
a temporary defensive measure if its sub-adviser determines that market condi-
tions warrant, a Portfolio may also invest without limitation in high quality
money market instruments. The Balanced Portfolio may also invest in these secu-
rities in furtherance of its investment objective.
22
<PAGE>
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign is-
suers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper, repurchase
agreements and obligations of supranational organizations. Generally, such ob-
ligations will mature within one year from the date of settlement, but may ma-
ture within two years from the date of settlement. Under a repurchase agree-
ment, a Portfolio agrees to purchase debt securities from financial institu-
tions subject to the seller's agreement to repurchase them at an agreed upon
time and price. Repurchase agreements are, in substance, loans. Default by or
bankruptcy of a seller would expose a Portfolio to possible loss because of ad-
verse market action, expenses and/or delays in connection with the disposition
of the underlying obligations.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio (other than the
Index Master Portfolio) may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Portfolio to purchase or sell particular secu-
rities with payment and delivery taking place at a future date (perhaps one or
two months later), and permit a Portfolio to lock in a price or yield on a se-
curity it owns or intends to purchase, regardless of future changes in interest
rates. When-issued and forward commitment transactions involve the risk, howev-
er, that the price or yield obtained in a transaction may be less favorable
than the price or yield available in the market when the securities delivery
takes place. Each Portfolio's when-issued purchases and forward commitments are
not expected to exceed 25% of the value of its total assets absent unusual mar-
ket conditions. The Portfolios do not intend to engage in when-issued purchases
and forward commitments for speculative purposes but only in furtherance of
their investment objectives.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made by the Balanced Portfolio through reverse repurchase agreements un-
der which a Portfolio sells portfolio securities to financial institutions such
as banks and broker-dealers and agrees to repurchase them at a particular date
and price. The Balanced Portfolio may use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, on a date simultaneous with or prior to the expiration of the re-
verse repurchase agreement. The Balanced Portfolio may utilize reverse repur-
chase agreements when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the in-
terest expense of the transaction. This use of reverse repurchase agreements
may be regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds will be less than the interest expense, that the market value
of the securities sold by the Balanced Portfolio may decline below the price of
the securities the Portfolio is obligated to repurchase and that the securities
may not be returned to the Portfolio. During the time a reverse repurchase
agreement is outstanding, the Balanced Portfolio will main-
23
<PAGE>
tain a segregated account with the Fund's custodian containing cash, U.S. Gov-
ernment or other appropriate liquid high-grade debt securities having a value
at least equal to the repurchase price. A Portfolio's reverse repurchase agree-
ments, together with any other borrowings, will not exceed, in the aggregate,
33 1/3% of the value of its total assets. In addition, whenever borrowings ex-
ceed 5% of a Portfolio's total assets, the Portfolios (other than the Balanced
Portfolio) will not make any investments.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolios (other than the Index Master Portfolio) may invest in
securities issued by other investment companies which invest in short-term debt
securities and which seek to maintain a $1.00 net asset value per share. The
International Equity and International Emerging Markets Portfolios may purchase
shares of investment companies investing primarily in foreign securities, in-
cluding so-called "country funds." Country funds have portfolios consisting
exclusively of securities of issuers located in one foreign country. The Index
Equity Portfolio may also invest in Standard & Poor's Depository Receipts
(SPDRs) and shares of other investment companies that are structured to seek a
similar correlation to the performance of the S&P 500 Index. Securities of
other investment companies will be acquired within limits prescribed by the In-
vestment Company Act of 1940 (the "1940 Act"). As a shareholder of another in-
vestment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the expenses each bears directly
in connection with its own operations.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or (ex-
cept for the Index Master Portfolio) irrevocable bank letters of credit main-
tained on a current basis equal in value to at least the market value of the
loaned securities. A Portfolio may not make such loans in excess of 33 1/3% of
the value of its total assets. Securities loans involve risks of delay in re-
ceiving additional collateral or in recovering the loaned securities, or possi-
bly loss of rights in the collateral if the borrower of the securities becomes
insolvent.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% (10% with
respect to the Index Master Portfolio) of the value of its net assets in secu-
rities that are illiquid. Variable and floating rate instruments that cannot be
disposed of within seven days, and repurchase agreements and time deposits that
do not provide for payment within seven days after notice, without taking a re-
duced price, are subject to these limits. Each Portfolio may purchase securi-
ties which are not registered under the Securities Act of 1933 (the "1933 Act")
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by the adviser or sub-adviser, acting under guide-
lines approved and monitored by the Board, that an adequate trading market ex-
ists for that security. This investment practice could have the effect of in-
creasing the level of illiquidity in a Portfolio during any period that quali-
fied institutional buyers become uninterested in purchasing these restricted
securities.
24
<PAGE>
SMALL CAP GROWTH EQUITY AND SMALL CAP VALUE PORTFOLIOS. Under normal market
conditions, the Small Cap Growth Equity Portfolio and Small Cap Value Equity
Portfolio will invest at least 90% (and in any event at least 65%) of their re-
spective total assets in equity securities of smaller-capitalized organizations
(less than $1 billion at the time of purchase). These organizations will nor-
mally have limited product lines, markets and financial resources and will be
dependent upon a limited management group.
INDEX EQUITY AND INDEX MASTER PORTFOLIOS. During normal market conditions, the
Index Equity Portfolio and Index Master Portfolio (in which all of the assets
of the Index Equity Portfolio will be invested after its 1996 conversion) in-
vest at least 95% of the value of their total assets in securities included in
the Standard & Poor's 500(R) Composite Stock Price Index (the "S&P 500 Index").
The Index Master Portfolio intends to invest in all of the stocks that comprise
the S&P 500 Index in approximately the same proportion as they are represented
in the Index. These Portfolios will operate as index portfolios and, therefore,
are not actively managed (through the use of economic, financial or market
analysis), and adverse performance will ordinarily not result in the elimina-
tion of a stock from the Portfolios. The Portfolios will remain fully invested
in common stocks even when stock prices are generally falling. Ordinarily,
portfolio securities will not be sold except to reflect additions or deletions
of the stocks that comprise the S&P 500 Index, including mergers, reorganiza-
tions and similar transactions and, to the extent necessary, to provide cash to
pay redemptions of a Portfolio's shares. The investment performance of the In-
dex Master Portfolio and the Index Equity Portfolio is expected to approximate
the investment performance of the S&P 500 Index, which tends to be cyclical in
nature, reflecting periods when stock prices generally rise or fall.
Neither the Index Equity Portfolio nor the Index Master Portfolio are spon-
sored, endorsed, sold or promoted by S&P. S&P makes no representation or war-
ranty, express or implied, to the owners of the Index Equity Portfolio or the
Index Master Portfolio or any member of the public regarding the advisability
of investing in securities generally or in the Index Equity Portfolio or the
Index Master Portfolio particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to the Index
Equity Portfolio or the Index Master Portfolio is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Index Equity Portfolio or
the Index Master Portfolio. S&P has no obligation to take the needs of the In-
dex Equity Portfolio or the Index Master Portfolio or their respective owners
into consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of the
prices and amount of the Index Equity Portfolio or the Index Master Portfolio
or the timing of the issuance or sale of the Index Equity Portfolio or the In-
dex Master Portfolio or in the determination or calculation of the equation by
which the Index Equity Portfolio or the Index Master Portfolio is to be con-
verted into cash. S&P has no obligation or liability in connection with the ad-
ministration, marketing or trading of the Index Equity Portfolio or Index Mas-
ter Portfolio.
25
<PAGE>
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 IN-
DEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ER-
RORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IM-
PLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMIT-
ING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPE-
CIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INTERNATIONAL PORTFOLIOS. During normal market conditions, the International
Equity Portfolio and International Emerging Markets Portfolio (the "Interna-
tional Portfolios") will invest at least 90% (and in any event at least 65%) of
their total assets in equity securities of foreign issuers. Investing in for-
eign securities involves considerations not typically associated with investing
in securities of companies organized and operated in the United States. Because
foreign securities generally are denominated and pay dividends or interest in
foreign currencies, the value of a Portfolio that invests in foreign securities
as measured in U.S. dollars will be affected favorably or unfavorably by
changes in exchange rates.
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitation on the removal of funds or as-
sets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations.
In general, less information is publicly available with respect to foreign is-
suers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting require-
ments applicable to issuers in the United States. While the volume of transac-
tions effected on foreign stock exchanges has increased in recent years, it re-
mains appreciably below that of the New York Stock Exchange. Accordingly, a
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In addi-
tion, there is generally less government supervision and regulation of securi-
ties exchanges, brokers and issuers in foreign countries than in the United
States.
The expense ratios of the International Equity and International Emerging Mar-
kets Portfolios can be expected to be higher than those of Portfolios investing
primarily in domestic securities. The costs attributable to investing abroad
are usually higher for several reasons, such as the higher cost of investment
research, higher cost of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.
26
<PAGE>
As stated, the International Emerging Markets Portfolio will invest its assets
in countries with emerging economies or securities markets. These countries may
include Argentina, Brazil, Bulgaria, Chile, China, Colombia, The Czech Repub-
lic, Ecuador, Greece, Hungary, India, Israel, Lebanon, Malaysia, Mexico, Moroc-
co, Peru, The Philippines, Poland, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and eco-
nomic structures in many of these countries may be undergoing significant evo-
lution and rapid development, and these countries may lack the social, politi-
cal and economic stability characteristic of more developed countries. Some of
these countries may have in the past failed to recognize private property
rights and have at times nationalized or expropriated the assets of private
companies. As a result, the risks described above, including the risks of na-
tionalization or expropriation of assets, may be heightened. In addition, unan-
ticipated political or social developments may affect the value of investments
in these countries and the availability to the Portfolio of additional invest-
ments in emerging market countries. The small size and inexperience of the se-
curities markets in certain of these countries and the limited volume of trad-
ing in securities in these countries may make investments in the countries il-
liquid and more volatile than investments in Japan or most Western European
countries. There may be little financial or accounting information available
with respect to issuers located in certain emerging market countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.
The International Equity Portfolio invests primarily in equity securities of
issuers located in countries included in EAFE. Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, New
Zealand, Norway, Singapore, Malaysia, Spain, Sweden, Switzerland and the United
Kingdom are currently included in EAFE.
The International Equity and International Emerging Markets Portfolios may use
forward foreign currency exchange contracts to hedge against movements in the
value of foreign currencies (including the European Currency Unit (ECU)) rela-
tive to the U.S. dollar in connection with specific portfolio transactions or
with respect to portfolio positions. A forward foreign currency exchange con-
tract involves an obligation to purchase or sell a specified currency at a fu-
ture date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Portfolio to establish a rate of exchange for a future
point in time.
BALANCED PORTFOLIO. Fixed income securities purchased by the Balanced Portfolio
may include domestic and dollar-denominated foreign debt securities, including
bonds, debentures, notes, equipment lease and trust certificates, mortgage-re-
lated and asset-backed securities, guaranteed investment contracts (GICs) and
obligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities. These securities will be rated at the time of purchase within
the four highest rating groups assigned by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or another nationally rec-
ognized statistical rating organization. If unrated, the securities will be de-
termined at the time of purchase to be of comparable quality by the sub-advis-
er. Securities rated "Baa" by Moody's or "BBB" by S&P, respectively, are gener-
ally considered to be investment grade although they have speculative charac-
teristics. If a fixed income security is reduced below Baa by Moody's or BBB by
S&P, the Portfolio's sub-adviser will dispose of the security in an orderly
fashion as soon as practicable. Investments in securities of foreign issuers,
which present additional investment considerations as
27
<PAGE>
described above under "International Portfolios," will be limited to 5% of the
Portfolio's total assets.
The market value of the Balanced Portfolio's investments in fixed income corpo-
rate and other securities will change in response to changes in interest rates
and the relative financial strength of each issuer. During periods of falling
interest rates, the values of long-term fixed income securities generally rise.
Conversely, during periods of rising interest rates the values of such securi-
ties generally decline. Changes in the financial strength of an issuer or
changes in the ratings of any particular security may also affect the value of
these investments.
The Balanced Portfolio may purchase asset-backed securities (i.e., securities
backed by home equity loans, installment sale contracts, credit card receiv-
ables or other assets). The average life of asset-backed securities varies with
the maturities of the underlying instruments which, in the case of mortgages,
have maximum maturities of forty years. The average life of a mortgage-backed
instrument, in particular, is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
scheduled principal payments and mortgage prepayments. The rate of such mort-
gage prepayments, and hence the life of the certificates, will be primarily a
function of current market rates and current conditions in the relevant housing
markets. The relationship between mortgage prepayment and interest rates may
give some high-yielding mortgage-related securities less potential for growth
in value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of mortgage prepayment tends to in-
crease. During such periods, the reinvestment of prepayment proceeds by the
Balanced Portfolio will generally be at lower rates than the rates that were
carried by the obligations that have been prepaid. Because of these and other
reasons, an asset-backed security's total return may be difficult to predict
precisely. To the extent that the Balanced Portfolio purchases mortgage-related
or mortgage-backed securities at a premium, mortgage prepayments (which may be
made at any time without penalty) may result in some loss of the Balanced Port-
folio's principal investment to the extent of premium paid.
Presently there are several types of mortgage-backed securities including: (i)
those that are issued or guaranteed by U.S. Government agencies, including
guaranteed mortgage pass-through certificates, which provide the holder with a
pro rata interest in the underlying mortgages; and (ii) collateralized mortgage
obligations ("CMOs"), which provide the holder with a specified interest in the
cash flow of a pool of underlying mortgages or other mortgage-backed securi-
ties. Issuers of CMOs frequently elect to be taxed as a pass-through entity
known as real estate mortgage investment conduits, or REMICs. CMOs are issued
in multiple classes, each with a specified fixed or floating interest rate and
a final distribution date. The relative payment rights of the various CMO clas-
ses may be structured in many ways. In most cases, however, payments of princi-
pal are applied to the CMO classes in the order of their respective stated ma-
turities, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. The
classes may include accrual certificates (also known as "Z-Bonds"), which only
accrue interest at a specified rate until other specified classes have been re-
tired and are converted thereafter to interest-paying securities. They may also
include planned amortization classes ("PACs") which generally require, within
certain lim-
28
<PAGE>
its, that specified amounts of principal be applied on each payment date, and
generally exhibit less yield and market volatility than other classes.
The Balanced Fund may also purchase obligations issued or guaranteed by the
U.S. Government and U.S. Government agencies and instrumentalities. Obligations
of certain agencies and instrumentalities of the U.S. Government, such as those
of the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the Export-Im-
port Bank of the United States, are supported by the right of the issuer to
borrow from the U.S. Treasury; and still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored instru-
mentalities if it is not obligated to do so by law. Certain U.S. Treasury and
agency securities may be held by trusts that issue participation certificates
(such as Treasury income growth receipts ("TIGRs") and certificates of accrual
on Treasury certificates ("CATs")). The Balanced Portfolio may purchase these
certificates and may also purchase Treasury receipts and other stripped securi-
ties, which represent beneficial ownership interests in either future interest
payments or the future principal payments on U.S. Government obligations. These
instruments are issued at a discount to their "face value" and may (particu-
larly in the case of stripped mortgage-backed securities) exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
The Balanced Portfolio may also purchase zero-coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments). Zero-coupon bonds are
subject to greater market fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of inter-
est.
To take advantage of attractive opportunities in the mortgage market and to en-
hance current income, the Balanced Portfolio may enter into dollar roll trans-
actions. A dollar roll transaction involves a sale by the Portfolio of a mort-
gage-backed or other security concurrently with an agreement by the Portfolio
to repurchase a similar security at a later date at an agreed-upon price. The
securities that are repurchased will bear the same interest rate and stated ma-
turity as those sold, but pools of mortgages collateralizing such securities
may have different prepayment histories than those sold. During the period be-
tween the sale and repurchase, the Portfolio will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in additional instruments for the Portfolio, and the income
from these investments will generate income for the Portfolio. If such income
does not exceed the income, capital appreciation and gain or loss that would
have been realized on the securities sold as part of the dollar roll, the use
of this technique will diminish the investment performance of the Portfolio
compared with what the performance would have been without the use of dollar
rolls. At the time that the Portfolio enters into a dollar roll transaction, it
will place in a segregated account maintained with its custodian cash, U.S.
Government securities or other liquid high grade debt obligations having a
value equal to the repurchase price (including accrued interest) and will sub-
sequently monitor the account to ensure that its value is maintained. The Port-
folio's dollar rolls, together with its reverse repurchase agreements and other
borrowings, will not exceed, in the aggregate, 33 1/3% of the value of its to-
tal assets.
29
<PAGE>
Dollar roll transactions involve the risk that the market value of the securi-
ties the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Portfo-
lio sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted and the instruments which the Portfolio
is required to repurchase may be worth less than an instrument which the Port-
folio originally held when the Portfolio is able to complete the purchase. Suc-
cessful use of mortgage dollar rolls may depend upon a sub-adviser's ability to
correctly predict interest rates and prepayments. There is no assurance that
dollar rolls can be successfully employed.
PORTFOLIO TURNOVER RATES. Under normal market conditions, it is expected that
the annual portfolio turnover rate for each Portfolio (including both the eq-
uity and fixed income portions of the Balanced Portfolio in the aggregate) and
for the Index Master Portfolio will not exceed 150%. A Portfolio's annual port-
folio turnover rate will not, however, be a factor preventing a sale or pur-
chase when the adviser or sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates (i.e.,
over 100%) will generally result in higher transaction costs to a Portfolio.
30
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's (other than the Index Master Portfolio) investment objective and
policies may be changed by the Fund's Board of Trustees without shareholder ap-
proval. However, shareholders will be given at least 30 days' notice before any
such change. The investment objective of the Index Master Portfolio may not be
changed without the approval of shareholders of that Portfolio. No assurance
can be provided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) subject to the foregoing 25% exception (other than with respect to the In-
dex Master Portfolio), purchase more than 10% of the outstanding voting se-
curities of any issuer;
(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(4) borrow money in amounts over one-third of the value of its total assets at
the time of such borrowing.
These investment limitations are applied at the time investment securities are
purchased. Notwithstanding the investment limitations, the Index Equity Portfo-
lio may invest all of its assets in shares of an open-end management investment
company with substantially the same investment objective, policies and limita-
tions of that Portfolio.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any commitment is no
longer in the best interests of a Portfolio, it will revoke the commitment by
terminating sales of shares of the Portfolio in the state involved.
31
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and of The DFA Investment
Trust Company (in which the assets of the Fund's Index Equity
Portfolio will be invested after its 1996 conversion) are man-
aged under the direction of their separate Boards of Trustees.
The following individuals were elected by shareholders on Jan-
uary 4, 1996 to serve as trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Offi-
cer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School, Uni-
versity of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
The Statement of Additional Information furnishes additional
information about the trustees and officers of both the Fund
and The DFA Investment Trust Company.
ADVISER AND The Adviser to Compass Capital Funds is PNC Asset Management
SUB-ADVISERS Group ("PAMG"), except with respect to the Index Equity Port-
folio. Each of the Portfolios within the Compass Capital Fund
family is managed by a specialized portfolio manager who is a
member of one of PAMG's portfolio management subsidiaries.
The Portfolios (other than the Index Equity Portfolio) and
their investment sub-advisers and portfolio managers are as
follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ----------- ------------------------------------
<S> <C> <C>
Value Equity PCM(/1/) Earl J. Gaskins; Vice President of
PCM since 1985; Portfolio co-manager
since 1994.
Benedict E. Capaldi; Vice President
of PCM since 1995; prior to joining
PCM, Senior Vice President and
portfolio manager with Radnor
Capital Management, President of
Chestnut Hill Advisors, Inc. and
Managing Director of Brandywine
Asset Management, Inc.; Portfolio
co-manager since 1995.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ------------------- ------------------------------------
<S> <C> <C>
Growth Equity PEAC(/2/) Robert K. Urquhart; Managing
Director of PEAC's Large Cap Growth
Equity Investments area since 1995;
prior to joining PEAC, Chief
Investment Officer and partner of
Cole Financial Group, Inc., a
partner of Seacliff Holdings, Inc.
and of RCM Capital Management;
Portfolio manager since 1995.
Small Cap Value Equity PCM(/1/) Susan D. Menzies; Vice President of
PCM since 1985; Portfolio manager
since 1994.
Small Cap Growth Equity PEAC(/2/) William J. Wykle; investment manager
with PEAC since 1995; investment
manager with PNC Bank, National
Association from 1986 to 1995;
Portfolio manager since its
inception.
International Equity PCM(/1/) William George Greig; Vice President
of PCM; prior to joining PCM,
Managing Partner of Akamai
International, Investment Director
of The Framlington Group and
Research Director with Pilgrim
Baxter & Associates; Portfolio
manager since 1995.
International Emerging PCM(/1/) William George Greig (see above);
Markets Portfolio manager since its
inception.
Select Equity PCM(/1/) Daniel B. Eagan; portfolio manager
with PCM since 1995; director of
investment strategy at PAMG during
1995; portfolio manager with PEAC
during 1995; Portfolio manager since
1995.
Balanced PCM and Daniel B. Eagan (see above);
BlackRock(/1/)(/3/) Portfolio co-manager since 1994.
Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-
manager since 1995.
Keith T. Anderson; Managing Director
and co-chair of Portfolio Management
Group and Investment Strategy
Committee of BlackRock since 1988;
Portfolio co-manager since 1995.
</TABLE>
(1) Provident Capital Management, Inc. ("PCM") has its primary offices at 1700
Market Street, 27th Floor, Philadelphia, PA 19103.
(2) PNC Equity Advisors Company ("PEAC") has its primary offices at 1835 Market
Street, 15th Floor, Philadelphia, PA 19103.
(3) BlackRock Financial Management, Inc. ("BlackRock") has its primary offices
at 345 Park Avenue, New York, New York 10154.
33
<PAGE>
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1835
Market Street, Philadelphia, Pennsylvania 19103. PAMG is an
indirect wholly-owned subsidiary of PNC Bank Corp., a multi-
bank holding company.
PNC Institutional Management Corporation ("PIMC") and PEAC
will serve as adviser and sub-adviser, respectively, to the
Index Equity Portfolio until its 1996 conversion. The princi-
pal business address of PIMC is 400 Bellevue Parkway, Wilming-
ton, Delaware 19809.
For their investment advisory and sub-advisory services, PAMG,
PIMC and the Portfolios' sub-advisers are entitled to fees,
computed daily on a portfolio-by-portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG,
PIMC and the sub-advisers intend to waive a portion of their
fees during the current fiscal year. All sub-advisory fees are
paid by PAMG and PIMC, and do not represent an extra charge to
the Portfolios.
34
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO EXCEPT
THE INDEX EQUITY PORTFOLIO AND THE INTERNATIONAL PORTFOLIOS
(BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Average Daily Net Assets Advisory Fee Fee
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion .550% .400%
$1 billion -- $2 billion .500 .350
$2 billion -- $3 billion .475 .325
greater than $3 billion .450 .300
</TABLE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL EQUITY
PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Average Daily Net Assets Advisory Fee Fee
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion .750% .600%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .525
greater than $3 billion .650 .500
</TABLE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL
EMERGING MARKETS PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Average Daily Net Assets Advisory Fee Fee
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion 1.250% 1.100%
$1 billion -- $2 billion 1.200 1.050
$2 billion -- $3 billion 1.155 1.005
greater than $3 billion 1.100 .950
</TABLE>
For its advisory services to the Index Equity Portfolio, PIMC is
entitled to advisory fees, computed daily and payable monthly,
at the annual rate of .20% of the Portfolio's average daily net
assets. As sub-adviser to the Index Equity Portfolio, PEAC is
entitled to receive from PIMC a fee, computed daily and payable
monthly, at the annual rate of .15% of the Portfolio's average
daily net assets. The Portfolio will no longer pay advisory fees
to PIMC after its 1996 conversion.
Although the advisory fee rate payable by the International
Emerging Markets Portfolio is higher than the rate payable by
mutual funds investing in domestic securities, the Fund believes
it is comparable to the rates paid by many other funds with sim-
ilar investment objectives and policies and is appropriate for
the Portfolio in light of its investment objective and policies.
35
<PAGE>
For their last fiscal year the Portfolios paid investment ad-
visory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Value Equity Portfolio, .44%; Growth Equity Portfolio,
.40%; Small Cap Value Equity Portfolio, .50%; Small Cap Growth
Equity Portfolio, .45%; International Equity Portfolio, .60%;
International Emerging Markets Portfolio, 1.04%; Select Equity
Portfolio, .40%; Index Equity Portfolio, .05%; and Balanced
Portfolio, .40%.
The sub-advisers to each Portfolio strive to achieve best exe-
cution on all transactions. Infrequently, brokerage transac-
tions for the Portfolios may be directed through registered
broker/dealers who have entered into dealer agreements with
Compass Capital's distributor.
ADVISER TO Dimensional Fund Advisors, Inc. ("DFA"), located at 1299 Ocean
INDEX MASTER Avenue, 11th Floor, Santa Monica, CA 90401, serves as invest-
PORTFOLIO ment adviser to the Index Master Portfolio.
DFA was organized in May 1981 and is engaged in the business
of providing investment management services to institutional
investors. DFA's assets under management totalled approxi-
mately $13 billion at October 31, 1995. David G. Booth and Rex
A. Sinquefield, both of whom are trustees and officers of The
DFA Investment Trust Company and directors and officers of
DFA, together own approximately 61% of DFA's outstanding stock
and may be deemed controlling persons of DFA.
Investment decisions for the Index Master Portfolio are made
by the Investment Committee of DFA which meets on a regular
basis and also as needed to consider investment issues. The
Investment Committee is composed of certain officers and di-
rectors of DFA who are elected annually. DFA provides the In-
dex Master Portfolio with a trading department and selects
brokers and dealers to effect securities transactions.
For the investment advisory services provided to the Index
Master Portfolio under the advisory agreement, DFA is entitled
to receive a fee at the annual rate of .025% of the Index Mas-
ter Portfolio's average daily net assets. For the Index Master
Portfolio's fiscal year ended November 30, 1995, DFA received
a fee for its investment advisory services which, on an annual
basis, equaled .025% of the Index Master Portfolio's average
daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the
36
<PAGE>
Fund's co-administrators. CCG and PFPC are indirect wholly-owned
subsidiaries of PNC Bank Corp. CDI is a wholly-owned subsidiary
of Provident Distributors, Inc. ("PDI"). A majority of the out-
standing stock of PDI is owned by its officers and the remaining
outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .20% of the first $500
million of each Portfolio's average daily net assets, .18% of
the next $500 million of each Portfolio's average daily net as-
sets, .16% of the next $1 billion of each Portfolio's average
daily net assets and .15% of each Portfolio's average daily net
assets in excess of $2 billion. From time to time the Adminis-
trators may waive some or all of their administration fees from
a Portfolio. PFPC serves as the administrative services, divi-
dend disbursing and transfer agent to the Index Master Port-
folio, for which PFPC will be entitled to compensation at the
annual rate of .015% of the Index Master Portfolio's average
daily net assets (at the time of the Index Equity Portfolio's
conversion).
For information about the operating expenses the Portfolios ex-
pect to pay for the current fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to the investment adviser and
the Administrators, transfer agency and custodian fees, trustee
fees, taxes, interest, professional fees, shareholder servicing
and processing fees, fees and expenses in registering and quali-
fying the Portfolios and their shares for distribution under
Federal and state securities laws, expenses of preparing pro-
spectuses and statements of additional information and of print-
ing and distributing prospectuses and statements of additional
information to existing shareholders, expenses relating to
shareholder reports, shareholder meetings and proxy solicita-
tions, insurance premiums, the expense of independent pricing
services, and other expenses which are not expressly assumed by
PAMG or the Fund's service providers under
37
<PAGE>
their agreements with the Fund. Any general expenses of the
Fund that do not belong to a particular investment portfolio
will be allocated among all investment portfolios by or under
the direction of the Board of Trustees in a manner the Board
determines to be fair and equitable.
38
<PAGE>
How Are Shares Purchased And Redeemed?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor. CDI maintains its principal offices at 259 Radnor-Chester Road,
Suite 120, Radnor, Pennsylvania 19087.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Plan permits CDI, PAMG, the Administrators and other
companies that receive fees from the Fund to make payments relating to distri-
bution and sales support activities out of their past profits or other sources
available to them. The Fund is not required or permitted under the Plan to make
distribution payments with respect to Institutional Shares.
PURCHASE OF SHARES. Institutional Shares are offered to institutional invest-
ors, including registered investment advisers with a minimum investment of
$500,000 and individuals with a minimum investment of $2,000,000.
Institutional Shares are sold at their net asset value per Share next computed
after an order is received by PFPC. Orders received by PFPC by 4:00 p.m. (East-
ern Time) on a Business Day are priced the same day. A "Business Day" is any
weekday that the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open for business.
Purchase orders may be placed by telephoning PFPC at (800) 441-7450. Orders re-
ceived by PFPC after 4:00 p.m. (Eastern Time) are priced on the following Busi-
ness Day.
Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Fund's custodian. Payment may also, in
the discretion of the Fund, be made in the form of securities that are permis-
sible investments for the respective Portfolios. For further information, see
the Statement of Additional Information. The minimum initial investment for in-
stitutions is $5,000. There is no minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Institutional Shares.
REDEMPTION OF SHARES. Redemption orders for Institutional Shares may be placed
by telephoning PFPC at (800) 441-7450. Institutional Shares are redeemed at
their net asset value per share next determined after PFPC's receipt of the re-
demption order. The Fund, the Administrators and the Distributor will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Fund and its service providers will not be liable for any
loss, liability, cost or expense for acting upon telephone instructions that
are reasonably believed to be genuine in accordance with such procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the next Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received after 4:00 p.m. (Eastern Time) or on a day
39
<PAGE>
when the Fund's custodian is closed is normally wired in Federal funds on the
next Business Day following redemption on which the Fund's custodian is open
for business. The Fund reserves the right to wire redemption proceeds within
seven days after receiving a redemption order if, in the judgment of PAMG, an
earlier payment could adversely affect a Portfolio. No charge for wiring re-
demption payments is imposed by the Fund.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund may redeem Institutional Shares in any Portfolio account if the ac-
count balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 on thirty days'
written notice.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
40
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Institutional Shares of each Port-
folio as of the close of regular trading hours on the NYSE (currently 4:00 p.m.
Eastern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio (including, for the Index Equity Portfolio,
all of its shares in the Index Master Portfolio) that are allocated to its In-
stitutional Shares, less the liabilities charged to its Institutional Shares,
by the number of its Institutional Shares that are outstanding. The net asset
value per share of the Index Master Portfolio is calculated as of the close of
the NYSE by dividing the total market value of its investments and other as-
sets, less any liabilities, by the total outstanding shares of the Index Master
Portfolio.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees or, in the case of the Index Master Portfolio, The DFA Investment
Trust Company's Board of Trustees. The amortized cost method of valuation will
also be used with respect to debt obligations with sixty days or less remaining
to maturity unless a Portfolio's sub-adviser under the supervision of the Board
of Trustees determines such method does not represent fair value.
41
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. The net investment in-
come of each Portfolio is declared quarterly as a dividend to investors who are
shareholders of the Portfolio at the close of business on the day of declara-
tion. All dividends are paid within ten days after the end of each quarter. Any
net realized capital gains (including net short-term capital gains) will be
distributed by each Portfolio at least annually. The period for which dividends
are payable and the time for payment are subject to change by the Fund's Board
of Trustees.
Distributions are reinvested at net asset value in additional full and frac-
tional Institutional Shares of the relevant Portfolio, unless a shareholder
elects to receive distributions in cash. This election, or any revocation
thereof, must be made in writing to PFPC, and will become effective with re-
spect to distributions paid after its receipt by PFPC.
As stated previously, after its 1996 conversion, the Index Equity Portfolio
will seek its investment objective by investing all of its investable assets in
the Index Master Portfolio, and the Index Equity Portfolio will be allocated
its pro rata share of the ordinary income and expenses of the Index Master
Portfolio. This net income, less the Index Equity Portfolio's expenses incurred
in operations, will be the Index Equity Portfolio's net investment income from
which dividends are distributed as described above. The Index Master Portfolio
will also allocate to the Index Equity Portfolio its pro rata share of capital
gains, if any, realized by the Index Master Portfolio.
42
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
treated as a return of capital), whether the distributions are paid in cash or
reinvested in additional Shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Dividends paid by the Portfolios will be eligible for the dividends received
deduction allowed to certain corporations only to the extent of the total qual-
ifying dividends received by a Portfolio from domestic corporations for a tax-
able year. Corporate shareholders will have to take into account the entire
amount of any dividend received in making certain adjustments for Federal al-
ternative minimum and environmental tax purposes. The dividends received deduc-
tion is not available for capital gain dividends.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
An investor considering buying Shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption,
transfer or exchange of Shares depending upon their tax basis and their price
at the time of redemption, transfer or exchange. Generally, shareholders may
include sales charges paid on the purchase of Shares in their tax basis for the
purposes of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if a shareholder exchanges the Shares for Shares of an-
other Portfolio within 90 days of purchase and is able to reduce the sales
charges applicable to the new Shares (by virtue of the Fund's exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged Shares for the purpose of determining gain or
loss but may be included (subject to the same limitation) in the tax basis of
the new Shares.
Dividends and certain interest income earned by a Portfolio from foreign secu-
rities may be subject to foreign withholding taxes or other taxes. So long as
more than 50% of the value of a
43
<PAGE>
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. Federal
income tax purposes, to treat certain foreign taxes paid by it, including gen-
erally any withholding taxes and other foreign income taxes, as paid by its
shareholders. It is possible that the International Equity and International
Emerging Markets Portfolios will make this election in certain years. If a
Portfolio makes the election, the amount of such foreign taxes paid by the
Portfolio will be included in its shareholders' income pro rata (in addition to
taxable distributions actually received by them), and each shareholder will be
entitled either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, or (b) if a shareholder
itemizes deductions, to deduct such proportionate amounts from U.S. Federal
taxable income.
At or about the time of the conversion of the Index Equity Portfolio in 1996,
the Index Master Portfolio intends to qualify for taxation as a partnership for
Federal income tax purposes. As such, the Index Master Portfolio would not be
subject to tax and the Index Equity Portfolio would be treated for Federal in-
come tax purposes as recognizing its pro rata portion of the Index Master Port-
folio's income and deductions, and owning its pro rata share of the Index Mas-
ter Portfolio's assets. The Index Equity Portfolio's status as a regulated in-
vestment company is dependent on, among other things, the Index Master Portfo-
lio's continued classification as a partnership for Federal income tax purpos-
es.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. The application of state and local income taxes to investments in
the Portfolios may differ from the Federal income tax consequences described
above. In addition, shareholders who are non-resident alien individuals, for-
eign trusts or estates, foreign corporations or foreign partnerships may be
subject to different Federal income tax treatment. Future legislative or admin-
istrative changes or court decisions may materially affect the tax consequences
of investing in the Portfolios.
44
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Institutional Shares of the nine portfolios described
herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The Fund offers various services and privileges in
connection with its Investor Shares that are not generally offered in connec-
tion with its Institutional and Service Shares, including an automatic invest-
ment plan, automatic withdrawal plan and checkwriting. For further information
regarding the Fund's Service or Investor Share classes, contact PFPC at (800)
441-7764 (Service Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
MASTER-FEEDER STRUCTURE. The Index Equity Portfolio, unlike many other invest-
ment companies which directly acquire and manage their own portfolio of securi-
ties, will seek, after its conversion in 1996, to achieve its investment objec-
tive by investing all of its investable assets in the Index Master Portfolio.
The Index Equity Portfolio will purchase shares of the Index Master Portfolio
at net asset value. The net asset value of the Index Equity Portfolio will re-
spond
45
<PAGE>
to increases and decreases in the value of the Index Master Portfolio's securi-
ties and to the expenses of the Index Master Portfolio allocable to the Index
Equity Portfolio (as well as its own expenses). The Index Equity Portfolio may
withdraw its investment in the Index Master Portfolio at any time upon 30 days
notice to the Index Master Portfolio if the Board of Trustees of the Fund de-
termines that it is in the best interests of the Index Equity Portfolio to do
so. Upon withdrawal, the Board of Trustees would consider what action might be
taken, including the investment of all of the assets of the Index Equity Port-
folio in another pooled investment entity having the same investment objective
as the Index Equity Portfolio or the hiring of an investment adviser to manager
the Index Equity Portfolio's assets in accordance with the investment policies
described above with respect to the Index Equity Portfolio.
The Index Master Portfolio is a separate series of The DFA Investment Trust
Company (the "Trust"), which is a business trust created under the laws of the
State of Delaware. The Index Equity Portfolio and other institutional investors
that may invest in the Index Master Portfolio from time to time (e.g. other in-
vestment companies) will each bear a share of all liabilities of the Index Mas-
ter Portfolio. Under the Delaware Business Trust Act, shareholders of the Index
Master Portfolio have the same limitation of personal liability as shareholders
of a Delaware corporation. Accordingly, Fund management believes that neither
the Index Equity Portfolio nor its shareholders will be adversely affected by
reason of the Index Equity Portfolio's investing in the Index Master Portfolio.
The shares of the Index Master Portfolio will be offered to institutional in-
vestors in private placements for the purpose of increasing the funds available
for investment and to achieve economies of scale that might be available at
higher asset levels. The expenses of such other institutional investors and
their returns may differ from those of the Index Equity Portfolio. While in-
vestment in the Index Master Portfolio by other institutional investors offers
potential benefits to the Index Master Portfolio (and, indirectly, to the Index
Equity Portfolio), economies of scale and related expense reductions might not
be achieved. Also, if an institutional investor were to redeem its interest in
the Index Master Portfolio, the remaining investors in the Index Master Portfo-
lio could experience higher pro rata operating expenses and correspondingly
lower returns. In addition, institutional investors that have a greater pro
rata ownership interest in the Index Master Portfolio than the Index Equity
Portfolio could have effective voting control over the operation of the Index
Master Portfolio.
Shares in the Index Master Portfolio have equal, non-cumulative voting rights,
except as set forth below, with no preferences as to conversion, exchange, div-
idends, redemption or any other feature. Shareholders of the Trust have the
right to vote only (i) for removal of its trustees, (ii) with respect to such
additional matters relating to the Trust as may be required by the applicable
provisions of the 1940 Act, including the approval of the investment advisory
agreement and the selection of trustees and accountants, and (iii) on such
other matters as the trustees of the Trust may consider necessary or desirable.
In addition, approval of the shareholders of the Trust is required to adopt any
amendments to the Agreement and Declaration of Trust of the Trust which would
adversely affect to a material degree the rights and preferences of the shares
of the Index Master Portfolio or to increase or decrease their par value. The
Index Mas-
46
<PAGE>
ter Portfolio's shareholders will also be asked to vote on any proposal to
change a fundamental policy (i.e. a policy that may be changed only with the
approval of shareholders) of the Index Master Portfolio.
If the Index Equity Portfolio, as a shareholder of the Index Master Portfolio,
is requested to vote on matters pertaining to the Index Master Portfolio, the
Fund's Trustees intend to vote all of the shares that the Index Equity Portfo-
lio holds in the Index Master Portfolio without submitting any such questions
to the shareholders of the Index Equity Portfolio. If the Fund's Trustees de-
cide to adopt "pass-through" voting, the Index Equity Portfolio, if required
under the 1940 Act or other applicable law, would hold a meeting of its share-
holders and would cast its votes proportionately as instructed by Index Equity
Portfolio shareholders. In such cases, shareholders of the Index Equity Portfo-
lio, in effect, would have the same voting rights they would have as direct
shareholders of the Index Master Portfolio.
The investment objective of the Index Master Portfolio may not be changed with-
out approval of its shareholders. Shareholders of the Portfolio will receive
written notice thirty days prior to the effective date of any change in the in-
vestment objective of the Master Portfolio. If the Index Master Portfolio
changes its investment objective in a manner which is inconsistent with the in-
vestment objective of the Index Equity Portfolio and the Fund's Board of Trust-
ees fails to approve a similar change in the investment objective of the Index
Equity Portfolio, the Index Equity Portfolio would be forced to withdraw its
investment in the Index Master Portfolio and either seek to invest its assets
in another registered investment company with the same investment objective as
the Index Equity Portfolio, which might not be possible, or retain an invest-
ment adviser to manage the Index Equity Portfolio's assets in accordance with
its own investment objective, possibly at increased cost. A withdrawal by the
Index Equity Portfolio of its investment in the Index Master Portfolio could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Index Equity Portfolio. Should such a distribution occur,
the Index Equity Portfolio could incur brokerage fees or other transaction
costs in converting such securities to cash in order to pay redemptions. In ad-
dition, a distribution in kind to the Index Equity Portfolio could result in a
less diversified portfolio of investments and could adversely affect the li-
quidity of the Portfolio.
The conversion of the Index Equity Portfolio into a feeder fund of the Index
Master Portfolio was approved by shareholders of the Index Equity Portfolio at
a meeting held on November 30, 1995. The policy of the Index Equity Portfolio,
and other similar investment companies, to invest their investable assets in
funds such as the Index Master Portfolio is a relatively recent development in
the mutual fund industry and, consequently, there is a lack of substantial ex-
perience with the operation of this policy. There may also be other investment
companies or entities through which you can invest in the Index Master Portfo-
lio which may have different sales charges, fees and other expenses which may
affect performance. For information about other funds that may invest in the
Index Master Portfolio, please contact DFA at (310) 395-8005.
47
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for Institutional Shares of the Portfolios may be
quoted in advertisements and communications to shareholders. Total return will
be calculated on an average annual total return basis for various periods. Av-
erage annual total return reflects the average annual percentage change in
value of an investment in Institutional Shares of a Portfolio over the measur-
ing period. Total return may also be calculated on an aggregate total return
basis. Aggregate total return reflects the total percentage change in value
over the measuring period. Both methods of calculating total return assume that
dividend and capital gain distributions made by a Portfolio with respect to its
Institutional Shares are reinvested in Institutional Shares.
The yield of Institutional Shares of the Balanced Portfolio is computed by di-
viding the net income allocated to that class during a 30-day (or one month)
period by the net asset value per share on the last day of the period and
annualizing the result on a semi-annual basis.
The performance of a Portfolio's Institutional Shares may be compared to the
performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the performance of a Portfolio's Institu-
tional Shares may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service, and to the performance of the Dow Jones Industrial Average, the
"stocks, bonds and inflation Index" published annually by Ibbotson Associates,
the Lipper International Fund Index, the Lehman Government Corporate Bond Index
and the Financial Times World Stock Index, as well as the benchmarks attached
to this Prospectus. Performance information may also include evaluations of the
Portfolios and their Institutional Shares published by nationally recognized
ranking services, and information as reported in financial publications such as
Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Institutional Shares of a particular Portfolio, a Portfolio
may provide other information demonstrating hypothetical investment returns.
This information may include, but is not limited to, illustrating the com-
pounding effects of a dividend in a dividend reinvestment plan or the impact of
tax-deferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Institutional Shares, when redeemed, may be worth more or less
than their original cost. Since performance will fluctuate, performance data
for Institutional Shares of a Portfolio cannot necessarily be used to compare
an investment in such shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Perfor-
48
<PAGE>
mance is generally a function of the kind and quality of the instruments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Any fees charged by brokers or other institutions directly to their customer
accounts in connection with investments in Institutional Shares will not be in-
cluded in the Portfolio performance calculations.
49
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call COMPASS CAPITAL
FUNDS at (800) 441-7450.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7764.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
50
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Value Equity Russell 1000 Value Index An index composed of those Russell 1000
securities with less-than-average growth
orientation. Securities in this index
generally have low price-to-book and price-
earnings ratios, higher dividend yields and
lower forecasted growth values than more
growth-oriented securities in the Russell
1000 Growth Index.
Growth Equity Russell 1000 Growth The Russell 1000 Growth Index contains
Index those Russell 1000 securities with a
greater-than-average growth orientation.
Companies in this index tend to exhibit
higher price-to-book and price-earnings
ratios, lower dividend yields and higher
forecasted growth values than the Russell
1000 Value Index.
Small Cap Value Equity Russell 2000 Index An index of the smallest 2000 companies in
the Russell 3000 Index, as ranked by total
market capitalization. The Russell 2000
Index is widely regarded in the industry to
accurately capture the universe of small
cap stocks.
Small Cap Growth Equity Russell 2000 Growth An index composed of those Russell 2000
Index securities with a greater-than-average
growth orientation. Securities in this
index generally have higher price-to-book
and price-earnings ratios than those in the
Russell 2000 Value Index.
International Equity EAFE Index An index composed of a sample of companies
representative of the market structure of
20 European and Pacific Basin countries.
The Index represents the evolution of an
unmanaged portfolio consisting of all
domestically listed stocks.
International Emerging MSCI Emerging Markets The Morgan Stanley Capital International
Markets Free Index (MSCI) Emerging Markets Free Index (EMF) is
a market capitalization weighted index
composed of companies representative of the
market structure of 22 Emerging Market
countries in Europe, Latin America, and the
Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in
otherwise free markets which are not
purchasable by foreigners.
Select Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Index Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Balanced S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Salomon Broad Investment An unmanaged index of 3500 bonds. The Broad
Grade Index Investment Grade Index is market
capitalization weighted and includes
Treasury, Government sponsored mortgages
and investment grade fixed rate corporates
with a maturity of 1 year or longer.
</TABLE>
51
<PAGE>
The Compass Capital Funds
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE
INDEX EQUITY PORTFOLIO IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STAN-
DARD & POOR'S RATINGS GROUP. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
----------------
VALUE EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP VALUE EQUITY PORTFOLIO
SMALL CAP GROWTH EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL EMERGING MARKETS PORTFOLIO
SELECT EQUITY PORTFOLIO
INDEX EQUITY PORTFOLIO
BALANCED PORTFOLIO
THE EQUITY
PORTFOLIOS
INSTITUTIONAL SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(SERVICE SHARES OF THE
VALUE EQUITY PORTFOLIO,
GROWTH EQUITY PORTFOLIO,
SMALL CAP VALUE EQUITY PORTFOLIO,
SMALL CAP GROWTH EQUITY PORTFOLIO,
INTERNATIONAL EQUITY PORTFOLIO,
INTERNATIONAL EMERGING MARKETS PORTFOLIO,
SELECT EQUITY PORTFOLIO,
INDEX EQUITY PORTFOLIO AND
BALANCED PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- ----------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase
How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
[ART]
PROSPECTUS
THE EQUITY PORTFOLIOS
Service
Shares
COMPASS
--------------------
[LOGO] CAPITAL FUNDS
N O T Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
INSURED and involve risk including
possible loss of principal.
<PAGE>
The Equity Portfolios Service Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This Prospectus
describes the Service Shares of nine of those portfolios (the
"Portfolios"):
Value Equity Portfolio
Growth Equity Portfolio
Small Cap Value Equity Portfolio
Small Cap Growth Equity Portfolio
International Equity Portfolio
International Emerging Markets Portfolio
Select Equity Portfolio
Index Equity Portfolio
Balanced Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7764. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OBLI-
GATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE
PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
Currently, the Index Equity Portfolio invests its assets di-
rectly in common stocks of companies included in the Standard
& Poor's 500 (R) Composite Stock Price Index. The Portfolio's
shareholders have, however, approved a change, which the Port-
folio expects to implement during the first half of 1996,
whereby the Index Equity Portfolio will seek to achieve its
investment objective by investing all of its investable assets
in a series of shares (the "Index Master Portfolio") of The
DFA Investment Trust Company, another open-end management in-
vestment company rather than through a portfolio of various
securities. The investment experience of the Index Equity
Portfolio will correspond directly with the investment experi-
ence of the Index Master Portfolio. The Index Master Portfolio
has substantially the same investment objective, policies and
limitations as the Index Equity Portfolio and, except as spe-
cifically noted, is also referred to as a "Portfolio" in this
Prospectus. For additional information, see "How Is The Fund
Organized?"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Equity Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of nine
diversified investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity sec-
tor. Six of these Portfolios invest solely in U.S. stocks, two
Portfolios invest in non-U.S. international stocks and one Port-
folio invests in a combination of U.S. stocks and bonds. A de-
tailed description of each Portfolio begins on page 18 and a
summary of each Performance Benchmark is contained in the Appen-
dix.
COMPASS PERFORMANCE LIPPER PEER GROUP
CAPITAL BENCHMARK
PORTFOLIO
Value Equity Russell 1000 Value Index Growth and Income
Growth Equity Russell 1000 Growth Index Growth
Small Cap Russell 2000 Index Small Company Growth
Value Equity
Small Cap
Growth Equity Russell 2000 Growth Index Small Company Growth
International EAFE Index International
Equity
International MSCI Emerging Markets Emerging Markets
Emerging Free Index
Markets
Select Equity S&P 500 Index Growth and Income
Index Equity S&P 500 Index S&P 500 Index
Balanced S&P 500 Index and Salomon Balanced
Broad Investment
Grade Index
PNC Asset Management Group, Inc. ("PAMG") serves as the invest-
ment adviser to each portfolio except the Index Equity Portfo-
lio, which is currently advised by PNC Institutional Management
Corporation ("PIMC"). Provident Capital Management, Inc.
("PCM"), PNC Equity Advisers Company ("PEAC") and BlackRock Fi-
nancial Management, Inc. ("BlackRock") serve as sub-advisers to
different Portfolios as described in this Prospectus. Dimen-
sional Fund Advisors, Inc. ("DFA") serves as investment adviser
to the Index Master Portfolio.
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
EQUITY different directions in equity investing. You may wish to use
PORTFOLIOS the table of contents on page 5 to find descriptions of the
Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. The Portfolios will hold equity se-
EQUITY curities, and some or all of the Portfolios may acquire war-
INVESTING rants, foreign securities and illiquid securities; enter into
repurchase and reverse repurchase agreements; lend portfolio
securities to third parties; and enter into futures contracts
and options and forward currency exchange contracts. These and
the other investment practices set forth below, and their as-
sociated risks, deserve careful consideration. Certain risks
associated with international investments are heightened be-
cause of currency fluctuations and investments in emerging
markets. See "What Additional Investment Policies And Risks
Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?" and
CAPITAL FUNDS "What Special Purchase And Redemption Procedures May Apply?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 8
What Are The Portfolios?..................................... 18
What Are The Differences Among The Portfolios?............... 19
What Additional Investment Policies And Risks Apply?......... 21
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 31
Who Manages The Fund?........................................ 32
How Are Shares Purchased And Redeemed?....................... 39
What Special Purchase And Redemption Procedures May Apply?... 41
How Is Net Asset Value Calculated?........................... 43
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 44
How Are Fund Distributions Taxed?............................ 45
How Is the Fund Organized?................................... 47
How Is Performance Calculated?............................... 50
How Can I Get More Information?.............................. 52
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Service Shares of the Portfolios after fee waivers for the current fiscal year
ending September 30, 1996 as a percentage of average daily net assets. An exam-
ple based on the summary is also shown.
<TABLE>
<CAPTION>
SMALL CAP SMALL CAP
VALUE GROWTH VALUE GROWTH INTERNATIONAL
EQUITY EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .50% .50% .53% .53% .70%
Other operating expenses .55 .55 .63 .63 .66
------- ----- ----- ----- -------
Administration fees
(after fee
waivers)(/1/) .17 .15 .22 .22 .16
Shareholder servicing
fee .15 .15 .15 .15 .15
Other expenses .23 .25 .26 .26 .35
------ ---- ----- ---- ------
Total Portfolio
operating expenses
(after fee
waivers)(/1/) 1.05% 1.05% 1.16% 1.16% 1.36%
======= ===== ===== ===== =======
<CAPTION>
INTERNATIONAL
EMERGING SELECT INDEX
MARKETS EQUITY EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO+ PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/1/)(/2/) 1.15% .50% .025% .50%
Operating Expenses of
the Index Master
Portfolio N/A N/A .038 N/A
Other operating expenses .93 .55 .417 .60
------- ----- ----- -----
Administration fees
(after fee
waivers)(/1/) .18 .15 .045 .17
Shareholder servicing
fee .15 .15 .150 .15
Other expenses .60 .25 .222 .28
------ ---- ----- ----
Total Portfolio
operating expenses
(after fee
waivers)(/1/) 2.08% 1.05% .480% 1.10%
======= ===== ===== =====
</TABLE>
(1) Without waivers, advisory fees would be .75%, 1.25% and .025%, respective-
ly, for the International Equity, International Emerging Markets and Index
Equity Portfolios and .55% for each of the remaining Portfolios and admin-
istration fees would be .23% for each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive or continue waiving their
fees, but have informed the Fund that they expect to waive fees as neces-
sary to maintain the Portfolios' total operating expenses during the re-
mainder of the current fiscal year at the levels set forth in the table.
The information in the table is based on the advisory fees, administration
fees and other expenses payable after fee waivers with respect to the par-
ticular Portfolios for the fiscal year ended September 30, 1995, as re-
stated to reflect current expenses and fee waivers. Without waivers, "Other
operating expenses" would be: .61%, .63%, .64%, .64%, .73%, .98%, .63%,
.60% and .66%, respectively; and "Total Portfolio operating expenses" would
be: 1.16%, 1.18%, 1.19%, 1.19%, 1.48%, 2.23%, 1.18%, .67%, and 1.21%, re-
spectively.
(2) Advisory fees with respect to the Index Equity Portfolio represent advisory
fees of the Index Master Portfolio.
+ Includes the operating expenses of the Index Master Portfolio that are allo-
cable to the Index Equity Portfolio after the Portfolio's conversion as de-
scribed in this Prospectus. The total operating expenses of the Index Equity
Portfolio before and after its conversion are expected to be substantially
the same.
6
<PAGE>
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Value Equity $11 $33 $ 58 $128
Growth Equity 11 33 58 128
Small Cap Value Equity 12 37 64 141
Small Cap Growth Equity 12 37 64 141
International Equity 14 43 74 164
International Emerging Markets 21 65 112 241
Select Equity 11 33 58 128
Index Equity 5 15 27 60
Balanced 11 35 61 134
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the costs and expenses (including the Index Equity Portfolio's pro rata
share of the Index Master Portfolio's advisory fees and operating expenses) an
investor will bear either directly or indirectly. They do not reflect any
charges that may be imposed by affiliates of the Portfolios' investment adviser
or other institutions directly on their customer accounts in connection with
investments in the Portfolios.
The Board of Trustees of the Fund believes that the aggregate per share ex-
penses of the Index Equity Portfolio and the Index Master Portfolio in which
the Index Equity Portfolio's assets are invested will be approximately equal to
the expenses which the Index Equity Portfolio would incur if the Fund retained
the services of an investment adviser for the Index Equity Portfolio and the
assets of the Index Equity Portfolio were invested directly in the type of se-
curities held by the Index Master Portfolio.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
7
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and has been audited by the
Portfolios' independent accountant. This financial information
should be read together with those financial statements. Fur-
ther information about the performance of the Portfolios is
available in the Fund's annual shareholder reports. Both the
Statement of Additional Information and the annual shareholder
reports may be obtained from the Fund free of charge by call-
ing (800) 441-7764. Information concerning the historical in-
vestment results of Service Shares of the Index Equity Portfo-
lio is intended to give investors a longer term perspective of
its financial history and reflects the financial experience of
that Portfolio prior to its conversion into a feeder portfolio
of the Index Master Portfolio (which is expected to occur in
the first half of 1996).
8
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.62 $ 11.68 $ 11.21
-------- -------- -------
Income from investment operations
Net investment income 0.30 0.25 0.04
Net gain (loss) on investments (both
realized and unrealized) 2.55 0.16 0.48
-------- -------- -------
Total from investment operations 2.85 0.41 0.52
-------- -------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.30) (0.25) (0.05)
Distributions from net realized capital
gains (0.25) (0.22) - -
-------- -------- -------
Total distributions (0.55) (0.47) (0.05)
-------- -------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.92 $ 11.62 $ 11.68
======== ======== =======
Total return 25.40% 3.51% 4.64%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $170,832 $105,035 $23,137
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.95% 0.90% 0.91%/2/
Before advisory/administration fee waivers 1.09% 1.06% 0.94%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 2.40% 2.24% 2.44%/2/
Before advisory/administration fee waivers 2.26% 2.08% 2.41%/2/
PORTFOLIO TURNOVER RATE 12% 11% 11%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
9
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.18 $ 11.57 $10.54
------- ------- ------
Income from investment operations
Net investment income 0.10 0.03 - -
Net gain (loss) on investments (both realized
and unrealized) 2.87 (1.32) 1.03
------- ------- ------
Total from investment operations 2.97 (1.29) 1.03
------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.13) - - - -
Distributions from capital - - - - - -
Distributions from net realized capital gains - - (0.10) - -
------- ------- ------
Total distributions (0.13) (0.10) - -
------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 13.02 $ 10.18 $11.57
======= ======= ======
Total return 29.43% (11.20)% 9.77%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $76,769 $36,752 $8,606
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.95% 0.90% 0.89%/2/
Before advisory/administration fee waivers 1.13% 1.14% 0.95%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 0.91% 0.51% (0.03)%/2/
Before advisory/administration fee waivers 0.73% 0.26% (0.09)%/2/
PORTFOLIO TURNOVER RATE 55% 212% 175%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
10
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 13.59 $ 13.08 $ 12.28
------- ------- -------
Income from investment operations
Net investment income 0.02 - - - -
Net gain (loss) on investments (both realized
and unrealized) 2.18 0.77 0.80
------- ------- -------
Total from investment operations 2.20 0.77 0.80
------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.01) - -
Distributions from net realized capital gains (0.61) (0.25) - -
------- ------- -------
Total distributions (0.64) (0.26) - -
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 15.15 $ 13.59 $ 13.08
======= ======= =======
Total return 17.17% 5.96% 6.51%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $61,313 $45,372 $21,689
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.02% 0.98% 0.99%/2/
Before advisory/administration fee waivers 1.12% 1.10% 1.03%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 0.16% 0.03% 0.12%/2/
Before advisory/administration fee waivers 0.07% (0.09)% 0.08%/2/
PORTFOLIO TURNOVER RATE 31% 18% 41%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
11
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 9/15/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.14 $ 10.47 $ 9.96
------- ------- ------
Income from investment operations
Net investment income (0.01) 0.01 - -
Net gain (loss) on investments (both
realized and unrealized) 4.89 (0.34) 0.51
------- ------- ------
Total from investment operations 4.88 (0.33) 0.51
------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment income - - - - - -
Distributions from net realized capital
gains - - - - - -
------- ------- ------
Total distributions - - - - - -
------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 15.02 $ 10.14 $10.47
======= ======= ======
Total return 48.13% (3.12)% 5.12%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $62,604 $22,648 $ 911
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.03% 0.71% 0.99%/2/
Before advisory/administration fee waivers 1.16% 1.27% 1.68%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers (0.07)% 0.21% (0.34)%/2/
Before advisory/administration fee waivers (0.20)% (0.34)% (1.03)%/2/
PORTFOLIO TURNOVER RATE 74% 89% 9%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 13.41 $ 12.47 $ 11.76
-------- ------- -------
Income from investment operations
Net investment income 0.11 0.14 0.02
Net realized gain (loss) on investments 0.16 1.14 0.69
-------- ------- -------
Total from investment operations 0.27 1.28 0.71
-------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.08) (0.09) - -
Distributions from net realized capital gains (0.36) (0.25) - -
-------- ------- -------
Total distributions (0.44) (0.34) - -
-------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.24 $ 13.41 $ 12.47
======== ======= =======
Total return 2.19% 10.36% 6.03%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $106,045 $75,174 $11,985
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.25% 1.20% 1.18%/2/
Before advisory/administration fee waivers 1.42% 1.39% 1.24%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 1.16% 1.09% 1.01%/2/
Before advisory/administration fee waivers 0.98% 0.90% 0.95%/2/
Portfolio turnover rate 105% 37% 31%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR 6/17/94/1/
ENDED THROUGH
9/30/95 9/30/94
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.55 $10.00
------- ------
Income from investment operations
Net investment income 0.06 0.02
Net gain (loss) on investments (both realized and
unrealized) (2.15) 0.53
------- ------
Total from investment operations (2.09) 0.55
------- ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.08) - -
Distributions from Capital (0.01) - -
Distributions from net realized capital gains (0.19) - -
------- ------
Total distributions (0.28) - -
------- ------
NET ASSET VALUE AT END OF PERIOD $ 8.18 $10.55
======= ======
Total return (19.91)% 5.50%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $15,020 $3,505
Ratios of expenses to average net assets
After advisory/administration fee waivers 2.06% 2.00%/2/
Before advisory/administration fee waivers 2.30% 2.98%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 1.72% 1.10%/2/
Before advisory/administration fee waivers 1.48% 0.12%/2/
PORTFOLIO TURNOVER RATE 75% 4%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SELECT EQUITY PORTFOLIO
(FORMERLY, THE CORE EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR YEAR 9/15/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.92 $ 9.97 $10.00
------- ------- ------
Income from investment operations
Net investment income 0.22 0.19 - -
Net gain (loss) on investments (both realized
and unrealized) 2.05 (0.04) (0.03)
------- ------- ------
Total from investment operations 2.27 0.15 (0.03)
------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.19) (0.20) - -
Distributions from net realized capital gains (0.12) - - - -
------- ------- ------
Total distributions (0.31) (0.20) - -
------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 11.88 $ 9.92 $ 9.97
======= ======= ======
Total return 23.43% 1.55% (.30)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $83,705 $49,293 $ 704
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.95% 0.90% 0.90%/2/
Before advisory/administration fee waivers 1.13% 1.18% 1.12%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 2.10% 1.96% 1.92%/2/
Before advisory/administration fee waivers 1.91% 1.68% 1.70%/2/
PORTFOLIO TURNOVER RATE 51% 88% 2%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
15
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.93 $ 11.02 $ 10.76
------- ------- -------
Income from investment operations
Net investment income 0.35 0.29 0.05
Net gain (loss) on investments (both realized
and unrealized) 2.73 0.02 0.29
------- ------- -------
Total from investment operations 3.08 0.31 0.34
------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.31) (0.29) (0.08)
Distributions from net realized capital gains (0.12) (0.11) - -
------- ------- -------
Total distributions (0.43) (0.40) (0.08)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.58 $ 10.93 $ 11.02
======= ======= =======
Total return 28.99% 2.78% 3.16%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $61,536 $27,376 $12,441
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.45% 0.40% 0.41%/2/
Before advisory/administration fee waivers 0.79% 0.77% 0.53%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 2.62% 2.49% 3.04%/2/
Before advisory/administration fee waivers 2.28% 2.12% 2.92%/2/
PORTFOLIO TURNOVER RATE 18% 17% 8%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
16
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 7/29/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.98 $ 12.42 $ 12.05
------- ------- -------
Income from investment operations
Net investment income 0.44 0.34 0.06
Net realized gain (loss) on investments 1.88 (0.38) 0.38
------- ------- -------
Total from investment operations 2.32 (0.04) 0.44
------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.44) (0.34) (0.07)
Distributions from net realized capital gains (0.14) (0.06) - -
------- ------- -------
Total distributions (0.58) (0.40) (0.07)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.72 $ 11.98 $ 12.42
======= ======= =======
Total return 19.94% (0.36)% 3.66%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $85,668 $66,024 $15,842
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.94% 0.90% 0.93%/2/
Before advisory/administration fee waivers 1.16% 1.16% 1.11%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 3.49% 2.96% 2.75%/2/
Before advisory/administration fee waivers 3.28% 2.70% 2.57%/2/
PORTFOLIO TURNOVER RATE 154% 54% 32%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
17
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 28 portfolios and
has been structured to include many different investment
styles so that investors may participate across multiple dis-
ciplines in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of nine
investment portfolios that provide investors with a broad
spectrum of investment alternatives within the equity sector.
Six of these Portfolios invest primarily in U.S. stocks, two
Portfolios invest in non-U.S. international stocks and one
Portfolio invests in a combination of U.S. stocks and bonds.
In certain investment cycles and over certain holding periods,
an equity fund that invests according to a "value" style or a
"growth" style may perform above or below the market. An in-
vestment program that combines these multiple disciplines al-
lows investors to select from among these various product op-
tions in the way that most closely fits the investor's goals
and sentiments.
INVESTMENT Each of the nine Compass Capital Equity Portfolios seeks to
OBJECTIVES provide long-term Capital Appreciation.
The Select Equity and Value Equity Portfolios pursue a second-
ary objective of Current Income from dividends.
The Balanced Portfolio pursues a secondary objective of Cur-
rent Income from an allocation to fixed income securities.
To meet its investment objective, each Portfolio employs a
specific investment style, as described below. No assurance
can be made that a Portfolio will achieve its investment ob-
jective.
18
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
Value Equity Pursues equity Stocks with price/earnings Russell 1000
securities (defined as and price/book ratios at Value Index
common stocks or time of purchase below
securities convertible average for benchmark and
into common stocks) capitalization in excess
which the sub-adviser of $1 billion.
believes are
undervalued. A
security's earnings
trend and its dividend
growth rate will also be
factors considered in
security selection.
Growth Equity Pursues stocks with Stocks with growth rate Russell 1000
earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
stocks which the sub- capitalization in excess
adviser considers to of $1 billion.
have favorable and
above-average earnings
growth prospects.
Small Cap Pursues small cap stocks Stocks with price/earnings Russell 2000
Value Equity which the sub-adviser and price/book ratios at Index
believes are time of purchase below
undervalued. A average for benchmark and
security's earnings capitalization below $1
trend and its dividend billion.
growth rate will also be
factors considered in
security selection.
Small Cap Pursues small cap stocks Stocks with growth rate Russell 2000
Growth Equity with earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
small cap stocks which capitalization below $1
the sub-adviser billion.
considers to have
favorable and above-
average earnings growth
prospects.
International Pursues non-dollar Portfolio assets are EAFE Index
Equity denominated stocks of primarily invested in
issuers in countries international stocks.
included in the Morgan
Stanley Capital Stocks with price/earnings
International Europe, ratios below average for a
Australia and the Far security's home market or
East Index ("EAFE"). stock exchange.
Within this universe, a
value style of investing Diversification across
is employed to select countries, industry groups
stocks which the sub- and companies with
adviser believes are investment at all times in
undervalued. A at least three foreign
security's earnings countries.
trend and its dividend
growth rate will also be
factors considered in
security selection. The
sub-adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign
countries, expected
levels of inflation,
government policies
influencing business
conditions and the
outlook for currency
relationships.
</TABLE>
*For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
19
<PAGE>
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
International Pursues non-dollar Portfolio assets are MSCI
Emerging denominated stocks of primarily invested in International
Markets issuers in emerging stocks of emerging market Emerging
country markets issuers. Markets Free
(generally any country Index
considered to be Stocks with price/earnings
emerging or developing ratios below average for a
by the World Bank, the security's home market or
International Finance stock exchange.
Corporation or the
United Nations). Within Ordinarily, stocks of
this universe, a value issuers in at least three
style of investing is emerging markets will be
employed to select held.
stocks which the sub-
adviser believes are
undervalued. The sub-
adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign
countries, expected
levels of inflation,
government policies
influencing business
conditions and the
outlook for currency
relationships.
Select Equity Combines value and Similar sector weightings S&P 500 Index
growth style as sub- as benchmark, with over-
adviser identifies or under-weighting in
market opportunity. particular securities
within those sectors.
Index Equity Invests all of its Holds substantially all S&P 500 Index
assets directly or, the stocks of the S&P 500
after the 1996 Index in approximately the
conversion, indirectly same proportions as they
through the U.S. Large are represented in the
Company Series (the Index.
"Index Master
Portfolio") of The DFA
Investment Trust Company
in the stocks of the S&P
500 Index using a
passive investment style
that pursues the
replication of the S&P
500 Index return.
Balanced Holds a blend of equity Maintains a minimum 25% S&P 500 and
and fixed income investment in fixed income Salomon Broad
securities to deliver senior securities. Investment
total return through Grade Index
capital appreciation and
current income.
Equity Portion: Combines Equity Portion: Similar
value and growth style sector weightings as
as sub-adviser benchmark, with over- or
identifies market under weighting in
opportunity. particular securities
within those sectors.
Fixed Income Portion: Fixed Income Portion:
Combines sector rotation Dollar- denominated
and security selection investment grade bonds,
across a broad universe including U.S. Government,
of fixed income mortgage-backed, asset-
securities. backed and corporate debt
securities.
</TABLE>
*For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
20
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
The discussion below applies to each of the Portfolios (and, with respect to
the Index Equity Portfolio, its investment in the Index Master Portfolio) un-
less otherwise noted.
EQUITY SECURITIES. During normal market conditions each Portfolio, except the
Balanced Portfolio, will normally invest at least 80% of the value of its total
assets in equity securities. The Portfolios will invest primarily in equity se-
curities of U.S. issuers, except the International Equity and International
Emerging Markets Portfolios, which will invest primarily in foreign issuers.
Equity securities include common stock and preferred stock (including convert-
ible preferred stock); bonds, notes and debentures convertible into common or
preferred stock; stock purchase warrants and rights; equity interests in trusts
and partnerships; and depositary receipts of companies.
ADRS, EDRS AND GDRS. Each Portfolio (other than the Index Master Portfolio) may
invest in both sponsored and unsponsored American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar global instruments. ADRs typically are issued by an American bank
or trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental De-
pository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic un-
derlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR
and GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information con-
cerning the issuer may not be as current as for sponsored ADRs, EDRs and GDRs,
and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if
such instruments were sponsored by the issuer. Investments in ADRs, EDRs and
GDRs present additional investment considerations as described below under "In-
ternational Portfolios."
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, each Portfolio (other than the Index Master Portfolio) may write cov-
ered call options, buy put options, buy call options and write secured put op-
tions for the purpose of hedging or earning additional income, which may be
deemed speculative or, with respect to the International Equity and Interna-
tional Emerging Markets Portfolios, cross-hedging. These options may relate to
particular securities, financial instruments, foreign currencies, stock or bond
indices or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corporation,
which performs the obligations of its members if they default.
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<PAGE>
To the extent consistent with its investment objective, each Portfolio may also
invest in futures contracts and options on futures contracts to commit funds
awaiting investment in stocks or maintain cash liquidity or, except with re-
spect to the Index Master Portfolio, for other hedging purposes. The value of a
Portfolio's contracts may equal or exceed 100% of the Fund's total assets, al-
though a Portfolio will not purchase or sell a futures contract unless immedi-
ately afterwards the aggregate amount of margin deposits on its existing
futures positions plus the amount of premiums paid for related futures options
entered into for other than bona fide hedging purposes is 5% or less of its net
assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of securities, the cash value of a securities index or a stated quantity of a
foreign currency. A Portfolio may sell a futures contract in order to offset an
expected decrease in the value of its portfolio positions that might otherwise
result from a market decline or currency exchange fluctuation. A Portfolio may
do so either to hedge the value of its securities portfolio as a whole, or to
protect against declines occurring prior to sales of securities in the value of
the securities to be sold. In addition, a Portfolio may utilize futures con-
tracts in anticipation of changes in the composition of its holdings or in cur-
rency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
LIQUIDITY MANAGEMENT. Pending investment, to meet anticipated redemption re-
quests, or, in the case of all Portfolios except the Index Master Portfolio, as
a temporary defensive measure if its sub-adviser determines that market condi-
tions warrant, a Portfolio may also invest without limitation in high quality
money market instruments. The Balanced Portfolio may also invest in these secu-
rities in furtherance of its investment objective.
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<PAGE>
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign is-
suers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper, repurchase
agreements and obligations of supranational organizations. Generally, such ob-
ligations will mature within one year from the date of settlement, but may ma-
ture within two years from the date of settlement. Under a repurchase agree-
ment, a Portfolio agrees to purchase debt securities from financial institu-
tions subject to the seller's agreement to repurchase them at an agreed upon
time and price. Repurchase agreements are, in substance, loans. Default by or
bankruptcy of a seller would expose a Portfolio to possible loss because of ad-
verse market action, expenses and/or delays in connection with the disposition
of the underlying obligations.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio (other than the
Index Master Portfolio) may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Portfolio to purchase or sell particular secu-
rities with payment and delivery taking place at a future date (perhaps one or
two months later), and permit a Portfolio to lock in a price or yield on a se-
curity it owns or intends to purchase, regardless of future changes in interest
rates. When-issued and forward commitment transactions involve the risk, howev-
er, that the price or yield obtained in a transaction may be less favorable
than the price or yield available in the market when the securities delivery
takes place. Each Portfolio's when-issued purchases and forward commitments are
not expected to exceed 25% of the value of its total assets absent unusual mar-
ket conditions. The Portfolios do not intend to engage in when-issued purchases
and forward commitments for speculative purposes but only in furtherance of
their investment objectives.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made by the Balanced Portfolio through reverse repurchase agreements un-
der which a Portfolio sells portfolio securities to financial institutions such
as banks and broker-dealers and agrees to repurchase them at a particular date
and price. The Balanced Portfolio may use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, on a date simultaneous with or prior to the expiration of the re-
verse repurchase agreement. The Balanced Portfolio may utilize reverse repur-
chase agreements when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the in-
terest expense of the transaction. This use of reverse repurchase agreements
may be regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds will be less than the interest expense, that the market value
of the securities sold by the Balanced Portfolio may decline below the price of
the securities the Portfolio is obligated to repurchase and that the securities
may not be returned to the Portfolio. During the time a reverse repurchase
agreement is outstanding, the Balanced Portfolio will main-
23
<PAGE>
tain a segregated account with the Fund's custodian containing cash, U.S. Gov-
ernment or other appropriate liquid high-grade debt securities having a value
at least equal to the repurchase price. A Portfolio's reverse repurchase agree-
ments, together with any other borrowings, will not exceed, in the aggregate,
33 1/3% of the value of its total assets. In addition, whenever borrowings ex-
ceed 5% of a Portfolio's total assets, the Portfolios (other than the Balanced
Portfolio) will not make any investments.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolios (other than the Index Master Portfolio) may invest in
securities issued by other investment companies which invest in short-term debt
securities and which seek to maintain a $1.00 net asset value per share. The
International Equity and International Emerging Markets Portfolios may purchase
shares of investment companies investing primarily in foreign securities, in-
cluding so-called "country funds." Country funds have portfolios consisting ex-
clusively of securities of issuers located in one foreign country. The Index
Equity Portfolio may also invest in Standard & Poor's Depository Receipts
(SPDRs) and shares of other investment companies that are structured to seek a
similar correlation to the performance of the S&P 500 Index. Securities of
other investment companies will be acquired within limits prescribed by the In-
vestment Company Act of 1940 (the "1940 Act"). As a shareholder of another in-
vestment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the expenses each bears directly
in connection with its own operations.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or (ex-
cept for the Index Master Portfolio) irrevocable bank letters of credit main-
tained on a current basis equal in value to at least the market value of the
loaned securities. A Portfolio may not make such loans in excess of 33 1/3% of
the value of its total assets. Securities loans involve risks of delay in re-
ceiving additional collateral or in recovering the loaned securities, or possi-
bly loss of rights in the collateral if the borrower of the securities becomes
insolvent.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% (10% with
respect to the Index Master Portfolio) of the value of its net assets in secu-
rities that are illiquid. Variable and floating rate instruments that cannot be
disposed of within seven days, and repurchase agreements and time deposits that
do not provide for payment within seven days after notice, without taking a re-
duced price, are subject to these limits. Each Portfolio may purchase securi-
ties which are not registered under the Securities Act of 1933 (the "1933 Act")
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by the adviser or sub-adviser, acting under guide-
lines approved and monitored by the Board, that an adequate trading market ex-
ists for that security. This investment practice could have the effect of in-
creasing the level of illiquidity in a Portfolio during any period that quali-
fied institutional buyers become uninterested in purchasing these restricted
securities.
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<PAGE>
SMALL CAP GROWTH EQUITY AND SMALL CAP EQUITY VALUE PORTFOLIOS. Under normal
market conditions, the Small Cap Growth Equity Portfolio and Small Cap Value
Equity Portfolio will invest at least 90% (and in any event at least 65%) of
their respective total assets in equity securities of smaller-capitalized orga-
nizations (less than $1 billion at the time of purchase). These organizations
will normally have limited product lines, markets and financial resources and
will be dependent upon a limited management group.
INDEX EQUITY AND INDEX MASTER PORTFOLIOS. During normal market conditions, the
Index Equity Portfolio and Index Master Portfolio (in which all of the assets
of the Index Equity Portfolio will be invested after its 1996 conversion) in-
vest at least 95% of the value of their total assets in securities included in
the Standard & Poor's 500 (R) Composite Stock Price Index (the "S&P 500 In-
dex"). The Index Master Portfolio intends to invest in all of the stocks that
comprise the S&P 500 Index in approximately the same proportion as they are
represented in the Index. These Portfolios will operate as index portfolios
and, therefore, are not actively managed (through the use of economic, finan-
cial or market analysis), and adverse performance will ordinarily not result in
the elimination of a stock from the Portfolios. The Portfolios will remain
fully invested in common stocks even when stock prices are generally falling.
Ordinarily, portfolio securities will not be sold except to reflect additions
or deletions of the stocks that comprise the S&P 500 Index, including mergers,
reorganizations and similar transactions and, to the extent necessary, to pro-
vide cash to pay redemptions of a Portfolio's shares. The investment perfor-
mance of the Index Master Portfolio and the Index Equity Portfolio is expected
to approximate the investment performance of the S&P 500 Index, which tends to
be cyclical in nature, reflecting periods when stock prices generally rise or
fall.
Neither the Index Equity Portfolio nor the Index Master Portfolio are spon-
sored, endorsed, sold or promoted by S&P. S&P makes no representation or war-
ranty, express or implied, to the owners of the Index Equity Portfolio or the
Index Master Portfolio or any member of the public regarding the advisability
of investing in securities generally or in the Index Equity Portfolio or the
Index Master Portfolio particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to the Index
Equity Portfolio or the Index Master Portfolio is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Index Equity Portfolio or
the Index Master Portfolio. S&P has no obligation to take the needs of the In-
dex Equity Portfolio or the Index Master Portfolio or their respective owners
into consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of the
prices and amount of the Index Equity Portfolio or the Index Master Portfolio
or the timing of the issuance or sale of the Index Equity Portfolio or the In-
dex Master Portfolio or in the determination or calculation of the equation by
which the Index Equity Portfolio or the Index Master Portfolio is to be con-
verted into cash. S&P has no obligation or liability in connection with the ad-
ministration, marketing or trading of the Index Equity Portfolio or Index Mas-
ter Portfolio.
25
<PAGE>
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 IN-
DEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ER-
RORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IM-
PLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMIT-
ING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPE-
CIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INTERNATIONAL PORTFOLIOS. During normal market conditions, the International
Equity Portfolio and International Emerging Markets Portfolio (the "Interna-
tional Portfolios") will invest at least 90% (and in any event at least 65%) of
their total assets in equity securities of foreign issuers. Investing in for-
eign securities involves considerations not typically associated with investing
in securities of companies organized and operated in the United States. Because
foreign securities generally are denominated and pay dividends or interest in
foreign currencies, the value of a Portfolio that invests in foreign securities
as measured in U.S. dollars will be affected favorably or unfavorably by
changes in exchange rates.
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitation on the removal of funds or as-
sets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations.
In general, less information is publicly available with respect to foreign is-
suers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting require-
ments applicable to issuers in the United States. While the volume of transac-
tions effected on foreign stock exchanges has increased in recent years, it re-
mains appreciably below that of the New York Stock Exchange. Accordingly, a
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In addi-
tion, there is generally less government supervision and regulation of securi-
ties exchanges, brokers and issuers in foreign countries than in the United
States.
The expense ratios of the International Equity and International Emerging Mar-
kets Portfolios can be expected to be higher than those of Portfolios investing
primarily in domestic securities. The costs attributable to investing abroad
are usually higher for several reasons, such as the higher cost of investment
research, higher cost of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.
26
<PAGE>
As stated, the International Emerging Markets Portfolio will invest its assets
in countries with emerging economies or securities markets. These countries may
include Argentina, Brazil, Bulgaria, Chile, China, Colombia, The Czech Repub-
lic, Ecuador, Greece, Hungary, India, Israel, Lebanon, Malaysia, Mexico, Moroc-
co, Peru, The Philippines, Poland, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and eco-
nomic structures in many of these countries may be undergoing significant evo-
lution and rapid development, and these countries may lack the social, politi-
cal and economic stability characteristic of more developed countries. Some of
these countries may have in the past failed to recognize private property
rights and have at times nationalized or expropriated the assets of private
companies. As a result, the risks described above, including the risks of na-
tionalization or expropriation of assets, may be heightened. In addition, unan-
ticipated political or social developments may affect the value of investments
in these countries and the availability to the Portfolio of additional invest-
ments in emerging market countries. The small size and inexperience of the se-
curities markets in certain of these countries and the limited volume of trad-
ing in securities in these countries may make investments in the countries il-
liquid and more volatile than investments in Japan or most Western European
countries. There may be little financial or accounting information available
with respect to issuers located in certain emerging market countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.
The International Equity Portfolio invests primarily in equity securities of
issuers located in countries included in EAFE. Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, New
Zealand, Norway, Singapore, Malaysia, Spain, Sweden, Switzerland and the United
Kingdom are currently included in EAFE.
The International Equity and International Emerging Markets Portfolios may use
forward foreign currency exchange contracts to hedge against movements in the
value of foreign currencies (including the European Currency Unit (ECU)) rela-
tive to the U.S. dollar in connection with specific portfolio transactions or
with respect to portfolio positions. A forward foreign currency exchange con-
tract involves an obligation to purchase or sell a specified currency at a fu-
ture date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Portfolio to establish a rate of exchange for a future
point in time.
BALANCED PORTFOLIO. Fixed income securities purchased by the Balanced Portfolio
may include domestic and dollar-denominated foreign debt securities, including
bonds, debentures, notes, equipment lease and trust certificates, mortgage-re-
lated and asset-backed securities, guaranteed investment contracts (GICs) and
obligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities. These securities will be rated at the time of purchase within
the four highest rating groups assigned by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or another nationally rec-
ognized statistical rating agency. If unrated, the securities will be deter-
mined at the time of purchase to be of comparable quality by the sub-adviser.
Securities rated "Baa" by Moody's or "BBB" by S&P, respectively, are generally
considered to be investment grade although they have speculative characteris-
tics. If a fixed income security is reduced below Baa by Moody's or BBB by S&P,
the Portfo-
27
<PAGE>
lio's sub-adviser will dispose of the security in an orderly fashion as soon as
practicable. Investments in securities of foreign issuers, which present addi-
tional investment considerations as described above under "International Port-
folios," will be limited to 5% of the Portfolio's total assets.
The market value of the Balanced Portfolio's investments in fixed income corpo-
rate and other securities will change in response to changes in interest rates
and the relative financial strength of each issuer. During periods of falling
interest rates, the values of long-term fixed income securities generally rise.
Conversely, during periods of rising interest rates the values of such securi-
ties generally decline. Changes in the financial strength of an issuer or
changes in the ratings of any particular security may also affect the value of
these investments.
The Balanced Portfolio may purchase asset-backed securities (i.e., securities
backed by home equity loans, installment sale contracts, credit card receiv-
ables or other assets). The average life of asset-backed securities varies with
the maturities of the underlying instruments which, in the case of mortgages,
have maximum maturities of forty years. The average life of a mortgage-backed
instrument, in particular, is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
scheduled principal payments and mortgage prepayments. The rate of such mort-
gage prepayments, and hence the life of the certificates, will be primarily a
function of current market rates and current conditions in the relevant housing
markets. The relationship between mortgage prepayment and interest rates may
give some high-yielding mortgage-related securities less potential for growth
in value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of mortgage prepayment tends to in-
crease. During such periods, the reinvestment of prepayment proceeds by the
Balanced Portfolio will generally be at lower rates than the rates that were
carried by the obligations that have been prepaid. Because of these and other
reasons, an asset-backed security's total return may be difficult to predict
precisely. To the extent that the Balanced Portfolio purchases mortgage-related
or mortgage-backed securities at a premium, mortgage prepayments (which may be
made at any time without penalty) may result in some loss of the Balanced Port-
folio's principal investment to the extent of premium paid.
Presently there are several types of mortgage-backed securities including: (i)
those that are issued or guaranteed by U.S. Government agencies, including
guaranteed mortgage pass-through certificates, which provide the holder with a
pro rata interest in the underlying mortgages; and (ii) collateralized mortgage
obligations ("CMOs"), which provide the holder with a specified interest in the
cash flow of a pool of underlying mortgages or other mortgage-backed securi-
ties. Issuers of CMOs frequently elect to be taxed as a pass-through entity
known as real estate mortgage investment conduits, or REMICs. CMOs are issued
in multiple classes, each with a specified fixed or floating interest rate and
a final distribution date. The relative payment rights of the various CMO clas-
ses may be structured in many ways. In most cases, however, payments of princi-
pal are applied to the CMO classes in the order of their respective stated ma-
turities, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. The
classes may include accrual certificates (also known as "Z-Bonds"), which only
accrue interest at a specified rate until other specified
28
<PAGE>
classes have been retired and are converted thereafter to interest-paying secu-
rities. They may also include planned amortization classes ("PACs") which gen-
erally require, within certain limits, that specified amounts of principal be
applied on each payment date, and generally exhibit less yield and market vola-
tility than other classes.
The Balanced Fund may also purchase obligations issued or guaranteed by the
U.S. Government and U.S. Government agencies and instrumentalities. Obligations
of certain agencies and instrumentalities of the U.S. Government, such as those
of the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the Export-Im-
port Bank of the United States, are supported by the right of the issuer to
borrow from the U.S. Treasury; and still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored instru-
mentalities if it is not obligated to do so by law. Certain U.S. Treasury and
agency securities may be held by trusts that issue participation certificates
(such as Treasury income growth receipts ("TIGRs") and certificates of accrual
on Treasury certificates ("CATs")). The Balanced Portfolio may purchase these
certificates and may also purchase Treasury receipts and other stripped securi-
ties, which represent beneficial ownership interests in either future interest
payments or the future principal payments on U.S. Government obligations. These
instruments are issued at a discount to their "face value" and may (particu-
larly in the case of stripped mortgage-backed securities) exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
The Balanced Portfolio may also purchase zero-coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments). Zero-coupon bonds are
subject to greater market fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of inter-
est.
To take advantage of attractive opportunities in the mortgage market and to en-
hance current income, the Balanced Portfolio may enter into dollar roll trans-
actions. A dollar roll transaction involves a sale by the Portfolio of a mort-
gage-backed or other security concurrently with an agreement by the Portfolio
to repurchase a similar security at a later date at an agreed-upon price. The
securities that are repurchased will bear the same interest rate and stated ma-
turity as those sold, but pools of mortgages collateralizing such securities
may have different prepayment histories than those sold. During the period be-
tween the sale and repurchase, the Portfolio will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in additional instruments for the Portfolio, and the income
from these investments will generate income for the Portfolio. If such income
does not exceed the income, capital appreciation and gain or loss that would
have been realized on the securities sold as part of the dollar roll, the use
of this technique will diminish the investment performance of the Portfolio
compared with what the performance would have been without the use of dollar
rolls. At the time that the Portfolio enters into a dollar roll transaction, it
will place in a segregated account maintained with its custodian cash, U.S.
Government securities or other
29
<PAGE>
liquid high grade debt obligations having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account to en-
sure that its value is maintained. The Portfolio's dollar rolls, together with
its reverse repurchase agreements and other borrowings, will not exceed, in the
aggregate, 33 1/3% of the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Portfo-
lio sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted and the instruments which the Portfolio
is required to repurchase may be worth less than an instrument which the Port-
folio originally held when the Portfolio is able to complete the purchase. Suc-
cessful use of mortgage dollar rolls may depend upon a sub-adviser's ability to
correctly predict interest rates and prepayments. There is no assurance that
dollar rolls can be successfully employed.
PORTFOLIO TURNOVER RATES. Under normal market conditions, it is expected that
the annual portfolio turnover rate for each Portfolio (including both the eq-
uity and fixed income portions of the Balanced Portfolio in the aggregate) and
for the Index Master Portfolio will not exceed 150%. A Portfolio's annual port-
folio turnover rate will not, however, be a factor preventing a sale or pur-
chase when the adviser or sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates (i.e.,
over 100%) will generally result in higher transaction costs to a Portfolio.
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<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's (other than the Index Master Portfolio) investment objective and
policies may be changed by the Fund's Board of Trustees without shareholder ap-
proval. However, shareholders will be given at least 30 days' notice before any
such change. The investment objective of the Index Master Portfolio may not be
changed without the approval of shareholders of that Portfolio. No assurance
can be provided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) subject to the foregoing 25% exception (other than with respect to the In-
dex Master Portfolio), purchase more than 10% of the outstanding voting se-
curities of any issuer;
(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(4) borrow money in amounts over one-third of the value of its total assets at
the time of such borrowing.
These investment limitations are applied at the time investment securities are
purchased. Notwithstanding the investment limitations, the Index Equity Portfo-
lio may invest all of its assets in shares of an open-end management investment
company with substantially the same investment objective, policies and limita-
tions of that Portfolio.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any commitment is no
longer in the best interests of a Portfolio, it will revoke the commitment by
terminating sales of shares of the Portfolio in the state involved.
31
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund and of The DFA Investment
TRUSTEES Trust Company (in which the assets of the Fund's Index Equity
Portfolio will be invested after its 1996 conversion) are man-
aged under the direction of their separate Boards of Trustees.
The following individuals were elected by shareholders on Jan-
uary 4, 1996 to serve as trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Offi-
cer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School,
University of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
The Statement of Additional Information furnishes additional
information about the trustees and officers of both the Fund
and The DFA Investment Trust Company.
ADVISER AND The Adviser to Compass Capital Funds is PNC Asset Management
SUB-ADVISERS Group ("PAMG"), except with respect to the Index Equity Port-
folio. Each of the Portfolios within the Compass Capital Fund
family is managed by a specialized portfolio manager who is a
member of one of PAMG's portfolio management subsidiaries.
The Portfolios (other than the Index Equity Portfolio) and
their investment sub-advisers and portfolio managers are as
follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- --------------- -----------------
<S> <C> <C>
Value Equity PCM(/1/) Earl J. Gaskins; Vice President of
PCM since 1985; Portfolio co-manager
since 1994.
Benedict E. Capaldi; Vice President
of PCM since 1995; prior to joining
PCM, Senior Vice President and
portfolio manager with Radnor
Capital Management, President of
Chestnut Hill Advisors, Inc. and
Managing Director of Brandywine
Asset Management, Inc.; Portfolio
co-manager since 1995.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- -------------------- -----------------
<S> <C> <C>
Growth Equity PEAC(/2/) Robert K. Urquhart; Managing
Director of PEAC's Large Cap Growth
Equity Investments area since 1995;
prior to joining PEAC, Chief
Investment Officer and partner of
Cole Financial Group, Inc., a
partner of Seacliff Holdings, Inc.
and of RCM Capital Management;
Portfolio manager since 1995.
Small Cap Value Equity PCM(/1/) Susan D. Menzies; Vice President of
PCM since 1985; Portfolio manager
since 1994.
Small Cap Growth Equity PEAC(/2/) William J. Wykle; investment manager
with PEAC since 1995; investment
manager with PNC Bank, National
Association from 1986 to 1995;
Portfolio manager since its
inception.
International Equity PCM(/1/) William George Greig; Vice President
of PCM; prior to joining PCM,
Managing Partner of Akamai
International, Investment Director
of The Framlington Group and
Research Director with Pilgrim
Baxter & Associates; Portfolio
manager since 1995.
International Emerging PCM(/1/) William George Greig (see above);
Markets Portfolio manager since its
inception.
Select Equity PCM(/1/) Daniel B. Eagan; portfolio manager
with PCM since 1995; director of
investment strategy at PAMG during
1995; portfolio manager with PEAC
during 1995; Portfolio manager since
1995.
Balanced PCM and Daniel B. Eagan (see above);
BlackRock(/1/) (/3/) Portfolio co-manager since 1994.
Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-
manager since 1995.
Keith T. Anderson; Managing Director
and co-chair of Portfolio Management
Group and Investment Strategy
Committee of BlackRock since 1988;
Portfolio co-manager since 1995.
</TABLE>
(1) Provident Capital Management, Inc. ("PCM") has its primary offices at 1700
Market Street, 27th Floor, Philadelphia, PA 19103.
(2) PNC Equity Advisors Company ("PEAC") has its primary offices at 1835 Market
Street, 15th Floor, Philadelphia, PA 19103.
(3) BlackRock Financial Management, Inc. ("BlackRock") has its primary offices
at 345 Park Avenue, New York, New York 10154.
33
<PAGE>
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1835
Market Street, Philadelphia, Pennsylvania 19103. PAMG is an
indirect wholly-owned subsidiary of PNC Bank Corp., a multi-
bank holding company.
PNC Institutional Management Corporation ("PIMC") and PEAC
will serve as adviser and sub-adviser, respectively, to the
Index Equity Portfolio until its 1996 conversion. The princi-
pal business address of PIMC is 400 Bellevue Parkway, Wilming-
ton, Delaware 19809.
For their investment advisory and sub-advisory services, PAMG,
PIMC and the Portfolios' sub-advisers are entitled to fees,
computed daily on a portfolio-by-portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG,
PIMC and the sub-advisers intend to waive a portion of their
fees during the current fiscal year. All sub-advisory fees are
paid by PAMG and PIMC, and do not represent an extra charge to
the Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH
PORTFOLIO EXCEPT THE INDEX EQUITY PORTFOLIO AND THE
INTERNATIONAL PORTFOLIOS (BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Advisory Fee Fee
------------ ------------
<S> <C> <C>
Average Daily Net Assets
first $1 billion .550% .400%
$1 billion--$2 billion .500 .350
$2 billion--$3 billion .475 .325
greater than $3 billion .450 .300
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE
INTERNATIONAL EQUITY PORTFOLIO
(BEFORE WAIVERS)
<CAPTION>
Investment Sub-Advisory
Advisory Fee Fee
------------ ------------
<S> <C> <C>
Average Daily Net Assets
first $1 billion .750% .600%
$1 billion--$2 billion .700 .550
$2 billion--$3 billion .675 .525
greater than $3 billion .650 .500
</TABLE>
34
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE
INTERNATIONAL EMERGING MARKETS PORTFOLIO
(BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Average Daily Net Assets Advisory Fee Fee
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion 1.250% 1.100%
$1 billion -- $2 billion 1.200 1.050
$2 billion -- $3 billion 1.155 1.005
greater than $3 billion 1.100 0.950
</TABLE>
For its advisory services to the Index Equity Portfolio, PIMC is
entitled to advisory fees, computed daily and payable monthly,
at the annual rate of .20% of the Portfolio's average daily net
assets. As sub-adviser to the Index Equity Portfolio, PEAC is
entitled to receive from PIMC a fee, computed daily and payable
monthly, at the annual rate of .15% of the Portfolio's average
daily net assets. The Portfolio will no longer pay advisory fees
to PIMC after its 1996 conversion.
Although the advisory fee rate payable by the International
Emerging Markets Portfolio is higher than the rate payable by
mutual funds investing in domestic securities, the Fund believes
it is comparable to the rates paid by many other funds with sim-
ilar investment objectives and policies and is appropriate for
the Portfolio in light of its investment objective and policies.
For their last fiscal year the Portfolios paid investment advi-
sory fees at the following annual rates (expressed as a percent-
age of average daily net assets) after voluntary fee waivers:
Value Equity Portfolio, .44%; Growth Equity Portfolio, .40%;
Small Cap Value Equity Portfolio, .50%; Small Cap Growth Equity
Portfolio, .45%; International Equity Portfolio, .60%; Interna-
tional Emerging Markets Portfolio, 1.04%; Select Equity Portfo-
lio, .40%; Index Equity Portfolio, .05%; and Balanced Portfolio,
.40%.
The sub-advisers to each Portfolio strive to achieve best execu-
tion on all transactions. Infrequently, brokerage transactions
for the Portfolios may be directed through registered
broker/dealers who have entered into dealer agreements with Com-
pass Capital's distributor.
ADVISER TO Dimensional Fund Advisors, Inc. ("DFA"), located at 1299 Ocean
INDEX Avenue, 11th Floor, Santa Monica, CA 90401, serves as investment
MASTER adviser to the Index Master Portfolio.
PORTFOLIO
DFA was organized in May 1981 and is engaged in the business of
providing investment management services to institutional in-
vestors.
35
<PAGE>
DFA's assets under management totalled approximately $13 bil-
lion at October 31, 1995. David G. Booth and Rex A.
Sinquefield, both of whom are trustees and officers of The DFA
Investment Trust Company and directors and officers of DFA,
together own approximately 61% of DFA's outstanding stock and
may be deemed controlling persons of DFA.
Investment decisions for the Index Master Portfolio are made
by the Investment Committee of DFA which meets on a regular
basis and also as needed to consider investment issues. The
Investment Committee is composed of certain officers and di-
rectors of DFA who are elected annually. DFA provides the In-
dex Master Portfolio with a trading department and selects
brokers and dealers to effect securities transactions.
For the investment advisory services provided to the Index
Master Portfolio under the advisory agreement, DFA is entitled
to receive a fee at the annual rate of .025% of the Index Mas-
ter Portfolio's average daily net assets. For the Index Master
Portfolio's fiscal year ended November 30, 1995, DFA received
a fee for its investment advisory services which, on an annual
basis, equaled .025% of the Index Master Portfolio's average
daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the Fund's co-administrators. CCG and PFPC are indi-
rect wholly-owned subsidiaries of PNC Bank Corp. CDI is a
wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). A majority of the outstanding stock of PDI is owned
by its officers and the remaining outstanding stock is owned
by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating
to the maintenance of financial records and fund accounting.
As compensation for these services, CCG is entitled to receive
a fee, computed daily and payable monthly, at an annual rate
of .03% of each Portfolio's average daily net assets, and PFPC
and CDI are entitled to receive a combined fee, computed daily
and payable monthly, at an annual rate of .20% of the first
$500 million of each Portfolio's average daily net assets,
.18% of the next $500 million of each Portfolio's average
daily net assets, .16% of the next $1 billion of each Portfo-
lio's average daily net assets and .15% of each Portfolio's
average daily net assets in excess of $2 billion. From time to
time the Administrators may waive some or all of their admin-
istration fees from a Portfolio. PFPC serves as the adminis-
trative services, dividend disbursing and transfer agent to
the Index Master Portfolio, for which PFPC will be entitled to
compensation at the annual rate of .015% of the Index Master
Portfolio's average daily net assets (at the time of the Index
Equity Portfolio's conversion).
36
<PAGE>
For information about the operating expenses the Portfolios ex-
pect to pay for the current fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
SHAREHOLDER The Fund intends to enter into service agreements with institu-
SERVICING tional investors ("Institutions") (including PNC Bank, National
Association and its affiliates) which provide that the Institu-
tions will render support services to their customers who are
the beneficial owners of Service Shares. These services are in-
tended to supplement the services provided by the Fund's Admin-
istrators and transfer agent to the Fund's shareholders of rec-
ord. In consideration for payment of a shareholder processing
fee of up to .15% (on an annualized basis) of the average daily
net asset value of Service Shares owned beneficially by their
customers, Institutions may provide one or more of the following
services: processing purchase and redemption requests from cus-
tomers and placing orders with the Fund's transfer agent or the
distributor; processing dividend payments from the Fund on be-
half of customers; providing sub-accounting with respect to
Service Shares beneficially owned by customers or the informa-
tion necessary for sub-accounting; and other similar services.
In consideration for payment of a separate shareholder servicing
fee of up to .15% (on an annualized basis) of the average daily
net asset value of Service Shares owned beneficially by their
customers, Institutions may provide one or more of these addi-
tional services to such customers: responding to customer inqui-
ries relating to the services performed by the Institution and
to customer inquiries concerning their investments in Service
Shares; providing information periodically to customers showing
their positions in Service Shares; and other similar shareholder
liaison services. Customers who are beneficial owners of Service
Shares should read this Prospectus in light of the terms and
fees governing their accounts with Institutions.
Conflict-of-interest restrictions may apply to the receipt of
compensation paid by the Fund in connection with the investment
of fiduciary funds in Portfolio shares. Institutions, including
banks regulated by the Comptroller of the Currency, Federal Re-
serve Board and state banking commissions, and investment advis-
ers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor or state securities commissions,
are urged to consult their legal counsel before entering into
agreements with the Fund.
37
<PAGE>
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Institutions under their service agreements will not be
prohibited under these laws. However, state securities laws
may differ from the interpretations of Federal law on this is-
sue, and banks and financial institutions may be required to
register as dealers pursuant to state law.
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to the investment adviser
and the Administrators, transfer agency and custodian fees,
trustee fees, taxes, interest, professional fees, shareholder
servicing and processing fees, fees and expenses in register-
ing and qualifying the Portfolios and their shares for distri-
bution under Federal and state securities laws, expenses of
preparing prospectuses and statements of additional informa-
tion and of printing and distributing prospectuses and state-
ments of additional information to existing shareholders, ex-
penses relating to shareholder reports, shareholder meetings
and proxy solicitations, insurance premiums, the expense of
independent pricing services, and other expenses which are not
expressly assumed by PAMG or the Fund's service providers un-
der their agreements with the Fund. Any general expenses of
the Fund that do not belong to a particular investment portfo-
lio will be allocated among all investment portfolios by or
under the direction of the Board of Trustees in a manner the
Board determines to be fair and equitable.
38
<PAGE>
How Are Shares Purchased And Redeemed?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Plan permits CDI, PAMG, the Administrators and other
companies that receive fees from the Fund to make payments relating to distri-
bution and sales support activities out of their past profits or other sources
available to them. The Fund is not required or permitted under the Plan to make
distribution payments with respect to Service Shares.
PURCHASE OF SHARES. Service Shares are offered without a sales load to
Institutions acting on behalf of their customers, as well as to certain persons
who were shareholders of Compass Capital Group of Funds at the time of its
combination with The PNC(R) Fund during the first quarter of 1996. Service
Shares will normally be held of record by Institutions or in the names of
nominees of Institutions. Share purchases are normally effected through a
customer's account at an Institution through procedures established in
connection with the requirements of the account. In these cases, confirmations
of share purchases and redemptions will be sent to the Institutions. Beneficial
ownership of shares will be recorded by the Institutions and reflected in the
account statements provided by such Institutions to their customers. Investors
wishing to purchase shares should contact their Institutions.
Service Shares are sold at their net asset value per share next computed after
an order is received by PFPC. Orders received by PFPC by 4:00 p.m. (Eastern
Time) on a Business Day are priced the same day. A "Business Day" is any week-
day that the New York Stock Exchange (the "NYSE") and the Federal Reserve Bank
of Philadelphia (the "FRB") are open for business. Purchase orders may be
placed by telephoning PFPC at (800) 441-7450. Orders received by PFPC after
4:00 p.m. (Eastern Time) are priced on the following Business Day.
Payment for Service Shares must normally be made in Federal funds or other
funds immediately available to the Fund's custodian. Payment may also, in the
discretion of the Fund, be made in the form of securities that are permissible
investments for the respective Portfolios. For further information, see the
Statement of Additional Information. The minimum initial investment is $5,000;
however, Institutions may set a higher minimum for their customers. There is no
minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Service Shares.
REDEMPTION OF SHARES. Customers of Institutions may redeem Service Shares in
accordance with the procedures applicable to their accounts with the
Institutions. These procedures will vary according to the type of account and
the Institution involved, and customers should consult their account managers
in this regard. It is the responsibility of Institutions to transmit
39
<PAGE>
redemption orders to PFPC and credit their customers' accounts with redemption
proceeds on a timely basis. In the case of shareholders holding share
certificates, the certificates must accompany the redemption request.
Institutions may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The Fund, the Administrators and the
Distributor will employ reasonable procedures to confirm that instructions com-
municated by telephone are genuine. The Fund and its service providers will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such
procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the next Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received after 4:00 p.m. (Eastern Time) or on a day when the Fund's custo-
dian is closed is normally wired in Federal funds on the next Business Day fol-
lowing redemption on which the Fund's custodian is open for business. The Fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgment of PAMG, an earlier payment could
adversely affect a Portfolio. No charge for wiring redemption payments is im-
posed by the Fund, although Institutions may charge their customer accounts for
redemption services. Information relating to such redemption services and
charges, if any, should be obtained by customers from their Institutions.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
400 Bellevue Parkway, Wilmington, DE 19809.
The Fund may redeem Service Shares in any Portfolio account if the account bal-
ance drops below $5,000 as the result of redemption requests and the share-
holder does not increase the balance to at least $5,000 upon thirty days' writ-
ten notice. If a customer has agreed with an Institution to maintain a minimum
balance in his or her account with the Institution, and the balance in the ac-
count falls below that minimum, the customer may be obligated to redeem all or
part of his or her shares in the Portfolios to the extent necessary to maintain
the minimum balance required.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
40
<PAGE>
What Special Purchase And Redemption Procedures May Apply?
- --------------------------------------------------------------------------------
Persons who were shareholders of an investment portfolio of the Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC(R) Fund
may also purchase and redeem Service Shares of the same Portfolio and for the
same account in which they held shares on that date through the procedures de-
scribed in this section.
PURCHASES. Purchase orders may be placed through PFPC. The minimum investment
is $100. Purchases through the Automatic Investment Plan described below are
subject to a lower purchase minimum. The name of the Portfolio with respect to
which shares are purchased must appear on the check or Federal Reserve Draft.
Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, class of
the Portfolio, the name of the account registration, and the shareholder ac-
count number. Before wiring any funds, however, an investor must call PFPC at
(800) 441-7762 in order to confirm the wire instructions. Purchase orders which
are received by PFPC, together with payment, before the close of regular trad-
ing hours on the NYSE (currently 4:00 p.m. Eastern Time) on any Business Day
(as defined above) are priced according to the net asset value next determined
on that day.
The Portfolios offer an Automatic Investment Plan ("AIP") whereby an investor
in shares of a Portfolio may arrange for periodic investments in that Portfolio
through automatic deductions from a checking or savings account by completing
the AIP Application Form which may be obtained from PFPC. The minimum pre-au-
thorized investment amount is $50.
REDEMPTIONS. Shareholders may redeem for cash some or all of their shares of
the Portfolios at any time by sending a written redemption request in proper
form to Compass Capital Funds c/o PFPC Inc., P.O. Box 8907, Wilmington, Dela-
ware 19899-8907.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding share certificates must send
their certificates with the redemption request. Additional documentary evidence
of authority is required by PFPC in the event redemption is requested by a cor-
poration, partnership, trust, fiduciary, executor or administrator.
If a shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or
by Federal wire transfer to a
41
<PAGE>
single previously designated bank account. Once authorization is on file, PFPC
will honor requests by any person by telephone at (800) 441-7762 (in Delaware
call collect (302) 791-1194) or other means. The minimum amount that may be
sent by check is $500, while the minimum amount that may be wired is $10,000.
Compass Capital reserves the right to change these minimums or to terminate
these redemption privileges. If the proceeds of a redemption would exceed
$25,000, the redemption request must be in writing and will be subject to the
signature guarantee requirement described above. This privilege may not be used
to redeem shares in certificated form.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital is not responsible for the efficiency of the Federal wire sys-
tem or the shareholder's firm or bank. Compass Capital does not currently
charge for wire transfers. The shareholder is responsible for any charges im-
posed by the shareholder's bank. To change the name of the single designated
bank account to receive wire redemption proceeds, it is necessary to send a
written request (with a guaranteed signature as described above) to Compass
Capital Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital reserves the right to refuse a telephone redemption if it be-
lieves it advisable to do so. The Fund, the Administrators and the Distributor
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Compass Capital, the Administrators and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions reasonably believed to be genuine in accordance with
such procedures.
Compass Capital offers a Systematic Withdrawal Plan ("SWP") which may be used
by investors who wish to receive regular distributions from their accounts.
Upon commencement of the SWP, the account must have a current value of $10,000
or more in a Portfolio. Shareholders may elect to receive automatic cash pay-
ments of $100 or more either monthly, every other month, quarterly, three times
a year, semi-annually, or annually. Automatic withdrawals are normally proc-
essed on the 25th day of the applicable month or, if such day is not a Business
Day, on the next Business Day and are paid promptly thereafter. An investor may
utilize the SWP by completing the SWP Application Form which may be obtained
from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC.
42
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Service Shares of each Portfolio
as of the close of regular trading hours on the NYSE (currently 4:00 p.m. East-
ern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio (including, for the Index Equity Portfolio,
all of its shares in the Index Master Portfolio) that are allocated to its
Service Shares, less the liabilities charged to its Service Shares, by the num-
ber of its Service Shares that are outstanding. The net asset value per share
of the Index Master Portfolio is calculated as of the close of the NYSE by di-
viding the total market value of its investments and other assets, less any li-
abilities, by the total outstanding shares of the Index Master Portfolio.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees or, in the case of the Index Master Portfolio, The DFA Investment
Trust Company's Board of Trustees. The amortized cost method of valuation will
also be used with respect to debt obligations with sixty days or less remaining
to maturity unless a Portfolio's sub-adviser under the supervision of the Board
of Trustees determines such method does not represent fair value.
43
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. The net investment in-
come of each Portfolio is declared quarterly as a dividend to investors who are
shareholders of the Portfolio at the close of business on the day of declara-
tion. All dividends are paid within ten days after the end of each quarter. Any
net realized capital gains (including net short-term capital gains) will be
distributed by each Portfolio at least annually. The period for which dividends
are payable and the time for payment are subject to change by the Fund's Board
of Trustees.
Distributions are reinvested at net asset value in additional full and frac-
tional Service Shares of the relevant Portfolio, unless a shareholder elects to
receive distributions in cash. This election, or any revocation thereof, must
be made in writing to PFPC, and will become effective with respect to distribu-
tions paid after its receipt by PFPC.
As stated previously, after its 1996 conversion, the Index Equity Portfolio
will seek its investment objective by investing all of its investable assets in
the Index Master Portfolio, and the Index Equity Portfolio will be allocated
its pro rata share of the ordinary income and expenses of the Index Master
Portfolio. This net income, less the Index Equity Portfolio's expenses incurred
in operations, will be the Index Equity Portfolio's net investment income from
which dividends are distributed as described above. The Index Master Portfolio
will also allocate to the Index Equity Portfolio its pro rata share of capital
gains, if any, realized by the Index Master Portfolio.
44
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
treated as a return of capital), whether the distributions are paid in cash or
reinvested in additional Shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Dividends paid by the Portfolios will be eligible for the dividends received
deduction allowed to certain corporations only to the extent of the total qual-
ifying dividends received by a Portfolio from domestic corporations for a tax-
able year. Corporate shareholders will have to take into account the entire
amount of any dividend received in making certain adjustments for Federal al-
ternative minimum and environmental tax purposes. The dividends received deduc-
tion is not available for capital gain dividends.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
An investor considering buying Shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption,
transfer or exchange of Shares depending upon their tax basis and their price
at the time of redemption, transfer or exchange. Generally, shareholders may
include sales charges paid on the purchase of Shares in their tax basis for the
purposes of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if a shareholder exchanges the Shares for Shares of an-
other Portfolio within 90 days of purchase and is able to reduce the sales
charges applicable to the new Shares (by virtue of the Fund's exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged Shares for the purpose of determining gain or
loss but may be included (subject to the same limitation) in the tax basis of
the new Shares.
Dividends and certain interest income earned by a Portfolio from foreign secu-
rities may be subject to foreign withholding taxes or other taxes. So long as
more than 50% of the value of a
45
<PAGE>
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. Federal
income tax purposes, to treat certain foreign taxes paid by it, including gen-
erally any withholding taxes and other foreign income taxes, as paid by its
shareholders. It is possible that the International Equity and International
Emerging Markets Portfolios will make this election in certain years. If a
Portfolio makes the election, the amount of such foreign taxes paid by the
Portfolio will be included in its shareholders' income pro rata (in addition to
taxable distributions actually received by them), and each shareholder will be
entitled either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, or (b) if a shareholder
itemizes deductions, to deduct such proportionate amounts from U.S. Federal
taxable income.
At or about the time of the conversion of the Index Equity Portfolio in 1996,
the Index Master Portfolio intends to qualify for taxation as a partnership for
Federal income tax purposes. As such, the Index Master Portfolio would not be
subject to tax and the Index Equity Portfolio would be treated for Federal in-
come tax purposes as recognizing its pro rata portion of the Index Master Port-
folio's income and deductions, and owning its pro rata share of the Index Mas-
ter Portfolio's assets. The Index Equity Portfolio's status as a regulated in-
vestment company is dependent on, among other things, the Index Master Portfo-
lio's continued classification as a partnership for Federal income tax purpos-
es.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. The application of state and local income taxes to investments in
the Portfolios may differ from the Federal income tax consequences described
above. In addition, shareholders who are non-resident alien individuals, for-
eign trusts or estates, foreign corporations or foreign partnerships may be
subject to different Federal income tax treatment. Future legislative or admin-
istrative changes or court decisions may materially affect the tax consequences
of investing in the Portfolios.
46
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Service Shares of the nine portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The Fund offers various services and privileges in
connection with its Investor Shares that are not generally offered in connec-
tion with its Institutional and Service Shares, including an automatic invest-
ment plan, automatic withdrawal plan and checkwriting. For further information
regarding the Fund's Institutional or Investor Share classes, contact PFPC at
(800) 441-7764 (Institutional Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
MASTER-FEEDER STRUCTURE. The Index Equity Portfolio, unlike many other invest-
ment companies which directly acquire and manage their own portfolio of securi-
ties, will seek, after its conversion in 1996, to achieve its investment objec-
tive by investing all of its investable assets in the Index Master Portfolio.
The Index Equity Portfolio will purchase shares of the Index Master Portfolio
at net asset value. The net asset value of the Index Equity Portfolio will re-
spond
47
<PAGE>
to increases and decreases in the value of the Index Master Portfolio's securi-
ties and to the expenses of the Index Master Portfolio allocable to the Index
Equity Portfolio (as well as its own expenses). The Index Equity Portfolio may
withdraw its investment in the Index Master Portfolio at any time upon 30 days
notice to the Index Master Portfolio if the Board of Trustees of the Fund de-
termines that it is in the best interests of the Index Equity Portfolio to do
so. Upon withdrawal, the Board of Trustees would consider what action might be
taken, including the investment of all of the assets of the Index Equity Port-
folio in another pooled investment entity having the same investment objective
as the Index Equity Portfolio or the hiring of an investment adviser to manager
the Index Equity Portfolio's assets in accordance with the investment policies
described above with respect to the Index Equity Portfolio.
The Index Master Portfolio is a separate series of The DFA Investment Trust
Company (the "Trust"), which is a business trust created under the laws of the
State of Delaware. The Index Equity Portfolio and other institutional investors
that may invest in the Index Master Portfolio from time to time (e.g. other in-
vestment companies) will each bear a share of all liabilities of the Index Mas-
ter Portfolio. Under the Delaware Business Trust Act, shareholders of the Index
Master Portfolio have the same limitation of personal liability as shareholders
of a Delaware corporation. Accordingly, Fund management believes that neither
the Index Equity Portfolio nor its shareholders will be adversely affected by
reason of the Index Equity Portfolio's investing in the Index Master Portfolio.
The shares of the Index Master Portfolio will be offered to institutional in-
vestors in private placements for the purpose of increasing the funds available
for investment and to achieve economies of scale that might be available at
higher asset levels. The expenses of such other institutional investors and
their returns may differ from those of the Index Equity Portfolio. While in-
vestment in the Index Master Portfolio by other institutional investors offers
potential benefits to the Index Master Portfolio (and, indirectly, to the Index
Equity Portfolio), economies of scale and related expense reductions might not
be achieved. Also, if an institutional investor were to redeem its interest in
the Index Master Portfolio, the remaining investors in the Index Master Portfo-
lio could experience higher pro rata operating expenses and correspondingly
lower returns. In addition, institutional investors that have a greater pro
rata ownership interest in the Index Master Portfolio than the Index Equity
Portfolio could have effective voting control over the operation of the Index
Master Portfolio.
Shares in the Index Master Portfolio have equal, non-cumulative voting rights,
except as set forth below, with no preferences as to conversion, exchange, div-
idends, redemption or any other feature. Shareholders of the Trust have the
right to vote only (i) for removal of its trustees, (ii) with respect to such
additional matters relating to the Trust as may be required by the applicable
provisions of the 1940 Act, including the approval of the investment advisory
agreement and the selection of trustees and accountants, and (iii) on such
other matters as the trustees of the Trust may consider necessary or desirable.
In addition, approval of the shareholders of the Trust is required to adopt any
amendments to the Agreement and Declaration of Trust of the Trust which would
adversely affect to a material degree the rights and preferences of the
48
<PAGE>
shares of the Index Master Portfolio or to increase or decrease their par val-
ue. The Index Master Portfolio's shareholders will also be asked to vote on any
proposal to change a fundamental policy (i.e. a policy that may be changed only
with the approval of shareholders) of the Index Master Portfolio.
If the Index Equity Portfolio, as a shareholder of the Index Master Portfolio,
is requested to vote on matters pertaining to the Index Master Portfolio, the
Fund's Trustees intend to vote all of the shares that the Index Equity Portfo-
lio holds in the Index Master Portfolio without submitting any such questions
to the shareholders of the Index Equity Portfolio. If the Fund's Trustees de-
cide to adopt "pass-through" voting, the Index Equity Portfolio, if required
under the 1940 Act or other applicable law, would hold a meeting of its share-
holders and would cast its votes proportionately as instructed by Index Equity
Portfolio shareholders. In such cases, shareholders of the Index Equity Portfo-
lio, in effect, would have the same voting rights they would have as direct
shareholders of the Index Master Portfolio.
The investment objective of the Index Master Portfolio may not be changed with-
out approval of its shareholders. Shareholders of the Portfolio will receive
written notice thirty days prior to the effective date of any change in the in-
vestment objective of the Master Portfolio. If the Index Master Portfolio
changes its investment objective in a manner which is inconsistent with the in-
vestment objective of the Index Equity Portfolio and the Fund's Board of Trust-
ees fails to approve a similar change in the investment objective of the Index
Equity Portfolio, the Index Equity Portfolio would be forced to withdraw its
investment in the Index Master Portfolio and either seek to invest its assets
in another registered investment company with the same investment objective as
the Index Equity Portfolio, which might not be possible, or retain an invest-
ment adviser to manage the Index Equity Portfolio's assets in accordance with
its own investment objective, possibly at increased cost. A withdrawal by the
Index Equity Portfolio of its investment in the Index Master Portfolio could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Index Equity Portfolio. Should such a distribution occur,
the Index Equity Portfolio could incur brokerage fees or other transaction
costs in converting such securities to cash in order to pay redemptions. In ad-
dition, a distribution in kind to the Index Equity Portfolio could result in a
less diversified portfolio of investments and could adversely affect the li-
quidity of the Portfolio.
The conversion of the Index Equity Portfolio into a feeder fund of the Index
Master Portfolio was approved by shareholders of the Index Equity Portfolio at
a meeting held on November 30, 1995. The policy of the Index Equity Portfolio,
and other similar investment companies, to invest their investable assets in
funds such as the Index Master Portfolio is a relatively recent development in
the mutual fund industry and, consequently, there is a lack of substantial ex-
perience with the operation of this policy. There may also be other investment
companies or entities through which you can invest in the Index Master Portfo-
lio which may have different sales charges, fees and other expenses which may
affect performance. For information about other funds that may invest in the
Master Index Portfolio, please contact DFA at (310) 395-8005.
49
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for Service Shares of the Portfolios may be quoted in
advertisements and communications to shareholders. Total return will be calcu-
lated on an average annual total return basis for various periods. Average an-
nual total return reflects the average annual percentage change in value of an
investment in Service Shares of a Portfolio over the measuring period. Total
return may also be calculated on an aggregate total return basis. Aggregate to-
tal return reflects the total percentage change in value over the measuring pe-
riod. Both methods of calculating total return assume that dividend and capital
gain distributions made by a Portfolio with respect to its Service Shares are
reinvested in shares of the same class.
The yield of Service Shares of the Balanced Portfolio is computed by dividing
the net income allocated to its Service Shares during a 30-day (or one month)
period by the net asset value per share on the last day of the period and
annualizing the result on a semi-annual basis.
The performance of a Portfolio's Service Shares may be compared to the perfor-
mance of other mutual funds with similar investment objectives and to relevant
indices, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of a Portfolio's Service Shares may be com-
pared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service, and to the per-
formance of the Dow Jones Industrial Average, the "stocks, bonds and inflation
Index" published annually by Ibbotson Associates, the Lipper International Fund
Index, the Lehman Government Corporate Bond Index and the Financial Times World
Stock Index, as well as the benchmarks attached to this Prospectus. Performance
information may also include evaluations of the Portfolios and their Service
Shares published by nationally recognized ranking services, and information as
reported in financial publications such as Business Week, Fortune, Institu-
tional Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Service Shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of a dividend in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Service Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for
Service Shares of a Portfolio cannot necessarily be used to compare an invest-
ment in
50
<PAGE>
such shares with bank deposits, savings accounts and similar investment alter-
natives which often provide an agreed or guaranteed fixed yield for a stated
period of time. Performance is generally a function of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions. Any fees charged by brokers or other institutions directly
to their customer accounts in connection with investments in Service Shares
will not be included in the Portfolio performance calculations.
51
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call COMPASS CAPITAL
FUNDS at (800) 441-7450.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7764.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
52
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Value Equity Russell 1000 An index composed of those Russell 1000
Value Index securities with less-than-average growth
orientation. Securities in this index
generally have low price-to-book and price-
earnings ratios, higher dividend yields and
lower forecasted growth values than more
growth-oriented securities in the Russell
1000 Growth Index.
Growth Equity Russell 1000 The Russell 1000 Growth Index contains
Growth Index those Russell 1000 securities with a
greater-than-average growth orientation.
Companies in this index tend to exhibit
higher price-to-book and price-earnings
ratios, lower dividend yields and higher
forecasted growth values than the Russell
1000 Value Index.
Small Cap Value Equity Russell 2000 An index of the smallest 2000 companies in
Index the Russell 3000 Index, as ranked by total
market capitalization. The Russell 2000
Index is widely regarded in the industry to
accurately capture the universe of small
cap stocks.
Small Cap Growth Equity Russell 2000 An index composed of those Russell 2000
Growth Index securities with a greater-than-average
growth orientation. Securities in this
index generally have higher price-to-book
and price-earnings ratios than those in the
Russell 2000 Value Index.
International Equity EAFE Index An index composed of a sample of companies
representative of the market structure of
20 European and Pacific Basin countries.
The Index represents the evolution of an
unmanaged portfolio consisting of all
domestically listed stocks.
International Emerging MSCI Emerging The Morgan Stanley Capital International
Markets Markets Free (MSCI) Emerging Markets Free Index (EMF) is
Index a market capitalization weighted index
composed of companies representative of the
market structure of 22 Emerging Market
countries in Europe, Latin America, and the
Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in
otherwise free markets which are not
purchasable by foreigners.
Select Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Index Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Balanced S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Salomon Broad An unmanaged index of 3500 bonds. The Broad
Investment Investment Grade Index is market
Grade Index capitalization weighted and includes
Treasury, Government sponsored mortgages
and investment grade fixed rate corporates
with a maturity of 1 year or longer.
</TABLE>
53
<PAGE>
The Compass Capital Funds
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE INDEX
EQUITY PORTFOLIO IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S RATINGS GROUP. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
-----------------
VALUE EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP VALUE EQUITY PORTFOLIO
SMALL CAP GROWTH EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL EMERGING MARKETS PORTFOLIO
SELECT EQUITY PORTFOLIO
INDEX EQUITY PORTFOLIO
BALANCED PORTFOLIO
THE EQUITY
PORTFOLIOS
SERVICE SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INVESTOR A AND INVESTOR B SHARES OF THE
VALUE EQUITY PORTFOLIO,
GROWTH EQUITY PORTFOLIO,
SMALL CAP VALUE EQUITY PORTFOLIO,
SMALL CAP GROWTH EQUITY PORTFOLIO,
INTERNATIONAL EQUITY PORTFOLIO,
INTERNATIONAL EMERGING MARKETS PORTFOLIO,
SELECT EQUITY PORTFOLIO,
INDEX EQUITY PORTFOLIO AND
BALANCED PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
PROSPECTUS
EQUITY
PORTFOLIOS
Investor
Shares
COMPASS
-----------------------
[LOGO] CAPITAL FUNDS
NOT Investments are not FDIC insured, are not deposits
FDIC or obligations of any bank, and involve risk
INSURED including possible loss of principal
<PAGE>
The Equity Portfolios Investor Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital Funds(SM) ("Compass Capital" or the "Fund")
consists of twenty-eight investment portfolios. This Prospec-
tus describes the Investor Shares of nine of those portfolios
(the "Portfolios"):
. Value Equity Portfolio
. Growth Equity Portfolio
. Small Cap Value Equity Portfolio
. Small Cap Growth Equity Portfolio
. International Equity Portfolio
. International Emerging Markets Portfolio
. Select Equity Portfolio
. Index Equity Portfolio
. Balanced Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7762. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION
OR ANY OTHER BANK AND ARE NOT INSURED BY, GUARANTEED BY, OBLI-
GATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE
PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
Currently, the Index Equity Portfolio invests its assets di-
rectly in common stocks of companies included in the Standard
& Poor's 500 (R) Composite Stock Price Index. The Portfolio's
shareholders have, however, approved a change, which the Port-
folio expects to implement during the first half of 1996,
whereby the Index Equity Portfolio will seek to achieve its
investment objective by investing all of its investable assets
in a series of shares (the "Index Master Portfolio") of The
DFA Investment Trust Company, another open-end management in-
vestment company rather than through a portfolio of various
securities. The investment experience of the Index Equity
Portfolio will correspond directly with the investment experi-
ence of the Index Master Portfolio. The Index Master Portfolio
has substantially the same investment objective, policies and
limitations as the Index Equity Portfolio and, except as spe-
cifically noted, is also referred to as a "Portfolio" in this
Prospectus. For additional information, see "How Is The Fund
Organized?"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Equity Portfolios Of Compass Capital Funds
- --------------------------------------------------------------------------------
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of nine
diversified investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity sec-
tor. Six of these Portfolios invest solely in U.S. stocks, two
Portfolios invest in non-U.S. international stocks and one Port-
folio invests in a combination of U.S. stocks and bonds. A de-
tailed description of each Portfolio begins on page 20 and a
summary of each Performance Benchmark is contained in the Appen-
dix.
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PERFORMANCE BENCHMARK LIPPER PEER GROUP
<S> <C> <C>
Value Equity Russell 1000 Value Growth and Income
Index
Growth Equity Russell 1000 Growth Growth
Index
Small Cap Value Equity Russell 2000 Index Small Company Growth
Small Cap Growth Equity Russell 2000 Growth Small Company Growth
Index
International Equity EAFE Index International
International Emerging MSCI Emerging Markets
Markets Emerging Markets Free
Index
Select Equity S&P 500 Index Growth and Income
Index Equity S&P 500 Index S&P 500 Index
Balanced S&P 500 Index and Balanced
Salomon Broad
Investment Grade
Index
</TABLE>
PNC Asset Management Group, Inc. ("PAMG") serves as the invest-
ment adviser to each portfolio except the Index Equity Portfo-
lio, which is currently advised by PNC Institutional Management
Corporation ("PIMC"). Provident Capital Management, Inc.
("PCM"), PNC Equity Advisers Company ("PEAC") and BlackRock Fi-
nancial Management, Inc. ("BlackRock") serve as sub-advisers to
different Portfolios as described in this Prospectus. Dimen-
sional Fund Advisors, Inc. ("DFA") serves as investment adviser
to the Index Master Portfolio.
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
EQUITY different directions in equity investing. You may wish to use
PORTFOLIOS the table of contents on page 5 to find descriptions of the
Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. The Portfolios will hold equity se-
EQUITY curities, and some or all of the Portfolios may acquire war-
INVESTING rants, foreign securities and illiquid securities; enter into
repurchase and reverse repurchase agreements; lend portfolio
securities to third parties; and enter into futures contracts
and options and forward currency exchange contracts. These
and the other investment practices set forth below, and their
associated risks, deserve careful consideration. Certain
risks associated with international investments are height-
ened because of currency fluctuations and investments in
emerging markets. See "What Additional Investment Policies
And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased" and "How Are
CAPITAL FUNDS Shares Redeemed?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios' Financial Highlights?............... 10
What Are The Portfolios?..................................... 20
What Are The Differences Among The Portfolios?............... 21
What Additional Investment Policies And Risks Apply?......... 23
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 33
Who Manages The Fund?........................................ 34
What Pricing Options Are Available To Investors?............. 42
What Are The Key Considerations In Selecting A Pricing
Option?..................................................... 44
How Are Shares Purchased?.................................... 46
How Are Shares Redeemed?..................................... 48
What Are The Shareholder Features Of The Fund?............... 50
What Is The Schedule Of Sales Charges And Exemptions?........ 53
How Is Net Asset Value Calculated?........................... 59
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 60
How Are Fund Distributions Taxed?............................ 61
How Is The Fund Organized?................................... 63
How Is Performance Calculated?............................... 66
How Can I Get More Information?.............................. 68
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- -------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Investor Shares of the Portfolios for the current fiscal year ending September
30, 1996 as a percentage of average daily net assets. An example based on the
summary is also shown.
<TABLE>
<CAPTION>
SMALL CAP
VALUE EQUITY GROWTH EQUITY VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 4.5% None 4.5% None 4.5% None
Sales Charge on
Reinvested Dividends None None None None None None
Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) None 4.5% None 4.5% None 4.5%
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/3/) .50% .50% .50% .50% .53% .53%
12b-1 fees(/3/)(/4/) .00 .75 .00 .75 .00 .75
Other operating expenses
(after fee waivers)
(/3/) .72 .72 .72 .72 .80 .80
------ ------ ------ ------ ------ ------
Shareholder servicing
fee .25 .25 .25 .25 .25 .25
Shareholder processing
fee .15 .15 .15 .15 .15 .15
Other expenses .32 .32 .32 .32 .40 .40
---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.22% 1.97% 1.22% 1.97% 1.33% 2.08%
====== ====== ====== ====== ====== ======
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares
that are purchased with no initial sales charge as part of an investment
of $1,000,000 or more. See "What Is the Schedule of Sales Charges and Ex-
emptions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases for redemptions made in subsequent years. No de-
ferred sales charge is charged after the sixth year on Investor B Shares.
See "What Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55% and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive or continue waiving their
fees, but have informed the Fund that they expect to waive fees as neces-
sary to maintain the Portfolios' total operating expenses during the re-
mainder of the current fiscal year at the levels set forth in the table.
The information in the table is based on the advisory fees, administration
fees and other expenses payable after fee waivers for the fiscal year
ended September 30, 1995, as restated to reflect current expenses and fee
waivers. Without waivers, "Other operating expenses" would be: (i) .78%,
.80% and .81%, respectively, for Investor A Shares; and (ii) .78%, .80%
and .81%, respectively, for Investor B Shares; and "Total Portfolio oper-
ating expenses" would be: (iii) 1.33%, 1.35% and 1.36%, respectively, for
Investor A Shares; and (iv) 2.08%, 2.10% and 2.11%, respectively, for In-
vestor B Shares. The Portfolios do not expect to incur any 12b-1 fees with
respect to Investor A Shares (otherwise payable at the maximum rate of
.10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as
described under "What Are The Key Considerations In Selecting A Pricing
Option?" on page 44. Investor A Shares do not currently pay 12b-1 fees.
Long-term investors in Investor B Shares (as well as investors in Investor
A Shares if 12b-1 fees are charged in the future) may pay more than the
economic equivalent of the maximum front-end sales charges permitted by
the rules of the National Association of Securities Dealers, Inc.
("NASD").
6
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL
GROWTH EQUITY INTERNATIONAL EQUITY EMERGING MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 4.5% None 5.0% None 5.0% None
Sales Charge on
Reinvested Dividends None None None None None None
Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) None 4.5% None 4.5% None 4.5%
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/3/) .53% .53% .70% .70% 1.15% 1.15%
12b-1 fees(/3/)(/4/) .00 .75 .00 .75 .00 .75
Other operating expenses
(after fee
waivers)(/3/) .80 .80 .83 .83 1.10 1.10
------ ------ ------ ------ ------ ------
Shareholder servicing
fee .25 .25 .25 .25 .25 .25
Shareholder processing
fee .15 .15 .15 .15 .15 .15
Other expenses .40 .40 .43 .43 .70 .70
---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.33% 2.08% 1.53% 2.28% 2.25% 3.00%
====== ====== ====== ====== ====== ======
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases for redemptions made in subsequent years. No de-
ferred sales charge is charged after the sixth year on Investor B Shares.
See "What Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55%, .75% and 1.25% for the
Small Cap Growth Equity, International Equity and International Emerging
Markets Portfolios, respectively, and administration fees would be .23% for
each class of each Portfolio. PAMG and the Portfolios' administrators are
under no obligation to waive or continue waiving their fees, but have in-
formed the Fund that they expect to waive fees as necessary to maintain the
Portfolios' total operating expenses during the remainder of the current
fiscal year at the levels set forth in the table. The information in the
table is based on the advisory fees, administration fees and other expenses
payable after fee waivers for the fiscal year ended September 30, 1995, as
restated to reflect current expenses and fee waivers. Without waivers,
"Other operating expenses" would be: (i) .89%, .90% and 1.15%, respective-
ly, for Investor A Shares; and (ii) .81%, .90% and 1.15%, respectively, for
Investor B Shares; and "Total Portfolio operating expenses" would be: (iii)
1.36%, 1.65% and 2.40%, respectively, for Investor A Shares; and
(iv) 2.11%, 2.40% and 3.15%, respectively, for Investor B Shares. The Port-
folios do not expect to incur any 12b-1 fees with respect to Investor A
Shares (otherwise payable at the maximum rate of .10%) during the current
fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" on page 44. Investor A Shares do not currently pay 12b-1 fees. Long-
term investors in Investor B Shares (as well as investors in Investor A
Shares if 12b-1 fees are charged in the future) may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
7
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECT EQUITY INDEX EQUITY BALANCED
PORTFOLIO PORTFOLIO+ PORTFOLIO
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 4.5% None 3.0% None 4.5% None
Sales Charge on
Reinvested Dividends None None None None None None
Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) None 4.5% None 4.5% None 4.5%
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fees (after fee
waivers)(/3/)(/4/) .50% .50% .025% .025% .50% .50%
12b-1 fees(/3/)(/5/) .00 .75 .00 .75 .00 .75
Operating expenses of
the Index Master
Portfolio N/A N/A .04 .04 N/A N/A
Other operating expenses
(after fee
waivers)(/3/) .72 .72 .585 .585 .71 .77
------ ------ ----- ------ ------ ------
Shareholder servicing
Fee .25 .25 .25 .25 .25 .25
Shareholder processing
Fee .15 .15 .15 .15 .15 .15
Other expenses .32 .32 .185 .185 .31 .37
---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.22% 1.97% .65% 1.40% 1.21% 2.02%
====== ====== ===== ====== ====== ======
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares
that are purchased with no initial sales charge as part of an investment
of $1,000,000 or more. See "What Is the Schedule of Sales Charges and Ex-
emptions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases for redemptions made in subsequent years. No de-
ferred sales charge is charged after the sixth year on Investor B Shares.
See "What Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55% and .55% for the Select
Equity and Balanced Portfolios, respectively, and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive or continue waiving their
fees, but have informed the Fund that they expect to waive fees as neces-
sary to maintain the Portfolios' total operating expenses during the re-
mainder of the current fiscal year at the levels set forth in the table.
The information in the table is based on the advisory fees, administration
fees and other expenses payable after fee waivers for the fiscal year
ended September 30, 1995, as restated to reflect current expenses and fee
waivers. Without waivers, "Other operating expenses" would be: (i) .88%,
.78% and .77%, respectively, for Investor A Shares; and (ii) .80%, .78%
and .83%, respectively, for Investor B Shares; and "Total Portfolio oper-
ating expenses" would be: (iii) 1.35%, .84% and 1.32%, respectively, for
Investor A Shares; and (iv) 2.10%, 1.74% and 2.13%, respectively, for In-
vestor B Shares. The Portfolios do not expect to incur any 12b-1 fees with
respect to Investor A Shares (otherwise payable at the maximum rate of
.10%) during the current fiscal year.
(4) Advisory fees with respect to the Index Equity Portfolio represent advi-
sory fees of the Index Master Portfolio.
(5) Investors with a long-term perspective may prefer Investor A Shares, as
described under "What Are The Key Considerations In Selection A Pricing
Option?" on page 44. Investor A Shares do not currently pay 12b-1 fees.
Long-term investors in Investor B Shares (as well as investors in Investor
A Shares if 12b-1 fees are charged in the future) may pay more than the
economic equivalent of the maximum front-end sales charges permitted by
the rules of the NASD.
+ Includes the operating expenses of the Index Master Portfolio that are al-
locable to the Index Equity Portfolio after the Portfolio's conversion as
described in this Prospectus. The total operating expenses of the Index Eq-
uity Portfolio before and after its conversion are expected to be substan-
tially the same.
8
<PAGE>
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Value Equity Portfolio
A Shares* $57 $82 $109 $186
B Shares (Redemption)** 65 99 129 210***
B Shares (No Redemption) 20 62 106 210***
Growth Equity Portfolio
A Shares* 57 82 109 186
B Shares (Redemption)** 65 99 129 210***
B Shares (No Redemption) 20 62 106 210***
Small Cap Value Equity Portfolio
A Shares* 58 85 115 198
B Shares (Redemption)** 66 102 134 222***
B Shares (No Redemption) 21 65 112 222***
Small Cap Growth Equity Portfolio
A Shares* 58 85 115 198
B Shares (Redemption)** 66 102 134 222***
B Shares (No Redemption) 21 65 112 222***
International Equity Portfolio
A Shares* 65 96 129 223
B Shares (Redemption)** 68 108 144 242***
B Shares (No Redemption) 23 71 122 242***
International Emerging Markets
Portfolio
A Shares* 72 117 164 296
B Shares (Redemption)** 75 129 179 314***
B Shares (No Redemption) 30 93 158 314***
Select Equity Portfolio
A Shares* 57 82 109 186
B Shares (Redemption)** 65 99 129 210***
B Shares (No Redemption) 20 62 106 210***
Index Equity Portfolio
A Shares* 36 50 65 109
B Shares (Redemption)** 59 82 100 147***
B Shares (No Redemption) 14 44 77 147***
Balanced Portfolio
A Shares* 57 82 108 185
B Shares (Redemption)** 66 100 131 214***
B Shares (No Redemption) 21 63 109 214***
</TABLE>
* Reflects the imposition of the maximum front-end sales charge at the begin-
ning of the period.
** Reflects the deduction of the deferred sales charge.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
eight years.
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses (including the Index Equity Portfolio's pro
rata share of the Index Master Portfolio's advisory fees and operating ex-
penses) an investor will bear either directly or indirectly. They do not re-
flect any charges that may be imposed by brokers or other institutions directly
on their customer accounts in connection with investments in the Portfolios.
For a detailed description of the expenses, see "Who Manages The Fund?"
The Board of Trustees of the Fund believes that the aggregate per share ex-
penses of the Index Equity Portfolio and the Index Master Portfolio in which
the Index Equity Portfolio's assets will be invested after its 1996 conversion
to a feeder portfolio will be approximately equal to the expenses which the In-
dex Equity Portfolio would incur if the Fund retained the services of an in-
vestment adviser for the Index Equity Portfolio and the assets of the Index Eq-
uity Portfolio were invested directly in the type of securities held by the In-
dex Master Portfolio.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
9
<PAGE>
What Are The Portfolios' Financial Highlights?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and has been audited by the
Portfolios' independent accountants. This financial informa-
tion should be read together with those financial statements.
Further information about the performance of the Portfolios is
available in the Fund's annual shareholder reports. Both the
Statement of Additional Information and the annual shareholder
reports may be obtained from the Fund free of charge by call-
ing (800) 441-7762. Information concerning the historical in-
vestment results of Investor A Shares of the Index Equity
Portfolio is intended to give investors a longer term perspec-
tive of its financial history and reflects the financial expe-
rience of that Portfolio prior to its expected conversion in
the first half of 1996 to a feeder portfolio of the Index Mas-
ter Portfolio.
10
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR 5/02/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 11.62 $ 11.69 $ 9.78 $10.00
------- ------- ------ ------
Income from investment
operations
Net investment income 0.27 0.23 0.22 0.12
Net gain (loss) on
investments (both realized
and unrealized) 2.56 0.15 1.91 (0.24)
------- ------- ------ ------
Total from investment
operations 2.83 0.38 2.13 (0.12)
------- ------- ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.28) (0.23) (0.22) (0.10)
Distributions from net
realized capital gains (0.25) (0.22) - - - -
------- ------- ------ ------
Total distributions (0.53) (0.45) (0.22) (0.10)
------- ------- ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 13.92 $ 11.62 $11.69 $ 9.78
======= ======= ====== ======
Total return 25.22%/3/ 3.32%/3/ 21.95%/3/ (1.19)%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $16,910 $10,412 $4,865 $ 16
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 1.11% 1.05% 0.92% 0.85%/2/
Before
advisory/administration fee
waivers 1.25% 1.21% 0.95% 0.85%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers 2.24% 2.08% 1.96% 2.62%/2/
Before
advisory/administration fee
waivers 2.10% 1.92% 1.93% 2.62%/2/
PORTFOLIO TURNOVER RATE 12% 11% 11% 13%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
11
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
PERIOD
YEAR YEAR YEAR 5/02/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 10.16 $ 11.57 $ 9.92 $10.09
------- ------- ------ ------
Income from investment
operations
Net investment income 0.08 0.02 0.02 0.08
Net gain (loss) on
investments (both realized
and unrealized) 2.87 (1.33) 2.10 (0.10)
------- ------- ------ ------
Total from investment
operations 2.95 (1.31) 2.12 (0.02)
------- ------- ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.10) - - (0.07) (0.15)
Distributions from capital - - - - (0.01) - -
Distributions from net
realized capital gains - - (0.10) (0.39) - -
------- ------- ------ ------
Total distributions (0.10) (0.10) (0.47) (0.15)
------- ------- ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 13.01 $ 10.16 $11.57 $ 9.92
======= ======= ====== ======
Total return 29.26%/3/ (11.38)%/3/ 22.08%/3/ (0.17)%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $10,034 $ 5,049 $2,362 $ 239
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.11% 1.05% 0.91% 0.85%/2/
Before
advisory/administration
fee waivers 1.29% 1.29% 0.97% 0.86%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.76% 0.29% 0.18% 2.07%/2/
Before
advisory/administration
fee waivers 0.58% 0.05% 0.12% 2.06%/2/
PORTFOLIO TURNOVER RATE 55% 212% 175% 162%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
12
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 6/02/92/1/ 10/02/94/1/
ENDED ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/95
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.58 $ 13.07 $10.14 $10.06 $ 13.51
------- ------- ------ ------ -------
Income from investment
operations
Net investment income - - (0.01) 0.03 0.02 (0.05)
Net gain (loss) on
investments (both
realized and
unrealized) 2.17 0.77 3.02 0.07 2.21
------- ------- ------ ------ -------
Total from investment
operations 2.17 0.76 3.05 0.09 2.16
------- ------- ------ ------ -------
LESS DISTRIBUTIONS
Distributions from net
investment income - - - - (0.04) (0.01) - -
Distributions from net
realized capital gains (0.61) (0.25) (0.08) - - (0.61)
------- ------- ------ ------ -------
Total distributions (0.61) (0.25) (0.12) (0.01) (0.61)
------- ------- ------ ------ -------
NET ASSET VALUE AT END OF
PERIOD $ 15.14 $ 13.58 $13.07 $10.14 $ 15.06
======= ======= ====== ====== =======
Total return 16.96%/3/ 5.93%/3/ 30.36%/3/ 0.89%/4/ 16.95%/4/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $21,563 $16,884 $9,084 $ 62 $ 1,477
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.18% 1.13% 0.94% 0.85%/2/ 1.80%/2/
Before
advisory/administration
fee waivers 1.28% 1.25% 0.98% 0.89%/2/ 1.89%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.00% (0.11)% 0.19% 0.51%/2/ (0.61)%/2/
Before
advisory/administration
fee waivers (0.09)% (0.23)% 0.15% 0.47%/2/ (0.70)%/2/
PORTFOLIO TURNOVER RATE 31% 18% 41% 17% 31%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
/4/Contingent deferred sales load not reflected in total return.
13
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR 9/15/93/1/
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $10.12 $10.47 $ 9.96
------ ------ ------
Income from investment operations
Net investment income (0.02) - - - -
Net gain (loss) on investments (both
realized and unrealized) 4.88 (0.35) 0.51
------ ------ ------
Total from investment operations 4.86 (0.35) 0.51
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment
income - - - - - -
Distributions from net realized capital
gains - - - - - -
------ ------ ------
Total distributions - - - - - -
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $14.98 $10.12 $10.47
====== ====== ======
Total return 48.02%/3/ (3.33)%/3/ 5.12%/3/
RATIOS/SUPPLEMENTAL DATA
NET ASSETS AT END OF PERIOD (IN
THOUSANDS) $7,348 $1,620 $ 41
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.20% 0.86% 1.13%/2/
Before advisory/administration fee
waivers 1.33% 1.42% 1.82%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers (0.24)% 0.07% (0.48)%/2/
Before advisory/administration fee
waivers (0.36)% (0.49)% (1.17)%/2/
PORTFOLIO TURNOVER RATE 74% 89% 9%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
14
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 6/02/92/1/ 10/03/94/1/
ENDED ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/95
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.40 $ 12.47 $ 9.87 $10.68 $ 13.35
------- ------- ------ ------ -------
Income from investment
operations
Net investment income 0.11 0.12 0.12 0.09 0.05
Net gain (loss) on
investments
(both realized and
unrealized) 0.13 1.15 2.59 (0.83) 0.16
------- ------- ------ ------ -------
Total from investment
operations 0.24 1.27 2.71 (0.74) 0.21
------- ------- ------ ------ -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.04) (0.09) (0.11) (0.07) - -
Distributions from net
realized capital gains (0.36) (0.25) - - - - (0.36)
------- ------- ------ ------ -------
Total distributions (0.40) (0.34) (0.11) (0.07) (0.36)
------- ------- ------ ------ -------
NET ASSET VALUE AT END OF
PERIOD $ 13.24 $ 13.40 $12.47 $ 9.87 $ 13.20
======= ======= ====== ====== =======
Total return 2.00%/3/ 10.24%/3/ 27.72%/3/ (6.94)%/4/ 1.77%/4/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $17,721 $14,433 $3,669 $ 58 $ 1,071
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.40% 1.35% 1.25% 1.20%/2/ 2.06%/2/
Before
advisory/administration
fee waivers 1.58% 1.54% 1.31% 1.21%/2/ 2.23%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.97% 0.96% 1.27% 2.59%/2/ 0.59%/2/
Before
advisory/administration
fee waivers 0.80% 0.77% 1.21% 2.58%/2/ 0.41%/2/
PORTFOLIO TURNOVER RATE 105% 37% 31% 16% 105%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
4Contingent deferred sales charge not reflected in total return.
15
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR 6/17/94/1/
ENDED ENDED
9/30/95 9/30/94
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $10.54 $10.00
------ ------
Income from investment operations
Net investment income 0.03 0.02
Net gain (loss) on investments (both realized and
unrealized) (2.14) 0.52
------ ------
Total from investment operations (2.11) 0.54
------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) - -
Distribution from capital (0.01) - -
Distributions from net realized capital gains (0.19) - -
------ ------
Total distributions (0.25) - -
------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.18 $10.54
====== ======
Total return (20.12)%/3/ 5.40%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $2,563 $2,857
Ratios of expenses to average net assets
After advisory/administration fee waivers 2.20% 2.15%/2/
Before advisory/administration fee waivers 2.44% 3.13%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 1.54% 0.74%
Before advisory/administration fee waivers 1.30% (0.24)%/2/
PORTFOLIO TURNOVER RATE 75% 4%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
16
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SELECT EQUITY PORTFOLIO
(FORMERLY THE CORE EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR 10/13/93/1/
ENDED ENDED
9/30/95 9/30/94
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.92 $ 9.96
------ ------
Income from investment operations
Net investment income 0.20 0.18
Net gain (loss) on investments (both realized and
unrealized) 2.06 (0.03)
------ ------
Total from investment operations 2.26 0.15
------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.18) (0.19)
Distributions from net realized capital gains (0.12) - -
------ ------
Total distributions (0.30) (0.19)
------ ------
NET ASSET VALUE AT END OF PERIOD $11.88 $ 9.92
====== ======
Total return 23.29%/3/ 1.54%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $3,808 $ 601
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.12% 1.05%/2/
Before advisory/administration fee waivers 1.30% 1.34%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 1.91% 1.89%/2/
Before advisory/administration fee waivers 1.73% 1.60%/2/
PORTFOLIO TURNOVER RATE 51% 88%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
17
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/92/1/
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $10.93 $11.02 $10.06 $10.07
------ ------ ------ ------
Income from investment
operations
Net investment income 0.34 0.25 0.27 0.10
Net gain (loss) on
investments (both realized
and unrealized) 2.73 0.04 0.96 (0.01)
------ ------ ------ ------
Total from investment
operations 3.07 0.29 1.23 0.09
------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (0.27) (0.27) (0.10)
Distributions from net
realized capital gains (0.12) (0.11) - - - -
------ ------ ------ ------
Total distributions (0.42) (0.38) (0.27) (0.10)
------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $13.58 $10.93 $11.02 $10.06
====== ====== ====== ======
Total return 28.77%/3/ 2.66%/3/ 12.33%/3/ 0.91%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $6,501 $2,632 $1,263 $ 56
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.61% 0.55% 0.49% 0.45%/2/
Before
advisory/administration fee
waivers 0.95% 0.92% 0.61% 0.64%/2/
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 2.44% 2.35% 2.48% 2.85%/2/
Before
advisory/administration fee
waivers 2.10% 1.98% 2.36% 2.66%/2/
PORTFOLIO TURNOVER RATE 18% 17% 8% 23%
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
18
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR YEAR 5/14/90/1/ 10/03/94/1/
ENDED ENDED ENDED ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/95
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.98 $ 12.42 $ 11.53 $10.82 $ 9.13 $10.00 $11.95
------- ------- ------- ------ ------ ------ ------
Income from investment
operations
Net investment income 0.43 0.32 0.30 0.34 0.38 0.12 0.33
Net realized gain (loss)
on investments 1.88 (0.38) 1.14 1.22 1.77 (0.88) 1.93
------- ------- ------- ------ ------ ------ ------
Total from investment
operations 2.31 (0.06) 1.44 1.56 2.15 (0.76) 2.26
------- ------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.42) (0.32) (0.29) (0.39) (0.34) (0.11) (0.38)
Distributions from net
realized capital gains (0.14) (0.06) (0.26) (0.46) (0.12) - - (0.14)
------- ------- ------- ------ ------ ------ ------
Total distributions (0.56) (0.38) (0.55) (0.85) (0.46) (0.11) (0.52)
------- ------- ------- ------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 13.73 $ 11.98 $ 12.42 $11.53 $10.82 $ 9.13 $13.69
======= ======= ======= ====== ====== ====== ======
Total return 19.86%/3/ (0.50)%/3/ 12.80%/3/ 15.17%/3/ 24.04%/3/ (7.64)%/3/ 19.38%/4/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period
(in thousands) $67,892 $62,307 $39,529 $8,481 $4,265 $3,960 $3,124
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.07% 1.05% 0.91% 0.95% 1.15% 1.15%/2/ 1.72%/2/
Before
advisory/administration
fee waivers 1.28% 1.31% 1.09% 1.51% 1.86% 1.90%/2/ 1.94%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.38% 2.77% 2.79% 3.28% 3.70% 3.07%/2/ 2.71%/2/
Before
advisory/administration
fee waivers 3.16% 2.51% 2.61% 2.72% 2.99% 2.32%/2/ 2.49%/2/
PORTFOLIO TURNOVER RATE 154% 54% 32% 36% 45% 37% 154%/2/
</TABLE>
/1/Commencement of operations.
/2/Annualized.
/3/Sales load not reflected in total return.
/4/Contingent deferred sales load not reflected in total return.
19
<PAGE>
What Are The Portfolios?
- -------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 28 portfolios and
has been structured to include many different investment
styles so that investors may participate across multiple dis-
ciplines in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of
nine investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity
sector. Six of these Portfolios invest primarily in U.S.
stocks, two Portfolios invest in non-U.S. international
stocks and one Portfolio invests in a combination of U.S.
stocks and bonds.
In certain investment cycles and over certain holding peri-
ods, an equity fund that invests according to a "value" style
or a "growth" style may perform above or below the market. An
investment program that combines these multiple disciplines
allows investors to select from among these various product
options in the way that most closely fits the individual's
investment goals and sentiments.
INVESTMENT Each of the nine Compass Capital Equity Portfolios seeks to
OBJECTIVES provide long-term Capital Appreciation.
The Select Equity and Value Equity Portfolios pursue a sec-
ondary objective of Current Income from dividends.
The Balanced Portfolio pursues a secondary objective of Cur-
rent Income from an allocation to fixed income securities.
To meet its investment objective, each Portfolio employs a
specific investment style, as described below. No assurance
can be given that a Portfolio will achieve its investment ob-
jective.
20
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<S> <C> <C> <C>
Value Equity Pursues equity securities Stocks with price/earnings Russell 1000
(defined as common stocks or and price/book ratios at Value Index
securities convertible into time of purchase below
common stocks) which the average for benchmark and
sub-adviser believes are capitalization in excess of
undervalued. A security's $1 billion.
earnings trend and its
dividend growth rate will
also be factors considered
in security selection.
Growth Equity Pursues stocks with earnings Stocks with growth rate Russell 1000
growth potential. Emphasizes estimates in excess of Growth Index
stocks which the sub-adviser average for benchmark and
considers to have favorable capitalization in excess of
and above-average earnings $1 billion.
growth prospects.
Small Cap Value Equity Pursues small cap stocks Stocks with price/earnings Russell 2000
which the sub-adviser and price/book ratios at Index
believes are undervalued. A time of purchase below
security's earnings trend average for benchmark and
and its dividend growth rate capitalization below $1
will also be factors billion.
considered in security
selection.
Small Cap Growth Equity Pursues small cap stocks Stocks with growth rate Russell 2000
with earnings growth estimates in excess of Growth Index
potential. Emphasizes small average for benchmark and
cap stocks which the sub- capitalization below $1
adviser considers to have billion.
favorable and above-average
earnings growth prospects.
International Equity Pursues non-dollar Portfolio assets are EAFE Index
denominated stocks of primarily invested in
issuers in countries international stocks.
included in the Morgan
Stanley Capital Stocks with price/earnings
International Europe, ratios below average for a
Australia and the Far East security's home market or
Index ("EAFE"). Within this stock exchange.
universe, a value style of
investing is employed to Diversification across
select stocks which the sub- countries, industry groups
adviser believes are and companies with
undervalued. A security's investment at all times in
earnings trend and its at least three foreign
dividend growth rate will countries.
also be factors considered
in security selection. The
sub-adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign countries,
expected levels of
inflation, government
policies influencing
business conditions and the
outlook for currency
relationships.
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
21
<PAGE>
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<S> <C> <C> <C>
International Emerging Pursues non-dollar Portfolio assets are MSCI
Markets denominated stocks of primarily invested in stocks Emerging
issuers in emerging country of emerging market issuers. Markets Free
markets (generally any Index
country considered to be Stocks with price/earnings
emerging or developing by ratios below average for a
the World Bank, the security's home market or
International Finance stock exchange.
Corporation or the United
Nations). Within this Ordinarily, stocks of
universe, a value style of issuers in at least three
investing is employed to emerging markets will be
select stocks which the sub- held.
adviser believes are
undervalued. The sub-adviser
will also consider
macroeconomic factors such
as the prospects for
relative economic growth
among certain foreign
countries, expected levels
of inflation, government
policies influencing
business conditions and the
outlook for currency
relationships.
Select Equity Combines value and growth Similar sector weightings as S&P 500
style as sub-adviser benchmark, with over- or Index
identifies market under-weighting in
opportunity. particular securities within
those sectors.
Index Equity Invests all of its assets Holds substantially all the S&P 500
directly or, after the 1996 stocks of the S&P 500 Index Index
conversion, indirectly in approximately the same
through the U.S. Large proportions as they are
Company Series (the "Index represented in the Index.
Master Portfolio") of The
DFA Investment Trust
Company, in the stocks of
the S&P 500 Index using a
passive investment style
that pursues the replication
of the S&P 500 Index return.
Balanced Holds a blend of equity and Maintains a minimum 25% S&P 500 and
fixed income securities to investment in fixed income Salomon
deliver total return through senior securities. Broad
capital appreciation and Investment
current income. Grade Index
Equity Portion: Equity Portion:
Combines value and growth Similar sector weightings as
style as sub-adviser benchmark, with over- or
identifies market under- weighting in
opportunity. particular securities within
those sectors.
Fixed Income Portion: Fixed Income Portion:
Combines sector rotation and Dollar-denominated
security selection across a investment grade bonds,
broad universe of fixed including U.S. Government,
income securities. mortgage-backed, asset-
backed and corporate debt
securities.
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
22
<PAGE>
What Additional Investment Policies And Risks Apply?
- --------------------------------------------------------------------------------
The discussion below applies to each of the Portfolios (and, with respect to
the Index Equity Portfolio, its investment in the Index Master Portfolio) un-
less otherwise noted.
EQUITY SECURITIES. During normal market conditions each Portfolio, except the
Balanced Portfolio, will normally invest at least 80% of the value of its total
assets in equity securities. The Portfolios will invest primarily in equity se-
curities of U.S. issuers, except the International Equity and International
Emerging Markets Portfolios, which will invest primarily in foreign issuers.
Equity securities include common stock and preferred stock (including convert-
ible preferred stock); bonds, notes and debentures convertible into common or
preferred stock; stock purchase warrants and rights; equity interests in trusts
and partnerships; and depositary receipts of companies.
ADRS, EDRS AND GDRS. Each Portfolio (other than the Index Master Portfolio) may
invest in both sponsored and unsponsored American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar global instruments. ADRs typically are issued by an American bank
or trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental De-
pository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic un-
derlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR
and GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information con-
cerning the issuer may not be as current as for sponsored ADRs, EDRs and GDRs,
and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if
such instruments were sponsored by the issuer. Investments in ADRs, EDRs and
GDRs present additional investment considerations as described below under "In-
ternational Portfolios."
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, each Portfolio (other than the Index Master Portfolio) may write cov-
ered call options, buy put options, buy call options and write secured put op-
tions for the purpose of hedging or earning additional income, which may be
deemed speculative or, with respect to the International Equity and Interna-
tional Emerging Markets Portfolios, cross-hedging. These options may relate to
particular securities, financial instruments, foreign currencies, stock or bond
indices or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corporation,
which performs the obligations of its members if they default.
23
<PAGE>
To the extent consistent with its investment objective, each Portfolio may also
invest in futures contracts and options on futures contracts to commit funds
awaiting investment in stocks or maintain cash liquidity or, except with re-
spect to the Index Master Portfolio, for other hedging purposes. The value of a
Portfolio's contracts may equal or exceed 100% of the Fund's total assets, al-
though a Portfolio will not purchase or sell a futures contract unless immedi-
ately afterwards the aggregate amount of margin deposits on its existing
futures positions plus the amount of premiums paid for related futures options
entered into for other than bona fide hedging purposes is 5% or less of its net
assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of securities, the cash value of a securities index or a stated quantity of a
foreign currency. A Portfolio may sell a futures contract in order to offset an
expected decrease in the value of its portfolio positions that might otherwise
result from a market decline or currency exchange fluctuation. A Portfolio may
do so either to hedge the value of its securities portfolio as a whole, or to
protect against declines occurring prior to sales of securities in the value of
the securities to be sold. In addition, a Portfolio may utilize futures con-
tracts in anticipation of changes in the composition of its holdings or in cur-
rency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
LIQUIDITY MANAGEMENT. Pending investment, to meet anticipated redemption re-
quests, or, in the case of all Portfolios except the Index Master Portfolio, as
a temporary defensive measure if its sub-adviser determines that market condi-
tions warrant, a Portfolio may also invest without limitation in high quality
money market instruments. The Balanced Portfolio may also invest in these secu-
rities in furtherance of its investment objective.
24
<PAGE>
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign is-
suers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper, repurchase
agreements and obligations of supranational organizations. Generally, such ob-
ligations will mature within one year from the date of settlement, but may ma-
ture within two years from the date of settlement. Under a repurchase agree-
ment, a Portfolio agrees to purchase debt securities from financial institu-
tions subject to the seller's agreement to repurchase them at an agreed upon
time and price. Repurchase agreements are, in substance, loans. Default by or
bankruptcy of a seller would expose a Portfolio to possible loss because of ad-
verse market action, expenses and/or delays in connection with the disposition
of the underlying obligations.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio (other than the
Index Master Portfolio) may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Portfolio to purchase or sell particular secu-
rities with payment and delivery taking place at a future date (perhaps one or
two months later), and permit a Portfolio to lock in a price or yield on a se-
curity it owns or intends to purchase, regardless of future changes in interest
rates. When-issued and forward commitment transactions involve the risk, howev-
er, that the price or yield obtained in a transaction may be less favorable
than the price or yield available in the market when the securities delivery
takes place. Each Portfolio's when-issued purchases and forward commitments are
not expected to exceed 25% of the value of its total assets absent unusual mar-
ket conditions. The Portfolios do not intend to engage in when-issued purchases
and forward commitments for speculative purposes but only in furtherance of
their investment objectives.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made by the Balanced Portfolio through reverse repurchase agreements un-
der which a Portfolio sells portfolio securities to financial institutions such
as banks and broker-dealers and agrees to repurchase them at a particular date
and price. The Balanced Portfolio may use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, on a date simultaneous with or prior to the expiration of the re-
verse repurchase agreement. The Balanced Portfolio may utilize reverse repur-
chase agreements when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the in-
terest expense of the transaction. This use of reverse repurchase agreements
may be regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds will be less than the interest expense, that the market value
of the securities sold by the Balanced Portfolio may decline below the price of
the securities the Portfolio is obligated to repurchase and that the securities
may not be returned to the Portfolio. During the time a reverse repurchase
agreement is outstanding, the Balanced Portfolio will main-
25
<PAGE>
tain a segregated account with the Fund's custodian containing cash, U.S. Gov-
ernment or other appropriate liquid high-grade debt securities having a value
at least equal to the repurchase price. A Portfolio's reverse repurchase agree-
ments, together with any other borrowings, will not exceed, in the aggregate,
33 1/3% of the value of its total assets. In addition, whenever borrowings ex-
ceed 5% of a Portfolio's total assets, the Portfolios (other than the Balanced
Portfolio) will not make any investments.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolios (other than the Index Master Portfolio) may invest in
securities issued by other investment companies which invest in short-term debt
securities and which seek to maintain a $1.00 net asset value per share. The
International Equity and International Emerging Markets Portfolios may purchase
shares of investment companies investing primarily in foreign securities, in-
cluding so-called "country funds." Country funds have portfolios consisting
exclusively of securities of issuers located in one foreign country. The Index
Equity Portfolio may also invest in Standard & Poor's Depository Receipts
(SPDRs) and shares of other investment companies that are structured to seek a
similar correlation to the performance of the S&P 500 Index. Securities of
other investment companies will be acquired within limits prescribed by the In-
vestment Company Act of 1940 (the "1940 Act"). As a shareholder of another in-
vestment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the expenses each bears directly
in connection with its own operations.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or (ex-
cept for the Index Master Portfolio) irrevocable bank letters of credit main-
tained on a current basis equal in value to at least the market value of the
loaned securities. A Portfolio may not make such loans in excess of 33 1/3% of
the value of its total assets. Securities loans involve risks of delay in re-
ceiving additional collateral or in recovering the loaned securities, or possi-
bly loss of rights in the collateral if the borrower of the securities becomes
insolvent.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% (10% with
respect to the Index Master Portfolio) of the value of its net assets in secu-
rities that are illiquid. Variable and floating rate instruments that cannot be
disposed of within seven days, and repurchase agreements and time deposits that
do not provide for payment within seven days after notice, without taking a re-
duced price, are subject to these limits. Each Portfolio may purchase securi-
ties which are not registered under the Securities Act of 1933 (the "1933 Act")
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by the adviser or sub-adviser, acting under guide-
lines approved and monitored by the Board, that an adequate trading market ex-
ists for that security. This investment practice could have the effect of in-
creasing the level of illiquidity in a Portfolio during any period that quali-
fied institutional buyers become uninterested in purchasing these restricted
securities.
26
<PAGE>
SMALL CAP GROWTH EQUITY AND SMALL CAP VALUE EQUITY PORTFOLIOS.
Under normal market conditions, the Small Cap Growth Equity Portfolio and Small
Cap Value Equity Portfolio will invest at least 90% (and in any event at least
65%) of their respective total assets in equity securities of smaller-capital-
ized organizations (less than $1 billion at the time of purchase). These orga-
nizations will normally have limited product lines, markets and financial re-
sources and will be dependent upon a limited management group.
INDEX EQUITY AND INDEX MASTER PORTFOLIOS. During normal market conditions, the
Index Equity Portfolio and Index Master Portfolio (in which all of the assets
of the Index Equity Portfolio will be invested after its 1996 conversion) in-
vest at least 95% of the value of their total assets in securities included in
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
The Index Master Portfolio intends to invest in all of the stocks that comprise
the S&P 500 Index in approximately the same proportion as they are represented
in the Index. These Portfolios will operate as index portfolios and, therefore,
are not actively managed (through the use of economic, financial or market
analysis), and adverse performance will ordinarily not result in the elimina-
tion of a stock from the Portfolios. The Portfolios will remain fully invested
in common stocks even when stock prices are generally falling. Ordinarily,
portfolio securities will not be sold except to reflect additions or deletions
of the stocks that comprise the S&P 500 Index, including mergers, reorganiza-
tions and similar transactions and, to the extent necessary, to provide cash to
pay redemptions of a Portfolio's shares. The investment performance of the In-
dex Master Portfolio and the Index Equity Portfolio is expected to approximate
the investment performance of the S&P 500 Index, which tends to be cyclical in
nature, reflecting periods when stock prices generally rise or fall.
Neither the Index Equity Portfolio nor the Index Master Portfolio are spon-
sored, endorsed, sold or promoted by S&P. S&P makes no representation or war-
ranty, express or implied, to the owners of the Index Equity Portfolio or the
Index Master Portfolio or any member of the public regarding the advisability
of investing in securities generally or in the Index Equity Portfolio or the
Index Master Portfolio particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to the Index
Equity Portfolio or the Index Master Portfolio is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Index Equity Portfolio or
the Index Master Portfolio. S&P has no obligation to take the needs of the In-
dex Equity Portfolio or the Index Master Portfolio or their respective owners
into consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of the
prices and amount of the Index Equity Portfolio or the Index Master Portfolio
or the timing of the issuance or sale of the Index Equity Portfolio or the In-
dex Master Portfolio or in the determination or calculation of the equation by
which the Index Equity Portfolio or the Index Master Portfolio is to be con-
verted into cash. S&P has no obligation or liability in connection with the ad-
ministration, marketing or trading of the Index Equity Portfolio or Index Mas-
ter Portfolio.
27
<PAGE>
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 IN-
DEX OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY ER-
RORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IM-
PLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMIT-
ING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPE-
CIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INTERNATIONAL PORTFOLIOS. During normal market conditions, the International
Equity Portfolio and International Emerging Markets Portfolio (the "Interna-
tional Portfolios") will invest at least 90% (and in any event at least 65%) of
their total assets in equity securities of foreign issuers. Investing in for-
eign securities involves considerations not typically associated with investing
in securities of companies organized and operated in the United States. Because
foreign securities generally are denominated and pay dividends or interest in
foreign currencies, the value of a Portfolio that invests in foreign securities
as measured in U.S. dollars will be affected favorably or unfavorably by
changes in exchange rates.
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitation on the removal of funds or as-
sets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations.
In general, less information is publicly available with respect to foreign is-
suers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting require-
ments applicable to issuers in the United States. While the volume of transac-
tions effected on foreign stock exchanges has increased in recent years, it re-
mains appreciably below that of the New York Stock Exchange. Accordingly, a
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In addi-
tion, there is generally less government supervision and regulation of securi-
ties exchanges, brokers and issuers in foreign countries than in the United
States.
The expense ratios of the International Equity and International Emerging Mar-
kets Portfolios can be expected to be higher than those of Portfolios investing
primarily in domestic securities. The costs attributable to investing abroad
are usually higher for several reasons, such as the higher cost of investment
research, higher cost of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.
28
<PAGE>
As stated, the International Emerging Markets Portfolio will invest its assets
in countries with emerging economies or securities markets. These countries may
include Argentina, Brazil, Bulgaria, Chile, China, Colombia, The Czech Repub-
lic, Ecuador, Greece, Hungary, India, Israel, Lebanon, Malaysia, Mexico, Moroc-
co, Peru, The Philippines, Poland, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and eco-
nomic structures in many of these countries may be undergoing significant evo-
lution and rapid development, and these countries may lack the social, politi-
cal and economic stability characteristic of more developed countries. Some of
these countries may have in the past failed to recognize private property
rights and have at times nationalized or expropriated the assets of private
companies. As a result, the risks described above, including the risks of na-
tionalization or expropriation of assets, may be heightened. In addition, unan-
ticipated political or social developments may affect the value of investments
in these countries and the availability to the Portfolio of additional invest-
ments in emerging market countries. The small size and inexperience of the se-
curities markets in certain of these countries and the limited volume of trad-
ing in securities in these countries may make investments in the countries il-
liquid and more volatile than investments in Japan or most Western European
countries. There may be little financial or accounting information available
with respect to issuers located in certain emerging market countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.
The International Equity Portfolio invests primarily in equity securities of
issuers located in countries included in EAFE. Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, New
Zealand, Norway, Singapore, Malaysia, Spain, Sweden, Switzerland and the United
Kingdom are currently included in EAFE.
The International Equity and International Emerging Markets Portfolios may use
forward foreign currency exchange contracts to hedge against movements in the
value of foreign currencies (including the European Currency Unit (ECU)) rela-
tive to the U.S. dollar in connection with specific portfolio transactions or
with respect to portfolio positions. A forward foreign currency exchange con-
tract involves an obligation to purchase or sell a specified currency at a fu-
ture date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Portfolio to establish a rate of exchange for a future
point in time.
BALANCED PORTFOLIO. Fixed income securities purchased by the Balanced Portfolio
may include domestic and dollar-denominated foreign debt securities, including
bonds, debentures, notes, equipment lease and trust certificates, mortgage-re-
lated and asset-backed securities, guaranteed investment contracts (GICs) and
obligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities. These securities will be rated at the time of purchase within
the four highest rating groups assigned by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or another nationally
recognized statistical rating organization. If unrated, the securities will be
determined at the time of purchase to be of comparable quality by the sub-ad-
viser. Securities rated "Baa" by Moody's or "BBB" by S&P, respectively, are
generally considered to be investment grade although they have speculative
characteristics. If a fixed income security is reduced below Baa by Moody's or
BBB by S&P, the Portfo-
29
<PAGE>
lio's sub-adviser will dispose of the security in an orderly fashion as soon as
practicable. Investments in securities of foreign issuers, which present addi-
tional investment considerations as described above under "International Port-
folios," will be limited to 5% of the Portfolio's total assets.
The market value of the Balanced Portfolio's investments in fixed income corpo-
rate and other securities will change in response to changes in interest rates
and the relative financial strength of each issuer. During periods of falling
interest rates, the values of long-term fixed income securities generally rise.
Conversely, during periods of rising interest rates the values of such securi-
ties generally decline. Changes in the financial strength of an issuer or
changes in the ratings of any particular security may also affect the value of
these investments.
The Balanced Portfolio may purchase asset-backed securities (i.e., securities
backed by home equity loans, installment sale contracts, credit card receiv-
ables or other assets). The average life of asset-backed securities varies with
the maturities of the underlying instruments which, in the case of mortgages,
have maximum maturities of forty years. The average life of a mortgage-backed
instrument, in particular, is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
scheduled principal payments and mortgage prepayments. The rate of such mort-
gage prepayments, and hence the life of the certificates, will be primarily a
function of current market rates and current conditions in the relevant housing
markets. The relationship between mortgage prepayment and interest rates may
give some high-yielding mortgage-related securities less potential for growth
in value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of mortgage prepayment tends to in-
crease. During such periods, the reinvestment of prepayment proceeds by the
Balanced Portfolio will generally be at lower rates than the rates that were
carried by the obligations that have been prepaid. Because of these and other
reasons, an asset-backed security's total return may be difficult to predict
precisely. To the extent that the Balanced Portfolio purchases mortgage-related
or mortgage-backed securities at a premium, mortgage prepayments (which may be
made at any time without penalty) may result in some loss of the Balanced Port-
folio's principal investment to the extent of premium paid.
Presently there are several types of mortgage-backed securities including: (i)
those that are issued or guaranteed by U.S. Government agencies, including
guaranteed mortgage pass-through certificates, which provide the holder with a
pro rata interest in the underlying mortgages; and (ii) collateralized mortgage
obligations ("CMOs"), which provide the holder with a specified interest in the
cash flow of a pool of underlying mortgages or other mortgage-backed securi-
ties. Issuers of CMOs frequently elect to be taxed as a pass-through entity
known as real estate mortgage investment conduits, or REMICs. CMOs are issued
in multiple classes, each with a specified fixed or floating interest rate and
a final distribution date. The relative payment rights of the various CMO clas-
ses may be structured in many ways. In most cases, however, payments of princi-
pal are applied to the CMO classes in the order of their respective stated ma-
turities, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. The
classes may include accrual certificates (also known as "Z-Bonds"), which only
accrue interest at a specified rate until other specified classes have been re-
tired and are converted thereafter to interest-paying securities. They may
30
<PAGE>
also include planned amortization classes ("PACs") which generally require,
within certain limits, that specified amounts of principal be applied on each
payment date, and generally exhibit less yield and market volatility than other
classes.
The Balanced Fund may also purchase obligations issued or guaranteed by the
U.S. Government and U.S. Government agencies and instrumentalities. Obligations
of certain agencies and instrumentalities of the U.S. Government, such as those
of the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the Export-Im-
port Bank of the United States, are supported by the right of the issuer to
borrow from the U.S. Treasury; and still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored instru-
mentalities if it is not obligated to do so by law. Certain U.S. Treasury and
agency securities may be held by trusts that issue participation certificates
(such as Treasury income growth receipts ("TIGRs") and certificates of accrual
on Treasury certificates ("CATs")). The Balanced Portfolio may purchase these
certificates and may also purchase Treasury receipts and other stripped securi-
ties, which represent beneficial ownership interests in either future interest
payments or the future principal payments on U.S. Government obligations. These
instruments are issued at a discount to their "face value" and may (particu-
larly in the case of stripped mortgage-backed securities) exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
The Balanced Portfolio may also purchase zero-coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments). Zero-coupon bonds are
subject to greater market fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of inter-
est.
To take advantage of attractive opportunities in the mortgage market and to en-
hance current income, the Balanced Portfolio may enter into dollar roll trans-
actions. A dollar roll transaction involves a sale by the Portfolio of a mort-
gage-backed or other security concurrently with an agreement by the Portfolio
to repurchase a similar security at a later date at an agreed-upon price. The
securities that are repurchased will bear the same interest rate and stated ma-
turity as those sold, but pools of mortgages collateralizing such securities
may have different prepayment histories than those sold. During the period be-
tween the sale and repurchase, the Portfolio will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in additional instruments for the Portfolio, and the income
from these investments will generate income for the Portfolio. If such income
does not exceed the income, capital appreciation and gain or loss that would
have been realized on the securities sold as part of the dollar roll, the use
of this technique will diminish the investment performance of the Portfolio
compared with what the performance would have been without the use of dollar
rolls. At the time that the Portfolio enters into a dollar roll transaction, it
will place in a segregated account maintained with its custodian cash, U.S.
Government securities or other liquid high grade debt obligations having a
value equal to the repurchase price (including accrued interest) and will sub-
sequently monitor the account to ensure that its value is main-
31
<PAGE>
tained. The Portfolio's dollar rolls, together with its reverse repurchase
agreements and other borrowings, will not exceed, in the aggregate, 33 1/3% of
the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Portfo-
lio sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted and the instruments which the Portfolio
is required to repurchase may be worth less than an instrument which the Port-
folio originally held when the Portfolio is able to complete the purchase. Suc-
cessful use of mortgage dollar rolls may depend upon a sub-adviser's ability to
correctly predict interest rates and prepayments. There is no assurance that
dollar rolls can be successfully employed.
PORTFOLIO TURNOVER RATES. Under normal market conditions, it is expected that
the annual portfolio turnover rate for each Portfolio (including both the eq-
uity and fixed income portions of the Balanced Portfolio in the aggregate) and
for the Index Master Portfolio will not exceed 150%. A Portfolio's annual port-
folio turnover rate will not, however, be a factor preventing a sale or pur-
chase when the adviser or sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates (i.e.,
over 100%) will generally result in higher transaction costs to a Portfolio.
32
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's (other than the Index Master Portfolio) investment objective and
policies may be changed by the Fund's Board of Trustees without shareholder ap-
proval. However, shareholders will be given at least 30 days' notice before any
such change. The investment objective of the Index Master Portfolio may not be
changed without the approval of shareholders of that Portfolio. No assurance
can be provided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) subject to the foregoing 25% exception (other than with respect to the In-
dex Master Portfolio), purchase more than 10% of the outstanding voting se-
curities of any issuer;
(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(4) borrow money in amounts over one-third of the value of its total assets at
the time of such borrowing.
These investment limitations are applied at the time investment securities are
purchased. Notwithstanding the investment limitations, the Index Equity Portfo-
lio may invest all of its assets in shares of an open-end management investment
company with substantially the same investment objective, policies and limita-
tions of that Portfolio.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any commitment is no
longer in the best interests of a Portfolio, it will revoke the commitment by
terminating sales of shares of the Portfolio in the state involved.
33
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and of The DFA Investment
Trust Company (in which the assets of the Fund's Index Equity
Portfolio will be invested after its 1996 conversion) are man-
aged under the direction of their separate Boards of Trustees.
The following individuals were elected by shareholders on Jan-
uary 4, 1996 to serve as trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Offi-
cer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School, Uni-
versity of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
The Statement of Additional Information furnishes additional
information about the trustees and officers of both the Fund
and The DFA Investment Trust Company.
ADVISER AND The Adviser to Compass Capital Funds is PNC Asset Management
SUB-ADVISERS Group ("PAMG"), except with respect to the Index Equity Port-
folio. Each of the Portfolios within the Compass Capital Fund
family is managed by a specialized portfolio manager who is a
member of one of PAMG's portfolio management subsidiaries.
The Portfolios (other than the Index Equity Portfolio) and
their investment sub-advisers and portfolio managers are as
follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ----------- ------------------------------------
<S> <C> <C>
Value Equity PCM(/1/) Earl J. Gaskins; Vice President of
PCM since 1985; Portfolio co-manager
since 1994.
Benedict E. Capaldi; Vice President
of PCM since 1995; prior to joining
PCM, Senior Vice President and
portfolio manager with Radnor
Capital Management, President of
Chestnut Hill Advisors, Inc. and
Managing Director of Brandywine
Asset Management, Inc.; Portfolio
co-manager since 1995.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ---------------------------- ------------------- ------------------------------------------
<S> <C> <C>
Growth Equity PEAC(/2/) Robert K. Urquhart; Managing Director of
PEAC's Large Cap Growth Equity Investments
area since 1995; prior to joining PEAC,
Chief Investment Officer and partner of
Cole Financial Group, Inc., a partner of
Seacliff Holdings, Inc. and of RCM Capital
Management; Portfolio manager since 1995.
Small Cap Value Equity PCM(/1/) Susan D. Menzies; Vice President of PCM
since 1985; Portfolio manager since 1994.
Small Cap Growth Equity PEAC(/2/) William J. Wykle; investment manager with
PEAC since 1995; investment manager with
PNC Bank, National Association from 1986
to 1995; Portfolio manager since its
inception.
International Equity PCM(/1/) William George Greig; Vice President of
PCM; prior to joining PCM, Managing
Partner of Akamai International,
Investment Director of The Framlington
Group and Research Director with Pilgrim
Baxter & Associates; Portfolio manager
since 1995.
International Emerging PCM(/1/) William George Greig (see above);
Markets Portfolio manager since its inception.
Select Equity PCM(/1/) Daniel B. Eagan; portfolio manager with
PCM since 1995; director of investment
strategy at PAMG during 1995; portfolio
manager with PEAC during 1995; Portfolio
manager since 1995.
Balanced PCM and Daniel B. Eagan (see above); Portfolio co-
BlackRock(/1/)(/3/) manager since 1994.
Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-manager
since 1995.
Keith T. Anderson; Managing Director and
co-chair of Portfolio Management Group and
Investment Strategy Committee of BlackRock
since 1988; Portfolio co-manager since
1995.
</TABLE>
(1) Provident Capital Management, Inc. ("PCM") has its primary offices at 1700
Market Street, 27th Floor, Philadelphia, PA 19103.
(2) PNC Equity Advisors Company ("PEAC") has its primary offices at 1835 Market
Street, 15th Floor, Philadelphia, PA 19103.
(3) BlackRock Financial Management, Inc. ("BlackRock") has its primary offices
at 345 Park Avenue, New York, New York 10154.
35
<PAGE>
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1835
Market Street, Philadelphia, Pennsylvania 19103. PAMG is an
indirect wholly-owned subsidiary of PNC Bank Corp., a multi-
bank holding company.
PNC Institutional Management Corporation ("PIMC") and PEAC
will serve as adviser and sub-adviser, respectively, to the
Index Equity Portfolio until its 1996 conversion. The princi-
pal business address of PIMC is 400 Bellevue Parkway, Wilming-
ton, Delaware 19809.
For their investment advisory and sub-advisory services, PAMG,
PIMC and the Portfolios' sub-advisers are entitled to fees,
computed daily on a portfolio-by-portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG,
PIMC and the sub-advisers intend to waive a portion of their
fees during the current fiscal year. All sub-advisory fees are
paid by PAMG and PIMC, and do not represent an extra charge to
the Portfolios.
36
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO EXCEPT
THE INDEX EQUITY PORTFOLIO AND THE INTERNATIONAL PORTFOLIOS
(BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Average Daily Net Assets Advisory Fee Fee
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion .550% .400%
$1 billion -- $2 billion .500 .350
$2 billion -- $3 billion .475 .325
greater than $3 billion .450 .300
</TABLE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL EQUITY
PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Average Daily Net Assets Advisory Fee Fee
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion .750% .600%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .525
greater than $3 billion .650 .500
</TABLE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL
EMERGING MARKETS PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
Investment Sub-Advisory
Average Daily Net Assets Advisory Fee Fee
------------------------ ------------ ------------
<S> <C> <C>
first $1 billion 1.250% 1.100%
$1 billion -- $2 billion 1.200 1.050
$2 billion -- $3 billion 1.155 1.005
greater than $3 billion 1.100 .950
</TABLE>
For its advisory services to the Index Equity Portfolio, PIMC is
entitled to advisory fees, computed daily and payable monthly,
at the annual rate of .20% of the Portfolio's average daily net
assets. As sub-adviser to the Index Equity Portfolio, PEAC is
entitled to receive from PIMC a fee, computed daily and payable
monthly, at the annual rate of .15% of the Portfolio's average
daily net assets. The Portfolio will no longer pay advisory fees
to PIMC after its 1996 conversion.
Although the advisory fee rate payable by the International
Emerging Markets Portfolio is higher than the rate payable by
mutual funds investing in domestic securities, the Fund believes
it is comparable to the rates paid by many other funds with sim-
ilar investment objectives and policies and is appropriate for
the Portfolio in light of its investment objective and policies.
37
<PAGE>
For their last fiscal year the Portfolios paid investment ad-
visory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Value Equity Portfolio, .44%; Growth Equity Portfolio,
.40%; Small Cap Value Equity Portfolio, .50%; Small Cap Growth
Equity Portfolio, .45%; International Equity Portfolio, .60%;
International Emerging Markets Portfolio, 1.04%; Select Equity
Portfolio, .40%; Index Equity Portfolio, .05%; and Balanced
Portfolio, .40%.
The sub-advisers to each Portfolio strive to achieve best exe-
cution on all transactions. Infrequently, brokerage transac-
tions for the Portfolios may be directed through registered
broker/dealers who have entered into dealer agreements with
Compass Capital's distributor.
ADVISER TO Dimensional Fund Advisors, Inc. ("DFA"), located at 1299 Ocean
INDEX MASTER Avenue, 11th Floor, Santa Monica, CA 90401, serves as invest-
PORTFOLIO ment adviser to the Index Master Portfolio.
DFA was organized in May 1981 and is engaged in the business
of providing investment management services to institutional
investors. DFA's assets under management totalled approxi-
mately $13 billion at October 31, 1995. David G. Booth and Rex
A. Sinquefield, both of whom are trustees and officers of The
DFA Investment Trust Company and directors and officers of
DFA, together own approximately 61% of DFA's outstanding stock
and may be deemed controlling persons of DFA.
Investment decisions for the Index Master Portfolio are made
by the Investment Committee of DFA which meets on a regular
basis and also as needed to consider investment issues. The
Investment Committee is composed of certain officers and di-
rectors of DFA who are elected annually. DFA provides the In-
dex Master Portfolio with a trading department and selects
brokers and dealers to effect securities transactions.
For the investment advisory services provided to the Index
Master Portfolio under the advisory agreement, DFA is entitled
to receive a fee at the annual rate of .025% of the Index Mas-
ter Portfolio's average daily net assets. For the Index Master
Portfolio's fiscal year ended November 30, 1995, DFA received
a fee for its investment advisory services which, on an annual
basis, equaled .025% of the Index Master Portfolio's average
daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the
38
<PAGE>
Fund's co-administrators. CCG and PFPC are indirect wholly-owned
subsidiaries of PNC Bank Corp. CDI is a wholly-owned subsidiary
of Provident Distributors, Inc. ("PDI"). A majority of the out-
standing stock of PDI is owned by its officers and the remaining
outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .20% of the first $500
million of each Portfolio's average daily net assets, .18% of
the next $500 million of each Portfolio's average daily net as-
sets, .16% of the next $1 billion of each Portfolio's average
daily net assets and .15% of each Portfolio's average daily net
assets in excess of $2 billion. From time to time the Adminis-
trators may waive some or all of their administration fees from
a Portfolio. PFPC serves as the administrative services, divi-
dend disbursing and transfer agent to the Index Master Port-
folio, for which PFPC will be entitled to compensation at the
annual rate of .015% of the Index Master Portfolio's average
daily net assets (at the time of the Index Equity Portfolio's
conversion).
For information about the operating expenses the Portfolios ex-
pect to pay for the current fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
DISTRIBUTION Under the Fund's Distribution and Service Plan (the "Plan"), In-
AND SERVICE vestor Shares of the Portfolios bear the expense of payments
PLAN ("distribution fees") made to CDI, as the Fund's distributor
(the "Distributor"), or affiliates of PNC Bank, National Associ-
ation ("PNC Bank") for distribution and sales support services.
The distribution fees will be used primarily to compensate the
Distributor for distribution services and to compensate the Dis-
tributor and PNC Bank affiliates for sales support services pro-
vided in connection with the offering and sale of Investor
Shares. The distribution fees may also be used to reimburse the
Distributor and PNC Bank affiliates for related expenses, in-
cluding payments to brokers, dealers, financial institutions and
industry professionals ("Service Organizations") for sales sup-
port services and related expenses. Distribution fees payable
under the Plan will not exceed .10%
39
<PAGE>
(annualized) of the average daily net asset value of each
Portfolio's outstanding Investor A Shares and .75%
(annualized) of the average daily net asset value of each
Portfolio's outstanding Investor B Shares. Payments under the
Plan are not tied directly to out-of-pocket expenses and
therefore may be used by the recipients as they choose (for
example, to defray their overhead expenses).
Under the Plan, the Fund intends to enter into service agree-
ments with Service Organizations (including PNC Bank and its
affiliates) with respect to each class of Investor Shares pur-
suant to which Service Organizations will render certain sup-
port services to their customers who are the beneficial owners
of Investor Shares. In consideration for a shareholder servic-
ing fee of up to .25% (annualized) of the average daily net
asset value of Investor Shares owned by their customers, Serv-
ice Organizations may provide one or more of the following
services: responding to customer inquiries relating to the
services performed by the Service Organization and to customer
inquiries concerning their investments in Investor Shares;
providing information periodically to customers showing their
positions in Investor Shares; and other similar shareholder
liaison services. In consideration for a separate shareholder
processing fee of up to .15% (annualized) of the average daily
net asset value of Investor Shares owned by their customers,
Service Organizations may provide one or more of these addi-
tional services to such customers: processing purchase and re-
demption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend
payments from the Fund on behalf of customers; providing sub-
accounting with respect to Investor Shares beneficially owned
by customers or the information necessary for sub-accounting;
and other similar services.
Service Organizations may charge their clients additional fees
for account services. Customers who are beneficial owners of
Investor Shares should read this Prospectus in light of the
terms and fees governing their accounts with Service Organiza-
tions.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Service Organizations under their service agreements will
not be prohibited under these laws. However, state securities
laws may differ from the interpretations of Federal law on
this issue, and banks and financial institutions may be re-
quired to register as dealers pursuant to state law.
40
<PAGE>
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to the investment adviser and
the Administrators, transfer agency and custodian fees, trustee
fees, taxes, interest, professional fees, shareholder servicing
and processing fees, fees and expenses in registering and quali-
fying the Portfolios and their shares for distribution under
Federal and state securities laws, expenses of preparing pro-
spectuses and statements of additional information and of print-
ing and distributing prospectuses and statements of additional
information to existing shareholders, expenses relating to
shareholder reports, shareholder meetings and proxy solicita-
tions, insurance premiums, the expense of independent pricing
services, and other expenses which are not expressly assumed by
PAMG or the Fund's service providers under their agreements with
the Fund. Any general expenses of the Fund that do not belong to
a particular investment portfolio will be allocated among all
investment portfolios by or under the direction of the Board of
Trustees in a manner the Board determines to be fair and equita-
ble.
41
<PAGE>
What Pricing Options Are Available To Investors?
- --------------------------------------------------------------------------------
The Equity Portfolios of Compass Capital Funds offer different
pricing options to investors in the form of different share
classes. These options are described below:
A SHARES (FRONT-END LOAD)
. One time, front-end sales charge at time of purchase
. No charges or fees at any time for redeeming shares
. Lower ongoing expenses
. Free exchanges with other A Shares in the Compass Capital
Funds family
A Shares may make sense for investors with a long-term invest-
ment horizon who prefer to pay a one-time front-end sales
charge and have reduced ongoing fees.
B SHARES (BACK-END LOAD)
. No front-end sales charge at time of purchase
. Contingent deferred sales charge (CDSC) if shares are re-
deemed, declining over 6 years from a high of 4.50%
. Automatically convert to A Shares eight years from purchase
B Shares may make sense for investors who prefer to pay for
professional investment advice on an ongoing basis (asset-
based sales charge) rather than with a traditional, one-time
front-end sales charge.
42
<PAGE>
THE PRICING OPTIONS FOR EACH PORTFOLIO ARE DESCRIBED IN THE TABLES BELOW:
Value Equity, Growth Equity, Small Cap Value Equity, Small Cap Growth Equity,
Select Equity and Balanced Portfolios:
<TABLE>
<CAPTION>
A SHARES B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge 4.50% 0.00%
12b-1 Fee 0.00%* 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00%
(Depends on when
shares are redeemed)
</TABLE>
International Equity and International Emerging Markets Portfolios:
<TABLE>
<CAPTION>
A SHARES B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge 5.00% 0.00%
12b-1 Fee 0.00%* 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00%
(Depends on when
shares are redeemed)
</TABLE>
Index Equity Portfolio
<TABLE>
<CAPTION>
A SHARES B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge 3.00% 0.00%
12b-1 Fee 0.00%* 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00%
(Depends on when
shares are redeemed)
</TABLE>
*The Portfolios do not expect to incur any 12b-1 fees with respect to Investor
A Shares during the current fiscal year.
Investors wishing to purchase shares of the Portfolios may do so either by
mailing the investment application attached to this Prospectus along with a
check or by wiring money as specified below under "How Are Shares Purchased?".
43
<PAGE>
What Are The Key Considerations In Selecting A Pricing Option?
- --------------------------------------------------------------------------------
In deciding which class of Investor Shares to purchase, investors should con-
sider the following:
Intended Holding Period. Over time, the cumulative distribution fees on a Port-
folio's Investor B Shares will exceed the expense of the maximum initial sales
charge on Investor A Shares. For example, if net asset value remains constant,
the Investor B Shares' aggregate distribution fees would be equal to the In-
vestor A Shares' initial maximum sales charge from four to seven years after
purchase (depending on the Portfolio). Thereafter, Investor B Shares would bear
higher aggregate expenses. Investor B shareholders, however, enjoy the benefit
of permitting all their dollars to work from the time the investments are made.
Any positive investment return on the additional invested amount would par-
tially or wholly offset the higher annual expenses borne by Investor B Shares.
Because the Portfolios' future returns cannot be predicted, however, there can
be no assurance that such a positive return will be achieved.
At the end of eight years after the date of purchase, Investor B Shares will
convert automatically to Investor A Shares, based on the relative net asset
values of shares of each class. Investor B Shares acquired through reinvestment
of dividends or distributions are also converted at the earlier of these
dates--eight years after the reinvestment date or the date of conversion of the
most recently purchased Investor B Shares that were not acquired through rein-
vestment.
Investor B shareholders also pay a contingent deferred sales charge if they re-
deem during the first six years after purchase, unless a sales charge waiver
applies. Investors expecting to redeem during this period should consider the
cost of the applicable contingent deferred sales charge in addition to the ag-
gregate annual Investor B distribution fees, as compared with the cost of the
applicable initial sales charges applicable to the Investor A Shares.
Investor B Shares of the Portfolios purchased on or before January 12, 1996 are
subject to a CDSC of 4.50% of the lesser of the original purchase price or the
net asset value of Investor B Shares at the time of redemption. This deferred
sales charge is reduced for shares held more than one year. Investor B Shares
of a Portfolio purchased on or before January 12, 1996 convert to Investor A
Shares of the Portfolio at the end of six years after purchase. For more infor-
mation about Investor B Shares purchased on or before January 12, 1996 and the
deferred sales charge payable on their redemption, call PFPC at (800) 441-7762.
Reduced Sales Charges. Because of reductions in the front-end sales charge for
purchases of Investor A Shares aggregating $25,000 or more, it may be advanta-
geous for investors purchasing large quantities of Investor Shares to purchase
Investor A Shares. In any event, the Fund will not accept any purchase order
for $1,000,000 or more of Investor B Shares.
44
<PAGE>
Waiver of Sales Charges. The entire initial sales charge on Investor A Shares
of a Portfolio may be waived for certain eligible purchasers allowing their en-
tire purchase price to be immediately invested in a Portfolio. The contingent
deferred sales charge may be waived upon redemption of certain Investor B
Shares.
45
<PAGE>
How Are Shares Purchased?
- --------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor Shares through a
broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-advisers, Distributor or transfer agent or em-
ployees of their affiliates is $100.
When placing purchase orders, investors should specify whether the order is for
Investor A or Investor B Shares of a Portfolio. All share purchase orders that
fail to specify a class will automatically be invested in Investor A Shares.
PURCHASES THROUGH BROKERS. Shares may be purchased through brokers which have
entered into dealer agreements with the Distributor. Purchase orders received
by a broker and transmitted to the transfer agent before the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time) on a
Business Day will be effected at the net asset value determined that day, plus
any applicable sales charge. Payment for an order may be made by the broker in
Federal funds or other funds immediately available to the Portfolios' custodian
no later than 4:00 p.m. (Eastern time) on the third Business Day following re-
ceipt of the purchase order.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described above,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial pur-
chase amount payable to Compass Capital Funds. An Account Application Form may
be obtained by calling (800) 441-7762. The name of the Portfolio with respect
to which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, specify
the class of Investor Shares and include the name of the account registration
and the shareholder account number. Before wiring any funds, an investor must
call PFPC at (800) 441-7762 in order to confirm the wire instructions. Purchase
orders which are received by PFPC, together with payment, before the close of
regular trading hours on the New York Stock Exchange (cur-
46
<PAGE>
rently 4:00 p.m. Eastern time) on any Business Day (as defined below) are
priced at the applicable net asset value next determined on that day, plus any
applicable sales charge.
OTHER PURCHASE INFORMATION. Shares of each Portfolio are sold on a continuous
basis by CDI as the Distributor. CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Purchases may be
effected on weekdays on which both the New York Stock Exchange and the Federal
Reserve Bank of Philadelphia are open for business (a "Business Day"). Payment
for orders which are not received or accepted will be returned after prompt in-
quiry. The issuance of shares is recorded on the books of the Fund. No certifi-
cates will be issued for shares. Payments for shares of a Portfolio may, in the
discretion of the Fund's investment adviser, be made in the form of securities
that are permissible investments for that Portfolio. Compass Capital reserves
the right to reject any purchase order or to waive the minimum initial invest-
ment requirement.
47
<PAGE>
How Are Shares Redeemed?
- --------------------------------------------------------------------------------
REDEMPTION. Shareholders may redeem their shares for cash at any time. A writ-
ten redemption request in proper form must be sent directly to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. Except for the
contingent deferred sales charge that may be charged with respect to Investor B
Shares, there is no charge for a redemption. Shareholders may also place re-
demption requests through a broker or other institution, which may charge a fee
for this service.
WHEN REDEEMING INVESTOR SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD INDICATE
WHETHER THEY ARE REDEEMING INVESTOR A SHARES OR INVESTOR B SHARES. If a redeem-
ing shareholder owns both Investor A Shares and Investor B Shares in the same
Portfolio, the Investor A Shares will be redeemed first unless the shareholder
indicates otherwise.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding Investor A Share certificates
must send their certificates with the redemption request. Additional documen-
tary evidence of authority is required by PFPC in the event redemption is re-
quested by a corporation, partnership, trust, fiduciary, executor or adminis-
trator.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by Federal wire transfer to a single previously desig-
nated bank account. Once authorization is on file, PFPC will honor requests by
any person by telephone at (800) 441-7762 (in Delaware call collect (302) 791-
1194) or other means. The minimum amount that may be sent by check is $500,
while the minimum amount that may be wired is $10,000. The Fund reserves the
right to change these minimums or to terminate these redemption privileges. If
the proceeds of a redemption would exceed $25,000, the redemption request must
be in writing and will be subject to the signature guarantee requirement de-
scribed above. This privilege may not be used to redeem Investor A Shares in
certificated form. During periods of substantial economic or market change,
telephone redemptions may be difficult to complete. Redemption requests may
also be mailed to PFPC at P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single desig-
48
<PAGE>
nated bank account to receive wire redemption proceeds, it is necessary to send
a written request (with a guaranteed signature as described above) to Compass
Capital Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so. The Fund, the Administrators and the Distributor will em-
ploy reasonable procedures to confirm that instructions communicated by tele-
phone are genuine. The Fund, the Administrators and the Distributor will not be
liable for any loss, liability, cost or expense for acting upon telephone in-
structions reasonably believed to be genuine in accordance with such proce-
dures.
ACCOUNTS WITH LOW BALANCES. The Fund reserves the right to redeem a sharehold-
er's account in any Portfolio at any time the net asset value of the account in
such Portfolio falls below the minimum initial investment requirement amount as
the result of a redemption or an exchange request. A shareholder will be noti-
fied in writing that the value of the shareholder's account in a Portfolio is
less than the required amount and will be allowed 30 days to make additional
investments before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by Compass Capital Funds c/o PFPC, P.O. Box 8907, Wil-
mington, Delaware 19899-8907. Proceeds from the redemption of Investor B Shares
will be reduced by the amount of any applicable contingent deferred sales
charge. Unless another payment option is used as described above, payment for
redeemed shares is normally made by check mailed within seven days after ac-
ceptance by PFPC of the request and any other necessary documents in proper or-
der. Payment may, however, be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the shares to be redeemed have been re-
cently purchased by check, the Fund's transfer agent may delay the payment of
redemption proceeds, which may be a period of up to 15 days after the purchase
date, pending a determination that the check has cleared.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
49
<PAGE>
What Are The Shareholder Features Of The Fund?
- --------------------------------------------------------------------------------
COMPASS CAPITAL FUNDS offers shareholders many special features which enable an
investor to have greater investment flexibility as well as greater access to
information about the Fund throughout the investment period.
Additional information on each of these features is available from PFPC by
calling (800) 441-7762 (in Delaware call collect (302) 791-1194).
EXCHANGE PRIVILEGE. Investor A and Investor B Shares of each Portfolio may be
exchanged for shares of the same class of other portfolios of the Fund which
offer that class of shares, based on their respective net asset values. Ex-
changes of Investor A Shares may be subject to the difference between the sales
charge previously paid on the exchanged shares and the higher sales charge (if
any) payable with respect to the shares acquired in the exchange.
Investor A Shares of money market portfolios of the Fund that were (1) acquired
through the use of the exchange privilege and (2) can be traced back to a pur-
chase of shares in one or more investment portfolios of the Fund for which a
sales charge was paid, can be exchanged for Investor A Shares of a portfolio
subject to differential sales charges as applicable.
The exchange of Investor B Shares will not be subject to a CDSC, which will
continue to be measured from the date of the original purchase and will not be
affected by exchanges.
A shareholder wishing to make an exchange may do so by sending a written re-
quest to PFPC at the address given above. Shareholders are automatically pro-
vided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege. Share-
holders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange re-
quests. To add this feature to an existing account that previously did not pro-
vide this option, a Telephone Exchange Authorization Form must be filed with
PFPC. This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone at (800) 441-7762 (in Delaware
call collect (302) 791-1194) to request the exchange. During periods of sub-
stantial economic or market change, telephone exchanges may be difficult to
complete and shareholders may have to submit exchange requests to PFPC in writ-
ing.
If the exchanging shareholder does not currently own shares of the investment
portfolio whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and broker of
record as the account from which shares are exchanged, unless otherwise speci-
fied in writing by the shareholder with all signatures guaranteed by an eligi-
ble guarantor institution as defined above. In order to participate in the Au-
tomatic Investment Program or establish a Systematic Withdrawal Plan for the
new account, however, an exchanging shareholder must file a specific written
request.
50
<PAGE>
Any share exchange must satisfy the requirements relating to the minimum ini-
tial investment requirement, and must be legally available for sale in the
state of the investor's residence. For Federal income tax purposes, a share ex-
change is a taxable event and, accordingly, a capital gain or loss may be real-
ized. Before making an exchange request, shareholders should consult a tax or
other financial adviser and should consider the investment objective, policies
and restrictions of the investment portfolio into which the shareholder is mak-
ing an exchange, as set forth in the applicable Prospectus. Brokers may charge
a fee for handling exchanges.
The Fund reserves the right to modify or terminate the exchange privilege at
any time. Notice will be given to shareholders of any material modification or
termination except where notice is not required.
The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine in accordance with such procedures. Exchange orders may also be
sent by mail to the shareholder's broker or to PFPC at P.O. Box 8907, Wilming-
ton, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts. Upon commencement of the SWP, the account must have a cur-
rent value of $10,000 or more in a Portfolio. Shareholders may elect to receive
automatic cash payments of $100 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.
51
<PAGE>
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC. Purchases of additional Investor A Shares of the
Fund concurrently with withdrawals may be disadvantageous to investors because
of the sales charges involved and, therefore, is discouraged. No contingent de-
ferred sales charge will be assessed on redemptions of Investor B Shares made
through the SWP that do not exceed 12% of an account's net asset value on an
annualized basis. For example, monthly, quarterly and semi-annual SWP redemp-
tions of Investor B Shares will not be subject to the CDSC if they do not ex-
ceed 1%, 3% and 6%, respectively, of an account's net asset value on the re-
demption date. SWP redemptions of Investor B Shares in excess of this limit are
still subject to the applicable CDSC.
52
<PAGE>
What Is The Schedule Of Sales Charges And Exemptions?
- --------------------------------------------------------------------------------
INVESTOR A Investor A Shares are subject to a front-end sales charge deter-
SHARES mined in accordance with the following schedules:
ALL PORTFOLIOS EXCEPT INTERNATIONAL PORTFOLIOS AND INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
REALLOWANCE OR
SALES PLACEMENT FEES
CHARGE AS SALES TO DEALERS
% OF CHARGE AS (AS % OF
AMOUNT OF TRANSACTION OFFERING % OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 4.50% 4.71% 4.00%
$25,000 but less than $50,000 4.25 4.44 3.75
$50,000 but less than $100,000 4.00 4.17 3.50
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 1.50 1.52 1.25
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
INTERNATIONAL EQUITY AND INTERNATIONAL EMERGING MARKETS PORTFOLIOS
<TABLE>
<CAPTION>
REALLOWANCE OR
SALES PLACEMENT FEES
CHARGE AS SALES TO DEALERS
% OF CHARGE AS (AS % OF
AMOUNT OF TRANSACTION OFFERING % OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$25,000 but less than $50,000 4.75 4.99 4.25
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 4.00 4.17 3.50
$250,000 but less than $500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.50
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
* There is no initial sales charge on purchases of $1,000,000 or more of In-
vestor A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the net asset value of the shares on the purchase or
redemption date for shares redeemed within 18 months after purchase.
** The Distributor may pay placement fees to dealers of up to 1.00% of the of-
fering price on purchases of Investor A Shares of $1,000,000 or more.
53
<PAGE>
INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
REALLOWANCE OR
SALES PLACEMENT FEES
CHARGE AS SALES TO DEALERS
% OF CHARGE AS (AS % OF
AMOUNT OF TRANSACTION OFFERING % OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 3.00% 3.09% 2.50%
$25,000 but less than $50,000 2.75 2.83 2.25
$50,000 but less than $100,000 2.50 2.56 2.00
$100,000 but less than $250,000 2.00 2.04 1.75
$250,000 but less than $500,000 1.50 1.52 1.25
$500,000 but less than $1,000,000 1.00 1.01 0.75
$1,000,000 and over 0.00* 0.00* 0.75**
</TABLE>
* There is no initial sales charge on purchases of $1,000,000 or more of In-
vestor A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the net asset value of the shares on the purchase or
redemption date for shares redeemed within 18 months after purchase.
** The Distributor may pay placement fees to dealers of up to 0.75% of the of-
fering price on purchases of Investor A Shares of $1,000,000 or more.
54
<PAGE>
During special promotions, the entire sales charge may be reallowed to dealers.
In addition, certain dealers who enter into an agreement to provide extra
training and information on products, or marketing and related services, and
who increase sales of shares may also receive additional payments from the Dis-
tributor. Dealers who receive 90% or more of the sales charge may be deemed to
be "underwriters" under the 1933 Act. The amount of the sales charge not
reallowed to dealers may be paid to broker-dealer affiliates of PNC Bank Corp.
who provide sales support services.
SALES CHARGE WAIVERS--INVESTOR A SHARES. The following persons associated with
the Fund, the Distributor, the Fund's investment adviser, sub-advisers or
transfer agent and their affiliates may buy Investor A Shares without paying a
sales charge to the extent permitted by these firms: (a) officers, directors
and partners (and their spouses and minor children); (b) full-time employees
and retirees (and their spouses and minor children); (c) registered representa-
tives of brokers who have entered into selling agreements with the Distributor;
(d) spouses or children of such persons; and (e) any trust, pension, profit-
sharing or other benefit plan for any of the persons set forth in (a) through
(c). The following persons may also buy Investor A Shares without paying a
sales charge: (a) persons investing through an authorized payroll deduction
plan; (b) persons investing through an authorized investment plan for organiza-
tions which operate under Section 501(c)(3) of the Internal Revenue Code; (c)
registered investment advisers, trust companies and bank trust departments ex-
ercising discretionary investment authority with respect to amounts to be in-
vested in a Portfolio, provided that the aggregate amount invested pursuant to
this exemption equals at least $250,000; and (d) persons participating in a
"wrap account" or similar program under which they pay advisory fees to a bro-
ker-dealer or other financial institution. Investors who qualify for any of
these exemptions from the sales charge must purchase Investor A Shares.
QUALIFIED PLANS. The sales charge (as a percentage of the offering price) pay-
able by qualified employee benefit plans ("Qualified Plans") having at least 20
employees eligible to participate on purchases of Investor A Shares of the
Portfolios aggregating less than $500,000 will be 1.00%. No sales charge will
apply to purchases by Qualified Plans of Investor A Shares aggregating $500,000
and above. The sales charge payable by Qualified Plans having less than 20 em-
ployees eligible to participate on purchases of Investor A Shares of the Port-
folios aggregating less than $500,000 will be 2.50% (1.50% with respect to
shares of the Index Equity Portfolio). The above schedule will apply to pur-
chases by such Qualified Plans of Investor A Shares aggregating $500,000 and
above.
QUANTITY DISCOUNTS. As shown above, larger purchases may reduce the sales
charge price. Upon notice to the investor's broker or the transfer agent, pur-
chases of Investor A Shares made at any one time by the following persons may
be considered when calculating the sales charge: (a) an individual, his or her
spouse, and their children under the age of 21; (b) a trustee or fiduciary of a
single trust estate or single fiduciary account; or (c) any organized group
which has been in existence for more than six months, if it is not organized
for the purpose of buying redeemable securities of a registered investment com-
pany, and if the purchase is made through a central administrator, or through a
single dealer, or by other means which result in economy of sales effort or ex-
pense. An organized group does not include a group of individuals whose sole
organizational connection is participation as credit card holders of a
55
<PAGE>
company, policyholders of an insurance company, customers of either a bank or
broker/dealer or clients of an investment adviser. Purchases made by an orga-
nized group may include, for example, a trustee or other fiduciary purchasing
for a single fiduciary account or other employee benefit plan purchases made
through a payroll deduction plan.
REDUCED SALES CHARGES--INVESTOR A SHARES
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of an
investor's existing Investor A Shares in any of the Portfolios that are subject
to a front-end sales charge may be combined with the amount of the investor's
current purchase in determining the applicable sales charge. In order to re-
ceive the cumulative quantity reduction, previous purchases of Investor A
Shares must be called to the attention of PFPC by the investor at the time of
the current purchase.
REINVESTMENT PRIVILEGE. Upon redemption of Investor A Shares of a Portfolio (or
Investor A Shares of another non-money market portfolio of the Fund), a share-
holder has a one-time right, to be exercised within 45 days, to reinvest the
redemption proceeds without any sales charges. PFPC must be notified of the re-
investment in writing by the purchaser, or by his or her broker, at the time
purchase is made in order to eliminate a sales charge. An investor should con-
sult a tax adviser concerning the tax consequences of use of the reinvestment
privilege.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Investor A Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of any other investment company
which were sold with a sales charge or commission. This does not include shares
of an affiliated mutual fund which were or would be subject to a contingent de-
ferred sales charge upon redemption. Such purchases must be made within 60 days
of the redemption, and the Fund must be notified by the investor in writing, or
by his or her financial institution, at the time the purchase of Investor A
Shares is made.
LETTER OF INTENT. An investor may qualify for a reduced sales charge immedi-
ately by signing a non-binding Letter of Intent stating the investor's inten-
tion to invest during the next 13 months a specified amount in Investor A
Shares which, if made at one time, would qualify for a reduced sales charge.
The Letter of Intent may be signed at any time within 90 days after the first
investment to be included in the Letter of Intent. The initial investment must
meet the minimum initial investment requirement and represent at least 5% of
the total intended investment. The investor must instruct PFPC upon making sub-
sequent purchases that such purchases are subject to a Letter of Intent. All
dividends and capital gains of a Portfolio that are invested in additional In-
vestor A Shares of the same Portfolio are applied to the Letter of Intent.
During the term of a Letter of Intent, the Fund's transfer agent will hold In-
vestor A Shares representing 5% of the indicated amount in escrow for payment
of a higher sales load if the full amount indicated in the Letter of Intent is
not purchased. The escrowed Investor A Shares will
56
<PAGE>
be released when the full amount indicated has been purchased. Any redemptions
made during the 13-month period will be subtracted from the amount of purchases
in determining whether the Letter of Intent has been completed.
If the full amount indicated is not purchased within the 13-month period, the
investor will be required to pay an amount equal to the difference between the
sales charge actually paid and the sales charge the investor would have had to
pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the ex-
piration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Investor A
Shares held in escrow to realize the difference.
PURCHASES OF INVESTOR B SHARES. Investor B Shares are subject to a deferred
sales charge at the rates set forth in the chart below if they are redeemed
within six years of purchase. The deferred sales charge on Investor B Shares is
based on the lesser of the net asset value of the Investor B Shares on the pur-
chase date or redemption date. Brokers will receive commissions from the Dis-
tributor in connection with sales of Investor B Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in connec-
tion with sales of Investor A Shares.
The amount of any contingent deferred sales charge an investor must pay on In-
vestor B Shares depends on the number of years that elapse between the purchase
date and the date the Investor B Shares are redeemed as set forth in the fol-
lowing chart:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
<S> <C>
Less than one 4.50%
More than one, but less than two 4.00
More than two, but less than three 3.50
More than three, but less than four 3.00
More than four, but less than five 2.00
More than five, but less than six 1.00
More than six, but less than seven 0.00
More than seven, but less than eight 0.00
</TABLE>
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The contingent deferred
sales charge on Investor B Shares is not charged in connection with: (1) ex-
changes described in "What Are The Shareholder Features Of The Fund?--Exchange
Privilege"; (2) redemptions made in connection with minimum required distribu-
tions from IRA, 403(b)(7) and Qualified Plan accounts due to the shareholder
reaching age 70 1/2; (3) redemptions in connection with a shareholder's death
or disability (as defined in the Internal Revenue Code) subsequent to the pur-
chase of Investor B Shares; (4) involuntary redemptions of Investor B Shares in
accounts with low balances as described in "How Are Shares Redeemed?"; and (5)
redemptions made
57
<PAGE>
pursuant to the Systematic Withdrawal Plan, subject to the limitations set
forth above under "What Are The Shareholder Features Of The Fund?--Systematic
Withdrawal Plan." In addition, no contingent deferred sales charge is charged
on Investor B Shares acquired through the reinvestment of dividends or distri-
butions.
When an investor redeems Investor B Shares, the redemption order is processed
to minimize the amount of the contingent deferred sales charge that will be
charged. Investor B Shares are redeemed first from those shares that are not
subject to the deferred sales load (i.e., shares that were acquired through re-
investment of dividends or distributions) and after that from the shares that
have been held the longest.
58
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for each class of Investor Shares of
each Portfolio as of the close of regular trading hours on the NYSE (currently
4:00 p.m. Eastern Time) on each Business Day by dividing the value of all secu-
rities and other assets owned by a Portfolio (including, for the Index Equity
Portfolio, all of its shares in the Index Master Portfolio) that are allocated
to a particular class of shares, less the liabilities charged to that class, by
the number of shares of the class that are outstanding. The net asset value per
share of the Index Master Portfolio is calculated as of the close of the NYSE
by dividing the total market value of its investments and other assets, less
any liabilities, by the total outstanding shares of the Index Master Portfolio.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees or, in the case of the Index Master Portfolio, The DFA Investment
Trust Company's Board of Trustees. The amortized cost method of valuation will
also be used with respect to debt obligations with sixty days or less remaining
to maturity unless a Portfolio's sub-adviser under the supervision of the Board
of Trustees determines such method does not represent fair value.
59
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. The net investment in-
come of each Portfolio is declared quarterly as a dividend to investors who are
shareholders of the Portfolio at the close of business on the day of declara-
tion. All dividends are paid within ten days after the end of each quarter. Any
net realized capital gains (including net short-term capital gains) will be
distributed by each Portfolio at least annually. The period for which dividends
are payable and the time for payment are subject to change by the Fund's Board
of Trustees.
Distributions are reinvested at net asset value in additional full and frac-
tional shares of the same class on which the distributions are paid, unless a
shareholder elects to receive distributions in cash. This election, or any rev-
ocation thereof, must be made in writing to PFPC, and will become effective
with respect to distributions paid after its receipt by PFPC.
As stated previously, after its 1996 conversion, the Index Equity Portfolio
will seek its investment objective by investing all of its investable assets in
the Index Master Portfolio, and the Index Equity Portfolio will be allocated
its pro rata share of the ordinary income and expenses of the Index Master
Portfolio. This net income, less the Index Equity Portfolio's expenses incurred
in operations, will be the Index Equity Portfolio's net investment income from
which dividends are distributed as described above. The Index Master Portfolio
will also allocate to the Index Equity Portfolio its pro rata share of capital
gains, if any, realized by the Index Master Portfolio.
60
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
treated as a return of capital), whether the distributions are paid in cash or
reinvested in additional Shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Dividends paid by the Portfolios will be eligible for the dividends received
deduction allowed to certain corporations only to the extent of the total qual-
ifying dividends received by a Portfolio from domestic corporations for a tax-
able year. Corporate shareholders will have to take into account the entire
amount of any dividend received in making certain adjustments for Federal al-
ternative minimum and environmental tax purposes. The dividends received deduc-
tion is not available for capital gain dividends.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
An investor considering buying Shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption,
transfer or exchange of Shares depending upon their tax basis and their price
at the time of redemption, transfer or exchange. Generally, shareholders may
include sales charges paid on the purchase of Shares in their tax basis for the
purposes of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if a shareholder exchanges the Shares for Shares of an-
other Portfolio within 90 days of purchase and is able to reduce the sales
charges applicable to the new Shares (by virtue of the Fund's exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged Shares for the purpose of determining gain or
loss but may be included (subject to the same limitation) in the tax basis of
the new Shares.
61
<PAGE>
Dividends and certain interest income earned by a Portfolio from foreign secu-
rities may be subject to foreign withholding taxes or other taxes. So long as
more than 50% of the value of a Portfolio's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Port-
folio may elect, for U.S. Federal income tax purposes, to treat certain foreign
taxes paid by it, including generally any withholding taxes and other foreign
income taxes, as paid by its shareholders. It is possible that the Interna-
tional Equity and International Emerging Markets Portfolios will make this
election in certain years. If a Portfolio makes the election, the amount of
such foreign taxes paid by the Portfolio will be included in its shareholders'
income pro rata (in addition to taxable distributions actually received by
them), and each shareholder will be entitled either (a) to credit a proportion-
ate amount of such taxes against a shareholder's U.S. Federal income tax lia-
bilities, or (b) if a shareholder itemizes deductions, to deduct such propor-
tionate amounts from U.S. Federal taxable income.
At or about the time of the conversion of the Index Equity Portfolio in 1996,
the Index Master Portfolio intends to qualify for taxation as a partnership for
Federal income tax purposes. As such, the Index Master Portfolio would not be
subject to tax and the Index Equity Portfolio would be treated for Federal in-
come tax purposes as recognizing its pro rata portion of the Index Master Port-
folio's income and deductions, and owning its pro rata share of the Index Mas-
ter Portfolio's assets. The Index Equity Portfolio's status as a regulated in-
vestment company is dependent on, among other things, the Index Master Portfo-
lio's continued classification as a partnership for Federal income tax purpos-
es.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. The application of state and local income taxes to investments in
the Portfolios may differ from the Federal income tax consequences described
above. In addition, shareholders who are non-resident alien individuals, for-
eign trusts or estates, foreign corporations or foreign partnerships may be
subject to different Federal income tax treatment. Future legislative or admin-
istrative changes or court decisions may materially affect the tax consequences
of investing in the Portfolios.
62
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC(R) Fund to
Compass Capital Funds. The Declaration of Trust authorizes the Board of Trust-
ees to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Investor A Shares of the nine portfolios described
herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The Fund offers various services and privileges in
connection with its Investor Shares that are not generally offered in connec-
tion with its Institutional and Service Shares, including an automatic invest-
ment plan, automatic withdrawal plan and checkwriting. For further information
regarding the Fund's Institutional and Service Share classes, contact PFPC at
(800) 441-7762.
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, as trustee on behalf of institutional and individual in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
MASTER-FEEDER STRUCTURE. The Index Equity Portfolio, unlike many other invest-
ment companies which directly acquire and manage their own portfolio of securi-
ties, will seek, after its conversion in 1996, to achieve its investment objec-
tive by investing all of its investable assets in the Index Master Portfolio.
The Index Equity Portfolio will purchase shares of the Index Master Portfolio
at net asset value. The net asset value of the Index Equity Portfolio will re-
spond
63
<PAGE>
to increases and decreases in the value of the Index Master Portfolio's securi-
ties and to the expenses of the Index Master Portfolio allocable to the Index
Equity Portfolio (as well as its own expenses). The Index Equity Portfolio may
withdraw its investment in the Index Master Portfolio at any time upon 30 days
notice to the Index Master Portfolio if the Board of Trustees of the Fund de-
termines that it is in the best interests of the Index Equity Portfolio to do
so. Upon withdrawal, the Board of Trustees would consider what action might be
taken, including the investment of all of the assets of the Index Equity Port-
folio in another pooled investment entity having the same investment objective
as the Index Equity Portfolio or the hiring of an investment adviser to manager
the Index Equity Portfolio's assets in accordance with the investment policies
described above with respect to the Index Equity Portfolio.
The Index Master Portfolio is a separate series of The DFA Investment Trust
Company (the "Trust"), which is a business trust created under the laws of the
State of Delaware. The Index Equity Portfolio and other institutional investors
that may invest in the Index Master Portfolio from time to time (e.g. other in-
vestment companies) will each bear a share of all liabilities of the Index Mas-
ter Portfolio. Under the Delaware Business Trust Act, shareholders of the Index
Master Portfolio have the same limitation of personal liability as shareholders
of a Delaware corporation. Accordingly, Fund management believes that neither
the Index Equity Portfolio nor its shareholders will be adversely affected by
reason of the Index Equity Portfolio's investing in the Index Master Portfolio.
The shares of the Index Master Portfolio will be offered to institutional in-
vestors in private placements for the purpose of increasing the funds available
for investment and to achieve economies of scale that might be available at
higher asset levels. The expenses of such other institutional investors and
their returns may differ from those of the Index Equity Portfolio. While in-
vestment in the Index Master Portfolio by other institutional investors offers
potential benefits to the Index Master Portfolio (and, indirectly, to the Index
Equity Portfolio), economies of scale and related expense reductions might not
be achieved. Also, if an institutional investor were to redeem its interest in
the Index Master Portfolio, the remaining investors in the Index Master Portfo-
lio could experience higher pro rata operating expenses and correspondingly
lower returns. In addition, institutional investors that have a greater pro
rata ownership interest in the Index Master Portfolio than the Index Equity
Portfolio could have effective voting control over the operation of the Index
Master Portfolio.
Shares in the Index Master Portfolio have equal, non-cumulative voting rights,
except as set forth below, with no preferences as to conversion, exchange, div-
idends, redemption or any other feature. Shareholders of the Trust have the
right to vote only (i) for removal of its trustees, (ii) with respect to such
additional matters relating to the Trust as may be required by the applicable
provisions of the 1940 Act, including the approval of the investment advisory
agreement and the selection of trustees and accountants, and (iii) on such
other matters as the trustees of the Trust may consider necessary or desirable.
In addition, approval of the shareholders of the Trust is required to adopt any
amendments to the Agreement and Declaration of Trust of the Trust which would
adversely affect to a material degree the rights and preferences of the shares
of the Index Master Portfolio or to increase or decrease their par value. The
Index Mas-
64
<PAGE>
ter Portfolio's shareholders will also be asked to vote on any proposal to
change a fundamental policy (i.e. a policy that may be changed only with the
approval of shareholders) of the Index Master Portfolio.
If the Index Equity Portfolio, as a shareholder of the Index Master Portfolio,
is requested to vote on matters pertaining to the Index Master Portfolio, the
Fund's Trustees intend to vote all of the shares that the Index Equity Portfo-
lio holds in the Index Master Portfolio without submitting any such questions
to the shareholders of the Index Equity Portfolio. If the Fund's Trustees de-
cide to adopt "pass-through" voting, the Index Equity Portfolio, if required
under the 1940 Act or other applicable law, would hold a meeting of its share-
holders and would cast its votes proportionately as instructed by Index Equity
Portfolio shareholders. In such cases, shareholders of the Index Equity Portfo-
lio, in effect, would have the same voting rights they would have as direct
shareholders of the Index Master Portfolio.
The investment objective of the Index Master Portfolio may not be changed with-
out approval of its shareholders. Shareholders of the Portfolio will receive
written notice thirty days prior to the effective date of any change in the in-
vestment objective of the Master Portfolio. If the Index Master Portfolio
changes its investment objective in a manner which is inconsistent with the in-
vestment objective of the Index Equity Portfolio and the Fund's Board of Trust-
ees fails to approve a similar change in the investment objective of the Index
Equity Portfolio, the Index Equity Portfolio would be forced to withdraw its
investment in the Index Master Portfolio and either seek to invest its assets
in another registered investment company with the same investment objective as
the Index Equity Portfolio, which might not be possible, or retain an invest-
ment adviser to manage the Index Equity Portfolio's assets in accordance with
its own investment objective, possibly at increased cost. A withdrawal by the
Index Equity Portfolio of its investment in the Index Master Portfolio could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Index Equity Portfolio. Should such a distribution occur,
the Index Equity Portfolio could incur brokerage fees or other transaction
costs in converting such securities to cash in order to pay redemptions. In ad-
dition, a distribution in kind to the Index Equity Portfolio could result in a
less diversified portfolio of investments and could adversely affect the li-
quidity of the Portfolio.
The conversion of the Index Equity Portfolio into a feeder fund of the Index
Master Portfolio was approved by shareholders of the Index Equity Portfolio at
a meeting held on November 30, 1995. The policy of the Index Equity Portfolio,
and other similar investment companies, to invest their investable assets in
funds such as the Index Master Portfolio is a relatively recent development in
the mutual fund industry and, consequently, there is a lack of substantial ex-
perience with the operation of this policy. There may also be other investment
companies or entities through which you can invest in the Index Master Portfo-
lio which may have different sales charges, fees and other expenses which may
affect performance. For information about other funds that may invest in the
Index Master Portfolio, please contact DFA at (310) 395-8005 or contact your
broker.
65
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for each class of Investor Shares of the Portfolios may
be quoted in advertisements and communications to shareholders. Total return
will be calculated on an average annual total return basis for various periods.
Average annual total return reflects the average annual percentage change in
value of an investment in Investor Shares of a Portfolio over the measuring pe-
riod. Total return may also be calculated on an aggregate total return basis.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return assume that dividend
and capital gain distributions made by a Portfolio with respect to a class of
shares are reinvested in shares of the same class, and also reflect the maximum
sales load charged by the Portfolio with respect to a class of shares. When,
however, a Portfolio compares the total return of a share class to that of
other funds or relevant indices, total return may also be computed without re-
flecting the sales load.
The yield of a class of shares of the Balanced Portfolio is computed by divid-
ing the net income allocated to that class during a 30-day (or one month) pe-
riod by the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis.
The performance of a share class may be compared to the performance of other
mutual funds with similar investment objectives and to relevant indices, as
well as to ratings or rankings prepared by independent services or other finan-
cial or industry publications that monitor the performance of mutual funds. For
example, the performance of a class of shares may be compared to data prepared
by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. and Wei-
senberger Investment Company Service, and to the performance of the Dow Jones
Industrial Average, the "stocks, bonds and inflation Index" published annually
by Ibbotson Associates, the Lipper International Fund Index, the Lehman Govern-
ment Corporate Bond Index and the Financial Times World Stock Index, as well as
the benchmarks attached to this Prospectus. Performance information may also
include evaluations of the Portfolios and their share classes published by na-
tionally recognized ranking services, and information as reported in financial
publications such as Business Week, Fortune, Institutional Investor, Money Mag-
azine, Forbes, Barron's, The Wall Street Journal and The New York Times, or in
publications of a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of a class of shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of a dividend in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Investor Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for In-
vestor Shares of a Portfolio cannot necessarily be used to compare an invest-
66
<PAGE>
ment in such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other institu-
tions directly to their customer accounts in connection with investments in In-
vestor Shares will not be included in the Portfolio performance calculations.
67
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. The COMPASS CAPITAL
FUNDS have an investor information line that can provide such access.
In addition to account information, other sources of information regarding each
COMPASS CAPITAL Portfolio and its portfolio holdings, strategy and current div-
idend and performance levels are available.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial (800) FUTURE4.
For Information Related to Share Purchases and Redemptions call your investment
adviser or COMPASS CAPITAL FUNDS at (800) 441-7762.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7762.
Information is also available on the Internet through the World Wide Web.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
68
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Value Equity Russell 1000 Value Index An index composed of those Russell 1000
securities with less-than-average growth
orientation. Securities in this index
generally have low price-to-book and price-
earnings ratios, higher dividend yields and
lower forecasted growth values than more
growth-oriented securities in the Russell
1000 Growth Index.
Growth Equity Russell 1000 Growth The Russell 1000 Growth Index contains
Index those Russell 1000 securities with a
greater-than-average growth orientation.
Companies in this index tend to exhibit
higher price-to-book and price-earnings
ratios, lower dividend yields and higher
forecasted growth values than the Russell
1000 Value Index.
Small Cap Value Equity Russell 2000 Index An index of the smallest 2000 companies in
the Russell 3000 Index, as ranked by total
market capitalization. The Russell 2000
Index is widely regarded in the industry to
accurately capture the universe of small
cap stocks.
Small Cap Growth Equity Russell 2000 Growth An index composed of those Russell 2000
Index securities with a greater-than-average
growth orientation. Securities in this
index generally have higher price-to-book
and price-earnings ratios than those in the
Russell 2000 Value Index.
International Equity EAFE Index An index composed of a sample of companies
representative of the market structure of
20 European and Pacific Basin countries.
The Index represents the evolution of an
unmanaged portfolio consisting of all
domestically listed stocks.
International Emerging MSCI Emerging Markets The Morgan Stanley Capital International
Markets Free Index (MSCI) Emerging Markets Free Index (EMF) is
a market capitalization weighted index
composed of companies representative of the
market structure of 22 Emerging Market
countries in Europe, Latin America, and the
Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in
otherwise free markets which are not
purchasable by foreigners.
Select Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Index Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Balanced S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Salomon Broad Investment An unmanaged index of 3500 bonds. The Broad
Grade Index Investment Grade Index is market
capitalization weighted and includes
Treasury, Government sponsored mortgages
and investment grade fixed rate corporates
with a maturity of 1 year or longer.
</TABLE>
69
<PAGE>
The Compass Capital Funds
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE INDEX
EQUITY PORTFOLIO IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S RATINGS GROUP. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
-----------------
VALUE EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP VALUE EQUITY PORTFOLIO
SMALL CAP GROWTH EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL EMERGING MARKETS PORTFOLIO
SELECT EQUITY PORTFOLIO
INDEX EQUITY PORTFOLIO
BALANCED PORTFOLIO
THE EQUITY
PORTFOLIOS
INVESTOR SHARES
Prospectus
January 16, 1996
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INVESTOR C SHARES OF THE
VALUE EQUITY PORTFOLIO,
GROWTH EQUITY PORTFOLIO,
SMALL CAP VALUE EQUITY PORTFOLIO,
SMALL CAP GROWTH EQUITY PORTFOLIO,
INTERNATIONAL EQUITY PORTFOLIO,
INTERNATIONAL EMERGING MARKETS PORTFOLIO,
SELECT EQUITY PORTFOLIO,
INDEX EQUITY PORTFOLIO AND
BALANCED PORTFOLIO)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page............................. Cover Page
2. Synopsis............................... What Are The Expenses Of
The Portfolios?
3. Condensed Financial Information........ What Are The Portfolios'
Financial Highlights?
4. General Description of Registrant...... Cover Page; What Are The
Portfolios?; What
Additional Investment
Policies Apply?; What
Are The Portfolios'
Fundamental Investment
Limitations?
5. Management of the Fund................. Who Manages The Fund?
5A. Managements Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities..... How Frequently Are
Dividends And
Distributions Made To
Investors?; How Are Fund
Distributions Taxed?;
How Is The Fund
Organized?
7. Purchase of Securities Being Offered... How Are Shares Purchased
And Redeemed?; How Is
Net Asset Value
Calculated?; How Is The
Fund Organized?
8. Redemption or Repurchase............... How Are Shares Purchased
and Redeemed?
9. Legal Proceedings...................... Inapplicable
<PAGE>
The Equity Portfolios Investor C Shares
- --------------------------------------------------------------------------------
Compass Capital Funds(SM) ("Compass Capital" or the "Fund") con-
sists of twenty-eight investment portfolios. This Prospectus
describes the Investor C Shares of nine of those portfolios
(the "Portfolios"):
. Value Equity Portfolio
. Growth Equity Portfolio
. Small Cap Value Equity Portfolio
. Small Cap Growth Equity Portfolio
. International Equity Portfolio
. International Emerging Markets Portfolio
. Select Equity Portfolio
. Index Equity Portfolio
. Balanced Portfolio
This Prospectus contains information that a prospective in-
vestor needs to know before investing. Please keep it for fu-
ture reference. A Statement of Additional Information dated
January 16, 1996 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional In-
formation may be obtained free of charge from the Fund by
calling (800) 441-7762. The Statement of Additional Informa-
tion, as supplemented from time to time, is incorporated by
reference into this Prospectus.
Shares of the Portfolios are not deposits or obligations of,
or guaranteed or endorsed by, PNC Bank, National Association
or any other bank and are not insured by, guaranteed by, obli-
gations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other governmental agency. Investments in the
Portfolios involve investment risks, including possible loss
of principal amount invested.
Currently, the Index Equity Portfolio invests its assets di-
rectly in common stocks of companies included in the Standard
& Poor's 500(R) Composite Stock Price Index. The Portfolio's
shareholders have, however, approved a change, which the Port-
folio expects to implement during the first half of 1996,
whereby the Index Equity Portfolio will, unlike many other in-
vestment companies, seek to achieve its investment objective
by investing all of its investable assets in a series of
shares (the "Index Master Portfolio") of The DFA Investment
Trust Company, another open-end management investment company,
rather than through a portfolio of various securities. The in-
vestment experience of the Index Equity portfolio will corre-
spond directly with the investment experience of the Index
Master Portfolio. The Index Master Portfolio has substantially
the same investment objective, policies and limitations as the
Index Equity Portfolio and, except as specifically noted, is
also referred to as a "Portfolio" in this Prospectus. Invest-
ors should carefully consider this investment approach. For
additional information, see "How is the Fund Organized?"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
2
<PAGE>
The Equity Portfolios Of Compass Capital Funds:
- --------------------------------------------------------------------------------
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of nine
diversified investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity sec-
tor. Six of these Portfolios invest solely in U.S. stocks, two
Portfolios invest in non-U.S. international stocks and one Port-
folio invests in a combination of U.S. stocks and bonds. A de-
tailed description of each Portfolio begins on page 10 and a
summary of each Performance Benchmark is contained in the Appen-
dix.
COMPASS PERFORMANCE LIPPER PEER GROUP
CAPITAL BENCHMARK
PORTFOLIO
Value Equity Russell 1000 Growth and Income
Value Index
Growth Equity Russell 1000 Capital Appreciation
Growth Index
Small Cap Russell 2000 Small Company Growth
Value Equity Index
Small Cap Russell 2000 Small Company Growth
Growth Equity Growth Index
International EAFE International
Equity
International MSCI Emerging
Emerging Markets
Markets Free Index Emerging Markets
S&P 500 Index
Select Equity S&P 500 Index Growth and Income
Index Equity S&P 500 Index S&P 500 Index
and Salomon
Balanced Broad Balanced
Investment
Grade Index
PNC Asset Management Group, Inc. ("PAMG") serves as the invest-
ment adviser to each portfolio except the Index Equity Portfo-
lio, which is currently advised by PNC Institutional Management
Corporation ("PIMC"). Provident Capital Management, Inc.
("PCM"), PNC Equity Advisers Company ("PEAC") and BlackRock Fi-
nancial Management, Inc. ("BlackRock") serve as sub-advisers to
different Portfolios as described in this Prospectus. Dimen-
sional Fund Advisors, Inc. ("DFA") serves as investment adviser
to the Index Master Portfolio.
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfolios.
CAPITAL We intend this document to be an effective tool as you explore
EQUITY different directions in equity investing. You may wish to use
PORTFOLIOS the table of contents on page 5 to find descriptions of the
Portfolios, including the investment objectives, portfolio man-
agement styles, risks and charges and expenses.
3
<PAGE>
CONSIDERING There can be no assurance that any mutual fund will achieve
THE RISKS IN its investment objective. The Portfolios will hold equity se-
EQUITY curities, and some or all of the Portfolios may acquire war-
INVESTING rants, foreign securities and illiquid securities; enter into
repurchase and reverse repurchase agreements; lend portfolio
securities to third parties; and enter into futures contracts
and options and forward currency exchange contracts. These and
the other investment practices set forth below, and their as-
sociated risks, deserve careful consideration. Certain risks
associated with international investments are heightened be-
cause of currency fluctuations and investments in emerging
markets. See "What Additional Investment Policies And Risks
Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased?" and "How Are
CAPITAL FUNDS Shares Redeemed?"
4
<PAGE>
Asking The Key Questions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 6
What Are The Portfolios?..................................... 10
What Are The Differences Among The Portfolios?............... 11
What Additional Investment Policies Apply?................... 13
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 23
Who Manages The Fund?........................................ 24
What Pricing Options Are Available To Investors?............. 32
How Are Shares Purchased?.................................... 33
How Are Shares Redeemed?..................................... 35
What Are The Shareholder Features Of The Fund?............... 37
What Sales Charge And Exemptions Apply To Investor C
Shares?..................................................... 39
How Is Net Asset Value Calculated?........................... 40
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 41
How Are Fund Distributions Taxed?............................ 42
How Is The Fund Organized?................................... 44
How Is Performance Calculated?............................... 47
How Can I Get More Information?.............................. 49
</TABLE>
5
<PAGE>
What Are The Expenses Of The Portfolios?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses expected to be incurred by
Investor C Shares of the Portfolios for the current fiscal year ending Septem-
ber 30, 1996 as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
SMALL CAP
VALUE EQUITY GROWTH EQUITY VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR C INVESTOR C INVESTOR C
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge
(as a percentage of offering price) None None None
Sales Charge on Reinvested Dividends None None None
Deferred Sales Charge(/1/)
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower) 1.0% 1.0% 1.0%
ANNUAL PORTFOLIO OPERATING EXPENSES
(AFTER FEE WAIVERS AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/2/) .50% .50% .53%
12b-1 fees (after fee
waivers)(/2/)(/3/) .75 .75 .75
Other operating expenses (after fee
waivers)(/2/) .72 .72 .80
------- ------- -------
Shareholder servicing fee .25 .25 .25
Shareholder processing fee .15 .15 .15
Other expenses .32 .32 .40
----- ----- -----
Total Portfolio operating expenses
(after fee waivers)(/2/) 1.97% 1.97% 2.08%
======= ======= =======
</TABLE>
(1) This amount applies to redemptions during the first year. No deferred sales
charge is charged after the first 18 months on Investor C Shares. See "What
Sales Charge and Exemptions Apply to Investor C Shares?"
(2) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55% and administration fees
would be .23% for each Portfolio. PAMG and the Portfolios' administrators
are under no obligation to waive or continue waiving their fees, but have
informed the Fund that they expect to waive fees as necessary to maintain
the Portfolios' total operating expenses during the remainder of the cur-
rent fiscal year at the levels set forth in the table. The information in
the table is based on the advisory fees, administration fees and other ex-
penses payable after fee waivers for the fiscal year ended September 30,
1995, as restated to reflect current expenses and fee waivers. Without
waivers, "Other operating expenses" would be %, % and %, respective-
ly, and "Total portolio Operating expenses" would be 2.08%, 2.10% and
2.11%, respectively, for Investor C Shares.
(3) Long-term investors in Investor C Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the National Association of Securities Dealers, Inc. ("NASD").
6
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL INTERNATIONAL
GROWTH EQUITY EQUITY EMERGING MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR C INVESTOR C INVESTOR C
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge
(as a percentage of offering
price) None None None
Sales Charge on Reinvested
Dividends None None None
Deferred Sales Charge(/1/)
(as a percentage of original
purchase
price or redemption proceeds,
whichever is lower) 1.0% 1.0% 1.0%
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AFTER FEE WAIVERS AS A
PERCENTAGE OF AVERAGE NET
ASSETS)
Advisory Fees (after fee
waivers)(/2/) .53% .70% 1.15%
12b-1 fees(/2/)(/3/) .75 .75 .75
Other operating expenses (after
fee
waivers )(/2/) .80 .83 1.10
------- ------- ---------
Shareholder servicing fee .25 .25 .25
Shareholder processing fee .15 .15 .15
Other expenses .40 .43 .70
----- ------- ----- ------- ------- ---------
Total Portfolio operating
expenses (after fee
waivers)(/2/) 2.08% 2.28% 3.00%
======= ======= =========
</TABLE>
(1) This amount applies to redemptions during the first year. No deferred sales
charge is charged after the first 18 months on Investor C Shares. See "What
Sales Charge and Exemptions Apply to Investor C Shares?"
(2) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55%, .75% and 1.25% for the
Small Cap Growth Equity, International Equity and International Emerging
Markets Portfolios, respectively, and administration fees would be .23% for
each Portfolio. PAMG and the Portfolios' administrators are under no obli-
gation to waive or continue waiving their fees, but have informed the Fund
that they expect to waive fees as necessary to maintain the Portfolios' to-
tal operating expenses during the remainder of the current fiscal year at
the levels set forth in the table. The information in the table is based on
the advisory fees, administration fees and other expenses payable after fee
waivers for the fiscal year ended September 30, 1995, as restated to re-
flect current expenses and fee waivers. Without waivers, "Other operating
expenses" would be %, % and %, respectively, and "Total Portfolio op-
erating expenses" would be 2.11%, 2.40% and 3.15%, respectively, for In-
vestor C Shares.
(3) Long-term investors in Investor C Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the NASD.
7
<PAGE>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECT EQUITY INDEX EQUITY BALANCED
PORTFOLIO PORTFOLIO+ PORTFOLIO
INVESTOR C INVESTOR C INVESTOR C
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge
(as a percentage of offering price) None None None
Sales Charge on Reinvested Dividends None None None
Deferred Sales Charge(/1/)
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower) 1.0% 1.0% 1.0%
ANNUAL PORTFOLIO OPERATING EXPENSES
AVERAGE (AFTER FEE WAIVERS AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)(/2/)(/3/) .50% .025% .50%
12b-1 fees(/2/)(/4/) .75 .75 .75
Operating expenses of the Index Master
Portfolio N/A .04 N/A
Other operating expenses (after fee
waivers)(/2/) .72 .585 .77
------- ------- ------
Shareholder servicing Fee .25 .25 .25
Shareholder processing Fee .15 .15 .15
Other expenses .32 .185 .37
----- ----- ----
Total Portfolio operating expenses
(after fee waivers)(/2/) 1.97% 1.40 % 2.02%
======= ======= ======
</TABLE>
(1) This amount applies to redemptions during the first year. No deferred sales
charge is charged after the first 18 months on Investor C Shares. See "What
Sales Charge and Exemptions Apply to Investor C Shares?"
(2) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55%, .025% and .55% for the
Select Equity, Index Equity and Balanced Portfolios, respectively, and ad-
ministration fees would be .23% for each Portfolio. PAMG and the Portfo-
lios' administrators are under no obligation to waive or continue waiving
their fees, but have informed the Fund that they expect to waive fees as
necessary to maintain the Portfolios' total operating expenses during the
remainder of the current fiscal year at the levels set forth in the table.
The information in the table is based on the advisory fees, administration
fees and other expenses payable after fee waivers for the fiscal year ended
September 30, 1995, as restated to reflect current expenses and fee waiv-
ers. Without waivers, "Other operating expenses" would be
%, %and %,respectively, and "Total Portfolio operating expenses" would be
2.10%, 1.74% and 2.13%, respectively, for Investor C Shares.
(3) Advisory fees with respect to the Index Equity Portfolio represent advisory
fees of the Index Master Portfolio.
(4) Long-term investors in Investor C Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the NASD.
+ Includes the operating expenses of the Index Master Portfolio that are allo-
cable to the Index Equity Portfolio after the Portfolio's conversion as de-
scribed in the Prospectus. The total operating expenses of the Index Equity
Portfolio before and after its conversion are expected to be substantially
the same.
8
<PAGE>
EXAMPLE
An investor in Investor C Shares would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Value Equity Portfolio
C Shares (Redemption)* $30 $62 $106 $230
C Shares (No Redemption) 20 62 106 230
Growth Equity Portfolio
C Shares (Redemption)* 30 62 106 230
C Shares (No Redemption) 20 62 106 230
Small Cap Value Equity Portfolio
C Shares (Redemption)* 31 65 112 241
C Shares (No Redemption) 21 65 112 241
Small Cap Growth Equity Portfolio
C Shares (Redemption)* 31 65 112 241
C Shares (No Redemption) 21 65 112 241
International Equity Portfolio
C Shares (Redemption)* 33 71 122 262
C Shares (No Redemption) 23 71 122 262
International Emerging Markets
Portfolio
C Shares (Redemption)* 40 93 158 332
C Shares (No Redemption) 30 93 158 332
Select Equity Portfolio
C Shares (Redemption)* 30 62 106 230
C Shares (No Redemption) 20 62 106 230
Index Equity Portfolio
C Shares (Redemption)* 24 44 77 168
C Shares (No Redemption) 17 44 77 168
Balanced Portfolio
C Shares (Redemption)* 31 63 109 235
C Shares (No Redemption) 21 63 109 235
</TABLE>
* Reflects the deduction of the deferred sales charge.
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses (including the Index Equity Portfolio's pro
rata share of the Index Master Portfolio's advisory fees and operating ex-
penses) an investor will bear either directly or indirectly. They do not re-
flect any charges that may be imposed by brokers or other institutions directly
on their customer accounts in connection with investments in the Portfolios.
For a detailed description of the expenses of the Index Equity Portfolio and
the Index Master Portfolio, see "Who Manages the Fund?"
The Board of Trustees of the Fund believes that the aggregate per share ex-
penses of the Index Equity Portfolio and the Index Master Portfolio in which
the Index Equity Portfolio's assets will be invested after its 1996 conversion
to a feeder portfolio will be approximately equal to the expenses which the In-
dex Equity Portfolio would incur if the Fund retained the services of an in-
vestment adviser for the Index Equity Portfolio and the assets of the Index Eq-
uity Portfolio were invested directly in the type of securities held by the In-
dex Master Portfolio.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
9
<PAGE>
What Are The Portfolios?
- --------------------------------------------------------------------------------
COMPASS CAPITAL FUNDS consists of 28 portfolios and has been
structured to include many different investment styles so that
investors may participate across multiple disciplines in order
to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of nine
investment portfolios that provide investors with a broad
spectrum of investment alternatives within the equity sector.
Six of these Portfolios invest primarily in U.S. stocks, two
Portfolios invest in non-U.S. international stocks and one
Portfolio invests in a combination of U.S. stocks and bonds.
In certain investment cycles and over certain holding periods,
an equity fund that invests according to a "value" style or a
"growth" style may perform above or below the market. An in-
vestment program that combines these multiple disciplines al-
lows investors to select from among these various product op-
tions in the way that most closely fits the individual's in-
vestment goals and sentiments.
INVESTMENT Each of the nine Compass Capital Equity Portfolios seeks to
OBJECTIVES provide long-term Capital Appreciation.
The Select Equity and Value Equity Portfolios pursue a second-
ary objective of Current Income from dividends.
The Balanced Portfolio pursues a secondary objective of Cur-
rent Income from an allocation to fixed income securities.
To meet its investment objective, each Portfolio employs a
specific investment style, as described below.
10
<PAGE>
What Are The Differences Among The Portfolios?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<S> <C> <C> <C>
Value Equity Pursues equity securities Stocks with price/earnings Russell 1000
(defined as common stocks or and price/book ratios at Value Index
securities convertible into time of purchase below
common stocks) which the average for benchmark and
sub-adviser believes are capitalization in excess of
undervalued. A security's $1 billion.
earnings trend and its
dividend growth rate will
also be factors considered
in security selection.
Growth Equity Pursues stocks with earnings Stocks with growth rate Russell 1000
growth potential. Emphasizes estimates in excess of Growth Index
stocks which the sub-adviser average for benchmark and
considers to have favorable capitalization in excess of
and above-average earnings $1 billion.
growth prospects.
Small Cap Value Equity Pursues small cap stocks Stocks with price/earnings Russell 2000
which the sub-adviser and price/book ratios at Index
believes are undervalued. A time of purchase below
security's earnings trend average for benchmark and
and its dividend growth rate capitalization below $1
will also be factors billion.
considered in security
selection.
Small Cap Growth Equity Pursues small cap stocks Stocks with growth rate Russell 2000
with earnings growth estimates in excess of Growth Index
potential. Emphasizes small average for benchmark and
cap stocks which the sub- capitalization below $1
adviser considers to have billion.
favorable and above-average
earnings growth prospects.
International Equity Pursues non-dollar Portfolio assets are EAFE
denominated stocks of primarily invested in
issuers in countries international stocks.
included in the Morgan
Stanley Capital Stocks with price/earnings
International Europe, ratios below average for a
Australia and the Far East security's home market or
Index ("EAFE"). Within this stock exchange.
universe, a value style of
investing is employed to Diversification across
select stocks which the sub- countries, industry groups
adviser believes are and companies with
undervalued. A security's investment at all times in
earnings trend and its at least three foreign
dividend growth rate will countries.
also be factors considered
in security selection. The
sub-adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign countries,
expected levels of
inflation, government
policies influencing
business conditions and the
outlook for currency
relationships.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<S> <C> <C> <C>
International Emerging Pursues non-dollar Portfolio assets are MSCI
Markets denominated stocks of primarily invested in stocks Emerging
issuers in emerging country of emerging market issuers. Markets Free
markets (generally any Index
country considered to be Stocks with price/earnings
emerging or developing by ratios below average for a
the World Bank, the security's home market or
International Finance stock exchange.
Corporation or the United
Nations). Within this Ordinarily, stocks of
universe, a value style of issuers in at least three
investing is employed to emerging markets will be
select stocks which the sub- held.
adviser believes are
undervalued. The sub-adviser
will also consider
macroeconomic factors such
as the prospects for
relative economic growth
among certain foreign
countries, expected levels
of inflation, government
policies influencing
business conditions and the
outlook for currency
relationships.
Select Equity Combines value and growth Similar sector weightings as S&P 500
style as sub-adviser benchmark, with over- or Index
identifies market under-weighting in
opportunity. particular securities within
those sectors.
Index Equity Invests all of its assets Holds substantially all of S&P 500
directly or, after the 1996 the stocks of the S&P 500 Index
conversion, in the U.S. Index in approximately the
Large Company Series (the same proportions as they are
"Index Master Portfolio") of represented in the Index.
The DFA Investment Trust
Company using a passive
investment style that
pursues the replication of
the S&P 500 Index return.
Balanced Holds a blend of equity and Maintains a minimum 25% S&P 500 and
fixed income securities to investment in fixed income Salomon
deliver total return through senior securities. Broad
capital appreciation and Investment
current income. Grade Index
Equity Portion: Combines Equity Portion:
value and growth style as Similar sector weightings as
sub-adviser identifies benchmark, with over- or
market opportunity. under weighting in
particular securities within
those sectors.
Fixed Income Portion: Fixed Income Portion:
Combines sector rotation and Dollar--denominated
security selection across a investment grade bonds,
broad universe of fixed including U.S. Government,
income securities. mortgage-backed, asset-
backed and corporate debt
securities.
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
12
<PAGE>
What Additional Investment Policies Apply?
- --------------------------------------------------------------------------------
The discussion below applies to each of the Portfolios (and, with respect to
the Index Equity Portfolio, its investment in the Index Master Portfolio) un-
less otherwise noted.
EQUITY SECURITIES. During normal market conditions each Portfolio, except the
Balanced Portfolio, will normally invest at least 80% of the value of its total
assets in equity securities. The Portfolios will invest primarily in equity se-
curities of U.S. issuers, except the International Equity and International
Emerging Markets Portfolios, which will invest primarily in foreign issuers.
Equity securities include common stock and preferred stock (including convert-
ible preferred stock); bonds, notes and debentures convertible into common or
preferred stock; stock purchase warrants and rights; equity interests in trusts
and partnerships; and depositary receipts of companies.
ADRS, EDRS AND GDRS. Each Portfolio (other than the Index Master Portfolio) may
invest in both sponsored and unsponsored American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar global instruments. ADRs typically are issued by an American bank
or trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental De-
pository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic un-
derlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR
and GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information con-
cerning the issuer may not be as current as for sponsored ADRs, EDRs and GDRs,
and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if
such instruments were sponsored by the issuer. Investments in ADRs, EDRs and
GDRs present additional investment considerations as described below under "In-
ternational Portfolios."
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, each Portfolio (other than the Index Master Portfolio) may write cov-
ered call options, buy put options, buy call options and write secured put op-
tions for the purpose of hedging or earning additional income, which may be
deemed speculative or, with respect to the International Equity and Interna-
tional Emerging Markets Portfolios, cross-hedging. These options may relate to
particular securities, financial instruments, foreign currencies, stock or bond
indices or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. A Portfolio will not purchase put and call options where
the aggregate premiums on outstanding options exceed 5% of its net assets at
the time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options trading
is a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corporation,
which performs the obligations of its members if they default.
13
<PAGE>
To the extent consistent with its investment objective, each Portfolio may also
invest in futures contracts and options on futures contracts to commit funds
awaiting investment in stocks or maintain cash liquidity or, except with re-
spect to the Index Master Portfolio, for other hedging purposes. The value of a
Portfolio's contracts may equal or exceed 100% of the Fund's total assets, al-
though a Portfolio will not purchase or sell a futures contract unless immedi-
ately afterwards the aggregate amount of margin deposits on its existing
futures positions plus the amount of premiums paid for related futures options
entered into for other than bona fide hedging purposes is 5% or less of its net
assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of securities, the cash value of a securities index or a stated quantity of a
foreign currency. A Portfolio may sell a futures contract in order to offset an
expected decrease in the value of its portfolio positions that might otherwise
result from a market decline or currency exchange fluctuation. A Portfolio may
do so either to hedge the value of its securities portfolio as a whole, or to
protect against declines occurring prior to sales of securities in the value of
the securities to be sold. In addition, a Portfolio may utilize futures con-
tracts in anticipation of changes in the composition of its holdings or in cur-
rency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid high grade assets or will
otherwise cover its position in accordance with applicable SEC requirements.
The primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the instru-
ments held by a Portfolio and the price of the futures contract or option; (b)
possible lack of a liquid secondary market for a futures contract and the re-
sulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) a
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors. For
further discussion of risks involved with domestic and foreign futures and op-
tions, see Appendix B in the Statement of Additional Information.
The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolios from registration as a "commodity pool
operator."
LIQUIDITY MANAGEMENT. Pending investment, to meet anticipated redemption re-
quests, or, in the case of all Portfolios except the Index Master Portfolio, as
a temporary defensive measure if its sub-adviser determines that market condi-
tions warrant, a Portfolio may also invest without limitation in high quality
money market instruments. The Balanced Portfolio may also invest in these secu-
rities in furtherance of its investment objective.
14
<PAGE>
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign is-
suers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper, repurchase
agreements and obligations of supranational organizations. Generally, such ob-
ligations will mature within one year from the date of settlement, but may ma-
ture within two years from the date of settlement. Under a repurchase agree-
ment, a Portfolio agrees to purchase debt securities from financial institu-
tions subject to the seller's agreement to repurchase them at an agreed upon
time and price. Repurchase agreements are, in substance, loans. Default by or
bankruptcy of a seller would expose a Portfolio to possible loss because of ad-
verse market action, expenses and/or delays in connection with the disposition
of the underlying obligations.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio (other than the
Index Master Portfolio) may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Portfolio to purchase or sell particular secu-
rities with payment and delivery taking place at a future date (perhaps one or
two months later), and permit a Portfolio to lock in a price or yield on a se-
curity it owns or intends to purchase, regardless of future changes in interest
rates. When-issued and forward commitment transactions involve the risk, howev-
er, that the price or yield obtained in a transaction may be less favorable
than the price or yield available in the market when the securities delivery
takes place. Each Portfolio's when-issued purchases and forward commitments are
not expected to exceed 25% of the value of its total assets absent unusual mar-
ket conditions. The Portfolios do not intend to engage in when-issued purchases
and forward commitments for speculative purposes but only in furtherance of
their investment objectives.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to make limited borrowings. If the securities held by a Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings
may be made by the Balanced Portfolio through reverse repurchase agreements un-
der which a Portfolio sells portfolio securities to financial institutions such
as banks and broker-dealers and agrees to repurchase them at a particular date
and price. The Balanced Portfolio may use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, on a date simultaneous with or prior to the expiration of the re-
verse repurchase agreement. The Balanced Portfolio may utilize reverse repur-
chase agreements when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the in-
terest expense of the transaction. This use of reverse repurchase agreements
may be regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds will be less than the interest expense, that the market value
of the securities sold by the Balanced Portfolio may decline below the price of
the securities the Portfolio is obligated to repurchase and that the securities
may not be returned to the Portfolio. During the time a reverse repurchase
agreement is outstanding, the Balanced Portfolio will main-
15
<PAGE>
tain a segregated account with the Fund's custodian containing cash, U.S. Gov-
ernment or other appropriate liquid high-grade debt securities having a value
at least equal to the repurchase price. A Portfolio's reverse repurchase agree-
ments, together with any other borrowings, will not exceed, in the aggregate,
33 1/3% of the value of its total assets. In addition, whenever borrowings ex-
ceed 5% of a Portfolio's total assets, the Portfolios (other than the Balanced
Portfolio) will not make any investments.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolios (other than the Index Master Portfolio) may invest in
securities issued by other investment companies which invest in short-term debt
securities and which seek to maintain a $1.00 net asset value per share. The
International Equity and International Emerging Markets Portfolios may purchase
shares of investment companies investing primarily in foreign securities, in-
cluding so-called "country funds." Country funds have portfolios consisting
exclusively of securities of issuers located in one foreign country. The Index
Equity Portfolio may also invest in Standard & Poor's Depository Receipts
(SPDRs) and shares of other investment companies that are structured to seek a
similar correlation to the performance of the S&P 500 Index. Securities of
other investment companies will be acquired within limits prescribed by the In-
vestment Company Act of 1940 (the "1940 Act"). As a shareholder of another in-
vestment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the expenses each bears directly
in connection with its own operations.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or (ex-
cept for the Index Master Portfolio) irrevocable bank letters of credit main-
tained on a current basis equal in value to at least the market value of the
loaned securities. A Portfolio may not make such loans in excess of 33 1/3% of
the value of its total assets. Securities loans involve risks of delay in re-
ceiving additional collateral or in recovering the loaned securities, or possi-
bly loss of rights in the collateral if the borrower of the securities becomes
insolvent.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% (10% with
respect to the Index Master Portfolio) of the value of its net assets in secu-
rities that are illiquid. Variable and floating rate instruments that cannot be
disposed of within seven days, and repurchase agreements and time deposits that
do not provide for payment within seven days after notice, without taking a re-
duced price, are subject to these limits. Each Portfolio may purchase securi-
ties which are not registered under the Securities Act of 1933 (the "1933 Act")
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by the adviser or sub-adviser, acting under guide-
lines approved and monitored by the Board, that an adequate trading market ex-
ists for that security. This investment practice could have the effect of in-
creasing the level of illiquidity in a Portfolio during any period that quali-
fied institutional buyers become uninterested in purchasing these restricted
securities.
16
<PAGE>
SMALL CAP GROWTH EQUITY AND SMALL CAP VALUE EQUITY PORTFOLIOS. Under normal
market conditions, the Small Cap Growth Equity Portfolio and Small Cap Value
Equity Portfolio will invest at least 90% (and in any event at least 65%) of
their respective total assets in equity securities of smaller-capitalized orga-
nizations (less than $1 billion at the time of purchase). These organizations
will normally have limited product lines, markets and financial resources and
will be dependent upon a limited management group.
INDEX EQUITY AND INDEX MASTER PORTFOLIOS. During normal market conditions, the
Index Equity Portfolio and Index Master Portfolio (in which all of the assets
of the Index Equity Portfolio will be invested after its 1996 conversion) in-
vest at least 95% of the value of their total assets in securities included in
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
The Index Master Portfolio intends to invest in all of the stocks that comprise
the S&P 500 Index in approximately the same proportion as they are represented
in the Index. These Portfolios will operate as index portfolios and, therefore,
are not actively managed (through the use of economic, financial or market
analysis), and adverse performance will ordinarily not result in the elimina-
tion of a stock from the Portfolios. The Portfolios will remain fully invested
in common stocks even when stock prices are generally falling. Ordinarily,
portfolio securities will not be sold except to reflect additions or deletions
of the stocks that comprise the S&P 500 Index, including mergers, reorganiza-
tions and similar transactions and, to the extent necessary, to provide cash to
pay redemptions of a Portfolio's shares. The investment performance of the In-
dex Master Portfolio and the Index Equity Portfolio is expected to approximate
the investment performance of the S&P 500 Index, which tends to be cyclical in
nature, reflecting periods when stock prices generally rise or fall.
Neither the Index Equity Portfolio nor the Index Master Portfolio are spon-
sored, endorsed, sold or promoted by S&P. S&P makes no representation or war-
ranty, express or implied, to the owners of the Index Equity Portfolio or the
Index Master Portfolio or any member of the public regarding the advisability
of investing in securities generally or in the Index Equity Portfolio or the
Index Master Portfolio particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to the Index
Equity Portfolio or the Index Master Portfolio is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Index Equity Portfolio or
the Index Master Portfolio. S&P has no obligation to take the needs of the In-
dex Equity Portfolio or the Index Master Portfolio or their respective owners
into consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of the
prices and amount of the Index Equity Portfolio or the Index Master Portfolio
or the timing of the issuance or sale of the Index Equity Portfolio or the In-
dex Master Portfolio or in the determination or calculation of the equation by
which the Index Equity Portfolio or the Index Master Portfolio is to be con-
verted into cash. S&P has no obligation or liability in connection with the ad-
ministration, marketing or trading of the Index Equity Portfolio or Index Mas-
ter Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 IN-
DEX OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY ER-
RORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WAR-
17
<PAGE>
RANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF
THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EX-
PRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INTERNATIONAL PORTFOLIOS. During normal market conditions, the International
Equity Portfolio and International Emerging Markets Portfolio (the "Interna-
tional Portfolios") will invest at least 90% (and in any event at least 65%) of
their total assets in equity securities of foreign issuers. Investing in for-
eign securities involves considerations not typically associated with investing
in securities of companies organized and operated in the United States. Because
foreign securities generally are denominated and pay dividends or interest in
foreign currencies, the value of a Portfolio that invests in foreign securities
as measured in U.S. dollars will be affected favorably or unfavorably by
changes in exchange rates.
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitation on the removal of funds or as-
sets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations.
In general, less information is publicly available with respect to foreign is-
suers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting require-
ments applicable to issuers in the United States. While the volume of transac-
tions effected on foreign stock exchanges has increased in recent years, it re-
mains appreciably below that of the New York Stock Exchange. Accordingly, a
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In addi-
tion, there is generally less government supervision and regulation of securi-
ties exchanges, brokers and issuers in foreign countries than in the United
States.
The expense ratios of the International Equity and International Emerging Mar-
kets Portfolios can be expected to be higher than those of Portfolios investing
primarily in domestic securities. The costs attributable to investing abroad
are usually higher for several reasons, such as the higher cost of investment
research, higher cost of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.
As stated, the International Emerging Markets Portfolio will invest its assets
in countries with emerging economies or securities markets. These countries may
include Argentina, Brazil,
18
<PAGE>
Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, Greece, Hungary,
India, Israel, Lebanon, Malaysia, Mexico, Morocco, Peru, The Philippines, Po-
land, Romania, Russia, South Africa, South Korea, Taiwan, Thailand, Tunisia,
Turkey, Venezuela and Vietnam. Political and economic structures in many of
these countries may be undergoing significant evolution and rapid development,
and these countries may lack the social, political and economic stability char-
acteristic of more developed countries. Some of these countries may have in the
past failed to recognize private property rights and have at times nationalized
or expropriated the assets of private companies. As a result, the risks de-
scribed above, including the risks of nationalization or expropriation of as-
sets, may be heightened. In addition, unanticipated political or social devel-
opments may affect the value of investments in these countries and the avail-
ability to the Portfolio of additional investments in emerging market coun-
tries. The small size and inexperience of the securities markets in certain of
these countries and the limited volume of trading in securities in these coun-
tries may make investments in the countries illiquid and more volatile than in-
vestments in Japan or most Western European countries. There may be little fi-
nancial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult as a result to as-
sess the value or prospects of an investment in such issuers.
The International Equity Portfolio invests primarily in equity securities of
issuers located in countries included in EAFE. Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, New
Zealand, Norway, Singapore, Malaysia, Spain, Sweden, Switzerland and the United
Kingdom are currently included in EAFE.
The International Equity and International Emerging Markets Portfolios may use
forward foreign currency exchange contracts to hedge against movements in the
value of foreign currencies (including the European Currency Unit (ECU)) rela-
tive to the U.S. dollar in connection with specific portfolio transactions or
with respect to portfolio positions. A forward foreign currency exchange con-
tract involves an obligation to purchase or sell a specified currency at a fu-
ture date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Portfolio to establish a rate of exchange for a future
point in time.
BALANCED PORTFOLIO. Fixed income securities purchased by the Balanced Portfolio
may include domestic and dollar-denominated foreign debt securities, including
bonds, debentures, notes, equipment lease and trust certificates, mortgage-re-
lated and asset-backed securities, guaranteed investment contracts (GICs) and
obligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities. These securities will be rated at the time of purchase within
the four highest rating groups assigned by Moody's Investors Service, Inc.
("Moody's") or by Standard & Poor's Ratings Group ("S&P") or, if unrated, will
be determined at the time of purchase to be of comparable quality by the sub-
adviser. Securities rated "Baa" by Moody's or "BBB" by S&P, respectively, are
generally considered to be investment grade although they have speculative
characteristics. If a fixed income security is reduced below Baa by Moody's or
BBB by S&P, the Portfolio's sub-adviser will dispose of the security in an or-
derly fashion as soon as practicable. Investments in securities of foreign is-
suers, which present additional invest-
19
<PAGE>
ment considerations as described above under "International Portfolios," will
be limited to 5% of the Portfolio's total assets.
The market value of the Balanced Portfolio's investments in fixed income corpo-
rate and other securities will change in response to changes in interest rates
and the relative financial strength of each issuer. During periods of falling
interest rates, the values of long-term fixed income securities generally rise.
Conversely, during periods of rising interest rates the values of such securi-
ties generally decline. Changes in the financial strength of an issuer or
changes in the ratings of any particular security may also affect the value of
these investments.
The Balanced Portfolio may purchase asset-backed securities (i.e., securities
backed by mortgages, installment sale contracts, credit card receivables or
other assets). The average life of asset-backed securities varies with the ma-
turities of the underlying instruments which, in the case of mortgages, have
maximum maturities of forty years. The average life of a mortgage-backed in-
strument, in particular, is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
scheduled principal payments and mortgage prepayments. The rate of such mort-
gage prepayments, and hence the life of the certificates, will be primarily a
function of current market rates and current conditions in the relevant housing
markets. The relationship between mortgage prepayment and interest rates may
give some high-yielding mortgage-related securities less potential for growth
in value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of mortgage prepayment tends to in-
crease. During such periods, the reinvestment of prepayment proceeds by the
Balanced Portfolio will generally be at lower rates than the rates that were
carried by the obligations that have been prepaid. Because of these and other
reasons, an asset-backed security's total return may be difficult to predict
precisely. To the extent that the Balanced Portfolio purchases mortgage-related
or mortgage-backed securities at a premium, mortgage prepayments (which may be
made at any time without penalty) may result in some loss of the Balanced Port-
folio's principal investment to the extent of premium paid.
Presently there are several types of mortgage-backed securities issued or guar-
anteed by U.S. Government agencies, including guaranteed mortgage pass-through
certificates, which provide the holder with a pro rata interest in the under-
lying mortgages, and collateralized mortgage obligations ("CMOs"), which pro-
vide the holder with a specified interest in the cash flow of a pool of under-
lying mortgages or other mortgage-backed securities. Issuers of CMOS frequently
elect to be taxed as a pass-through entity known as real estate mortgage in-
vestment conduits, or REMICs. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date. The
relative payment rights of the various CMO classes may be structured in many
ways. In most cases, however, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no princi-
pal payments will be made on a CMO class until all other classes having an ear-
lier stated maturity date are paid in full. The classes may include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a speci-
fied rate until other specified classes have been retired and are converted
thereafter to interest-paying securities. They may also include planned amorti-
zation classes ("PACs") which generally require, within certain limits, that
specified amounts of princi-
20
<PAGE>
pal be applied on each payment date, and generally exhibit less yield and mar-
ket volatility than other classes.
The Balanced Fund may also purchase obligations issued or guaranteed by the
U.S. Government and U.S. Government agencies and instrumentalities. Obligations
of certain agencies and instrumentalities of the U.S. Government, such as those
of the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the Export-Im-
port Bank of the United States, are supported by the right of the issuer to
borrow from the U.S. Treasury; and still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored instru-
mentalities if it is not obligated to do so by law. Certain U.S. Treasury and
agency securities may be held by trusts that issue participation certificates
(such as Treasury income growth receipts ("TIGRs") and certificates of accrual
on Treasury certificates ("CATs")). The Balanced Portfolio may purchase these
certificates and may also purchase Treasury receipts and other stripped securi-
ties, which represent beneficial ownership interests in either future interest
payments or the future principal payments on U.S. Government obligations. These
instruments are issued at a discount to their "face value" and may (particu-
larly in the case of stripped mortgage-backed securities) exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
The Balanced Portfolio may also purchase zero-coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments). Zero-coupon bonds are
subject to greater market fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of inter-
est.
To take advantage of attractive opportunities in the mortgage market and to en-
hance current income, the Balanced Portfolio may enter into dollar roll trans-
actions. A dollar roll transaction involves a sale by the Portfolio of a mort-
gage-backed or other security concurrently with an agreement by the Portfolio
to repurchase a similar security at a later date at an agreed-upon price. The
securities that are repurchased will bear the same interest rate and stated ma-
turity as those sold, but pools of mortgages collateralizing such securities
may have different prepayment histories than those sold. During the period be-
tween the sale and repurchase, the Portfolio will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in additional instruments for the Portfolio, and the income
from these investments will generate income for the Portfolio. If such income
does not exceed the income, capital appreciation and gain or loss that would
have been realized on the securities sold as part of the dollar roll, the use
of this technique will diminish the investment performance of the Portfolio
compared with what the performance would have been without the use of dollar
rolls. At the time that the Portfolio enters into a dollar roll transaction, it
will place in a segregated account maintained with its custodian cash, U.S.
Government securities or other liquid high grade debt obligations having a
value equal to the repurchase price (including accrued interest) and will sub-
sequently monitor the account to ensure that its value is maintained. The Port-
folio's dollar rolls, together with its reverse repurchase agreements and other
borrowings, will not exceed, in the aggregate, 33 1/3% of the value of its to-
tal assets.
21
<PAGE>
Dollar roll transactions involve the risk that the market value of the securi-
ties the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Portfo-
lio sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted and the instruments which the Portfolio
is required to repurchase may be worth less than an instrument which the Port-
folio originally held when the Portfolio is able to complete the purchase. Suc-
cessful use of mortgage dollar rolls may depend upon a sub-adviser's ability to
correctly predict interest rates and prepayments. There is no assurance that
dollar rolls can be successfully employed.
PORTFOLIO TURNOVER RATES. Under normal market conditions, it is expected that
the annual portfolio turnover rate for each Portfolio (including both the eq-
uity and fixed income portions of the Balanced Portfolio in the aggregate) and
for the Index Master Portfolio will not exceed 150%. A Portfolio's annual port-
folio turnover rate will not, however, be a factor preventing a sale or pur-
chase when the adviser or sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates (i.e.,
over 100%) will generally result in higher transaction costs to a Portfolio.
22
<PAGE>
What Are The Portfolios' Fundamental Investment Limitations?
- --------------------------------------------------------------------------------
A Portfolio's (other than the Index Master Portfolio) investment objective and
policies may be changed by the Fund's Board of Trustees without shareholder ap-
proval. However, shareholders will be given at least 30 days notice before any
such change. The investment objective of the Index Master Portfolio may not be
changed without the approval of shareholders of that Portfolio. No assurance
can be provided that a Portfolio will achieve its investment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) subject to the foregoing 25% exception (other than with respect to the In-
dex Master Portfolio), purchase more than 10% of the outstanding voting se-
curities of any issuer;
(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(4) borrow money in amounts over one-third of the value of its total assets at
the time of such borrowing.
These investment limitations are applied at the time investment securities are
purchased. Notwithstanding the investment limitations, the Index Equity Portfo-
lio may invest all of its assets in shares of an open-end management investment
company with substantially the same investment objective, policies and limita-
tions of that Portfolio.
In order to permit the sale of its shares in certain states, the Fund may make
commitments more restrictive than the investment policies and limitations de-
scribed in this Prospectus. If the Fund determines that any commitment is no
longer in the best interests of a Portfolio, it will revoke the commitment by
terminating sales of shares of the Portfolio in the state involved.
23
<PAGE>
Who Manages The Fund?
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and of The DFA Investment
Trust Company (in which the assets of the Fund's Index Equity
Portfolio will be invested after its 1996 conversion) are man-
aged under the direction of their separate Boards of Trustees.
The following individuals were elected by shareholders on Jan-
uary 4, 1996 to serve as trustees of Compass Capital Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial Offi-
cer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School, Uni-
versity of Pennsylvania.
David R. Wilmerding, Jr.--President of Gates, Wilmerding,
Carper & Rawlings, Inc.
The Statement of Additional Information furnishes additional
information about the trustees and officers of both the Fund
and The DFA Investment Trust Company.
ADVISER AND The Adviser to COMPASS CAPITAL FUNDS is PNC Asset Management
SUB-ADVISERS Group ("PAMG"), except with respect to the Index Equity Port-
folio. Each of the Portfolios within the Compass Capital Fund
family is managed by a specialized portfolio manager who is a
member of one of PAMG's portfolio management subsidiaries.
The Portfolios (other than the Index Equity Portfolio) and
their investment sub-advisers and portfolio managers are as
follows:
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ----------- ------------------------------------
<S> <C> <C>
Value Equity PCM(/1/) Earl J. Gaskins; Vice President of
PCM since 1985; Portfolio co-manager
since 1994.
Benedict E. Capaldi; Vice President
of PCM since 1995; prior to joining
PCM, Senior Vice President and
portfolio manager with Radnor
Capital Management, President of
Chestnut Hill Advisors, Inc. and
Managing Director of Brandywine
Asset Management, Inc.; Portfolio
co-manager since 1995.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
------------------------- ----------- ------------------------------------
<S> <C> <C>
Growth Equity PEAC(/2/) Robert K. Urquhart; Managing
Director of PEAC's Large Cap Growth
Equity Investments area since 1995;
prior to joining PEAC, Chief
Investment Officer and partner of
Cole Financial Group, Inc., a
partner of Seacliff Holdings, Inc.
and of RCM Capital Management;
Portfolio manager since 1995.
Small Cap Value Equity PCM(/1/) Susan D. Menzies; Vice President of
PCM since 1985; Portfolio manager
since 1994.
Small Cap Growth Equity PEAC(/2/) William J. Wykle; investment manager
with PEAC since 1995; investment
manager with PNC Bank, National
Association from 1986 to 1995;
Portfolio manager since its
inception.
International Equity PCM(/1/) William George Greig; Vice President
of PCM; prior to joining PCM,
Managing Partner of Akamai
International, Investment Director
of The Framlington Group and
Research Director with Pilgrim
Baxter & Associates; Portfolio
manager since 1995.
International Emerging Markets PCM(/1/) William George Greig (see above);
Portfolio manager since its
inception.
Select Equity PCM(/1/) Daniel B. Eagan; portfolio manager
with PCM since 1995; director of
investment strategy at PAMG during
1995; portfolio manager with PEAC
during 1995; Portfolio manager since
1995.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ------------------- ------------------------------------
<S> <C> <C>
Balanced PCM and Daniel B. Eagan (see above);
BlackRock(/1/)(/3/) Portfolio co-manager since 1994.
Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-
manager since 1995.
Keith T. Anderson; Managing Director
and co-chair of Portfolio Management
Group and Investment Strategy
Committee of BlackRock since 1988;
Portfolio co-manager since 1995.
</TABLE>
(1) Provident Capital Management, Inc. ("PCM") has its primary offices at 1700
Market Street, 27th Floor, Philadelphia, PA 19103.
(2) PNC Equity Advisors Company ("PEAC") has its primary offices at 1835 Market
Street, 15th Floor, Philadelphia, PA 19103.
(3) BlackRock Financial Management, Inc. ("BlackRock") has its primary offices
at 345 Park Avenue, New York, New York 10154.
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1835
Market Street, Philadelphia, Pennsylvania 19103. PAMG is an
indirect wholly-owned subsidiary of PNC Bank Corp., a multi-
bank holding company.
PNC Institutional Management Corporation ("PIMC") and PEAC,
will serve as adviser and sub-adviser, respectively, to the
Index Equity Portfolio until its 1996 conversion. The princi-
pal business address of PIMC is 400 Bellevue Parkway, Wilming-
ton, Delaware 19809.
For their investment advisory and sub-advisory services, PAMG,
PIMC and the Portfolios' sub-advisers are entitled to fees,
computed daily on a Portfolio-by-Portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG,
PIMC and the sub-advisers intend to waive a portion of their
fees during the current fiscal year. All sub-advisory fees are
paid by PAMG and PIMC, and do not represent an extra charge to
the Portfolios.
26
<PAGE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO EXCEPT THE INDEX EQUITY
PORTFOLIO AND THE INTERNATIONAL PORTFOLIOS (BEFORE WAIVERS)
<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE
- ----------------- ------------ ------------
<S> <C> <C>
first $1 billion .55% .40%
$1 billion--$2 billion .50 .35
$2 billion--$3 billion .475 .325
greater than $3 billion .45 .30
</TABLE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL EQUITY PORTFOLIO
(BEFORE WAIVERS)
<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE
- ----------------- ------------ ------------
<S> <C> <C>
first $1 billion .75% .60%
$1 billion--$2 billion .70 .55
$2 billion--$3 billion .675 .525
greater than $3 billion .65 .50
</TABLE>
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL EMERGING MARKETS
PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
- ------------------------ ------------ ------------
<S> <C> <C>
first $1 billion 1.25% 1.10%
$1 billion--$2 billion 1.20 1.05
$2 billion--$3 billion 1.155 1.005
greater than $3 billion 1.10 .95
</TABLE>
For its advisory services to the Index Equity Portfolio, PIMC is
entitled to advisory fees, computed daily and payable monthly,
at the annual rate of .20% of the Portfolio's average daily net
assets. As sub-adviser to the Index Equity Portfolio, PEAC is
entitled to receive from PIMC a fee, computed daily and payable
monthly, at the annual rate of .15% of the Portfolio's average
daily net assets. The Portfolio will no longer pay advisory fees
to PIMC after its 1996 conversion.
Although the advisory fee rate payable by the International
Emerging Markets Portfolio is higher than the rate payable by
mutual funds investing in domestic securities, the Fund believes
it is comparable to the rates paid by many other funds with sim-
ilar investment objectives and
27
<PAGE>
policies and is appropriate for the Portfolio in light of its
investment objective and policies.
For their last fiscal year the Portfolios paid investment ad-
visory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Value Equity Portfolio, .44%; Growth Equity Portfolio,
.40%; Small Cap Value Equity Portfolio, .50%; Small Cap Growth
Equity Portfolio, .45%; International Equity Portfolio, .60%;
International Emerging Markets Portfolio, 1.04%; Select Equity
Portfolio, .40%; Index Equity Portfolio, .05%; and Balanced
Portfolio, .40%.
Brokerage transactions for the Portfolios may be directed
through registered broker/dealers who have entered into dealer
agreements with Compass Capital's distributor, subject to the
requirements of best execution.
ADVISER TO Dimensional Fund Advisors, Inc. ("DFA"), located at 1299 Ocean
INDEX MASTER Avenue, 11th Floor, Santa Monica, CA 90401, serves as invest-
PORTFOLIO ment adviser to the Index Master Portfolio.
DFA was organized in May 1981 and is engaged in the business
of providing investment management services to institutional
investors. DFA's assets under management totalled approxi-
mately $13 billion at October 31, 1995. David G. Booth and Rex
A. Sinquefield, both of whom are trustees and officers of The
DFA Investment Trust Company and directors and officers of
DFA, together own approximately 61% of DFA's outstanding stock
and may be deemed controlling persons of DFA.
Investment decisions for the Index Master Portfolio are made
by the Investment Committee of DFA which meets on a regular
basis and also as needed to consider investment issues. The
Investment Committee is composed of certain officers and di-
rectors of DFA who are elected annually. DFA provides the In-
dex Master Portfolio with a trading department and selects
brokers and dealers to effect securities transactions.
For the investment advisory services provided to the Index
Master Portfolio under the advisory agreement, DFA is entitled
to receive a fee at the annual rate of .025% of the Index Mas-
ter Portfolio's average daily net assets. For the Index Master
Portfolio's fiscal year ended November 30, 1995, DFA received
a fee for its investment advisory services which, on an annual
basis, equaled .025% of the Index Master Portfolio's average
daily net assets.
28
<PAGE>
ADMINISTRATORSCompass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and Com-
pass Distributors, Inc. ("CDI") (the "Administrators") serve as
the Fund's co-administrators. CCG and PFPC are indirect wholly-
owned subsidiaries of PNC Bank Corp. CDI is a wholly-owned sub-
sidiary of Provident Distributors, Inc. ("PDI"). A majority of
the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant
Group Ltd.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .20% of the first $500
million of each Portfolio's average daily net assets, .18% of
the next $500 million of each Portfolio's average daily net as-
sets, .16% of the next $1 billion of each Portfolio's average
daily net assets and .15% of each Portfolio's average daily net
assets in excess of $2 billion. From time to time the Adminis-
trators may waive some or all of their administration fees from
a Portfolio. PFPC serves as the administrative services, divi-
dend disbursing and transfer agent to the Index Master Portfo-
lio, for which PFPC will be entitled to compensation at the an-
nual rate of .015% of the Index Master Portfolio's average daily
net assets (after the Index Equity Portfolio's 1996 conversion).
For information about the operating expenses the Portfolios ex-
pect to pay for the current fiscal year, see "What Are the Ex-
penses of the Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
DISTRIBUTION
AND SERVICE
PLAN
Under the Fund's Distribution and Service Plan (the "Plan"), In-
vestor C Shares of the Portfolios bear the expense of payments
("distribution fees") made to CDI, as the Fund's distributor
(the "Distributor"), or affiliates of PNC Bank, National Associ-
ation ("PNC Bank") for distribution and sales support services.
The distribution fees will be used primarily to compensate the
Distributor for distribution services and to compensate the Dis-
tributor and PNC Bank affiliates for sales support services pro-
vided in connection with the offering and sale of Investor C
Shares. The distribution fees may also be used to reimburse the
Distributor and PNC Bank affiliates for related expenses, in-
cluding payments to brokers, dealers, financial institutions and
industry professionals
29
<PAGE>
("Service Organizations") for sales support services and re-
lated expenses. Distribution fees payable under the Plan will
not exceed .75% (annualized) of the average daily net asset
value of each Portfolio's outstanding Investor C Shares. Pay-
ments under the Plan are not tied directly to out-of-pocket
expenses and therefore may be used by the recipients as they
choose (for example, to defray their overhead expenses).
Under the Plan, the Fund intends to enter into service agree-
ments with Service Organizations (including PNC Bank and its
affiliates) with respect to Investor C Shares pursuant to
which Service Organizations will render certain support serv-
ices to their customers who are the beneficial owners of In-
vestor C Shares. In consideration for a shareholder servicing
fee of up to .25% (annualized) of the average daily net asset
value of Investor C Shares owned by their customers, Service
Organizations may provide one or more of the following servic-
es: responding to customer inquiries relating to the services
performed by the Service Organization and to customer inqui-
ries concerning their investments in Investor C Shares; pro-
viding information periodically to customers showing their po-
sitions in Investor C Shares; and other similar shareholder
liaison services. In consideration for a separate shareholder
processing fee of up to .15% (annualized) of the average daily
net asset value of Investor C Shares owned by their customers,
Service Organizations may provide one or more of these addi-
tional services to such customers: processing purchase and re-
demption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend
payments from the Fund on behalf of customers; providing sub-
accounting with respect to Investor C Shares beneficially
owned by customers or the information necessary for sub-ac-
counting; and other similar services.
Service Organizations may charge their clients additional fees
for account services. Customers who are beneficial owners of
Investor C Shares should read this Prospectus in light of the
terms and fees governing their accounts with Service Organiza-
tions.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Service Organizations under their service agreements will
not be prohibited under these laws. However, state securities
laws may differ from the interpretations of Federal law on
this issue, and banks and financial institutions may be re-
quired to register as dealers pursuant to state law.
30
<PAGE>
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to the investment adviser and
the Administrators, transfer agency and custodian fees, trustee
fees, taxes, interest, professional fees, shareholder servicing
and processing fees, fees and expenses in registering and quali-
fying the Portfolios and their shares for distribution under
Federal and state securities laws, expenses of preparing pro-
spectuses and statements of additional information and of print-
ing and distributing prospectuses and statements of additional
information to existing shareholders, expenses relating to
shareholder reports, shareholder meetings and proxy solicita-
tions, insurance premiums, the expense of independent pricing
services, and other expenses which are not expressly assumed by
PAMG or the Fund's service providers under their agreements with
the Fund. Any general expenses of the Fund that do not belong to
a particular investment portfolio will be allocated among all
investment portfolios by or under the direction of the Board of
Trustees in a manner the Board determines to be fair and equita-
ble.
31
<PAGE>
What Pricing Options Are Available To Investors?
- --------------------------------------------------------------------------------
The Equity Portfolios of Compass Capital Funds offer different
pricing options to investors in the form of different share
classes. The Investor C Share pricing option is described be-
low:
C SHARES (LEVEL LOAD)
. Contingent deferred sales charge (CDSC) of 1.00% if shares
are redeemed within 18 months of purchase
Investor C Shares of all Portfolios:
<TABLE>
<CAPTION>
C SHARES
<S> <C>
Maximum Front-End Sales Charge 0.00%
12b-1 Fee 0.75%
CDSC (Redemption Charge) 1.00%
(If redeemed within 18
months of purchase)
</TABLE>
The Fund also offers two additional pricing options for shares
of the Portfolios--Investor A Shares (which are sold with a
front-end sales load) and Investor B Shares (which are subject
to a back-end load if redeemed within six years of purchase).
C Shares may make sense for shorter term (relative to both B
and A Shares) investors who prefer to pay for professional in-
vestment advice on an ongoing basis (asset-based sales charge)
rather than with a traditional, one-time front-end sales
charge. Such investors may plan to make substantial redemp-
tions within 6 years of purchase. For more information on A
Shares and B Shares of the Portfolios, call (800) 441-7762.
Investors wishing to purchase shares of the Portfolios may do
so either by mailing the investment application attached to
this Prospectus along with a check or by wiring money as spec-
ified below.
32
<PAGE>
How Are Shares Purchased?
- --------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor C Shares through
a broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-advisers, Distributor or transfer agent or em-
ployees of their affiliates is $100.
PURCHASES THROUGH BROKERS. Shares may be purchased through brokers which have
entered into dealer agreements with the Distributor. Purchase orders received
by a broker and transmitted to the transfer agent before the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time) on a
Business Day will be effected at the net asset value determined that day, plus
any applicable sales charge. Payment for an order may be made by the broker in
Federal funds or other funds immediately available to the Portfolios' custodian
no later than 4:00 p.m. (Eastern time) on the third Business Day following re-
ceipt of the purchase order.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described above,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor C
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial pur-
chase amount payable to Compass Capital Funds. An Account Application Form may
be obtained by calling (800) 441-7762. The name of the Portfolio with respect
to which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, specify
the class of Investor Shares and include the name of the account registration
and the shareholder account number. Before wiring any funds, an investor must
call PFPC at (800) 441-7762 in order to confirm the wire instructions. Purchase
orders which are received by PFPC, together with payment, before the close of
regular trading hours on the New York Stock Exchange (currently 4:00 p.m. East-
ern time) on any Business Day (as defined below) are priced at the applicable
net asset value next determined on that day.
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<PAGE>
OTHER PURCHASE INFORMATION. Shares of each Portfolio are sold on a continuous
basis by CDI as the Distributor. CDI maintains its principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Purchases may be
effected on weekdays on which both the New York Stock Exchange and the Federal
Reserve Bank of Philadelphia are open for business (a "Business Day"). Payment
for orders which are not received or accepted will be returned after prompt in-
quiry. The issuance of shares is recorded on the books of the Fund. No certifi-
cates will be issued for shares. Payments for shares of a Portfolio may, in the
discretion of the Fund's investment adviser, be made in the form of securities
that are permissible investments for that Portfolio. Compass Capital reserves
the right to reject any purchase order or to waive the minimum initial invest-
ment requirement.
34
<PAGE>
How Are Shares Redeemed?
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REDEMPTION. Shareholders may redeem their shares for cash at any time. A writ-
ten redemption request in proper form must be sent directly to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. Except for the
contingent deferred sales charge that may be charged with respect to Investor C
Shares, there is no charge for a redemption. Shareholders may also place re-
demption requests through a broker or other institution, which may charge a fee
for this service.
WHEN REDEEMING SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD INDICATE THAT THEY
ARE REDEEMING INVESTOR C SHARES. If a redeeming shareholder owns both Investor
A Shares and Investor B or Investor C Shares in the same Portfolio, the In-
vestor A Shares will be redeemed first unless the shareholder indicates other-
wise.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Additional documentary evidence of authority is re-
quired by PFPC in the event redemption is requested by a corporation, partner-
ship, trust, fiduciary, executor or administrator.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by Federal wire transfer to a single previously desig-
nated bank account. Once authorization is on file, PFPC will honor requests by
any person by telephone at (800) 441-7762 (in Delaware call collect (302) 791-
1194) or other means. The minimum amount that may be sent by check is $500,
while the minimum amount that may be wired is $10,000. The Fund reserves the
right to change these minimums or to terminate these redemption privileges. If
the proceeds of a redemption would exceed $25,000, the redemption request must
be in writing and will be subject to the signature guarantee requirement de-
scribed above. During periods of substantial economic or market change, tele-
phone redemptions may be difficult to complete. Redemption requests may also be
mailed to PFPC at P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single designated bank account to re-
ceive wire redemption proceeds, it is necessary to send a written
35
<PAGE>
request (with a guaranteed signature as described above) to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so. The Fund, the Administrators and the Distributor will em-
ploy reasonable procedures to confirm that instructions communicated by tele-
phone are genuine. The Fund, the Administrators and the Distributor will not be
liable for any loss, liability, cost or expense for acting upon telephone in-
structions reasonably believed to be genuine.
ACCOUNTS WITH LOW BALANCES. The Fund reserves the right to redeem a sharehold-
er's account in any Portfolio at any time the net asset value of the account in
such Portfolio falls below the minimum initial investment requirement amount as
the result of a redemption or an exchange request. A shareholder will be noti-
fied in writing that the value of the shareholder's account in a Portfolio is
less than the required amount and will be allowed 30 days to make additional
investments before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by Compass Capital Funds c/o PFPC, P.O. Box 8907, Wil-
mington, Delaware 19899-8907. Proceeds from the redemption of Investor C Shares
will be reduced by the amount of any applicable contingent deferred sales
charge. Unless another payment option is used as described above, payment for
redeemed shares is normally made by check mailed within seven days after ac-
ceptance by PFPC of the request and any other necessary documents in proper or-
der. Payment may, however, be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the shares to be redeemed have been re-
cently purchased by check, the Fund's transfer agent may delay the payment of
redemption proceeds, which may be a period of up to 15 days after the purchase
date, pending a determination that the check has cleared.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
36
<PAGE>
What Are The Shareholder Features Of The Fund?
- --------------------------------------------------------------------------------
COMPASS CAPITAL FUNDS offers shareholders many special features which enable an
investor to have greater investment flexibility as well as greater access to
information about the Fund throughout the investment period.
Additional information on each of these features is available from PFPC by
calling (800) 441-7762 (in Delaware call collect (302) 791-1194).
EXCHANGE PRIVILEGE. Investor C Shares of each Portfolio may be exchanged for
Investor C Shares of other portfolios of the Fund which offer that class of
shares, based on their respective net asset values.
The exchange of Investor C Shares will not be subject to a CDSC, which will
continue to be measured from the date of the original purchase and will not be
affected by exchanges.
A shareholder wishing to make an exchange may do so by sending a written re-
quest to PFPC at the address given above. Shareholders are automatically pro-
vided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege. To add
this feature to an existing account that previously did not provide this op-
tion, a Telephone Exchange Authorization Form must be filed with PFPC. This
form is available from PFPC. Once this election has been made, the shareholder
may simply contact PFPC by telephone at (800) 441-7762 (in Delaware call col-
lect (302) 791-1194) to request the exchange. During periods of substantial
economic or market change, telephone exchanges may be difficult to complete and
shareholders may have to submit exchange requests to PFPC in writing.
If the exchanging shareholder does not currently own shares of the investment
portfolio whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and broker of
record as the account from which shares are exchanged, unless otherwise speci-
fied in writing by the shareholder with all signatures guaranteed by an eligi-
ble guarantor institution as defined above. In order to participate in the Au-
tomatic Investment Program or establish a Systematic Withdrawal Plan for the
new account, however, an exchanging shareholder must file a specific written
request.
Any share exchange must satisfy the requirements relating to the minimum ini-
tial investment requirement, and must be legally available for sale in the
state of the investor's residence. For Federal income tax purposes, a share ex-
change is a taxable event and, accordingly, a capital gain or loss may be real-
ized. Before making an exchange request, shareholders should consult a tax or
other financial adviser and should consider the investment objective, policies
and restrictions of the investment portfolio into which the shareholder is mak-
ing an exchange, as set forth in the applicable Prospectus. Brokers may charge
a fee for handling exchanges.
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<PAGE>
The Fund reserves the right to modify or terminate the exchange privilege at
any time. Notice will be given to shareholders of any material modification or
termination except where notice is not required.
The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine. Exchange orders may also be sent by mail to the shareholder's
broker or to PFPC at P.O. Box 8907, Wilmington, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts. Upon commencement of the SWP, the account must have a cur-
rent value of $10,000 or more in a Portfolio. Shareholders may elect to receive
automatic cash payments of $100 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC. No con-
tingent deferred sales charge will be assessed on redemptions of Investor C
Shares made through the SWP that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
SWP redemptions of Investor C Shares will not be subject to the CDSC if they do
not exceed 1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. SWP redemptions of Investor C Shares in excess of this limit
are still subject to the applicable CDSC.
38
<PAGE>
What Sales Charge And Exemptions Apply To Investor C Shares?
- --------------------------------------------------------------------------------
PURCHASES OF INVESTOR C SHARES. Investor C Shares are subject to a deferred
sales charge of 1.00% based on the lesser of the net asset value of the In-
vestor C Shares on the purchase date or redemption date if redeemed within
eighteen months after purchase. Brokers will receive commissions from the Dis-
tributor in connection with sales of Investor C Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in connec-
tion with sales of Investor A Shares and Investor B shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The contingent deferred
sales charge on Investor C Shares is not charged in connection with: (1) ex-
changes described in "What Are the Shareholder Features of the Fund?--Exchange
Privilege;" (2) redemptions made in connection with minimum required distribu-
tions from IRA, 403(b)(7) and Qualified Plan accounts due to the shareholder
reaching age 70 1/2; (3) redemptions in connection with a shareholder's death
or disability (as defined in the Internal Revenue Code) subsequent to the pur-
chase of Investor C Shares; (4) involuntary redemptions of Investor C Shares in
accounts with low balances as described in "How Are Shares Redeemed?"; and (5)
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth above under "What Are the Shareholder Features of the
Fund?--Systematic Withdrawal Plan." In addition, no contingent deferred sales
charge is charged on Investor C Shares acquired through the reinvestment of
dividends or distributions.
When an investor redeems Investor C Shares, the redemption order is processed
to minimize the amount of the contingent deferred sales charge that will be
charged. Investor C Shares are redeemed first from those shares that are not
subject to the deferred sales load (i.e., shares that were acquired through re-
investment of dividends or distributions) and after that from the shares that
have been held the longest.
39
<PAGE>
How Is Net Asset Value Calculated?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Investor C Shares of each Portfo-
lio as of the close of regular trading hours on the NYSE (currently 4:00 p.m.
Eastern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio (including, for the Index Equity Portfolio,
all of its shares in the Index Master Portfolio) that are allocated to its In-
vestor C Shares, less the liabilities charged to its Investor C Shares, by the
number of its Investor C Shares that are outstanding. The net asset value per
share of the Index Master Portfolio is calculated as of the close of the NYSE
by dividing the total market value of its investments and other assets, less
any liabilities, by the total outstanding shares of the Index Master Portfolio.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices or the mean between their bid and asked
prices. Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except when an occurrence subsequent to the
time a value was so established is likely to have changed such value. Securi-
ties for which market quotations are not readily available are valued at fair
market value as determined in good faith by or under the direction of the Board
of Trustees or, in the case of the Index Master Portfolio, The DFA Investment
Trust Company's Board of Trustees. The amortized cost method of valuation will
also be used with respect to debt obligations with sixty days or less remaining
to maturity unless a Portfolio's sub-adviser under the supervision of the Board
of Trustees determines such method does not represent fair value.
40
<PAGE>
How Frequently Are Dividends And Distributions Made To Investors?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. The net investment in-
come of each Portfolio is declared quarterly as a dividend to investors who are
shareholders of the Portfolio at the close of business on the day of declara-
tion. All dividends are paid within ten days after the end of each quarter. Any
net realized capital gains (including net short-term capital gains) will be
distributed by each Portfolio at least annually. The period for which dividends
are payable and the time for payment are subject to change by the Fund's Board
of Trustees.
Distributions are reinvested at net asset value in additional full and frac-
tional Investor C Shares of the relevant Portfolio, unless a shareholder elects
to receive distributions in cash. This election, or any revocation thereof,
must be made in writing to PFPC, and will become effective with respect to dis-
tributions paid after its receipt by PFPC.
As stated previously, after its 1996 conversion, the Index Equity Portfolio
will seek its investment objective by investing all of its investable assets in
the Index Master Portfolio, and the Index Equity Portfolio will be allocated
its pro rata share of the ordinary income and expenses of the Index Master
Portfolio. This net income, less the Index Equity Portfolio's expenses incurred
in operations, will be the Index Equity Portfolio's net investment income from
which dividends are distributed as described above. The Index Master Portfolio
will also allocate to the Index Equity Portfolio its pro rata share of capital
gains, if any, realized by the Index Master Portfolio.
41
<PAGE>
How Are Fund Distributions Taxed?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If a Portfolio
qualifies, it generally will be relieved of Federal income tax on amounts dis-
tributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on distributions (except distributions that are
treated as a return of capital), whether the distributions are paid in cash or
reinvested in additional Shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain, regardless of the length of time a
shareholder holds the Shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Dividends paid by the Portfolios will be eligible for the dividends received
deduction allowed to certain corporations only to the extent of the total qual-
ifying dividends received by a Portfolio from domestic corporations for a tax-
able year. Corporate shareholders will have to take into account the entire
amount of any dividend received in making certain adjustments for Federal al-
ternative minimum and environmental tax purposes. The dividends received deduc-
tion is not available for capital gain dividends.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
An investor considering buying Shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption,
transfer or exchange of Shares depending upon their tax basis and their price
at the time of redemption, transfer or exchange. Generally, shareholders may
include sales charges paid on the purchase of Shares in their tax basis for the
purposes of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if a shareholder exchanges the Shares for Shares of an-
other Portfolio within 90 days of purchase and is able to reduce the sales
charges applicable to the new Shares (by virtue of the Fund's exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged Shares for the purpose of determining gain or
loss but may be included (subject to the same limitation) in the tax basis of
the new Shares.
Dividends and certain interest income earned by a Portfolio from foreign secu-
rities may be subject to foreign withholding taxes or other taxes. So long as
more than 50% of the value of a
42
<PAGE>
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. Federal
income tax purposes, to treat certain foreign taxes paid by it, including gen-
erally any withholding taxes and other foreign income taxes, as paid by its
shareholders. It is possible that the International Equity and International
Emerging Markets Portfolios will make this election in certain years. If a
Portfolio makes the election, the amount of such foreign taxes paid by the
Portfolio will be included in its shareholders' income pro rata (in addition to
taxable distributions actually received by them), and each shareholder will be
entitled either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, or (b) if a shareholder
itemizes deductions, to deduct such proportionate amounts from U.S. Federal
taxable income.
At or about the time of the conversion of the Index Equity Portfolio in 1996,
the Index Master Portfolio intends to qualify for taxation as a partnership for
Federal income tax purposes. As such, the Index Master Portfolio would not be
subject to tax and the Index Equity Portfolio would be treated for Federal in-
come tax purposes as recognizing its pro rata portion of the Index Master Port-
folio's income and deductions, and owning its pro rata share of the Index Mas-
ter Portfolio's assets. The Index Equity Portfolio's status as a regulated in-
vestment company is dependent on, among other things, the Index Master Portfo-
lio's continued classification as a partnership for Federal income tax purpos-
es.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. The application of state and local income taxes to investments in
the Portfolios may differ from the Federal income tax consequences described
above. In addition, shareholders who are non-resident alien individuals, for-
eign trusts or estates, foreign corporations or foreign partnerships may be
subject to different Federal income tax treatment. Future legislative or admin-
istrative changes or court decisions may materially affect the tax consequences
of investing in the Portfolios.
43
<PAGE>
How Is The Fund Organized?
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22, 1988
and is registered under the 1940 Act as an open-end management investment com-
pany. On January 12, 1996 the Fund changed its name from The PNC Fund to Com-
pass Capital Funds. The Declaration of Trust authorizes the Board of Trustees
to classify and reclassify any unissued shares into one or more classes of
shares. Pursuant to this authority, the Trustees have authorized the issuance
of an unlimited number of shares in twenty-eight investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Investor C Shares of the nine portfolios described
herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The Fund offers various services and privileges in
connection with its Investor Shares that are not generally offered in connec-
tion with its Institutional and Service Shares, including an automatic invest-
ment plan, automatic withdrawal plan and checkwriting. For further information
regarding the Fund's Institutional and Service Share classes, contact PFPC at
(800) 441-7762.
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On December 18, 1995, PNC Bank held of record approximately 77% of the Fund's
outstanding shares, and may be deemed a controlling person of the Fund under
the 1940 Act. PNC Bank is a subsidiary of PNC Bank Corp.
MASTER-FEEDER STRUCTURE. The Index Equity Portfolio, unlike many other invest-
ment companies which directly acquire and manage their own portfolio of securi-
ties, will seek, after its conversion in 1996, to achieve its investment objec-
tive by investing all of its investable assets in the Index Master Portfolio.
The Index Equity Portfolio will purchase shares of the Index Master Portfolio
at net asset value. The net asset value of the Index Equity Portfolio will re-
spond to increases and decreases in the value of the Index Master Portfolio's
securities and to the
44
<PAGE>
expenses of the Index Master Portfolio allocable to the Index Equity Portfolio
(as well as its own expenses). The Index Equity Portfolio may withdraw its in-
vestment in the Index Master Portfolio at any time upon 30 days notice to the
Index Master Portfolio if the Board of Trustees of the Fund determines that it
is in the best interests of the Index Equity Portfolio to do so. Upon withdraw-
al, the Board of Trustees would consider what action might be taken, including
the investment of all of the assets of the Index Equity Portfolio in another
pooled investment entity having the same investment objective as the Index Eq-
uity Portfolio or the hiring of an investment adviser to manager the Index Eq-
uity Portfolio's assets in accordance with the investment policies described
above with respect to the Index Equity Portfolio.
The Index Master Portfolio is a separate series of The DFA Investment Trust
Company (the "Trust"), which is a business trust created under the laws of the
State of Delaware. The Index Equity Portfolio and other institutional investors
that may invest in the Index Master Portfolio from time to time (e.g. other in-
vestment companies) will each bear a share of all liabilities of the Index Mas-
ter Portfolio. Under the Delaware Business Trust Act, shareholders of the Index
Master Portfolio have the same limitation of personal liability as shareholders
of a Delaware corporation. Accordingly, Fund management believes that neither
the Index Equity Portfolio nor its shareholders will be adversely affected by
reason of the Index Equity Portfolio's investing in the Index Master Portfolio.
The shares of the Index Master Portfolio will be offered to institutional in-
vestors in private placements for the purpose of increasing the funds available
for investment and to achieve economies of scale that might be available at
higher asset levels. The expenses of such other institutional investors and
their returns may differ from those of the Index Equity Portfolio. While in-
vestment in the Index Master Portfolio by other institutional investors offers
potential benefits to the Index Master Portfolio (and, indirectly, to the Index
Equity Portfolio), economies of scale and related expense reductions might not
be achieved. Also, if an institutional investor were to redeem its interest in
the Index Master Portfolio, the remaining investors in the Index Master Portfo-
lio could experience higher pro rata operating expenses and correspondingly
lower returns. In addition, institutional investors that have a greater pro
rata ownership interest in the Index Master Portfolio than the Index Equity
Portfolio could have effective voting control over the operation of the Index
Master Portfolio.
Shares in the Index Master Portfolio have equal, non-cumulative voting rights,
except as set forth below, with no preferences as to conversion, exchange, div-
idends, redemption or any other feature. Shareholders of the Trust have the
right to vote only (i) for removal of its trustees, (ii) with respect to such
additional matters relating to the Trust as may be required by the applicable
provisions of the 1940 Act, including the approval of the investment advisory
agreement and the selection of trustees and accountants, and (iii) on such
other matters as the trustees of the Trust may consider necessary or desirable.
In addition, approval of the shareholders of the Trust is required to adopt any
amendments to the Agreement and Declaration of Trust of the Trust which would
adversely affect to a material degree the rights and preferences of the shares
of the Index Master Portfolio or to increase or decrease their par value. The
Index Master Portfolio's shareholders will also be asked to vote on any pro-
posal to change a fundamental
45
<PAGE>
policy (i.e. a policy that may be changed only with the approval of sharehold-
ers) of the Index Master Portfolio.
If the Index Equity Portfolio, as a shareholder of the Index Master Portfolio,
is requested to vote on matters pertaining to the Index Master Portfolio, the
Fund's Trustees intend to vote all of the shares that the Index Equity Portfo-
lio holds in the Index Master Portfolio without submitting any such questions
to the shareholders of the Index Equity Portfolio. If the Fund's Trustees de-
cide to adopt "pass-through" voting, the Index Equity Portfolio, if required
under the 1940 Act or other applicable law, would hold a meeting of its share-
holders and would cast its votes proportionately as instructed by Index Equity
Portfolio shareholders. In such cases, shareholders of the Index Equity Portfo-
lio, in effect, would have the same voting rights they would have as direct
shareholders of the Index Master Portfolio.
The investment objective of the Index Master Portfolio may not be changed with-
out approval of its shareholders. Shareholders of the Portfolio will receive
written notice thirty days prior to the effective date of any change in the in-
vestment objective of the Master Portfolio. If the Index Master Portfolio
changes its investment objective in a manner which is inconsistent with the in-
vestment objective of the Index Equity Portfolio and the Fund's Board of Trust-
ees fails to approve a similar change in the investment objective of the Index
Equity Portfolio, the Index Equity Portfolio would be forced to withdraw its
investment in the Index Master Portfolio and either seek to invest its assets
in another registered investment company with the same investment objective as
the Index Equity Portfolio, which might not be possible, or retain an invest-
ment adviser to manage the Index Equity Portfolio's assets in accordance with
its own investment objective, possibly at increased cost. A withdrawal by the
Index Equity Portfolio of its investment in the Index Master Portfolio could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Index Equity Portfolio. Should such a distribution occur,
the Index Equity Portfolio could incur brokerage fees or other transaction
costs in converting such securities to cash in order to pay redemptions. In ad-
dition, a distribution in kind to the Index Equity Portfolio could result in a
less diversified portfolio of investments and could adversely affect the li-
quidity of the Portfolio.
The conversion of the Index Equity Portfolio into a feeder fund of the Index
Master Portfolio was approved by shareholders of the Index Equity Portfolio at
a meeting held on November 30, 1995. The policy of the Index Equity Portfolio,
and other similar investment companies, to invest their investable assets in
funds such as the Index Master Portfolio is a relatively recent development in
the mutual fund industry and, consequently, there is a lack of substantial ex-
perience with the operation of this policy.
There may also be other investment companies or entities through which you can
invest in the Index Master Portfolio which may have different sales charges,
fees and other expenses which may affect performance. For information about
other funds that may invest in the Master Index Portfolio, please contact DFA
at (310) 395-8005 or contact your broker.
46
<PAGE>
How Is Performance Calculated?
- --------------------------------------------------------------------------------
Performance information for Investor C Shares of the Portfolios may be quoted
in advertisements and communications to shareholders. Total return will be cal-
culated on an average annual total return basis for various periods. Average
annual total return reflects the average annual percentage change in value of
an investment in Investor C Shares of a Portfolio over the measuring period.
Total return may also be calculated on an aggregate total return basis. Aggre-
gate total return reflects the total percentage change in value over the mea-
suring period. Both methods of calculating total return assume that dividend
and capital gain distributions made by a Portfolio with respect to Investor C
Shares are reinvested in Investor C Shares, and also reflect the maximum sales
load charged by the Portfolio with respect to Investor C Shares. When, however,
a Portfolio compares the total return of Investor C Shares to that of other
funds or relevant indices, total return may also be computed without reflecting
the sales load.
The yield of Investor C Shares of the Balanced Portfolio is computed by divid-
ing the net income allocated to Investor C Shares during a 30-day (or one
month) period by the net asset value per share on the last day of the period
and annualizing the result on a semi-annual basis.
The performance of Investor C Shares may be compared to the performance of
other mutual funds with similar investment objectives and to relevant indices,
as well as to ratings or rankings prepared by independent services or other fi-
nancial or industry publications that monitor the performance of mutual funds.
For example, the performance of Investor C Shares may be compared to data pre-
pared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
and Weisenberger Investment Company Service, and to the performance of the Dow
Jones Industrial Average, DFA's Small Cap Index, the Lehman GMNA Index, the
Lehman Index of Baa-rated Corporate Bonds, the T-Bill Index, the "stocks, bonds
and inflation Index" published annually by Ibbotson Associates, the Lipper In-
ternational Fund Index, the Lehman Government Corporate Bond Index and the Fi-
nancial Times World Stock Index, as well as the benchmarks attached to this
Prospectus. Performance information may also include evaluations of the Portfo-
lios and their Investor C Shares published by nationally recognized ranking
services, and information as reported in financial publications such as Busi-
ness Week, Fortune, Institutional Investor, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in publications of a local
or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Investor C Shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of a dividend in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Investor C Shares, when redeemed,
47
<PAGE>
may be worth more or less than their original cost. Since performance will
fluctuate, performance data for Investor C Shares of a Portfolio cannot neces-
sarily be used to compare an investment in such shares with bank deposits, sav-
ings accounts and similar investment alternatives which often provide an agreed
or guaranteed fixed yield for a stated period of time. Performance is generally
a function of the kind and quality of the instruments held in a portfolio,
portfolio maturity, operating expenses and market conditions. Any fees charged
by brokers or other institutions directly to their customer accounts in connec-
tion with investments in Investor C Shares will not be included in the Portfo-
lio performance calculations.
48
<PAGE>
How Can I Get More Information?
- --------------------------------------------------------------------------------
We believe that it is essential for shareholders to have access to information
regarding their investment 24 hours a day, 7 days a week. COMPASS CAPITAL FUNDS
has an investor information line that can provide such access.
In addition to account information, COMPASS CAPITAL FUNDS has other sources of
information regarding each Portfolio and its portfolio holdings, strategy and
current dividend and performance levels.
By selecting the appropriate source of information as listed below, investors
can receive additional information on the COMPASS CAPITAL Portfolios by either
using a toll-free number or through electronic access:
For Performance and Portfolio Management Questions dial, (800) FUTURE4.
For Information Related to Share Purchase and Redemptions call your investment
adviser or Compass Capital Funds at (800) 441-7762.
For Questions about Shareholder Accounts and Balances held directly at the
Fund, call (800) 441-7762.
Information is also available on the Internet through the World Wide Web at
http://www.compassfunds.com.
Shareholders and investment professionals may access portfolio information,
portfolio manager updates and market data by accessing
http://www.compassfunds.com.
49
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Value Equity Russell 1000 Value Index An index composed of those Russell 1000
securities with less-than-average growth
orientation. Securities in this index
generally have low price-to-book and price-
earnings ratios, higher dividend yields and
lower forecasted growth values than more
growth-oriented securities in the Russell
1000 Growth Index.
Growth Equity Russell 1000 Growth The Russell 1000 Growth Index contains
Index those Russell 1000 securities with a
greater-than-average growth orientation.
Companies in this index tend to exhibit
higher price-to-book and price-earnings
ratios, lower dividend yields and higher
forecasted growth values than the value
universe.
Small Cap Value Equity Russell 2000 Index An index of the smallest 2000 companies in
the Russell 3000 Index, as ranked by total
market capitalization. The Russell 2000
Index is widely regarded in the industry to
accurately capture the universe of small
cap stocks.
Small Cap Growth Equity Russell 2000 Growth An index composed of those Russell 2000
Index securities with a greater-than-average
growth orientation. Securities in this
index generally have higher price-to-book
and price-earnings ratios than those in the
Russell 2000 Value Index.
International Equity EAFE Index An index composed of a sample of companies
representative of the market structure of
20 European and Pacific Basin countries.
The Index represents the evolution of an
unmanaged portfolio consisting of all
domestically listed stocks.
International Emerging MSCI Emerging Markets The Morgan Stanley Capital International
Markets Free Index (MSCI) Emerging Markets Free Index (EMF) is
a market capitalization weighted index
composed of companies representative of the
market structure of 22 Emerging Market
countries in Europe, Latin America, and the
Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in
otherwise free markets which are not
purchasable by foreigners.
Select Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Index Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Balanced S&P 500 Index and An unmanaged index of 500 selected common
Salomon Broad Investment stocks, most of which are listed on the New
Grade Index York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
An unmanaged index of 3500 bonds. The Broad
Investment Grade Index is market
capitalization weighted and includes
Treasury, Government sponsored mortgage and
investment grade fixed rate corporates with
a maturity of 1 year or longer.
</TABLE>
50
<PAGE>
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- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL IN-
FORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE
INDEX EQUITY PORTFOLIO IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STAN-
DARD & POOR'S RATINGS GROUP. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
------------------
PROSPECTUS
VALUE EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP VALUE EQUITY PORTFOLIO
SMALL CAP GROWTH EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL EMERGING MARKETS PORTFOLIO
SELECT EQUITY PORTFOLIO
INDEX EQUITY PORTFOLIO
BALANCED PORTFOLIO
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ART]
THE EQUITY
PORTFOLIOS
INVESTOR C SHARES
January 16, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares ("Shares") representing interests in the Money Market,
Municipal Money Market, U.S. Treasury Money Market (formerly, the Government
Money Market Portfolio), Ohio Municipal Money Market, Pennsylvania Municipal
Money Market, North Carolina Municipal Money Market, Virginia Municipal Money
Market, New Jersey Municipal Money Market, Value Equity, Growth Equity, Index
Equity, Small Cap Value Equity, International Equity, International Emerging
Markets, Balanced, Small Cap Growth Equity, Select Equity (formerly, the Core
Equity Portfolio), Managed Income, Tax-Free Income, Intermediate Government,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short Government Bond
(formerly, the Short-Term Bond Portfolio), Intermediate Bond (formerly, the
Intermediate-Term Bond Portfolio), Government Income, International Bond
(formerly, the International Fixed Income Portfolio), New Jersey Tax-Free Income
and Core Bond Portfolios of Compass Capital Funds (the "Fund"). The Money
Market, Municipal Money Market, U.S. Treasury Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, Virginia Municipal Money Market and New Jersey Municipal Money Market
Portfolios are hereinafter collectively called "Money Market Portfolios," and
the other Portfolios are hereinafter collectively called "Non-Money Market
Portfolios." This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Prospectuses of the Fund relating to
the Portfolios dated January 16, 1996, as amended from time to time (the
"Prospectuses"). Prospectuses may be obtained from the Fund's distributor by
calling toll-free (800) 441-7379. This Statement of Additional Information is
dated January 16, 1996. Capitalized terms used herein and not otherwise defined
have the same meanings as are given to them in the Prospectuses.
<PAGE>
CONTENTS
Page
----
Investment Policies....................... 3
Trustees and Officers..................... 44
Investment Advisory, Administration,
Distribution and Servicing Arrangements.. 50
Portfolio Transactions.................... 63
Purchase and Redemption Information....... 67
Valuation of Portfolio Securities......... 71
Performance Information................... 72
Taxes..................................... 92
Additional Information Concerning Shares.. 101
Miscellaneous............................. 102
Appendix A................................ A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION OR THE
PROSPECTUSES IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUSES AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUSES DO NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE FUND'S DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-2-
<PAGE>
INVESTMENT POLICIES
The following supplements information contained in the Prospectuses
concerning the Portfolios' investment policies. A description of applicable
credit ratings is set forth in Appendix A hereto. Except as indicated, the
information below relates only to those Portfolios that are authorized to invest
in the instruments or securities described below.
The Index Equity Portfolio is currently structured as most investment
companies and invests its assets directly. However, during the first half of
1996, the Index Equity Portfolio expects to invest all of its investable assets
in The U.S. Large Company Series (the "Index Master Portfolio") of The DFA
Investment Trust Company (the "Trust"). Accordingly, the following discussion
relates to: (i) the investment policies of all the Portfolios including the
Index Equity Portfolio; and (ii) where indicated the investment policies of the
Index Master Portfolio.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio (including the Index
Master Portfolio) other than the Municipal Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, Virginia Municipal Money Market and New Jersey Municipal Money Market
Portfolios (the "Municipal Money Market Portfolios") and the Index Master
Portfolio may invest in reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by a Portfolio pursuant to a
Portfolio's agreement to repurchase the securities at an agreed upon price, date
and interest rate. Such agreements are considered to be borrowings under the
Investment Company Act of 1940 (the "1940 Act"). While reverse repurchase
transactions are outstanding, a Portfolio will maintain in a segregated account
cash, U.S. Government securities or other liquid, high-grade debt securities in
an amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement.
VARIABLE AND FLOATING RATE INSTRUMENTS. With respect to purchasable
variable and floating rate instruments, the adviser or sub-adviser will consider
the earning power, cash flows and liquidity ratios of the issuers and guarantors
of such instruments and, if the instruments are subject to a demand feature,
will monitor their financial status to meet payment on demand. Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. The absence of an active secondary market with respect to
-3-
<PAGE>
particular variable and floating rate instruments could make it difficult for a
Portfolio to dispose of a variable or floating rate note if the issuer defaulted
on its payment obligation or during periods that the Portfolio is not entitled
to exercise its demand rights, and the Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments. In determining
average-weighted portfolio maturity, an instrument will usually be deemed to
have a maturity equal to the longer of the period remaining until the next
interest rate adjustment or the time the Portfolio involved can recover payment
of principal as specified in the instrument. Variable rate U.S. Government
obligations held by the Portfolios, however, will be deemed to have maturities
equal to the period remaining until the next interest rate adjustment.
MONEY MARKET OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. Each Non-Money Market Portfolio may purchase bank
obligations, such as certificates of deposit, bankers' acceptances and time
deposits, including instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign branches for
purposes of each Portfolio's investment policies. Investments in short-term
bank obligations may include obligations of foreign banks and domestic branches
of foreign banks, and also foreign branches of domestic banks.
The Index Master Portfolio may purchase obligations of U.S. banks and
savings and loan associations and dollar-denominated obligations of U.S.
subsidiaries and branches of foreign banks, such as certificates of deposit
(including marketable variable rate certificates of deposit) and bankers'
acceptances. Bank certificates of deposit will only be acquired by the Index
Master Portfolio if the bank has assets in excess of $1 billion.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include
-4-
<PAGE>
FNMA guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA, are not backed by or entitled to
the full faith and credit of the United States and are supported by the right of
the issuer to borrow from the Treasury. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of principal and interest by FNMA. Mortgage-related
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC")
include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs"
or "PCs"). FHLMC is a corporate instrumentality of the United States, created
pursuant to an Act of Congress, which is owned entirely by Federal Home Loan
Banks. Freddie Macs are not guaranteed by the United States or by any Federal
Home Loan Banks and do not constitute a debt or obligation of the United States
or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely
payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Managed Income, Intermediate Government, Short Government Bond,
Intermediate Bond, Government Income, International Bond, Core Bond, Tax-Free
Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free Income and Ohio Tax-
Free Income Portfolios (the "Bond Portfolios") may invest in multiple class
pass-through securities, including collateralized mortgage obligations ("CMOs")
and real estate mortgage investment conduit ("REMIC") pass-through or
participation certificates ("REMIC Certificates"). These multiple class
securities may be issued by U.S. Government agencies or instrumentalities,
including FNMA and FHLMC, or by trusts formed by private originators of, or
investors in, mortgage loans. In general, CMOs and REMICs are debt obligations
of a legal entity that are collateralized by, and multiple class pass-through
securities represent direct ownership interests in, a pool of residential
mortgage loans or mortgage pass-through securities (the "Mortgage Assets"), the
payments on which are used to make payments on the CMOs or multiple pass-through
securities. Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests or "residual" interests. The Portfolios do not
intend to purchase residual interests.
Each class of CMOs or REMIC Certificates, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Principal prepayments
on the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all
-5-
<PAGE>
of the classes of CMOs or REMIC Certificates to be retired substantially earlier
than their final distribution dates. Generally, interest is paid or accrues on
all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in the
order of their respective final distribution dates. Thus no payment of
principal will be made on any class of sequential pay CMOs or REMIC Certificates
until all other classes having an earlier final distribution date have been paid
in full.
Additional structures of CMOs or REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay
or sequential pay structures. These securities include accrual certificates
(also known as "Z-Bonds"), which only accrue interest at a specified rate until
all other certificates having an earlier final distribution date have been
retired and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These tranches tend to have market prices and
yields that are much more volatile than the PAC classes.
-6-
<PAGE>
FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of
interest, and also guarantees the ultimate payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by FHLMC and placed in
a PC pool. With respect to principal payments on PCs, FHLMC generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. FHLMC also guarantees timely payment of principal
on certain PCs, referred to as "Gold PCs."
ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
----
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
-7-
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations which the Portfolios may hold include U.S. Treasury bills, Treasury
instruments and Treasury bonds and the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, the Farmers Home Administration, the Export-Import Bank of the
United States, the Small Business Administration, FNMA, GNMA, the General
Services Administration, the Student Loan Marketing Association, the Central
Bank for Cooperatives, FHLMC, the Federal Intermediate Credit Banks, the
Maritime Administration, the International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
The Index Master Portfolio may purchase (i) debt securities issued by
the U.S. Treasury which are direct obligations of the U.S. Government, including
bills, notes and bonds, and (ii) obligations issued or guaranteed by U.S.
Government-sponsored instrumentalities and federal agencies, including FNMA,
Federal Home Loan Bank and the Federal Housing Administration.
SUPRANATIONAL ORGANIZATION OBLIGATIONS. The Index Master Portfolio
may purchase debt securities of supranational organizations such as the European
Coal and Steel Community, the European Economic Community and the World Bank,
which are charted to promote economic development.
LEASE OBLIGATIONS. The Municipal Money Market, Pennsylvania Municipal
Money Market, Ohio Municipal Money Market, North Carolina Municipal Money
Market, Virginia Municipal Money Market, New Jersey Municipal Money Market,
Managed Income, Tax-Free Income, Pennsylvania Tax-Free Income, Ohio Tax-Free
Income, Short Government Bond, Intermediate Bond, International Bond and New
Jersey Tax-Free Income Portfolios may hold participation certificates in a
lease, an installment purchase contract, or a conditional sales contract ("lease
obligations").
The Adviser will monitor the credit standing of each municipal
borrower and each entity providing credit support and/or a put option. In
determining whether a lease obligation is liquid, the Adviser will consider,
among other factors, the following: (i) whether the lease can be cancelled; (ii)
the degree of assurance that assets represented by the lease could be sold;
(iii) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (iv) the likelihood
that the municipality would discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an "event of nonappropriation"); (v)
legal recourse in the event of failure to appropriate; (vi) whether the security
is backed by a credit
-8-
<PAGE>
enhancement such as insurance; and (vii) any limitations which are imposed on
the lease obligor's ability to utilize substitute property or services other
than those covered by the lease obligation.
The Municipal Money Market, Pennsylvania Municipal Money Market, Ohio
Municipal Money Market, North Carolina Municipal Money Market, Virginia
Municipal Money Market and New Jersey Municipal Money Market Portfolios will
only invest in lease obligations with puts that (i) may be exercised at par on
not more than seven days notice, and (ii) are issued by institutions deemed by
the adviser to present minimal credit risks. Such obligations will be
considered liquid. However, a number of puts are not exercisable at the time
the put would otherwise be exercised if the municipal borrower is not
contractually obligated to make payments (e.g., an event of nonappropriation
with a "nonappropriation" lease obligation). Under such circumstances, the
lease obligation while previously considered liquid would become illiquid, and a
Portfolio might lose its entire investment in such obligation.
Municipal leases, like other municipal debt obligations, are subject
to the risk of non-payment. The ability of issuers of municipal leases to make
timely lease payments may be adversely impacted in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Such non-payment would result in a
reduction of income to the Fund, and could result in a reduction in the value of
the municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Fund. Issuers of municipal securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, the
Fund could experience delays and limitations with respect to the collection of
principal and interest on such municipal leases and the Fund may not, in all
circumstances, be able to collect all principal and interest to which it is
entitled. To enforce its rights in the event of a default in lease payments,
the Fund may take possession of and manage the assets securing the issuer's
obligations on such securities, which may increase the Fund's operating expenses
and adversely affect the net asset value of the Fund. When the lease contains a
non-appropriation clause, however, the failure to pay would not be a default and
the Fund would not have the right to take possession of the assets. Any income
derived from the Fund's ownership or operation of such assets may not be tax-
exempt. In addition, the Fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended, may limit the
extent to which the Fund may exercise its rights by taking possession of such
assets, because as a regulated investment company the Fund is subject to certain
limitations on its investments and on the nature of its income.
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COMMERCIAL PAPER. The Money Market Portfolios may purchase commercial
paper rated in one of the two highest rating categories of a nationally
recognized statistical rating organization ("NRSRO"). The Non-Money Market
Portfolios, except the Index Master Portfolio, may purchase commercial paper
rated (at the time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when
deemed advisable by a Portfolio's adviser or sub-adviser, "high quality" issues
rated "A-2" or "Prime-2" by S&P or Moody's, respectively. The Index Master
Portfolio may purchase commercial paper rated (at the time of purchase) "A-1" or
better by S&P or "Prime-1" by Moody's, or, if not rated, issued by a corporation
having an outstanding unsecured debt issue rated "Aaa" by Moody's or "AAA" by
S&P, and having a maximum maturity of nine months. These ratings symbols are
described in Appendix A.
Commercial paper purchasable by each Portfolio includes "Section 4(2)
paper," a term that includes debt obligations issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as to disposition
under the Federal securities laws, and is frequently sold (and resold) to
institutional investors such as the Fund through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. Certain transactions in Section 4(2) paper may qualify for
the registration exemption provided in Rule 144A under the Securities Act of
1933.
REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase
agreements. The repurchase price under the repurchase agreements described in
the Prospectuses generally equals the price paid by a Portfolio involved plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on securities underlying the repurchase agreement). The
financial institutions with whom a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the Portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement at not less than the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or sub-
adviser will mark-to-market daily the value of the securities, and will, if
necessary, require the seller to maintain additional securities to ensure that
the value is not less than the repurchase price. Securities subject to
repurchase agreements will be held by the Fund's custodian (or sub-custodian) in
the Federal Reserve/Treasury book-entry system or
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by another authorized securities depository. Repurchase agreements are
considered to be loans by the Portfolios under the 1940 Act.
The Index Master Portfolio will not enter into a repurchase agreement
with a duration of more than seven days if, as a result, more than 10% of the
value of its total assets would be so invested. The Index Master Portfolio will
also only invest in repurchase agreements with a bank if the bank has at least
$1 billion in assets and is approved by the Investment Committee of DFA. DFA
will monitor the market value of transferred securities plus any accrued
interest thereon so that the value of such securities will at least equal the
repurchase price. The securities underlying the repurchase agreements will be
limited to U. S. Government and agency obligations described under "Government
Obligations" above.
INVESTMENT GRADE DEBT OBLIGATIONS. Each of the Money Market
Portfolios may invest in securities in the two highest rating categories of
NRSROs. The Non-Money Market Portfolios, except the Index Master Portfolio,
invest in "investment grade securities," which are securities rated in the four
highest rating categories of an NRSRO. It should be noted that debt obligations
rated in the lowest of the top four ratings (i.e., "Baa" by Moody's or "BBB" by
S&P) are considered to have some speculative characteristics and are more
sensitive to economic change than higher rated securities.
The Index Master Portfolio may invest in non-convertible corporate
debt securities which are issued by companies whose commercial paper is rated
"Prime-1" by Moody's or "A-1" by S&P and dollar-denominated obligations of
foreign issuers issued in the U.S. If the issuer's commercial paper is unrated,
then the debt security would have to be rated at least "AA" by S&P or "Aa2" by
Moody's. If there is neither a commercial paper rating nor a rating of the debt
security, then the Index Master Portfolio's investment adviser must determine
that the debt security is of comparable quality to equivalent issues of the same
issuer rated at least "AA" or "Aa2."
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When a Portfolio
agrees to purchase securities on a when-issued or forward commitment basis, the
custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio commitments. It may be expected that the market
value of the Portfolios' net assets will fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase
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commitments than when it sets aside cash. Because a Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, each Portfolio expects
that its commitments to purchase when-issued securities and forward commitments
will not exceed 25% of the value of its total assets absent unusual market
conditions.
A Portfolio will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, a Portfolio may dispose of or renegotiate a
commitment after it has been entered into, and may sell securities it has
committed to purchase before those securities are delivered to the Portfolio on
the settlement date. In these cases the Portfolio may realize a taxable capital
gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, is taken into account when determining the market value
of a Portfolio starting on the day the Portfolio agrees to purchase the
securities. The Portfolio does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
RIGHTS OFFERINGS AND WARRANTS TO PURCHASE. As stated in their
Prospectus, the Value Equity, Growth Equity, Small Cap Growth Equity, Select
Equity, Small Cap Value Equity, International Equity, International Emerging
Markets and Balanced Portfolios may participate in rights offerings and may
purchase warrants, which are privileges issued by corporations enabling the
owners to subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of time.
Subscription rights normally have a short life span to expiration. The purchase
of rights or warrants involves the risk that the Portfolios could lose the
purchase value of a right or warrant if the right to subscribe to additional
shares is not exercised prior to the rights' and warrants' expiration. Also,
the purchase of rights and/or warrants involves the risk that the effective
price paid for the right and/or warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security. A
Portfolio will not invest more than 5% of its net assets, taken
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at market value, in warrants, or more than 2% of its net assets, taken at market
value, in warrants not listed on the New York or American Stock Exchanges.
Warrants acquired by a Portfolio in units or attached to other securities are
not subject to this restriction.
FOREIGN CURRENCY TRANSACTIONS. Forward foreign currency exchange
contracts involve an obligation to purchase or sell a specified currency at a
future date at a price set at the time of the contract. Forward currency
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Portfolio to establish a rate of exchange for a future point
in time. The Portfolio may use forward foreign currency exchange contracts to
hedge against movements in the value of foreign currencies (including the "ECU"
used in the European Community) relative to the U.S. dollar in connection with
specific portfolio transactions or with respect to portfolio positions. A
Portfolio may enter into forward foreign currency exchange contracts when deemed
advisable by its adviser or sub-adviser under two circumstances. First, when
entering into a contract for the purchase or sale of a security, the Portfolio
may enter into a forward foreign currency exchange contract for the amount of
the purchase or sale price to protect against variations, between the date the
security is purchased or sold and the date on which payment is made or received,
in the value of the foreign currency relative to the U.S. dollar or other
foreign currency.
Second, when a Portfolio's adviser or sub-adviser anticipates that a
particular foreign currency may decline substantially relative to the U.S.
dollar or other leading currencies, in order to reduce risk, the Portfolio may
enter into a forward contract to sell, for a fixed amount, the amount of foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency. No Portfolio intends to enter into
forward contracts under this second circumstance on a regular or continuing
basis and will not do so if, as a result, it will have more than 15% of the
value of its total assets committed to such contracts. With respect to any
forward foreign currency contract, it will not generally be possible to match
precisely the amount covered by that contract and the value of the securities
involved due to the changes in the values of such securities resulting from
market movements between the date the forward contract is entered into and the
date it matures. In addition, while forward contracts may offer protection from
losses resulting from declines in the value of a particular foreign currency,
they also limit potential gains which might result from increases in the value
of such currency. A Portfolio will also incur costs in connection with forward
foreign currency exchange contracts and conversions of foreign currencies and
U.S. dollars.
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A separate account of a Portfolio consisting of cash or liquid
securities equal to the amount of the Portfolio's assets that could be required
to consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Fund's custodian. For the purpose
of determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Portfolio.
OPTIONS. Options trading is a highly specialized activity which
entails greater than ordinary investment risks. Options on particular
securities may be more volatile than the underlying securities, and therefore,
on a percentage basis, an investment in the underlying securities themselves. A
Portfolio will write call options only if they are "covered." In the case of a
call option on a security, the option is "covered" if a Portfolio owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, cash or cash equivalents in such amount as are held
in a segregated account by its custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if
a Portfolio maintains with its custodian cash or cash equivalents equal to the
contract value. A call option is also covered if a Portfolio holds a call on
the same security or index as the call written where the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written provided the
difference is maintained by the Portfolio in cash or cash equivalents in a
segregated account with its custodian.
When a Portfolio purchases a put option, the premium paid by it is
recorded as an asset of the Portfolio. When a Portfolio writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written. The current value of the traded
option is the last sale price or, in the absence of a sale, the mean between the
last bid and asked prices. If an option purchased by a Portfolio expires
unexercised the Portfolio realizes a loss equal to the premium paid. If the
Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by the Portfolio on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. If an option written by a Portfolio expires on
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the stipulated expiration date or if the Portfolio enters into a closing
purchase transaction, it will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold)
and the deferred credit related to such option will be eliminated. If an option
written by a Portfolio is exercised, the proceeds of the sale will be increased
by the net premium originally received and the Portfolio will realize a gain or
loss.
There are several risks associated with transactions in options on
securities and indexes. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a national securities exchange
("Exchange") may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be imposed
by an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Non-Money Market
Portfolio (including the Index Master Portfolio) may invest in futures contracts
and options thereon (interest rate futures contracts or index futures contracts,
as applicable). Positions in futures contracts may be closed out only on an
exchange which provides a secondary market for such futures. However, there can
be no assurance that a liquid secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, a Portfolio would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if a Portfolio has insufficient cash, it may have
to sell portfolio securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, a Portfolio may be required to
make delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures
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positions also could have an adverse impact on a Portfolio's ability to
effectively hedge.
Successful use of futures by a Portfolio is also subject to the
adviser's ability to correctly predict movements in the direction of the market.
For example, if a Portfolio has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Portfolio will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition, in
some situations, if a Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by a Portfolio involves the risk
of loss by a Portfolio of margin deposits in the event of bankruptcy of a broker
with whom the Portfolio has an open position in a futures contract or related
option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little
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or no trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
STAND-BY COMMITMENTS. Under a stand-by commitment for a Municipal
Obligation, a dealer agrees to purchase at the Portfolio's option a specified
Municipal Obligation at a specified price. Stand-by commitments for Municipal
Obligations may be exercisable by a Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved. It is expected that such stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, a Portfolio may pay
for such a stand-by commitment either separately in cash or by paying a higher
price for Municipal Obligations which are acquired subject to the commitment for
Municipal Obligations (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for
outstanding stand-by commitments for Municipal Obligations held by a Portfolio
will not exceed 1/2 of 1% of the value of such Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
Stand-by commitments will only be entered into with dealers, banks and
broker-dealers which, in the adviser's or sub-adviser's opinion, present minimal
credit risks. A Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and not to exercise its rights thereunder for
trading purposes. Stand-by commitments will be valued at zero in determining
net asset value. Accordingly, where a Portfolio pays directly or indirectly for
a stand-by commitment, its cost will be reflected as an unrealized loss for the
period during which the commitment is held by such Portfolio and will be
reflected as a realized gain or loss when the commitment is exercised or
expires.
TAX-EXEMPT DERIVATIVES. The Municipal Money Market Portfolios and the
Tax-Free Income, Ohio Tax-Free Income, Pennsylvania Tax-Free Income and New
Jersey Tax-Free Income Portfolios (collectively, the "Money and Non-Money Market
Municipal Portfolios") may hold tax-exempt derivatives which may be in the form
of tender option bonds, participations, beneficial interests in a trust,
partnership interests or other forms. A number of different structures have
been used. For example,
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interests in long-term fixed-rate municipal obligations, held by a bank as
trustee or custodian, are coupled with tender option, demand and other features
when the tax-exempt derivatives are created. Together, these features entitle
the holder of the interest to tender (or put), the underlying municipal
obligation to a third party at periodic intervals and to receive the principal
amount thereof. In some cases, municipal obligations are represented by
custodial receipts evidencing rights to receive specific future interest
payments, principal payments, or both, on the underlying municipal securities
held by the custodian. Under such arrangements, the holder of the custodial
receipt has the option to tender the underlying municipal securities at its face
value to the sponsor (usually a bank or broker dealer or other financial
institution), which is paid periodic fees equal to the difference between the
bond's fixed coupon rate and the rate that would cause the bond, coupled with
the tender option, to trade at par on the date of a rate adjustment. The Money
and Non-Money Market Municipal Portfolios may hold tax-exempt derivatives, such
as participation interests and custodial receipts, for municipal obligations
which give the holder the right to receive payment of principal subject to the
conditions described above. The Internal Revenue Service has not ruled on
whether the interest received on tax-exempt derivatives in the form of
participation interests or custodial receipts is tax-exempt, and accordingly,
purchases of any such interests or receipts are based on the opinion of counsel
to the sponsors of such derivative securities. Neither the Fund nor its
investment adviser will review the proceedings related to the creation of any
tax-exempt derivatives or the basis for such opinions.
SECURITIES LENDING. A Portfolio would continue to accrue interest on
loaned securities and would also earn income on investment collateral for such
loans. Any cash collateral received by a Portfolio in connection with such
loans would be invested in short-term Government obligations.
While the Index Master Portfolio may earn additional income from
lending securities, such activity is incidental to the investment objective of
the Index Master Portfolio. The value of securities loaned may not exceed
33 1/3% of the value of the Index Master Portfolio's total assets. In connection
with such loans, the Index Master Portfolio will receive collateral consisting
of cash or U.S. Government securities, which will be maintained at all times in
an amount equal to at least 100% of the current market value of the loaned
securities. In addition, the Index Master Portfolio will be able to terminate
the loan at any time, will receive reasonable interest on the loan, as well as
amounts equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Trust could
experience delay in recovering the loaned securities. Management of the Trust
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believes that this risk can be controlled through careful monitoring procedures.
YIELDS AND RATINGS. The yields on certain obligations are dependent
on a variety of factors, including general market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer, the
size of the offering, the maturity of the obligation and the ratings of the
issue. The ratings of Moody's, Duff & Phelps Credit Co. ("Duff & Phelps"),
Fitch Investor Services, Inc. ("Fitch") and S&P represent their respective
opinions as to the quality of the obligations they undertake to rate. Ratings,
however, are general and are not absolute standards of quality. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. Subsequent to its purchase by a Portfolio, a rated security may
cease to be rated. The adviser or sub-adviser will consider such an event in
determining whether the Portfolio should continue to hold the security.
SECURITIES OF SMALL CAP ISSUERS. Securities of small cap issues
purchased by the Small Cap Value Equity and Small Cap Growth Equity Portfolios
may be exchange-listed or purchased "over-the-counter."
INTEREST RATE TRANSACTIONS AND CURRENCY SWAPS. The Bond Portfolios
may enter into interest rate swaps, caps and floors on either an asset-based or
liability-based basis, depending on whether a Portfolio is hedging its assets or
its liabilities. The International Bond Portfolios may also enter into currency
swaps, which involve the exchange of the rights of a Portfolio and another party
to make or receive payments in specific currencies.
A Portfolio will usually enter into interest rate swaps on a net
basis, i.e., the two payment streams are netted out, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. In contrast, currency swaps usually involve the delivery of the
entire principal value of one designated currency in exchange for the other
designated currency.
A Portfolio will accrue the net amount of the excess, if any, of its
obligations over its entitlements with respect to each interest rate swap on a
daily basis and will deliver an amount of cash, U.S. Government securities or
liquid high-grade debt securities having an aggregate net asset value at least
equal to the accrued excess to a custodian that satisfies the requirements of
the 1940 Act. A Portfolio will not enter into any interest rate or currently
swap unless the unsecured commercial paper, senior debt or claims paying ability
of the other party is rated either "A" or "A-1" or better by S&P, Duff & Phelps
or Fitch, or "A' or "P-1" or better by Moody's.
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A Portfolio will enter into currency or interest rate swap, cap and
floor transactions only with institutions deemed the creditworthy by the
Portfolio's adviser or sub-adviser. If there is a default by the other party to
such a transaction, a Portfolio will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As
a result, the swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
INVESTMENT COMPANIES. Each Portfolio, other than the Index Equity
Portfolio, currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (i) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio or by the Fund as a whole.
SPECIAL CONSIDERATION REGARDING THE OHIO TAX FREE INCOME PORTFOLIO.
The Ohio Tax-Free Income Portfolio will not trade its securities for the purpose
of seeking profits. For purposes of this policy, the Portfolio may vary its
portfolio securities if (i) there has been an adverse change in a security's
credit rating or in that of its issuer or in the adviser's or sub-adviser's
credit analysis of the security or its issuer; (ii) there has been, in the
opinion of the adviser and sub-adviser, a deterioration or anticipated
deterioration in general economic or market conditions affecting issuers of Ohio
Municipal Obligations, or a change or anticipated change in interest rates;
(iii) adverse changes or anticipated changes in market conditions or economic or
other factors temporarily affecting the issuers of one or more portfolio
securities make necessary or desirable the sale of such security or securities
in anticipation of the Portfolio's repurchase of the same or comparable
securities at a later date; or (iv) the adviser or sub-adviser engages in
temporary defensive strategies.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN OHIO MUNICIPAL
OBLIGATIONS. As described above, the Ohio Tax-Free Money Market and Ohio Tax-
Free Income Portfolios (the "Ohio Portfolios") will each invest most of its net
assets in securities issued by or on behalf of (or in certificates of
participation in lease-purchase obligations of) the State of Ohio, political
subdivisions of the State, or agencies or instrumentalities of the State or its
political subdivisions
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(Ohio Obligations). The Ohio Portfolios are therefore susceptible to general or
particular economic, political or regulatory factors that may affect issuers of
Ohio Obligations. The following information constitutes only a brief summary of
some of the many complex factors that may have an effect. The information does
not apply to "conduit" obligations on which the public issuer itself has no
financial responsibility. This information is derived from official statements
of certain Ohio issuers published in connection with their issuance of
securities and from other publicly available information, and is believed to be
accurate. No independent verification has been made of any of the following
information.
Generally, the creditworthiness of Ohio Obligations of local issuers
is unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations. There may be
specific factors that at particular times apply in connection with investment in
particular Ohio Obligations or in those obligations of particular Ohio issuers.
It is possible that the investment may be in particular Ohio Obligations, or in
those of particular issuers, as to which those factors apply. However, the
information below is intended only as a general summary, and is not intended as
a discussion of any specific factors that may affect any particular obligation
or issuer.
Ohio is the seventh most populous state. The 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1993 is 11,091,000.
While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
15% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990
average monthly State rate was 5.7%, compared to the 5.5% national figure.
However, for the last four years the State rates were below the national rates
(5.5% versus 6.1% in 1994). The unemployment rate and its effects vary among
geographic areas of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely
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affect the market value of Ohio Obligations held in the Ohio Portfolios or the
ability of particular obligors to make timely payments of debt service on (or
lease payments relating to) those Obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most
State operations are financed through the General Revenue Fund (GRF), for which
the personal income and sales-use taxes are the major sources. Growth and
depletion of GRF ending fund balances show a consistent pattern related to
national economic conditions, with the ending FY balance reduced during less
favorable and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.
Key biennium-ending fund balances at June 30, 1989 were $475.1 million
in the GRF and $353 million in the Budget Stabilization Fund (BSF, a cash and
budgetary management fund). June 30, 1991 ending fund balances were $135.3
million (GRF) and $300 million (BSF).
The next biennium, 1992-93, presented significant challenges to State
finances, successfully addressed. To allow time to resolve certain budget
differences, an interim appropriations act was enacted effective July 1, 1991;
it included GRF debt service and lease rental appropriations for the entire
1992-93 biennium, while continuing most other appropriations for a month.
Pursuant to the general appropriations act for the entire biennium, passed on
July 11, 1991, $200 million was transferred from the BSF to the GRF in FY 1992.
Based on updated results and forecasts in the course of that FY, both
in light of a continuing uncertain nationwide economic situation, there was
projected, and then timely addressed a FY 1992 imbalance in GRF resources and
expenditures. In response, the Governor ordered most State agencies to reduce
GRF spending in the last six months of FY 1992 by a total of approximately $184
million; the $100.4 million BSF balance and additional amounts from certain
other funds were transferred late in the FY to the GRF; and adjustments were
made in the timing of certain tax payments.
A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative action
(a combination of tax
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revisions and additional spending reductions). The June 30, 1993 ending GRF
fund balance was approximately $111 million, of which, as a first step to BSF
replenishment, $21 million was deposited in the BSF.
None of the spending reductions were applied to appropriations needed
for debt service on or lease rentals relating to any State obligations.
The 1994-95 biennium presented a more affirmative financial picture.
Based on June 30, 1994 balances, an additional $260 million was deposited in the
BSF. The biennium ended June 30, 1995 with a GRF ending fund balance of $928
million, of which $535.2 million has been transferred into the BSF (which had a
December 8, 1995 balance of over $828 million).
The GRF appropriations act for the current 1995-96 biennium was on
June 28, 1995 passed and promptly signed (after selective vetoes) by the
Governor. All necessary GRF appropriations for State debt service and lease
rental payments then projected for the biennium were included in that act. In
accordance with the appropriations act, the significant June 30, 1995 GRF fund
balance, after leaving in the GRF an unreserved and undesignated balance of $70
million, has been transferred to the BSF and other funds, including school
assistance funds and, in anticipation of possible federal program changes, a
human services stabilization fund.
The State's incurrence or assumption of debt without a vote of the
people is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 14 constitutional amendments, the last adopted in 1995, Ohio voters
have authorized the incurrence of State debt and the pledge of taxes or excises
to its payment. At December 8, 1995, $778 million (excluding certain highway
bonds payable primarily from highway use charges) of this debt was outstanding.
The only such State debt at that date still authorized to be incurred were
portions of the highway bonds, and the following: (a) up to $100 million of
obligations for coal research and development may be outstanding at any one time
($45.3 million outstanding); (b) $360 million of obligations authorized for
local infrastructure improvements, no more than $120 million of which may be
issued in any calendar year ($685.4 million outstanding); and (c) up to $200
million in general obligation bonds for parks, recreation and natural resources
purposes which may be outstanding at any
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one time ($47.2 million outstanding, with no more than $50 million to be issued
in any one year).
The electors approved in November 1995 a constitutional amendment that
extends the local infrastructure bond program (authorizing an additional $1.2
billion of State full faith and credit obligations to be issued over 10 years
for the purpose), and authorizes additional highway bonds (expected to be
payable primarily from highway use receipts). The latter supersedes the prior
$500 million highway obligation authorization, and authorizes not more than $1.2
billion to be outstanding at any time and not more than $220 million to be
issued in a fiscal year.
Common resolutions are pending in both houses of the General Assembly
that would submit a constitutional amendment relating to certain other aspects
of State debt. The proposal would authorize, among other things, the issuance
of State general obligation debt for a variety of purposes without debt service
on all State general obligation debt and GRF-supported obligations not to exceed
5% of the preceding fiscal year's GRF expenditures.
The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building Authority,
and certain obligations issued by the State Treasurer, $4.5 billion of which was
outstanding or awaiting delivery at December 8, 1995.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing.
The General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of State
revenues or receipts (but not by a pledge of the State's full faith and credit).
A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has never
been implemented, apart from a "guarantee fund" approach funded essentially
from program revenues.)
The House has adopted a resolution that would submit to the electors a
constitutional amendment prohibiting the General
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Assembly from imposing a new tax or increasing an existing tax unless approved
by a three-fifths vote of each house or by a majority vote of the electors. It
cannot be predicted whether required Senate concurrence will be received.
State and local agencies issue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide
aggregate in the range of 44% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 120 districts
from voter-authorized income taxes, for significant portions of their budgets.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. The trial court concluded
that aspects of the system (including basic operating assistance) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State appealed and a court of appeals
reversed the trial court's findings for plaintiff districts. The plaintiff
coalition has filed an appeal of the court of appeals decision to the Ohio
Supreme Court. A small number of the State's 612 local school districts have in
any year required special assistance to avoid year-end deficits. A current
program provides for school district cash need borrowing directly from
commercial lenders, with diversion of State subsidy distributions to repayment
if needed. Recent borrowings under this program totalled $94.5 million for 27
districts (including $75 million for one)in FY 1993, $41.1 million for 28
districts in FY 1994, and $71.1 million for 29 districts in FY 1995.
Ohio's 943 incorporated cities and villages rely primarily on property
and municipal income taxes for their operations. With other subdivisions, they
also receive local government support and property tax relief moneys distributed
by the State. For those few municipalities that on occasion have faced
significant financial problems, there are statutory procedures for a joint
State/local commission to monitor the municipality's fiscal affairs and for
development of a financial plan to eliminate deficits and cure any defaults.
Since inception in 1979, these procedures have been applied to 23 cities and
villages; for 19 of them the fiscal situation was resolved and the procedures
terminated.
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At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions
and other local taxing districts. The Constitution has since 1934 limited to 1%
of true value in money the amount of the aggregate levy (including a levy for
unvoted general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN PENNSYLVANIA MUNICIPAL
OBLIGATIONS. The concentration of investments in Pennsylvania Municipal
Obligations by the Pennsylvania Municipal Money Market and Pennsylvania Tax-Free
Income Portfolios raises special investment considerations. In particular,
changes in the economic condition and governmental policies of the Commonwealth
of Pennsylvania and its municipalities could adversely affect the value of those
Portfolios and their portfolio securities. This section briefly describes
current economic trends in Pennsylvania.
Pennsylvania has historically been dependent on heavy industry
although recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic
growth in Pennsylvania are in the service sector, including trade, medical and
health services, education and financial institutions. Agriculture continues to
be an important component of the Commonwealth's economic structure, with nearly
one-third of the Commonwealth's total land area devoted to cropland, pasture and
farm woodlands.
The population of Pennsylvania experienced a slight increase in the
period 1980 through 1990 and has a high proportion of persons 65 or older. The
Commonwealth is highly urbanized, with almost 85% of the 1980 census population
residing in metropolitan statistical areas. The two largest metropolitan
statistical areas, those containing the Cities of Philadelphia and Pittsburgh,
together comprise approximately 50% of the Commonwealth's total population.
The Commonwealth utilizes the fund method of accounting and over 120
funds have been established for purposes of recording receipts and disbursements
of the Commonwealth, of which the General Fund is the largest. Most of the
Commonwealth's operating and administrative expenses are payable from the
General Fund. The major tax sources for the General Fund are the sales tax, the
personal income tax and the corporate net income tax. Major expenditures of the
Commonwealth include funding for
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education, public health and welfare, transportation, and economic development.
The constitution of the Commonwealth provides that operating budget
appropriations of the Commonwealth may not exceed the estimated revenues and
available surplus in the fiscal year for which funds are appropriated. Annual
budgets are enacted for the General Fund (the principal operating fund of the
Commonwealth) and for certain special revenue funds which together represent the
majority of expenditures of the Commonwealth. Although a negative balance was
experienced applying generally accepted accounting principles ("GAAP") in the
General Fund for fiscal 1990 and 1991, tax increases and spending decreases have
resulted in surpluses the last three years; and as of June 30, 1994, the General
Fund has had a surplus of $892.9 million. The deficit in the Commonwealth's
unreserved/undesignated funds also has been eliminated, and there was a surplus
of $79.2 million as of June 30, 1994.
Current constitutional provisions permit the Commonwealth to issue the
following types of debt: (i) electorate approved debt, (ii) debt for capital
projects subject to an aggregate debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years, (iii) tax anticipation notes
payable in the fiscal year of issuance and (iv) debt to suppress insurrection or
rehabilitate areas affected by disaster. Certain state-created agencies issue
debt supported by assets of, or revenues derived from, the various projects
financed and the debt of such agencies is not an obligation of the Commonwealth,
although some of the agencies are indirectly dependent on Commonwealth
appropriations.
Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations including suits relating to the following matters: (a) the ACLU
has filed suit in Federal court demanding additional funding for child welfare
services; the Commonwealth settled a similar suit in the Commonwealth Court of
Pennsylvania and is seeking the dismissal of the federal suit, inter alia,
----- ----
because of that settlement. After its earlier denial was reversed by the Third
Circuit Court of Appeals, the district court granted class certification to the
ACLU, and the parties are proceeding with discovery (no available estimates of
potential liability); (b) in 1987, the Supreme Court of Pennsylvania held the
statutory scheme for county funding of the judicial system to be in conflict
with the constitution of the Commonwealth, but stayed judgment pending enactment
by the legislature of funding consistent with the opinion, and the legislature
has yet to consider legislation implementing the judgment. In 1992, a new
action in mandamus was filed seeking to compel the Commonwealth to comply with
the original decision; (c) litigation has been filed in both state and Federal
court by an association of rural and small schools and several individual
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school districts and parents challenging the constitutionality of the
Commonwealth's system for funding local school districts --the Federal case has
been stayed pending resolution of the state case and the state case is in the
pre-trial stage (no available estimate of potential liability); and (d)
Envirotest/Synteria Partners ("Envirotest") has filed suit against the
Commonwealth asserting that it sustained damages in excess of $350 million as a
result of investments it made in reliance on a contract to conduct emissions
testing before the emissions testing program was suspended. Envirotest has
entered into a Standstill Agreement with the Commonwealth pursuant to which the
parties will attempt to resolve Envirotest's claims (no available estimate of
potential liability).
Local government units in the Commonwealth of Pennsylvania (which
include, among other things, counties, cities, boroughs, towns, townships,
school districts and other municipally created units such as industrial
development authorities and municipality authorities, including water and sewer
authorities) are permitted to issue debt for capital projects: (i) in any amount
so long as the debt has been approved by the voters of the local government
unit; or (ii) without electoral approval if the aggregate outstanding principal
amount of debt of the local government unit is not in excess of 100% of its
borrowing base (in the case of a school district of the first class), 300% of
its borrowing base (in the case of a county) or 250% of its borrowing base (in
the case of all other local government units); or (iii) without electoral
approval and without regard to the limit described in (ii) in any amount in the
case of certain subsidized debt and qualifying self-liquidating debt. Lease
rental debt may also be issued, in which case the total debt limits described in
section (ii) (taking into account all existing lease rental debt in addition to
all other debt) are increased. The borrowing base for a local government unit
is the average of total revenues for the three fiscal years preceding the
borrowing. The risk of investing in debt issued by any particular local
government unit depends, in the case of general obligation bonds secured by tax
revenues, on the credit-worthiness of that issuer or, in the case of revenue
bonds, on the revenue producing ability of the project being financed, and not
directly on the credit-worthiness of the Commonwealth of Pennsylvania as a
whole.
The City of Philadelphia (the "City") has been experiencing severe
financial difficulties which has impaired its access to public credit markets
and a long-term solution to the City's financial crisis is still being sought.
The City experienced a series of General Fund deficits for fiscal years 1988
through 1992. The City has no legal authority to issue deficit reduction bonds
on its own behalf, but state legislation has been enacted to create an
Intergovernmental Cooperation Authority (the "Authority") to provide fiscal
oversight for Pennsylvania cities (primarily Philadelphia) suffering recurring
financial
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difficulties. The Authority is broadly empowered to assist cities in avoiding
defaults and eliminating deficits by encouraging the adoption of sound budgetary
practices and issuing bonds. In order for the Authority to issue bonds on
behalf of the City, the City and the Authority entered into an intergovernmental
cooperative agreement providing the Authority with certain oversight powers with
respect to the fiscal affairs of the City. Philadelphia currently is operating
under a five year plan approved by the Authority on April 17, 1995 with
technical amendments officially incorporated on July 18, 1995. The audited
balance of the City's General Fund as of June 30, 1994 was $15.4 million and
preliminary unaudited financial statements as of June 30, 1995 project a surplus
of $59.6 million.
The Authority's power to issue further bonds to finance capital
projects or deficit expired on December 31, 1994. The Authority may continue to
issue debt to finance a cash flow deficit until December 31, 1996, and its
ability to refund outstanding bonds is unrestricted.
Most recently, Moody's has rated the long-term general obligation
bonds of the Commonwealth "A1," and Standard & Poor's has rated such bonds "AA-
." There can be no assurance that the economic conditions on which these
ratings are based will continue or that particular bonds issues may not be
adversely affected by changes in economic or political conditions.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA
MUNICIPAL OBLIGATIONS. The concentration of investments in North Carolina
Municipal Obligations by the North Carolina Municipal Money Market Portfolio
raises special investment considerations. In particular, changes in the
economic condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities, and authorities could adversely
affect the value of the Portfolio and its portfolio securities. This section
briefly describes current economic trends in North Carolina.
The State of North Carolina has two major operating funds: the
General Fund and the Highway Fund. In addition, the 1989 General Assembly
created the Highway Trust Fund to provide funding for a major highway
construction program. North Carolina derives most of its revenue from taxes,
including individual income tax, corporation income tax, sales and use taxes,
corporation franchise tax, alcoholic beverage tax, insurance tax, inheritance
tax, tobacco products tax, and soft drink tax. North Carolina receives other
non-tax revenues which are also deposited in the General Fund. The most
important are Federal funds collected by North Carolina agencies, university
fees and tuition, interest earned by the North Carolina Treasurer on investments
of General Fund moneys and revenues from the judicial
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branch. The proceeds from the motor fuel tax, highway use tax and motor vehicle
license tax are deposited in the Highway Fund and the Highway Trust Fund.
During the 1989-92 budget years, growth of North Carolina tax revenues
slowed considerably, requiring tax increases and budget adjustments, including
hiring freezes and restrictions, spending constraints, changes in timing and
certain collections and payments, and other short-term budget adjustments
necessary to comply with North Carolina's constitutional mandate for a balanced
budget. Many areas of North Carolina government were affected. Reductions in
capital spending, local government aid, and the use of the budget stabilization
reserve, combined with other budget adjustments, brought the budget into
balance. Tax increases in the fiscal 1992 budget included a $.01 increase in
the North Carolina sales tax and increases in the personal and corporate income
tax rates, as well as increases in the tax on cigarettes and alcohol, among
other items.
Fiscal year 1992 ended with a positive fund balance of approximately
$164.8 million. By law, $41.2 million of such positive fund balance was
required to be reserved in the General Fund of North Carolina as part of a
"Savings Reserve," leaving an unrestricted General Fund balance at June 30, 1992
of $123.6 million. Fiscal year 1993 ended with a positive General Fund balance
of approximately $537.3 million. Of this amount, $134.3 million was reserved in
the Savings Reserve and $57 million was reserved in a Reserve for Repair and
Renovation of State Facilities, leaving an unrestricted General Fund balance at
June 30, 1993 of $346 million. Fiscal year 1994 ended with a positive General
Fund balance of approximately $444.7 million. An additional $178 million was
available from a reserved fund balance. Of this aggregate amount, $155.7
million was reserved in the Savings Reserve (bringing the total reserve to
$210.6 million after prior withdrawals) and $60 million was reserved in the
Reserve for Repair and Renovation of State Facilities (bringing the total
reserve to $60 million after prior withdrawals), leaving an unrestricted General
Fund balance at June 30, 1994 of $407 million. Fiscal year 1995 ended with a
positive General Fund balance of approximately $343.4 million. An additional
$269.9 million was available from a reserved fund balance. Of this aggregate
amount, $146.3 million was reserved in the Savings Reserve (bringing the total
reserve to $423.6 million after prior contributions) and $146.3 million was
reserved in the Reserve for Repair and Renovation of State Facilities (bringing
the total reserve to $146.3 million after prior withdrawals), leaving an
unrestricted General Fund balance at June 30, 1995 of $320.7 million.
The foregoing results are presented on a budgetary basis. Accounting
principles applied to develop data on a budgetary basis differ significantly
from those principles used to present
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financial statements in conformity with generally accepted accounting principles
(GAAP). Based on a modified accrual basis (GAAP), the General Fund balance at
June 30, 1993 and 1994 was $681.5 million and $1,240.9 million, respectively.
The foregoing results for fiscal year 1995 are based upon unaudited financial
information supplied by the Office of State Budget and Management. Modified
accrual basis results were not available as of the date this summary was
prepared.
The 1995-97 biennium budget adopted by the General Assembly authorized
continuation funding from the General Fund of $9,512 million for fiscal 1996 and
$9,763 million for fiscal 1997. Expansion funds of $280 million for fiscal 1996
were approved, along with capital improvements of $114 million for such fiscal
year. For fiscal 1997, $267 million of expansion funds were approved, along
with $157 million of capital improvements. Tax reductions of approximately $363
million for fiscal 1996 and $400 million for fiscal 1997 were authorized,
principally through the repeal of North Carolina's intangible personal property
tax and reductions in North Carolina's unemployment and personal income taxes.
The General Assembly also took several measures that benefitted North Carolina's
Department of Corrections, including a reservation of $33 million to build new
prison beds. State workers generally received a 2% pay increase. The General
Assembly also passed a package of tort reform bills that included a cap on
punitive damage awards.
The North Carolina budget is based upon a number of existing and
assumed State and non-State factors, including State and national economic
conditions, international activity, Federal government policies and legislation
and the activities of the State's General Assembly. Such factors are subject to
change which may be material and affect the budget. The Congress of the United
States is considering a number of matters affecting the federal government's
relationship with State governments that, if enacted into law, could affect
fiscal and economic policies of the States, including North Carolina.
During recent years North Carolina has moved from an agricultural to a
service and goods producing economy. According to the North Carolina Employment
Security Commission (the "Commission"), in November 1994, North Carolina ranked
ninth among the states in non-agricultural employment and eighth in
manufacturing employment. The Commission estimated North Carolina's seasonally
adjusted unemployment rate in October 1995 to be 3.9% of the labor force, as
compared with an unemployment rate of 5.5% nationwide.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially
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adversely affect the State's ability to meet its financial obligations:
1. Swanson v. State of North Carolina -- State Tax Refunds - Federal
Retirees. In Davis v. Michigan (1989), the United States Supreme Court ruled
-----------------
that a Michigan income tax statute which taxed federal retirement benefits while
exempting those paid by state and local governments violated the constitutional
doctrine of intergovernmental tax immunity. At the time of the Davis decision,
-----
North Carolina law contained similar exemptions in favor of state and local
retirees. Those exemptions were repealed prospectively, beginning with the 1989
tax year. All public pension and retirement benefits are now entitled to a
$4,000 annual exclusion.
Following Davis, federal retirees filed a class action suit in federal
-----
court in 1989 seeking damages equal to the North Carolina income tax paid on
federal retirement income by the class members. A companion suit was filed in
state court in 1990. The complaints alleged that the amount in controversy
exceeded $140 million. The North Carolina Department of Revenue estimate of
refunds and interest liability is $280.89 million as of June 30, 1994. In 1991,
the North Carolina Supreme Court ruled in favor of the State in the state court
action, concluding that Davis could only be applied prospectively and that the
-----
taxes collected from the federal retirees were thus not improperly collected.
In 1993, the United States Supreme Court vacated that decision and remanded the
case back to the North Carolina Supreme Court. The North Carolina Supreme Court
then ruled in favor of the State on the grounds that the federal retirees had
failed to comply with state procedures for challenging unconstitutional taxes.
Plaintiffs petitioned the United States Supreme Court for review of that
decision, and the United States Supreme Court denied that petition. The United
States District Court ruled in favor of the defendants in the companion federal
case, and a petition for reconsideration was denied. Plaintiffs appealed to the
United States Court of Appeals, which concurred with the lower court's ruling.
The United States Supreme Court rejected an appeal, ruling that the lawsuit was
a state matter, leaving the North Carolina Supreme Court's ruling in force.
An additional lawsuit was recently filed in State Court by federal
pensioners to recover State income taxes paid on federal retirement benefits.
This case grew out of a claim by federal pensioners in the original federal
court case in Swanson. In the new lawsuit, the plaintiffs allege that when the
-------
State granted an increase in retirement benefits to State retirees in the same
legislation that equalized tax treatment between state and federal retirees, the
increased benefits to State retirees constituted an indirect violation of Davis.
-----
The lawsuit seeks a refund of taxes paid by federal retirees on federal
retirement benefits received in the years 1989 through 1993 and refunds or
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monetary relief sufficient to equalize the alleged on-going discriminatory
treatment for those years. An extension of time to answer the complaint has
been filed by the North Carolina Attorney General, which believes that sound
legal authority and arguments support the denial of this claim.
2. Bailey v. State of North Carolina -- State Tax Refunds - State
Retirees. State and local governmental retirees filed a class action suit in
1990 as a result of the repeal of the income tax exemptions for state and local
government retirement benefits. The original suit was dismissed after the North
Carolina Supreme Court ruled in 1991 that the plaintiffs had failed to comply
with state law requirements for challenging unconstitutional taxes and the
United States Supreme Court denied review. In 1992, many of the same plaintiffs
filed a new lawsuit alleging essentially the same claims, including breach of
contract, unconstitutional impairment of contract rights by the State in taxing
benefits that were allegedly promised to be tax-exempt and violation of several
state constitutional provisions. On May 31, 1995 the Superior Court issued an
order ruling in favor of the plaintiffs. Under the terms of the order, the
Superior Court found that the act of the General Assembly that repealed the tax
exemption on State and local government retirement benefits is null, void, and
unenforceable and that retirement benefits which were vested before August 1989
are exempt from taxation. The North Carolina Attorney General intends to pursue
an appeal from this order.
The North Carolina Attorney General's office estimates that the amount
in controversy is approximately $40-$45 million annually for the tax years 1989
through 1991. In addition, it is anticipated that the decision reached in this
case will govern the resolution of tax refund claims made by retired state and
local government employees for taxes paid on retirement benefit income for tax
years after 1991. Furthermore, if the order of the Superior Court is upheld,
its provisions would apply prospectively to prevent future taxation of State and
local government retirement benefits that were vested before August 1989.
3. Fulton Corp. v. Justus. The State's intangible personal property
tax levied on certain shares of stock has been challenged by the plaintiff on
grounds that it violates the United States Constitution Commerce Clause by
discriminating against stock issued by corporations that do all or part of their
business outside the State. The plaintiff in the action is a North Carolina
corporation that does all or part of its business outside the State. The
plaintiff seeks to invalidate the tax in its entirety and to recover tax paid on
the value of its shares in other corporations. The North Carolina Court of
Appeals invalidated the taxable percentage deduction and excised it from the
statute beginning with the 1994 tax year. The effect of this
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ruling is to increase collections by rendering all stock taxable on 100% of its
value. The State and the plaintiff sought further appellate review. On
December 9, 1994, the North Carolina Supreme Court ruled in favor of the State,
reversing the decision of the Court of Appeals and upholding the tax on
intangible personal property. The plaintiff's petition for review by the United
States Supreme Court was granted. A decision is expected by mid-1996. Net
collections from the tax for the fiscal year ended June 30, 1994 amounted to
$127.6 million. The North Carolina Attorney General's Office believes that
sound legal arguments support the State's position. In April 1995, the North
Carolina General Assembly repealed the State's intangible personal property tax,
effective for taxable years beginning on or after January 1, 1995.
In October 1993, the State issued a total of $194.7 million general
obligation bonds (consisting of $87.5 million Prison and Youth Services
Facilities Bonds, $61 million Public Improvement Refunding Bonds, $30.2 million
Highway Refunding Bonds, and $16 million Clean Water Refunding Bonds). An
additional $67.5 million general obligation bonds (Prison and Youth Services
Facilities Bonds) were issued in November, 1993. On November 2, 1993, a total
of $740 million general obligation bonds (consisting of $310 million University
Improvement Bonds, $250 million Community College Bonds, $145 million Clean
Water Bonds, and $35 million State Parks Bonds) were approved by the voters of
the State. Pursuant to this authorization, the State issued $400 million
general obligation bonds (Capital Improvement Bonds) in January, 1994. The
proceeds of these Capital Improvement Bonds may be used for any purpose for
which the proceeds of the University Improvement Bonds, Community College Bonds,
and State Parks Bonds may be used (none of such proceeds may be used for Clean
Water purposes). An additional $60 million general obligation bonds (Clean
Water Bonds) were issued in September and October, 1994. The remaining $85
million general obligation bonds (Clean Water Bonds) were issued in June and
July, 1995. The offering of the remaining $195 million of these authorized
bonds is anticipated to occur over the next two years.
Currently, Moody's, S&P and Fitch rate North Carolina general
obligation bonds "Aaa," "AAA," and "AAA," respectively. See Appendix A.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN VIRGINIA MUNICIPAL
OBLIGATIONS. The Virginia Municipal Money Market Portfolio will invest
primarily in Virginia Municipal Obligations. For this reason, the Portfolio is
affected by political, economic, regulatory or other developments that constrain
the taxing, revenue-collecting and spending authority of Virginia issuers or
otherwise affect the ability of Virginia issuers to pay interest, principal or
any premium. The following information constitutes only a brief summary of
certain of these
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developments and does not purport to be a complete description of them.
The rate of economic growth in the Commonwealth of Virginia has
increased steadily over the past decade. Per capita income in Virginia has been
consistently above national levels over the past decade. The services sector in
the Commonwealth generates the largest number of jobs, followed by wholesale and
retail trade, government employment and manufacturing. With Northern Virginia,
a part of the Washington, D.C., MSA and Hampton Roads the home of the nation's
largest concentration of military installations, the Federal government has a
greater economic impact on Virginia relative to its size than all states except
Alaska and Hawaii. It is unclear what effect the current efforts by the Federal
government to restructure the defense budget will have on the long-term economic
conditions of Virginia.
According to statistics published by the U.S. Department of Labor,
Virginia typically has one of the lowest unemployment rates in the nation. This
is generally attributed to the balance among the various sectors represented in
the economy. Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few strikes
or work stoppages. Virginia is also one of the least unionized among the
industrialized states.
Budget and Deficit Matters
Virginia's state government operates on a two-year budget. The
Constitution vests the ultimate responsibility and authority for levying taxes
and appropriating revenue in the General Assembly, but the Governor has broad
authority to manage the budgetary process. Once an appropriation act becomes
law, revenue collections and expenditures are constantly monitored by the
Governor, assisted by the Secretary of Finance and the Department of Planning
and Budget, to ensure that a balanced budget is maintained. If projected
revenue collections fall below amounts appropriated at any time, the Governor
must reduce expenditures and withhold allotments of appropriations (other than
for debt service and other specified purposes) to restore balance. An amendment
to the Constitution, effective January 1, 1993, established a Revenue
Stabilization Fund. This fund is used to offset a portion of anticipated
shortfalls in revenues in years when appropriations based on initial forecasts
exceed expected revenues in any subsequent forecast. The Revenue Stabilization
Fund consists of an amount not to exceed 10 percent of the Commonwealth's
average annual tax revenues derived from taxes on income and retail sales.
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General fund revenues are principally composed of direct taxes. In
recent fiscal years, most of the total tax revenues have been derived from five
major taxes imposed by the Commonwealth on individual and fiduciary income,
sales and use, corporate income, public services corporations and premiums of
insurance companies.
In September 1991, the Debt Capacity Advisory Committee was created by
the Governor through an executive order. The committee is charged with annually
estimating the amount of tax-supported debt that may prudently be authorized
consistent with the financial goals, capital needs and policies of the
Commonwealth. The committee reviews the outstanding debt of all agencies,
institutions, boards and authorities of the Commonwealth for which the
Commonwealth has either a direct or indirect pledge of tax revenues or moral
obligation.
The Constitution of Virginia prohibits the creation of debt by or on
behalf of the Commonwealth that is backed by the Commonwealth's full faith and
credit, except as provided in Section 9 of Article X. Section 9 of Article X
contains several different provisions for the issuance of general obligation and
other debt, and the Commonwealth is well within its limit for each:
Section 9(a)(2) provides that the General Assembly may incur general
obligation debt to meet certain types of emergencies, subject to limitations on
amount and duration; to meet casual deficits in the revenue or in anticipation
of the collection of revenues of the Commonwealth; and to redeem a previous debt
obligation of the Commonwealth. Total indebtedness issued pursuant to this
Section may not exceed 30 percent of an amount equal to 1.15 times the annual
tax revenues derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts for the preceding fiscal year.
Section 9(b) provides that the General Assembly may authorize the
creation of general obligation debt for capital projects. Such debt is required
to be authorized by an affirmative vote of a majority of each house of the
General Assembly and approved in a statewide election. The outstanding amount
of such debt is limited to an amount equal to 1.15 times the average annual tax
revenues derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts for the three preceding fiscal years less the total
amount of bonds outstanding. The amount of 9(b) debt that may be authorized in
any single fiscal year is limited to 25 percent of the limit on all 9(b) debt
less the amount of 9(b) debt authorized in the current and prior three fiscal
years.
Section 9(c) provides that the General Assembly may authorize the
creation of general obligation debt for revenue-
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producing capital projects (so-called "double-barrel" debt). Such debt is
required to be authorized by an affirmative vote of two-thirds of each house of
the General Assembly and approved by the Governor. The Governor must certify
before the enactment of the authorizing legislation and again before the
issuance of the debt that the net revenues pledged are expected to be sufficient
to pay principal of and interest on the debt. The outstanding amount of 9(c)
debt is limited to an amount equal to 1.15 times the average annual tax revenues
derived from taxes on income and retail sales, as certified by the Auditor of
Public Accounts for the three preceding fiscal years. While the debt limits
under Sections 9(b) and 9(c) are each calculated as the same percentage of the
same average tax revenues, these debt limits are separately computed and apply
separately to each type of debt.
Article X further provides in Section 9(d) that the restrictions of
Section 9 are not applicable to any obligation incurred by the Commonwealth or
any of its institutions, agencies or authorities if the full faith and credit of
the Commonwealth is not pledged or committed to the payment of such obligation.
There are currently outstanding various types of such 9(d) revenue bonds.
Certain of these bonds, however, are paid in part or in whole from revenues
received as appropriations by the General Assembly from general tax revenues,
while others are paid solely from revenues of the applicable project.
The debt repayments of the Virginia Public Building Authority, the
Virginia Port Authority, the Virginia College Building Authority Equipment
Leasing Program and The Innovative Technology Authority are supported in large
part by General Fund appropriations.
The Commonwealth Transportation Board ("CTB") is a substantial issue
of bonds for highway projects. These bonds were refunded in part in 1993 by the
issuance of CTB's $91,455,000 Transportation Revenue Refunding Bonds, Series
1993A (U.S. Route 58 Corridor Development Program). Additional costs of that
program were financed through the issuance of CTB's $98,715,000 Transportation
Revenue Bonds, Series 1993B (U.S. Route 58 Corridor Development Program). In
August 1993, CTB also issued its $134,060,000 Transportation Revenue Bonds,
Series 1993C (Northern Virginia Transportation District Program). These bonds
are secured by and payable from funds appropriated by the General Assembly from
the Transportation Trust Fund for such purpose. The Transportation Trust Fund
was established by the General Assembly in 1986 as a special non-reverting fund
administered and allocated by the Transportation Board to provide increased
funding for construction, capital and other needs of state highways, airports,
mass transportation and ports. The Virginia Port Authority has also issued
bonds which are secured by a portion of the Transportation Trust Fund. Virginia
is involved in numerous leases that are subject to appropriation of
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funding by the General Assembly. The Commonwealth also finances the acquisition
of certain personal property and equipment through installment purchase
agreements.
Bonds issued by the Virginia Housing Development Authority, the
Virginia Resources Authority and the Virginia Public School Authority are
designed to be self-supporting from their individual loan programs. A portion
of the Virginia Housing Development Authority and Virginia Public School
Authority bonds and all of the Virginia Resources Authority bonds are secured in
part by a moral obligation pledge of the Commonwealth. Should the need arise,
the Commonwealth may consider funding deficiencies in the respective debt
service reserves for such moral obligation debt. To date, none of these
authorities has advised the Commonwealth that any such deficiencies exist.
Local government in the Commonwealth is comprised of 95 counties, 41
incorporated cities, and 188 incorporated towns. The Commonwealth is unique
among the several states in that cities and counties are independent, and their
land areas do not overlap. The largest expenditure by local governments in the
Commonwealth are for education, but local governments also provide other
services such as water and sewer, police and fire protection and recreational
facilities. The Virginia Constitution impress numerous restrictions on local
indebtedness affecting both its incurrence and amount.
In Davis v. Michigan (decided March 28, 1989), the United States
Supreme Court ruled unconstitutional states' exempting from state income tax the
retirement benefits paid by the state or local governments without exempting
retirement benefits paid by the federal government. At that time, Virginia
exempted state and local retirement benefits but not federal retirement
benefits. At a Special Session held in April 1989, the General Assembly
repealed the exemption of state and local retirement benefits. Following Davis,
at least five suits, some with multiple plaintiffs, for refunds of Virginia
income taxes, were filed by federal retirees. These suits were consolidated
under the name of Harper v. Virginia Department of Taxation.
In a Special Session, the Virginia General Assembly on July 9, 1994
passed emergency legislation to provide payments to federal retirees in a
settlement of the retirees' claims as a result of Davis. The settlement
payments are to be made over a five-year period, commencing March 31, 1995. The
total amount of authorized appropriates for the settlement is $340 million
(payable to participating retirees in installments of $60 million on March 31,
1995, and $70 million on each succeeding March 31 through March 31, 1999,
subject to appropriation by the General Assembly).
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Most recently, Moody's has rated the long-term general obligation
bonds of the Commonwealth Aaa, and Standard & Poor's has rated such bonds AAA.
There can be no assurance that the economic conditions on which these ratings
are based will continue or that particular bond issues may not be adversely
affected by changes in economic or political conditions.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NEW JERSEY MUNICIPAL
OBLIGATIONS. The State of New Jersey and its political subdivisions, agencies
and public authorities are authorized to issue two general classes of
indebtedness: general obligation bonds and revenue bonds. Both classes of bonds
may be included in the New Jersey Municipal Money Market and New Jersey Tax-Free
Income Portfolios. The repayment of principal and interest on general
obligation bonds is secured by the full faith and credit of the issuer, backed
by the issuer's taxing authority, without recourse to any special project or
source of revenue. Special obligation or revenue bonds may be repaid only from
revenues received in connection with the project for which the bonds are issued,
special excise taxes, or other special revenue sources and generally are issued
by entities without taxing power. Neither the State of New Jersey nor any of
its subdivisions is liable for the repayment of principal or interest on revenue
bonds except to the extent stated in the preceding sentences.
General obligation bonds of the State are repaid from revenues
obtained through the State's general taxing authority. An inability to increase
taxes may adversely affect the State's ability to authorize or repay debt.
Public authorities, private non-profit corporations, agencies and
similar entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities
are not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The State oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity bonds
in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing
Authority's ability to repay debt on special obligation bonds and no assurance
can be given that sufficient revenues will be obtained to make such payments,
although in some instances repayment may be guaranteed or otherwise secured.
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Various Authorities have issued bonds for the construction of health
care facilities, transportation facilities, office buildings and related
facilities, housing facilities, pollution control facilities, water and sewage
facilities and power and electric facilities. Each of these facilities may
incur different difficulties in meeting its debt repayment obligations.
Hospital facilities, for example, are subject to changes in Medicare and
Medicaid reimbursement regulations, attempts by Federal and state legislatures
to limit the costs of health care and management's ability to complete
construction projects on a timely basis as well as to maintain projected rates
of occupancy and utilization. At any given time, there are several proposals
pending on a Federal and state level concerning health care which may further
affect a hospital's debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of Federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private
activity bonds issued by the New Jersey Economic Development Authority, a major
issuer of special obligation bonds, have defaulted on their debt service
obligations. Because these special obligation bonds were repayable only from
revenue received from the specific projects which they funded, the New Jersey
Economic Development Authority was unable to repay the debt service to
bondholders for such facilities. Each issue of special obligation bonds,
however, depends on its own revenue for repayment, and thus these defaults
should not affect the ability of the New Jersey Economic Development Authority
to repay obligations on other bonds that it issues in the future.
The State has, in the past, experienced a period of substantial
economic growth with unemployment levels below the national average. Recently,
however, the state has experienced an economic slowdown, and its unemployment
rate has risen to the extent the State has lost its relative advantage over the
nation. To the extent that any adverse conditions exist in the future which
affect the obligor's ability to repay debt, the value of the Portfolio may be
immediately and substantially affected.
The following are cases presently pending or threatened in which the
State has a potential for either a significant loss of revenue or a significant
unanticipated expenditure: (i) several labor unions have challenged 1992
legislation mandating a revaluation of several public employee pension funds
which
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resulted in a refund of $773 million in public employer contributions to the
State and significant ongoing annual savings to the State; (ii) several cases
filed in the State courts challenged the basis on which recoveries of certain
costs for residents in State psychiatric hospitals and other facilities are
shared between the State Department of Human Services and the State's county
governments, and certain counties are seeking the recovery from the Department
of costs they have incurred for the maintenance of such residents; (iii) a
lawsuit filed in the United States District Court in 1990 alleges that the State
Department of Human Services has established unreasonably low Medicaid payment
rates for long-term care facilities; (iv) various hospitals have challenged the
Commissioner's calculation of the hospital assessment required by the Health
Care Cost Reduction Act of 1991; (v) the 1990 Fair Automobile Insurance Reform
Act has been challenged in several State court suits; (vi) the County of Passaic
and other parties have filed suit alleging the State violated a 1984 consent
order concerning the construction of a resource recovery facility in that
county; (vii) several Medicaid eligible children and the Association for
Children of New Jersey have filed suit claiming the Medicaid reimbursement rates
for services rendered to such children are inadequate under federal law; (viii)
a coalition of churches and church leaders in Hudson County have filed suit
asserting the State-owned Liberty State Park in Jersey City violates
environmental standards; (ix) Waste Management of Pennsylvania, Inc. and an
affiliate have filed suit alleging their constitutional rights were violated by
the State's issuance of two emergency reduction orders and a draft permit; and
(x) representatives of the trucking industry have filed a constitutional
challenge to annual hazardous and solid waste licensure renewal fees.
Although the Portfolio generally intends to invest its assets
primarily in New Jersey Municipal Obligations rated within the two highest
rating categories of an NRSRO, there can be no assurance that such ratings will
remain in effect until such obligations mature or are redeemed or will not be
revised downward or withdrawn. Such revisions or withdrawals may have an
adverse affect on the market price of such securities.
Although there can be no assurance that such conditions will continue,
the State's general obligation bonds are currently rated "AA+" by S&P and "AA1"
by Moody's.
ADDITIONAL INVESTMENT LIMITATIONS.
Each Portfolio is subject to the investment limitations enumerated in
this subsection which may be changed with respect to a particular Portfolio only
by a vote of the holders of a majority of such Portfolio's outstanding shares
(as defined below
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under "Miscellaneous"). The Index Master Portfolio's fundamental investment
limitations are described separately.
MONEY MARKET PORTFOLIOS:
1) Each of the Money Market, Municipal Money Market and U.S. Treasury
Money Market Portfolios may not purchase securities of any one issuer (other
than securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or certificates of deposit for any such securities) if more
than 5% of the value of the Portfolio's total assets (taken at current value)
would be invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio or the
Fund, except that up to 25% of the value of the Portfolio's total assets (taken
at current value) may be invested without regard to these limitations. For
purposes of this limitation, a security is considered to be issued by the entity
(or entities) whose assets and revenues back the security. A guarantee of a
security is not deemed to be a security issued by the guarantor when the value
of all securities issued and guaranteed by the guarantor, and owned by the
Portfolio, does not exceed 10% of the value of the Portfolio's total assets.
2) No Portfolio may borrow money or issue senior securities, except
that each Portfolio may borrow from banks and (other than a Municipal Money
Market Portfolio) enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of one-
third of the value of the Portfolio's total assets at the time of such
borrowing. No Portfolio will purchase securities while its aggregate borrowings
(include reverse repurchase agreements and borrowing from banks) in excess of 5%
of its total assets are outstanding. Securities held in escrow or separate
accounts in connection with a Portfolio's investment practices are not deemed to
be pledged for purposes of this limitation.
3) Each of the Municipal Money Market, U.S. Treasury Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal
Money Market Portfolios may not purchase securities which would cause 25% or
more of the value of its total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry. The Money Market Portfolio, on the other hand,
may not purchase any securities which would cause, at the time of purchase, less
than 25% of the value of its total assets to be invested in the obligations of
issuers in the banking industry, or in
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obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry. In applying the investment
limitations stated in this paragraph, (i) there is no limitation with respect to
the purchase of (a) instruments issued (as defined in investment limitation
number 1 above) or guaranteed by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, (b)
instruments issued by domestic banks (which may include U.S. branches of foreign
banks) and (c) repurchase agreements secured by the instruments described in
clauses (a) and (b); (ii) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily related
to financing the activities of the parents; and (iii) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will be each considered a separate industry.
4) Each of the Ohio Municipal Money Market, Pennsylvania Municipal
Money Market, North Carolina Municipal Money Market, Virginia Municipal Money
Market and New Jersey Municipal Money Market Portfolios will invest at least 80%
of its net assets in AMT Paper and instruments the interest on which is exempt
from regular Federal income tax, except during defensive periods or during
periods of unusual market conditions.
5) The Municipal Money Market Portfolio will invest at least 80% of
its net assets in instruments the interest on which is exempt from regular
Federal income tax and is not an item of tax preference for purposes of Federal
alternative minimum tax, except during defensive periods or during periods of
unusual market conditions.
EQUITY AND BOND PORTFOLIOS:
Each of Equity and Bond Portfolios (other than the Ohio Tax-Free
Income, Pennsylvania Tax-Free Income and New Jersey Tax-Free Income Portfolios)
may not:
1) Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or certificates of deposit for any such securities) if more than 5% of the value
of the Portfolio's total assets would (taken at current value) be invested in
the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Portfolio or the Fund, except that up to
25% of the value of the Portfolio's total assets may (taken at current value) be
invested without regard to these limitations. For purposes of this limitation,
a
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security is considered to be issued by the entity (or entities) whose assets and
revenues back the security. A guarantee of a security shall not be deemed to be
a security issued by the guarantors when the value of all securities issued and
guaranteed by the guarantor, and owned by the Portfolio, does not exceed 10% of
the value of the Portfolio's total assets.
Each of the Equity and Bond Portfolios may not:
2) Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
(i) instruments issued (as defined in Investment Limitation No. 1 above) or
guaranteed by the United States, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase agreements
secured by the instruments described in clause (i); (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry.
Each Equity and Bond Portfolio (other than the Managed Income,
Intermediate Government, Short Government Bond, Intermediate Bond, Government
Income and Core Bond Portfolios) may not:
3) Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in excess
of one-third of the value of the Portfolio's total assets at the time of such
borrowing. No Portfolio will purchase securities while its aggregate borrowings
(including reverse repurchase agreements and borrowings from banks) in excess of
5% of its total assets are outstanding. Securities held in escrow or separate
accounts in connection with a Portfolio's investment practices are not deemed to
be pledged for purposes of this limitation.
The Managed Income, Intermediate Government, Short Government Bond,
Intermediate Bond, Government Income, International Bond, Core Bond and Balanced
Portfolios may not:
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4) Borrower money or issue senior securities, except that each
Portfolio may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its total assets
at the time of such borrowing; or mortgage, pledge, or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in excess
of one-third of the value of the Portfolio's total assets at the time of such
borrowing. No Portfolio will purchase securities while its aggregate borrowings
(including reverse repurchase agreements and borrowings from banks) in excess of
5% of its total assets are outstanding. Securities held in escrow or separate
accounts in connection with a Portfolio's investment practices are not deemed to
be pledged for purposes of this limitation.
MONEY MARKET, EQUITY AND BOND PORTFOLIOS:
No Portfolio may:
1. Purchase or sell real estate, except that each Portfolio may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof, or the disposition of securities, in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except for transactions in options on securities,
securities indices, futures contracts and options on futures contracts and, in
the case of the International Bond Portfolio, currencies.
5. Purchase securities of companies for the purpose of exercising
control.
6. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Portfolio's transactions in futures contracts and related options or
a Portfolio's sale of securities short against the box, and (b) a Portfolio may
obtain short-term credit as may be necessary for the clearance or purchases and
sales of portfolio securities.
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7. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that each Portfolio may, to
the extent appropriate to its investment policies, purchase securities (publicly
traded securities in the case of each Money Market Portfolio) of companies
engaging in whole or in part in such activities and may enter into futures
contracts and related options.
8. Make loans, except that each Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities.
9. Notwithstanding the investment limitations of the Index Equity
Portfolio, the Index Equity Portfolio may invest all of its assets in shares of
an open-end management investment company with substantially the same investment
objective, policies and limitations as the Portfolio.
Although the foregoing investment limitations would permit the Money
Market Portfolios to invest in options, futures contracts and options on futures
contracts, and to sell securities short against the box, those Portfolios do not
currently intend to trade in such instruments or engage in such transactions
during the next twelve months. Prior to making any such investments, a Money
Market Portfolio would notify its shareholders and add appropriate descriptions
concerning the instruments and transactions to its Prospectus.
INDEX MASTER PORTFOLIO:
The investment limitations of the Index Master Portfolio, the
Portfolio in which the Index Equity Portfolio expects to invest all of its
investable assets, are separate from those of the Index Equity Portfolio. The
Index Master Portfolio may not:
1. Invest in commodities or real estate, including limited
partnership interests therein, although it may purchase and sell securities of
companies which deal in real estate and securities which are secured by
interests in real estate, and may purchase or sell financial futures contracts
and options thereon;
2. Make loans of cash, except through the acquisition of repurchase
agreements and obligations customarily purchased by institutional investors;
3. As to 75% of the total assets of the Index Master Portfolio,
invest in the securities of any issuer (except obligations of the U.S.
Government and its instrumentalities) if, as a result, more than 5% of the Index
Master Portfolio's total assets, at market, would be invested in the securities
of such issuer;
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4. Purchase or retain securities of an issuer if those officers and
trustees of the Trust or officers and directors of the Trust's investment
adviser owning more than 1/2 of 1% of such securities together own more than 5%
of such securities;
5. Borrow, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 5% of
the Index Master Portfolio's gross assets valued at the lower of market or cost;
provided that it may borrow amounts not exceeding 33% of its net assets from
banks and pledge not more than 33% of such assets to secure such loans;
6. Pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except as described
in (5) above;
7. Invest more than 10% of the value of its total assets in illiquid
securities which include certain restricted securities, repurchase agreements
with maturities of greater than seven days, and other illiquid investments;
8. Engage in the business of underwriting securities issued by
others;
9. Invest for the purpose of exercising control over management of
any company;
10. Invest its assets in securities of any investment company, except
in connection with a merger, acquisition of assets, consolidation or
reorganization;
11. Invest more than 5% of its total assets in securities of
companies which have (with predecessors) a record of less than three years'
continuous operation;
12. Acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of its total assets would
be invested in securities of companies within such industry;
13. Write or acquire options (except as described in (1) above) or
interests in oil, gas or other mineral exploration, leases or development
programs;
14. Purchase warrants; however, it may acquire warrants as a result of
corporate actions involving its holdings of other equity securities;
15. Purchase securities on margin or sell short; or
16. Acquire more than 10% of the voting securities of any issuer.
-47-
<PAGE>
Although (2) above prohibits cash loans, the Index Master Portfolio is
authorized to lend portfolio securities. With respect to (7) above, pursuant to
Rule 144A under the 1993 Act, the Index Master Portfolio may purchase certain
unregistered (i.e. restricted) securities upon a determination that a liquid
institutional market exists for the securities. If it is decided that a liquid
market does exist, the securities will not be subject to the 10% limitation on
holdings of illiquid securities stated in (7) above. While maintaining
oversight, the Board of Trustees of the Trust has delegated the day-to-day
function of making liquidity determinations to DFA, the Index Master Portfolio's
adviser. For Rule 144A securities to be considered liquid, there must be at
least two dealers making a market in such securities. After purchase, the Board
of Trustees of the Trust and DFA will continue to monitor the liquidity of Rule
144A securities.
For purposes of (12) above, utility companies will be divided
according to their services; e.g., gas, gas transmission, electric and gas,
electric, water and telephone will each be considered a separate industry.
Because the structure of the Index Master Portfolio is based on the
relative market capitalizations of eligible holdings, it is possible that the
Index Master Portfolio might include at least 5% of the outstanding voting
securities of one or more issuers. In such circumstances, the Trust and the
issuer would be deemed "affiliated persons" under the Investment Company Act of
1940, and certain requirements of the Act regulating dealings between affiliates
might become applicable.
TRUSTEES AND OFFICERS
THE FUND
The trustees and executive officers of the Fund, and their business
addresses and principal occupations during the past five years, are:
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND DURING PAST FIVE YEARS
- --------------------------- ------------------ ------------------------
William O. Albertini Trustee Executive Vice President
Bell Atlantic Corporation and Chief Financial
1717 Arch Street Officer since February
47th Floor West 1995, Vice President and
Philadelphia, PA 19103 Chief Financial Officer
Age: 52 from January 1991 -February
1995, Bell Atlantic Corporation
(a diversified telecommuni-
-48-
<PAGE>
cations company); Chairman,
President and Chief Executive
Officer from August 1989 -
January 1991, Bell Atlantic
Enterprises International,
Inc.; Director, Groupo
Iusacell, S.A. de C.V. since
June 1994; Director, American
Waterworks, Inc. since May
1990; Trustee, The Carl E. &
Emily I. Weller Foundation
since October 1991.
Raymond J. Clark Trustee Treasurer of Princeton
Office of the Treasurer University since 1987;
Princeton University Trustee, The Compass
3 New South Building Capital Group of Funds
P.O. Box 35 since 1987; Trustee,
Princeton, New Jersey 08540 United-Way Princeton Area
Age: 60 Communities from 1992-94;
Trustee, Chemical Bank, New
Jersey Advisory Board from 1994
until 1995; Trustee, American
Red Cross - Mercer County
Chapter since 1995; and
Trustee, United Way-Greater
Mercer County since 1995.
Robert M. Hernandez Trustee Director since 1991; Vice
USX Corporation Chairman and Chief
600 Grant Street Financial Officer since
6105 USX Tower since 1994, Executive
Pittsburgh, PA 15219 Vice President -
Age: 51 Chief Financial Officer from
1991 to 1994, Senior Vice
President - Finance and
Treasurer from 1990 to 1991,
USX Corporation (a diversified
company principally engaged in
energy and steel business);
Director, ACE Limited; Trustee,
Allegheny General Hospital and
Allegheny Accounting & Finance
and
-49-
<PAGE>
Health, Education and Research
Foundation; Director, Marinette
Marine Corporation; Director;
Pittsburgh Baseball, Inc.; and
Director and Chairman of the
Board, RMI Titanium Company.
Anthony M. Santomero Trustee Deputy Dean from
310 Keithwood Road 1990 to 1994, Richard
Wynnewood, PA 19096 K. Mellon Professor
Age: 48 of Finance since April 1984,
Director, Wharton Financial
Institutions Center, since July
1995, and Dean's Advisory
Council Member since July 1984,
The Wharton School, University
of Pennsylvania; Associate
Editor, Journal of Banking and
Finance since June 1978;
Associate Editor, Journal of
Economics and Business since
October 1979; Associate Editor,
Journal of Money, Credit and
Banking since January 1980;
Research Associate, New York
University Center for Japan-
U.S. Business and Economic
Studies since July 1989;
Editorial Advisory Board, Open
Economics Review since November
1990; Director, The Zweig Fund
and The Zweig Total Return
Fund; Director or Trustee of
Temporary Investment Fund,
Inc., Trust for Federal
Securities, Municipal Fund for
Temporary Investment, Municipal
Fund for California Investors,
Inc., Municipal Fund for New
York Investors, Inc., and
-50-
<PAGE>
Provident Institutional Fund.
David R. Wilmerding, Jr. Vice-Chairman President, Gates,
One Aldwyn Center of the Board Wilmerding, Carper &
Villanova, PA 19085 Rawlings, Inc.
Age: 60 (investment advisers) since
February 1989; Director, Beaver
Management Corporation;
Director, Independence Square
Income Securities, Inc.; Until
September 1988, President,
Treasurer and Trustee, The
Mutual Assurance Company; Until
September 1988, Chairman,
President Treasurer and
Director, The Green Tree
Insurance Company (a wholly-
owned subsidiary of The Mutual
Assurance Company); Until
September 1988, Director,
Keystone State Life Insurance
Company; Director, Trustee or
Managing General Partner of a
number of investment companies
advised by PIMC.
Edward J. Roach Treasurer Certified Public
400 Bellevue Parkway and Vice- Accountant; Partner of
Suite 100 President the accounting firm of
Wilmington, DE 19809 Main Hurdman until 1981;
Age: 71 Vice Chairman of the Board, Fox
Chase Cancer Center; Trustee
Emeritus, Pennsylvania School
for the Deaf; President, Vice
President and/or Treasurer of a
number of investment companies
advised by PIMC; Director, The
Bradford Funds, Inc. since 1995.
-51-
<PAGE>
Morgan R. Jones Secretary Partner in the law
Philadelphia National firm of Drinker Biddle &
Bank Building Reath, Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107-3496
Age: 55
The Fund pays trustees who are not affiliated with PNC Asset Management
Group, Inc. ("PAMG") or Compass Distributors, Inc. ("CDI" or "Distributor")
$5,500 annually and $500 per meeting of the Board or any committee thereof that
is not held in conjunction with a Board meeting (subject to a cap of $6,000 per
year for such meeting fees), and pays the Chairman an additional $5,000
annually. Trustees who are not affiliated with PAMG or the Distributor are
reimbursed for any expenses incurred in attending meetings of the Board of
Trustees or any committee thereof. No officer, director or employee of PAMG,
PNC Institutional Management Group, Inc. ("PIMC"), Provident Capital Management,
Inc. ("PCM"), BlackRock Financial Management, Inc. ("BlackRock"), PNC Equity
Advisors Company ("PEAC"), Morgan Grenfell Investment Services, Ltd. ("Morgan
Grenfell"), PFPC Inc. ("PFPC"), Compass Capital Group, Inc. ("CCG"), PDI (PDI,
collectively with PFPC and CCG, the "Administrators"), the Distributor or PNC
Bank, National Association ("PNC Bank" or the "Custodian") currently receives
any compensation from the Fund. Drinker Biddle & Reath, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. As of the date of this
Statement of Additional Information, the trustees and officers of the Fund, as a
group, owned less than 1% of the outstanding shares of each Portfolio.
The table below sets forth the compensation actually received from the Fund
Complex of which the Fund is a part by the trustees for the fiscal year ended
September 30, 1995:
-52-
<PAGE>
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
AGGREGATE BENEFITS ESTIMATED REGISTRANT AND
COMPENSATION ACCRUED AS ANNUAL FUND COMPLEX/1/
NAME OF PERSON, FROM PART OF FUND BENEFITS UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT TRUSTEES
- --------------- ------------ ------------- -------------- --------------------
<S> <C> <C> <C> <C>
Philip E. Coldwell,/*/ $ 9,500 n/a n/a (4)/2/ $46,200
Trustee
Robert R. Fortune,/*/ $ 9,500 n/a n/a (6)/2/ $66,200
Trustee
Rodney D. Johnson,/*/ $ 9,500 n/a n/a (6)/2/ $58,450
Trustee
G. Willing Pepper,/*/ $14,000 n/a n/a (7)/2/ $98,850
Chairman of the
Board and President
Anthony M. $ 9,000 n/a n/a (6)/2/ $51,000
Santomero, Trustee
David R. Wilmerding, $ 9,500 n/a n/a (7)/2/ $63,200
Jr., Trustee
William O.
Albertini, Trustee** N/A N/A N/A N/A
Raymond J. Clark,
Trustee** N/A N/A N/A N/A
Robert M. Hernandez,
Trustee** N/A N/A N/A N/A
</TABLE>
* Messrs. Coldwell, Fortune, Johnson and Pepper resigned from their
respective positions with the Fund on January 4, 1996.
** Messrs. Albertini, Clark and Hernandez were not yet trustees as of
September 30, 1995.
==============
1. A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an investment
adviser that is an affiliated person of the investment adviser of any of the
other investment companies.
2. Total number of such other investment companies trustee serves on within
the Fund Complex.
-53-
<PAGE>
THE TRUST
The names, ages and addresses of the trustees and officers of the Trust and
a brief statement of their present positions and principal occupations during
the past five years is set forth below. As used below, "DFA Entities" refers to
the following: Dimensional Fund Advisors Inc., Dimensional Fund Advisors Ltd.,
DFA Australia Pty Limited, DFA Investment Dimensions Group Inc. (Registered
Investment Company), Dimensional Emerging Markets Fund Inc. (Registered
Investment Company), Dimensional Investment Group Inc. (Registered Investment
Company) and DFA Securities Inc.
TRUSTEES
- --------
David G. Booth* Trustee, President, Chairman-Chief Executive
Santa Monica, President and Officer and Director of all DFA
CA Chairman-Chief Entities, except Dimensional Fund
Age: 49 Executive Officer Advisors Ltd., of which he is
Chairman and Director
George M. Trustee Leon Carroll Marshall Professor of
Constantinides Finance, Graduate School of
Chicago, IL Business, University of Chicago.
Age: 47 Director, DFA Investment Dimensions
Group Inc., Dimensional Investment
Group Inc. and Dimensional Emerging
Markets Fund Inc.
John P. Gould Trustee Distinguished Service Professor of
Chicago, IL Economics, Graduate School of
Age: 57 Business, University of Chicago.
Trustee, First Prairie Funds
(registered investment companies).
Director, DFA Investment Dimensions
Group Inc., Dimensional Investment
Group Inc., Dimensional Emerging
Markets Fund Inc. and Harbor
Investment Advisors.
Roger G. Trustee Professor in Practice of Finance,
Ibbotson Yale School of Management.
New Haven, CT Director, DFA Investment Dimensions
Age: 52 Group Inc., Dimensional Investment
Group Inc., Dimensional Emerging
Markets Fund Inc., Hospital Fund,
Inc. (investment management
services) and Birr Portfolio
Analysis, Inc. (software products).
Chairman, Institute Study of
Securities Markets. Chairman and
President, Ibbotson Associates,
Inc., Chicago, IL (software, data,
publishing and consulting).
-54-
<PAGE>
Merton H. Trustee Robert R. McCormick Distinguished
Miller Service Professor Emeritus,
Chicago, IL Graduate School of Business,
Age: 72 University of Chicago. Director,
DFA Investment Dimensions Group
Inc., Dimensional Investment Group
Inc. and Dimensional Emerging
Markets Fund Inc.
Myron S. Trustee Frank E. Buck Professor of Finance,
Scholes Graduate School of Business and
Greenwich, CT Professor of Law, Law School,
Age: 54 Senior Research Fellow, Hoover
Institution, (all) Stanford
University. Director, DFA
Investment Dimensions Group Inc.,
Dimensional Investment Group Inc.,
Dimensional Emerging Markets Fund
Inc., Benham Capital Management
Group of Investment Companies and
Smith Breedon Group of Investment
Companies. Limited Partner, Long-
Term Capital Management L.P. (money
manager).
Rex A. Trustee, Chairman Chairman, Chief Investment Officer
Sinquefield* and Chief and Director of all DFA Entities,
Santa Monica, Investment except Dimensional Fund Advisors
CA Officer Ltd., of which he is Chairman,
Age: 51 Chief Executive Officer and
Director.
*Interested
Trustees of the
Trust.
_____________
OFFICERS
- --------
Arthur Barlow Vice President Vice President of all DFA Entities.
Santa Monica,
CA
Age: 40
-55-
<PAGE>
Truman Clark Vice President Vice President of all DFA Entities.
Santa Monica, Consultant until October 1995 and
CA Principal and Manager of Product
Age: 54 Development, Wells Fargo Nikko
Investment Advisors from 1990-1994.
Maureen Connors Vice President Vice President of all DFA Entities.
Santa Monica,
CA
Age: 59
Robert Deere Vice President Vice President of all DFA Entities.
Santa Monica,
CA
Age: 38
Irene R. Vice President, Vice President and Secretary of all
Diamant Secretary DFA Entities. Associate attorney,
Santa Monica, Cahill Gordon & Reindel from 1987
CA to 1991.
Age: 45
Eugene Fama, Vice President Vice President of all DFA Entities.
Jr.
Santa Monica,
CA
Age: 35
David Plecha Vice President Vice President of all DFA Entities.
Santa Monica,
CA
Age: 34
George Sands Vice President Vice President of all DFA Entities.
Santa Monica, Managing Director, Asset Strategy
CA Consulting, Los Angeles, CA from
Age: 40 1991 to 1992 and previously Vice
President of Wilshire Associates,
Santa Monica, CA.
Michael T. Vice President, Vice President, Chief Financial
Scardina Chief Financial Officer, Controller and Treasurer
Santa Monica, Officer, of all DFA Entities.
CA Controller and
Age: 40 Treasurer
Cem Severoglu Vice President Vice President of all DFA Entities.
Santa Monica,
CA
Age: 31
-56-
<PAGE>
Jeanne C. Executive Vice Executive Vice President of all DFA
Sinquefield, President Entities.
Ph.D.
Santa Monica,
CA
Age: 49
Rex A. Sinquefield, Trustee, Chairman and Chief Investment Officer of the Trust
and Jeanne C. Sinquefield, Executive Vice President of the Trust, are husband
and wife.
Set forth below is a table listing, for each trustee of the Trust entitled
to receive compensation, the compensation received from the Trust during the
fiscal year ended November 30, 1995 and the total compensation received from all
four registered investment companies for which Dimensional Fund Advisors Inc.
("DFA") served as investment adviser during that same fiscal year.
-57-
<PAGE>
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
AGGREGATE BENEFITS ESTIMATED REGISTRANT AND
COMPENSATION ACCRUED AS ANNUAL FUND COMPLEX/1/
NAME OF PERSON, FROM PART OF FUND BENEFITS UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT TRUSTEES
- --------------- ------------ ------------- -------------- ----------------
<S> <C> <C> <C> <C>
George M. $5,000 n/a n/a $30,000
Constantinides
John P. Gould $5,000 n/a n/a $30,000
Roger G. Ibbotson $5,000 n/a n/a $30,000
Merton H. Miller $4,000 n/a n/a $24,000
Myron S. Scholes $5,000 n/a n/a $30,000
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Fund's Declaration of Trust provides that shareholders
shall not be subject to any personal liability in connection with the assets of
the Fund for the acts or obligations of the Fund, and that every note, bond,
contract, order or other undertaking made by the Fund shall contain a provision
to the effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his being or having
been a shareholder and not because of his acts or omissions or some other
reason. The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Fund, and shall satisfy any judgment thereon.
The Declaration of Trust further provides that all persons having any claim
against the trustees or Fund shall look solely to the trust property for
payment; that no trustee of the Fund shall be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the trust
- ---------------
1. A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and investor
services, or have a common investment adviser or have an investment adviser that
is an affiliated person of the investment adviser of any of the other investment
companies.
-58-
<PAGE>
property or the conduct of any business of the Fund; and that no trustee shall
be personally liable to any person for any action or failure to act except by
reason of his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a trustee. With the exception stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against all liabilities and expenses reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may be involved or
with which he may be threatened by reason of his being or having been a trustee,
and that the Fund will indemnify officers, representatives and employees of the
Fund to the same extent that trustees are entitled to indemnification.
INVESTMENT ADVISORY, ADMINISTRATION,
DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PAMG, PIMC, BlackRock, PCM, PEAC, Morgan Grenfell and, with
respect to the Index Master Portfolio, Dimensional Fund Advisors Inc. ("DFA")
and the fees received by each of them for such services are described in the
Prospectuses. As stated in the Prospectuses, PAMG may from time to time
voluntarily waive its advisory fees with respect to a Portfolio and may
voluntarily reimburse Portfolios for expenses. In addition, if the total
expenses borne by any Portfolio in any fiscal year exceed the expense
limitations imposed by applicable state securities regulations, PAMG and the
Administrators will bear the amount of such excess to the extent required by
such regulations in proportion to the fees otherwise payable to them for such
year. Such amount, if any, will be estimated and accrued daily and paid on a
monthly basis. As of the date of this Statement of Additional Information, to
the knowledge of the Fund, there were no state expense limitations more
restrictive than the following: 2 1/2% of the first $30 million of average
annual net assets, 2% of the next $70 million of average annual net assets, and
1/2% of average annual net assets in excess of $100 million.
PAMG renders advisory services to each of the Portfolios, except the Index
Equity Portfolio, pursuant to an Investment Advisory Agreement. PIMC currently
renders advisory services to the Index Equity Portfolio pursuant to an
Investment Advisory Agreement. From each Portfolio's (other than the Index
Equity Portfolio) respective commencement of operations to January 4, 1996 PIMC
served as adviser. PCM renders sub-advisory services to the Balanced, Value
Equity, Small Cap Value Equity, International Equity, Select Equity and
International Emerging Markets Portfolios pursuant to Sub-Advisory Agreements.
PIMC renders sub-advisory services to the Money Market, U.S. Treasury Money
Market, Municipal Money Market, Ohio Municipal Money
-59-
<PAGE>
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, Virginia Municipal Money Market and New Jersey Municipal Money Market
Portfolios pursuant to Sub-Advisory Agreements. BlackRock renders sub-advisory
services to the Balanced, Managed Income, Intermediate Government, Tax-Free
Income, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short Government
Bond, Intermediate Bond, New Jersey Tax-Free Income, Core Bond and Government
Income Portfolios pursuant to Sub-Advisory Agreements. PEAC renders sub-
advisory services to the Index Equity, Growth Equity and Small Cap Growth Equity
Portfolios pursuant to Sub-Advisory Agreements. Morgan Grenfell renders sub-
advisory services to the International Bond Portfolio pursuant to a Sub-Advisory
Agreement. DFA renders advisory services to the Index Master Portfolio, the
registered investment company in which the Index Equity Portfolio expects to
invest all of its assets, which will be pursuant to an Investment Management
Agreement. At such time, PIMC will not render advisory services, and PEAC will
not render sub-advisory services, to the Index Equity Portfolio. These Advisory
and Sub-Advisory Agreements are collectively referred to as the "Advisory
Contracts."
From December 1, 1992 (commencement of operations) to March 29, 1995, PNC
Bank, Ohio, National Association ("PNC Bank Ohio") served as sub-adviser to the
Ohio Tax-Free Income Portfolio. From November 1, 1989 (commencement of
operations) to September 10, 1993, PNC Bank Ohio served as sub-adviser to the
Municipal Money Market Portfolio. From November 1, 1989 (commencement of
operations) to September 10, 1993, PNC Bank Ohio served as sub-adviser to the
Managed Income and Growth Equity Portfolios. From April 20, 1992 (commencement
of operations) to July 22, 1992, Advanced Investment Management, Inc., PEAC
served as sub-adviser to the Index Equity Portfolio and from July 23, 1993 until
the Index Equity Portfolio's expected investment in the Index Master Portfolio,
PEAC continues to serve as sub-advisor. From April 20, 1992 to September 10,
1993, PCM served as sub-adviser to the Intermediate Government Portfolio. From
July 23, 1992 to March 29, 1995, PNC Bank served as sub-adviser to the Index
Equity Portfolio. From September 11, 1993 to March 29, 1995, PNC Bank served as
sub-adviser to the Managed Income, Intermediate Government and Growth Equity
Portfolios. From December 1, 1992 (commencement of operations) to March 29,
1995, PNC Bank served as sub-adviser to the Ohio Tax-Free Income and
Pennsylvania Tax-Free Income Portfolios. From September 13, 1993 (commencement
of operations) to March 29, 1995, PNC Bank served as sub-adviser to the Select
Equity Portfolio. From September 14, 1993 (commencement of operations) to March
29, 1995, PNC Bank served as sub-adviser to the Small Cap Growth Equity
Portfolio. From September 17, 1993 (commencement of operations) to March 29,
1995, PNC Bank served as sub-adviser to the Intermediate Bond Portfolio. From
May 14, 1990 (commencement of operations) to July 1, 1995, PNC Bank served as
sub-adviser to the Tax-Free Income Portfolios. PNC Bank served as sub-adviser
for the Money
-60-
<PAGE>
Market Portfolio from October 4, 1989 (commencement of operations) to December
20, 1995; for the Municipal Money Market Portfolio from September 10, 1993 to
December 20, 1995; for the U.S. Treasury Money Market Portfolio from November 1,
1989 (commencement of operations) to December 20, 1995; for the Ohio Municipal
Money Market Portfolio from June 1, 1993 (commencement of operations) to
December 20, 1995; for the Pennsylvania Municipal Money Market Portfolio from
June 1, 1993 (commencement of operations) to December 20, 1995; for the North
Carolina Municipal Money Market from May 4, 1993 (commencement of operations) to
December 20, 1995; for the Virginia Municipal Money Market Portfolio from July
25, 1994 (commencement of operations) to December 20, 1995, and for the New
Jersey Municipal Money Market Portfolio from _________ to December 20, 1995.
From _________ to ___________ MidLantic Bank, N.A. ("MidLantic Bank") served as
investment adviser to the predecessor portfolio of the International Bond
Portfolio. From _________ to ___________ MidLantic Bank served as investment
adviser to the predecessor portfolio of the New Jersey Tax-Free Income
Portfolio. From _________ to ___________ BlackRock served as investment adviser
to the predecessor portfolio of the Core Bond Portfolio. From _________ to
___________ BlackRock served as investment adviser to the predecessor portfolio
of the Short Government Bond Portfolio.
Under the relevant Advisory Contracts, PAMG, PIMC, PCM, PEAC, BlackRock and
Morgan Grenfell are not liable for any error of judgment or mistake of law or
for any loss suffered by the Fund or a Portfolio in connection with the
performance of the Advisory Contracts. Under the Advisory Contracts, PAMG,
PIMC, PCM, PEAC, BlackRock, Morgan Grenfell and DFA are liable for a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of their respective duties or from reckless disregard of their
respective duties and obligations thereunder. Each of the Advisory Contracts
(except the Advisory Contract relating to the Index Master Portfolio) is
terminable as to a Portfolio by vote of the Fund's Board of Trustees or by the
holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to PAMG,
PIMC, PCM, PEAC, Morgan Grenfell or BlackRock, as the case may be. PAMG, PIMC,
PCM, PEAC, Morgan Grenfell and BlackRock may also terminate their advisory
relationship with respect to a Portfolio, on 60 days' written notice to the
Fund. The Advisory Contract relating to the Index Master Portfolio is
terminable by vote of the Trust's Board of Trustees or by the holders of a
majority of the outstanding voting securities of the Index Master Portfolio at
any time without penalty on 60 days' written notice to DFA. DFA may also
terminate its advisory relationship with respect to the Index Master Portfolio
on 90 days' written notice to the Trust. Each of the Advisory Contracts
terminates automatically in the event of its assignment.
-61-
<PAGE>
For the year or periods ended September 30, 1995, the Fund paid PIMC advisory
fees, and PIMC waived advisory fees and reimbursed expenses, as follows:
<TABLE>
<CAPTION>
FEES PAID REIMBURSE-
(AFTER ----------
PORTFOLIOS WAIVERS) WAIVERS MENTS
- ---------- ---------- ---------- ----------
<S> <C> <C> <C>
Money Market $1,051,446 $5,217,130 $ 0
Municipal Money Market $ 189,929 $ 921,718 $ 0
U.S. Treasury Money Market $ 489,209 $2,327,266 $ 0
Ohio Municipal Money Market $ 49,133 $ 245,955 $ 0
Pennsylvania Municipal Money Market $ 304,651 $1,264,187 $ 0
North Carolina Municipal Money
Market $ 46,472 $ 369,591 $ 4,999
Managed Income $1,790,332 $ 767,285 $ 0
Tax-Free Income $ 0 $ 49,671 $ 1,599
Intermediate Government $ 379,534 $ 569,302 $ 0
Ohio Tax-Free Income $ 0 $ 42,044 $ 6,713
Pennsylvania Tax-Free Income $ 161,038 $ 137,951 $ 0
Intermediate Bond $ 342,301 $ 335,908 $ 0
Value Equity $2,832,644 $ 746,727 $ 0
Growth Equity $ 866,271 $ 324,851 $ 0
Small Cap Growth Equity $ 618,374 $ 137,615 $ 0
Select Equity $ 691,447 $ 259,293 $ 0
Index Equity $ 30,772 $ 382,205 $ 0
Small Cap Value Equity $1,143,071 $ 114,307 $ 0
International Equity $2,391,607 $ 597,902 $ 0
Balanced $ 642,763 $ 241,037 $ 0
Virginia Municipal Money Market $ 0 $ 85,063 $35,957
International Emerging Markets $ 258,648 $ 52,186 $ 0
New Jersey Municipal Money Market/1/ N/A N/A N/A
Government Income/2/ $ 0 $ 37,256 $11,980
===========================================================================
</TABLE>
/1/ Portfolios were not operational as of September 30, 1995.
/2/ For the period from commencement of operations (October 3, 1994) through
September 30, 1995.
For the year or periods ended September 30, 1994, the Fund paid PIMC advisory
fees, and PIMC waived advisory fees and reimbursed expenses, as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ----------- --------------
<S> <C> <C> <C>
Money Market $ 951,230 $3,359,847 $ 0
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ----------- --------------
<S> <C> <C> <C>
Municipal Money Market $ 171,405 $ 599,920 $ 0
U.S. Treasury Money
Market $ 281,771 $ 986,201 $ 0
Ohio Municipal Money
Market $ 6,724 $ 217,938 $20,660
Pennsylvania Municipal
Money Market $ 42,612 $ 336,382 $19,022
North Carolina Municipal
Money Market $ 0 $ 249,914 $26,804
Managed Income $1,398,343 $ 599,290 $ 0
Tax-Free Income $ 0 $ 47,655 $35,898
Intermediate Government $ 368,546 $ 552,819 $ 0
Ohio Tax-Free Income $ 0 $ 35,709 $35,496
Pennsylvania Tax-Free
Income $ 49,646 $ 227,003 $ 9,645
Intermediate Bond $ 131,294 $ 206,071 $ 0
Value Equity $2,306,672 $ 865,002 $ 0
Growth Equity $ 467,637 $ 175,364 $ 0
Small Cap Growth Equity $ 55,825 $ 160,320 $ 0
Select Equity $ 303,169 $ 113,689 $ 0
Index Equity $ 28,392 $ 376,934 $ 0
Small Cap Value Equity $ 890,883 $ 197,974 $ 0
International Equity $1,408,053 $ 477,733 $ 0
Balanced $ 470,579 $ 202,166 $ 0
Virginia Municipal Money
Market/1/ $ 0 $ 8,925 $ 4,816
International Emerging
Markets/2/ $ 7,672 $ 16,051 $ 0
New Jersey Municipal N/A N/A N/A
Money Market/3/
=====================================================================
</TABLE>
/1/ For the period from commencement of operations (July 25, 1994) through
September 30, 1994.
/2/ For the period from commencement of operations (June 17, 1994) through
September 30, 1994.
/3/ Portfolio was not operational as of September 30, 1994.
For the year or periods ended September 30, 1993, the Fund paid PIMC advisory
fees, and PIMC waived advisory fees and reimbursed expenses, as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
-63-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Money Market $2,899,093 $815,911 $ 0
Municipal Money Market $ 509,475 $131,249 $ 0
U.S. Treasury Money Market $ 601,820 $195,459 $ 0
Ohio Municipal Money
Market/1/ $ 0 $ 28,953 $ 8,630
Pennsylvania Municipal
Money Market/1/ $ 0 $ 18,117 $11,411
North Carolina Municipal
Money Market/2/ $ 0 $ 47,085 $11,729
Managed Income $1,522,695 $ 87,513 $ 0
Tax-Free Income $ 0 $ 43,457 $ 7,314
Intermediate Government $ 594,202 $ 77,301 $ 0
Ohio Tax-Free Income/3/ $ 0 $ 8,781 $20,906
Pennsylvania Tax-Free
Income/3/ $ 0 $ 87,528 $19,064
Intermediate Bond/5/ $ 5,432 $ 5,432 $ 0
Value Equity $1,996,726 $108,242 $ 0
Growth Equity $ 400,652 $ 31,912 $ 0
Small Cap Growth Equity/6/ $ 0 $ 2,773 $ 0
Select Equity/7/ $ 14,325 $ 5,372 $ 0
Index Equity $ 212,413 $161,606 $ 0
Small Cap Value Equity $ 564,065 $ 34,794 $ 0
International Equity $ 598,040 $ 47,134 $ 0
Balanced $ 124,556 $ 45,203 $ 0
Virginia Municipal Money
Market/8/ N/A N/A N/A
International Emerging
Markets/8/ N/A N/A N/A
New Jersey Municipal Money
Market/8/ N/A N/A N/A
</TABLE>
/1/ Commenced operations June 1, 1993.
/2/ Commenced operations May 3, 1993.
/3 /Commenced operations December 1, 1992.
/4/ Commenced operations September 1, 1993.
/5/ Commenced operations September 17, 1993.
/6/ Commenced operations September 14, 1993.
/7/ Commenced operations September 13, 1993.
/8/ Portfolio was not operational as of September 30, 1993.
For the year ended September 30, 1995, PIMC paid sub-advisory fees to the
specified Portfolios' sub-advisers, after waivers, and such sub-advisers waived
sub-advisory fees as follows:
-64-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS
- ---------- --------- -------
<S> <C> <C>
Money Market $ 0 $721,072
Municipal Money Market $ 0 $123,516
U.S. Treasury Money Market $ 0 $312,942
Ohio Municipal Money Market $ 0 $ 32,788
Pennsylvania Municipal Money
Market $ 0 $174,315
North Carolina Municipal Money
Market $ 0 $ 46,229
Managed Income $1,253,232 $537,100
Tax-Free Income $ 0 $ 34,770
Intermediate Government $ 265,674 $398,511
Ohio Tax-Free Income $ 0 $ 29,431
Pennsylvania Tax-Free Income $ 112,727 $ 96,566
Intermediate Bond $ 239,611 $235,136
Value Equity $2,060,105 $543,074
Growth Equity $ 630,015 $236,255
Small Cap Growth Equity $ 449,727 $100,084
Select Equity $ 502,871 $188,576
Index Equity $ 30,772 $286,654
Small Cap Value Equity $ 831,324 $ 83,132
International Equity $1,913,286 $478,322
Balanced $ 467,464 $175,299
Virginia Municipal Money Market $ 0 $ 9,451
International Emerging Markets $ 227,610 $ 45,924
New Jersey Municipal Money
Market/1/ N/A N/A
Government Income/2/ 0 $ 26,079
</TABLE>
/1/ Portfolios were not operational as of September 30, 1995.
/2/ Commenced operations October 3, 1994.
For the year or periods ended September 30, 1994, PIMC paid sub-advisory fees to
the specified Portfolios' sub-advisers, after waivers, and such sub-advisers
waived sub-advisory fees as follows:
-65-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
- ---------- --------------- -------
<S> <C> <C>
Money Market $ 0 $479,008
Municipal Money Market $ 0 $ 85,703
U.S. Treasury Money Market $ 0 $140,886
Ohio Municipal Money Market $ 0 $ 24,962
Pennsylvania Municipal Money Market $ 0 $ 42,110
North Carolina Municipal Money Market $ 0 $ 27,768
Managed Income $1,198,580 $199,763
Tax-Free Income $ 0 $ 33,359
Intermediate Government $ 276,410 $368,546
Ohio Tax-Free Income $ 0 $ 24,996
Pennsylvania Tax-Free Income $ 33,198 $160,456
Intermediate Bond $ 97,470 $138,685
Value Equity $2,018,338 $288,334
Growth Equity $ 409,182 $ 58,455
Small Cap Growth Equity $ 55,825 $101,371
Select Equity $ 265,273 $ 37,896
Index Equity $ 28,392 $275,602
Small Cap Value Equity $ 791,896 $ 0
International Equity $1,257,191 $251,438
Balanced $ 409,420 $ 79,849
Virginia Municipal Money Market/1/ $ 0 $ 992
International Emerging Markets/2/ $ 6,723 $ 14,153
New Jersey Municipal Money Market/3/ N/A N/A
</TABLE>
/1/ Commenced operations July 25, 1994.
/2/ Commenced operations June 17, 1994.
/3/ Portfolio was not operational as of September 30, 1994.
For the years or periods ended September 30, 1993, PIMC paid sub-advisory fees
to the specified Portfolios' sub-advisers, after waivers, and such sub-advisers
waived sub-advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS
- ---------- --------- -------
<S> <C> <C>
Money Market $ 0 $412,778
Municipal Money Market $ 0 $ 71,192
U.S. Treasury Money Market $ 0 $ 88,587
Ohio Municipal Money Market/1/ $ 0 $ 3,217
Pennsylvania Municipal Money Market/1/ $ 0 $ 2,013
</TABLE>
-66-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIO WAIVERS) WAIVERS
- --------- ------- -------
<S> <C> <C>
North Carolina Municipal Money Market/2/ $ 0 $ 5,232
Managed Income $1,069,887 $ 61,259
Tax-Free Income $ 0 $ 30,420
Intermediate Government $ 415,941 $ 54,111
Ohio Tax-Free Income/3/ $ 0 $ 6,174
Pennsylvania Tax-Free Income/3/ $ 0 $ 61,270
Intermediate Bond/5/ $ 3,802 $ 3,802
Value Equity $1,452,164 $ 78,721
Growth Equity $ 291,383 $ 25,967
Small Cap Growth Equity/6/ $ 0 $ 2,017
Select Equity /7/ $ 10,418 $ 3,906
Index Equity $ 159,310 $121,205
Small Cap Value Equity $ 410,229 $ 25,305
International Equity $ 478,432 $ 37,707
Balanced $ 90,586 $ 32,875
Virginia Municipal Money Market/8/ N/A N/A
International Emerging Markets/8/ N/A N/A
New Jersey Municipal Money Market/8/ N/A N/A
</TABLE>
/1/ Commenced operations June 1, 1993.
/2/ Commenced operations May 3, 1993.
/3/ Commenced operations December 1, 1992.
/4/ Commenced operations September 1, 1993.
/5/ Commenced operations September 17, 1993.
/6/ Commenced operations September 14, 1993.
/7/ Commenced operations September 13, 1993.
/8/ Portfolio was not operational as of September 30, 1993.
For the period from October 1, 1992 to September 10, 1993, PIMC paid sub-
advisory fees of $1,017,364 and $274,275 to PNC Bank Ohio for the Managed Income
and Growth Equity Portfolios, respectively. For the period from October 1, 1992
to September 10, 1993, PIMC paid sub-advisory fees of $397,885 to PMC with
respect to the Intermediate Government Portfolio.
For the services it provides as investment adviser to the Index Master
Portfolio, DFA is paid a monthly fee calculated as a percentage of average net
assets of the Index Master Portfolio. For the fiscal years ending November 30,
1993, 1994 and 1995, the Index Master Portfolio paid advisory fees to DFA
totalling $7,231, $10,833 and ____________, respectively. The Index Equity
-67-
<PAGE>
Portfolio did not invest in the Index Master Portfolio during such periods.
The predecessor portfolio to the New Jersey Tax-Free Income Portfolio was
advised by MidLantic. For the fiscal years ended February 28, 1995, 1994 and
1993, the predecessor portfolio to the New Jersey Tax-Free Income Portfolio paid
$607,485, $159,582 and $37,159, respectively, in investment advisory fees to
MidLantic pursuant to its prior investment advisory contract. In addition,
during the fiscal years ended February 28, 1995, 1994 and 1993, MidLantic waived
$2,451, $318,099 and $100,403, respectively, in investment advisory fees.
The predecessor portfolio to the International Bond Portfolio was advised
by MidLantic. For the fiscal year ended February 28, 1995, 1994 and 1993, the
predecessor portfolio to the International Bond Portfolio paid $361,620,
$346,865 and $265,549, respectively, in investment advisory fees to MidLantic
pursuant to its prior investment advisory contract.
The predecessor portfolio to the Core Bond Portfolio was advised by
BlackRock. For the fiscal years ended June 30, 1995 and 1994 and for the period
December 9, 1992 (commencement of operations) through June 30, 1993, BlackRock
waived its entire investment advisory fee in the amounts of $56,894, $34,010 and
$24,761, respectively, and reimbursed expenses amounting to $137,364, $137,179
and $0, respectively.
The predecessor portfolio to the Short Government Bond Portfolio was
advised by BlackRock. For the fiscal year ended June 30, 1995, 1994 and 1993,
BlackRock waived its entire investment advisory fee in the amounts of
$_________, $_________ and $_______, respectively, and reimbursed expenses
amounting to $_________, $_________ and $_________, respectively.
ADMINISTRATION AGREEMENTS. CCG, PFPC and CDI serve as the Fund's co-
administrators pursuant to an Administration Agreement (the "Administration
Agreement"). PFPC and CDI have agreed to maintain office facilities for the
Fund, furnish the Fund with statistical and research data, clerical, accounting,
and bookkeeping services, and certain other services required by the Fund. CCG
did not serve as a co-administrator during the fiscal year ended September 30,
1995
The Administration Agreement provides that CCG, PFPC and CDI will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or a Portfolio in connection with the performance of the Administration
Agreement, except a
-68-
<PAGE>
loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of their respective duties or from reckless
disregard of their respective duties and obligations thereunder.
CCG serves as an Administrator to the Fund pursuant to a Co-Administration
Agreement. Under the Co-Administration Agreement, CCG is responsible for: (i)
the supervision and coordination of the performance of the Fund's service
providers; (ii) the negotiation of service contracts and arrangements between
the Fund and its service providers; (iii) acting as liaison between the trustees
of the Fund and the Fund's service providers; and (iv) providing ongoing
business management and support services in connection with the Fund's
operations.
The Co-Administration Agreement provides that CCG will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except for losses
resulting from willful misfeasance, bad faith or gross negligence on the part of
CCG in the performance of its duties under the Agreement.
PFPC serves as the administrative services agent for the Index Master
Portfolio pursuant to an Administration and Accounting Services Agreement. The
services provided by PFPC are subject to supervision by the executive officers
and the Board of Trustees of the Trust, and include day-to-day keeping and
maintenance of certain records, calculation of the offering price of the shares,
preparation of reports and acting as liaison with the Trust's custodians and
dividend and disbursing agents. [INSERT DFA FEE SCHEDULE] PFPC also charges
each investor in the Index Master Portfolio a monthly fee of $1,000.
For the year ended September 30, 1995, the Fund paid PFPC and CDI (formerly
Provident Distributors, Inc.) combined administration fees (after waivers), and
PFPC and CDI waived combined administration fees and reimbursed expenses, as
follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Money Market $1,686,008 $200,348 $ 0
Municipal Money Market $ 208,246 $162,303 0
U.S. Treasury Money Market $ 631,041 $281,107 0
Ohio Municipal Money Market $ 43,263 $ 55,100 0
Pennsylvania Municipal
Money Market $ 322,632 $200,313 0
</TABLE>
-69-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
North Carolina Municipal
Money Market $ 24,058 $114,630 $ 1,666
Managed Income $ 751,452 $267,310
Tax-Free Income $ 0 $ 19,868 $ 2,132
Intermediate Government $ 244,417 $135,117
Ohio Tax-Free Income $ 0 $ 16,817 $ 8,950
Pennsylvania Tax-Free
Income $ 68,050 $ 51,546 0
Intermediate Bond $ 139,960 $131,323 0
Value Equity $1,083,967 $187,474 0
Growth Equity $ 360,966 $ 72,170 0
Small Cap Growth Equity $ 238,595 $ 36,310 0
Select Equity $ 288,666 $ 57,058 0
Index Equity $ 96,814 $316,163 0
Small Cap Value Equity $ 359,637 $ 97,592 0
International Equity $ 689,601 $107,601 0
Balanced $ 216,630 $104,752 0
Virginia Municipal Money
Market $ 0 $ 28,354 $11,986
International Emerging
Markets $ 41,383 $ 8,350 0
New Jersey Municipal Money
Market/1/ N/A N/A N/A
Government Income/2/ 0 $ 14,903 $15,973
</TABLE>
/1/ Portfolios were not operational as of September 30, 1995.
/2/ Commenced operations October 3, 1994.
For the year ended September 30, 1994, the Fund paid PFPC and CDI combined
administration fees (after waivers), and PFPC and CDI waived combined
administration fees and reimbursed expenses, as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Money Market $ 803,349 $541,066 $ 0
Municipal Money Market $ 42,931 $214,178 $ 0
U.S. Treasury Money Market $ 132,901 $289,756 $ 0
Ohio Municipal Money
Market $ 2,241 $ 72,646 $ 6,887
Pennsylvania Municipal
Money Market $ 11,758 $114,573 $ 6,340
North Carolina Municipal
Money Market $ 0 $ 83,304 $ 8,934
</TABLE>
-70-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Managed Income $ 521,204 $277,849 $ 0
Tax-Free Income $ 0 $ 19,062 $14,359
Intermediate Government $ 186,742 $181,804 $ 0
Ohio Tax-Free Income $ 0 $ 14,284 $14,199
Pennsylvania Tax-Free
Income $ 19,858 $ 90,020 $ 3,858
Intermediate Bond $ 52,518 $ 82,428 $ 0
Value Equity $1,075,209 $ 61,908 $ 0
Growth Equity $ 128,262 $105,557 $ 0
Small Cap Growth Equity $ 20,166 $ 58,432 $ 0
Select Equity $ 52,164 $ 99,421 $ 0
Index Equity $ 27,115 $378,211 $ 0
Small Cap Value Equity $ 354,486 $ 41,462 $ 0
International Equity $ 502,876 $ 0 $ 0
Balanced $ 125,112 $119,522 $ 0
Virginia Municipal Money
Market/1/ $ 0 $ 2,975 $ 1,605
International Emerging
Markets/2/ $ 1,259 $ 2,537 $ 0
New Jersey Municipal Money
Market/3/ N/A N/A N/A
</TABLE>
/1/ Commenced operations July 25, 1994.
/2/ Commenced operations June 17, 1994.
/3/ Portfolio was not operational as of September 30, 1994.
For the years or periods ended September 30, 1993, the Fund paid PFPC and CDI
combined administration fees after waivers), and PFPC and CDI waived combined
administration fees and reimbursed expenses, as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Money Market $674,120 $101,509 $ 0
Municipal Money Market $117,768 $ 21,036 $ 0
U.S. Treasury Money Market $157,519 $ 30,288 $ 0
Ohio Municipal Money Market/1/ $ 0 $ 9,651 $ 0
Pennsylvania Municipal Money
Market/1/ $ 0 $ 6,039 $ 0
North Carolina Municipal
Money Market/2/ $ 0 $ 15,659 $ 0
Managed Income $397,750 $ 87,513 $ 0
Tax-Free Income $ 0 $ 11,914 $ 0
</TABLE>
-71-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Intermediate Government $167,611 $ 24,673 $ 0
Ohio Tax-Free Income/3/ $ 0 $ 8,797 $6,515
Pennsylvania Tax-Free Income/3/ $ 0 $ 85,754 $5,766
Value Equity $528,584 $ 9,382 $ 0
Growth Equity $101,208 $ 12,879 $ 0
Small Cap Growth Equity/4/ $ 173 $ 835 $ 0
Select Equity/5/ $ 4,722 $ 2,441 $ 0
Index Equity $195,736 $ 59,581 $ 0
Small Cap Value Equity $156,048 $ 5,441 $ 0
International Equity $123,924 $ 6,477 $ 0
Balanced $ 44,667 $ 8,046 $ 0
Virginia Municipal Money
Market/6/ N/A N/A N/A
International Emerging
Markets/6/ N/A N/A N/A
New Jersey Municipal Money
Market/6/ N/A N/A N/A
International Bond/8/ N/A N/A N/A
</TABLE>
/1/ Commenced operations June 1, 1993.
/2/ Commenced operations May 3, 1993.
/3 /Commenced operations December 1, 1992.
/4/ Commenced operations September 14, 1993.
/5/ Commenced operations September 13, 1993.
/6/ Portfolio was not operational as of September 30, 1993.
For the period from October 1, 1992 to January 31, 1993, the Fund paid PFPC
and the former co-administrator combined administration fees, before waivers, of
$397,594, $74,771, $77,953, $212,227, $0, $76,317, $227,477, $43,210, $118,702,
$56,278, $41,645 and $4,938 Money Market, Municipal Money Market, U.S. Treasury
Money Market, Managed Income, Tax-Free Income, Intermediate Government, Value
Equity, Growth Equity, Index Equity, Small Cap Value Equity, International
Equity and Balanced Portfolios, respectively. For that period, PFPC and the
former co-administrator waived combined administration fees of $0, $0, $0, $0,
$5,469, $0, $0, $0, $0, $0, $0 and $4,080 for such respective Portfolios, and
reimbursed the Tax-Free Income Portfolio for certain operational expenses
totalling $0. For the period from commencement of operations to January 31,
1993, the Fund paid PFPC and the former co-administrator combined administration
fees, before waivers, of $0 and $0 for the Ohio
-72-
<PAGE>
Tax-Free Income and Pennsylvania Tax-Free Income Portfolios, respectively. For
the same period, PFPC and the former co-administrator waived combined
administration fees of $124 and $1,774 for such respective Portfolios, and
reimbursed such Portfolios for certain operational expenses totalling $1,848 and
$1,859, respectively.
The predecessor portfolio to the International Bond and New Jersey Tax-Free
Income Portfolios received administrative services from SEI Financial Management
Corporation ("SEI"). During the fiscal years ended February 28, 1995, 1994 and
1993, the predecessor portfolio to the New Jersey Tax-Free Income Portfolio paid
$105,029, $79,454 and $15,884, respectively, in administrative fees to SEI
pursuant to the prior administration agreement. In addition, during the fiscal
years ended February 28, 1995, 1994 and 1993, SEI waived $77,951, $63,850 and
$25,385, respectively, in administrative fees. During the fiscal years ended
February 28, 1995, 1994 and 1993, the predecessor portfolio to the International
Bond Portfolio paid $81,364, $78,033 and $59,749, respectively, in
administrative fees to SEI pursuant to the prior administration agreement. In
addition, during the fiscal years ended February 28, 1995, 1994 and 1993, SEI
waived $_________, $_________ and $_________, respectively, in administrative
fees.
The predecessor portfolio to the Short Government Bond and Core Bond
Portfolios received administrative services from State Street Bank and Trust
Company ("State Street"). During the fiscal years ended June 30, 1995 and 1994
and for the period December 9, 1992 (commencement of operations) through June
30, 1993, the predecessor portfolio to the Core Bond Portfolio paid $73,257,
$_______ and $_______, respectively, in administrative fees to State Street
pursuant to the prior administration agreement. In addition, during the fiscal
years ended June 30, 1994 and for the period December 9, 1992 (commencement of
operations) through June 30, 1993, State Street waived$________, $32,500 and
$3,701, respectively, in administrative fees. During the fiscal years ended
June 30, 1995, 1994 and 1993, the predecessor portfolio to the Short Government
Bond Portfolio paid $_________, $_________ and $_______, respectively, in
administrative fees to State Street prior to the prior administration agreement.
In addition, during the fiscal years ended June 30, 1995, 1994 and 1993, State
Street waived $_________, $_________ and $_________, respectively, in
administrative fees.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement
-73-
<PAGE>
(the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank or a sub-
custodian (i) maintains a separate account or accounts in the name of each
Portfolio, (ii) holds and transfers portfolio securities on account of each
Portfolio, (iii) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (iv) collects and receives all income and other payments and
distributions on account of each Portfolio's securities and (v) makes periodic
reports to the Board of Trustees concerning each Portfolio's operations. PNC
Bank is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that, with respect to sub-
custodians other than sub-custodians for foreign securities, PNC Bank remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Fund harmless from the acts and omissions of any sub-custodian.
The Chase Manhattan Bank, N.A., State Street Bank and Trust Company and Barclays
Bank PLC serve as the Fund's sub-custodians.
For its services to the Fund under the Custodian Agreement, PNC Bank
receives a fee which is calculated based upon each investment portfolio's
average gross assets, with a minimum monthly fee of $1,000 per investment
portfolio. PNC Bank is also entitled to out-of-pocket expenses and certain
transaction charges. PNC Bank intends to waive its custody fees with respect to
the Index Equity Portfolio once the Portfolio invests its assets in the Index
Master Portfolio.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement (the
"Transfer Agency Agreement"), under which PFPC (i) issues and redeems Service,
Investor, and Institutional classes of shares in each Portfolio, (ii) addresses
and mails all communications by each Portfolio to record owners of its shares,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (iii) maintains shareholder accounts
and, if requested, sub-accounts and (iv) makes periodic reports to the Board of
Trustees concerning the operations of each Portfolio. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services with respect to the
Fund's Institutional and Service Shares under the Transfer Agency Agreement,
PFPC receives fees at the annual rate of .03% of the average net asset value of
outstanding Institutional and Service Shares in each Portfolio, plus per account
fees and disbursements. For its services under the Transfer Agency Agreement
with respect to Investor Shares, PFPC receives per account fees, with minimum
annual fees of $24,000 for each Portfolio, plus disbursements.
-74-
<PAGE>
PNC Bank serves as the Trust's custodian and PFPC serves as the Trust's
transfer and dividend disbursing agent. The Index Equity Portfolio will bear
its pro rata portion of the Index Master Portfolio's custody and transfer and
dividend disbursing fees and expenses once the Index Equity Portfolio invests
its assets in the Index Master Portfolio.
DISTRIBUTOR AND DISTRIBUTION AND SERVICE PLAN. The Fund has entered into a
distribution agreement with the Distributor under which the Distributor, as
agent, offers shares of each Portfolio on a continuous basis. The Distributor
has agreed to use appropriate efforts to effect sales of the shares, but it is
not obligated to sell any particular amount of shares.
Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Fund may pay the Distributor and/or CCG or any other affiliate
of PNC Bank fees for distribution and sales support services. Currently, as
described further below, only Investor A Shares, Investor B Shares and Investor
C Shares bear the expense of distribution fees under the Plan. In addition, the
Fund may pay CCG fees for the provision of personal services to shareholders and
the processing and administration of shareholder accounts. CCG, in turn,
determines the amount of the service fee and shareholder processing fee to be
paid to other Service Organizations. The Plan provides, among other things,
that: (i) the Board of Trustees shall receive quarterly reports regarding the
amounts expended under the Plan and the purposes for which such expenditures
were made; (ii) the Plan will continue in effect for so long as its continuance
is approved at least annually by the Board of Trustees in accordance with Rule
12b-1 under the 1940 Act; (iii) any material amendment thereto must be approved
by the Board of Trustees, including the trustees who are not "interested
persons" of the Fund (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
entered into in connection with the Plan (the "12b-1 Trustees"), acting in
person at a meeting called for said purpose; (iv) any amendment to increase
materially the costs which any class of shares may bear for distribution
services pursuant to the Plan shall be effective only upon approval by a vote of
a majority of the outstanding shares of such class and by a majority of the 12b-
1 Trustees; and (v) while the Plan remains in effect, the selection and
nomination of the Fund's trustees who are not "interested persons" of the Fund
shall be committed to the discretion of such non-interested trustees.
The Plan is terminable as to any class of Shares without penalty at any
time by a vote of a majority of the 12b-1
-75-
<PAGE>
Trustees, or by vote of the holders of a majority of the shares of such class.
Similarly, any agreement entered into pursuant to the Plan with a Service
Organization is terminable as to a class without penalty, at any time, by the
Fund or by the Service Organization upon written notice to the other. Each such
agreement will terminate automatically in the event of its assignment.
With respect to Investor A Shares, the front-end sales charge and the
distribution fee payable under the Plan (at an annual rate of .10% of the
average daily net asset value of each Portfolio's outstanding Investor A Shares)
are used to pay commissions and other fees payable to Service Organizations and
other broker/dealers who sell Investor A Shares.
With respect to Investor B Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor B
Shares, which are paid at the time of the sale. These commissions approximate
the commissions payable with respect to sales of Investor A Shares. The
distribution fees payable under the Plan (at an annual rate of .75% of the
average daily net asset value of each Portfolio's outstanding Investor B Shares)
are intended to cover the expense to the Distributor of paying such up-front
commissions, and the contingent deferred sales charge is calculated to charge
the investor with any shortfall that would occur if Investor B Shares are
redeemed prior to the expiration of the conversion period, after which Investor
B Shares automatically convert to Investor A Shares.
With respect to Investor C Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor C
Shares, which are paid at the time of the sale. These commissions approximate
[ ].
No compensation is payable by the Fund to the Distributor for its
distribution services for Service or Institutional Shares.
Service Organizations may charge their clients additional fees for account
services.
The Fund intends to enter into service agreements with institutions
pursuant to which institutions will render certain support services to their
customers ("Customers") who are the beneficial owners of Service, Investor A,
Investor B and Investor C Shares. Such services will be provided to Customers
who are the beneficial owners of Shares of such classes and are intended to
supplement the services provided by the Fund's Administrators
-76-
<PAGE>
and transfer agent to the Fund's shareholders of record. In consideration for
payment of up to .25% (on an annualized basis) of the average daily net asset
value of the Investor A, Investor B and Investor C Shares owned beneficially by
their Customers and .15% (on an annualized basis) of the average daily net asset
value of the Service Shares beneficially owned by their Customers, institutions
may provide general shareholder liaison services, including, but not limited to
(i) answering shareholder inquiries regarding account status and history, the
manner in which purchases, exchanges and redemptions of shares may be effected
and certain other matters pertaining to the shareholders' investments; and (ii)
assisting shareholders in designating and changing dividend options, account
designations and addresses. In consideration for payment of a service fee of up
to a separate .15% (on an annualized basis) of the average daily net asset value
of Service, Investor A, Investor B and Investor C Shares owned beneficially by
their Customers, institutions may provide one or more of these additional
services to such Customers: (i) providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; (ii) assistance in
aggregating and processing purchase, exchange and redemption transactions; (iii)
placement of net purchase and redemption orders with the Distributor; (iv)
arranging for wiring of funds; (v) transmitting and receiving funds in
connection with Customer orders to purchase or redeem shares; (vi) processing
dividend payments; (vii) verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in shareholder-
designated accounts, as necessary; (viii) providing periodic statements showing
Customers' account balances and, to the extent practicable, integrating such
information with other Customer transactions otherwise effected through or with
a Service Organization; (ix) furnishing (either separately or on an integrated
basis with other reports sent to a shareholder by a Service Organization)
monthly and year-end statements and confirmations of purchases, exchanges and
redemptions; (x) transmitting on behalf of the Fund, proxy statements, annual
reports, updating prospectuses and other communications from the Fund to the
shareholders; (xi) receiving, tabulating and transmitting to the Fund proxies
executed by Customers with respect to shareholder meetings; (xii) providing
subaccounting with respect to shares beneficially owned by Customers or the
information to the Fund necessary for subaccounting; (xiii) sub-transfer agency
services; and (xiv) such other similar services as the Fund or a Customer may
request.
No Investor C Shares of any Portfolio were issued during the fiscal year
ended September 30, 1995.
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<PAGE>
For the fiscal year ended September 30, 1995, the Investor A and Investor B
Shares of the Portfolios bore the expense of distribution fees relating to the
Fund's prior distribution plans for Investor A Shares and Investor B Shares, and
the Service Shares and Investor B Shares of the Portfolios bore the expense of
servicing and shareholder processing fees relating to the Fund's prior service
plans for Service Shares and Investor B Shares as follows:
<TABLE>
<CAPTION>
DISTRIBUTION AND
SERVICE PLAN SERVICE PLAN SERVICE PLAN
INVESTOR A INVESTOR B INVESTOR B SERVICE
PORTFOLIOS SHARES SHARES SHARES SHARES
- ---------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Money Market 31,400 - - 2,336,729
Municipal Money Market 143 - - 624,366
U.S. Treasury Money Market 8,770 - - 1,585,537
Ohio Municipal Money Market 132 - - 146,311
Pennsylvania Municipal Money 1,199 - - 387,016
North Carolina Municipal Money
Market 36 - - 1,334
Managed Income 50,278 - - 245,386
Tax-Free Income 30,269 - - 8,543
Intermediate Government 22,909 - - 146,738
Ohio Tax-Free Income 7,686 467 156 13,273
Pennsylvania Tax-Free Income 197,753 15,286 5,095 34,032
Intermediate Bond 1,122 - - 98,742
Value Equity - - - -
Growth Equity - - - -
Small Cap Growth Equity - - - -
Select Equity - - - -
Index Equity - - - -
Small Cap Value Equity - 6,258 2,086 -
International Equity - 5,330 2,010 -
Balanced - 14,053 4,684 -
Virginia Municipal Money Market - - - 1,287
International Emerging Market - - - -
New Jersey Municipal Money
Market N/A N/A N/A N/A
International Bond N/A N/A N/A N/A
Government Income 3,976 42,314 11,145 -
</TABLE>
-78-
<PAGE>
No Investor C Shares were offered during the fiscal year ended September 30,
1995.
EXPENSES
Expenses are deducted from the total income of each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PAMG, PIMC (with respect to the Index Equity Portfolio
until the Portfolio invests its asset in the Index Master Portfolio) and the
Administrators, transfer agency fees, fees and expenses of officers and trustees
who are not affiliated with PAMG, PIMC or the Distributor or any of their
affiliates, taxes, interest, legal fees, custodian fees, auditing fees,
servicing fees, fees and expenses in registering and qualifying the Portfolios
and their shares for distribution under federal and state securities laws,
expenses of preparing prospectuses and statements of additional information and
of printing and distributing prospectuses and statements of additional
information to existing shareholders, expenses relating to shareholder reports,
shareholder meetings and proxy solicitations, fidelity bond and trustees and
officers liability insurance premiums, the expense of independent pricing
services and other expenses which are not expressly assumed by PAMG, PIMC or the
Fund's service providers under their agreements with the Fund. Any general
expenses of the Fund that do not belong to a particular investment portfolio
will be allocated among all investment portfolios by or under the direction of
the Board of Trustees in a manner the Board determines to be fair and equitable.
PAMG, PIMC and the sub-advisers expect to waive voluntarily a portion of
their respective advisory and sub-advisory fees during the Portfolios' current
fiscal year. In addition, if the total expenses borne by any Portfolio in a
fiscal year exceed the expense limitations imposed by applicable state
securities regulations, PAMG, PIMC (with respect to the Index Equity Portfolio
until the Portfolio invests its asset in the Index Master Portfolio), the
respective sub-adviser and the Administrators will bear the amount of the excess
to the extent required by such regulations in proportion to the advisory and
administration fees otherwise payable to them for such year.
DIVIDENDS AND DISTRIBUTIONS -- BOND PORTFOLIOS
Each Bond Portfolio will distribute substantially all of its net investment
income and net realized capital gains, if any, to shareholders. All
distributions are reinvested at net asset value in form of additional full and
fractional shares of the relevant class of the relevant Portfolio unless a
shareholder elects otherwise. Such election, or any revocation thereof, must be
made in writing to PFPC, and will become effective with
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<PAGE>
respect to dividends paid after its receipt by PFPC. The net investment income
of the Managed Income, Tax-Free Income, Intermediate Government Bond,
Intermediate Bond and International Bond Portfolios is declared monthly as a
dividend to investors who are shareholders of such Portfolio at the close of
business on the day of declaration. The net investment income of the
Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Ohio Tax-Free Income,
Core Bond and Short Government Bond Portfolio is declared daily as a dividend on
"settled" shares (that is, share for which the particular Portfolio has received
payment in Federal funds) on the first Business Day after a purchase order is
placed with the Fund. Payments by check are normally converted to Federal funds
within two Business Days of receipt. All dividends are paid within ten days
after the end of each month and, in the case of the Pennsylvania Tax-Free
Income, New Jersey Tax-Free Income, Ohio Tax-Free Income, Core Bond and Short
Government Bond Portfolios, within seven days after redemption of all of a
shareholder's shares in a Portfolio. Net realized capital gains (including net
short-term capital gains), if any, will be distributed by each Portfolio at
least annually.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions, the adviser and sub-advisers seek to
obtain the best price and execution for a Portfolio, taking into account such
factors as the price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved. While the adviser and sub-advisers generally seek
reasonably competitive commission rates, payment of the lowest commission or
spread is not necessarily consistent with obtaining the best price and execution
in particular transactions. Payments of commissions to brokers who are
affiliated persons of the Fund, or the Trust with respect to the Index Master
Portfolio, (or affiliated persons of such persons) will be made in accordance
with Rule 17e-1 under the 1940 Act. With respect to the Index Master Portfolio,
commissions paid on such transactions would be commensurate with the rate of
commissions paid on similar transactions to brokers that are not so affiliated.
No Portfolio has any obligation to deal with any broker or group of brokers
in the execution of portfolio transactions. The adviser and sub-advisers may,
consistent with the interests of a Portfolio, select brokers on the basis of the
research, statistical and pricing services they provide to a Portfolio and the
adviser's or sub-adviser's other clients. Information and research received
from such brokers will be in addition to, and not in lieu of, the services
required to be performed by the adviser and sub-advisers under their respective
contracts. A commission paid to such brokers may be higher than that which
another qualified broker would have charged for effecting the
-80-
<PAGE>
same transaction, provided that the adviser or sub-adviser determines in good
faith that such commission is reasonable in terms either of the transaction or
the overall responsibility of the adviser or sub-adviser to a Portfolio and its
other clients and that the total commissions paid by a Portfolio will be
reasonable in relation to the benefits to a Portfolio over the long-term. With
respect to the Index Master Portfolio, it will seek to acquire and dispose of
securities in a manner which would cause as little fluctuation in the market
prices of stocks being purchased or sold as possible in light of the size of the
transactions being effected, and brokers will be selected with this goal in
view. DFA monitors the performance of brokers which effect transactions for the
Index Master Portfolio to determine the effect that the Index Master Portfolio's
trading has on the market prices of the securities in which they invest. DFA
also checks the rate of commission being paid by the Index Master Portfolio to
its brokers to ascertain that they are competitive with those charged by other
brokers for similar services. Transactions also may be placed with brokers who
provide DFA with investment research, such as reports concerning individual
issuers, industries and general economic and financial trends and other research
services. The Investment Management Agreement permits DFA knowingly to pay
commissions on such transactions which are greater than another broker might
charge if DFA, in good faith, determines that the commissions paid are
reasonable in relation to the research or brokerage services provided by the
broker or dealer when viewed in terms of either a particular transaction or
DFA's overall responsibilities to the Trust.
Commission rates for brokerage transactions on foreign stock exchanges are
generally fixed. In addition, the adviser or sub-adviser may take into account
the sale of shares of the Fund in allocating purchase and sale orders for
portfolio securities to brokers (including brokers that are affiliated with them
or Distributor).
For the year or period ended September 30, 1995, the following Portfolios paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
PORTFOLIOS BROKERAGE COMMISSIONS
- ---------- ---------------------
<S> <C>
Money Market -
Municipal Money Market -
U.S. Treasury Money Market -
Ohio Municipal Money Market -
Pennsylvania Municipal Money Market -
North Carolina Municipal Money Market -
Managed Income -
</TABLE>
-81-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIOS BROKERAGE COMMISSIONS
- ---------- ---------------------
<S> <C>
Tax-Free Income -
Intermediate Government -
Ohio Tax-Free Income -
Pennsylvania Tax-Free Income -
Intermediate Bond -
Value Equity 364,680
Growth Equity 356,156
Small Cap Growth Equity 88,691
Select Equity 341,935
Index Equity 73,946
Small Cap Value Equity 251,396
International Equity 2,667,245
Balanced 144,451
Virginia Municipal Money Market -
International Emerging Market 356,727
New Jersey Municipal Money Market -
</TABLE>
For the year or period ended September 30, 1994, the following Portfolios
paid brokerage commissions as follows:
<TABLE>
<CAPTION>
PORTFOLIOS BROKERAGE COMMISSIONS
- ---------- ---------------------
<S> <C>
Value Equity $ 431,232
Growth Equity $ 530,428
Small Cap Growth Equity $ 62,339
Select Equity $ 156,700
Index Equity $ 47,190
Small Cap Value Equity $ 185,560
International Equity $1,031,631
Balanced $ 164,460
International Emerging Market $ 32,367
</TABLE>
For the year or period ended September 30, 1993, the
following Portfolios paid brokerage commissions as follows:
<TABLE>
<CAPTION>
PORTFOLIOS BROKERAGE COMMISSIONS
- ---------- ---------------------
<S> <C>
Value Equity $ 136,565
Growth Equity/*/ $ 366,421
Small Cap Growth Equity/*/ $ 1,186
Select Equity $ 4,770
</TABLE>
-82-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIOS BROKERAGE COMMISSIONS
- ---------- ---------------------
<S> <C>
Index Equity $ 18,386
Small Cap Value Equity/*/ $ 105,423
International Equity $ 308,297
Balanced $ 68,556
</TABLE>
/*/ The Growth Equity, Small Cap Growth Equity and Small Cap Value Equity
Portfolios paid Shearson Lehman Hutton Inc. ("Shearson"), as affiliate of
the Fund's former distributor $4,390, $264 and $636, respectively.
Approximately 1%, 22% and 1% of the aggregate brokerage commissions of such
respective Portfolios were paid to Shearson, representing approximately 1%,
22% and 1% of the aggregate dollar amounts of transactions by those
respective Portfolios involving the payment of commissions.
For the Index Master Portfolio's fiscal years ended November 30, 1993, 1994
and 1995, the Index Master Portfolio paid brokerage commissions totalling
$41,393, $10,610 and $15,289, respectively.
For the fiscal years ended February 28, 1995, 1994 and 1993 the predecessor
portfolios to the New Jersey Tax-Free Income and International Bond Portfolios
paid no brokerage commissions.
For the fiscal years ended June 30, 1995 and 1994 and for the period
December 9, 1992 (commencement of operations) through June 30, 1993, the
predecessor portfolio to the Core Bond paid no brokerage commissions.
For the fiscal years ended June 30, 1995, 1994 and 1993 the predecessor
portfolio to the Short Government Bond Portfolio paid no brokerage commissions.
Over-the-counter issues, including corporate debt and U.S. Government
securities, are normally traded on a "net" basis without a stated commission,
through dealers acting for their own account and not as brokers. The Portfolios
will primarily engage in transactions with these dealers or deal directly with
the issuer unless a better price or execution could be obtained by using a
broker. Prices paid to a dealer with respect to both foreign and domestic
securities will generally include a "spread," which is the difference between
the prices at which the dealer is willing to purchase and sell the specific
security at the time, and includes the dealer's normal profit.
Purchases of money market instruments by a Portfolio are made from dealers,
underwriters and issuers. The Portfolios do not currently expect to incur any
brokerage commission expense on
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<PAGE>
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Each Money Market Portfolio intends to purchase only securities
with remaining maturities of 13 months or less as determined in accordance with
the rules of the SEC. As a result, the portfolio turnover rates of a Money
Market Portfolio will be relatively high. However, because brokerage commissions
will not normally be paid with respect to investments made by a Money Market
Portfolio, the turnover rates should not adversely affect the Portfolio's net
asset values or net income.
Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid. It is the policy of the
Portfolios to give primary consideration to obtaining the most favorable price
and efficient execution of transactions involving money market instruments. In
seeking to implement this policy of the Portfolios, the adviser and sub-advisers
will effect transactions involving money market instruments with those dealers
they believe provide the most favorable prices and are capable of providing
efficient executions.
The adviser or sub-advisers may seek to obtain an undertaking from issuers
of commercial paper or dealers selling commercial paper to consider the
repurchase of such securities from a Portfolio prior to maturity at their
original cost plus interest (sometimes adjusted to reflect the actual maturity
of the securities), if it believes that a Portfolio's anticipated need for
liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that a Portfolio would incur a capital loss in
liquidating commercial paper, especially if interest rates have risen since
acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by the adviser or sub-advisers are made independently of each other in
the light of differing conditions. However, the same investment decision may be
made for two or more such accounts. In such cases, simultaneous transactions
are inevitable. Purchases or sales are then averaged as to price and allocated
as to amount in a manner deemed equitable to each such account. While in some
cases this practice could have a detrimental effect upon the price or value of
the security as far as a Portfolio is concerned, in other cases it could be
beneficial to a Portfolio. A Portfolio will
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<PAGE>
not purchase securities during the existence of any underwriting or selling
group relating to such securities of which PAMG, PIMC, BlackRock, PNC Bank, PCM,
PEAC, the Administrators, Distributor or any affiliated person (as defined in
the 1940 Act) thereof is a member except pursuant to procedures adopted by the
Board of Trustees in accordance with Rule 10f-3 under the 1940 Act. In no
instance will portfolio securities be purchased from or sold to PAMG, PIMC,
BlackRock, PNC Bank, PCM, PEAC, the Administrators, Distributor or any
affiliated person of the foregoing entities except as permitted by SEC exemptive
order or by applicable law.
The portfolio turnover rate of a Portfolio is calculated by dividing the
lesser of a Portfolio's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Portfolio during the year. The Index Master Portfolio
ordinarily will not sell portfolio securities except to reflect additions or
deletions of stocks that comprise the S&P 500 Index, including mergers,
reorganizations and similar transactions and, to the extent necessary, to
provide cash to pay redemptions of the Index Master Portfolio's shares.
The Fund is required to identify any securities of its regular brokers or
dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held by
the Fund as of the end of its most recent fiscal year. As of September 30,
1995, the following Portfolios held the following securities:
<TABLE>
<CAPTION>
Portfolio Security Value
- --------- -------- -----
<S> <C> <C>
Money Market
- ------------
Bear, Stearns & Co. Variable Rate Obligation $ 70,000,000
Goldman Sachs, LP Variable Rate Obligation 47,000,000
Merrill Lynch & Co. Medium Term Note 42,000,000
Merrill Lynch & Co. Commercial Paper 24,490,222
Merrill Lynch & Co. Variable Rate Obligation 25,002,938
Morgan Stanley & Co. Repurchase Agreement 125,000,000
Portfolio Security Value
- --------- -------- -----
Government Money Market
- -------------------------
Morgan Stanley & Co. Repurchase Agreement $100,000,000
Managed Income
- --------------
Salomon Brothers, Inc. Corporate Bond $ 7,062,375
Merrill Lynch & Co. Corporate Bond 2,202,895
Morgan Stanley & Co. Corporate Bond 15,961,839
Balanced
- --------
Salomon Brothers, Inc. Corporate Bond $ 450,592
</TABLE>
-85-
<PAGE>
<TABLE>
<S> <C> <C>
Merrill Lynch & Co. Corporate Bond 919,875
Index Equity
- ------------
Salomon Brothers, Inc. Common Stock $ 256,275
Merrill Lynch & Co. Common Stock 543,750
Short Term Bond
- ---------------
Salomon Brothers, Inc. Common Stock $ 492,000
PaineWebber Group Inc. Common Stock $ 147,375
International Bond
- ------------------
Salomon Brothers, Inc. Common Stock $ 2,046,250
PaineWebber Group Inc. Common Stock $ 1,558,125
Government Income
- -----------------
Merrill Lynch & Co. Common Stock $ 999,995
</TABLE>
PURCHASE AND REDEMPTION INFORMATION
COMPUTATION OF PUBLIC OFFERING PRICES FOR INVESTOR A SHARES OF THE
NON-MONEY MARKET PORTFOLIOS. An illustration of the computation of the public
offering price per Investor A Share of each Non-Money Market Portfolio, based on
the value of such Portfolios' net assets as of September 30, 1995, follows:
TABLE
-----
<TABLE>
<CAPTION>
Value Growth Small Cap Index
Equity Equity Growth Equity Select Equity Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Assets................ $16,909,532 $10,033,689 $ 7,347,607 $ 3,807,750 $6,500,597
Outstanding
Shares................... 1,214,898 771,222 490,591 320,632 478,864
=========== =========== =========== =========== ==========
Net Asset Value
Per Share................ $ 13.92 $ 13.01 $ 14.98 $ 11.88 $ 13.58
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share)......... $ .66 $ .61 $ .71 $ .56 $ .64
----------- ----------- ----------- ----------- ----------
Offering to Public........ $ 14.58 $ 13.62 $ 15.69 $ 12.44 $ 14.22
=========== =========== =========== =========== ==========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Small
Cap Value International Managed Tax-Free
Equity Equity Balanced Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Assets................ $21,562,824 $17,720,931 $67,891,929 $11,977,229 $6,590,747
Outstanding
Shares................... 1,424,503 1,338,381 4,946,071 1,153,926 621,214
=========== =========== =========== =========== ==========
Net Asset Value
Per Share................ $ 15.14 $ 13.24 $ 13.73 $ 10.38 $ 10.61
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share)......... $ .71 $ .62 $ .65 $ .49 $ .50
----------- ----------- ----------- ----------- ----------
Offering to Public........ $ 15.85 $ 13.86 $ 14.38 $ 10.87 $ 11.11
=========== =========== =========== =========== ==========
<CAPTION>
Pennsylvania Short
Intermediate Ohio Tax- Tax-Free Government Intermediate
Government Free Income Income Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Assets................ $ 9,801,709 $ 3,302,252 $42,774,116 $ 311,448 $ 646,591
Outstanding
Shares................... 977,718 328,448 4,142,417 32,087 68,597
=========== =========== =========== =========== ==========
Net Asset Value
Per Share................ $ 10.03 $ 10.05 $ 10.33 $ 9.71 $ 9.43
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share)......... $ .47 $ .47 $ .49 $ .46 $ .44
----------- ----------- ----------- ----------- ----------
Offering to Public........ $ 10.50 $ 10.52 $ 10.82 $ 10.17 $ 9.87
=========== =========== =========== =========== ==========
<CAPTION>
International New Jersey
Government International Emerging Tax-Free Core
Income Bond Markets Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Assets................ $ 2,989,844 $ 100 $ 2,562,718 $ 100 $ 100
Outstanding
Shares................... 279,974 10 313,245 10 10
=========== =========== =========== =========== ==========
Net Asset Value
Per Share................ $ 10.68 $ 10.00 $ 8.18 $ 10.00 $ 10.00
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share)......... $ .50 $ .47 $ .39 $ .47 $ .47
----------- ----------- ----------- ----------- ----------
Offering to Public........ $ 11.18 $ 10.47 $ 8.57 $ 10.47 $ 10.47
=========== =========== =========== =========== ==========
</TABLE>
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<PAGE>
Total front-end sales charges paid by shareholders of Investor A Shares of the
Portfolios for the year or period ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS FRONT-END SALES CHARGES
- ---------- -----------------------
<S> <C>
Managed Income 37,132
Tax-Free Income 8,850
Intermediate Government 42,765
Ohio Tax-Free Income 2,725
Pennsylvania Tax-Free Income 121,089
Intermediate Bond 1,513
Value Equity 68,289
Growth Equity 47,859
Small Cap Growth Equity 77,356
Select Equity 34,761
Index Equity 51,229
Small Cap Value Equity 61,709
International Equity 83,938
Balanced 144,255
International Emerging Markets 24,915
Government Income 69,712
</TABLE>
Total front-end sales charges paid by shareholders of Investor A Shares of the
Portfolios for the year or period ended September 30, 1994 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS FRONT-END SALES CHARGES
- ---------- -----------------------
<S> <C>
Managed Income $ 150,150
Tax-Free Income $ 37,504
Intermediate Government $ 50,694
Ohio Tax-Free Income $ 64,596
Pennsylvania Tax-Free Income $ 678,464
Intermediate Bond $ 2,124
Value Equity $ 195,675
Growth Equity $ 81,496
Small Cap Growth Equity $ 44,054
Select Equity $ 17,550
Index Equity $ 38,454
Small Cap Value Equity $ 230,590
International Equity $ 303,547
Balanced $1,213,056
International Emerging Markets $ 130,755
</TABLE>
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<PAGE>
Total front-end sales charges paid by shareholders of Portfolios for the year or
period ended September 30, 1993 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS FRONT-END SALES CHARGES
- ---------- -----------------------
<S> <C>
Managed Income $ 202,926
Tax-Free Income $ 128,003
Intermediate Government $ 127,347
Ohio Tax-Free Income $ 68,959
Pennsylvania Tax-Free Income $1,083,103
Value Equity $ 155,096
Growth Equity $ 60,863
Index Equity $ 37,281
Small Cap Value Equity $ 250,615
International Equity $ 86,294
Balanced $1,304,538
</TABLE>
Investor B Shares of the Non-Money Market Portfolios are sold at the
net asset value per share next determined after a purchase order is received.
Investor B Shares of the Non-Money Market Portfolios are subject to a contingent
deferred sales charge which is payable on redemption of such Investor B Shares.
Investor C Shares of the Non-Money Market Portfolios are sold at the
net asset value per share next determined after a purchase order is received
plus the applicable front-end sales charge. In addition, Investor C Shares of
the Non-Money Market Portfolios are subject to a contingent deferred sales
charge which is payable on redemption of such Investor C Shares within 18 months
of purchase.
Service and Institutional Shares of each Portfolio are sold at the net
asset value per share next determined after a purchase order is received.
EXCHANGE PRIVILEGE. By use of the exchange privilege, the investor
authorizes the Fund's transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the investor and
believed by the Fund's transfer agent to be genuine. The records of the Fund's
transfer agent pertaining to such instructions are binding. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
affected shareholders. The exchange privilege is only available in states where
the exchange may legally be made.
A front-end sales charge or a contingent deferred sales charge will be
imposed (unless an exemption from either sales charge applies) when Investor
Shares of a Money Market Portfolio are redeemed and the proceeds are used to
purchase Investor A
-89-
<PAGE>
Shares and Investor B Shares, respectively, of a Non-Money Market Portfolio.
Holders of Investor Shares of a Money Market Portfolio who redeem their shares
and use the proceeds to purchase Investor C Shares of a Money Market Portfolio
will be subject to both a front-end and a contingent deferred sales charge
(unless an exemption from either sales charge applies).
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Investor A Shares of the Non-Money Market Portfolios at
net asset value, without a sales charge, with the proceeds from the redemption
of shares of any other investment company which were sold with a sales charge or
commission in accordance with the terms set forth in the Prospectuses. This
does not include shares of an affiliated mutual fund which were or would be
subject to a contingent deferred sales charge upon redemption. For purposes of
this restriction, the term "affiliated mutual fund" means:
i) any Portfolio of the Fund; and
ii) any other investment company, if such company and the Fund hold
themselves out to investors as related companies for purposes of
investment and investor services, and if:
a) that company and the Fund have a common investment adviser or
distributor; or
b) the investment adviser or distributor of such company or the Fund
is an "affiliated person" (as defined in Section 2(a)(3) of the
1940 Act) of the investment adviser or distributor of the Fund or
the company, respectively.
MISCELLANEOUS. The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act so that a Portfolio is obligated to redeem its shares solely in cash up
to the lesser of $250,000 or 1% of its net asset value during any 90-day period
for any one shareholder of a Portfolio.
With respect to the Index Master Portfolio, if the Board of Trustees of the
Trust determines that it would be detrimental to the best interests of the
remaining shareholders of the Index Master Portfolio to make payment wholly or
partly in cash, the Index Master Portfolio may pay the redemption price in whole
or
-90-
<PAGE>
in part by a distribution of portfolio securities from the Index Master
Portfolio of the shares being redeemed in lieu of cash in accordance with Rule
18f-1 under the Investment Company Act of 1940. Investors, such as the
Portfolio, may incur brokerage charges and other transaction costs selling
securities that were received in payment of redemptions.
Under the 1940 Act, a Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on the NYSE is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (A Portfolio may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectuses, the Fund may
redeem shares involuntarily to reimburse a Portfolio for any loss sustained by
reason of the failure of a shareholder to make full payment for shares purchased
by the shareholder or to collect any charge relating to a transaction effected
for the benefit of a shareholder as provided in the Prospectus from time to
time.
VALUATION OF PORTFOLIO SECURITIES
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use, without limitation, a
matrix or formula method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. This may result in the securities
being valued at a price different from the price that would have been determined
had the matrix or formula method not been used. All cash, receivables and
current payables are carried on the Fund's books at their face value. Other
assets, if any, are valued at fair value as determined in good faith under the
supervision of the Board of Trustees.
MONEY MARKET PORTFOLIOS. The net asset value for each class of each Share
of the Money Market Portfolios for the purpose of pricing purchase and
redemption orders is determined twice each day, once as of 12:00 noon (Eastern
Time) and once as of 4:00 p.m. (Eastern Time) on each Business Day. Each
Portfolio's net asset value per share is calculated by adding the value of all
securities, cash and other assets of the respective classes of the Portfolio,
subtracting the liabilities and dividing the result by the number of outstanding
Shares of such classes. The net asset value per Share of each class of each
Portfolio is
-91-
<PAGE>
determined independently of the other classes and the other Portfolios.
The Fund seeks to maintain for each of the Money Market Portfolios a net
asset value of $1.00 per share for purposes of purchase and redemptions and
values their portfolio securities on the basis of the amortized cost method of
valuation, described below. There can be no assurance that the net asset value
per share will not vary.
A Money Market Portfolio may use a pricing service, bank or broker/dealer
experienced in such matters to value the Portfolio's securities.
As note above, the value of the portfolio securities of each Money Market
Portfolio is calculated using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline.
As indicated, the amortized cost method of valuation may result in the
value of a security being higher or lower than its market price, the price a
Money Market Portfolio would receive if the security were sold prior to
maturity. The Fund's Board of Trustees has established procedures for the
purpose of maintaining a constant net asset value of $1.00 per share for each
Money Market Portfolio, which include a review of the extent of any deviation of
net asset value per share, based on available market quotations, from the $1.00
amortized cost per share. Should that deviation exceed 1/2 of 1% for a Money
Market Portfolio, the Fund's Board of Trustees will promptly consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redeeming shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends, shortening the average portfolio maturity, reducing the number of
outstanding shares without monetary consideration, and utilizing a net asset
value per share as determined by using available market quotations.
Each Money Market Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, and will
limit portfolio investments, including repurchase agreements, to those
instruments that the adviser or sub-adviser determines present minimal credit
risks
-92-
<PAGE>
pursuant to guidelines adopted by the Fund's Board of Trustees. There can be no
assurance that a constant net asset value will be maintained for any Money
Market Portfolio.
EQUITY PORTFOLIOS. The net asset value for each Service, Investor A,
Investor B, Investor C and Institutional Share for each Equity Portfolio is
calculated as of the close of regular trading hours on the NYSE (currently 4:00
p.m. Eastern Time) on each Business Day by adding the value of all its
securities, cash and other assets allocable to each respective class of shares
and dividing by the respective total number of outstanding shares of each class.
The net asset value per share of each class of each Portfolio is determined
independently of the other classes and the other Portfolios.
Valuation of securities held by each Portfolio is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; an option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, the mean between the last bid and asked prices prior to 4:00
p.m. (Eastern Time); and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Fund's Board of Trustees. The amortized cost method
of valuation will also be used with respect to debt obligations with sixty days
or less remaining to maturity unless the investment adviser and/or sub-adviser
under the supervision of the Board of Trustees determines such method does not
represent fair value.
Valuation of securities of foreign issuers and those held by the
International Equity and International Emerging Markets Portfolios is as
follows: to the extent sale prices are available, securities which are traded
on a recognized stock exchange, whether U.S. or foreign, are valued at the
latest sale price on that exchange prior to the time when assets are valued or
prior to the close of regular trading hours on the NYSE. In the event that
there are no sales, the mean between the last available bid and asked prices
will be used. If a security is traded on more than one exchange, the latest
sale price on the exchange where the stock is primarily traded is used. An
option or futures contract is valued at the last sales price prior to 4:00 p.m.
(Eastern Time), as quoted on the principal exchange or board of trade on which
such option or contract is traded, or in the absence of a sale, the mean between
the last bid and asked prices prior to 4:00 p.m. (Eastern Time). In the event
that
-93-
<PAGE>
application of these methods of valuation results in a price for a security
which is deemed not to be representative of the market value of such security,
the security will be valued by, under the direction of or in accordance with a
method specified by the Board of Trustees as reflecting fair value. The
amortized cost method of valuation will be used with respect to debt obligations
with sixty days or less remaining to maturity unless the investment adviser
and/or sub-adviser under the supervision of the Board of Trustees determines
such method does not represent fair value. All other assets and securities held
by the Portfolios (including restricted securities) are valued at fair value as
determined in good faith by the Board of Trustees or by someone under its
direction. Any assets which are denominated in a foreign currency are
translated into U.S. dollars at the prevailing market rates.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities.
The valuation of securities held by the Index Master Portfolio is discussed
in its Registration Statement.
BOND PORTFOLIOS. The net asset value for each Service, Investor A,
Investor B, Investor C and Institutional Share for each Bond Portfolio is
calculated as of the close of regular trading hours on the NYSE on each Business
Day by adding the value of all its securities, cash and other assets allocable
to each respective class of shares and dividing by the respective total number
of outstanding shares of each class. The net asset value per share of each
class of each Portfolio is determined independently of the other classes and the
other Portfolios.
Valuation of securities held by each Bond Portfolio is as follows: domestic
securities traded on a national securities exchange or on the NASDAQ National
Market system are valued at the last reported sale price that day; domestic
securities traded on a national securities exchange or on the NASDAQ National
Market System for which there were no sales on that day are valued at the mean
of the bid and asked prices; foreign securities traded on a recognized stock
exchange, whether U.S. or foreign, are valued at the latest sale price on that
exchange prior to the time when assets are valued or prior to the close of
regular trading hours on the NYSE (if a security is traded on more than one
exchange, the latest sale price on the exchange where the stock is primarily
traded is used); foreign securities traded on a recognized stock exchange for
which there were no sales on that day are valued at the mean of the bid and
asked prices; other securities are valued on the basis of valuations provided by
a pricing service approved by the Board of Trustees, provided that if the
investment adviser or sub-adviser concludes that the price provided by a pricing
service does not represent the fair value of a security, such security will be
valued at fair value determined by the adviser or sub-adviser based on
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<PAGE>
quotations or the equivalent thereof received from dealers; an option or futures
contract is valued at the last sales price prior to 4:00 p.m. (Eastern Time), as
quoted on the principal exchange or board of trade on which such option or
futures contract is traded, or in the absence of a sale, the mean between the
last bid and asked prices prior to 4:00 p.m. (Eastern Time); the amortized cost
method of valuation is used with respect to debt obligations with sixty days or
less remaining to maturity; and securities for which market quotations are not
readily available are valued at fair market value as determined in good faith by
or under the direction of the Fund's Board of Trustees. Any securities which
are denominated in a foreign currency are translated into U.S. dollars at the
prevailing market rates.
PERFORMANCE INFORMATION
A Portfolio may quote performance in various ways. All performance
information supplied by a Portfolio in advertising is historical and is not
intended to indicate future returns.
MONEY MARKET PORTFOLIO YIELD. Each Money Market Portfolio's current and
effective yields for Service, Investor A, Investor B, Investor C and
Institutional Shares are computed separately using standardized methods required
by the SEC. The annualized yield for a class of Service, Investor A, Investor
B, Investor C or Institutional Shares is computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
----
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and depreciation.
Compound effective yields are computed by adding 1 to the base period return
(calculated as described above) raising the sum to a power equal to 365/7 and
subtracting 1. In addition, a standardized "tax-equivalent yield" may be quoted
for Service, Investor A, Investor B, Investor C and Institutional Shares in the
Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal
Money Market, North Carolina Municipal Money Market, Virginia Municipal Money
Market and New Jersey Municipal Money Market Portfolios, which is computed
separately for each class by: (a) dividing the portion of the Portfolio's yield
for shares (as calculated above) that is exempt from Federal or state income tax
by one minus a stated Federal or state income tax rate; and (b) adding the
figure resulting from (a) above to that portion, if any, of the yield that is
not exempt from Federal and state income tax.
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<PAGE>
The annualized yield information for each Money Market Portfolio for the
seven-day period ended September 30, 1995 before waivers was as follows:
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELD
(ASSUMES A FEDERAL
EFFECTIVE INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ------ --------- --------------------
<S> <C> <C> <C>
Money Market
Service Shares 4.97% 5.09% N/A
Investor A Shares 4.70 4.81 N/A
Institutional Shares 5.27 5.41 N/A
Investor B Shares 4.20 4.29 N/A
Municipal Money Market
Service Shares 3.12 3.17 4.33%
Investor A Shares 2.86 2.90 3.97
Institutional Shares 3.42 3.48 4.75
U.S. Treasury Money Market
Service Shares 4.84 4.96 N/A
Investor A Shares 4.57 4.67 N/A
Institutional Shares 5.14 5.27 N/A
Ohio Municipal Money Market
Service Shares 3.14 3.19 4.36
Investor A Shares 2.87 2.91 3.99
Institutional Shares 3.44 3.50 4.78
Pennsylvania Municipal Money
Market
Service Shares 3.15 3.20 4.38
Investor A Shares 2.88 2.92 4.00
Institutional Shares 3.45 3.51 4.79
North Carolina Municipal
Money Market
Service Shares 3.13 3.18 4.35
Investor A Shares 2.86 2.90 3.97
Institutional Shares 3.43 3.49 4.76
Virginia Municipal Money
Market
Service Shares 2.90 2.94 4.03
Investor A Shares N/A N/A N/A
Institutional Shares 3.20 3.25 4.44
New Jersey Municipal Money
Market
Service Shares N/A
Investor A Shares N/A
Institutional Shares N/A
</TABLE>
The Investor B Class had not commenced operations as of September 30, 1995,
except with respect to the Money Market Portfolio. The Investor C Class
had not commenced operations as of September 30, 1995.
The annualized yield information for each Money Market Portfolio for the
seven-day period ended September 30, 1995 after waivers was as follows:
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<PAGE>
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELD
(ASSUMES A FEDERAL
EFFECTIVE INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- --------- --------------------
<S> <C> <C> <C>
Money Market
Service Shares 5.34 5.48% N/A
Investor A Shares 5.07 5.20 N/A
Institutional Shares 5.64 5.80 N/A
Investor B Shares 4.57 4.67 N/A
Municipal Money Market
Service Shares 3.56 3.62 4.33%
Investor A Shares 3.30 3.35 3.97
Institutional Shares 3.86 3.93 4.75
U.S. Treasury Money Market
Service Shares 5.26 5.40 N/A
Investor A Shares 4.99 5.11 N/A
Institutional Shares 5.56 5.71 N/A
Ohio Municipal Money Market
Service Shares 3.60 3.66 5.00
Investor A Shares 3.33 3.38 4.63
Institutional Shares 3.901 3.98 5.42
Pennsylvania Municipal Money
Market
Service Shares 3.57 3.63 4.96
Investor A Shares 3.30 3.35 4.58
Institutional Shares 3.87 3.94 5.38
North Carolina Municipal
Money Market
Service Shares 3.66 3.73 5.08
Investor A Shares 3.39 3.45 4.71
Institutional Shares 3.96 4.04 5.50
Virginia Municipal Money
Market
Service Shares 3.75 3.82 5.21
Investor A Shares N/A N/A N/A
Institutional Shares 4.05 4.13 5.63
New Jersey Municipal Money
Market
Service Shares N/A
Investor A Shares N/A
Institutional Shares N/A
</TABLE>
The Investor B Class had not commenced operations as of September 30, 1995,
except with respect to the Money Market Portfolio. The Investor C Class
had not commenced operations as of September 30, 1995.
The fees which may be imposed by institutions on their Customers are not
reflected in the calculations of yields for the Money Market Portfolios. Yields
on Institutional Shares will generally be higher than yields on Service Shares;
yields on Service Shares will generally be higher than yields on Investor A
Shares; and yields on Investor A Shares will generally be higher than yields on
Investor B Shares and Investor C Shares.
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<PAGE>
From time to time, in advertisements, sale literature; in reports to
shareholders and other materials, the yields of a Portfolio's Service, Investor
A, Investor B, Investor C or Institutional Shares may be quoted and compared to
those of other mutual funds with similar investment objectives and to stock or
other relevant indexes. For example, the yield of a Portfolio's Service,
Investor A, Investor B, Investor C or Institutional Shares may be compared to
the Donoghue's Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT(R), a widely-recognized independent publication
that monitors the performance of money market funds, the average yields reported
by the Bank Rate Monitor from money market deposit accounts offered by the 50
leading banks and thrift institutions in the top five standard metropolitan
statistical areas, or to the data prepared by Lipper Analytical Services, Inc.,
a widely-recognized independent service that monitors the performance of mutual
funds. Yield may also be compared to yields set forth in the weekly statistical
release H.15(519) or the monthly statistical release designated G.13(415)
published by the Board of Governors of the Federal Reserve system.
TOTAL RETURN. For purposes of quoting and comparing the performance of
shares of the Non-Money Market Portfolios to the performance of other mutual
funds and to stock or other relevant indexes in advertisements, sales
literature; or in communications to shareholders and other materials,
performance may be stated in terms of total return. The total return for each
class of a Non-Money Market Portfolio will be calculated independently of the
other classes within that Portfolio. Under the rules of the SEC, funds
advertising performance must include total return quotes calculated according to
the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
In calculating the ending redeemable value for Investor A Shares of the
Fund's Non-Money Market Portfolios, the maximum front-end sales charge is
deducted from the initial $1,000 payment and all dividends and distributions by
the particular
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<PAGE>
Portfolio are assumed to have been reinvested at net asset value as described in
the particular Prospectus on the reinvestment dates during the period. In
calculating the ending redeemable value for Investor B Shares of the Non-Money
Market Portfolios, the maximum contingent deferred sales charge is deducted at
the end of the period and all dividends and distributions by the particular
Portfolio are assumed to have been reinvested at net asset value as described in
the particular Prospectus on the reinvestment dates during the period. In
calculating the ending redeemable value for Investor C Shares of the Fund's Non-
Money Market Portfolios, the maximum front-end sales charge is deducted from the
initial $1,000 payment, the maximum contingent deferred sales charge is deducted
at the end of the period, and all dividends and distributions by the particular
Portfolio are assumed to have been reinvested at net asset value as described in
the particular Prospectus on the reinvestment dates during the period. Total
return, or "T" in the formula above, is computed by finding the average annual
compounded rates of return over the specified periods that would equate the
initial amount invested to the ending redeemable value.
Based on the foregoing calculation, the average annual total returns for
each Non-Money Market Portfolio for periods ended September 30, 1995 were as
follows:
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<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 9/30/95 9/30/95 OF OPERATIONS
- --------- ------------- ----------- -------------
<S> <C> <C> <C>
Managed Income
Service Shares/(1)/ 12.97 N/A 4.67
Investor A Shares/(2)/ 7.68 N/A 5.77
Institutional Shares/(3)/ 13.27 9.07 8.29
Investor B Shares/(4)/ N/A N/A N/A
Tax-Free Income
Service Shares/(1)/ 11.24 N/A 5.11
Investor A Shares/(5)/ 6.03 7.27 7.02
Institutional Shares/(6)/ 11.54 N/A 6.65
Investor B Shares/(7)/ N/A N/A N/A
Intermediate Government
Service Shares/(1)/ 9.99 N/A 3.95
Investor A Shares/(8)/ 5.08 N/A 4.24
Institutional Shares/(9)/ 10.28 N/A 6.04
Investor B Shares/(10)/ N/A N/A N/A
Ohio Tax-Free Income
Service Shares/(1)/ 10.45 N/A 4.45
Investor A Shares/(11)/ 5.51 N/A 3.67
Institutional Shares/(11)/ 10.75 N/A 5.45
Investor B Shares/(12)/ N/A N/A 4.46
Pennsylvania Tax-Free Income
Service Shares/(1)/ 10.51 N/A 4.78
Investor A Shares/(11)/ 5.37 N/A 4.70
Institutional Shares/(11)/ 10.81 N/A 6.59
Investor B Shares/(13)/ N/A N/A 4.85
Intermediate Bond
Service Shares/(17)/ 10.46 N/A 3.15
Investor A Shares/(18)/ 5.35 N/A 4.18
Institutional Shares/(19)/ 10.76 N/A 3.36
Investor B Shares/(20)/ N/A N/A N/A
Government Income
Service Shares N/A N/A N/A
Investor A Shares/(21)/ N/A N/A 9.19
Institutional Shares N/A N/A N/A
Investor B Shares/(22)/ N/A N/A 8.49
Value Equity
Service Shares/(1)/ 25.40 N/A 15.12
Investor A Shares/(23)/ 19.56 N/A 12.36
Institutional Shares/(24)/ 25.73 N/A 14.00
Investor B Shares/(25)/ N/A N/A N/A
Growth Equity
Service Shares/(26)/ 29.43 N/A 11.26
Investor A Shares/(27)/ 23.43 N/A 8.39
Institutional Shares/(3)/ 29.88 12.05 10.17
Investor B Shares/(28)/ N/A N/A N/A
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIOS ENDED 9/30/95 9/30/95 OF OPERATIONS
- ---------- ------------- ----------- -------------
<S> <C> <C> <C>
Small Cap Growth Equity
Service Shares/(29)/ 48.13 N/A 22.29
Investor A Shares/(29)/ 41.32 N/A 19.38
Institutional Shares/(30)/ 48.50 N/A 22.30
Investor B Shares/(31)/ N/A N/A N/A
Select Equity
Service Shares/(29)/ 23.43 N/A 11.52
Investor A Shares/(32)/ 17.71 N/A 9.53
Institutional Shares/(33)/ 23.76 N/A 11.76
Investor B Shares/(34)/ N/A N/A N/A
Index Equity/(35)/
Service Shares/(1)/ 28.99 N/A 15.50
Investor A Shares/(36)/ 22.92 N/A 11.37
Institutional Shares/(9)/ 29.30 N/A 12.95
Investor B Shares/(37)/ N/A N/A N/A
Small Cap Value Equity
Service Shares/(1)/ 17.17 N/A 13.71
Investor A Shares/(36)/ 11.69 N/A 14.18
Institutional Shares/(38)/ 17.43 N/A 15.56
Investor B Shares/(39)/ N/A N/A 11.77
International Equity
Service Shares/(1)/ 2.19 N/A 8.57
Investor A Shares/(36)/ (2.58) N/A 7.61
Institutional Shares/(40)/ 2.46 N/A 11.21
Investor B Shares/(41)/ N/A N/A (2.80)
International Emerging
Markets
Service Shares/(42)/ 19.91) N/A (12.31)
Investor A Shares/(42)/ 23.74) N/A (15.64)
Institutional Shares/(42)/ 19.72) N/A (12.08)
Investor B Shares/(43)/ N/A N/A N/A
Balanced
Service Shares/(1)/ 19.94 N/A 10.34
Investor A Shares/(44)/ 14.51 12.73 10.14
Institutional Shares/(45)/ 20.32 N/A 11.28
Investor B Shares/(46)/ N/A N/A 14.10
</TABLE>
- ---------------
/(1)/ Commenced operations on July 29, 1993.
/(2)/ Commenced operations on February 5, 1992.
/(3)/ Commenced operations on November 1, 1989.
/(4)/ Class had not commenced operations at September 30, 1995.
/(5)/ Commenced operations on May 14, 1990.
/(6)/ Commenced operations on January 21, 1993.
/(7)/ Class had not commenced operations at September 30, 1995.
/(8)/ Commenced operations on May 11, 1992.
/(9)/ Commenced operations on April 20, 1992.
/(10)/ Class had not commenced operations at September 30, 1995.
/(11)/ Commenced operations on December 1, 1992.
/(12)/ Commenced operations on October 13, 1994.
-101-
<PAGE>
/(13)/ Commenced operations on October 3, 1994.
/(14)/ Commenced operations on September 1, 1993.
/(15)/ Commenced operations on November 17, 1993.
/(16)/ Class had not commenced operations at September 30, 1995.
/(17)/ Commenced operations on September 23, 1993.
/(18)/ Commenced operations on May 20, 1994.
/(19)/ Commenced operations on September 17, 1993.
/(20)/ Class had not commenced operations at September 30, 1995.
/(21)/ Commenced operations on October 4, 1994.
/(22)/ Commenced operations on October 3, 1994.
/(23)/ Commenced operations on May 2, 1992.
/(24)/ Commenced operations on May 20, 1992.
/(25)/ Class had not commenced operations at September 30, 1995.
/(26)/ Commenced operations on July 28, 1993.
/(27)/ Commenced operations on March 14, 1992.
/(28)/ Class had not commenced operations at September 30, 1995.
/(29)/ Commenced operations on September 15, 1993.
/(30)/ Commenced operations on September 14, 1993.
/(31)/ Class had not commenced operations at September 30, 1995.
/(32)/ Commenced operations on October 13, 1993.
/(33)/ Commenced operations on September 13, 1993.
/(34)/ Class had not commenced operations at September 30, 1995.
/(35)/ Reflects total returns prior to investing all of its assets in
the Index Master Portfolio.
/(36)/ Commenced operations on June 2, 1992.
/(37)/ Class had not commenced operations at September 30, 1995.
/(38)/ Commenced operations on April 13, 1992.
/(39)/ Commenced operations on October 3, 1994.
/(40)/ Commenced operations on April 27, 1992.
/(41)/ Commenced operations on October 3, 1994.
/(42)/ Commenced operations on June 17, 1994.
/(43)/ Class had not commenced operations at September 30, 1995.
/(44)/ Commenced operations on May 14, 1990.
/(45)/ Commenced operations on May 1, 1992.
/(46)/ Commenced operations on October 3, 1994.
The predecessor portfolio to the International Bond and New Jersey Tax-Free
Income Portfolios each offered and sold only one class of shares. Based on the
foregoing calculation, the average annual total return for the predecessor
portfolios to the International Bond and New Jersey Tax-Free Income Portfolios
for periods ended February 28, 1995 were as follows:
-102-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR
THE FOR THE 5
YEAR YEARS
ENDED ENDED SINCE COMMENCEMENT
PORTFOLIO 2/28/95 2/28/95 OF OPERATIONS/(1)/
- --------- ------- ------- ------------------
<S> <C> <C> <C>
Predecessor Portfolio to the (2.31)% N/A 6.47%
New Jersey Tax-Free Income
Portfolio/(1)/
Predecessor Portfolio to the
International Bond Portfolio/(2)/ 1.50% N/A 7.40%
</TABLE>
/(1)/ Commenced operations on July 1, 1991.
/(2)/ Commenced operations on July 1, 1991.
The predecessor portfolio to the Short Government and Core Bond Portfolios
each also offered and sold only one class of shares. Based on the foregoing
calculation, the average annual total return for the Predecessor Portfolio for
periods ended June 30, 1995 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR FOR THE
THE 5
YEAR YEARS SINCE
ENDED ENDED COMMENCEMENT
PORTFOLIO 6/30/95 6/30/95 OF OPERATIONS
- --------- ------- ------- -------------
<S> <C> <C> <C>
Predecessor Portfolio/(1)/ to the 12.44% N/A 7.17%
Core Bond Portfolio
Predecessor Portfolio to the
International Bond Portfolio/(2)/ _____% N/A ______%
</TABLE>
=============================================================================
/(1)/ Commenced operations on December 9, 1992.
/(2)/ Commenced operations on __________, ____.
Each class of the Non-Money Market Portfolios may also from time to time
include in advertisements, sale literature; communications to shareholders and
other materials a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of
each class of a Non-Money Market Portfolio's shares with other performance
measures. For example, in comparing the total return of a Non-Money Market
Portfolio's shares with data published by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc. or Weisenberger Investment Company Service, or
with the performance of the Standard & Poor's 500 Stock Index, EAFE, the Dow
Jones Industrial Average or the Shearson Lehman Hutton Government Corporate Bond
Index, as appropriate, a Non-Money Market Portfolio may calculate the aggregate
total return for its
-103-
<PAGE>
shares of a certain class for the period of time specified in the advertisement
or communication by assuming the investment of $10,000 in such Non-Money Market
Portfolio's shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. A Non-Money
Market Portfolio does not, for these purposes, deduct from the initial value
invested or the ending value any amount representing front-end, deferred sales
charges or both, respectively, charged to purchasers of Investor A, Investor B
and Investor C Shares, respectively. The Investor A, Investor B and Investor C
classes of the Portfolio will, however, disclose the maximum applicable sales
charge and will also disclose that the performance data does not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.
In addition to average annual total returns, a Non-Money Market Portfolio
may quote unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and cumulative
total returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted on a before-tax or
after-tax basis and may be quoted with or without taking sales charge into
account. Excluding the sales charge from a total return calculation produces a
higher total return figure. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph or similar
illustration.
NON-MONEY MARKET PORTFOLIO YIELD. The Balanced, Managed Income, Tax-Free
Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free
Income, New Jersey Tax-Free Income, Short Government Bond, Intermediate Bond,
Government Income, Core Bond and International Bond Portfolios may advertise
their yields on their Service, Investor A, Investor B, Investor C and
Institutional Shares. Under the rules of the SEC, each such Portfolio
advertising the respective yields for its Service, Investor A, Investor B,
Investor C and Institutional Shares must calculate yield using the following
formula:
a-b
YIELD = 2[(----- +1) to the 6th power - 1]
cd
-104-
<PAGE>
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Portfolio is recognized by accruing 1/360th of the stated dividend rate of
the security each day that the security is in the Portfolio. Except as noted
below, interest earned on any debt obligations held by the Portfolio is
calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Portfolio. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date.
With respect to debt obligations purchased at a discount or premium, the
formula generally calls for amortization of the discount or premium. However,
interest earned on tax-exempt obligations that are issued without original issue
discount and have a current market discount is calculated by using the coupon
rate of interest instead of the yield to maturity. In the case of tax-exempt
obligations that are issued with original issue discount but which have
discounts based on current market value that exceed the then-remaining portion
of the original issue discount (market discount), the yield to maturity is the
imputed rate based on the original issue discount calculation. On the other
hand, in the case of tax-exempt obligations that are issued with original issue
discount but which have discounts based on current market value that are less
than the then-remaining portion of the original issue discount (market premium),
the yield to maturity is based on the market value.
-105-
<PAGE>
With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Portfolio may elect either (i) to amortize the discount and premium on the
remaining security, based on the cost of the security, to the weighted-average
maturity date, if such information is available, or to the remaining term of the
security, if any, if the weighted-average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security. The
amortization schedule will be adjusted monthly to reflect changes in the market
values of debt obligations.
Undeclared earned income will be subtracted from the maximum offering price
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared and paid as a
dividend shortly thereafter. In the case of Investor A Shares and Investor C
Shares of a Non-Money Market Portfolio, a Portfolio's maximum offering price per
share for purposes of the formula includes the maximum front-end sales charge
imposed by the Portfolio -- currently as much as 4.50% or 1.00%, respectively,
of the per share offering price.
Each of the Tax-Free Income, Ohio Tax-Free Income, New Jersey Tax-Free
Income and Pennsylvania Tax-Free Income Portfolios may advertise the tax-
equivalent yield for its shares of a specified class. Under the rules of the
SEC, such a Portfolio advertising its tax-equivalent yield must calculate such
tax-equivalent yield by dividing that portion of the yield of the Portfolio
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield of the Portfolio which is not tax-exempt.
The annualized yield information for the 30-day period ended September 30,
1995 for the Portfolios referenced below was as follows:
-106-
<PAGE>
<TABLE>
<CAPTION>
Before
After Waivers Waivers Tax
------------- ------- ---
TAX-EQUIVALENT TAX-EQUIVALENT
YIELD YIELD
PORTFOLIO YIELD (ASSUMES A YIELD (ASSUMES A
- --------- ----- FEDERAL INCOME ----- FEDERAL INCOME
TAX RATE OF TAX RATE OF
----------- -----------
28%) 28%)
--- ---
<S> <C> <C> <C> <C>
Managed Income
Service Shares 5.76% N/A 5.56
Investor A Shares 5.27 N/A 5.07
Institutional Shares 6.07 N/A 5.87
Investor B Shares N/A N/A
Tax-Free Income
Service Shares 4.69 6.51 3.91 5.43
Investor A Shares 4.26 5.92 3.48 4.83
Institutional Shares 5.00 6.94 4.22 5.86
Investor B Shares N/A N/A
Intermediate Government
Service Shares 5.42 N/A 5.05
Investor A Shares 5.15 N/A 4.78
Insititutional Shares 5.74 N/A 5.37
Investor B Shares N/A N/A
Ohio Tax-Free income
Service Shares 5.22 7.25 4.15 5.76
Investor A Shares 4.96 6.89 3.89 5.40
Institutional Shares 5.49 7.63 4.42 6.14
Investor B Shares 4.51 6.26 3.44 4.77
Pennsylvania Tax-Free
Income 5.11 7.10 4.79 6.65
Service Shares 4.73 6.57 4.41 6.13
Investor A Shares 5.38 7.47 5.06 7.03
Institutional Shares 4.42 6.14 4.10 5.69
Investor B Shares
Intermediate Bond
Service Shares 6.07 N/A 5.73
Investor A Shares 5.78 N/A 5.44
Institutional Shares 6.41 N/A 6.07
Investor B Shares N/A N/A
Government Income
Service Shares N/A N/A
Investor A Shares 6.69 N/A 5.24
Institutional Shares N/A N/A
Investor B Shares 6.37 N/A 4.92
</TABLE>
The Investor C Class had not commenced operations as of September 30, 1995.
The annualized yield information for the 30-day period ended February
28, 1995 for the predecessor portfolios to the New Jersey Tax-Free Income and
International Bond Portfolios was as follows:
-107-
<PAGE>
<TABLE>
<CAPTION>
Before Waivers After Waivers
-------------- -------------
TAX-EQUIVALENT TAX-EQUIVALENT
YIELD (ASSUMES YIELD (ASSUMES
A FEDERAL A FEDERAL
INCOME TAX INCOME TAX
PORTFOLIO YIELD RATE OF 28%) YIELD RATE OF 28%)
- --------- ----- ------------- ----- ---------------
<S> <C> <C> <C> <C>
Predecessor Portfolio to 4.40% 7.29%
the New Jersey Tax-Free
Income Portfolio
Predecessor Portfolio to _____% _______% 5.27% ______%
the International Bond
Portfolio
</TABLE>
The annualized yield information for the 30-day period ended June 30, 1995
for the predecessor portfolios to the Core Bond and Short Government Bond
Portfolios was as follows:
<TABLE>
<CAPTION>
Before Waivers After Waivers
-------------- --------------
PORTFOLIO YIELD YIELD
- --------- ----- -----
<S> <C> <C>
Predecessor Portfolio to the 6.63% ____%
Core Bond Portfolio
Predecessor Portfolio to the _____% ____%
Short Government Bond
Portfolio
</TABLE>
OTHER INFORMATION REGARDING INVESTMENT RETURNS. In addition to providing
performance information that demonstrates the total return or yield of shares of
a particular class of a Portfolio over a specified period of time, the Fund may
provide certain other information demonstrating hypothetical investment returns.
Such information may include, but is not limited to, illustrating the
compounding effects of a dividend in a dividend reinvestment plan or the impact
of tax-free investing. As illustrated below, the Fund may demonstrate, using
certain specified hypothetical data, the compounding effect of dividend
reinvestment on investments in a Non-Money Market Portfolio.
The Money and Non-Money Market Municipal Portfolios may illustrate in
advertising, sales literature, communications to shareholders and other
materials the benefits of tax-free investing. For example, Table 1 shows
taxpayers how to translate Federal tax savings from investments the income on
which is not subject to Federal income tax into an equivalent yield from a
taxable investment. Similarly, Tables 2, 3, 4, 5 and 6 show
-108-
<PAGE>
Pennsylvania, Ohio, North Carolina, Virginia and New Jersey shareholders the
approximate yield that a taxable investment must earn at various income brackets
to produce after-tax yields equivalent to those of the Pennsylvania Municipal
Money Market and Pennsylvania Tax-Free Income Portfolios, the Ohio Municipal
Money Market and Ohio Tax-Free Income Portfolios, the North Carolina Municipal
Money Market Portfolio, the Virginia Municipal Money Market Portfolio, and the
New Jersey Municipal Money Market and New Jersey Tax-Free Income Portfolios,
respectively. The yields below are for illustration purposes only and are not
intended to represent current or future yields for the Money and Non-Money
Market Municipal Portfolios, which may be higher or lower than the yields shown.
-109-
<PAGE>
TABLE 1
- -------
<TABLE>
<CAPTION>
Federal TAX-EXEMPT YIELD
1996 Taxable Marginal
Income Bracket Tax Rate/*/ 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Return Joint Return
$ 0 - $24,000 $ 0 - $40,100 15.0% 3.529% 4.118% 4.706% 5.294% 5.882% 6.471% 7.059%
$24,001 - $58,150 $40,101 - $96,900 28.0% 4.167% 4.861% 5.556% 6.250% 6.944% 7.639% 8.333%
$58,151 -$121,300 $96,901 -$147,700 31.0% 4.348% 5.072% 5.797% 6.522% 7.246% 7.971% 8.696%
$121,301-$263,750 $147,701-$263,750 36.0% 4.688% 5.469% 6.250% 7.031% 7.812% 8.594% 9.375%
Over $263,750 Over $263,750 39.6% 4.967% 5.795% 6.623% 7.450% 8.278% 9.106% 9.934%
</TABLE>
/*/Rates do not include the phase out of personal exemptions or itemized
deductions. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should consider that the benefit of
certain itemized deductions and the benefit of personal exemptions are limited
in the case of higher income individuals. For 1996, taxpayers with adjusted
gross income in excess of a threshold amount of approximately $117,950 are
subject to an overall limitation on certain itemized deductions, requiring a
reduction in such deductions equal to the lesser of (i) 3% of adjusted gross
income in excess of the threshold of approximately $117,950 or (ii) 80% of the
amount of such itemized deductions otherwise allowable. The benefit of each
personal exemption is phased out at the rate of two percentage points for each
$2,500 (or fraction thereof) of adjusted gross income in the phase-out zone.
For single taxpayers the range of adjusted gross income comprising the phase-out
zone for 1996 is estimated to be from $117,950 to $240,451 and for married
taxpayers filing a joint return from $176,950 to $299,451. The Federal tax
brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
further adjusted for inflation for each year after 1996.
-110-
<PAGE>
TABLE 2
- -------
<TABLE>
<CAPTION>
Approx.
Combined
Federal
and PA TAX-EXEMPT YIELD
1996 Federal Marginal
Taxable Income Bracket Tax Rate/*/ 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Return Joint Return
$ 0 - $ 24,000 $ 0 - $40,100 17.380% 3.631% 4.236% 4.841% 5.447% 6.052% 6.657% 7.262%
$24,001 - $ 58,150 $ 40,101 - $96,900 30.016% 4.287% 5.001% 5.716% 6.430% 7.144% 7.859% 8.573%
$58,151 - $121,300 $ 96,901 -$147,700 32.932% 4.473% 5.219% 5.964% 6.710% 7.455% 8.201% 8.946%
$121,301- $263,750 $147,701 -$263,750 37.792% 4.823% 5.626% 6.430% 7.234% 8.038% 8.841% 9.645%
Over $263,750 Over $263,750 41.291% 5.110% 5.962% 6.813% 7.665% 8.517% 9.368% 10.220%
</TABLE>
*The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state income taxes). If the standard deduction is taken for
Federal income tax purposes, the taxable equivalent yield required to equal a
specified tax-exempt yield is at least as great as that shown in the table. It
is assumed that the investor is not subject to the alternative minimum tax.
Where applicable, investors should consider that the benefit of certain itemized
deductions and the benefit of personal exemptions are limited in the case of
higher income individuals. For 1996, taxpayers with adjusted gross income in
excess of a threshold amount of approximately $117,950 are subject to an overall
limitation on certain itemized deductions, requiring a reduction in such
deductions equal to the lesser of (i) 3% of adjusted gross income in excess of
the threshold of approximately $117,950 or (ii) 80% of the amount of such
itemized deductions otherwise allowable. The benefit of each personal exemption
is phased out at the rate of two percentage points for each $2,500 (or fraction
thereof) of adjusted gross income in the phase-out zone. For single taxpayers
the range of adjusted gross income comprising the phase-out zone for 1996 is
estimated to be from $117,950 to $240,451 and for married taxpayers filing a
joint return from $176,950 to $299,451. The Federal tax brackets, the threshold
amounts at which itemized deductions are subject to reduction, and the range
over which personal exemptions are phased out will be further adjusted for
inflation for each year after 1996.
-111-
<PAGE>
TABLE 3
- -------
STATE OF OHIO
1996 TAX YEAR
<TABLE>
<CAPTION>
TAX EXEMPT YIELD
------------------------------------------
3 3.5 4 4.5 5 5.5 6
1996 FEDERAL OHIO
TAXABLE INCOME MARGINAL MARGINAL COMBINED TAXABLE EQUIVALENT YIELD
BRACKETS TAX RATE TAX RATE RATE SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 24,000 15% 4.457% 18.79% 3.69% 4.31% 4.93% 5.54% 6.16% 6.77% 7.39%
24,001 - 40,000 28% 4.457% 31.21% 4.36% 5.09% 5.81% 6.54% 7.27% 8.00% 8.72%
40,001 - 58,150 28% 5.201% 31.74% 4.40% 5.13% 5.86% 6.59% 7.33% 8.06% 8.79%
58,151 - 80,000 31% 5.201% 34.59% 4.59% 5.35% 6.12% 6.88% 7.64% 8.41% 9.17%
80,001 - 100,000 31% 5.943% 35.10% 4.62% 5.39% 6.16% 6.93% 7.70% 8.47% 9.25%
100,001 - 121,300 31% 6.900% 35.76% 4.67% 5.45% 6.23% 7.01% 7.78% 8.56% 9.34%
121,301 - 200,000 36% 6.900% 40.42% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.07%
200,001 - 263,750 36% 7.500% 40.80% 5.07% 5.91% 6.76% 7.60% 8.45% 9.29% 10.14%
OVER 263,750 39.6% 7.500% 44.13% 5.37% 6.26% 7.15% 8.05% 8.95% 9.84% 10.74%
<CAPTION>
1996 FEDERAL OHIO
TAXABLE INCOME MARGINAL MARGINAL COMBINED TAXABLE EQUIVALENT YIELD
BRACKETS TAX RATE TAX RATE RATE JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 40,000 15% 4.457% 18.79% 3.69% 4.31% 4.93% 5.54% 6.16% 6.77% 7.39%
</TABLE>
-112-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40,001 - 40,100 15% 5.201% 19.42% 3.72% 4.34% 4.96% 5.58% 6.20% 6.82% 7.45%
40,101- 80,000 28% 5.201% 31.74% 4.40% 5.13% 5.86% 6.59% 7.33% 8.06% 8.79%
80,001 - 96,900 28% 5.943% 32.28% 4.43% 5.17% 5.91% 6.64% 7.38% 8.12% 8.86%
96,901 - 100,000 31% 5.943% 35.10% 4.62% 5.39% 6.16% 6.93% 7.70% 8.47% 9.25%
100,001 - 147,700 31% 6.900% 35.76% 4.67% 5.45% 6.23% 7.01% 7.78% 8.56% 9.34%
147,701 - 200,000 36% 6.900% 40.42% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.07%
200,001 - 263,750 36% 7.500% 40.80% 5.07% 5.91% 6.76% 7.60% 8.45% 9.29% 10.14%
OVER 263,750 39.6% 7.500% 44.13% 5.37% 6.26% 7.15% 8.05% 8.95% 9.84% 10.74%
===========================================================================================
</TABLE>
/*/The income brackets applicable to the state of Ohio do not correspond to the
Federal taxable income brackets. In addition, Ohio taxable income will likely
be different than Federal taxable income because it is computed by reference to
Federal adjusted gross income with specifically-defined Ohio modifications and
exemptions, and does not consider many of the deductions allowed from Federal
adjusted gross income in computing Federal taxable income. No other state tax
credits, exemptions, or local taxes have been taken into account in arriving at
the combined marginal tax rate. The income amount shown is income subject to
Federal income tax reduced by adjustments to income, exemptions, and itemized
deductions (including the deduction for state and local income taxes). If the
standard deduction is taken for Federal income tax purposes, the taxable
equivalent yield required to equal a specified tax-exempt yield is at least as
great as that shown in the table. It is assumed that the investor is not
subject to the alternative minimum tax. Where applicable, investors should
consider that the benefit of certain itemized deductions and the benefit of
personal exemptions are limited in the case of higher income individuals. For
1996, taxpayers with adjusted gross income in excess of a $117,950 threshold
amount are subject to an overall limitation on certain itemized deductions,
requiring a reduction in such deductions equal to the lesser of (i) 3% of
adjusted gross income in excess of the $117,950 threshold or (ii) 80% of the
amount of such itemized deductions otherwise allowable. The benefit of each
personal exemption is phased out at the rate of two percentage points for each
$2,500 (or fraction thereof) of adjusted gross income in the phase-out zone.
For single taxpayers the range of adjusted gross income comprising the phase-out
zone for 1996 is from $117,950 to $240,450 and for married taxpayers filing a
joint return the range is from $176,950 to $299,450. The Federal tax brackets,
the threshold amounts at which itemized deductions are subject to reduction, and
the range over which personal exemptions are phased out will be further adjusted
for inflation for each year after 1996.
-113-
<PAGE>
TABLE 4
<TABLE>
<CAPTION>
1995 Taxable North Combined Federal
Income Bracket Federal Carolina and North Carolina Tax-Exempt Yield
Marginal Marginal Marginal
Single Return Joint Return Tax Rate Tax Rate Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
------------- ------------- -------- -------- --------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 12,750 0 - 21,250 15.0% 6.00% 20.100% 3.755% 4.380% 5.006% 5.632% 6.258% 6.884% 7.509%
12,751 - 23,350 21,251 - 39,000 15.0% 7.00% 20.950% 3.795% 4.428% 5.060% 5.693% 6.325% 6.958% 7.590%
23,351 - 56,550 39,001 - 94,250 28.0% 7.00% 33.040% 4.480% 5.227% 5.974% 6.720% 7.467% 8.214% 8.961%
56,551 - 60,000 94,251 - 100,000 31.0% 7.00% 35.830% 4.675% 5.454% 6.233% 7.013% 7.792% 8.571% 9.350%
60,001 - 117,950 100,001 - 143,600 31.0% 7.75% 36.348% 4.713% 5.499% 6.284% 7.070% 7.855% 8.641% 9.426%
117,951 - 256,500 143,601 - 256,500 36.0% 7.75% 40.960% 5.081% 5.928% 6.775% 7.622% 8.469% 9.316% 10.163%
Over 256,500 Over 256,500 39.6% 7.75% 44.281% 5.384% 6.282% 7.179% 8.076% 8.974% 9.871% 10.768%
</TABLE>
*The taxable income brackets applicable to North Carolina do not correspond to
the Federal taxable income brackets. The taxable income brackets presented in
this table represent the breakpoints for both the Federal and North Carolina
marginal tax rate changes. When applying these brackets, Federal taxable income
may be different than North Carolina taxable income. No state tax credits,
exemptions, or local taxes have been taken into account in arriving at the
combined marginal tax rate. The income amount shown is income subject to
Federal income tax reduced by adjustments to income, exemptions, and itemized
deductions (including the deduction for state and local income taxes). If the
standard deduction is taken for Federal income tax purposes, the taxable
equivalent yield required to equal a specified tax-exempt yield is at least as
great as that shown in the table. It is assumed that the investor is not
subject to the alternative minimum tax. Where applicable, investors should
consider that the benefit of certain itemized deductions and the benefit of
personal exemptions are limited in the case of higher-income individuals. For
1995, taxpayers with adjusted gross income in excess of $114,700 are subject to
an overall limitation on certain itemized deductions, requiring a reduction in
such deductions equal to the lesser of (i) 3% of adjusted gross income in excess
of $114,700 or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out at the rate of
two percentage points for each $2,500 (or fraction thereof) of adjusted gross
income in the phase-out zone. For single taxpayers the range of adjusted gross
income comprising the phase-out zone for 1995 is from $114,700 to $237,201, and
for married taxpayers filing a joint return the range is from $172,050 to
$294,551. The Federal tax brackets, the threshold amounts at which itemized
deductions are subject to reduction, and the range over which personal
exemptions are phased out will be further adjusted for inflation for each year
after 1995.
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TABLE 5
<TABLE>
<CAPTION>
1995 Taxable Combined Federal
Income Bracket Federal Virginia and Virginia Tax-Exempt Yield
Marginal Marginal Marginal
Single Return Joint Return Tax Rate Tax Rate Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
------------- ------------ -------- -------- --------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 22,750 0 - 38,000 15.0% 5.75% 19.888% 3.745% 4.369% 4.993% 5.617% 6.241% 6.865% 7.489%
12,751 - 55,100 38,001 - 91,850 28.0% 5.75% 32.140% 4.421% 5.158% 5.894% 6.631% 7.368% 8.105% 8.842%
55,101 - 115,000 91,851 - 140,000 31.0% 5.75% 34.968% 4.613% 5.382% 6.151% 6.920% 7.688% 8.457% 9.226%
115,001 - 250,000 140,001 -250,000 36.0% 5.75% 39.680% 4.973% 5.802% 6.631% 7.460% 8.289% 9.118% 9.947%
OVER 250,000 OVER 250,000 39.6% 5.75% 43.073% 5.270% 6.148% 7.027% 7.905% 8.783% 9.661% 10.540%
</TABLE>
*The taxable income brackets applicable to Virginia do not correspond to the
Federal taxable income brackets. Because Virginia imposes a maximum tax rate of
5.75% on taxable income over $17,000, the taxable income brackets presented in
this table represent the breakpoints only for the Federal marginal tax rate
changes. When applying these brackets, Federal taxable income may be different
than Virginia taxable income. No state tax credits, exemptions, or local taxes
have been taken into account in arriving at the combined marginal tax rate. The
income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state and local income taxes). If the standard deduction is taken
for Federal income tax purposes, the taxable equivalent yield required to equal
a specified tax-exempt yield is at least as great as that shown in the table.
It is assumed that the investor is not subject to the alternative minimum tax.
Where applicable, investors should consider that the benefit of certain itemized
deductions and the benefit of personal exemptions are limited in the case of
higher income individuals. For 1995, taxpayers with adjusted gross income in
excess of $114,700 are subject to an overall limitation on certain itemized
deductions, requiring a reduction in such deductions equal to the lesser of (i)
3% of adjusted gross income excess of $114,700 or (ii) 80% of the amount of such
itemized deductions otherwise allowable. The benefit of each personal exemption
is phased out at the rate of two percentage points for each $2,500 (or fraction
thereof) of adjusted gross income in the phase-out zone. For single taxpayers
the range of adjusted gross income comprising the phase-out zone for 1995 is
from $114,700 to $237,201 and for married taxpayers filing a joint return from
$172,050 to $294,551. The Federal tax brackets, the threshold amounts at which
itemized deductions are subject to reduction, and the range over which personal
exemptions are phased out will be further adjusted for inflation for each year
after 1995.
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<PAGE>
<TABLE>
<CAPTION>
TABLE 6
Approximate
Combined
Federal
and NJ
Federal NJ Marginal Tax-Exempt Yield
1996 Taxable Marginal Marginal Tax
Income Bracket* Tax Rate Tax Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ------------------- -------- -------- ------- ----- ---- ---- ---- ---- ---- ---- ---- ----
Single Return Taxable Yield - Single Return
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 20,000 15.0% 1.400% 16.190% 3.580% 4.176% 4.773% 5.369% 5.966% 6.562% 7.159% 7.756% 8.352%
20,001 - 24,000 15.0% 1.750% 16.488% 3.592% 4.191% 4.790% 5.388% 5.987% 6.589% 7.185% 7.783% 8.382%
24,001 - 35,000 28.0% 1.750% 29.260% 4.240% 4.948% 5.655% 6.361% 7.068% 7.775% 8.481% 9.189% 9.895%
35,001 - 40,000 28.0% 3.500% 30.520% 4.318% 5.037% 5.757% 6.471% 7.196% 7.916% 8.636% 9.355% 10.075%
40,001 - 58,150 28.0% 5.525% 31.978% 4.410% 5.145% 5.880% 6.616% 7.350% 8.086% 8.820% 9.556% 10.298%
58,151 - 75,000 31.0% 5.525% 34.812% 4.602% 5.369% 6.136% 6.903% 7.670% 8.437% 9.204% 9.971% 10.738%
75,001 - 121,300 31.0% 6.370% 35.395% 4.643% 5.418% 6.191% 6.965% 7.739% 8.513% 9.287% 10.061 10.835%
121,301 - 263,750 36.0% 6.370% 40.077% 5.006% 5.841% 6.675% 7.510% 8.344% 9.178% 10.013% 10.847% 11.682%
OVER 263,750 39.6% 6.370% 43.447% 5.305% 6.189% 7.073% 7.957% 8.841% 9.725% 10.610% 11.494% 12.378%
<CAPTION>
Joint Return Taxable Yield - Joint Return
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 20,000 15.0% 1.400% 16.190% 3.580% 4.176% 4.773% 5.369% 5.966% 6.562% 7.159% 7.756% 8.352%
20,001 - 40,100 15.0% 1.750% 16.488% 3.592% 4.191% 4.790% 5.388% 5.987% 6.589% 7.185% 7.783% 8.382%
40,101 - 50,000 28.0% 1.750% 29.260% 4.240% 4.948% 5.655% 6.361% 7.068% 7.775% 8.481% 9.189% 9.895%
50,001 - 70,000 28.0% 2.450% *29.764% 4.271% 4.983% 5.695% 6.407% 7.189% 7.831% 8.543% 9.255% 9.966%
70,001 - 80,000 28.0% 3.500% 30.520% 4.318% 5.037% 5.757% 6.471% 7.196% 7.916% 8.636% 9.355% 10.075%
80,001 - 96,900 28.0% 5.525% 31.978% 4.410% 5.145% 5.880% 6.616% 7.350% 8.086% 8.820% 9.556% 10.298%
96,901 - 147,700 31.0% 5.525% 34.812% 4.602% 5.369% 6.136% 6.903% 7.670% 8.437% 9.204% 9 10.738%
.971%
147,701 - 150,000 36.0% 5.525% *39.536% 4.961% 5.789% 6.616% 7.442% 8.269% 9.096% 9.923% 10.750 11.577%
150,001 - 263,750 36.0% 6.370% 40.077% 5.006% 5.841% 6.675% 7.510% 8.344% 9.178% 10.013% 10.847% 11.682%
OVER 263,750 39.6% 6.370% 43.447% 5.305% 6.189% 7.073% 7.957% 8.841% 9.725% 10.610% 11.494% 12.378%
</TABLE>
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<PAGE>
* The taxable income brackets applicable to New Jersey do not correspond to
the Federal taxable income brackets. The taxable income brackets
presented in this table represent the breakpoints for both the Federal and
New Jersey marginal tax rate changes. When applying these brackets,
Federal taxable income will be different than New Jersey taxable income
because New Jersey does not start with Federal taxable income in computing
its own state income tax base. No state tax credits, exemptions, or local
taxes have been taken into account in arriving at the combined marginal
tax rate. The income amount shown is income subject to Federal income tax
reduced by adjustments to income, exemptions, and itemized deductions
(including the deduction for state and local income taxes). If the
standard deduction is taken for Federal income tax purposes, the taxable
equivalent yield required to equal a specified tax-exempt yield is at
least as great as that shown in the table. It is assumed that the
investor is not subject to the alternative minimum tax. Where applicable,
investors should consider that the benefit of certain itemized deductions
and the benefit of personal exemptions are limited in the case of higher-
income individuals. For 1996, taxpayers with adjusted gross income in
excess of $117,950 are subject to an overall limitation on certain
itemized deductions, requiring a reduction in such deductions equal to the
lesser of (i) 3% of adjusted gross income in excess of $117,950 or (ii)
80% of the amount of such itemized deductions otherwise allowable. The
benefit of each personal exemption is phased out at the rate of two
percentage points for each $2,500 (or fraction thereof) of adjusted gross
income in the phase-out zone. For single taxpayers the range of adjusted
gross income comprising the phase-out zone for 1996 is from $117,950 to
$240,451, and for married taxpayers filing a joint return the range is
from $176,950 to $299,451. The Federal tax brackets, the threshold
amounts at which itemized deductions are subject to reduction, and the
range over which personal exemptions are phased out will be further
adjusted for inflation for each year after 1996.
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<PAGE>
MISCELLANEOUS. Yields on shares of a Portfolio may fluctuate daily and do
not provide a basis for determining future yields. Because such yields will
fluctuate, they cannot be compared with yields on savings account or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. In comparing the yield of one Portfolio to another,
consideration should be given to each Portfolio's investment policies, including
the types of investments made, lengths of maturities of the portfolio
securities, market conditions, operating expenses and whether there are any
special account charges which may reduce the effective yield. The fees which
may be imposed by Authorized Dealers, Service Organizations and other
institutions on their customers are not reflected in the calculations of total
returns or yields for the Portfolios.
When comparing a Portfolio's performance to stock, bond, and money market
mutual fund performance indices prepared by Lipper or other organizations, it is
important to remember the risk and return characteristics of each type of
investment. For example, while stock mutual funds may offer higher potential
returns, they also carry the highest degree of share price volatility.
Likewise, money market funds may offer greater stability of principal, but
generally do not offer the higher potential returns from stock mutual funds.
From time to time, a Portfolio's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example a Portfolio may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of
Portfolios to one another in appropriate categories over specific periods of
time may also be quoted in advertising.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices. Portfolios may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Portfolios. The Portfolios may also compare performance to that of other
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<PAGE>
compilations or indices that may be developed and made available in the future.
The Fund may also from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions on a Portfolio investment are
reinvested by being paid in additional Portfolio shares, any future income or
capital appreciation of a Portfolio would increase the value, not only of the
original investment in the Portfolio, but also of the additional Portfolio
shares received through reinvestment. The Fund may also include discussions or
illustrations of the potential investment goals of a prospective investor,
(including materials that describe general principles of investing, such as
asset allocation, diversification, risk tolerance, and goal setting,
questionnaires designed to help create a personal financial profile, worksheets
used to project savings needs based on assumed rates of inflation and
hypothetical rates of return and action plans offering investment alternatives)
investment management techniques, policies or investment suitability of a
Portfolio (such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic and political conditions and the relationship between
sectors of the economy and the economy as a whole, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills. From time to time advertisements, sales
literature, communications to shareholders or other materials may summarize the
substance of information contained in shareholder reports (including the
investment composition of a Portfolio), as well as the views of the Portfolios'
adviser and/or sub-advisers as to current market, economy, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Portfolio. In
addition, selected indices may be used to illustrate historic performance of
select asset classes. The Fund may also include in advertisements, sales
literature, communications to shareholders or other materials, charts, graphs or
drawings which illustrate the potential risks and rewards of investment in
various investment vehicles, including but not limited to, stocks, bonds,
treasury bills and shares of a Portfolio. In addition, advertisements,
shareholder communications or other materials may include a discussion of
certain attributes or benefits to be derived by an investment in a Portfolio
and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and investment alternative to certificates of deposit and other
financial instruments. Such advertisements or communicators may include
symbols, headlines or other material which highlight or summarize the
information discussed in more
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<PAGE>
detail therein. Materials may includes lists of representative clients of the
Portfolios' investment advisers. Materials may refer to the CUSIP numbers of
the various classes of the Portfolios and may illustrate how to find the
listings of the Portfolios in newspapers and periodicals. Materials may also
include discussions of other Portfolios, products, and services.
Charts and graphs using net asset values, adjusted net asset values, and
benchmark indices may be used to exhibit performance. An adjusted NAV includes
any distributions paid and reflects all elements of return. Unless otherwise
indicated, the adjusted NAVs are not adjusted for sales charges, if any.
A Portfolio may illustrate performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV for a
specified period. A short-term moving average is the average of each day's
adjusted closing NAV for a specified period. Moving Average Activity Indicators
combine adjusted closing NAVs from the last business day of each week with
moving averages for a specified period to produce indicators showing when an NAV
has crossed, stayed above, or stayed below its moving average.
A Portfolio may quote various measures of volatility and benchmark
correlation in advertising. In addition, a Portfolio may compare these measures
to those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be. All
measures of volatility and correlation are calculated using averages of
historical data.
Momentum indicators indicate a Portfolio's price movements over specific
periods of time. Each point on the momentum indicator represents the
Portfolio's percentage change in price movements over that period.
A Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund a periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. A Portfolio may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.
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<PAGE>
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
Please note that for purposes of satisfying certain of the
requirements for taxation as a regulated investment company described below,
upon its conversion to a master fund-feeder fund structure the Index Equity
Portfolio will be deemed to own a proportionate share of the assets and gross
income of the Index Master Portfolio in which the Index Equity Portfolio invests
all of its assets. Also, with respect to the Index Equity Portfolio, the
discussion below that relates to the taxation of futures contracts and other
rules pertaining to the timing and character of income apply to the Index Master
Portfolio.
Each Portfolio has elected and qualified, and intends to continue to
qualify, for taxation as a regulated investment company under Part I of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As
a regulated investment company, each Portfolio generally is exempt from Federal
income tax on its net investment income and realized capital gains that it
distributes to shareholders, provided that it distributes an amount equal to at
least the sum of (a) 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gain over net long-
term capital loss, if any, for the year) and (b) 90% of its net tax-exempt
interest income, if any, for the year (the "Distribution Requirement") and
satisfies certain other requirements of the Code that are described below.
Distributions of investment company taxable income and net tax-exempt interest
income made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year will satisfy the Distribution
Requirement.
In addition to satisfaction of the Distribution Requirement, each
Portfolio must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies (including, but
not limited to, gains from forward foreign currency exchange contacts), or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of stock, securities and
certain other
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<PAGE>
investments (including foreign currencies or options, futures or forward
contracts on foreign currencies but only to the extent that such currencies or
options, futures or forward contracts are not directly related to the
Portfolio's principal business of investing in stock or securities) held for
less than three months (the "Short-Short Gain Test"). Future Treasury
regulations may provide that foreign currency gains that are not "directly
related" to a Portfolio's principal business of investing in stock or securities
will not satisfy the Income Requirement. Interest (including original issue
discount and "accrued market discount") received by a Portfolio at maturity or
upon disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security held for less than three months for purposes of the Short-Short Gain
Test. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses.
Each of the Money and Non-Money Market Municipal Portfolios is
designed to provide investors with tax-exempt interest income. Shares of the
Money and Non-Money Market Municipal Portfolios would not be suitable for tax-
exempt institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Portfolio's dividends being
tax-exempt but also such dividends would be taxable when distributed to the
beneficiary. In addition, the Money and Non-Money Market Municipal Portfolios
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by private activity bonds or "related person" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a non-
exempt person who regularly uses a part of such facilities in his trade or
business and (a) whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of
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<PAGE>
the total revenues derived by all users of such facilities, (b) who occupies
more than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
In order for the Money and Non-Money Market Municipal Portfolios to
pay exempt interest dividends for any taxable year, at the close of each quarter
of the taxable year at least 50% of the value of each such Portfolio must
consist of exempt interest obligations. Exempt interest dividends distributed
to shareholders are not included in the shareholder's gross income for regular
Federal income tax purposes. However, gain realized by such Portfolios from the
disposition of a tax-exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is taxable to shareholders as
ordinary income to the extent of accrued market discount. Also, all
shareholders required to file a Federal income tax return are required to report
the receipt of exempt interest dividends and other exempt interest on their
returns. Moreover, while such dividends and interest are exempt from regular
Federal income tax, they may be subject to alternative minimum tax (currently
imposed at the rate of 26% or 28% in the case of non-corporate taxpayers and at
the rate of 20% in the case of corporate taxpayers) in two circumstances.
First, exempt interest dividends derived from certain "private activity" bonds
issued after August 7, 1986, generally will constitute an item of tax preference
for both corporate and non-corporate taxpayers. Second, exempt interest
dividends derived from all bonds, regardless of the date of issue, must be taken
into account by corporate taxpayers in determining certain adjustments for
alternative minimum tax purposes. In addition, exempt interest dividends paid
to corporate taxpayers may in these two circumstances be subject to tax under
the environmental tax under Section 59A of the Code, which is imposed at the
rate of 0.12% on the excess of the modified alternative minimum taxable income
of a corporate taxpayer over $2 million. Receipt of exempt interest dividends
may result in collateral Federal income tax consequences to certain other
taxpayers, including financial institutions, property and casualty insurance
companies, individual recipients of Social Security or Railroad Retirement
benefits, and foreign corporations engaged in trade or business in the United
States. Prospective investors should consult their own tax advisors as to such
consequences.
If a Money or Non-Money Market Municipal Portfolio distributes exempt
interest dividends during the shareholder's taxable year, no deduction generally
will be allowed for any interest expense on indebtedness incurred to purchase or
carry shares of such Portfolio.
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The Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios
are not subject to the Ohio personal income tax, school district income taxes in
Ohio, the Ohio corporation franchise tax, or the Ohio dealers intangibles tax,
provided that, with respect to the Ohio corporation franchise tax and the Ohio
dealers intangibles tax, the Fund timely files the annual report required by
Section 5733.09 of the Ohio Revised Code. Distributions with respect to shares
of the Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios properly
attributable to proceeds of insurance paid to those Portfolios that represent
maturing or matured interest on defaulted Obligations held by those Portfolios
and that are excluded from gross income for federal income tax purposes will not
be subject to Ohio personal income tax or municipal or school district income
taxes in Ohio if, and to the same extent as, such interest would not have been
subject to such taxes if paid in the normal course by the issuer of such
defaulted Obligations.
Distributions of exempt-interest dividends, to the extent attributable
to interest on North Carolina Municipal Obligations and to interest on direct
obligations of the United States (including territories thereof), are not
subject to North Carolina individual or corporate income tax. Distributions of
gains attributable to certain obligations of the State of North Carolina and its
political subdivisions issued prior to July 1, 1995 are not subject to North
Carolina individual or corporate income tax; however, distributions of gains
attributable to such types of obligations that were issued after June 30, 1995
will be subject to North Carolina individual or corporate income tax.
An investment in a Portfolio (including the North Carolina Municipal
Money Market Portfolio) by a corporation subject to the North Carolina franchise
tax will be included in the capital stock, surplus and undivided profits base in
computing the North Carolina franchise tax. Investors in a Portfolio including,
in particular, corporate investors which may be subject to the North Carolina
franchise tax, should consult their tax advisors with respect to the effects on
such tax of an investment in a Portfolio and with respect to their North
Carolina tax situation in general.
Distributions of investment company taxable income will be taxable
(other than interest on tax-exempt Municipal Obligations held by the Money
Market and Non-Money Market Municipal Portfolios and the possible allowance of
the dividends received deduction described below) to shareholders as ordinary
income, regardless of whether such distributions are paid in cash or are
reinvested in shares. Shareholders receiving any distribution from a Portfolio
in the form of additional shares will be treated as receiving a taxable
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. The Money Market and Non-Money Market
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Municipal Portfolios may each purchase securities that do not bear Tax-Exempt
Interest. Any income on such securities recognized by the Portfolio will be
distributed and will be taxable to its shareholders.
Each Portfolio intends to distribute to shareholders any of its excess
of net long-term capital gain over net short-term capital loss ("net capital
gain") for each taxable year. Such gain is distributed as a capital gain
dividend and is taxable to shareholders as long-term capital gain, regardless of
the length of time the shareholder has held his shares, whether such gain was
recognized by the Portfolio prior to the date on which a shareholder acquired
shares of the Portfolio and whether the distribution was paid in cash or
reinvested in shares.
In the case of corporate shareholders, distributions (other than
capital gain dividends) of a Non-Money Market Portfolio for any taxable year
generally qualify for the dividends received deduction to the extent of the
gross amount of "qualifying dividends" received by such Portfolio for the year.
Generally, a dividend will be treated as a "qualifying dividend" if it has been
received from a domestic corporation. Distributions of net investment income
from debt securities and of net realized short-term capital gains will be
taxable to shareholders as ordinary income and will not be treated as
"qualifying dividends" for purposes of the dividends received deduction.
Ordinary income of individuals will be taxable at a maximum nominal
rate of 39.6%, but because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-
term capital gains will be taxable at a maximum rate of 28%. Capital gains and
ordinary income of corporate taxpayers are both taxed at a maximum nominal rate
of 35%, but at marginal rates of 39% for taxable income between $100,000 and
$335,000 and 38% for taxable income between $15,000,000 and 18,333,333.
Investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain dividends have been paid
with respect to such shares. For shareholders of the Non-Money Market
Portfolios, any loss incurred on the sale or exchange of a Portfolio's shares,
held six months or less, will be disallowed to the extent of exempt-interest
dividends paid with respect to such shares, and any loss not so disallowed will
be treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
Generally, futures contracts held by a Portfolio at the close of the
Portfolio's taxable year will be treated for Federal
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income tax purposes as sold for their fair market value on the last business day
of such year, a process known as "mark-to-market." Forty percent of any gain or
loss resulting from such constructive sale will be treated as short-term capital
gain or loss and 60% of such gain or loss will be treated as long-term capital
gain or loss without regard to the length of time a Portfolio holds the futures
contract ("the 40-60 rule"). The amount of any capital gain or loss actually
realized by a Portfolio in a subsequent sale or other disposition of those
futures contracts will be adjusted to reflect any capital gain or loss taken
into account by the Portfolio in a prior year as a result of the constructive
sale of the contracts. With respect to futures contracts to sell, which will be
regarded as parts of a "mixed straddle" because their values fluctuate inversely
to the values of specific securities held by the Portfolio, losses as to such
contracts to sell will be subject to certain loss deferral rules which limit the
amount of loss currently deductible on either part of the straddle to the amount
thereof which exceeds the unrecognized gain (if any) with respect to the other
part of the straddle, and to certain wash sales regulations. Under short sales
rules, which also will be applicable, the holding period of the securities
forming part of the straddle will (if they have not been held for the long-term
holding period) be deemed not to begin prior to termination of the straddle.
With respect to certain futures contracts, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such, a
Portfolio may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for Federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales, loss deferral rules and
the requirement to capitalize interest and carrying charges. Under temporary
regulations, a Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, the 40-60 rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term
and no more than 40% of any net loss may be treated as short-term. Options on
futures contracts generally receive Federal tax treatment similar to that
described above.
Under the Federal income tax provisions applicable to regulated
investment companies, less than 30% of a company's gross income for a taxable
year must be derived from gains realized on the sale or other disposition of
securities held for
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less than three months. The Internal Revenue Service has issued a private
letter ruling with respect to certain other investment companies to the
following effect: gains realized from a futures contract to purchase or to sell
will be treated as being derived from a security held for three months or more
regardless of the actual period for which the contract is held if the gain
arises as a result of a constructive sale of the contract at the end of the
taxable year as described above, and will be treated as being derived from a
security held for less than three months only if the contract is terminated (or
transferred) during the taxable year (other than by reason of mark-to-market)
and less than three months elapses between the date the contract is acquired and
the termination date. Although private letter rulings are not binding on the
Internal Revenue Service with respect to the Portfolios, the Fund believes that
the Internal Revenue Service would take a comparable position with respect to
the Portfolios. In determining whether the 30% test is met for a taxable year,
increases and decreases in the value of a Portfolio's futures contracts and
securities that qualify as part of a "designated hedge," as defined in the Code,
may be netted.
Special rules govern the Federal income tax treatment of the portfolio
transactions of the International Equity, International Emerging Markets and
International Bond Portfolios and certain transactions of the other Portfolios
that are denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include the
following: (i) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, certain preferred stock); (ii) the accruing of certain trade
receivables and payables; (iii) the entering into or acquisition of any forward
contract or similar financial instruments; and (iv) the entering into or
acquisition of any futures contract, option or similar financial instrument, if
such instrument is not marked-to-market. The disposition of a currency other
than the U.S. dollar by a U.S. taxpayer also is treated as a transaction subject
to the special currency rules. With respect to such transactions, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts that are capital assets
in the hands of the taxpayer and which are not part of a straddle ("Capital
Asset Election"). In accordance with Treasury regulations, certain transactions
with respect to which the taxpayer has not made the Capital Asset Election and
that are part of a "Section 988 hedging transaction" (as defined in the Code and
the Treasury regulations) are integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" (as
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identified by such Treasury regulations) are not subject to the mark-to-market
or loss deferral rules under the Code. Some of the non-U.S. dollar-denominated
investments that the Portfolios may make (such as non-U.S. dollar-denominated
debt securities and obligations and preferred stock) and some of the foreign
currency contracts the International Equity, International Emerging Markets and
International Bond Portfolios may enter into will be subject to the special
currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by a Portfolio which is not
subject to the special currency rules (such as foreign equity investments other
than certain preferred stocks) will be treated as capital gain or loss and will
not be segregated from the gain or loss on the underlying transaction.
In addition, certain forward foreign currency contracts held by a
Portfolio at the close of the Fund's taxable year will be subject to "mark-to-
market" treatment. If the Fund makes the Capital Asset Election with respect to
such contracts, the contract will be subject to the 40-60 rule described above.
Otherwise, such gain or loss will be ordinary in nature. To receive such
Federal income tax treatment, a foreign currency contract must meet the
following conditions: (1) the contract must require delivery of a foreign
currency of a type in which regulated futures contracts are traded or upon which
the settlement value of the contract depends; (2) the contract must be entered
into at arm's length at a price determined by reference to the price in the
interbank market; and (3) the contract must be traded in the interbank market.
The Treasury Department has broad authority to issue regulations under these
provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information the Treasury has not issued any such
regulations. Forward foreign currency contracts entered into by the
International Equity, International Emerging Markets and International Bond
Portfolios also may result in the creation of one or more straddles for Federal
income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and requirements to capitalize interest and carrying charges may
apply.
If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions (including amounts derived from interest on Municipal Obligations)
will be taxable as ordinary dividends to the extent of such Portfolio's current
and accumulated earnings and profits. Such distributions will be eligible for
the dividends received deduction in the case of corporate shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified
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percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Portfolio intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of the each calendar year to
avoid liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend income
properly, or (iii) who has failed to certify to the Fund that he is not subject
to backup withholding or that he is an "exempt recipient."
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolios each year.
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
Shareholders should consult their tax advisors about state and local tax
consequences, which may differ from the Federal income tax consequences
described above.
ADDITIONAL INFORMATION CONCERNING SHARES
Shares of the Fund have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Fund's outstanding shares (irrespective of
class) may elect all of the trustees. Shares have no preemptive rights and only
such conversion and exchange rights as the Board may grant in its discretion.
When issued for payment as described in the Prospectus, shares will be fully
paid and non-assessable by the Fund.
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<PAGE>
There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as required by law. At that time,
the trustees then in office will call a shareholders' meeting to elect trustees.
Except as set forth above, the trustees shall continue to hold office and may
appoint successor trustees. The Fund's Declaration of Trust provides that
meetings of the shareholders of the Fund shall be called by the trustees upon
the written request of shareholders owning at least 10% of the outstanding
shares entitled to vote.
The Funds' Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law), to:
(i) sell and convey the assets belonging to a class of shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such class to be redeemed at a price which is equal to their net asset
value and which may be paid in cash or by distribution of the securities or
other consideration received from the sale and conveyance; (ii) sell and convert
the assets belonging to one or more classes of shares into money and, in
connection therewith, to cause all outstanding shares of such class to be
redeemed at their net asset value; or (iii) combine the assets belonging to a
class of shares with the assets belonging to one or more other classes of shares
if the Board of Trustees reasonably determines that such combination will not
have a material adverse effect on the shareholders of any class participating in
such combination and, in connection therewith, to cause all outstanding shares
of any such class to be redeemed or converted into shares of another class of
shares at their net asset value. However, the exercise of such authority may be
subject to certain restrictions under the 1940 Act. The Board of Trustees may
authorize the termination of any class of shares after the assets belonging to
such class have been distributed to its shareholders.
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107-3496, serves as the Fund's counsel.
The law firm of Stradley, Ronon, Stevens & Young, L.L.P., 2600 One Commerce
Square, Philadelphia, Pennsylvania 19103, serves as the Trust's counsel.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand, LLP, serves as the Fund's
and the Trust's independent accountants.
FIVE PERCENT OWNERS. The name, address and percentage ownership of
each person that on December 18, 1995 owned of record or beneficially 5% or more
of the outstanding shares of a
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Portfolio which had commenced operations as of that date was as follows:
Money Market Portfolio: BHC Securities, 2005 Market St., Phila., PA 19103, 7.3%;
- ----------------------
PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 80.4%; PNC Bank Ohio,
201 E. Fifth Street, Cincinnati, OH 45202, 7.4%; Government Money Market
-----------------------
Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 79,3%;
- ---------
Municipal Money Market Portfolio: PNC Bank Pittsburgh, 960 Ft. Duquesne Blvd.,
- --------------------------------
Pittsburgh, PA 15222, 16.9%; PNC Bank Ohio, 201 E. Fifth St., Cincinnati, OH
45202, 8.6%; PNC Bank, Saxon and Co., 200 Stevens Dr., Suite 260, Lester, PA
19113, 68.7%; PNC Bank, 200 Stevens Drive, Lester, PA 19113, 96.6%; Ohio
----
Municipal Money Market Portfolio: BHC Securities, 2005 Market St., Phila., PA
- --------------------------------
19103, 27.7%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 62.0%;
Wayne County National Bank, P.O. Box 550, Wooster, OH 44691, 6.1%; North
-----
Carolina Municipal Money Market Portfolio: Branch Banking & Trust Company, P.O.
- -----------------------------------------
Box 1847, Wilson, N.C. 27893, 5.5%; Centura Bank, P.O. Box 1220, Rocky Mount, NC
27802, 13.6%; United Carolina Bank Whiteville, P.O. Drawer 632, Whiteville, NC
28472, 23.5%; McWood & Co., First Citizens Bank, P.O. Box 29522, Raleigh, NC
27626, 12.8%; North Carolina Trust Co., 301 North Elm St., Greensboro, NC 27402,
21.64%; Central Carolina Bank & Trust Co., P.O. Box 30010, Durham, NC 27702,
5.3%; Pennsylvania Municipal Money Market Portfolio: BHC Securities, 2005 Market
---------------------------------------------
St., Phila., PA 19103, 9.0%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA
19113, 78.2%; Janney Montgomery Scott, 1801 Market Street, Philadelphia, PA
19103, 6.0%; Virginia Municipal Money Market Portfolio: Oldom & Co., First
-----------------------------------------
Virginia Bank Inc., 6400 Arlington Blvd., Falls Church, VA 22042, 71.6%;
Piedmont Company, Piedmont Trust Bank, P.O. Box 4751, Martinsville, VA 24115,
11.1%; Managed Income Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester,
------------------------
PA 19113, 92.5%; Tax-Free Income Portfolio: BHC Securities, 100 N. 20th Street,
-------------------------
Phila., PA 19103, 17.9%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
44.0%; Ohio Tax-Free Income Portfolio: BHC Securities, 100 N. 20th Street,
------------------------------
Phila., PA 19103, 32.3%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
59.6%; Pennsylvania Tax-Free Income: BHC Securities, 100 N. 20th St., Phila., PA
----------------------------
19103, 46.0%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 26.9%;
Intermediate Government Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester,
- ---------------------------------
PA 19113, 91.5%; Short-Term Bond Portfolio: Medical Practice Account, 1020
-------------------------
Walnut St., Phila., PA 19107, 13.6%; PNC Bank, 200 Stevens Dr., Suite 260,
Lester, PA 19113, 84.2%; Intermediate-Term Bond Portfolio: PNC Bank, 200 Stevens
--------------------------------
Dr., Suite 260, Lester, PA 19113, 94.4%; Government Income Portfolio: BHC
---------------------------
Securities, 100 N. 20th St., Phila., PA 19103, 20.9%; International Emerging
----------------------
Markets Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
- -----------------
88.7%; Growth Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA
-----------------------
19113, 96.6%; Index Equity Portfolio: PNC
----------------------
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Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 91.6%; Small Cap Value
---------------
Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
- ----------------
81.1%; International Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260,
------------------------------
Lester, PA 19113, 91.4%; Balanced Portfolio: BHC Securities, 100 N. 20th St.,
------------------
Phila., PA 19103, 24.8%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
60.3%; Value Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA
----------------------
19113, 91.0%; Small Cap Growth Equity Portfolio: PNC Bank, 200 Stevens Dr.,
---------------------------------
Suite 260, Lester, PA 19113, 89.1%; and Core Equity Portfolio: PNC Bank, 200
---------------------
Stevens Dr., Suite 260, Lester, PA 19113, 98.0%; New Jersey Municipal Money
--------------------------
Market Portfolio: Wheat First Bulcher Singer, Box 1357, Richmond, VA 23211,
- ----------------
35.8%; Janney Montgomery Scott, 1801 Market Street, Philadelphia, PA 19103,
18.4%; BHC Securities, 100 N. 20th Street, Philadelphia, PA 19103, 43.8%.
On ____________, 1995, PNC Bank held of record approximately __% of
the Fund's outstanding shares, and may be deemed a controlling person of the
Fund under the 1940 Act. PNC Bank is a national bank organized under the laws
of the United States. All of the capital stock of PNC Bank is owned by PNC
Bancorp, Inc. All of the capital stock of PNC Bancorp, Inc. is owned by PNC
Bank Corp., a publicly-held bank holding company.
BANKING LAWS. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956 or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, administrator, transfer agent or custodian to such an
investment company, or from purchasing shares of such a company as agent for and
upon the order of customers. PAMG, PIMC, BlackRock, PCM, PEAC, PNC Bank and
Institutions that are banks or bank affiliates are subject to such banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
PAMG, PIMC, BlackRock, PCM, PEAC and PNC Bank believe they may perform
the services for the Fund contemplated by their respective agreements with the
Fund without violation of applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either Federal or state
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statutes and regulations relating to permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Trustees would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory or sub-advisory agreement would be
subject to shareholder approval.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Investor Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Investor
Shares. It is not anticipated, however, that any change in the Fund's method of
operations would affect its net asset value per share or result in a financial
loss to any customer.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of a
class, series or Portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the lesser of (1) 67% of the shares of the particular class, series or
Portfolio represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or Portfolio are present in person or
by proxy, or (2) more than 50% of the outstanding shares of such class, series
or Portfolio.
FINANCIAL STATEMENTS
ALL PORTFOLIOS, EXCEPT THE INTERNATIONAL BOND, NEW JERSEY TAX-FREE
INCOME, NEW JERSEY MUNICIPAL MONEY MARKET, SHORT GOVERNMENT BOND, CORE BOND AND
INDEX MASTER PORTFOLIOS. The audited financial statements and notes thereto in
the Fund's Annual Report to Shareholders for the fiscal year ended September 30,
1995 (the "1995 Annual Report") are incorporated in this Statement of Additional
Information by reference. No other parts of the 1995 Annual Report are
incorporated by reference herein. The financial statements included in the 1995
Annual Report have been audited by the Fund's independent accountants, Coopers &
Lybrand, LLP, whose reports thereon are incorporated herein by reference. Such
financial statements have been incorporated herein in reliance upon such report
given upon their authority as experts in accounting and auditing. Additional
copies of the 1995 Annual Report may be obtained at no charge by telephoning the
Distributor at the telephone number appearing on the front page of this
Statement of Additional Information.
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SHORT GOVERNMENT BOND AND CORE BOND PORTFOLIOS. The Short Government
Bond and Core Bond Portfolios commenced operations as separate investment
portfolios of The BFM Institutional Trust Inc. (the "Predecessor BFM
Portfolios"). The audited financial statements for the Predecessor BFM
Portfolios contained in their Annual Report to Shareholders dated June 30, 1995
(the "BFM Annual Report") are incorporated by reference into this Statement of
Additional Information. No other parts of the BFM Annual Report are
incorporated by reference herein. Additional copies of the BFM Annual Report
may be obtained at no charge by telephoning the Distributor at the telephone
number appearing on the front page of this Statement of Additional Information.
INTERNATIONAL BOND, NEW JERSEY MUNICIPAL MONEY MARKET AND NEW JERSEY
TAX-FREE INCOME PORTFOLIOS. The International Bond, New Jersey Municipal Money
Market and New Jersey Tax-Free Income Portfolios commenced operations as
separate investment portfolios of The Compass Capital Group of Funds (the
"Predecessor Compass Portfolios"). The unaudited financial statements for the
Predecessor Compass Portfolios contained in their Semi-Annual Report to
Shareholders dated August 31, 1995 (the "Predecessor Compass Semi-Annual
Report") and the audited financial statements for the Predecessor Compass
Portfolios contained in their Annual Report to Shareholders dated February 28,
1995 (the "Predecessor Compass Annual Report") are incorporated by reference
into this Statement of Additional Information. No other parts of the
Predecessor Compass Semi-Annual Report or Annual Report are incorporated by
reference herein. Additional copies of the Predecessor Compass Semi-Annual
Report and Annual Report may be obtained at no charge by telephoning the
Distributor at the telephone number appearing on the front page of this
Statement of Additional Information.
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APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which is issued by United States commercial banks, thrifts and non-
bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic or financial conditions than for obligations in higher categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
A-4
<PAGE>
"C" - Obligations for which there is an inadequate capacity to ensure
timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and
A-5
<PAGE>
principal repayments. Adverse business, financial or economic conditions will
likely impair capacity or willingness to pay interest and repay principal. The
"B" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are
A-6
<PAGE>
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the
A-7
<PAGE>
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issuer ranks at the lower end of
its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
A-9
<PAGE>
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB"
A-10
<PAGE>
are, however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
A-11
<PAGE>
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
(INSTITUTIONAL SHARES OF THE OF THE
MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
1. Cover page................................. Cover Page
2. Synopsis................................... Expense Table
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... Cover Page; Investment
Policies; Description of
Shares
5. Management of the Fund..................... Management
5A. Management's Discussion of Fund
Performanc............................... Inapplicable
6. Capital Stock and Other Securities......... Cover Page; Dividends
and Distributions;
Description of Shares
7. Purchase of Securities Being Offered....... Purchase and Redemption
of Shares; Dividends and
Distributions Net Asset
Value
8. Redemption or Repurchase................... Purchase and Redemption
of Shares -Redemption of
Shares
9. Pending Legal Proceedings.................. Inapplicable
<PAGE>
THE MULTI-SECTOR MORTGAGE
SECURITIES PORTFOLIO III
The PNC(R) Fund (the "Fund") consists of 30 investment portfolios. This
Prospectus relates to shares ("Institutional Shares" or "Shares") representing
interests in the Multi-Sector Mortgage Securities Portfolio III (the
"Portfolio"). The Portfolio seeks to provide a total rate of return before
fees and expenses over a rolling twelve-month period that exceeds the total
rate of return of the Salomon Broad Investment Grade Index over the same period
by at least 1.60% on an annualized basis. The securities in which the
Portfolio may invest include, but are not limited to, Commercial and
Residential Mortgage-Backed Securities, collateralized mortgage obligations,
real estate mortgage investment conduits, adjustable rate mortgages and U.S.
Treasury and agency securities. The Portfolio will maintain a dollar-weighted
average credit quality of at least A-/A3, with U.S. Government securities being
assigned a AAA rating.
INVESTMENTS IN THE PORTFOLIO MAY INCLUDE SECURITIES HAVING A CREDIT
QUALITY BELOW INVESTMENT GRADE. SUCH SECURITIES, ALSO CALLED "JUNK BONDS," ARE
CONSIDERED TO BE SPECULATIVE AND MAY BE SUBJECT TO SPECIAL RISKS, INCLUDING A
GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST. SEE
"DESCRIPTION OF SECURITIES -- LOWER RATED SECURITIES" AND "RISK FACTORS".
Institutional Shares of the Portfolio ("Shares") are sold at net asset
value to institutional investors ("Institutions").
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated ____________, 1995 has been filed with
the Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained free of charge from the Fund by calling
(800) 422-6538. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE
NOT INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE FUND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
PROSPECTUS , 1995
---------
-2-
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company which has registered
shares in 30 investment portfolios, of which only the Portfolio is described in
this Prospectus.
PORTFOLIO MANAGEMENT
BlackRock Financial Management Inc. ("BlackRock" or the "Adviser") serves
as investment adviser to the Portfolio. The investment adviser is an indirect
wholly-owned subsidiary of PNC Bank Corp.
THE ADMINISTRATORS
PNC Mutual Fund Company ("PMFCO"), PFPC Inc. ("PFPC") and Provident
Distributors, Inc. ("PDI") serve as the Fund's administrators (collectively,
the "Administrators").
THE DISTRIBUTOR
Provident Distributors, Inc. (the "Distributor") serves as the Fund's
distributor.
-3-
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS AND
EXPENSE
REIMBURSEMENTS AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<S> <C>
Advisory fees . . . . . . . . . . . . . . 0.25%(a)
Other expenses . . . . . . . . . . . . . 0.12%(b)
-----
Total operating expenses . . . . . . . . 0.37%
=====
- ---------------
</TABLE>
(a) BlackRock reserves the right in its sole discretion to reduce the
advisory fee charged to the Portfolio.
(b) BlackRock has agreed to cap the "Other expenses" for the Portfolio at
this level.
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment in Shares of the Portfolio, assuming (1) 5% annual return,
and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
FIVE TEN
ONE YEAR THREE YEARS YEARS YEARS
-------- ----------- ----- -----
<S> <C> <C> <C> <C>
Multi-Sector Mortgage Securities
Portfolio III . . . . . . . . . . $4 $12 $21 $48
</TABLE>
The foregoing Expense Table and Example are intended to assist investors
in understanding the Portfolio's estimated annual operating expenses with
respect to Institutional Shares based on the level of such expenses during its
most recent fiscal period, adjusted to reflect current fees and expenses.
Investors bear these expenses either directly or indirectly. See "Financial
Highlights--Background," "Management," "Purchase and Redemption of Shares" and
"Description of Shares" for a more complete description of shareholder
transaction expenses and operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
-4-
<PAGE>
CERTAIN RISK FACTORS TO CONSIDER
An investment in the Portfolio is subject to certain investment
considerations, as set forth in detail under "Investment Policies." As with
other mutual funds, there can be no assurance that the Portfolio will achieve
its investment objective. The following are some of these considerations. The
Portfolio may invest in both Commercial Mortgage-Backed Securities and
Residential Mortgage-Backed Securities. The Portfolio may invest in lower
credit quality securities, which are commonly referred to as "junk bonds." The
Portfolio is classified as non-diversified under the Investment Company Act of
1940 (the "1940 Act"). The Portfolio (subject to limitations described herein)
may use various other investment management techniques that also involve
special considerations including purchasing illiquid securities, engaging in
hedging transactions, selling listed and over-the-counter covered call options,
making forward commitments, entering into repurchase agreements, purchasing
securities on a when-issued basis, entering into interest rate swaps and
purchasing or selling interest rate caps and floors. For further discussion of
these practices and the associated risks and special considerations, see
"Description of Securities", "Other Investment Practices" and "Risk Factors."
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Portfolio commenced investment operations on October 6, 1994 as a
separate investment portfolio (the "Predecessor Portfolio") of The BFM
Institutional Trust Inc., which was organized as a Maryland corporation. On
__________, 1995, the assets and liabilities of the Predecessor Portfolio
transferred to the Portfolio, which had no prior operating history. The
Predecessor Portfolio also received investment advisory services from
BlackRock.
The financial highlights set forth certain information concerning the
investment results of the Predecessor Portfolio for the fiscal period ended
June 30, 1995. The financial statements and notes thereto for the Predecessor
Portfolio were audited by the Predecessor Portfolio's former independent
accountants, whose report thereon is incorporated by reference into the
Statement of Additional Information. Additional information about the
performance of the Predecessor Portfolio is contained in the Predecessor
Portfolio's annual report. Both the Statement of Additional Information and
the Predecessor Portfolio's annual report may be obtained from the Portfolio
free of charge by calling the number on the front cover of this Prospectus.
During the period shown, the Predecessor Portfolio offered one class of shares
to institutional investors.
<TABLE>
<CAPTION>
THE MULTI-SECTOR
MORTGAGE SECURITIES
PORTFOLIO III
-------------------
OCTOBER 6, 1994*
THROUGH
JUNE 30, 1995
---------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . $1,000.00
Net investment income (a) . . . . . . . . . . 55.81
Net realized and unrealized gain
on investments . . . . . . . . . . . . . . 68.11
---------
Net increase
from investment operations . . . . . . . . 123.92
---------
Dividends from net investment income . . . . . (55.81)
---------
Net asset value, end of period . . . . . . . . $1,068.11
=========
TOTAL INVESTMENT RETURN (b) . . . . . . . . . . 12.78%
RATIOS TO AVERAGE NET ASSETS:
Expenses (a) . . . . . . . . . . . . . . . . . 0.37%(c)
Net investment income (a) . . . . . . . . . . . 7.54%(c)
SUPPLEMENTAL DATA:
Average net assets (in thousands) . . . . . . . $103,332
Portfolio turnover . . . . . . . . . . . . . . 215%
Net assets, end of period (in thousands) . . . $112,810
</TABLE>
- -------------------------------------------------------------------------------
-6-
<PAGE>
* Commencement of investment operations.
(a) For the period ended June 30, 1995, the Adviser waived expenses amounting
to $56,269. Net investment income before waiver of fees would have been
$55.28 on a per share basis and the ratio of net operating expenses to
average net assets and the ratio of net investment income to average net
asset would have been 0.45% and 7.46%, respectively.
(b) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at the net
asset value per share on the payment date.
(c) Annualized.
Contained above is audited operating performance based on an average share
of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data, for each of the periods indicated.
This information has been determined based upon financial information
provided in the financial statements.
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INVESTMENT POLICIES
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The following describes briefly the investment objective and policies of
the Portfolio. Certain instruments and techniques discussed in this section
are described in greater detail later in this Prospectus and in the Statement
of Additional Information ("SAI").
THE ADVISER'S ANALYSIS OF OPPORTUNITIES IN THE COMMERCIAL AND RESIDENTIAL
MORTGAGE-BACKED SECURITIES MARKETS
Commercial and non-agency Residential Mortgage-Backed Securities are among
the highest yielding, call protected, domestic, fixed-income securities across
all rating categories. Under current market conditions, the Adviser believes
that investments in non-agency mortgage securities (which include Commercial
and non-agency Residential Mortgage-Backed Securities) provide attractive
investment opportunities. This is due to several factors, including the
developing nature of the Commercial and non-agency Residential Mortgage-Backed
Securities markets, the restructuring of the real estate loans underlying
non-agency mortgage securities, the infusion of capital to the real estate
market and the Adviser's expectation of no further significant deterioration of
real estate property values.
The construction boom of the early 1980's resulted in the oversupply of
developed commercial and residential real estate. This oversupply led to high
vacancy rates and, coupled with declining rental rates, led to a decline in
real estate values in the late 1980's and early 1990's. Real estate loans
originated in the early and mid-1980's were issued during a period of higher
real estate values. The subsequent rise in delinquencies and losses for
lenders has led to new mortgage origination standards which incorporate less
optimistic assumptions concerning rent growth and occupancy. Mortgages
originated during this period of higher values may be restructured or
renegotiated to reflect current market conditions. The resulting non-agency
mortgage securities have underlying loans with LTV ratios that the Adviser
believes more accurately reflect current market values and allow the Adviser to
better assess credit exposure.
Many sophisticated investors have recently become active participants in
the commercial real estate market, which has brought new equity into these
types of investments. The increased issuance of real estate investment trusts
("REITs") has been another source of new equity. The Adviser believes that
this infusion of equity, combined with more conservative real estate
valuations, as well as the dislocation of traditional
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lenders provides a strong foundation for the continued issuance of Commercial
and non-agency Residential Mortgage-Backed Securities.
The Adviser expects that a recovery of the real estate market in general
would have a positive effect on investments in non-agency Mortgage-Backed
Securities. Market indicators are beginning to show positive trends, with
declines in commercial mortgage delinquencies and defaults. Additionally, the
second quarter of 1993 brought the first positive quarterly total return on
real estate investments in two years, as measured by the Russel-NCREIF Index,
which tracks the performance of U.S. commercial real estate.
The Resolution Trust Corporation (the "RTC") entered the non-agency
Mortgage-Backed Securities market as a significant participant by securitizing
non-agency mortgage loans in June of 1991, packaging certain mortgages it
acquired as receiver of failed savings and loans. The RTC, in addition to
other entities, has securitized commercial and non-agency residential
mortgages, aggregating in excess of $22 billion of Commercial Mortgage-Backed
Securities and $200 billion of Residential Mortgage-Backed Securities created
from January, 1987 to December, 1992. As a result of the significant decline
in real estate values in the U.S. in the late 1980's and early 1990's and in
conjunction with their efforts to improve the creditworthiness of financial
institutions, regulators such as the National Association of Insurance
Commissioners (the "NAIC") and the Bank for International Settlements (the
"BIS") set more stringent capital requirements for assets including real estate
holdings. These requirements have led traditional real estate leaders largely
to withdraw from lending to real estate borrowers and to seek a secondary
market outlet for these mortgage loans and for real estate borrowers to seek
financing from non-traditional lenders. The Adviser believes that, as a
result, banks and insurance companies will increasingly take advantage of the
secondary market to dispose of real estate holdings and borrowers will utilize
the capital markets as a major source of financing.
The Adviser believes that the establishment by rating agencies of
standardized rating criteria has helped further the development of the
secondary market for commercial and non-agency residential Mortgage-Backed
Securities. Unlike the securitization of traditional residential mortgages,
which are eligible for principal and interest guarantees from government
agencies such as the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), the securitization of commercial and non-agency
residential mortgages may require other forms of credit enhancement, including
the senior/subordinated security structure, reserve funds and third-party
letters of credit. The senior/subordinated structure was
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developed in the 1980's to create a senior security which would be highly rated
and attractive to a wide range of investors. The subordinated security, which
was designed to absorb credit losses on the underlying mortgages and therefore
reduce the exposure of senior securities from such losses, was generally either
retained by the issuer or sold to a sophisticated investor in a negotiated
transaction. In the current environment, the subordinated securities are
further segmented into a hierarchy of loss positions. This allows many
different classes of securities to be created, with varying degrees of credit
exposure, prepayment exposure and potential total return.
Based on investor demand for certain securities (which depends in part on
a combination of rating, yield spread and maturity) the issuer of a
senior/subordinated structure typically works closely with the rating agencies
to determine the credit support levels required to achieve the desired rating
for each security class. The specific structure created dictates the priority
for the allocation of available cash flows on the underlying mortgages. The
senior classes generally receive the first available cash flows of both
interest and principal, while the subordinated classes typically receive only
interest until the senior and higher ranked subordinated classes are paid down.
Any principal losses experienced on the underlying properties are generally
absorbed first by the equity holder and then by the cash reserve fund and
letters of credit, if any are present in the structure, and then by the "first
loss" subordinated security holder to the extent of its principal balance and
then by the next subordinated classes, in order of their respective position in
the structure.
The Adviser believes that the development of the secondary market for
Commercial and non-agency Residential Mortgage-Backed Securities has created
significant opportunities for investing in the lower-rated and non-rated
classes of these securities. Furthermore, the Adviser believes that there is
sufficient liquidity in this secondary market for the Portfolio to accomplish
its investment objectives. The Adviser believes that many of the lower-rated
and non-rated Commercial Mortgage-Backed Securities are subject to less
prepayment risk than is the case with Residential Mortgage-Backed Securities
because of structural features of the underlying mortgage loans and the fact
that they are entitled to repayment only after more senior classes are paid.
Such securities therefore offer an opportunity for attractive yields, which the
Adviser believes more than compensates investors for assuming the credit risk
associated with such securities. In addition, the Adviser believes that the
Commercial and non-agency Residential Mortgage-Backed Securities market will
expand and yield spreads to Treasuries will decline, leading to an opportunity
for price appreciation. The Adviser believes this sector of the
Mortgage-Backed Securities market is likely to realize expansion similar to
that which the agency
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residential Mortgage-Backed Securities market experienced in the late 1980's,
where the earlier investors benefitted greatly as the market improved and
expanded.
INVESTMENT OBJECTIVE
The Portfolio (i) will seek to provide a total rate of return before fees
and expenses over rolling twelve-month periods that exceeds the total return of
the Salomon Broad Investment Grade Index over the same period by at least 1.60%
on an annualized basis, (ii) will not invest in Asset-Backed Securities, bank
or corporate debt securities other than money market instruments, or non-rated
securities (other than for U.S Government securities) and (iii) will maintain a
dollar-weighted average credit quality of at least A- by Standard & Poor's
Ratings Group, Division of McGraw Hill ("S&P"), Duff & Phelps Inc. ("D&P") or
Fitch Investors Service ("Fitch") or A3 by Moody's Investors Service, Inc.
("Moody's"), with U.S. Government securities being assigned a AAA rating. The
Portfolio will maintain a targeted duration within 20% shorter or longer than
the then current duration of the Salomon Broad Investment Grade Index.
Duration is a measure of the expected life of a fixed income security on a
present value basis and is indicative of a security's price "volatility" or
"risk" associated with changes in interest rates. The Portfolio seeks to meet
its objective by investing in a range of agency and non-agency Mortgage-Backed
Securities, including primarily senior and subordinated tranches of
residential, commercial, multi-family and agricultural mortgage securities.
The securities in which the Portfolio may invest include, but are not limited
to, collateralized mortgage obligations, real estate mortgage investment
conduits, adjustable rate mortgages and U.S. Treasury and agency securities.
The Portfolio will limit to 20% of net assets its investments in U.S.
Government securities that are not also Mortgage-Backed Securities. The
Portfolio may invest in lower rated securities. Such securities are commonly
referred to as "junk bonds" and have a higher risk of default of principal and
interest. During temporary defensive periods and in order to keep cash on hand
fully invested, the Portfolio may invest in money market instruments.
In determining which Mortgage-Backed Securities the Portfolio will
purchase, the Adviser will consider, among other factors, the following:
characteristics of the underlying mortgage loan, including LTV and debt service
coverage ratio, loan seasoning, and refinancing risk; characteristics of the
underlying property, including diversity of the loan pool, occupancy and
leasing, and competitiveness in the pertinent market; economic, environmental
and local considerations; deal structure, including historical performance of
the originator, subordination percentages and reserve fund balances; and
structural participants such as administrators and servicers.
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In addition to examining the relative value of the investments, the
Adviser's disciplined approach to investments for the Portfolio will include
considerable interaction with rating agencies, extensive review of due
diligence by underwriters and rating agencies, confirmation of debt service
coverage ratios and stress testing of security cash flows. The Adviser also
will select investments which will vary the Portfolio by underlying property
types, geographic regions and industry exposure. In this regard, the Portfolio
will not purchase any commercial Mortgage-Backed Security ("CMBS") if, giving
effect thereto, (i) the net assets of the Portfolio constituting CMBS that are
directly or indirectly secured by or payable out of cash flow from the same
pool of collateral would increase and would account for more than 10% of the
Portfolio's net assets, or (ii) the net assets of the Portfolio attributable to
CMBS backed by the same pool of collateral would increase and the Portfolio
would own more than 25% of the currently outstanding principal amount of CMBS
that are directly or indirectly secured by or payable out of cash flow from the
same pool of collateral. In addition, the Portfolio will not, except during
any three-month period after any month in which its net assets have increased
by more than 30%, purchase any CMBS if, giving effect thereto, (i) the net
assets of the Portfolio constituting CMBS that are directly or indirectly
secured by or payable out of cash flow from properties located within a single
state of the U.S. would increase and would account for more than 25% of the
Portfolio's net assets or (ii) the net assets of the Portfolio constituting
CMBS that are directly or indirectly secured by or payable out of cash flow
from office properties would increase and would account for more than 33%, or
from hotel and motel properties would increase and would account for more than
20%, or from any one of multi-family, cooperative, industrial and warehouse,
retail and shopping mall, mobile home park, nursing home and senior living
center or hospital properties would increase and would account for more than
75% of the Portfolio's net assets, or (iii) the net assets of the Portfolio
constituting particular issuances of CMBS that are directly or indirectly
secured by or payable out of cash flow from single properties would increase
and would account for more than 50% of the Portfolio's net assets. For the
foregoing purpose, a CMBS will be considered to be secured by or payable out of
the cash flow from a property only in the proportion that the outstanding
principal amount of the mortgage loan relating to such property and backing
such security bears to the sum of the outstanding principal amount of all
mortgage loans backing such security. If the Portfolio's asset composition in
any of the foregoing categories subsequently exceeds 110% of the related
percentage limitation for any reason, the Portfolio will take such action as
may be necessary so that within 60 days after the occurrence of such excess the
relevant percentage limitation is again satisfied. The Portfolio will not
invest in any issuance of Mortgage-Backed Securities more than 5% of the
principal
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amount of the collateral of which at the time of issuance is single-family
residential and agricultural properties in the aggregate.
INVESTMENT RESTRICTIONS
The Portfolio has also adopted a number of fundamental investment
restrictions which may not be changed without the approval of the Portfolio's
outstanding voting securities. The SAI sets forth these restrictions in full.
In addition, the Portfolio's investment objective is fundamental and may not be
changed without such shareholder approval.
The Portfolio has also adopted several non-fundamental portfolio
investment limitations. The Portfolio will not modify any of its
non-fundamental portfolio investment limitations without providing at least 60
days prior written notice of such modification to its shareholders.
DESCRIPTION OF SECURITIES
The following describes certain types of securities in which the Portfolio
may invest:
COMMERCIAL MORTGAGE-BACKED SECURITIES
Commercial Mortgage-Backed Securities are generally multi-class debt or
pass-through securities backed by a mortgage loan or pool of mortgage loans
secured by commercial property, such as industrial and warehouse properties,
office buildings, retail space and shopping malls, multi-family properties and
cooperative apartments, hotels and motels, nursing homes, hospitals, senior
living centers and agricultural property. The commercial mortgage loans that
underlie Commercial Mortgage-Backed Securities have certain distinct
characteristics. Commercial mortgage loans are generally not amortizing or not
fully amortizing. At their maturity date, repayment of the remaining principal
balance or "balloon" is due and is repaid through the attainment of an
additional loan or sale of the property. Unlike most single family residential
mortgages, commercial real property loans often contain provisions which
substantially reduce the likelihood that such securities will be prepaid. The
provisions generally impose significant prepayment penalties on loans and, in
some cases there may be prohibitions on principal prepayments for several years
following origination. This difference in prepayment exposure is significant
due to extraordinarily high levels of refinancing of traditional residential
mortgages experienced over the past year as mortgage rates have reached a 25
year low. Assets underlying Commercial Mortgage-Backed Securities may relate
to only a few properties or to a single property. See "Risk Factors."
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Commercial Mortgage-Backed Securities have been issued in public and
private transactions by a variety of public and private issuers.
Non-governmental entities that have issued or sponsored Commercial
Mortgage-Backed Securities offerings include owners of commercial properties,
originators of and investors in mortgage loans, savings and loan associations,
mortgage banks, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. The Portfolio may from time to
time purchase Commercial Mortgage-Backed Securities directly from issuers in
negotiated transactions or from a holder of such Commercial Mortgage-Backed
Securities in the secondary market .
Commercial Mortgage-Backed Securities generally are structured to protect
the senior class investors against potential losses on the underlying mortgage
loans. This is generally provided by the subordinated class investors, which
may be included in the Portfolio, by taking the first loss if there are
defaults on the underlying commercial mortgage loans. Other protection, which
may benefit all of the classes, including the subordinated classes in which the
Portfolio intends to invest, may include issuer guarantees, reserve funds,
additional subordinated securities, cross-collateralization,
over-collateralization and the equity investors in the underlying properties.
By adjusting the priority of interest and principal payments on each class
of a given Commercial Mortgage-Backed Security, issuers are able to issue
senior investment grade securities and lower rated or non-rated subordinated
securities tailored to meet the needs of sophisticated institutional investors.
In general, subordinated classes of Commercial Mortgage-Backed Securities are
entitled to receive repayment of principal only after all required principal
payments have been made to more senior classes and have subordinate rights as
to receipt of interest distributions. Such subordinated classes are subject to
a substantially greater risk of nonpayment than are senior classes of
Commercial Mortgage-Backed Securities. Even within a class of subordinate
securities, most Commercial Mortgage-Backed Securities are structured with a
hierarchy of levels (or "loss positions"). Loss positions are the order in
which non-recoverable losses of principal are applied to the securities within
a given structure. For instance, a first loss subordinate security will absorb
any principal losses before any higher loss position subordinate security.
This type of structure allows a number of classes of securities to be created
with varying degrees of credit exposure, prepayment exposure and potential
total return.
Subordinated classes of Commercial Mortgage-Backed Securities have more
recently been structured to meet specific investor preferences and issuer
constraints and have different
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priorities for cash flow and loss absorption. As previously discussed, from a
credit perspective, they are structured to absorb any credit-related losses
prior to the senior class. The principal cash flow characteristics of
subordinated classes are designed to be among the most stable in the
Mortgage-Backed Securities market, the probability of prepayment being much
lower than with traditional Residential Mortgage-Backed Securities. This
characteristic is primarily due to the structural feature that directs the
application of principal payments first to the senior classes until they are
retired before the subordinated classes receive any prepayments. While this
serves to enhance the credit protection of the senior classes, it produces
subordinated classes with more stable average lives. Subject to the applicable
provisions of the 1940 Act, there are no limitations on the classes of
Commercial Mortgage-Backed Securities in which the Portfolio may invest.
Accordingly, in certain circumstances, the Portfolio may recover proportionally
less of its investment in a Commercial Mortgage-Backed Security than the
holders of more senior classes of the same Commercial Mortgage-Backed Security.
The rating assigned to a given issue and class of Commercial
Mortgage-Backed Securities is a product of many factors, including, the
structure of the security, the level of subordination, the quality and adequacy
of the collateral, and the past performance of the originators and servicing
companies. The rating of any Commercial Mortgage-Backed Security is determined
to a substantial degree by the debt service coverage ratio (i.e., the ratio of
current net operating income from the commercial properties, in the aggregate,
to the current debt service obligations on the properties) and the LTV ratio of
the pooled properties. The amount of the securities issued in any one rating
category is determined by the rating agencies after a rigorous credit rating
process which includes analysis of the issuer, servicer and property manager,
as well as verification of the LTV and debt service coverage ratios. LTV
ratios may be particularly important in the case of commercial mortgages
because most commercial mortgage loans provide that the lender's sole remedy in
the event of a default is against the mortgaged property, and the lender is not
permitted to pursue remedies with respect to other assets of the borrower.
Accordingly, loan-to-value ratios may, in certain circumstances, determine the
amount realized by the holder of the Commercial Mortgaged-Backed Security.
RESIDENTIAL MORTGAGE-BACKED SECURITIES
The Portfolio also expects to invest in Residential Mortgage-Backed
Securities that are Mortgage-Backed Securities representing participation
interests in pools of single-family residential mortgage loans originated by
private mortgage originators. Traditionally, Residential Mortgage-Backed
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Securities were issued by governmental agencies such as Fannie Mae, Freddie Mac
and Ginnie Mae. The Portfolio intends to invest in those securities issued by
nongovernmental agencies as well as governmental agencies. Nongovernmental
entities that have issued or sponsored Residential Mortgage-Backed Securities
offerings include savings and loan associations, mortgage banks, insurance
companies, investment banks and special purpose subsidiaries of the foregoing.
Residential Mortgage-Backed Securities, similar to Commercial Mortgage-Backed
Securities, have been issued using a variety of structures, including
multi-class structures featuring senior and subordinated classes.
While single-family residential loans do not typically have prepayment
penalties or restrictions, as commercial mortgage loans often do, Residential
Mortgage-Backed Securities are often structured so that subordinated classes
may be locked out of prepayments for a period of time. However, in a period of
extremely rapid prepayments, during which senior classes may be retired faster
than expected, the subordinated classes may receive unscheduled payments of
principal and would have average lives that, while longer than the average
lives of the senior classes, would be shorter than originally expected.
The types of agency and non-agency Commercial and Residential
Mortgage-Backed Securities which the Portfolio may invest shall include, but
not be limited to, the following securities:
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Portfolio may invest in Mortgage-Backed Securities
issued by agencies or instrumentalities of the U.S. Government including GNMA,
FNMA and FHLMC. The U.S. Government or the issuing agency guarantees the
payment of interest and principal on these securities. However, the guarantees
do not extend to the securities' yield or value, nor do the guarantees extend
to the yield or value of a Portfolio's shares. These securities are in most
cases "pass-through" instruments, through which the holder receives a share of
all interest and principal payments from the mortgages underlying the security,
net of certain fees. See "Mortgage-Backed Securities" in the SAI.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities are structured similarly to GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed either by GNMA, FNMA or FHLMC certificates or by a pool of
fixed rate or adjustable rate mortgage loans. Securities which are backed by a
pool of fixed rate or adjustable rate mortgage loans generally are structured
with one or more
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types of credit enhancement. See "Types of Credit Enhancement" in the SAI.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates ("ARMs"). ARMs eligible for inclusion in a
mortgage pool generally provide for a fixed initial mortgage interest rate for
either the first three, six, twelve, thirteen, thirty-six or sixty scheduled
monthly payments. Thereafter, the interest rates are subject to periodic
adjustment based on changes to a designated benchmark index. See "Adjustable
Rate Mortgage Securities" in the SAI.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
also may be collateralized by whole loans or private mortgage pass-through
securities (collectively, "Mortgage Assets"). Multi-class pass-through
securities are equity interests in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include
multi-class pass-through certificates. Payments of principal of and interest
on the Mortgage Assets, and any reinvestment income thereon, provide the funds
to pay debt service on the CMOs or make scheduled distributions on the
multi-class pass-through securities. CMOs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of CMOs or multi-class pass-through securities may elect to be treated
as a Real Estate Mortgage Investment Conduit ("REMIC"). See "Collateralized
Mortgage Obligations and Multi-Class Pass-Through Securities" in the SAI.
LOWER RATED SECURITIES. The Mortgage-Backed Securities in which the
Portfolio may invest may be lower rated (i.e., have a credit quality below
investment grade). Investments in such lower rated securities are subject to
special risks, including a greater risk of loss of principal and non-payment of
interest. An investor should carefully consider the following factors before
purchasing shares of the Portfolio. The Portfolio (i) will not invest in
securities (other than U.S. Government securities) that are not rated at least
B by S&P, D&P or Fitch or B2 by Moody's at the time of investment; (ii) will
not invest in securities (other than U.S. Government securities) not rated by
at least one of the foregoing organizations at the time of investment; (iii)
will not invest more than 12.5% of its assets in securities that are rated
below BB-/Ba3 by any of the foregoing organizations; and (iv) will not invest
more than 25%
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of its assets in securities that are rated below BBB-/Baa3 by any of the
foregoing organizations. In the case of short-term money market instruments
and short-term commingled funds the applicable rating requirement will be
A2/P2. Split rated securities will be accounted for at the lower rating. If
any security held in its portfolio is downgraded such that the Portfolio would
not be able at that time to make an investment in such security, the Portfolio
will sell such security within 30 days after such downgrade. The Portfolio
will maintain a dollar-weighted average credit quality of at least A-/A3, with
U.S. Government securities assigned a AAA rating. In order to calculate the
average credit quality of the Portfolio, the Portfolio will assign sequential
numbers to each of the 20 rating categories from AAA to D, multiply the value
of each instrument by the rating equivalent number assigned to its lowest
rating, sum all of such products, divide the aggregate by the net asset value
of the Portfolio and convert the number back to its equivalent rating symbol.
Generally, lower rated securities offer a higher return potential than
higher rated securities but involve greater volatility of price and greater
risk of loss of income and principal, including the possibility of default or
bankruptcy of the issuers of such securities. Lower rated securities will
likely have large uncertainties or major risk exposure to adverse conditions
and are predominately speculative. The occurrence of adverse conditions and
uncertainties would likely reduce the value of securities held by the
Portfolio, with a commensurate effect on the value of a given portfolio's
shares. While the market values of lower rated securities tend to react less
to fluctuations in interest rate levels than do those of higher rated
securities, the market values of certain of these securities also tend to be
more sensitive to changes in economic conditions than higher rated securities.
In addition, lower rated securities generally present a higher degree of credit
risk. The Portfolio may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.
Securities which are rated BB by S&P, D&P and Fitch and Ba by Moody's have
speculative characteristics with respect to capacity to pay interest and repay
principal. Securities which are rated B generally lack characteristics of a
desirable investment and assurance of interest and principal payments over any
long period of time may be small. A general description of the bond ratings of
Moody's, S&P, D&P and Fitch is set forth in Appendix A to the Prospectus.
In general, the ratings of nationally recognized statistical rating
organizations represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market value
risk of
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the securities. It is possible that an agency might not change its rating of a
particular issue to reflect subsequent events. These ratings will be used by
the Portfolio as initial criteria for the selection of portfolio securities,
but the Portfolio also will rely upon the independent advice of the Adviser to
evaluate potential investments.
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. The Portfolio will invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Portfolio may invest in securities issued by agencies
of the U.S. Government or instrumentalities of the U.S. Government, including,
but not limited to, GNMA, FNMA and FHLMC securities. Obligations of GNMA, the
Farmers Home Administration and the Export-Import Bank are backed by the "full
faith and credit" of the United States. In the case of securities not backed
by the "full faith and credit" of the United States, the Portfolio must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. Such securities include obligations issued by FNMA and FHLMC, each
of which may borrow from the U.S. Treasury to meet its obligations, although
the U.S. Treasury is under no obligation to lend to FNMA or FHLMC. GNMA, FNMA
and FHLMC investments by the Portfolio may also include pass-through
securities, CMOs and certain other Mortgage-Backed Securities.
BANK AND CORPORATE DEBT SECURITIES
The Portfolio may not invest in bank or corporate debt securities except
that it may invest in money market instruments for temporary defensive purposes
and in order to keep cash on hand fully invested. Such instruments include but
are not limited to notes, certificates of deposit, bankers' acceptances and
commercial paper.
FLOATING RATE AND INDEX OBLIGATIONS
The Portfolio may invest in debt securities with interest payments or
maturity values that are not fixed, but float in conjunction with an underlying
index or price. These securities may be backed by U.S. Government or corporate
issuers, or by collateral such as mortgages. In certain cases, a change in the
underlying index or price may have a leveraging effect on the periodic coupon
payments, creating larger possible swings in the
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prices of such securities than would be expected when taking into account their
maturities alone. The indices and prices upon which such securities can be
based include interest rates, currency rates and commodities prices. However,
the Portfolio will not invest in any instrument whose value is computed based
on a multiple of the change in price or value of an asset or an index of or
relating to assets in which the Portfolio could not invest.
Floating rate securities pay interest according to a coupon which is reset
periodically. This reset mechanism may be formula based, or reflect the
passing through of floating interest payments on an underlying collateral pool.
The coupon is usually reset daily, weekly, monthly, quarterly or semi-annually,
but other schedules are possible. Floating rate obligations generally exhibit
a low price volatility for a given stated maturity or average life because
their coupons adjust with changes in interest rates. If their underlying index
is not an interest rate, or the reset mechanism lags the movement of rates in
the current market, greater price volatility may be experienced.
Index securities pay a fixed rate of interest, but have a maturity value
that varies by formula, so that when the obligation matures a gain or loss is
realized. The risk of index obligations depends on the volatility of the
underlying index, the coupon payment and the maturity of the obligation.
ILLIQUID SECURITIES
Illiquid securities are subject to legal or contractual restrictions on
disposition or lack an established secondary trading market. The sale of
restricted and illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. Restricted securities may sell
at a price lower than similar securities that are not subject to restrictions
on resale. The Portfolio may purchase certain restricted securities up to 15%
of its net assets eligible for sale to qualified institutional buyers as
contemplated by Rule 144A under the Securities Act of 1933 and may treat such
securities as being liquid if the Adviser determines, pursuant to procedures
adopted by the Trust's Board of Trustees, that a sufficient secondary market
does exist for such securities. See the SAI for a further discussion of
illiquid securities.
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OTHER INVESTMENT PRACTICES.
DURATION MANAGEMENT AND OTHER MANAGEMENT TECHNIQUES
As a basic element of its overall investment strategy the Portfolio
intends to use a variety of other investment management techniques and
instruments. A more complete description of such techniques is contained in
the SAI. The Portfolio may purchase and sell futures contracts, enter into
various interest rate transactions such as swaps, caps and floors and may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, financial indices and futures contracts (collectively, "Additional
Investment Management Techniques"). These Additional Investment Management
Techniques may be used for duration management and other risk management to
attempt to protect against possible changes in the market value of the
Portfolio resulting from trends in the debt securities markets and changes in
interest rates, to protect the Portfolio's unrealized gains in the value of its
securities holdings, to facilitate the sale of such securities for investment
purposes, to establish a position in the securities markets as a temporary
substitute for purchasing particular securities. There is no particular
strategy that requires use of one technique rather than another as the decision
to use any particular strategy or instrument is a function of market conditions
and the composition of the portfolio. See Appendix B "General Characteristics
and Risks of Additional Investment Management Techniques."
Additional Investment Management Techniques present certain risks. With
respect to hedging and risk management, the variable degree of correlation
between price movements of hedging instruments and price movements in the
position being hedged creates the possibility that losses on the hedge may be
greater than gains in the value of the Portfolio's position. In addition,
certain instruments and markets may not be liquid in all circumstances. As a
result, in volatile markets, the Portfolio may not be able to close out a
transaction without incurring losses substantially greater than the initial
deposit. Although the contemplated use of these instruments predominantly for
hedging should tend to minimize the risk of loss due to a decline in the value
of the position, at the same time they tend to limit any potential gain which
might result from an increase in the value of such position. The ability of
the Portfolio to successfully utilize Additional Investment Management
Techniques will depend on the Adviser's ability to predict pertinent market
movements and sufficient correlations, which cannot be assured. Finally, the
daily deposit requirements in futures contracts that the Portfolio has sold
create an ongoing greater potential financial risk than do options
transactions, where the exposure is limited to the cost of the initial premium.
Losses due to the use of Additional Investment Management Techniques will
reduce net asset value.
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In selecting counterparties for OTC hedging and risk management
transactions, the Portfolio will adhere to the following minimum ratings: (i)
with respect to an OTC derivative instrument with a remaining nominal maturity
of six months or less, a Moody's Derivative Counterparty Rating of A3; (ii)
with respect to an OTC derivative instrument with a remaining maturity of more
than six months, a Moody's Derivative Counterparty Rating of AA3. If the
counterparty does not have a Moody's counterparty rating, then either the
Moody's or S&P long-term securities rating of A3/A- (with respect to category
(i) above) or Aa3/AA- (with respect to category (ii) above) may be used as a
substitute. In addition, all such counterparties must have a minimum
short-term rating of A-1 by Moody's and P-1 by S&P. If a counterparty drops
below the minimum ratings, then the Portfolio will seek to unwind existing
agreements with such counterparty in a cost effective manner and will be
prohibited from entering into new agreements with the counterparty so long as
the counterparty's rating is below the relevant minimum.
The principal risks relating to the use of futures contracts and other
Additional Investment Management Techniques are: (a) less than perfect
correlation between the prices of the instrument and the market value of the
securities in the Portfolio's holdings; (b) possible lack of a liquid secondary
market for closing out a position in such instruments; (c) losses resulting
from interest rate or other market movements not anticipated by the Adviser;
and (d) the obligation to meet additional variation margin or other payment
requirements, all of which could result in the Portfolio being in a worse
positionthan if such techniques had not been used. See Appendix B "General
Characteristics and Risks of Additional Investment Management Techniques" and
the Statement of Additional Information for further information.
The Portfolio may also purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date outside the normal course of
settlement for securities of that type. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Portfolio will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. If the
Portfolio disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss. At the time the Portfolio enters into
a transaction on a when-issued or forward commitment basis, it will segregate
with its custodian cash or other liquid high grade debt securities with a value
not less than the value of the when-
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issued or forward commitment securities. The value of these assets will be
monitored daily to ensure that their marked to market value will at all times
equal or exceed the corresponding obligations of the Portfolio. There is
always a risk that the securities may not be delivered and that the Portfolio
may incur a loss. Settlements in the ordinary course, which typically occur
monthly for mortgage-related securities, are not treated by the Portfolio as
when-issued or forward commitment transactions and accordingly are not subject
to the foregoing restrictions.
REPURCHASE AGREEMENTS
The Portfolio may invest temporarily, without limitation, in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Portfolio from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed upon date. These
agreements may be made with respect to anyof the securities in which the
Portfolio is authorized to invest. Repurchase agreements may be characterized
as loans secured by the underlying securities and will be entered into in
accordance with the requirements of the SEC. The Portfolio will not enter into
any repurchase agreement with respect to securities other than U.S. Government
securities and mortgage-backed securities. The value of the collateral for
such repurchase agreement marked-to-market at the end of each business day will
be at least 102% of the amount of the repurchase agreement. The Portfolio will
not enter into any repurchase agreement the term of which exceeds 90 days.
RISK FACTORS
COMMERCIAL MORTGAGE-BACKED SECURITIES AND RESIDENTIAL MORTGAGE-BACKED
SECURITIES. Investments in Commercial Mortgage-Backed Securities involve the
credit risks of delinquency and default. Delinquency refers to interruptions
in the payment of interest and principal. Default refers to the potential for
unrecoverable principal loss from the sale of foreclosed property. These risks
include the risks inherent in the commercial mortgage loans which support such
Commercial Mortgage-Backed Securities and the risks associated with direct
ownership of real estate. This may be especially true in the case of
Commercial Mortgage-Backed Securities secured by, or evidencing an interest in,
a relatively small or less diverse pool of commercial mortgage loans. The
factors contributing to these risks include the effects of general and local
economic conditions on real estate values, the conditions of specific industry
segments, the ability of tenants to make lease payments and the ability of a
property to attract and retain tenants, which in turn may be affected by local
conditions such as oversupply of space or a reduction of available space, the
ability of the owner to provide adequate maintenance and insurance, energy
costs, government regulations with respect to
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environmental, zoning, rent control and other matters, and real estate and
other
taxes.
While the credit quality of the Commercial Mortgage-Backed Securities in
which the Portfolio may invest will reflect the perceived likelihood of future
cash flows to meet operating expenses and cash flow requirements, the
underlying commercial properties may not be able to continue to generate income
to meet their operating expenses and cash flow requirements (mainly debt
service, lease payments, capital expenditures, taxes, maintenance, insurance
and tenant improvements) as a result of any of the factors mentioned above.
Consequently, the obligors under commercial mortgages may be unable to make
payments of interest in a timely fashion, increasing the risk of default on a
related Commercial Mortgage-Backed Security. In addition, the repayment of the
commercial mortgage loans underlying Commercial Mortgage-Backed Securities will
typically depend upon the future availability of financing and the stability of
real estate property values.
The commercial mortgage loans that underlie Commercial Mortgage-Backed
Securities have certain distinct characteristics. Commercial mortgage loans
are generally not amortizing or not fully amortizing. At their maturity date,
repayment of the remaining principal balance or "balloon" is due and is repaid
through the attainment of an additional loan or sale of the property. Most
commercial mortgage loans are nonrecourse obligations of the borrower, meaning
that the sole remedy of the lender in the event of a default is to foreclose
upon the collateral. As a result, in the event of default by a borrower,
recourse may be had only against the specified property pledged to secure the
loan and not against the borrower's other assets. If borrowers are not able or
willing to refinance or dispose of the property to pay the principal balance
due at maturity, payments on the subordinated classes of the related Commercial
Mortgage-Backed Security are likely to be adversely affected. The ultimate
extent of the loss, if any, to the subordinated classes may only be determined
after the foreclosure of the mortgage encumbering the property and, if the
mortgagee takes title to the property, upon liquidation of the property.
Factors such as the title of the property, its physical condition and financial
performance, as well as governmental disclosure requirements with respect to
the condition of the property, may make a third party unwilling to purchase the
property at a foreclosure sale or for a price sufficient to satisfy the
obligations with respect to the related Commercial Mortgage-Backed Securities.
The condition of a property may deteriorate during foreclosure proceedings.
Certain obligors on underlying mortgages may become subject to bankruptcy
proceedings, in which case the amount and timing of amounts due under the
related Commercial Mortgage-Backed Securities may be materially adversely
affected.
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In general, any losses on a given Commercial Mortgage-Backed Security will
be absorbed first by the equity holder, then by a cash reserve fund or letter
of credit, if any, and then by the "first loss" subordinated security to the
extent of its principal balance. Because the Portfolio intends to invest in
subordinated classes of Commercial Mortgage-Backed Securities, there can be no
assurances that in the event of default and the exhaustion of equity support,
the reserve fund and any debt classes junior to those in which the Portfolio
invests, the Portfolio will be able to recover all of its investment in the
securities it purchases. In addition, if the underlying mortgage portfolio has
been overvalued by the originator, or if mortgage values subsequently decline,
the Portfolio may hold the "first loss" position in certain Commercial
Mortgage-Backed Securities ahead of the more senior debt holders, which may
result in significant losses. Many of the lower-rated Commercial
Mortgage-Backed Securities are subject to less prepayment risk than in the case
with Residential Mortgage-Backed Securities because of structural features of
the underlying mortgage loans and the fact that they are entitled to repayment
only after more senior classes are paid.
Investments in Residential Mortgage-Backed Securities involve the credit
risks that affect interest and principal cash flows similar to the credit risks
of Commercial Mortgage-Backed Securities discussed above, as well as the
prepayment risks associated with the possibility that prepayments of principal
generally may be made at any time without penalty. Prepayment rates are
influenced by changes in current interest rates and a variety of economic,
geographic, social and other factors. Changes in the rate of prepayments on a
Residential Mortgage-Backed Security may change the yield to maturity of the
security and amounts available for reinvestment from such securities by the
Portfolio are likely to be greater during periods of relatively low or
declining interest rates and therefore are likely to be reinvested at lower
interest rates than during a period of relatively high interest rates. This
prepayment effect has been particularly pronounced during the past three years
as borrowers have refinanced higher interest rate mortgages into lower interest
rate mortgages available in the marketplace. Because the Portfolio expects to
invest in subordinated Residential Mortgage-Backed Securities, the
prioritization of cash flows from mortgages under the Residential
Mortgage-Backed Securities in favor of the senior classes generally reduces
this prepayment risk.
INVESTING IN LOWER CREDIT QUALITY SECURITIES. An investor should
recognize that the lower-rated Commercial and Residential Mortgage-Backed
Securities in which the Portfolio may invest have speculative characteristics.
The prices of lower credit quality securities, which are commonly referred to
as "junk bonds," have been found to be less sensitive to interest rate changes
than more highly rated investments, but more sensitive to adverse
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economic downturns or individual issuer developments. Securities rated lower
than B by S&P and Moody's, including bonds rated as low as D by S&P or C by
Moody's, can be regarded as having extremely poor prospects of ever attaining
any real investment standing and may be in default with payment of interest
and/or repayment of principal in arrears. A projection of an economic downturn
or the advent of a recession, for example, could cause a decline in the price
of lower credit quality securities because the advent of a recession could
lessen the ability of obligors of mortgages underlying Commercial
Mortgage-Backed Securities and Residential Mortgage-Backed Securities to make
principal and interest payments. In such event, existing credit supports and
any first loss positions may be insufficient to protect against loss of
principal.
NON-DIVERSIFIED STATUS. The Portfolio has registered as a
"non-diversified" investment company which enables it to invest more than 5% of
its assets in the obligations of any single issuer, subject only to the
diversification requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a result of its ability to concentrate its
investments in the obligations of a smaller number of issuers, the Portfolio
may be more susceptible than a more widely diversified fund to any single
economic, political or regulatory occurrence.
ILLIQUID SECURITIES. Liquidity of a security relates to the ability to
easily dispose of securities and the price to be obtained, and does not
necessarily relate to the credit risk or likelihood of receipt of cash at
maturity. Illiquid securities may trade at a discount from comparable, more
liquid investments. The Commercial Mortgage-Backed Securities which the
Portfolio intends to acquire may be less marketable and in some instances will
be considered illiquid by the Portfolio under applicable standards because of
the absence of registration under the federal securities laws, contractual
restrictions on transfer or the small size of the issue (relative to the issues
of comparable interests).
PORTFOLIO TURNOVER
The Portfolio has no fixed policy with respect to portfolio turnover. The
Portfolio does not expect to trade in securities for short-term gain. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the
Portfolio's securities, excluding securities having a maturity at the date of
purchase of one year or less. While the Portfolio will pay commissions in
connection with its options and futures transactions, the other securities in
which the Portfolio invests are generally traded on a "net" basis with dealers
acting as
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principals for their own account without a stated commission. Nevertheless,
high portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by the
Portfolio. It is expected that the annual portfolio turnover rate for the
Portfolio will not exceed 400%, excluding securities having a maturity of one
year or less. Higher portfolio turnover results in increased Portfolio
expenses, including brokerage commissions, dealer mark-ups and other
transaction commissions, costs on the sale of securities and on reinvestment in
other securities. BlackRock will monitor the tax status of the Portfolio under
the Internal Revenue Code during any period in which the annual turnover rate
of the Portfolio exceeds 100%. To the extent that increased portfolio turnover
results in sales at a profit of securities held less than three months, the
Portfolio's ability to qualify as a "regulated investment company" under the
Internal Revenue Code may be affected. See "Portfolio Transactions" in the
Statement of Additional Information.
MANAGEMENT
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BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of
the Fund's Board of Trustees. The Statement of Additional Information contains
the name of each trustee and certain background information.
ADVISER
BlackRock (formerly BlackRock Financial Management L.P.) was organized in
1988. On February 28, 1995, BlackRock Financial Management L.P. sold its
business to PNC Bank, National Association ("PNC Bank"). The principal
business address of BlackRock is 345 Park Avenue, New York, NY 10154.
As adviser, BlackRock, is responsible for the day-to-day management of the
Portfolio, and generally makes all purchase and sale decisions regarding the
investments made by the Portfolio. BlackRock also provides research and credit
analysis as well as certain other services.
Keith Anderson and Robert S. Kapito are the persons primarily responsible
for the day-to-day management of the Portfolio's investments.
Keith Anderson is a Managing Director at BlackRock Financial Management,
and co-head of the Portfolio Management Group. In addition, Mr. Anderson
co-chairs the Investment Strategy Committee and he is a member of the firm's
Management Committee.
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Mr. Anderson has primary responsibility for managing client portfolios and for
acting as a specialist in the government and mortgage sectors. His areas of
expertise include Treasuries, agencies, futures, options, swaps and a wide
range of traditional and non-traditional mortgage securities. Mr. Anderson
also serves as Vice President for BlackRock's family of mutual funds and for
the Shearson Lehman Brothers Adjustable Rate Government Income Fund.
Prior to founding BlackRock in 1988, Mr. Anderson was a Vice President in
Fixed Income Research at The First Boston Corporation. Mr. Anderson joined
First Boston in 1987 as a mortgage securities and derivative products
strategist working with institutional money managers. From 1983 to 1987, Mr.
Anderson was a Vice President and Portfolio Manager at Criterion Investment
Management Company where he had primary responsibility for a $2.8 billion fixed
income portfolio and was an integral part of the firm's portfolio management
team.
Mr. Anderson has published numerous articles on fixed income strategies,
including two articles in The Handbook of Fixed Income Options: "Scenario
Analysis and the Use of Options in Total Return Portfolio Management" and
"Measuring, Interpreting, and Applying Volatility within the Fixed Income
Market." Mr. Anderson received a Bachelor of Science in Economics and Finance
from Nichols College in 1981 and an M.B.A. from Rice University in 1983.
Rob Kapito is Vice Chairman of BlackRock Financial Management, and co-head
of its Portfolio Management Group. Mr. Kapito is a member of both the firm's
Management Committee and its Investment Strategy Committee. Mr. Kapito has
primary responsibility for managing client portfolios and for acting as a
specialist in the mortgage and municipal sectors. In addition, Mr. Kapito has
been instrumental in marketing BlackRock's mutual funds and in coordinating the
analytics and administrative functions necessary for managing these funds. Mr.
Kapito also serves as Vice President for BlackRock's family of mutual funds and
for the Shearson Lehman Brothers Adjustable Rate Government Income Fund.
Prior to founding BlackRock in 1988, Mr. Kapito was a Vice President in
the Mortgage Products Group at The First Boston Corporation. Mr. Kapito
initially joined First Boston in 1979 in the Public Finance Department and
returned to the firm in 1983 in the Mortgage Products Group after completing
business school. In the Mortgage Products Group, he initially traded mortgage
securities and then became the head trader of collateralized mortgage
obligations. Ultimately, Mr. Kapito became head of Mortgage Capital Markets
with responsibility for marketing and pricing all of the mortgage-backed and
asset-backed securities underwritten by First Boston. In 1982, Mr. Kapito
worked as a
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strategic consultant with Bain & Co. and with two other private companies in
Europe.
Mr. Kapito received a Bachelor of Science in Economics from the Wharton
School of the University of Pennsylvania in 1979, and an M.B.A. from Harvard
Business School in 1983.
For the services provided and expenses assumed by it, BlackRock is
entitled to receive from the Portfolio a fee paid at the end of each calendar
quarter at an annualized rate of .25% of the Portfolio's average month-end net
assets. From time to time BlackRock may waive all or any portion of its
advisory fee for and may reimburse expenses of the Portfolio. The Adviser has
agreed to cap the Portfolio's expenses (other than advisory fees) at no more
than .12% of average net assets per year. See "Introduction--Expense Table."
ADMINISTRATORS
PMFCO, whose principal business address is 345 Park Avenue, New York, New
York 10154, PFPC, whose principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809 and PDI, whose principal business address is 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087, serve as the Fund's
co-administrators. PMFCO and PFPC are indirect wholly-owned subsidiaries of
PNC Bank Corp. A majority of the outstanding stock of PDI is owned by its
officers and the remaining outstanding stock is owned by Pennsylvania Merchant
Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services,
PMFCO is entitled to receive a fee, computed daily and payable monthly, at an
annual rate of .03% of the Portfolio's average daily net assets, and PFPC and
PDI are entitled to receive a combined fee, computed daily and payable monthly,
at an annual rate of .20% of the first $500 million of the Portfolio's average
daily net assets, .18% of the next $500 million of the Portfolio's average
daily net assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in excess of $2
billion. From time to time the Administrators may waive all or any portion of
the administration fees for the Portfolio.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
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EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to BlackRock and the Administrators, transfer agency
fees, fees and expenses of officers and trustees who are not affiliated with
BlackRock or the Distributor or any of their affiliates, taxes, interest, legal
fees, custodian fees, auditing fees, certain fees and expenses in registering
and qualifying the Portfolio and its Shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and statements of
additional information and of printing and distributing prospectuses and
statements of additional information to existing shareholders, the expense of
reports to shareholders, shareholders' meetings and proxy solicitations,
fidelity bond and trustees and officers liability insurance premiums, the
expense of using independent pricing services and other expenses which are not
expressly assumed by BlackRock or the Administrators under their respective
agreements with the Fund. Any general expenses of the Fund that are not
readily identifiable as belonging to a particular investment portfolio will be
allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable.
If the total expenses borne by the Portfolio in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations,
BlackRock and the Administrators will bear the amount of such excess to the
extent required by such regulations in proportion to the fees otherwise payable
to them for such year. Such amount, if any, will be estimated and accrued
daily and paid on a monthly basis. See "Introduction--Example,"
"Management--Adviser" and "Management--Administrators" for discussions of
expense reimbursements and fee waivers.
PORTFOLIO TRANSACTIONS
The Portfolio's adviser may consider a number of factors in determining
which brokers to use in purchasing or selling portfolio securities. These
factors, which are more fully discussed in the Statement of Additional
Information, include, but are not limited to, research services, sales of
shares of the Fund, the reasonableness of commissions and quality of services
and execution. Brokerage transactions for the Portfolio may be directed
through registered broker/dealers ("Authorized Dealers") who have entered into
dealer agreements with the Distributor, subject to the requirements of best
execution.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company
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Act of 1956 or any bank or non-bank affiliate thereof from sponsoring,
organizing, controlling or distributing the shares of a registered open-end
investment company continuously engaged in the issuance of its shares, and
prohibit banks generally from underwriting securities, but such banking laws
and regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, administrator, transfer agent or
custodian to such an investment company, or from purchasing shares of such
company as agent for and upon the order of customers. PNC Bank, BlackRock,
PMFCO, PFPC and Institutions that are banks or bank affiliates, are subject to
such banking laws and regulations. In addition, state securities laws on this
issue may differ from the interpretations of Federal law expressed herein and
banks and financial institutions may be required to register as dealers
pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Institutional Shares, the
Fund might be required to alter materially or discontinue its arrangements with
such companies and change its method of operations with respect to the
Institutional Shares. It is not anticipated, however, that any change in the
Fund's method of operations would affect its net asset value per share or
result in a financial loss to any investor.
PURCHASE AND REDEMPTION OF SHARES
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DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund has adopted an Amended and Restated Distribution and Service Plan
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan permits the
Adviser to pay a fee to the Distributor, which in turn is authorized to make
payments to securities dealers with which the Distributor may enter into
solicitation fee agreements. The Distributor may also use a portion of the fee
it receives under the Plan to compensate institutions who perform support
services that would otherwise be performed by an Administrator or its agents.
The purpose of the Plan is to promote distribution of the Fund's shares and to
enhance the provision of shareholder services. The Fund is not required or
permitted under the Plan to make payments over and above its investment
advisory fee; the Plan merely permits the
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reallocation of a portion of the advisory fee the Adviser receives to pay for
distribution related and shareholder servicing activities. See "Distributor
and Distribution Plan" in the SAI.
PURCHASE OF SHARES
Institutional Shares are offered without a sales load on a continuous
basis to Institutions at the net asset value per share of the Portfolio next
computed after an order is received in proper form by PFPC. Dividends will
commence accruing on that day. Shares may be purchased on any Business Day. A
"Business Day" is any weekday that the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Philadelphia (the "FRB") are open for business.
Purchase orders may be transmitted by telephoning PFPC at (800) 441-7379.
Orders received by PFPC after 12:00 Noon (Eastern Time) are priced at the net
asset value per share on the following Business Day. The Fund may in its
discretion reject any order for Shares.
Payment for Shares may be made only in Federal funds or other funds
immediately available to the Fund's custodian. The minimum initial investment
by an Institution is $50 million. There is no minimum subsequent investment.
REDEMPTION OF SHARES
Redemption orders may be transmitted to PFPC by telephone at (800)
441-7379. Shares are redeemed at the net asset value per share of the
Portfolio next determined after PFPC's receipt of the redemption request in
proper order, and dividends will not accrue after the day on which the
redemption is effectuated. THE FUND, THE ADMINISTRATORS AND THE DISTRIBUTOR
WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON
TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN
ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE
NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS
IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR
BANK).
The date on which a redemption request is received will be the date
specified if the redemption request specifies a particular date in the future
for its effectiveness. The Fund expects to pay all redemption requests made
with at least thirty (30) days' advance notice in cash. Redemption requests in
excess of $250,000 by any single shareholder from the Portfolio within any
three-month period may be paid in kind unless the Fund has received at least
thirty (30) days' advance notice and will be paid in kind if the redeeming
shareholder so requests and such
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payment will not adversely affect other shareholders. Shareholders who receive
redemptions in kind will incur additional expense and delay in disposing of
such securities and the value of such securities may decline during the
disposition period.
If a proper redemption request is received prior to 12:00 noon (Eastern
time) on any Business Day payment of the redemption price will ordinarily be
wired to the Shareholder's bank on the first business day subsequent to the
30-day advance notice redemption request in the case of the Portfolio. If the
request is received after 12:00 noon (Eastern time) payment will ordinarily be
wired to the shareholder's bank within two business days subsequent to the
30-day advance notice redemption request. Redemption proceeds will be sent by
wire only to the bank named on the shareholder's application form. A
shareholder may change the wire instructions on the application form by writing
to PFPC with an appropriate signature guarantee.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If an Institution is unable to
contact PFPC by telephone, the Institution may also deliver the redemption
request to PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may
also redeem Shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for the Portfolio is calculated as of the close of
trading on the NYSE (currently 4:00 p.m. Eastern Time) on each Business Day by
adding the value of all its securities, cash and other assets subtracting the
liabilities and dividing by the total number of Shares outstanding. The net
asset value per Share of the Portfolio is determined independently of the
Fund's other portfolios.
The value of securities held by the Portfolio are based upon market
quotations or, if market quotations are not readily
-33-
<PAGE>
available are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Trustees.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed
discussion of net asset value and security valuation is contained in the
Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Portfolio will distribute substantially all of its net investment
income and net realized capital gains, if any, to shareholders. For dividend
purposes, the Portfolio's investment income available for distribution to
holders of Institutional Shares is reduced by accrued expenses directly
attributable to the Portfolio and the general expenses of the Fund prorated to
the Portfolio on the basis of its relative net assets. All distributions are
reinvested at net asset value in the form of additional full and fractional
Shares of the Portfolio unless an Institution elects otherwise. Such election,
or any revocation thereof, must be made in writing to PFPC, and will become
effective with respect to dividends paid after its receipt by PFPC. The net
investment income of the Portfolio is declared daily. All such dividends are
paid within ten days after the end of each month and within seven days after
redemption of all of a shareholder's Shares in the Portfolio. Net realized
capital gains (including net short-term capital gains), if any, will be
distributed by the Portfolio at least annually.
TAXES
- -------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and
is not intended as a substitute for careful tax planning. Accordingly,
investors in the Portfolio should consult their tax advisers with specific
reference to their own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long
as the Portfolio qualifies for this tax treatment, it generally will be
relieved of Federal income tax on amounts distributed to shareholders, but
shareholders, unless otherwise exempt, will pay income or capital gains taxes
on amounts so distributed (except distributions that are treated as a return of
capital), regardless of whether such
-34-
<PAGE>
distributions are paid in cash or reinvested in additional Shares.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain, regardless
of the length of time a shareholder has held his Shares and whether such gain
was reflected in the price paid for the Shares. All other distributions, to
the extent they are taxable, are taxed to shareholders as ordinary income.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on
a specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during
January of the following year.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of Portfolio Shares depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
Shareholders who are nonresident alien individuals, foreign trusts or estates,
foreign corporations or foreign partnerships may be subject to different U.S.
Federal income tax treatment and should consult their tax advisers.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance
of an unlimited number of shares in each of 109 classes (22 classes of "Series
B Investor Shares" and 29 classes each of "Institutional Shares," "Service
Shares" and "Series A Investor Shares") representing interests in the Fund's
investment portfolios. This Prospectus describes the Multi-Sector Mortgage
Securities Portfolio III, which is classified as a non-
-35-
<PAGE>
diversified company under the 1940 Act. For information regarding other
portfolios of the Fund, contact the Distributor by phone at (800) 998-7633 or
at the address listed in "Purchase and Redemption of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the portfolio and is entitled to such
dividends and distributions earned on the portfolio's assets as are declared in
the discretion of the Board of Trustees. The Fund's shareholders are entitled
to one vote for each full share held and proportionate fractional votes for
fractional shares held, and will vote in the aggregate and not by class, except
where otherwise required by law or when the Board of Trustees determines that
the matter to be voted upon affects only the interests of the shareholders ofa
particular class or investment portfolio. Under Massachusetts law, the Fund's
state of organization, and the Fund's Declaration of Trust and Code of
Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On September 29, 1995, PNC Bank held of record approximately 79% of the
Fund's outstanding shares, and may be deemed a controlling person of the Fund
under the 1940 Act. PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank
holding company.
OTHER INFORMATION
- ------------------------------------------------------------------------------
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7764 (in Delaware call collect (302)
791-1104).
PERFORMANCE INFORMATION
From time to time, total return and yield data for Shares of the Portfolio
may be quoted in advertisements or in communications to Institutions. Total
return will be calculated on an average annual total return basis for various
periods. Average annual total return reflects the average annual percentage
change in value of an investment in Shares of the Portfolio over the measuring
period. This method of calculating
-36-
<PAGE>
total return assumes that dividends and capital gain distributions made by the
Portfolio during the period relating to Shares are reinvested in Shares.
The yield of Shares of the Portfolio are computed based on the net income
of the Portfolio allocated to such Shares during a 30-day (or one month)
period, which period will be identified in connection with the particular yield
quotation. More specifically, the yield of Shares of the Portfolio is computed
by dividing the Portfolio's net income per share allocated to such Shares
during a 30-day (or one month) period by the net asset value per share on the
last day of the period and annualizing the result on a semi-annual basis.
Performance data of Shares of the Portfolio may be compared to those of
other mutual funds with similar investment objectives and to other relevant
indexes or to ratings or rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the total return and/or
yield of Shares of the Portfolio may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Weisenberger
Investment Company Service, and with the performance of the Salomon Broad
Investment Grade Index, the T-Bill Index and the "stocks, bonds and inflation
Index" published annually by Ibbotson Associates. Performance information may
also include evaluations of the Portfolio and their Shares published by
nationally recognized ranking services and information as reported by financial
publications such as Business Week, Fortune, Institutional Investor, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in publications of a local or regional nature.
In addition to providing performance information that demonstrates the
actual yield or returns of Shares of the Portfolio over a particular period of
time, the Portfolio may provide certain other information demonstrating
hypothetical investment returns. Such information may include, but is not
limited to, illustrating the compounding effects of a dividend in a dividend
reinvestment plan.
Performance quotations of Shares of the Portfolio represent past
performance and should not be considered as representative of future results.
The investment return and principal value of an investment in Shares of the
Portfolio will fluctuate so that a shareholder's Shares, when redeemed, may be
worth more or less than their original cost. Since performance will fluctuate,
performance data for Shares of the Portfolio cannot necessarily be used to
compare an investment in such Shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a
-37-
<PAGE>
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in the
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Service Organizations directly to their customer accounts in
connection with investments in Shares will not be included in the Portfolio's
calculations of yield and total return.
-38-
<PAGE>
APPENDIX A
The following summarizes the ratings used for debt securities:
DESCRIPTION OF MOODY'S BOND RATINGS:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
A-1
<PAGE>
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating category.
DESCRIPTION OF S&P BOND RATINGS:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B -- Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC -- Debt rated "CCC" has a currently identifiable
vulnerability to default, and is dependent upon
A-2
<PAGE>
favorable business, financial, and economic conditions to meet timely payment
of interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The "CCC" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "B" or "B-"
rating.
CC -- The rating "CC" typically is applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
C -- The rating "C" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no
interest is being paid.
D -- Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Standard & Poor's letter ratings may be modified by the addition
of a plus or minus sign, which is used to show relative standing within the
major rating categories, except in the AAA, CC, C, CI and D categories.
DESCRIPTION OF DUFF & PHELPS' BOND RATINGS:
AAA - Bonds rated AAA are of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA -- Bonds rated AA have high credit quality with strong protection
factors. Risk is modest.
A -- Bonds rated A have average but adequate protection factors.
Risk factors are greater and more variable in times of economic stress than AAA
or AA.
BBB -- Bonds rated BBB exhibit below average protection factors, but
still considered for prudent investment. Considerable variability in risk
during economic cycles.
BB -- Bonds rated BB are below investment grade, but deemed likely to
meet obligations when due.
B -- Bonds rated B are below investment grade and possessing risk
that obligations will not be met when due.
A-3
<PAGE>
CCC -- Bonds rated CCC are well below investment grade. They may be
in default or have considerable uncertainty as to timely payment of interest
and/or principal.
DD -- Bonds rated DD are defaulted debt obligations. Payments of
principal and/or interest have not been made.
Duff & Phelps' letter ratings may be modified by the addition of a
plus or minus sign, which is used to show relative standing within the major
rating categories, except in the AAA, CCC and DD categories.
DESCRIPTION OF FITCH BOND RATINGS:
AAA -- Bonds rated AAA are considered investment grade and of the
highest quality. The ability to pay interest and principal is exceptionally
strong and unlikely to be affected by reasonably foreseeable events.
AA -- Bonds rated AA are considered investment grade and very high
credit quality.
A -- Bonds rated A are considered investment grade and of high credit
quality. The ability to pay interest and principal is strong, but may be
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds rated BBB are considered investment grade and
satisfactory credit quality. The likelihood that these bonds will fall below
investment grade, however, is higher than for bonds with higher ratings.
BB -- Bonds rated BB are considered speculative. The ability to pay
interest and principal may be affected over time by adverse economic changes.
B -- Bonds rated B are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the issuer's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC -- Bonds rated CCC have certain identifiable characteristics
which, if not remedied, may lead to default.
CC -- Bonds rated CC are minimally protected. Default seems probable
over time.
C -- Bonds rated C are in imminent default in payments of interest or
principal.
DDD, DD and D -- Bonds rated in any of these categories are in
default on interest and/or principal payments.
A-4
<PAGE>
Fitch's letter ratings may be modified by the addition of a plus or
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA category.
A-5
<PAGE>
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS OF
ADDITIONAL INVESTMENT MANAGEMENT TECHNIQUES
In order to manage the risk of its securities portfolio, including
duration management, or to enhance income or gain as described above, the
Portfolio will engage in Additional Investment Management Techniques. The
Portfolio will engage in such activities in the Adviser's discretion, and may
not necessarily be engaging in such activities when movements in interest rates
that could affect the value of the assets of the Portfolio occur. The
Portfolio's ability to pursue certain of these strategies may be limited by
applicable regulations of the CFTC and the federal income tax requirements
applicable to regulated investment companies.
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
The Portfolio may purchase and sell put and call options on
securities and indices. A put option gives the purchaser of the option the
right to sell and the writer the obligation to buy the underlying security at
the exercise price during the option period. The Portfolio may also purchase
and sell options on stock indices ("index options"). Index options are similar
to options on securities except that, rather than taking or making delivery of
securities underlying the option at a specified price upon exercise, an index
option gives the holder the right to receive cash upon exercise of the option
if the level of the stock index upon which the option is based is greater, in
the case of a call, or less, in the case of a put, than the exercise price of
the option. The purchase of a put option on a debt security could protect the
Portfolio's holdings in a security or a number of securities against a
substantial decline in the market value. A call option gives the purchaser of
the option the right to buy and the seller the obligation to sell the
underlying security or index at the exercise price during the option period or
for a specified period prior to a fixed date. The purchase of a call option on
a security could protect the Portfolio against an increase in the price of a
security that it intended to purchase in the future. In the case of either put
or call options that it has purchased, if the option expires without being sold
or exercised, the Portfolio will experience a loss in the amount of the option
premium plus any related commissions. When the Portfolio sells put and call
options, it receives a premium as the seller of the option. The premium that
the Portfolio receives for selling the option will serve as a partial hedge, in
the amount of the option premium, against changes in the value of the
securities in its portfolio. During the term of the option, however, a covered
call seller has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price of the option if
the value of the underlying security increases, but has retained the risk of
loss should the price of the underlying security decline. Conversely, a
secured put seller retains the risk of loss should the market value of the
underlying security decline below the exercise price of the option, less the
premium received on the sale of the option. The Portfolio is authorized
<PAGE>
to purchase and sell exchange listed options and over-the-counter options ("OTC
Options") which are privately negotiated with the counterparty. Listed options
are issued by the Options Clearing Corporation ("OCC") which guarantees the
performance of the obligations of the parties to such options.
The Portfolio's ability to close out its position as a purchaser or
seller of an exchange-listed put or call option is dependent upon the existence
of a liquid secondary market on option exchanges. Among the possible reasons
for the absence of a liquid secondary market on an exchange are: (i)
insufficient trading interest in certain options; (ii) restrictions on
transactions imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been listed by the OCC as a result of trades on that
exchange would generally continue to be exercisable in accordance with their
terms. OTC options are purchased from or sold to dealers, financial
institutions or other counterparties which have entered into direct agreements
with the Portfolio. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Portfolio and the
counterparty, without the intermediation of a third party such as the OCC. If
the counterparty fails to make or take delivery of the securities underlying an
option it has written, or otherwise settle the transaction in accordance with
the terms of that option as written, the Portfolio would lose the premium paid
for the option as well as any anticipated benefit of the transaction. As the
Portfolio must rely on the credit quality of the counterparty rather than the
guarantee of the OCC, it will only enter into OTC options with counterparties
with the highest long-term credit ratings, and with primary United States
government securities dealers recognized by the Federal Reserve Bank of New
York.
The hours of trading for options on debt securities may not conform
to the hours during which the underlying securities are traded. To the extent
that the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS
CHARACTERISTICS. The Portfolio may sell financial futures contracts
or purchase put and call options on such futures as a hedge against anticipated
interest rate changes or other market movements. The sale of a futures
contract creates an obligation by the Portfolio, as seller, to deliver the
specific type of financial instrument called for in the contract at a specified
future time for a specified price. Options on
<PAGE>
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put).
MARGIN REQUIREMENTS. At the time a futures contract is purchased or
sold, the Portfolio must allocate cash or securities as a deposit payment
("initial margin"). It is expected that the initial margin that the Portfolio
will pay may range from approximately 1% to approximately 5% of the value of
the securities or commodities underlying the contract. In certain
circumstances, however, such as periods of high volatility, the Portfolio may
be required by an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased generally in the
future by regulatory action. An outstanding futures contract is valued daily
and the payment in cash of "variation margin" may be required, a process known
as "marking to the market." Transactions in listed options and futures are
usually settled by entering into an offsetting transaction, and are subject to
the risk that the position may not be able to be closed if no offsetting
transaction can be arranged.
LIMITATIONS ON USE OF FUTURES AND OPTIONS ON FUTURES. The
Portfolio's use of futures and options on futures will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the CFTC. Under such regulations the Portfolio currently
may enter into such transactions without limit for bona fide hedging purposes,
including risk management and duration management and other portfolio
strategies.
The Portfolio will not enter into a futures contract or related
option if, immediately thereafter, the sum of the amount of its initial
deposits and premiums on open contracts and options would exceed 5% of the
Portfolio's liquidation value, i.e. net assets (taken at current value);
provided, however, that in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating
the 5% limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to the
market value of the contract. The Portfolio reserves the right to comply with
such different standard as may be established from time to time by CFTC rules
and regulations with respect to the purchase or sale of futures contracts or
options thereon.
SEGREGATION AND COVER REQUIREMENTS. Futures contracts, interest rate
swaps, caps, floors and collars and listed options on securities, indices and
futures contracts sold by the Portfolio are subject to segregation and coverage
requirements of either the CFTC or the SEC, with the result that, if the
Portfolio does not hold the security or futures contract underlying the
instrument, the Portfolio will be required to segregate on an ongoing basis
with its custodian, cash, U.S. government securities, or other liquid high
grade debt obligations in an amount at least equal to the Portfolio's
<PAGE>
obligations with respect to such instruments. Such amounts fluctuate as the
obligations increase or decrease. The segregation requirement can result in
the Portfolio maintaining securities positions it would otherwise liquidate,
segregating assets at a time when it might be disadvantageous to do so or
otherwise restrict portfolio management.
<PAGE>
<TABLE>
<S> <C>
The Multi-Sector
NO PERSON HAS BEEN AUTHORIZED TO Mortgage
GIVE ANY INFORMATION OR MAKE ANY Securities
REPRESENTATIONS NOT CONTAINED IN THIS Portfolio III
PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH Institutional
REPRESENTATIONS MUST NOT BE RELIED UPON Class
AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
</TABLE>
------------------- Prospectus
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page
----
Introduction . . . . . . . . . . . . . ______________, 1995
Financial Highlights . . . . . . . . .
Investment Policies . . . . . . . . . .
Management . . . . . . . . . . . . . .
Purchase and Redemption of Shares . . .
Net Asset Value . . . . . . . . . . . .
Dividends and Distributions . . . . . .
Taxes . . . . . . . . . . . . . . . . .
Description of Shares . . . . . . . . .
Other Information . . . . . . . . . . .
INVESTMENT ADVISER
BlackRock Financial Management Inc.
New York, New York
CO-ADMINISTRATOR
PNC Mutual Fund Company
New York, New York
CO-ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
CO-ADMINISTRATOR AND DISTRIBUTOR
Provident Distributors, Inc.
Radnor, Pennsylvania
COUNSEL
Drinker Biddle & Reath
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania
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THE PNC(R) FUND
STATEMENT OF ADDITIONAL INFORMATION
MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
This Statement of Additional Information provides supplementary
information pertaining to Institutional shares ("Shares") representing
interests in the Multi-Sector Mortgage Securities Portfolio III (the
"Portfolio") of The PNC Fund (the "Fund"). This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with
the Prospectus of the Fund relating to the Portfolio dated ____________, as
amended from time to time (the "Prospectus"). The Prospectus may be obtained
from the Fund's distributor by calling toll-free (800) 441-7379. This
Statement of Additional Information is dated ____________. Capitalized terms
used herein and not otherwise defined have the same meanings as are given to
them in the Prospectus.
CONTENTS
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THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT ADVISORY, ADMINISTRATION,
DISTRIBUTION AND SERVICING ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .
VALUATION OF PORTFOLIO SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION CONCERNING SHARES . . . . . . . . . . . . . . . . . . . . . .
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION OR
THE PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE FUND'S DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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THE FUND
The Fund was organized on December 22, 1988 as a Massachusetts
business trust. The Portfolio originally commenced operations on October 6,
1994 as a separate investment portfolio (the "Predecessor Portfolio") of The
BFM Institutional Trust Inc., which was organized as a Maryland corporation.
On ______________, 1995 the assets and liabilities of the Predecessor Portfolio
were transferred to the Portfolio, which had no prior operating history.
The Fund also offers other investment portfolios which are described
in separate Prospectuses and Statements of Additional Information. For
information concerning these other portfolios contact the distributor at the
telephone number stated on the cover page of this Statement of Additional
Information.
INVESTMENT OBJECTIVE AND POLICIES
For a description of the objective and policies of the Portfolio, see
"Investment Policies" in the Prospectus. In accordance with the applicable
provisions of the Investment Company Act of 1940 (the "1940 Act"), the
Portfolio will maintain with its custodian a segregated account of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt to the
extent the Portfolio's obligations require segregation from the use of
investment practices listed below. The following information is provided for
those investors desiring information in addition to that contained in the
Prospectus.
OTHER INVESTMENT PRACTICES
INTEREST RATE TRANSACTIONS. The Portfolio may enter into interest
rate swaps and the purchase or sale of interest rate caps and floors. The
Portfolio expects to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio as a
duration management technique or to protect against any increase in the price
of securities that the Portfolio anticipates purchasing at a later date. The
Portfolio will use these transactions as a hedge or for duration or risk
management. The Portfolio will not sell interest rate caps or floors that it
does not own. Interest rate swaps involve the exchange by the Portfolio with
another party of their respective commitments to pay or receive interest e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest
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rate, to receive payments of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor.
The Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Portfolio receiving or paying, as the case may be, only the net
amount of the two payments on the payment dates. The Portfolio will accrue the
net amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate swap on a daily basis and will
segregate with a custodian an amount of cash or liquid high grade securities
having an aggregate net asset value at all times at least equal to the accrued
excess. If there is a default by the other party to such a transaction, the
Portfolio will have contractual remedies pursuant to the agreements related to
the transaction.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may
also enter into contracts for the purchase or sale for future delivery
("futures contracts") of debt securities, aggregates of debt securities or
indices or prices thereof, other financial indices and U.S. government debt
securities or options on the above. The Portfolio will ordinarily engage in
such transactions only for bona fide hedging, risk management (including
duration management) and other portfolio management purposes.
CALLS ON SECURITIES, INDICES AND FUTURES CONTRACTS. The Portfolio may
sell or purchase call options ("calls") on U.S. Treasury securities,
mortgage-backed securities, other debt securities, indices, and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and future contracts. A call gives the purchaser of
the option the right to buy, and obligates the seller to sell, the underlying
security, futures contract or index at the exercise price at any time or at a
specified time during the option period. All such calls sold by the Portfolio
must be "covered" as long as the call is outstanding (i.e., the Portfolio must
own the securities or futures contract subject to the call or other securities
acceptable for applicable segregation requirements). A call sold by the
Portfolio exposes the Portfolio during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security, index or futures contract and may require the Portfolio to hold a
security or futures contract which it might otherwise have sold. The purchase
of a call gives the
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Portfolio the right to buy a security, futures contract or index at a fixed
price. Calls on futures on U.S. Treasury securities, Mortgage-Backed
Securities, other debt securities and Eurodollar instruments must also be
covered by deliverable securities or the futures contract or by liquid high
grade debt securities segregated to satisfy the Portfolio's obligations
pursuant to such instruments.
PUTS ON SECURITIES, INDICES AND FUTURES CONTRACTS. The Portfolio may
purchase put options ("puts") that relate to U.S. Treasury securities,
Mortgage-Backed Securities, other debt securities and Eurodollar instruments
(whether or not it holds such securities in its portfolio), indices or futures
contracts. The Portfolio may also sell puts on U.S. Treasury securities,
Mortgage-Backed Securities, other debt securities, Eurodollar instruments,
indices or futures contracts on such securities if the Portfolio's contingent
obligations on such puts are secured by segregated assets consisting of cash or
liquid high grade debt securities having a value not less than the exercise
price. The Portfolio will not sell puts if, as a result, more than 50% of the
Portfolio's assets would be required to cover its potential obligations under
its hedging and other investment transactions. In selling puts, there is a
risk that the Portfolio may be required to buy the underlying instrument at a
price higher than the current market price.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Portfolio may also
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" basis. When such transactions are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. When-issued securities and forward commitments may
be sold prior to the settlement date, but the Portfolio will enter into
when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. If the Portfolio
disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss. At the time the Portfolio enters into
a transaction on a when-issued or forward commitment basis, it will segregate
with its custodian cash or other liquid high grade debt securities with a value
not less than the value of the when-issued or forward commitment securities.
The value of these assets will be monitored daily to ensure that their marked
to market value will at all times equal or exceed the corresponding obligations
of the Portfolio. There is always a risk that the securities may not be
delivered and that the Portfolio may incur a loss. Settlements in the ordinary
course, which typically occur monthly for mortgage-related securities, are not
treated by the Portfolio as when-issued or
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forward commitment transactions and accordingly are not subject to the
foregoing restrictions.
REPURCHASE AGREEMENTS. The Portfolio may invest temporarily, without
limitation, in repurchase agreements, which are agreements pursuant to which
securities are acquired by the Portfolio from a third party with the
understanding that they will be repurchased by the seller at a fixed price on
an agreed date. These agreements may be made with respect to any of the
portfolio securities in which the Portfolio is authorized to invest.
Repurchase agreements may be characterized as loans secured by the underlying
securities and will be entered into in accordance with the requirements of the
SEC. The Portfolio may enter into repurchase agreements with (i) member banks
of the Federal Reserve System having total assets in excess of $500 million and
(ii) securities dealers, provided that such banks or dealers meet the
creditworthiness standards established by the Fund's Board of Trustees
("Qualified Institutions"). The Adviser will monitor the continued
creditworthiness of Qualified Institutions, subject to the supervision of the
Fund's Board of Trustees. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
date of maturity of the purchased security. The collateral is marked to market
daily. Such agreements permit the Portfolio to keep all its assets earning
interest while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature.
The use of repurchase agreements involves certain risks. For example,
if the seller of securities under a repurchase agreement defaults on its
obligation to repurchase the underlying securities, as a result of its
bankruptcy or otherwise, the Portfolio will seek to dispose of such securities,
which action could involve costs or delays. If the seller becomes insolvent
and subject to liquidation or reorganization under applicable bankruptcy or
other laws, the Portfolio's ability to dispose of the underlying securities may
be restricted. Finally, it is possible that the Portfolio may not be able to
substantiate its interest in the underlying securities. To minimize this risk,
the securities underlying the repurchase agreement will be held by the
custodian at all times in an amount at least equal to the repurchase price,
including accrued interest. If the seller fails to repurchase the securities,
the Portfolio may suffer a loss to the extent proceeds from the sale of the
underlying securities are less than the repurchase price.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may purchase
certain restricted securities ("Rule 144A securities") eligible for sale to
qualified institutional buyers as contemplated by Rule 144A under the
Securities Act of 1933. Rule 144A provides an exemption from the registration
requirements of
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the Securities Act of 1933 for the resale of certain restricted securities to
qualified institutional buyers. One effect of Rule 144A is that certain
restricted securities may now be liquid, though no assurance can be given that
a liquid market for Rule 144A securities will develop or be maintained. The
Portfolio's holdings of Rule 144A securities which are liquid securities will
not be subject to its limitation on investment in illiquid securities. The
Fund's Board of Trustees has adopted policies and procedures for the purpose of
determining whether securities that are eligible for resale under Rule 144A are
liquid or illiquid. The Board of Trustees will periodically review the
Portfolio's purchases and sales of Rule 144A securities.
OTHER INVESTMENTS
U.S. GOVERNMENT SECURITIES
U.S. Government securities include:
1. U.S. Treasury bills (maturities of one year
or less), U.S. Treasury notes (maturities of one to ten years)
and U.S. Treasury bonds (generally maturities of greater than
ten years), all of which are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and
credit" of the United States.
2. Securities issued by agencies and
instrumentalities of the U.S. Government which are backed by
the full faith and credit of the United States. Among the
agencies and instrumentalities issuing such obligations are
the Federal Housing Administration, the Government National
Mortgage Association ("GNMA"), the Department of Housing and
Urban Development, the Export-Import Bank, the Farmers Home
Administration ("FHA"), the General Services Administration,
the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from
three months to 30 years.
3. Securities issued by agencies and
instrumentalities which are not backed by the full faith and
credit of the United States, but whose issuing agency or
instrumentalities may borrow, to meet its obligations, from
the U.S. Treasury. Among the agencies and instrumentalities
issuing such obligations are the Tennessee Valley Authority,
the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") and the U.S.
Postal Service.
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4. Securities issued by agencies and
instrumentalities which are not backed by the full faith and
credit of the United States, but which are backed by the
credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are
the Federal Farm Credit System and the Federal Home Loan Bank.
Neither the value nor the yield of the Portfolio's shares or of the
U.S. Government securities which may be invested in by the Portfolio are
guaranteed by the U.S. Government. Such values and yield will fluctuate with
changes in prevailing interest rates and other factors. Generally, as
prevailing interest rates rise, the value of any U.S. Government securities
held by the Portfolio will fall. Such securities with longer maturities
generally tend to produce higher yields and are subject to greater market
fluctuation, as a result of changes in interest rates, than debt securities
with shorter maturities.
MORTGAGE-BACKED SECURITIES
As discussed in the Prospectus, the Mortgage-Backed securities
purchased by the Portfolio evidence an interest in a specific pool of
mortgages. Such securities are issued by GNMA, FNMA and FHLMC and by private
issuers, such as depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing.
GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality
of the United States within the Department of Housing and Urban Development.
The National Housing Act of 1934, as amended (the "Housing Act"), authorized
GNMA to guarantee the timely payment of the principal of and interest on
certificates that are based on and backed by a pool of mortgage loans insured
by the Federal Housing Administration under the Housing Act, or Title V of the
Housing Act of 1949 ("FHA Loans"), or guaranteed by the Veterans'
Administration under the Servicemen's Readjustment Act of 1944, as amended ("VA
Loans"), or by pools of other eligible mortgage loans. The Housing Act
provides that the full faith and credit of the U.S. Government is pledged to
the payment of all amounts that may be required to be paid under the guarantee.
In order to meet its obligations under such guarantee, GNMA is authorized to
borrow from the U.S. Treasury with no limitations as to amount.
The GNMA certificates will represent a pro-rata interest in one or
more pools of the following types of mortgage loans: (i) fixed rate level
payment mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii)
fixed rate growing equity mortgage loans; (iv) fixed rate mortgage loans
secured by
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manufactured (mobile) homes; (v) mortgage loans on multi-family residential
properties under construction; (vi) mortgage loans on completed multi-family
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used
to reduce the borrower's monthly payments during the early years of the
mortgage loans ("buydown" mortgage loans); (viii) mortgage loans that provide
for adjustments in payments based on periodic changes in interest rates or in
other payment terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans and, except
as otherwise specified above, will be fully-amortizing loans secured by first
liens on one-to four-family housing units.
FNMA CERTIFICATES. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1938 as a U.S.
Government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. FNMA acquires funds to
purchase home mortgage loans from many capital market investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the total
amount of funds available for housing.
Each FNMA certificate will entitle the registered holder thereof to
receive amounts representing such holder's pro-rata interest in scheduled
principal payments and interest payments (at such FNMA certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans), and any principal prepayments on the mortgage loans
in the pool represented by such FNMA certificate and such holder's
proportionate interest in the full principal amount of any foreclosed or
otherwise finally liquidated mortgage loan. The full and timely payment of
principal of and interest on each FNMA certificate will be guaranteed by FNMA,
which guarantee is not backed by the full faith and credit of the U.S.
Government.
Each FNMA certificate will represent a pro rata interest in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by any governmental agency)
of the following types: (i) fixed rate level payment mortgage loans; (ii) fixed
rate graduated payment mortgage loans; and (iii) adjustable rate mortgage
loans.
FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). FHLMC was established primarily for the purpose of
increasing the availability of
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mortgage credit for the financing of needed housing. The principal activity of
FHLMC currently consists of the purchase of first lien, conventional,
residential mortgage loans and participation interests in such mortgage loans
and the resale of the mortgage loans so purchased in the form of mortgage
securities, primarily FHLMC certificates.
FHLMC guarantees to each registered holder of a FHLMC certificate the
timely payment of interest at the rate provided for by such FHLMC certificate,
whether or not received. FHLMC also guarantees to each registered holder of a
FHLMC certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time after default
on an underlying mortgage loan, but not later than 30 days following (i)
foreclosure sale, (ii) payment of a claim by any mortgage insurer or (iii) the
expiration of any right of redemption, whichever occurs later, but in any event
no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal. The obligations of FHLMC under its guarantee
are obligations solely of FHLMC and are not backed by the full faith and credit
of the U.S. Government.
FHLMC certificates represent a pro rata interest in a group of
mortgage loans (a "FHLMC certificate group") purchased by FHLMC. The mortgage
loans underlying the FHLMC certificates will consist of fixed rate or
adjustable rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first liens on one-
to four-family residential properties or multifamily projects. Each mortgage
loan must meet the applicable standards set forth in the FHLMC Act. A FHLMC
certificate group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and participations comprising
another FHLMC certificate group.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage
securities are pass-through mortgage securities collateralized by mortgages
with adjustable rather than fixed rates ("ARMs"). ARMs eligible for inclusion
in a mortgage pool generally provide for a fixed initial mortgage interest rate
for either the first three, six, twelve, thirteen, thirty-six or sixty
scheduled monthly payments. Thereafter, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage
interest rate may not vary over the lifetime of the mortgage. In addition,
certain ARMs provide for additional
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limitations on the maximum amount by which the mortgage interest rate may
adjust for any single adjustment period. Alternatively, certain ARMs contain
limitations on changes in the required monthly payment. In the event that a
monthly payment is not sufficient to pay the interest accruing on an ARM, any
such excess interest is added to the principal balance of the mortgage loan,
which is repaid through future monthly payments. If the monthly payment for
such an instrument exceeds the sum of the interest accrued at the applicable
mortgage interest rate and the principal payment required at such point to
amortize the outstanding principal balance over the remaining term of the loan,
the excess is utilized to reduce the then outstanding principal balance of the
ARM.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
also may be collateralized by whole loans or private mortgage pass-through
securities (collectively, "Mortgage Assets"). Multi-class pass-through
securities are equity interests in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include
multi-class pass-through certificates. Payments of principal of and interest
on the Mortgage Assets, and any reinvestment income thereon, provide the funds
to pay debt service on the CMOs or make scheduled distributions on the
multi-class pass-through securities. CMOs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of CMOs or multi-class pass-through securities may elect to be treated
as a Real Estate Mortgage Investment Conduit ("REMIC").
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and interest on
the Mortgage Assets may be allocated among the several classes of a CMO series
in a number of different ways. Generally, the purpose of the allocation of the
cash flow of a CMO to the various classes is to obtain a more predictable cash
flow to the individual tranches than exists with the underlying collateral of
the CMO. As a general rule, the more predictable the cash flow is on a CMO
tranche, the lower the
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anticipated yield will be on that tranche at the time of issuance relative to
prevailing market yields on Mortgage-Backed securities.
The Portfolio also may invest in, among other things, parallel-pay
CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel-pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating
the stated maturity date or final distribution date of each class, which, as
with other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds
are parallel-pay CMOs with the required principal payment on such securities
having the highest priority after interest has been paid to all classes.
The Portfolio may invest in CMO residuals. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs and
related administrative expenses of the issuer.
TYPES OF CREDIT ENHANCEMENT
Mortgage-Backed Securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, those
securities may contain elements of credit support, which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least
a portion of the assets in the pool. This protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Portfolio will
not pay any additional fees for credit support, although the existence of
credit support may increase the price of a security.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying
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assets are borne first by the holders of the subordinated class), creation of
"reserve funds" (where cash or investments, sometimes funded from a portion of
the payments on the underlying assets, are held in reserve against future
losses) and "overcollateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceeds that required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
RISK FACTORS RELATING TO MORTGAGE-BACKED SECURITIES
The yield characteristics of Mortgage-Backed Securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans or
other assets generally may be prepaid at any time. As a result, if the
Portfolio purchases such a security at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Alternatively, if the Portfolio purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity.
Although the extent of prepayments on a pool of mortgage loans depends
on various economic and other factors, as a general rule prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Portfolio are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates.
Mortgage-Backed Securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment.
INVESTMENT RESTRICTIONS
The Portfolio is subject to the investment limitations enumerated in
this subsection which may be changed only by a vote of the holders of a
majority of the Portfolio's outstanding shares (as defined below under
"Miscellaneous").
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The Portfolio may not:
(1) invest 25% or more of the value of its total assets
in any one industry (Mortgage-Backed Securities and
other securities issued or guaranteed by the U.S.
government or any agency or instrumentality thereof
are not treated as industries); provided, however,
that the Portfolio will, except for temporary
defensive purposes, invest at least 25 % of the value
of its total assets in securities which represent
interests in mortgages or liens on real property;
(2) issue senior securities (including borrowing money,
including on margin if margin securities are owned)
in excess of 33 1/3 % of its total assets (including
the amount of senior securities issued but excluding
any liabilities and indebtedness not constituting
senior securities) except that the Portfolio may
borrow up to an additional 5% of its total assets for
temporary purposes; or pledge its assets other than
to secure such issuances or in connection with
hedging transactions, short sales, when-issued and
forward commitment transactions and similar
investment strategies. The Portfolio's obligations
under interest rate swaps are not treated as senior
securities;
(3) make loans of money or property to any person, except
through loans of portfolio securities, the purchase
of fixed income securities consistent with the
Portfolio's investment objective and policies or the
acquisition of securities subject to repurchase
agreements;
(4) underwrite the securities of other issuers, except to
the extent that in connection with the disposition of
portfolio securities or the sale of its own shares
the Portfolio may be deemed to be an underwriter;
(5) invest for the purpose of exercising control over
management of any company other than issuers of
collateralized mortgage obligations;
(6) purchase real estate or interests therein other than
Commercial and Residential Mortgage-Backed Securities
and similar instruments;
-13-
<PAGE>
(7) purchase or sell commodities or commodity contracts
for any purposes except as, and to the extent,
permitted by applicable law without the Portfolio
becoming subject to registration with the Commodity
Futures Trading Commission as a commodity pool; or
(8) make any short sale of securities except in
conformity with applicable laws, rules and
regulations and unless, giving effect to such sale,
the market value of all securities sold short does
not exceed 25% of the value of the Portfolio's total
assets and the Portfolio's aggregate short sales of a
particular class of securities does not exceed 25% of
the then outstanding securities of that class.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Fund, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- ------------------ ----------------------
<S> <C> <C>
Philip E. Coldwell Trustee Economic Consultant;
Coldwell Financial Chairman, Coldwell
Consultants Financial Consultants;
3330 Southwestern Blvd. Director, Maxus Energy
Dallas, TX 75225 Corporation (energy
Age: 72 products) from 1989 to
1993; Director or Trustee
of Temporary Investment
Fund, Inc., Trust for
Federal Securities, and
Municipal Fund for
Temporary Investment.
Robert R. Fortune Trustee Financial consultant;
2920 Ritter Lane Chairman, President and
Allentown, PA 18104 Chief Executive Officer,
Age: 78 Associated Electric & Gas
Insurance Services Limited
from 1984 to 1993; Member
of the Financial Executives
Institute and American
Institute of Certified
Public Accountants;
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C> <C>
Director, Trustee or Managing
General Partner of a number
of investment companies
advised by PIMC; Director,
Prudential Utility Fund, Inc.,
Prudential Structured Maturity
Fund, Inc. and Prudential
IncomeVertible Fund, Inc.
Rodney D. Johnson Trustee President, Fairmount
Fairmont Capital Capital Advisors, Inc.
Advisers, Inc. (financial advisers)
1435 Walnut Street since 1987; Treasurer,
Philadelphia, PA 19102 North Philadelphia Health
Age: 53 System (formerly Girard Medical
Center) from 1988 to 1992;
Member, Board of Education,
School District of
Philadelphia, 1983 to 1988;
Treasurer, Cascade Aphasia
Center, 1984 to 1988;
Director or Trustee of
Temporary Investment Fund,
Inc., Trust for Federal
Securities, Municipal Fund
for Temporary Investment,
Municipal Fund for California
Investors, Inc. and
Municipal Fund for New
York Investors, Inc.
G. Willing Pepper1 Chairman of Retired; Chairman of the
128 Springton the Board Board, Specialty
Lake Road and President Composites Corporation
Media, PA 19063 until May 1984;
Age: 86 Chairman of the Board,
The Institute for Cancer
Research until 1979;
Director, Philadelphia
National Bank until
1978; President, Scott Paper
</TABLE>
- --------------------
1. This trustee may be deemed an "interested person" of the Fund
as defined in the 1940 Act.
-15-
<PAGE>
<TABLE>
<S> <C> <C>
Company from 1971 to 1973;
Director, Marmon Group, Inc. until
April 1986; Director, Trustee or
Managing General Partner of a
number of investment companies
advised by PIMC.
Anthony M. Santomero Trustee Deputy Dean from
310 Keithwood Road 1990 to 1994, Richard
Wynnewood, PA 19096 K. Mellon Professor
Age: 48 of Finance since April
1984, and Dean's Advisory
Council Member since July
1984, The Wharton School,
University of Pennsylvania;
Associate Editor, Journal of
Banking and Finance since
June 1978; Associate Editor,
Journal of Economics and
Business since October 1979;
Associate Editor, Journal of
Money, Credit and Banking
since January 1980; Research
Associate, New York University
Center for Japan-U.S. Business
and Economic Studies since
July 1989; Editorial Advisory
Board, Open Economics Review
since November 1990; Director,
The Zweig Fund and The Zweig
Total Return Fund; Director
or Trustee of Temporary
Investment Fund, Inc.,
Trust for Federal Securities,
Municipal Fund for Temporary
Investment, and Municipal
Fund for California Investors, Inc.
David R. Wilmerding, Jr. Vice-Chairman President, Gates,
One Aldwyn Center of the Board Wilmerding, Carper &
Villanova, PA 19085 Rawlings, Inc.
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C>
Age: 60 (investment advisers)
since February 1989;
Director, Beaver Management
Corporation; Until September
1988, President, Treasurer
and Trustee, The Mutual
Assurance Company; Until
September 1988, Chairman,
President Treasurer and
Director, The Green Tree
Insurance Company (a
wholly-owned subsidiary
of The Mutual Assurance
Company); Until September
1988, Director, Keystone
State Life Insurance
Company; Director, Trustee
or Managing General
Partner of a number of
investment companies advised
by PIMC.
Edward J. Roach Treasurer Certified Public
400 Bellevue Parkway and Vice- Accountant; Partner of
Suite 100 President the accounting firm of
Wilmington, DE 19809 Main Hurdman until 1981;
Age: 71 Vice Chairman of the Board,
Fox Chase Cancer Center;
Trustee Emeritus, Pennsylvania
School for the Deaf; Trustee
Emeritus, Immaculata College;
President, Vice President
and/or Treasurer of a
number of investment
companies advised by PIMC.
Morgan R. Jones Secretary Partner in the law
Philadelphia National firm of Drinker Biddle &
Bank Building Reath, Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107-3496
Age: 55
</TABLE>
The Fund pays trustees who are not affiliated with PNC Asset
Management Group ("PAMG") or Provident Distributors, Inc. ("PDI" or the
"Distributor") $5,500 annually and $500 per meeting of the Board or any
committee thereof that is not held in conjunction
-17-
<PAGE>
with a Board meeting (subject to a cap of $6,000 per year for such meeting
fees), and pays the Chairman an additional $5,000 annually. Trustees who are
not affiliated with PAMG or the Distributor are reimbursed for any expenses
incurred in attending meetings of the Board of Trustees or any committee
thereof. No officer, director or employee of PAMG, Provident Capital
Management, Inc. ("PCM"), PNC Bank, National Association ("PNC Bank"),
BlackRock Financial Management Inc. ("BlackRock"), PNC Equity Advisors Company
("PEAC"), PNC Mutual Fund Group, Inc. ("PMFCO"), PFPC Inc. ("PFPC"), Provident
Distributors, Inc. (formerly, MFD Group, Inc.) ("PDI" and, collectively with
PFPC, the "Administrators") or the Distributor currently receives any
compensation from the Fund. Drinker Biddle & Reath, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. As of the date of this
Statement of Additional Information, the trustees and officers of the Fund, as
a group, owned less than 1% of the outstanding shares of each Portfolio.
-18-
<PAGE>
The table below sets forth the compensation actually received from the
Fund Complex of which the Portfolio is a part by the trustees for the period
ended September 30, 1995:
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM REGISTRANT AND
NAME OF PERSON, COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX(1) PAID
POSITION REGISTRANT FUND EXPENSES RETIREMENT TO TRUSTEES
--------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Philip E. Coldwell, Trustee $ n/a n/a (3)(2) $
----- -----
Robert R. Fortune, Trustee $ n/a n/a (4)(2) $
----- -----
Rodney D. Johnson, Trustee $ n/a n/a (5)(2) $
----- -----
G. Willing Pepper, Chairman $ n/a n/a (6)(2) $
of the Board and President ----- -----
Anthony M. Santomero, $ n/a n/a (4)(2) $
Trustee ----- -----
David R. Wilmerding, Jr., $ n/a n/a (5)(2) $
Trustee ----- -----
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However, the
Fund's Declaration of Trust provides that shareholders shall not be subject to
any personal liability in connection with the assets of the Fund for the acts
or obligations of the Fund, and that every note, bond, contract, order or other
undertaking made by the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having
- --------------------
1. A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any of the other investment companies.
2. Total number of such other investment companies trustee serves on within
the Fund Complex.
-19-
<PAGE>
been a shareholder and not because of his acts or omissions or some other
reason. The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Fund, and shall satisfy any judgment thereon.
The Declaration of Trust further provides that all persons having any
claim against the trustees or Fund shall look solely to the trust property for
payment; that no trustee of the Fund shall be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the trust
property or the conduct of any business of the Fund; and that no trustee shall
be personally liable to any person for any action or failure to act except by
reason of his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a trustee. With the exception stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against all liabilities and expenses reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may be involved
or with which he may be threatened by reason of his being or having been a
trustee, and that the Fund will indemnify officers, representatives and
employees of the Fund to the same extent that trustees are entitled to
indemnification.
INVESTMENT ADVISORY, ADMINISTRATION,
DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. The advisory services provided by BlackRock and
the fees received by it for such services are described in the Prospectus. As
stated in the Prospectus, BlackRock may from time to time voluntarily waive its
advisory fees with respect to the Portfolio and may voluntarily reimburse the
Portfolio for expenses. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, BlackRock and the Administrators will
bear the amount of such excess to the extent required by such regulations in
proportion to the fees otherwise payable to them for such year. Such amount,
if any, will be estimated and accrued daily and paid on a monthly basis. As of
the date of this Statement of Additional Information, to the knowledge of the
Fund, there were no state expense limitations more restrictive than the
following: 2 1/2% of the first $30 million of average annual net assets, 2% of
the next $70 million of average annual net assets, and 1 1/2% of average annual
net assets in excess of $100 million.
BlackRock renders advisory services to the Portfolio pursuant to an
Investment Advisory Agreement (the "Advisory
-20-
<PAGE>
Contract"). Under the Advisory Contract, BlackRock is not liable for any error
of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Contract, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BlackRock in the performance of its duties or from reckless disregard
of its duties and obligations thereunder. The Advisory Contract is terminable
as to the Portfolio by vote of the Board of Trustees or by the holders of a
majority of the outstanding voting securities of the Portfolio, at any time
without penalty, on 60 days' written notice to BlackRock. BlackRock may also
terminate its advisory relationship with respect to the Portfolio, on 60 days'
written notice to the Fund. The Advisory Contract terminates automatically in
the event of its assignment.
The Predecessor Portfolio was also advised by BlackRock. For the
fiscal period October 6, 1994 (commencement of investment operations) through
June 30, 1995, the Predecessor Portfolio paid $189,677, in investment advisory
fees to BlackRock pursuant to the prior advisory agreement. In addition,
during the period October 6, 1994 (commencement of investment operations)
through June 30, 1995, BlackRock waived $56,269, in expenses.
ADMINISTRATION AGREEMENTS. The Fund has entered into a
Co-Administration Agreement with PMFCO and a separate Administration Agreement
with PFPC and PDI (the "Administration Agreements"). The Administrators have
agreed to maintain office facilities for the Fund, furnish the Fund with
statistical and research data, clerical, accounting, and bookkeeping services,
and certain other services required by the Fund.
The Administration Agreements provide that the Administrators will not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund or the Portfolio in connection with the performance of the
Administration Agreements, except a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of their respective duties or
from reckless disregard of their respective duties and obligations thereunder.
The Predecessor Portfolio received administrative services from State
Street Bank and Trust Company ("State Street"). During the period October 6,
1994 (commencement of investment operations) through June 30, 1995, the
Predecessor Portfolio paid $32,948, in administrative fees to State Street
pursuant to the prior administration agreement.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank National
Association ("PNC Bank") is custodian of the Fund's assets pursuant to a
custodian agreement (the "Custodian Agreement").
-21-
<PAGE>
Under the Custodian Agreement, PNC Bank or a sub-custodian (i) maintains a
separate account or accounts in the name of the Portfolio, (ii) holds and
transfers portfolio securities on account of the Portfolio, (iii) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (iv)
collects and receives all income and other payments and distributions on
account of the Portfolio's securities and (v) makes periodic reports to the
Board of Trustees concerning the Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that, with respect to
sub-custodians other than sub-custodians for foreign securities, PNC Bank
remains responsible for the performance of all its duties under the Custodian
Agreement and holds the Fund harmless from the acts and omissions of any
sub-custodian. The Chase Manhattan Bank, N.A., State Street Bank and Trust
Company and Barclays Bank PLC serve as the Fund's sub-custodians.
For its services to the Fund under the Custodian Agreement, PNC Bank
receives a fee which is calculated based upon the Portfolio's average gross
assets, with a minimum monthly fee of $1,000 per investment portfolio. PNC
Bank is also entitled to out-of-pocket expenses and certain transaction
charges.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement (the
"Transfer Agency Agreement"), under which PFPC (i) issues and redeems shares in
the Portfolio, (ii) addresses and mails all communications by the Portfolio to
record owners of its shares, including reports to shareholders, dividend and
distribution notices and proxy materials for its meetings of shareholders,
(iii) maintains shareholder accounts and, if requested, sub-accounts and (iv)
makes periodic reports to the Board of Trustees concerning the operations of
the Portfolio. PFPC may, on 30 days' notice to the Fund, assign its duties as
transfer and dividend disbursing agent to any other affiliate of PNC Bank Corp.
For its services with respect to the Fund's Institutional Shares under the
Transfer Agency Agreement, PFPC receives fees at the annual rate of .03% of the
average net asset value of outstanding Institutional Shares in the Portfolio,
plus per account fees and disbursements.
DISTRIBUTOR AND DISTRIBUTION PLAN. The Fund has entered into a
distribution agreement with the Distributor under which the Distributor, as
agent, offers shares of the Portfolio on a continuous basis. The Distributor
has agreed to use appropriate efforts to effect sales of the shares, but it is
not obligated to sell any particular amount of shares.
The Fund has adopted an Amended and Restated Distribution and Service
Plan (the "Plan") pursuant to Rule 12b-1 under the
-22-
<PAGE>
1940 Act on behalf of its Institutional Shares pursuant to which the Adviser is
permitted to use a portion of the advisory fee it receives from the Portfolio
to promote the distribution of the Fund Shares and to enhance the provision of
shareholder services. The Plan was approved by a majority of (i) the trustees
of the Fund and (ii) the trustees of the Fund who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan (the "Rule 12b-1
Trustees"). The Plan permits the Adviser to pay fees to the Distributor. The
Fund is not required or permitted under the Plan to make payments over and
above the amount of the advisory fee to promote the sale of its shares; the
Plan merely permits the reallocation of a portion of the advisory fee the
Adviser receives to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is
authorized to make payments to securities dealers with which the Distributor
has entered into solicitation fee agreements. The Distributor may also use a
portion of the fee it receives under the Plan to cover the Distributor's cost
of marketing services and advertising on behalf of the Portfolio and to
compensate institutions who perform support services that would otherwise is
performed by the Fund or its agent. These support services may include
providing such office space, equipment, telephone facilities and various
personnel as may be necessary or beneficial to establish and maintain
shareholders' accounts and records, process purchase and redemption
transactions, answer routine client inquiries and provide such other services
to the Fund and the Portfolio as may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Trustees,
including a majority vote of the Rule 12b-1 Trustees, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to the Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Trustees or by a vote of the holders of a
majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Trustees, including a
majority of the Rule 12b-1 Trustees, cast in person at a meeting called for
that purpose. Any modification to the Plan which would materially increase the
amount of money to be spent by a Portfolio must also be submitted to the
stockholders of the Portfolio for approval.
Service Organizations may charge their clients additional fees for
account services.
PORTFOLIO TRANSACTIONS
-23-
<PAGE>
The Adviser is responsible for decisions to buy and sell securities
for the Portfolio, the selection of brokers and dealers to effect the
transactions and the negotiation of prices and any brokerage commissions. The
securities in which the Portfolio invests are traded principally in the
over-the-counter market. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a mark-up to the dealer. Securities purchased in underwritten
offerings generally include, in the price, a fixed amount of compensation for
the manager(s), underwriter(s) and dealer(s). The Portfolio may also purchase
certain money market instruments directly from an issuer, in which case no
commissions or discounts are paid. Purchases and sales of debt securities on a
stock exchange are effected through brokers who charge a commission for their
services.
The Adviser's primary considerations in selecting the manner of
executing securities transactions for the Portfolio will be prompt execution of
orders, the size and breadth of the market for the security, the reliability,
integrity and financial condition and execution capability of the firm, the
size of and difficulty in executing the order, and the best net price. There
are many instances when, in the judgment of the Adviser, more than one firm can
offer comparable execution services. In selecting among such firms,
consideration is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the
Adviser, absent special circumstances, to pay higher commissions to a firm
because it has supplied such services.
The Adviser is able to fulfill its obligations to furnish a continuous
investment program to the Portfolio without receiving such information from
brokers; however, it considers access to such information to be an important
element of financial management. Although such information is considered
useful, its value is not determinable, as it must be reviewed and assimilated
by the Adviser, and does not reduce the Adviser's normal research activities in
rendering investment advice under the Advisory Contract. It is possible that
the Adviser's expenses could be materially increased if it attempted to
purchase this type of information or generate it through its own staff.
One or more of the other accounts which the Adviser manages may own
from time to time the same investments as the Portfolio. Investment decisions
for the Portfolio are made independently from those of such other accounts;
however, from time to time, the same investment decision may be made for more
than one company or account. When two or more companies or accounts seek to
purchase or sell the same securities, the securities actually purchased or sold
will be allocated among the companies and
-24-
<PAGE>
accounts on a good faith equitable basis by the Adviser in its discretion in
accordance with the accounts' various investment objectives. In some cases,
this system may adversely affect the price or size of the position obtainable
for the Portfolio. In other cases, however, the ability of the Portfolio to
participate in volume transactions may produce better execution for the
Portfolio.
Although the Advisory Agreement contains no restrictions on portfolio
turnover it is not the policy of the Portfolio to engage in transactions with
the objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Portfolio will not exceed 400%,
excluding securities having a maturity of one year or less. Because it is
difficult to predict accurately portfolio turnover rate, actual turnover may be
higher or lower. Higher portfolio turnover results in increased Portfolio
expenses, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on reinvestment in other
securities. The Adviser will monitor the tax status of the Portfolio under the
Internal Revenue Code during periods in which the annual turnover rate of the
Portfolio exceeds 100%. To the extent that increased portfolio turnover
results in sales at a profit of securities held less than three months, the
Portfolio's ability to qualify as a "regulated investment company" under the
Internal Revenue Code may be affected. See "Taxes" below.
For the period October 6, 1994 (commencement of operations) through
June 30, 1995, the Predecessor Portfolio paid no brokerage commissions. In
addition, for the period October 6, 1994 (commencement of operations) through
June 30, 1995, the portfolio turnover rate for the Predecessor Portfolio was
215%.
The Fund is required to identify any securities of its regular brokers
or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held
by the Fund as of the end of its most recent fiscal year. As of September 30,
1994, the following Portfolios held the following securities: (a) Money Market
Portfolio: variable rate obligations of Goldman Sachs Group L.P., Lehman
Brothers Holdings, Inc. and Morgan Stanley Group in the principal amounts of
$47,000,000, $50,000,000 and $29,998,328, respectively; medium-term note of
Morgan Stanley Group in the principal amount of $15,000,000; and repurchase
agreements with Kidder, Peabody & Co., Morgan Stanley & Co. and PaineWebber
Group in the principal amounts of $100,000,000, $65,000,000 and $10,000,000,
respectively; (b) Government Money Market Portfolio: repurchase agreements with
Kidder, Peabody & Co. and Morgan Stanley & Co. in the principal amounts of
$9,058,000 and $70,000,000, respectively; (c) Managed Income Portfolio:
corporate bonds and variable rate obligations of Morgan Stanley Group in the
principal amounts of $4,925,000 and $10,000,000,
-25-
<PAGE>
respectively; medium-term note of Salomon Brothers, Inc. in the principal
amount of $3,730,680; (d) Short-Term Bond Portfolio: corporate bonds of Lehman
Brothers, Inc. and Merrill Lynch Co., Inc. in the principal amounts of $992,500
and $956,250, respectively; medium-term note of Salomon Brothers, Inc. in the
principal amount of $932,670; Intermediate-Term Bond Portfolio: corporate bonds
of Lehman Brothers Holdings, Inc. in the principal amount of $975,000; and
Index Equity Portfolio: common stock of Merrill Lynch & Co., Inc. and Salomon,
Inc. in the principal amounts of $380,875 and $280,450, respectively.
PURCHASE AND REDEMPTION INFORMATION
Institutional Shares of the Portfolio are sold at the net asset value
per share next determined after a purchase order is received.
EXCHANGE PRIVILEGE. By use of the exchange privilege, the investor
authorizes the Fund's transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the investor and
believed by the Fund's transfer agent to be genuine. The records of the Fund's
transfer agent pertaining to such instructions are binding. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
affected shareholders. The exchange privilege is only available in states
where the exchange may legally be made.
MISCELLANEOUS. The Fund reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption or
repurchase of the Portfolio's shares by making payment in whole or in part in
securities chosen by the Fund and valued in the same way as they would be
valued for purposes of computing the Portfolio's net asset value. If payment
is made in securities, a shareholder may incur transaction costs in converting
these securities into cash. The Fund has elected, however, to be governed by
Rule 18f-1 under the 1940 Act so that the Portfolio is obligated to redeem its
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder of the Portfolio.
Under the 1940 Act, the Portfolio may suspend the right to redemption
or postpone the date of payment upon redemption for any period during which the
New York Stock Exchange (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which trading on the NYSE is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is
not reasonably practicable, or for such other periods as the SEC may permit.
(The Portfolio may also suspend
-26-
<PAGE>
or postpone the recordation of the transfer of its shares upon the occurrence
of any of the foregoing conditions.)
In addition to the situations described in the Prospectus, the Fund
may redeem shares involuntarily to reimburse the Portfolio for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder as provided in the
Prospectus from time to time.
VALUATION OF PORTFOLIO SECURITIES
In determining the approximate market value of portfolio investments,
the Fund may employ outside organizations, which may use, without limitation, a
matrix or formula method that takes into consideration market indexes,
matrices, yield curves and other specific adjustments. This may result in the
securities being valued at a price different from the price that would have
been determined had the matrix or formula method not been used. All cash,
receivables and current payables are carried on the Fund's books at their face
value. Other assets, if any, are valued at fair value as determined in good
faith under the supervision of the Board of Trustees.
PERFORMANCE INFORMATION
TOTAL RETURN. For purposes of quoting and comparing the performance
of shares of the Portfolio to the performance of other mutual funds and to
stock or other relevant indexes in advertisements or in communications to
shareholders, performance may be stated in terms of total return. Under the
rules of the SEC, funds advertising performance must include total return
quotes calculated according to the following formula:
-27-
<PAGE>
1/n
ERV
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of years.
Total return, or "T" in the formula above, is computed by finding the
average annual compounded rates of return over the specified periods that would
equate the initial amount invested to the ending redeemable value.
Based on the foregoing calculation, the average annual total return
for the Predecessor Portfolio for period October 6, 1994 (commencement of
operations) through June 30, 1995 was as follows:
<TABLE>
<CAPTION>
Average Annual
Total Return
For the Period
ended
Portfolio 6/30/95(1)
--------- ----------
<S> <C>
PREDECESSOR PORTFOLIO 12.78%
</TABLE>
- -------------------------------
(1) Commenced investment operations on October 6, 1994.
The Portfolio may also from time to time include in advertisements and
communications to shareholders a total return figure that is not calculated
according to the formula set forth above in order to compare more accurately
the performance of each class of the Portfolio's shares with other performance
measures. For example, in comparing the total return of the Portfolio's shares
with data published by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. or Weisenberger Investment Company Service, or with the
performance of the Standard & Poor's 500 Stock Index, EAFE, the Dow Jones
Industrial
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Average or the Salomon Broad Investment Grade Index, as appropriate, the
Portfolio may calculate the aggregate total return for its shares for the
period of time specified in the advertisement or communication by assuming the
investment of $10,000 in the Portfolio's shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value.
YIELD. The Portfolio may advertise its yield on its Institutional
Shares. Under the rules of the SEC, the Portfolio must calculate yield using
the following formula:
a-b 6
YIELD = 2[(----- +1) - 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the
last day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by the Portfolio is recognized by accruing 1/360th of the stated dividend rate
of the security each day that the security is in the Portfolio. Except as
noted below, interest earned on any debt obligations held by the Portfolio is
calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest) and dividing the result by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Portfolio. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with
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a call provision is the next call date on which the obligation reasonably may
be expected to be called or, if none, the maturity date.
With respect to debt obligations purchased at a discount or premium,
the formula generally calls for amortization of the discount or premium.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period;
and (b) the Portfolio may elect either (i) to amortize the discount and premium
on the remaining security, based on the cost of the security, to the
weighted-average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted-average maturity date
is not available, or (ii) not to amortize discount or premium on the remaining
security. The amortization schedule will be adjusted monthly to reflect
changes in the market values of debt obligations.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter.
The annualized yield information for the 30-day period ended June 30,
1995 for the Predecessor Portfolio was as follows:
<TABLE>
<CAPTION>
PORTFOLIO YIELD
--------- -----
<S> <C>
Predecessor Portfolio 7.80%
</TABLE>
OTHER INFORMATION REGARDING INVESTMENT RETURNS. In addition to
providing performance information that demonstrates the total return or yield
of Institutional Shares of the Portfolio over a specified period of time, the
Fund may provide certain other information demonstrating hypothetical
investment returns. Such information may include, but is not limited to,
illustrating the compounding effects of a dividend in a dividend reinvestment
plan. As illustrated below, the Fund may demonstrate, using certain specified
hypothetical data, the compounding effect of dividend reinvestment on
investments in the Portfolio.
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[CHART TO BE TAPED HERE]
MISCELLANEOUS. Yield on shares of the Portfolio may fluctuate daily
and does not provide a basis for determining future yield. Because such yield
will fluctuate, it cannot be compared with yields on savings account or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. In comparing the yield of one fund to another,
consideration should be given to each fund's investment policies, including the
types of investments made, lengths of maturities of the portfolio securities,
and whether there are any special account charges which may reduce the
effective yield. The fees which may be imposed by Authorized Dealers, Service
Organizations and other institutions on their customers are not reflected in
the calculations of total returns or yields for the Portfolio.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on an investment
in the Portfolio are reinvested by being paid in additional Portfolio shares,
any future income or capital appreciation of the Portfolio would increase the
value, not only of the original investment in the Portfolio, but also of the
additional Portfolio shares received through reinvestment. The Fund may also
include discussions or illustrations of the potential investment goals of a
prospective investor, investment management techniques, policies or investment
suitability of the Portfolio, economic conditions, the effects of inflation
and
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<PAGE>
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of the
Portfolio), as well as the views of the Portfolio's Adviser as to current
market, economy, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to the Portfolio. The Fund may also include in advertisements
charts, graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to,
stocks, bonds, treasury bills and shares of the Portfolio. In addition,
advertisement or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in the Portfolio. Such
advertisements or communicators may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or its shareholders, and the
discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Part I of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, the Portfolio generally is
exempt from Federal income tax on its net investment income and realized
capital gains that it distributes to shareholders, provided that it distributes
an amount equal to at least the sum of (a) 90% of its investment company
taxable income (net investment income and the excess of net short-term capital
gain over net long-term capital loss, if any, for the year) and (b) 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
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<PAGE>
In addition to satisfaction of the Distribution Requirement, the
Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies
(including, but not limited to, gains from forward foreign currency exchange
contacts), or from other income derived with respect to its business of
investment in such stock, securities, or currencies (the "Income Requirement")
and derive less than 30% of its gross income from the sale or other disposition
of stock, securities and certain other investments (including securities and
forward foreign currency exchange contracts, but only to the extent that such
contracts are not directly related to the Portfolio's principal business of
investing in stock or securities) held for less than three months (the
"Short-Short Gain Test"). Future Treasury regulations may provide that foreign
currency gains that are not "directly related" to the Portfolio's principal
business of investing in stock or securities will not satisfy the Income
Requirement. Interest (including original issue discount and "accrued market
discount") received by the Portfolio at maturity or upon disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security held for less than
three months for purposes of the Short-Short Gain Test. However, any other
income that is attributable to realized market appreciation will be treated as
gross income from the sale or other disposition of securities for this purpose.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of the Portfolio's
assets must consist of cash and cash items, U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Portfolio has not invested more than 5% of the value
of its total assets in securities of such issuer and as to which the Portfolio
does not hold more than 10% of the outstanding voting securities of such
issuer), and no more than 25% of the value of the Portfolio's total assets may
be invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two
or more issuers which such Portfolio controls and which are engaged in the same
or similar trades or businesses.
Distributions of investment company taxable income will be taxable
(other than the possible allowance of the dividends received deduction
described below) to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are reinvested in shares. Shareholders
receiving any taxable distribution from the Portfolio in the form of additional
shares will be treated as receiving a taxable distribution in an amount equal
to the fair market value of the shares received, determined as of the
reinvestment date.
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<PAGE>
The Portfolio intends to distribute to shareholders any of its excess
of net long-term capital gain over net short-term capital loss ("net capital
gain") for each taxable year. Such gain is distributed as a capital gain
dividend and is taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares, whether such gain
was recognized by the Portfolio prior to the date on which a shareholder
acquired shares of the Portfolio and whether the distribution was paid in cash
or reinvested in shares.
In the case of corporate shareholders, distributions (other than
capital gain dividends) from the Portfolio for any taxable year generally
qualify for the dividends received deduction to the extent of the gross amount
of "qualifying dividends" received by the Portfolio for the year. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received
from a domestic corporation. Distributions of net investment income from debt
securities and of net realized short-term capital gains will be taxable to
shareholders as ordinary income and will not be treated as "qualifying
dividends" for purposes of the dividends received deduction.
Ordinary income of individuals will be taxable at a maximum nominal
rate of 39.6%, but because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gains will be taxable at a maximum rate of 28%. Capital
gains and ordinary income of corporate taxpayers are both taxed at a maximum
nominal rate of 35%, but at marginal rates of 39% for taxable income between
$100,000 and $335,000. Investors should be aware that any loss realized upon
the sale, exchange or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent any capital gain dividends
have been paid with respect to such shares.
Generally, futures contracts held by the Portfolio at the close of the
Portfolio's taxable year will be treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sale will be treated as short-term capital gain or loss
and 60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time the Portfolio holds the futures contract
("the 40-60 rule"). The amount of any capital gain or loss actually realized
by the Portfolio in a subsequent sale or other disposition of those futures
contracts will be adjusted to reflect any capital gain or loss taken into
account by the Portfolio in a prior year as a result of the constructive sale
of the contracts. With respect to futures contracts to sell, which will be
regarded as parts of a "mixed straddle" because their values fluctuate
inversely to
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<PAGE>
the values of specific securities held by the Portfolio, losses as to such
contracts to sell will be subject to certain loss deferral rules which limit
the amount of loss currently deductible on either part of the straddle to the
amount thereof which exceeds the unrecognized gain (if any) with respect to the
other part of the straddle, and to certain wash sales regulations. Under short
sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for
the long-term holding period) be deemed not to begin prior to termination of
the straddle. With respect to certain futures contracts, deductions for
interest and carrying charges will not be allowed. Notwithstanding the rules
described above, with respect to futures contracts to sell which are properly
identified as such, the Portfolio may make an election which will exempt (in
whole or in part) those identified futures contracts from being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, the Portfolio would be allowed
(in lieu of the foregoing) to elect either (1) to offset gains or losses from
portions which are part of a mixed straddle by separately identifying each
mixed straddle to which such treatment applies, or (2) to establish a mixed
straddle account for which gains and losses would be recognized and offset on a
periodic basis during the taxable year. Under either election, the 40-60 rule
will apply to the net gain or loss attributable to the futures contracts, but
in the case of a mixed straddle account election, not more than 50% of any net
gain may be treated as long-term and no more than 40% of any net loss may be
treated as short-term. Options on futures contracts generally receive Federal
tax treatment similar to that described above.
Under the Federal income tax provisions applicable to regulated
investment companies, less than 30% of a company's gross income for a taxable
year must be derived from gains realized on the sale or other disposition of
securities held for less than three months. The Internal Revenue Service has
issued a private letter ruling with respect to certain other investment
companies to the following effect: gains realized from a futures contract to
purchase or to sell will be treated as being derived from a security held for
three months or more regardless of the actual period for which the contract is
held if the gain arises as a result of a constructive sale of the contract at
the end of the taxable year as described above, and will be treated as being
derived from a security held for less than three months only if the contract is
terminated (or transferred) during the taxable year (other than by reason of
mark-to-market) and less than three months elapses between the date the
contract is acquired and the termination date. Although private letter rulings
are not binding on the Internal Revenue Service with respect to the
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<PAGE>
Portfolio, the Fund believes that the Internal Revenue Service would take a
comparable position with respect to the Portfolio. In determining whether the
30% test is met for a taxable year, increases and decreases in the value of the
Portfolio's futures contracts and securities that qualify as part of a
"designated hedge," as defined in the Code, may be netted.
If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
all distributions will be taxable as ordinary dividends to the extent of the
Portfolio's current and accumulated earnings and profits. Such distributions
will be eligible for the dividends received deduction in the case of corporate
shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Portfolio intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of the each calendar year to avoid liability for this
excise tax.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend
income properly, or (iii) who has failed to certify to the Fund that he is not
subject to backup withholding or that he is an "exempt recipient."
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolio each year.
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although the Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are
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<PAGE>
maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, the Portfolio may be
subject to the tax laws of such states or localities. Shareholders should
consult their tax advisors about state and local tax consequences, which may
differ from the Federal income tax consequences described above.
ADDITIONAL INFORMATION CONCERNING SHARES
Shares of the Fund have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Fund's outstanding shares (irrespective of
class) may elect all of the trustees. Shares have no preemptive rights and
only such conversion and exchange rights as the Board may grant in its
discretion. When issued for payment as described in the Prospectus, shares
will be fully paid and non-assessable by the Fund.
There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as required by law. At that time,
the trustees then in office will call a shareholders' meeting to elect
trustees. Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. The Fund's Declaration of Trust
provides that meetings of the shareholders of the Fund shall be called by the
trustees upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote.
The Funds' Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law), to:
(i) sell and convey the assets belonging to a class of shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such class to be redeemed at a price which is equal to their net
asset value and which may be paid in cash or by distribution of the securities
or other consideration received from the sale and conveyance; (ii) sell and
convert the assets belonging to one or more classes of shares into money and,
in connection therewith, to cause all outstanding shares of such class to be
redeemed at their net asset value; or (iii) combine the assets belonging to a
class of shares with the assets belonging to one or more other classes of
shares if the Board of Trustees reasonably determines that such combination
will not have a material adverse effect on the shareholders of any class
participating in such combination and, in connection therewith, to cause all
outstanding shares of any such class to be redeemed or converted into shares of
another class of shares at their net asset value. However, the exercise of
such authority may be subject to certain restrictions under the 1940 Act. The
Board of Trustees may authorize the termination of any class of shares
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<PAGE>
after the assets belonging to such class have been distributed to its
shareholders.
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107-3496, serves as the Fund's counsel.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand, L.L.P., 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
FIVE PERCENT OWNERS. The name, address and percentage ownership of
each person that on September 29, 1995 owned of record or beneficially 5% or
more of the outstanding shares of the Portfolio was as follows:
Money Market Portfolio: BHC Securities, 2005 Market St., Phila., PA 19103,
6.0%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 85.1%; Government
Money Market Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
76.5%; PNC Bank Pittsburgh, 960 Ft. Duquesne Blvd., Pittsburgh, PA 15222, 5.0%;
Municipal Money Market Portfolio: PNC Bank Pittsburgh, 960 Ft. Duquesne Blvd.,
Pittsburgh, PA 15222, 12.1%; PNC Bank Ohio, 201 E. Fifth St., Cincinnati, OH
45202, 8.1%; PNC Bank, Saxon and Co., 200 Stevens Dr., Suite 260, Lester, PA
19113, 73.1%; Ohio Municipal Money Market Portfolio: BHC Securities, 2005
Market St., Phila., PA 19103, 26.4%; PNC Bank, 200 Stevens Dr., Suite 260,
Lester, PA 19113, 58.9%; North Carolina Municipal Money Market Portfolio:
Branch Banking & Trust Company, P.O. Box 1847, Wilson, N.C. 27893, 5.6%;
Centura Bank, P.O. Box 1220, Rocky Mount, NC 27802, 13.1%; United Carolina Bank
Whiteville, P.O. Drawer 632, Whiteville, NC 28472, 22.3%; First Charter
National Bank, P.O. Box 228, Concord, NC 28926, 13.1%; McWood & Co., First
Citizens Bank, P.O. Box 29522, Raleigh, NC 27626, 13.0%; North Carolina Trust
Co., 301 North Elm St., Greensboro, NC 27402, 17.0%; Pennsylvania Municipal
Money Market Portfolio: BHC Securities, 2005 Market St., Phila., PA 19103,
5.6%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 85.3%; Virginia
Municipal Money Market Portfolio: Oldom & Co., First Virginia Bank Inc., 6400
Arlington Blvd., Falls Church, VA 22042, 77.4%; Warritrust & Company, F&M Bank,
P.O. Box 93, Warrenton, VA 22186, 5.8%; Piedmont Company, Piedmont Trust Bank,
P.O. Box 4751, Martinsville, VA 24115, 9.9%; Managed Income Portfolio: PNC
Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 92.3; Tax-Free Income
Portfolio: BHC Securities, 2005 Market St., Phila., PA 19103, 15.5%; PNC Bank,
200 Stevens Dr., Suite 260, Lester, PA 19113, 41.5%; Ohio Tax-Free Income
Portfolio: BHC Securities, 2005 Market St., Phila., PA 19103, 32.3%; PNC Bank,
200 Stevens Dr., Suite 260, Lester, PA 19113, 60.6%; Pennsylvania Tax-Free
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Income: BHC Securities, 100 N. 20th St., Phila., PA 19103, 46.4%; PNC Bank, 200
Stevens Dr., Suite 260, Lester, PA 19113, 24.9%; Intermediate Government
Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 91.2%;
Short-Term Bond Portfolio: Medical Practice Account, 1020 Walnut St., Phila.,
PA 19107, 14.3%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 83.7%;
Intermediate-Term Bond Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester,
PA 19113, 92.9%; Government Income Portfolio: BHC Securities, 100 N. 20th St.,
Phila., PA 19103, 20.3%; International Emerging Markets Portfolio: First
Charter National Bank, P.O. Box 228, Concord, NC 28026, 5.6%; PNC Bank, 200
Stevens Dr., Suite 260, Lester, PA 19113, 88.7%; Growth Equity Portfolio: PNC
Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 96.4%; Index Equity
Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 91.5%; Small
Cap Value Equity Portfolio: BHC Securities, 100 N. 20th St., Phila., PA 19103,
5.0%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 81.6%;
International Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester,
PA 19113, 91.6%; Balanced Portfolio: BHC Securities, 100 N. 20th St., Phila.,
PA 19103, 24.9%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 60.5%;
Value Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
91.1%; Small Cap Growth Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260,
Lester, PA 19113, 90.1%; and Core Equity Portfolio: PNC Bank, 200 Stevens Dr.,
Suite 260, Lester, PA 19113, 98.1%.
On September 29, 1995, PNC Bank held of record approximately 79% of
the Fund's outstanding shares, and may be deemed a controlling person of the
Fund under the 1940 Act. PNC Bank is a national bank organized under the laws
of the United States. All of the capital stock of PNC Bank is owned by PNC
Bancorp, Inc. All of the capital stock of PNC Bancorp, Inc. is owned by PNC
Bank Corp., a publicly-held bank holding company.
BANKING LAWS. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956
or any bank or non-bank affiliate thereof from sponsoring, organizing,
controlling or distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and prohibit banks
generally from underwriting securities, but such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, administrator, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers. PIMC, BlackRock, PCM, PEAC, PMFCO,
PFPC and PNC Bank are subject to such banking laws and regulations.
PIMC, BlackRock, PCM, PEAC, PMFCO, PFPC and PNC Bank believe they may
perform the services for the Fund contemplated by their
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respective agreements with the Fund without violation of applicable banking
laws or regulations. It should be noted, however, that there have been no
cases deciding whether bank and non-bank subsidiaries of a registered bank
holding company may perform services comparable to those that are to be
performed by these companies, and future changes in either Federal or state
statutes and regulations relating to permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Trustees would
recommend that the Fund enter into new agreements or would consider the
possible termination of the Fund. Any new advisory or sub-advisory agreement
would be subject to shareholder approval.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of a
class, series or Portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the lesser of (1) 67% of the shares of the particular class, series or
Portfolio represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or Portfolio are present in person or
by proxy, or (2) more than 50% of the outstanding shares of such class, series
or Portfolio.
THE FUND'S NAME. PNC Bank Corp. is the owner of the registered
service mark "PNC." The Fund has entered into a licensing agreement with
respect to its non-exclusive use of "PNC," under which it has agreed not to
claim any interest to the name "PNC" except under the agreement. The license
will terminate if it is breached by the Fund or if neither PIMC nor any of PNC
Bank Corp.'s affiliates continues as the investment adviser or manager of the
Fund.
FINANCIAL STATEMENTS
The audited financial statements for the Predecessor Portfolio
contained in its Annual Report to Shareholders dated June 30, 1995 are
incorporated by reference in this Statement of Additional Information. No
other parts of the Annual Report are incorporated by reference herein.
Additional copies of the Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
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COMPASS CAPITAL FUNDS(R)
(FORMERLY, THE PNC(R) FUND)
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A of the Registration Statement are the
following tables:
(i) Audited Financial Highlights for the Money Market, U.S.
Treasury Money Market, Municipal Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money
Market, North Carolina Municipal Money Market, Virginia
Municipal Money Market, Value Equity, Growth Equity,
Small Cap Value Equity, Small Cap Growth Equity,
International Equity, International Emerging Markets,
Select Equity, Index Equity, Balanced, Intermediate
Government Bond, Intermediate Bond, Managed Income,
Tax-Free Income, Pennsylvania Tax-Free Income,
Government Income and Ohio Tax-Free Income Portfolios
for the fiscal years ended September 30, 1995,
September 30, 1994, September 30, 1993, September 30,
1992, September 30, 1991 and September 30, 1990.
(ii) Audited Financial Highlights for the Short Government
Bond and Core Bond Portfolios and the Multi-Sector
Mortgage Securities Portfolio III for the fiscal years
ended June 30, 1995, June 30, 1994 and June 30, 1993.
(iii) Unaudited Financial highlights for the International
Bond, New Jersey Tax-Free Income and New Jersey
Municipal Money Market Portfolios for the period ended
August 31, 1995, and audited financial highlights for
the fiscal years ended February 28, 1995, February 28,
1994, February 28, 1993 and February 28, 1992.
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<PAGE>
(2) Included in Part B of the Registration Statement are the
following audited financial statements:
(i) With respect to the Money Market, U.S. Treasury Money
Market, Municipal Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market and Virginia Municipal
Money Market Portfolios:
Report of Independent Accountants for the fiscal
year ended September 30, 1995;
Statement of Net Assets - September 30, 1995;
Statement of Operations for the year ended
September 30, 1995;
Statement of Changes in Net Assets for the year
ended September 30, 1995;
Notes to Financial Statements.
(ii) With respect to the Value Equity, Growth Equity, Small
Cap Growth Equity, Select Equity, Index Equity, Small
Cap Value Equity, International Equity, International
Emerging Markets and Balanced Portfolios:
Report of Independent Accountants for the fiscal
year ended September 30, 1995;
Schedule of Investments with respect to the
International Equity Portfolio - September 30,
1995;
Statement of Assets and Liabilities - September
30, 1995;
Statement of Net Assets - September 30, 1995;
Statement of Operations for the year ended
September 30, 1995;
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<PAGE>
Statement of Changes in Net Assets for the year
ended September 30, 1995;
Notes to Financial Statements.
(iii) With respect to the Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income,
Pennsylvania Tax-Free Income, Intermediate Bond and
Government Income Portfolios:
Report of Independent Accountants for the fiscal
year ended September 30, 1995;
Statement of Net Assets - September 30, 1995;
Statement of Operations for the year ended
September 30, 1995;
Statement of Changes in Net Assets for the year
ended September 30, 1995;
Notes to Financial Statements.
(iv) With respect to the Short Government Bond and Core Bond
Portfolios and the Multi-Sector Mortgage Securities
Portfolio III:
Report of Independent Auditors for the fiscal year
ended June 30, 1995;
Portfolio of Investments - June 30, 1995;
Statements of Assets and Liabilities - June 30,
1995;
Statements of Operations for the year ended June
30, 1995;
Statements of Cash Flows for the year ended June
30, 1995;
Statements of Changes in Net Assets for the year
ended June 30, 1995;
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<PAGE>
Notes to Financial Statements.
(v) With respect to the International Bond, New Jersey Tax-
Free Income and New Jersey Municipal Money Market
Portfolios:
Statement of Net Assets for the year ended
February 28, 1995;
Schedule of Investments - February 28, 1995;
Statement of Assets and Liabilities - February 28,
1995;
Statement of Operations for the year ended
February 28, 1995;
Statement of Changes in Net Assets for the year
ended February 28, 1995;
Notes to Financial Statements.
(vi) With respect to the International Bond, New Jersey Tax-
Free Income and New Jersey Municipal Money Market
Portfolios:
Statement of Net Assets for the period ended
August 31, 1995;
Schedule of Investments - August 31, 1995;
Statement of Assets and Liabilities - August 31,
1995;
Statement of Operations for the period ended
August 31, 1995;
Statement of Changes in Net Assets for the period
ended August 31, 1995;
Notes to Financial Statements.
(b) Exhibits:
(1) (a) Declaration of Trust of the Registrant dated December
22, 1988 is incorporated
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<PAGE>
herein by reference to Exhibit (1) of Registrant's
Registration Statement on Form N-1A filed on December
23, 1988.
(b) Amendment No. 1 to Declaration of Trust is incorporated
herein by reference to Exhibit (1)(b) of Pre-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A filed on May 11, 1989.
(c) Amendment No. 2 to the Declaration of Trust dated
December 23, 1993 is incorporated herein by reference
to Exhibit (1)(c) of Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A filed
on July 8, 1994.
(2) Registrant's Code of Regulations is incorporated herein
by reference to Exhibit (2) of Form N-1A, filed on
December 23, 1988.
(3) None.
(4) (a) Specimen Copies of Share Certificates for Shares of
beneficial interest in Class A-1, Class A-2, Class A-3,
Class B-1, Class B-2, Class B-3, Class C-1, Class C-2,
Class C-3, Class D-1, Class D-2, Class D-3, Class E-1,
Class E-2, Class E-3, Class F-1, Class F-2, Class F-3,
Class G-1, Class G-2, Class G-3, Class H-1, Class H-2,
Class H-3, Class I-1, Class I-2, Class I-3, Class J-1,
Class J-2, Class J-3, Class K-1, Class K-2, Class K-3,
Class L-1, Class L-2, Class L-3, Class M-1, Class M-2,
Class M-3, Class N-1, Class N-2, Class N-3, Class O-1,
Class O-2, Class O-3, Class P-1, Class P-2, Class P-3
of the Registrant are incorporated herein by reference
to Exhibit 4 of Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A filed
on May 8, 1992.
(b) Form of Share Certificates for Shares of beneficial
interest in Class Q-1, Class Q-2, Class Q-3, Class R-1,
Class R-2, Class R-3, Class S-1, Class S-2, Class
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<PAGE>
S-3, Class T-1, Class T-2, Class T-3, Class U-1, Class
U-2, Class U-3 of the Registrant are incorporated
herein by reference to Exhibit 4(b) of Post-Effective
Amendment No. 8 to Registrant's Registration Statement
on Form N-1A filed on January 22, 1993.
(c) Form of Share Certificates for Shares of beneficial
interest in Class V-1, Class V-2, Class V-3, Class W-1,
Class W-2, Class W-3, Class X-1, Class X-2, Class X-3,
Class Y-1, Class Y-2 and Class Y-3 of the Registrant is
incorporated herein by reference to Exhibit (4)(c) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(d) Form of Share Certificates for Shares of beneficial
interest in Class Z-1, Class Z-2 and Class Z-3 of the
Registrant is incorporated herein by reference to
Exhibit (4)(d) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A filed
on May 11, 1995.
(e) Form of Share Certificates for Shares of beneficial
interest in Class AA-1, Class AA-2, Class AA-3; Class
AA-4; Class BB-1, Class BB-2, Class BB-3 and Class BB-
4; and Class CC-1, Class CC-2, Class CC-3 and Class CC-
4 is incorporated herein by reference to Exhibit (4)(e)
of Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A filed on October
12, 1995.
(5) (a) Investment Advisory Agreement between Registrant and
PNC Institutional Management Corporation with respect
to the Money Market, Government Money Market, Municipal
Money Market, Managed Income, Growth Equity,
International Equity and Balanced Portfolios is
incorporated herein by reference to Exhibit 5(a) of
Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on December
29, 1989.
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<PAGE>
(b) Letter Agreement between Registrant and PNC
Institutional Management Corporation relating to
advisory services for the Tax-Free Income Portfolio is
incorporated herein by reference to Exhibit 5(b) of
Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A filed on April 30,
1990.
(c) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Bank, National
Association with respect to the Money Market Portfolio
and Government Money Market Portfolio is incorporated
herein by reference to Exhibit 5(c) of Post-Effective
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A filed on December 29, 1989.
(d) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Bank, National
Association with respect to the Balanced and Tax-Free
Income Portfolios is incorporated herein by reference
to Exhibit 5(d) of Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed
on April 30, 1990.
(e) Sub-Advisory Agreement dated April 20, 1992 between PNC
Institutional Management Corporation and Provident
Capital Management, Inc. with respect to the
International Equity Portfolio is incorporated herein
by reference to Exhibit (5)(f) of Post-Effective
Amendment No. 10 to Registrant's Registration Statement
on Form N-1A filed on November 10, 1993.
(f) Investment Advisory Agreement dated February 3, 1992
between Registrant and PNC Institutional Management
Corporation relating to the Intermediate Government,
Value Equity, Small Cap Value Equity, Pennsylvania Tax-
Free Income, Ohio Tax-Free Income, Pennsylvania
Municipal Money Market and Ohio Municipal Money Market
Portfolios is incorporated herein by reference to
Exhibit (5)(g) of Post-
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<PAGE>
Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A filed on November 10, 1993.
(g) Investment Advisory Agreement dated December 17, 1993
between the Registrant and PNC Institutional Management
Corporation relating to the Virginia Municipal Money
Market, Government Income, International Fixed Income
and International Emerging Markets Portfolios is
incorporated herein by reference to Exhibit (5)(h) of
Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on July 8,
1994.
(h) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional Management Corporation and PNC Bank,
National Association with respect to the Ohio Municipal
Money Market Portfolio is incorporated herein by
reference to Exhibit (5)(h) of Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A filed on November 10, 1993.
(i) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional Management Corporation and PNC Bank,
National Association with respect to the Pennsylvania
Municipal Money Market Portfolio is incorporated herein
by reference to Exhibit (5)(i) of Post-Effective
Amendment No. 10 to Registrant's Registration Statement
on Form N-1A filed on November 10, 1993.
(j) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional Management Corporation and Provident
Capital Management, Inc. with respect to the Value
Equity Portfolio is incorporated herein by reference to
Exhibit (5)(m) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A filed
on November 10, 1993.
(k) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional
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<PAGE>
Management Corporation and Provident Capital
Management, Inc. with respect to the Small Cap Value
Equity Portfolio is incorporated herein by reference to
Exhibit (5)(n) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A filed
on November 10, 1993.
(l) Investment Advisory Agreement dated March 1, 1993
between Registrant and PNC Institutional Management
Corporation relating to the Short-Term Bond,
Intermediate-Term Bond, Core Equity, Small Cap Growth
Equity and North Carolina Municipal Money Market
Portfolios is incorporated herein by reference to
Exhibit (5)(p) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A filed
on November 10, 1993.
(m) Sub-Advisory Agreement dated March 1, 1993 between PNC
Institutional Management Corporation and PNC Bank,
National Association relating to the North Carolina
Municipal Money Market Portfolio is incorporated herein
by reference to Exhibit (5)(r) of Post-Effective
Amendment No. 10 to Registrant's Registration Statement
on Form N-1A filed on November 10, 1993.
(n) Sub-Advisory Agreement dated September 10, 1993 between
PNC Institutional Management Corporation and PNC Bank,
National Association relating to the Municipal Money
Market Portfolio is incorporated herein by reference to
Exhibit (5)(s) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A filed
on November 10, 1993.
(o) Sub-Advisory Agreement dated December 17, 1993 between
PNC Institutional Management Corporation and PNC Bank,
National Association with respect to the Virginia
Municipal Money Market Portfolio is incorporated herein
by reference to Exhibit (5)(x) of Post-Effective
Amendment No. 12 to
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<PAGE>
Registrant's Registration Statement on Form N-1A filed
on July 8, 1994.
(p) Sub-Advisory Agreement dated December 17, 1993 between
PNC Institutional Management Corporation and Provident
Capital Management, Inc. with respect to the
International Fixed Income Portfolio is incorporated
herein by reference to Exhibit (5)(z) of Post-Effective
Amendment No. 12 to Registrant's Registration Statement
on Form N-1A filed on July 8, 1994.
(q) Sub-Advisory Agreement dated December 17, 1993 between
PNC Institutional Management Corporation and Provident
Capital Management, Inc. with respect to the
International Emerging Markets Portfolio is
incorporated herein by reference to Exhibit (5)(aa) of
Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on July 8,
1994.
(r) Form of Investment Advisory Agreement between the
Registrant and PNC Institutional Management Corporation
relating to the New Jersey Municipal Money Market
Portfolio is incorporated herein by reference to
Exhibit (5)(r) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A filed
on May 11, 1995.
(s) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and PNC Bank,
National Association with respect to the New Jersey
Municipal Money Market Portfolio is incorporated herein
by reference to Exhibit (5)(s) of Post-Effective
Amendment No. 15 to Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(t) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and PNC Equity
Advisors Company with respect to the Core Equity
Portfolio is incorporated herein by reference to
Exhibit (5)(t) of Post-Effective Amendment No. 15 to
Registrant's
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<PAGE>
Registration Statement on Form N-1A filed on May 11,
1995.
(u) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and PNC Equity
Advisors Company with respect to the Growth Equity
Portfolio is incorporated herein by reference to
Exhibit (5)(u) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A filed
on May 11, 1995.
(v) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and PNC Equity
Advisors Company with respect to the Small Cap Growth
Equity Portfolio is incorporated herein by reference to
Exhibit (5)(v) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A filed
on May 11, 1995.
(w) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and BlackRock
Financial Management, Inc. with respect to the Managed
Income Portfolio is incorporated herein by reference to
Exhibit (5)(x) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A filed
on May 11, 1995.
(x) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and BlackRock
Financial Management, Inc. with respect to the
Intermediate Government Portfolio is incorporated
herein by reference to Exhibit (5)(y) of Post-Effective
Amendment No. 15 to Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(y) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and BlackRock
Financial Management, Inc. with respect to the Ohio
Tax-Free Income Portfolio is incorporated herein by
reference to Exhibit (5)(z) of Post-Effective Amendment
No. 15 to Registrant's Registration Statement on Form
N-1A filed on May 11, 1995.
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<PAGE>
(z) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and BlackRock
Financial Management, Inc. with respect to the
Pennsylvania Tax-Free Income Portfolio is incorporated
herein by reference to Exhibit (5)(aa) of Post-
Effective Amendment No. 15 to Registrant's Registration
Statement on Form N-1A filed on May 11, 1995.
(aa) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and BlackRock
Financial Management, Inc. with respect to the Short-
Term Bond Portfolio is incorporated herein by reference
to Exhibit (5)(bb) of Post-Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(bb) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and BlackRock
Financial Management, Inc. with respect to the
Intermediate-Term Bond Portfolio is incorporated herein
by reference to Exhibit (5)(cc) of Post-Effective
Amendment No. 15 to Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(cc) Form of Sub-Advisory Agreement between PNC
Institutional Management Corporation and BlackRock
Financial Management, Inc. with respect to the
Government Income Portfolio is incorporated herein by
reference to Exhibit (5)(dd) of Post-Effective
Amendment No. 15 to Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(dd) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Tax-Free Income
Portfolio is incorporated herein by reference to
Exhibit (5)(dd) of Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A filed
on October 12, 1995.
(ee) Form of Investment Advisory Agreement between
Registrant and PNC Asset
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<PAGE>
Management Group, Inc. relating to all Portfolios
except the Multi-Sector Mortgage Securities Portfolio
III and Index Equity Portfolio is incorporated herein
by reference to Exhibit (5)(ee) of Post-Effective
Amendment No. 18 to Registrant's Registration Statement
on Form N-1A filed on October 12, 1995.
(ff) Form of Investment Advisory Agreement between
Registrant and BlackRock Financial Management, Inc.
with respect to the Multi-Sector Mortgage Securities
Portfolio III is incorporated herein by reference to
Exhibit (5)(ff) of Post-Effective Amendment No. 18 to
Registrants' Registration Statement on Form N-1A filed
on October 12, 1995.
(gg) Form of Sub-Advisory Agreement between PNC Asset
Management Group, Inc. and BlackRock Financial
Management, Inc./ Provident Capital Management, Inc./
PNC Equity Advisors Company/ and PNC Institutional
Management Corporation is incorporated herein by
reference to Exhibit (5)(gg) to Post-Effective
Amendment No. 18 of Registrant's Registration Statement
on Form N-1A filed October 12, 1995.
(hh) Form of Sub-Advisory Agreement between PNC Asset
Management Group, Inc. and Morgan Grenfell Investment
Services, Ltd. with respect to the International Fixed
Income Portfolio is incorporated herein by reference to
Exhibit (5)(hh) of Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A filed
on October 12, 1995.
(6) (a) Distribution Agreement between Registrant and Provident
Distributors, Inc. dated January 31, 1994 is
incorporated herein by reference to Exhibit (6)(a) of
Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on July 8,
1994.
(b) Form of Appendix A to the Distribution Agreement
between Registrant and
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<PAGE>
Provident Distributors, Inc. is incorporated herein by
reference to Exhibit (6)(b) of Post-Effective Amendment
No. 18 to Registrants Registration Statement on Form N-
1A filed on October 12, 1995.
(c) Amendment No. 2 to the Distribution Agreement between
Registrant and Provident Distributors, Inc. dated
October 18, 1994 is incorporated herein by reference to
Exhibit 6(c) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A filed
on January 18, 1995.
(d) Form of Amendment No. 3 to the Distribution Agreement
between Registrant and Provident Distributors, Inc.
(7) Fund Office Retirement Profit-Sharing Plan and Related
Adoption Agreement is incorporated herein by reference
to Exhibit (7) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A filed
on May 11, 1995.
(8) (a) Custodian Agreement dated October 4, 1989 between
Registrant and PNC Bank, National Association is
incorporated herein by reference to Exhibit 8(a) of
Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on December
29, 1989.
(b) Amendment No. 1 to Custodian Agreement between
Registrant and PNC Bank, National Association is
incorporated herein by reference to Exhibit 8(b) of
Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A filed on December
13, 1991.
(c) Amendment No. 2 dated March 1, 1993 to Custodian
Agreement between Registrant and PNC Bank, National
Association with respect to the Short-Term Bond,
Intermediate-Term Bond, Core Equity, Small Cap Growth
Equity and North Carolina Municipal Money Market
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<PAGE>
Portfolios is incorporated herein by reference to
Exhibit (8)(c) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A filed
on November 10, 1993.
(d) Form of Appendix B to Custodian Agreement dated October
4, 1989 between Registrant and PNC Bank, National
Association is incorporated herein by reference to
Exhibit (8)(d) of Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A filed
on October 12, 1995.
(e) Sub-Custodian Agreement dated April 27, 1992 among the
Registrant, PNC Bank, National Association and The
Chase Manhattan Bank is incorporated herein by
reference to Exhibit (8)(e) of Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A filed on November 10, 1993.
(f) Global Sub-Custody Agreement between Barclays Bank PLC
and PNC Bank, National Association dated October 28,
1992 is incorporated herein by reference to Exhibit
(8)(e) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A filed
on January 18, 1995.
(g) Custodian Agreement between State Street Bank and Trust
Company and PNC Bank, National Association dated June
13, 1983 is incorporated herein by reference to Exhibit
(8)(f) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A filed
on January 18, 1995.
(h) Amendment No. 1 to Custodian Agreement between State
Street Bank and Trust Company and PNC Bank dated
November 21, 1989 is incorporated herein by reference
to Exhibit (8)(g) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A filed
on January 18, 1995.
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<PAGE>
(i) Letter Agreement between Registrant and PNC Bank,
National Association relating to custodian services
with respect to the Tax-Free Income Portfolio is
incorporated herein by reference to Exhibit 8(d) of
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A filed on December
1, 1992.
(j) Letter Agreement between Registrant and PNC Bank,
National Association relating to custodian services
with respect to the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free
Income, Value Equity, Index Equity and Small Cap Value
Equity Portfolios is incorporated herein by reference
to Exhibit (8)(e) of Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A filed
on December 1, 1992.
(k) Letter Agreement dated March 1, 1993 between Registrant
and PNC Bank, National Association relating to
custodian services with respect to the North Carolina
Municipal Money Market, Short-Term Bond, Intermediate-
Term Bond, Small Cap Growth Equity and Core Equity
Portfolios is incorporated herein by reference to
Exhibit (8)(h) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A filed
on November 10, 1993.
(9) (a) Administration Agreement dated January 18, 1993 among
Registrant, PFPC Inc. and Provident Distributors, Inc.
is incorporated herein by reference to Exhibit 9(a) of
Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A filed on January
22, 1993.
(b) Amendment No. 1 to the Administration Agreement dated
January 18, 1993 among Registrant, PFPC Inc. and
Provident Distributors, Inc. dated September 23, 1994
is incorporated herein by reference to Exhibit (9)(b)
of Post-Effective
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<PAGE>
Amendment No. 14 to Registrant's Registration Statement
on Form N-1A filed on January 18, 1995.
(c) Form of Appendix A to the Administration Agreement
among Registrant, PFPC Inc. and Provident Distributors,
Inc. is incorporated herein by reference to Exhibit
(9)(c) of Post-Effective Amendment No. 18 to
Registrants Registration Statement on Form N-1A filed
on October 12, 1995.
(d) Amendment No. 2 to the Administration Agreement dated
January 18, 1993 among Registrant, PFPC Inc. and
Provident Distributors, Inc. is incorporated herein by
reference to Exhibit (9)(d) of Post-Effective Amendment
No. 14 to Registrant's Registration Statement on Form
N-1A filed on January 18, 1995.
(e) Form of Administration Agreement among Registrant,
Compass Distributors, Inc. and PFPC Inc.
(f) Form of Co-Administration Agreement among Registrant
and Compass Capital Group, Inc. is incorporated herein
by reference to Exhibit (9)(e) of Post-Effective
Amendment No. 18 to Registrant's Registration Statement
on Form N-1A filed on October 12, 1995.
(g) Transfer Agency Agreement dated October 4, 1989 between
Registrant and PFPC Inc. is incorporated herein by
reference to Exhibit 9(e) of Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-
1A filed on December 29, 1989.
(h) Amendment No. 1 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to the Tax-Free Income Portfolio is
incorporated herein by reference to Exhibit 9(h) of
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A filed on February
5, 1992.
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<PAGE>
(i) Amendment No. 2 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to the Pennsylvania Municipal Money Market,
Ohio Municipal Money Market, Intermediate Government,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Value Equity, Index Equity and Small Cap Value Equity
Portfolios is incorporated herein by reference to
Exhibit 9(h) of Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A filed
on December 13, 1991.
(j) Amendment No. 3 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to the Short-Term Bond, Intermediate-Term
Bond, Core Equity, Small Cap Growth Equity and North
Carolina Municipal Money Market Portfolios is
incorporated herein by reference to Exhibit (9)(e) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(k) Amendment No. 4 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to Series B Investor Shares of the Money
Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free
Income, Value Equity, Growth Equity, Index Equity,
Small Cap Value Equity, Intermediate-Term Bond, Small
Cap Growth Equity, Core Equity, International Fixed
Income, Government Income, International Emerging
Markets, International Equity and Balanced Portfolios
is incorporated herein by reference to Exhibit (9)(i)
of Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A filed on January
18, 1995.
(l) Form of Appendix C to Transfer Agency Agreement between
Registrant and PFPC Inc. is incorporated herein by
reference to Exhibit (9)(k) of Post-Effective Amendment
No. 18 to Registrant's Registration Statement on Form
N-1A filed on October 12, 1995.
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<PAGE>
(m) Amended and Restated Service Plan dated January 21,
1993 for Service Shares and Form of Servicing Agreement
for Service Shares is incorporated herein by reference
to Exhibit 9(f) of Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A filed
on January 22, 1993.
(n) Series B Service Plan dated September 23, 1994 is
incorporated herein by reference to Exhibit 9(l) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on January
18, 1995.
(o) Trademark License Agreement between Registrant and PNC
Bank Corp. is incorporated herein by reference to
Exhibit 9(h) of Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed
on December 29, 1989.
(10) Opinion and Consent of Counsel./1/
(11) (a) Consent of Coopers & Lybrand, LLP.
(b) Consent of Deloitte & Touche LLP.
(c) Consent of Drinker Biddle & Reath.
(12) None.
(13) (a) Purchase Agreement between Registrant and Shearson
Lehman Hutton Inc. ("Shearson") relating to Classes A-
1, B-1, C-1, D-2, E-2, F-2 and G-2 is incorporated
herein by reference to Exhibit 13(a) of Post-Effective
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A filed on December 29, 1989.
(b) Purchase Agreement between Registrant and Shearson
relating to shares of Class H-2 is incorporated herein
by reference to Exhibit 13(b) of Post-Effective
- ----------
/1/ Filed on November 14, 1995 under Rule 24f-2 as part of Registrant's Rule
24f-2 Notice.
C-19
<PAGE>
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A filed on April 30, 1990.
(c) Purchase Agreement between Registrant and Shearson
relating to shares of Class I-1, Class I-2, Class J-1,
Class J-2, Class K-2, Class L-2, Class M-2, Class N-2,
Class O-2 and Class P-2 is incorporated herein by
reference to Exhibit 13(c) of Post-Effective Amendment
No. 4 to Registrant's Registration Statement on Form N-
1A filed on December 13, 1991.
(d) Purchase Agreement between Registrant and Shearson
relating to shares of Class D-1, Class E-1, Class F-1,
Class G-1, Class H-1, Class K-1, Class L-1, Class M-1,
Class N-1, Class O-1, Class P-1, Class A-2, Class B-2,
Class C-2, Class I-2, Class J-2, Class A-3, Class B-3,
Class C-3, Class D-3, Class E-3, Class F-3, Class G-3,
Class H-3, Class I-3, Class J-3, Class K-3, Class L-3,
Class M-3, Class N-3, Class O-3 and Class P-3 is
incorporated herein by reference to Exhibit (13)(d) of
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A filed on December
1, 1992.
(e) Purchase Agreement between the Registrant and
Pennsylvania Merchant Group Ltd relating to shares of
Class Q-1, Class Q-2, Class Q-3, Class R-1, Class R-2,
Class R-3, Class S-1, Class S-2, Class S-3, Class T-1,
Class T-2, Class T-3, Class U-1, Class U-2 and Class U-
3 is incorporated herein by reference to Exhibit
(13)(e) of Post-Effective No. 10 to Registrant's
Registration Statement on Form N-1A as filed on
November 10, 1993.
(f) Purchase Agreement dated September 30, 1994 between the
Registrant and Provident Distributors, Inc. relating to
shares of Class A-4, Class D-4, Class E-4, Class F-4,
Class G-4, Class H-4, Class K-4, Class L-4, Class M-4,
Class N-4, Class O-4, Class P-4, Class R-4,
C-20
<PAGE>
Class S-4, Class T-4, Class U-4, Class W-4, Class X-4,
Class Y-4 is incorporated herein by reference to
Exhibit (13)(f) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A filed
on January 18, 1995.
(g) Purchase Agreement dated February 1, 1994 between the
Registrant and Provident Distributors, Inc. relating to
shares of Class V-1, Class V-2, Class V-3, Class W-1,
Class W-2, Class W-3, Class X-1, Class X-2, Class X-3,
Class Y-1, Class Y-2 and Class Y-3 is incorporated
herein by reference to Exhibit (13)(g) of Post-
Effective Amendment No. 15 to Registrant's Registration
Statement on Form N-1A filed on May 11, 1995.
(h) Purchase Agreement dated August 1, 1995 between
Registrant and Provident Distributors, Inc. relating to
shares of Class Z-1, Class Z-2 and Class Z-3 is
incorporated herein by reference to Exhibit (13)(h) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1995.
(i) Form of Purchase Agreement between Registrant and
Provident Distributors, Inc. relating to shares of
Class AA-1, Class AA-2, Class AA-3, Class AA-4; Class
BB-1, Class BB-2, Class BB-3 and Class BB-4; and Class
CC-1, Class CC-2, Class CC-3 and Class CC-4 is
incorporated herein by reference to Exhibit (13)(i) of
Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A filed on October
12, 1995.
(14) None.
(15) (a) Amended and Restated Distribution and Service Plan
dated January 21, 1993 and Form of Distribution and
Servicing Agreement is incorporated herein by reference
to Exhibit 15(a) of Post-Effective Amendment No. 8 to
C-21
<PAGE>
Registrant's Registration Statement on Form N-1A filed
on January 22, 1993.
(b) Series B Distribution Plan dated September 23, 1994 is
incorporated herein by reference to Exhibit No. 15(b)
of Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A filed on January
18, 1995.
(c) Form of Amended and Restated Distribution and Service
Plan for Service, Series A Investor, Series B Investor,
Series C Investor and Institutional Shares is
incorporated herein by reference to Exhibit No. 15(c)
of Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A filed on November
16, 1995.
(16) Schedules for computation of performance quotations are
incorporated herein by reference to Exhibit (16) of
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A filed on February
5, 1992.
(18) Plan Pursuant to 18f-3 for Operation of a Multi-Class
Distribution System is incorporated herein by reference
to Exhibit (18) of Post-Effective Amendment No. 17 to
the Registrant's Registration Statement on Form N-1A
filed on October 6, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
Provident Distributors, Inc. has provided the initial capitalization
for and holds all of the outstanding shares of beneficial interest of the
following classes as of September 29, 1995: D-4, F-4, H-4, K-4, N-4, O-4, R-4,
S-4, T-4, U-4, V-2, X-1, X-3 and Y-4.
With regard to the other portfolios, the following information is as
of December 18, 1995.
Title of Class Number of Record Holders
-------------- ------------------------
C-22
<PAGE>
Class A-1 30
Class B-1 17
Class C-1 12
Class D-1 7
Class E-1 1
Class F-1 6
Class G-1 7
Class H-1 2
Class I-1 2
Class J-1 8
Class K-1 2
Class L-1 1
Class M-1 1
Class N-1 8
Class O-1 1
Class P-1 7
Class Q-1 4
Class R-1 1
Class S-1 1
Class T-1 12
Class U-1 7
Class V-1 2
Class W-1 1
Class Y-1 7
Class A-2 597
Class B-2 88
Class C-2 9
Class D-2 535
Class E-2 2588
Class F-2 419
Class G-2 946
Class H-2 255
Class I-2 5
Class J-2 37
Class K-2 240
Class L-2 58
Class M-2 641
Class N-2 728
Class O-2 347
Class P-2 998
Class Q-2 4
Class R-2 27
Class S-2 37
Class T-2 362
Class U-2 96
Class W-2 3
Class X-2 48
Class Y-2 137
Class A-3 4
Class B-3 3
Class C-3 3
Class D-3 12
C-23
<PAGE>
Class E-3 8
Class F-3 23
Class G-3 23
Class H-3 2
Class I-3 6
Class J-3 20
Class K-3 8
Class L-3 2
Class M-3 1
Class N-3 32
Class O-3 5
Class P-3 28
Class Q-3 14
Class R-3 2
Class S-3 8
Class T-3 26
Class U-3 18
Class V-3 8
Class W-3 1
Class Y-3 8
Class A-4 1
Class E-4 405
Class G-4 262
Class L-4 7
Class M-4 158
Class P-4 271
Class X-4 580
Item 27. Indemnification
Indemnification of Registrant's principal underwriter against certain
losses is provided for in Section 7 of the Distribution Agreement filed herein
as Exhibit (6)(a). Indemnification of PFPC Inc. and Compass Distributors, Inc.
in their capacity as co-administrators is provided for in Section 7 of the
Administration Agreement filed herein as Exhibit 9(e). Indemnification of
Registrant's Custodian and Transfer Agent is provided for, respectively, in
Section 22 of the Custodian Agreement filed herein as Exhibit 8(a) and Section
17 of the Transfer Agency Agreement filed herein as Exhibit 9(e). Registrant
intends to obtain from a major insurance carrier a trustees' and officers'
liability policy covering certain types of errors and omissions. In addition,
Section 9.3 of the Registrant's Declaration of Trust incorporated by reference
herein as Exhibit 1(a) provides as follows:
Indemnification of Trustees, Officers, Representatives and Employees.
--------------------------------------------------------------------
The Trust shall indemnify each of its Trustees against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or
C-24
<PAGE>
disposition of any action, suit or other proceeding, whether civil or
criminal, in which he may be involved or with which he may be threatened,
while as a Trustee or thereafter, by reason of his being or having been such
a Trustee except with respect to any matter as to which he shall have been
------
adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, provided that as to any
--------
matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless the Trust shall have
received a written opinion from independent legal counsel approved by the
Trustees to the effect that if either the matter of willful misfeasance,
gross negligence or reckless disregard of duty, or the matter of bad faith
had been adjudicated, it would in the opinion of such counsel have been
adjudicated in favor of such person. The rights accruing to any person
under these provisions shall not exclude any other right to which he may be
lawfully entitled, provided that no person may satisfy any right of
--------
indemnity or reimbursement hereunder except out of the property of the
Trust. The Trustees may make advance payments in connection with the
indemnification under this Section 9.3, provided that the indemnified person
--------
shall have given a written undertaking to reimburse the Trust in the event
it is subsequently determined that he is not entitled to such
indemnification.
The Trustee shall indemnify officers, representatives and employees of
the Trust to the same extent that Trustees are entitled to indemnification
pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
C-25
<PAGE>
Section 9.6 of the Registrant's Declaration of Trust, filed herein as
Exhibit 1(a), also provides for the indemnification of shareholders of the
Registrant. Section 9.6 states as follows:
Indemnification of Shareholders. In case any Shareholder or former
-------------------------------
Shareholder shall be held to be personally liable solely by reason of his
being or having been a Shareholder and not because of his acts or omissions
or for some other reason, the Shareholder or former Shareholder (or his
heirs, executors, administrators or other legal representatives or, in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the classes of
Shares with the same alphabetical designation as that of the Shares owned by
such Shareholder to be held harmless from and indemnified against all loss
and expense arising from such liability. The Trust shall, upon request by
the Shareholder, assume the defense of any claim made against any
Shareholder for any act or obligations of the Trust and satisfy any judgment
thereon from such assets.
Item 28. Business and Other Connections of Investment Advisers
PNC Asset Management Group, Inc. ("PAMG") performs investment advisory
services for Registrant. PAMG was organized in 1994 for the purpose of
providing advisory services to investment companies.
(a) To Registrant's knowledge, none of the directors or officers of
PAMG, except those set forth below, is, or has been at any time during
Registrant's past two fiscal years, engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain directors
and officers and certain executives of PAMG also hold various positions with,
and engage in business for, PNC Bank Corp, which indirectly owns all the
outstanding stock of PAMG, or other subsidiaries of PNC Bank Corp. Set forth
below are the names and principal businesses of the directors and certain
executives of PAMG who are engaged in any other business, profession, vocation
or employment of a substantial nature.
(b) To Registrant's knowledge, none of the directors or officers of
PNC Institutional Management Corporation ("PIMC"), except those set forth below,
is, or has been at any time during Registrant's past two fiscal years, engaged
in any other business, profession, vocation or employment of a substantial
nature, except that certain directors and officers and certain executives of
PIMC also hold various positions with, and engage in business for, PNC Bank
Corp., which indirectly owns all the outstanding stock of PIMC, or other
subsidiaries of PNC Bank
C-26
<PAGE>
Corp. Set forth below are the names and principal businesses of the directors
and certain executives of PIMC who are engaged in any other business,
profession, vocation or employment of a substantial nature.
(c) Provident Capital Management, Inc. ("PCM") is an indirect wholly-
owned subsidiary of PNC Bank Corp. PCM currently offers investment advisory
services to institutional investors such as pension and profit-sharing plans or
trusts, insurance companies and banks. To Registrant's knowledge, none of the
directors or officers of PCM, except those set forth below, is, or has been at
any time during the Registrant's past two fiscal years, engaged in any business,
profession, vocation or employment of a substantial nature. Set forth below are
the names and principal businesses of the directors and certain executives of
PCM who are engaged in any other business, profession, vocation or employment of
a substantial nature.
(d) BlackRock Financial Management, Inc. ("BlackRock") is an indirect
wholly-owned subsidiary of PNC Bank Corp. BlackRock currently offers investment
advisory services to institutional investors such as pension and profit-sharing
plans or trusts, insurance companies and banks. To Registrant's knowledge, none
of the directors or officers of BlackRock, except those set forth below, is, or
has been at any time during the Registrant's past two fiscal years, engaged in
any business, profession, vocation or employment of a substantial nature. Set
forth below are the names and principal businesses of the directors and certain
executives of BlackRock who are engaged in any other business, profession,
vocation or employment of a substantial nature.
(e) PNC Equity Advisors Company ("PEAC") is an indirect wholly-owned
subsidiary of PNC Bank Corp. PEAC currently offers investment advisory services
to institutional investors such as pension and profit-sharing plans or trusts,
insurance companies and banks. To Registrant's knowledge, none of the directors
or officers of PEAC, except those set forth below, is, or has been at any time
during the Registrant's past two fiscal years, engaged in any business,
profession, vocation or employment of a substantial nature. Set forth below are
the names and principal businesses of the directors and certain executives of
PEAC who are engaged in any other business, profession, vocation or employment
of a substantial nature.
(f) Morgan Grenfell Investment Services Limited ("MGIS") is a
subsidiary of Morgan Grenfell Asset Management. The list required by this Item
28 of officers and directors of MGIS, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form
C-27
<PAGE>
ADV, filed by MGIS pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-12880).
C-28
<PAGE>
PNC ASSET MANAGEMENT GROUP, INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PAMG NAME CONNECTIONS BUSINESS
- ------------- ------------------- -------------- --------
<S> <C> <C> <C>
Chairman and Richard C. Caldwell Director, PNC Investment
Director Institutional Advisory
Management
Corporation (29)
Executive Vice Banking
President
PNC Bank, National
Association (1)
Director, PNC Equity Investment
Advisors Company* Advisory
Director, PNC Bank, Banking
New England (26)
Director, PNC Bank, Fiduciary
FSB (27) Activities
Director, BlackRock Investment
Financial Management, Advisory
Inc. (15)
Director Banking
PNC National Bank (2)
Director Fiduciary
PNC Trust Company of Activities
New York (11)
Director, Provident Advisory
Capital Management
Inc. (5)
Executive Vice Bank
President Holding
PNC Bank Corp. (14) Company
Director Banking
PNC Bank, New Jersey,
National Association
(16)
Director Financial-
PFPC Inc. (3) Related
Services
Director J. Richard Carnall Chairman and Investment
Director, PNC Advisory
Institutional
Management
Corporation (29)
</TABLE>
C-29
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PAMG NAME CONNECTIONS BUSINESS
- ------------- ------------------- -------------- --------
<S> <C> <C> <C>
Executive Vice Banking
President
PNC Bank, National
Association (1)
Director Banking
PNC National Bank (2)
Chairman and Director Financial-
PFPC Inc. (3) Related
Services
Director Fiduciary
PNC Trust Company of Activities
New York (11)
Director Equipment
Hayden Bolts, Inc.*
Director Real Estate
Parkway Real Estate
Company*
Director Investment
Provident Capital Advisory
Management Inc. (5)
Director Young D. Chin Director, President & Investment
CEO, Provident Advisory
Capital Management,
Inc. (5)
Director Investment
PNC Equity Advisors Advisory
Company (28)
Senior Vice President Banking
Investment Strategy,
PNC Bank, National
Association (1)
Director Robert J. Christian Director, Provident Investment
Capital Management, Advisory
Inc. (5)
Chairman, Director Investment
PNC Equity Advisors Advisory
Company (28)
Chief Investment Banking
Officer, PNC Bank,
National Association
(1)
</TABLE>
C-30
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PAMG NAME CONNECTIONS BUSINESS
- ------------- ------------------- -------------- --------
<S> <C> <C> <C>
Director Vincent J. Ciavardini President and Chief Financial-
Financial Officer, Related
PFPC, Inc. (3) Services
Senior Vice President Banking
of PIMC (29)
Director Laurence D. Fink Chairman and CEO of Investment
BlackRock Financial Advisor
Management Inc. (15)
Director Ralph L. Schlosstein President of Investment
BlackRock Financial Advisor
Management Inc. (15)
Senior Vice Thomas Whitford None
President
</TABLE>
C-31
<PAGE>
PNC INSTITUTIONAL MANAGEMENT CORPORATION
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PIMC NAME CONNECTIONS BUSINESS
- ------------- ------------------- -------------- --------
<S> <C> <C> <C>
Chairman and J. Richard Carnall See PAMG List
Director
Director Richard C. Caldwell See PAMG List
Director Richard L. Smoot President and Chief Banking
Executive Officer
PNC Bank, National
Association (1)
Senior Vice President Bank
PNC Bank Corp. (14) Holding
Company
Director Financial-
PFPC Inc. (3) Related
Services
Director Fiduciary
PNC Trust Company of NY (11) Activities
Director, Chairman and Banking
President
PNC Bank, New Jersey,
National Association (16)
Director, Chairman, and CEO Banking
PNC National Bank (2)
Chairman & Director Leasing
PNC Credit Corp (13)
Secretary Michelle L. Petrilli Chief Counsel Banking
PNC Bank, DE (20)
Secretary Financial-
PFPC Inc. (3) Related
Services
President and Thomas H. Nevin None.
Chief Investment
Officer
Chief Financial Nicholas M. Marsini,Jr. Senior Vice President Banking
Officer PNC Bank, National
Association (1)
Director Financial
PFPC Inc. (3) Related
Services
Senior Vice President and Banking
Chief Financial Officer
PNC Bank, Delaware (20)
</TABLE>
C-32
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PIMC NAME CONNECTIONS BUSINESS
- ------------- ------------------- -------------- --------
<S> <C> <C> <C>
Director, Vice President Banking
and Treasurer
PNC National Bank (2)
Director Banking
PNC Bank, New Jersey
National Association (16)
Director Fiduciary
PNC Trust Company of Activities
New York (11)
Director and Treasurer Holding
PNC Bancorp, Inc. (9) Company
Director and Treasurer Investment
PNC Capital Corp. (17) Activities
Director and Treasurer Banking
PNC Holding Corp. (18)
Director and Treasurer Investment
PNC Venture Corp. (19) Activities
Executive Vice Charles B. Landreth Vice President
President PNC Bank, National
Association (1) Banking
Senior Vice Vincent J. Ciavardini President and Chief Financial-
President Financial Officer Related
PFPC Inc. (3) Services
Senior Vice Scott Moss None.
President
Senior Vice John N. Parthemore None.
President
Senior Vice Dushyant Pandit None.
President
Senior Vice James R. Smith None.
President
Group Vice William F. Walsh None.
President
Vice President, Stephen M. Wynne Executive Vice President and Financial-
Chief Chief Accounting Officer Related
Accounting PFPC Inc. (3) Services
Officer and
Assistant
Secretary
Controller Pauline M. Heintz Vice President Financial-
PFPC Inc. (3) Related
Services
</TABLE>
C-33
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PIMC NAME CONNECTIONS BUSINESS
- ------------- ------------------- -------------- --------
<S> <C> <C> <C>
Vice President John R. Antczak None.
Vice President Jeffrey W. Carson None.
Vice President Katherine A. Chuppe None.
Vice President Mary J. Coldren None.
Vice President Michele C. Dillion None.
Vice President Patrick J. Ford None.
Vice President Richard Hoerner None.
Vice President Michael S. Hutchinson None.
Vice President Michael J. Milligan None.
Vice President Allyn Plambeck None.
Vice President W. Don Simmons None.
Vice President Charles Allen Stiteler None.
</TABLE>
- ----------
*Information regarding this corporation can be obtained from the office of the
Secretary.
C-34
<PAGE>
PROVIDENT CAPITAL MANAGEMENT INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME TITLE CONNECTIONS
---- ----- --------------
<S> <C> <C>
Richard C. Caldwell Director See PIMC list
Ernest E. Cecilia Director Director, CIO, President,
CEO, PNC Equity Advisors
Company (28)
Director, Equity
Research, PNC Asset
Management Group,
Inc. (30)
Director, Equity
Research, PNC Bank,
National Association (1)
Robert J. Christian Director See PAMG List.
Young D. Chin Director See PAMG List.
</TABLE>
C-35
<PAGE>
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME TITLE CONNECTIONS
---- ----- --------------
<S> <C> <C>
Timothy M. Alles Treasurer Director, PNC Trust
Company of New York (11)
Treasurer, PNC Service
Corp. (4)
Vice President, PNC Bank
Corp. (14)
Vice President and
Controller, PNC Bank, FSB
(27)
Controller, Provident
National Financial Corp.*
Treasurer, Provident
Realty Inc. (8)
Treasurer, PNC New Jersey
Credit Corp. (10)
Beth Wagner-Coyne Vice President None
Lynn K. Shipman Secretary None
Earl J. Gaskins Vice President None
Larry Bernstein Vice President None
J. H. Hill, Jr. Vice President None
Susan D. Menzies Vice President None
Edwin B. Powell Vice President None
Herve Van Caloen Vice President None
</TABLE>
C-36
<PAGE>
BLACKROCK FINANCIAL MANAGEMENT INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME TITLE CONNECTIONS
---- ----- --------------
<S> <C> <C>
Scott M. Amero Managing Director VP of 10 BlackRock closed
end funds
Keith T. Anderson Managing Director VP of 21 BlackRock closed
end funds
Richard C. Caldwell Director See PIMC List
Wesley R. Edens Managing Director COO & Director of 4
BlackRock closed end
funds
Laurence D. Fink Chairman and Director Chairman & Director of 25
BlackRock closed end
funds; and Director of
PNC Asset Management
Group, Inc.
Hugh R. Frater Managing Director None
Henry Gabbay Chief Operating Officer Treasurer of 25 BlackRock
and Managing Director closed end funds
Bennett W. Golub, Ph.D. Managing Director None
Charles S. Hallac Managing Director None
Michael C. Huebsch Managing Director VP of 21 BlackRock closed
end funds
Robert S. Kapito Managing Director VP of 21 BlackRock closed
end funds
P. Phillip Matthews Managing Director None
Barbara G. Novick Managing Director Secretary of 21 BlackRock
closed end funds
Karen H. Sabath Managing Director Assistant Secretary of 21
BlackRock closed end
funds
Ralph L. Schlosstein President & Director President & Director of
21 BlackRock closed end
funds; and President of 4
BlackRock closed end
funds
Joel M. Shaiman Managing Director None
J. Robert Small Principal & Controller Assistant Secretary of 4
BlackRock closed end
funds
Susan L. Wagner Managing Director Secretary of 4 BlackRock
closed end funds
</TABLE>
C-37
<PAGE>
PNC EQUITY ADVISORS COMPANY
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME TITLE CONNECTIONS
---- ----- --------------
<S> <C> <C>
Timothy M. Alles CFO, Treasurer See Provident Capital
Management List
Richard C. Caldwell Director See PIMC List
Ernest E. Cecilia Director, CIO, See Provident Capital
President Management List
& CEO
Young D. Chin Director See Provident Capital
Management List
Robert J. Christian Chairman and Director See Provident Capital
Management List
Lisa P. Howard Chief Compl. Officer None
Leah L. Tompkins Secretary, Chief Legal Senior Counsel, PNC Bank,
Counsel National Association (1)
Thomas H. O'Brien CEO, PNC Bank Corp.
</TABLE>
C-38
<PAGE>
(1) PNC Bank, National Association, 120 S. 17th Street, Philadelphia, PA
19103; Broad & Chestnut Streets, Philadelphia, PA 19101; and 17th and
Chestnut Streets, Philadelphia, PA 19103.
(2) PNC National Bank, 103 Bellevue Parkway, Wilmington, DE 19809.
(3) PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
(4) PNC Service Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(5) Provident Capital Management, Inc., 30 S. 17th Street, Suite 1500,
Philadelphia, PA 19103.
(6) PNC Investment Corp., Broad and Chestnut Streets, Philadelphia, PA 19101.
(7) Provident Realty Management, Inc., Broad and Chestnut Streets,
Philadelphia, PA 19101.
(8) Provident Realty, Inc., Broad and Chestnut Streets, Philadelphia, PA
19101.
(9) PNC Bancorp, Inc., 3411 Silverside Road, Wilmington, DE 19810.
(10) PNC New Jersey Credit Corp, 1415 Route 70 East, Suite 604, Cherry Hill, NJ
08034.
(11) PNC Trust Company of New York, 40 Broad Street, New York, NY 10084.
(12) Provcor Properties, Inc., Broad and Chestnut Streets, Philadelphia, PA
19101.
(13) PNC Credit Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(14) PNC Bank Corp., 5th Avenue and Wood Streets, Pittsburgh, PA 15265.
(15) BlackRock Financial Management Inc., 435 Park Avenue, New York, NY 10154.
(16) PNC Bank, New Jersey, National Association, Woodland Falls Corporate Park,
210 Lake Drive East, Cherry Hill, NJ 08002.
(17) PNC Capital Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(18) PNC Holding Corp, 222 Delaware Avenue, P.O. Box 791, Wilmington, DE 19899.
(19) PNC Venture Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(20) Bank of Delaware, 200 Delaware Avenue, Wilmington, DE 19801.
(21) Bank of Delaware Corp., 300 Delaware Avenue, Wilmington, DE 19801.
(22) Del-Vest, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
(23) Marand Corp., 222 Delaware Avenue, Wilmington, DE 19801.
(24) Millsboro Insurance Agency, 300 Delaware Avenue, Wilmington, DE 19801.
(25) Roney-Richards, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
(26) PNC Bank, New England (f/k/a The Massachusetts Company), 125 High Street,
Boston, MA.
(27) PNC Bank, FSB, P.O. Box 4026, Vero Beach, FL.
(28) PNC Equity Advisors Company, 1835 Market Street, 15th Floor, Eleven Penn
Center, Philadelphia, PA 19103.
C-39
<PAGE>
(29) PNC Institutional Management Corporation 400 Bellevue Parkway, Wilmington,
DE 19809.
(30) PNC Asset Management Group, Inc. 1835 Market Street, 15th Floor, Eleven
Penn Center, Philadelphia, PA 19103.
(31) Bell Atlantic Corporation, 1717 Arch Street, Philadelphia, PA 19102.
(32) Agnes Irwin School, Ithan Avenue and Conestoga Road, P. O. Box 407,
Rosemont, PA 19010.
(33) Episcopal Community Services, 225 South 3rd Street, Philadelphia, PA
19106.
(34) Greater Philadelphia Chamber of Commerce, 1234 Market Street, Philadelphia,
PA 19107.
(35) The Greater Philadelphia First Corporation, 1818 Market Street,
Philadelphia, PA 19103.
(36) Pennsylvania Ballet, 1101 South Broad Street, Philadelphia, PA 19147.
(37) The Philadelphia Orchestra, 1420 Locust Street, Philadelphia, PA 19102.
(38) Police Athletic League of Philadelphia, 3201 North 5th Street,
Philadelphia, PA 19140.
(39) Settlement Music School, 416 Queen Street, Philadelphia, PA 19147.
(40) Widener University, One University Plaza, Chester, PA 19013.
(41) United Negro College Fund Inc., 1650 Arch Street, Philadelphia, PA 19103.
(42) The Greater Philadelphia Urban Affairs Coalition, 1207 Chestnut Street,
Philadelphia, PA 19107.
C-40
<PAGE>
Item 29. Principal Underwriter
(a) Not applicable.
(b) The information required by this Item 29 with respect to each
director, officer or partner of Compass Distributors, Inc. is incorporated by
reference to Schedule A of FORM BD filed by Compass Distributors, Inc. with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) PNC Bank, National Association, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19102 (records relating to its
functions as custodian).
(2) Provident Capital Management, Inc., 30 South 17th Street,
Philadelphia, Pennsylvania 19103 (records relating to its
functions as investment sub-adviser).
(3) Compass Distributors, Inc., 259 Radnor-Chester Road, Suite
135, Radnor, Pennsylvania 19807 (records relating to its
functions as distributor and co-administrator).
(4) PNC Asset Management Group, Inc., 1835 Market Street, 15th
Floor, Eleven Penn Center, Philadelphia, PA 19103 (records
relating to its functions as investment adviser).
(5) PNC Institutional Management Corporation, Bellevue Corporate
Center, 103 Bellevue Parkway, Wilmington, Delaware 19809
(records relating to its functions as investment sub-
adviser).
(6) BlackRock Financial Management, Inc., 345 Park Avenue, New
York, New York 10154 (records relating to its functions as
investment sub-adviser).
(7) PNC Equity Advisors Company, 1835 Market Street, 15th Floor,
Philadelphia, Pennsylvania 19103 (records relating to its
functions as investment sub-adviser).
C-41
<PAGE>
(8) PFPC Inc., Bellevue Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809 (records relating to its
functions as co-administrator, transfer agent and dividend
disbursing agent).
(9) The Chase Manhattan Bank, N.A., 1285 Avenue of the Americas,
New York, New York 10019 (records relating to its function
as sub-custodian).
(10) State Street Bank and Trust Company, P.O. Box 1631, Boston,
Massachusetts (records relating to its function as sub-
custodian).
(11) Barclays Bank PLC, 75 Wall Street, New York, New York 10265
(records relating to its function as sub-custodian).
(12) Morgan Grenfell Investment Services Limited, 20 Finsbury
Circus, London, England EC2M1NB (records relating to its
functions as investment sub-adviser).
(13) Compass Capital Group, Inc., 345 Park Avenue, New York, New
York 10154 (records relating to its functions as co-
administrator).
(14) Drinker Biddle & Reath, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496
(registrant's declaration of trust, code of regulations and
minute books).
Item 31. Management Services
None.
Item 32. Undertakings
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.
C-42
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940, the Registrant certifies that it
meets all the requirements for effectiveness for this Post-Effective Amendment
No. 20 to its Registration Statement pursuant to Rule 485(b) under the 1933 Act,
and has duly caused this Post-Effective Amendment No. 20 to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia and the Commonwealth of Pennsylvania on
the 11th day of January, 1996.
COMPASS CAPITAL FUNDS
Registrant
By *G. Willing Pepper
----------------------------
G. Willing Pepper, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 20 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
*G. Willing Pepper President January 11, 1996
- -------------------------- (Principal Executive
(G. Willing Pepper) Officer)
*David R. Wilmerding, Jr. Vice-Chairman of January 11, 1996
- -------------------------- the Board
(David R. Wilmerding, Jr.)
Vice-President
/S/ and Treasurer
- ------------------------- (Principal
(Edward J. Roach) Financial and
Accounting Officer) January 11, 1996
*William O. Albertini Trustee January 11, 1996
- ------------------------
(William O. Albertini)
- ------------------------ Trustee January 11, 1996
(Raymond J. Clark)
- ------------------------ Trustee January 11, 1996
(Robert M. Hernandez)
*Anthony M. Santomero Trustee January 11, 1996
- ------------------------
(Anthony M. Santomero)
*By: /S/
--------------------------------
Edward J. Roach, Attorney-in-Fact
<PAGE>
COMPASS CAPITAL FUNDS
SECRETARY'S CERTIFICATE
The undersigned, Morgan R. Jones, Secretary of Compass Capital Funds (the
"Fund") hereby certifies that set forth below is a copy of the resolutions
adopted by the Board of Trustees authorizing the signing of G. Willing Pepper
and Edward J. Roach on behalf of the trustees and officers of the Fund pursuant
to a power-of-attorney:
RESOLVED, that the officers of the Fund be, and each of them hereby
is, authorized in its name and on its behalf to execute and cause to be
filed with the Securities and Exchange Commission Post-Effective Amendments
to the Fund's Registration Statement on Form N-1A under the Investment
Company Act of 1940 and the Securities Act of 1933, in such form as the
officers executing the same may approve as necessary or desirable and
proper, such approval to be conclusively evidenced by their execution
thereof; and
FURTHER RESOLVED, that the trustees and officers of the Fund who may
be required to execute such Post-Effective Amendments, and each of them,
hereby appoint G. Willing Pepper and Edward J. Roach, and each of them,
their true and lawful attorney, or attorneys, to execute in their name,
place and stead, in their capacity as trustee or officer, or both, of the
Fund, the Post-Effective Amendments, and all instruments necessary or
incidental in connection therewith, and file the same with the Securities
and Exchange Commission; and each of said attorneys shall have power to act
thereunder with or without the other of said attorneys and shall have full
power of substitution and resubstitution; and each of said attorneys shall
have full power and authority to do and perform in the name and on behalf
of each of said trustees or officers, or any or all of them, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as each of said trustees
or officers, or any or all of them, might or could do in person, said acts
of said attorneys, or any of them, being hereby ratified and approved.
IN WITNESS THEREOF, I have hereunto signed my name and affixed the seal of
the Fund on January 11, 1996.
_________/S/_______________
Morgan R. Jones
Secretary
<PAGE>
Compass Capital Funds
POWER OF ATTORNEY
-----------------
William O. Albertini, whose signature appears below, hereby constitutes and
appoints G. Willing Pepper and Edward J. Roach, and either of them, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents, or either of them, may deem necessary or advisable or
which may be required to enable Compass Capital Funds (the "Company") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement
pursuant to said Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/S/ William O. Albertini
-------------------------
Date: January 9, 1996
<PAGE>
The PNC(R) Fund
POWER OF ATTORNEY
-----------------
David R. Wilmerding, Jr., whose signature appears below, hereby constitutes
and appoints G. Willing Pepper and Edward J. Roach, and either of them, his true
and lawful attorneys and agents, with power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorneys and agents, or either of them, may deem necessary or advisable or
which may be required to enable The PNC Fund (the "Company") to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (collectively, the "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the filing and effectiveness of any and all amendments (including post-effective
amendments) to the Company's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a trustee and/or officer of the Company any and all such amendments filed with
the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
/S/ David R. Wilmerding, Jr.
----------------------------
Date: January 21, 1993
<PAGE>
The PNC(R) Fund
POWER OF ATTORNEY
-----------------
Anthony M. Santomero, whose signature appears below, hereby constitutes and
appoints G. Willing Pepper and Edward J. Roach, and either of them, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents, or either of them, may deem necessary or advisable or
which may be required to enable The PNC Fund (the "Company") to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (collectively, the "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the filing and effectiveness of any and all amendments (including post-effective
amendments) to the Company's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a trustee and/or officer of the Company any and all such amendments filed with
the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
/S/ Anthony M. Santomero
------------------------
Date: March 30, 1994
<PAGE>
The PNC(R) Fund
POWER OF ATTORNEY
-----------------
G. Willing Pepper, whose signature appears below, hereby constitutes and
appoints Edward J. Roach his true and lawful attorney and agent, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorney and agent may deem necessary or
advisable or which may be required to enable The PNC Fund (the "Company") to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement
pursuant to said Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/S/ G. Willing Pepper
----------------------
Date: January 21, 1993
<PAGE>
SIGNATURES
As it relates to the Index Equity Portfolio only, The DFA Investment
Trust Company consents to the filing of this Amendment to the Registration
Statement of Compass Capital Funds which is signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica, and the
State of California on this 11th day of January, 1996.
THE DFA INVESTMENT TRUST COMPANY
*/David G. Booth
-----------------------------
David G. Booth
President and Chairman-Chief
Executive Officer
The undersigned Trustees and Principal Officers of The DFA Investment
Trust Company consent to the filing of this Amendment to the Registration
Statement of Compass Capital Funds as it relates to the Index Equity Portfolio
only, on the dates indicated.
Signature Title Date
- --------- ----- ----
*/David G. Booth President, Chairman - January 11, 1996
- ---------------------------- Chief Executive Officer
David G. Booth and Trustee
*/Rex A. Sinquefield Chairman, Chief January 11, 1996
- ---------------------------- Investment Officer
Rex A. Sinquefield and Trustee
*/George M. Constantinides Trustee January 11, 1996
- ----------------------------
George M. Constantinides
*/John P. Gould Trustee January 11, 1996
- ----------------------------
John P. Gould
*/Roger G. Ibbotson Trustee January 11, 1996
- ----------------------------
Roger G. Ibbotson
*/Merton H. Miller Trustee January 11, 1996
- ----------------------------
Merton H. Miller
*/Myron S. Scholes Trustee January 11, 1996
- ----------------------------
Myron S. Scholes
*/Michael T. Scardina Vice President, Chief January 11, 1996
- ---------------------------- Financial Officer,
Michael T. Scardina Controller and Treasurer
*By: /s/
----------------------
Irene R. Diamant
Attorney-in-fact
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
POWER OF ATTORNEY
-----------------
The undersigned officers and trustees of THE DFA INVESTMENT TRUST
COMPANY (the "Fund") hereby appoint DAVID G. BOOTH, REX A. SINQUEFIELD, MICHAEL
T. SCARDINA, IRENE R. DIAMANT AND STEPHEN W. KLINE, ESQUIRE (with full power to
any of them to act) as attorney-in-fact and agent, in all capacities, to
execute, and to file any of the documents referred to be below relating to a
Registration Statement under the Securities Act of 1933 and/or the Investment
Company Act of 1940, including any and all amendments thereto, covering the
registration of any registered investment company for which any Series of the
Fund serves as a master fund in a master fund-feeder fund structure, including
all exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority. Each of the undersigned grants to each of said
attorneys full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this Power of
Attorney as of the 20th day of December, 1995.
/s/ /s/
- ------------------------- ------------------------------
David G. Booth, Rex A. Sinqufield, Chairman-
Chairman-Chief Executive Chief Investment Officer and
Officer, President and Trustee Trustee
/s/ /s/
- ------------------------- -------------------------------
George M. Constantinides, John P. Gould, Trustee
Trustee
/s/ /s/
- ------------------------- ------------------------------
Roger G. Ibbotson, Trustee Merton H. Miller, Trustee
/s/ /s/
- -------------------------- ------------------------------
Myron S. Scholes, Trustee Michael T. Scardina, Chief
Financial Officer, Treasurer
and Vice President
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ----------- ----------- --------
(6) (d) Form of Amendment No. 3 to Distribution
Agreement between Registrant and Compass
Distributors, Inc.
(9) (e) Form of Administration Agreement among
Registrant, PFPC Inc. and Compass
Distributors, Inc.
(11) (a) Consent of Coopers & Lybrand, LLP.
(11) (b) Consent of Deloitte & Touche, LLP.
(11) (c) Consent of Drinker Biddle & Reath.
<PAGE>
EXHIBIT 6(d)
COMPASS CAPITAL FUNDS(R)
(PREVIOUSLY THE PNC(R) FUND)
AMENDMENT NO. 3 TO THE DISTRIBUTION AGREEMENT
This Amendment dated as of the __th day of January, 1996, is entered
into by and among COMPASS CAPITAL FUNDS, a Massachusetts business trust (the
"Company"), Provident Distributors, Inc. ("PDI"), a Delaware corporation ("PDI")
and Compass Distributor, Inc., a wholly-owned subsidiary of PDI ("CDI").
WHEREAS, the Company and PDI have entered into a Distribution
Agreement dated as of January 31, 1994, and amended as of September 23, 1994 and
October 18, 1994 (the "Distribution Agreement"), pursuant to which the Company
appointed PDI to act as distributor to the Company;
WHEREAS, the parties hereto desire to amend the Distribution Agreement
as provided herein; and
WHEREAS, except to the extent amended hereby, the Distribution
Agreement, as previously amended, shall remain unchanged and in full force and
effect, and is hereby ratified and confirmed in all respects as amended hereby.
NOW, THEREFORE, the parties hereby, intending
to be legally bound, hereby agree as follows:
1. Paragraph (f) of Section 2 (relating to the delivery of
documents) is amended to read in its entirety as follows:
"(f) The Company's Amended and Restated Distribution and Service
Plan relating to the Company's respective Share classes."
2. Paragraph 3A is amended to read in its entirety as follows:
"3A. Payments Relating to Distribution Plans. Payments by the
---------------------------------------
Company relating to any distribution plan within the meaning of
Rule 12b-1 under the 1940 Act (a "Plan") adopted by the Company's
Board of Trustees may be payable to the Distributor or its
assignees, all in accordance with the terms and conditions of
such Plan."
3. Paragraph 3B is amended to read in its entirety as follows:
<PAGE>
"3B. Payments of Sales Charges. Any front-end sales charges or
-------------------------
deferred sales charges payable in connection with purchases of
Series A Investor Class Shares, Series B Investor Class Shares
and Series C Investor Class Shares, respectively, shall be
payable to the Distributor or its assignees, all in accordance
with the Company's registration statement."
4. CDI is hereby substituted for PDI as a party to the Distribution
Agreement. All references to the "Distributor" in the Agreement shall be deemed
to refer to CDI for all periods beginning on or after the date hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date and year first written above.
Compass Capital Funds(R)
By: ____________________________
Name: __________________________
Title: _________________________
Provident Distributors, Inc.
By: ____________________________
Name: __________________________
Title: _________________________
Compass Distributors, Inc.
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>
EXHIBIT 9 (e)
ADMINPRO AGRFORM
COMPASS CAPITAL FUNDS
ADMINISTRATION AGREEMENT
------------------------
AGREEMENT dated as of January __, 1996 between COMPASS CAPITAL
FUNDS(R), a Massachusetts business trust (the "Company"), PFPC INC. ("PFPC"), a
Delaware corporation, and COMPASS DISTRIBUTORS, INC. ("CDI"), a Delaware
corporation (collectively, the "Administrators").
WHEREAS, the Company is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company desires to retain the Administrators to provide,
as co-administrators, certain administration services and PFPC agrees to provide
certain accounting services for each class and series of units of beneficial
interest ("shares") in each of the Company's investment portfolios
(individually, a "Fund," collectively, the "Funds") as listed on Appendix A (as
such Appendix may, from time to time, be supplemented (or amended)) and the
Administrators are willing to furnish such administration services, and PFPC is
willing to furnish such accounting services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and intending to be legally bound, it is agreed between the
parties hereto as follows:
1. APPOINTMENT OF ADMINISTRATORS. The Company hereby appoints each
-----------------------------
of the Administrators jointly to provide administration services, and PFPC to
provide accounting services, for each class and series of shares in each of the
Company's Funds on the terms and for the period set forth in this Agreement.
The Administrators and PFPC each accept such respective appointments and agree
to perform the services and duties set forth in Section 3 below in return for
the compensation provided in Section 5 below. In the event that the Company
establishes additional classes or investment portfolios other than the Funds
listed on Appendix A with respect to which it desires to retain the
Administrators to act as co-administrators and PFPC to act as fund accountant
hereunder, the Company shall notify the Administrators and PFPC, whereupon such
Appendix A shall be supplemented (or amended) and such portfolio shall become a
Fund hereunder and shall be subject to the provisions of this Agreement to the
same extent as the Funds (except to the extent that said provisions, including
the compensation payable on behalf of such new Fund, may be modified in writing
by the Company and Administrators at the time).
1
<PAGE>
2. DELIVERY OF DOCUMENTS. The Company has furnished each of the
---------------------
Administrators with copies, properly certified or authenticated, of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
a. The Company's Declaration of Trust, filed with the Secretary of
State of the Commonwealth of Massachusetts on December 22, 1988, as amended (the
"Charter");
b. The Company's Code of Regulations, as amended ("Code");
c. Resolutions of the Company's Board of Trustees authorizing the
execution and delivery of this Agreement;
d. The Company's most recent amendment to its Registration Statement
under the Securities Act of 1933, as amended, and under the 1940 Act on Form N-
1A as filed with the Securities and Exchange Commission (the "Commission") on
December 1, 1992 relating to its Funds (the Registration Statement, as presently
in effect and as amended or supplemented from time to time, is herein called the
"Registration Statement");
e. The Company's most recent Prospectuses and Statements of
Additional Information and all amendments and supplements thereto (such
Prospectuses and Statements of Additional Information and supplements thereto,
as presently in effect and as from time to time amended and supplemented, are
herein called the "Prospectuses"); and
f. The Company's Amended and Restated Distribution and Service Plan
relating to the respective share classes of the Company's investment portfolios
(collectively, the "Plan").
3. SERVICES AND DUTIES. The Administrators enter into the following
-------------------
covenants jointly and severally with respect to their administration and PFPC's
accounting services and duties:
a. Subject to the supervision and control of the Company's Board of
Trustees, the Administrators shall assist in supervising all aspects of the
Funds' operations, other than those investment advisory functions which are to
be performed by the Company's investment advisers pursuant to the Advisory
Agreements and those advisory and other services to be performed by any sub-
adviser or the custodian pursuant to the Company's Sub-Advisory Agreements and
Custodian Agreement, as amended from time to time, services to be performed by
the distributor
2
<PAGE>
pursuant to the Company's Distribution Agreement and the transfer agent pursuant
to the Company's Transfer Agency Agreement, as amended from time to time. In
this regard, the Administrators' responsibilities include:
(1) Providing personnel and supervising a facility in Wilmington,
Delaware (or in such other location as the Company shall reasonably
request) to receive purchase and redemption orders via the Company's toll-
free in-WATS telephone lines and transmitting such requests to the
Company's transfer agent as promptly as practicable;
(2) Providing for the preparing, supervising and mailing of
confirmations for all purchase and redemption orders to shareholders of
record;
(3) Providing and supervising the operation of an automated data
processing system to process purchase and redemption orders (the
Administrators assume responsibility for the accuracy of the data
transmitted for processing or storage);
(4) Maintaining a procedure external to the transfer agent's
system to reconstruct lost purchase and redemption data;
(5) Providing information and distributing written communications
concerning the Funds to their shareholders of record; handling shareholder
problems and calls;
(6) Supervising the services of individuals ("shareholder
representatives") provided by CDI whose principal responsibility and
function shall be to preserve and strengthen the Company's relationships
with its shareholders;
(7) Monitoring the Company's arrangements with respect to
services provided by certain institutional shareholders ("Service
Organizations") under the Plan, including monitoring and reviewing the
services rendered by Service Organizations to their customers who
beneficially own shares, pursuant to agreements between the Company and
such Service Organizations ("Servicing Agreements"); reviewing the
qualifications of Service Organizations wishing to enter into Servicing
Agreements with the Company; assisting in the execution and delivery of
Servicing Agreements; monitoring the Distributor's operations under the
Plan; monitoring the activities of the Company's transfer agent relating to
the calculation of front-end sales charges and deferred sales charges
payable in connection with the purchase of Shares, and the payment of
3
<PAGE>
all such sales charges to the Distributor or others (subject to the
applicable limitations of the National Association of Securities Dealers,
Inc. on asset-based sales charges); reporting to the Company's Board of
Trustees with respect to the amounts paid or payable by the Company from
time to time under the Plan and the nature of the services provided by
Service Organizations; and maintaining appropriate records in connection
with such duties; and
(8) Calculating the amount of distribution fees payable with respect
to the Plan on a daily basis and remitting such distribution fees pursuant to
the Plan.
b. The Administrators shall prepare or review, and provide
advice with respect to, all sales literature (advertisements, brochures and
shareholder communications) for each of the Funds and any class of shares
thereof.
c. The Administrators shall participate to the extent requested
by the Company and its counsel in the periodic updating of the Company's
Registration Statement; compile data and accumulate information for and
coordinate with the Company's Treasurer the preparation of reports to
shareholders of record and the Commission (e.g., Annual and Semi-Annual Reports
----
on Form N-SAR), it being understood that the preparation and filing of timely
Notices pursuant to Rule 24f-2 shall be performed by the Company's Treasurer
with the assistance and advice of the Company's counsel; and file with the
Commission and other federal and state agency, subject to the approval of the
Company's Treasurer, reports and documents including, without limitation, Annual
and Semi-Annual Reports on Form N-SAR and federal and state tax returns and
required tax filings other than those required to be filed by the Company's
custodian or transfer agent.
d. For so long as the Company maintains an office in
Wilmington, Delaware, the Administrators shall pay the Company on the first day
of each month during such period an amount not to exceed $1,500 (or such lesser
amount as is appropriate in the event that the combined annual expenses of the
Company, Trust for Federal Securities, Municipal Fund for California Investors,
Inc., Municipal Fund for New York Investors, Inc., Municipal Fund for Temporary
Investment and Temporary Investment Fund, Inc. (collectively, herein called the
"Companies") in maintaining their offices in Wilmington, Delaware total less
than $18,000 divided by the number of Companies which have maintained an office
in Wilmington, Delaware during the previous month).
e. The Administrators, after consultation with the distributor
and counsel for the Company, shall determine the jurisdictions in which the
Company's shares shall be registered
4
<PAGE>
or qualified for sale. The Administrators shall be responsible for maintaining
the registration or qualification of shares for sale under the securities laws
of any state and for preparing compliance filings pursuant to state securities
laws with the advice of the Company's counsel. Payment of share registration
fees and any fees for qualifying or continuing the qualification of the Company
or any Fund as a dealer or broker shall be made by the Company or Fund involved.
f. Monitor, and assist in developing compliance procedures for
each of the classes of the Company's Funds, which will include without
limitation, procedures to monitor compliance with each Fund's investment
objective, policies and limitations, tax matters, and applicable laws and
regulations.
g. The Administrators shall assist in monitoring of regulatory
and legislative developments which may affect the Company; assist in counseling
the Company with respect to regulatory examinations or investigations of the
Company; and work with the Company's counsel in connection with regulatory
matters or litigation.
h. PFPC agrees to maintain all financial accounts, records,
journals, ledgers and schedules for each Fund (other than those maintained by
the Company's Custodian and its Transfer Agent), and to install and maintain a
system of internal controls appropriate for entities of the size and complexity
of each Fund, and to provide reports, financial statements and other statistical
data as requested from time to time by the Administrators or by the Company. In
addition, PFPC shall compute each Fund's net asset value, net income and net
capital gain (loss) in accordance with the Company's Prospectus and resolutions
of its Board of Trustees. PFPC shall, together with the Company's Treasurer,
act as liaison with the Company's independent public accountants and shall
provide account analyses, fiscal year summaries and other audit related
schedules. PFPC shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion, as such
may be required by the Company from time to time.
i. In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Administrators agree that all records which they maintain for the
Company are the property of the Company and further agree to surrender promptly
to the Company any of such records upon the Company's request. The
Administrators further agree to preserve for the periods prescribed by Rule 31a-
2 under the 1940 Act the records required to be maintained by Rule 31a-1 under
said Act.
5
<PAGE>
j. If the expenses borne by any Fund in any fiscal year exceed the
applicable expense limitations imposed by the securities regulations of any
state in which the Fund's shares are registered or qualified for sale to the
public, the Administrators jointly and severally agree to reimburse such Fund
for a portion of any such excess expense in an amount equal to the portion that
the administration fees otherwise payable by the Fund to the Administrators bear
to the total amount of the investment advisory and administration fees otherwise
payable by the Fund. The expense reimbursement obligation of the Administrators
is limited to the amount of their fees hereunder for such fiscal year, provided,
--------
however, that notwithstanding the foregoing, the Administrators shall reimburse
- -------
such Fund for a portion of any such excess expenses in an amount equal to the
proportion that the fees otherwise payable to the Administrators bear to the
total amount of investment advisory and administration fees otherwise payable by
the Fund regardless of the amount of fees paid to the Administrators during such
fiscal year to the extent that the securities regulations of any state having
jurisdiction over the Fund so require. Such expense reimbursement, if any, will
be estimated, reconciled and paid on a monthly basis.
k. In the event of equipment failures beyond PFPC's control,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no liability with respect thereto.
PFPC shall enter into and shall maintain in effect with appropriate parties one
or more agreements making reasonable provision for emergency use of electronic
data processing equipment to the extent appropriate equipment is available.
l. In performing all of their services and duties as co-
administrators, the Administrators will act in conformity with the Charter,
Code, Prospectuses and resolutions and other instructions of the Company's Board
of Trustees and will comply with the requirements of the 1940 Act and other
applicable federal or state law.
4. EXPENSES ASSUMED AS ADMINISTRATORS. The Administrators will
----------------------------------
bear all expenses incurred by them in performing their services and duties as
co-administrators, except as otherwise expressly provided herein. Other
expenses to be incurred in the operation of the Funds, including taxes,
interest, brokerage fees and commissions, if any, salaries and fees of officers
and trustees who are not officers, directors, shareholders or employees of the
Administrators, or the Company's investment adviser or distributor for the
Funds, Commission fees and state Blue Sky qualification fees, advisory and
administration fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, outside
6
<PAGE>
auditing and legal expenses, costs of maintaining corporate existence,
typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Funds, costs of shareholders'
reports and corporate meetings and any extraordinary expenses, will be borne by
the Company, provided, however, that the Company will not bear, directly or
-------- -------
indirectly, the cost of any activity which is primarily intended to result in
the sale of shares of the Funds otherwise than pursuant to the Plan.
5. COMPENSATION.
------------
a. For the services provided and the expenses assumed as
Administrators pursuant to Section 4 above, the Company will pay to PFPC, as
agent for itself and CDI, a monthly fee based on the net assets of each Fund,
initially in the amounts or at rates set forth on Appendix B hereto, and as
modified by agreement of the Administrators and the Company from time to time.
The fee attributable to each Fund shall be the several (and not joint or joint
and several) obligation of each portfolio.
b. For the purpose of determining fees payable to the Administrators
for administration services and PFPC for accounting services, the value of each
Fund's net assets shall be computed as required by its Prospectuses, generally
accepted accounting principles and resolutions of the Company's Board of
Trustees. The fee attributable to each Fund shall be the several (and not joint
or joint and several) obligation of each such Fund.
c. The Administrators will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Company and either of the
Administrators. The compensation of such person or persons shall be paid by the
Administrators, and no obligation shall be incurred on behalf of the Company in
such respect.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrators
----------------------------------------
agree on behalf of themselves and their employees to treat confidentially and as
proprietary information of the Company all records and other information
relative to the Company and its Funds and prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of their responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the
Administrators may be exposed to civil or criminal contempt proceedings for
failure to comply,
7
<PAGE>
when requested to divulge such information by duly constituted authorities, or
when so requested by the Company.
7. LIMITATIONS OF LIABILITY. Neither Administrator shall be liable
------------------------
for any error of judgment or mistake of law or for any loss suffered by the
Company in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, director, employee or agent of either of the Administrators, who may be
or become an officer, employee or agent of the Company, shall be deemed, when
rendering services to the Company or acting on any business of the Company
(other than services or business in connection with the Administrators' duties
as co-administrator hereunder) to be rendering such services to or acting solely
for the Company and not as an officer, director, employee or agent or one under
the control or direction of the Administrators even though paid by either of
them. The Administrators agree that their liability under this Agreement, as
set forth herein, shall be joint and several.
8. DURATION AND TERMINATION. Unless sooner terminated as provided
------------------------
herein, this Agreement shall continue in effect with respect to the Fund until
March 31, 1997. Thereafter, if not terminated, this Agreement shall continue
automatically for successive terms of one year, provided such that continuance
is specifically approved at least annually (a) by a vote of a majority of those
members of the Company's Board of Trustees who are not parties to this Agreement
or "interested persons" of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (b) by the Company's Board of
Trustees or by vote of a "majority of the outstanding voting securities" of the
Company; provided, however, that this Agreement may be terminated by the Company
-------- -------
at any time, without the payment of any penalty, by vote of a majority of the
entire Board of Trustees or a vote of a "majority of the outstanding voting
securities" of the Company, on 60-days' written notice to the Administrators, or
by the Administrators at any time, without the payment of any penalty, on 90-
days' written notice to the Company. This Agreement will automatically and
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
8
<PAGE>
9. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may
---------------------------
be changed, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or termination is sought.
10. NOTICES. Notices of any kind to be given to the Company
-------
hereunder by the Administrators shall be in writing and shall be duly given if
mailed or delivered to the Company at Suite 100, 400 Bellevue Parkway,
Wilmington, Delaware 19809, Attention: Mr. Edward J. Roach, Treasurer, with a
copy to PNB Building, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107-
3496, Attention: Morgan R. Jones, Secretary, or at such other address or to
such individual as shall be so specified by the Company to the Administrators.
Notices of any kind to be given to the Administrators hereunder by the Company
shall be in writing and shall be duly given if mailed or delivered to Compass
Distributors, Inc. 259 Radnor-Chester Road, Suite 135, Radnor, Pennsylvania
19087, Attention: Monroe J. Haegele and to PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809, Attention: Vincent J. Ciavardini, or at such other
address or to such other individual as shall be so specified by an Administrator
to the Company.
11. MISCELLANEOUS.
-------------
a. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
b. The names "Compass Capital Funds" and "Trustees of Compass
Capital Funds" refer specifically to the trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated December 22, 1988, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Company. The
obligations of "Compass Capital Funds" entered into in the name or on behalf
thereof by any of the Trustees, officers, representatives or agents are not made
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, representatives or agents of the Company personally, but
bind only the Trust property (as defined in the Declaration of Trust), and all
persons dealing with any Fund or
9
<PAGE>
class of shares of the Company must look solely to the Trust property belonging
to such Fund or class for the enforcement of any claims against the Company.
12. COUNTERPARTS. This Agreement may be executed in counterparts,
------------
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
COMPASS CAPITAL FUNDS
By:_______________________
PFPC INC.
By:________________________
COMPASS DISTRIBUTORS, INC.
By:_________________________
10
<PAGE>
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-
Effective Amendment No. 20 to the Registration Statement on
Form N-1A (File No. 33-26305) under the Securities Act of
1933 of The PNC Fund of each of our reports dated November
23, 1995 on our audits of the financial statements and fi-
nancial highlights as of September 30, 1995 and for the re-
spective periods then ended.
We also consent to the incorporation by reference of our
reports dated April 14, 1995 on our audits of the financial
statements and financial highlights of the following portfo-
lios of the Compass Capital Group of Funds as of February
28, 1995 and for the respective periods then ended:
. International Fixed Income Fund (renamed International Bond Portfolio, of
The PNC Fund)
. New Jersey Municipal Money Market Fund (renamed New Jersey Municipal
Money Market Portfolio, of The PNC Fund)
. New Jersey Municipal Bond Fund (renamed New Jersey Tax-Free Income
Portfolio, of The PNC Fund)
We also consent to the reference to our Firm under the
captions "Financial Highlights" in the applicable prospec-
tuses and "Miscellaneous--Independent Accountants" and "Fi-
nancial Statements" in the Statement of Additional Informa-
tion.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
January 11, 1996
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 20 to Registration Statement No. 33-26305 and Amendment No. 22 to
Registration Statement No. 811-5742 of Compass Capital Funds on Form N-1A of our
reports dated August 7, 1995 on the financial statements of The Short Duration
Portfolio, The Core Fixed Income Portfolio and The Multi-Sector Mortgage
Securities Portfolio III of The BFM Institutional Trust Inc. appearing in the
Annual Reports of The BFM Institutional Trust Inc. for the year ended June 30,
1995.
DELOITTE & TOUCHE LLP
New York, New York
January 10, 1996
<PAGE>
EXHIBIT 11(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our firm
under the caption "Counsel" in the Statement of Additional Information that is
included in Post-Effective Amendment No. 20 to the Registration Statement (File
No. 33-26305) on Form N-1A of Compass Capital Funds(R) (formerly, The PNC(R)
Fund) under the Securities Act of 1933 and the Investment Company Act of 1940,
respectively. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
reference to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/S/ DRINKER BIDDLE & REATH
---------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
January 11, 1996
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<NAME> PNC OHIO TAX FREE - INSTITUTIONAL CLASS
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<PAGE>
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<NAME> PNC MANAGED INCOME - INVESTOR CLASS A
<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<NAME> PNC TAX FREE INCOME - INSTITUTIONAL CLASS
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> PNC TAX FREE INCOME - SERVICE CLASS
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> PNC TAX FREE INCOME - INVESTOR CLASS A
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> PNC SMALL CAP VALUE EQUITY - INSTITUTIONAL CLASS
<S> <C>
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<PAGE>
<ARTICLE> 6
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<NAME> PNC SMALL CAP VALUE EQUITY - SERVICE CLASS
<S> <C>
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<PAGE>
<ARTICLE> 6
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<NAME> PNC SMALL CAP VALUE EQUITY - INVESTOR CLASS A
<S> <C>
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<PAGE>
<ARTICLE> 6
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<NAME> PNC SMALL CAP VALUE EQUITY - INVESTOR CLASS B
<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<NAME> PNC CORE EQUITY - INSTITUTIONAL CLASS
<S> <C>
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<NAME> PNC CORE EQUITY - SERVICE CLASS
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<NAME> PNC CORE EQUITY - INVESTOR CLASS A
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<NAME> PNC SMALL CAP GROWTH - INSTITUTIONAL CLASS
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<NAME> PNC SMALL CAP GROWTH - SERVICE CLASS
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<NAME> PNC SMALL CAP GROWTH - INVESTOR CLASS A
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<NAME> PNC INTERNATIONAL EMERGING MARKETS - INSTITUTIONAL CLASS
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<NAME> PNC INTERNATIONAL EMERGING MARKETS - SERVICE CLASS
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<NAME> PNC INTERNATIONAL EMERGING MARKETS - INVESTOR CLASS A
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<NAME> PNC BALANCED PORTFOLIO - INSTITUTIONAL
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<NAME> PNC MONEY MARKET - INVESTOR CLASS B
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<NAME> PNC MUNICIPAL MONEY MARKET - INVESTOR A
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<NAME> PNC PENNSYLVANIA TAX FREE INCOME - INVESTOR A
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<NAME> PNC VIRGINIA MUNICIPAL MONEY MKT - INSTITUTIONAL CLASS
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<NAME> PNC INDEX EQUITY - INSTITUTIONAL
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<PAGE>
EXHIBIT 99(a)
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
November 3, 1995
Dear Shareholder:
We are pleased to present the Annual Report to Shareholders of The PNC Fund
covering the year ended September 30, 1995. This report includes security
listings and performance results for the money market portfolios of The PNC
Fund.
ECONOMIC HIGHLIGHTS:
Economic growth continued to slow during the second quarter as the impact
from the interest rate rise during 1994 worked its way through the system. The
most recent revision to second quarter real GDP growth was 1.3%, a dramatic
change from the 5.1% experienced in the fourth quarter of 1994 and the 2.7% in
the first quarter of 1995.
While the Fed is concerned about the deceleration in growth, they cannot
overlook the 100 basis point decline in interest rates at the front end of the
yield curve that has occurred in 1995 and the possibility that it has
re-stimulated the economy. A reacceleration in consumer spending could
significantly reduce inventories and lead to a resumption in manufacturing
activity. In fact, there are several indications that economic growth may be
rekindling. Factory orders, durable goods orders, retail sales and housing all
rebounded in mid-summer. Existing home sales rose 4.7% while new home sales
jumped 19.9%, the largest increase since January 1992. Lastly, consumer
confidence remains relatively high, buoyed by a soaring stock market.
The year-long rise in short-term interest rates ended in July, when the Fed
lowered the federal funds rate from 6% to 5.75%. This reversal in monetary
policy was widely anticipated and represented the Fed's belief that
"inflationary pressures have receded enough to accommodate a modest adjustment
in monetary conditions." The Fed's move also helped to flatten the short end of
the yield curve, correcting a sharply inverted position where one day
investments offered the highest yields at 6%, while six-month investments were
sometimes lower by 50 basis points or more. The Fed did not further ease policy
at its August or September meetings.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE FUND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE>
Although the technical factors that shape the rate cycle in the short-term
municipal money market remained largely in place, there were a number of issues
over the last year that created a higher than usual degree of uncertainty during
this period. The significant issues included the potential for imposition of new
regulations by the Securities and Exchange Commission, speculation about the
possibility of a flat tax, national sales tax, or other major changes in the tax
code, and, of course, the Orange County, California debacle. All of these
factors tended to argue in favor of increased caution on the part of portfolio
managers. In terms of portfolio strategy, this translated into an emphasis on
shorter average weighted maturities. In addition, underlying and reinforcing
this cautious policy was a string of interest rate increases by the Federal
Reserve that offered little incentive to extend maturities. Currently, as the
economic indicators have turned more mixed, the extent and direction of future
Fed policy moves has become the subject of much debate in the marketplace.
Average maturities of money market funds have been increasing recently, but it
remains to be seen whether or not the Federal Reserve has successfully
engineered a soft landing for the economy.
In the year's final quarter, the outlook for the economy is improving and
inflation remains subdued. A return to a non-inflationary growth rate of
2.5-3.0%, may give the Fed sufficient comfort to ease policy again before the
end of the year.
We appreciate your investment in The PNC Fund and we look forward to
continuing to serve your investment needs.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
<PAGE>
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE MUNICIPAL MONEY MARKET
PORTFOLIOS OF THE PNC FUND
During the fiscal year ended September 30, 1995, 100% of the dividends paid
by each of the following Municipal Money Market Portfolios were exempt-interest
dividends for purposes of federal income taxes and free from such taxes.
However, the percentage of these dividends which must be included in federal
alternative minimum taxable income for purposes of determining any liability for
the alternative minimum tax is as follows: Municipal Money Market Portfolio
17.2%, Ohio Municipal Money Market Portfolio 30.4%, Pennsylvania Municipal Money
Market Portfolio 33.2%, North Carolina Municipal Money Market Portfolio 12.4%
and Virginia Municipal Money Market Portfolio 21.3%.
In January 1996, you will be furnished with a schedule showing the
percentage breakdown by state or U.S. possession of the source of interest
earned by each Portfolio in 1995.
2
<PAGE>
THE PNC(R) FUND
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- -------- ------------
BANK NOTES -- 1.3%
Mellon Bank
6.22% 11/01/95 $ 25,000 $ 25,000,209
------------
(Cost $25,000,209)
CERTIFICATES OF DEPOSIT -- 16.9%
BANKS -- 10.2%
ABN-AMRO Bank N.V.
5.66% 10/11/95 25,000 24,960,694
Credit Suisse
5.63% 12/11/95 50,000 50,000,000
First National Bank of Boston
5.75% 11/01/95 40,000 40,000,000
5.64% 01/08/96 50,000 50,000,000
Huntington National Bank
of Ohio
5.76% 11/02/95 25,000 24,999,980
------------
189,960,674
------------
YANKEE DOLLAR -- 6.7%
Banque National de Paris
7.025% 02/09/96 25,000 25,001,313
Commerzbank
5.63% 12/12/95 25,000 25,000,000
Societe Generale
5.77% 01/08/96 50,000 50,000,000
Westpac Banking Corp.
5.85% 06/04/96 25,000 25,000,000
------------
125,001,313
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $314,961,987) 314,961,987
------------
COMMERCIAL PAPER -- 38.5%
BANKS -- 9.5%
Abbey National North
America Corp.
5.62% 10/03/95 25,000 24,992,194
AMRO N.A. Finance, Inc.
5.52% 10/02/95 25,000 24,996,167
6.16% 01/02/96 10,000 9,840,867
Citicorp
6.75% 10/02/95 50,000 49,990,625
Commerzbank
5.48% 12/11/95 17,500 17,310,864
5.67% 03/29/96 25,000 24,291,250
Svenska Handelsbanken, Inc.
5.65% 12/15/95 25,000 24,705,729
------------
176,127,696
------------
CHEMICALS -- 3.4%
E.I. Du Pont de Nemours & Co.
6.04% 10/03/95 20,000 19,993,289
6.07% 01/10/96 20,000 19,659,406
5.58% 07/18/96 25,000 23,872,375
------------
63,525,070
------------
CREDIT INSTITUTIONS -- 15.2%
Bass Finance Ltd.
5.75% 12/15/95 25,754 25,445,489
BMW US Capital Corp.
5.72% 10/23/95 66,300 66,068,245
5.70% 11/02/95 30,000 29,848,000
Corporate Asset Funding, Inc.
6.06% 11/06/95 17,000 16,896,980
6.25% 12/26/95 10,000 9,850,694
Ford Motor Credit Corp.
5.65% 12/12/95 25,000 24,717,500
McKenna Triangle National Corp.
5.70% 12/08/95 25,000 24,730,833
Preferred Receivables Funding
Corp.
5.90% 11/21/95 28,125 27,889,922
5.50% 04/01/96 28,800 27,994,800
Xerox Credit Corp.
5.66% 11/14/95 28,000 27,806,302
------------
281,248,765
------------
FINANCE -- 3.2%
Alcatel Alsthom, Inc.
5.72% 11/20/95 35,000 34,721,944
Saint Michael Finance Ltd.
5.63% 02/28/96 25,000 24,413,542
------------
59,135,486
------------
GLASS -- 1.3%
Newell Co.
5.98% 10/10/95 25,000 24,962,625
------------
PHARMACEUTICALS -- 4.6%
American Home Products Corp.
5.74% 10/06/95 20,000 19,984,056
5.73% 10/10/95 40,000 39,942,700
Glaxo Wellcome PLC
5.71% 11/22/95 25,000 24,793,806
------------
84,720,562
------------
See accompanying notes to financial statements.
3
<PAGE>
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ------- ------------
COMMERCIAL PAPER (CONTINUED)
SECURITY BROKERS & DEALERS -- 1.3%
Merrill Lynch & Co.
5.92% 02/02/96 $ 25,000 $ 24,490,222
------------
TOTAL COMMERCIAL PAPER
(Cost $714,210,426) 714,210,426
------------
CORPORATE BONDS -- 0.7%
METAL & MINING
Aluminum Co. of America
4.625% 02/15/96 12,350 12,288,306
------------
(Cost $12,288,306)
MEDIUM TERM NOTES -- 4.4%
CREDIT INSTITUTIONS -- 0.5%
General Motors Acceptance Corp.
8.25% 08/01/96 10,000 10,187,473
------------
FINANCE -- 1.6%
General Electric Capital Corp.
7.625% 07/24/96 5,000 5,067,404
IBM Credit Corp.
6.00% 08/26/96 25,000 24,998,202
------------
30,065,606
------------
SECURITY BROKERS & DEALERS -- 2.3%
Merrill Lynch & Co.
6.44% 05/15/96 15,000 15,000,000
6.05% 08/19/96 27,000 27,000,000
------------
42,000,000
------------
TOTAL MEDIUM TERM NOTES
(Cost $82,253,079) 82,253,079
------------
TIME DEPOSITS -- 2.7%
Chemical Bank
6.50% 10/02/95 50,000 50,000,000
------------
(Cost $50,000,000)
VARIABLE RATE OBLIGATIONS -- 21.1%
BANKS -- 5.6%
First Union National Bank of
North Carolina
6.56%** 10/02/95 50,000 50,000,000
Morgan Guaranty Trust
6.07%** 10/02/95 55,000 54,971,801
------------
104,971,801
------------
SECURITY BROKERS & DEALERS -- 11.1%
Bear Stearns & Co. Inc.
6.045%** 10/02/95 20,000 20,000,000
6.075%** 10/02/95 35,000 35,000,000
5.47%** 10/03/95 15,000 15,000,000
Goldman Sachs Group, L.P.
6.1875%** 10/06/95 47,000 47,000,000
Lehman Brothers Holdings, Inc.
5.975%** 12/06/95 50,000 50,000,000
Merrill Lynch & Co.
6.25%** 10/02/95 25,000 25,002,938
Morgan Stanley Group
5.9125%** 10/18/95 15,000 15,000,000
------------
207,002,938
------------
STUDENT LOAN MARKETING ASSOCIATION -- 4.4%
5.44%** 10/03/95 25,000 25,000,000
5.48%** 10/03/95 20,000 20,000,000
5.49%** 10/03/95 21,000 20,996,613
5.50%** 10/03/95 15,000 14,993,866
------------
80,990,479
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $392,965,218) 392,965,218
------------
REPURCHASE AGREEMENTS -- 13.5%
Lehman Government
Securities, Inc.
6.70% 10/02/95 125,000 125,000,000
(Agreement dated 09/29/95
to be repurchased at
$125,069,792. Collateralized
by $119,975,000 U.S. Treasury
Notes 6.875% to 7.125% due
08/31/99 to 09/30/99. The
value of the collateral is
$127,436,622.)
See accompanying notes to financial statements.
4
<PAGE>
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- -------- ------------
REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley & Co.
6.54% 10/02/95 $125,000 $125,000,000
------------
(Agreement dated 09/29/95 to
be repurchased at
$125,068,125. Collateralized
by $128,180,000 Federal
National Mortgage Association
and Federal Home Loan Mortgage
Corporation 5.12% to 8.40% due
10/05/95 to 06/30/04 and U.S.
Treasury Notes 6.25% due
08/31/00. The value of the
collateral is $127,582,394.)
TOTAL REPURCHASE AGREEMENTS
(Cost $250,000,000) 250,000,000
------------
NUMBER
OF SHARES
-----------
INFINITY CASH RESERVE -- PRIME -- 0.9%
(Cost $16,748,613) 16,748,613 16,748,613
--------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $1,858,427,838*) 100.0% 1,858,427,838
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.0%) (42,092)
------ --------------
NET ASSETS (Equivalent to
$1.00 per share based on
654,157,670 Institutional
shares, 1,194,038,553
Service shares, 10,184,915
Series A Investor shares
and 26,892 Series B
Investor shares
outstanding) 100.0% $1,858,385,746
===== ==============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE,
SERIES A INVESTOR AND SERIES B INVESTOR
SHARE
($1,858,385,746 / 1,858,408,030) $1.00
=====
- ---------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1995, and maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
5
<PAGE>
THE PNC(R) FUND
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------ ------------
ALABAMA -- 0.4%
Mobile County IDB (Alabama Power
Company Project) Series 1994 DN
4.85%** 10/01/95 $1,400 $ 1,400,000
------------
ALASKA -- 0.4%
Valdez Marine Terminal Refunding
(Atlantic Richfield Company
Transportation Project) Series
1994A TECP
3.75% 10/23/95 1,325 1,325,000
------------
ARIZONA -- 6.9%
Apache County IDA (Tucson
Electric and Power Project)
Series 1981A DN
4.375%** 10/07/95 2,300 2,300,000
Maricopa County PCR (Arizona
Public Service Company Palo
Verde Project) Series 1994F DN
4.85%** 10/01/95 2,800 2,800,000
Pima County IDA (Tucson Electric
Power Company Project) Series
1982A DN
4.35%** 10/07/95 11,900 11,900,000
Pima County IDA (Tucson Electric
Power Company Project) Series
1983A DN
4.35%** 10/07/95 5,000 5,000,000
------------
22,000,000
------------
CALIFORNIA -- 1.3%
Los Angeles County Series 1995
TRAN
4.50% 07/01/96 4,000 4,018,614
------------
COLORADO -- 4.4%
City & County of Denver Airport
System Subordinated Series
1990B MB
4.75% 10/05/95 2,000 2,000,000
City & County of Denver Airport
System Subordinated Series
1990C MB
4.25% 10/02/95 4,000 4,000,000
City & County of Denver Airport
System Subordinated Series
1990D MB
4.60% 10/06/95 3,000 3,000,000
City & County of Denver Airport
System Subordinated Series
1990E MB
4.75% 10/05/95 2,375 2,375,000
4.60% 10/06/95 2,700 2,700,000
------------
14,075,000
------------
CONNECTICUT -- 0.8%
Connecticut Housing Finance
Authority (Housing Mortgage
Finance Program Project) Series
1993E Subseries E-1 MB
4.40% 11/15/95 2,500 2,500,000
------------
DELAWARE -- 1.8%
Delaware Economic Development
Authority (Normaco of Delaware,
Inc. Project) Series 1984 DN
4.30%** 10/07/95 5,600 5,600,000
------------
DISTRICT OF COLUMBIA -- 0.2%
District of Columbia (The
American University Project)
Series 1985 DN
4.35%** 10/07/95 700 700,000
------------
FLORIDA -- 1.6%
Dade County (Youth Fair &
Exposition Project)
Series 1995 DN
4.40%** 10/07/95 5,000 5,000,000
------------
GEORGIA -- 3.7%
Burke County Development
Authority PCR (Georgia Power
Company Plant Vogtle Project)
Series 1994 DN
4.85%** 10/01/95 4,300 4,300,000
Fulton County Development
Authority (Georgia Tech
Athletic Association Project)
Series 1995 DN
4.40%** 10/07/95 7,500 7,500,000
------------
11,800,000
------------
HAWAII -- 2.1%
Hawaii Refunding Topstar
Custodial Receipts Series
1993CC DN
4.50%** 10/07/95 6,700 6,700,000
------------
See accompanying notes to financial statements.
6
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ----- ------------
ILLINOIS -- 14.9%
Chicago Gas Supply (Peoples Gas
& Light Company Project) Series
1993B MB
4.95% 12/01/95 $2,000 $ 2,000,000
Cook County GO (Health Fund
Project) Series 1995A MB
3.85% 02/07/96 3,000 3,000,000
Illinois Development Finance
Authority (Foundation For
Safety & Health Project) Series
1992 DN
4.35%** 10/07/95 5,600 5,600,000
Illinois Development Finance
Authority IDB (Royal
Continental Box Company
Project) Series 1995A DN
4.65%** 10/07/95 1,100 1,100,000
Illinois Development Finance
Authority IDRB (6 West Hubbard
Street Project) Series 1986 DN
4.10%** 10/07/95 3,410 3,410,000
Illinois Education Facilities
Authority (Art Institute of
Chicago Project)
Series 1995 DN
4.40%** 10/07/95 3,000 3,000,000
Illinois Educational Facilities
Authority (Depaul University
Project) Series 1992CP-1 DN
4.50%** 10/07/95 5,000 5,000,000
Illinois GO (Custodial Receipts
172) Series 1995 DN
4.44%** 10/07/95 5,000 5,000,000
Illinois Health Facilities
Authority (Evanston Hospital
Corporation Project) Series
1985B MB
4.65% 02/15/96 3,000 3,000,000
Illinois Health Facilities
Authority (Revolving Fund
Pooled Financing Program
Project) Series 1985C DN
4.40%** 10/07/95 5,000 5,000,000
Illinois Housing Development
Authority Multi Family Housing
(Williamsburg Project) Series
1995 DN
6.00%** 10/07/95 1,000 1,000,000
Illinois Series 1995 RAN
4.50% 06/10/96 5,000 5,020,473
Tinley Park Multi-Family Housing
Mortgage Refunding (Edgewater
Walk Phase IIIA & IIIB Project)
Series 1994 DN
4.35%** 10/07/95 1,000 1,000,000
Village of North Aurora IDA
(Oberweis Dairy Incorporated
Project) Series 1995 DN
4.55%** 10/07/95 3,000 3,000,000
Village of Schiller Park IDRB
(Victor Products Corporation
Project) Series 1995 DN
4.75%** 10/07/95 1,500 1,500,000
------------
47,630,473
------------
INDIANA -- 0.3%
Indiana Housing Finance
Authority Series 1994C MB
4.00% 07/01/96 1,000 1,000,000
------------
KENTUCKY -- 1.5%
Clark County PCR (Eastern
Kentucky Power Cooperative
Project) Series 1984J-2 MB
4.15% 10/16/95 855 855,094
Maysville Solid Waste Disposal
Facilities (Inland Container
Corporation Project) Series
1992 MB
4.00% 11/01/95 4,000 4,000,000
------------
4,855,094
------------
LOUISIANA -- 3.1%
Louisiana GO Topstar Custodial
Receipts Series 1993A-6 DN
4.50%** 10/07/95 3,000 3,000,000
Parish of West Baton Rouge
Industrial District #3 (Dow
Chemical Company Project)
Series 1994B DN
4.45%** 10/01/95 500 500,000
See accompanying notes to financial statements.
7
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ----- ------------
LOUISIANA (CONTINUED)
Plaquemines Port Harbor &
Terminal District of Marine
Terminal Facilities Refunding
(Electro-Coal Transfer
Corporation Project) Series
1985C MB
3.80% 03/14/96 $6,325 $ 6,325,000
------------
9,825,000
------------
MARYLAND -- 1.3%
Maryland Economic Development
Corporation (Pooled Financing
Municipal Bonds Fund Project)
Series 1995 DN
4.45%** 10/07/95 4,000 4,000,000
------------
MICHIGAN -- 4.1%
Michigan Underground Storage
Tank Financial Assurance
Authority Series 1995I DN
4.35%** 10/07/95 11,200 11,200,000
Northville IDA (Thrifty
Northville Project) Series 1984
DN
4.60%** 10/07/95 2,000 2,000,000
------------
13,200,000
------------
MISSOURI -- 2.0%
Kansas City IDA (Mid America
Health Services Project) Series
1984 DN
4.60%** 10/07/95 4,500 4,500,000
Missouri Environmental
Improvement & Energy Resource
Authority PCR (Monsanto Company
Project)
Series 1988 DN
4.40%** 10/07/95 2,050 2,050,000
------------
6,550,000
------------
NEBRASKA -- 0.6%
Nebraska Investment Finance
Authority Multifamily Loan
(Apple Creek Associates
Project) Series 1985A DN
4.00%** 10/07/95 1,900 1,900,000
------------
NEW HAMPSHIRE -- 2.7%
New Hampshire IDA Solid Waste
Disposal Facility (United
Illuminating Company Project)
Series 1990A MB
3.85% 03/01/96 7,000 7,000,000
New Hampshire Single Family
Housing Finance Authority
(Mortgage Acquisition Project)
Series 1995F-1 MB
4.30% 11/01/95 1,500 1,500,000
------------
8,500,000
------------
NEW JERSEY -- 3.0%
New Jersey Economic Development
Authority (Keystone Project)
Series 1992 MB
3.45% 10/10/95 2,140 2,140,000
New Jersey Economic Development
Authority Natural Gas
Facilities (New Jersey Natural
Gas Company Project) Series
1995A DN
4.30%** 10/01/95 1,500 1,500,000
New Jersey Economic Development
Authority Natural Gas
Facilities (New Jersey Natural
Gas Company Project) Series
1995B DN
4.20%** 10/01/95 2,000 2,000,000
New Jersey Topstar Custodial
Receipts Series 1992D DN
4.35%** 10/07/95 4,000 4,000,000
------------
9,640,000
------------
NEW YORK -- 2.1%
New York City Series 1995A RAN
4.50% 04/11/96 3,800 3,811,199
New York Energy Research &
Development Authority PCR
(Rochester Gas & Electric
Company Project)
Series 1984 DN
3.70%** 10/07/95 3,000 3,000,000
------------
6,811,199
------------
See accompanying notes to financial statements.
8
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ----- ------------
NORTH CAROLINA -- 2.8%
Charlotte Airport Series 1993A
DN
4.35%** 10/07/95 $5,100 $ 5,100,000
North Carolina Educational
Facilities Finance Agency
(Duke University Project)
Series 1991B DN
4.35%** 10/07/95 1,900 1,900,000
Person County Industrial
Facilities Authority PCR
(Carolina Power & Light Company
Project) Series 1992A DN
4.35%** 10/07/95 2,000 2,000,000
------------
9,000,000
------------
NORTH DAKOTA -- 1.0%
Mercer County (United Power
Association Project) Pooled
Series 1995A MB
3.90% 03/01/96 3,300 3,300,000
------------
OHIO -- 3.8%
Avon City Series 1995 BAN
4.14% 07/03/96 870 871,512
Franklin County Hospital
(Holy Cross Health System
Corporation Project)
Series 1995 DN
4.20%** 10/07/95 2,200 2,200,000
Richland County Series 1995 BAN
4.25% 12/14/95 3,000 3,002,708
Stark County Series 1995-2 BAN
4.18% 06/20/96 3,000 3,004,769
Toledo Improvement GO Notes
Series 1995-2
3.89% 05/15/96 3,000 3,000,718
------------
12,079,707
------------
OKLAHOMA -- 3.0%
Muskogee Industrial Trust PCR
(Oklahoma Gas & Electric
Company Project)
Series 1995A DN
4.40%** 10/07/95 9,700 9,700,000
------------
OREGON -- 0.9%
Klamath Falls Electric (Salt
Caves Hydroelectric Project)
Series 1995E MB
4.40% 05/01/96 3,000 3,000,000
------------
PENNSYLVANIA -- 2.8%
Emmaus General Authority
Series 1989 Subseries F-5 DN
4.50%** 10/07/95 4,700 4,700,000
Geisinger Authority Health
System Series 1992B DN
4.75% ** 10/02/95 4,200 4,200,000
------------
8,900,000
------------
PUERTO RICO -- 0.1%
Government Development Bank
Adjusted Refinancing
Series 1985 DN
3.80%** 10/07/95 300 300,000
------------
RHODE ISLAND -- 0.3%
Rhode Island Housing & Mortgage
Finance Corporation Home
Ownership Opportunity Series
17-C MB
4.40% 02/01/96 1,000 1,000,000
------------
SOUTH DAKOTA -- 2.9%
Lawrence County PCR (Homestake
Mining Company Project) Series
1983 DN
4.30%** 10/07/95 7,200 7,200,000
South Dakota Housing Development
Authority (Homeownership
Mortgage Project) Series 1994H
MB
4.95% 12/13/95 2,000 2,000,000
------------
9,200,000
------------
See accompanying notes to financial statements.
9
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ----- ------------
TENNESSEE -- 4.3%
Montgomery County Public
Building Authority GO
(Tennessee County Loan Pool
Project) Series 1995 DN
4.45%** 10/07/95 $8,600 $ 8,600,000
Montgomery County Public
Building Authority Pooled
Financing GO (Montgomery County
Loan Project) Series 1995 DN
4.45%** 10/07/95 5,000 5,000,000
------------
13,600,000
------------
TEXAS -- 10.9%
Angelina and Neches River
Authority Solid Waste Disposal
(Temple Eastex, Inc. Project)
Series 1993 MB
3.95% 10/23/95 2,700 2,700,000
3.90% 10/27/95 4,600 4,600,000
Austin Higher Education
Authority (St. Edwards
University Project) Series 1995
DN
4.50%** 10/07/95 2,000 2,000,000
Brazos River Harbor Navigation
District (Dow Chemical Company
Project) Series 1991 MB
3.85% 11/21/95 6,000 6,000,000
Houston Water & Sewer System
Series A MB
3.90% 11/15/95 2,500 2,500,000
San Antonio Electric & Gas
Systems Series A TECP
3.90% 10/12/95 5,000 5,000,000
San Antonio Housing Finance
Corporation (Wellington Place
Apartments Project) Series
1995A DN
4.55%** 10/07/95 2,945 2,945,000
Texas Series 1995A TRAN
4.75% 08/30/96 9,000 9,057,220
------------
34,802,220
------------
UTAH -- 0.3%
Utah Housing Finance Agency
(Single Family Mortgage
Project) Series 1993C DN
4.45%** 10/07/95 1,000 1,000,000
------------
VERMONT -- 0.8%
Vermont Educational & Health
Buildings Finance Agency (VHA
of New England Capital Asset
Financing Program Project)
Series 1985G DN
4.20%** 10/07/95 2,560 2,560,000
------------
VIRGINIA -- 1.3%
Culpeper Town IDA Residential
Care Facility (Virginia Baptist
Homes Project) Series 1992 DN
4.45%** 10/07/95 2,370 2,370,000
Fairfax County IDA (Fairfax
Hospital System Project) Series
1988A DN
4.30%** 10/07/95 1,100 1,100,000
Prince William County IDA PCR
(Virginia Electric & Power
Company Project) Series 1986 MB
3.80% 11/01/95 300 300,000
Roanoke IDA (Roanoke Memorial
Hospitals Carillon Health
System Project) Series 1995C DN
4.20%** 10/07/95 100 100,000
York County IDA PCR (Virginia
Electric & Power Company
Project) Series 1985 MB
3.80% 11/01/95 200 200,000
------------
4,070,000
------------
WASHINGTON -- 1.1%
Yakima County Public Corporation
(Jeld-Wen, Inc. Project) Series
1988 DN
4.35%** 10/07/95 3,540 3,540,000
------------
WEST VIRGINIA -- 2.5%
West Virginia Housing
Development Fund Interim
Financing Notes Series 1995F MB
3.85% 11/01/95 7,916 7,916,000
------------
WISCONSIN -- 1.9%
Racine School District Series
1995 TRAN
4.50% 08/23/96 6,000 6,023,152
------------
See accompanying notes to financial statements.
10
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
VALUE
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $319,021,459*) 99.9% $319,021,459
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 405,829
------ ------------
NET ASSETS (Equivalent $1.00 per
share based on 53,783,292
Institutional shares,
265,659,375 Service shares and
19,936 Series A Investor shares
outstanding) 100.0% $319,427,288
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($319,427,288 / 319,462,603) $1.00
=====
- ---------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1995,
and the maturities shown are the longer of the next
interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
11
<PAGE>
THE PNC(R) FUND
GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- -------- ------------
AGENCY OBLIGATIONS -- 27.3%
FEDERAL FARM CREDIT
BANK -- 4.5%
6.07% 10/06/95 $ 20,000 $ 20,029,400
5.60% 07/01/96 10,000 9,992,723
------------
30,022,123
------------
FEDERAL HOME LOAN
BANK BONDS -- 3.0%
6.787% 02/15/96 10,000 10,003,898
5.78% 09/05/96 10,000 10,006,532
------------
20,010,430
------------
FEDERAL HOME LOAN BANK
CONSOLIDATED DISCOUNT
NOTES -- 8.1%
5.50% 10/06/95 25,000 24,980,903
5.52% 12/29/95 15,000 14,795,300
5.41% 01/18/96 15,000 14,754,296
------------
54,530,499
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION DISCOUNT
NOTES -- 3.6%
5.50% 02/08/96 25,000 24,503,472
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION DISCOUNT
NOTES -- 8.1%
5.61% 10/10/95 10,000 9,985,975
5.60% 11/03/95 25,000 24,871,667
5.56% 02/15/96 20,000 19,576,822
------------
54,434,464
------------
TOTAL AGENCY OBLIGATIONS
(Cost $183,500,988) 183,500,988
------------
MEDIUM TERM NOTES -- 5.7%
FEDERAL NATIONAL
MORTGAGE ASSOCIATION
5.50% 10/03/95 10,000 10,000,000
6.46% 03/27/96 6,530 6,555,241
5.59% 06/21/96 10,000 9,990,839
5.62% 07/02/96 5,000 4,992,263
5.8125% 09/27/96 7,000 6,997,923
------------
TOTAL MEDIUM TERM NOTES
(Cost $38,536,266) 38,536,266
------------
VARIABLE RATE OBLIGATIONS -- 24.7%
FEDERAL HOME LOAN BANK
BONDS -- 8.2%
6.09%** 10/01/95 25,000 24,999,867
5.6125%** 10/30/95 20,000 19,985,893
5.655%** 11/02/95 10,000 9,997,630
------------
54,983,390
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION NOTES -- 5.2%
6.45%** 10/02/95 25,000 24,991,091
5.50%** 10/03/95 10,000 10,000,000
------------
34,991,091
------------
STUDENT LOAN MARKETING
ASSOCIATION NOTES -- 11.3%
5.46%** 10/03/95 5,000 4,998,013
5.47%** 10/03/95 5,000 5,000,000
5.48%** 10/03/95 5,000 5,000,000
5.49%** 10/03/95 6,000 6,000,000
5.51%** 10/03/95 5,000 5,001,001
5.54%** 10/03/95 20,000 19,993,132
5.64%** 10/03/95 15,600 15,641,233
5.665%** 10/03/95 4,000 4,006,532
5.715%** 10/03/95 5,825 5,845,116
6.08%** 07/01/96 5,000 5,010,079
------------
76,495,106
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $166,469,587) 166,469,587
------------
REPURCHASE AGREEMENTS -- 42.4%
Lehman Government Securities, Inc.
6.70% 10/02/95 119,900 119,900,000
(Agreement dated 09/29/95
to be repurchased at
$119,966,944. Collateralized
by $117,930,000 U.S.
Treasury Notes 6.375%
to 8.0% due 06/30/99
to 08/31/99. The value
of the collateral is
$122,269,253.)
See accompanying notes to financial statements.
12
<PAGE>
GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- -------- ------------
REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley & Co.
6.54% 10/02/95 $100,000 $100,000,000
(Agreement dated 09/29/95
to be repurchased at
$100,054,500. Collateralized
by $126,115,000 Federal
National Mortgage
Association 4.78% to 10.0%
due 11/01/95 to 08/11/99 and
$575,000 U.S. Treasury Notes
6.25% due 05/31/00. The
value of the collateral is
$103,077,526.)
Swiss Bank Corp.
6.45% 10/02/95 65,200 65,200,000
------------
(Agreement dated 09/29/95
to be repurchased at
$65,235,045. Collateralized
by $56,027,000 U.S. Treasury
Notes and Bonds 6.875% to
11.250% due 03/31/97 to
02/15/15. The value of the
collateral is $66,505,678.)
TOTAL REPURCHASE AGREEMENTS
(Cost $285,100,000) 285,100,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $673,606,841*) 100.1% 673,606,841
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1%) (822,793)
------ ------------
NET ASSETS (Equivalent to $1.00
per share based on
120,538,084 Institutional
shares, 550,949,434 Service
shares and 1,285,385 Series A
Investor shares outstanding) 100.0% $672,784,048
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($672,784,048 / 672,772,903) $1.00
=====
- ---------------
* Aggregate cost for Federal income tax purposes.
** Rates shown are the rates as of September 30, 1995 and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
13
<PAGE>
THE PNC(R) FUND
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------ -----------
OHIO -- 98.4%
Belmont County Series 1995 BAN
4.34% 08/30/96 $ 500 $ 501,271
Brooklyn City Series 1995 BAN
4.25% 06/06/96 2,000 2,003,962
Butler County (Waterworks
Improvement Project) Series 1995C
BAN
4.12% 03/15/96 1,000 1,001,853
Cuyahoga County (St. Lukes
Hospital Project) Series 1990 DN
4.40% ** 10/07/95 400 400,000
Delaware County IDRB
(Air Waves, Inc., Project)
Series 1995 DN
4.60% ** 10/07/95 1,000 1,000,000
Erie County IDRB (Brighton
Manor Company Project)
Series 1986 DN
4.60% ** 10/07/95 3,000 3,000,000
Franklin County IDRB (Alco
Standard Corp. Project) Series
1994 DN
4.50% ** 10/07/95 2,000 2,000,000
Green County IDRB (Ashford Center
Project) Series 1995 DN
4.55% ** 10/07/95 2,400 2,400,000
Greene County IDRB (AFC Stamping &
Production, Inc. & Barsplice
Products Project) Series 1995 DN
4.15% ** 10/07/95 1,000 1,000,000
Hamilton County (Cincinnati
Performing Arts Center Project)
Series 1995 DN
4.45% ** 10/07/95 1,650 1,650,000
Lucas County IDRB (Vega
Industries, Inc. Project) Series
1995 DN
4.70% ** 10/07/95 2,265 2,265,000
Mason City School District Series
1995 BAN
4.33% 12/19/95 3,700 3,704,927
Montgomery County Series 1995 BAN
5.00% 10/27/95 1,000 1,000,625
Muskingum County Hospital
Facilities (Bethesda Care Systems
Project) Series 1991 DN
4.50% ** 10/07/95 1,800 1,800,000
Ohio Air Quality Development
Authority (JMG Funding L.P.
Project) Series 1994B DN
4.50% ** 10/04/95 3,000 3,000,000
Ohio Air Quality Development
Authority (PPG Industries, Inc.
Project) Series 1988A DN
4.20% ** 10/07/95 3,000 3,000,000
Ohio Housing Finance Agency
Multifamily Housing (Lincoln Park
Assoc. Project) Series 1985 MB
4.40% 11/01/95 700 700,000
Ohio State Environmental
Improvement PCRB (U.S. Steel
Corp. Project) Series 1986 DN
4.55% ** 10/07/95 1,000 1,000,000
Ohio State IDRB (Anomatic Corp.
Project) Series 1994 DN
4.75% ** 10/05/95 1,420 1,420,000
Ohio State Water Authority Solid
Waste Disposal (American Steel &
Wire Corporation) Series 1995 DN
4.50% ** 10/07/95 7,600 7,600,000
Ohio Water Development Authority
PCRB (Duquesne Light Co. Project)
Series 1988 TECP
3.95% 10/13/95 2,000 2,000,000
Orville County (Orville Hospital
Project) Series 1990 DN
4.45% ** 10/07/95 1,735 1,735,000
Portage County IDRB (Lovejoy
Industries Project)
Series 1994 DN
4.75% ** 10/07/95 1,190 1,190,000
Richland County Series 1995 BAN
4.25% 12/14/95 2,000 2,001,805
Sandusky County IDRB (Brighton
Manor Co. Project)
Series 1986 DN
4.60% ** 10/07/95 1,000 1,000,000
Solon City IDRB (Cleveland Twist
Drill Company Project) Series
1995 DN
4.65% ** 10/07/95 1,800 1,800,000
Stark County Series 1995 BAN
4.15% 04/03/96 1,000 1,001,468
4.18% 06/20/96 1,000 1,001,590
See accompanying notes to financial statements.
14
<PAGE>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ------ ----------
OHIO (CONTINUED)
Student Loan Funding Corporation
Series 1990 DN
4.50% ** 10/07/95 $4,400 $ 4,400,000
Summit County IDRB (Austin
Printing Company, Inc. Project)
Series 1994 DN
4.70% ** 10/07/95 650 650,000
Summit County IDRB (Forest
Manufacturing Project) Series
1994 DN
4.70% ** 10/05/95 500 500,000
Tipp County Series 1995 BAN
4.20% 03/05/96 2,595 2,595,536
Toledo GO Series 1995-1 BAN
5.00% 10/12/95 2,000 2,000,364
Toledo Improvement GO Notes Series
1995-2
3.89% 05/15/96 3,000 3,000,718
Toledo Ohio School District
(Cashflow Program Certificates)
Series 1995 BAN
4.52% 06/28/96 2,000 2,008,876
Trumbull County IDRB (ATD
Corporation Project)
Series 1995 DN
4.60% ** 10/07/95 2,000 2,000,000
University of Cincinnati Series
1995S RAN
4.25% 08/28/96 900 901,962
Westlake Economic Development
(Oaks Development Company
Project) Series 1994 DN
4.55% ** 10/07/95 2,000 2,000,000
Wooster IDRB (Allen Group, Inc.
Project) Series 1985 DN
4.35% ** 10/04/95 200 200,000
----------
72,434,957
----------
VIRGIN ISLANDS -- 1.4%
Virgin Islands Housing Finance Authority
Single Family Revenue Series 1995B MB
4.375% 02/01/96 1,000 1,000,000
----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $73,434,957*) 99.8% 73,434,957
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.2% 176,214
------ ----------
NET ASSETS (Equivalent to $1.00 per
share based on 23,679,764
Institutional shares, 49,859,050
Service shares and 74,642 Series A
Investor shares outstanding) 100.0% $73,611,171
====== ==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($73,611,771 / 73,613,456) $1.00
=====
- ---------------
* Aggregate cost for Federal Tax purposes.
** Rates shown are the rates as of September 30, 1995, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
15
<PAGE>
THE PNC(R) FUND
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
PENNSYLVANIA -- 94.3%
Allegheny County (Duquesne Light
Co. Project) Series 1992 MB
4.75% 11/30/95 $ 6,000 $ 6,000,000
Allegheny County (Duquesne Light
Co. Project) Series 1990 MB
4.40% 12/07/95 5,000 5,000,000
Allegheny County Higher
Education Building Authority
(University of Pittsburgh
Project) Series 1985C DN
4.30%** 10/07/95 2,290 2,290,000
Allegheny County IDA (Allegheny
General Hospital Project)
Series 1995B DN
4.10%** 10/07/95 1,500 1,500,000
4.10%** 10/04/95 600 600,000
Allegheny County IDA (Duquesne
Light Co. Project) Series 1992A
MB
4.80% 10/17/95 2,000 2,000,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1990A
DN
4.35%** 10/07/95 5,100 5,100,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1990B
DN
4.35%** 10/07/95 4,500 4,500,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1990C
MB
3.70% 11/14/95 2,500 2,500,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1993A
MB
3.85% 10/24/95 1,500 1,500,000
3.90% 10/24/95 4,900 4,900,000
3.60% 11/17/95 300 300,000
Beaver County IDA PCRB (Toledo
Edison Project) Series 1992E MB
3.85% 03/06/96 5,250 5,250,000
Beaver County IDA PCRB Series
1993A MB
3.80% 12/18/95 2,300 2,300,000
Bedford County IDA IDRB (Sepa,
Inc. Facility Project) Series
1985 DN
4.40%** 10/07/95 2,000 2,000,000
Berks County IDA (Grafika
Commercial Printing, Inc.)
Series 1995 DN
4.85%** 10/07/95 1,195 1,195,000
Berks County IDA (Sixth and Penn
Street Project) Series 1988 DN
4.40%** 10/07/95 200 200,000
Berks County IDA (Lutheran Home
at Topton Project) Series 1995
DN
4.375%** 10/07/95 1,200 1,200,000
Bradford County IDA (Guthrie Inn
Project) Series 1984 DN
3.80%** 10/02/95 2,200 2,200,000
Bucks County IDA (SHV Real
Estate, Inc. Project) Series
1985 DN
4.30%** 10/07/95 1,300 1,300,000
Bucks County IDA (Sundstrand
Corp. Project) Series 1991 DN
4.40%** 10/07/95 1,505 1,505,000
Cambria County IDA Resource
Recovery (Cambria Cogen Co.
Project) Series 1989V DN
4.45%** 10/07/95 18,800 18,800,000
Cambria County IDA Resource
Recovery (Cambria Cogen Co.
Project) Series 1991V DN
4.45%** 10/07/95 4,400 4,400,000
Carbon County IDA (Panther Creek
Partner Project) Series 1990A
MB
3.60% 10/13/95 1,355 1,355,000
3.85% 10/24/95 6,550 6,550,000
3.90% 10/24/95 1,400 1,400,000
3.95% 11/10/95 5,000 5,000,000
3.80% 11/17/95 800 800,000
3.90% 11/17/95 500 500,000
3.70% 12/18/95 300 300,000
3.80% 12/18/95 4,010 4,010,000
See accompanying notes to financial statements.
16
<PAGE>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
PENNSYLVANIA (CONTINUED)
Chester County DTC TECP
3.75% 10/06/95 $10,800 $ 10,800,000
City of Philadelphia, GO MB
3.85% 10/04/95 1,000 1,000,000
4.00% 10/04/95 3,500 3,500,000
Cumberland County IDA IDRB (Lane
Enterprises, Inc. Project)
Series 1994 DN
4.85%** 10/07/95 1,000 1,000,000
Cumberland County Municipal
Authority (Presbyterian Homes
Project) Series 1993A DN
4.40%** 10/07/95 6,000 6,000,000
Delaware County IDA PCRB (B.P.
Oil, Inc. Project) Series 1995
DN
4.75%** 10/01/95 2,000 2,000,000
Delaware County IDA PCRB (PECO
Energy Project) Series 1988 MB
3.50% 10/06/95 6,050 6,050,000
3.70% 11/09/95 4,200 4,200,000
3.85% 12/08/95 1,150 1,150,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984A DN
4.50%** 10/07/95 2,700 2,700,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984C DN
4.50%** 10/07/95 1,100 1,100,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984D DN
4.40%** 10/07/95 1,200 1,200,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984E DN
4.40%** 10/07/95 5,600 5,600,000
East Hempfield Township IDA
(Yellow Freight System, Inc.
Project) Series 1985 DN
4.40%** 10/07/95 500 500,000
Emmaus General Authority Pooled
Loan Series 1989B-10 DN
4.45%** 10/07/95 1,600 1,600,000
Emmaus General Authority Pooled
Loan Series 1989C-7 DN
4.45%** 10/07/95 2,000 2,000,000
Emmaus General Authority Pooled
Loan Series 1989D-10 DN
4.45%** 10/04/95 600 600,000
Emmaus General Authority Pooled
Loan
Series 1989D-11 DN
4.45%** 10/02/95 1,600 1,600,000
Emmaus General Authority Pooled
Loan Series 1989F (Marine
Midland LOC) DN
4.45%** 10/07/95 3,700 3,700,000
Lehigh County IDA PCRB
(Allegheny Electric Co-op, Inc.
Project) Series 1985A DN
4.30%** 10/07/95 1,100 1,100,000
Lehigh County Sewer Authority
Series 1985B DN
4.30%** 10/07/95 180 180,000
Lehigh County Water Authority
Series 1984 DN
4.30%** 10/07/95 6,545 6,545,000
Littlestown IDA (Hanover House
Industries Project) Series 1987
DN
4.45%** 10/07/95 2,000 2,000,000
Montgomery County Higher
Education and Health Authority
Hospital Series 1988 DN
4.30%** 10/07/95 4,700 4,700,000
Montgomery County IDA (H.P.
Cadwallander, Inc. Project)
Series 1995 DN
4.85%** 10/07/95 1,150 1,150,000
Montgomery County IDA
(PECO Energy Co. Project)
Series 1994A MB
3.75% 10/11/95 2,000 2,000,000
Montgomery County IDA
(PECO Energy Project) Series
1994B MB
3.65% 10/24/95 2,000 2,000,000
Montgomery County IDA (Three
Valley Square Associates
Project) Series 1987 DN
4.40%** 10/07/95 2,800 2,800,000
See accompanying notes to financial statements.
17
<PAGE>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
PENNSYLVANIA (CONTINUED)
Montgomery County IDA PCRB (PECO
Energy Series) 1994A MB
3.75% 10/26/95 $ 3,380 $ 3,380,000
Montgomery County IDA PCRB
Series 1994B MB
3.50% 10/13/95 4,350 4,350,000
Northampton County IDRB
(Citizens Utilities Project)
Series 1991 DN
3.20%** 10/12/95 2,000 2,000,000
Northeastern Hospital and
Education Authority (Wyoming
Valley Health Care Project)
Series 1994A DN
4.375%** 10/07/95 4,000 4,000,000
Northumberland County IDA
(Furman Farms, Inc.) Series
1995A DN
4.40%** 10/07/95 1,225 1,225,000
Northumberland County IDA
Resource Recovery (Foster
Wheeler Mt. Carmel Project)
Series 1987A DN
4.45%** 10/07/95 4,000 4,000,000
Northumberland County IDA
Resource Recovery (Foster
Wheeler Mt. Carmel Project)
Series 1987B DN
4.45%** 10/07/95 590 590,000
Pennsylvania Economic
Development Financing Authority
(Wendt Dunnington Co. Project)
Series 1995G DN
4.50%** 10/07/95 1,250 1,250,000
Pennsylvania Energy Development
Authority
(B&W Ebensburg Project) Series
1986 DN
4.45%** 10/07/95 3,590 3,590,000
Pennsylvania Energy Development
Authority
(B&W Ebensburg Project) Series
1988 DN
4.45%** 10/07/95 2,800 2,800,000
Pennsylvania Energy Development
Authority
(Piney Creek Project) Series
1986A DN
4.50%** 10/04/95 6,900 6,900,000
Pennsylvania Energy Development
Authority
(Piney Creek Project) Series
1986C DN
4.50%** 10/07/95 2,700 2,700,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1984A DN
4.50%** 10/04/95 5,650 5,650,000
4.10%** 10/07/95 2,000 2,000,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988A DN
4.50%** 10/07/95 10,100 10,100,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988B DN
4.50%** 10/07/95 14,700 14,700,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988C DN
4.50%** 10/07/95 1,700 1,700,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988E DN
4.50%** 10/07/95 100 100,000
Pennsylvania Higher Education
Facility Authority (Temple
University Project) Series 1984
DN
4.75%** 10/01/95 2,100 2,100,000
Philadelphia Authority IDRB
(Commercial Development Airport
Hotel Project) Series 1990 DN
4.40%** 10/07/95 1,400 1,400,000
Philadelphia Gas Works
Series B TECP
3.85% 11/10/95 3,000 3,000,000
3.70% 11/15/95 6,000 6,000,000
3.80% 11/17/95 2,100 2,100,000
3.65% 12/18/95 1,000 1,000,000
See accompanying notes to financial statements.
18
<PAGE>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
PENNSYLVANIA (CONTINUED)
Philadelphia Hospital & Higher
Educational Facility Authority
(Children's Hospital Project)
Series 1992 DN
4.75%** 10/01/95 $ 2,700 $ 2,700,000
Philadelphia IDA (30th Street
Station Project) Series 1987 DN
4.05%** 10/07/95 6,900 6,900,000
Radnor Township
Series 1995 TRAN
6.00% 12/29/95 1,500 1,503,493
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985A
DN
4.20%** 10/07/95 1,300 1,300,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985B
DN
4.20%** 10/07/95 2,235 2,235,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985C
DN
4.20%** 10/07/95 2,400 2,400,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985D
DN
4.20%** 10/07/95 100 100,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985F
DN
4.20%** 10/07/95 3,200 3,200,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985I
DN
4.20%** 10/07/95 2,600 2,600,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985K
DN
4.20%** 10/07/95 4,400 4,400,000
Schuylkill County IDA Resource
Recovery (Gilberton Power
Project) Series 1985 DN
4.45%** 10/07/95 8,700 8,700,000
Schuylkill County IDA Resource
Recovery (Kaytee Products, Inc.
Project) Series 1995 DN
4.60%** 10/07/95 4,000 4,000,000
Schuylkill County IDA Resource
Recovery (Northeastern Power
Co. Project) Series 1985 DN
4.50%** 10/01/95 1,400 1,400,000
Schuylkill County IDA Resource
Recovery (Northeastern Power
Co. Project) Series 1986B DN
4.60%** 10/01/95 23,700 23,700,000
University of Pittsburgh
Commonwealth System of Higher
Education (University Capital
Project) Series 1989A DN
3.90%** 10/07/95 500 500,000
Venango IDA Resource Recovery
Series 1993 MB
3.60% 10/13/95 1,300 1,300,000
3.85% 10/24/95 3,150 3,150,000
3.90% 10/24/95 1,500 1,500,000
3.90% 11/17/95 2,475 2,475,000
3.80% 12/18/95 2,250 2,250,000
Washington County Authority
Lease Series 1985 DN
4.40%** 10/04/95 19,000 19,000,000
York County IDA PCRB
(Allied Signal Inc., Project)
Series 1993 DN
4.40%** 10/07/95 1,000 1,000,000
York County IDA PCRB
(PECO Energy Co. Project)
Series 1993A DN
4.20%** 10/07/95 2,000 2,000,000
------------
360,178,493
------------
See accompanying notes to financial statements.
19
<PAGE>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
PUERTO RICO -- 5.6%
Puerto Rico Government
Development Bank Refunding
Series 1985 DN
3.80%** 10/07/95 $11,750 $ 11,750,000
Puerto Rico Housing, Bank and
Finance Agency (Commonwealth
Appropriations Loan Insurance
Claims) Series 1993 MB
3.75% 12/01/95 2,000 2,000,000
Puerto Rico Industrial Medical
and Higher Education and
Environmental Pollution Control
Facilities Authority (Ana G.
Mendez Foundation Project)
Series 1985 DN
4.45%** 10/07/95 5,500 5,500,000
Puerto Rico Industrial, Medical
and Higher Education and
Environmental Pollution Control
Facilities Authority Series
1988 (Bank of Tokyo LOC) DN
3.35% 10/06/95 2,000 2,000,000
------------
21,250,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $381,428,493*) 99.9% 381,428,493
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 474,924
------ ------------
NET ASSETS (Equivalent to $1.00
per share based on 233,414,203
Institutional shares,
147,740,008 Service shares and
750,535 Series A Investor shares
outstanding) 100.0% $381,903,417
====== ============
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($381,903,417 / 381,904,746) $1.00
=====
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1995 and
the maturities shown are the longer of the next
interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
20
<PAGE>
THE PNC(R) FUND
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------ -----------
NORTH CAROLINA -- 98.0%
Asheville Certificates of
Participation Series 1993A DN
4.30%** 10/07/95 $1,500 $ 1,500,000
Bladen County Industrial
Facilities and Pollution Control
Financing Authority Resource
Recovery (BCH Energy L.P.
Project) Series 1993 DN
4.45%** 10/07/95 2,000 2,000,000
Catawba County Industrial
Facilities and Pollution Control
Financing Authority (WSMP, Inc.
Project) Series 1992 DN
4.60%** 10/07/95 500 500,000
Charlotte Airport Revenue
Refunding Series 1993A DN
4.35%** 10/07/95 300 300,000
Durham County Public Improvement
Series 1993 DN
4.30%** 10/07/95 2,350 2,350,000
Durham Public Improvement Series
1993 DN
4.30%** 10/07/95 3,535 3,535,000
Green County Industrial Facilities
and Pollution Control Financing
Authority (Federal Paper Board
Company, Inc. Project) Series
1989 DN
4.45%** 10/07/95 1,100 1,100,000
Green County Industrial Facilities
and Pollution Control Financing
Authority IDA (Snow Hill Tape
Corporation Project) Series 1995
DN
4.50%** 10/07/95 2,000 2,000,000
Greensboro Certificates of
Participation (Greensboro
Coliseum Complex Improvement
Project) Series 1995A DN
4.30%** 10/07/95 1,000 1,000,000
Greensboro Public Improvement
Series 1994B DN
4.30%** 10/07/95 850 850,000
Guilford County Industrial
Facilities and Pollution Control
Financing Authority (U.S. Label
Corporation Project) Series 1995
DN
4.50%** 10/07/95 500 500,000
Iredell County Industrial
Facilities and Pollution Control
Financing Authority (Purina
Mills, Inc. Project) Series 1995
DN
4.35%** 10/07/95 4,000 4,000,000
Lenoir County Industrial
Facilities and Pollution Control
Financing Authority Resource
Recovery (Carolina Project)
Series 1995 DN
4.45%** 10/07/95 4,000 4,000,000
Mecklenburg County GO DN
4.25%** 10/07/95 500 500,000
Mecklenburg County GO DN
4.25%** 10/07/95 2,000 2,000,000
Mecklenburg County Industrial
Facilities and Pollution Control
Financing Authority (Otto
Industries, Inc. Project) Series
1988 DN
4.60%** 10/07/95 2,350 2,350,000
New Hanover County Industrial
Facilities and Pollution Control
Financing Authority (Interroll
Corp. Project) Series 1989 DN
4.60%** 10/05/95 1,395 1,395,000
North Carolina Agricultural
Finance
Authority Agricultural
Development
(Harvey Fertilizer & Gas
Company Project)
Series 1995 DN
4.50%** 10/07/95 1,740 1,740,000
North Carolina Eastern Municipal
Power Agency TECP
3.60% 12/07/95 3,500 3,500,000
North Carolina Eastern Municipal
Power Agency Power System Series
1988B TECP
3.80% 10/19/95 1,000 1,000,000
3.75% 11/16/95 2,600 2,600,000
North Carolina Education
Facilities Finance Agency (The
Bowman Gray School of Medicine
Project) Series 1990 DN
4.40%** 10/07/95 700 700,000
See accompanying notes to financial statements.
21
<PAGE>
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------ -----------
NORTH CAROLINA (CONTINUED)
North Carolina Educational
Facilities Finance Agency
(Duke University Project)
Series 1991B DN
4.35%** 10/07/95 $1,400 $ 1,400,000
North Carolina Industrial
Facilities and Pollution Control
Financing Authority Qualified
Small Issue Industrial (GVK
America, Inc. Project) Series
1990 MB
5.00% 12/01/95 2,970 2,970,000
North Carolina Medical Care
Commission (Baptist Hospital
Project) Series 1992B DN
4.40%** 10/07/95 2,400 2,400,000
North Carolina Medical Care
Commission (Park Ridge Hospital
Project) Series 1988 DN
4.35%** 10/07/95 4,000 4,000,000
North Carolina Medical Care
Commission (Pooled Equipment
Financing Project) Series 1985 DN
4.20%** 10/07/95 800 800,000
North Carolina Medical Care
Commission (Pooled Financing
Project) Series 1986 A2 DN
4.35%** 10/07/95 1,600 1,600,000
North Carolina Medical Care
Commission Hospital (Duke
University Hospital Project)
Series 1985D DN
4.35%** 10/07/95 300 300,000
North Carolina Medical Care
Community Hospital (Moses H. Cone
Memorial Hospital Project) Series
1995 DN
4.40%** 10/07/95 2,100 2,100,000
North Carolina Municipal Power
Agency TECP
3.90% 10/27/95 3,000 3,000,000
Person County Industrial
Facilities and Pollution Control
Financing Authority Solid Waste
Disposal (Carolina Power & Light
Project) Series 1986 DN
4.60%** 10/01/95 300 300,000
Surry County GO Series 1995 BAN
4.25% 10/25/95 3,680 3,680,280
Union County Industrial Facilities
and Pollution Control Financing
Authority IDRB (Square D Company
Project) Series 1988 DN
4.40%** 10/07/95 2,500 2,500,000
University of North Carolina
Chapel Hill School of Medicine
Ambulatory Care Clinic Series
1990 DN
4.35%** 10/07/95 400 400,000
Wake County Industrial Facilities
and Pollution Control Financing
Authority (Carolina Power & Light
Project) Series 1990A DN
4.50%** 10/07/95 300 300,000
Wake County Industrial Facilities
and Pollution Control Financing
Authority (Carolina Power &
Light) Series 1985C DN
4.50%** 10/07/95 1,000 1,000,000
Wake County Industrial Facilities
and Pollution Control Financing
Authority PCR (Carolina Power &
Light Company Project) Series
1990A MB
4.00% 10/04/95 3,500 3,500,000
Wake County GO Series 1993 MB
4.20% 04/01/96 3,000 2,996,365
Wilson County Industrial
Facilities Pollution Control
Financing Authority (Chip
Project) Series 1989 DN
4.60%** 10/07/95 1,000 1,000,000
Winston-Salem Certificates of
Participation (Risk Acceptance
Management Corp.) Series 1988 DN
4.35%** 10/07/95 500 500,000
Winston-Salem Water and Sewer
System Series 1994 DN
4.30%** 10/07/95 2,800 2,800,000
-----------
76,966,645
-----------
See accompanying notes to financial statements.
22
<PAGE>
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------ -----------
PUERTO RICO -- 0.5%
Puerto Rico Industrial Medical and
Environmental Higher Education
Pollution Control Facilities
Funding Authority (Ana G. Mendez
Project) Series 1985 DN
4.45%** 10/07/95 $ 400 $ 400,000
-----------
VIRGIN ISLANDS -- 1.2%
Virgin Islands Housing Finance
Authority Single Family Revenue
Series 1995 MB
4.375% 02/01/96 1,000 1,000,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $78,366,645*) 99.7% 78,366,645
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.3% 199,881
------ -----------
NET ASSETS (Equivalent to $1.00 per
share based on 76,673,335
Institutional shares, 1,840,489
Service shares and 52,699 Series A
Investor shares outstanding) 100.0% $78,566,526
====== ===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES
A INVESTOR SHARE
($78,566,526 / 78,566,523) $1.00
=====
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1995, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
23
<PAGE>
THE PNC(R) FUND
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------ -----------
VIRGINIA -- 86.5%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria
Arlington Waste-to-Energy
Facility) Series 1986A DN
4.65%** 10/01/95 $1,200 $ 1,200,000
Charles County IDA Solid Waste
(Chambers Development Virginia
Project) Series 1989 DN
4.60%** 10/07/95 1,100 1,100,000
Chesterfield County GO Series 1986
MB
7.10% 07/15/96 250 260,058
Chesterfield County IDA PCR
(Virginia Electric & Power Co.)
Series 1985 MB
3.80% 12/08/95 500 500,000
Chesterfield County IDA PCR
(Virginia Electric & Power Co.)
Series 1987B MB
3.80% 12/11/95 1,000 1,000,000
Commonwealth of Virginia GO Tax
Exempt Eagle Trust Series 954601
DN
4.49%** 10/07/95 1,000 1,000,000
Culpeper IDA (Baptist Homes)
Series 1992 DN
4.45%** 10/07/95 100 100,000
Fairfax County IDA (Fairfax
Hospital System, Inc.) Series
1993B DN
3.75%** 10/06/95 1,000 1,000,000
Fairfax County IDA (Fairfax
Hospital System, Inc.) Series
1988C DN
4.30%** 10/04/95 300 300,000
Falls Church IDA (Kaiser
Permanente Project) Series 1985
MB
4.10% 11/01/95 500 500,000
Greensville County IDA (Perdue
Farms, Inc. Project) Series 1986
DN
4.55%** 10/01/95 600 600,000
Halifax County IDA PCR (Virginia
Electric & Power Co.) Series 1992
MB
3.90% 12/01/95 2,000 2,000,000
Louden County IDA Residential Care
Facilities (Falcons Landing
Project) Series 1994B DN
4.60%** 10/02/95 1,200 1,200,000
Louisa IDA PCR (Virginia Electric
& Power Co.) Series 1984 MB
3.90% 11/22/95 1,000 1,000,000
Lynchburg IDA Hospital Facilities
(VHA Mid-Atlantic States Capital
Asset Finance Program) Series
1985B DN
4.20%** 10/01/95 100 100,000
Lynchburg IDA Hospital Facilities
(VHA Mid-Atlantic States Capital
Asset Finance Program) Series
1985E DN
4.20%** 10/07/95 1,000 1,000,000
Peninsula Port Authority of
Virginia (CSX Transportation,
Inc. Project) Series 1992 MB
3.85% 11/08/95 1,000 1,000,000
Peninsula Port Authority of
Virginia Coal Terminal (Dominion
Terminal Associates Project)
Series 1987D DN
4.45%** 10/01/95 1,140 1,140,000
Peninsula Port Authority of
Virginia Port Facility (Shell
Coal and Terminal Company) Series
1987 DN
4.45%** 10/01/95 800 800,000
Prince William County Lease
Participation Certificates Series
1995 MB
4.00% 12/01/95 125 125,056
Richmond IDA (Halifax Paper Board
Co. Project) Series 1990 DN
4.60%** 10/07/95 510 510,000
Roanoke IDA (Carillon Health
System) Series 1995C DN
4.20%** 10/07/95 1,200 1,200,000
South Hill IDA (South Hill
Veneers, Inc. Project) Series
1987 DN
4.55%** 10/07/95 600 600,000
See accompanying notes to financial statements.
24
<PAGE>
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------ -----------
VIRGINIA (CONTINUED)
Virginia Housing Development
Authority (AHC Service
Corporation -- Woodbury Park
Project) Series 1987A MB
4.50%** 10/07/95 $1,070 $ 1,070,000
Virginia Housing Development
Authority Multi Family Housing
Bonds Series 1991F MB
5.90% 05/01/96 1,300 1,315,095
Virginia Small Business Financing
Authority (Coastal Development
Group Project) Series 1989 DN
4.60%** 10/07/95 195 195,000
Virginia Public School Authority
(Equipment Financing Notes --
Issue III) Series 1995 DN
4.00% 04/01/96 1,000 1,001,707
-----------
21,816,916
-----------
PUERTO RICO -- 12.7%
Government Development Bank Series
1985 DN
3.80%** 10/07/95 200 200,000
Puerto Rico Highway and
Transportation Authority Series
1993X MB
3.80% 10/04/95 1,000 1,000,000
Puerto Rico Housing, Bank and
Finance Agency Commonwealth
Appropriation Loan Insurance
Claims Series 1993 MB
3.75% 12/01/95 1,000 1,000,000
Puerto Rico Industrial Medical and
Environmental Pollution Control
Facilities Authority (Ana G.
Mendez Foundation Project) Series
1985 DN
4.45%** 10/07/95 400 400,000
Puerto Rico Industrial Medical and
Environmental Pollution Control
Facilities Authority (Reynolds
Metals Co. Project) Series 1983
MB
3.75% 09/01/96 600 598,662
-----------
3,198,662
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $25,015,578*) 99.2% 25,015,578
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.8% 214,038
------ -----------
NET ASSETS (Equivalent to $1.00 per
share based on 24,408,945
Institutional shares and 820,717
Service shares outstanding) 100.0% $25,229,616
====== ===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER INSTITUTIONAL AND
SERVICE SHARE
($25,229,616 / 25,229,662) $1.00
=====
- ---------------
* Aggregate cost for federal tax purposes.
** Rates shown are the rates as of September 30, 1995, and
the maturities shown are the longer of the next
interest readjustment date or the date the principal
amount owed can be recovered through demand.
INVESTMENT ABBREVIATIONS
BAN.......................................................Bond Anticipation Note
DN...................................................................Demand Note
GO............................................................General Obligation
IDA.............................................Industrial Development Authority
IDR...............................................Industrial Development Revenue
IDRB.........................................Industrial Development Revenue Bond
MB................................................................Municipal Bond
PCR....................................................Pollution Control Revenue
PCRB..............................................Pollution Control Revenue Bond
RAN....................................................Revenue Anticipation Note
TAN........................................................Tax Anticipation Note
TECP.................................................Tax-Exempt Commercial Paper
TRAN...........................................Tax and Revenue Anticipation Note
See accompanying notes to financial statements.
25
<PAGE>
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA
MUNICIPAL GOVERNMENT MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest................................. $85,401,428 $ 9,669,227 $36,578,880 $2,569,992 $13,315,990
----------- ----------- ----------- ---------- -----------
Expenses:
Investment advisory fee.................. 6,268,576 1,111,647 2,816,476 295,088 1,568,837
Administration fee....................... 1,886,356 370,549 912,148 98,363 522,945
Custodian fee............................ 239,568 64,588 114,217 20,010 74,280
Transfer agent fee....................... 278,046 65,605 145,559 24,256 75,870
Service fees............................. 2,336,732 624,366 1,585,537 146,311 387,016
Distribution fees........................ 31,409 143 8,770 132 1,199
Legal and audit.......................... 178,309 29,158 71,943 10,584 41,713
Printing................................. 105,025 14,045 39,825 14,181 29,539
Registration fees and expenses........... 222,032 76,595 136,867 5,124 57,693
Organization............................. 3,456 374 469 4,738 4,563
Trustees' fees and officer's salary...... 21,458 4,112 9,483 1,028 5,389
Other.................................... 65,906 7,395 29,174 2,465 8,465
----------- ----------- ----------- ---------- -----------
11,636,873 2,368,577 5,870,468 622,280 2,777,509
Less fees voluntarily waived and expenses
reimbursed............................. (5,417,478) (1,084,021) (2,608,373) (301,055) (1,464,500)
----------- ----------- ----------- ---------- -----------
Total expenses......................... 6,219,395 1,284,556 3,262,095 321,225 1,313,009
----------- ----------- ----------- ---------- -----------
Net investment income..................... 79,182,033 8,384,671 33,316,785 2,248,767 12,002,981
Net realized gain (loss) on investments... (21,648) (12,355) 6,023 -- (1,459)
----------- ----------- ----------- ---------- -----------
Net increase in net assets resulting from
operations............................... $79,160,385 $ 8,372,316 $33,322,808 $2,248,767 $12,001,522
=========== =========== =========== ========== ===========
</TABLE>
NORTH CAROLINA VIRGINIA
MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
-------------- ------------
Investment income:
Interest................................. $530,847 $720,445
-------- --------
Expenses:
Investment advisory fee.................. 416,063 85,063
Administration fee....................... 138,688 28,354
Custodian fee............................ 27,356 16,615
Transfer agent fee....................... 51,335 11,696
Service fees............................. 1,334 1,287
Distribution fees........................ 36 --
Legal and audit.......................... 15,259 9,698
Printing................................. 13,766 12,619
Registration fees and expenses........... 10,502 8,871
Organization............................. 5,690 6,005
Trustees' fees and officer's salary...... 1,364 282
Other.................................... 2,880 1,059
---------- --------
684,273 181,549
Less fees voluntarily waived and expenses
reimbursed............................. (490,886) (161,359)
---------- --------
Total expenses......................... 193,387 20,190
---------- --------
Net investment income..................... 3,337,460 700,255
Net realized gain (loss) on investments... 115 (66)
---------- --------
Net increase in net assets resulting from
operations............................... $3,337,575 $700,189
========== ========
See accompanying notes to financial statements.
26
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL
MONEY
MARKET
MONEY MARKET PORTFOLIO PORTFOLIO
----------------------------------- ------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
9/30/95 9/30/94 9/30/95
-------------- -------------- ------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net Investment income................................... $ 79,182,033 $ 33,422,550 $ 8,384,671
Net gain (loss) on investments.......................... (21,648) (16,921) (12,355)
-------------- -------------- ------------
Net increase in net assets resulting from operations.... 79,160,385 33,405,629 8,372,316
-------------- -------------- ------------
Distributions to shareholders from
Net investment income
Institutional Shares.................................... (37,154,478) (15,773,507) (1,414,111)
Service Shares.......................................... (41,703,939) (17,580,544) (6,969,678)
Series A Investor Shares................................ (323,561) (68,499) (882)
Series B Investor Shares................................ (55) -- --
-------------- -------------- ------------
Total distributions to shareholders................. (79,182,033) (33,422,550) (8,384,671)
-------------- -------------- ------------
Capital share transactions................................. 775,145,746 232,315,691 155,432,888
-------------- -------------- ------------
Total increase in net assets........................ 775,124,098 232,298,770 155,420,533
Net assets:
Beginning of period..................................... 1,083,261,648 850,962,878 164,006,755
-------------- -------------- ------------
End of period........................................... $1,858,385,746 $1,083,261,648 $319,427,288
============== ============== ============
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL
MONEY
MARKET GOVERNMENT MONEY
PORTFOLIO MARKET PORTFOLIO
------------ -------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
9/30/94 9/30/95 9/30/94
------------ ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net Investment income................................... $ 3,835,438 $ 33,316,785 $ 9,723,460
Net gain (loss) on investments.......................... (19,387) 6,023 13,624
------------ ------------ ------------
Net increase in net assets resulting from operations.... 3,816,051 33,322,808 9,737,084
------------ ------------ ------------
Distributions to shareholders from
Net investment income
Institutional Shares.................................... (774,065) (5,391,744) (1,018,580)
Service Shares.......................................... (3,060,695) (27,836,761) (8,701,808)
Series A Investor Shares................................ (678) (88,280) (3,072)
Series B Investor Shares................................ -- -- --
------------ ------------ ------------
Total distributions to shareholders................. (3,835,438) (33,316,785) (9,723,460)
------------ ------------ ------------
Capital share transactions................................. 30,926,057 260,770,269 213,031,001
------------ ------------ ------------
Total increase in net assets........................ 30,906,670 260,776,292 213,044,625
Net assets:
Beginning of period..................................... 133,100,085 412,007,756 198,963,131
------------ ------------ ------------
End of period........................................... $164,006,755 $672,784,048 $412,007,756
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
OHIO MUNICIPAL PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------- -----------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/95 9/30/94 9/30/95 9/30/94
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income........................ $ 2,248,767 $ 1,180,384 $ 12,002,981 $ 2,154,769
Net gain (loss) on investments............... -- (2,285) (1,459) 130
----------- ----------- ------------ ------------
Net increase in net assets resulting from
operations................................. 2,248,767 1,178,099 12,001,522 2,154,899
----------- ----------- ------------ ------------
Distributions to shareholders from Net
investment income
Institutional Shares......................... (614,141) (343,817) (7,756,121) (1,675,898)
Service Shares............................... (1,633,831) (835,590) (4,239,580) (478,057)
Series A Investor Shares..................... (795) (977) (7,280) (814)
----------- ----------- ------------ ------------
Total distributions to shareholders...... (2,248,767) (1,180,384) (12,002,981) (2,154,769)
----------- ----------- ------------ ------------
Capital share transactions...................... 18,996,645 27,351,445 163,103,796 207,640,309
----------- ----------- ------------ ------------
Total increase in net assets............. 18,996,645 27,349,160 163,102,337 207,640,439
Net assets:
Beginning of period.......................... 54,614,526 27,265,366 218,801,080 11,160,641
----------- ----------- ------------ ------------
End of period................................ $73,611,171 $54,614,526 $381,903,417 $218,801,080
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------- ------------------------------
FOR THE PERIOD
FOR THE FOR THE FOR THE 7/25/94(1)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/95 9/30/94 9/30/95 9/30/94
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income........................ $ 3,337,460 $ 1,405,051 $ 700,255 $ 57,403
Net gain (loss) on investments............... 115 -- (66) 20
----------- ----------- ----------- -----------
Net increase in net assets resulting from
operations................................. 3,337,575 1,405,051 700,189 57,423
----------- ----------- ----------- -----------
Distributions to shareholders from Net
investment income
Institutional Shares......................... (3,322,447) (1,404,199) (685,237) (57,403)
Service Shares............................... (14,791) (852) (15,018) --
Series A Investor Shares..................... (222) -- -- --
----------- ----------- ----------- -----------
Total distributions to shareholders...... (3,337,460) (1,405,051) (700,255) (57,403)
----------- ----------- ----------- -----------
Capital share transactions...................... 8,893,514 35,537,466 11,398,564 13,831,098
----------- ----------- ----------- -----------
Total increase in net assets............. 8,893,629 35,537,466 11,398,498 13,831,118
Net assets:
Beginning of period.......................... 69,672,897 34,135,431 13,831,118 --
----------- ----------- ----------- -----------
End of period................................ $78,566,526 $69,672,897 $25,229,616 $13,831,118
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
28
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------------------- ----------------------
FOR THE
PERIOD
YEAR YEAR 8/2/93(1) YEAR YEAR
ENDED ENDED THROUGH ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------- --------
Income from investment operations
Net investment income....................................... 0.0564 0.0359 0.0054 0.0534 0.0333
Net realized gain (loss) on investments..................... -- -- -- -- --
-------- -------- -------- ---------- --------
Total from investment operations........................ 0.0564 0.0359 0.0054 0.0534 0.0333
-------- -------- -------- ---------- --------
Less distributions
Distributions from net investment income.................... (0.0564) (0.0359) (0.0054) (0.0534) (0.0333)
Distributions from net realized capital gains............... -- -- -- -- --
-------- -------- -------- ---------- --------
Total distributions..................................... (0.0564) (0.0359) (0.0054) (0.0534) (0.0333)
-------- -------- -------- ---------- --------
Net asset value at end of period............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========== ========
Total return................................................... 5.79% 3.64% 0.54% 5.48% 3.37%
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $654,157 $502,972 $435,586 $1,194,017 $575,948
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 0.27% 0.25% 0.27%(2) 0.57% 0.51%
Before advisory/administration fee waivers................ 0.64% 0.66% 0.38%(2) 0.94% 0.92%
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 5.66% 3.64% 3.01%(2) 5.35% 3.35%
Before advisory/administration fee waivers................ 5.28% 3.23% 2.90%(2) 4.98% 2.95%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------
SERVICE CLASS
--------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
9/30/93 9/30/92 9/30/91
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period......................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income....................................... 0.0274 0.0391 0.0645
Net realized gain (loss) on investments..................... -- -- --
-------- -------- --------
Total from investment operations........................ 0.0274 0.0391 0.0645
-------- -------- --------
Less distributions
Distributions from net investment income.................... (0.0274) (0.0391) (0.0645)
Distributions from net realized capital gains............... -- -- --
-------- -------- --------
Total distributions..................................... (0.0274) (0.0391) (0.0645)
-------- -------- --------
Net asset value at end of period............................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return................................................... 2.77% 4.05% 6.64%
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $415,328 $838,012 $637,076
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 0.59% 0.61% 0.62%
Before advisory/administration fee waivers................ 0.70% 0.66% 0.67%
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 2.73% 3.86% 6.45%
Before advisory/administration fee waivers................ 2.62% 3.81% 6.40%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
29
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------------------------------
SERIES A SERIES B
INVESTOR CLASS INVESTOR CLASS
---------------------------------- --------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 1/13/93(1) 9/15/95(1)
ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/95
------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income................................... 0.0511 0.0308 0.0188 0.0020
Net realized gain (loss) on investments................. -- -- -- --
-------- -------- -------- --------
Total from investment operations.................... 0.0511 0.0308 0.0188 0.0020
-------- -------- -------- --------
Less distributions
Distributions from net investment income................ (0.0511) (0.0308) (0.0188) (0.0020)
Distributions from net realized capital gains........... -- -- -- --
-------- -------- -------- --------
Total distributions................................. (0.0511) (0.0308) (0.0188) (0.0020)
-------- -------- -------- --------
Net asset value at end of period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return............................................... 5.23% 3.12% 1.89% 0.20%
Ratios/Supplemental data
Net assets at end of period (in thousands).............. $10,185 $ 4,342 $ 49 $ 27
Ratios of expenses to average net assets
After advisory/administration fee waivers............. 0.81% 0.75% 0.67%(2) 1.34%(2)
Before advisory/administration fee waivers............ 1.19% 1.16% 0.78%(2) 1.72%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............. 5.15% 3.39% 2.62%(2) 4.58%(2)
Before advisory/administration fee waivers............ 4.78% 2.98% 2.51%(2) 4.20%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
30
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------- -------------------
FOR THE
PERIOD
YEAR YEAR 8/2/93(1) YEAR YEAR
ENDED ENDED THROUGH ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
------- ------- ------- ------- -------
Net asset value at
beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------- --------
Income from
investment operations
Net investment
income............. 0.0364 0.0246 0.0040 0.0334 0.0219
Net realized gain
(loss)............. -- -- -- -- --
------- ------- ------- -------- --------
Total from
investment
operations....... 0.0364 0.0246 .0040 0.0334 0.0219
------- ------- ------- -------- --------
Less distributions
Distributions from
net investment
income............... (0.0364) (0.0246) (0.0040) 0.0334) (0.0219)
Distributions from
net realized capital
gains................ -- -- -- -- --
------- ------- ------- -------- --------
Total
distributions.... (0.0364) (0.0246) (0.0040) (0.0334) (0.0219)
------- ------- ------- -------- --------
Net asset value at
end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======== ========
Total return.............. 3.70% 2.48% 0.40% 3.39% 2.20%
Ratios/Supplemental data
Net assets at end
of period
(in thousands)......... $53,778 $30,608 $39,148 $265,629 $133,358
Ratios of expenses to
average net assets
After advisory/
administration
fee waivers.... 0.27% 0.25% 0.25%(2) 0.57% 0.51%
Before advisory/
administration
fee waivers.... 0.71% 0.73% 0.36%(2) 1.01% 0.99%
Ratios of net investment
income to average
net assets
After advisory/
administration
fee waivers....... 3.64% 2.48% 2.45%(2) 3.35% 2.18%
Before advisory/
administration
fee waivers....... 3.20% 2.01% 2.34%(2) 2.91% 1.71%
MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------
SERVICE CLASS
----------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
9/30/93 9/30/92 9/30/91
------- --------- -------
Net asset value at
beginning of period............. $ 1.00 $ 1.00 $ 1.00
------- -------- -------
Income from investment operations
Net investment income.......... 0.0205 0.0281 0.0438
Net realized gain (loss)....... -- -- --
------- -------- -------
Total from investment
operations............... 0.0205 0.0281 0.0438
------- -------- -------
Less distributions
Distributions from net
investment income............ (0.0205) (0.0281) (0.0438)
Distributions from
net realized capital gains... -- -- --
------- -------- -------
Total distributions........ (0.0205) (0.0281) (0.0438)
------- -------- -------
Net asset value at end of period.. $ 1.00 $ 1.00 $ 1.00
======= ======== =======
Total return...................... 2.10% 2.85% 4.47%
Ratios/Supplemental data
Net assets at end of period
(in thousands)................. $93,937 $125,152 $89,312
Ratios of expenses to
average net assets
After advisory/
administration
fee waivers.............. 0.61% 0.63% 0.65%
Before advisory/
administration
fee waivers............. 0.72% 0.68% 0.70%
Ratios of net investment
income to average
net assets
After advisory/
administration
fee waivers............. 2.02% 2.78% 4.40%
Before advisory/
administration
fee waivers............. 1.91% 2.73% 4.35%
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
31
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
------------------------------------
SERIES A INVESTOR CLASS
-------------------------------------
FOR THE
PERIOD
YEAR YEAR 11/02/92(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................ $ 1.00 $ 1.00 $ 1.00
------- ------- --------
Income from investment operations
Net investment income.......................................... 0.0311 0.0193 0.0181
Net realized gain (loss) on investments........................ -- -- --
------- ------- --------
Total from investment operations........................... 0.0311 0.0193 0.0181
------- ------- --------
Less distributions
Distributions from net investment income....................... (0.0311) (0.0193) (0.0181)
Distributions from net realized capital gains.................. -- -- --
------- ------- --------
Total distributions........................................ (0.0311) (0.0193) (0.0181)
------- ------- --------
Net asset value at end of period.................................. $ 1.00 $ 1.00 $ 1.00
======= ======= ========
Total return...................................................... 3.15% 1.95% 1 .83%
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $ 20 $ 41 $ 15
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 0.79% 0.75% 0.72%(2)
Before advisory/administration fee waivers................... 1.23% 1.23% 0.83%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 3.08% 2.05% 2.23%(2)
Before advisory/administration fee waivers................... 2.64% 1.58% 2.12%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
32
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- ---------------------
FOR THE
PERIOD
YEAR YEAR 8/2/93(1) YEAR YEAR
ENDED ENDED THROUGH ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations
Net investment income.................................... 0.0555 0.0357 0.0049 0.0525 0.0331
Net realized gain (loss)................................. -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment operations..................... 0.0555 0.0357 0.0049 0.0525 0.0331
-------- -------- -------- -------- --------
Less distributions
Distributions from net investment income................. (0.0555) (0.0357) (0.0049) (0.0525) (0.0331)
Distributions from net realized capital gains............ -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions.................................. (0.0555) (0.0357) (0.0049) (0.0525) (0.0331)
-------- -------- -------- -------- --------
Net asset value at end of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................................................ 5.69% 3.63% 0.49% 5.38% 3.36%
Ratios/Supplemental data
Net assets at end of period (in thousands)............... $120,540 $ 37,519 $ 13,513 $550,959 $372,883
Ratios of expenses to average net assets
After advisory/administration fee waivers.............. 0.27% 0.25% 0.25%(2) 0.57% 0.52%
Before advisory/administration fee waivers............. 0.69% 0.70% 0.38%(2) 0.98% 0.97%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............. 5.64% 3.69% 3.01%(2) 5.27% 3.42%
Before advisory/administration fee waivers............. 5.22% 3.24% 2.88%(2) 4.85% 2.97%
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
---------------------------------
SERVICE CLASS
---------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
9/30/93 9/30/92 9/30/91
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income.................................... 0.0269 0.0394 0.0627
Net realized gain (loss)................................. -- -- --
-------- -------- --------
Total from investment operations..................... 0.0269 0.0394 0.0627
-------- -------- --------
Less distributions
Distributions from net investment income................. (0.0269) (0.0394) (0.0627)
Distributions from net realized capital gains............ -- -- --
-------- -------- --------
Total distributions.................................. (0.0269) (0.0394) (0.0627)
-------- -------- --------
Net asset value at end of period............................ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return................................................ 2.72% 4.01% 6.46%
Ratios/Supplemental data
Net assets at end of period (in thousands)............... $185,400 $160,269 $180,776
Ratios of expenses to average net assets
After advisory/administration fee waivers.............. 0.60% 0.62% 0.65%
Before advisory/administration fee waivers............. 0.73% 0.67% 0.70%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............. 2.68% 3.91% 6.27%
Before advisory/administration fee waivers............. 2.55% 3.86% 6.22%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
33
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GOVERNMENT MONEY MARKET PORTFOLIO
---------------------------------
SERIES A INVESTOR CLASS
---------------------------------
FOR THE
PERIOD
YEAR YEAR 1/14/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
------- ------- -------
Net asset value at
beginning of period........... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income......... 0.0501 0.0309 0.0183
Net realized gain (loss)
on investments.............. -- -- --
------- ------- -------
Total from investment
operations.............. 0.0501 0.0309 0.0183
------- ------- -------
Less distributions
Distributions from net
investment income........... (0.0501) (0.0309) (0.0183)
Distributions from net
realized capital gains...... -- -- --
------- ------- -------
Total distributions....... (0.0501) (0.0309) (0.0183)
------- ------- -------
Net asset value at end
of period..................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return.................... 5.13% 3.11% 1.85%
Ratios/Supplemental data
Net assets at end of period
(in thousands)............. $ 1,285 $ 1,656 $ 50
Ratios of expenses to
average net assets
After advisory/
administration
fee waivers............ 0.80% 0.75% 0.65%(2)
Before advisory/
administration
fee waivers............ 1.21% 1.20% 0.78%(2)
Ratios of net investment
income to average
net assets
After advisory/
administration
fee waivers............ 5.03% 3.60% 2.57%(2)
Before advisory/
administration
fee waivers............ 4.62% 3.14% 2.44%(2)
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
34
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- ---------------------
FOR THE
PERIOD
YEAR YEAR 6/10/93(1) YEAR YEAR
ENDED ENDED THROUGH ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations
Net investment income.................................. 0.0363 0.0252 0.0073 0.0333 0.0225
Net realized gain (loss) on investments................ -- -- -- -- --
------- ------- ------- ------- -------
Total from investment operations................... 0.0363 0.0252 0.0073 0.0333 0.0225
------- ------- ------- ------- -------
Less distributions
Distributions from net investment income............... (0.0363) (0.0252) (0.0073) (0.0333) (0.0225)
Distributions from net realized capital gains.......... -- -- -- -- --
------- ------- ------- -------- -------
Total distributions................................ (0.0363) (0.0252) (0.0073) (0.0333) (0.0225)
------- ------- ------- ------- -------
Net asset value at end of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return.............................................. 3.69% 2.55% 0.73% 3.38% 2.27%
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $ 23,679 $ 10,521 $ 12,026 $ 49,857 $ 44,066
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.27% 0.13% 0.10%(2) 0.57% 0.40%
Before advisory/administration fee waivers........... 0.73% 0.77% 0.83%(2) 1.03% 1.04%
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 3.66% 2.56% 2.45%(2) 3.35% 2.29%
Before advisory/administration fee waivers........... 3.20% 1.93% 1.72%(2) 2.89% 1.65%
OHIO MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
-------- ---------------------
FOR THE FOR THE
PERIOD PERIOD
6/1/93(1) YEAR 10/5/93(1)
THROUGH ENDED THROUGH
9/30/93 9/30/95 9/30/94
-------- ------- --------
Net asset value at beginning of period.................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income.................................. 0.0074 0.0310 0.0199
Net realized gain (loss) on investments................ -- -- --
------- ------- -------
Total from investment operations................... 0.0074 0.0310 0.0199
------- ------- -------
Less distributions
Distributions from net investment income............... (0.0074) (0.0310) (0.0199)
Distributions from net realized capital gains.......... -- -- --
------- ------- -------
Total distributions................................ (0.0074) (0.0310) (0.0199)
------- ------- -------
Net asset value at end of period.......................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return.............................................. 0.75% 3.15% 2.01%
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $ 15,239 $ 75 $ 28
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.23%(2) 0.80% 0.62%(2)
Before advisory/administration fee waivers........... 0.96%(2) 1.26% 1.26%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 2.23%(2) 3.02% 1.94%(2)
Before advisory/administration fee waivers........... 1.50%(2) 2.56% 1.30%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
35
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- ---------------------
FOR THE
PERIOD
YEAR YEAR 6/1/93(1) YEAR YEAR
ENDED ENDED THROUGH ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- -------
Income from investment operations
Net investment income.................................. 0.0355 0.0247 0.0078 0.0325 0.0221
Net realized gain (loss) on investments................ -- -- -- -- --
-------- -------- ------- -------- -------
Total from investment operations................... 0.0355 0.0247 0.0078 0.0325 0.0221
-------- -------- ------- -------- -------
Less distributions
Distributions from net investment income............... (0.0355) (0.0247) (0.0078) (0.0325) (0.0221)
Distributions from net realized capital gains.......... -- -- -- -- --
-------- -------- ------- -------- -------
Total distributions................................ (0.0355) (0.0247) (0.0078) (0.0325) (0.0221)
-------- -------- ------- -------- -------
Net asset value at end of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- -------
Total return.............................................. 3.61% 2.49% 0.78% 3.33% 2.24%
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $233,414 $158,102 $ 2,242 $147,739 $ 60,560
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.26% 0.16% 0.09%(2) 0.57% 0.42%
Before advisory/administration fee waivers........... 0.68% 0.73% 0.97%(2) 0.99% 0.99%
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 3.54% 2.64% 2.15%(2) 3.29% 2.31%
Before advisory/administration fee waivers........... 3.12% 2.07% 1.27%(2) 2.87% 1.75%
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY
MARKET PORTFOLIO
--------------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
--------- ---------------------
FOR THE FOR THE
PERIOD PERIOD
6/11/93(1) YEAR 12/28/93(1)
THROUGH ENDED THROUGH
9/30/93 9/30/95 9/30/94
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income.................................. 0.0074 0.0302 0.0153
Net realized gain (loss) on investments................ -- -- --
------- ------- -------
Total from investment operations................... 0.0074 0.0302 0.0153
------- ------- -------
Less distributions
Distributions from net investment income............... (0.0074) (0.0302) (0.0153)
Distributions from net realized capital gains.......... -- -- --
------- ------- -------
Total distributions................................ (0.0074) (0.0302) (0.0153)
------- ------- -------
Net asset value at end of period.......................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Total return.............................................. 0.74% 3.06% 1.58%
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $ 8,919 $ 750 $ 139
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.32%(2) 0.82% 0.65%(2)
Before advisory/administration fee waivers........... 1.20%(2) 1.24% 1.22%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 2.42%(2) 3.03% 2.11%(2)
Before advisory/administration fee waivers........... 1.54%(2) 2.61% 1.54%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
36
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL MONEY
MARKET PORTFOLIO
----------------------------------
INSTITUTIONAL CLASS
----------------------------------
FOR THE
PERIOD
YEAR YEAR 5/4/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period..................................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income................................................... 0.0359 0.0249 0.0097
Net realized gain (loss) on investments................................. -- -- --
------- ------- -------
Total from investment operations.................................... 0.0359 0.0249 0.0097
------- ------- -------
Less distributions
Distributions from net investment income................................ (0.0359) (0.0249) (0.0097)
Distributions from net realized capital gains........................... -- -- --
------- ------- -------
Total distributions................................................. (0.0359) (0.0249) (0.0097)
------- ------- -------
Net asset value at end of period........................................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return............................................................... 3.65% 2.52% 0.97%
Ratios/Supplemental data
Net assets at end of period (in thousands).............................. $76,673 $69,673 $34,135
Ratios of expenses to average net assets
After advisory/administration fee waivers............................. 0.21% 0.10% 0.10%(2)
Before advisory/administration fee waivers............................ 0.74% 0.76% 0.81%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................. 3.61% 2.53% 2.35%(2)
Before advisory/administration fee waivers............................ 3.08% 1.87%(2) 1.64%(2)
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL MONEY
MARKET PORTFOLIO
-------------------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
-------------------------- --------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
11/01/94(4) 4/29/94(1) 2/14/95(1)
THROUGH THROUGH THROUGH
9/30/95 9/30/94 9/30/95
--------- -------- ----------
<S> <C> <C> <C>
Net asset value at beginning of period..................................... $ 1.00 $ 1.00 $ 1.00
------- ------- --------
Income from investment operations
Net investment income................................................... 0.0305 0.0099 0.0194
Net realized gain (loss) on investments................................. -- -- --
------- ------- --------
Total from investment operations.................................... 0.0305 0.0099 0.0194
------- ------- --------
Less distributions
Distributions from net investment income................................ (0.0305) (0.0099) (0.0194)
Distributions from net realized capital gains........................... -- -- --
------- ------- --------
Total distributions................................................. (0.0305) (0.0099) (0.0194)
------- ------- --------
Net asset value at end of period........................................... $ 1.00 $ 1.00 $ 1.00
======= ======= ========
Total return............................................................... 3.11% 0.99% 1.95%
Ratios/Supplemental data
Net assets at end of period (in thousands).............................. $ 1,841 $ -- (3) $ 53
Ratios of expenses to average net assets
After advisory/administration fee waivers............................. 0.55%(2) 0.36%(2) 0.83%(2)
Before advisory/administration fee waivers............................ 1.08%(2) 1.02%(2) 1.36%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................. 3.34%(2) 2.54%(2) 3.05%(2)
Before advisory/administration fee waivers............................ 2.81%(2) 1.87%(2) 2.52%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service shares outstanding as of September 30, 1994.
(4) Reissuance of shares.
See accompanying notes to financial statements.
37
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
----------------------------------
SERVICE
INSTITUTIONAL CLASS CLASS
--------------------- ----------
FOR THE FOR THE
PERIOD PERIOD
YEAR 7/25/94(1) 10/11/94(1)
ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/95
-------- --------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period..................... $ 1.00 $ 1.00 $ 1.00
-------- -------- -------
Income from investment operations
Net investment income................................... 0.0368 0.0053 0.0330
Net realized gain (loss) on investments................. -- -- --
-------- -------- -------
Total from investment operations.................... 0.0368 0.0053 0.0330
-------- -------- -------
Less distributions
Distributions from net investment income................ (0.0368) (0.0053) (0.0330)
Distributions from net realized capital gains........... -- -- --
-------- -------- -------
Total distributions................................. (0.0368) (0.0053) (0.0330)
-------- -------- -------
Net asset value at end of period........................... $ 1.00 $ 1.00 $ 1.00
======== ======== =======
Total return............................................... 3.74% 0.53% 3.35%
Ratios/Supplemental data
Net assets at end of period (in thousands).............. $ 24,409 $ 13,831 $ 821
Ratios of expenses to average net assets
After advisory/administration fee waivers............. 0.10% 0.10%(2) 0.40%(2)
Before advisory/administration fee waivers............ 0.95% 1.02%(2) 1.25%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............. 3.71% 2.89%(2) 3.50%(2)
Before advisory/administration fee waivers............ 2.86% 1.97%(2) 2.65%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
38
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
The PNC Fund (the "Fund") was organized on December 22, 1988 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-six separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio, New
Jersey Municipal Money Market Portfolio, Value Equity Portfolio, Growth Equity
Portfolio, Small Cap Growth Equity Portfolio, Core Equity Portfolio, Index
Equity Portfolio, Small Cap Value Equity Portfolio, International Equity
Portfolio, International Emerging Markets Portfolio, Balanced Portfolio, Managed
Income Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio,
Ohio Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio,
Short-Term Bond Portfolio, Intermediate-Term Bond Portfolio, International Fixed
Income Portfolio and Government Income Portfolio. As of September 30, 1995, the
New Jersey Municipal Money Market Portfolio and International Fixed Income
Portfolio had not commenced operations. This report relates solely to Money
Market Portfolio, Municipal Money Market Portfolio, Government Money Market
Portfolio, Ohio Municipal Money Market Portfolio, Pennsylvania Municipal Money
Market Portfolio, North Carolina Municipal Money Market Portfolio and Virginia
Municipal Money Market Portfolio (the "Portfolios").
Each Portfolio (except Money Market Portfolio) has three classes of shares,
one class being referred to as the Service shares, one class being referred to
as the Institutional shares and one class being referred to as the Series A
Investor shares. Money Market Portfolio has a fourth class of shares being
referred to as the Series B Investor shares. Series A Investor, Series B
Investor, Institutional and Service shares in a Portfolio represent equal pro
rata interests in such Portfolio, except that they bear different expenses which
reflect the difference in the range of services provided to them. Series A
Investor shares bear the expense of the Series A Distribution and Service Plan
at an annual rate not to exceed .55% of the average daily net asset value of
each Portfolio's outstanding Series A Investor shares. Series B Investor shares
bear the expense of the Series B Distribution Plan at an annual rate not to
exceed .75% of the average daily net asset value of each Portfolio's outstanding
Series B Investor shares. Series B Investor shares also bear the expense of the
Series B Service Plan at an annual rate not to exceed .25% of the average daily
net asset value of each Portfolio's outstanding Series B Investor shares. Under
the Fund's Service Plan, Service shares bear the expense of fees at an annual
rate not to exceed .15% of the average daily net asset value of each Portfolio's
outstanding Service shares. Service shares also bear the expense of a service
fee at an annual rate not to exceed .15% of the average daily net asset value of
each Portfolio's outstanding Service shares for other shareholder support
activities provided by service organizations. Institutional shares do not bear
the expense of the Series A Distribution and Service Plan, the Service Plan, the
Series B Distribution Plan or the Series B Service Plan. The Service, Series A
Investor and Series B Investor classes are currently bearing such respective
expenses at aggregate annual rates of .30% of the average daily net asset value
of Service shares, .50% of the average daily net asset value of Series A
Investor shares and 1.00% of the average daily net asset value of Series B
Investor shares. In addition, Institutional and Service shares bear a Transfer
Agent fee at an annual rate not to exceed .03% and Series A Investor and Series
B Investor shares bear a Transfer Agent fee at an annual rate not to exceed
.10%.
39
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities are valued under the amortized
cost method which approximates current market value. Under this method,
securities are valued at cost when purchased and thereafter, a constant
proportionate amortization of any discount or premium is recorded until the
maturity of the security. Regular review and monitoring of the valuation is
performed in an attempt to avoid dilution or other unfair results to
shareholders. The Fund seeks to maintain the net asset value per share of each
Portfolio at $1.00.
Dividends to Shareholders -- Dividends from net investment income are
declared daily and paid monthly. Net realized short-term capital gains, if any,
will be distributed at least annually.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Fees relating to the Service Plan, the Series A Distribution Plan and Service
Plan, the Series B Distribution Plan and Series B Service Plan, and the Transfer
Agent fee are class specific expenses. Expenses not directly attributable to a
specific Portfolio or class are allocated among all of the Portfolios or classes
of the Fund based on their relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group,
Inc. ("PAMG"), which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment adviser for each of the Fund's
Portfolios. PNC Bank serves as the sub-adviser for each of the Funds'
Portfolios. PNC Bank is an indirect wholly-owned subsidiary of PNC Bank Corp.
40
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
For its advisory services, PIMC is entitled to receive fees, computed daily
and payable monthly based on each Portfolio's average daily net assets, at the
following annual rates: .45% of the first $1 billion, .40% of the next $1
billion, .375% of the next $1 billion, and .35% of net assets in excess of $3
billion.
PIMC may, at its discretion, waive all or any portion of its advisory fee
for any Portfolio. For the year ended September 30, 1995, advisory fees and
waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY FEE WAIVER ADVISORY FEE
------------------- ---------- -------------------
<S> <C> <C> <C>
Money Market Portfolio........................... $6,268,576 $5,217,130 $1,051,446
Municipal Money Market Portfolio................. 1,111,647 921,718 189,929
Government Money Market Portfolio................ 2,816,476 2,327,266 489,210
Ohio Municipal Money Market Portfolio............ 295,088 245,955 49,133
Pennsylvania Municipal Money Market Portfolio.... 1,568,837 1,264,187 304,650
North Carolina Municipal Money Market
Portfolio...................................... 416,063 369,591 46,472
Virginia Municipal Money Market Portfolio........ 85,063 85,063 --
</TABLE>
PIMC pays PNC Bank for its sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
PDI is also the distributor for the Fund. The combined administration fee is
computed daily and payable monthly, based on a percentage of the average daily
net assets of each Portfolio, at the following annual rates: .15% of the first
$500 million, .13% of the next $500 million, .11% of the next $1 billion and
.10% of net assets in excess of $2 billion.
PFPC and PDI may, at their discretion, waive all or any portion of their
administration fees for any Portfolio. For the year ended September 30, 1995,
administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION FEE WAIVER ADMINISTRATION FEE
------------------- -------- -------------------
<S> <C> <C> <C>
Money Market Portfolio............................. $1,886,356 $200,348 $1,686,008
Municipal Money Market Portfolio................... 370,549 162,303 208,246
Government Money Market Portfolio.................. 912,148 281,107 631,041
Ohio Municipal Money Market Portfolio.............. 98,363 55,100 43,263
Pennsylvania Municipal Money Market Portfolio...... 522,945 200,313 322,632
North Carolina Municipal Money Market Portfolio.... 138,688 114,630 24,058
Virginia Municipal Money Market Portfolio.......... 28,354 28,354 --
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also voluntarily agreed to reimburse expenses in
the amount of $6,665 with respect to the North Carolina Municipal Money Market
Portfolio and $47,942 with respect to the Virginia Municipal Money Market
Portfolio for the year ended September 30, 1995.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most
41
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
restrictive state blue sky expense limitation in effect from time to time, to
the extent required by such limitation. No such reimbursements were necessary
for the year ended September 30, 1995.
(C) CAPITAL SHARES
The Portfolios have each sold and redeemed shares only at a constant net
asset value of $1.00 per share, the number of shares represented by such sales,
acquisitions, reinvestments, and redemptions is the same as the dollar amounts
shown below for such transactions.
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------- ------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/95 9/30/94
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......... $ 1,188,546,232 $ 1,541,859,975 $ 148,945,410 $ 112,801,931
Service Class............... 4,367,213,560 3,340,513,140 944,793,126 626,534,455
Series A Investor Class..... 23,968,550 10,165,172 4,303 57,540
Series B Investor Class..... 27,272 -- -- --
Shares issued in acquisition:
Institutional Class......... -- -- -- --
Service Class............... -- 3,334,564 -- --
Series A Investor Class..... -- -- -- --
Series B Investor Class..... -- -- -- --
Shares issued in reinvestment
of dividends:
Institutional Class......... 6,090 1,406 -- --
Service Class............... 6,071,308 2,125,570 961,327 305,101
Series A Investor Class..... 295,866 54,629 915 619
Series B Investor Class..... -- -- -- --
Shares redeemed:
Institutional Class......... (1,037,357,343) (1,474,467,520) (125,774,118) (121,338,119)
Service Class............... (3,755,203,797) (3,185,344,683) (813,471,594) (587,403,447)
Series A Investor Class..... (18,421,612) (5,926,562) (26,481) (32,023)
Series B Investor Class..... (380) -- -- --
--------------- --------------- ------------- -------------
Net increase.................. $ 775,145,746 $ 232,315,691 $ 155,432,888 $ 30,926,057
=============== =============== ============= =============
</TABLE>
42
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GOVERNMENT OHIO MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------- ------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/95 9/30/94
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......... $ 919,144,341 $ 228,682,656 $ 122,539,501 $ 125,595,359
Service Class............... 2,569,753,154 1,915,338,460 111,982,459 158,217,405
Series A Investor Class..... 4,597,795 1,753,740 159,749 115,346
Shares issued in reinvestment
of dividends:
Institutional Class......... -- -- 3,239 15,291
Service Class............... 4,210,613 1,768,196 496,048 194,375
Series A Investor Class..... 82,648 1,952 650 909
Shares redeemed:
Institutional Class......... (836,123,978) (204,678,202) (109,384,069) (127,116,173)
Service Class............... (2,395,843,440) (1,729,686,389) (106,687,592) (129,582,395)
Series A Investor Class..... (5,050,864) (149,412) (113,340) (88,672)
--------------- --------------- ------------- -------------
Net increase.................. $ 260,770,269 $ 213,031,001 $ 18,996,645 $ 27,351,445
=============== =============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL NORTH CAROLINA MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------- ------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/95 9/30/94
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......... $ 576,760,145 $ 376,513,609 $ 391,610,480 $ 323,582,453
Service Class............... 301,727,871 130,876,896 5,766,832 648,753
Series A Investor Class..... 933,231 161,583 52,600 --
Shares issued in reinvestment
of dividends:
Institutional Class......... 44,093 4,063 13,036 20,890
Service Class............... 597,907 271,409 7,099 806
Series A Investor Class..... 6,129 595 99 --
Shares redeemed:
Institutional Class......... (501,492,214) (220,657,499) (384,623,190) (288,065,877)
Service Class............... (215,145,532) (79,507,178) (3,933,442) (649,559)
Series A Investor Class..... (327,834) (23,169) -- --
------------- ------------- ------------- -------------
Net increase.................. $ 163,103,796 $ 207,640,309 $ 8,893,514 $ 35,537,466
============= ============= ============= =============
</TABLE>
43
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
-----------------------------
FOR THE
PERIOD
JULY 25,
FOR THE YEAR 19941
ENDED THROUGH
9/30/95 9/30/94
------------- ------------
<S> <C> <C>
Shares sold:
Institutional Class............................................... $ 46,235,242 $15,828,907
Service Class..................................................... 1,960,784 --
Series A Investor Class........................................... -- --
Shares issued in reinvestment of dividends:
Institutional Class............................................... -- --
Service Class..................................................... -- --
Series A Investor Class........................................... -- --
Shares redeemed:
Institutional Class............................................... (35,657,395) (1,997,809)
Service Class..................................................... (1,140,067) --
Series A Investor Class........................................... -- --
------------ -----------
Net increase........................................................ $ 11,398,564 $13,831,098
============ ===========
</TABLE>
- ---------------
1 Commencement of operations.
(D) AT SEPTEMBER 30, 1995, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
OHIO
MUNICIPAL GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital paid in...................... $1,858,408,030 $319,462,603 $672,772,903 $73,613,456
Accumulated net realized gain (loss)
on investment transactions........... (22,284) (35,315) 11,145 (2,285)
-------------- ------------ ------------ -----------
$1,858,385,746 $319,427,288 $672,784,048 $73,611,171
============== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
NORTH
PENNSYLVANIA CAROLINA VIRGINIA
MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Capital paid in...................................... $381,904,746 $78,566,523 $25,229,662
Accumulated net realized gain (loss)
on investment transactions........................... (1,329) 3 (46)
------------ ----------- -----------
$381,903,417 $78,566,526 $25,229,616
============ =========== ===========
</TABLE>
44
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(E) CAPITAL LOSS CARRYOVER
At September 30, 1995, capital loss carryovers were available to offset
possible future realized capital gains as follows: $22,284 in the Money Market
Portfolio which expire in 2003, $35,315 in the Municipal Money Market Portfolio
which expire in 2003, $2,285 in the Ohio Municipal Money Market Portfolio which
expire in 2002, $1,329 in the Pennsylvania Municipal Money Market Portfolio
which expire in 2003, and $46 in the Virginia Municipal Money Market Portfolio
which expire in 2003.
(F) ACQUISITION OF THE MONEY MARKET PORTFOLIO OF THE PNC FINANCIAL COMMON TRUST
FOR RETIREMENT ASSETS
On December 27, 1993, The PNC Fund acquired all the assets of the Money
Market Portfolio of the PNC Financial Common Trust for Retirement Assets from
the participants of these accounts. The acquisition was accomplished by a
tax-free exchange of assets with a value of $3,334,564 for 3,334,564 shares of
the Service class of the Money Market Portfolio at $1.00 per share.
(G) SUBSEQUENT EVENT
On September 29, 1995 and October 2, 1995 respectively, the Board of
Directors of the Fund ("PNC") and the Board of Trustees of The Compass Capital
Group of Funds ("Compass"), including all of the non-interested members of each
Board, approved an asset purchase agreement between 16 investment portfolios of
PNC and Compass. The agreement, subject to shareholder approval, provides for
the acquisition by PNC of all of the assets and liabilities of each of the
Compass Portfolios in exchange for Service Shares of the PNC Portfolios that
correspond to the Compass Portfolios and the distribution of these PNC Service
Shares to the shareholders of the Compass Portfolios in liquidation of the
Compass Portfolios. The expected effective date of the acquisition is January
1996.
45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PNC FUND:
We have audited the accompanying statements of net assets of The PNC Fund (Money
Market, Municipal Money Market, Government Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, and the Virginia Municipal Money Market Portfolios), as of September 30,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years (or periods) in
the period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian and brokers as of September 30, 1995. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
PNC Fund (Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, and the Virginia Municipal Money Market Portfolios), as
of September 30, 1995 and the results of their operations for the year then
ended, the changes in their net assets for each of the two years (or periods) in
the period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 22, 1995
46
<PAGE>
====================================================
Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser and Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01M
====================================================
====================================================
LOGO
THE PNC(R) FUND
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
GOVERNMENT MONEY MARKET PORTFOLIO
OHIO MUNICIPAL MONEY
MARKET PORTFOLIO
PENNSYLVANIA MUNICIPAL MONEY
MARKET PORTFOLIO
NORTH CAROLINA MUNICIPAL MONEY
MARKET PORTFOLIO
VIRGINIA MUNICIPAL MONEY
MARKET PORTFOLIO
Annual Report to Shareholders
September 30, 1995
====================================================
<PAGE>
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
November 3, 1995
Dear Shareholder:
We are pleased to present the Annual Report to Shareholders of The PNC Fund
covering the year ended September 30, 1995. This report includes security
listings and performance results for the equity portfolios of The PNC Fund.
Each equity portfolio focuses on a specific equity investment style. This
array of portfolios enables shareholders to more precisely structure their
investments according to their overall financial goals. These portfolios are
managed with a sophisticated blend of discipline, experience and expertise. The
goal of the PNC equity portfolios is to provide you with consistency as well as
above-average results.
If you have any questions regarding The PNC Fund or the enclosed
information, please contact the Fund at 1-800-422-6538.
We appreciate your participation in The PNC Fund and we welcome
opportunities to better service your needs.
PNC Institutional Management
Corporation
- --------------------------------------------------------------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE FUND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
- --------------------------------------------------------------------------------
<PAGE>
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE EQUITY PORTFOLIOS
During the fiscal year ended September 30, 1995, The PNC Fund declared the
following dividends from realized capital gains:
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
CAPITAL GAIN, CAPITAL GAIN,
PER SHARE PER SHARE
------------- -------------
<S> <C> <C>
Value Equity Portfolio $.002 $ .25
Core Equity Portfolio .012 .103
Index Equity Portfolio -- .1235
Small Cap Value Equity Portfolio .23 .3785
International Equity Portfolio -- .36
International Emerging Markets Portfolio .185 --
Balanced Portfolio .065 .07
</TABLE>
FOR CORPORATE SHAREHOLDERS ONLY:
The percentage of dividends from net investment income declared in the
fiscal year ended September 30, 1995, which qualify for the corporate dividends
received deduction is as follows:
<TABLE>
<S> <C>
Value Equity Portfolio 100.0%
Growth Equity Portfolio 96.1
Small Cap Growth Equity Portfolio 100.0
Core Equity Portfolio 95.3
Index Equity Portfolio 100.0
Small Cap Value Equity Portfolio 67.0
International Equity Portfolio 0.0
International Emerging Markets Portfolio 0.0
Balanced Portfolio 45.0
</TABLE>
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE INTERNATIONAL EQUITY PORTFOLIO
AND INTERNATIONAL EMERGING MARKETS PORTFOLIO
During the fiscal year ended September 30, 1995, the International Equity
Portfolio distributed $4,311,095 of foreign source income on which the Portfolio
paid foreign taxes of $1,092,230. This information is being furnished to you
pursuant to notice requirements of Sections 853(a) and 855(d) of the Internal
Revenue Code, as amended, and the Treasury Regulations thereunder.
During the fiscal year ended September 30, 1995, the International Emerging
Markets Portfolio distributed $569,990 of foreign source income on which the
Portfolio paid foreign taxes of $39,900. This information is being furnished to
you pursuant to notice requirements of Sections 853(a) and 855(d) of the
Internal Revenue Code, as amended, and the Treasury Regulations thereunder.
2
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT
VALUE EQUITY PORTFOLIO
In absolute terms, investment performance for the Value Equity Portfolio
was quite good for the fiscal year ending September 30, 1995. For the twelve
months, the Institutional Class of the Portfolio returned 25.73% versus a very
strong 29.74% for the S&P 500 during the like time span. The relative return
differential of the Fund compared to the S&P 500 resulted from the fact that
market leadership resided in the technology and financial sectors most of the
year as strong earning gains, lower interest rates and bank mergers stimulated
activity. While the Portfolio was strongly represented in the financial sector,
participation in the technology arena was limited due to generally high
valuation levels.
As the year progressed, rotation into economically sensitive stocks (paper,
chemicals and aluminums) during the spring gave way to a shift of funds into
more defensive issues (drugs, utilities and consumer staples) in the fall, as
concerns about the durability of the cycle emerged. The heavier consumer
weighting in the S&P 500 kept performance in line with the Portfolio during the
second half of the year as the positive contribution from the drugs, financials
and utilities was offset by the underperformance of most economy-related issues.
As the fiscal year came to a close, the Portfolio was continuing to build
its defensive exposure in both telephone and electric utilities with profits
realized from sales in the drug, producer durable and agricultural chemical
sectors of the Portfolio.
Despite present uncertainties, the Portfolio's investment approach will
continue to be heavily influenced by the composition of the large cap value
universe.
Comparison of Change in Value of $10,000 investment in the Value Equity
Portfolio and the Standard & Poor's 500 Composite Stock Price Index ("S&P 500")
from inception and at each Fiscal Year End:
[CHART]
Institutional Class
4/20/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC Value Equity 10,000 9,881 12,047 12,500 15,715
S&P 500 Index 10,000 10,212 11,539 11,964 15,522
AVERAGE ANNUAL TOTAL RETURN
One Year 25.73%
From Inception 14.00%
[CHART]
Service Class
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Value Equity 10,000 10,464 10,832 13,584
S&P 500 Index 10,000 10,299 10,678 13,855
AVERAGE ANNUAL TOTAL RETURN
One Year 25.40%
From Inception 15.12%
[CHART]
Series A Investor Class
5/1/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC Value Equity 9,550 9,438 11,497 11,972 14,891
S&P 500 Index 10,000 10,212 11,536 11,964 15,522
AVERAGE ANNUAL TOTAL RETURN
One Year 19.56%
From Inception 12.36%
3
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
GROWTH EQUITY PORTFOLIO
The Portfolio delivered strong returns over the past year. The
Institutional Class of the Portfolio produced a gain of 29.88% compared to a
29.99% return of the Russell 1000 Index. The Russell 1000 Index will be a better
comparative index than the S&P 500 Index from previous years. The Russell 1000
Index is an unmanaged index that consists of the largest 1000 companies in the
Russell 3000 Index. We were able to achieve these results by managing closely to
our investment style -- investing in large capitalization companies with
reasonable valuations whose growth prospects exceed those of the general
economy -- and through good individual stock selection. Our investments in the
technology, health care, and retail sectors contributed to our good performance,
while our underweightings in the transportation and financial sectors held back
our returns.
Although we believe that we performed well over the past year, in fairness,
we must give some credit to the general stock market for the excellent returns
experienced this year. During 1995 the equity markets enjoyed an environment of
low inflation, falling interest rates, a depreciating dollar, increased
productivity, and rapidly expanding profit margins. These factors lead to robust
stock market returns. The Portfolio participated in most of these favorable
events.
Looking forward, we believe that almost all of the factors underpinning the
strong stock market remain in place. Inflation should remain low, and interest
rates are more likely to fall than to rise. Productivity and profitability
remain strong. Therefore, we remain optimistic about the outlook for the
Portfolio.
We have positioned the Portfolio to be overweighted in the financial and
health care sectors of the market. In addition, we continue to remain somewhat
overweighted in technology, but we have tilted our holdings in technology toward
those stocks with a more defensive nature. As always, we will continue our job
of identifying and investing in companies with strong earnings growth prospects.
We believe that over time, the Portfolio will continue to be rewarded for taking
advantage of these opportunities.
Comparison of Change in Value of $10,000 investment in the Growth Equity
Portfolio, the Russell 1000 Index and S&P 500 Index from inception and at each
Fiscal Year End:
[CHART]
Institutional Class
<TABLE>
11/1/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PNC Growth Equity 10,000 10,040 11,995 12,580 15,355 13,658 17,739
Russell 1000 Index 10,000 9,291 12,187 13,533 15,293 15,856 20,852
S&P 500 Index 10,000 9,291 12,187 13,533 15,293 15,856 20,572
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 29.88%
Five Years 12.05%
From Inception 10.17%
[CHART]
Service Class
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Growth Equity 10,000 10,987 9,748 12,616
Russell 1000 Index 10,000 10,299 10,678 13,801
S&P 500 Index 10,000 10,299 10,678 13,854
AVERAGE ANNUAL TOTAL RETURN
One Year 29.43%
From Inception 11.26%
[CHART]
Series A Investor Class
3/19/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC Growth Equity 9,550 9,530 11,638 10,252 13,312
Russell 1000 Index 10,000 10,511 11,878 12,315 15,910
S&P 500 Index 10,000 10,511 11,878 12,315 15,977
AVERAGE ANNUAL TOTAL RETURN
One Year 23.43%
From Inception 8.39%
4
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
SMALL CAP GROWTH EQUITY PORTFOLIO
The twelve-month period ending September 30, 1995 was a strong period for
investing in growth stocks, as the technology sector led major indices to record
levels. The Institutional Class of the Portfolio produced a gain of 48.5% for
the period, which compared favorably with the 28.2% gain produced by the Russell
2000 Growth Index during the identical period. The key driver behind this strong
relative outperformance versus our benchmark was the substantial overweighting
in the technology sector.
As of September 30, 1995, the Portfolio continued to have a high
concentration (40%) in the technology sector. We continue to be broadly
diversified within the sector, with the belief that this will help to lower
potential portfolio risk. We saw an increase in volatility at the end of the
period, as profit-taking and seasonal factors began to impact our technology
holdings. We believe, however, that the fundamental story for the sector remains
intact, and that strong third quarter 1995 earnings will provide the necessary
stability for the sector to continue to perform well for the balance of the
calendar year and into 1996. While we will continue to look for ideas to add to
our holdings in the consumer (29%) and health care (20%) sectors, we believe
that a material weighting in the technology sector is consistent with the
Portfolio's charter to invest in the fastest growing, most dynamic areas of the
market.
Comparison of Change in Value of $10,000 investment in the Small Cap Growth
Equity Portfolio and the Russell 2000 Growth Index from inception and at each
Fiscal Year End:
[CHART]
Institutional Class
9/14/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Small Cap Growth 10,000 10,470 10,168 15,099
Russell 2000 Growth Index 10,000 10,141 10,231 13,111
AVERAGE ANNUAL TOTAL RETURN
One Year 48.50%
From Inception 22.30%
[CHART]
Service Class
9/15/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Small Cap Growth 10,000 10,512 10,184 15,086
Russell 2000 Growth Index 10,000 10,141 10,231 13,111
AVERAGE ANNUAL TOTAL RETURN
One Year 48.13%
From Inception 22.29%
[CHART]
Series A Investor Class
9/15/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Small Cap Growth 9,550 10,039 9,704 14,364
Russell 2000 Growth Index 10,000 10,141 10,231 13,111
AVERAGE ANNUAL TOTAL RETURN
One Year 41.32%
From Inception 19.38%
5
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
CORE EQUITY PORTFOLIO
Over the last twelve months, lower interest rates combined with slow and
stable growth in the economy boosted the confidence of the equity markets and
propelled them forward. The equity markets reflected this strength and have
shown significant signs of recovery. Specifically, the technology and financial
sectors of the equity market were especially strong. Merger, acquisition, and
corporate restructuring activities have also had a significant impact on returns
over the last twelve months. Recent announcements by AT&T, Walt Disney, and Dial
Corporation highlight this trend.
Performance of the Institutional Class of the Portfolio was up strongly for
the year ended September 30, 1995, with a total return of 23.76%. The Portfolio
benefited from its exposure to both technology and financial sectors. Dividend
growth continues to lag earnings-per-share growth as companies weigh the
utilization of free cash flows between capital spending, acquisitions, share
repurchase, and dividend increases. The Philip Morris over-20% dividend increase
announced in August verifies the income growth of the Portfolio.
The Core Equity Portfolio remains widely diversified among equity issues
and sectors. The Portfolio invests in approximately 100 individual issues and is
focused on adding value from issue selection, while limiting industry and other
market risks.
Comparison of Change in Value of $10,000 investment in the Core Equity
Portfolio and the S&P 500 from inception and at each Fiscal Year End:
[CHART]
Institutional Class
9/13/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Core Equity 10,000 9,970 10,149 12,560
S&P 500 Index 10,000 9,962 10,329 13,400
AVERAGE ANNUAL TOTAL RETURN
One Year 23.76%
From Inception 11.76%
[CHART]
Service Class
9/15/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Core Equity 10,000 9,970 10,124 12,497
S&P 500 Index 10,000 9,962 10,329 13,400
AVERAGE ANNUAL TOTAL RETURN
One Year 23.43%
From Inception 11.52%
[CHART]
Series A Investor Class
10/13/93 9/30/94 9/30/95
------- ------- -------
PNC Core Equity 9,550 9,697 11,955
S&P 500 Index 10,000 10,368 13,452
AVERAGE ANNUAL TOTAL RETURN
One Year 17.71%
From Inception 9.53%
6
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INDEX EQUITY PORTFOLIO
The total return for Institutional Shares of the Index Equity Portfolio for
the year ended September 30, 1995 was 29.30%. This compares with a total return
of 29.74% for the S&P 500 for the same period. The Portfolio seeks to replicate
the performance of the S&P 500 by owning substantially all the stocks in the S&P
500.
As of year end, the Portfolio consisted of between 90-95% equities with the
remainder in cash. However, in an effort to more closely approximate the S&P
500, the cash portion of the Portfolio is hedged using S&P 500 futures. The goal
of the futures position is to provide the Portfolio with the capital
appreciation of the S&P 500. In order to achieve the total return of the S&P
500, the underlying cash is then invested in high quality fixed income
instruments. The combination of the two provides for an approximate return equal
to the S&P 500.
Comparison of Change in Value of $10,000 investment in the Index Equity
Portfolio and the S&P 500 from inception and at each Fiscal Year End:
[CHART]
Institutional Class
4/20/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC Index Equity 10,000 10,162 11,422 11,773 15,222
S&P 500 Index 10,000 10,212 11,539 11,964 15,522
AVERAGE ANNUAL TOTAL RETURN
One Year 29.30%
From Inception 12.95%
[CHART]
Service Class
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Index Equity 10,000 10,316 10,603 13,682
S&P 500 Index 10,000 10,299 10,678 13,855
AVERAGE ANNUAL TOTAL RETURN
One Year 28.99%
From Inception 15.50%
[CHART]
Series A Investor Class
6/2/92 9/30/92 9/30/93 9/30/94 9/29/95
------- ------- ------- ------- ------
PNC Index Equity 9,550 9,708 10,897 11,118 14,317
S&P 500 Index 10,000 10,162 11,483 11,906 15,447
AVERAGE ANNUAL TOTAL RETURN
One Year 22.92%
From Inception 11.37%
7
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
SMALL CAP VALUE EQUITY PORTFOLIO
For the fiscal year ending September 30, 1995, the Institutional shares of
the Small Cap Value Equity Portfolio returned 17.43%, underperforming the
Russell 2000 Value Index return of 23.37%.
For the first half of the year, investors preferred the safety and
liquidity of larger companies. It was not until the fourth fiscal quarter that
small cap stocks in general, as measured by the Russell 2000 Value Index,
outperformed their large cap brethren. As the dollar began to strengthen and the
interest rate environment improved, small cap stocks were viewed more favorably.
With the exception of the December quarter, technology has been the
dominant sector in the small cap world for the year. Prior to rebalancing in
June, the Russell 2000 Value Index had a significant weighting in this sector,
making it difficult for the Portfolio which had a much lower weight, to
outperform. Technology was the best performing sector in the Portfolio.
Additionally, strong performance came from the financial sector, much as it did
in larger cap names.
Although small cap growth stocks outperformed value stocks, Provident
Capital Management, focusing on the long term, will continue to follow its value
discipline.
Comparison of Change in Value of $10,000 investment in the Small Cap Value
Equity Portfolio and the Russell 2000 Value Index from inception and at each
Fiscal Year End:
[CHART]
Institutional Class
4/13/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC Small Cap Value 10,000 10,150 13,232 14,062 16,512
Russell 2000 Index 10,000 9,933 13,225 13,603 16,783
AVERAGE ANNUAL TOTAL RETURN
One Year 17.43%
From Inception 15.56%
[CHART]
Service Class
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Small Cap Value 10,000 10,651 11,286 13,224
Russell 2000 Index 10,000 10,726 11,009 13,136
AVERAGE ANNUAL TOTAL RETURN
One Year 17.17%
From Inception 13.71%
[CHART]
Series A Investor Class
6/2/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC Small Cap Value 9,550 9,634 11,998 13,300 15,556
Russell 2000 Index 10,000 9,803 13,052 13,425 16,563
AVERAGE ANNUAL TOTAL RETURN
One Year 11.69%
From Inception 14.18%
[CHART]
Series B Investor Class
10/2/94 9/30/95
------- -------
PNC Small Cap Value 10,000 11,167
Russell 2000 Index 10,000 12,338
AVERAGE ANNUAL TOTAL RETURN
From Inception 11.67%
8
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERNATIONAL EQUITY PORTFOLIO
The return for the Institutional Class of the International Equity
Portfolio for the year ended September 30 was 2.46% as against 6.10% for the
Morgan Stanley Capital International Europe, Australia, Far East ("EAFE") Index.
The Portfolio's underperformance is largely attributable to a decline of (4.13)%
in the last fiscal quarter of 1994, which in turn relates to an overweight
position in the Hong Kong and Malaysian markets, coupled with an underweight
stance in Japan. Since the beginning of 1995, the Institutional Shares of the
Portfolio have returned 6.88% vs the EAFE Index's 7.12%.
The first half of 1995 was characterized by a sharp decline in the value of
the dollar against the yen and the 'hard' European currencies, which brought
about a substantial decline in the Japanese market and raised significant
concerns about the sustainability of Japan's fragile recovery. Much of the yen
appreciation and market correction has been reversed in the last three months,
but concerns remain over Japan's financial system.
Europe's markets have been significantly affected by a deceleration in
economic growth over the course of the last six months. Price declines in basic
materials such as plastics, base metals and forest products have reversed much
of last year's strength, convincing some analysts that recession is a near term
threat. Our view is that the inventory and production growth correction now
underway will give way to renewed expansion in 1996. We expect the engine of
growth over the balance of the cycle to be investment in basic industry and
capital goods.
Comparison of Change in Value of $10,000 investment in the International
Equity Portfolio and the EAFE Index from Inception and at each Fiscal Year End:
[CHART]
Institutional Class
4/27/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC International Equity 10,000 9,939 12,693 14,053 14,399
EAFE Index 10,000 10,333 13,098 14,424 15,301
AVERAGE ANNUAL TOTAL RETURN
One Year 2.46%
From Inception 11.21%
[CHART]
Service Class
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC International Equity 10,000 10,603 11,703 11,959
EAFE Index 10,000 10,306 11,350 12,041
AVERAGE ANNUAL TOTAL RETURN
One Year 2.19%
From Inception 8.57%
[CHART]
Series A Investor Class
6/2/92 10/25/92 10/25/93 10/25/94 10/25/95
------- -------- -------- -------- --------
PNC International Equity 9,550 8,887 11,353 12,516 12,766
EAFE Index 10,000 9,682 12,272 13,514 14,337
AVERAGE ANNUAL TOTAL RETURN
One Year (2.58)%
From Inception 7.61 %
[CHART]
Series B Investor Class
------- -------
PNC International Equity 10,000 9,722
EAFE Index 9,722 10,510
AVERAGE ANNUAL TOTAL RETURN
From Inception (2.78)%
9
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
Emerging markets have had a difficult environment since the collapse of the
Mexican peso in December of 1994. The Institutional Class of the International
Emerging Markets Portfolio's return for the twelve months ended September 30,
1995 was (19.72)% vs (17.71)% for the Morgan Stanley Capital International
Emerging Markets/Free Index. This index more accurately reflects the emerging
market return than the previous EAFE Index from previous years.
Mexico's crisis of confidence brought with it a deep recession that has
destabilized the capital markets and the banking system. Similarly threatened
has been Argentina, and even Brazil has weakened on its implicit political
vulnerability as a result of the Mexican decline. For Asian emerging markets, it
has been largely concerns over excessive growth (in Malaysia, Thailand,
Indonesia and the Philippines) that has worried markets, in addition to the
slowdown in China brought on by the government's austerity program.
But around the world in emerging economies, an increased consciousness of
risk has lead investors to reassess their valuation parameters. It is clear that
in the initial burst of enthusiasm for emerging market investing in 1992-93,
investors paid too little attention to the political and macroeconomic risks. In
countries from China to India to Turkey, the same forces that are driving reform
and growth may also from time to time produce instability and missteps of
policy. And in 1995, a mixture of currency risk, political uncertainty and the
global slowdown clearly drained confidence from the markets.
The key to renewed outperformance in emerging markets, in our view is a
restoration of confidence, most likely to emerge sometime in 1996 on the basis
of evidence that growth is once again on track, particularly in Mexico and
China, but also in the developed world more generally.
Comparisons of Change in Value of $10,000 investment in the International
Emerging Markets Portfolio, the MSCI Emerging Markets/Free Index and EAFE Index
from Inception and at each Fiscal Year End:
[CHART]
Institutional Class
6/17/94 9/30/94 9/30/95
------- ------- -------
PNC International Emerging 10,000 10,560 8,478
Morgan Stanley Emerging Index 10,000 12,076 9,937
EAFE Index 10,000 10,016 10,626
AVERAGE ANNUAL TOTAL RETURN
One Year (19.72)%
From Inception (12.08)%
[CHART]
Service Class
6/17/94 9/30/94 9/30/95
------- ------- -------
PNC International Emerging 10,000 10,550 8,450
Morgan Stanley Emerging Index 10,000 12,076 9,937
EAFE Index 10,000 10,016 10,626
AVERAGE ANNUAL TOTAL RETURN
One Year (19.91)%
From Inception (12.31)%
[CHART]
Series A Investor Class
6/17/94 9/30/94 9/30/95
------- ------- -------
PNC International Emerging 9,550 10,067 8,041
Morgan Stanley Emerging Index 10,000 12,076 9,937
EAFE Index 10,000 10,016 10,626
AVERAGE ANNUAL TOTAL RETURN
One Year (23.74)%
From Inception (15.64)%
10
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
BALANCED PORTFOLIO
Performance of the Institutional Class of the Balanced Portfolio was up
strongly for the year ended September 30, 1995 with a total return of 20.32%.
During the same time period, the S&P 500 returned 29.74% and the Salomon Broad
Investment Grade Index returned 14.05%.The Salomon Broad Investment Grade Index
more accurately reflects the corporate and government holdings of the Portfolio
than the Lehman Government/Corporate Index from previous years. Throughout the
majority of the year, the Balanced Portfolio maintained its 65% equity and 35%
fixed income baseline weights. As the equity market was stronger than the fixed
income market, the heavier equity weighting was beneficial.
Over the last twelve months, the equity markets have shown significant
signs of recovery. Specifically, the technology and financial sectors of the
equity market were especially strong. The equity portion of the Portfolio
reflected this strength, returning 24.64% for the twelve months ending September
30, 1995. The Portfolio primarily benefited from a heavier weight in the
financial sector and a modest overweight in technology. Equity investments
remain broadly diversified among industries and sectors with over 70 individual
holdings utilized to disperse risk and maintain trading liquidity. The present
recommended portfolio allocation is 65% equity, 35% fixed income and 0% cash.
The rally in the Treasury market began during the fourth quarter of 1994
and continued to accelerate through the first and second quarters of 1995. Over
the past twelve months, interest rates have fallen substantially across the
yield curve. Yield levels on the intermediate portion of the Treasury curve have
fallen nearly 150 basis points as the 10-year Treasury closed at 6.18% on
September 29, 1995.
The market for mortgage-backed securities performed well in September 1995
and throughout much of the third quarter of 1995 as interest rate volatility
declined and supply concerns abated. Allocation to adjustable rate mortgages
(ARMs) was increased in the Portfolio during the beginning of the third quarter
as GNMA ARMs offered excellent value relative to other short duration
securities.
Corporate earnings were positive and the market for corporate debt
securities also outperformed Treasuries in the past year despite a large pick up
in new issuance over September 1995. A heavy calendar for issuance remains for
the final quarter of 1995 which may test market demand.
11
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISOR'S REPORT (Continued)
Comparison of Change in Value of $10,000 investment in the Balanced
Portfolio, S&P 500, Salomon Broad Investment Grade Index and Lehman
Government/Corporate Index from inception and at each Fiscal Year End:
[CHART]
Institutional Class
5/1/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
PNC Balanced 10,000 10,623 11,989 11,977 14,410
S&P 500 Index 10,000 10,212 11,539 11,964 15,522
Salomon Broad
Invest Grade Index 10,000 10,774 11,869 11,490 13,105
Lehman Government
Corporate Index 10,000 10,849 12,092 11,891 13,597
AVERAGE ANNUAL TOTAL RETURN
One Year 20.32%
From Inception 11.28%
[CHART]
Service Class
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
PNC Balanced 10,000 10,366 10,328 12,388
S&P 500 Index 10,000 10,299 10,678 13,855
Salomon Broad
Invest Grade Index 10,000 10,206 9,879 11,268
Lehman Government
Corporate Index 10,000 10,266 10,096 11,545
AVERAGE ANNUAL TOTAL RETURN
One Year 19.94%
From Inception 10.34%
[CHART]
Series A Investor Class
5/14/90 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- ------- ------- -------
PNC Balanced 9,550 8,821 10,942 12,603 14,224 13,959 16,824
S&P 500 Index 10,000 8,985 11,785 13,088 14,789 15,333 19,894
Salomon Broad
Invest Grade Index 10,000 10,555 12,247 13,799 15,202 14,716 16,786
Lehman Government
Corporate Index 10,000 10,413 12,064 13,659 15,222 14,969 17,117
AVERAGE ANNUAL TOTAL RETURN
One Year 14.51%
Five Years 12.73%
From Inception 10.14%
[CHART]
Series B Investor Class
10/3/94 9/30/95
------- -------
PNC Balanced 10,000 12,974
S&P 500 Index 10,000 11,397
Salomon Broad
Invest Grade Index 10,000 11,406
Lehman Government
Corporate Index 10,000 11,435
AVERAGE ANNUAL TOTAL RETURN
From Inception 13.97%
12
<PAGE>
THE PNC(R) FUND
VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
---------- ------------
COMMON STOCKS -- 96.1%
AEROSPACE -- 5.4%
Allied Signal, Inc. 238,400 $ 10,519,400
Boeing Co. 184,200 12,571,650
United Technologies Corp. 163,550 14,453,731
------------
37,544,781
------------
AIR TRANSPORTATION -- 1.0%
British Airways PLC ADR 100,000 7,137,500
------------
BANKS -- 11.4%
Bank of New York Co., Inc. 197,500 9,183,750
Comerica, Inc. 294,200 10,701,525
CoreStates Financial Corp. 348,426 12,761,102
First Chicago Corp. 242,800 16,662,150
Meridian Bancorp, Inc. 288,900 11,050,425
NationsBank Corp. 148,500 9,986,625
Republic New York Corp. 151,800 8,880,300
------------
79,225,877
------------
CHEMICALS -- 7.2%
Dow Chemical Co. 190,000 14,155,000
E.I. Du Pont
de Nemours & Co. 186,225 12,802,969
IMC Global, Inc. 128,750 8,159,531
Lubrizol Corp. 459,200 14,981,400
------------
50,098,900
------------
COMPUTER & OFFICE EQUIPMENT -- 1.0%
Xerox Corp. 51,200 6,880,000
------------
COMPUTER SOFTWARE & SERVICES -- 1.1%
Stratus Computer, Inc. 283,300** 7,436,625
------------
CONGLOMERATES -- 4.8%
Elf Aquitaine ADR 205,700 6,916,662
ITT Corp. 66,000 8,184,000
Royal Dutch Petroleum Co. 89,000 10,924,750
Ultramar PLC ADR 294,500 6,994,375
------------
33,019,787
------------
ELECTRONICS -- 1.5%
General Electric Co. 162,700 10,372,125
------------
ENERGY & UTILITIES -- 7.0%
Entergy Corp. 264,300 6,904,838
Nipsco 100,000 3,487,500
Ohio Edison Co. 223,900 5,093,725
PECO Energy Co. 446,900 12,792,513
Southern Co. 316,300 7,472,588
Unicom Corp. 425,430 12,869,258
------------
48,620,422
------------
FINANCE -- 3.4%
AMBAC, Inc. 176,400 7,761,600
Dean Witter Discover & Co. 281,936 15,858,900
------------
23,620,500
------------
INSURANCE -- 9.5%
Allstate 215,524 7,624,161
American General Corp. 211,600 7,908,550
American International
Group, Inc. 90,075 7,656,375
AON Corp. 220,300 9,004,762
Chubb Corp. 97,500 9,360,000
General Reinsurance Corp. 36,000 5,436,000
MBIA, Inc. 117,500 8,283,750
Reliastar Financial Corp. 135,000 5,484,375
TIG Holdings, Inc. 194,100 5,216,438
------------
65,974,411
------------
LABORATORY ANALYTICAL INSTRUMENTS -- 0.9%
Beckman Instruments, Inc. 214,600 6,491,650
------------
METAL & MINING -- 1.6%
Phelps Dodge Corp. 179,300 11,228,663
------------
MOTOR VEHICLES -- 6.2%
Chrysler Corp. 216,100 11,453,300
Ford Motor Co. 374,900 11,668,762
General Motors Corp. 182,804 8,568,937
Goodyear Tire & Rubber Co. 298,000 11,733,750
------------
43,424,749
------------
OIL & GAS -- 9.1%
Atlantic Richfield Co. 104,800 11,252,900
Chevron Corp. 150,300 7,308,337
Diamond Shamrock, Inc. 229,400 5,648,975
Exxon Corp. 116,200 8,395,450
Mobil Corp. 74,000 7,372,250
Phillips Petroleum Co. 181,000 5,882,500
Tenneco, Inc. 232,700 10,762,375
Texaco, Inc. 107,300 6,934,263
------------
63,557,050
------------
PAPER & FOREST PRODUCTS -- 2.1%
Federal Paper Board Co., Inc. 157,600 6,047,900
International Paper Co. 200,000 8,400,000
------------
14,447,900
------------
See accompanying notes to financial statements.
13
<PAGE>
VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
---------- ------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS -- 7.3%
American Home
Products Corp. 165,300 $ 14,029,837
Bristol Meyers Squibb Co. 175,700 12,804,137
Eli Lilly & Co. 116,600 10,479,425
Merck & Co., Inc. 243,750 13,650,000
------------
50,963,399
------------
PLASTIC PRODUCTS -- 0.9%
First Brands Corp. 133,559 6,010,155
------------
RETAIL MERCHANDISING -- 4.7%
Dayton-Hudson Corp. 128,400 9,742,350
Fingerhut Companies, Inc. 395,400 6,375,825
K Mart Corp. 723,000 10,483,500
Sears, Roebuck & Co. 165,500 6,102,813
------------
32,704,488
------------
TELECOMMUNICATIONS -- 5.9%
GTE Corp. 19,700 773,225
NYNEX Corp. 288,300 13,766,325
Sprint Corp. 392,300 13,730,500
U.S. West, Inc. 275,700 12,992,363
------------
41,262,413
------------
TEXTILE -- 0.9%
Fruit of the Loom, Inc. 317,600** 6,550,500
------------
TOBACCO -- 1.1%
UST, Inc. 267,800 7,665,775
------------
TRANSPORTATION -- 2.1%
Conrail Corp. 99,000 6,806,250
Norfolk Southern Corp. 106,100 7,930,975
------------
14,737,225
------------
TOTAL COMMON STOCKS
(Cost $537,826,570) 668,974,895
------------
TEMPORARY INVESTMENTS -- 3.4%
Smith Barney Money
Market Fund
(Cost $23,366,393) 23,366,393
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $561,192,963*)
99.5% 692,341,288
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.5% 3,673,175
------ ------------
NET ASSETS (Applicable to
36,513,451 Institutional
shares, 12,272,782 Service
shares and 1,214,898 Series A
Investor shares outstanding) 100.0% $696,014,463
====== ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($696,014,463 / 50,001,131) $13.92
======
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $13.92
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($13.92 / .955) $14.58
======
- -------------
* Also for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $138,690,177
Gross unrealized depreciation (7,541,852)
------------
$131,148,325
============
** Non-income producing security.
See accompanying notes to financial statements.
14
<PAGE>
THE PNC(R) FUND
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS -- 95.7%
ADVERTISING -- 1.9%
Interpublic Group of Cos., Inc. 73,900 $ 2,937,525
Omnicom Group, Inc. 43,900 2,858,988
------------
5,796,513
------------
AEROSPACE -- 1.2%
Allied-Signal, Inc. 78,000 3,441,750
------------
AIR TRANSPORT -- 1.0%
Southwest Airlines 116,000 2,929,000
------------
BANKS -- 1.8%
BankAmerica Corp. 42,000 2,514,750
Boatmen's Bancshares, Inc. 75,000 2,775,000
------------
5,289,750
------------
BEVERAGES -- 3.2%
Anheuser-Busch Cos., Inc. 49,600 3,093,800
Coca-Cola Co. 50,000 3,450,000
Pepsico, Inc. 62,900 3,207,900
------------
9,751,700
------------
BROADCASTING -- 2.1%
Capital Cities ABC, Inc. 25,900 3,046,488
Viacom, Inc. Class B 64,400** 3,203,900
------------
6,250,388
------------
CHEMICALS -- 3.4%
Air Products & Chemicals, Inc. 45,000 2,345,625
E. I. Du Pont
de Nemours & Co. 34,000 2,337,500
Morton International, Inc. 91,000 2,821,000
PPG Industries, Inc. 55,000 2,557,500
------------
10,061,625
------------
COMPUTER & OFFICE EQUIPMENT -- 6.9%
Adaptec, Inc. 72,000** 2,970,000
Compaq Computer Corp. 57,400** 2,776,725
HBO & Co. 42,000 2,625,000
Intel Corp. 76,600 4,605,575
International Business
Machines Corp. 46,700 4,407,313
Xerox Corp. 22,800 3,063,750
------------
20,448,363
------------
COMPUTER SOFTWARE & SERVICES -- 6.0%
Automatic Data Processing, Inc. 42,000 2,861,250
Cisco Systems, Inc. 63,500** 4,381,500
Computer Sciences Corp. 29,000** 1,866,875
First Data Corp. 36,400 2,256,800
Microsoft Corp. 35,400** 3,203,700
Oracle Corp. 86,200** 3,307,925
------------
17,878,050
------------
CONSTRUCTION -- 0.2%
Foster Wheeler Corp. 21,000 742,875
------------
ELECTRONICS -- 15.0%
AMP, Inc. 86,800 3,341,800
Atmel Corp. 109,500** 3,695,625
Emerson Electric Co. 51,600 3,689,400
General Electric Co. 91,900 5,858,625
General Instruments 77,800** 2,334,000
Hewlett Packard Co. 34,200 2,851,425
LSI Logic Corp. 78,000** 4,504,500
Micron Technology, Inc. 52,800 4,197,600
Motorola, Inc. 60,600 4,628,325
Teradyne, Inc. 79,600** 2,865,600
Texas Instruments, Inc. 47,800 3,818,025
Varian Associates, Inc. 55,800 2,957,400
------------
44,742,325
------------
ENTERTAINMENT & LEISURE -- 4.2%
Carnival Corp. Class A 127,000 3,048,000
La Quinta Inns, Inc. 116,000 3,248,000
Marriot International, Inc. 96,000 3,588,000
Walt Disney Co. 44,400 2,547,450
------------
12,431,450
------------
FINANCE -- 6.0%
Dean Witter Discover & Co. 50,400 2,835,000
Federal National Mortgage
Association 27,500 2,846,250
First Financial
Management Corp. 30,000 2,928,750
First USA, Inc. 62,000 3,363,500
Merrill Lynch & Co., Inc. 52,000 3,250,000
Reuters Holdings PLC ADR 53,000 2,802,375
------------
18,025,875
------------
See accompanying notes to financial statements.
15
<PAGE>
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
FOOD & AGRICULTURE -- 1.2%
CPC International, Inc. 54,000 $ 3,564,000
------------
INSURANCE -- 3.6%
Ace, Ltd. 69,000 2,371,875
American International
Group, Inc. 37,500 3,187,500
American Re Corp. 37,000 1,424,500
General Re Corp. 24,700 3,729,700
------------
10,713,575
------------
MACHINERY & HEAVY EQUIPMENT -- 5.5%
Applied Materials, Inc. 28,700** 2,934,575
Black & Decker Corp. 91,400 3,119,025
Illinois Tool Works, Inc. 77,000 4,533,375
Millipore Corp. 80,000 3,000,000
Parker-Hannifin Corp. 70,600 2,682,800
------------
16,269,775
------------
MEDICAL & MEDICAL SERVICES -- 3.1%
Columbia HCA Healthcare Corp. 40,000 1,945,000
Cordis Corp. 20,700** 1,754,325
Healthsouth Corp. 150,000** 3,825,000
Pacificare Health Systems, Inc.
Class B 25,500 1,734,000
------------
9,258,325
------------
MOTOR VEHICLES -- 1.3%
Cooper Tire & Rubber Co. 70,000 1,697,500
Echlin, Inc. 60,000 2,145,000
------------
3,842,500
------------
PHARMACEUTICALS -- 8.4%
Abbott Laboratories, Inc. 75,000 3,196,875
American Home Products Corp. 33,000 2,800,875
Amgen, Inc. 79,800** 3,980,025
Johnson & Johnson 55,000 4,076,875
Merck & Co., Inc. 55,000 3,080,000
Pfizer, Inc. 56,000 2,989,000
Teva Pharmaceutical
Industries Ltd. ADR 70,400 2,543,200
Warner-Lambert Co. 25,000 2,381,250
------------
25,048,100
------------
PUBLISHING & PRINTING -- 1.0%
McGraw Hill Cos., Inc. 37,000 3,024,750
------------
RESTAURANTS -- 1.0%
McDonalds Corp. 77,000 2,945,250
------------
RETAIL MERCHANDISING -- 8.0%
Albertson's, Inc. 89,000 3,037,125
Kroger Co. 95,200** 3,248,700
Mattel, Inc. 96,062 2,821,821
OfficeMax, Inc. 140,100** 3,397,425
Petsmart, Inc. 100,100** 3,378,375
Service Corp. International 75,000 2,934,375
Staples, Inc. 130,000** 3,672,500
Wal-Mart Stores, Inc. 56,800 1,412,900
------------
23,903,221
------------
SOAPS & COSMETICS -- 4.2%
Avon Products, Inc. 30,000 2,152,500
Dial Corp. 95,000 2,351,250
Gillette Co. 72,000 3,429,000
Procter & Gamble Co. 60,000 4,620,000
------------
12,552,750
------------
TELECOMMUNICATIONS -- 3.5%
AT&T Corp. 110,500 7,265,374
DSC Communications Corp. 55,800** 3,306,150
------------
10,571,524
------------
TOBACCO -- 2.0%
Philip Morris Cos., Inc. 73,500 6,137,250
------------
TOTAL COMMON STOCKS
(Cost $224,041,912) 285,620,684
------------
PAR
MATURITY (000)
--------- ---------
U.S. TREASURY BILLS -- 0.1%
5.265% 12/14/95 $ 300*** 296,678
------------
(Cost $296,753)
AGENCY OBLIGATIONS -- 3.1%
Federal Home Loan Bank
Discount Notes
6.30% 10/02/95 9,145 9,143,400
------------
(Cost $9,143,400)
See accompanying notes to financial statements.
16
<PAGE>
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
VALUE
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $233,482,065*) 98.9% $295,060,762
OTHER ASSETS IN EXCESS
OF LIABILITIES 1.1% 3,285,207
------- ------------
NET ASSETS (Applicable to
16,239,693 Institutional
shares, 5,897,855 Service
shares, and 771,222 Series A
Investor shares outstanding) 100.0% $298,345,969
======= ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($211,543,419 / 16,239,693) $13.03
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SERVICE
SHARE
($76,768,861 / 5,897,855) $13.02
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($10,033,689 / 771,222) $13.01
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($13.01 / 955) $13.62
======
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $62,398,340
Gross unrealized depreciation (819,643)
-----------
$61,578,697
===========
** Non-income producing security.
*** Principal amount of securities pledged as initial margin
requirement of $250,000 on 25 Standard & Poor's 500
Stock Index futures contracts expiring December 1995.
See accompanying notes to financial statements.
17
<PAGE>
THE PNC(R) FUND
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS -- 87.1%
BROADCASTING -- 0.7%
Tekelec 65,400** $ 1,471,500
------------
BUSINESS SERVICES -- 6.8%
ABR Information Services 44,700** 1,128,675
Accustaff, Inc. 64,800** 2,381,400
HCIA, Inc. 64,000** 1,648,000
Norrell Corp. 40,900 1,329,250
Paychex, Inc. 14,250 659,063
Quintiles Transnational Corp. 37,000** 2,183,000
Robert Half International, Inc. 62,800** 2,143,050
Sitel Corp. 45,000** 1,102,500
US Delivery Systems, Inc. 70,000** 2,012,500
------------
14,587,438
------------
COMPUTER & OFFICE EQUIPMENT -- 12.3%
Baan Company 28,900** 1,300,500
CBT Group PLC 40,700** 1,943,425
Cognex Corp. 54,500** 2,629,625
Cybex Computer Products Corp. 40,000** 1,000,000
Cycare Systems, Inc. 27,000** 897,750
Datalogix International 20,600** 293,550
Discreet Logic, Inc. 31,400** 1,727,000
EIS International Inc 71,000** 1,269,125
HBO & Co. 26,000 1,625,000
Hummingbird
Communications LTD 35,800** 1,333,550
IMNT Systems, Inc. 44,800** 1,153,600
Integrated Measurement System 29,600** 392,200
Madge Network N.V. 34,300** 1,097,600
Microcom, Inc. 110,000** 2,076,250
Peak Technologies Group 55,000** 1,457,500
Premenos Technology Corp. 9,600** 312,000
Touchstone Software Corp. 15,300** 164,475
U.S. Robotics Corp. 60,000** 5,115,000
Vidioserver, Inc. 20,600** 726,150
------------
26,514,300
------------
COMPUTER SOFTWARE & SERVICES -- 12.5%
Acxiom Corp. 80,000** 2,260,000
American Management
Systems, Inc. 30,900** 826,575
Aspen Technology, Inc. 60,600** 1,818,000
Atria Software, Inc. 87,000** 2,544,750
Davidson & Associates, Inc. 41,000** 1,424,750
Electronics For Imaging Inc. 20,400** 1,461,150
Epic Design Technology, Inc. 47,100** 2,284,350
Fair, Issac & Co., Inc. 27,000 783,000
Macromedia, Inc. 84,400** 4,821,350
Medic Computer Systems, Inc. 29,900** 1,517,425
Netmanage, Inc. 58,300** 1,384,625
Shiva Corp. 37,000** 2,266,250
Softkey International, Inc. 80,000** 3,540,000
------------
26,932,225
------------
ELECTRONICS -- 10.7%
ASM Lithography Holding 33,600** 1,474,200
Electro Scientific Industries,
Inc. 49,300** 1,719,338
FSI International, Inc. 90,000** 2,992,500
Harman International
Industries, Inc. 17,850 874,650
International Rectifier Corp. 54,000** 2,173,500
LAM Research Corp. 22,400** 1,338,400
Memc Electronic Materials 34,900** 946,663
Micrel, Inc. 66,400** 1,859,200
Ontrak Systems, Inc. 3,000** 82,875
Photronics, Inc. 67,500** 2,261,250
Silicon Valley Group, Inc. 40,000** 1,545,000
Telecom Semiconductor, Inc. 45,600** 524,400
Tencor Instruments 22,800** 1,008,900
Tower Semiconductor Ltd. 71,800** 2,333,500
Ultratech Stepper, Inc. 44,000** 1,859,000
------------
22,993,376
------------
ENTERTAINMENT & LEISURE -- 4.3%
Doubletree Corp. 76,000** 1,691,000
Hollywood Entertainment Corp. 54,400** 1,166,200
Regal Cinemas, Inc. 84,600** 3,479,175
Scientific Games
Holding Corp., Inc. 60,000** 2,242,500
Speedway Motorsports, Inc. 27,600** 717,600
------------
9,296,475
------------
FINANCE -- 1.2%
Jayhawk Acceptance Corp. 54,200** 792,675
Recoton Corp. 31,200** 858,000
WFS Financial, Inc. 41,600** 946,400
------------
2,597,075
------------
INSURANCE -- 0.1%
United Dental Care, Inc. 6,100** 183,000
------------
MANUFACTURING -- 0.2%
Southern Energy Homes 31,200** 495,300
------------
See accompanying notes to financial statements.
18
<PAGE>
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
MEDICAL & MEDICAL SERVICES -- 5.4%
American Homepatient, Inc. 50,000** $ 1,275,000
American Oncology
Resources, Inc. 60,000** 2,580,000
Clintrials Research 30,600** 619,650
Medpartners, Inc. 33,100** 1,042,650
Occusystems, Inc. 43,200** 896,400
Orthodontic Centers of
America, Inc. 71,300** 2,299,425
Pediatrix Medical Group Inc. 21,800** 446,900
Phycor, Inc. 70,200** 2,404,350
------------
11,564,375
------------
MEDICAL INSTRUMENTS & SUPPLIES -- 7.7%
Arrow International, Inc. 32,000 1,384,000
Gulf South Medical Supply, Inc. 60,000** 1,477,500
IDEXX Laboratories, Inc. 70,000** 2,607,500
Isolyser Company, Inc. 33,300** 1,136,363
Medisense, Inc. 69,200** 1,669,450
Omnicare, Inc. 50,000 1,950,000
Orthofix International, N.V. 75,000** 1,162,500
Physician Sales & Service, Inc. 28,900** 1,387,200
Steris Corp. 52,000** 2,190,500
Target Therapeutics, Inc. 25,000** 1,750,000
------------
16,715,013
------------
PHARMACEUTICALS -- 1.2%
Dura Pharmaceuticals 90,000** 2,677,500
------------
PUBLISHING & PRINTING -- 1.2%
Gartner Group, Inc. 80,000** 2,620,000
------------
REAL ESTATE -- 0.6%
Storage USA, Inc. 40,000 1,235,000
------------
RESTAURANTS -- 2.0%
Applebee's International, Inc. 36,000** 981,000
Landry's Seafood
Restaurants, Inc. 90,400** 1,627,200
Logan's Roadhouse, Inc. 3,500** 61,250
O'Charley's, Inc. 18,000** 270,000
Papa John's International, Inc. 28,500** 1,282,500
Quality Dining, Inc. 9,700** 177,025
------------
4,398,975
------------
RETAIL MERCHANDISING -- 12.0%
Bed, Bath & Beyond, Inc. 29,600** 902,800
Books-A-Million, Inc. 80,000** 1,410,000
Copart, Inc. 75,000** 1,706,250
Dollar Tree Stores, Inc. 26,300** 894,200
Friedman's, Inc. 86,100** 1,872,675
Global Directmail Corp. 17,000** 418,625
Just For Feet, Inc. 100,350** 3,085,762
Kenneth Cole Productions 55,000** 1,931,875
Mens Warehouse, Inc. 54,300** 1,954,800
Micro Warehouse, Inc. 29,900** 1,367,925
Movie Gallery, Inc. 60,000** 2,565,000
Oakley, Inc. 10,200** 302,175
Petco Animal Supplies, Inc. 46,700** 1,214,200
Piercing Pagoda, Inc. 30,200** 422,800
Quicksilver, Inc. 66,000** 1,790,250
Sunglass Hut International,
Inc. 70,500** 3,525,000
Trend-Lines, Inc. 46,500** 616,125
------------
25,980,462
------------
SANITARY SERVICES -- 2.1%
Sanifill, Inc. 33,900** 1,110,225
United Waste Systems, Inc. 80,500** 3,360,875
------------
4,471,100
------------
SOAPS & COSMETICS -- 0.5%
USA Detergents, Inc. 56,300** 1,168,225
------------
TELECOMMUNICATIONS -- 3.0%
Adtran, Inc. 60,000** 2,085,000
Cascade Communications Corp. 30,000** 1,477,500
Gilat Satellite Networks 75,000** 2,062,500
World Communications, Inc. 23,400** 751,724
------------
6,376,724
------------
TEXTILE -- 2.6%
Authentic Fitness Corp. 30,600** 688,500
Nautical Enterprises 56,000** 1,918,000
St. John Knits, Inc. 30,000 1,462,500
Tommy Hilfiger Corp. 50,000** 1,625,000
------------
5,694,000
------------
TOTAL COMMON STOCKS
(Cost $121,597,638) 187,972,063
------------
See accompanying notes to financial statements.
19
<PAGE>
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- ------------
CORPORATE BONDS -- 0.7%
Sholodge, Inc.
7.50% 05/01/04 $ 1,500 $ 1,395,000
------------
(Cost $1,500,000)
AGENCY OBLIGATIONS -- 13.3%
FEDERAL HOME LOAN BANK DISCOUNT
NOTES -- 8.7%
6.30% 10/02/95 18,780 18,776,713
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION DISCOUNT
NOTES -- 4.6%
5.64% 10/04/95 10,000 9,995,300
------------
TOTAL AGENCY OBLIGATIONS
(Cost $28,772,013) 28,772,013
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $151,869,651*) 101.1% 218,139,076
LIABILITIES IN EXCESS OF OTHER
ASSETS (1.1%) (2,272,703)
------- ------------
NET ASSETS (Applicable to
9,687,278 Institutional shares,
4,166,735 Service shares and
490,591 Series A Investor
shares outstanding) 100.0% $215,866,373
======= ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL SHARE
($145,914,595 / 9,687,278) $15.06
======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($62,604,171 / 4,166,735) $15.02
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($7,347,607 / 490,591) $14.98
======
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($14.98 / .955) $15.69
======
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $66,856,668
Gross unrealized depreciation (587,243)
-----------
$66,269,425
===========
** Non-income producing security.
See accompanying notes to financial statements.
20
<PAGE>
THE PNC(R) FUND
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS -- 75.4%
AEROSPACE -- 1.9%
Boeing Co. 43,000 $ 2,934,750
United Technologies Corp. 38,000 3,358,250
------------
6,293,000
------------
BANKS -- 3.6%
BankAmerica Corp. 39,000 2,335,125
Boatmen's Bancshares, Inc. 65,000 2,405,000
Citicorp 49,000 3,466,750
NationsBank Corp. 52,000 3,497,000
------------
11,703,875
------------
BEVERAGES -- 1.5%
Coca-Cola Co. 23,500 1,621,500
Pepsico, Inc. 62,000 3,162,000
------------
4,783,500
------------
CHEMICALS -- 3.0%
Air Products & Chemicals, Inc. 47,000 2,449,875
Dow Chemical Co. 30,000 2,235,000
E.I. Dupont
de Nemours & Co. 43,000 2,956,250
PPG Industries, Inc. 29,000 1,348,500
Rohm & Haas Co. 13,000 784,875
------------
9,774,500
------------
COMPUTER & OFFICE EQUIPMENT -- 3.7%
Adaptec, Inc. 53,000 2,186,250
Compaq Computer Corp. 58,000** 2,805,750
Intel Corp. 67,000 4,028,375
International Business
Machines Corp. 33,000 3,114,375
------------
12,134,750
------------
COMPUTER SOFTWARE & SERVICES -- 0.9%
Bay Networks 55,000** 2,935,625
------------
CONSTRUCTION -- 2.6%
Fluor Corp. 37,000 2,072,000
Foster Wheeler Corp. 33,000 1,167,375
Halliburton Co. 56,600 2,363,050
Masco Corp. 100,000 2,750,000
------------
8,352,425
------------
ELECTRONICS -- 6.4%
Emerson Electric Co. 51,000 3,646,500
General Electric Co. 106,100 6,763,875
General Instruments 76,000** 2,280,000
Motorola, Inc. 57,000 4,353,375
Texas Instruments, Inc. 47,000 3,754,125
------------
20,797,875
------------
ENERGY & UTILITIES -- 2.0%
Cinergy Corp. 24,200 674,575
FPL Group, Inc. 27,000 1,103,625
Northern States Power Co.,
Minnesota 20,000 907,500
PECO Energy Co. 79,000 2,261,375
Southern Co. 63,000 1,488,375
------------
6,435,450
------------
ENTERTAINMENT & LEISURE -- 2.1%
Carnival Cruise Lines 130,200 3,124,800
Walt Disney Co. 63,000 3,614,625
------------
6,739,425
------------
FINANCE -- 3.2%
Dean Witter Discover & Co. 56,000 3,150,000
Federal National Mortgage
Association 42,000 4,347,000
Fleet Financial Group, Inc. 75,000 2,831,250
------------
10,328,250
------------
FOOD & AGRICULTURE -- 4.6%
Burlington Northern
Santa Fe Corp. 41,000 2,972,500
CPC International, Inc. 46,000 3,036,000
CSX Corp. 18,200 1,531,075
H.J. Heinz Co. 45,000 2,058,750
Pioneer Hi-Bred
International, Inc. 70,000 3,220,000
Sara Lee Corp. 76,000 2,261,000
------------
15,079,325
------------
INSURANCE -- 4.5%
American International
Group, Inc. 53,500 4,547,500
General Re Corp. 25,000 3,775,000
Humana, Inc. 90,500** 1,821,313
Marsh & Mc-Lennan Cos., Inc. 20,000 1,757,500
United Healthcare Corp. 56,600 2,766,325
------------
14,667,638
------------
MACHINERY & HEAVY EQUIPMENT -- 1.1%
Illinois Tool Works, Inc. 33,000 1,942,875
Novellus System, Inc. 25,000** 1,750,000
------------
3,692,875
------------
MEDICAL & MEDICAL SERVICES -- 0.4%
Columbia Healthcare Corp. 30,000 1,458,750
------------
See accompanying notes to financial statements.
21
<PAGE>
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
METAL & MINING -- 1.2%
Alumax, Inc. 40,000** $ 1,350,000
Minnesota Mining &
Manufacturing Co. 43,000 2,429,500
------------
3,779,500
------------
MOTOR VEHICLES -- 1.4%
Cummins Engine, Inc. 48,000 1,848,000
Ford Motor Co. 91,000 2,832,375
------------
4,680,375
------------
OIL & GAS -- 5.6%
Atlantic Richfield Co. 24,000 2,577,000
Exxon Corp. 44,800 3,236,800
Kerr-McGee Corp. 57,500 3,191,250
Noble Affiliates, Inc. 69,800 1,840,975
Royal Dutch Petroleum Co. 24,000 2,946,000
Schlumberger LTD. 28,000 1,827,000
Unocal Corp. 94,000 2,679,000
------------
18,298,025
------------
PAPER & FOREST PRODUCTS -- 1.0%
Crown Vantage, Inc. 5,000** 111,250
International Paper Co. 38,000 1,596,000
James River Corp. of Virginia 50,000 1,600,000
------------
3,307,250
------------
PHARMACEUTICALS -- 6.5%
American Home Products Corp. 42,000 3,564,750
Avon Products, Inc. 37,000 2,654,750
Eli Lilly & Co. 39,000 3,505,125
Johnson & Johnson 44,000 3,261,500
Merck & Co., Inc. 52,500 2,940,000
Pfizer, Inc. 55,600 2,967,650
US Healthcare, Inc. 69,000 2,440,875
------------
21,334,650
------------
PUBLISHING & PRINTING -- 2.0%
A.H. Belo Corp. 73,000 2,509,375
McGraw Hill Cos., Inc. 22,000 1,798,500
News Corp. Ltd. ADR 106,000 2,332,000
------------
6,639,875
------------
RESTAURANTS -- 0.4%
Wendy's International, Inc. 67,000 1,415,375
------------
RETAIL MERCHANDISING -- 4.2%
Family Dollar Stores, Inc. 110,000 2,090,000
Home Depot, Inc. 50,000 1,993,750
J. C. Penney Co., Inc. 39,000 1,935,375
Limited, Inc. 110,000 2,090,000
May Department Stores Co. 44,000 1,925,000
Wal-Mart Stores., Inc. 146,000 3,631,750
------------
13,665,875
------------
SOAPS & COSMETICS -- 2.2%
Colgate-Palmolive Co. 55,000 3,664,375
Dial Corp. 140,000 3,465,000
------------
7,129,375
------------
TELECOMMUNICATIONS -- 7.7%
Alltel Corp. 109,000 3,256,375
AT&T Corp. 56,000 3,682,000
Bell Atlantic Corp. 43,000 2,639,125
Frontier Corp. 103,000 2,742,375
GTE Corp. 77,000 3,022,250
Oracle Corp. 92,000 3,530,500
SBC Communications, Inc. 72,000 3,960,000
Vodafone Group 49,000 2,009,000
------------
24,841,625
------------
TOBACCO -- 1.2%
Philip Morris Cos., Inc. 48,000 4,008,000
------------
TRANSPORTATION -- 0.5%
Conrail Corp. 25,500 1,753,125
------------
TOTAL COMMON STOCKS
(Cost $214,295,309) 246,030,313
------------
PAR
MATURITY (000)
--------- ---------
CORPORATE BONDS -- 0.5%
Apache Corp.
6.00% 01/15/02 $ 1,400 1,547,000
(Cost $1,400,000)
------------
U.S. TREASURY BILLS -- 0.8%
5.19% 12/21/95 2,000*** 1,975,872
5.28% 12/21/95 800*** 790,351
------------
TOTAL U.S. TREASURY BILLS
(Cost $2,767,141) 2,766,223
------------
See accompanying notes to financial statements.
22
<PAGE>
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- ------------
AGENCY OBLIGATIONS -- 23.2%
FEDERAL HOME LOAN BANK DISCOUNT
NOTES -- 9.4%
6.30% 10/02/95 $30,615 $ 30,609,642
FEDERAL HOME LOAN MORTGAGE
CORPORATION DISCOUNT
NOTES -- 13.8%
5.60% 10/05/95 45,000 44,972,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $75,581,642) 75,581,642
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $294,044,092*) 99.9% 325,925,178
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 401,291
------- ------------
NET ASSETS (Applicable to
20,093,724 Institutional
shares, 7,044,608 Service
shares, and 320,632 Series A
Investor shares outstanding) 100.0% $326,326,469
======= ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($326,326,469 / 27,458,964) $11.88
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $11.88
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($11.88 / .955) $12.44
======
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $33,405,313
Gross unrealized depreciation (1,524,227)
-----------
$31,881,086
===========
** Non-income producing security.
*** Principal amount of securities pledged as initial
margin requirement of $2,570,000 on 257 Standard &
Poor's 500 Stock Index futures contracts expiring
December 1995.
See accompanying notes to financial statements.
23
<PAGE>
THE PNC(R) FUND
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS -- 97.9%
ADVERTISING -- 0.0%
Interpublic Group of Cos., Inc. 200 $ 7,950
------------
AEROSPACE -- 2.0%
Boeing Co. 12,500 853,124
General Dynamics Corp. 2,900 159,137
Lockheed Martin Corp. 17,353 1,164,820
Mc Donnell Douglas Corp. 3,200 264,800
Northrop Grumman Corp. 2,200 133,924
Rockwell International Corp. 9,400 444,150
Textron, Inc. 3,200 218,400
United Technologies Corp. 4,400 388,850
------------
3,627,205
------------
AIR TRANSPORTATION -- 0.4%
AMR Corp. 2,700** 194,737
Delta Air Lines, Inc. 2,300 159,274
Federal Express Corp. 1,900** 157,700
Southwest Airlines Co. 6,100 154,024
U.S. Air Group, Inc. 2,800** 32,200
------------
697,935
------------
APPAREL -- 0.7%
Brown Group, Inc. 600 11,024
Charming Shoppes, Inc. 4,900 22,050
Gap, Inc. 5,900 212,400
Hartmarx Corp. 1,500 9,000
Limited, Inc. 15,600 296,400
Liz Claiborne, Inc. 3,700 93,424
Nike, Inc. 2,400 266,700
Oshkosh B' Gosh, Inc. 600 9,600
Reebok International, LTD. 3,900 134,062
Russell Corp. 1,900 48,450
Spring Industries, Inc. 600 23,550
Stride Rite Corp. 2,300 26,162
V.F. Corp. 2,200 112,200
------------
1,265,022
------------
AUTOMOTIVE -- 2.5%
Chrysler Corp. 15,300 810,900
Cummins Engine Co., Inc. 1,900 73,150
Dana Corp. 4,700 135,712
Eaton Corp. 2,700 143,100
Echlin, Inc. 2,700 96,524
Ford Motor Co. 42,800 1,332,150
General Motors Corp. 31,600 1,481,250
Genuine Parts Co. 5,000 200,624
Navistar International Corp. 1,620** 19,440
S.P.X. Corp. 600 8,924
Skyline Corp. 600 10,800
Strattec Security Corp. 320** 4,560
T.R.W., Inc. 2,000 148,750
------------
4,465,884
------------
BANKS -- 5.6%
Banc One Corp. 16,045 585,642
Bank of Boston Corp. 6,400 304,800
BankAmerica Corp. 14,712 880,880
Bankers Trust New York Corp. 4,700 330,174
Barnett Banks, Inc. 3,800 215,174
Boatmen's Bancshares, Inc. 7,300 270,100
Chase Manhattan Corp. 7,600 464,550
Chemical Banking Corp. 9,230 561,875
Citicorp 15,800 1,117,850
CoreStates Financial Corp. 6,500 238,062
First Chicago Corp. 3,500 240,187
First Fidelity Bancorp 3,200 216,000
First Interstate Bancorp 2,300 231,724
First Union Corp. 7,660 390,660
Fleet Financial Group, Inc. 7,700 290,674
Keycorp 9,800 335,650
MBNA Corp. 8,650 360,055
Mellon Bank Corp. 6,250 278,905
N.B.D. Bancorp, Inc. 7,250 277,312
Nationalcity Corp. 8,700 268,612
NationsBank Corp. 10,847 729,460
Norwest Corp. 13,900 455,224
Shawmut National Corp. 7,000 235,374
Suntrust Banks, Inc. 4,200 277,724
U.S. Bancorp 4,950 139,837
Wells Fargo & Co. 1,500 278,437
------------
9,974,942
------------
BEVERAGES -- 3.8%
Anheuser-Busch Cos., Inc. 10,700 667,412
Brown-Forman Corp. 3,200 124,400
Coca Cola Co. 52,700 3,636,300
Coors Adolph Co. 1,700 30,493
Pepsico, Inc. 33,500 1,708,500
Seagram Co., Ltd. 14,500 520,187
------------
6,687,292
------------
BROADCASTING -- 0.9%
Capital Cities ABC, Inc. 3,800 446,974
CBS, Inc. 2,300 183,712
Comcast Corp. 11,350 227,000
Cox Communications, Inc. 3,692** 74,762
Tele Communications, Inc. 25,900** 454,868
Viacom, Inc. 5,913 294,171
------------
1,681,487
------------
See accompanying notes to financial statements.
24
<PAGE>
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
BUSINESS MACHINES -- 2.0%
D.S.C. Communication Corp. 4,400** $ 260,700
Harris Computer Systems Corp. 90** 1,518
Intergraph Corp. 2,000** 24,250
International Business
Machines Corp. 24,500 2,312,187
Pitney Bowes, Inc. 6,300 264,600
Unisys Corp. 8,300** 65,362
Xerox Corp. 4,000 537,500
------------
3,466,117
------------
BUSINESS SERVICES -- 0.7%
Alco Standard Corp. 1,600 135,600
Automatic Data Processing, Inc. 5,900 401,937
Deluxe Corp. 4,000 132,500
Ecolab, Inc. 2,800 77,350
First Data Corp. 4,700 291,400
John H. Harland Co. 1,500 33,187
Moore Corp., Ltd. 4,600 92,574
National Education Corp. 1,300 10,400
Ogden Corp. 2,000 47,000
Shared Medical Systems Corp. 900 37,350
------------
1,259,298
------------
CHEMICALS -- 3.5%
Air Products & Chemicals, Inc. 4,500 234,562
B.F. Goodrich Co. 1,000 65,874
Dow Chemical Co. 11,600 864,200
E.I. Dupont de Nemours & Co. 25,900 1,780,624
Eastman Chemical Co. 3,125 200,000
Engelhard Corp. 5,637 143,038
F.M.C. Corp. 1,600 121,600
First Mississippi Corp. 1,000 39,874
Great Lakes Chemical Corp. 2,200 148,774
Hercules, Inc. 4,600 266,800
Mallinckrodt Group, Inc. 3,700 146,612
Monsanto Co. 3,900 392,924
Morton International, Inc. 6,100 189,100
Nalco Chemical Co. 3,300 112,612
P.P.G. Industries, Inc. 8,500 395,250
Praxair, Inc. 5,900 157,825
Rohm & Haas Co. 2,200 132,825
Safety-Kleen Corp. 2,700 39,488
Sherwin Williams Co. 4,000 140,000
Sigma Aldrich Corp. 2,300 111,550
Union Carbide Corp. 5,600 222,600
W.R. Grace & Co. 3,500 233,625
------------
6,139,757
------------
COMPUTER AND OFFICE EQUIPMENT -- 4.3%
Amdahl Corp. 5,600** 53,900
Apple Computer, Inc. 4,900 182,525
Autodesk, Inc. 2,300 100,625
Ceridian Corp. 2,000** 88,750
Compaq Computer Corp. 10,800** 522,450
Computer Associates
International, Inc. 9,500 401,375
Computer Sciences Corp. 2,500 160,938
Cray Research, Inc. 1,100** 24,338
Data General Corp. 1,500** 15,563
Digital Equipment Corp. 6,200** 282,875
Intel Corp. 34,200 2,056,275
Microsoft Corp. 24,500** 2,217,250
Novell, Inc. 15,600** 284,700
Oracle Systems Corp. 18,200** 698,425
Silicon Graphics, Inc. 6,600 226,875
Sun Microsystems, Inc. 3,560** 224,280
Tandem Computers, Inc. 5,500** 67,375
------------
7,608,519
------------
CONGLOMERATES -- 0.2%
I.T.T. Corp. 3,500 434,000
------------
CONSTRUCTION -- 1.0%
Armstrong World Industries,
Inc. 1,700 94,350
Centex Corp. 1,300 37,700
Corning, Inc. 8,700 249,038
Fluor Corp. 3,100 173,600
Foster Wheeler Corp. 1,600 56,600
Halliburton Co. 4,500 187,875
Home Depot, Inc. 20,382 812,732
Kaufman & Broad Home Corp. 1,500 18,938
Morrison Knudson Corp. 1,300 10,075
Owens-Corning
Fiberglass Corp. 1,900** 84,788
Pulte Corp. 1,100 31,213
------------
1,756,909
------------
CONSUMER DURABLES -- 0.3%
Bassett Furniture,
Industries, Inc. 750 18,844
Black & Decker Corp. 4,000 136,500
Maytag Corp. 5,100 89,250
Newell Co. 6,400 158,400
Outboard Marine Corp. 700 15,050
Whirlpool Corp. 2,800 161,700
Zenith Electronics Corp. 1,800 15,525
------------
595,269
------------
See accompanying notes to financial statements.
25
<PAGE>
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
CONSUMER NON-DURABLES -- 0.3%
Brunswick Corp. 4,300 $ 87,075
Handleman Co. 1,500 13,313
Premark International, Inc. 2,800 142,450
Rubbermaid, Inc. 6,700 185,088
Service Corp. International 4,100 160,413
------------
588,339
------------
CONTAINERS -- 0.1%
Ball Corp. 1,400 41,475
Bemis Co., Inc. 2,300 63,538
Crown Cork & Seal Co., Inc. 3,400 131,750
------------
236,763
------------
DRUGS AND HEALTH CARE -- 7.7%
Abbott Laboratories, Inc. 33,600 1,432,200
Allergan, Inc. 3,000 100,125
Alza Corp. 3,900** 89,700
American Home Products Corp. 13,100 1,111,863
Amgen, Inc. 11,100 553,613
Bristol-Myers Squibb Co. 21,900 1,595,963
Community Psychiatric Centers 2,100 24,675
Eli Lilly & Co. 12,000 1,078,500
Johnson & Johnson 27,300 2,023,613
Manor Care, Inc. 2,950 100,300
Merck & Co., Inc. 44,000 2,464,000
Pfizer, Inc. 26,800 1,430,450
Schering Plough Corp. 15,000 772,500
U. S. Surgical, Corp. 2,700 72,225
UpJohn Co. 6,700 298,988
Warner Lambert Co. 5,500 523,875
------------
13,672,590
------------
ELECTRONICS -- 4.7%
A.M.P., Inc. 10,364 399,014
Advanced Micronic Devices, Inc. 4,000** 116,500
Andrew Corp. 1,725** 105,441
Applied Materials, Inc. 3,000 306,750
E.G.& G., Inc. 2,600 50,700
Emerson Electric Co. 10,600 757,900
General Signal Corp. 2,300 67,275
Harris Corp. 1,800 98,775
Hewlett Packard Co. 20,700 1,725,863
Honeywell, Inc. 5,000 214,375
Johnson Controls, Inc. 1,800 113,850
Loral Corp. 3,100 176,700
Micron Technology, Inc. 8,000 636,000
Motorola, Inc. 24,100 1,840,638
National Semiconductor Corp. 5,800** 160,225
Raytheon Co. 4,900 416,500
Scientific Atlanta Corp. 3,600 60,750
Tektronix, Inc. 1,200 70,800
Teledyne, Inc. 2,600 70,525
Texas Instruments, Inc. 7,200 575,100
Thomas & Betts Corp. 900 58,163
Westinghouse Electric Corp. 18,700 280,500
------------
8,302,344
------------
ENERGY AND RAW MATERIALS -- 2.3%
Baker Hughes, Inc. 5,700 116,138
Dresser Industries, Inc. 7,700 183,838
Eastern Enterprises 900 28,913
Helmerich & Payne, Inc. 1,000 28,125
Royal Dutch Petroleum Co. 22,300 2,737,325
Schlumberger, LTD. 10,600 691,650
USX-Marathon Group, Inc. 12,600 248,850
------------
4,034,839
------------
ENERGY AND UTILITIES -- 4.8%
American Electric
Power Co., Inc. 8,000 291,000
Baltimore Gas & Electric Co. 8,000 207,000
Carolina Power & Light Co. 6,700 225,288
Central & South West Corp. 10,200 260,100
Cinergy Corp. 11,375 317,078
Coastal Corp. 5,850 196,706
Columbia Gas System, Inc. 2,300** 88,838
Consolidated Edison Co., Inc. 9,500 288,563
Consolidated Natural Gas Co. 5,300 213,988
Detroit Edison Co. 5,900 190,275
Dominion Resources, Inc. 7,350 276,544
Duke Power Co. 8,900 386,038
Enron Corp. 10,000 335,000
Enserch Corp. 3,200 52,800
Entergy Corp. 9,900 258,638
F.P.L. Group, Inc. 7,800 318,825
General Public Utilities Corp. 6,400 199,200
Houston Industries, Inc. 5,200 229,450
Niagara Mohawk Power Corp. 6,600 86,625
Nicor, Inc. 2,500 68,125
Noram Energy Corp. 6,000 47,250
Northern States Power Co. 3,200 145,200
Ohio Edison Co. 7,400 168,350
Oneok, Inc. 1,100 25,575
Oryx Energy Co. 4,400 57,200
Pacific Enterprises 3,800 95,475
Pacific Gas & Electric Co. 17,400 519,825
Pacificorp 11,600 220,400
Panhandle Eastern Corp. 6,100 166,225
PECO Energy Co. 10,000 286,250
See accompanying notes to financial statements.
26
<PAGE>
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES (CONTINUED)
Peoples Energy Corp. 1,500 $ 41,250
Public Service Enterprise
Group, Inc. 10,100 300,475
SCECORP 18,900 335,475
Sonat, Inc. 4,100 131,200
Southern Co. 28,300 668,588
Texas Utilities Co. 9,500 331,313
Unicom Corp. 9,600 290,400
Union Electric Co. 6,100 227,988
------------
8,548,520
------------
FINANCE -- 3.4%
Beneficial Corp. 4,200 219,450
Dean Witter Discover & Co. 9,011 506,869
Federal Home Loan
Mortgage Corp. 8,100 559,913
Federal National Mortgage
Association 12,300 1,273,050
Golden West Financial Corp. 4,500 227,250
Great Western Financial Corp. 9,700 230,375
H.F. Ahmanson & Co. 8,900 225,838
Household International, Inc. 5,300 328,600
J.P. Morgan & Co., Inc. 7,600 588,050
Merrill Lynch & Co., Inc. 8,700 543,750
Salomon, Inc. 6,700 256,275
Travelers Group, Inc. 15,647 831,247
Wachovia Corp. 5,300 228,563
------------
6,019,230
------------
FOOD AND AGRICULTURE -- 2.8%
Archer-Daniels-Midland Co. 22,230 341,786
C.P.C. International, Inc. 6,100 402,600
Campbell Soup Co. 10,200 512,550
Conagra, Inc. 9,800 388,325
Fleming Cos., Inc. 1,700 40,800
General Mills, Inc. 6,500 362,375
H.J. Heinz Co. 10,700 489,525
Hershey Foods Corp. 2,700 173,813
Kellogg Co. 8,900 644,138
Pioneer HI Bred
International, Inc. 1,300 59,800
Quaker Oats Co. 5,400 178,875
Ralcorp Holdings, Inc. 2,033** 48,030
Ralston Purina Group 4,000 231,500
Sara Lee Corp. 20,400 606,900
Sysco Corp. 7,700 209,825
W.M. Wrigley Jr., Co. 4,600 232,300
------------
4,923,142
------------
INSURANCE -- 3.5%
Aetna Life & Casualty Co. 4,300 315,513
Alexander & Alexander
Services, Inc. 1,900 46,075
Allstate Corp. 19,189 678,811
American General Corp. 8,800 328,900
American International
Group, Inc. 19,962 1,696,770
Chubb Corp. 2,700 259,200
Cigna Corp. 2,600 270,725
General Re Corp. 2,800 422,800
Jefferson Pilot Corp. 2,250 144,563
Lincoln National Corp. 3,500 164,938
Marsh & Mc Lennan Cos., Inc. 2,400 210,900
Providian Corp. 3,700 153,550
Safeco Corp. 2,000 131,250
St. Paul Cos., Inc. 3,000 175,125
Torchmark Corp. 3,300 139,013
Transamerica Corp. 2,400 171,000
U.S. Life Corp. 1,275 37,294
U.S.F. & G. Corp. 4,200 81,375
United Healthcare Corp. 7,400 361,675
UNUM Corp. 4,700 247,925
US Healthcare, Inc. 6,600 233,475
------------
6,270,877
------------
MACHINERY AND HEAVY EQUIPMENT -- 0.4%
Caterpillar, Inc. 8,800 500,500
Deere & Co. 2,500 203,438
Giddings & Lewis, Inc. 1,600 27,900
Mc Dermott International, Inc. 2,600 51,350
------------
783,188
------------
MANUFACTURING -- 1.2%
AlliedSignal, Inc. 11,300 498,613
Avery Dennison Corp. 2,500 105,000
Masco Corp. 8,600 236,500
Millipore Corp. 2,400 90,000
Minnesota Mining &
Manufacturing Co. 17,600 994,400
Nacco Industries, Inc. 500 29,688
National Service Industries,
Inc. 2,300 67,275
Whitman Corp. 4,800 99,000
------------
2,120,476
------------
MEDIA -- 0.9%
Gannett Co., Inc. 5,600 305,900
King World Productions, Inc. 1,600** 58,600
Knight-Ridder, Inc. 2,300 134,838
New York Times Co. 4,700 128,663
Telecommunications Inc. 8,225 220,019
See accompanying notes to financial statements.
27
<PAGE>
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
MEDIA (CONTINUED)
Time-Warner, Inc. 16,500 $ 655,875
Tribune Co. 2,200 146,025
------------
1,649,920
------------
MEDICAL AND MEDICAL SERVICES -- 0.1%
Beverly Enterprises, Inc. 3,800 52,250
Tenet Healthcare Corp. 8,800 152,900
------------
205,150
------------
MEDICAL INSTRUMENTS AND SUPPLIES -- 1.1%
Bausch & Lomb, Inc. 2,800 115,850
Baxter International, Inc. 11,600 477,050
Becton, Dickinson & Co. 2,200** 138,325
Biomet, Inc. 5,400 93,150
Boston Scientific Corp. 6,500 277,063
C.R. Bard, Inc. 2,500 76,250
Medtronic, Inc. 9,400 505,250
Perkin Elmer Corp. 2,000 71,250
St. Jude Medical, Inc. 2,100 132,825
------------
1,887,013
------------
METALS AND MINING -- 1.3%
Alcan Aluminum, Ltd. 9,000 291,375
Aluminum Co. of America 6,900 364,838
ASARCO, Inc. 1,900 59,850
Barrick Gold Corp. 14,500 375,188
Cyprus Amax Minerals Co. 4,350 122,344
Echo Bay Mines, Ltd. 5,200 56,550
Homestake Mining Co. 6,500 110,500
Inco, Ltd. 5,600 191,800
Newmont Mining Corp. 3,192 135,660
Phelps Dodge Corp. 2,300 144,038
Placer Dome, Inc. 9,300 244,125
Reynolds Metals Co. 2,000 115,500
Santa Fe Pacific Gold Corp. 5,551** 70,081
------------
2,281,849
------------
OIL DOMESTIC -- 1.6%
Ashland, Inc. 2,800 93,450
Atlantic Richfield Co. 7,000 751,625
Burlington Resources, Inc. 1,000 38,750
Kerr-McGee Corp. 2,300 127,650
Louisiana Land &
Exploration Co. 1,500 53,438
Occidental Petroleum Corp. 13,300 292,600
Pennzoil Co. 2,100 92,138
Phillips Petroleum Co. 10,900 354,250
Rowan Cos., Inc. 3,500** 26,250
Santa Fe Energy
Resources, Inc. 3,980 37,810
Sun Co., Inc. 2,600 66,950
Tenneco, Inc. 7,300 337,625
Unocal Corp. 9,400 267,900
Western Atlas, Inc. 2,200** 104,225
Williams Cos., Inc. 4,557 177,723
------------
2,822,384
------------
OIL INTERNATIONAL -- 4.9%
Amerada Hess Corp. 3,300 160,463
Amoco Corp. 21,400 1,372,275
Chevron Corp. 27,500 1,337,188
Exxon Corp. 47,200 3,410,200
Mobil Corp. 17,500 1,743,438
Texaco, Inc. 10,500 678,563
------------
8,702,127
------------
PAPER AND FOREST PRODUCTS -- 1.8%
Boise Cascade Corp. 1,700 68,638
Champion International, Inc. 3,400 183,175
Crown Vantage, Inc. 380 8,336
Federal Paper Board, Inc. 1,900 72,913
Georgia Pacific Corp. 3,400 297,500
International Paper Co. 10,800 453,600
James River Corp. 3,800 121,600
Kimberly Clark Corp. 6,600 443,025
Louisiana-Pacific Corp. 5,100 123,038
Mead Corp. 2,800 164,150
Potlatch Corp. 1,200 49,050
Scott Paper Co. 5,500 266,750
Stone Container Corp. 4,086 77,634
Temple Inland, Inc. 2,600 138,450
Union Camp Corp. 2,500 144,063
Westvaco Corp. 3,200 146,000
Weyerhaeuser Co. 9,000 410,625
------------
3,168,547
------------
PERSONAL SERVICES -- 0.1%
H&R Block, Inc. 6,000 228,000
------------
PHOTOGRAPHIC EQUIPMENT -- 0.5%
Eastman Kodak Co. 14,100 835,425
Polaroid Corp. 2,100 83,475
------------
918,900
------------
PRODUCER GOODS -- 3.4%
Briggs & Stratton Corp. 1,400 56,350
Cincinnati Milacron, Inc. 1,600 50,400
Cooper Industries, Inc. 6,500 229,125
See accompanying notes to financial statements.
28
<PAGE>
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
PRODUCER GOODS (CONTINUED)
Crane Co. 1,350 $ 46,575
Dover Corp. 4,000 153,000
General Electric Co. 60,300 3,844,125
Harnischfeger Industries, Inc. 1,376 45,924
Illinois Tool Works, Inc. 4,800 282,600
Ingersoll Rand Co. 3,900 146,250
Paccar, Inc. 1,800 84,150
Pall Corp. 5,366 124,760
Parker-Hannifin Corp. 3,450 131,100
Raychem Corp. 1,900 85,500
Snap ON, Inc. 2,000 76,000
Stanley Works 1,900 82,413
Timken Co. 1,300 55,413
Trinova Corp. 1,200 40,500
Tyco International, LTD. 2,900 182,700
Varity Corp. 1,490** 66,305
W.W. Grainger, Inc. 1,600 96,600
Worthington Industries, Inc. 4,200 77,175
Zurn Industries, Inc. 500 12,688
------------
5,969,653
------------
PUBLISHING -- 0.8%
American Greetings Corp. 3,400 103,700
Dow Jones & Co., Inc. 3,700 136,438
Dun & Bradstreet Corp. 8,500 491,938
Mc Graw Hill Companies, Inc. 1,600 130,800
Meredith Corp. 1,200 47,700
R.R. Donnelly & Sons, Inc. 6,400 249,600
Times Mirror Co. 6,000 172,500
------------
1,332,676
------------
RAILROADS AND SHIPPING -- 1.1%
Burlington Northern
Santa Fe Corp. 5,748 416,730
C.S.X. Corp. 4,000 336,500
Consolidated Rail Corp. 2,900 199,375
Norfolk Southern Corp. 4,900 366,275
Union Pacific Corp. 8,700 576,375
------------
1,895,255
------------
RESTAURANTS -- 0.8%
Darden Restaurants 8,500 97,750
Luby's Cafeterias, Inc. 1,150 24,725
Mc Donald's Corp. 29,000 1,109,250
Ryan's Family Steak
Houses, Inc. 2,700** 21,263
Shoney's, Inc. 1,900** 20,900
Wendy's International, Inc. 4,800 101,400
------------
1,375,288
------------
RETAIL MERCHANDISING -- 4.4%
Albertsons, Inc. 11,200 382,200
American Stores Co. 6,200 175,925
Brunos Inc. 107 1,221
Circuit City Stores, Inc. 4,500 142,313
Dayton Hudson Corp. 2,400 182,100
Dillard Department Stores, Inc. 5,400 172,125
Giant Food, Inc. 2,800 87,850
Great Atlantic & Pacific
Tea Co., Inc. 1,700 47,600
Harcourt General, Inc. 3,500 146,563
Hasbro, Inc. 4,200 130,725
J.C. Penney Co., Inc. 9,500 471,438
Jostens, Inc. 2,100 49,350
K Mart Corp. 19,000 275,500
Kroger Co. 5,500** 187,688
Longs Drug Stores, Inc. 800 33,200
Lowe's Companies, Inc. 6,800 204,000
Mattel, Inc. 8,362 245,634
May Department Stores Co. 10,300 450,625
Melville Corp. 5,900 203,550
Mercantile Stores Co., Inc. 1,700 76,500
Nordstrom, Inc. 2,800 116,900
Pep Boys-Manny, Moe & Jack 2,900 78,663
Price Costco, Inc. 7,238** 123,951
Rite Aid Corp. 4,000 112,000
Sears, Roebuck & Co. 14,700 542,063
Super Valu, Inc. 3,400 99,875
T.J.X. Cos., Inc. 3,500 41,563
Tandy Corp. 2,000 121,500
Toys "R" Us, Inc. 6,300** 170,100
Wal-Mart Stores, Inc. 91,600 2,278,550
Walgreen Co. 8,800 246,400
Winn-Dixie Stores, Inc. 2,700 160,988
Woolworth Corp. 6,200 97,650
------------
7,856,310
------------
SOAPS AND COSMETICS -- 2.8%
Alberto-Culver Co. 1,200 36,600
Avon Products, Inc. 2,200 157,850
Clorox Co. 2,500 178,438
Colgate-Palmolive Co. 5,400 359,775
Dial Corp. 4,300 106,425
See accompanying notes to financial statements.
29
<PAGE>
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
SOAPS AND COSMETICS (CONTINUED)
Gillette Co. 19,500 $ 928,688
International Flavors &
Fragrances, Inc. 3,700 178,525
Procter & Gamble Co. 28,416 2,188,032
Unilever N.V. 6,100 793,000
------------
4,927,333
------------
STEEL -- 0.2%
Armco, Inc. 5,100** 33,150
Bethlehem Steel Corp. 5,000** 70,625
Inland Steel Industries, Inc. 2,100** 47,775
Nucor Corp. 3,300 147,675
USX-US Steel Group, Inc. 3,500 108,500
------------
407,725
------------
TELECOMMUNICATIONS -- 9.1%
Airtouch Communications, Inc. 21,300 652,313
Alltel Corp. 7,800 233,025
Ameritech Corp. 23,100 1,204,088
AT&T Corp. 65,720 4,321,090
Bell Atlantic Corp. 18,400 1,129,300
Bellsouth Corp. 20,900 1,528,313
G.T.E. Corp. 39,900 1,566,075
MCI Communications Corp. 27,600 719,325
Northern Telecom, Ltd. 9,900 352,688
NYNEX Corp. 17,700 845,175
Pacific Telesis Group 17,700 544,275
SBC Communications, Inc. 25,600 1,408,000
Sprint Corp. 14,900 521,500
U.S. West, Inc. 19,500 918,938
------------
15,944,105
------------
TIRES AND RUBBER -- 0.2%
Cooper Tire & Rubber Co. 4,000 97,000
Goodyear Tire & Rubber Co. 6,300 248,063
------------
345,063
------------
TOBACCO -- 2.0%
American Brands, Inc. 7,600 321,100
Philip Morris Cos., Inc. 36,000 3,006,000
U.S.T., Inc. 8,400 240,450
------------
3,567,550
------------
TRAVEL AND RECREATION -- 1.0%
Bally Entertainment Corp. 2,200** 23,925
Fleetwood Enterprises, Inc. 2,200 43,725
Harrahs Entertainment Inc. 3,800 111,150
Hilton Hotels Corp. 1,500 95,813
Marriott International, Inc. 4,800 179,400
Promus Hotel Corp. 2,900** 65,975
Walt Disney Co. 21,800 1,250,775
------------
1,770,763
------------
TRUCKING AND FREIGHT -- 0.2%
Consolidated Freightways, Inc. 1,800 44,550
Pittston Services Group 2,000 54,250
Roadway Services, Inc. 1,800 89,550
Ryder System, Inc. 3,600 91,350
Yellow Corp. 1,100 15,125
------------
294,825
------------
WASTE MANAGEMENT -- 0.5%
Browning-Ferris Industries,
Inc. 8,700 264,263
Rollins Environmental
Services, Inc. 2,800 13,650
WMX Technologies, Inc. 20,800 592,800
------------
870,713
------------
TOTAL COMMON STOCK
(Cost $133,133,449) 173,589,043
------------
PREFERRED STOCK -- 0.0%
MANUFACTURING
Teledyne, Inc. Preferred 80 1,110
------------
(Cost $756)
PAR
MATURITY (000)
--------- ---------
U.S. TREASURY BILLS -- 0.7%
5.215% 12/21/95 $ 1,300*** 1,284,746
(Cost $1,284,746) ------------
AGENCY OBLIGATIONS -- 1.3%
Federal Home Loan Bank
Discount Notes
6.30% 10/02/95 2,375 2,374,584
(Cost $2,374,584) ------------
See accompanying notes to financial statements.
30
<PAGE>
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money
Market Fund
(Cost $5,181) 5,181 $ 5,181
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $136,798,716*) 99.9% 177,254,664
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 215,126
------ ------------
NET ASSETS(Applicable to
8,056,999 Institutional shares,
4,531,249 Service shares and
478,864 Series A Investor
shares outstanding) 100.0% $177,469,790
====== ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($177,469,790 / 13,067,112) $13.58
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE
($6,500,597 / 478,864) $13.58
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($13.58 / .955) $14.22
======
- ---------------
* Cost for Federal income tax purposes is $136,871,778. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $42,858,561
Gross unrealized depreciation (2,475,675)
-----------
$40,382,886
===========
** Non-income producing security.
*** Principal amount of securities pledged as initial margin requirement of
$160,000 on 16 Standard & Poor's 500 Stock Index futures contracts expiring
December 1995.
See accompanying notes to financial statements.
31
<PAGE>
THE PNC(R) FUND
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS -- 95.4%
AEROSPACE -- 0.3%
Coltec Industries, Inc. 53,900 $ 646,800
------------
BANKS -- 9.4%
Albank Financial Corp. 81,600 2,448,000
Amfed Financial, Inc. 82,170 2,588,355
Bankatlantic Bancorp, Inc. 101,250 1,936,406
Banknorth Group, Inc. 90,200 2,999,150
Commerce Bancorp, Inc. 198,100 4,729,637
Long Island Bancorp, Inc. 136,400 3,341,800
Mercantile Bankshares Corp. 46,950 1,279,388
Security Capital Corp. 8,200 436,650
Southern National Corp. 73,805 1,937,381
Standard Federal Bancorp. 51,300 2,000,700
------------
23,697,467
------------
CHEMICALS -- 5.9%
Arcadian Corp. 126,600** 2,579,475
Bush Boake Allen, Inc. 135,900** 3,839,174
IMC Global, Inc. 48,000 3,042,000
LSB Industries, Inc. 100,000 512,500
Vigoro Corp. 91,100 3,848,975
WD-40 Co. 25,600 1,081,600
------------
14,903,724
------------
COMPUTER & OFFICE EQUIPMENT -- 5.7%
AST Research, Inc. 136,559** 1,365,590
Bell Micro Products 216,000** 2,484,000
Conner Peripherals, Inc. 193,000** 3,208,624
DH Technology, Inc. 110,000** 3,520,000
GBC Technologies, Inc. 275,700** 2,067,750
Nu-Kote Holdings, Inc. 85,800** 1,866,150
------------
14,512,114
------------
COMPUTER SOFTWARE & SERVICES -- 1.9%
Computer Horizons Corp. 243,000** 4,860,000
------------
CONSTRUCTION -- 2.0%
Beazer Homes USA, Inc. 170,400 2,875,500
BMC West Corp. 161,850** 2,265,900
------------
5,141,400
------------
CONTAINERS -- 1.1%
Brockway Standard Holdings 156,800** 2,704,800
------------
ELECTRONICS -- 9.6%
Belden, Inc. 95,400 2,504,250
Cable Design Technologies 150,700** 4,521,000
Franklin Electronic
Publishers, Inc. 76,000** 2,992,500
Holophane Corp. 125,800 3,459,500
Lattice Semiconductor Corp. 137,500** 5,585,937
Mark IV Industries, Inc. 111,342 2,477,360
Marshall Industries 69,100** 2,608,525
------------
24,149,072
------------
ENTERTAINMENT & LEISURE -- 1.7%
King World Productions, Inc. 62,700** 2,296,388
Royal Caribbean Cruises Ltd. 86,400 2,095,200
------------
4,391,588
------------
FOOD & AGRICULTURE -- 3.3%
Arkansas Best Corp. 70,000 831,250
Daka International, Inc. 184,400** 6,039,100
Sanderson Farms, Inc. 121,500 1,473,188
------------
8,343,538
------------
FURNITURE -- 0.9%
Ethan Allen Interiors, Inc. 103,200** 2,218,800
------------
GLASS -- 1.4%
Libbey, Inc. 146,700 3,502,463
------------
INSURANCE -- 12.3%
American Travellers Corp. 54,100** 1,007,613
Baldwin & Lyons, Inc. 99,900 1,523,475
Commerce Group, Inc. 134,900 2,647,413
First Colony Corp. 75,000 2,025,000
Harleysville Group, Inc. 75,195 2,237,051
Life USA Holding, Inc. 236,400** 2,127,600
National Re Corp. 77,000 2,723,875
Partner Holdings, Ltd. 32,700 809,325
Paul Revere Corp. 70,000 1,321,250
Penncorp Financial Group, Inc. 137,900 3,292,363
Physician Corporation of
America 107,600 1,694,700
Pxre Corp. 93,600 2,550,600
State Auto Financial Corp. 128,800 2,898,000
United Fire & Casualty Co. 46,200 1,709,400
United Wisconsin Services, Inc. 60,800 1,451,600
W.R. Berkley Co. 24,500 1,111,688
------------
31,130,953
------------
JEWELRY -- 0.7%
North American Watch Corp. 100,200 1,816,125
------------
MACHINERY & HEAVY EQUIPMENT -- 12.1%
Alamo Group, Inc. 132,500 2,385,000
Anthony Industries, Inc. 150,790 2,846,161
BW/IP, Inc. 135,400 2,420,275
CMI Corp. 337,000** 2,190,500
DT Industries Inc. 62,500 859,375
See accompanying notes to financial statements.
32
<PAGE>
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
------- ------------
COMMON STOCKS (CONTINUED)
MACHINERY & HEAVY EQUIPMENT (CONTINUED)
Harmon Industries, Inc. 151,300 $ 2,156,025
Lydall, Inc. 190,000** 4,726,249
Pentair, Inc. 76,700 3,451,500
Plantronics, Inc. 130,300** 4,739,662
US Can Corp. 182,600** 2,442,275
Velcro Industries N.V. 35,900 2,302,088
------------
30,519,110
------------
MEDICAL & MEDICAL SERVICES -- 1.5%
Mariner Health Group, Inc. 170,000** 2,401,250
North American Biology, Inc. 180,000** 1,485,000
------------
3,886,250
------------
MEDICAL INSTRUMENTS & SUPPLIES -- 1.0%
Beckman Instruments, Inc. 81,800 2,474,450
------------
METAL & MINING -- 3.8%
Mueller Industries, Inc. 65,000** 3,371,875
Rouge Steel Co. 110,000 2,557,500
Wolverine Tube, Inc. 100,000** 3,787,500
------------
9,716,875
------------
MOTOR VEHICLES -- 2.8%
A.O. Smith Corp. 90,000 2,328,750
Masland Corp. 173,700 2,583,788
Stant Corp. 50,400 504,000
TBC Corp. 166,100** 1,598,713
------------
7,015,251
------------
PAPER & FOREST PRODUCTS -- 2.8%
Caraustar Industries, Inc. 159,000 3,180,000
Chesapeake Corp. 85,100 3,074,238
CSS Industries, Inc. 31,900** 733,700
------------
6,987,938
------------
RETAIL MERCHANDISING -- 7.6%
Bombay Company, Inc. 321,000** 2,608,125
Fingerhut Companies, Inc. 148,700 2,397,787
Fred's, Inc. 164,500 1,398,250
J. Baker, Inc. 167,000 1,356,875
Lillian Vernon Corp. 87,600 1,171,650
Nine West Group, Inc. 61,000** 2,775,500
Roberds, Inc. 114,800** 1,435,000
Stop & Shop Companies, Inc. 95,600** 2,234,650
Value City Department
Stores, Inc. 139,600** 1,029,550
Vons Companies Inc. 114,000** 2,707,500
------------
19,114,887
------------
SANITARY SERVICES -- 0.4%
Dames & Moore, Inc. 64,800 1,036,800
------------
TEXTILES -- 5.3%
CHIC By H.I.S., Inc. 178,000** 1,424,000
Cone Mills Corp. 205,500** 2,748,562
Crown Crafts, Inc. 144,000 1,872,000
Jones Apparel Group, Inc. 93,300** 3,323,813
Phillips-Van Heusen Corp. 231,400 2,661,100
Spring Industries, Inc. 36,000 1,413,000
------------
13,442,475
------------
TOBACCO -- 0.9%
Universal Corp. 105,300 2,369,250
------------
TRANSPORTATION -- 1.0%
Midwest Express Holdings 107,900 2,427,750
------------
TOTAL COMMON STOCKS
(Cost $191,233,191) 241,009,880
------------
TEMPORARY INVESTMENTS -- 4.5%
Smith Barney Money
Market Fund
(Cost $11,333,839) 11,333,839 11,333,839
------------
See accompanying notes to financial statements.
33
<PAGE>
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
VALUE
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $202,567,030*) 99.9% $252,343,719
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 343,767
------ ------------
NET ASSETS (Applicable to
11,105,824 Institutional
shares, 4,047,966 Service
shares, 1,424,503 Series A
Investor shares and 98,118
Series B Investor shares
outstanding) 100.0% $252,687,486
====== ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL SHARE
($168,334,030 / 11,105,824) $15.16
======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($61,313,371 / 4,047,966) $15.15
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($21,562,824 / 1,424,503) $15.14
======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE
($15.14 / .955) $15.85
======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE (SUBJECT TO A MAXIMUM
CONTINGENT DEFERRED SALES CHARGE OF 5.0%)
PER SERIES B INVESTOR SHARE
($1,477,261 / 98,118) $15.06
======
- -----
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $ 63,368,152
Gross unrealized depreciation (13,591,463)
------------
$ 49,776,689
============
** Non-income producing security.
See accompanying notes to financial statements.
34
<PAGE>
THE PNC(R) FUND
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
----------- ------------
COMMON STOCKS -- 88.7%
ARGENTINA -- 0.1%
Cia Interamericana de
Automovil 60,493** $ 235,946
------------
AUSTRALIA -- 1.5%
Australia & New Zealand
Banking Group 1,544,500 6,614,400
Orbital Engine Ltd. 244,300 276,780
------------
6,891,180
------------
AUSTRIA -- 0.8%
OMEV AG 38,900 3,620,856
------------
BELGIUM -- 0.6%
Tessenderlo Chemie 7,400 2,690,565
------------
DENMARK -- 0.9%
Teledanmark Series 'B' 78,000 4,030,117
------------
FINLAND -- 0.3%
Kymmene Corp. 45,000 1,389,539
------------
FRANCE -- 6.4%
Bouygues 6,500 747,233
Bouygues Voting Rights 352** 6,903
Christian Dior SA 15,800 1,407,190
Cie de St. Gobain 16,600 2,022,951
Credit Local de France 44,700 3,596,155
Lafarge-Coppee SA 57,200 3,761,828
Marine Wendel 43,090 3,395,739
Seita 159,000 5,780,644
Sylea 41,500 3,691,886
UAF 39,900 4,092,515
------------
28,503,044
------------
GERMANY -- 2.9%
Bankgesellschaft Berlin AG 12,150 3,357,763
Bayer AG 8,110 2,070,481
Mannesmann 17,650 5,770,549
Plettac AG 5,460 1,447,800
------------
12,646,593
------------
HONG KONG -- 3.6%
CDL Hotels 2,021,000 914,929
Cheung Kong 1,045,000 5,690,514
HSBC Holdings PLC 614,000 8,537,484
South China Morning Post 1,708,000 1,010,723
------------
16,153,650
------------
ITALY -- 2.3%
Pirelli SPA 3,000,000** 4,126,394
Saipem SPA 868,800 1,964,758
Sasib SPA 260,300 1,236,989
Telecom Italia Mobile SPA 1,820,000** 3,033,333
------------
10,361,474
------------
JAPAN -- 40.1%
Bridgestone Corp. 447,000 6,630,575
Calsonic 329,000 2,529,748
Chiba Bank 447,000 3,766,347
Daicel Chemical 563,000 3,238,244
Daiwa House Industry 255,000 4,014,127
DDI Corp. 1,050 8,667,003
East Japan Railway Co. 760 3,757,820
Fuji Photo Film Co. 269,000 6,704,642
Horiba 227,000 2,565,489
Inax 277,000 2,764,410
Ito-Yokado Co. Ltd. 141,000 7,796,973
Jusco Co. 104,000 2,487,185
Kao Corp. 168,000 2,085,166
Komatsu Ltd. 533,000 4,281,211
Maruco Co. Ltd. 46,800 2,880,727
Matsushita Electric
Industrial Co. 401,000 6,150,555
Mitsubishi Chemical Corp. 800,000 3,874,874
Mitsubishi Electric Corp. 550,000 4,301,211
Mitsubishi Estate Co. Ltd. 562,000 6,294,854
Mitsubishi Heavy
Industries Ltd. 1,054,000 8,083,148
Mitsubishi Materials Corp. 885,000 4,349,092
Mitsubishi Motors 587,000 4,934,117
Nishimatsu Construction 540,000 6,593,340
Mos Food Services 117,000 3,010,595
NEC Corp. 220,000 3,063,572
Nissan Motor Co. Ltd. 967,000 6,967,084
NTT Data Communications
Systems Co. 2,300 5,361,251
Ricoh Co. 502,000 5,025,066
Rinnai Corp. 164,000 3,607,669
Sankyo Pachinko 62,660 3,812,712
Sanyo Shinpan Finance Co. 48,700 3,577,558
Sekisui Chemical Co. 357,000 4,539,051
Sumitomo Marine & Fire
Insurance Co. 866,000 6,562,725
Suzuki Motor Co. Ltd. 386,000 4,167,709
TDK Corp. 82,000 4,219,980
Teijin Ltd. 452,000 2,166,498
Toda Construction Co. 416,000 3,597,497
See accompanying notes to financial statements.
35
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
----------- ------------
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
Tokio Marine & Fire
Insurance Co. 770,000 $ 8,313,824
Tokushu Paper Manufacturing
Co. Ltd. 500 4,465
Yamanashi Chuo Bank 134,000 1,406,256
Yamato Transport Co. Ltd 108,000 1,220,585
------------
179,374,955
------------
MALAYSIA -- 2.5%
Edaran Otomobil
Nasional Bhd. 265,000 2,121,013
Malaysian International
Shipping Corp. Ltd. 1,811,000 5,444,610
The New Straits Times
Press Bhd. 1,312,000 3,709,314
------------
11,274,937
------------
NETHERLANDS -- 4.9%
DSM Chemicals 71,100 5,700,431
Fortis Amev NV 111,900 6,519,057
Hollandsche Beton Groep NV 27,500 4,138,308
Internationale Nederlanden
Groep CVA 58,000 3,364,471
KBB 27,400 2,001,748
------------
21,724,015
------------
NEW ZEALAND -- 0.9%
Air New Zealand Ltd. 1,188,000 4,024,552
Fisher & Paykel Ltd. 15,000 46,375
------------
4,070,927
------------
NORWAY -- 0.4%
Helikopter Service 112,000 1,613,499
------------
PORTUGAL -- 0.5%
Espirito Santo Financial
Holdings -- ADR 179,400 2,107,950
------------
SPAIN -- 2.1%
Acesa 85,500 837,015
Asturiana de Zinc 136,000** 1,397,411
Repsol SA ADR 120,000 3,810,000
Sevillana de Electricidad 105,060 681,700
Telefonica de Espana ADR 69,000 2,854,875
------------
9,581,001
------------
SWEDEN -- 1.4%
Cardo AB 115,000** 1,932,648
Svenska Kullager Fabriken
AB 'B' Free 204,000 4,502,467
------------
6,435,115
------------
SWITZERLAND -- 4.3%
Baloise Holding Ltd. 1,893 4,158,281
Ciba-Geigy AG 10,578 8,471,182
Merkur Holding AG 12,380 2,847,946
Sulzer AG 6,680 3,674,202
------------
19,151,611
------------
UNITED KINGDOM -- 12.2%
Albert Fisher 6,254,000 5,233,785
Bank of Ireland 1,125,000 7,087,736
Bass PLC 464,000 4,688,998
B.A.T. Industries 852,901 7,124,205
British Gas 1,535,000 6,435,096
Cable & Wireless PLC 100,000 658,443
MFI Furniture PLC 1,800,000 3,836,970
Powerscreen International 752,000 4,274,669
Scottish Hydro-Electric PLC 620,000 3,367,691
Severn Trent PLC 176,000 1,645,192
T & N PLC 895,000 2,529,637
Tomkins PLC 1,440,000 5,729,875
Yorkshire Water PLC 231,000 2,274,210
------------
54,886,507
------------
TOTAL COMMON STOCKS
(Cost $389,583,563) 396,743,481
------------
PREFERRED STOCK -- 2.8%
GERMANY
GEA AG 13,225 4,607,885
Henkel KGAA 10,000 3,799,062
Spar Handels AG 16,900 4,232,981
------------
TOTAL PREFERRED STOCK
(Cost $11,287,996) 12,639,928
------------
See accompanying notes to financial statements.
36
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
LOCAL
CURRENCY VALUE
----------- ------------
INVESTMENTS IN CURRENCY -- 8.5%
Australian Dollar 51,151 $ 38,635
Austrian Schilling 4,714 469
Belgian Franc 26,274,858 894,920
British Pound Sterling 2,205,119 3,481,882
Danish Krone 1 0
Finnish Mark 700 164
French Franc 4,645,640 943,565
German Deutche Mark 1,201,037 840,297
Hong Kong Dollar 56,254,218 7,276,260
Italian Lira 32,421,190 20,087
Japanese Yen 67,967,953 685,852
Malaysian Ringgit 15,914,026 6,336,967
Netherland Guilder 5,874,516 3,668,134
New Zealand Dollar 37,996 24,994
Norwegian Krone 351,308 55,923
Singapore Dollar 4,428,666 3,114,830
Spanish Peseta 3,339,338 27,017
Swedish Krona 64,948,221 9,369,063
Swiss Franc 1,343,921 1,162,263
------------
TOTAL INVESTMENTS IN CURRENCY
(Cost $37,377,206) 37,941,322
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $438,248,765*) 100.0% $447,324,731
====== ============
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis
is as follows:
Gross unrealized appreciation $ 22,268,098
Gross unrealized depreciation (13,192,132)
------------
$ 9,075,966
============
** Non-income producing security.
See accompanying notes to financial statements.
37
<PAGE>
THE PNC(R) FUND
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments at value (Cost $438,248,765)...................................... $ 447,324,731
Cash.......................................................................... 28,035,815
Dividends and interest receivable............................................. 1,781,121
Investments sold receivable................................................... 5,744,759
Capital shares sold receivable................................................ 1,735,490
Foreign currency contracts receivable......................................... 70,118
Other......................................................................... 15,379
------------
TOTAL ASSETS.......................................................... 484,707,413
------------
LIABILITIES
Investments purchased payable................................................. 46,529,469
Capital shares redeemed payable............................................... 242,443
Accrued expenses payable...................................................... 510,233
------------
TOTAL LIABILITIES..................................................... 47,282,145
------------
NET ASSETS (Applicable to 23,563,626 Institutional shares, 8,008,186 Service
shares, 1,338,381 Series A Investor shares and 81,144 Series B Investor
shares outstanding)........................................................... $ 437,425,268
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER INSTITUTIONAL SHARE
($312,588,415 / 23,563,626)................................................... $13.27
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SERVICE SHARE
($106,044,564 / 8,008,186)...................................................... $13.24
=======
NET ASSET VALUE AND REDEMPTION PRICE PER SERIES A INVESTOR SHARE
($17,720,931 / 1,338,381)....................................................... $13.24
=======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR SHARE ($13.24 / .955).............. $13.86
=======
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 5.0%) PER SERIES B
INVESTOR SHARE ($1,071,358 / 81,144).......................................... $13.20
=======
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
THE PNC(R) FUND
INTERNATIONAL EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
---------- -----------
COMMON STOCKS -- 78.4%
ARGENTINA -- 3.8%
Banco Frances del Rio Plata 95,850 $ 685,396
Cia Interamericana de
Automovil 22,116** 86,260
Cia Naviera Perez Companc SA 48,996 214,134
Transportadora de Gas
del Sur SA -- ADR 75,500 792,750
---------
1,778,540
---------
BRAZIL -- 4.2%
Cia Brazil Petro Ipiranga 31,000,000 324,997
Companhia Energetica de Minas
Gerais 20,000,000 384,091
Iochpe Maxion SA -- ADR 5,000 41,200
Telecomunicacoes
Brasileiras SA -- Telebras 20,000,000 797,565
Usinas Sider Minas Gerais 80,000,000 418,722
---------
1,966,575
---------
CHILE -- 1.5%
Enersis SA 27,500 694,375
---------
CHINA -- 2.0%
Hua Xin Cement
Company, Ltd. -- B 2,323,200** 655,142
Shanghai Jintai
Company, Ltd. -- B 400,000** 107,200
Shanghai Yaohua Pilkington
Glass Company, LTD. 151,800 160,908
---------
923,250
---------
COLOMBIA -- 0.9%
Banco Industrial
Colombian -- ADR 30,000 408,750
---------
GREECE -- 2.3%
Alpha Credit Bank 7,000 435,716
Edrassi Psallidas 20,000 313,372
Michaniki SA 15,000 218,930
Sarantis SA 15,000 135,222
1,103,240
---------
HONG KONG -- 1.5%
Qingling Automobiles Company 2,050,000 471,984
Shanghai Haixing Shipping
Company -- H 1,200,000 128,829
Shenzhen North Jianshe
Motorcycle Company, Ltd. 150,000** 97,592
---------
698,405
---------
HUNGARY -- 3.5%
Egis Gyogyszergyar 22,400 592,459
Pannonplast Muanyagipari Rt 47,008 622,574
Pick Szeged Szalamigyar Es
Husuzem Rt 8,257 426,166
---------
1,641,199
---------
INDIA -- 3.1%
Hindalco Industries,
Ltd. -- GDR 15,000** 510,000
Tata Engineering &
Locomotive Co., Ltd. -- GDR 40,000** 930,000
---------
1,440,000
---------
INDONESIA -- 7.4%
PT Bank Dagang Nasional
(Foreign Shares) 350,000 320,640
PT Citra Marga 750,000 711,921
PT Gadjah Tunggal
(Foreign Shares) 400,000 264,901
PT Indah Kiat Pulp & Paper
(Foreign Shares) 204,800 246,393
PT Polysindo Eka Perkasa
(Foreign Shares) 334,500 191,987
PT Semen Cibinong
(Foreign Shares) 200,000 543,046
PT Sinar Mas Agro Resources
Agricultural Production and
Technology Corporation
(Foreign Shares) 508,000 330,817
PT Suparma (Foreign Shares)
900,000 407,285
Shiriram Industrial
Enterprises, Ltd. -- GDR
(Reg. 144A) 70,000 463,750
Shiriram Industrial
Enterprises, Ltd. Warrants
(Reg. 144A) 14,000** 1,750
---------
3,482,490
---------
ISRAEL -- 1.0%
Pec Israel Economic
Corporation -- ADR 18,900** 472,500
---------
KOREA -- 7.6%
Hansol Paper -- GDR 35,573** 764,820
Hyundai Marine & Fire
Insurance Company 4,830** 289,259
Hyundai Motor Company,
Ltd. -- GDR 40,000 780,000
Korea Electric Power
Corporation 21,000** 790,131
Korea Reinsurance 10,000** 502,539
Korea Zinc Co. 15,000** 376,904
See accompanying notes to financial statements.
39
<PAGE>
INTERNATIONAL EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
----------- -----------
COMMON STOCKS (CONTINUED)
KOREA (CONTINUED)
LG Information &
Communication 100** $ 7,551
Pohang Iron & Steel Co. 850 73,369
Samsung Electronics -- GDR
(Reg. 144A) 63** 4,410
---------
3,588,983
---------
MALAYSIA -- 9.2%
Asas Dunia Berhad 60,000 199,498
Cement Industries of
Malaysia Berhad 60,000 192,331
Edaran Otomobil
Nasional Berhad 92,000 736,352
Malaysian International
Shipping Corporation Berhad 9,666 25,403
Malaysian International
Shipping Corporation Berhad
(Foreign Shares) 253,000 760,622
Nylex (Malaysia) Berhad 275,000 804,862
Pacific and Orient Berhad 100,000** 298,650
Sistem Televisyen
Malaysia Berhad 200,000 609,246
The New Straits Times Press 236,000 667,224
---------
4,294,188
---------
MEXICO -- 6.0%
Cementos de Mexico SA -- CPO 131,000 496,897
Cementos de Mexico SA -- CPO
ADR 48,800 373,320
Corporacion Geo SA -- B 99,400** 326,400
Empaques Ponderosa SA -- B 1,806** 4,246
Fomento Economico
Mexicano SA -- B 170,000 421,003
Fotoluz Corporacion SA -- B 250,000** 44,671
Grupo Cementos Chihuahua -- B 100,000 86,520
Grupo Financiero Banamex
Accival -- B 133,700 266,981
Grupo Financiero Banamex
Accival -- L 6,685 13,098
Grupo Financiero Banorte -- B 90,000** 111,724
Grupo Herdez SA -- B 500,000** 156,740
Grupo Industrial San Luis CPO 15,000 350,313
Vitro Sociedad Anonima -- ADR 21,600 175,500
---------
2,827,413
---------
PAKISTAN -- 1.5%
Pakistan Investment
Fund, Inc. 40,000 265,000
Pakistan Telecommunications
Corporation -- GDR 4,000** 420,000
---------
685,000
---------
PHILIPPINES -- 4.2%
Alaska Milk Corporation 1,400,000** 284,946
Benpres Holdings
Corporation -- GDR 59,000 448,400
C & P Homes, Inc. 400,000** 249,616
Manlia Mining
Corporation -- B 50,000,000 163,210
Megaworld Properties &
Holdings, Inc. 400,000** 207,373
SM Prime Holdings, Inc. 1,000,000** 299,539
Southeast Asia Cement Holding
2,500,000** 321,621
---------
1,974,705
---------
POLAND -- 0.9%
Debica 30,000** 402,304
---------
PORTUGAL -- 2.0%
Espirito Santo Financial
Holdings -- ADR 61,400 721,450
Sumolis Companhia Industrial
de Frutas E Bebidas SA 20,000 208,000
---------
929,450
---------
SOUTH AFRICA -- 4.1%
Gencor Beherend Beperk, Ltd. 150,000** 558,751
Rustenburg Platinum
Holdings, Ltd. 15,000 326,623
SA Iron & Steel Industrial
Corporation, Ltd. 500,000 540,948
Standard Bank Investment
Corporation Ltd. 15,000 511,504
1,937,826
---------
TAIWAN -- 3.2%
China Steel -- GDR 30,000 552,900
Taiwan Fund, Inc. 42,250 945,344
---------
1,498,244
---------
See accompanying notes to financial statements.
40
<PAGE>
INTERNATIONAL EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
---------- -----------
COMMON STOCKS (CONTINUED)
THAILAND -- 2.9%
Bangkok Bank 500 $ 5,642
Bangkok Steel Industry Co. 231,500 391,392
Post Publishing Company, Ltd. 55,800 225,522
Thai Modern Plastic Industry 384,000 437,935
Thai Stanley Electric
Company, Ltd. 112,500 310,624
----------
1,371,115
----------
TURKEY -- 2.4%
Aksigorta A.S. 2,279,375 320,320
Cimentas 379,000 227,709
Netas Telekomunik 1,000,000 386,965
Tofas -- Turk Otomobil
Fabrikas 1,420,000 208,228
----------
1,143,222
----------
UNITED KINGDOM -- 3.2%
Central European Growth
Fund PLC 1,115,000 774,657
Reliance Industries -- GDS 40,000** 725,200
----------
1,499,857
----------
TOTAL COMMON STOCKS
(Cost $39,891,443) 36,761,631
----------
PREFERRED STOCK -- 6.1%
BRAZIL -- 6.1%
Banco Bradesco SA 60,000,000 572,988
Banco Nacional SA 20,000,000 394,585
Cia Cervejaria Brahma 970,000 393,945
Cia Vale do Rio Doce 5,000,000 836,919
Iochpe Maxion SA 800,000 263,616
Sadia-Concordia SA Industria
E Comercio 400,000 419,771
----------
TOTAL PREFERRED STOCK
(Cost $3,044,272) 2,881,824
----------
PAR
MATURITY (000)
---------- -----------
CONVERTIBLE BONDS -- 1.6%
Far Eastern
Department Stores
3.00% 07/06/01 $ 200 170,250
Yang Ming Marine
Transport, Inc.
2.00% 10/06/99 540 571,050
----------
TOTAL CONVERTIBLE BONDS
(Cost $760,594) 741,300
----------
AGENCY OBLIGATIONS -- 13.7%
Federal Home Loan Bank
Discount Notes
6.30% 10/02/95 6,445 6,443,872
(Cost $6,443,872) ----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $50,140,181*) 99.8% 46,828,627
----------
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.2% 73,320
------ -----------
NET ASSETS (Applicable to
3,579,806 Institutional
shares, 1,836,800 Service
shares and 313,245 Series A
Investor shares outstanding) 100.0% $46,901,947
====== ===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($29,318,827 / 3,579,806) $8.19
=====
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SERVICE SHARE
($15,020,402 / 1,836,800) $8.18
=====
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($2,562,718 / 313,245) $8.18
=====
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($8.18 / .955) $8.57
=====
- ---------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 1,138,028
Gross unrealized depreciation (4,449,582)
-----------
$(3,311,554)
===========
** Non income producing security.
See accompanying notes to financial statements.
41
<PAGE>
THE PNC(R) FUND
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- ------------
AGENCY OBLIGATIONS -- 2.9%
FEDERAL HOME
LOAN BANK -- 0.5%
4.605%**** 04/27/98 $ 1,000 $ 978,125
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 2.4%
6.30% 10/02/95 4,380 4,378,467
------------
TOTAL AGENCY OBLIGATIONS
(Cost $5,356,654) 5,356,592
------------
MORTGAGE BACKED SECURITIES -- 8.6%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 3.5%
7.50% 07/01/99 909 924,543
9.00% 06/01/21 1,092 1,143,252
6.50% 08/01/25 183 176,821
6.50% 09/01/25 636 613,874
7.00% TBA 10/01/25 3,000 2,962,500
8.001%,
1 yr CMT ARM 03/01/33 499 514,544
------------
6,335,534
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 2.7%
7.00% TBA 10/01/10 4,200 4,210,500
6.50% 09/01/25 651 629,234
------------
4,839,734
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 2.4%
6.50%,
1 yr CMT ARM 05/20/25 2,226 2,256,338
7.50%,
1 yr CMT ARM 06/20/25 1,999 2,054,174
------------
4,310,512
------------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $15,484,983) 15,485,780
------------
ASSET BACKED SECURITIES -- 2.0%
Merrill Lynch Mortgage
Investors, Inc.
7.4968% 05/25/15 450 450,592
National Credit Card Trust
9.45% 12/31/97 750 770,325
Nissan Auto Receivables Grantor
Trust 1994-A
6.45% 03/15/96 899 902,722
Prime Credit Card
Master Trust
6.75% 10/31/05 750 759,119
Standard Credit Card
Master Trust
8.25% 01/08/07 600 657,585
------------
TOTAL ASSET BACKED SECURITIES
(Cost $3,534,838) 3,540,343
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 1.4%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 0.4%
8.25% 10/25/96 750 752,344
------------
RYLAND ACCEPTANCE CORP. -- 1.0%
9.40% 08/01/18 1,700 1,793,500
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $2,551,223) 2,545,844
------------
NUMBER
OF SHARES
---------
COMMON STOCKS -- 61.9%
AEROSPACE -- 2.9%
Allied-Signal, Inc. 17,100 754,538
Boeing Co. 32,200 2,197,650
United Technologies Corp. 25,100 2,218,213
------------
5,170,401
------------
BANKS -- 3.2%
Comerica, Inc. 42,200 1,535,025
First Chicago Corp 22,100 1,516,612
Meridian Bancorp, Inc. 33,200 1,269,900
NationsBank Corp. 22,100 1,486,225
------------
5,807,762
------------
BEVERAGES -- 0.9%
Coca-Cola Co. 25,100 1,731,900
------------
CHEMICALS -- 2.7%
Dow Chemical Co. 19,500 1,452,750
E.I. Dupont de Nemours & Co. 25,400 1,746,250
I.M.C. Global, Inc. 12,100 766,837
Lubrizol Corp. 30,200 985,275
------------
4,951,112
------------
COMPUTER & OFFICE EQUIPMENT -- 3.2%
Compaq Computer Corp. 31,100 1,504,463
Intel Corp. 33,200 1,996,150
Xerox Corp. 17,100 2,297,812
------------
5,798,425
------------
See accompanying notes to financial statements.
42
<PAGE>
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
COMPUTER SOFTWARE & SERVICES -- 2.9%
Computer Sciences Corp. 24,100** $ 1,551,437
First Data Corp. 19,100 1,184,200
Microsoft Corp. 18,600** 1,683,300
Stratus Computer, Inc. 30,200** 792,750
------------
5,211,687
------------
CONSTRUCTION -- 1.3%
Fluor Corp. 23,100 1,293,600
Foster Wheeler Corp. 31,200 1,103,700
------------
2,397,300
------------
ELECTRONICS -- 4.5%
A.M.P., Inc. 17,100 658,350
Emerson Electric Co. 22,100 1,580,150
General Electric Co. 43,000 2,741,250
General Instruments Corp. 44,000** 1,320,000
Motorola, Inc. 23,100 1,764,262
------------
8,064,012
------------
ENERGY & UTILITIES -- 1.7%
Entergy Corp. 50,300 1,314,087
PECO Energy Co. 64,500 1,846,313
------------
3,160,400
------------
ENTERTAINMENT & LEISURE -- 1.4%
La Quinta Motor Inns, Inc. 35,200 985,600
Walt Disney Co. 28,100 1,612,237
------------
2,597,837
------------
FINANCE -- 2.8%
Dean Witter Discover & Co. 44,000 2,475,000
Federal National Mortgage
Association 18,100 1,873,350
Fleet Financial Group, Inc. 20,000 755,000
------------
5,103,350
------------
FOOD & AGRICULTURE -- 0.8%
C.P.C. International Co. 9,000 594,000
H.J. Heinz Co. 20,100 919,575
------------
1,513,575
------------
INSURANCE -- 3.6%
Allstate 22,341 790,313
American International Group,
Inc. 29,250 2,486,250
Chubb Corp. 16,100 1,545,600
General Re Corp. 11,100 1,676,100
------------
6,498,263
------------
MACHINERY & HEAVY EQUIPMENT -- 0.6%
Illinois Tool Works, Inc. 18,700 1,100,962
------------
MEDICAL INSTRUMENTS & SUPPLIES -- 0.9%
Beckman Instruments, Inc. 54,300 $ 1,642,575
------------
METAL & MINING -- 1.7%
Minnesota Mining &
Manufacturing Co. 29,000 1,638,500
Phelps Dodge Corp. 24,100 1,509,262
------------
3,147,762
------------
MOTOR VEHICLES -- 1.9%
Chrysler Corp. 19,100 1,012,300
Ford Motor Co. 40,200 1,251,225
General Motors Corp. 24,100 1,129,687
------------
3,393,212
------------
OIL & GAS -- 4.9%
Chevron Corp. 18,100 880,112
Exxon Corp. 29,000 2,095,250
Mobil Corp. 8,000 797,000
Royal Dutch Petroleum Co. 15,600 1,914,900
Tenneco, Inc. 40,300 1,863,875
Unocal Corp. 44,200 1,259,700
------------
8,810,837
------------
PAPER & FOREST PRODUCTS -- 0.6%
International Paper Co. 24,200 1,016,400
------------
PHARMACEUTICALS -- 6.1%
American Home Products Corp. 29,300 2,486,837
Bristol-Myers Squibb Co. 30,100 2,193,538
Eli Lilly & Co. 26,400 2,372,700
Johnson & Johnson 20,100 1,489,913
Merck & Co., Inc. 44,000 2,464,000
------------
11,006,988
------------
PUBLISHING & PRINTING -- 0.9%
McGraw Hill Cos., Inc. 19,100 1,561,425
------------
RESTAURANTS -- 0.7%
McDonald's Corp. 32,200 1,231,650
------------
RETAIL MERCHANDISING -- 2.9%
J.C. Penney Co., Inc. 28,100 1,394,463
K Mart Corp. 97,500 1,413,750
Sears Roebuck & Co. 24,100 888,688
Wal-Mart Stores, Inc. 63,300 1,574,588
------------
5,271,489
------------
SOAPS & COSMETICS -- 1.5%
Colgate Palmolive Co. 22,100 1,472,412
Dial Corp. 51,200 1,267,200
------------
2,739,612
------------
See accompanying notes to financial statements.
43
<PAGE>
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 4.1%
Alltell Corp. 47,200 $ 1,410,100
AT&T Corp. 34,200 2,248,650
NYNEX Corp. 38,200 1,824,050
SBC Communications, Inc. 35,200 1,936,000
------------
7,418,800
------------
TOBACCO -- 1.6%
Philip Morris Cos., Inc. 20,500 1,711,750
UST, Inc. 42,200 1,207,975
------------
2,919,725
------------
TRANSPORTATION -- 1.6%
Conrail Corp. 24,200 1,663,750
Norfolk Southern Corp. 16,100 1,203,475
------------
2,867,225
------------
TOTAL COMMON STOCKS
(Cost $91,987,777) 112,134,686
------------
PAR
MATURITY (000)
--------- ---------
CORPORATE BONDS -- 7.5%
BANKS -- 0.4%
First Union Corp.
6.875% 09/15/05 $ 350 347,551
Meridian Bancorp.
6.625% 06/15/00 450 448,313
------------
795,864
------------
CONSTRUCTION -- 0.3%
Centex Corp.
7.375% 06/01/05 600 594,750
------------
ENERGY & UTILITIES -- 1.1%
Appalachian Power Co.
8.50% 12/01/22 600 656,250
Idaho Power Co.
8.75% 03/15/27 1,000 1,080,243
Mobile Energy Resources
8.665% 01/01/17 300 311,850
------------
2,048,343
------------
ENTERTAINMENT & LEISURE -- 0.3%
Royal Caribbean
7.125% 09/18/02 600 596,250
------------
FINANCE -- 1.2%
Golden West Financial
6.70% 07/01/02 850 848,938
Liberty Mutual
8.50% 05/15/25 750 779,063
PAR
MATURITY (000) VALUE
--------- --------- ------------
FINANCE (CONTINUED)
New American Capital, Inc.
7.6875% 10/12/95 600 $ 599,250
------------
2,227,251
------------
FOOD & AGRICULTURE -- 0.3%
Nabisco, Inc.
7.05% 07/15/07 180 177,525
Ralston Purina Co.
7.875% 06/15/25 300 306,000
------------
483,525
------------
INSURANCE -- 0.3%
Metropolitan Life
6.30% 11/01/03 300 285,000
Prudential Insurance
8.30% 07/01/25 300 302,250
------------
587,250
------------
MISCELLANEOUS TRANSPORTATION -- 1.8%
Burlington Northern
6.94% 01/02/14 600 589,948
Ryder Systems, Inc.
7.55% 09/15/99 2,500 2,592,500
------------
3,182,448
------------
RETAIL MERCHANDISING -- 0.5%
Factory Stores of America
8.31% 06/01/07 300 306,821
May Department Stores
8.125% 08/15/35 500 527,500
------------
834,321
------------
SECURITY BROKERS & DEALERS -- 0.9%
PaineWebber Group, Inc.
7.875% 02/15/03 1,500 1,558,125
------------
TEXTILE -- 0.1%
Burlington Industries
7.25% 09/15/05 200 199,750
------------
YANKEE -- 0.3%
Italy -- Global Bond
6.875% 09/27/23 500 455,625
------------
TOTAL CORPORATE BONDS
(Cost $13,197,377) 13,563,502
------------
MEDIUM TERM NOTES -- 1.9%
FINANCE -- 1.4%
General Motors
Acceptance Corp.
8.625% 06/15/99 $ 2,400 2,559,000
------------
See accompanying notes to financial statements.
44
<PAGE>
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- ------------
MEDIUM TERM NOTES (CONTINUED)
SECURITY BROKERS & DEALERS -- 0.5%
Salomon, Inc.
7.59% 01/28/00 $ 600 $ 603,750
8.90% 02/15/00 300 316,125
------------
919,875
------------
TOTAL MEDIUM TERM NOTES
(Cost $3,383,685) 3,478,875
------------
MUNICIPAL BONDS -- 0.9%
Los Angeles County Taxable
Pension Obligation
8.62% 06/30/06 1,450 1,586,438
------------
(Cost $1,504,421)
U.S. TREASURY OBLIGATIONS -- 14.2%
U.S. TREASURY BILLS -- 0.0%
5.185% 12/21/95 110*** 108,657
------------
U.S. TREASURY BONDS -- 3.2%
10.75% 08/15/05 1,510 2,000,705
7.875% 02/15/21 800 918,152
7.125% 02/15/23 1,700 1,803,190
7.625% 02/15/25 940 1,064,183
------------
5,786,230
------------
U.S. TREASURY NOTES -- 11.0%
5.625% 06/30/97 8,300 8,272,610
6.125% 05/15/98 2,940 2,956,993
5.875% 08/15/98 410 409,910
6.75% 06/30/99 5,800 5,949,059
6.875% 03/31/00 1,500 1,549,860
7.50% 02/15/05 700 762,825
------------
19,901,257
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $25,611,904) 25,796,144
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $162,612,862*) 101.3% 183,488,204
LIABILITIES IN EXCESS OF
OTHER ASSETS (1.3%) (2,279,578)
--------- ------------
NET ASSETS (Applicable to
1,786,399 Institutional shares,
6,242,256 Service shares and
4,946,071 Series A Investor
shares, and 228,161 Series B
Investor shares outstanding) 100.0% $181,208,626
======= ============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($24,524,974 / 1,786,399) $13.73
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SERVICE SHARE
($85,667,623 / 6,242,256)
$13.72
======
NET ASSET VALUE AND REDEMPTION
PRICE PER SERIES A INVESTOR SHARE
($67,891,929 / 4,946,071) $13.73
======
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($13.73 / .955) $14.38
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE (SUBJECT
TO A MAXIMUM CONTINGENT
DEFERRED SALES CHARGE OF 5.0%)
PER SERIES B INVESTOR SHARE
($3,124,100 / 228,161) $13.69
======
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis
is as follows:
Gross unrealized appreciation $21,935,158
Gross unrealized depreciation (1,059,816)
-----------
$20,875,342
===========
** Non-income producing security.
*** Principal amount of securities pledged as initial
margin requirement of $100,000 on 10 Standard & Poor's
500 Stock Index futures contracts expiring December
1995.
**** Rates shown are the rates as of September 30, 1995, and
the maturities shown are the longer of the next
interest readjustment date or the maturity date.
- ----------------------------------------------
INVESTMENT ABBREVIATIONS
ARM Adjustable Rate Mortgage
CMT Constant Maturity Treasury
TBA To Be Announced Purchase
- ----------------------------------------------
See accompanying notes to financial statements.
45
<PAGE>
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SMALL CAP
VALUE GROWTH GROWTH CORE
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest........................................... $ 577,547 $ 1,141,463 $ 1,175,734 $ 1,537,642
Dividends.......................................... 21,172,971 2,894,255 151,279 3,695,899
------------ ----------- ----------- -----------
Total investment income.......................... 21,750,518 4,035,718 1,327,013 5,233,541
------------ ----------- ----------- -----------
Expenses:
Investment advisory fee............................ 3,579,370 1,191,123 755,989 950,739
Administration fee................................. 1,271,441 433,136 274,905 345,723
Custodian fee...................................... 109,189 55,404 53,676 49,977
Transfer agent fee................................. 120,887 55,024 39,771 46,370
Service fees....................................... 360,436 147,489 100,003 172,248
Distribution fees.................................. 52,242 29,015 14,400 7,835
Legal and audit.................................... 78,960 23,748 16,354 18,306
Printing........................................... 43,448 18,167 8,364 7,587
Registration fees and expenses..................... 24,998 51,601 40,997 41,491
Organization....................................... 8,470 38 4,420 4,409
Trustees' fees and officer's salary................ 10,445 3,289 2,022 2,519
Other.............................................. 21,585 15,358 8,017 7,030
------------ ----------- ----------- -----------
5,681,471 2,023,392 1,318,918 1,654,234
Less fees voluntarily waived....................... (934,201) (397,021) (173,925) (316,351)
------------ ----------- ----------- -----------
Total expenses................................... 4,747,270 1,626,371 1,144,993 1,337,883
------------ ----------- ----------- -----------
Net investment income................................ 17,003,248 2,409,347 182,020 3,895,658
------------ ----------- ----------- -----------
Realized and unrealized gain on investments:
Net realized gain from:
Investment transactions.......................... 41,440,252 4,638,334 1,817,093 4,558,058
Futures contracts................................ -- 1,439,190 -- 1,275,669
------------ ----------- ----------- -----------
41,440,252 6,077,524 1,817,093 5,833,727
------------ ----------- ----------- -----------
Change in unrealized appreciation from:
Investments...................................... 87,626,905 56,202,584 57,005,855 31,447,213
Futures contracts................................ -- 30,625 -- 495,700
------------ ----------- ----------- -----------
87,626,905 56,233,209 57,005,855 31,942,913
------------ ----------- ----------- -----------
Net gain on investments............................ 129,067,157 62,310,733 58,822,948 37,776,640
------------ ----------- ----------- -----------
Net increase in net assets
resulting from operations........................ $146,070,405 $64,720,080 $59,004,968 $41,672,298
============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SMALL CAP
INDEX VALUE INTERNATIONAL
EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------
<S> <C> <C> <C>
Investment Income:
Interest........................................................ $ 1,414,709 $ 2,063,409 $ 755,627
Dividends....................................................... 4,955,173 643,002 9,859,498
Foreign taxes withheld.......................................... -- -- (1,092,230)
----------- ----------- -----------
Total investment income....................................... 6,369,882 2,706,411 9,522,895
----------- ----------- -----------
Expenses:
Investment advisory fee......................................... 412,977 1,257,378 2,989,509
Administration fee.............................................. 412,977 457,229 797,202
Custodian fee................................................... 55,349 48,659 543,795
Transfer agent fee.............................................. 34,845 63,324 87,372
Service fees.................................................... 120,497 140,567 245,136
Distribution fees............................................... 15,983 82,381 69,634
Legal and audit................................................. 25,686 27,273 45,729
Printing........................................................ 13,616 15,194 27,471
Registration fees and expenses.................................. 24,999 35,581 56,046
Organization.................................................... 4,892 2,265 1,473
Trustees' fees and officer's salary............................. 3,260 3,644 7,062
Other........................................................... 56,158 13,339 6,696
----------- ----------- -----------
1,181,239 2,146,834 4,877,125
Less fees voluntarily waived.................................... (698,368) (211,899) (705,503)
----------- ----------- -----------
Total expenses................................................ 482,871 1,934,935 4,171,622
----------- ----------- -----------
Net investment income............................................. 5,887,011 771,476 5,351,273
----------- ----------- -----------
Realized and unrealized gain on investments and foreign currency
transactions:
Net realized gain from:
Investment transactions....................................... 17,282,024 12,355,473 21,853,940
Futures contracts............................................. 6,559,320 -- --
Foreign currency related transactions......................... -- -- 2,807,561
----------- ----------- -----------
23,841,344 12,355,473 24,661,501
----------- ----------- -----------
Change in unrealized appreciation (depreciation) from:
Investments................................................... 26,043,093 23,959,796 (19,426,863)
Futures contracts............................................. 39,900 -- --
Foreign currency related transactions......................... -- -- 2,292,647
----------- ----------- -----------
26,082,993 23,959,796 (17,134,216)
----------- ----------- -----------
Net gain on investments and foreign currency transactions......... 49,924,337 36,315,269 7,527,285
----------- ----------- -----------
Net increase in net assets resulting from operations.............. $55,811,348 $37,086,745 $ 12,878,558
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
INTERNATIONAL
EMERGING
MARKETS BALANCED
PORTFOLIO PORTFOLIO
------------- -----------
<S> <C> <C>
Investment income:
Interest....................................................................... $ 279,812 $ 4,603,258
Dividends...................................................................... 684,262 2,534,226
Foreign taxes withheld......................................................... (39,900) --
----------- -----------
Total investment income...................................................... 924,174 7,137,484
----------- -----------
Expenses:
Investment advisory fee........................................................ 310,834 883,799
Administration fee............................................................. 49,733 321,382
Custodian fee.................................................................. 75,032 46,146
Transfer agent fee............................................................. 21,097 88,890
Service fees................................................................... 23,399 209,459
Distribution fees.............................................................. 10,744 268,321
Legal and audit................................................................ 2,650 19,110
Printing....................................................................... 2,959 10,592
Registration fees and expenses................................................. 24,592 29,778
Organization................................................................... 9,140 6,387
Trustees' fees and officer's salary............................................ 1,377 2,542
Other.......................................................................... 4,895 10,618
----------- -----------
536,452 1,897,024
Less fees voluntarily waived................................................... (60,536) (345,789)
----------- -----------
Total expenses............................................................... 475,916 1,551,235
----------- -----------
Net investment income............................................................ 448,258 5,586,249
----------- -----------
Realized and unrealized gain (loss) on investments and foreign currency
transactions:
Net realized gain (loss) from:
Investment transactions...................................................... 375,172 666,646
Futures contracts............................................................ -- 124,847
Foreign currency related transactions........................................ (138,100) --
----------- -----------
237,072 791,493
----------- -----------
Change in unrealized appreciation (depreciation) from:
Investments.................................................................. (3,603,039) 23,783,998
Futures contracts............................................................ -- (14,400)
Foreign currency related transactions........................................ (2,783) --
----------- -----------
(3,605,822) 23,769,598
----------- -----------
Net gain (loss) on investments and foreign currency transactions................. (3,368,750) 24,561,091
----------- -----------
Net increase (decrease) in net assets resulting from operations.................. $(2,920,492) $30,147,340
=========== ===========
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SMALL CAP GROWTH
VALUE EQUITY PORTFOLIO GROWTH EQUITY PORTFOLIO EQUITY PORTFOLIO
---------------------------- --------------------------- --------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income........... $ 17,003,248 $ 13,916,548 $ 2,409,347 $ 687,322 $ 182,020 $ 148,211
Net gain (loss) on
investments................... 129,067,157 7,078,395 62,310,733 (12,967,582) 58,822,948 2,067,164
------------- ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net
assets resulting from
operations.................... 146,070,405 20,994,943 64,720,080 (12,280,260) 59,004,968 2,215,375
------------- ------------ ------------ ------------ ------------ -----------
Distributions to shareholders from
Net investment income
Institutional Shares............ (13,178,740) (12,376,684) (2,327,933) (62,388) (134,031) (10,677)
Service Shares.................. (3,103,505) (1,666,353) (616,352) (1,583) (1,124) (2,037)
Series A Investor Shares........ (296,322) (170,702) (67,622) -- -- (29)
------------- ------------ ------------ ------------ ------------ -----------
Total distributions from net
investment income......... (16,578,567) (14,213,739) (3,011,907) (63,971) (135,155) (12,743)
------------- ------------ ------------ ------------ ------------ -----------
Net realized gains
Institutional Shares............ (11,450,041) (8,108,233) -- (831,835) -- --
Service Shares.................. (2,299,900) (850,677) -- (158,279) -- --
Series A Investor Shares........ (248,638) (106,250) -- (28,957) -- --
------------- ------------ ------------ ------------ ------------ -----------
Total distributions from net
realized gains............ (13,998,579) (9,065,160) -- (1,019,071) -- --
------------- ------------ ------------ ------------ ------------ -----------
Total distributions to
shareholders.............. (30,577,146) (23,278,899) (3,011,907) (1,083,042) (135,155) (12,743)
------------- ------------ ------------ ------------ ------------ -----------
Capital share transactions.......... (112,921,499) 234,949,582 97,002,613 41,981,179 67,115,660 75,416,557
------------- ------------ ------------ ------------ ------------ -----------
Total increase in net
assets.................... 2,571,760 232,665,626 158,710,786 28,617,877 125,985,473 77,619,189
Net assets:
Beginning of period............. 693,442,703 460,777,077 139,635,183 111,017,306 89,880,900 12,261,711
------------- ------------ ------------ ------------ ------------ -----------
End of period................... $ 696,014,463 $693,442,703 $298,345,969 $139,635,183 $215,866,373 $89,880,900
============= ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
SMALL CAP VALUE
CORE EQUITY PORTFOLIO INDEX EQUITY PORTFOLIO EQUITY PORTFOLIO
-------------------------- --------------------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income........... $ 3,895,658 $ 1,557,592 $ 5,887,011 $ 5,453,203 $ 771,476 $ 425,335
Net gain (loss) on
investments................... 37,776,640 (345,348) 49,924,337 (379,721) 36,315,269 10,798,567
------------ ----------- ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations..... 41,672,298 1,212,244 55,811,348 5,073,482 37,086,745 11,223,902
------------ ----------- ------------ ------------ ------------ ------------
Distributions to shareholders from
Net investment income
Institutional Shares............ (2,701,925) (1,101,493) (4,208,433) (5,019,786) (867,157) (193,009)
Service Shares.................. (1,140,724) (541,575) (1,134,278) (575,649) (91,955) (18,404)
Series A Investor Shares........ (35,042) (5,097) (107,929) (52,872) -- (2,894)
Series B Investor Shares........ -- -- -- -- -- --
------------ ----------- ------------ ------------ ------------ ------------
Total distributions from net
investment income......... (3,877,691) (1,648,165) (5,450,640) (5,648,307) (959,112) (214,307)
------------ ----------- ------------ ------------ ------------ ------------
Net realized gains
Institutional Shares............ (722,978) -- (1,653,604) (1,828,819) (7,036,364) (2,608,236)
Service Shares.................. (611,965) -- (329,586) (163,449) (2,075,543) (541,286)
Series A Investor Shares........ (10,239) -- (31,480) (15,147) (823,691) (206,728)
Series B Investor Shares........ -- -- -- -- (23,641) --
------------ ----------- ------------ ------------ ------------ ------------
Total distributions from net
realized gains............ (1,345,182) -- (2,014,670) (2,007,415) (9,959,239) (3,356,250)
------------ ----------- ------------ ------------ ------------ ------------
Total distributions to
shareholders.............. (5,222,873) (1,648,165) (7,465,310) (7,655,722) (10,918,351) (3,570,557)
------------ ----------- ------------ ------------ ------------ ------------
Capital share transactions.......... 191,859,670 28,481,078 (48,630,289) (19,530,455) (4,095,954) 63,383,683
------------ ----------- ------------ ------------ ------------ ------------
Total increase (decrease)
in net assets............. 228,309,095 28,045,157 (284,251) (22,112,695) 22,072,440 71,037,028
Net assets:
Beginning of period............. 98,017,374 69,972,217 177,754,041 199,866,736 230,615,046 159,578,018
------------ ----------- ------------ ------------ ------------ ------------
End of period................... $326,326,469 $98,017,374 $177,469,790 $177,754,041 $252,687,486 $230,615,046
============ =========== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
50
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING
MARKETS PORTFOLIO
INTERNATIONAL EQUITY ------------------------
PORTFOLIO FOR THE BALANCED PORTFOLIO
--------------------------- PERIOD ---------------------------
FOR THE FOR THE FOR THE 6/17/94(1) FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH YEAR ENDED YEAR ENDED
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
------------ ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income.............. $ 5,351,273 $ 3,079,563 $ 448,258 $ 26,722 $ 5,586,249 $ 3,552,179
Net gain (loss) on investments
and foreign currency related
transactions..................... 7,527,285 16,813,095 (3,368,750) 330,075 24,561,091 (5,517,471)
------------ ------------ ----------- ---------- ------------ ------------
Net increase (decrease) in net
assets resulting from
operations....................... 12,878,558 19,892,658 (2,920,492) 356,797 30,147,340 (1,965,292)
------------ ------------ ----------- ---------- ------------ ------------
Distributions to shareholders from
Net investment income
Institutional Shares............... (2,564,224) (1,219,026) (359,180) -- (821,125) (518,473)
Service Shares..................... (602,030) (170,647) (126,070) -- (2,625,630) (1,491,022)
Series A Investor Shares........... (52,611) (42,840) (18,873) -- (2,128,267) (1,542,512)
Series B Investor Shares........... -- -- -- -- (61,853) --
------------ ------------ ----------- ---------- ------------ ------------
Total distributions from net
investment income............ (3,218,865) (1,432,513) (504,123) -- (5,636,875) (3,552,007)
------------ ------------ ----------- ---------- ------------ ------------
Net realized gains
Institutional Shares............... (7,774,154) (2,844,395) (85,253) -- (223,248) (74,267)
Service Shares..................... (2,155,634) (447,150) (106,636) -- (746,415) (125,603)
Series A Investor Shares........... (429,789) (119,272) (55,511) -- (696,601) (232,282)
Series B Investor Shares........... (14,711) -- -- -- (12,892) --
------------ ------------ ----------- ---------- ------------ ------------
Total distributions from net
realized gains............... (10,374,288) (3,410,817) (247,400) -- (1,679,156) (432,152)
------------ ------------ ----------- ---------- ------------ ------------
Capital
Institutional Shares............... -- -- (18,501) -- -- --
Service Shares..................... -- -- (6,494) -- -- --
Series A Investor Shares........... -- -- (972) -- -- --
------------ ------------ ----------- ---------- ------------ ------------
Total distributions from
capital...................... -- -- (25,967) -- -- --
------------ ------------ ----------- ---------- ------------ ------------
Total distributions to
shareholders................. (13,593,153) (4,843,330) (777,490) -- (7,316,031) (3,984,159)
------------ ------------ ----------- ---------- ------------ ------------
Capital share transactions............. 63,627,948 212,755,730 41,726,944 8,516,188 12,436,803 83,590,431
------------ ------------ ----------- ---------- ------------ ------------
Total increase in net assets... 62,913,353 227,805,058 38,028,962 8,872,985 35,268,112 77,640,980
Net assets:
Beginning of period................ 374,511,915 146,706,857 8,872,985 -- 145,940,514 68,299,534
------------ ------------ ----------- ---------- ------------ ------------
End of period...................... $437,425,268 $374,511,915 $46,901,947 $8,872,985 $181,208,626 $145,940,514
============ ============ =========== ========== ============ ============
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
51
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
--------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 4/20/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......................... $ 11.62 $ 11.68 $ 9.78 $ 10.00
-------- -------- -------- --------
Income from investment operations
Net investment income....................................... 0.34 0.27 0.22 0.12
Net gain (loss) on investments
(both realized and unrealized)............................ 2.54 0.16 1.91 (0.24)
-------- -------- -------- --------
Total from investment operations........................ 2.88 0.43 2.13 (0.12)
-------- -------- -------- --------
Less distributions
Distributions from net investment income.................... (0.33) (0.27) (0.23) (0.10)
Distributions from net realized capital gains............... (0.25) (0.22) -- --
-------- -------- -------- --------
Total distributions..................................... (0.58) (0.49) (0.23) (0.10)
-------- -------- -------- --------
Net asset value at end of period............................... $ 13.92 $ 11.62 $ 11.68 $ 9.78
======== ======== ======== ========
Total return................................................... 25.73% 3.76% 21.92% (1.19)%
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $508,273 $577,996 $432,776 $322,806
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 0.67% 0.65% 0.80% 0.85%(2)
Before advisory/administration fee waivers................ 0.81% 0.81% 0.83% 0.85%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 2.68% 2.44% 2.07% 2.62%(2)
Before advisory/administration fee waivers................ 2.53% 2.28% 2.04% 2.62%(2)
Portfolio turnover rate........................................ 12% 11% 11% 13%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
52
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
------------------------------------------------
SERVICE CLASS
------------------------------------------------
FOR THE
PERIOD
YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
-------- -------- -------
<S> <C> <C> <C>
Net asset value at beginning of period..................................... $ 11.62 $ 11.68 $ 11.21
-------- -------- -------
Income from investment operations
Net investment income................................................... 0.30 0.25 0.04
Net gain (loss) on investments (both realized and unrealized)........... 2.55 0.16 0.48
-------- -------- -------
Total from investment operations.................................... 2.85 0.41 0.52
-------- -------- -------
Less distributions
Distributions from net investment income................................ (0.30) (0.25) (0.05)
Distributions from net realized capital gains........................... (0.25) (0.22) --
-------- -------- -------
Total distributions................................................. (0.55) (0.47) (0.05)
-------- -------- -------
Net asset value at end of period........................................... $ 13.92 $ 11.62 $ 11.68
======== ======== =======
Total return............................................................... 25.4% 3.51% 4.64%
Ratios/Supplemental data
Net assets at end of period (in thousands).............................. $170,832 $105,035 $23,137
Ratios of expenses to average net assets
After advisory/administration fee waivers............................. 0.95% 0.90% 0.91%(2)
Before advisory/administration fee waivers............................ 1.09% 1.06% 0.94%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................. 2.40% 2.24% 2.44%(2)
Before advisory/administration fee waivers............................ 2.26% 2.08% 2.41%(2)
Portfolio turnover rate.................................................... 12% 11% 11%
</TABLE>
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
------------------------------------------------
SERIES A
INVESTOR CLASS
------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 5/02/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period..................................... $ 11.62 $ 11.69 $ 9.78 $10.00
------- ------- ------ ------
Income from investment operations
Net investment income................................................... 0.27 0.23 0.22 0.12
Net gain (loss) on investments (both realized and unrealized)........... 2.56 0.15 1.91 (0.24)
------- ------- ------ ------
Total from investment operations.................................... 2.83 0.38 2.13 (0.12)
------- ------- ------ ------
Less distributions
Distributions from net investment income................................ (0.28) (0.23) (0.22) (0.10)
Distributions from net realized capital gains........................... (0.25) (0.22) -- --
------- ------- ------ ------
Total distributions................................................. (0.53) (0.45) (0.22) (0.10)
------- ------- ------ ------
Net asset value at end of period........................................... $ 13.92 $ 11.62 $11.69 $ 9.78
======= ======= ====== ======
Total return............................................................... 25.22%(3) 3.32%(3) 21.95%(3) (1.19)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).............................. $16,910 $10,412 $ 4,865 $ 16
Ratios of expenses to average net assets
After advisory/administration fee waivers............................. 1.11% 1.05% 0.92% 0.85%(2)
Before advisory/administration fee waivers............................ 1.25% 1.21% 0.95% 0.85%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................. 2.24% 2.08% 1.96% 2.62%(2)
Before advisory/administration fee waivers............................ 2.10% 1.92% 1.93% 2.62%(2)
Portfolio turnover rate.................................................... 12% 11% 11% 13%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
53
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
---------------------------------------------------
INSTITUTIONAL CLASS
---------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............................. $ 10.19 $ 11.58 $ 9.92 $ 10.28 $ 9.98
-------- ------- -------- ------- -------
Income from investment operations
Net investment income........................................... 0.13 0.06 0.06 0.21 0.24
Net gain (loss) on investments (both realized and unrealized)... 2.88 (1.34) 2.07 0.30 1.51
-------- ------- -------- ------- -------
Total from investment operations............................ 3.01 (1.28) 2.13 0.51 1.75
-------- ------- -------- ------- -------
Less distributions
Distributions from net investment income........................ (0.17) (0.01) (0.07) (0.37) (0.32)
Distributions from capital...................................... -- -- (0.01) -- --
Distributions from net realized capital gains................... -- (0.10) (0.39) (0.50) (1.13)
-------- ------- -------- ------- -------
Total distributions......................................... (0.17) (0.11) (0.47) (0.87) (1.45)
-------- ------- -------- ------- -------
Net asset value at end of period................................... $ 13.03 $ 10.19 $ 11.58 $ 9.92 $ 10.28
======== ======= ======== ======= =======
Total return....................................................... 29.88% (11.14)% 22.18% 4.98% 19.47%
Ratios/Supplemental data
Net assets at end of period (in thousands)...................... $211,543 $97,834 $100,049 $58,372 $54,912
Ratios of expenses to average net assets
After advisory/administration fee waivers..................... 0.67% 0.65% 0.81% 0.85% 0.85%
Before advisory/administration fee waivers.................... 0.85% 0.89% 0.87% 0.86% 0.91%
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................... 1.20% 0.62% 0.50% 2.07% 2.59%
Before advisory/administration fee waivers.................... 1.01% 0.38% 0.44% 2.06% 2.53%
Portfolio turnover rate............................................ 55% 212% 175% 162% 211%
</TABLE>
See accompanying notes to financial statements.
54
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
-----------------------------------
SERVICE CLASS
-----------------------------------
FOR THE
PERIOD
YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period........................................ $ 10.18 $ 11.57 $10.54
------- ------- ------
Income from investment operations
Net investment income...................................................... 0.10 0.03 --
Net gain (loss) on investments (both realized and unrealized).............. 2.87 (1.32) 1.03
------- ------- ------
Total from investment operations....................................... 2.97 (1.29) 1.03
------- ------- ------
Less distributions
Distributions from net investment income................................... (0.13) -- --
Distributions from capital................................................. -- -- --
Distributions from net realized capital gains.............................. -- (0.10) --
------- ------- ------
Total distributions.................................................... (0.13) (0.10) --
------- ------- ------
Net asset value at end of period.............................................. $ 13.02 $ 10.18 $11.57
======= ======= ======
Total return.................................................................. 29.43% (11.20)% 9.77%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................. $76,769 $36,752 $8,606
Ratios of expenses to average net assets
After advisory/administration fee waivers................................ 0.95% 0.90% 0.89%(2)
Before advisory/administration fee waivers............................... 1.13% 1.14% 0.95%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................ 0.91% 0.51% (0.03)%(2)
Before advisory/administration fee waivers............................... 0.73% 0.26% (0.09)%(2)
Portfolio turnover rate....................................................... 55% 212% 175%
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
----------------------------------------------
SERIES A
INVESTOR CLASS
----------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 3/14/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period........................................ $ 10.16 $11.57 $ 9.92 $10.09
------- ------ ------ ------
Income from investment operations
Net investment income...................................................... 0.08 0.02 0.02 0.08
Net gain (loss) on investments (both realized and unrealized).............. 2.87 (1.33) 2.10 (0.10)
-------- ------ ------ ------
Total from investment operations....................................... 2.95 (1.31) 2.12 (0.02)
-------- ------ ------ ------
Less distributions
Distributions from net investment income................................... (0.10) -- (0.07) (0.15)
Distributions from capital................................................. -- -- (0.01) --
Distributions from net realized capital gains.............................. -- (0.10) (0.39) --
------- ------ ------ ------
Total distributions.................................................... (0.10) (0.10) (0.47) (0.15)
------- ------ ------ ------
Net asset value at end of period.............................................. $ 13.01 $10.16 $11.57 $ 9.92
======= ====== ====== ======
Total return.................................................................. 29.26%(3) (11.38)%(3) 22.08%(3) (0.17)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................................. $10,034 $5,049 $2,362 $ 239
Ratios of expenses to average net assets
After advisory/administration fee waivers................................ 1.11% 1.05% 0.91% 0.85%(2)
Before advisory/administration fee waivers............................... 1.29% 1.29% 0.97% 0.86%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................ 0.76% 0.29% 0.18% 2.07%(2)
Before advisory/administration fee waivers............................... 0.58% 0.05% 0.12% 2.06%(2)
Portfolio turnover rate....................................................... 55% 212% 175% 162%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
55
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
-------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
------------------------------ -----------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 9/14/93(1) YEAR YEAR 9/15/93(1)
ENDED ENDED THROUGH ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93
-------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............. $ 10.16 $ 10.47 $ 10.00 $ 10.14 $ 10.47 $ 9.96
-------- ------- ------- ------- ------- ------
Income from investment operations
Net investment income........................... 0.02 0.03 -- (0.01) 0.01 --
Net gain (loss) on investments (both realized
and unrealized)............................... 4.90 (0.33) 0.47 4.89 (0.34) 0.51
-------- ------- ------- ------- ------- ------
Total from investment operations............ 4.92 (0.30) 0.47 4.88 (0.33) 0.51
-------- ------- ------- ------- ------- ------
Less distributions
Distributions from net investment income........ (0.02) (0.01) -- -- -- --
Distributions from net realized capital gains... -- -- -- -- -- --
-------- ------- ------- ------- ------- ------
Total distributions......................... (0.02) (0.01) -- -- -- --
-------- ------- ------- ------- ------- ------
Net asset value at end of period................... $ 15.06 $ 10.16 $ 10.47 $ 15.02 $ 10.14 $10.47
======== ======= ======= ======= ======= ======
Total return....................................... 48.50% (2.89)% 4.70% 48.13% (3.12)% 5.12%
Ratios/Supplemental data
Net assets at end of period (in thousands)...... $145,915 $65,612 $11,310 $62,604 $22,648 $ 911
Ratios of expenses to average net assets
After advisory/administration fee waivers..... 0.75% 0.48% 0.73%(2) 1.03% 0.71% 0.99%(2)
Before advisory/administration fee waivers.... 0.88% 1.04% 1.42%(2) 1.16% 1.27% 1.68%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers..... 0.22% 0.45% (0.11)%(2) (0.07)% 0.21% (0.34)%(2)
Before advisory/administration fee waivers.... 0.09% (0.10)% (0.80)%(2) (0.20)% (0.34)% (1.03)%(2)
Portfolio turnover rate............................ 74% 89% 9% 74% 89% 9%
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
-------------------------------------
SERIES A
INVESTOR CLASS
-------------------------------------
FOR THE
PERIOD
YEAR YEAR 9/15/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period............. $10.12 $10.47 $ 9.96
------ ------ ------
Income from investment operations
Net investment income........................... (0.02) -- --
Net gain (loss) on investments (both realized
and unrealized)............................... 4.88 (0.35) 0.51
------ ------ ------
Total from investment operations............ 4.86 (0.35) 0.51
------ ------ ------
Less distributions
Distributions from net investment income........ -- -- --
Distributions from net realized capital gains... -- -- --
------ ------ ------
Total distributions......................... -- -- --
------ ------ ------
Net asset value at end of period................... $14.98 $10.12 $10.47
====== ====== ======
Total return....................................... 48.02%(3) (3.33)%(3) 5.12%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)...... $7,348 $1,620 $ 41
Ratios of expenses to average net assets
After advisory/administration fee waivers..... 1.20% 0.86% 1.13%(2)
Before advisory/administration fee waivers.... 1.33% 1.42% 1.82%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers..... (0.24)% 0.07% (0.48)%(2)
Before advisory/administration fee waivers.... (0.36)% (0.49)% (1.17)%(2)
Portfolio turnover rate............................ 74% 89% 9%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
56
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------------------- -------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 9/13/93(1) YEAR YEAR 9/15/93(1)
ENDED ENDED THROUGH ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................... $ 9.92 $ 9.97 $10.00 $ 9.92 $ 9.97 $10.00
--------- -------- --------- -------- -------- --------
Income from investment operations
Net investment income................................. 0.22 0.22 0.01 0.22 0.19 --
Net gain (loss) on investments (both realized
and unrealized)..................................... 2.08 (0.04) (0.04) 2.05 (0.04) (0.03)
--------- -------- --------- -------- -------- --------
Total from investment operations.................. 2.30 0.18 (0.03) 2.27 0.15 (0.03)
--------- -------- --------- -------- -------- --------
Less distributions
Distributions from net investment income.............. (0.22) (0.23) -- (0.19) (0.20) --
Distributions from net realized capital gains......... (0.12) -- -- (0.12) -- --
--------- -------- --------- -------- -------- --------
Total distributions............................... (0.34) (0.23) -- (0.31) (0.20) --
--------- -------- --------- -------- -------- --------
Net asset value at end of period......................... $ 11.88 $ 9.92 $ 9.97 $ 11.88 $ 9.92 $ 9.97
========= ======== ========= ======== ======== ========
Total return............................................. 23.76% 1.79% (0.30)% 23.43% 1.55% (0.30)%
Ratios/Supplemental data
Net assets at end of period (in thousands)............ $238,813 $48,123 $69,268 $83,705 $49,293 $ 704
Ratios of expenses to average net assets
After advisory/administration fee waivers........... 0.67% 0.65% 0.65%(2) 0.95% 0.90% 0.90%(2)
Before advisory/administration fee waivers.......... 0.85% 0.93% 0.87%(2) 1.13% 1.18% 1.12%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........... 2.35% 2.11% 2.17%(2) 2.10% 1.96% 1.92%(2)
Before advisory/administration fee waivers.......... 2.17% 1.82% 1.95%(2) 1.91% 1.68% 1.70%(2)
Portfolio turnover rate.................................. 51% 88% 2% 51% 88% 2%
</TABLE>
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
---------------------
SERIES A
INVESTOR CLASS
---------------------
FOR THE
PERIOD
YEAR 10/13/93(1)
ENDED THROUGH
9/30/95 9/30/94
------- --------
<S> <C> <C>
Net asset value at beginning of period................... $ 9.92 $ 9.96
------ -------
Income from investment operations
Net investment income................................. 0.20 0.18
Net gain (loss) on investments (both realized
and unrealized)..................................... 2.06 (0.03)
------ -------
Total from investment operations.................. 2.26 0.15
------ -------
Less distributions
Distributions from net investment income.............. (0.18) (0.19)
Distributions from net realized capital gains......... (0.12) --
------ -------
Total distributions............................... (0.30) (0.19)
------ -------
Net asset value at end of period......................... $11.88 $ 9.92
====== =======
Total return............................................. 23.29%(3) 1.54%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............ $3,808 $ 601
Ratios of expenses to average net assets
After advisory/administration fee waivers........... 1.12% 1.05%(2)
Before advisory/administration fee waivers.......... 1.30% 1.34%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........... 1.91% 1.89%(2)
Before advisory/administration fee waivers.......... 1.73% 1.60%(2)
Portfolio turnover rate.................................. 51% 88%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
57
<PAGE>
THE PNC(R) FUND
Financial HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
--------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 4/20/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net asset value
at beginning of period....... $ 10.93 $ 11.02 $ 10.08 $ 10.00
-------- -------- -------- --------
Income from investment
operations
Net investment income...... 0.38 0.31 0.27 0.13
Net gain (loss)
on investments
(both realized
and unrealized).......... 2.73 0.03 0.97 0.03
-------- -------- -------- --------
Total from
investment operations 3.11 0.34 1.24 0.16
-------- -------- -------- --------
Less distributions
Distributions from
net investment income..... (0.34) (0.32) (0.28) (0.10)
Distributions from
net realized
capital gains............. (0.12) (0.11) -- --
-------- -------- -------- --------
Total distributions..... (0.46) (0.43) (0.28) (0.10)
-------- -------- -------- --------
Net asset value
at end of period............. $ 13.58 $ 10.93 $ 11.02 $ 10.06
======== ======== ======== ========
Total return................... 29.30% 3.07% 12.40% 1.62%
Ratios/Supplemental data
Net assets
at end of period
(in thousands)............ $109,433 $147,746 $186,163 $175,888
Ratios of expenses
to average net assets
After advisory/
administration
fee waivers........... 0.17% 0.15% 0.40% 0.45%(2)
Before advisory/
administration
fee waivers........... 0.50% 0.52% 0.52% 0.64%(2)
Ratios of net investment
income to average
net assets
After advisory/
administration
fee waivers........... 2.92% 2.72% 2.46% 2.85%(2)
Before advisory/
administration
fee waivers........... 2.59% 2.35% 2.34% 2.66%(2)
Portfolio turnover rate........ 18% 17% 8% 23%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
58
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INDEX EQUITY PORTFOLIO
------------------------------
SERVICE CLASS
------------------------------
FOR THE
PERIOD
YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
------- ------- -------
Net asset value
at beginning of period............. $ 10.93 $ 11.02 $ 10.76
------- ------- -------
Income from investment operations
Net investment income............. 0.35 0.29 0.05
Net gain (loss) on investments
(both realized and unrealized).. 2.73 0.02 0.29
------- ------- -------
Total from investment
operations.................. 3.08 0.31 0.34
------- ------- -------
Less distributions
Distributions from
net investment income........... (0.31) (0.29) (0.08)
Distributions from
net realized capital gains...... (0.12) (0.11) --
------- ------- ------
Total distributions........... (0.43) (0.40) (0.08)
------- ------- ------
Net asset value at end of period..... $ 13.58 $ 10.93 $ 11.02
======= ======= =======
Total return......................... 28.99% 2.78% 3.16%
Ratios/Supplemental data
Net assets at end of period
(in thousands).................. $61,536 $27,376 $12,441
Ratios of expenses
to average net assets
After advisory/
administration fee waivers.. 0.45% 0.40% 0.41%(2)
Before advisory/
administration fee waivers.. 0.79% 0.77% 0.53%(2)
Ratios of net investment
income to average net assets
After advisory/
administration fee waivers.. 2.62% 2.49% 3.04%(2)
Before advisory/
administration fee waivers.. 2.28% 2.12% 2.92%(2)
Portfolio turnover rate.............. 18% 17% 8%
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
----------------------------------------------
SERIES A INVESTOR CLASS
----------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 6/02/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value
at beginning of period....... $ 10.93 $ 11.02 $ 10.06 $ 10.07
------- ------- ------- -------
Income from investment
operations
Net investment income....... 0.34 0.25 0.27 0.10
Net gain (loss) on
investments (both realized
and unrealized)........... 2.73 0.04 0.96 (0.01)
------- ------- ------- -------
Total from investment
operations............ 3.07 0.29 1.23 0.09
------- ------- ------- -------
Less distributions
Distributions from
net investment income...... (0.30) (0.27) (0.27) (0.10)
Distributions from net
realized capital gains..... (0.12) (0.11) -- --
------- ------- ------- -------
Total distributions...... (0.42) (0.38) (0.27) (0.10)
------- ------ ------- ------
Net asset value
at end of period.............. $ 13.58 $ 10.93 $ 11.02 $ 10.06
======= ======= ======= =======
Total return.................... 28.77%(3) 2.66%(3) 12.33%(3) 0.91%(3)
Ratios/Supplemental data
Net assets at end of period
(in thousands)............. $ 6,501 $ 2,632 $ 1,263 $ 56
Ratios of expenses
to average net assets
After advisory/
administration
fee waivers.............. 0.61% 0.55% 0.49% 0.45%(2)
Before advisory/
administration
fee waivers............... 0.95% 0.92% 0.61% 0.64%(2)
Ratios of net investment
income to average net assets
After advisory/
administration
fee waivers............. 2.44% 2.35% 2.48% 2.85%(2)
Before advisory/
administration
fee waivers............. 2.10% 1.98% 2.36% 2.66%(2)
Portfolio turnover rate.......... 18% 7% 8% 23%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
59
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP VALUE EQUITY PORTFOLIO
---------------------------------------
INSTITUTIONAL CLASS
---------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 4/13/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
-------- ------- ------- -------
[S] [C] [C] [C] [C]
Net asset value
at beginning of period.......... $ 13.62 $ 13.08 $ 10.14 $ 10.00
-------- ------- ------- -------
Income from investment operations
Net investment income.......... 0.06 0.04 0.04 0.02
Net gain (loss) on
investments (both realized
and unrealized).............. 2.17 0.77 3.02 0.13
-------- ------- ------- -------
Total from investment
operations............... 2.23 0.81 3.06 0.15
-------- ------- ------- -------
Less distributions
Distributions from
net investment income........ (0.08) (0.02) (0.04) (0.01)
Distributions from
net realized capital gains... (0.61) (0.25) (0.08) --
-------- ------- -------- -------
Total distributions........ (0.69) (0.27) (0.12) (0.01)
-------- -------- -------- -------
Net asset value at end of period.. $ 15.16 $ 13.62 $ 13.08 $ 10.14
======== ======== ======== =======
Total return...................... 17.43% 6.28% 30.36% 1.50%
Ratios/Supplemental data
Net assets at end
of period (in thousands)..... $168,334 $168,360 $128,805 $75,045
Ratios of expenses
to average net assets
After advisory/
administration
fee waivers.............. 0.75% 0.73% 0.83% 0.85%(2)
Before advisory/
administration
fee waivers.............. 0.84% 0.85% 0.87% 0.89%(2)
Ratios of net investment
income to average net assets
After advisory/
administration
fee waivers.............. 0.44% 0.28% 0.31% 0.51%(2)
Before advisory/
administration
fee waivers.............. 0.35% 0.16% 0.27% 0.47%(2)
Portfolio turnover rate........... 31% 18% 41% 17%
SMALL CAP VALUE EQUITY PORTFOLIO
--------------------------------
SERVICE CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
------- ------- -------
Net asset value
at beginning of period.......... $ 13.59 $ 13.08 $ 12.28
------- ------- -------
Income from investment
operations
Net investment income......... 0.02 -- --
Net gain (loss) on
investments (both
realized and unrealized).... 2.18 0.77 0.80
------ ------- -------
Total from investment
operations............... 2.20 0.77 0.80
------ ------- -------
Less distributions
Distributions from
net investment income........ (0.03) (0.01) --
Distributions from net
realized capital gains....... (0.61) (0.25) --
------ ------- -------
Total distributions........ (0.64) (0.26) --
------ ------- -------
Net asset value at end of period.. $ 15.15 $ 13.59 $ 13.08
======= ======= =======
Total return...................... 17.17% 5.96% 6.51%
Ratios/Supplemental data
Net assets at end of period
(in thousands)............... $61,313 $45,372 $21,689
Ratios of expenses to
average net assets
After advisory/
administration
fee waivers............ 1.02% 0.98% 0.99%(2)
Before advisory/
administration
fee waivers.............. 1.12% 1.10% 1.03%(2)
Ratios of net investment
income to average net assets
After advisory/
administration
fee waivers............. 0.16% 0.03% 0.12%(2)
Before advisory/
administratio
fee waivers............. 0.07% (0.09)% 0.08%(2)
Portfolio turnover rate.......... 31% 18% 41%
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
60
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY
PORTFOLIO
--------------------------------------------------------------
SERIES A SERIES B
INVESTOR CLASS INVESTOR CLASS
------------------------------------------ --------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 6/02/92(1) 10/3/94(1)
ENDED ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/95
------- ------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $13.58 $13.07 $10.14 $10.06 $13.51
------ ------ ------ ------ ------
Income from investment operations
Net investment income................................... -- (0.01) 0.03 0.02 (0.05)
Net gain (loss) on investments (both
realized and unrealized).............................. 2.17 0.77 3.02 0.07 2.21
------ ------ ------ ------ ------
Total from investment operations.................... 2.17 0.76 3.05 0.09 2.16
------ ------ ------ ------ ------
Less distributions
Distributions from net investment income................ -- -- (0.04) (0.01) --
Distributions from net realized capital gains........... (0.61) (0.25) (0.08) -- (0.61)
------ ------ ------ ------ ------
Total distributions................................. (0.61) (0.25) (0.12) (0.01) (0.61)
------ ------ ------ ------ ------
$10.14 $15.06
Net asset value at end of period........................... $15.14 $13.58 $13.07 $10.14 $15.06
====== ====== ====== ====== ======
Total return............................................... 16.96%(3) 5.93%(3) 30.36%(3) 0.89% 16.95%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands).............. $21,563 $16,884 $9,084 $ 62 $1,477
Ratios of expenses to average net assets
After advisory/administration fee waivers............. 1.18% 1.13% 0.94% 0.85%(2) 1.80%(2)
Before advisory/administration fee waivers............ 1.28% 1.25% 0.98% 0.89%(2) 1.89%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............. 0.00% (0.11)% 0.19% 0.51%(2) (0.61)%(2)
Before advisory/administration fee waivers............ (0.09)% (0.23)% 0.15% 0.47%(2) (0.70)%(2)
Portfolio turnover rate.................................... 31% 18% 41% 17% 31%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
61
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
----------------------------------------------
INSTITUTIONAL CLASS
----------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 4/27/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period...................................... $ 13.44 $ 12.48 $ 9.87 $ 10.00
-------- -------- -------- -------
Income from investment operations
Net investment income.................................................... 0.17 0.15 0.11 0.11
Net gain (loss) on investments (both realized and unrealized)............ 0.13 1.17 2.61 (0.17)
-------- -------- -------- -------
Total from investment operations..................................... 0.30 1.32 2.72 (0.06)
-------- -------- -------- -------
Less distributions
Distributions from net investment income................................. (0.11) (0.11) (0.11) (0.07)
Distributions from net realized capital gains............................ (0.36) (0.25) -- --
-------- -------- -------- -------
Total distributions.................................................. (0.47) (0.36) (0.11) (0.07)
-------- -------- -------- -------
Net asset value at end of period............................................ $ 13.27 $ 13.44 $ 12.48 $ 9.87
======== ======== ======== =======
Total return................................................................ 2.46% 10.71% 27.72% (0.61)%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................... $312,588 $284,905 $131,052 $60,357
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................. 0.97% 0.95% 1.10% 1.20%(2)
Before advisory/administration fee waivers............................. 1.14% 1.14% 1.16% 1.21%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................. 1.42% 1.27% 1.17% 2.59%(2)
Before advisory/administration fee waivers............................. 1.24% 1.08% 1.11% 2.58%(2)
Portfolio turnover rate..................................................... 105% 37% 31% 15%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------
SERVICE CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
-------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period...................................... $ 13.41 $ 12.47 $ 11.76
-------- ------- -------
Income from investment operations
Net investment income.................................................... 0.11 0.14 0.02
Net gain (loss) on investments (both realized and unrealized)............ 0.16 1.14 0.69
-------- ------- -------
Total from investment operations..................................... 0.27 1.28 0.71
-------- ------- -------
Less distributions
Distributions from net investment income................................. (0.08) (0.09) --
Distributions from net realized capital gains............................ (0.36) (0.25) --
-------- ------- -------
Total distributions.................................................. (0.44) (0.34) --
-------- ------- -------
Net asset value at end of period............................................ $ 13.24 $ 13.41 $ 12.47
======== ======= =======
Total return................................................................ 2.19% 10.36% 6.03%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................... $106,045 $75,174 $11,985
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................. 1.25% 1.20% 1.18%(2)
Before advisory/administration fee waivers............................. 1.42% 1.39% 1.24%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................. 1.16% 1.09% 1.01%(2)
Before advisory/administration fee waivers............................. 0.98% 0.90% 0.95%(2)
Portfolio turnover rate..................................................... 105% 37% 31%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
62
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
---------------------------------------------------------------
SERIES A SERIES B
INVESTOR CLASS INVESTOR CLASS
------------------------------------------ --------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 6/02/92(1) 10/03/94(1)
ENDED ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/92 9/30/95
------- ------- ------- --------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period....................... $ 13.40 $ 12.47 $ 9.87 $10.68 $13.35
------- ------- ------ ------ ------
Income from investment operations
Net investment income..................................... 0.11 0.12 0.12 0.09 0.05
Net gain (loss) on investments (both
realized and unrealized)................................ 0.13 1.15 2.59 (0.83) 0.16
------- ------- ------ ------ ------
Total from investment operations...................... 0.24 1.27 2.71 (0.74) 0.21
------- ------- ------ ------ ------
Less distributions
Distributions from net investment income.................. (0.04) (0.09) (0.11) (0.07) --
Distributions from net realized capital gains............. (0.36) (0.25) -- -- (0.36)
------- ------- ------ ------ ------
Total distributions................................... (0.40) (0.34) (0.11) (0.07) (0.36)
------- ------- ------ ------ ------
Net asset value at end of period............................. $ 13.24 $ 13.40 $12.47 $ 9.87 $13.20
======= ======= ====== ====== ======
Total return................................................. 2.00%(3) 10.24%(3) 27.72%(3) (6.94)%(3) 1.77%(4)
Ratios/Supplemental data
Net Assets at end of period (in thousands)................ $17,721 $14,433 $3,669 $ 58 $1,071
Ratios of expenses to average net assets
After advisory/administration fee waivers............... 1.40% 1.35% 1.25% 1.20%(2) 2.06%(2)
Before advisory/administration fee waivers.............. 1.58% 1.54% 1.31% 1.21%(2) 2.23%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............... 0.97% 0.96% 1.27% 2.59%(2) 0.59%(2)
Before advisory/administration fee waivers.............. 0.80% 0.77% 1.21% 2.58%(2) 0.41%(2)
Portfolio turnover rate...................................... 105% 37% 31% 16% 105%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
63
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MARKETS
PORTFOLIO
-----------------------------------
SERVICE
INSTITUTIONAL CLASS CLASS
-------------------- -------
FOR THE
PERIOD
YEAR 6/17/94(1) YEAR
ENDED THROUGH ENDED
9/30/95 9/30/94 9/30/95
------- -------- -------
<S> <C> <C> <C>
Net asset value at beginning of period............................................. $ 10.56 $10.00 $ 10.55
------- ------ -------
Income from investment operations
Net investment income........................................................... 0.08 0.03 0.06
Net gain (loss) on investments (both realized and unrealized)................... (2.15) 0.53 (2.15)
------- ------ -------
Total from investment operations............................................ (2.07) 0.56 (2.09)
------- ------ -------
Less distributions
Distributions from net investment income........................................ (0.10) -- (0.08)
Distributions from capital...................................................... (0.01) -- (0.01)
Distributions from net realized capital gains................................... (0.19) -- (0.19)
------- ------ -------
Total distributions......................................................... (0.30) -- (0.28)
------- ------ -------
Net asset value at end of period................................................... $ 8.19 $10.56 $ 8.18
======= ====== =======
Total return....................................................................... (19.72)% 5.60% (19.91)%
Ratios/Supplemental data
Net assets at end of period (in thousands)...................................... $29,319 $2,511 $15,020
Ratios of expenses to average net assets
After advisory/administration fee waivers..................................... 1.78% 1.75%(2) 2.06%
Before advisory/administration fee waivers.................................... 2.02% 2.73%(2) 2.30%
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................................... 1.90% 1.19%(2) 1.72%
Before advisory/administration fee waivers.................................... 1.66% 0.21%(2) 1.48%
Portfolio turnover rate............................................................ 75% 4% 75%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MARKETS
PORTFOLIO
-------------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
--------- ---------------------
FOR THE FOR THE
PERIOD PERIOD
6/17/94(1) YEAR 6/17/94(1)
THROUGH ENDED THROUGH
9/30/94 9/30/95 9/30/94
--------- ------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period............................................. $10.00 $10.54 $10.00
------ ------ ------
Income from investment operations
Net investment income........................................................... 0.02 0.03 0.02
Net gain (loss) on investments (both realized and unrealized)................... 0.53 (2.14) 0.52
------ ------ ------
Total from investment operations............................................ 0.55 (2.11) 0.54
------ ------ ------
Less distributions
Distributions from net investment income........................................ -- (0.05) --
Distributions from capital...................................................... -- (0.01) --
Distributions from net realized capital gains................................... -- (0.19) --
------ ------ ------
Total distributions......................................................... -- (0.25) --
------ ------ ------
Net asset value at end of period................................................... $10.55 $ 8.18 $10.54
====== ====== ======
Total return....................................................................... 5.50% (20.12)%(3) 5.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)...................................... $3,505 $2,563 $2,857
Ratios of expenses to average net assets
After advisory/administration fee waivers..................................... 2.00%(2) 2.20% 2.15%(2)
Before advisory/administration fee waivers.................................... 2.98%(2) 2.44% 3.13%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................................... 1.10%(2) 1.54% 0.74%(2)
Before advisory/administration fee waivers.................................... 0.12%(2) 1.30% (0.24)%(2)
Portfolio turnover rate............................................................ 4% 75% 4%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
64
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
-------------------------------------------
INSTITUTIONAL CLASS
-------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 5/1/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period...................................... $ 11.98 $ 12.42 $ 11.53 $11.01
------- ------- ------- ------
Income from investment operations
Net investment income.................................................... 0.46 0.38 0.30 0.17
Net gain (loss) on investments (both realized and unrealized)............ 1.90 (0.39) 1.15 0.51
------- ------- ------- ------
Total from investment operations..................................... 2.36 (0.01) 1.45 0.68
------- ------- ------- ------
Less distributions
Distributions from net investment income................................. (0.47) (0.37) (0.30) (0.16)
Distributions from net realized capital gains............................ (0.14) (0.06) (0.26) --
------- ------- ------- ------
Total distributions.................................................. (0.61) (0.43) (0.56) (0.16)
------- ------- ------- ------
Net asset value at end of period............................................ $ 13.73 $ 11.98 $ 12.42 $11.53
======= ======= ======= ======
Total return................................................................ 20.32% (0.11)% 12.86% 6.23%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................... $24,525 $17,610 $12,928 $2,501
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................. 0.67% 0.65% 0.80% 0.95%(2)
Before advisory/administration fee waivers............................. 0.88% 0.91% 0.98% 1.51%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................. 3.78% 3.16% 2.89% 3.28%(2)
Before advisory/administration fee waivers............................. 3.56% 2.89% 2.71% 2.72%(2)
Portfolio turnover rate..................................................... 154% 54% 32% 36%
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
-------------------------------
SERVICE CLASS
-------------------------------
FOR THE
PERIOD
YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93
------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period...................................... $ 11.98 $ 12.42 $ 12.05
------- ------- -------
Income from investment operations
Net investment income.................................................... 0.44 0.34 0.06
Net gain (loss) on investments (both realized and unrealized)............ 1.88 (0.38) 0.38
------- ------- -------
Total from investment operations..................................... 2.32 (0.04) 0.44
------- ------- -------
Less distributions
Distributions from net investment income................................. (0.44) (0.34) (0.07)
Distributions from net realized capital gains............................ (0.14) (0.06) --
------- ------- -------
Total distributions.................................................. (0.58) (0.40) (0.07)
------- ------- -------
Net asset value at end of period............................................ $ 13.72 $ 11.98 $ 12.42
======= ======= =======
Total return................................................................ 19.94% (0.36)% 3.66%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................... $85,668 $66,024 $15,842
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................. 0.94% 0.90% 0.93%(2)
Before advisory/administration fee waivers............................. 1.16% 1.16% 1.11%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................. 3.49% 2.96% 2.75%(2)
Before advisory/administration fee waivers............................. 3.28% 2.70% 2.57%(2)
Portfolio turnover rate..................................................... 154% 54% 32%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
65
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
-------------------------------------------
SERIES A
INVESTOR CLASS
-------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.......................................... $ 11.98 $ 12.42 $ 11.53 $10.82
------- ------- ------- ------
Income from investment operations
Net investment income........................................................ 0.43 0.32 0.30 0.34
Net gain (loss) on investments (both realized and unrealized)................ 1.88 (0.38) 1.14 1.22
------- ------- ------- ------
Total from investment operations......................................... 2.31 (0.06) 1.44 1.56
------- ------- ------- ------
Less distributions
Distributions from net investment income..................................... (0.42) (0.32) (0.29) (0.39)
Distributions from net realized capital gains................................ (0.14) (0.06) (0.26) (0.46)
------- ------- ------- ------
Total distributions...................................................... (0.56) (0.38) (0.55) (0.85)
------- ------- ------- ------
Net asset value at end of period................................................ $ 13.73 $ 11.98 $ 12.42 $11.53
======= ======= ======= ======
Total return.................................................................... 19.86%(3) (0.50)%(3) 12.80%(3) 15.17%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................................... $67,892 $62,307 $39,529 $8,481
Ratios of expenses to average net assets
After advisory/administration fee waivers.................................. 1.07% 1.05% 0.91% 0.95%
Before advisory/administration fee waivers................................. 1.28% 1.31% 1.09% 1.51%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................................. 3.38% 2.77% 2.79% 3.28%
Before advisory/administration fee waivers................................. 3.16% 2.51% 2.61% 2.72%
Portfolio turnover rate......................................................... 154% 54% 32% 36%
</TABLE>
<TABLE>
<CAPTION>
SERIES A SERIES B
INVESTOR INVESTOR
CLASS CLASS
-------- ----------
FOR THE
PERIOD
YEAR 10/03/94(1)
ENDED THROUGH
9/30/91 9/30/95
------- ----------
<S> <C> <C>
Net asset value at beginning of period............................................... $ 9.13 $11.95
------ ------
Income from investment operations
Net investment income............................................................. 0.38 0.33
Net gain (loss) on investments (both realized and unrealized)..................... 1.77 1.93
------ ------
Total from investment operations.............................................. 2.15 2.26
------ ------
Less distributions
Distributions from net investment income.......................................... (0.34) (0.38)
Distributions from net realized capital gains..................................... (0.12) (0.14)
------ ------
Total distributions........................................................... (0.46) (0.52)
------ ------
Net asset value at end of period..................................................... $10.82 $13.69
====== ======
Total return......................................................................... 24.04%(3) 19.38%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................ $4,265 $3,124
Ratios of expenses to average net assets
After advisory/administration fee waivers....................................... 1.15% 1.72%(2)
Before advisory/administration fee waivers...................................... 1.86% 1.94%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................................... 3.70% 2.71%(2)
Before advisory/administration fee waivers...................................... 2.99% 2.49%(2)
Portfolio turnover rate.............................................................. 45% 154%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
66
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
The PNC Fund (the "Fund") was organized on December 22, 1988, as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-six separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio, New
Jersey Municipal Money Market Portfolio, Value Equity Portfolio, Growth Equity
Portfolio, Small Cap Growth Equity Portfolio, Core Equity Portfolio, Index
Equity Portfolio, Small Cap Value Equity Portfolio, International Equity
Portfolio, International Emerging Markets Portfolio, Balanced Portfolio, Managed
Income Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio,
Ohio Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio,
Short-Term Bond Portfolio, Intermediate-Term Bond Portfolio, International Fixed
Income Portfolio and Government Income Portfolio. As of September 30, 1995, the
New Jersey Municipal Money Market Portfolio and the International Fixed Income
Portfolio had not commenced operations. This report relates solely to Value
Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity Portfolio,
Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity Portfolio,
International Equity Portfolio, International Emerging Markets Portfolio and
Balanced Portfolio (the "Portfolios").
Each Portfolio has four classes of shares, one class being referred to as
the Service shares, one class being referred to as the Institutional shares, one
class being referred to as the Series A Investor shares and one class being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for the Value Equity Portfolio, Growth Equity Portfolio, Small Cap
Growth Equity Portfolio, Core Equity Portfolio, International Emerging Markets
Portfolio and the Index Equity Portfolio through September 30, 1995. Series A
Investor, Series B Investor, Institutional and Service shares in a Portfolio
represent equal pro rata interests in such Portfolio, except that they bear
different expenses which reflect the difference in the range of services
provided to them. Series A Investor shares bear the expense of the Series A
Distribution and Service Plan at an annual rate not to exceed .55% of the
average daily net asset value of each Portfolio's outstanding Series A Investor
shares. Series B Investor shares bear the expense of the Series B Distribution
Plan at an annual rate not to exceed .75% of the average daily net asset value
of each Portfolio's outstanding Series B Investor shares. Series B Investor
shares also bear the expense of the Series B Service Plan at an annual rate not
to exceed .25% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Under the Fund's Service Plan, Service
shares bear the expense of fees at an annual rate not to exceed .15% of the
average daily net asset value of each Portfolio's outstanding Service shares.
Service shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of each Portfolio's outstanding
Service shares for other shareholder support activities provided by service
organizations. Institutional shares do not bear the expense of the Series A
Distribution and Service Plan, the Service Plan, the Series B Distribution Plan
or the Series B Service Plan. The Service, Series A Investor and Series B
Investor classes are currently bearing such respective expenses at aggregate
annual rates of .30% of the average daily net asset value of Service shares,
.40% of the average daily net asset value of Series A Investor shares and 1.00%
of the average daily net asset value of Series B Investor shares. In addition,
Institutional and Service shares bear a Transfer Agent fee at an annual rate not
to exceed .03% and Series A Investor and Series B Investor shares bear a
Transfer Agent fee at an annual rate not to exceed .10%.
67
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Corporate bonds are valued
on the basis of quotations provided by a pricing service which uses information
with respect to transactions on bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Short-term obligations with maturities of 60
days or less are valued at amortized cost which approximates market value.
Discounts and premiums on debt securities are amortized for book and tax
purposes using the effective yield-to-maturity method over the term of the
instrument.
Dividends to Shareholders -- Dividends from net investment income are
declared and paid quarterly for the Portfolios. Net realized capital gains, if
any, will be distributed at least annually. The character of distributions made
during the year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes due to
differences between generally accepted accounting principles and tax accounting,
related to the character of income and expense recognition. These differences
are primarily due to differing treatments for net operating losses,
mortgage-backed securities, passive foreign investment companies, futures and
forward foreign currency contracts.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Foreign Currency Transactions -- With respect to the International Equity
Portfolio and International Emerging Markets Portfolio, transactions denominated
in foreign currencies are recorded in the Portfolios' records at the current
prevailing exchange rates. Asset and liability accounts that are denominated in
a foreign currency are adjusted daily to reflect current exchange rates.
Transaction gains or losses resulting from changes in exchange rates during the
reporting period or upon settlement of the foreign currency transaction are
reported in operations for the current period. It is not practical to isolate
that portion of both realized and unrealized gains and losses on investments in
the statement of operations that result from fluctuations in foreign currency
exchange rates. The Portfolios report forward foreign currency contracts and
foreign currency related transactions as components of realized gains for
financial reporting purposes, whereas such components are treated as ordinary
income for Federal income tax purposes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date. Certain expenses, principally
fees relating to the Service Plan, the Series A Distribution and Service Plan,
the Series B Distribution Plan and the Series B Service Plan, and the Transfer
Agent fee are class specific expenses. Expenses not directly attributable to a
specific Portfolio or class are allocated among all of the Portfolios or classes
of the Fund based on their relative net assets.
68
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
Futures Transactions -- Certain portfolios may enter into futures contracts
subject to certain limitations. Upon entering into a futures contract, the
Portfolio is required to deposit cash or pledge U.S. Government securities of an
initial margin. Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying security or securities, are made or
received by the Portfolio each day (daily variation margin) and are recorded as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the Portfolio records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolio's basis in the contracts. Risks of entering into futures contracts
include the possibility that there will not be a perfect price correlation
between the futures contract and the underlying securities. Second, it is
possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Portfolio could lose more than the original margin deposit required to
initiate a futures transaction.
At September 30, 1995, the Growth Equity Portfolio had outstanding 25 long
futures contracts on the S&P 500 Stock Index, expiring December 15, 1995. The
value of such contracts on September 30, 1995 was $7,352,500, thereby resulting
in an unrealized gain of $30,625. Futures transactions entered into for the year
ended September 30, 1995, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPENING
OF CONTRACTS VALUE
------------ ------------
<S> <C> <C>
Long Futures Contracts Opened............. 100 $ 27,142,500
Long Futures Contracts Closed............. (75) (19,820,625)
---- -----------
Outstanding Long Futures at
Beginning of period..................... 0 0
---- -----------
End of period........................... 25 $ 7,321,875
==== ===========
</TABLE>
At September 30, 1995, the Core Equity Portfolio had outstanding 257 long
futures contracts on the S&P 500 Stock Index, expiring December 15, 1995. The
value of such contracts on September 30, 1995 was $75,583,700, thereby resulting
in an unrealized gain of $495,700.
69
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
Futures transactions entered into for the year ended September 30, 1995,
are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPENING
OF CONTRACTS VALUE
------------ ------------
<S> <C> <C>
Long Futures Contracts Opened............. 452 $128,542,550
Long Futures Contracts Closed............. (195) (53,454,550)
----- ------------
Outstanding Long Futures at
Beginning of period..................... 0 0
----- ------------
End of period........................... 257 $ 75,088,000
===== ============
</TABLE>
At September 30, 1995, the Index Equity Portfolio had outstanding 16 long
futures contracts on the S&P 500 Stock Index, expiring December 15, 1995. The
value of such contracts on September 30, 1995 was $4,705,600, thereby resulting
in an unrealized gain of $19,600. Futures transactions entered into for the year
ended September 30, 1995, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPENING
OF CONTRACTS VALUE
------------ -------------
<S> <C> <C>
Long Futures Contracts Opened............ 628 $ 164,606,325
Long Futures Contracts Closed............ (619) (161,562,000)
----- ------------
Outstanding Long Futures at
Beginning of period.................... 7 1,641,675
----- ------------
End of period.......................... 16 $ 4,686,000
===== ============
</TABLE>
At September 30, 1995, the Balanced Portfolio had outstanding 10 long
futures contracts on the S&P 500 Stock Index, expiring December 15, 1995. The
value of such contracts on September 30, 1995 was $2,941,000, thereby resulting
in an unrealized loss of $14,400. Futures transactions entered into for the year
ended September 30, 1995, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPENING
OF CONTRACTS VALUE
------------ -----------
<S> <C> <C>
Long Futures Contracts Opened.............. 31 $ 8,747,525
Long Futures Contracts Closed.............. (21) (5,792,125)
---- -----------
Outstanding Long Futures at
Beginning of period...................... 0 0
---- -----------
End of period............................ 10 $ 2,955,400
==== ===========
</TABLE>
Forward Foreign Currency Contracts -- International Equity Portfolio may
enter into forward foreign currency contracts to hedge against adverse changes
in the relationship of the U.S. dollar to foreign currencies. At September 30,
1995, the Portfolio had not entered into any forward foreign currency contracts.
70
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currency relative to the U.S.
dollar.
Other -- Securities denominated in currencies other than U.S. dollars are
subject to changes in value due to fluctuations in exchange rates.
Some countries in which the portfolios invest require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. Consequently, acquisition and disposition of securities by the
portfolios may be inhibited. In addition, a significant proportion of the
aggregate market value of equity securities listed on the major securities
exchanges in emerging markets are held by a smaller number of investors. This
may limit the number of shares available for acquisition or disposition by the
Fund.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group,
Inc. ("PAMG"), which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment adviser for each of the Fund's
Portfolios. PNC Equity Advisors Company ("PEAC"), a wholly-owned subsidiary of
PAMG, serves as the sub-adviser for the Growth Equity, Small Cap Growth Equity,
Core Equity and Index Equity Portfolios. PNC Bank serves as the sub-adviser for
the Balanced Portfolio. Provident Capital Management, Inc. ("PCM") serves as the
sub-adviser for the Value Equity, Small Cap Value Equity, International Equity
and International Emerging Markets Portfolios. PNC Bank, PAMG, PIMC, PEAC and
PCM are indirect wholly-owned subsidiaries of PNC Bank Corp.
For its advisory services, PIMC is entitled to receive fees at the
following annual rates, computed daily and payable monthly based on each
Portfolio's average daily net assets:
Value Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Small
Cap Value Equity and Balanced Portfolios -- .55% of its first $1 billion, .50%
of the next $1 billion, .475% of the next $1 billion and .45% of net assets in
excess of $3 billion.
Index Equity Portfolio -- .20% of its average daily net assets.
International Equity Portfolio -- .75% of its first $1 billion, .70% of the
next $1 billion, .675% of the next $1 billion and .65% of net assets in excess
of $3 billion.
International Emerging Markets Portfolio -- 1.25% of its first $1 billion,
1.20% of the next $1 billion, 1.155% of the next $1 billion, and 1.10% of net
assets in excess of $3 billion.
71
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
PIMC may, at its discretion, waive all or any portion of its advisory fee
for any Portfolio. For the year ended September 30, 1995, advisory fees and
waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- -------- ----------
<S> <C> <C> <C>
Value Equity Portfolio............................ $3,579,370 $746,727 $2,832,643
Growth Equity Portfolio........................... 1,191,123 324,851 866,272
Small Cap Growth Equity Portfolio................. 755,989 137,615 618,374
Core Equity Portfolio............................. 950,739 259,293 691,446
Index Equity Portfolio............................ 412,977 382,205 30,772
Small Cap Value Equity Portfolio.................. 1,257,378 114,307 1,143,071
International Equity Portfolio.................... 2,989,509 597,902 2,391,607
International Emerging Markets Portfolio.......... 310,834 52,186 258,648
Balanced Portfolio................................ 883,799 241,037 642,762
</TABLE>
PIMC pays PNC Bank, PEAC and PCM fees for their sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
PDI is also the distributor for the Fund. The combined administration fee is
computed daily and payable monthly, based on a percentage of the average daily
net assets of each Portfolio, at the following annual rates: .20% of the first
$500 million, .18% of the next $500 million, .16% of the next $1 billion and
.15% of net assets in excess of $2 billion.
PFPC and PDI may, at their discretion, waive all or any portion of their
administration fees for any Portfolio. For the year ended September 30, 1995,
administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
---------- -------- ----------
<S> <C> <C> <C>
Value Equity Portfolio............................ $1,271,441 $187,474 $1,083,967
Growth Equity Portfolio........................... 433,136 72,170 360,966
Small Cap Growth Equity Portfolio................. 274,905 36,310 238,595
Core Equity Portfolio............................. 345,723 57,058 288,665
Index Equity Portfolio............................ 412,977 316,163 96,814
Small Cap Value Equity Portfolio.................. 457,229 97,592 359,637
International Equity Portfolio.................... 797,202 107,601 689,601
International Emerging Markets Portfolio.......... 49,733 8,350 41,383
Balanced Portfolio................................ 321,382 104,752 216,630
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the year ended September
30, 1995.
72
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(C) PURCHASES AND SALES OF SECURITIES
For the year ended September 30, 1995, purchases and sales of securities,
other than short-term and government securities, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Value Equity Portfolio.................................. $ 77,743,097 $210,077,922
Growth Equity Portfolio................................. 208,838,780 105,970,653
Small Cap Growth Equity Portfolio....................... 139,869,992 88,812,439
Core Equity Portfolio................................... 219,080,292 72,857,083
Index Equity Portfolio.................................. 11,829,083 70,453,309
Small Cap Value Equity Portfolio........................ 54,044,594 77,062,935
International Equity Portfolio.......................... 448,528,575 386,753,507
International Emerging Markets Portfolio................ 52,299,179 15,095,757
Balanced Portfolio...................................... 147,538,535 109,470,004
</TABLE>
For the year ended September 30, 1995, purchases and sales of government
securities were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Growth Equity Portfolio................................. $ 23,343,191 $ 498,569
Small Cap Growth Equity Portfolio....................... 15,556,450 --
Core Equity Portfolio................................... 71,338,289 1,326,707
Index Equity Portfolio.................................. 27,739,237 47,662,744
Small Cap Value Equity Portfolio........................ 16,953,070 --
Balanced Portfolio...................................... 123,164,546 120,167,601
</TABLE>
73
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------- --------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................. 39,806,402 $ 485,454,140 12,482,545 $145,402,977
Service Class....................... 13,651,523 167,503,866 11,420,404 133,583,231
Series A Investor Class............. 522,382 6,408,950 549,692 6,421,094
Shares issued in acquisition:
Institutional Class................. -- -- 6,598,466 76,359,690
Service Class....................... -- -- -- --
Series A Investor Class............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class................. 1,999,048 23,502,361 1,465,316 17,028,775
Service Class....................... 377,633 4,490,590 170,840 1,983,734
Series A Investor Class............. 45,592 539,781 23,783 276,302
Shares redeemed:
Institutional Class................. (55,022,048) (666,165,878) (7,860,051) (91,683,551)
Service Class....................... (10,793,521) (131,676,643) (4,534,339) (53,327,116)
Series A Investor Class............. (248,896) (2,978,666) (93,980) (1,095,554)
----------- ------------- ---------- ------------
Net increase (decrease)............. (9,661,885) $(112,921,499) 20,222,676 $234,949,582
=========== ============= ========== ============
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................... 8,949,787 $ 94,077,319 5,402,429 $ 55,921,412
Service Class.......................... 3,489,704 38,638,397 4,235,370 44,688,111
Series A Investor Class................ 398,709 4,341,086 385,847 4,122,589
Shares issued in reinvestment of dividends:
Institutional Class.................... 196,587 2,214,461 50,847 555,756
Service Class.......................... 43,054 483,243 10,725 117,219
Series A Investor Class................ 6,055 67,542 2,650 28,942
Shares redeemed:
Institutional Class.................... (2,504,812) (27,490,603) (4,497,375) (47,960,268)
Service Class.......................... (1,246,828) (13,924,047) (1,377,677) (14,500,982)
Series A Investor Class................ (130,464) (1,404,785) (95,762) (991,600)
---------- ------------ ----------- ------------
Net increase................................ 9,201,792 $ 97,002,613 4,117,054 $ 41,981,179
========== ============ =========== ============
</TABLE>
74
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................... 5,846,875 $ 73,048,654 6,318,147 $ 61,898,992
Service Class.......................... 2,638,340 32,805,587 2,508,294 24,932,282
Series A Investor Class................ 383,446 4,805,592 199,989 2,012,738
Shares issued in reinvestment of dividends:
Institutional Class.................... 10,636 112,951 289 2,896
Service Class.......................... 70 741 72 716
Series A Investor Class................ -- -- 3 29
Shares redeemed:
Institutional Class.................... (2,627,342) (34,788,122) (941,326) (9,351,176)
Service Class.......................... (704,809) (8,205,498) (362,210) (3,636,495)
Series A Investor Class................ (52,895) (664,245) (43,898) (443,425)
---------- ------------ --------- -----------
Net increase................................ 5,494,321 $ 67,115,660 7,679,360 $ 75,416,557
========== ============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
-------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 26,941,842 $ 289,698,859 3,234,844 $ 32,284,922
Service Class........................ 8,140,613 85,754,956 4,222,406 41,703,020
Series A Investor Class.............. 274,865 2,910,433 62,504 619,978
Shares issued in acquisition:
Institutional Class.................. -- -- -- --
Service Class........................ -- -- 2,120,797 21,441,256
Series A Investor Class.............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class.................. 299,078 3,178,860 54,106 536,408
Service Class........................ 130,000 1,334,111 39,095 385,556
Series A Investor Class.............. 4,263 45,281 517 5,097
Shares redeemed:
Institutional Class.................. (11,998,924) (125,982,186) (5,383,666) (53,714,044)
Service Class........................ (6,195,728) (64,879,779) (1,483,259) (14,757,102)
Series A Investor Class.............. (19,091) (200,865) (2,426) (24,013)
----------- ------------- ---------- ------------
Net increase.............................. 17,576,918 $ 191,859,670 2,864,918 $ 28,481,078
=========== ============= ========== ============
</TABLE>
75
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
-------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 16,863,208 $ 197,762,422 2,748,481 $ 30,530,750
Service Class........................ 6,120,901 72,357,126 2,738,322 29,856,693
Series A Investor Class.............. 289,994 3,525,169 155,908 1,717,243
Shares issued in reinvestment of
dividends:
Institutional Class.................. 497,279 5,731,282 514,324 5,647,787
Service Class........................ 116,802 1,385,719 57,047 624,860
Series A Investor Class.............. 11,755 139,322 6,194 67,935
Shares redeemed:
Institutional Class.................. (22,819,763) (278,729,292) (6,637,885) (72,216,872)
Service Class........................ (4,210,903) (50,051,366) (1,419,801) (15,374,054)
Series A Investor Class.............. (63,655) (750,671) (35,869) (384,797)
----------- ------------- ---------- ------------
Net increase (decrease)................... (3,194,382) $ (48,630,289) (1,873,279) $(19,530,455)
=========== ============= ========== ============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
-----------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class..................... 3,247,317 $ 43,889,030 6,053,107 $ 80,712,762
Service Class........................... 1,933,988 26,215,140 2,640,878 35,259,165
Series A Investor Class................. 490,006 6,546,560 652,661 8,700,548
Series B Investor Class................. 99,958 1,340,506 -- --
Shares issued in reinvestment of dividends:
Institutional Class..................... 583,970 7,278,163 136,855 1,781,855
Service Class........................... 142,109 1,768,041 34,742 452,345
Series A Investor Class................. 62,375 773,445 14,918 194,087
Series B Investor Class................. 1,891 23,431 -- --
Shares redeemed:
Institutional Class..................... (5,088,140) (68,414,244) (3,674,313) (48,788,351)
Service Class........................... (1,365,808) (18,476,822) (996,563) (13,349,689)
Series A Investor Class................. (371,340) (4,988,558) (118,889) (1,579,039)
Series B Investor Class................. (3,731) (50,646) -- --
---------- ------------ ---------- ------------
Net increase................................. (267,405) $ (4,095,954) 4,743,396 $ 63,383,683
========== ============ ========== ============
</TABLE>
76
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
-------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................... 7,143,152 $ 90,990,043 10,403,157 $137,086,511
Service Class.......................... 3,963,956 50,508,637 5,340,051 70,470,270
Series A Investor Class................ 576,812 7,365,133 869,084 11,416,406
Series B Investor Class................ 87,040 1,112,573 -- --
Shares issued in acquisition:
Institutional Class.................... -- -- 2,566,789 33,881,621
Service Class.......................... -- -- -- --
Series A Investor Class................ -- -- -- --
Series B Investor Class................ -- -- -- --
Shares issued in reinvestment of dividends:
Institutional Class.................... 677,308 8,488,879 206,166 2,655,420
Service Class.......................... 156,042 1,950,124 27,454 353,613
Series A Investor Class................ 38,670 479,738 12,576 161,981
Series B Investor Class................ 1,195 14,710 -- --
Shares redeemed:
Institutional Class.................... (5,461,130) (70,728,562) (2,476,409) (32,400,362)
Service Class.......................... (1,716,286) (21,971,597) (724,128) (9,567,654)
Series A Investor Class................ (354,475) (4,491,778) (98,546) (1,302,076)
Series B Investor Class................ (7,091) (89,952) -- --
----------- ------------ ---------- ------------
Net increase................................ 5,105,193 $ 63,627,948 16,126,194 $212,755,730
=========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING EQUITY PORTFOLIO
-------------------------------------------------
FOR THE PERIOD JUNE
FOR THE YEAR ENDED 17, 1994(1) THROUGH
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------ ---------------------
SHARES VALUE SHARES VALUE
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......................... 3,720,739 $31,597,655 238,035 $2,402,550
Service Class............................... 1,770,541 15,273,076 334,803 3,411,089
Series A Investor Class..................... 104,829 965,262 294,215 2,964,354
Shares issued in reinvestment of dividends:
Institutional Class......................... 35,132 297,045 -- --
Service Class............................... 14,029 121,552 -- --
Series A Investor Class..................... 8,376 74,699 -- --
Shares redeemed:
Institutional Class......................... (413,927) (3,623,170) (173) (1,850)
Service Class............................... (279,961) (2,356,165) (2,612) (27,034)
Series A Investor Class..................... (70,993) (623,010) (23,182) (232,921)
--------- ----------- ------- ----------
Net increase..................................... 4,888,765 $41,726,944 841,086 $8,516,188
========= =========== ======= ==========
</TABLE>
77
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 2,511,895 $ 31,028,569 1,367,828 $ 17,190,809
Service Class........................ 7,589,298 94,169,784 6,873,562 84,853,542
Series A Investor Class.............. 779,591 9,725,800 2,650,204 33,055,064
Series B Investor Class.............. 236,213 2,898,052 -- --
Shares issued in acquisition:
Institutional Class.................. -- -- -- --
Service Class........................ -- -- 1,362,909 17,268,053
Series A Investor Class.............. -- -- -- --
Series B Investor Class.............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class.................. 76,942 958,206 24,801 302,800
Service Class........................ 261,656 3,251,626 121,007 1,475,817
Series A Investor Class.............. 226,064 2,796,580 142,423 1,746,240
Series B Investor Class.............. 5,578 70,292 -- --
Shares redeemed:
Institutional Class.................. (2,271,997) (28,182,832) (963,835) (12,093,104)
Service Class........................ (7,118,747) (88,401,222) (4,122,713) (50,677,486)
Series A Investor Class.............. (1,259,763) (15,706,295) (774,539) (9,531,304)
Series B Investor Class.............. (13,630) (171,757) -- --
---------- ------------ ---------- ------------
Net increase.............................. 1,023,100 $ 12,436,803 6,681,647 $ 83,590,431
========== ============ ========== ============
</TABLE>
- -------------
(1) Commencement of operations.
78
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(E) AT SEPTEMBER 30, 1995, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
SMALL CAP
VALUE EQUITY GROWTH EQUITY GROWTH EQUITY CORE EQUITY INDEX EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Capital paid-in............................. $522,450,910 $231,158,568 $154,269,874 $288,485,633 $113,464,636
Undistributed net investment income......... 460,964 -- 182,334 17,967 515,059
Accumulated net realized gain (loss) on
investment transactions, futures contracts
and foreign exchange contracts............ 41,954,264 5,578,079 (4,855,260) 5,446,083 23,014,547
Net unrealized appreciation (depreciation)
on investment transactions, futures
contracts and foreign exchange
contracts................................. 131,148,325 61,609,322 66,269,425 32,376,786 40,475,548
------------ ------------ ------------ ------------ ------------
$696,014,463 $298,345,969 $215,866,373 $326,326,469 $177,469,790
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL INTERNATIONAL
VALUE EQUITY EQUITY EMERGING MARKETS BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Capital paid-in....................................... $191,762,697 $ 402,705,084 $ 50,217,165 $159,513,926
Undistributed net investment income................... 124,163 7,045,321 -- --
Accumulated net realized gain (loss) on investment
transactions, futures contracts and foreign exchange
contracts........................................... 11,023,937 17,937,257 -- 833,758
Net unrealized appreciation (depreciation) on
investment transactions, futures contracts and
foreign exchange contracts.......................... 49,776,689 9,737,606 (3,315,218) 20,860,942
------------ ------------- ------------ ------------
$252,687,486 $ 437,425,268 $ 46,901,947 $181,208,626
============ ============= ============ ============
</TABLE>
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1995, a capital loss carryover of $4,855,260, which
expires in the year 2002 was available to offset possible future realized
capital gains in the Small Cap Growth Equity Portfolio.
(G) ACQUISITION OF COLLECTIVE FUNDS
On December 28, 1993, The PNC Fund acquired all the assets of the Equity
Portfolio of the PNC Financial Common Trust for Retirement Assets from the
participants of these Trusts. The acquisition was accomplished by a tax-free
exchange of assets with a value of $21,441,256 for 2,120,797 Service shares of
the Core Equity Portfolio at $10.11 per share. The Equity Portfolio's net assets
on that date had $2,089,340 in unrealized appreciation.
79
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
On December 28, 1993, The PNC Fund acquired all the assets of the Asset
Allocation Portfolio of the PNC Financial Common Trust for Retirement Assets
from the participants of these Trusts. The acquisition was accomplished by a
tax-free exchange of assets with a value of $17,268,053 for 1,362,909 Service
shares of the Balanced Portfolio at $12.67 per share. The Asset Allocation
Portfolio's net assets on that date had $1,491,666 in unrealized appreciation.
On May 26, 1994, The PNC Fund acquired all the assets of the PNC Pension
Plan Assets Equity Portfolio from the participants of such fund. The acquisition
was accomplished by an exchange of assets with a value of $53,018,086 for
4,570,525 Institutional shares of the Value Equity Portfolio at $11.60 per share
and a value of $33,881,621 for 2,566,789 Institutional shares of the
International Equity Portfolio at $13.20 per share.
On June 21, 1994 The PNC Fund acquired all the assets of the PNC Incentive
Savings Plan Assets Equity Portfolio from the participants of such fund. The
acquisition was accomplished by an exchange of assets with a value of
$23,341,604 for 2,027,941 Institutional shares of the Value Equity Portfolio at
$11.51 per share.
(H) SUBSEQUENT EVENT
On June 23, 1995, the Board of Directors of the Fund approved a change to
the PNC Index Equity Portfolios (the "Portfolio") fundamental investment
limitations to permit the Portfolio to invest all of its assets in shares of
another open-end management investment company having substantially all the same
investment objective, policies and limitations as the Portfolio, subject to
shareholder approval. The expected effective date of the change is January 1996.
On September 29, 1995 and October 2, 1995, respectively, the Board of
Directors of the Fund ("PNC") and the Board of Trustees of The Compass Capital
Group of Funds ("Compass"), including all of the non-interested members of each
Board, approved an asset purchase agreement between 16 investment portfolios of
PNC and Compass. The agreement provides for the acquisition by PNC of all of the
assets and liabilities of each of the Compass Portfolios in exchange for Service
Shares of the PNC Portfolios that correspond to the Compass Portfolios and the
distribution of these PNC Service Shares to the shareholders of the Compass
Portfolios in liquidation of the Compass Portfolios. The expected effective date
of the acquisition is January 1996.
80
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PNC FUND:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the International Equity Portfolio of The PNC
Fund, and the statements of net assets of the Value Equity, Growth Equity, Small
Cap Growth Equity, Core Equity, Index Equity, Small Cap Value Equity,
International Emerging Markets and Balanced Portfolios of The PNC Fund as of
September 30, 1995, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years (or
periods) in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian and brokers as of September 30, 1995. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
PNC Fund (International Equity, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International
Emerging Markets, and Balanced Portfolios), as of September 30, 1995, and the
results of their operations for the year then ended, the changes in their net
assets for each of the two years (or periods) in the period then ended, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 22, 1995
81
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
82
<PAGE>
- ----------------------------------------------------
- ----------------------------------------------------
Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser -- Value Equity Portfolio
Small Cap Value Equity Portfolio,
International Equity Portfolio and
International Emerging Markets Portfolio
Provident Capital Management, Inc.
Philadelphia, Pennsylvania 19103
Sub-Adviser -- Growth Equity Portfolio,
Small Cap Growth Equity Portfolio, Core
Equity Portfolio and Index Equity Portfolio
PNC Equity Advisors Co.
Philadelphia, Pennsylvania 19101
Sub-Adviser -- Balanced Portfolio and
Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01E
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
[LOGO]
THE PNC(R) FUND
VALUE EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP GROWTH EQUITY PORTFOLIO
CORE EQUITY PORTFOLIO
INDEX EQUITY PORTFOLIO
SMALL CAP VALUE EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL EMERGING MARKETS
PORTFOLIO
BALANCED PORTFOLIO
Annual Report to Shareholders
September 30, 1995
- ----------------------------------------------------
- ----------------------------------------------------
<PAGE>
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
November 3, 1995
Dear Shareholder:
We are pleased to present the Annual Report to Shareholders of The PNC Fund
covering the twelve months ended September 30, 1995. This report includes
securities listings, performance results and market commentary for the fixed
income portfolios of The PNC Fund.
BlackRock Financial Management, Inc. ("BlackRock"), the sub-adviser of the
PNC Fixed Income portfolios, assumed management during the second quarter of
1995. Since assuming management, BlackRock has selectively traded securities to
position the portfolios consistent with the BlackRock's investment strategy and
the investment guidelines of the portfolios.
ECONOMIC HIGHLIGHTS:
The dramatic rally in the capital markets changed the market landscape for
fixed income investors over the fiscal year ended September 30, 1995. As the
economy showed signs of a slowdown early this year, market participants
endlessly debated the direction of monetary policy and hotly contested the
likelihood that a soft landing for the economy had been achieved. The specter of
inflation diminished as economic reports became increasingly pessimistic during
the second quarter. With investor confidence in the value of fixed income
securities renewed, market demand increasingly accelerated.
The rally in the Treasury market began during the fourth quarter of 1994
and continued to accelerate through the first and second quarters of 1995. Over
the past twelve months, interest rates have fallen substantially across the
yield curve. Yield levels on the intermediate portion of the Treasury curve have
fallen nearly 150 basis points as the 10-year Treasury closed at 6.18% on
September 29, 1995. During July and the beginning of August 1995, the rally was
temporarily halted as strong economic data dampened expectations for another
reduction in the Fed funds target rate. At the end of the third quarter,
however, interest rates returned to their 1995 lows as economic data again
signaled slow to moderate growth and dormant inflationary pressures.
We believe the Federal Reserve is likely to cut the Fed funds target rate
during the coming months. While attuned to the possibility of a rejuvenated
economy during the fourth quarter of 1995 and the possibility of accompanying
inflationary pressure, we believe that the fixed income markets offer many
pockets of value to investors in the coming months.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE FUND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
<PAGE>
TAXABLE FIXED INCOME MARKETS:
The market for mortgage-backed securities performed well in September and
throughout much of the third quarter of 1995 as interest rate volatility
declined and supply concerns abated. Allocation to adjustable rate mortgages
(ARMs) was increased across all taxable fixed income portfolios during the
beginning of the third quarter as GNMA ARMs offered excellent value relative to
other short duration securities. During the past several weeks GNMA ARMs have
rallied significantly and the portfolios have been selling into the strength of
market demand.
In addition to increasing allocation to ARMs, the portfolios have been
increasing their allocation to seasoned mortgage-backed securities (those issued
several years ago) as these securities offer excellent prepayment protection
which will be increasingly important if interest rates stay low or trend lower.
Corporate earnings were positive and the market for corporate debt
securities also outperformed Treasuries in the past year despite a large pick up
in new issuance over September. A heavy calendar for issuance remains for the
final quarter of 1995 which may test market demand. Recently, BlackRock has been
selling shorter maturity corporates in the Short-Term Bond, Intermediate-Term
Bond and Managed Income Portfolios in favor of longer maturities, looking to
capitalize on our positive interest rate outlook on the markets.
TAX-EXEMPT MARKET OVERVIEW:
The fourth quarter of 1994 echoed the underperformance that pervaded the
fixed income markets throughout 1994. The municipal market experienced periods
of illiquidity during November 1994 as mutual funds sold securities to meet
redemptions and dealers were reluctant to add to their already large
inventories. However, during the first quarter of 1995, the long-end of the
municipal curve witnessed a dramatic rally as approximately $35 billion in cash
flow from principal and interest payments flooded the long-end of the municipal
market.
The municipal market showed strong performance during the first two
quarters of 1995 but remained overshadowed by the rally in the Treasury market.
During the second quarter, as flat tax and other tax reform discussions caused
investors to be concerned about the long-term valuation of municipal securities,
the shorter end of the municipal yield curve spectrum substantially outperformed
the longer-end.
During the third quarter of 1995, municipals were strong performers versus
their Treasury counterparts primarily due to both a relatively light new
issuance calendar and the muted debate over potential tax reform (or "flat
tax"). Retail buying interest was concentrated in short and intermediate
maturity municipal bonds, as evidenced by 22 and 27 basis point declines,
respectively, in 2- and 5-year AAA General Obligation municipal bonds over the
third quarter. The recent strength of the municipal market is expected to
continue as new issue supply is expected to be light. However, the market for
tax-free fixed income securities remains vulnerable to rhetoric surrounding the
"flat tax" debate.
Within the portfolios, BlackRock has been improving overall credit quality
and has recently reduced the interest rate sensitivity of the municipal
portfolios. In addition, the portfolios have been improving their liquidity by
selling smaller "odd lot" securities in favor of larger issues.
Both the Pennsylvania and the Ohio Tax-Free Income Portfolio have benefited
from a sharp decline in new issuance and increased demand for in-state paper.
The lack of supply combined with the preferential treatment of in-state
securities should lead to continued strong performance of Pennsylvania and Ohio
paper.
We appreciate your investment in The PNC Fund and we look forward to
continuing to serve your investment needs. If you have any questions regarding
The PNC Fund, please feel free to call BlackRock at 800-227-7BFM.
BLACKROCK FINANCIAL MANAGEMENT, INC.
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 IN EACH PNC FIXED INCOME PORTFOLIO
AND ITS RESPECTIVE INDEX COMPARISON FROM INCEPTION AND AT EACH FISCAL YEAR END:
MANAGED INCOME PORTFOLIO
[CHART]
Institutional Class
<TABLE>
11/1/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PNC Managed Income 10,000 10,380 11,910 13,316 14,931 14,148 16,025
Salomon Broad Investment Grade Index 10,000 10,413 12,064 13,659 15,222 14,592 16,709
Lehman Government/Corporate Bond Index 10,000 10,413 12,064 13,659 15,222 14,592 16,686
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 13.27%
Five Years 9.07%
From Inception 8.29%
Service Class
<TABLE>
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Managed Income 10,000 10,293 9,776 11,044
Salomon Broad Investment Grade Index 10,000 10,268 9,843 11,268
Lehman Government/Corporate Bond Index 10,000 10,268 9,843 11,255
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 12.97%
From Inception 4.67%
Series A Investor Class
<TABLE>
2/4/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PNC Managed Income 9,550 10,301 11,550 10,888 12,275
Salomon Broad Investment Grade Index 10,000 10,853 11,974 11,594 13,220
Lehman Government/Corporate Bond Index 10,000 10,853 12,095 11,594 13,258
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 7.68%
From Inception 5.77%
The comparative index from previous years was changed to more accurately reflect
the holdings of the Managed Income Portfolio.
3
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
TAX-FREE INCOME PORTFOLIO
[CHART]
Institutional Class
<TABLE>
1/21/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Tax-Free Income 10,000 11,072 10,662 11,893
Lehman Municipal Bond Index 10,000 10,988 10,723 11,919
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 11.54%
From Inception 6.65%
Service Class
<TABLE>
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Tax-Free Income 10,000 10,392 10,019 11,146
Lehman Municipal Bond Index 10,000 10,325 10,076 11,200
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 11.24%
From Inception 5.11%
Series A Investor Class
<TABLE>
5/14/90 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PNC Tax-Free Income 9,550 9,685 10,789 11,940 13,552 12,986 14,413
Lehman Municipal Bond Index 10,000 10,202 11,548 12,755 14,381 14,034 15,599
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 6.03%
Five Years 7.27%
From Inception 7.02%
4
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERMEDIATE GOVERNMENT PORTFOLIO
[CHART]
Institutional Class
<TABLE>
4/20/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PNC Intermediate Government 10,000 10,714 11,452 11,099 12,240
Lehman Intermediate Government Index 10,000 10,746 11,567 11,393 12,605
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 10.28%
From Inception 6.04%
Service Class
<TABLE>
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Intermediate Government 10,000 10,240 9,892 10,879
Lehman Intermediate Government Index 10,000 10,190 10,037 11,104
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 9.99%
From Inception 3.95%
Series A Investor Class
<TABLE>
5/11/92 9/30/92 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PNC Intermediate Government 9,550 10,233 10,878 10,466 11,511
Lehman Intermediate Government Index 10,000 10,588 11,397 11,226 12,419
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 5.08%
From Inception 4.24%
5
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
OHIO TAX-FREE INCOME PORTFOLIO
[CHART]
Institutional Class
<TABLE>
12/1/92 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC OH TF Income 10,000 10,910 10,993 11,621
Lehman Local General Obligation Index 10,000 11,131 10,942 12,104
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 10.75%
From Inception 5.45%
Service Class
<TABLE>
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC OH TF Income 10,000 10,335 9,953 10,994
Lehman Local General Obligation Index 10,000 10,285 10,110 11,184
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 10.45%
From Inception 4.45%
Series A Investor Class
<TABLE>
12/1/92 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC OH TF Income 9,550 10,420 10,012 11,076
Lehman Local General Obligation Index 10,000 11,131 10,942 12,104
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 5.51%
From Inception 3.67%
Series B Investor Class
10/13/94 9/30/95
-------- -------
PNC OH TF Income 10,000 10,443
Lehman Local General Obligation Index 10,000 11,062
TOTAL RETURN
From Inception 4.43%
6
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
[CHART]
Institutional Class
<TABLE>
12/1/92 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC PA TF Income 10,000 11,169 10,806 11,982
Lehman Local General Obligation Index 10,000 11,131 10,942 12,104
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 10.81%
From Inception 6.59%
Service Class
<TABLE>
7/29/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC PA TF Income 10,000 10,308 10,016 11,069
Lehman Local General Obligation Index 10,000 10,285 10,190 11,184
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 10.51%
From Inception 4.78%
Series A Investor Class
<TABLE>
12/1/92 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC PA TF Income 9,550 10,666 10,444 11,391
Lehman Local General Obligation Index 10,000 11,131 10,942 12,104
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 5.37%
From Inception 4.70%
Series B Investor Class
10/3/94 9/30/95
------- -------
PNC PA TF Income 10,000 10,481
Lehman Local General Obligation Index 10,000 11,062
TOTAL RETURN
From Inception 4.81%
7
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
SHORT-TERM BOND PORTFOLIO
[CHART]
Institutional Class
<TABLE>
9/1/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Short-Term Bond 10,000 10,023 10,022 10,734
Merrill Lynch 1-3 Year Index 10,000 10,032 10,144 10,991
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 7.10%
From Inception 3.46%
Service Class
<TABLE>
9/1/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Short-Term Bond 10,000 10,021 9,995 10,676
Merrill Lynch 1-3 Year Index 10,000 10,032 10,144 10,991
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 6.81%
From Inception 3.19%
Series A Investor Class
<TABLE>
11/17/93 9/30/94 9/30/95
-------- ------- -------
<S> <C> <C> <C>
PNC Short-Term Bond 9,550 9,508 10,155
Merrill Lynch 1-3 Year Index 10,000 10,087 10,933
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 2.01%
From Inception 0.83%
8
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERMEDIATE-TERM BOND PORTFOLIO
[CHART]
Institutional Class
<TABLE>
9/17/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Intermediate-Term Bond 10,000 10,010 9,658 10,697
Lehman Intermediate Government/Corp. Index 10,000 10,021 9,854 10,965
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 10.76%
From Inception 3.36%
Service Class
<TABLE>
9/23/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
PNC Intermediate-Term Bond 10,000 10,010 9,639 10,647
Lehman Intermediate Government/Corp. Index 10,000 10,021 9,854 10,965
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 10.46%
From Inception 3.15%
Series A Investor Class
<TABLE>
5/20/94 9/30/94 9/30/95
------- ------- -------
<S> <C> <C> <C>
PNC Intermediate-Term Bond 9,550 9,585 10,577
Lehman Intermediate Government/Corp. Index 10,000 10,090 11,227
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
One Year 5.35%
From Inception 4.18%
9
<PAGE>
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
GOVERNMENT INCOME PORTFOLIO
[CHART]
Series A Investor Class
10/3/94 9/30/95
------- -------
PNC Government Income 9,550 10,914
Lehman Mortgage/Merrill Lynch 10 Year Index 10,000 11,537
TOTAL RETURN
From Inception 9.14%
Series B Investor Class
10/3/94 9/30/95
------- -------
PNC Government Income 10,000 10,842
Lehman Mortgage/Merrill Lynch 10 Year Index 10,000 11,537
TOTAL RETURN
From Inception 8.42%
10
<PAGE>
FIXED INCOME ANNUAL REPORT
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE PNC FIXED INCOME PORTFOLIOS
During the fiscal year ended September 30, 1995, the PNC Fund declared the
following dividends from net realized capital gains:
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
CAPITAL GAIN, CAPITAL GAIN,
PER SHARE PER SHARE
------------- -------------
<S> <C> <C>
Tax-Free Income Portfolio -- $ .0205
</TABLE>
IMPORTANT TAX INFORMATION FOR THE TAX-FREE INCOME, OHIO TAX-FREE INCOME AND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIOS
During the year ended September 30, 1995, 100% of the income dividends paid
by the Tax-Free Income Portfolio, Ohio Tax-Free Income Portfolio and
Pennsylvania Tax-Free Income Portfolio were exempt-interest dividends for
purposes of federal income taxes and free from such taxes. However, the
percentage of these dividends which must be included in federal alternative
minimum taxable income for purposes of determining any liability for the
alternative minimum tax is as follows: Tax-Free Income Portfolio 0.7%, Ohio
Tax-Free Income Portfolio 2.4% and Pennsylvania Tax-Free Income Portfolio 0.2%.
In January 1996, you will be furnished with a schedule showing the annual
percentage breakdown by state or U.S. possession of the source of interest
earned by each Portfolio in 1995.
11
<PAGE>
THE PNC(R) FUND
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- ------------
AGENCY OBLIGATIONS -- 10.9%
FEDERAL HOME LOAN BANK BONDS -- 1.4%
4.605%** 04/27/98 $ 8,000 $ 7,825,000
------------
FEDERAL HOME LOAN MORTGAGE
DISCOUNT NOTE -- 6.3%
6.30% 10/02/95 36,190 36,177,334
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 2.3%
8.25% 12/18/00 12,000 13,068,360
------------
TENNESSEE VALLEY AUTHORITY -- 0.9%
7.318% 05/31/99 5,000 5,175,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $61,311,161) 62,245,694
------------
MORTGAGE BACKED SECURITIES -- 25.2%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 5.3%
7.50% 10/01/98 4,357 4,438,811
10.00% 11/15/98 139 149,707
9.00% 09/01/20 5,305 5,553,175
9.00% 06/01/21 1,092 1,143,248
8.00%,
1 yr. CMT ARM 04/01/22 3,210 3,274,019
7.00% TBA 10/01/25 16,000 15,800,000
------------
30,358,960
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 9.2%
7.50% 07/01/99 1,911 1,943,360
7.50% 08/01/99 4,669 4,747,964
7.50% 09/01/99 657 667,907
7.50% 12/01/99 56 57,045
7.00% TBA 10/01/10 4,000 4,010,000
6.50% 07/01/25 7,390 7,137,812
6.50% 08/01/25 5,630 5,437,807
6.50% 09/01/25 2,661 2,570,288
6.50% TBA 10/01/25 22,000 21,202,500
8.001%,
1 yr. CMT ARM 03/01/33 4,993 5,145,437
------------
52,920,120
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 10.7%
9.00% 06/15/00 28 29,814
9.50% 06/15/00 174 185,697
9.00% 08/15/00 3,458 3,643,824
9.00% 04/15/01 256 269,675
6.50%,
1 yr. CMT ARM 05/20/25 18,795 19,053,523
8.00% 06/15/25 207 213,152
8.00% 07/15/25 6,818 7,018,432
7.50%,
1 yr. CMT ARM 04/20/25 206 211,827
7.50%,
1 yr. CMT ARM 06/20/25 7,137 7,332,909
8.50% 07/05/01 349 363,999
8.50% 08/15/01 503 524,714
8.50% 09/15/01 213 222,239
9.50% 12/15/01 4,116 4,337,572
9.50% 12/15/02 949 1,000,303
8.00% 02/15/03 5,719 5,886,970
8.00% 03/15/03 2,329 2,397,749
8.00% 05/15/03 5,511 5,673,361
7.00% 02/15/05 1,363 1,348,383
8.00% 12/15/19 23 23,754
8.00% 07/15/22 53 54,162
8.00% 05/15/23 65 66,533
8.00% 10/15/24 344 354,070
8.00% 01/15/25 282 291,704
8.00% 05/15/25 489 503,701
------------
61,008,067
------------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $144,812,701) 144,287,147
------------
ASSET BACKED SECURITIES -- 4.0%
Merrill Lynch Mortgage
Investors, Inc.
7.90% 05/25/15 2,200 2,202,895
National Credit Card Trust
9.45% 12/31/97 2,520 2,588,292
Prime Credit Card Master Trust
6.75% 10/31/05 5,500 5,566,872
Standard Credit Card Master
Trust
8.25% 01/07/05 5,925 6,493,652
7.25% 04/07/08 6,000 6,213,600
------------
TOTAL ASSET BACKED SECURITIES
(Cost $22,710,949) 23,065,311
------------
See accompanying notes to financial statements.
12
<PAGE>
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- -------- ------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 7.7%
Capstead Securities, Corp.
8.40% 01/25/19 $ 1,376 $ 1,382,601
Federal Home Loan Mortgage
Corporation
5.50% 10/15/20 3,000 2,710,193
6.50% 10/15/20 10,000 9,525,000
Federal National Mortgage
Association
8.50% 11/01/95 4,531 4,559,541
6.95% 11/01/98 4,200 4,194,750
7.50% 03/25/00 10,000 10,056,250
6.50% 09/25/02 5,100 4,834,279
Ryland Acceptance Corp.
9.40% 08/01/18 6,150 6,440,203
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $40,394,368) 43,702,817
------------
CORPORATE BONDS -- 27.2%
BANKS -- 2.7%
Comerica Bank
7.25% 10/15/02 6,000 6,277,500
First Union Corp.
6.875% 09/15/05 3,800 3,773,408
National Bank of Canada
8.125% 08/15/04 5,000 5,350,000
------------
15,400,908
------------
CONSTRUCTION -- 0.9%
Centex Corp.
7.375% 06/01/05 5,000 4,956,250
------------
ENERGY & UTILITIES -- 2.2%
Appalachian Power Co.
8.50% 12/01/22 2,150 2,351,563
Idaho Power Co.
8.75% 03/15/27 2,250 2,470,725
Mobile Energy Resources
8.665% 01/01/17 2,150 2,234,925
Texas Utilities Electric Co.
9.75% 05/01/21 5,000 5,737,180
------------
12,794,393
------------
ENTERTAINMENT & LEISURE -- 0.4%
Royal Caribbean Cruises, Ltd.
7.125% 09/18/02 2,100 2,086,875
------------
FINANCE -- 4.2%
Associates Corp, N.A.
7.45% 03/28/00 4,000 4,136,000
FSA Finance
8.31% 06/01/02 2,500 2,556,843
H.F. Ahmanson & Co.
8.25% 10/01/02 1,100 1,204,500
Household International Corp.
6.00% 03/15/99 5,000 4,937,500
Liberty Mutual
8.50% 05/15/25 4,250 4,414,688
New American Capital, Inc.
7.25% 10/12/95 5,200 5,193,500
Tenneco Credit Corp.
10.125% 12/01/97 1,300 1,400,750
------------
23,843,781
------------
FOOD & AGRICULTURE -- 0.8%
Ralston Purina Co.
7.875% 12/15/95 2,800 2,856,000
RJR Nabisco, Inc.
7.05% 07/15/07 1,550 1,528,688
------------
4,384,688
------------
INSURANCE -- 2.1%
London Life Insurance
6.875% 09/15/05 3,000 2,985,000
Metropolitan Life Insurance
6.30% 11/01/03 3,950 3,752,500
Prudential Insurance
7.65% 07/01/07 600 601,500
8.30% 07/01/25 4,900 4,936,750
------------
12,275,750
------------
MANUFACTURING -- 0.9%
Georgia Pacific
8.625% 05/15/25 5,000 5,337,500
------------
MISCELLANEOUS -- 0.0%
Larwin Group -- Participation
in Asset Exchange
8.00% 12/01/99 2 2,302
------------
MOTOR VEHICLES -- 3.0%
Ford Motor Co.
5.58%** 12/26/95 5,000 4,900,000
8.00% 10/01/96 7,000 7,125,999
General Motors Acceptance
Corp.
6.30% 03/31/97 5,000 5,018,750
------------
17,044,749
------------
See accompanying notes to financial statements.
13
<PAGE>
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- -------- ------
CORPORATE BONDS (CONTINUED)
RETAIL MERCHANDISING -- 0.5%
May Department Stores
8.125% 08/15/35 $ 3,000 $ 3,165,000
------------
SECURITY BROKERS & DEALERS -- 4.9%
Morgan Stanley Group, Inc.
5.70%** 12/09/95 10,000 9,800,000
7.50% 09/01/99 5,000 5,143,750
8.25% 08/15/27 1,000 1,018,089
PaineWebber Group, Inc.
6.31% 07/22/99 5,000 4,850,000
Salomon Brothers, Inc.
5.26% 02/10/99 4,500 4,428,000
8.90% 02/15/00 2,500 2,634,375
------------
27,874,214
------------
TELECOMMUNICATIONS -- 1.8%
AT&T Corp.
6.40% 06/02/99 10,000 10,050,000
------------
TEXTILE -- 0.3%
Burlington Industries
7.25% 09/15/05 2,000 1,997,500
------------
TRANSPORTATION -- 0.5%
Burlington Northern
6.94% 01/01/14 3,300 3,244,715
------------
YANKEE -- 2.0%
Italy -- Global Bond
6.875% 09/27/23 6,200 5,649,750
Westpac Banking Corp.
9.125% 08/15/01 5,000 5,600,000
------------
11,249,750
------------
TOTAL CORPORATE BONDS
(Cost $155,462,601) 155,708,375
------------
TAXABLE MUNICIPAL BONDS -- 1.6%
Los Angeles County Taxable Pension
Obligation
8.62% 06/30/06 8,300 9,078,125
------------
(Cost $8,663,957)
U.S. TREASURY OBLIGATIONS -- 31.0%
U.S. TREASURY BONDS -- 8.8%
10.75% 08/15/05 8,610 11,407,990
7.875% 02/15/21 10,000 11,476,900
7.125% 02/15/23 10,810 11,466,166
7.625% 02/15/25 13,770 15,589,154
------------
49,940,210
------------
U.S. TREASURY NOTES -- 22.2%
5.625% 06/30/97 66,000 65,782,200
6.00% 08/31/97 5,100 5,116,982
6.125% 05/15/98 5,220 5,250,171
5.875% 08/15/98 20,990 20,985,382
6.75% 06/30/99 5,150 5,282,354
6.875% 03/31/00 21,550 22,266,320
7.25% 08/15/04 2,340 2,502,162
------------
127,185,571
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $175,668,488) 177,125,781
------------
NUMBER OF
SHARES
--------
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money
Market Fund
(Cost $33,074) 33,074 33,074
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $609,057,299*) 107.6% 615,246,324
LIABILITIES IN EXCESS OF OTHER
ASSETS (Including $50,350,015
of investment purchases
payable) (7.6%) (43,275,653)
-------- ------------
NET ASSETS (Applicable to
42,697,714 Institutional
shares, 11,258,452 Service
shares and 1,153,926 Series A
Investor shares outstanding) 100.0% $571,970,671
======= ============
See accompanying notes to financial statements.
14
<PAGE>
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
VALUE
-------
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE ($571,970,671 /
55,110,092) $10.38
======
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $10.38
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($10.38 / .955) $10.87
======
- -------------
* Cost for Federal income tax purposes at September 30, 1995 was $609,911,340.
The gross unrealized appreciation (depreciation) on a tax basis is as
follows:
Gross unrealized appreciation $ 7,509,061
Gross unrealized depreciation (2,174,077)
-----------
$ 5,334,984
===========
** Rates shown are rates as of September 30, 1995, and the maturities shown are
the longer of the next interest readjustment date or the maturity date.
See accompanying notes to financial statements.
15
<PAGE>
THE PNC(R) FUND
TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- -----------
ALABAMA -- 4.1%
Courtland Industrial Revenue
Bonds Series 1994
5.90% 02/01/17 $ 500 $ 472,500
-----------
ARIZONA -- 1.8%
Phoenix General Obligation
Bonds Series 1992
6.375% 07/01/13 200 209,500
-----------
COLORADO -- 11.3%
Arapahoe County Capital
Improvement Trust Fund Highway
Capital Appreciation Revenue
Bonds Series 1986 E-470
0.00% 08/31/04 900 501,750
Denver City and County Airport
Revenue Bonds Series 1992
6.75% 11/15/13 500 502,500
Jefferson County School
District General Obligation
Bonds Series 1992
6.00% 12/15/12 300 307,500
-----------
1,311,750
-----------
FLORIDA -- 3.7%
Florida Department of
Transportation General
Obligation Bonds Series 1991
6.25% 07/01/07 400 426,000
-----------
GEORGIA -- 10.1%
Georgia General Obligation
Bonds Series 1992B
6.30% 03/01/10 310 341,388
Georgia Municipal Electric
Authority Revenue Bonds Series
1992B
6.125% 01/01/14 400 409,500
Gwinnett County General
Obligation Bonds Series 1992
6.00% 01/01/10 400 421,500
-----------
1,172,388
-----------
KANSAS -- 7.2%
Johnson County General
Obligation Bonds Series 1992A
(Internal Inspection)
6.00% 09/01/07 400 423,000
Kansas Department of
Transportation Revenue Bonds
Series 1994
6.00% 09/01/12 400 406,000
-----------
829,000
-----------
LOUISIANA -- 0.1%
Louisiana Housing Finance
Authority Revenue Bonds Series
1985A (Single Family Mortgage)
9.375% 02/01/15 15 15,525
-----------
MARYLAND -- 3.5%
Baltimore Port Facility
Industrial Development Revenue
Bonds Series 1984A (E.I.
Dupont Company)
6.50% 10/01/11 100 107,375
Maryland Health & Higher
Education Authority Revenue
Bonds Series 1993 (Johns
Hopkins Hospital)
5.60% 07/01/09 300 301,125
-----------
408,500
-----------
MICHIGAN -- 3.2%
Dickinson County Economic
Development Corporation
Pollution Control Refunding
Revenue Bonds Series 1993
(Champion International Corp.
Project)
5.85% 10/01/18 400 375,000
-----------
NEBRASKA -- 2.7%
Omaha Public Power District
Revenue Bonds Series 1993A
5.50% 02/01/07 300 308,625
-----------
See accompanying notes to financial statements.
16
<PAGE>
TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ------ -----------
NEW JERSEY -- 4.7%
New Jersey Turnpike Authority
Revenue Bonds Series 1991A
6.40% 01/01/02 $ 400 $ 438,000
New Jersey Turnpike Authority
Revenue Bonds Series 1991C
6.50% 01/01/16 100 109,875
-----------
547,875
-----------
NEW MEXICO -- 4.4%
New Mexico State University
Revenue Bonds Series 1994
5.70% 04/01/09 500 507,500
-----------
NEW YORK -- 11.5%
New York City General
Obligation Bonds Series 1993
Subseries B-4
4.65%** 10/03/95 100 100,000
New York City General
Obligation Bonds Series 1995B
7.25% 08/15/07 500 550,000
New York City Industrial
Development Agency Special
Facility Revenue Bonds Series
1994 (Terminal One Group
Association Project)
6.00% 01/01/15 500 483,750
New York City Unlimited Tax
General Obligation Bonds
Series 1992B
4.65%** 10/03/95 200 200,000
-----------
1,333,750
-----------
NORTH CAROLINA -- 2.7%
North Carolina Municipal Power
Agency Revenue Bonds Series
1992A (Catawba Electric)
6.00% 01/01/10 300 314,625
-----------
OHIO -- 7.0%
Ohio Water Development
Authority Revenue Bonds Series
1995 (Steel-Cargill North Star
Broken Hill Project)
6.30% 09/01/20 500 500,625
Ohio Water Development
Authority Revenue Bonds Series
1992 (Clean Water Series)
5.65% 12/01/05 300 316,125
-----------
816,750
-----------
OREGON -- 2.7%
Portland Sewer System Revenue
Bonds Series 1992A
6.00% 10/01/12 300 310,125
-----------
PENNSYLVANIA -- 4.5%
Pennsylvania Economic
Development Financing
Authority Resource Recovery
Revenue Bonds Series 1994D
(Colver Project)
7.15% 12/01/18 500 521,250
-----------
SOUTH CAROLINA -- 3.6%
South Carolina Public Service
Authority Revenue Bonds Series
1991D (Santee Cooper Project)
6.50% 07/01/14 100 103,250
Spartanburg Water Works
Improvement Revenue Bonds
Series 1992
6.20% 06/01/09 300 313,875
-----------
417,125
-----------
TEXAS -- 0.8%
Sabine River Authority
Pollution Control Revenue
Bonds Series 1986
(Southwestern Electric Power
Project)
8.20% 07/01/14 85 88,931
-----------
See accompanying notes to financial statements.
17
<PAGE>
TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- -----------
UTAH -- 1.1%
Salt Lake City Hospital Revenue
Bonds Series 1988A
8.125% 05/15/15 $ 100 $ 122,000
-----------
VIRGINIA -- 3.7%
Hampton General Obligation
Bonds Series 1995
6.00% 01/15/08 400 427,000
-----------
WYOMING -- 4.5%
Sweetwater County Solid Waste
Disposal Revenue Bonds Series
1994A (FMC Corporation
Project)
7.00% 06/01/24 500 516,875
-----------
TOTAL INVESTMENT IN SECURITIES
(Cost $11,096,317*) 98.9% 11,452,594
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.1% 122,574
------- -----------
NET ASSETS (Applicable to 25,532
Institutional shares, 444,256
Service shares and 621,214
Series A Investor shares
outstanding) 100.0% $11,575,168
======= ===========
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND SERIES A INVESTOR SHARE
($11,575,168 / 1,091,002) $10.61
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.61
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($10.61 / .955) $11.11
======
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $358,411
Gross unrealized depreciation (2,134)
--------
$356,277
========
** Rates shown are the rates as of September 30, 1995, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
18
<PAGE>
THE PNC(R) FUND
INTERMEDIATE GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- ------------
AGENCY OBLIGATIONS -- 21.7%
FEDERAL HOME LOAN BANK BONDS -- 4.6%
5.325% 10/09/95 $ 1,000 $ 1,000,000
6.44% 07/25/97 5,000 5,047,800
4.605%** 04/27/98 3,000 2,934,375
------------
8,982,175
------------
FEDERAL HOME LOAN BANK
DISCOUNT NOTES -- 11.0%
6.25% 10/03/95 21,405 21,397,568
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 5.7%
8.80% 11/10/95 3,000 3,009,990
8.15% 05/11/98 2,500 2,630,825
8.35% 11/10/99 5,000 5,397,000
------------
11,037,815
------------
GUARANTEED EXPORT CREDIT CERTIFICATES -- 0.4%
6.28% 06/15/04 800 791,334
------------
TOTAL AGENCY OBLIGATIONS
(Cost $41,860,204) 42,208,892
------------
MORTGAGE-BACKED SECURITIES -- 37.6%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 13.2%
7.50% 07/01/99 5,041 5,125,836
7.00% 05/01/02 525 523,789
7.00% 08/01/09 720 718,598
6.50% 09/01/25 8,330 8,046,259
7.00% TBA 10/01/25 8,700 8,591,250
8.00%,
1 yr. CMT ARM 04/01/22 2,587 2,638,874
------------
25,644,606
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 12.4%
7.00% TBA 10/01/10 21,000 21,052,500
8.001%,
1 yr. CMT ARM 03/01/33 2,964 3,055,103
------------
24,107,603
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 12.0%
7.00% 01/15/99 2,177 2,195,850
6.50% 05/01/99 3,538 3,505,073
6.50%,
1 yr. CMT ARM 05/20/25 7,666 7,771,832
7.50%,
1 yr. CMT ARM 05/20/25 9,642 9,907,539
------------
23,380,294
------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $73,187,253) 73,132,503
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 11.3%
FEDERAL HOME LOAN MORTGAGE
CORPORATION-- 3.5%
6.50% 10/15/96 3,885 3,778,539
7.00% 06/15/97 3,000 2,943,843
------------
6,722,382
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 7.2%
8.50% 08/25/96 1,942 1,954,089
7.50% 03/25/97 5,000 5,046,138
6.50% 09/25/98 5,000 4,739,490
6.00% 08/25/17 1,000 922,500
6.50% 12/25/18 1,324 1,262,666
------------
13,924,883
------------
FIRST BOSTON CORP. MORTGAGE
SECURITIES TRUST -- 0.6%
9.00% 01/20/18 1,205 1,243,433
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $22,324,152) 21,890,698
------------
ASSET BACKED SECURITIES -- 4.1%
General Motors Acceptance
Corp.
7.15% 03/15/00 3,885 3,928,743
Prime Credit Card Master Trust
6.75% 10/31/05 1,900 1,923,101
Standard Credit Card Master
Trust
8.25% 01/08/07 2,000 2,191,950
------------
TOTAL ASSET BACKED SECURITIES
(Cost $8,042,049) 8,043,794
------------
CORPORATE BONDS -- 1.1%
Atlantic Richfield
Co.
10.25% 07/02/00 2,000 2,170,000
------------
(Cost $2,155,054)
See accompanying notes to financial statements.
19
<PAGE>
INTERMEDIATE GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- ------------
TAXABLE MUNICIPAL BONDS -- 2.6%
Los Angeles County Taxable
Pension Obligation
8.62% 06/30/06 $ 2,750 $ 3,007,812
Stanislaus County Taxable
Pension Obligation
7.15% 08/15/13 2,000 2,032,500
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $4,870,673) 5,040,312
------------
U.S. TREASURY NOTES -- 28.2%
5.625% 06/30/97 38,410 38,283,247
6.125% 05/15/98 2,960 2,977,108
5.875% 08/15/98 8,430 8,428,145
6.75% 05/31/99 5,000 5,127,749
------------
TOTAL U.S. TREASURY NOTES
(Cost $54,746,106) 54,816,249
------------
REPURCHASE AGREEMENTS -- 8.6%
Lehman Brothers, Inc.
6.40% 10/02/95 16,705 16,705,000
------------
(Agreement dated 09/29/95 to
be repurchased at
$16,713,909. Collateralized
by $15,880,000 U.S. Treasury
Notes 7.125% due 09/30/99.
The value of the collateral
is $17,041,855).
(Cost $16,705,000)
NUMBER
OF SHARES
---------
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money
Market Fund
(Cost $29,663) 29,663 29,663
------------
TOTAL INVESTMENT IN SECURITIES
(Cost $223,920,154*) 115.2% $224,037,111
LIABILITIES IN EXCESS OF OTHER
ASSETS (Including $32,008,305
of investment purchases
payable) (15.2%) (29,638,357)
------- ------------
NET ASSETS (Applicable
to 13,454,295 Institutional
shares, 4,965,413 Service
shares, and 977,718 Series A
Investor shares outstanding) 100.0% $194,398,754
======= ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL AND SERVICE SHARE
($184,597,045 / 18,419,708) $10.02
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE ($9,801,709 /
977,718) $10.03
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($10.03 / .955) $10.50
======
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 872,044
Gross unrealized depreciation (755,087)
---------
$ 116,957
=========
** Rates shown are the rates as of September 30, 1995, and maturities shown are
the longer of the next interest readjustment date or the maturity date.
See accompanying notes to financial statements.
20
<PAGE>
THE PNC(R) FUND
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- -------- ----------
OHIO -- 83.1%
Akron, Bath, Copley Joint
Township Revenue Bonds Series
1993 (Hospital District)
5.50% 11/15/03 $ 250 $ 230,625
Berea City School District
Unlimited Tax General Obligation
Bonds Series 1993
7.50% 12/15/03 75 88,500
Brunswick Limited Tax Improvement
General Obligation Bonds Series
1994
6.30% 12/01/05 210 215,513
Butler County Hospital Facilities
Refunding Improvement Revenue
Bonds Series 1991 (Middletown
Regional Hospital)
6.75% 11/15/03 50 53,813
Cleveland Airport System
Improvement Revenue Bonds Series
1994B
5.70% 01/01/04 150 155,063
Cleveland Public Power System
Improvement Revenue Bonds Series
1991B (First Mortgage)
7.00% 11/15/01 100 104,500
Cleveland Regional Sewer District
Pre-refunded Bonds Series 1978
6.75% 05/15/04 60 67,950
Columbus Municipal Airport
Authority Revenue Bonds Series
1994A (Port Columbus
International Airport)
6.00% 01/01/04 150 153,750
Columbus Park, Recreation and Zoo
Unlimited Tax General Obligation
Bonds Series 1986
7.25% 07/01/01 25 28,500
Columbus Sewer Improvement
Unlimited Tax General Obligation
Bonds Series 1991
9.00% 09/15/97 175 191,406
Columbus Sewer Improvement
Unlimited Tax General Obligation
Bonds Series 1992
5.80% 05/01/08 280 294,700
Cuyahoga County Hospital
Improvement Revenue Bonds Series
1989 (Cleveland Clinic
Foundation)
6.75% 12/01/99 200 211,750
Cuyahoga County Hospital
Refunding Revenue Bonds Series
1994A (Fairview General Hospital
Project)
5.50% 02/15/04 200 188,000
Euclid Limited Tax General
Obligation Bonds Series 1995
5.50% 12/01/15 500 485,625
Fairfield City School District
Unlimited Tax General Obligation
Bonds Series 1994
7.45% 12/01/14 300 339,000
Franklin County Hospital Revenue
Refunding and Improvement Bonds
Series 1993 (Doctor's Hospital
Project)
5.875% 12/01/03 330 309,375
Hamilton County Sewer System
Improvement Revenue Bonds Series
1995A
6.00% 12/01/02 500 543,125
Hamilton Waterworks Mortgage
Revenue Bonds Series 1991A
6.40% 10/15/07 25 26,875
Kings Local School District
Unlimited Tax General Obligation
Bonds Series 1994
7.60% 12/01/05 200 224,250
Loveland City School District
Unlimited Tax General Obligation
Bonds Series 1992
6.65% 12/01/02 145 156,056
Medina Unlimited Tax General
Obligation Bonds Series 1986
7.25% 12/01/03 50 57,688
Montgomery County Hospital
Revenue Bonds Series 1989
(Kettering Memorial Hospital)
7.375% 04/01/99 200 219,250
North Royalton City School
District Unlimited Tax General
Obligation Bonds Series 1994
6.625% 12/01/06 100 113,250
See accompanying notes to financial statements.
21
<PAGE>
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ------ ----------
OHIO (CONTINUED)
Northwestern Local School
District School Improvement
Unlimited Tax General Obligation
Bonds Series 1994 (Wayne and
Ashland Counties)
7.20% 12/01/10 $ 300 $ 353,625
Ohio Air Quality Development
Authority Revenue Bonds Series
1985 (Dayton Power and Light
Company Project)
9.50% 12/01/95 250 258,438
Ohio Housing Finance Agency
Revenue Bonds Series 1994B-2
(Residential Mortgage)
6.35% 09/01/04 150 151,125
Ohio State Higher Education
Facilities Commission Revenue
Bonds Series 1994 (Ohio
Dominican College)
6.625% 12/01/04 250 256,563
Ohio State Higher Education
Facilities Commission Revenue
Bonds Series 1994 (University of
Dayton Project)
5.80% 12/01/04 250 250,313
Ohio Unlimited Tax General
Obligation Bonds Series 1995
6.00% 08/01/05 225 240,188
Ohio Water Development Authority
Revenue Bonds Series 1995
(Steel-Cargill North Star Broken
Hill Project)
6.30% 09/01/20 500 500,625
Olentangy Local School District
Unlimited Tax General Obligation
Bonds Series 1995A
6.00% 12/01/08 225 238,500
Orville Water System Revenue
Bonds Series 1994
6.00% 11/15/02 50 51,438
Student Loan Funding Corporation
Revenue Bonds Sub-Series 1993A
(Cincinnati)
5.75% 08/01/03 65 66,788
Summit County Hospital Revenue
Bonds Series 1994A (Cuyahoga
Falls General Hospital Project)
6.65% 07/01/14 200 197,750
University of Cincinnati General
Receipts Revenue Bonds Series
R-9
5.60% 06/01/09 75 75,094
Warren County Sewer System
Revenue Bonds Series 1992
6.70% 12/01/02 115 124,775
Worthington City School District
Pre-refunded Unlimited Tax
General Obligation Bonds Series
1989
7.45% 12/01/99 45 51,013
----------
7,274,799
----------
GUAM -- 2.9%
Guam Power Authority Revenue
Bonds Series 1994A
6.625% 10/01/04 250 256,250
----------
PUERTO RICO -- 9.8%
Puerto Rico Commonwealth
Unlimited Tax General Obligation
Bonds Series 1993
5.50% 07/01/13 510 486,413
Puerto Rico Electric Power
Authority Revenue Bonds Series
1995Z
5.50% 07/01/16 400 374,500
----------
860,913
----------
TOTAL MUNICIPAL BONDS 8,391,962
----------
(Cost $8,242,487)
See accompanying notes to financial statements.
22
<PAGE>
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF
SHARES VALUE
-------- ----------
TEMPORARY INVESTMENTS -- 2.6%
Smith Barney Tax-Free
Money Market Fund 223,647 $ 223,647
----------
(Cost $223,647)
TOTAL INVESTMENTS IN SECURITIES
(Cost $8,466,134*) 98.4% 8,615,609
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.6% 143,406
------ ----------
NET ASSETS (Applicable to 19,883
Institutional shares, 512,269
Service shares, 328,448 Series A
Investor shares and 10,591
Series B Investor shares
outstanding) 100.0% $8,759,015
====== ==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL AND SERVICE SHARE
($5,350,277 / 532,152) $10.05
======
NET ASSET VALUE AND
REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($3,302,252 / 328,448) $10.05
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($10.05 / .955) $10.52
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE (SUBJECT
TO A MAXIMUM CONTINGENT DEFERRED
SALES CHARGE OF 5.0%)
PER SERIES B INVESTOR SHARE
($106,486 / 10,591) $10.05
======
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $216,622
Gross unrealized depreciation (67,147)
--------
$149,475
=========
See accompanying notes to financial statements.
23
<PAGE>
THE PNC(R) FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- -----------
PENNSYLVANIA -- 90.3%
Allegheny County General
Obligation Bonds Series
1991C-38
6.20% 09/01/01 $ 250 $ 270,312
Allegheny County General
Obligation Bonds
Series 1993C-42
5.00% 10/01/10 1,000 943,750
Allegheny County Hospital
Development Authority Revenue
Bonds (Mercy Hospital) Series
1986
7.375% 04/01/15 750 771,562
Allegheny County Residential
Finance Authority Mortgage
Revenue Bonds Single Family
Series 1994Y
6.25% 05/01/17 400 405,000
Bristol Township School
District Unlimited Tax
General Obligation Bonds
Series 1993A
5.10% 02/15/08 1,000 972,500
Cambria County Unlimited Tax
General Obligation Bonds
Series 1991
8.25% 06/01/00 600 663,000
Central Bucks School District
Unlimited Tax General
Obligation Bonds Series 1993A
5.15% 05/15/08 1,015 995,969
Central Bucks School District
Unlimited Tax General
Obligation Bonds Series 1994A
6.70% 11/15/09 500 563,750
Chester County Unlimited Tax
General Obligation Bonds
Series 1991
6.70% 12/15/04 385 423,019
Crawford Central School
District Unlimited Tax
General Obligation Bonds
Series 1995
5.70% 02/15/10 2,175 2,210,344
5.75% 02/15/11 1,585 1,604,812
Dauphin County General
Authority Revenue Bonds
(A-F School District Pooled
Finance Program) Series 1986
5.30% 06/01/05 535 535,000
5.40% 06/01/06 565 565,000
5.50% 06/01/07 550 547,937
6.85% 06/01/09 800 852,000
Deer Lakes School District
Unlimited Tax General
Obligation Bonds Series 1995
6.35% 01/15/14 1,000 1,031,250
6.45% 01/15/19 1,300 1,343,875
Delaware County Authority
Health Care Revenue Bonds
(Mercy Health Corporation)
Series 1993B
6.00% 11/15/07 1,000 982,500
Erie County Prison Authority
Lease Revenue Bonds
Series 1991
6.25% 11/01/01 500 544,375
Harrisburg Authority Lease
Revenue Bonds Series 1991
6.50% 06/01/04 500 543,125
Indiana County Hospital
Authority Revenue Bonds
Series 1992A
7.125% 07/01/23 1,500 1,526,250
Lancaster County Hospital
Authority Revenue Bonds
(Health Center-Masonic Homes
Project) Series 1994
5.30% 11/15/08 500 478,750
Lebanon County Hospital
Authority Revenue Bonds (Good
Samaritan Hospital Project)
Series 1993
5.55% 11/15/04 355 347,456
6.00% 11/15/09 500 472,500
6.00% 11/15/18 750 687,187
Ligonier Valley School
District Unlimited Tax
General Obligation Bonds
Series 1994
5.65% 03/01/14 2,000 1,977,500
See accompanying notes to financial statements.
24
<PAGE>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- --------- -----------
PENNSYLVANIA (CONTINUED)
Montgomery County Higher
Education and Health
Authority Revenue Bonds
(Frankford Hospital) Series
1986
7.875% 01/01/19 $ 500 $ 531,875
Moon Township Water and Sewer
Authority Revenue Bonds
Series 1994
6.70% 12/01/19 1,000 1,035,000
New Garden Township Sewer
Authority Revenue Bonds
Series 1991
7.00% 03/01/15 420 456,225
Norristown Municipal Waste
Authority Sewer Revenue Bonds
Series 1993
5.125% 11/15/23 2,000 1,787,500
Northampton County Higher
Education Authority Revenue
Bonds (Moravian College)
Series 1994
6.10% 07/01/12 1,950 1,981,687
Northampton County Industrial
Development Authority
Pollution Control Revenue
Bonds (Metropolitan Edison
Co. Project) Series 1995
6.10% 07/15/21 1,000 1,013,750
Northumberland County
Authority Guaranteed Lease
Revenue Bonds Series 1992
6.50% 08/15/07 500 558,750
Pennsbury School District
Unlimited Tax General
Obligation Bonds Series 1994
6.65% 08/15/09 685 744,938
Pennsylvania Commonwealth
Turnpike Revenue Bonds Series
1991L
6.50% 06/01/04 445 485,050
Pennsylvania Economic
Development Financing
Authority Resource Recovery
Revenue Bonds (Colver
Project)
Series 1994D
7.15% 12/01/18 2,000 2,085,000
Pennsylvania Finance Authority
Revenue Bonds (Municipal
Capital Improvement Project)
Series 1993
6.60% 11/01/09 2,760 2,949,750
Pennsylvania Higher
Educational Facilities
Authority Revenue Bonds
(Duquesne University) Series
1991C
6.75% 04/01/20 1,000 1,062,500
Pennsylvania Higher
Educational Facilities
Authority Revenue Bonds
(Philadelphia College of
Textiles and Science) Series
1993
4.95% 02/01/02 255 249,581
5.15% 02/01/04 1,230 1,191,563
5.45% 02/01/07 285 274,313
Pennsylvania Higher
Educational Facilities
Authority Revenue Bonds
(Thomas Jefferson University)
Series 1993A
5.15% 11/01/11 500 468,750
Pennsylvania Housing Finance
Authority Revenue Bonds
(Single Family Mortgage)
Series 1995-46
6.20% 10/01/14 1,000 1,000,000
Pennsylvania Infrastructure
Investment Authority Revenue
Bonds (Pennvest Project)
Series 1990B
6.80% 09/01/10 2,000 2,145,000
Pennsylvania Intergovernmental
Cooperation Authority Special
Tax Revenue Bonds Series 1994
7.00% 06/15/04 500 573,750
Pennsylvania Intergovernmental
Cooperative Authority Special
Tax Revenue Bonds Series 1993
5.25% 06/15/06 1,000 1,007,500
5.75% 06/15/15 1,000 987,500
Pennsylvania Unlimited Tax
General Obligation Bonds
Series 1994A
6.50% 11/01/05 250 270,625
See accompanying notes to financial statements.
25
<PAGE>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- --------- -----------
PENNSYLVANIA (CONTINUED)
Philadelphia Hospital and
Higher Education Facilities
Authority Revenue Bonds
(Frankford Hospital) Series
1993A
6.00% 06/01/23 $ 815 $ 720,256
Philadelphia Hospital and
Higher Education Facilities
Authority Revenue Bonds
(Graduate Health Systems)
Series 1993A
5.10% 07/01/98 470 468,825
Philadelphia Hospital and
Higher Educational Facilities
Authority Revenue Bonds
(Friends' Hospital) Series
1993
5.95% 05/01/04 500 497,500
6.20% 05/01/11 500 450,625
Philadelphia Industrial
Development Authority Revenue
Bonds (PGH Development
Corporation) Series 1993
5.25% 07/01/17 1,810 1,658,413
Philadelphia Municipal
Authority Revenue Bonds
Series 1993A
5.625% 11/15/14 2,000 1,942,500
Philadelphia School District
Unlimited Tax General
Obligation Bonds Series 1991A
6.70% 07/01/99 250 270,313
Schuylkill Redevelopment
Authority Commonwealth Lease
Revenue Bonds Series 1991A
7.125% 06/01/13 1,250 1,390,625
Southeastern Pennsylvania
Transportation Authority
Special Revenue Bonds Series
1995A
5.875% 03/01/09 1,230 1,268,438
Washington County Industrial
Development Authority
Pollution Control Revenue
Bonds Series 1993F (Western
Pennsylvania Power Company)
4.95% 03/01/03 2,000 2,012,500
Westmoreland County Industrial
Development Authority Revenue
Bonds Westmoreland Health
Systems) Series 1993A
6.00% 07/01/11 200 204,750
York County Hospital Authority
Revenue Bonds (Hanover
General Hospital) Series
1994A
4.80% 12/01/06 635 618,331
-----------
56,622,406
-----------
NEW YORK -- 0.6%
New York City Municipal Water
Finance Authority Water and
Sewer System Revenue Bonds
Series 1994G
4.40%** 10/02/95 400 400,000
-----------
PUERTO RICO -- 4.0%
Puerto Rico Commonwealth
Unlimited Tax General
Obligation Bonds Series 1993
5.50% 07/01/13 1,750 1,669,063
Puerto Rico Electric Power
Authority Revenue Bonds
Series 1991P
6.75% 07/01/03 250 275,000
Puerto Rico Public Buildings
Authority Revenue Bonds
Series 1992J
6.50% 07/01/03 500 548,750
-----------
2,492,813
-----------
TOTAL MUNICIPAL BONDS
(Cost $58,664,011) 59,515,219
-----------
See accompanying notes to financial statements.
26
<PAGE>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
---------- -----------
TEMPORARY INVESTMENTS -- 7.8%
Smith Barney Tax Free Money
Market Fund 4,777,459 $ 4,777,459
Vanguard Pennsylvania Tax-Free
Money Market Fund 100,000 100,000
-----------
(Cost $4,877,459) 4,877,459
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $63,541,470*) 102.7% 64,392,678
LIABILITIES IN EXCESS OF
OTHER ASSETS (2.7%) (1,702,694)
----- -----------
NET ASSETS (Applicable to
202,613 Institutional shares,
1,337,927 Service shares
4,142,417 Series A Investor
shares and 388,164 Series B
Investor shares outstanding) 100.0% $62,689,984
====== ===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL AND SERVICE SHARE
($15,907,664 / 1,540,540) $10.33
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($42,774,116 / 4,142,417) $10.33
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($10.33 / .955) $10.82
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE (SUBJECT TO
A MAXIMUM CONTINGENT DEFERRED SALES
CHARGE OF 5.0%) PER SERIES B
INVESTOR SHARE
($4,008,204 / 388,164) $10.33
======
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $1,107,875
Gross unrealized depreciation (256,667)
----------
$ 851,208
==========
** Rates shown are the rates as of September 30, 1995, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
27
<PAGE>
THE PNC(R) FUND
SHORT-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- -----------
AGENCY OBLIGATIONS -- 29.1%
FEDERAL FARM CREDIT BANK NOTES -- 13.1%
6.70% 09/30/96 $ 2,000 $ 2,018,480
-----------
FEDERAL HOME LOAN BANK BONDS -- 16.0%
5.325%** 04/08/97 1,500 1,500,000
4.605%** 04/27/98 1,000 978,124
-----------
2,478,124
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $4,476,218) 4,496,604
-----------
MORTGAGE BACKED SECURITIES -- 32.4%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 7.4%
7.50% 08/01/99 233 237,430
8.00%,
1 yr. CMT ARM 04/01/22 892 909,450
-----------
1,146,880
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 17.4%
7.25% 04/25/96 424 424,040
7.00% TBA 10/01/10 2,000 2,005,000
8.001% 03/01/33 250 257,272
-----------
2,686,312
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 7.6%
6.50%,
1 yr. CMT ARM 05/20/25 198 200,562
7.50%,
1 yr. CMT ARM 12/31/01 953 978,800
-----------
1,179,362
-----------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $5,017,626) 5,012,554
-----------
ASSET BACKED SECURITIES -- 10.4%
National Credit Card Trust
9.45% 12/31/97 500 513,550
General Motors Acceptance Corp.
7.15% 03/15/00 544 550,024
John Deere Owner Trust
4.10% 10/15/00 515 509,096
Toyota Motor Credit Auto
Receivable
3.90% 08/17/98 42 41,177
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $1,620,469) 1,613,847
-----------
COLLATERALIZED MORTGAGE OBLIGATION -- 4.5%
Capstead Securities Corp.
8.40% 04/25/19 688 691,301
-----------
(Cost $692,592)
CORPORATE BONDS -- 12.9%
ENERGY & UTILITIES -- 2.4%
Connecticut Light and Power Co.
7.625% 04/01/97 200 204,750
Duke Power Co.
8.00% 11/01/99 150 159,375
-----------
364,125
-----------
FINANCE -- 6.1%
New American Capital, Inc.
7.6875% 10/12/95 100 99,875
PaineWebber Group, Inc.
6.25% 06/15/98 150 147,375
Salomon Brothers, Inc.
5.26% 02/10/99 500 492,000
Tenneco Credit Corp.
10.125% 12/01/97 200 215,500
-----------
954,750
-----------
INDUSTRIALS -- 4.4%
General Motors Acceptance Corp.
7.30% 02/02/98 150 153,188
Ryder System, Inc.
7.66% 09/15/99 500 520,000
-----------
673,188
-----------
TOTAL CORPORATE BONDS
(Cost $1,977,203) 1,992,063
-----------
See accompanying notes to financial statements.
28
<PAGE>
SHORT-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ----- -----------
U.S. TREASURY NOTES -- 22.0%
5.625% 06/30/97 $ 3,000 $ 2,990,100
6.00% 08/31/97 200 200,666
6.125% 05/15/98 50 50,289
6.75% 04/30/00 150 154,314
-----------
TOTAL U.S. TREASURY NOTES
(Cost $3,391,754) 3,395,369
-----------
NUMBER
OF SHARES
---------
TEMPORARY INVESTMENTS -- 0.6%
Smith Barney Money
Market Fund
(Cost $96,204) 96,204 96,204
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $17,272,066*) 111.9% 17,297,942
LIABILITIES IN EXCESS OF OTHER
ASSETS (Including $2,020,674 of
investment purchases payable) (11.9%) (1,835,806)
------- -----------
NET ASSETS (Applicable
to 883,082 Institutional
shares, 677,806 Service shares
and 32,087 Series A Investor
shares outstanding) 100.0% $15,462,136
======= ===========
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND SERIES A INVESTOR SHARE
($15,462 136 / 1,592,975) $ 9.71
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $ 9.71
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($9.71 / .955) $10.17
======
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 52,857
Gross unrealized depreciation (26,981)
--------
$ 25,876
=========
** Rates shown are the rates as of September 30, 1995 and the maturities shown
are the longer of the next interest readjustment date or the maturity date.
See accompanying notes to financial statements.
29
<PAGE>
THE PNC(R) FUND
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
AGENCY OBLIGATIONS -- 5.8%
FEDERAL HOME LOAN BANK BONDS -- 2.2%
5.325% 10/09/95 $ 1,000 $ 1,000,000
6.99% 04/25/97 2,500 2,543,350
------------
3,543,350
------------
FEDERAL HOME LOAN BANK
DISCOUNT NOTES -- 1.2%
4.605%** 04/27/98 2,000 1,956,250
------------
FEDERAL NATIONAL MORTGAGE
CORPORATION -- 2.0%
8.70% 06/10/99 1,000 1,088,700
8.25% 12/18/00 2,000 2,178,060
------------
3,266,760
------------
GUARANTEED EXPORT CREDIT
CERTIFICATES -- 0.4%
6.28% 06/15/04 700 692,417
------------
TOTAL AGENCY OBLIGATIONS
(Cost $9,268,860) 9,458,777
------------
MORTGAGE BACKED SECURITIES -- 29.6%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 11.2%
9.50% 08/15/97 250 261,633
9.00% 09/15/97 252 262,400
8.50% 08/15/98 170 175,246
8.50% 09/15/98 0 429
9.00% 09/15/98 2 1,592
8.50% 10/15/98 64 66,863
7.50% 07/01/99 455 462,272
7.50% 09/01/99 1,070 1,088,330
7.50% 05/01/00 324 329,706
7.00% 07/15/00 626 629,382
7.00% 08/15/00 1,167 1,172,506
9.00% 12/01/01 63 65,524
9.50% 07/01/03 140 145,934
9.50% 11/01/04 247 257,930
8.50% 01/01/05 1 682
9.50% 01/01/05 255 266,218
9.00% 12/01/16 29 29,699
9.00% 06/01/21 1,843 1,929,233
8.00% 04/01/22 1,783 1,818,900
6.50% 09/01/25 4,410 4,259,784
6.50% TBA 10/01/25 1,000 964,375
7.00% TBA 10/01/25 4,000 3,950,000
------------
18,138,638
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 7.2%
9.00% 08/01/02 120 125,786
9.50% 03/01/05 33 35,050
7.00% TBA 10/01/10 8,800 8,822,000
9.00% 01/01/25 395 413,163
9.00% 03/01/25 497 520,317
9.00% 05/01/25 1,084 1,135,145
9.00% 06/01/25 635 665,182
------------
11,716,643
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 11.2%
8.00% 05/15/99 286 295,110
7.50% 04/15/07 45 45,742
7.50% 06/15/07 37 37,666
7.50% 07/15/07 56 56,787
7.50% 08/15/07 38 38,927
7.50% 10/15/07 74 75,720
7.50% 12/15/07 2,711 2,771,695
6.50%,
1 yr. CMT ARM 05/20/25 4,946 5,014,085
7.50%,
1 yr. CMT ARM 12/31/01 9,642 9,907,539
------------
18,243,271
------------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $47,932,111) 48,098,552
------------
ASSET BACKED SECURITIES -- 5.9%
General Motors
Acceptance Corp.
7.15% 03/15/00 3,108 3,142,995
Merrill Lynch Mortgage
Investors, Inc.
7.50% 05/25/15 1,200 1,201,579
National Credit Card Trust
9.45% 12/31/97 1,000 1,027,100
Prime Credit Card
Master Trust
6.75% 10/31/05 1,500 1,518,238
Standard Credit Card Master
Trust
8.25% 01/08/07 1,350 1,479,566
The Money Store Home
Equity Trust
7.625% 12/15/95 1,275 1,282,843
------------
TOTAL ASSET BACKED SECURITIES
(Cost $9,648,552) 9,652,321
------------
See accompanying notes to financial statements.
30
<PAGE>
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.3%
Federal National Mortgage
Association
6.50% 12/25/18 $ 1,324 $ 1,262,666
Ryland Acceptance Corp.
9.40% 08/01/18 2,395 2,526,725
------------
(Cost $3,781,638) 3,789,391
------------
CORPORATE BONDS -- 20.2%
BANKS -- 4.1%
Den Danske Bank
7.25% 06/15/05 1,500 1,496,250
First Union Corp.
6.875% 09/15/05 1,800 1,800,000
Meridian Bancorp
6.625% 06/15/00 1,500 1,494,375
National Westminster Bank
9.45% 05/01/01 1,250 1,412,500
North Carolina National Bank
8.50% 11/01/96 500 513,125
------------
6,716,250
------------
CONSTRUCTION -- 0.9%
Centex Corp.
7.375% 06/01/05 1,400 1,387,750
------------
CREDIT INSTITUTIONS -- 1.0%
Tenneco Credit Corp.
10.125% 12/01/97 1,500 1,616,250
------------
ENERGY & UTILITIES -- 1.3%
Connecticut Light and Power
7.625% 04/01/97 1,488 1,523,340
Mobile Energy Resources
8.665% 01/01/17 500 519,750
------------
2,043,090
------------
ENTERTAINMENT & LEISURE -- 1.1%
Royal Caribbean Cruises
7.125% 09/18/02 1,800 1,788,750
------------
FINANCE -- 5.6%
Factory Stores of America
8.31% 06/01/02 700 715,916
H.F. Ahmanson & Co.
8.25% 10/01/02 1,500 1,642,500
New American Capital, Inc.
7.6875% 10/12/95 1,400 1,398,250
Norwest Financial
8.375% 01/15/00 5,000 5,343,750
------------
9,100,416
------------
FOOD & AGRICULTURE -- 1.1%
RJR Nabisco, Inc.
8.00% 07/15/01 1,400 1,408,750
7.05% 07/15/07 450 443,813
------------
1,852,563
------------
INSURANCE -- 2.2%
London Life Insurance
6.875% 09/15/05 1,000 995,000
Metropolitan Life
6.30% 11/01/03 1,000 950,000
Prudential Insurance
7.65% 07/01/07 1,550 1,553,875
------------
3,498,875
------------
OIL & GAS -- 2.3%
Atlantic Richfield
10.25% 07/02/00 3,000 3,255,000
Texaco Capital Co.
9.00% 12/15/99 500 548,125
------------
3,803,125
------------
TRANSPORTATION -- 0.6%
Burlington Northern
6.94% 01/02/14 1,000 983,247
------------
TOTAL CORPORATE BONDS
(Cost $32,310,253) 32,790,316
------------
MEDIUM TERM NOTES -- 5.5%
FINANCE -- 2.0%
Associates Corp. N.A.
7.45% 03/28/00 1,600 1,654,400
PaineWebber Group, Inc.
7.875% 02/15/03 1,500 1,558,125
------------
3,212,525
------------
See accompanying notes to financial statements.
31
<PAGE>
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- ------- ------------
MEDIUM TERM NOTES (CONTINUED)
SECURITY BROKERS & DEALERS -- 1.3%
Salomon, Inc.
7.59% 01/28/00 $ 500 $ 503,125
8.90% 02/15/00 500 526,875
7.75% 05/15/00 1,000 1,016,250
------------
2,046,250
------------
TRUCKING & FREIGHT -- 2.2%
Ryder Systems, Inc.
7.66% 09/15/99 3,500 3,640,000
------------
TOTAL MEDIUM TERM NOTES
(Cost $8,657,071) 8,898,775
------------
TAXABLE MUNICIPAL BONDS -- 1.6%
Los Angeles County Taxable
Pension Obligation
8.62% 06/30/06 2,300 2,515,625
------------
(Cost $2,400,923)
U.S. TREASURY NOTES -- 33.1%
5.625% 06/30/97 2,700*** 2,691,090
6.00% 08/31/97 28,300 28,394,236
6.125% 05/15/98 4,460 4,485,778
5.875% 08/15/98 8,050*** 8,048,229
6.75% 06/30/99 6,450 6,615,764
6.875% 03/31/00 2,620 2,707,089
7.25% 08/15/04 675 721,777
------------
TOTAL U.S. TREASURY NOTES
(Cost $53,528,168) 53,663,963
------------
REPURCHASE AGREEMENT -- 3.2%
Lehman Brothers
6.40% 10/02/95 5,170 5,170,000
------------
(Agreement dated 9/29/95 to be
repurchased at $5,172,757.
Collateralized by $4,835,000
U.S. Treasury Notes, 8.875% due
11/15/97. The value of the
collateral is $5,274,083).
(Cost $5,170,000)
VALUE
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $172,697,576*) 107.2% $174,037,720
LIABILITIES IN EXCESS OF OTHER
ASSETS (Including $2,363,000 of
reverse repurchase agreements
payable) (7.2%) (11,693,286)
------ ------------
NET ASSETS (Applicable to
13,254,430 Institutional shares,
3,893,703 Service shares and
68,597 Series A Investor shares
outstanding) 100.0% $162,344,434
====== ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($162,344,434 / 17,216,730) $9.43
=====
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $9.43
=====
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($9.43 / .955) $9.87
=====
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $1,511,617
Gross unrealized depreciation (171,473)
----------
$1,340,144
==========
** Rates shown are the rates as of September 30, 1995, and the maturities shown
are the longer of the next interest readjustment date or the maturity date.
*** Partial principal in the amount of $2,350,000 has been pledged as collateral
for reverse repurchase agreements.
See accompanying notes to financial statements.
32
<PAGE>
THE PNC(R) FUND
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- -----------
AGENCY OBLIGATIONS -- 9.6%
FEDERAL HOME LOAN BANK -- 3.7%
4.605%** 04/27/98 $ 500 $ 489,063
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 5.9%
6.30% 10/02/95 770 769,865
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $1,258,982) 1,258,928
-----------
MORTGAGE BACKED SECURITIES -- 36.1%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 17.6%
7.50% 09/01/99 237 241,468
9.00% 06/01/21 1,092 1,143,698
8.00%,
1 yr. CMT ARM 04/01/22 448 457,405
6.50%,
1 yr. CMT ARM 09/01/25 490 473,309
-----------
2,315,880
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 11.4%
7.00% TBA 10/01/10 650 651,625
6.00% 08/25/17 638 588,555
8.001%,
1 yr. CMT ARM 03/01/33 250 257,270
-----------
1,497,450
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 7.1%
6.50% 05/20/25 445 451,268
7.50%,
1 yr. CMT ARM 04/20/25 476 489,399
-----------
940,667
-----------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $4,747,134) 4,753,997
-----------
ASSET BACKED SECURITIES -- 22.9%
First Boston Corp. Mortgage Securities Trust
9.00% 01/20/18 709 737,296
Merrill Lynch Trust
9.85% 11/01/18 885 999,995
Prime Credit Card
Master Trust
6.75% 11/15/05 1,100 1,113,374
Standard Credit Card
Master Trust
8.25% 01/08/07 150 164,396
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $2,929,752) 3,015,061
-----------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 9.5%
Capstead Securities Corp.
8.40% 04/25/19 464 466,282
Ryland Acceptance Corp.
9.40% 08/01/18 750 785,391
-----------
(Cost $1,259,278) 1,251,673
-----------
CORPORATE BONDS -- 2.6%
BANKS
First Union Corp.
6.875% 09/15/05 350 347,551
-----------
(Cost $349,085)
TAXABLE MUNICIPAL BONDS -- 4.1%
Los Angeles County
Taxable Pension
Obligation
8.62% 06/30/06 500 546,875
-----------
(Cost $522,082)
U.S. TREASURY OBLIGATIONS -- 48.2%
U.S. TREASURY BONDS -- 1.1%
7.875% 02/15/21 75 86,077
7.625% 02/15/25 50 56,606
-----------
142,683
-----------
U.S. TREASURY NOTES -- 47.1%
5.625% 06/30/97 800 797,360
6.00% 08/31/97 1,000**** 1,003,330
6.125% 05/15/98 50 50,289
5.875% 08/15/98 960*** 959,789
7.875% 11/15/04 1,876*** 2,088,044
7.50% 02/15/05 1,010 1,100,647
6.50% 05/15/05 200 204,570
-----------
6,204,029
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $6,167,500) 6,346,712
-----------
See accompanying notes to financial statements.
33
<PAGE>
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
--------- --------- -----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $17,233,813*) 133.0% $17,520,797
REVERSE REPURCHASE AGREEMENTS -- (26.3%)
Aubrey Lanston
5.75% 10/05/95 $ 1,710 (1,710,000)
(Agreement dated 09/20/95 to
be repurchased at
$1,714,097. Collateralized
by $1,500,000 U.S.
Treasury Note, 7.875% due
11/15/04. The value of the
collateral is $1,710,000.)
Lehman Brothers
5.5% 10/03/95 754 (753,750)
(Agreement dated 9/22/95 to
be repurchased at
$755,017. Collateralized
by $750,000 U.S. Treasury
Note, 5.875% due 08/15/98.
The value of the
collateral is $753,750.)
Smith Barney
5.7% 10/04/95 1,006 (1,006,250)
(Agreement dated 09/20/95 to
be repurchased at
$1,008,481. Collateralized
by $1,000,000 U.S.
Treasury Note, 6.0% due
08/31/97. The value of the
collateral is $1,006,250.)
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $3,470,000) (3,470,000)
LIABILITIES IN EXCESS OF OTHER
ASSETS (6.7%) (873,063)
------- -----------
NET ASSETS (Applicable to
279,974 Series A Investor
shares and 954,001 Series B
Investor shares outstanding) 100.0% $13,177,734
====== ===========
VALUE
-----------
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($2,989,844 / 279,974) $10.68
======
MAXIMUM OFFERING PRICE PER SERIES A
INVESTOR SHARE
($10.68 / .955) $11.18
======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE (SUBJECT TO A MAXIMUM
CONTINGENT DEFERRED SALES CHARGE OF
5.0%) PER SERIES B INVESTOR SHARE
($10,187,890 / 954,001) $10.68
======
- -------------
* Also cost for Federal Income Tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $302,449
Gross unrealized depreciation (15,465)
--------
$286,984
========
** Rates shown are the rates as of September 30, 1995, and maturities shown
are the longer of the next interest readjustment date or the maturity date.
*** Partial principal in the amount of $2,250,000 has been pledged as
collateral for reverse repurchase agreements.
**** Entire principal amount has been pledged as collateral for reverse
repurchase agreements.
------------------------------------------
INVESTMENT ABBREVIATIONS
ARM Adjustable Rate Mortgage
CMT Constant Maturity Treasury
TBA To Be Announced Purchase
------------------------------------------
See accompanying notes to financial statements.
34
<PAGE>
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
OHIO
MANAGED TAX-FREE INTERMEDIATE TAX-FREE
INCOME INCOME GOVERNMENT INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Investment Income:
Interest................................... $35,836,822 $ 569,240 $ 12,066,990 $ 486,113
----------- ---------- ------------ ---------
Expenses:
Investment advisory fee.................... 2,557,617 49,671 948,836 42,044
Administration fee......................... 1,018,762 19,868 379,534 16,817
Custodian fee.............................. 98,883 12,585 46,733 12,947
Transfer agent fee......................... 105,887 14,679 33,776 10,216
Service fees............................... 245,386 8,543 146,738 13,429
Distribution fees.......................... 50,278 30,269 22,909 8,153
Legal and audit............................ 60,230 1,089 24,361 3,455
Printing................................... 33,556 650 11,725 66
Registration fees and expenses............. 26,237 20,399 31,153 2,500
Organization............................... 131 6,222 2,984 2,471
Trustees' fees and officer's salary........ 8,125 156 3,079 135
Other...................................... 24,203 5,305 13,225 10,183
----------- ---------- ------------ ---------
4,229,295 169,436 1,665,053 122,416
Less fees voluntarily waived
and expenses reimbursed................. (1,034,595) (77,000) (704,419) (90,187)
----------- ---------- ------------ ---------
Total operating expenses................ 3,194,700 92,436 960,634 32,229
----------- ---------- ------------ ---------
Interest Expense............................. -- -- 2,445 --
----------- ---------- ------------ ---------
Total expenses.......................... 3,194,700 92,436 963,079 32,229
----------- ---------- ------------ ---------
Net investment income........................ 32,642,122 476,804 11,103,911 453,884
----------- ---------- ------------ ---------
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions................. 7,981,918 (80,406) (3,472,794) (243,297)
Change in unrealized appreciation
of investments.......................... 23,126,890 624,539 10,641,126 620,747
----------- ---------- ------------ ---------
Net gain on investments.................... 31,108,808 544,133 7,168,332 377,450
----------- ---------- ------------ ---------
Net increase in net assets resulting
from operations......................... $63,750,930 $1,020,937 $ 18,272,243 $ 831,334
=========== ========== ============ =========
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PENNSYLVANIA
TAX-FREE SHORT-TERM INTERMEDIATE GOVERNMENT
INCOME BOND TERM BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(1)
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Investment Income:
Interest.................................. $ 3,493,044 $1,071,446 $ 9,125,256 $ 579,629
------------ ---------- ------------ ----------
Expenses:
Investment advisory fee................... 298,989 89,283 678,209 37,256
Administration fee........................ 119,596 35,713 271,283 14,903
Custodian fee............................. 15,842 16,621 39,889 20,511
Transfer agent fee........................ 35,808 7,880 30,988 16,811
Service fees.............................. 39,127 15,853 98,742 11,145
Distribution fees......................... 213,039 770 1,122 46,290
Legal and audit........................... 7,375 2,289 19,228 800
Printing.................................. 4,489 1,598 11,292 446
Registration fees and expenses............ 5,669 22,483 26,435 17,816
Organization.............................. 2,697 4,380 4,570 8,126
Trustees' fees and officer's salary....... 1,094 402 2,102 107
Other..................................... 12,679 5,673 16,539 220
------------ ---------- ------------ ----------
756,404 202,945 1,200,399 174,431
Less fees voluntarily waived
and expenses reimbursed................ (189,497) (112,584) (467,231) (107,896)
------------ ---------- ------------ ----------
Total operating expenses............. 566,907 90,361 733,168 66,535
------------ ---------- ------------ ----------
Interest expense............................ -- 14,210 109,908 41,198
------------ ---------- ------------ ----------
Total expenses....................... 566,907 104,571 843,076 107,733
------------ ---------- ------------ ----------
Net investment income....................... 2,926,137 966,875 8,282,180 471,896
------------ ---------- ------------ ----------
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions................ (1,333,043) (466,914) 1,538,085 337,923
Change in unrealized appreciation
of investments......................... 4,255,669 586,409 4,588,168 286,984
------------ ---------- ------------ ----------
Net gain on investments................... 2,922,626 119,495 6,126,253 624,907
------------ ---------- ------------ ----------
Net increase in net assets resulting
from operations........................ $ 5,848,763 $1,086,370 $ 14,408,433 $1,096,803
============ ========== ============ ==========
</TABLE>
- -------------
(1) For the period October 3, 1994 (commencement of operations) through
September 30, 1995.
See accompanying notes to financial statements.
36
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TAX-FREE INCOME
MANAGED INCOME PORTFOLIO PORTFOLIO
--------------------------- ------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/95 9/30/94 9/30/95 9/30/94
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income.......................................... $ 32,642,122 $ 24,284,351 $ 476,804 $ 437,596
Net gain (loss) on investments................................. 31,108,808 (44,710,814) 544,133 (902,194)
------------ ------------ ----------- ----------
Net increase (decrease) in net assets resulting from
operations................................................... 63,750,930 (20,426,463) 1,020,937 (464,598)
------------ ------------ ----------- ----------
Distributions to shareholders from
Net investment income
Institutional Shares........................................... (26,544,370) (21,168,266) (7,110) (27,983)
Service Shares................................................. (5,430,486) (2,559,717) (152,612) (66,611)
Series A Investor Shares....................................... (667,266) (556,368) (315,032) (341,872)
------------ ------------ ----------- ----------
Total distributions from net investment income............. (32,642,122) (24,284,351) (474,754) (436,466)
------------ ------------ ----------- ----------
In excess of net investment income
Institutional Shares........................................... (643,455) (955,052) -- --
Service Shares................................................. (131,639) (115,487) -- --
Series A Investor Shares....................................... (16,175) (25,102) -- --
------------ ------------ ----------- ----------
Total distributions in excess of net investment income..... (791,269) (1,095,641) -- --
------------ ------------ ----------- ----------
Net realized gains
Institutional Shares........................................... -- (4,274,701) (191) (21,944)
Service Shares................................................. -- (352,557) (5,402) (31,866)
Series A Investor Shares....................................... -- (108,326) (13,686) (235,722)
------------ ------------ ----------- ----------
Total distributions from net realized gains................ -- (4,735,584) (19,279) (289,532)
------------ ------------ ----------- ----------
In excess of net realized gains
Institutional Shares........................................... -- (439,375) -- --
Service Shares................................................. -- (36,239) -- --
Series A Investor Shares....................................... -- (11,134) -- --
------------ ------------ ----------- ----------
Total distributions in excess of net realized gains........ -- (486,748) -- --
------------ ------------ ----------- ----------
Total distributions to shareholders........................ (33,433,391) (30,602,324) (494,033) (725,998)
------------ ------------ ----------- ----------
Capital share transactions......................................... 68,016,777 160,300,119 1,834,910 1,264,721
------------ ------------ ----------- ----------
Total increase in net assets............................... 98,334,316 109,271,332 2,361,814 74,125
Net assets:
Beginning of year.............................................. 473,636,355 364,365,023 9,213,354 9,139,229
------------ ------------ ----------- ----------
End of year.................................................... $571,970,671 $473,636,355 $11,575,168 $9,213,354
============ ============ =========== ==========
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT OHIO TAX-FREE PENNSYLVANIA TAX-FREE
PORTFOLIO INCOME PORTFOLIO INCOME PORTFOLIO
--------------------------- ----------------------- --------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
------------ ------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income................ $ 11,103,911 $ 10,008,303 $ 453,884 $ 367,913 $ 2,926,137 $ 2,792,738
Net gain (loss) on investments....... 7,168,332 (16,040,314) 377,450 (686,251) 2,922,626 (4,792,774)
------------ ------------ ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.......... 18,272,243 (6,032,011) 831,334 (318,338) 5,848,763 (2,000,036)
------------ ------------ ---------- ---------- ----------- -----------
Distributions to shareholders from
Net investment income
Institutional Shares................. (7,538,593) (7,450,156) (7,866) (88,527) (75,362) (15,967)
Service Shares....................... (3,019,296) (2,071,221) (259,043) (103,043) (622,721) (490,091)
Series A Investor Shares............. (515,648) (427,436) (184,186) (176,343) (2,145,636) (2,289,938)
Series B Investor Shares............. -- -- (2,789) -- (82,418) --
------------ ------------ ---------- ---------- ----------- -----------
Total distributions from
net investment income.......... (11,073,537) (9,948,813) (453,884) (367,913) (2,926,137) (2,795,996)
------------ ------------ ---------- ---------- ----------- -----------
Net realized gains
Institutional Shares................. -- (1,220,708) -- (4,339) -- (280)
Service Shares....................... -- (251,878) -- (1,752) -- (18,964)
Series A Investor Shares............. -- (68,191) -- (5,046) -- (108,860)
Series B Investor Shares............. -- -- -- -- -- --
------------ ------------ ---------- ---------- ----------- -----------
Total distributions from
net realized gains............. -- (1,540,777) -- (11,137) -- (128,104)
------------ ------------ ---------- ---------- ----------- -----------
Total distributions to
shareholders................... (11,073,537) (11,489,590) (453,884) (379,050) (2,926,137) (2,924,100)
------------ ------------ ---------- ---------- ----------- -----------
Capital share transactions............... (11,093,899) 56,048,683 1,341 4,108,295 1,048,267 23,558,899
------------ ------------ ---------- ---------- ----------- -----------
Total increase (decrease) in
net assets..................... (3,895,193) 38,527,082 378,791 3,410,907 3,970,893 18,634,763
Net assets:
Beginning of year.................... 198,293,947 159,766,865 8,380,224 4,969,317 58,719,091 40,084,328
------------ ------------ ---------- ---------- ----------- -----------
End of year.......................... $194,398,754 $198,293,947 $8,759,015 $8,380,224 $62,689,984 $58,719,091
============ ============ ========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM GOVERNMENT
SHORT-TERM BOND BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- --------------------------- ------------
FOR THE
FOR THE FOR THE FOR THE FOR THE PERIOD
YEAR YEAR YEAR YEAR 10/03/94(1)
ENDED ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income......................... $ 966,875 $ 1,481,277 $ 8,282,180 $ 3,655,792 $ 471,896
Net gain (loss) on investments................ 119,495 (1,622,114) 6,126,253 (5,600,277) 624,907
----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations................... 1,086,370 (140,837) 14,408,433 (1,944,485) 1,096,803
----------- ----------- ------------ ------------ -----------
Distributions to shareholders from
Net investment income
Institutional Shares.......................... (649,680) (1,256,883) (6,107,918) (2,313,063) --
Service Shares................................ (300,937) (219,277) (2,086,482) (1,431,162) --
Series A Investor Shares...................... (16,258) (5,117) (26,612) (531) (116,675)
Series B Investor Shares...................... -- -- -- -- (355,221)
----------- ----------- ------------ ------------ -----------
Total distribution from net
investment income....................... (966,875) (1,481,277) (8,221,012) (3,744,756) (471,896)
----------- ----------- ------------ ------------ -----------
Net realized gains
Institutional Shares.......................... -- -- -- (166,177) --
Service Shares................................ -- -- -- (34,163) --
Series A Investor Shares...................... -- -- -- -- --
Series B Investor Shares...................... -- -- -- -- --
----------- ----------- ------------ ------------ -----------
Total distributions from net realized
gains................................... -- -- -- (200,340) --
----------- ----------- ------------ ------------ -----------
Total distributions to shareholders....... (966,875) (1,481,277) (8,221,012) (3,945,096) (471,896)
----------- ----------- ------------ ------------ -----------
Capital share transactions........................ (8,783,739) 19,189,531 48,409,985 56,832,649 12,552,827
----------- ----------- ------------ ------------ -----------
Total increase (decrease) in net assets... (8,664,244) 17,567,417 54,597,406 50,943,068 13,177,734
Net assets:
Beginning of period........................... 24,126,380 6,558,963 107,747,028 56,803,960 --
----------- ----------- ------------ ------------ -----------
End of period................................. $15,462,136 $24,126,380 $162,344,434 $107,747,028 $13,177,734
=========== =========== ============ ============ ===========
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
39
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
----------------------------------------------------------------------
INSTITUTIONAL CLASS
----------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year..................... $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70
-------- -------- -------- -------- --------
Income from investment operations
Net investment income................................. 0.65 0.64 0.67 0.69 0.74
Net gain (loss) on investments
(both realized and unrealized)...................... 0.60 (1.21) 0.56 0.48 0.63
-------- -------- -------- -------- --------
Total from investment operations.................. 1.25 (0.57) 1.23 1.17 1.37
-------- -------- -------- -------- --------
Less distributions
Distributions from net investment income.............. (0.65) (0.64) (0.67) (0.69) (0.73)
Distribution in excess of net investment income....... (0.01) (0.02) -- -- (0.08)
Distributions from net realized capital gains......... -- (0.14) (0.13) -- --
Distributions in excess of net realized gains......... -- (0.01) -- -- --
-------- -------- -------- -------- --------
Total distributions............................... (0.66) (0.81) (0.80) (0.69) (0.81)
-------- -------- -------- -------- --------
Net asset value at end of year........................... $ 10.38 $ 9.79 $ 11.17 $ 10.74 $ 10.26
======== ======== ======== ======== ========
Total return............................................. 13.27% (5.27)% 12.13% 11.80% 14.74%
Ratios/Supplemental data
Net assets at end of year
(in thousands)...................................... $443,148 $395,060 $341,791 $314,075 $ 52,802
Ratios of total expenses to average net assets
After advisory/administration fee waivers........... 0.57% 0.55% 0.74% 0.80% 0.80%
Before advisory/administration fee waivers.......... 0.77% 0.77% 0.78% 0.80% 0.84%
Ratios of net investment income to average net assets
After advisory/administration fee waivers........... 6.44% 6.11% 6.25% 6.28% 7.36%
Before advisory/administration fee waivers.......... 6.24% 5.89% 6.21% 6.28% 7.32%
Portfolio turnover rate.................................. 203% 61% 72% 56% 38%
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
--------------------------------------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
---------------------------------- -----------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 7/29/93(1) YEAR YEAR YEAR 2/05/92(1)
ENDED ENDED THROUGH ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93 9/30/92
-------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period... $ 9.79 $ 11.17 $ 10.96 $ 9.79 $ 11.18 $10.74 $10.40
-------- ------- ------- ------- -------- ------ ------
Income from investment operations
Net investment income................. 0.63 0.59 0.11 0.60 0.57 0.66 0.46
Net gain (loss) on investments
(both realized and unrealized)...... 0.60 (1.18) 0.21 0.60 (1.19) 0.57 0.34
-------- ------- ------- ------- ------- ------ ------
Total from investment
operations....................... 1.23 (0.59) 0.32 1.20 (0.62) 1.23 0.80
-------- ------- ------- ------- ------- ------ ------
Less distributions
Distributions from net investment
income.............................. (0.63) (0.62) (0.11) (0.60) (0.60) (0.66) (0.46)
Distribution in excess of net
investment income................... (0.01) (0.02) -- (0.01) (0.02) -- --
Distributions from net realized
capital gains....................... -- (0.14) -- -- (0.14) (0.13) --
Distributions in excess of net
realized gains...................... -- (0.01) -- -- (0.01) -- --
-------- ------- ------- ------- -------- ------ ------
Total distributions............... (0.64) (0.79) (0.11) (0.61) (0.77) (0.79) (0.46)
-------- ------- ------- ------- -------- ------ ------
Net asset value at end of period......... $ 10.38 $ 9.79 $ 11.17 $ 10.38 $ 9.79 $11.18 $10.74
======== ======= ======= ======= ======= ====== ======
Total return............................. 12.97% (5.49)% 2.93% 12.74%(3) (5.76)%(3) 12.13%(3) 7.86%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands).......................... $116,846 $67,655 $15,322 $11,977 $10,921 $7,252 $1,417
Ratios of total expenses to average
net assets
After advisory/administration fee
waivers........................... 0.85% 0.80% 0.80%(2) 1.05% 1.00% 0.84% 0.80%(2)
Before advisory/administration fee
waivers........................... 1.05% 1.02% 0.84%(2) 1.25% 1.22% 0.88% 0.80%(2)
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers........................... 6.14% 5.95% 5.83%(2) 5.96% 5.66% 6.09% 6.28%(2)
Before advisory/administration fee
waivers........................... 5.94% 5.73% 5.79%(2) 5.76% 5.44% 6.05% 6.28%(2)
Portfolio turnover rate.................. 203% 61% 72% 203% 61% 72% 56%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
41
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
----------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------------------- --------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 1/21/93(1) YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................... $10.04 $11.31 $10.61 $10.04 $11.31 $10.97
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income................................. 0.53 0.53 0.42 0.50 0.51 0.09
Net gain (loss) on investments
(both realized and unrealized)...................... 0.59 (0.93) 0.70 0.59 (0.93) 0.34
------ ------ ------ ------ ------ ------
Total from investment operations.................. 1.12 (0.40) 1.12 1.09 (0.42) 0.43
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net investment income.............. (0.53) (0.53) (0.42) (0.50) (0.51) (0.09)
Distributions from net realized capital gains......... (0.02) (0.34) -- (0.02) (0.34) --
------ ------ ------ ------ ------ ------
Total distributions............................... (0.55) (0.87) (0.42) (0.52) (0.85) (0.09)
------ ------ ------ ------ ------ ------
Net asset value at end of period......................... $10.61 $10.04 $11.31 $10.61 $10.04 $11.31
====== ====== ====== ====== ====== ======
Total return............................................. 11.54% (3.77)% 10.72% 11.24% (4.02)% 3.92%
Ratios/Supplemental data
Net assets at end of period (in thousands)............ $ 271 $ 132 $ 675 $4,713 $2,109 $ 634
Ratios of total expenses to average net assets
After advisory/administration fee waivers........... 0.52% 0.50% 0.50%(2) 0.80% 0.75% 0.71%(2)
Before advisory/administration fee waivers.......... 1.30% 1.73% 1.28%(2) 1.57% 1.98% 1.49%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........... 5.19% 4.97% 5.14%(2) 4.92% 4.75% 4.99%(2)
Before advisory/administration fee waivers.......... 4.41% 3.74% 4.36%(2) 4.15% 3.52% 4.21%(2)
Portfolio turnover rate.................................. 92% 40% 71% 92% 40% 71%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
42
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
----------------------------------------------------------------
SERIES A INVESTOR CLASS
----------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............................ $10.04 $11.31 $10.60 $10.33 $ 9.91
------ ------ ------ ------ ------
Income from investment operations
Net investment income........................................ 0.48 0.48 0.55 0.58 0.64
Net gain (loss) on investments (both realized and
unrealized)................................................ 0.59 (0.93) 0.83 0.49 0.46
------ ------ ------ ------ ------
Total from investment operations......................... 1.07 (0.45) 1.38 1.07 1.10
------ ------ ------ ------ ------
Less distributions
Distributions from net investment income..................... (0.48) (0.48) (0.55) (0.59) (0.66)
Distributions from net realized capital gains................ (0.02) (0.34) (0.12) (0.21) (0.02)
------ ------ ------ ------ ------
Total distributions...................................... (0.50) (0.82) (0.67) (0.80) (0.68)
------ ------ ------ ------ ------
Net asset value at end of year.................................. $10.61 $10.04 $11.31 $10.60 $10.33
====== ====== ====== ====== ======
Total return.................................................... 10.99%(3) (4.19)%(3) 13.48%(3) 10.67%(3) 11.40%(3)
Ratios/Supplemental data
Net assets at end of year (in thousands)..................... $6,591 $6,972 $7,831 $7,349 $3,510
Ratios of total expenses to average net assets
After advisory/administration fee waivers.................. 1.00% 0.95% 0.57% 0.53% 1.00%
Before advisory/administration fee waivers................. 1.78% 2.18% 1.36% 1.67% 1.89%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................. 4.74% 4.53% 5.06% 5.56% 6.23%
Before advisory/administration fee waivers................. 3.96% 3.30% 4.27% 4.42% 5.34%
Portfolio turnover rate......................................... 92% 40% 71% 38% 95%
</TABLE>
- -------------
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
43
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
--------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 4/20/92(1)
ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/92
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period................................. $ 9.64 $ 10.60 $ 10.46 $ 10.00
-------- -------- -------- --------
Income from investment operations
Net investment income............................................... 0.58 0.55 0.54 0.24
Net gain (loss) on investments (both realized and unrealized)....... 0.38 (0.86) 0.16 0.46
-------- -------- -------- --------
Total from investment operations................................ 0.96 (0.31) 0.70 0.70
-------- -------- -------- --------
Less distributions
Distributions from net investment income............................ (0.58) (0.55) (0.54) (0.24)
Distributions from net realized capital gains....................... -- (0.10) (0.02) --
-------- -------- -------- --------
Total distributions............................................. (0.58) (0.65) (0.56) (0.24)
------- -------- -------- --------
Net asset value at end of period....................................... $ 10.02 $ 9.64 $ 10.60 $ 10.46
======== ======== ======== ========
Total return........................................................... 10.28% (3.08)% 6.88% 7.14%
Ratios/Supplemental data
Net assets at end of period (in thousands).......................... $134,835 $128,974 $137,065 $105,620
Ratios of operating expenses to average net assets
After advisory/administration fee waivers......................... 0.42% 0.40% 0.73% 0.80%(2)
Before advisory/administration fee waivers........................ 0.79% 0.80% 0.81% 0.80%(2)
Ratios of total expenses to average net assets
After advisory/administration fee waivers......................... 0.42% 0.40% 0.73% 0.80%(2)
Before advisory/administration fee waivers........................ 0.79% 0.80% 0.81% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers......................... 5.94% 5.48% 5.23% 5.28%(2)
Before advisory/administration fee waivers........................ 5.57% 5.08% 5.15% 5.28%(2)
Portfolio turnover rate................................................ 247% 9% 80% 38%
Amount of reverse repurchase agreements outstanding at end of period
(in thousands)........................................................ $ -0- -- -- --
Average amount of reverse repurchase agreements outstanding during the
period (in thousands)................................................. $ 41 -- -- --
Average number of total shares outstanding during the period (in
thousands)............................................................ 19,383 -- -- --
Average amount of reverse repurchase agreements per share during the
period................................................................ $ 0.00 -- -- --
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
44
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
--------------------------------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
---------------------------- ----------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 7/29/93(1) YEAR YEAR YEAR 5/11/92(1)
ENDED ENDED THROUGH ENDED ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.......... $ 9.64 $ 10.60 $ 10.45 $ 9.64 $10.60 $10.46 $10.05
------- ------- ------- ------- ------- ------ ------
Income from investment operations
Net investment income........................ 0.56 0.53 0.09 0.55 0.53 0.54 0.24
Net gain (loss) on investments
(both realized and unrealized)............. 0.37 (0.86) 0.15 0.39 (0.87) 0.16 0.41
------- ------- ------- ------- ------ ------ ------
Total from investment operations......... 0.93 (0.33) 0.24 0.94 (0.34) 0.70 0.65
------- ------- ------- ------- ------ ------ ------
Less distributions
Distributions from net investment income..... (0.55) (0.53) (0.09) (0.55) (0.52) (0.54) (0.24)
Distributions from net realized capital
gains....................................... -- (0.10) -- -- (0.10) (0.02) --
------- ------- ------- ------- ------ ------ ------
Total distributions...................... (0.55) (0.63) (0.09) (0.55) (0.62) (0.56) (0.24)
------- ------- ------- ------- ------ ------ ------
Net asset value at end of period................ $ 10.02 $ 9.64 $ 10.60 $ 10.03 $ 9.64 $10.60 $10.46
======= ======= ======= ======= ====== ====== ======
Total return.................................... 9.99% (3.31)% 2.30% 9.98%(3) (3.36)%(3) 6.84%(3) 6.64%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)... $49,762 $60,812 $15,035 $ 9,802 $8,508 $7,666 $1,484
Ratios of operating expenses to average
net assets
After advisory/administration fee
waivers................................... 0.69% 0.65% 0.67%(2) 0.70% 0.65% 0.76% 0.80%(2)
Before advisory/administration fee
waivers................................... 1.06% 1.05% 0.75%(2) 1.07% 1.05% 0.84% 0.80%(2)
Ratios of total expenses to average
net assets
After advisory/administration fee
waivers................................... 0.69% 0.65% 0.67%(2) 0.70% 0.65% 0.76% 0.80%(2)
Before advisory/administration fee
waivers................................... 1.06% 1.05% 0.75%(2) 1.07% 1.05% 0.84% 0.80%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers................................... 5.67% 5.30% 5.14%(2) 5.67% 5.24% 5.19% 5.28%(2)
Before advisory/administration fee waivers 5.30% 4.90% 5.06%(2) 5.30% 4.84% 5.11% 5.28%(2)
Portfolio turnover rate......................... 247% 9% 80% 247% 9% 80% 38%
Amount of reverse repurchase agreements
outstanding at end of period (in thousands).... $ -0- -- -- $ -0- -- -- --
Average amount or reverse repurchase agreements
outstanding during the period (in thousands)... $ 41 -- -- $ 41 -- -- --
Average number of total shares outstanding
during the period (in thousands)............... 19,383 -- -- 19,383 -- -- --
Average amount or reverse repurchase agreements
per share during the period.................... $ 0.00 -- -- $ 0.00 -- -- --
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
45
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
----------------------------------- ----------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 12/1/92(1) YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93
-------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 9.60 $10.53 $10.00 $ 9.60 $10.53 $10.24
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income............................... 0.55 0.53 0.36 0.52 0.49 0.09
Net gain (loss) on investments
(both realized and unrealized).................... 0.45 (0.91) 0.53 0.45 (0.91) 0.29
------ ------ ------ ------ ------ ------
Total from investment operations................ 1.00 (0.38) 0.89 0.97 (0.42) 0.38
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net investment income............ (0.55) (0.53) (0.36) (0.52) (0.49) (0.09)
Distributions from net realized capital gains....... -- (0.02) -- -- (0.02) --
------ ------ ------ ------ ------ ------
Total distributions............................. (0.55) (0.55) (0.36) (0.52) (0.51) (0.09)
------ ------ ------ ------ ------ ------
Net asset value at end of period....................... $10.05 $ 9.60 $10.53 $10.05 $ 9.60 $10.53
====== ====== ====== ====== ====== ======
Total return........................................... 10.75% (3.75)% 9.10% 10.45% (4.00)% 3.68%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 200 $ 127 $1,676 $5,150 $4,428 $ 907
Ratios of total expenses to average net assets
After advisory/administration fee waivers......... 0.12% 0.10% 0.08%(2) 0.39% 0.35% 0.32%(2)
Before advisory/administration fee waivers........ 1.19% 1.49% 2.59%(2) 1.46% 1.74% 2.83%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 5.61% 5.16% 4.99%(2) 5.39% 5.06% 4.71%(2)
Before advisory/administration fee waivers........ 4.54% 3.77% 2.48%(2) 4.31% 3.67% 2.20%(2)
Portfolio turnover rate................................ 63% 61% 36% 63% 61% 36%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
46
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
----------------------------------------------
SERIES B
SERIES A INVESTOR
INVESTOR CLASS CLASS
------------------------------- -------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 12/1/92(1) 10/13/94(1)
ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/95
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period................................. $ 9.60 $10.53 $10.00 $ 9.58
------ ------ ------ -------
Income from investment operations
Net investment income............................................... 0.52 0.53 0.36 0.42
Net gain (loss) on investments (both realized and unrealized)....... 0.45 (0.91) 0.53 0.47
------ ------ ------ -------
Total from investment operations................................ 0.97 (0.38) 0.89 0.89
------ ------ ------ -------
Less distributions
Distributions from net investment income............................ (0.52) (0.53) (0.36) (0.42)
Distributions from net realized capital gains....................... -- (0.02) -- --
------ ------ ------ -------
Total distributions............................................. (0.52) (0.55) (0.36) (0.42)
------ ------ ------ -------
Net asset value at end of period....................................... $10.05 $ 9.60 $10.53 $ 10.05
====== ====== ====== =======
Total return........................................................... 10.46%(3) (3.75)%(3) 9.10%(3) 9.33%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands).......................... $3,303 $3,825 $2,386 $ 106
Ratios of total expenses to average net assets
After advisory/administration fee waivers......................... 0.38% 0.10% 0.07%(2) 1.17%(2)
Before advisory/administration fee waivers........................ 1.45% 1.49% 2.58%(2) 2.25%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers......................... 5.42% 5.18% 4.90%(2) 4.48%(2)
Before advisory/administration fee waivers........................ 4.35% 3.79% 2.39%(2) 3.41%(2)
Portfolio turnover rate................................................ 63% 61% 36% 63%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
47
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
--------------------------------- ---------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 12/1/92(1) YEAR YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 9.82 $10.70 $ 10.00 $ 9.82 $ 10.70 $ 10.43
------ ------ ------- ------- ------- -------
Income from investment operations
Net investment income............................... 0.52 0.53 0.39 0.50 0.51 0.09
Net gain (loss) on investments
(both realized and unrealized).................... 0.51 (0.85) 0.73 0.51 (0.85) 0.28
------ ------ ------- ------- ------- -------
Total from investment operations................ 1.03 (0.32) 1.12 1.01 (0.34) 0.37
------ ------ ------- ------- ------- -------
Less distributions
Distributions from net investment income............ (0.52) (0.53) (0.39) (0.50) (0.51) (0.09)
Distributions from net realized capital gains....... -- (0.03) (0.03) -- (0.03) (0.01)
------ ------ ------- ------- ------- -------
Total distributions............................. (0.52) (0.56) (0.42) (0.50) (0.54) (0.10)
------ ------ ------- ------- ------- -------
Net asset value at end of period....................... $10.33 $ 9.82 $ 10.70 $ 10.33 $ 9.82 $ 10.70
====== ====== ======= ======= ======= =======
Total return........................................... 10.81% (2.96)% 11.69% 10.51% (3.20)% 3.54%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $2,092 $ 639 $ 256 $13,815 $11,518 $ 3,894
Ratios of total expenses to average net assets
After advisory/administration fee waivers......... 0.52% 0.39% 0.09%(2) 0.79% 0.55% 0.34%(2)
Before advisory/administration fee waivers........ 0.84% 0.99% 0.97%(2) 1.11% 1.15% 1.22%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 5.23% 5.27% 5.19%(2) 5.04% 4.97% 4.90%(2)
Before advisory/administration fee waivers........ 4.91% 4.67% 4.31%(2) 4.72% 4.37% 4.02%(2)
Portfolio turnover rate................................ 66% 30% 40% 66% 30% 40%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
48
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
-----------------------------------------------------
SERIES B
SERIES A INVESTOR
INVESTOR CLASS CLASS
------------------------------------ ---------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 12/1/92(1) 10/03/94(1)
ENDED ENDED THROUGH THROUGH
9/30/95 9/30/94 9/30/93 9/30/95
------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period................................... $ 9.82 $ 10.70 $ 10.00 $ 9.82
------- ------- ------- -------
Income from investment operations
Net investment income................................................. 0.48 0.52 0.42 0.42
Net gain (loss) on investments (both realized and unrealized)......... 0.51 (0.85) 0.73 0.51
------- ------- ------- -------
Total from investment operations.................................. 0.99 (0.33) 1.15 0.93
------- ------- ------- -------
Less distributions
Distributions from net investment income.............................. (0.48) (0.52) (0.42) (0.42)
Distributions from net realized capital gains......................... -- (0.03) (0.03) --
------- ------- ------- --------
Total distributions............................................... (0.48) (0.55) (0.45) (0.42)
------- ------- ------- --------
Net asset value at end of period......................................... $ 10.33 $ 9.82 $ 10.70 $ 10.33
======= ======= ======= =======
Total return............................................................. 10.30%(3) (3.06)%(3) 11.69%(3) 9.69%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)............................ $42,775 $46,563 $35,934 $ 4,008
Ratios of total expenses to average net assets
After advisory/administration fee waivers........................... 0.98% 0.41% 0.07%(2) 1.57%(2)
Before advisory/administration fee waivers.......................... 1.30% 1.01% 0.95%(2) 1.89%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........................... 4.88% 5.06% 5.19%(2) 4.07%(2)
Before advisory/administration fee waivers.......................... 4.56% 4.46% 4.31%(2) 3.75%(2)
Portfolio turnover rate.................................................. 66% 30% 40% 66%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
49
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
----------------------------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
------------------------------ ------------------------------ --------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR YEAR 9/1/93(1) YEAR YEAR 9/1/93(1) YEAR 11/17/93(1)
ENDED ENDED THROUGH ENDED ENDED THROUGH ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
------- ------- --------- ------- ------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period................................ $ 9.58 $ 10.00 $10.00 $ 9.58 $10.00 $10.00 $ 9.58 $ 9.96
------- ------- ------ ------- ------ ------ ------- -------
Income from investment operations
Net investment income............... 0.53 0.42 0.02 0.50 0.39 0.02 0.50 0.34
Net gain (loss) on investments
(both realized and unrealized).... 0.13 (0.42) -- 0.13 (0.42) -- 0.13 (0.38)
------- ------- ------ ------- ------ ------ ------- -------
Total from investment
operations..................... 0.66 -- 0.02 0.63 (0.03) 0.02 0.63 (0.04)
------- ------- ------ ------- ------ ------ ------- -------
Less distributions
Distributions from net investment
income............................ (0.53) (0.42) (0.02) (0.50) (0.39) (0.02) (0.50) (0.34)
Distributions from net realized
capital gains..................... -- -- -- -- -- -- -- --
------- ------- ------ ------- ------ ------ ------- -------
Total distributions............. (0.53) (0.42) (0.02) (0.50) (0.39) (0.02) (0.50) (0.34)
------- ------- ------ ------- ------ ------ ------- -------
Net asset value at end of period....... $ 9.71 $ 9.58 $10.00 $ 9.71 $ 9.58 $10.00 $ 9.71 $ 9.58
======= ======= ====== ======= ====== ====== ======= =======
Total return........................... 7.10% (0.02)% 0.23% 6.81% (0.26)% 0.21% 6.80%(3) (0.43)%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands)........................ $ 8,572 $17,619 $3,748 $ 6,579 $6,230 $2,811 $ 311 $ 277
Ratios of operating expenses to
average net assets
After advisory/administration fee
waivers......................... 0.41% 0.40% 0.40%(2) 0.70% 0.65% 0.65%(2) 0.70% 0.65%(2)
Before advisory/administration fee
waivers......................... 1.04% 0.95% 1.42%(2) 1.33% 1.20% 1.67%(2) 1.34% 1.20%(2)
Ratios of total expenses to average
net assets
After advisory/administration fee
waivers......................... 0.50% 0.40% 0.40%(2) 0.79% 0.65% 0.65%(2) 0.79% 0.65%(2)
Before advisory/administration fee
waivers......................... 1.13% 0.95% 1.42%(2) 1.42% 1.20% 1.67%(2) 1.43% 1.20%(2)
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers......................... 5.49% 4.27% 2.92%(2) 5.28% 4.07% 2.57%(2) 5.25% 4.19%(2)
Before advisory/administration fee
waivers......................... 4.86% 3.72% 1.90%(2) 4.65% 3.52% 1.55%(2) 4.62% 3.64%(2)
Portfolio turnover rate................ 192% 113% 0% 192% 113% 0% 192% 113%
Amount of reverse repurchase agreements
outstanding at end of period
(in thousands)........................ $ 0 -- -- $ 0 -- -- $ 0 --
Average amount of reverse repurchase
agreements outstanding during the
period (in thousands)................. $ 242 -- -- $ 242 -- -- $ 242 --
Average number of total shares
outstanding during the period (in
thousands)............................ 1,744 -- -- 1,744 -- -- 1,744 --
Average amount of reverse repurchase
agreements per share during the
period................................ $ 0.14 -- -- $ 0.14 -- -- $ 0.14 --
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
50
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
-------------------------------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
-------------------------------- ------------------------------- -----------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR YEAR 9/17/93(1) YEAR YEAR 9/23/93(1) YEAR 5/20/94(1)
ENDED ENDED THROUGH ENDED ENDED THROUGH ENDED THROUGH
9/30/95 9/30/94 9/30/93 9/30/95 9/30/94 9/30/93 9/30/95 9/30/94
-------- ------- -------- ------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................... $ 9.05 $ 10.01 $ 10.00 $ 9.05 $ 10.01 $ 9.99 $ 9.05 $ 9.23
-------- ------- ------- ------- ------- ------ ------- ------
Income from investment operations
Net investment income.............. 0.56 0.54 0.02 0.54 0.54 -- 0.54 0.20
Net gain (loss) on investments
(both realized and unrealized)... 0.38 (0.88) (0.01) 0.38 (0.91) 0.02 0.38 (0.17)
-------- ------- ------- ------- ------- ------ ------- ------
Total from investment
operations.................... 0.94 (0.34) 0.01 0.92 (0.37) 0.02 0.92 0.03
-------- ------- ------- ------- ------- ------ ------- ------
Less distributions
Distributions from net investment
income........................... (0.56) (0.56) -- (0.54) (0.53) -- (0.54) (0.21)
Distributions from net
realized capital gains........... -- (0.06) -- -- (0.06) -- -- --
-------- ------- ------- ------- ------- ------ ------- ------
Total distributions............ (0.56) (0.62) -- (0.54) (0.59) -- (0.54) (0.21)
-------- ------- ------- ------- ------- ------ ------- ------
Net asset value at end of period...... $ 9.43 $ 9.05 $ 10.01 $ 9.43 $ 9.05 $10.01 $ 9.43 $ 9.05
======== ======= ======= ======= ======= ====== ======= ======
Total return.......................... 10.76% (3.52)% 0.10% 10.46% (3.80)% 0.20% 10.35%(3) 0.31%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands)....................... $124,979 $71,896 $56,713 $36,718 $35,764 $ 91 $ 647 $ 87
Ratios of operating expenses to
average net assets
After advisory/administration
fee waivers.................... 0.47% 0.45% 0.45%(2) 0.74% 0.70% 0.70%(2) 0.76% 0.85%(2)
Before advisory/administration
fee waivers.................... 0.81% 0.88% 0.84%(2) 1.09% 1.13% 1.09%(2) 1.11% 1.28%(2)
Ratios of total expenses to average
net assets
After advisory/administration fee
waivers........................ 0.55% 0.45% 0.45%(2) 0.82% 0.70% 0.70%(2) 0.84% 0.85%(2)
Before advisory/administration
fee waivers...................... 0.89% 0.88% 0.84%(2) 1.17% 1.13% 1.09%(2) 1.19% 1.28%(2)
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers........................ 6.18% 5.54% 4.72%(2) 5.90% 5.33% 4.35%(2) 5.89% 5.35%(2)
Before advisory/administration
fee waivers.................... 5.84% 5.11% 4.33%(2) 5.55% 4.90% 3.96%(2) 5.55% 4.92%(2)
Portfolio turnover rate............... 262% 92% 4% 262% 92% 4% 262% 92%
Amount of reverse repurchase
agreements outstanding at end of
period (in thousands)................ $ 2,364 -- -- $ 2,364 -- -- $ 2,364 --
Average amount of reverse repurchase
agreements outstanding during the
period (in thousands)................ $ 1,834 -- -- $ 1,834 -- -- $ 1,834 --
Average number of total shares
outstanding during the period (in
thousands)........................... 14,938 -- -- 14,938 -- -- 14,938 --
Average amount of reverse repurchase
agreements per share during the
period............................... $ 0.12 -- -- $ 0.12 -- -- $ 0.12 --
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
51
<PAGE>
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIO
------------------------------------
SERIES A SERIES B
INVESTOR CLASS INVESTOR CLASS
-------------- --------------
FOR THE FOR THE
PERIOD PERIOD
10/03/94(1) 10/03/94(1)
THROUGH THROUGH
9/30/95 9/30/95
-------------- --------------
<S> <C> <C>
Net asset value at beginning of period.................................................... $10.00 $ 10.00
------ -------
Income from investment operations
Net investment income.................................................................. 0.55 0.50
Net gain on investments (both realized and unrealized)................................. 0.68 0.68
------ -------
Total from investment operations................................................... 1.23 1.18
------ -------
Less distributions
Distributions from net investment income............................................... (0.55) (0.50)
Distributions from net realized capital gains.......................................... -- --
------ -------
Total distributions................................................................ (0.55) (0.50)
------ -------
Net asset value at end of period.......................................................... $10.68 $ 10.68
====== =======
Total return.............................................................................. 14.27%(3) 13.52%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................. $2,990 $10,188
Ratios of operating expenses to average net assets
After advisory/administration fee waivers............................................ 0.37%(2) 1.05%(2)
Before advisory/administration fee waivers........................................... 1.81%(2) 2.50%(2)
Ratios of total expenses to average net assets
After advisory/administration fee waivers............................................ 0.92%(2) 1.60%
Before advisory/administration fee waivers........................................... 2.36%(2) 3.05%
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................................ 6.89%(2) 6.17%(2)
Before advisory/administration fee waivers........................................... 5.44%(2) 4.72%(2)
Portfolio turnover rate................................................................... 258% 258%
Amount of reverse repurchase agreements outstanding at end of period (in thousands)....... $3,475 $ 3,475
Average amount of reverse repurchase agreements outstanding during the period (in
thousands)............................................................................... $ 705 $ 705
Average number of total shares outstanding during the period (in thousands)............... 843 843
Average amount of reverse repurchase agreements per share during the period............... $ 0.84 $ 0.84
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
52
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
The PNC Fund (the "Fund") was organized on December 22, 1988 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-six separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio, New
Jersey Municipal Money Market Portfolio, Value Equity Portfolio, Growth Equity
Portfolio, Small Cap Growth Equity Portfolio, Core Equity Portfolio, Index
Equity Portfolio, Small Cap Value Equity Portfolio, International Equity
Portfolio, International Emerging Markets Portfolio, Balanced Portfolio, Managed
Income Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio,
Ohio Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio,
Short-Term Bond Portfolio, Intermediate-Term Bond Portfolio, International Fixed
Income Portfolio and Government Income Portfolio. As of September 30, 1995, the
New Jersey Municipal Money Market Portfolio and International Fixed Income
Portfolio had not commenced operations. This report relates solely to Managed
Income Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio,
Ohio Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio,
Short-Term Bond Portfolio, Intermediate-Term Bond Portfolio and Government
Income Portfolio (the "Portfolios").
Each Portfolio has four classes of shares, one class being referred to as
the Service shares, one class being referred to as the Institutional shares, one
class being referred to as the Series A Investor shares and one class being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for Managed Income Portfolio, Tax-Free Income Portfolio,
Intermediate Government Portfolio, Short-Term Bond Portfolio, and
Intermediate-Term Bond Portfolio through September 30, 1995. Series A Investor,
Series B Investor, Institutional and Service shares in a Portfolio represent
equal pro rata interests in such Portfolio, except that they bear different
expenses which reflect the difference in the range of services provided to them.
Series A Investor shares bear the expense of the Series A Distribution and
Service Plan at an annual rate not to exceed .55% of the average daily net asset
value of each Portfolio's outstanding Series A Investor shares. Series B
Investor shares bear the expense of the Series B Distribution Plan at an annual
rate not to exceed .75% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Series B Investor shares also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
shares. Under the Fund's Service Plan, Service shares bear the expense of fees
at an annual rate not to exceed .15% of the average daily net asset value of
each Portfolio's outstanding Service shares. Service shares also bear the
expense of a service fee at an annual rate not to exceed .15% of the average
daily net asset value of each Portfolio's outstanding Service shares for other
shareholder support activities provided by service organizations. Institutional
shares do not bear the expenses of the Series A Distribution and Service Plan,
the Service Plan, the Series B Distribution Plan or the Series B Service Plan.
The Service, Series A Investor and Series B Investor classes are currently
bearing such respective expenses at aggregate annual rates of .30% of the
average daily net asset value of Service shares, .25% to .45% of the average
daily net asset value of Series A Investor shares and .95% to 1.00% of the
average daily net asset value of Series B Investor shares. In addition,
Institutional and Service shares bear a Transfer Agent fee at an annual rate not
to exceed .03% and Series A Investor and Series B Investor shares bear a
Transfer Agent fee at an annual rate not to exceed .10%.
53
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Corporate bonds and
tax-exempt bonds are valued on the basis of quotations provided by a pricing
service which uses information with respect to transactions on bonds, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining value. Short-term obligations
with maturities of 60 days or less are valued at amortized cost which
approximates market value. Discounts and premiums on debt securities are
amortized for book and tax purposes using the effective yield-to-maturity method
over the term of the instrument with the exception of Managed Income Portfolio
which does not amortize discount or premium for tax purposes.
Dividends to Shareholders -- Dividends from net investment income are
declared and paid monthly for each of the Managed Income, Tax-Free Income,
Intermediate Government and Intermediate-Term Bond Portfolios. The net
investment income of each of the Pennsylvania Tax-Free Income, Ohio Tax-Free
Income, Short-Term Bond and Government Income Portfolios is declared daily as a
dividend to investors who are shareholders of such Portfolio at, and whose
payment for share purchases are available to the particular Portfolio in Federal
funds by, the close of business on the day of declaration. Net realized capital
gains, if any, will be distributed at least annually. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes due to differences between generally accepted accounting principles and
tax accounting, related to the character of income and expense recognition.
These differences are primarily due to differing treatments for net operating
losses and mortgage-backed securities.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Fees relating to the Service Plan, the Series A Distribution and Service Plan,
the Series B Distribution Plan and the Series B Service Plan, and the Transfer
Agent fee are class specific expenses. Expenses not directly attributable to a
specific Portfolio or class are allocated among all of the Portfolios or classes
of the Fund based on their relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
54
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
Reverse Repurchase Agreements -- The Fund enters into reverse repurchase
agreements with qualified, third party brokers-dealers as determined by and
under the direction of the Fund's Board of Directors. Interest on the value of
the reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At the time the Fund enters
into a reverse repurchase agreement, it establishes and maintains a segregated
account with the lender containing liquid high grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement.
<TABLE>
<CAPTION>
INTERMEDIATE SHORT-TERM INTERMEDIATE- GOVERNMENT
GOVERNMENT BOND TERM BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Average daily balance of
reverse repurchase agreements
outstanding during the period ended
September 30, 1995...................... $ 40,754 $ 241,877 $1,834,281 $ 704,977
Weighted Average Interest Rate............ 6.09% 5.80% 5.85% 5.71%
Maximum Amount of reverse
repurchase agreements outstanding at any
month-end during the period ended
September 30, 1995(1)................... $1,060,327 $2,304,723 $7,889,993 $3,470,000
Percentage of total assets................ 0.53% 12.20% 4.43% 19.36%
Amount of reverse repurchase agreements
outstanding at September 30, 1995....... $ 0 $ 0 $2,363,000 $3,470,000
Percentage of total assets................ 0.00% 0.00% 1.30% 19.36%
</TABLE>
- ---------------
(1) The maximum amount of reverse repurchase agreements outstanding at any
month-end occurred on June 30, 1995, August 31, 1995, June 30, 1995, and
September 30, 1995, respectively.
TBA Purchase Commitments -- The Portfolios may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed price at a
future date, typically not exceeding 45 days. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to settlement date, which risk is in
addition to the risk of decline in the value of the Fund's other assets.
Unsettled TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under "Security
Valuation" above.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
55
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group,
Inc. ("PAMG"), which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as adviser for each of the Fund's Portfolios.
BlackRock Financial Management, Inc. ("BlackRock"), a wholly-owned subsidiary of
PAMG, serves as sub-adviser for the Portfolios. PNC Bank, PAMG, PIMC and
BlackRock are indirect wholly-owned subsidiaries of PNC Bank Corp.
For its advisory services, PIMC is entitled to receive fees at the
following annual rates, computed daily and payable monthly, based on each
Portfolio's average daily net assets: .50% of the first $1 billion, .45% of the
next $1 billion, .425% of the next $1 billion and .40% of net assets in excess
of $3 billion.
PIMC may, at its discretion, waive all or any portion of its advisory fee
for any Portfolio. For the year ended September 30, 1995, advisory fees and
waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS ADVISORY NET ADVISORY
FEE WAIVER FEE
-------------- -------- --------------
<S> <C> <C> <C>
Managed Income Portfolio.................. $2,557,617 $767,285 $1,790,332
Tax-Free Income Portfolio................. 49,671 49,671 --
Intermediate Government Portfolio......... 948,836 569,302 379,534
Ohio Tax-Free Income Portfolio............ 42,044 42,044 --
Pennsylvania Tax-Free Income Portfolio.... 298,989 137,951 161,038
Short-Term Bond Portfolio................. 89,283 77,473 11,810
Intermediate-Term Bond Portfolio.......... 678,209 335,908 342,301
Government Income Portfolio............... 37,256 37,256 --
</TABLE>
PIMC pays BlackRock fees for its sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
PDI is also the distributor for the Fund. The combined administration fee is
computed daily and payable monthly, based on a percentage of the average daily
net assets of each Portfolio, at the following annual rates: .20% of the first
$500 million, .18% of the next $500 million, .16% of the next $1 billion and
.15% of net assets in excess of $2 billion.
56
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
PFPC and PDI may, at their discretion, waive all or any portion of their
administration fees for any Portfolio. For the year ended September 30, 1995,
administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------- --------------
<S> <C> <C> <C>
Managed Income Portfolio....................... $1,018,762 $267,310 $751,452
Tax-Free Income Portfolio...................... 19,868 19,868 --
Intermediate Government Portfolio.............. 379,534 135,117 244,417
Ohio Tax-Free Income Portfolio................. 16,817 16,817 --
Pennsylvania Tax-Free Income Portfolio......... 119,596 51,546 68,050
Short-Term Bond Portfolio...................... 35,713 30,989 4,724
Intermediate-Term Bond Portfolio............... 271,283 131,323 139,960
Government Income Portfolio.................... 14,903 14,903 --
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also voluntarily agreed to reimburse expenses in
the amount of $7,461 with respect to the Tax-Free Income Portfolio, $31,326 with
respect to the Ohio Tax-Free Income Portfolio, $4,122 with respect to the
Short-Term Bond Portfolio and $55,737 with respect to the Government Income
Portfolio for the year ended September 30, 1995.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the year ended September
30, 1995.
(C) PURCHASES AND SALES OF SECURITIES
For the year ended September 30, 1995, purchases and sales of securities,
other than short-term and government securities, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -------------
<S> <C> <C>
Managed Income Portfolio................................ $441,489,544 $293,378,058
Tax-Free Income Portfolio............................... 10,873,258 8,927,338
Intermediate Government Portfolio....................... 136,796,218 110,394,106
Ohio Tax-Free Income Portfolio.......................... 5,242,943 5,501,522
Pennsylvania Tax-Free Income Portfolio.................. 36,766,922 31,880,501
Short-Term Bond Portfolio............................... 14,867,335 20,132,136
Intermediate-Term Bond Portfolio........................ 187,226,922 104,570,116
Government Income Portfolio............................. 18,147,537 7,738,797
</TABLE>
57
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
For the year ended September 30, 1995, purchases and sales of government
securities were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -------------
<S> <C> <C>
Managed Income Portfolio................................ $703,183,712 $ 704,233,986
Intermediate Government Portfolio....................... 322,216,228 343,006,327
Short-Term Bond Portfolio............................... 16,565,539 17,255,459
Intermediate-Term Bond Portfolio........................ 218,934,200 227,038,969
Government Income Portfolio............................. 20,155,054 14,120,922
</TABLE>
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
9/30/95 9/30/94
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................... 81,039,235 $ 809,394,059 12,186,561 $124,468,452
Service Class......................... 17,764,304 177,958,649 8,352,936 87,090,065
Series A Investor Class............... 356,045 3,587,731 628,230 6,631,737
Shares issued in acquisition:
Institutional Class................... -- -- 3,649,044 36,599,918
Service Class......................... -- -- -- --
Series A Investor Class............... -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class................... 2,491,007 24,875,485 2,074,139 21,617,113
Service Class......................... 395,609 3,967,740 205,275 2,116,342
Series A Investor Class............... 61,685 615,380 59,113 615,438
Shares redeemed:
Institutional Class................... (81,193,145) (810,656,296) (8,140,174) (85,121,512)
Service Class......................... (13,813,314) (137,936,912) (3,017,544) (31,450,922)
Series A Investor Class............... (379,561) (3,789,059) (220,470) (2,266,512)
----------- ------------ ---------- ------------
Net increase............................ 6,721,865 $ 68,016,777 15,777,110 $160,300,119
=========== ============= ========== ============
</TABLE>
58
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
9/30/95 9/30/94
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................... 24,770 $ 264,124 30,016 $ 320,369
Service Class......................... 470,326 4,886,018 299,743 3,207,629
Series A Investor Class............... 41,149 418,358 102,083 1,081,748
Shares issued in reinvestment of
dividends:
Institutional Class................... 56 585 3,035 33,037
Service Class......................... 4,229 42,982 4,080 43,401
Series A Investor Class............... 25,911 262,939 43,152 463,438
Shares redeemed:
Institutional Class................... (12,488) (126,996) (79,482) (827,433)
Service Class......................... (240,413) (2,481,706) (149,752) (1,559,420)
Series A Investor Class............... (140,436) (1,431,394) (142,876) (1,498,048)
-------- ----------- -------- -----------
Net increase............................ 173,104 $ 1,834,910 109,999 $ 1,264,721
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
9/30/95 9/30/94
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................... 26,590,354 $ 259,605,434 5,241,062 $ 53,297,377
Service Class......................... 10,448,411 101,923,874 7,063,429 70,892,359
Series A Investor Class............... 267,053 2,604,567 319,769 3,266,107
Shares issued in reinvestment of
dividends:
Institutional Class................... 630,753 6,148,282 515,901 5,204,029
Service Class......................... 227,356 2,209,698 162,581 1,624,604
Series A Investor Class............... 51,849 505,595 48,076 484,534
Shares redeemed:
Institutional Class................... (27,151,217) (264,697,056) (5,308,429) (53,437,379)
Service Class......................... (12,021,173) (117,212,240) (2,334,076) (23,159,926)
Series A Investor Class............... (224,167) (2,182,053) (208,394) (2,123,022)
----------- ------------- ---------- ------------
Net increase (decrease)................. (1,180,781) $ (11,093,899) 5,499,919 $ 56,048,683
=========== ============= ========== ============
</TABLE>
59
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
9/30/95 9/30/94
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class...................... 15,107 $ 149,562 175,112 $ 1,807,527
Service Class............................ 163,992 1,576,763 422,283 4,189,332
Series A Investor Class.................. 34,691 326,770 191,083 1,965,179
Series B Investor Class.................. 10,355 100,009 -- --
Shares issued in reinvestment of dividends:
Institutional Class...................... 217 2,100 5,038 51,291
Service Class............................ 1,987 18,626 3,851 38,380
Series A Investor Class.................. 17,613 170,813 17,230 172,308
Series B Investor Class.................. 236 2,346 -- --
Shares redeemed:
Institutional Class...................... (8,638) (82,274) (326,154) (3,233,385)
Service Class............................ (114,927) (1,115,016) (51,056) (506,812)
Series A Investor Class.................. (122,186) (1,148,358) (36,633) (375,525)
Series B Investor Class.................. -- -- -- --
-------- ----------- -------- ----------
Net increase (decrease).................... (1,553) $ 1,341 400,754 $4,108,295
======== =========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
9/30/95 9/30/94
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class...................... 174,604 $ 1,773,519 64,868 $ 647,801
Service Class............................ 584,628 5,807,836 1,233,208 12,861,509
Series A Investor Class.................. 444,461 4,391,785 2,269,114 23,724,954
Series B Investor Class.................. 384,161 3,817,733 -- --
Shares issued in reinvestment of dividends:
Institutional Class...................... -- -- 325 3,463
Service Class............................ 6,576 62,462 15,516 158,276
Series A Investor Class.................. 179,097 1,806,597 212,735 2,147,477
Series B Investor Class.................. 5,701 57,559 -- --
Shares redeemed:
Institutional Class...................... (37,001) (380,000) (24,130) (253,996)
Service Class............................ (425,531) (4,223,172) (440,397) (4,431,356)
Series A Investor Class.................. (1,223,482) (12,048,917) (1,097,528) (11,299,229)
Series B Investor Class.................. (1,698) (17,135) -- --
---------- ------------ ---------- ------------
Net increase............................... 91,516 $ 1,048,267 2,233,711 $ 23,558,899
========== ============ ========== ============
</TABLE>
60
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
9/30/95 9/30/94
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................... 1,254,180 $ 12,017,625 3,720,716 $ 37,120,901
Service Class......................... 455,679 4,369,065 755,330 7,473,735
Series A Investor Class............... 30,062 290,116 29,976 294,033
Shares issued in reinvestment of
dividends:
Institutional Class................... 15,327 146,775 21,968 214,759
Service Class......................... 8,077 76,763 14,450 141,147
Series A Investor Class............... 1,665 15,992 532 5,175
Shares redeemed:
Institutional Class................... (2,226,236) (21,244,232) (2,277,873) (22,096,796)
Service Class......................... (436,513) (4,180,363) (400,419) (3,947,645)
Series A Investor Class............... (28,516) (275,480) (1,632) (15,778)
---------- ------------ ---------- ------------
Net increase (decrease)............... (926,275) $ (8,783,739) 1,863,048 $ 19,189,531
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
9/30/95 9/30/94
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................... 26,801,698 $ 244,543,588 2,440,016 $ 22,611,998
Service Class......................... 6,336,367 57,979,751 2,720,032 25,860,499
Series A Investor Class............... 66,539 607,535 9,574 87,478
Shares issued in acquisition:
Institutional Class................... 1,103,217 10,414,371 3,673,356 33,684,821
Service Class......................... -- -- 3,055,695 29,793,024
Series A Investor Class............... -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class................... 568,561 5,225,884 84,197 768,975
Service Class......................... 159,312 1,458,975 101,940 943,961
Series A Investor Class............... 2,890 26,612 58 531
Shares redeemed:
Institutional Class................... (23,165,781) (211,763,234) (3,917,113) (38,816,847)
Service Class......................... (6,554,873) (59,987,572) (1,933,866) (18,101,776)
Series A Investor Class............... (10,462) (95,925) (2) (15)
----------- ------------- ---------- ------------
Net increase............................ 5,307,468 $ 48,409,985 6,233,887 $ 56,832,649
=========== ============= ========== ============
</TABLE>
61
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIO
-----------------------------
FOR THE PERIOD
10/3/94(1)
THROUGH
9/30/95
-----------------------------
SHARES VALUE
--------- -----------
<S> <C> <C>
Shares sold:
Series A Investor Class..................................... 300,898 $ 3,068,403
Series B Investor Class..................................... 999,120 10,170,346
Shares issued in reinvestment of dividends:
Series A Investor Class..................................... 10,966 113,720
Series B Investor Class..................................... 18,231 190,601
Shares redeemed:
Series A Investor Class..................................... (31,890) (328,162)
Series B Investor Class..................................... (63,350) (662,081)
--------- -----------
Net increase.................................................. 1,233,975 $12,552,827
========= ===========
</TABLE>
- -------------
(1) Commencement of operations.
(E) AT SEPTEMBER 30, 1995, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
OHIO
MANAGED TAX-FREE INTERMEDIATE TAX-FREE
INCOME INCOME GOVERNMENT INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
Capital paid-in............................ $563,484,289 $11,290,812 $198,228,449 $8,953,207
Undistributed net investment income........ -- 3,124 18,299 --
Distributions in excess of
net investment income.................... (801,436) -- -- --
Accumulated net realized gain (loss)
on investment transactions............... 3,106,358 (75,045) (3,964,951) (343,667)
Net unrealized appreciation
on investments........................... 6,181,460 356,277 116,957 149,475
------------ ----------- ------------ ----------
$571,970,671 $11,575,168 $194,398,754 $8,759,015
============ =========== ============ ==========
</TABLE>
62
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PENNSYLVANIA
TAX-FREE SHORT-TERM INTERMEDIATE- GOVERNMENT
INCOME BOND TERM BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Capital paid-in............................ $63,459,870 $16,967,692 $160,560,567 $12,552,827
Undistributed net investment income........ -- 2,325 55,893 --
Accumulated net realized gain (loss)
on investment transactions............... (1,621,094) (1,533,757) 387,830 337,923
Net unrealized appreciation
on investments........................... 851,208 25,876 1,340,144* 286,984
----------- ----------- ------------ -----------
$62,689,984 $15,462,136 $162,344,434 $13,177,734
=========== =========== ============ ===========
</TABLE>
- -------------
* Includes $263,549 of unrealized appreciation, at time of acquisition.
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1995, capital loss carryovers were available to offset
possible future realized capital gains as follows: $75,045 in the Tax-Free
Income Portfolio which expire in the year 2003, $1,276,892 in the Intermediate
Government Portfolio which expire in the year 2003, $343,667 in the Ohio
Tax-Free Income Portfolio which expires in the year 2003, $300,925 in the
Pennsylvania Tax-Free Income Portfolio which expires in the year 2003, and
$1,533,757 in the Short-Term Bond Portfolio which expire in the year 2003. At
September 30, 1995, the deferred post-October losses were as follows: $81,707
for the Tax-Free Income Portfolio, $2,688,059 for the Intermediate Government
Portfolio, $218,746 for the Ohio Tax-Free Income Portfolio, $1,352,142 for the
Pennsylvania Tax-Free Income Portfolio, and $464,318 for the Short-Term Bond
Portfolio.
(G) ACQUISITION OF PNC COLLECTIVE FUNDS
On December 28, 1993, The PNC Fund acquired all the assets of the PNC
Financial Common Trust for Retirement Assets Fixed Income Portfolio from
participants of such fund. The acquisition was accomplished by a tax-free
exchange of assets with a value of $29,793,024 for 3,055,695 Service shares of
the Intermediate-Term Bond Portfolio at $9.75 per share. The Fixed Income
Portfolio's net assets on that date included $1,173,313 in unrealized
appreciation of securities.
On May 26, 1994, The PNC Fund acquired all the assets of the PNC Pension
Plan Assets Fixed Income Portfolio from participants of such fund. The
acquisition was accomplished by an exchange of assets with a value of
$22,388,535 for 2,444,163 Institutional shares of the Intermediate-Term Bond
Portfolio at $9.16 per share and a value of $24,915,125 for 2,484,060
Institutional shares of the Managed Income Portfolio at $10.03 per share.
On June 21, 1994, The PNC Fund acquired all the assets of the PNC Incentive
Savings Plan Assets Fixed Income Portfolio from participants of such fund. The
acquisition was accomplished by an exchange of assets with a value of
$11,296,286 for 1,229,193 Institutional shares of the Intermediate-Term Bond
Portfolio at $9.19 per share and a value of $11,684,793 for 1,164,984
Institutional shares of the Managed Income Portfolio at $10.03 per share.
63
<PAGE>
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1995
On June 15, 1995, The PNC Fund acquired all the assets of the Fixed Income
Fund of Portfolios for Diversified Investment from participants of such fund.
The acquisition was accomplished by a tax-free exchange of assets with a value
of $10,414,371 for 1,103,217 Institutional shares of the Intermediate-Term Bond
Portfolio at $9.44 per share. The Fixed Income Fund's net assets on that date
included $263,549 in unrealized appreciation of securities.
(H) SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders (the "Meeting") of the Managed Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios was
held on March 29, 1995. At the Meeting, the shareholders of each Portfolio
listed above voted to approve sub-advisory agreements between PIMC and BlackRock
with respect to the Portfolio. The result of the voting with respect to the
approval of BlackRock as sub-adviser for each of the above-referenced Portfolios
was as follows:
<TABLE>
<CAPTION>
PORTFOLIO FOR AGAINST ABSTAIN
- ----------------------------------------------------------- ----------- ------- -------
<S> <C> <C> <C>
Managed Income............................................. 49,082,482 13,104 46,316
Intermediate Government.................................... 18,184,904 31,212 17,073
Ohio Tax-Free Income....................................... 786,976 2,705 8,647
Pennsylvania Tax-Free Income............................... 4,705,437 29,387 109,687
Short-Term Bond............................................ 1,398,018 0 1,614
Intermediate-Term Bond..................................... 14,915,739 18,931 3,767
Government Income.......................................... 519,789 3,892 308
</TABLE>
(I) SUBSEQUENT EVENTS
On September 29, 1995 and October 2, 1995, respectively, the Board of
Directors of the Fund ("PNC") and the Board of Trustees of The Compass Capital
Group of Funds ("Compass"), including all of the non-interested members of each
Board, approved an asset purchase agreement between 16 investment portfolios of
PNC and Compass. The agreement, subject to shareholder approval, provides for
the acquisition by PNC of all of the assets and liabilities of each of the
Compass Portfolios in exchange for Service Shares of the PNC Portfolios that
correspond to the Compass Portfolios and the distribution of these PNC Service
Shares to the shareholders of the Compass Portfolios in liquidation of the
Compass Portfolios. The expected effective date of the acquisition is January
1996.
Additionally, the Board of Directors of The PNC Fund ("PNC") and the Board
of Directors of The BFM Institutional Trust Inc. ("BIT"), including all of the
non-interested members of each Board, recently approved an asset purchase
agreement between three investment portfolios of PNC and BIT. The agreement
provides for the acquisition by PNC of all of the assets and liabilities of each
of the BIT Portfolios in exchange for Institutional Shares of the PNC Portfolios
that correspond to the BIT Portfolios and the distribution of these PNC
Institutional Shares to the shareholders of the BIT Portfolios in liquidation of
the BIT Portfolios. The expected effective date of the acquisition is January
1996.
64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PNC FUND:
We have audited the accompanying statements of net assets of The PNC Fund
(Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free Income,
Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate Term-Bond, and the
Government Income Portfolios), as of September 30, 1995, and the related
statements of operations for the year (or period) then ended, the statements of
changes in net assets for each of the two years (or periods) in the period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian and brokers as of September 30, 1995. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
PNC Fund (Managed Income, Tax-Free Income, Intermediate Government, Ohio
Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate
Term-Bond, and the Government Income Portfolios), as of September 30, 1995, and
the results of their operations for the year (or period) then ended, the changes
in their net assets for each of the two years (or periods) in the period then
ended, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 22, 1995
65
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- ----------------------------------------------------
- ----------------------------------------------------
Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser
BlackRock Financial Management, Inc.
New York, New York 10154
Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01F
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
LOGO
THE PNC(R) FUND
MANAGED INCOME PORTFOLIO
TAX-FREE INCOME PORTFOLIO
INTERMEDIATE GOVERNMENT PORTFOLIO
OHIO TAX-FREE INCOME PORTFOLIO
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
SHORT-TERM BOND PORTFOLIO
INTERMEDIATE-TERM BOND PORTFOLIO
GOVERNMENT INCOME PORTFOLIO
Annual Report to Shareholders
September 30, 1995
- ----------------------------------------------------
- ----------------------------------------------------
<PAGE>
EXHIBIT 99(b)
THE BFM INSTITUTIONAL TRUST INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
JUNE 30, 1995
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS - 98.5%
MORTGAGE PASS-THROUGHS - 51.1%
Federal Home Loan Mortgage Corporation,
$ 916 6.11%, 05/01/24, 1 year CMT (ARM)......................................... $ 925,247
980 7.00%, 08/01/99 - 04/01/00................................................ 989,801
726 7.25%, 10/01/03 - 06/01/08................................................ 728,249
358 7.38%, 03/01/06, Multi-family............................................. 358,738
1,625 8.00%, 11/01/03 - 10/01/17................................................ 1,672,998
244 8.25%, 06/01/03 - 02/01/08................................................ 250,975
380 8.75%, 01/04/13........................................................... 400,052
147 8.80%, 07/03/95, 3 year CMT (ARM)......................................... 148,810
1,335 9.25%, 12/01/08........................................................... 1,420,386
Federal National Mortgage Association,
987 5.81%, 01/01/25, 6 month LIBOR (ARM)...................................... 989,465
996 6.10%, 02/01/25, 6 month CD (ARM)......................................... 1,017,501
1,086 6.25%, 01/01/21, 1 year CMT (ARM)......................................... 1,080,020
2,212 6.00%, 11/01/02........................................................... 2,174,673
1,065 6.58%, 07/03/95, 1 year CMT (ARM)......................................... 1,070,492
967 6.61%, 12/01/24, 1 year CMT (ARM)......................................... 987,375
900 7.61%, Trust 1995-W2, Class A1, 05/25/22.................................. 910,125
232 7.85%, 05/01/18, 3 year CMT (ARM)......................................... 234,614
Government National Mortgage Association,
735 6.50%, 05/20/25, 1 Year CMT (ARM)......................................... 743,498
3,211 6.75%, 06/20/22, 1 year CMT (ARM)......................................... 3,277,512
3,288 7.50%, 03/20/25, 1 year CMT (ARM)......................................... 3,369,212
-----------
22,749,743
-----------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS -23.0%
357 Collateralized Mortgage Securities Corporation,
Collateralized Mortgage Obligation, Series 1, Class 2, 05/01/13......... 362,487
Federal National Mortgage Association,
1,663 Trust 1989-18, Class 18-B, 01/25/04...................................... 1,716,595
1,061 Trust 1990-60, Class 60-J, 06/25/17...................................... 1,067,932
1,500 Trust 1993-175, Class 175-PK, 02/25/95................................... 1,481,481
450 KP Mortgage Assets Trust,
Collateralized Mortgage Obligation, Series 14, Class 14B, 09/01/14....... 455,686
682 Nomura Asset Securities Corporation,
Mortgage Pass-Through Certificates, Series 1994-3,....................... 681,055
Class A-1, 07/25/24
1,350 Resolution Trust Corporation,
Series 1992-9, Class-A2B, 07/25/29....................................... 1,359,887
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - (CONT.)
$ 436 Salomon Brothers Mortgage Securities VII Incorporated,
Series 1993-5, Class A2, 10/25/23........................................ $ 435,186
757 Security Mortgage Acceptance Corporation,
Series B, Class 3, 11/01/06.............................................. 770,425
Small Business Administration Guaranteed Loan,
937 03/25/16, (ARM)......................................................... 954,239
919 07/25/16, (ARM)......................................................... 935,470
-----------
10,220,443
-----------
ASSET-BACKED SECURITIES - 6.6%
1,500 Colonial Credit Card Trust,
Series 1992-A, Class A, 6.80%............................................. 1,507,500
600 First Chicago Master Trust,
Series 1991-D, Class A, 8.40%............................................. 611,250
800 National Credit Card Trust,
Series 1989-4, Class A, 9.45%............................................. 821,411
-----------
2,940,161
-----------
U.S. GOVERNMENT SECURITIES - 17.8%
U.S. Treasury Notes,
3,000 6.13%, 5/15/98............................................................ 3,019,681
3,500 (a) 6.25%, 5/31/00............................................................ 3,537,170
955 6.88%, 3/31/00............................................................ 988,425
365 7.75%, 12/31/99........................................................... 389,696
-----------
7,934,972
-----------
Total Investments -98.5%
(cost $43,661,417 )....................................................... 43,845,319
Other assets in excess of liabilities - 1.5% (b)........................... 640,913
-----------
NET ASSETS - 100%.......................................................... $44,486,232
===========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Partial principal amount pledged as collateral for reverse repurchase
agreements.
(b) Partial principal amount of receivable for investments sold pledged as
collateral for reverse repurchase agreements.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM: Adjustable Rate Mortgage.
CD: Certificate of Deposit.
CMT: Constant Maturity Treasury.
LIBOR: London International Bank Offering Rate.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
8
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS - 96.7%
MORTGAGE PASS-THROUGHS - 39.5%
Federal Home Loan Mortgage Corporation,
$1,500 7.50%, 01/01/99..................................................... $ 1,504,680
616 7.55%, 09/01/23, 1 year CMT (ARM)................................... 628,556
2,139 8.00%, 11/01/15 - 06/01/25.......................................... 2,183,107
Federal Housing Administration,
99 East Point Chelsea, 10.23%, 05/01/33................................ 105,191
220 Greystone, Series 1994-1, 8.93%, 06/01/20........................... 231,459
Federal National Mortgage Association,
100 6.50% Series 1994-M1, Class B, Multi-family, 10/25/03.............. 98,969
333 7.50%, 02/01/09..................................................... 342,246
251 8.00%, 09/01/09 - 06/01/17.......................................... 260,488
1,210 9.00%, 06/01/24 - 02/01/25.......................................... 1,266,361
Government National Mortgage Association,
587 6.50%, 04/20/25, 1 year CMT (AMT)................................... 593,739
243 7.00%, 02/20/25, 1 year, CMT (ARM).................................. 247,625
2,646 7.50%, 01/15/23 - 05/15/25.......................................... 2,659,231
500 8.00%, 01/01/99..................................................... 511,875
646 8.50%, 01/15/10 - 04/15/17.......................................... 674,491
144 9.00%, 11/15/17..................................................... 151,963
486 9.00%, Project Pool 275130, 10/15/24................................ 504,025
621 9.50%, Project Pool 302733, 11/15/26................................ 651,184
44 10.50%, 01/15/16.................................................... 48,211
23 11.00%, 05/15/16 - 09/20/19......................................... 25,594
10 11.50%, 07/15/13.................................................... 10,988
12 12.00%, 01/15/13 - 03/15/15......................................... 13,146
2 12.50%, 04/15/13.................................................... 1,713
-----------
12,714,842
-----------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - 3.0%
Federal National Mortgage Association, REMIC
Pass-Through Certificates,
19 Trust 1992-87, Class 87-C, 08/25/16................................. 18,907
4 Trust 1991-01, Class 1L, 01/25/21, (I).............................. 118,529
97 First Boston Company Mortgage Securities Trust, Collateralized
Mortgage Obligation, Series 2, Class A3, 08/20/17................... 99,242
</TABLE>
See Notes to Financial Statements
9
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - (CONT.)
$ 104 Salomon Brothers Mortgage Secs VII Incorporated,
Series 1994-9, Class A6, 07/25/24................................... $ 98,762
171 Salomon Brothers Mortgage Trust,
Series 1987-3, Class A , 10/23/17 (P)............................... 122,617
481 Smith Barney Mortgage Capital Trust IV,
Collateral Mortgage Obligation, Series 1,
Class 1Z, 09/01/18.................................................. 511,812
--------
969,869
-------
COMMERCIAL MORTGAGE-BACKED SECURITY - 0.4%
119 First Boston Mortgage Securities Corporation,
6.75%, Series 1993-M1, Class 1A, 09/25/06........................... 116,959
--------
CORPORATE BONDS - 15.0%
FINANCE - 8.9%
A+ 100 American Gen. Fin. Corporation,
8.50%, 8/15/98...................................................... 105,753
Associates Corp. of North America,
A+ 100 6.25%, 3/15/99...................................................... 99,360
AA- 60 6.75%, 7/15/97...................................................... 60,513
A+ 350 Ford Motor Credit Company,
7.75%, 3/15/05...................................................... 370,279
A- 100 ITT Financial Corporation,
8.85%, 7/15/05...................................................... 116,670
A+ 300 Liberty Mutual Capital Corporation,
8.50%, 5/15/25...................................................... 304,673
A+ 300 Morgan Stanley Group Incorporated, Debenture,
7.50%, 2/01/24...................................................... 280,350
BBB 275 Nabisco Incorporated,
7.55%, 6/15/15...................................................... 272,860
BBB+ 150 Paine Webber Group, Incorporated,
8.88%, 3/15/05...................................................... 163,399
A 400 Prudential Insurance Company of America,
8.30%, 7/01/25...................................................... 397,241
AA 350 Republic of Italy,
6.88%, 9/27/23...................................................... 312,277
BBB 100 Shawmut Bank of Connecticut NA,
8.63%, 2/15/05...................................................... 110,415
</TABLE>
See Notes to Financial Statements
10
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE - (CONT.)
Smith Barney Holdings, Incorporated,
A- $ 100 5.38%, 6/01/96...................................................... $ 99,112
A- 50 5.50%, 1/15/99...................................................... 48,276
A- 100 Southtrust Bank Atlanta Georgia N A, Tranche SB 00001,
7.74%, 5/15/25...................................................... 105,750
----------
2,846,928
----------
INDUSTRIALS - 3.2%
A 150 American Home Products Corporation,
7.90%, 2/15/05...................................................... 161,092
A 100 Caterpillar Financial Services,
8.72%, 7/21/97...................................................... 104,690
A3 50 CSX Corporation, Debenture,
8.63%, 5/15/22...................................................... 56,608
AA- 105 Du Pont E I De Nemours and Company,
7.50%, 3/01/33...................................................... 102,291
A 100 Ford Capital Bv.,
9.13%, 4/08/96...................................................... 102,038
General Motors Corporation,
BBB+ 150 5.70%, 12/22/97..................................................... 147,075
BBB+ 350 7.63%, 5/05/03.................................................... 362,890
----------
1,036,684
----------
UTILITY - 0.1%
BBB 50 Texas Utilities Electric Company, 1st Mortgage,
7.38%, 10/01/25..................................................... 47,503
----------
SOVEREIGN & PROVINCIAL - 2.8%
AA 100 African Development Bank,
9.50%, 12/15/95..................................................... 101,553
AA+ 100 British Columbia Hydro and Power,
15.50%, Series FF, 11/15/11......................................... 117,962
A+ 100 Hydro Quebec,
8.05%, 7/07/24...................................................... 108,440
BBB+ 200 Newfoundland and Labrador Province,
8.65%, 10/22/22..................................................... 220,863
A+ 350 Quebec Province Canada,
7.50%, 7/15/23...................................................... 340,185
----------
889,003
----------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - 11.9%
$ 800 Community Program Loan Trust,
Series 1987-A, Class A4, 4.50%.................................... $ 675,000
439 EQCC Home Equity Loan Trust,
Series 1994-1, Class B, 5.75%..................................... 418,855
Green Tree Financial Corporation,
400 Series 1993-1, Class A-3, 6.90%................................... 400,500
200 Series 1994-5, Class A4, 7.95%.................................... 216,336
700 Series 1994-D, Class M2, 9.05%.................................... 754,031
500 MBNA Master Credit Card Trust II,
Series 1995 C, Class A, 6.45%..................................... 491,016
300 Merrill Lynch Mortgage Investors Incorporated,
Series 1993-A3, Class D, 7.75%.................................... 309,516
350 National Credit Card Trust,
Series 1989-4, Class A, 9.45%..................................... 359,367
200 Standard Credit Card Master Trust,
Series 1995-1, Class A, 8.25%..................................... 219,156
----------
3,843,777
----------
STRIPPED MORTGAGE-BACKED SECURITY - 1.2%
505 Federal National Mortgage Association,
Trust 1989-16, Class 16-B , 03/25/19 (P/O) 382,421
----------
U.S. GOVERNMENT SECURITIES - 25.7%
U.S. Treasury Bonds,
380 7.13%, 2/15/23.................................................... 400,364
530 7.50%, 11/15/24................................................... 587,306
305 7.63%, 2/15/25.................................................... 344,458
435 8.75%, 8/15/20.................................................... 540,148
U.S. Treasury Notes,
95 6.25%, 5/31/00.................................................... 96,009
330 6.63%, 3/31/97.................................................... 334,280
640 6.75%, 4/30/00.................................................... 659,399
425 7.25%, 11/30/96................................................... 433,037
225 7.25%, 2/15/98.................................................... 232,382
2,100 7.50%, 1/31/97.................................................... 2,152,164
100 7.50%, 11/15/01................................................... 107,344
1,432 7.50%, 2/15/05.................................................... 1,559,319
</TABLE>
See Notes to Financial Statements
12
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES - (CONT.)
U.S. Treasury Notes,
$ 270 7.75%, 1/31/00................................................... $ 288,479
495 7.88%, 11/15/04.................................................. 551,306
-----------
8,285,995
-----------
Total long-term Investments
(cost $30,728,604)............................................... 31,133,981
-----------
SHORT-TERM INVESTMENT - 13.8%
REPURCHASE AGREEMENT
4,430 Lehman Brothers Inc., 6.15%, dated 6/29/95, due 7/03/95 in the
amount of $4,432,270 (cost $4,430,000; collateralized by
$4,125,000 U.S. Treasury Bond, 7.88%, 11/15/07, value of
$4,561,670)...................................................... 4,430,000
Total Investments -110.5%
(cost $35,158,604 ).............................................. 35,563,981
Liabilities in excess of other assets - (10.5%)..................... (3,373,177)
-----------
NET ASSETS - 100%................................................... $32,190,804
===========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Using the higher of Standard & Poor's or Moody's rating.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
AMT: Alternative Minimum Tax.
ARM: Adjustable Rate Mortgage.
CMT: Constant Maturity Treasury.
I: Denotes a CMO with interest only characteristics.
P/O: Principal Only.
P: Denotes a CMO with principal only characteristics.
REMIC: Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
See Notes to Financial Statements
13
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1995
<TABLE>
- -----------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
<S> <C> <C>
ASSETS
Investments, at value (cost $43,661,417 and
$35,158,604, respectively) (Note 1).................... $43,845,319 $35,563,981
Cash........................................................ 637,685 2,695
Receivable for investments sold............................. 13,361,558 --
Interest receivable......................................... 395,772 385,289
Deferred organization expenses and
other assets (Note 1).................................... 47,610 28,161
----------- -----------
58,287,944 35,980,126
----------- -----------
LIABILITIES
Reverse repurchase agreements (Note 4)...................... 11,213,775 --
Payable for investments purchased........................... 2,521,918 3,734,414
Custodian fee payable....................................... 12,481 5,431
Dividends payable........................................... 8,901 23,595
Other....................................................... 44,637 25,882
----------- -----------
13,801,712 3,789,322
----------- -----------
NET ASSETS.................................................. $44,486,232 $32,190,804
=========== ===========
Net assets were comprised of:
Common stock, at par (Note 5).......................... $ 452 $ 327
Paid-in capital in excess of par....................... 44,796,243 31,983,880
----------- -----------
44,796,695 31,984,207
Undistributed net investment income.................... 1,901 --
Accumulated net realized loss.......................... (496,266) (198,780)
Net unrealized appreciation
on investments..................................... 183,902 405,377
----------- -----------
Net assets, June 30, 1995.............................. $44,486,232 $32,190,804
=========== ===========
Net asset value per share................................... $ 9.83 $ 9.85
=========== ===========
Total shares outstanding at end of period................... 4,524,485 3,267,452
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1995
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
<S> <C> <C>
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of $47,371
and $26,160 and interest expense of $51,298
and $7,093, respectively)................................ $2,277,815 $1,165,125
---------- ----------
Expenses
Investment advisory......................................... 102,707 56,894
Administration.............................................. 69,234 73,257
Custodian................................................... 62,960 57,896
Transfer agent.............................................. 30,616 32,792
Registration................................................ 13,000 16,500
Amortization of deferred organization expenses.............. 23,112 11,512
Audit....................................................... 25,300 16,750
Legal....................................................... 10,200 4,500
Printing.................................................... 13,511 5,339
Directors................................................... 2,574 2,426
Miscellaneous............................................... 5,832 5,738
---------- ----------
Total expenses........................................... 359,046 283,604
---------- ----------
Expenses waived by the Adviser (Note 2).................. (102,707) (56,894)
Expenses reimbursed by the Adviser (Note 2).............. (61,195) (137,364)
---------- ----------
(163,902) (194,258)
---------- ----------
Net expenses............................................. 195,144 89,346
---------- ----------
Net investment income....................................... 2,082,671 1,075,779
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments................................................. 163,516 244,290
Options..................................................... -- (10,078)
---------- ----------
163,516 234,212
Net change in unrealized depreciation........................... 745,207 840,392
---------- ----------
Net gain on investments......................................... 908,723 1,074,604
---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................................... $2,991,394 $2,150,383
========== ==========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CASH FLOWS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH Cash flows used for operating activities:
Interest received ................................................ $ 2,242,198 $ 911,230
Expenses paid .................................................... (175,126) (79,160)
Interest expense paid ............................................ (46,084) (6,819)
Proceeds (purchase of) from disposition of short-term
portfolio investments, net .................................... 4,249,000 (3,131,000)
Purchase of long-term portfolio investments ...................... (244,114,502) (112,221,637)
Proceeds from disposition of long-term portfolio
investments.................................................... 217,008,819 96,522,130
------------- -------------
Net cash flows used for operating activities .................... (20,835,695) (18,005,256)
------------- -------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements......................... 11,213,775 --
Dividends paid (excluding reinvestment of dividends
of $1,972,138 and $995,146, respectively)...................... (149,314) (76,380)
Proceeds from Trust shares sold .................................. 35,832,684 18,993,483
Cost of Trust shares redeemed .................................... (25,500,008) (1,362,388)
------------- -------------
Net cash flows provided by financing activities .................. 21,397,137 17,554,715
------------- -------------
Net increase (decrease) in cash ...................................... 561,442 (450,541)
Cash at beginning of year............................................. 76,243 453,236
------------- -------------
Cash at end of year................................................... $ 637,685 $ 2,695
============= =============
RECONCILIATION OF NET INCREASE (DECREASE)
IN NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net increase in net assets resulting from operations ................. $ 2,991,394 $ 2,150,383
------------- -------------
Increase in investments .............................................. (12,225,986) (21,912,647)
Net realized gain .................................................... (163,516) (234,212)
Increase in unrealized appreciation .................................. (745,207) (840,392)
(Increase) decrease in receivable for investments sold ............... (9,996,073) 1,257,288
Increase in interest receivable ...................................... (122,314) (234,144)
Decrease in deferred organization expenses and other assets .......... 22,686 11,421
Decrease (increase) in payable for investments purchased ............. (599,521) 1,805,074
Increase (decrease) in accrued expenses and other liabilities......... 2,842 (8,027)
------------- -------------
Total adjustments ................................................ (23,827,089) (20,155,639)
------------- -------------
Net cash flows used for operating activities ......................... $ (20,835,695) $ (18,005,256)
============= =============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT DURATION PORTFOLIO
----------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income.......................................... $ 2,082,671 $ 1,725,504
Net realized gain ............................................. 163,516 107,050
Net change in unrealized appreciation (depreciation)........... 745,207 (854,281)
------------ -----------
Net increase in net assets resulting
from operations............................................. 2,991,394 978,273
------------ -----------
Dividends and distributions:
Net investment income.......................................... (2,092,080) (1,771,675)
Net realized gain.............................................. (27,706) --
------------ ------------
(2,119,786) (1,771,675)
------------ ------------
Capital share transactions:
Proceeds from shares subscribed................................ 35,832,684 36,449,281
Cost of shares redeemed........................................ (25,455,008) (57,608,135)
Net asset value of shares issued in
reinvestment of dividends.................................... 1,972,138 1,605,782
------------ ------------
Increase (decrease) in net assets from capital
share transactions........................................... 12,349,814 (19,553,072)
------------ ------------
Net increase (decrease).......................................... 13,221,422 (20,346,474)
NET ASSETS
Beginning of year.................................................. 31,264,810 51,611,284
------------ ------------
End of year........................................................ $ 44,486,232 $ 31,264,810
============ ============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income....................................... $ 1,075,779 $ 544,253
Net realized gain (loss).................................... 234,212 (221,036)
Net change in unrealized appreciation
(depreciation) on investments............................ 840,392 (567,698)
----------- -----------
Net increase (decrease) in net assets resulting
from operations.......................................... 2,150,383 (244,481)
----------- -----------
Dividends and distributions:
Net investment income....................................... (1,083,760) (542,010)
Net realized gain........................................... (9,414) (292,003)
----------- -----------
(1,093,174) (834,013)
----------- -----------
Capital share transactions:
Proceeds from shares subscribed.......................... 18,993,483 9,073,497
Cost of shares redeemed.................................. (1,362,388) (4,087,689)
Net asset value of shares issued in
reinvestment of dividends and distributions............ 995,146 797,134
----------- -----------
Increase in net assets from capital
share transactions..................................... 18,626,241 5,782,942
----------- -----------
Net increase................................................ 19,683,450 4,704,448
NET ASSETS
Beginning of year............................................... 12,507,354 7,802,906
----------- -----------
End of year..................................................... $32,190,804 $12,507,354
=========== ===========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
FINANCIAL HIGHLIGHTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT DURATION PORTFOLIO
----------------------------
YEAR YEAR JULY 17, 1992(a)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 9.71 $ 9.96 $ 10.00
------- ------- -------
Net investment income (net of $.014, $.011 and
$.005 respectively, of interest expense) (b)........ 0.58 0.48 0.51
Net realized and unrealized loss on investments........ 0.13 (0.25) (0.06)
------- ------- -------
Net increase from investment operations................... 0.71 0.23 0.45
------- ------- -------
Dividends from net investment income...................... (0.58) (0.48) (0.49)
Distributions from net realized capital gains............. (0.01) -- --
------- ------- -------
Total dividends and distributions...................... (0.59) (0.48) (0.49)
------- ------- -------
Net asset value, end of period............................ $ 9.83 $ 9.71 $ 9.96
======= ======= =======
TOTAL INVESTMENT RETURN (c)............................... 6.99% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Expenses (b).............................................. 0.57% 0.57% 0.56%(d)
Net investment income (b)................................. 6.08% 4.70% 5.32%(d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $34,236 $36,686 $67,540
Portfolio turnover ....................................... 586% 455% 513%
Net assets, end of period (in thousands).................. $44,486 $31,265 $51,611
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $102,707 and $110,232 and reimbursed
expenses amounting to $61,195 and $55,582, for the periods ended June
30, 1995 and June 30, 1994, respectively. For the period July 17, 1992
through June 30, 1993, the Administrator waived fees amounting to
$64,580. If the Fund had borne all expenses, the expense ratios would
have been 1.05%, 1.02% and 0.66% for the periods ended June 30, 1995,
June 30, 1994 and June 30, 1993, respectively. The net investment income
ratios would have been 5.60%, 4.25% and 5.22% for the periods ended June
30, 1995, June 30, 1994 and June 30, 1993, respectively. The net
investment income on a per share basis would have been $0.53, $0.43 and
$0.49 for the periods ended June 30, 1995, June 30, 1994 and June 30, 1993,
respectively.
(c) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset value
per share on the last day of the period reported. Dividends are assumed,
for purposes of this calculation, to be reinvested at the net asset value
per share on the payment date.
(d) Annualized.
The information above represents the audited operating performance based on
an average share of common stock outstanding, total investment return,
ratios to average net assets and other supplemental data, for each of the
periods indicated. This information has been determined based upon
financial information provided in the financial statements.
See Notes to Financial Statements.
19
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
FINANCIAL HIGHLIGHTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
YEAR YEAR DECEMBER 9, 1992 (a)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 9.36 $ 10.37 $10.00
------- ------- ------
Net investment income (net of $.004, $.003 and
$.001, respectively, of interest expense) (b)........ 0.62 0.55 0.32
Net realized and unrealized gains on investments........ 0.50 (0.60) 0.37
------- ------- ------
Net (decrease) increase from investment operations......... 1.12 (0.05) 0.69
------- ------- ------
Dividends from net investment income....................... (0.62) (0.55) (0.32)
Distributions from net realized capital gains.............. (0.01) (0.41) --
------- ------- ------
Total dividends and distributions....................... (0.63) (0.96) (0.32)
------- ------- ------
Net asset value, end of period............................. $ 9.85 $ 9.36 $10.37
======= ======= ======
TOTAL INVESTMENT RETURN (c)................................ 11.79% (0.69)% 6.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses (b)............................................... 0.55% 0.55% 0.55%(d)
Net investment income (b).................................. 6.62% 5.61% 5.57%(d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $16,247 $ 9,702 $6,622
Portfolio turnover ....................................... 435% 722% 354%
Net assets, end of period (in thousands) ................. $32,191 $12,507 $7,803
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $56,894, $34,010 and $24,761 and
reimbursed expenses amounting to $137,364, $137,179 and $0 for the periods
ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The
Administrator waived fees amounting to $32,500 and $3,701 for the periods
ended June 30, 1994 and June 30, 1993, respectively. For the period ended
June 30, 1993, the Custodian and the Transfer Agent waived fees amounting
to $24,272 and $17,283, respectively. If the Fund had borne all expenses,
the expense ratios would have been 1.75%, 2.65% and 2.44% for the periods
ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The net
investment income ratios would have been 5.43%, 3.51% and 3.68% for the
periods ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively.
The net investment income on a per share basis would have been $0.51, $0.34
and $0.22 for the periods ended June 30, 1995, June 30, 1994 and June 30,
1993, respectively.
(c) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset value
per share on the last day of the period reported. Dividends are assumed,
for purposes of this calculation, to be reinvested at the net asset value
per share on the payment date.
(d) Annualized.
The information above represents audited operating performance based on an
average share of common stock outstanding, total investment return, ratios
to average net assets and other supplemental data, for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Financial Statements.
20
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company organized as a Maryland corporation. The Articles
of Incorporation permit the Board of Directors to create an unlimited number of
series (or "Portfolios"), each of which issues a separate class of shares and
has its own investment objective and policies. The Trust was formed on November
27, 1991 and had no operations through June 18, 1992 other than those related to
organizational matters and the sale and issuance of 10,000 shares of The Short
Duration Portfolio to BlackRock Financial Management, Inc. ( the "Adviser") for
$100,000 on June 18, 1992. The Short Duration Portfolio and The Core Fixed
Income Portfolio commenced investment operations on July 17, 1992 and December
9, 1992, respectively. On October 6, 1994, The BFM Institutional Trust Inc.,
Multi-Sector Mortgage Securities Portfolio III commenced investment operations
and is being shown in a separate report.
The Adviser has advanced certain organizational and offering expenses of
the Trust and is to be reimbursed by the Trust. Organizational costs estimated
at $282,000 have been deferred. $115,250 and $57,500 have been allocated to The
Short Duration Portfolio and to The Core Fixed Income Portfolio, respectively,
and are being amortized over a period not to exceed 60 months from the date each
Portfolio commenced investment operations. In the event that any of the original
shares owned by the Adviser (or any subsequent holder) are repurchased by the
Trust prior to the end of the 60-month period, the proceeds from the repurchase
payable in respect of such shares shall be reduced by the pro rata share (based
on the proportionate share of the original shares repurchased to the total
number of original shares outstanding at the time of repurchase) of the
unamortized deferred organization expenses as of the date of such repurchase. In
the event that a Portfolio is liquidated prior to the end of the 60-month
period, the Adviser (or any subsequent holder) shall bear the remaining
unamortized deferred organization expenses.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Trust's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-
21
<PAGE>
market on a daily basis to ensure the adequacy of the collateral. If the seller
defaults and the value of the collateral declines or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy or sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period that the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. Duration is a measure of the price
sensitivity of a security or a portfolio to relative changes in interest rates.
For instance, a duration of "one" means that a portfolio or a security's price
would be expected to change by approximately one percent with a one percent
change in interest rates, while a duration of "five" would imply that the price
would move approximately five percent in relation to a one percent change in
interest rates. In the same sense, futures contracts can be purchased to
lengthen a portfolio that is shorter than its duration target. Thus, by buying
or selling futures contracts, the Trust can effectively "hedge" more volatile
positions so that changes in interest do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates, or for risk management, duration management or
other portfolio management purposes. Should interest rates move unexpectedly,
the Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at risk of
not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
to offset potential price declines in similar securities owned. The Trust may
only make short sales "against-the-box". In this type of short sale, at the time
of the sale, the Trust owns or has the immediate and unconditional right to
acquire the identical security at no additional cost. When selling short
"against-the-box", the Trust foregoes an opportunity for capital appreciation in
the security.
22
<PAGE>
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust. The Trust did not engage in
securities lending during the year ended June 30, 1995.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes premium or amortizes discount on securities
purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income or excise tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares dividends daily and pays
dividends and distributions monthly first from net investment income, then from
net realized short-term capital gains and other sources, if necessary. Net
long-term capital gains, if any, in excess of loss carryforwards are distributed
at least annually. Dividends and distributions are recorded on the ex-dividend
date. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for mortgage-backed securities.
DEFERRED ORGANIZATION EXPENSES: A total of $115,250 and $57,500 were incurred in
connection with the organization of The Short Duration Portfolio and The Core
Fixed Income Portfolio, respectively. These costs have been deferred and are
being amortized ratably over a period of 60 months from the date each Portfolio
commenced investment operations.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with the Adviser which
provides that The Short Duration Portfolio and The Core Fixed Income Portfolio
will pay to the Adviser for its services a monthly fee in an amount equal to
.30% and .35%, respectively, of average daily net assets on an annualized basis.
The Adviser has agreed to reimburse expenses from The Short Duration Portfolio
to the extent that the expenses of the Portfolio exceed .57% of average daily
net assets. For the year ended June 30, 1995, the Adviser waived fees of
$102,707 and reimbursed expenses of $61,195 from The Short Duration Portfolio.
The Adviser has agreed to waive a portion of its advisory fee from The Core
Fixed Income Portfolio to the extent that the expenses of the Portfolio exceed
.55% of average daily net assets. For the year ended June 30, 1995, the Adviser
waived fees of $56,894 and reimbursed expenses of $137,364 from The Core Fixed
Income Portfolio. The Trust has also entered into an Administration Agreement
with State Street Bank and Trust Company ("State Street"). State Street will
receive an annual fee equal to .08% of each Portfolio's net asset value up to
$75 million, .06% of the next $75 million and .04% in excess of $150 million,
subject to certain minimum requirements.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust, who
are affiliated persons of the Adviser. State Street pays occupancy and certain
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses. The Adviser has agreed that, in any fiscal year, it will reimburse the
Trust for expenses (including the fees of the Adviser and amortization of
organization expenses but excluding taxes, interest, brokerage fees,
commissions, litigation
23
<PAGE>
and indemnification expenses and other extraordinary expenses) that exceed the
most restrictive expense limitation imposed by state securities commissions. The
most restrictive expense limitation is 2 1/2% of the average value of the
Trust's net assets during the year up to $30 million, 2% of the next $70 million
of average net assets and 1 1/2% thereafter. Such expense reimbursement, if any,
will be estimated and accrued daily. No expense reimbursement was required due
to such limitation for the year ended June 30, 1995.
The Trust has entered into a Distribution Agreement with Provident
Distributors, Inc. (the "Distributor"). Pursuant to the terms of the
Distribution Agreement, the Distributor serves as the principal underwriter and
distributor of the Trust's shares, and in that capacity makes a continuous
offering of the Trust's shares and bears the costs and expenses of printing and
distributing any copies of any prospectuses and annual and interim reports for
the Trust (after such items have been prepared and set in type) which are used
in connection with the offering of shares to securities dealers or investors,
and the cost and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by securities
dealers in connection with the offering of the shares for sale to the public.
There is no fee payable by the Trust pursuant to the Distribution Agreement, and
there is no sales or redemption charge. The Distribution Agreement provides for
indemnification by the Trust of the Distributor, its partners, employees, agents
and affiliates for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions. The
continuance of the Distribution Agreement must be approved in the same manner as
the Investment Advisory Agreement, and the Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable with respect
to any Portfolio at any time without penalty by the Rule 12b-1 Directors (as
defined below) or by vote of a majority of the outstanding shares of the
Portfolio (as such term is defined in the Investment Company Act) on not more
than 60 days' nor less than 30 days' written notice to the Distributor and by
the Distributor on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to
which the Adviser is permitted to use a portion of the advisory fee it receives
from the Trust to promote the distribution of the Trust's shares and to enhance
the provision of stockholder services. The Plan was approved by a majority of
(i) the directors of the Trust and (ii) the directors of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(Rule 12b-1 Directors). The Plan permits the Adviser to pay fees to the
Distributor. The Trust is not required or permitted under the Plan to make
payments over and above the amount of the advisory fee to promote the sale of
its shares; the Plan merely permits the reallocation of a portion of the
advisory fee the Adviser receives to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is authorized
to make payments to securities dealers with which the Distributor has entered
into solicitation fee agreements. The Distributor may also use a portion of the
fee it receives under the Plan to cover the Distributor's cost of marketing
services and advertising on behalf of the Portfolios and to compensate
institutions who perform support services that would otherwise be performed by
the Trust or its agent. These support services may include providing such office
space, equipment, telephone facilities and various personnel as may be necessary
or beneficial to establish and maintain stockholders' accounts and records,
process purchase and redemption transactions, answer routine client inquiries
and provide such other services to the Trust as may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would
24
<PAGE>
materially increase the amount of money to be spent by a Portfolio must also be
submitted to the stockholders of the Portfolio for approval.
Certain directors of the Trust who are not interested parties are paid a
fee for their services in the amount of $2,500 on an annual basis.
On February 28, 1995, the Adviser was acquired by PNC Bank, NA. Following
the acquisition, the Adviser has become a wholly-owned corporate subsidiary of
PNC Asset Management Group, Inc., the holding company for PNC's asset management
businesses. Additionally, on July 1, 1995, the transfer agent, custodial and
administration function for Trust were assumed by PFPC (a wholly-owned corporate
subsidiary of PNC Bank, NA) and PNC Bank NA.
25
<PAGE>
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for each Portfolio for the year ended June 30,
1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
The Short Duration Portfolio ................... $223,262,351 $205,368,569
The Core Fixed Income Portfolio ................ 91,607,699 72,142,031
</TABLE>
The federal income tax basis of the investments of The Short Duration
Portfolio at June 30, 1995 was substantially the same as the basis for financial
reporting. The federal income tax basis of the investments of The Core Fixed
Income Portfolio at June 30, 1995 was $35,166,628. Accordingly, net unrealized
appreciation (depreciation) for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
GROSS UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- --------------
<S> <C> <C> <C>
The Short Duration Portfolio ................... $283,149 $ (99,247) $183,902
The Core Fixed Income Portfolio ................ 498,120 (100,767) 397,353
</TABLE>
For federal income tax purposes, The Short Duration Portfolio had a capital
loss carryforward at June 30, 1995 of $258,570 which will expire in 2002. The
Core Fixed Income Portfolio had a capital loss carryforward at June 30, 1995 of
$114,851 which will expire in 2003. Accordingly, no capital gains distribution
is expected to be paid to shareholders until net gains have been realized in
excess of such amounts. A tax election will be made to defer all losses incurred
in the post-October period of the current fiscal year to the fiscal year ended
June 30, 1996.
NOTE 4. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse Repurchase Agreements: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender containing liquid high grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement.
The average daily balance of reverse repurchase agreements outstanding in
The Short Duration Portfolio during the year ended June 30, 1995 was
approximately $1,437,000 at a weighted average interest rate of approximately
5.86%. The maximum amount of reverse repurchase agreements outstanding at any
month-end during the year was $11,213,775 as of June 30, 1995 which was 19.24%
of total assets. The average daily balance of reverse repurchase agreements
outstanding in The Core Fixed Income Portfolio during the year ended June 30,
1995 was approximately $424,000 at a weighted average interest rate of
approximately 5.32%. The maximum amount of reverse repurchase agreements
outstanding at any month-end during the period was $509,975 as of March 31, 1995
which was 2.34% of total assets. There were no reverse repurchase agreements
outstanding at June 30, 1995.
Dollar Rolls: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
26
<PAGE>
The average monthly balance of dollar rolls outstanding in The Short
Duration Portfolio during the year ended June 30, 1995 was $165,599. The maximum
amount of dollar rolls outstanding at any month-end during the year was $994,375
as of October 31, 1994, which was 0.52% of total assets. There were no dollar
rolls outstanding at June 30, 1995. The average monthly balance of dollar rolls
outstanding in The Core Fixed Income Portfolio during the year ended June 30,
1995 was $89,553 The maximum amount of dollar rolls outstanding at any month-end
during the year was $284,186 as of November 30, 1994, which was 2.02% of total
assets. There were no dollar rolls outstanding at June 30, 1995.
NOTE 5. CAPITAL
The Trust is authorized to issue 2 billion shares of $.0001 par value
capital stock in one or more classes or series. The Short Duration Portfolio and
The Core Fixed Income Portfolio are each authorized to issue 100 million shares.
Of the 4,524,485 shares of The Short Duration Portfolio outstanding at June 30,
1995, the Adviser owned 11,718 shares. Of the 3,267,452 shares of The Core Fixed
Income Portfolio outstanding at June 30, 1995, the Adviser owned 2 shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
THE SHORT DURATION PORTFOLIO
----------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Shares subscribed .................................... 3,732,764 3,673,276
Shares issued in connection with
the reinvestment of dividends .................... 202,717 162,452
---------- ----------
3,935,481 3,835,728
Shares redeemed ...................................... (2,629,898) (5,800,442)
---------- ----------
Net increase (decrease)............................... 1,305,583 (1,964,714)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Shares subscribed .................................... 1,971,644 903,352
Shares issued in connection with the
reinvestment of dividends and distributions....... 104,932 80,352
--------- -------
2,076,576 983,704
Shares redeemed ...................................... (145,220) (399,930)
--------- --------
Net increase ......................................... 1,931,356 583,774
========= ========
</TABLE>
NOTE 6. DIVIDENDS
Subsequent to June 30, 1995 the Board of Directors of the Trust declared a
dividend from undistributed earnings of $0.05304 and $0.05613 per share for The
Short Duration Portfolio and The Core Fixed Income Portfolio, respectively,
payable July 31, 1995 to shareholders of record on July 31, 1995.
27
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BFM Institutional Trust Inc.:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of The Short Duration Portfolio and The Core
Fixed Income Portfolio of The BFM Institutional Trust Inc. as of June 30, 1995
and the related statements of operations and of cash flows for the year then
ended, the statements of changes in net assets for the years ended June 30, 1995
and 1994, and financial highlights for the years ended June 30, 1995 and 1994,
and (i) the period July 17, 1992 (commencement of investment operations) to June
30, 1993 for The Short Duration Portfolio and (ii) the period December 9, 1992
(commencement of investment operations) to June 30, 1993 for The Core Fixed
Income Portfolio. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1995 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Short Duration
Portfolio and The Core Fixed Income Portfolio of The BFM Institutional Trust
Inc. at June 30, 1995 and the results of their operations, their cash flows, the
changes in their net assets and their financial highlights for the periods
stated, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 7, 1995
27
<PAGE>
- --------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
As of The Core Fixed Income Porfolio's fiscal year end (June 30, 1995) total
dividends to shareholders exceeded taxable income by $9,414, or $0.003 per
share, and was paid from current realized capital gains income. This designation
does not impact the net asset value of the Portfolio or the number or shares
owned.
In January 1996, after definitive information has been provided to the
Portfolio, shareholders will receive a Form 1099-DIV which will reflect the
amount of the dividends declared and the actual amount which is taxable in
calendar 1995 and reportable on their 1995 federal tax return.
If you have any questions regarding your investment, please do not hesitate to
contact BlackRock Financial Management, Inc., the Investment Adviser, at (800)
227-7BFM.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives or
policies that have not been approved by the shareholders, or to its charter or
by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
At a Special Meeting of Trust Shareholders on February 15, 1995, the
Shareholders approved the investment advisory agreement for the Portfolio with
BlackRock Financial Management, Inc. The results of the voting is as follows:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
----- ------- --------
<S> <C> <C> <C>
The Short Duration Portfolio 930,411 -- --
The Core Fixed Income Portfolio 1,098,752 -- --
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates
SECURITIES (ARMS): that adjust at periodic intervals at a
fixed amount relative to the market levels
of interest rates as reflected in specified
indexes. ARMS are backed by mortgage loans
secured by real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit
card receivables.
COLLATERALIZED MORTGAGE Mortgage-backed securities which separate
OBLIGATIONS (CMOS): mortgage pools into short-, medium-, and
long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. This Trust
declares dividends daily and pays dividends
on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however; they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Association, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however; they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
</TABLE>
29
<PAGE>
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
GNMA: Government National Mortgage Association, a
government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA
(Federal National Mortgage Association) and
FHLMC (Federal Home Loan Mortgage
Corporation).
INTEREST-ONLY SECURITIES: Mortgage securities that receive only the
(I/O) interest cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as a Strip.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in
which the Trust sells mortgage-backed
securities for delivery in the current month
and simultaneously contracts to repurchase
substantially similar (although not the
same) securities on a specified future date.
During the "roll" period, the Trust does not
receive principal and interest payments on
the securities, but is compensated for
giving up these payments by the difference
in the current sales price (for which the
security is sold) and lower price that the
Trust pays for the similar security at the
end date as well as the interest earned on
the cash proceeds of the initial sale.
MORTGAGE PASS- Mortgage-backed securities issued by
THROUGHS: Fannie Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS- See Collateralized Mortgage Obligations.
THROUGHS:
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities and other assets held by the
Trust, plus income accrued on its
investments, minus any liabilities including
accrued expenses, divided by the total
number of outstanding shares. It is the
underlying value of a single share on a
given day. Net asset value for the Trust is
calculated daily and published in The New
York Times and The Wall Street Journal.
OPEN-END FUND: Investment vehicle which continually offers
its shares to the public at net asset value
and redeems its shares anytime at the
prevailing net asset value. The fund invests
in a portfolio of securities in accordance
with its stated investment objectives and
policies.
30
<PAGE>
- --------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
PRINCIPAL-ONLY SECURITIES Mortgage securities that receive only the
(P/O): principal cash flows from an underlying pool
of mortgage loans of underlying pass-through
securities, also known as a strip.
PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.
REMIC: Real Estate Mortgage Investment Conduit, a
multiple-class security backed by
mortgage-backed securities or whole mortgage
loans and formed as a trust, corporation,
partnership, or segregated pool of assets
that elects to be treated as a REMIC for
federal tax purposes. Generally, Fannie Mae
REMICs are formed as trusts and are backed
by mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow
from the mortgage assets underlying the CMO
after payment of principal and interest on
the other CMO securities and related
administrative expenses.
REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
STRIPS: Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
32
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------
<TABLE>
TAXABLE TRUSTS
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
MATURITY
STOCK SYMBOL DATE
------------ --------
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Income Trust Inc. ......................................... BKT N/A
The BlackRock North American Government Income Trust Inc, ............... BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc. ...................................... BBT 12/98
The BlackRock 1999 Term Trust Inc. ...................................... BNN 12/99
The BlackRock Target Term Trust Inc. .................................... BTT 12/00
The BlackRock 2001 Term Trust Inc. ...................................... BLK 06/01
The BlackRock Strategic Term Trust Inc. ................................. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. ........................ BQT 12/04
The BlackRock Advantage Term Trust Inc. ................................. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. ............... BCT 12/09
</TABLE>
<TABLE>
TAX-EXEMPT TRUSTS
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
MATURITY
STOCK SYMBOL DATE
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Investment Quality Municipal Trust Inc. ................... BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. ........ RAA N/A
The BlackRock Florida Investment Quality Municipal Trust................. RFA N/A
The BlackRock New Jersey Investment Quality Municipal
Trust Inc............................................................ RNJ N/A
The BlackRock New York Investment Quality Municipal
Trust Inc............................................................ RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. .......................... BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. .................... BRM 12/08
The BlackRock California Insured Municipal 2008 Term
Trust Inc. ......................................................... BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust.................. BRF 12/08
The BlackRock New York Insured Municipal 2008 Term
Trust Inc. ........................................................ BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. ......................... BMT 12/10
</TABLE>
If would like further information
please call BlackRock
33
<PAGE>
at (800) 227-7BFM (7236) or
consult with your financial advisor.
34
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. (BlackRock), is a registered
investment adviser which specializes in managing high quality fixed income
securities, both taxable and tax-exempt. BlackRock currently manages over $32
billion of assets in 80 portfolios of government, mortgage, corporate and
municipal securities. These assets are managed on behalf of many individual
investors in twenty-one closed-end funds and four open-end funds and on behalf
of more than 80 institutional clients in the United States and overseas.
BlackRock's institutional investor base includes Chrysler Corporation Master
Retirement Trust, General Retirement System of the City of Detroit, State
Treasurer of Florida, Ford Motor Company Pension Plan, General Electric Pension
Trust and Unisys Corporation Master Trust.
BlackRock was formed in April 1988 by fixed income professionals who sought
to create an asset management firm specializing in managing fixed income
securities for individual and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities markets, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of proprietary analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's proprietary analytical tools are used for
evaluating, investing in and designing investment strategies and portfolios of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. BlackRock introduced the first closed-end mortgage fund, the first
taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAAf rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
BlackRock's closed-end funds currently have dividend reinvestment plans which
are designed to provide an ongoing source of demand for the stock in the
secondary market. BlackRock manages a ladder of alternative investment vehicles,
with each fund having specific investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
you may have about your BlackRock funds and thank you for the continued trust
you place in our abilities.
35
<PAGE>
[To be inserted after Portfolio of Investments]
KEY TO ABBREVIATIONS
ABS: Asset-Backed Security
ARM: Adjustable Rate Mortgage
CMO: Collateralized Mortgage Obligation
GNMA: Government National Mortgage Association
FHA: Federal Housing Authority
FHLMC: Federal Home Loan Mortgage Corporation
FNMA: Federal National Mortgage Association
I/O: Interest-Only
MBS: Mortgage-Backed Security
NAV: Net Asset Value
PAC: Planned Amortization Class
P/O: Principal-Only
REMIC: Real Estate Mortgage Conduit
36
<PAGE>
DIRECTORS
Kent Dixon
Frank J. Fabozzi
James Grosfeld
OFFICERS
James Grosfeld, President
Frank J. Fabozzi, Vice President
Kent Dixon, Treasurer and Secretary
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
THE BFM INSTITUTIONAL TRUST INC.
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
- --------------------------------------------------
ANNUAL REPORT
JUNE 30, 1995
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS - 97.3%
COMMERCIAL MORTGAGE-BACKED SECURITIES - 90.5%
A $4,000 American Southwest Financial Securities Corporation,
8.00%, Series 1994-C2, Class A4, 08/25/10 ................................ $ 3,946,394
AA 1,500 Bellaire Finance Incorporated,
8.97%, Class A, 02/01/08.................................................. 1,573,125
CBA Mortgage Corporation,
BBB 4,074 7.15%, Series 1993-C1, Class D, 12/25/03 ................................. 3,981,515
AAA 300 7.15%, Series 1993-C1, Class A2, 12/25/03 ................................ 306,906
Central Life Assurance Company,
AA+ 3,444 8.90%, Series 1994-1, Class A2, 11/01/20 ................................. 3,623,092
A 1,126 9.10%, Series 1994-1, Class B1, 11/01/20 ................................. 1,177,927
AA 4,887 Citibank of New York, Mortgage Pass-Through Certificate
8.00%, Series 1994-1 Class A, 01/25/19 ................................... 5,059,729
AA 3,988 Creekwood Capital Corporation, Collateral Note,
8.47%, 03/16/15........................................................... 4,257,438
AA 3,500 CS First Boston Mortgage Securities Corporation,
9.59%, Series 1995-M1, Class B, 04/25/25 ................................. 3,915,625
DLJ Mortgage Acceptance Corporation,
AA 5,000 7.86%, Series 1992-3, Class A, 06/18/07................................... 5,117,500
AA 1,000 7.65%, Series 1993-M12, Class A2, 09/18/03............................... 1,023,500
BBB 3,000 FSA Finance Incorporated,
8.31%,Class C, 06/01/02................................................... 3,068,174
A 4,000 Gentra Capital Commercial Real Estate,
8.50%, Series 1994-1, Class D, 07/25/28 .................................. 4,093,018
BB- 1,020 Kearny Street Real Estate L P,
9.56%, Series 1993-1, Class D, 07/15/03 .................................. 1,032,848
KP Acceptance Corporation I,
A 2,500 7.00%, Series 1994-C1, Class C, 02/01/06 ................................. 2,466,846
BBB 1,074 6.50%, Series 1993- M3, Class D, 11/25/25................................. 997,931
A 3,000 Lehman Brothers Mortgage Trust,
8.00%, Series 1992-M1, Class B, 12/25/01 ................................. 2,940,000
Lennar United States Partners Limited,
AA 2,906 6.66%, Series 1994-1, 09/15/01 ........................................... 2,909,614
BB 1,500 9.75%, Series 1995-1, Class E, 05/15/05................................... 1,510,524
B 1,000 11.70%, Series 1995-1, Class F, 05/15/05.................................. 1,005,587
A 2,125 LTC,
9.50%, Series 1994-1, Class C, 06/15/26 .................................. 2,345,326
Nomura Asset Capital Corporation,
AA 2,000 7.64%, Series 1993-M1, Class A1, 11/25/03................................. 2,045,249
BBB 2,000 7.64%, Series 1993-M1, Class A3, 11/25/03................................. 1,966,075
</TABLE>
THE BFM INSTITUTIONAL TRUST INC.
See Notes to Financial Statements.
4
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL MORTGAGE-BACKED SECURITIES - (CONT.)
Resolution Trust Corporation,
AAA $ 2,682 6.58%, Series 1994-C2, Class A1, 04/25/25................................. $ 2,680,628
BBB 3,000 6.90%, Series 1995-C1, Class D, 02/25/27.................................. 2,754,375
Aa2 4,800 7.26%, Series 1992-C4, Class A2, 06/25/24................................. 4,886,671
AA- 1,433 7.70%, Series 1992-C6, Class B, 07/25/24.................................. 1,442,547
Baa2 1,950 8.00%, Series 1992-C6, Class C, 07/25/24.................................. 1,963,292
A 2,966 8.00%, Series 1994-C2, Class D, 04/25/25.................................. 2,946,561
AA- 5,795 8.13%, Series 1992-C1, Class B, 08/25/23.................................. 5,930,393
A 3,167 8.50%, Series 1993-C2, Class D, 03/25/23.................................. 3,234,020
A+ 2,602 8.85%, Series 1992-C5, Class C, 05/25/22.................................. 2,708,323
B+ 2,500 10.63%, Series 1994-N2, Class A, 12/15/04................................. 2,490,362
BB 3,000 SKW Real Estate,
9.05%, Series 1994, Class D, 04/15/04 .................................... 3,004,994
SKW Real Estate II,
B 500 11.00%, Class E, 04/15/05................................................. 502,099
B 2,222 12.80%, Class E, 04/15/05................................................. 2,236,168
A 4,500 TVO Southwest,
9.37%, Series 1994-MF1, Class A2, 11/18/09 ............................... 4,955,557
------------
102,099,933
------------
U.S. GOVERNMENT SECURITIES - 6.8%
U.S. Treasury Notes,
970 # 4.75%, 8/31/98............................................................ 944,693
2,135 6.88%, 3/31/00............................................................ 2,229,409
4,300 7.25%, 2/15/98............................................................ 4,467,313
-----------
7,641,415
Total long-term investments
(cost $106,007,269)....................................................... 109,741,348
------------
SHORT-TERM INVESTMENTS - 5.6%
REPURCHASE AGREEMENT
6,300 Lehman Brothers Inc., 6.15%, dated 6/30/95, due 7/03/95 in the
amount of $6,303,229 (cost $6,300,000, collateralized by
$5,000,000 U.S. Treasury Bond, 10.375%, due 11/15/09
with a value of $6,510,879)............................................... 6,300,000
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
VALUE
CONTRACTS## DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALL OPTIONS PURCHASED- 0.0%
28 U.S. Treasury Bond Future, expiring December 1995
(cost $84,324)........................................................... $ 64,750
Total short-term investments
(cost $6,384,324)........................................................ 6,364,750
------------
Total investments - 102.9%
(cost $112,391,593)...................................................... 116,106,098
Liabilities in excess of other assets - (2.9%)...................................... (3,296,433)
------------
NET ASSETS - 100%................................................................... $112,809,665
============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Using the higher of Standard & Poor's, Moody's, or Fitch's rating.
# A portion of the above denoted securities market value was segregated to
cover margin requirements for open financial futures contracts.
## One contract equals $100,000 face value.
See Notes to Financial Statements.
6
<PAGE>
THE BFM INSITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $112,391,593) (Note 1)............................................ $116,106,098
Cash.......................................................................................... 42,116
Interest receivable........................................................................... 765,887
Receivable for variation margin on futures.................................................... 83,531
Receivable for investments sold............................................................... 2,683
Other......................................................................................... 97
------------
117,000,412
------------
LIABILITIES
Payable for investments purchased............................................................. 4,105,014
Custodian fee payable......................................................................... 13,420
Other......................................................................................... 72,313
------------
4,190,747
------------
NET ASSETS.................................................................................... $112,809,665
============
Net assets were comprised of:
Common stock, at par (Note 5)............................................................ $ 10
Paid-in capital in excess of par......................................................... 105,744,127
------------
105,744,137
Accumulated net realized gain............................................................ 3,568,972
Net unrealized appreciation ............................................................. 3,496,556
------------
Net assets, June 30,1995................................................................. $112,809,665
============
Net asset value per share..................................................................... $ 1,068.11
============
Total shares outstanding at end of period..................................................... 105,616
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 4, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
<S> <C>
Income
Interest (including discount accretion of $111,768)........................................ $ 6,000,734
-----------
Expenses
Investment advisory........................................................................ 189,677
Custodian.................................................................................. 41,989
Registration............................................................................... 34,574
Administration............................................................................. 32,948
Audit...................................................................................... 14,333
Legal...................................................................................... 9,555
Transfer agent............................................................................. 2,500
Directors.................................................................................. 1,970
Miscellaneous.............................................................................. 10,320
-----------
Total expenses.......................................................................... 337,866
Expenses waived by the Adviser (Note 2)................................................. (56,269)
-----------
Net expenses............................................................................ 281,597
-----------
Net investment income...................................................................... 5,719,137
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain on:
Investments............................................................................. 2,332,081
Futures................................................................................. 1,236,891
-----------
Net realized gain....................................................................... 3,568,972
-----------
Net unrealized appreciation (depreciation) on:
Investments............................................................................. 3,714,505
Futures................................................................................. (217,949)
-----------
Net unrealized appreciation on investments.............................................. 3,496,556
-----------
Net gain on investments........................................................................ 7,065,528
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................................................... $12,784,665
===========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
See Notes to Financial Statements.
8
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF CASH FLOWS
FOR THE PERIOD OCTOBER 4, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN CASH
Cash flows used for operating activities:
Interest received ................................................ $ 5,123,709
Expenses paid .................................................... (195,865)
Variation margin paid............................................. (301,480)
Purchase of short-term portfolio
investments, net .............................................. (6,300,000)
Gain/loss on closed futures contracts ............................ 1,236,891
Purchase of long-term portfolio investments ...................... (278,912,706)
Proceeds from disposition of long-term
portfolio investments.......................................... 179,366,567
-------------
Net cash flows used for operating activities ..................... (99,982,884)
-------------
Cash flows provided by financing activities:
Dividends paid (excluding reinvestment of dividends
of $5,719,137)................................................. 0
Proceeds from Trust shares sold .................................. 100,000,000
-------------
Net cash flows provided by financing activities ............... 100,000,000
-------------
Net increase in cash ................................................. 17,116
Cash at beginning of period........................................... 25,000
-------------
Cash at end of period ................................................ $ 42,116
=============
RECONCILIATION OF NET INCREASE
IN NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES
Net increase in net assets resulting from operations ................. $ 12,784,665
-------------
Increase in investments .............................................. (109,040,570)
Net realized gain .................................................... (3,568,972)
Increase in unrealized appreciation .................................. (3,496,556)
Increase in receivable for investments sold .......................... (2,683)
Increase in interest receivable ...................................... (765,887)
Increase in margin variation on futures .............................. (83,531)
Increase in other assets ............................................. (97)
Increase in payable for investments purchased ........................ 4,105,014
Increase in accrued expenses and other liabilities.................... 85,733
-------------
Total adjustments ................................................ (112,767,549)
-------------
Net cash flows used for operating activities ......................... $ (99,982,884)
=============
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
See Notes to Financial Statements.
9
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD OCTOBER 4, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C>
Operations:
Net investment income..................................................................... $ 5,719,137
Net realized gain on investments.......................................................... 3,568,972
Net unrealized appreciation
on investments......................................................................... 3,496,556
------------
Net increase in net assets resulting
from operations........................................................................ 12,784,665
------------
Dividends from net investment income.......................................................... (5,719,137)
------------
Capital share transactions:
Proceeds from shares subscribed........................................................ 100,000,000
Net asset value of shares issued in
reinvestment of dividends............................................................ 5,719,137
------------
Increase in net assets from capital
share transactions................................................................... 105,719,137
------------
Net increase.............................................................................. 112,784,665
NET ASSETS
Beginning of period........................................................................... 25,000
------------
End of period................................................................................. $112,809,665
============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
See Notes to Financial Statements.
10
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
FINANCIAL HIGHLIGHTS
FOR THE PERIOD OCTOBER 6, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
<S> <C>
Net asset value, beginning of period............................................ $1,000.00
---------
Net investment income (a).................................................... 55.81
Net realized and unrealized gain on investments.............................. 68.11
---------
Net increase from investment operations......................................... 123.92
---------
Dividends from net investment income............................................ (55.81)
---------
Net asset value, end of period.................................................. $1,068.11
=========
TOTAL INVESTMENT RETURN (b)..................................................... 12.78%
RATIOS TO AVERAGE NET ASSETS:
Expenses (a).................................................................... 0.37% (c)
Net investment income (a)....................................................... 7.54% (c)
SUPPLEMENTAL DATA:
Average net assets (in thousands) .............................................. $103,332
Portfolio turnover ............................................................. 215%
Net assets, end of period (in thousands)........................................ $112,810
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of investment operations.
(a) For the period ended June 30, 1995, the Adviser waived expenses amounting
to $56,269. Net investment income before waiver of fees would have been
$55.28 on a per share basis and the ratio of net operating expenses to
average net assets and the ratio of net investment income to average net
assets would have been 0.45% and 7.46%, respectively.
(b) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset value
per share on the last day of the period reported. Dividends are assumed,
for purposes of this calculation, to be reinvested at the net asset value
per share on the payment date.
(c) Annualized.
Contained above is audited operating performance based on an average share
of common stock outstanding, total investment return, ratios to average net
assets and other supplemental data, for each of the periods indicated. This
information has been determined based upon financial information provided
in the financial statements.
See Notes to Financial Statements.
11
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company organized as a Maryland corporation. The Articles
of Incorporation permit the Board of Directors to create an unlimited number of
series (or "Portfolios"), each of which issues a separate class of shares and
has its own investment objective and policies. The Trust was formed on November
27, 1991 and had no operations through June 18, 1992 other than those related to
organizational matters and the sale and issuance of 10,000 shares of The Short
Duration Portfolio to BlackRock Financial Management Inc. ( the "Adviser") for
$100,000 on June 18, 1992. The Multi-Sector Mortgage Securities Portfolio III
(the "Portfolio") commenced investment operations on October 6, 1994. The Short
Duration Portfolio and The Core Fixed Income Portfolio commenced investment
operations on July 17, 1992 and December 9, 1992, respectively.
As of June 30, 1995, 99.98% of the shares of capital stock of the Portfolio
are owned by Ameritech Pension/VEBA Trust.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Trust's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
12
<PAGE>
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
more volatile positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly. In general, the Trust uses options to
hedge a long or short position or an overall portfolio that is longer or shorter
than the benchmark security. A call option gives the purchaser of the option the
right (but not obligation) to buy, and obligates the seller to sell (when the
option is exercised), the underlying position at the exercise price at any time
or at a specified time during the option period. A put option gives the holder
the right to sell and obligates the writer to buy, the underlying position at
the exercise price at any time or at a specified time during the option period.
Put options can be purchased to effectively hedge a position or a portfolio
against price declines if a portfolio is long. In the same sense, call options
can be purchased to hedge a portfolio that is shorter than its benchmark against
price changes. The Trust can also sell (or write) covered call options and put
options to hedge portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy or sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period that the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, to help in maintaining
a targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. Duration is a measure of the price
sensitivity of a security or a portfolio to relative changes in interest rates.
For instance, a duration of "one" means that a portfolio's or a security's price
would be expected to change by approximately one percent with a one percent
change in interest rates, while a duration of "five" would imply that the price
would move approximately five percent in relation to a one percent change in
interest rates. In the same sense, futures contracts can be purchased to
lengthen a portfolio that is shorter than its duration target. Thus, by buying
or selling futures contracts, the Trust can effectively "hedge" more volatile
positions so that changes in interest do not change the duration of the
portfolio unexpectedly.
13
<PAGE>
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates, or for risk management, duration management or
other portfolio management purposes. Should interest rates move unexpectedly,
the Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at risk of
not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes premium or amortizes discount on securities
purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders.
Therefore, no federal income or excise tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares dividends daily and pays
dividends and distributions monthly first from net investment income, then from
net realized short-term capital gains and other sources, if necessary. Net
long-term capital gains, if any, in excess of loss carryforwards are distributed
at least annually. Dividends and distributions are recorded on the ex-dividend
date. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for mortgage-backed securities.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with the Adviser which
provides that the Portfolio will pay to the Adviser for its services a monthly
fee in an amount equal to .25% of average daily net assets on an annualized
basis. The Adviser has agreed to waive a portion of its advisory fee from the
Portfolio to the extent that the expenses of the Portfolio exceed .37% of
average daily net assets. For the period ended June 30, 1995, the Adviser
reimbursed expenses of $56,269 from the Portfolio. The Trust has also entered
into an Administration Agreement with State Street Bank and Trust Company
("State Street"). State Street will receive an annual fee equal to .04% of the
Portfolio's average daily net asset value.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust, who
are affiliated persons of the Adviser. State Street pays occupancy and certain
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses. The Adviser has agreed that, in any fiscal year, it will reimburse the
Trust for expenses (including the fees of the Adviser but excluding taxes,
interest, brokerage fees, commissions, litigation and indemnification expenses
and other extraordinary expenses) that exceed the most restrictive expense
limitation imposed by state securities commissions. The most restrictive expense
limitation is 2 1/2% of the average value of the Trust's net assets during the
year up to $30 million, 2% of the next $70 million of average net assets and 1
1/2% thereafter. Such expense reimbursement, if any, will be estimated and
accrued daily. No expense reimbursement was required due to such limitation for
the period ended June 30, 1995.
14
<PAGE>
The Trust has entered into a Distribution Agreement with Provident
Distributors, Inc. (the "Distributor"). Pursuant to the terms of the
Distribution Agreement, the Distributor serves as the principal underwriter and
distributor of the Trust's shares, and in that capacity makes a continuous
offering of the Trust's shares and bears the costs and expenses of printing and
distributing any copies of any prospectuses and annual and interim reports for
the Trust (after such items have been prepared and set in type) which are used
in connection with the offering of shares to securities dealers or investors,
and the cost and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by securities
dealers in connection with the offering of the shares for sale to the public.
There is no fee payable by the Trust pursuant to the Distribution Agreement, and
there is no sales or redemption charge. The Distribution Agreement provides for
indemnification by the Trust of the Distributor, its partners, employees, agents
and affiliates for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions. The
continuance of the Distribution Agreement must be approved in the same manner as
the Investment Advisory Agreement, and the Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable with respect
to any Portfolio at any time without penalty by the Rule 12b-1 Directors (as
defined below) or by vote of a majority of the outstanding shares of the
Portfolio (as such term is defined in the Investment Company Act) on not more
than 60 days' nor less than 30 days' written notice to the Distributor and by
the Distributor on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to
which the Adviser is permitted to use a portion of the advisory fee it receives
from the Trust to promote the distribution of the Trust's shares and to enhance
the provision of stockholder services. The Plan was approved by a majority of
(i) the directors of the Trust and (ii) the directors of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(Rule 12b-1 Directors). The Plan permits the Adviser to pay fees to the
Distributor. The Trust is not required or permitted under the Plan to make
payments over and above the amount of the advisory fee to promote the sale of
its shares; the Plan merely permits the reallocation of a portion of the
advisory fee the Adviser receives to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is authorized
to make payments to securities dealers with which the Distributor has entered
into solicitation fee agreements. The Distributor may also use a portion of the
fee it receives under the Plan to cover the Distributor's cost of marketing
services and advertising on behalf of the Portfolios and to compensate
institutions who perform support services that would otherwise be performed by
the Trust or its agent. These support services may include providing such office
space, equipment, telephone facilities and various personnel as may be necessary
or beneficial to establish and maintain stockholders' accounts and records,
process purchase and redemption transactions, answer routine client inquiries
and provide such other services to the Trust as may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would materially increase the
amount of money to be spent by a Portfolio must also be submitted to the
stockholders of the Portfolio for approval.
Certain directors of the Trust who are not interested parties are paid a
fee for their services in the amount of $2,500 on an annual basis.
15
<PAGE>
On February 28, 1995, the Adviser was acquired by PNC Bank, NA.
Following the acquisition, the Adviser has become a wholly-owned corporate
subsidiary of PNC Asset Management Group, Inc., the holding company for PNC's
asset management businesses. Additionally, on July 1, 1995, the transfer agent,
custodial and administration function for Trust were assumed by PFPC (a wholly
owned corporate subsidiary of PNC Bank, NA) and PNC Bank NA.
16
<PAGE>
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for the period from October 6, 1994 (commencement
of investment operations) to June 30, 1995 were $282,858,655 and $179,295,235
respectively. The federal income tax bases of the investments of the Portfolio
at June 30, 1995 was $112,407,036, and accordingly, as of June 30, 1995, net
unrealized appreciation for Federal income tax purposes aggregated $3,699,062 of
which $3,758,064 related to appreciated securities and $59,002 related to
depreciated securities.
During the period ended June 30, 1995, the Trust entered into financial
futures contracts. Details of open contracts at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT UNREALIZED APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1995 (DEPRECIATION)
---------- ---- ---------- ---------- ------------- ------------------------
<S> <C> <C> <C> <C> <C>
SHORT POSITIONS:
30 yr. December
14 T-Bond 1995 $1,597,322 $1,583,313 $14,009
10 yr. September 1,217,840 1,211,031 6,809
11,000 T-Note 1995
LONG POSITIONS:
30 yr. September
166 T-Bond 1995 19,053,496 18,846,188 (207,308)
5 yr. September
94 T-Bond 1995 9,772,750 9,747,359 (25,391)
2 yr. September
7 T-Note 1995 757,474 751,406 (6,068)
---------
$(217,949)
=========
</TABLE>
NOTE 4. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse Repurchase Agreements: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender containing liquid high grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement. There were no reverse repurchase agreements during the
period ended June 30, 1995.
Dollar Rolls: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date. There were no dollar roll transactions during the
period ended June 30, 1995.
17
<PAGE>
NOTE 5. CAPITAL
The Trust is authorized to issue 2 billion shares of $.0001 par value
capital stock in one or more classes or series. The Portfolio is authorized to
issue 1 million shares. Of the 105,616 shares of the Portfolio outstanding at
June 30, 1995, the Adviser owned 25 shares. Transactions in shares were as
follows:
<TABLE>
<CAPTION>
OCTOBER 6, 1994*
THROUGH
JUNE 30, 1995
-------------
<S> <C>
Shares subscribed .......................................................... 100,000
Shares issued in connection with
the reinvestment of dividends .............................................. 5,591
-------
105,591
Shares redeemed ............................................................ 0
-------
Net increase ............................................................... 105,591
=======
</TABLE>
* Commencement of investment operations
NOTE 6. DIVIDENDS
Subsequent to June 30, 1995 the Board of Directors of the Trust declared a
dividend from undistributed earnings of $676.106 per share, payable July 31,
1995 to shareholders of record on July 31, 1995.
18
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BFM Institutional Trust Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Multi-Sector Mortgage Securities Portfolio
III of The BFM Institutional Trust Inc. as of June 30, 1995 and the related
statements of operations, cash flows and changes in net assets for the period
October 4, 1994 (commencement of operations) to June 30, 1995 and financial
highlights for the period October 6, 1994 (commencement of investment
operations) to June 30, 1995. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1995 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Multi-Sector
Mortgage Securities Portfolio III of The BFM Institutional Trust Inc. at June
30, 1995 and the results of its operations, its cash flows, the changes in its
net assets and its financial highlights for the periods stated in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 7, 1995
18
<PAGE>
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives or
policies that have not been approved by the shareholders, or to its charter or
by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
At a Special Meeting of Trust Shareholders on February 15, 1995, the
Shareholders approved the investment advisory agreement for the Portfolio with
BlackRock Financial Management, Inc. The results of the voting is as follows:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
<S> <C> <C>
101,092 -- --
</TABLE>
19
<PAGE>
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
ADJUSTABLE RATE Mortgage instruments with interest
MORTGAGE-BACKED rates that adjust at periodic intervals at a
SECURITIES fixed amount relative to the market levels
of interest rates as reflected in
(ARMS): specified indexes. ARMS are backed
by mortgage loans secured by real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit
card receivables.
COLLATERALIZED MORTGAGE Mortgage-backed securities which separate
OBLIGATIONS (CMOS): mortgage pools into short-, medium-,
and long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. This Trust
declares dividends daily and pays dividends
on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however; they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
20
<PAGE>
FNMA: Federal National Mortgage Association, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however; they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
21
<PAGE>
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
GNMA: Government National Mortgage Association, a
government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA
(Federal National Mortgage Association) and
FHLMC (Federal Home Loan Mortgage
Corporation).
INTEREST-ONLY SECURITIES (I/O): Mortgage securities that receive only the
interest cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as a Strip.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in
which the Trust sells mortgage-backed
securities for delivery in the current month
and simultaneously contracts to repurchase
substantially similar (although not the
same) securities on a specified future date.
During the "roll" period, the Trust does not
receive principal and interest payments on
the securities, but is compensated for
giving up these payments by the difference
in the current sales price (for which the
security is sold) and lower price that the
Trust pays for the similar security at the
end date as well as the interest earned on
the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie
Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: See Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities and other assets held by the
Trust, plus income accrued on its
investments, minus any liabilities including
accrued expenses, divided by the total
number of outstanding shares. It is the
underlying value of a single share on a
given day. Net asset value for the Trust is
calculated daily and published in The New
York Times and The Wall Street Journal.
22
<PAGE>
OPEN-END FUND: Investment vehicle which continually offers
its shares to the public at net asset value
and redeems its shares anytime at the
prevailing net asset value. The fund invests
in a portfolio of securities in accordance
with its stated investment objectives and
policies.
23
<PAGE>
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
PRINCIPAL-ONLY SECURITIES (P/O): Mortgage securities that receive only the
principal cash flows from an underlying pool
of mortgage loans of underlying pass-through
securities, also known as a strip.
PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.
REMIC: Real Estate Mortgage Investment Conduit, a
multiple-class security backed by
mortgage-backed securities or whole mortgage
loans and formed as a trust, corporation,
partnership, or segregated pool of assets
that elects to be treated as a REMIC for
federal tax purposes. Generally, Fannie Mae
REMICs are formed as trusts and are backed
by mortgage-backed securities.
REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow
from the mortgage assets underlying the CMO
after payment of principal and interest on
the other CMO securities and related
administrative expenses.
STRIPS: Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
24
<PAGE>
- -------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE TRUSTS
- ---------------------------------------------------------------------------------------------------------------
MATURITY
STOCK SYMBOL DATE
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Income Trust Inc. ......................................... BKT N/A
The BlackRock North American Government Income Trust Inc, ............... BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc. ...................................... BBT 12/98
The BlackRock 1999 Term Trust Inc. ...................................... BNN 12/99
The BlackRock Target Term Trust Inc. .................................... BTT 12/00
The BlackRock 2001 Term Trust Inc. ...................................... BLK 06/01
The BlackRock Strategic Term Trust Inc. ................................. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. ........................ BQT 12/04
The BlackRock Advantage Term Trust Inc. ................................. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. ............... BCT 12/09
<CAPTION>
TAX-EXEMPT TRUSTS
- -------------------------------------------------------------------------------------------------------------------
MATURITY
STOCK SYMBOL DATE
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Investment Quality Municipal Trust Inc. ................... BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. ........ RAA N/A
The BlackRock Florida Investment Quality Municipal Trust................. RFA N/A
The BlackRock New Jersey Investment Quality Municipal
Trust Inc............................................................ RNJ N/A
The BlackRock New York Investment Quality Municipal
Trust Inc............................................................ RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. .......................... BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. .................... BRM 12/08
The BlackRock California Insured Municipal 2008 Term
Trust Inc. ......................................................... BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust.................. BRF 12/08
The BlackRock New York Insured Municipal 2008 Term
Trust Inc. ........................................................ BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. ......................... BMT 12/10
</TABLE>
If would like further information
please call BlackRock
25
<PAGE>
at (800) 227-7BFM (7236) or
consult with your financial advisor.
26
<PAGE>
- -------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- -------------------------------------------------------------------------------
BlackRock Financial Management, Inc. (BlackRock), is a registered
investment adviser which specializes in managing high quality fixed income
securities, both taxable and tax-exempt. BlackRock currently manages over $32
billion of assets in 80 portfolios of government, mortgage, corporate and
municipal securities. These assets are managed on behalf of many individual
investors in twenty-one closed-end funds and four open-end funds and on behalf
of more than 80 institutional clients in the United States and overseas.
BlackRock's institutional investor base includes Chrysler Corporation Master
Retirement Trust, General Retirement System of the City of Detroit, State
Treasurer of Florida, Ford Motor Company Pension Plan, General Electric Pension
Trust and Unisys Corporation Master Trust.
BlackRock was formed in April 1988 by fixed income professionals who
sought to create an asset management firm specializing in managing fixed income
securities for individual and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities markets, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of proprietary analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's proprietary analytical tools are used for
evaluating, investing in and designing investment strategies and portfolios of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. BlackRock introduced the first closed-end mortgage fund, the first
taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAAf rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
BlackRock's closed-end funds currently have dividend reinvestment plans which
are designed to provide an ongoing source of demand for the stock in the
secondary market. BlackRock manages a ladder of alternative investment vehicles,
with each fund having specific investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
you may have about your BlackRock funds and thank you for the continued trust
you place in our abilities.
27
<PAGE>
DIRECTORS
Kent Dixon
Frank J. Fabozzi
James Grosfeld
OFFICERS
James Grosfeld, President
Frank J. Fabozzi, Vice President
Kent Dixon, Treasurer and Secretary
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
THE BFM INSTITUTIONAL TRUST INC.
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
<PAGE>
EXHIBIT 99(c)
EXHIBIT (17)(u)
Dear Shareholder:
We are pleased to present the Seventh Annual Report of the Compass Funds. The
year was both challenging and exciting as we continued to enhance the Compass
Fund Family for you, our shareholders. The Balanced Fund, which commenced
operations during the year, has grown rapidly and recently achieved the
necessary asset level to be reported in major newspapers throughout the
country.
This has been a difficult period for both the stock and bond markets due to a
number of events such as rising interest rates in the United States, the
earthquake tragedy in Kobe, Japan, the peso devaluation in Mexico and finally
the bankruptcy of the Barings Bank in England. We are proud to report that 11
of 15 Compass Funds which have been in operation for the full year have
outperformed the median mutual fund in their respective categories for the year
ended February 28, 1995 as reported by Lipper Analytical Services. In addition,
four Compass Funds performed in the top quartile.
Our new transfer agent (State Street Bank and Trust Company) was introduced
during the year, enabling the funds to implement the latest technology for
shareholder services and client statements.
ECONOMIC COMMENT
Domestically, economic growth continued to accelerate during the past 12 months
as the Gross Domestic Product advanced by a robust 4%. This growth was
accomplished during a period when inflation continued to show no signs of
accelerating, as the Consumer Price Index increased by a modest 2.7%. The
Federal Reserve's interest rate hikes beginning last February no doubt helped
to contain inflationary pressures, while allowing the economy to expand above
trendline growth.
Recent economic statistics indicate a slowing trend. In December, retail sales
showed a surprising decline of .1%; housing starts, a key component to economic
activity, reported a decline of 9.8% during the month of January. The
unemployment rate rose to a higher than expected 5.7% of the workforce, and
inventory buildup is becoming increasingly evident in the auto and retail
industries. We do expect GDP growth to average 3% or less during 1995, with
most of the gains coming during the first half of the year as higher interest
rates finally take hold and slow economic activity.
Another major factor that potentially could cause the U.S. economy to moderate
is Mexico. Ten percent of U.S. exports flow to Mexico. The recent liquidity
crisis causing the Mexican Government to devalue the peso will make it
virtually impossible to have a normal trading relationship with this important
partner. With 700,000 U.S. jobs tied to the Mexican economy, the Clinton
administration had no alternative but to proceed with emergency stop gap
funding to alleviate the immediate liquidity problem.
The recent weakness of the U.S. dollar versus the Japanese yen and German mark
should, to some extent, improve our ability to export goods and services to our
European and Asian trading partners. This dollar weakness has caused some
concern that inflation may accelerate later in the year.
The recovery experienced in the United States had a positive influence on
international economic activity. In Europe, economic growth averaged about
2.5%, while consumer inflation rose between 1.7% in France, to a high of 4.2%
in Spain. The Japanese economy continued to languish with growth of less than
1%, coupled with very low inflationary pressures. Interest rates worldwide
trended higher than the low levels experienced in the prior year.
EQUITY MARKET REVIEW
The stock market advanced during the past 12 months overcoming escalating
interest rates. For the year ending February 28, 1995, the Standard & Poor's
500 Stock Index rose 7.36%. An important milestone was reached as the Dow Jones
Industrial Average closed at 4,011.05 on the Fund's fiscal year end.
1
<PAGE>
There were two noteworthy economic sectors in which the stocks showed
significant outperformance. Consumer staple stocks, such as foods, beverages
and tobacco, advanced by more than 20%, and technology issues, particularly
semi-conductor and computer software companies, gained more than 18%. Both
areas showed improved fundamentals and accelerating earnings, rewarding
shareholders accordingly. Areas that underperformed the market included
transportation, with a decline of approximately 9%, and consumer cyclicals,
which consolidated on average by 5%.
There was little difference between equity investment styles and return during
the past 12 months, with both growth and value managers showing similar
results. Small company stocks, as measured by the Nasdaq Composite Index,
underperformed such broad market averages as the Standard & Poor's 500 Stock
Index during this period.
The International Equity markets, as measured by the Morgan Stanley Europe,
Australian and Far East Index (EAFE), lagged with a decline of 4.2%, in dollar
terms, during the past 12 months. The primary determinant to negative
performance was Japan, which makes up approximately 45% of the EAFE Index. The
Japanese market, as measured by the NIKKEI Index, declined by 10.25%. The
Compass International Equity Fund continued to be underweighted in the Japanese
market. Along with improving economies in Europe and strengthening currencies
against the U.S. dollar, the European equity markets were firmer. The German
market advanced in U.S. dollar terms by 17%, the Netherlands appreciated by
more than 14% and the Belgium market was up nearly 8%.
BOND MARKET REVIEW
The bond market withstood six Federal Reserve Board tightenings, strong
economic growth throughout the year ended February 28, 1995, and chaos caused
by derivative investments during a period of rising interest rates. There was
little to choose from the standpoint of investment return this year, as the
Lehman Brothers Government/Corporate Bond Index provided a total return of only
1.34% and the Lehman Brothers 10-Year General Obligation Index was up a modest
1.71%. Globally, the interest rate environment was aligned with the United
States as the Salomon Brothers World Government Bond Index returned .98%.
During January and February, the bond markets, both domestically and
internationally, have rallied as there is some evidence of a slowing economy in
the United States. With expectations of continued modest inflation and slower
economic growth, bond market performance should improve over last year's
results.
We value you as a shareholder and a client, appreciating your continued
interest in the Compass Funds. We encourage you to review the Portfolio
Managers' comments regarding each of the bond and stock funds during the past
year. The Funds remain committed to a sound investment approach, which
emphasizes quality in conjunction with prudent policies. We welcome your
questions and comments, which may be directed to your Financial Service
Representative or Investor Services at 1-800-451-8371.
Sincerely yours,
Alfred J. DiMatties Joseph K. Leinbach
Director Director
Trust Investments Mutual Fund Administration
Midlantic Bank, N.A. Midlantic Bank, N.A.
2
<PAGE>
TABLE OF CONTENTS
MANAGER'S DISCUSSION OF FUND PERFORMANCE........................... 4
STATEMENTS OF NET ASSETS/SCHEDULE OF INVESTMENTS................... 15
STATEMENTS OF ASSETS AND LIABILITIES............................... 55
STATEMENTS OF OPERATIONS........................................... 58
STATEMENTS OF CHANGES IN NET ASSETS................................ 60
FINANCIAL HIGHLIGHTS............................................... 65
NOTES TO FINANCIAL STATEMENTS...................................... 68
REPORT OF INDEPENDENT AUDITOR'S OPINION............................ 75
NOTICE TO SHAREHOLDERS............................................. 76
<PAGE>
EQUITY INCOME FUND
The Equity Income Fund seeks current income and capital appreciation by
investing primarily in common stocks. On average, stocks selected for the fund
have higher than average dividend yields and lower than average
price-to-earnings and price-to-book ratios. The yield of the fund's stocks is
currently 3.3% versus 2.8% for the average stock in the S&P 500 Index. The
stocks in the fund currently sell for approximately 10 times our 1995 earning
projections versus a multiple of about 14 times earnings for the S&P 500 Index.
The fund returned 3.87% for the 12 months ended February 28, 1995 versus 7.36%
for the S&P 500 Index. The primary factors that influenced the fund's
performance were expenses, which the Index does not incur, and the
underperformance of higher-yielding and cyclically-sensitive industry sectors
that the fund emphasizes in meeting its investment objectives. Despite
underperformance versus the broad market as represented by the S&P 500 Index,
the fund outperformed the average of other equity income funds as represented
by the Lipper Equity Income Fund Average, which returned 2.01%.
During the fiscal year, performance was held back by underweighted positions
versus the Index in the strong-performing healthcare and technology sectors,
which are lower-yielding sectors. Performance was aided by a considerable
overweighting in the finance sector and strong stock selection in that group.
For 1995, we expect that corporate profits will grow at a level that is below
1994's pace but still quite good. The growth in corporate profits continues to
generate substantially increased levels of capital investment and stock
repurchases. Investment-driven productivity gains should also continue. The
strength of foreign economies will more than make up for slower economic growth
at home. Given this outlook, the fund continues to focus on sectors with the
greatest sensitivity to a global expansion, in particular, cyclical commodities
such as aluminum and paper. The fund also has significant commitments in energy
and finance, which we believe offer compelling valuations and good growth
prospects.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR FIVE YEAR INCEPTION
WITH SALES CHARGE -0.06% 11.27% 10.20%
WITHOUT SALES CHARGE 3.87% 12.13% 10.94%
S&P 500 INDEX 7.35% 11.35% 10.94%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[S&P 500 Index Graph]
(1) For the period ended February 28, 1995. The S&P 500 Index is an unmanaged
index which excludes transaction and holding charges. Past performance of
the portfolio does not predict future results.
4
<PAGE>
GROWTH FUND
The Growth Fund seeks capital appreciation by investing primarily in common
stocks. Income is a secondary consideration. Emphasis is placed on companies
that have demonstrated consistent historical earnings growth. The fund returned
2.75% for the 12 months ended February 28, 1995 versus 7.36% for the S&P 500
Index. The primary factors that influenced the fund's performance were
expenses, which the Index does not incur, and emphasis on specific growth
sectors which underperformed the broad market for the year. The fund's
performance pattern was similar to that of other growth funds and, despite
underperformance versus the broad market, the fund outperformed the average of
other growth funds as represented by the Lipper Growth Fund Average, which
returned .92%.
In the first half of the period, the stock market was dominated by
economically-sensitive issues which responded favorably to accelerating
economic growth. Later in the year, as interest rates continued to rise, the
fear that inflation would choke off the recovery dominated investors' thoughts.
As a result, investors fled from cyclical stocks, which was a boon for consumer
stable issues such as food, beverage, tobacco and household products. The
Growth Fund was significantly underweighted versus the Index in this
strong-performing sector. Performance was also negatively impacted by an
overweighting in a lagging sector, information and entertainment. Brighter
spots included an underweighting in the very weak consumer discretionary sector
and considerable overweighting in the technology sector combined with strong
performance in that group.
We do not anticipate any major change in strategy in the coming year and remain
committed to the stocks of companies that will benefit from what we believe
will be global economic expansion. We will continue to favor the stocks of
companies whose long-term earnings are expected to grow faster than the average
company represented in the S&P 500 Index.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR FIVE YEAR INCEPTION
WITH SALES CHARGE -1.10% 7.48% 7.38%
WITHOUT SALES CHARGE 2.75% 8.30% 8.09%
S&P 500 INDEX 7.35% 11.35% 10.94%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[S&P 500 Index Graph]
(1) For the period ended February 28, 1995. The S&P 500 Index is an unmanaged
index which excludes transaction and holding charges. Past performance of
the portfolio does not predict future results.
5
<PAGE>
SMALL CAP VALUE FUND
The Small Cap Value Fund seeks capital appreciation by investing primarily in
common stocks of small-sized market capitalization companies.
For the year ending February 28, 1995, the Small Cap Value Fund had a total
return of -4.70%. This compares to the NASDAQ/OTC Index return of .16% over the
same period.
During 1994, the Small Cap Value Fund's strategy remained consistent with its
purchases, concentrated in issues having price-to-sales, price-to-earnings and
price-to-book value ratios that are substantially discounted versus comparable
ratios of the S&P 500 and the Russell 2000 indexes. The Small Cap Value Fund,
with steep discounts from the median valuation stock, performed slightly behind
most small cap indices. In general, equity returns in 1994 were disappointing
for most investors. Big cap growth stocks slightly outperformed the overall
market, but we believe this result represents a counter cyclical move in what
is still a value cycle.
We feel the decline in 1994 was a temporary situation which will be rectified
in 1995. While we could be wrong, we anticipate a 1995 which is nicely above
average in terms of equity returns, big cap or small cap, growth or value. Our
optimism is predicated on a growing economy, lower than anticipated inflation,
a declining yield curve spread and the oversold nature of the equity market. We
also expect it to be value led.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR INCEPTION
WITH SALES CHARGE -8.27% 7.09%
WITHOUT SALES CHARGE -4.70% 8.22%
NASDAQ/OTC INDEX 0.16% 14.97%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[NASDAQ/OTC Index Graph]
(1) For the period ended February 28, 1995. The NASDAQ/OTC Index is an
unmanaged index which excludes transaction and holding charges. Past
performance of the portfolio does not predict future results.
6
<PAGE>
BALANCED FUND
During the first eight months of operation, the Balanced Fund achieved a total
return of 8.94% compared to the median return of balanced funds as measured by
Lipper Analytical Services, which advanced by 9.54%. At February 28, 1995, the
Balanced Fund's assets were allocated 49.4% equities and securities convertible
into equity investments, 39.2% high grade government and corporate bonds, and a
cash reserve of 11.4%. The asset allocation remained relatively constant during
most of this time period. However, the equity position was reduced about 3% in
the latter part of February following a sharp rise in the stock market during
the months of January and February.
Equities in the portfolio performed well in absolute terms, by providing a
total return of 9.7%. The fund's performance benefited by a concentration in
technology issues, as this sector outperformed the general market
significantly. The portfolio was also enhanced due to stock selection in the
consumer staples area, the best performing stock group during the past eight
months. The fund's performance was negatively impacted by consumer cyclical
stocks, in particular, retailers. On an individual stock selection basis, the
four best performing stocks during the time period were Merck, with a gain of
41%, Pepsico, advancing 22%, Engelhard, up 20% and McDonald's, which registered
a gain of 16%. Our primary focus will continue to be on companies which have
clear earnings visibility, strong balance sheets and visionary management that
can improve the company's competitive position.
The strategy for the fixed-income portion of the portfolio focused mainly on
liquidity and quality. Emphasis was put on high coupon bond issues to maximize
income. In an effort to remain defensive in a volatile interest rate
environment, average maturity and duration were shortened slightly to 7.44 and
4.66 years, respectively. The average quality of the portfolio remained
extremely high with the equivalent of an AAA rating.
Looking ahead, the bond portfolio will continue to concentrate on liquidity as
well as quality. Although we will continue to focus on government and
government agency securities, the fund will search for opportunities to
increase its corporate bond exposure to enhance current yield. Special emphasis
will be placed on companies whose bonds are trending toward an improved quality
rating.
ANNUALIZED TOTAL RETURN(1)
SINCE
INCEPTION
WITH SALES CHARGE 2.83%
WITHOUT SALES CHARGE 8.94%
LIPPER BALANCED FUND AVERAGE 9.54%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lipper Balanced Fund Average Graph]
(1) For the period ended February 28, 1995. The Lipper Balanced Fund Average
is an unmanaged index which excludes transaction and holding charges. Past
performance of the portfolio does not predict future results.
7
<PAGE>
SHORT/INTERMEDIATE FUND
The Short/Intermediate Fund invests principally in obligations issued by the
U.S. Government or its agencies and high-grade corporate obligations. The
fund's weighted average maturity may range between two and five years to reduce
volatility. The fund's objective is to seek current income and preservation of
capital.
For the fiscal year ending February 28, 1995, the Short/Intermediate Fund
realized a return of 2.27%. This compares to a total return of 3.26% for the
Lehman Brothers 1-3 Year Government Bond Index. The fund's net assets as of its
fiscal year end were $202 million.
As a result of the Federal Reserve Board's monetary policy shift towards
tightening, interest rates rose throughout the yield curve. Recognizing the
rise in interest rates would hurt bond prices, the fund's average weighted
maturity was shortened to its allowable minimum of two years. In addition, bond
swaps were initiated to capture some of the rising current coupon income now
available in the marketplace. Our emphasis on high quality securities helped
provide the fund with additional relative performance gains. Of the issues held
by the fund, over 70% are rated in the Aa category or better by Moody's
Investor Services.
Monetary policy will remain one of the primary forces that will significantly
influence interest rates in the coming months. We anticipate remaining fully
invested, while maintaining an average portfolio maturity range of two to four
years.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR FIVE YEAR INCEPTION
WITH SALES CHARGE -1.59% 6.35% 6.43%
WITHOUT SALES CHARGE 2.27% 7.17% 7.14%
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT BOND INDEX 3.24% 7.10% 7.39%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 1-3 Year Government Bond Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 1-3 Year
Government Bond Index is an unmanaged index which excludes transaction and
holding charges. Past performance of the portfolio does not predict future
results.
8
<PAGE>
FIXED INCOME FUND
The Fixed Income Fund invests principally in obligations issued by the U.S.
Government or its agencies and high-grade corporate obligations. Based on
expectations of future interest rates, the fund varies its weighted average
maturity in an effort to maximize return.
The Fixed Income Fund realized a total return of .65% for the fiscal year
ending February 28, 1995. This compares to a total return of 1.34% for the
Lehman Brothers Government/Corporate Bond Index for the same period. The fund's
net assets as of its fiscal year end were $244 million.
During the course of the year the Federal Reserve Board was active in raising
interest rates. As bond prices eroded, the fund deployed defensive type
strategies. The portfolio's weighted average maturity was shortened by over
three quarters of a year to 8.71 years, and the duration was adjusted downward
from 5.33 years to 4.92 years. Bond swaps were initiated to capture some of the
rising current coupon income now available in the marketplace. In addition, a
cash equivalent balance of more than 5% was maintained throughout most of the
year.
This fund continues to benefit from its commitment to high-quality corporate
bond securities, asset-backed investments and government obligations. Over 75%
of the individual issues that represent the fund are rated Aa or better by
Moody's Investor Services.
We anticipate the interest rate environment will remain captive to monetary
policy and inflation expectations. We will continue to seek out selective value
opportunities along the yield curve in both the government and corporate bond
markets.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR FIVE YEAR INCEPTION
WITH SALES CHARGE -3.16% 7.77% 7.34%
WITHOUT SALES CHARGE 0.65% 8.59% 8.05%
LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX 1.35% 8.87% 8.90%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers Government/Corporate Bond Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers
Government/Corporate Bond Index is an unmanaged index which excludes
transaction and holding charges. Past performance of the portfolio does
not predict future results.
9
<PAGE>
MUNICIPAL BOND FUND
The Municipal Bond Fund seeks current income that is exempt from federal
taxation with the preservation of capital.
For the fiscal year ended February 28, 1995, the Municipal Bond Fund realized a
total return of 1.17%. This compares to a total return of 1.71% for the Lehman
Brothers 10-Year General Obligation Index for the same time period.
Our strategy as we entered 1994, anticipating the Federal Reserve's tightening
of monetary policy, was to shorten our average weighted maturity to 7 years
from 12 years. This reduced the price sensitivity of the fund to rising
interest rates. Although new issuance supply was expected to contract 38%, we
wanted to establish a very defensive strategy until we saw signs that the
economy was slowing.
Over 85% of the fund's assets were invested in AA and AAA rated bonds,
anticipating that if interest rates increased, higher quality issues would be
insulated from price declines more than lower quality paper. A combination of
Federal Reserve tightening, a plunging dollar and derivative losses worldwide
adversely affected bond prices during the year. During the third quarter, we
thought the Federal Reserve had just about completed its tightening; therefore,
we started to extend the average weighted maturity of the fund.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR FIVE YEAR INCEPTION
WITH SALES CHARGE -2.62% 5.98% 5.93%
WITHOUT SALES CHARGE 1.17% 6.80% 6.71%
LEHMAN BROTHERS 10-YEAR
GENERAL OBLIGATION INDEX 1.71% 7.95% 7.84%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 10-year General Obligation Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 10-Year
General Obligation Index is an unmanaged index which excludes transaction
and holding charges. Past performance of the portfolio does not predict
future results.
10
<PAGE>
NEW JERSEY MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund is a single state municipal debt fund that
seeks current income that is exempt from federal and state income taxation with
the preservation of capital. For the year ended February 28, 1995, the fund
provided a total return of 1.49%. This return slightly lagged the Lehman
Brothers 10-Year General Obligation Index which advanced 1.71%. This was a very
challenging and disappointing year for fixed income markets, especially the
municipal bond market. Entering 1994, market fundamentals appeared to favor the
municipal bond market. New-issuance volume was expected to contract 38% from
the record volume of $334 billion issued in 1993, slow or modest economic
growth was anticipated in the United States and abroad and inflation seemed
contained. However, action by the Federal Reserve to dramatically raise
interest rates overcame these favorable market fundamentals.
February, 1994 was a very disappointing month for the fixed income markets. The
Federal Reserve initiated its first round of tightening in more than five years
to preempt rising inflation that typically accompanies stronger economic
growth. It was the first of seven tightening moves the Federal Reserve had
engineered to help contain inflation and navigate the economy to a soft
landing. Other major factors during the period affecting the municipal bond
market included the net outflow of funds from tax-exempt mutual funds, the
derivative debacle in Orange County, California and the faltering dollar.
Our strategy during the year was to maintain our defensive posture by
purchasing pre-refunded bonds, cushion bonds and higher-coupon bonds. We
increased our weighting of AA and AAA rated issues to over 80% in anticipation
of massive redemptions of pre-refunded bonds and a lack of issuance of
high-quality New Jersey bonds. We shortened the average weighted maturity to
under 10 years and duration to 7 years to decrease the price sensitivity of the
fund during the period of the Federal Reserve's aggressive tightening. As we
approached the third quarter, we felt the Federal Reserve had just about
concluded its tightening; therefore, we started to extend the fund's average
weighted maturity to over 10 years once again.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR INCEPTION
WITH SALES CHARGE -2.31% 6.47%
WITHOUT SALES CHARGE 1.49% 7.59%
LEHMAN BROTHERS 10-YEAR
GENERAL OBLIGATION INDEX 1.71% 7.77%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 10-year General Obligation Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 10-Year
General Obligation Index is an unmanaged index which excludes transaction
and holding charges. Past performance of the portfolio does not predict
future results.
11
<PAGE>
PENNSYLVANIA MUNICIPAL BOND FUND
The Pennsylvania Municipal Bond Fund is a single state municipal bond fund that
seeks current income that is exempt from Federal and Pennsylvania income
taxation with preservation of capital.
For the year ended February 28, 1995, the Pennsylvania Municipal Bond Fund
provided a total return of 1.81%. This return exceeded the Lehman Brothers
10-year General Obligation Index which advanced 1.71%.
There were several factors affecting the tax-exempt bond market, including
tightening moves by the Federal Reserve to increase the federal funds rate to
6% from 3%, derivative problems worldwide and a very unstable dollar. All of
these factors applied downward pressure on bond prices.
Our strategy as we entered 1994 was to adhere to a defensive position until we
felt the Federal Reserve's tightening would be coming to a close. We maintained
an average weighted maturity of under 10 years and a duration under 7 years.
Over 80% of the fund was composed of AA and AAA rated securities in
anticipation of massive bond redemptions, pre-refunded bonds maturing and
demand for bonds due to a contraction of supply within Pennsylvania and the
United States in general. Towards the latter part of the third quarter, we
started to extend our average weighted maturity to over 10 years in the belief
the Federal Reserve would not materially increase rates again in the near term.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR INCEPTION
WITH SALES CHARGE -1.96% -0.85%
WITHOUT SALES CHARGE 1.81% 1.73%
LEHMAN BROTHERS 10-YEAR
GENERAL OBLIGATION INDEX 1.71% 7.07%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 10-year General Obligation Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 10-Year
General Obligation Index is an unmanaged index which excludes transaction
and holding charges. Past performance of the portfolio does not predict
future results.
12
<PAGE>
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks capital appreciation by investing in equity
securities of foreign companies, most of which are denominated in foreign
currencies.
The International Equity Fund had a total return of -6.99% for the year ended
February 28, 1995. This compares to a total return of -4.44% for the EAFE Index
for the same period.
The past fiscal year has proved to be a difficult one as most major stock
markets fell in local currency terms. However, the U.S. dollar was quite weak
falling by 14% against the deutsche mark and 7% against the yen. Since the
fund's value is reported in U.S. dollars, this helped to mitigate some of the
decline of local currency equity values. Stock markets in Europe proved the
most resilient. Our strategy had generally been to underweight the U.K. while
being broadly in line with the index in continental Europe. However, within
this we underweighted Germany and overweighted France. Our stock selection
strategy was mainly focused on economically sensitive shares as the economic
recovery continued to gather strength.
Virtually all Pacific markets were very weak, most notably Hong Kong and
Malaysia. Our strategy was to significantly underweight both these markets. In
particular, we were cautious about property prices and both political and
economic problems in China. By contrast, we overweighted Singapore and Taiwan.
In Japan, we maintained a weighting below the index level at around one-third
of the fund. Japan's economic recovery was beginning to gather pace but
received a significant setback following the Kobe earthquake. The recovery will
come but has probably been delayed some six months.
Emerging markets suffered a very turbulent year, particularly in Latin America.
The fund's investments in Latin America were somewhat reduced; however, we
continue to favor emerging markets in the long run.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR INCEPTION
WITH SALES CHARGE -10.49% 7.10%
WITHOUT SALES CHARGE -6.99% 8.23%
EAFE INDEX -4.44% 8.04%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[EAFE Index Graph]
(1) For the period ended February 28, 1995. The EAFE Index is an unmanaged
index which excludes transaction and holding charges. Past performance of
the portfolio does not predict future results.
13
<PAGE>
INTERNATIONAL FIXED INCOME FUND
The International Fixed Income Fund invests principally in top quality, fixed
income securities denominated in foreign currencies. The investment adviser has
the discretion to hedge foreign currency exposure back to the dollar to protect
the fund against adverse currency moves.
For the year ended February 28, 1995, the International Fixed Income Fund
provided a total return of 1.50%. This return exceeded the Salomon Brothers
Non-U.S. Hedged World Government Bond Index, which had a return of .98% over
the same period.
During the first half of the year, over 80% of the fund was invested in
European bonds. The fund's performance suffered from an overweight exposure to
the high-yielding bond markets of Italy, Spain and Sweden, where prices fell
due to concerns over budgetary policies and a general removal of liquidity from
these markets. As the year progressed, European bond exposure was consolidated
towards "core" Europe, and holdings of French and German bonds were increased
to 45% of the total portfolio. Most European currency exposure was hedged back
to the dollar, although an opportunistic exposure to the undervalued Italian
lira was taken during the first half of the year. Deutsche mark and sterling
currency exposure was maintained throughout the year in order to benefit from
the decline of the dollar.
Throughout 1994, the fund held a 20% exposure to Japanese bonds, which enhanced
the fund's performance as economic growth remained weak. The return from
Japanese bonds was aided by a 6% exposure to the yen, which appreciated by 12%
against the dollar in 1994. The fund's duration was reduced to under five years
as the outlook for bond markets became more cautious.
ANNUALIZED TOTAL RETURN(1)
SINCE
ONE YEAR INCEPTION
WITH SALES CHARGE -2.32% 6.28%
WITHOUT SALES CHARGE 1.50% 7.40%
SALOMON BROTHERS NON-U.S. HEDGED
WORLD GOVERNMENT BOND INDEX .98% 7.09%
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Salomon Brothers Non-U.S. Hedged World
Government Bond Index Graph]
(1) For the period ended February 28, 1995. The Salomon Brothers Non-U.S.
Hedged World Government Bond Index is an unmanaged index which excludes
transaction and holding charges. Past performance of the portfolio does
not predict future results.
14
<PAGE>
STATEMENT OF NET ASSETS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
February 28, 1995
CASH RESERVE FUND
FACE
AMOUNT VALUE
(000) (000)
------- --------
COMMERCIAL PAPER (33.2%)
ABN/AMRO Canada, Schedule B
6.220%, 03/27/95.............. $ 5,000 $ 4,978
American Telephone & Telegraph
Capital
6.370%, 04/03/95.............. 10,000 9,943
Bowater PLC
6.150%, 05/12/95.............. 5,000 4,939
Broadway Capital
6.420%, 04/07/95.............. 12,000 11,922
Deutsche Bank Financial
5.860%, 05/01/95.............. 5,000 4,952
Ford Motor Credit
6.235%, 04/28/95.............. 9,500 9,406
General Electric Capital
6.480%, 04/13/95.............. 5,000 4,962
International Lease Finance
6.520%, 06/09/95.............. 10,000 9,824
International Nederlanden U.S.
Insurance Holdings
6.020%, 03/03/95.............. 5,000 4,998
6.057%, 04/24/95.............. 5,050 5,005
MCA Funding
6.605%, 07/25/95.............. 7,300 7,111
6.308%, 08/21/95.............. 5,500 5,338
New South Wales Treasury
6.010%, 03/09/95.............. 5,000 4,993
Queensland Alumina
6.030%, 03/13/95.............. 5,000 4,990
6.226%, 04/17/95.............. 10,000 9,920
South Australian Government
Financing Authority
6.215%, 03/23/95.............. 7,600 7,572
6.930%, 07/03/95.............. 11,000 10,746
Southland
6.400%, 03/14/95.............. 5,000 4,989
6.200%, 05/10/95.............. 5,000 4,941
Tasmanian Public Finance
6.360%, 03/30/95.............. 8,200 8,159
Toyota Motor Credit
6.230%, 04/03/95.............. 5,000 4,972
--------
Total Commercial Paper
(Cost $144,658,704)........... 144,660
--------
FACE
AMOUNT VALUE
(000) (000)
------- --------
CORPORATE BONDS (23.7%)
American Express Centurion Bank
6.125%, 03/23/95 (A)................. $10,000 $10,000
6.063%, 03/26/95 (A)................. 10,000 9,998
Associates
4.190%, 05/05/95..................... 2,000 1,997
Beta Finance
6.190%, 03/01/95 (A)................. 11,000 10,999
FCC National Bank, Delaware
6.110%, 03/07/95 (A)................. 10,000 10,000
General Electric Capital
6.400%, 03/01/95 (A)................. 10,000 9,998
Goldman Sachs Group
6.190%, 03/01/95 (A)................. 10,000 10,000
6.655%, 03/01/95 (A)................. 10,000 10,000
Nationsbank, North Carolina
5.650%, 07/21/95..................... 10,000 9,984
PNC Bank
6.010%, 03/07/95 (A)................. 10,000 9,999
Southtrust Bank, Alabama
6.125%, 05/03/95..................... 10,000 10,000
--------
Total Corporate Bonds
(Cost $102,975,481).................. 102,975
--------
ASSET BACKED SECURITIES (4.6%)
Steers
6.060%, 03/07/95 (A)................. 15,000 15,000
6.250%, 05/18/95 (A)................. 5,000 5,000
--------
Total Asset Backed Securities
(Cost $19,999,870)................... 20,000
--------
GUARANTEED INVESTMENT CONTRACT (2.3%)
Peoples Security Life
6.170%, 03/01/95 (A)................. 10,000 10,000
--------
Total Guaranteed Investment
Contract
(Cost $10,000,000)................... 10,000
--------
U.S. TREASURY OBLIGATION (1.2%)
U.S. Treasury Note
3.875%, 03/31/95..................... 5,000 4,997
--------
Total U.S. Treasury Obligation
(Cost $4,997,455).................... 4,997
--------
Continued
15
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
CASH RESERVE
FUND (CONTINUED)
FACE
AMOUNT VALUE
(000) (000)
------- --------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (6.4%)
Federal National Mortgage
Association
5.360%, 03/20/95.............. $ 5,000 $4,986
6.730%, 07/11/95.............. 5,000 4,881
Small Business Administration
7.000%, 03/01/95 (A).......... 7,958 8,148
Student Loan Marketing
Association
5.315%, 06/30/95.............. 5,000 5,000
5.480%, 06/30/95 (A).......... 5,000 5,000
--------
Total U.S. Government Agency
Obligations
(Cost $28,015,029)............ 28,015
--------
TIME DEPOSIT (1.9%)
Dai Ichi Kangyo Bank, Toronto
6.156%, 03/24/95.............. 5,000 5,000
Morgan Toronto
6.063%, 03/29/95.............. 3,300 3,300
--------
Total Time Deposit
(Cost $8,300,000)............. 8,300
--------
CERTIFICATES OF DEPOSIT (9.2%)
Canadian Imperial Bank
6.250%, 03/21/95.............. 5,000 5,000
6.080%, 04/19/95.............. 10,000 10,000
Dai Ichi Kangyo Bank, New York
6.100%, 03/03/95.............. 10,000 10,000
National Westminster PLC,
New York
6.080%, 04/14/95.............. 5,000 5,000
Westdeutsche Landesbank
6.120%, 06/01/95.............. 10,000 10,000
--------
Total Certificates of Deposit
(Cost $40,000,129)............ 40,000
--------
BANKERS ACCEPTANCES (0.9%)
First National Bank, Chicago
5.560%, 03/14/95.............. 4,000 3,992
--------
Total Bankers Acceptances
(Cost $3,992,142)............. 3,992
--------
FACE
AMOUNT VALUE
(000) (000)
------ ---------
REPURCHASE AGREEMENTS (14.8%)
First Boston, 6.1875%, dated 02/28/95,
matures 03/01/95, repurchase price
$32,505,586 (collateralized by U.S.
Coupon Strips, par value
$87,163,970, maturities ranging
from 05/15/97 to 11/15/12, market
value $33,164,798)..................................$32,500 $32,500
Merrill Lynch, 6.17%, dated 02/28/95,
matures 03/01/95, repurchase price
$31,904,467 (collateralized by
Federal Home Loan Bank Bond, par
value $10,000, 7.67%, 10/06/99,
market value $10,308, Collateralized
Mortgage Obligation Trust, par
value $12,270,000, 9.10%, 01/01/20,
market value $20,567,505, Federal
Home Loan Mortgage Corporation-
Government National Mortgage
Association Collateralized Mortgage
Obligations, par value $15,000,000,
coupons ranging from 7.00% to
7.50%, maturities ranging from
03/25/24 to 04/25/24, market value
$11,963,109)........................................ 31,899 31,899
---------
Total Repurchase Agreements
(Cost $64,399,000).................................. 64,399
---------
Total Investments (98.2%)
(Cost $427,337,810)................................. 427,338
---------
OTHER ASSETS AND LIABILITIES (1.8%)
Other Assets and Liabilities, Net....................... 7,985
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 435,472,526 shares of beneficial
interest............................................ 435,473
Accumulated net realized loss on
investments......................................... (150)
---------
Total Net Assets: (100.0%)........................... $435,323
=========
Net Asset Value, Offering Price and
Redemption Price Per Share.......................... $1.00
=========
- -----------------
(A) Variable Rate Security-the rate reflected on the Statement of Net Assets is
the rate in effect on February 28, 1995.
PLC-Public Limited Company
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
U.S. TREASURY FUND
FACE
AMOUNT VALUE
(000) (000)
------- --------
U. S. TREASURY OBLIGATIONS (48.8%)
U.S. Treasury Bills
5.464%, 03/02/95.................. $20,000 $ 19,997
5.337%, 03/23/95.................. 20,000 19,936
5.809%, 04/13/95.................. 25,000 24,829
5.540%, 04/20/95.................. 15,000 14,888
5.963%, 05/11/95.................. 20,000 19,771
6.114%, 08/24/95.................. 30,000 29,130
U.S. Treasury Notes
3.875%, 03/31/95.................. 25,000 24,971
4.625%, 08/15/95.................. 25,000 24,793
--------
Total U. S. Treasury Obligations
(Cost $178,315,140)............... 178,315
--------
REPURCHASE AGREEMENTS (51.1%)
First Boston, 6.1875%, dated
02/28/95, matures 03/01/95,
repurchase price $87,515,039
(collateralized by U.S. Treasury
Coupon Strips, par value
$158,234,454, maturities ranging
from 05/15/96 to 05/15/11,
market value $89,454,428)......... 87,500 87,500
Goldman Sachs Group, 6.03%, dated
02/28/95, matures 03/01/95,
repurchase price $15,002,513
(collateralized by U.S. Treasury
Note, par value $15,213,000,
5.875%, maturing 05/31/96,
market value $15,300,850)......... 15,000 15,000
FACE
AMOUNT VALUE
(000) (000)
------- --------
Merrill Lynch, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $84,472,194
(collateralized by U.S.
Treasury Note, par value
$85,130,000, 7.25%, maturing
02/15/98, market value
$86,150,166).................... $84,458 $ 84,458
--------
Total Repurchase Agreements
(Cost $186,958,000)............. 186,958
--------
Total Investments (99.9%)
(Cost $365,273,140)............. 365,273
--------
OTHER ASSETS AND LIABILITIES
(0.1%)
Other Assets and Liabilities,
Net............................. 243
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 365,510,980 shares of
beneficial interest............. 365,511
Accumulated net realized gain on
investments..................... 5
--------
Total Net Assets: (100.0%).......... $365,516
========
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $1.00
========
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
MUNICIPAL MONEY FUND
FACE
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS (102.5%)
California (2.2%)
State, Series A, RAN
5.000%, 06/28/95.................... $1,000 $ 1,003
-------
Delaware (0.7%)
State, Housing Authority, RB, (FSA)
4.000%, 06/01/95.................... 330 330
-------
Florida (4.7%)
Bay County, Medical Center Project,
RB
3.850%, 03/06/95 (B) (C)............ 800 800
Dade County, Health Facilities
Authority, Miami Childrens
Hospital Project, VRDN, RB
4.050%, 03/01/95 (A) (B) (C)........ 300 300
State, Housing Finance Agency,
Multifamily Housing, VRDN, RB
4.200%, 03/07/95 (A) (B) (C)........ 1,000 1,000
-------
2,100
-------
Georgia (0.4%)
Turner County, Industrial
Development Authority, Coats
And Clark Project, VRDN, RB
4.100%, 03/01/95 (A) (B) (C)........ 200 200
-------
Hawaii (4.2%)
State, Department of Budget And
Finance, Kuakini Medical Center
Project, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)........ 1,900 1,900
-------
Idaho (3.3%)
State, Housing Finance Authority, RB
5.000%, 07/01/95 (C)................ 1,500 1,500
-------
Kansas (0.4%)
Butler County, Solid Waste
Disposal, Texaco Refining and
Marketing Project, VRDN, RB,
AMT
4.300%, 03/01/95 (A) (B)............ 200 200
-------
FACE
AMOUNT VALUE
(000) (000)
------ -------
Louisiana (8.4%)
State, Recovery District Sales Tax,
VRDN, RB, (FGIC)
3.750%, 03/01/95 (A) (B)........... $ 700 $ 700
State, Recovery District Sales Tax,
VRDN, RB, (MBIA)
3.750%, 03/07/95 (A) (B)........... 1,500 1,500
West Baton Rouge Parish,
Industrial Development Authority,
Dow Chemical Project, Series B,
VRDN, RB
4.000%, 03/01/95 (A) (B)........... 1,600 1,600
-------
3,800
-------
Maryland (2.9%)
Howard County, Owen Brown
Project, VRDN, RB
3.700%, 03/01/95 (A) (B) (C)....... 300 300
State, Health And Higher Education
Authority, Hopkins Hospital
Project, TECP
3.750%, 03/03/95................... 1,000 1,000
-------
1,300
-------
Massachusetts (2.2%)
Bay Transportation Authority,
General Transportation Systems,
Series A, RB
3.750%, 03/01/95 (C)............... 1,000 1,000
-------
Michigan (14.6%)
Grand Rapids, Economic
Development Authority, Amway
Grand Project, Series 2, VRDN,
RB
4.150%, 03/07/95 (A) (B) (C)....... 1,500 1,500
Grand Rapids, Economic
Development Authority, Amway
Hotel Project, Series A, VRDN,
RB
4.300%, 03/07/95 (A) (B) (C)....... 2,000 1,999
Grand Rapids, Water Supply,
VRDN, RB
3.900%, 03/07/95 (A) (B) (C)....... 1,100 1,100
Continued
18
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------ -----
MUNICIPAL BONDS, CONTINUED:
Michigan, continued:
Midland County, Economic
Development Authority, Dow
Chemical Project, Series A,
VRDN, RB
4.200%, 03/01/95 (A) (B)........ $1,000 $ 1,000
State, Industrial Development
Authority, Allen Group
Incorporated Project, VRDN, RB
3.850%, 03/07/95 (A) (B) (C).... 1,000 1,000
-------
6,599
-------
Minnesota (2.2%)
Minneapolis-St. Paul, Housing
Finance Authority, Series B, RB
4.600%, 08/01/95................ 985 985
-------
Mississippi (1.1%)
Hinds County, GO, (MBIA)
3.700%, 03/01/95................ 475 475
-------
Missouri (7.3%)
Callaway County, Industrial
Development Authority, Callaway
Community Hospital, VRDN, RB
3.800%, 03/01/95 (A) (B)........ 800 800
Kansas City, Industrial
Development Authority, Coach
House II Project, VRDN, RB
4.000%, 03/01/95 (A) (B)........ 2,000 2,000
State, Environmental Improvement
Authority, RB
3.750%, 06/01/95 (C)............ 500 500
-------
3,300
-------
New Jersey (10.6%)
Berkeley Heights, BAN
4.750%, 11/09/95................ 2,765 2,770
Elizabeth, GO, (AMBAC)
4.300%, 08/15/95................ 535 535
Woodbridge Township, Sewer
Utility, BAN
4.480%, 10/06/95................ 1,500 1,500
-------
4,805
-------
FACE
AMOUNT VALUE
(000) (000)
------ -------
North Carolina (0.2%)
State, Health Care Facilities, Carol
Woods Project, VRDN, RB
4.000%, 03/01/95 (A) (B) (C)........ $ 100 $ 100
-------
Ohio (4.4%)
Montgomery County, BAN
4.000%, 04/27/95.................... 1,000 1,001
State, Highway Authority, Series Q,
GO
5.700%, 05/15/95.................... 1,000 1,004
-------
2,005
-------
Pennsylvania (12.0%)
Berks County, Sixth And Penn
Street Project, VRDN, RB
4.000%, 03/07/95 (A) (B) (C)........ 200 200
Delaware County, Industrial
Development Authority, United
Parcel Services Project, VRDN,
RB
3.750%, 03/01/95 (A) (B)............ 1,000 1,000
Lehigh County, Industrial
Development Authority, Pollution
Control, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)........ 900 900
Montour County, Health System
Authority, Geisinger Project,
Series 1992B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)........ 300 300
Philadelphia, Hospital And Higher
Education Facility Authority,
Community College Project,
Series A, RB, (MBIA)
3.750%, 05/01/95.................... 535 535
Sayre, Health Care Facility
Authority, Pennsylvania Capital
Financing Project, Series K,
VRDN, RB, (AMBAC)
4.050%, 03/07/95 (A) (B)............ 800 800
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)........ 1,100 1,100
Continued
19
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
FEBRUARY 28, 1995
MUNICIPAL MONEY
FUND (CONTINUED)
FACE
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State, Higher Education Authority,
Series B, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)........ $ 400 $ 400
State, Higher Educational Facilities
Authority, Temple University
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)........ 200 200
-------
5,435
-------
Puerto Rico (2.2%)
Governmental Development Bank,
TECP
3.900%, 04/07/95.................... 1,000 1,000
-------
Texas (2.2%)
Fort Worth, Water And Sewer
Authority, RB
8.500%, 03/01/95.................... 600 600
Harris County, Industrial
Development Authority, Pollution
Control, Series A, VRDN, RB
3.900%, 03/01/95 (A) (B)............ 400 400
-------
1,000
-------
Utah (2.6%)
State, Housing Finance Agency,
Series D, RB, AMT
4.800%, 08/01/95.................... 1,160 1,160
-------
Virginia (4.4%)
Richmond, RAN
5.500%, 06/30/95 (C)................ 1,000 1,003
State, Commonwealth
Transportation Board, Series 95A,
RB
5.800%, 05/15/95.................... 1,000 1,003
-------
2,006
-------
West Virginia (4.0%)
Marion County, Community Solid
Waste Disposal Facility, VRDN,
RB, AMT
4.300%, 03/07/95 (A) (B) (C)........ 1,800 1,800
-------
FACE
AMOUNT VALUE
(000) (000)
------ -------
Wisconsin (3.3%)
State, Housing And Economic
Development, Series B, RB, AMT,
(FSA)
4.600%, 04/01/95.................... $1,500 $ 1,500
-------
Wyoming (2.0%)
Lincoln County, Pollution Control,
Exxon Project, Series A, VRDN,
RB
3.900%, 03/01/95 (A) (B)............ 400 400
Lincoln County, Pollution Control,
Exxon Project, Series D, VRDN,
RB
3.900%, 03/01/95 (A) (B)............ 100 100
Platte County, Pollution Control,
VRDN, RB
4.000%, 03/01/95 (A) (B) (C)........ 400 400
-------
900
-------
Total Municipal Bonds
(Cost $46,403,157).................. 46,403
-------
Total Investments (102.5%)
(Cost $46,403,157).................. 46,403
-------
OTHER ASSETS AND LIABILITIES (-2.5%)
Other Assets and Liabilities, Net....... (1,151)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 45,291,867 outstanding
shares of beneficial interest....... 45,288
Accumulated net realized loss on
investments......................... (36)
-------
Total Net Assets: (100.0%)............ $45,252
=======
Net Asset Value, Offering Price and
Redemption Price Per Share.......... $ 1.00
=======
- ---------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
Continued
20
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
BAN-Bond Anticipation Note
GO-General Obligation
RAN-Revenue Anticipation Note
RB-Revenue Bond
TECP-Tax Exempt Commercial Paper
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
FSA-Financial Security Assurance
MBIA-Municipal Bond Insurance Association
NEW JERSEY MUNICIPAL
MONEY FUND
FACE
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS (99.4%)
New Jersey (85.7%)
Cherry Hill Township, GO
7.000%, 08/01/95 (C)............ $1,000 $ 1,008
Essex County, Series A, BAN
5.500%, 12/12/95................ 875 878
Hackensack, BAN
5.500%, 12/20/95................ 850 855
Jersey City, BAN
5.250%, 11/17/95................ 2,000 2,007
Middlesex County, GO,
Prerefunded @ 102
7.050%, 03/15/95 (B) (C)........ 500 511
Morristown, GO
5.000%, 08/01/95 (C)............ 695 696
Port Authority, Versatile Struc-
ture Obligation, Series 1,
VRDN,
RB, AMT
3.900%, 03/01/95 (A) (B) (C).... 3,100 3,100
FACE
AMOUNT VALUE
(000) (000)
------ --------
Princeton Borough, BAN
3.340%, 04/14/95 (C)........... $1,000 $ 1,000
Salem County, Pollution Control
Project, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)... 500 500
State Economic Development
Authority, TECP
3.500%, 03/07/95 (C)........... 1,000 1,000
4.000%, 04/13/95 (C)........... 1,000 1,000
State Economic Development
Authority, 400 International
Drive Partners Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)... 700 700
State Economic Development
Authority, Crowle Shipping
Project, VRDN, RB
3.550%, 03/01/95 (A) (B) (C)... 2,000 2,000
State Economic Development
Authority, Data Tac Industries
Incorporated Project, Series
W, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 1,115 1,115
State Economic Development
Authority, Dates-Tru Project,
VRDN, RB
3.450%, 03/01/95 (A) (B) (C)... 900 900
State Economic Development
Authority, Economic Growth
Bonds, Series C-1, VRDN,
RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 590 590
State Economic Development
Authority, Eldorado Terminal
Project, Series 1984 B,
VRDN, GO
3.900%, 03/01/95 (A) (B)....... 2,800 2,800
State Economic Development
Authority, Eldorado Terminal
Project, Series 1984 B,
VRDN, RB
3.900%, 03/01/95 (A) (B)....... 1,100 1,100
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
MONEY FUND (CONTINUED)
FACE
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State Economic Development
Authority, First Management
Fellowship Project, Series B,
VRDN, RB
4.000%, 03/07/95 (A) (B) (C).. $1,000 $ 1,000
State Economic Development
Authority, Jersey Avenue
Project, VRDN, RB
3.900%, 03/07/95 (A) (B) (C).. 800 800
State Economic Development
Authority, Makita U.S.A.
Incorporated Project,
VRDN, RB
4.050%, 03/07/95 (A) (B) (C).. 600 600
State Economic Development
Authority, Russell Berrie
Project, VRDN, RB
4.250%, 03/07/95 (A) (B) (C).. 200 200
State Economic Development
Authority, Series A, VRDN, GO
4.200%, 03/07/95 (A) (B) (C).. 300 300
State Economic Development
Authority, Series J, VRDN,
RB, AMT
4.200%, 03/07/95 (A) (B) (C).. 650 650
State Educational Facility
Authority, College And
University Equipment Project,
Series A, VRDN, RB, (FGIC)
3.850%, 03/07/95 (A) (B)...... 550 550
State Health Care Facilities
Financing Authority, Hospital
And Nursing Home
Improvement Project,
VRDN, RB
3.850%, 03/07/95 (A) (B) (C).. 200 200
State Health Care Facilities
Financing Authority, Hospital
Capital Asset Financing
Project, Series A,
VRDN, RB
3.850%, 03/07/95 (A) (B) (C).. 600 600
FACE
AMOUNT VALUE
(000) (000)
------ -------
State Health Care Facilities
Financing Authority, Hospital
Capital Asset Financing, Series
D, VRDN, RB
3.850%, 03/07/95 (A) (B) (C)....... $ 200 $ 200
State Healthcare Facilities Financ-
ing Authority, Jersey Shore
Medical Center Project, RB,
(AMBAC)
5.000%, 07/01/95 (C)............... 710 712
State Turnpike Authority, Series
D, VRDN, RB, (FGIC)
3.750%, 03/07/95 (A) (B)........... 2,000 2,000
State, TECP
3.400%, 03/02/95 (C)............... 2,000 2,000
State, Governmental,
Series 501 C 3, GO
5.800%, 08/01/95................... 1,000 1,007
State, Series A, TRAN
5.000%, 06/15/95................... 2,000 2,006
Union County, Industrial Pollution
Control Financing Authority,
Exxon Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)....... 1,300 1,300
Woodbridge Township, Sewer
Utilities, BAN
4.480%, 10/06/95................... 1,500 1,500
-------
37,385
-------
Pennsylvania (2.3%)
State, Transportation Trust Fund,
Series A, RB
4.500%, 12/15/95................... 1,000 998
-------
Puerto Rico (11.4%)
Commonwealth Public Finance
Agency, Series A, RB
4.750%, 07/01/95................... 2,000 2,005
Commonwealth Public Finance
Authority, RB
6.350%, 07/01/95 (C)............... 960 966
Continued
22
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------ --------
MUNICIPAL BONDS, CONCLUDED:
Puerto Rico, continued:
Governmental Development Bank,
TECP
3.900%, 04/07/95................... $2,000 $ 2,000
-------
4,971
-------
Total Municipal Bonds
(Cost $43,354,348)................. 43,354
-------
Total Investments (99.4%)
(Cost $43,354,348)................. 43,354
-------
OTHER ASSETS AND LIABILITIES (0.6%)
Other Assets and Liabilities, Net...... 256
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 43,617,629 outstanding
shares of beneficial interest...... 43,617
Accumulated net realized loss on
investments........................ (7)
-------
Total Net Assets: (100.0%)........... $43,610
=======
Net Asset Value, Offering Price
and Redemption Price Per
Share.............................. $1.00
=======
- ---------------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
BAN-Bond Anticipation Note
GO-General Obligation
RB-Revenue Bond
TECP-Tax-Exempt Commercial Paper
TRAN-Tax and Revenue Anticipation Note
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
PENNSYLVANIA MUNICIPAL
MONEY FUND
FACE
AMOUNT VALUE
(000) (000)
------- -------
MUNICIPAL BONDS (104.8%)
Pennsylvania (104.8%)
Allegheny County, Mortgage
Backed Security Program,
Series F, RB
3.700%, 06/01/95 (C)............ $ 1,075 $ 1,075
Allegheny County, Port
Authority, GAN
4.100%, 07/03/95 (C)............ 1,000 1,000
Beaver County, Industrial
Development Authority,
Duquesne Light Project,
Series B, VRDN, RB
4.050%, 03/07/95 (A) (B) (C).... 600 600
Beaver County, Industrial
Development Authority,
Duquesne Light Project,
Series A, VRDN, RB
4.050%, 03/07/95 (A) (B) (C).... 500 500
Berks County, Industrial
Development Authority, VRDN,
RB
3.850%, 03/01/95 (A) (B) (C).... 700 700
Chartiers Valley, Industrial and
Commercial Development
Authority, William Penn Place
Project, VRDN, RB
4.000%, 03/01/95 (A) (B) (C).... 200 200
Conneaut, School District
Authority, GO, (AMBAC)
9.750%, 05/01/95................ 1,000 1,009
Delaware County, Industrial
Development Authority, BP Oil
Project, VRDN, RB
3.600%, 03/07/95 (A) (B)........ 200 200
Delaware County, Industrial
Development Authority,
Pollution Control, TECP, (FGIC)
3.700%, 03/01/95................ 1,800 1,800
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series A, VRDN,
RB
4.100%, 03/07/95 (A) (B) (C).... 1,000 1,000
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
PENNSYLVANIA MUNICIPAL
MONEY FUND (CONTINUED)
FACE
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, continued:
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series C, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)..... $900 $900
Delaware County, Industrial
Development Authority, United
Parcel Services Project, VRDN,
RB
3.750%, 03/01/95 (A) (B) (C)..... 900 900
Emmaus, VRDN, GO
4.050%, 03/07/95 (A) (B) (C)..... 1,100 1,100
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems Project, Series C,
VRDN, RB
3.750%, 03/01/95 (A) (B) (C)..... 600 600
Lehigh County, Industrial
Development Authority,
Pollution Control, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)..... 900 900
Montgomery County, Industrial
Development Authority, TECP
4.250%, 05/04/95 (C)............. 2,000 2,000
Montgomery County, Industrial
Development Authority, Quaker
Chemical Project, VRDN, RB
3.850%, 03/01/95 (A) (B) (C)..... 500 500
Montour County, Health System
Authority, Geisinger Project,
Series B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 800 800
Northeastern, Hospital Authority,
TECP, (MBIA)
4.100%, 04/13/95................. 600 600
Philadelphia, Hospital And Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 100 100
FACE
AMOUNT VALUE
(000) (000)
------ -------
Philadelphia, Hospitals And
Higher Education Facility
Authority, Community College
Project, Series B, RB, (MBIA)
3.750%, 05/01/95............... $ 390 $ 390
Philadelphia, School District,
Series B, GO, (AMBAC)
3.750%, 07/01/95............... 1,000 999
Philadelphia, School District,
TRAN
4.750%, 06/30/95............... 1,000 1,001
Philadelphia, TRAN
4.750%, 06/15/95 (C)........... 1,000 1,003
Quakertown, Hospital Authority,
HPS Group Pooled Financing
Project, VRDN, RB
3.800%, 03/07/95 (A) (B) (C)... 300 300
Reading, School District
Authority, GO, (MBIA)
6.600%, 03/01/95............... 1,140 1,140
Sayre, Health Care Facilities
Authority, Capital Financing
Project, Series H, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B)....... 290 290
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series A, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B) (C)... 1,200 1,200
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series D, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B)....... 800 800
Schuylkill County, Industrial
Development Authority,
Northeastern Power Project,
Series B, VRDN, RB
4.000%, 03/01/95 (A) (B) (C)... 1,500 1,500
Continued
24
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)... $1,100 $ 1,100
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 100 100
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 510 510
State, Energy Development
Authority, Piney Creek Project,
Series A, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 100 100
State, GO
5.700%, 08/01/95............... 625 626
5.500%, 11/15/95............... 1,000 1,007
State, Higher Education
Authority, Drexel University
Project, RB, (MBIA)
6.500%, 05/01/95............... 250 251
State, Higher Education
Authority, Lasalle University
Project, RB, (MBIA)
6.400%, 05/01/95............... 585 588
State, Higher Education
Authority, Series B, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 3,100 3,098
State, Higher Education
Authority, University of
Pennsylvania Project, Series 1,
VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 1,000 1,000
State, Highway Authority,
Series T, GO
5.700%, 08/01/95............... 375 376
State, Housing Finance Agency,
Series 35A, RB
3.800%, 04/01/95............... 500 500
FACE
AMOUNT VALUE
(000) (000)
------ --------
State, Series 1, GO
3.000%, 05/01/95.................... $ 825 $ 824
State, Series 1, TRAN
4.750%, 06/30/95.................... 2,000 2,005
-------
37,192
-------
Total Municipal Bonds
(Cost $37,192,314).................. 37,192
-------
Total Investments (104.8%)
(Cost $37,192,314).................. 37,192
-------
OTHER ASSETS AND LIABILITIES (-4.8%)
Other Assets and Liabilities, Net....... (1,714)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 35,480,795 outstanding
shares of beneficial interest....... 35,481
Accumulated net realized loss on
investments......................... (3)
-------
Total Net Assets: (100.0%)............ $35,478
=======
Net Asset Value, Offering Price
and Redemption Price Per
Share............................... $ 1.00
=======
- ---------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand Features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
GAN-Grant Anticipation Note
GO-General Obligation
RB-Revenue Bond
TECP-Tax-Exempt Commercial Paper
TRAN-Tax and Revenue Anticipation Note
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets.
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
EQUITY INCOME FUND
MARKET
VALUE
SHARES (000)
------- --------
COMMON STOCKS (93.2%)
Air Conditioning (0.7%)
York International.............. 53,200 $ 2,048
--------
Air Transportation (0.2%)
AMR*............................ 8,000 489
--------
Aircraft (2.2%)
BE Aerospace*................... 239,800 1,319
Boeing.......................... 48,700 2,246
Sequa, Class A.................. 94,900 2,669
--------
6,234
--------
Aluminum (5.8%)
Alcan Aluminum................ 100,000 2,425
Aluminum of America........... 369,400 14,407
--------
16,832
--------
Amusement & Recreation (0.0%)
Speedway Motorsports*......... 8,100 146
--------
Automotive (3.0%)
Borg Warner Automotive*....... 75,000 488
General Motors................ 191,800 8,175
--------
8,663
--------
Banks (9.7%)
Astoria Financial*............ 88,000 2,750
Bankamerica................... 276,793 13,321
California Federal Bank*...... 143,462 1,560
Coast Savings Financial*...... 63,600 938
Keycorp....................... 122,200 3,544
Long Island Bancorp*.......... 100,000 1,625
Mellon Bank................... 23,850 909
Union Bank/San Francisco...... 101,600 3,404
--------
28,051
--------
Building & Construction (2.5%)
Centex Construction*.......... 251,000 3,106
Ryland Group.................. 113,500 1,632
Southdown*.................... 144,300 2,381
--------
7,119
--------
MARKET
VALUE
SHARES (000)
------- --------
Chemicals (0.7%)
Rhone Poulenc SA, ADR........... 30,400 $ 726
Technip ADS 144A*............... 55,700 1,406
--------
2,132
--------
Communications Equipment (0.3%)
Alcatel Alsthom................. 61,500 999
--------
Computers & Services (0.7%)
BMC Software.................... 30,400 1,953
--------
Drilling Oil & Gas Wells (1.6%)
Noble Drilling*................. 236,400 1,300
Sonat Offshore Drilling......... 165,100 3,447
--------
4,747
--------
Electric Utilities (3.9%)
Central Maine Power............. 139,400 1,952
Central Vermont Public Service.. 50,000 694
CMS Energy...................... 65,300 1,567
New York State Electric & Gas... 49,100 1,056
Niagara Mohawk Power............ 168,200 2,502
Unicom.......................... 141,900 3,618
--------
11,389
--------
Electronic and Other Electrical
Equipment (1.2%)
Raychem......................... 83,700 3,379
--------
Energy & Power (0.6%)
Entergy......................... 72,100 1,613
--------
Environmental Services (1.1%)
WMX Technologies................ 118,100 3,115
--------
Financial Services (3.3%)
American Express................ 59,800 2,018
Brascan Limited, Class A........ 101,700 1,335
Green Point Financial........... 100,000 2,338
Lehman Brothers Holding......... 213,560 3,870
--------
9,561
--------
Food, Beverage & Tobacco (4.9%)
Chiquita Brands International... 13,000 174
Interstate Bakeries............. 253,600 3,867
Continued
26
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
------- --------
COMMON STOCKS, CONTINUED:
Food, Beverage & Tobacco, continued:
Seagram............................. 49,000 $ 1,507
Universal-Virginia.................. 428,600 8,518
--------
14,066
--------
Forestry (0.3%)
Rayonier............................ 25,900 777
--------
Gas/Natural Gas (1.8%)
Columbia Gas System................. 14,600 380
Enserch............................. 55,100 771
National Fuel Gas................... 25,000 681
Seagull Energy*..................... 197,800 3,338
--------
5,170
--------
Insurance (12.3%)
Ace Limited......................... 234,200 5,796
Aetna Life & Casualty............... 107,400 5,773
Alexander & Alexander Services...... 92,100 2,003
American Premier Underwriter........ 40,000 985
Brierley Investments, ADR........... 625,000 900
Chubb............................... 89,100 7,007
Cigna............................... 75,000 5,681
Loews............................... 10,000 971
Old Republic International.......... 110,000 2,723
Reinsurance Group of America........ 19,200 535
Unitrin............................. 64,000 3,136
--------
35,510
--------
Lumber & Wood Products (0.5%)
Georgia-Pacific..................... 19,000 1,423
--------
Machinery (3.7%)
Black & Decker...................... 266,400 7,126
Cooper Industries................... 59,100 2,320
Keystone International.............. 63,000 1,173
--------
10,619
--------
Marine Transportation (1.4%)
Alexander & Baldwin................. 92,800 2,018
London And Overseas Freighter,
ADR................................. 82,400 948
MARKET
VALUE
SHARES (000)
------- --------
OMI*.................................. 168,200 $ 883
Overseas Shipholding Group............ 6,900 160
--------
4,009
--------
Medical Products & Services (0.1%)
Haemonetics*.......................... 20,000 318
--------
Metals & Mining (0.2%)
Potash of Saskatchewan................ 17,300 618
--------
Miscellaneous Business Services (0.7%)
Policy Management Systems*............ 44,200 1,995
--------
Paper & Paper Products (7.7%)
Boise Cascade......................... 50,200 1,613
International Paper................... 150,800 11,517
Kimberly-Clark........................ 15,000 780
Temple-Inland......................... 102,500 5,010
Willamette Industries................. 63,200 3,397
--------
22,317
--------
Petroleum (10.6%)
Amerada Hess.......................... 60,000 2,940
Atlantic Richfield.................... 14,100 1,546
Burlington Resources.................. 87,100 3,353
Imperial Oil.......................... 45,500 1,547
Nordsk Hydro A.S., ADR................ 66,000 2,492
Occidental Petroleum.................. 5,000 99
Oryx Energy........................... 268,000 2,948
Petroleum Heat And Power,
Class A............................. 406,200 2,742
Phillips Petroleum.................... 116,600 3,892
Unocal................................ 153,000 4,341
USX-Marathon Group.................... 284,500 4,623
--------
30,523
--------
Photographic Equipment & Supplies (2.1%)
Eastman Kodak......................... 121,000 6,171
--------
Railroads (0.4%)
Canadian Pacific...................... 91,300 1,278
--------
Real Estate (4.1%)
American Real Estate Partners*........ 125,100 985
Equity Inns........................... 20,000 213
Essex Property Trust.................. 161,000 2,595
Continued
27
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
February 28, 1995
EQUITY INCOME FUND (CONTINUED)
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- ----------
COMMON STOCKS, CONCLUDED:
Real Estate, continued:
Gables Residential Trust....... 56,100 $ 1,066
Koger Equity*.................. 163,500 1,206
Newhall Land & Farming......... 74,200 1,085
Storage Equities............... 163,800 2,416
Sun Communities................ 104,200 2,358
----------
11,924
----------
Retail (0.7%)
Hills Department Stores*....... 36,100 736
Kmart.......................... 100,700 1,283
----------
2,019
----------
Telephones & Telecommunication
(4.2%)
BCE............................ 249,900 7,716
Comsat......................... 122,500 2,174
LDDS Communications*........... 95,614 2,241
----------
12,131
----------
Total Common Stocks
(Cost $257,077,989)............ 269,338
----------
CONVERTIBLE PREFERRED STOCKS (3.8%)
Boise Cascade, 7.48% Series G.. 99,800 2,732
Glendale Federal Savings Bank,
8.75% Series E................. 211,450 5,841
Reynolds Metals, 7.00% Series.. 30,600 1,461
Santa Fe Energy Resources,
Series A....................... 100,000 900
----------
Total Convertible Preferred
Stocks (Cost $9,715,335)....... 10,934
----------
WARRANTS (0.1%)
Glendale Federal Savings Bank
Warrants*...................... 130,480 326
----------
Total Warrants
(Cost $369,912)................ 326
----------
CONVERTIBLE BONDS (1.6%)
AMR 6.125%, 11/01/24........... $4,775 4,309
Riverwood International
6.750%, 09/15/03............... 360 391
----------
Total Convertible Bonds
(Cost $4,849,913).............. 4,700
----------
FACE MARKET
AMOUNT VALUE
(000) (000)
------ ---------
REPURCHASE AGREEMENT (1.0%)
JP Morgan, 6.05%, dated 02/28/95,
matures 03/01/95, repurchase
price $2,766,465 (collateralized by
United States Treasury Bonds,
par value $2,805,000, 5.125%,
11/15/95, market value
$2,779,580)........................ $2,766 $ 2,766
--------
Total Repurchase Agreement
(Cost $2,766,000).................. 2,766
--------
Total Investments (99.7%)
(Cost $274,779,149)................ 288,064
--------
OTHER ASSETS AND LIABILITIES (0.3%)
Other Assets and Liabilities, Net...... 825
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,355,658 outstanding
shares of beneficial interest...... 277,951
Accumulated net realized loss on
investments........................ (2,408)
Net unrealized appreciation on
investments........................ 13,284
Undistributed net investment
income............................. 62
--------
Total Net Assets: (100.0%)........... $288,889
========
Net Asset Value and Redemption
Price Per Share.................... $11.86
========
Maximum Public Offering Price Per
Share ($11.86/96.25%).............. $12.32
========
- ---------
*Non-income producing security
ADR-American Depository Receipt
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
SCHEDULE OF INVESTMENTS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GROWTH FUND
MARKET
VALUE
SHARES (000)
------- --------
COMMON STOCKS (91.7%)
Air Conditioning (1.1%)
York International.................. 38,700 $1,490
--------
Autoparts (1.7%)
Autozone*........................... 90,100 2,388
--------
Broadcasting, Newspapers &
Advertising (1.7%)
Comcast Corporation Special,
Class A........................... 150,000 2,363
--------
Building & Construction (1.1%)
Foster Wheeler...................... 44,900 1,470
--------
Chemical & Allied Products (6.1%)
Albemarle........................... 130,000 1,853
Engelhard........................... 111,000 2,928
Loctite............................. 17,100 787
Zeneca Group PLC, ADR............... 72,000 2,978
--------
8,546
--------
Commercial Banks (3.9%)
JP Morgan........................... 34,000 2,193
Republic New York................... 66,000 3,292
--------
5,485
--------
Communications Equipment (1.5%)
Motorola............................ 37,000 2,128
--------
Computer and Office Equipment (6.8%)
Cisco Systems*...................... 69,000 2,329
Computer Sciences*.................. 50,000 2,456
Hewlett Packard..................... 24,000 2,760
Microsoft*.......................... 30,000 1,890
TGV Software........................ 1,300 21
--------
9,456
--------
Electronic Components (3.5%)
AMP................................. 36,000 2,700
General Instrument*................. 68,000 2,159
--------
4,859
--------
MARKET
VALUE
SHARES (000)
------- --------
Food & Beverage (4.1%)
General Mills..................... 22,600 $ 1,370
Pepsico........................... 73,000 2,856
Sara Lee.......................... 58,000 1,523
--------
5,749
--------
Insurance (6.9%)
Ace Limited....................... 126,000 3,119
American International Group...... 26,500 2,749
American Re Insurance*............ 67,200 2,293
Value Health*..................... 38,300 1,427
--------
9,588
--------
Miscellaneous Business Services (6.5%)
Automatic Data Processing......... 42,000 2,583
Dun & Bradstreet.................. 32,000 1,652
Fiserv*........................... 107,000 2,808
Policy Management Systems*........ 44,000 1,986
--------
9,029
--------
Miscellaneous Manufacturing (1.1%)
International Game Technology..... 107,000 1,498
--------
Mortgage Bankers (2.2%)
Federal National Mortgage
Association....................... 40,000 3,085
--------
Nursing Care Facilities (1.0%)
Beverly Enterprises*.............. 109,000 1,417
--------
Oil Service (1.4%)
Schlumberger...................... 34,500 1,962
--------
Paper & Paper Products (3.3%)
International Paper............... 21,900 1,673
Kimberly-Clark.................... 50,000 2,600
--------
4,273
--------
Petroleum (6.4%)
Amoco............................. 54,000 3,199
Burlington Resources.............. 35,000 1,348
Kerr McGee........................ 32,000 1,612
Unocal............................ 99,000 2,809
--------
8,968
--------
Continued
29
<PAGE>
SCHEDULE OF INVESTMENTS/STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
GROWTH FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
------- --------
COMMON STOCK, CONCLUDED:
Pharmeceuticals (10.6%)
Abbott Laboratories............. 77,000 $ 2,734
Biogen*......................... 25,000 1,031
Boston Scientific*.............. 134,600 2,910
Genetics Institute*............. 42,000 1,512
Hafslund Nycomed-Cl B ADR....... 80,300 1,596
Perrigo*........................ 100,000 1,388
Pfizer.......................... 43,000 3,555
--------
14,726
--------
Printing & Publishing (4.4%)
Knight-Ridder................... 26,800 1,471
Scholastic*..................... 51,700 2,611
Washington Post, Class B........ 8,000 2,026
--------
6,108
--------
Pumps and Pumping Equipment (1.5%)
Duriron......................... 120,000 2,250
--------
Retail (1.4%)
Wal-Mart Stores................. 85,000 2,019
--------
Rubber & Plastic (3.3%)
Illinois Tool Works............. 70,000 3,141
Rubbermaid...................... 46,000 1,455
--------
4,596
--------
Steel & Steel Works (0.8%)
LTV*............................ 74,000 1,138
--------
Telephones & Telecommunication
(7.3%)
AT&T............................ 36,500 1,889
Ericsson (L.M.) Telephone, ADR.. 50,000 2,843
MCI Communications.............. 90,000 1,811
Telefonos de Mexico, Class L,
ADR........................... 49,600 1,370
Vodafone Group, ADR............. 75,000 2,288
--------
10,201
--------
Trucking (2.1%)
M.S. Carriers*.................. 120,200 2,945
--------
Total Common Stocks
(Cost $117,054,965)........... 127,737
--------
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
PREFERRED STOCKS (0.9%)
Petroleum Refining (0.9%)
Nokia Pfd, ADR.................. 16,500 $ 1,242
--------
Total Preferred Stocks
(Cost $666,188)............... 1,242
--------
REPURCHASE AGREEMENT (1.6%)
JP Morgan, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $2,302,387
(collateralized by United States
Treasury Bonds par value
$2,335,000, 5.125%, 11/15/95,
market value $2,313,839)........ $2,302 2,302
--------
Total Repurchase Agreement
(Cost $2,302,000)............... 2,302
--------
Total Investments (94.2%)
(Cost $120,023,153)............. 131,281
--------
- ---------------
*Non-income producing security
ADR-American Depository Receipt
PLC-Public Limited Company
SMALL CAP VALUE FUND
COMMON STOCKS (99.0%)
Aerospace & Defense (4.4%)
AAR.......................... 31,500 $ 434
Thiokol...................... 15,400 398
Watkins Johnson.............. 9,300 339
--------
1,171
--------
Air Transportation (1.3%)
Alaska Airgroup*............. 22,600 347
--------
Aircraft (1.5%)
UNC*......................... 71,800 404
--------
Amusement & Recreation (2.9%)
Huffy........................ 23,400 360
Outboard Marine.............. 18,800 395
--------
755
--------
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
------ -------
COMMON STOCKS, CONTINUED:
Apparel/Textiles (4.5%)
Delta Woodside Industries....... 30,600 $ 333
Guilford Mills.................. 19,000 423
Interface....................... 30,700 433
-------
1,189
-------
Automotive (1.3%)
Arvin Industries................ 15,200 346
-------
Building & Construction (1.2%)
CRSS............................ 11,900 115
Morrison Knudsen................ 26,000 201
-------
316
-------
Building & Construction Supplies
(0.7%)
Southdown*...................... 11,000 182
-------
Computers & Services (4.2%)
Cray Research*.................. 20,700 349
Egghead*........................ 25,000 263
Intergraph*..................... 40,700 498
-------
1,110
-------
Environmental Services (0.8%)
Mid-American Waste.............. 38,300 215
-------
Financial Services (2.8%)
Capstead Mortgage............... 11,400 278
Morgan Keegan................... 29,850 448
-------
726
-------
Food, Beverage & Tobacco (3.4%)
Adolph Coors, Class B........... 15,300 249
Chiquita Brands International... 23,100 309
Rykoff-Sexton................... 21,625 332
-------
890
-------
Footwear (1.4%)
Brown Group..................... 8,800 284
L.A. Gear*...................... 18,700 72
-------
356
-------
Information Services (1.2%)
Primark*........................ 21,900 318
-------
MARKET
VALUE
SHARES (000)
------ -------
Insurance (6.4%)
Guaranty National................. 19,500 $ 336
John Alden Financial.............. 10,800 311
Ohio Casualty..................... 11,100 374
Provident Life & Accident
Insurance, Class B................ 14,800 348
Reliastar Financial............... 9,200 314
-------
1,683
-------
Leasing & Renting (1.5%)
Comdisco.......................... 4,600 117
PHH............................... 7,600 285
-------
402
-------
Machinery (4.0%)
Nacco Industries, Class A......... 7,200 370
SPX............................... 18,600 284
Toro.............................. 14,000 404
-------
1,058
-------
Measuring Devices (0.8%)
Tektronix......................... 6,200 212
-------
Medical Products & Services (3.5%)
Continental Medical Systems*...... 30,900 193
Spacelabs Medical*................ 17,000 412
Universal Health Services,
Class B*.......................... 12,600 315
-------
920
-------
Metals & Mining (2.2%)
Magma Copper*..................... 21,000 330
Terra Industries.................. 23,600 260
-------
590
-------
Metals Fabrication (1.4%)
Amcast Industrial................. 19,000 359
-------
Miscellaneous Business Services
(1.7%)
National Service Industries....... 9,600 258
Pinkerton's*...................... 10,700 190
-------
448
-------
Miscellaneous Consumer Services
(1.1%)
CPI............................... 19,000 285
-------
Continued
31
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
SMALL CAP VALUE FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
------ -------
COMMON STOCKS, CONCLUDED:
Natural Gas (3.9%)
Energen...................... 19,000 $ 418
Enserch...................... 21,800 305
UGI.......................... 14,500 294
-------
1,017
-------
Paper & Paper Products (3.6%)
Nashua....................... 14,500 286
Pope And Talbot.............. 21,000 347
Stone Container.............. 13,000 304
-------
937
-------
Petroleum (3.4%)
Diamond Shamrock R&M......... 12,200 305
Pool Energy Services*........ 39,700 303
Quaker State................. 20,700 300
-------
908
-------
Printing & Publishing (2.9%)
Bowne........................ 21,300 364
Gibson Greetings............. 23,100 217
Western Publishing Group*.... 20,500 195
-------
776
-------
Real Estate (1.6%)
Pulte........................ 18,300 421
-------
Retail (11.8%)
Caldor*...................... 13,900 318
Fred's....................... 30,000 300
General Host................. 26,250 167
Genesco*..................... 53,100 126
Good Guys*................... 30,100 357
Hechinger, Class A........... 39,000 452
Ross Stores.................. 25,600 299
Ruddick...................... 19,200 391
Sizzler International........ 57,300 365
United States Shoe........... 18,100 344
-------
3,119
-------
Rubber & Plastic (0.4%)
Furon........................ 5,100 101
-------
MARKET
VALUE
SHARES (000)
------ -------
Semi-Conductors/Instruments (4.1%)
Applied Magnetics*................. 31,500 $ 95
M/A Communications*................ 35,600 245
Pioneer Standard Electronics....... 24,200 423
Quantum*........................... 22,300 329
-------
1,092
-------
Steel & Steel Works (2.3%)
Geneva Steel, Class A*............. 17,700 230
Quanex............................. 16,500 388
-------
618
-------
Trucking (1.2%)
Carolina Freight................... 27,300 324
-------
Utilities (3.6%)
IES Industries..................... 10,100 276
United Illuminating................ 11,000 366
Washington Water Power............. 20,600 309
-------
951
-------
Wholesale (6.0%)
Bergen Brunswig, Class A........... 25,095 684
Handleman.......................... 34,500 367
Marshall Industries*............... 12,400 322
Universal-Virginia................. 10,200 203
-------
1,576
-------
Total Common Stocks
(Cost $25,965,711)................. 26,122
-------
Total Investments (99.0%)
(Cost $25,965,711)................. 26,122
-------
OTHER ASSETS AND LIABILITIES (1.0%)
Other Assets and Liabilities, Net...... 271
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 2,397,825 outstanding shares
of beneficial interest............. 25,719
Accumulated net realized gain on
investments........................ 479
Net unrealized appreciation on
investments........................ 156
Continued
32
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
------ -------
NET ASSETS, CONCLUDED:
Undistributed net investment
income........................ $39
-------
Total Net Assets: (100.0%).... $26,393
-------
Net Asset Value and Redemption
Price Per Share............... $11.01
-------
Maximum Public Offering Price
Per Share ($11.01/96.25%)..... $11.44
-------
- ------------------
*Non-income producing security
BALANCED FUND
COMMON STOCKS (48.5%)
Aerospace & Defense (1.0%)
Raytheon...................... 3,500 $247
-------
Aircraft (0.8%)
United Technologies........... 3,000 199
-------
Automotive (1.6%)
Dana.......................... 7,500 185
Ford Motor.................... 8,000 209
-------
394
-------
Banks (3.8%)
Comerica...................... 6,500 183
JP Morgan..................... 3,000 192
Keycorp....................... 6,400 186
Mellon Bank................... 5,000 191
PNC Financial................. 6,000 153
-------
905
-------
Chemicals (3.1%)
Crompton & Knowles............ 10,000 169
E.I. Dupont de Nemours........ 4,000 224
Engelhard..................... 7,000 185
Witco......................... 5,800 166
-------
744
-------
MARKET
VALUE
SHARES (000)
------ -------
Communications Equipment (0.8%)
Harris............................. 4,000 $180
-------
Computers & Services (1.4%)
Novell*............................ 8,200 167
Pitney Bowes....................... 5,000 177
-------
344
-------
Drugs (3.1%)
Bristol Myers Squibb............... 4,000 248
Merck.............................. 4,300 182
Schering Plough.................... 1,700 133
Warner Lambert..................... 2,500 191
-------
754
-------
Electrical Equipment (1.0%)
Grainger (W.W.).................... 4,000 245
-------
Electronic Equipment (2.2%)
General Electric................... 6,000 329
Texas Instruments.................. 2,500 197
-------
526
-------
Environmental Services (1.2%)
Wheelabrator Technologies.......... 10,000 138
WMX Technologies................... 5,800 152
-------
290
-------
Financial Services (0.8%)
Federal National Mortgage
Association........................ 2,500 193
-------
Food, Beverage & Tobacco (3.0%)
Anheuser Busch..................... 2,800 158
Archer Daniels Midland............. 9,000 171
Pepsico............................ 5,000 196
Philip Morris Companies............ 3,000 182
-------
707
-------
Holding Company, Diversified (0.7%)
Hanson PLC, ADR.................... 8,500 159
-------
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
BALANCED FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
------ -------
COMMON STOCKS, CONCLUDED:
Household Furniture & Fixtures (0.7%)
Masco................................ 6,200 $156
-------
Insurance (1.5%)
Lincoln National..................... 4,700 190
Loews................................ 1,700 165
-------
355
-------
Machinery (1.4%)
BW/IP, Inc........................... 7,000 112
Ingersoll Rand....................... 7,000 223
-------
335
-------
Miscellaneous Manufacturing (1.8%)
Duracell International............... 4,000 167
Minnesota Mining and
Manufacturing........................ 5,000 273
-------
440
-------
Oil Services (0.8%)
Schlumberger......................... 3,500 199
-------
Paper & Paper Products (1.8%)
Kimberly-Clark....................... 5,000 260
Weyerhaeuser......................... 4,000 163
-------
423
-------
Petroleum (3.4%)
Atlantic Richfield................... 2,000 219
Burlington Resources................. 5,500 212
Chevron.............................. 3,800 181
Texaco............................... 3,000 191
-------
803
-------
Professional Services (0.8%)
Dun & Bradstreet..................... 3,800 196
-------
Railroads (1.6%)
Norfolk Southern..................... 3,000 198
Union Pacific........................ 3,500 183
-------
381
-------
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
Restaurants (0.6%)
McDonald's........................... 4,200 $ 140
-------
Retail (3.1%)
J. C. Penney......................... 4,000 172
May Department Stores................ 6,000 219
Toys "R" Us*......................... 6,500 181
Wal-Mart Stores...................... 7,200 171
-------
743
-------
Semi-Conductors/Instruments (1.0%)
Avnet................................ 6,000 233
-------
Telephones & Telecommunication (3.5%)
Airtouch Communications*............. 5,500 150
American Telephone & Telegraph....... 5,500 284
Bell Atlantic........................ 4,000 215
GTE.................................. 5,800 194
-------
843
-------
Utilities (2.0%)
Dominion Resources of Virginia....... 4,500 171
General Public Utilities............. 4,000 121
Pacific Gas and Electric............. 7,000 179
-------
471
-------
Total Common Stocks
(Cost $11,120,096)................... 11,605
-------
CORPORATE BONDS (6.6%)
Associates, N.A.
7.250%, 05/15/98.................... $200 199
Ford Motor Credit
7.500%, 06/15/04.................... 250 243
General Electric Capital
8.000%, 01/15/98.................... 200 204
Pepsico
6.250%, 09/01/99.................... 200 191
Southern California Edison
5.875%, 02/01/98.................... 200 191
Wal-Mart Stores
8.000%, 09/15/06.................... 300 303
WMX Technologies
8.250%, 11/15/99.................... 250 257
-------
Total Corporate Bonds
(Cost $1,569,957).................... 1,588
-------
Continued
34
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
CONVERTIBLE BONDS (0.9%)
Time Warner
8.750%, 01/10/15................ $200 $ 201
-------
Total Convertible Bonds
(Cost $200,156).................. 201
-------
ASSET BACKED SECURITIES (1.0%)
American Express Master Trust
7.150%, 08/15/99................ 250 246
-------
Total Asset Backed Securities
(Cost $244,922).................. 246
-------
U.S. TREASURY OBLIGATIONS (30.2%)
U.S. Treasury Bonds
7.250%, 05/15/16................ 500 483
7.500%, 11/15/16................ 500 495
8.125%, 08/15/19................ 500 529
U.S. Treasury Notes
5.500%, 04/30/96................ 500 494
6.000%, 06/30/96................ 200 198
6.125%, 07/31/96................ 150 149
7.250%, 08/31/96................ 500 504
7.500%, 01/31/97................ 300 304
6.750%, 02/28/97................ 250 250
6.750%, 05/31/97................ 250 249
7.375%, 11/15/97................ 500 505
7.250%, 02/15/98................ 400 403
7.500%, 10/31/99................ 500 508
6.375%, 01/15/00................ 250 243
7.500%, 11/15/01................ 650 664
7.500%, 05/15/02................ 500 510
6.375%, 08/15/02................ 250 238
7.250%, 05/15/04................ 250 250
7.875%, 11/15/04................ 250 261
-------
Total U. S. Treasury Obligations
(Cost $7,157,533)................ 7,237
-------
U.S. GOVERNMENT AGENCY OBLIGATIONS (1.3%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99................. 300 299
-------
Total U.S. Government Agency
Obligations (Cost $296,344)...... 299
-------
FACE MARKET
AMOUNT VALUE
(000)/SHARES (000)
------------ -------
SHORT TERM INVESTMENTS (10.8%)
Chemical Bank Repurchase
Agreement, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $1,645,276
(collateralized by U.S.
Treasury Note, par value
$1,660,000, 7.25%, maturing
02/15/98, market value
$1,679,893)................... $1,645 $1,645
Temp Cash Fund................ 942 942
-------
Total Short Term Investments
(Cost $2,587,000)............. 2,587
-------
Total Investments (99.3%)
(Cost $23,176,008)............ 23,763
-------
OTHER ASSETS AND LIABILITIES (0.7%)
Other Assets and Liabilities,
Net........................... 170
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 2,323,146
outstanding shares of
beneficial interest........... 23,216
Accumulated net realized gain
on investments................ 130
Net unrealized appreciation on
investments................... 587
-------
Total Net Assets: (100.0%)...... $23,933
=======
Net Asset Value and
Redemption Price Per Share.... $10.30
=======
Maximum Public Offering Price
Per Share ($10.30/96.25%)..... $10.70
=======
- ---------
*Non-income producing security.
ADR-American Depository Receipt
PLC-Public Limited Company
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
SHORT/INTERMEDIATE FUND
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
CORPORATE BONDS (36.2%)
Automobile, Finance (5.9%)
Ford Capital BV
9.50%, 07/01/01.................... $2,000 $ 2,160
Ford Motor Credit
8.00%, 01/15/99.................... 1,000 1,011
8.40%, 03/26/99.................... 5,000 5,118
General Motors Acceptance
8.60%, 07/17/95.................... 2,500 2,519
9.40%, 06/07/95.................... 1,000 1,008
--------
11,816
--------
Banks (2.0%)
Republic National Bank
New York
6.40%, 04/15/95.................... 4,000 4,000
--------
Beverages (6.5%)
Coca Cola
7.875%, 09/15/98................... 6,000 6,135
Pepsico
5.625%, 07/01/95................... 2,000 1,998
6.125%, 01/15/98................... 2,000 1,950
7.00%, 11/15/96.................... 3,000 3,004
--------
13,087
--------
Chemical & Allied Products (1.8%)
E.I. Dupont de Nemours
8.45%, 10/15/96.................... 3,500 3,574
--------
Electric Utility (3.4%)
Duke Power
7.50%, 04/01/99.................... 4,000 4,015
Southern California Edison
5.90%, 01/15/97.................... 3,000 2,936
--------
6,951
--------
Personal Credit Institutions (4.7%)
Associates Corporation of North
America
5.300%, 09/04/95................... 1,000 994
6.375%, 04/15/95................... 2,000 2,000
7.625%, 04/15/98................... 2,400 2,424
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
Beta Finance
6.19%, 04/20/95 (A).............. $2,000 $ 1,999
Household Finance
7.80%, 11/01/96.................. 2,000 2,015
--------
9,432
--------
Petroleum Refining (4.5%)
Texaco Capital
7.875%, 05/01/95................. 3,000 3,008
8.530%, 08/15/97................. 1,350 1,385
9.000%, 11/15/96................. 1,500 1,551
9.000%, 12/15/99................. 3,000 3,187
--------
9,131
--------
Retail (3.9%)
Bass America
6.75%, 08/01/99.................. 5,000 4,856
Wal-Mart Stores
8.00%, 05/01/96.................. 3,000 3,034
--------
7,890
--------
Security Brokers & Dealers (3.5%)
Goldman Sachs 4.77%, 10/16/95.... 3,000 2,966
Merrill Lynch 6.75%, 03/15/95.... 4,000 4,000
--------
6,966
--------
Total Corporate Bonds
(Cost $73,770,137)............... 72,847
--------
Collateralized Mortgage
Obligations (1.9%)
Federal Home Loan Mortgage
6.750%, 09/15/16................. 4,000 3,871
--------
Total Collateralized Mortgage
Obligations
(Cost $4,033,750)................ 3,871
--------
Asset Backed Securities (15.7%)
American Express Master Trust
7.150%, 08/15/99................. 4,750 4,682
Caterpillar Finance
6.100%, 03/17/95................. 5,000 5,000
Chase Manhattan Master Trust
8.750%, 08/15/99................. 2,000 2,040
Continued
36
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
[CAPTION]
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
ASSET BACKED SECURITIES, CONCLUDED:
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98................. $1,172 $ 1,153
Merrill Lynch Asset Backed
5.500%, 05/15/98................. 1,837 1,818
5.125%, 07/15/98................. 1,654 1,630
Premier Auto Trust
4.900%, 10/15/98................. 804 784
4.650%, 11/02/99................. 5,527 5,328
Standard Credit Card Master Trust
8.875%, 09/07/99................. 5,000 5,225
7.875%, 01/07/00................. 4,000 4,064
--------
Total Asset Backed Securities
(Cost $31,970,403)............... 31,724
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (2.0%)
Federal Home Loan Mortgage
7.860%, 01/21/97................. 2,000 2,030
Tennessee Valley Authority
8.375%, 10/01/99................. 2,000 2,080
--------
Total U.S. Government Agency
Obligations (Cost $4,004,410).... 4,110
--------
U. S. TREASURY OBLIGATIONS (41.9%)
U.S. Treasury Notes
5.125%, 11/15/95................. 2,000 1,983
8.500%, 11/15/95................. 2,000 2,027
7.500%, 01/31/96................. 8,000 8,073
4.625%, 02/15/96................. 5,000 4,915
5.125%, 03/31/96................. 3,000 2,956
4.250%, 05/15/96................. 3,000 2,919
7.375%, 05/15/96................. 2,000 2,018
7.250%, 08/31/96................. 1,000 1,008
6.500%, 11/30/96................. 1,000 996
7.250%, 11/30/96................. 2,000 2,016
6.250%, 01/31/97................. 3,000 2,972
6.750%, 02/28/97................. 2,000 1,999
6.875%, 04/30/97................. 10,000 10,008
6.500%, 05/15/97................. 5,000 4,963
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------ ---------
6.750%, 05/31/97................... $8,000 $ 7,981
5.625%, 08/31/97................... 8,000 7,774
5.750%, 10/31/97................... 3,000 2,916
6.000%, 11/30/97................... 5,000 4,887
7.875%, 01/15/98................... 4,000 4,096
7.250%, 02/15/98................... 4,000 4,034
5.125%, 02/28/98................... 1,000 951
8.000%, 08/15/99................... 3,000 3,108
---------
Total U. S. Treasury Obligations
(Cost $86,193,884)................. 84,600
---------
SHORT TERM INVESTMENTS (1.1%)
Temp Cash Fund..................... 2,141 2,141
---------
Total Short Term Investments
(Cost $2,141,028).................. 2,141
---------
Total Investments (98.8%)
(Cost $202,113,612)................ 199,293
---------
OTHER ASSETS AND LIABILITIES (1.2%)
Other Assets and Liabilities, Net...... 2,481
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 19,936,683 outstanding
shares of beneficial interest...... 207,856
Accumulated net realized loss on
investments........................ (3,296)
Net unrealized depreciation on
investments........................ (2,821)
Undistributed net investment
income............................. 35
---------
Total Net Assets: (100.0%)........... $201,774
---------
Net Asset Value and Redemption
Price Per Share.................... $10.12
---------
Maximum Public Offering Price
Per Share ($10.12/96.25%).......... $10.51
---------
- -----------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
FIXED INCOME FUND
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
CORPORATE BONDS (41.9%)
Auto Finance (3.1%)
Ford Capital BV
9.50%, 07/01/01................ $ 1,000 $ 1,080
Ford Motor Credit
6.75%, 08/15/08................ 5,000 4,475
8.00%, 01/15/99................ 2,000 2,023
--------
7,578
--------
Banks (3.0%)
Banque Nationale de Paris
9.875%, 05/25/98............... 1,000 1,074
National Westminster Bank,
New York
9.45%, 05/01/01................ 4,000 4,334
Toronto Dominion Bank,
New York
7.875%, 08/15/04............... 2,000 1,968
--------
7,376
--------
Commercial Printing (3.9%)
R.R. Donnelley & Sons
7.00%, 01/01/03................ 2,000 1,933
8.875%, 04/15/21............... 7,000 7,656
--------
9,589
--------
Electric Utility (1.2%)
Southern California Edison
5.90%, 01/15/97................ 2,000 1,957
Teco Energy
9.25%, 06/19/97................ 1,000 1,044
--------
3,001
--------
Financial Services (1.4%)
Beta Finance
6.19%, 04/20/95 (A)............ 3,500 3,499
--------
Food, Beverage & Tobacco (6.5%)
Anheuser Busch
9.00%, 12/01/09................ 4,000 4,374
Archer Daniels Midland
7.125%, 03/01/13............... 3,000 2,764
Coca Cola
7.875%, 09/15/98............... 1,955 1,999
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
Grand Metropolitan Investment
7.125%, 09/15/04................... $ 5,000 $ 4,791
Pepsico
6.125%, 01/15/98................... 2,000 1,950
--------
15,878
--------
Paper & Allied Products (3.2%)
Kimberly-Clark, Callable
02/01/13 @ 100
7.875%, 02/01/23................... 3,750 3,684
Weyerhaeuser
8.84%, 04/12/99.................... 4,000 4,200
--------
7,884
--------
Personal Credit Institutions (1.7%)
Associates Corporation of North
America
8.625%, 06/15/97................... 3,000 3,083
Associates Corporation of North
America, Callable
04/15/96 @100
7.625%, 04/15/98................... 1,000 1,010
--------
4,093
--------
Petroleum Refining (2.6%)
Texaco Capital
8.50%, 02/15/03.................... 5,000 5,225
9.00%, 11/15/96.................... 1,000 1,034
--------
6,259
--------
Railroads (1.8%)
Norfolk Southern
9.00%, 03/01/21.................... 4,000 4,365
--------
Retail-Department Stores (1.3%)
J.C. Penney, Callable
07/12/00 @ 100
9.45%, 07/15/02.................... 3,000 3,218
--------
Retail-Eating Places (2.8%)
Bass America
6.625%, 03/01/03................... 1,000 930
6.75%, 08/01/99.................... 4,000 3,885
McDonald's
7.375%, 07/15/02................... 2,000 1,998
--------
6,813
--------
Continued
38
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
CORPORATE BONDS, CONCLUDED:
Retail-Grocery Stores (2.1%)
Albertsons
4.82%, 03/25/96.................. $ 5,000 $ 4,894
--------
Retail-Variety Stores (0.8%)
Wal-Mart Stores
8.00%, 05/01/96.................. 2,000 2,023
--------
Security Brokers & Dealers (2.7%)
Merrill Lynch
7.00%, 04/27/08.................. 3,000 2,692
8.30%, 11/01/02.................. 2,000 2,030
Merrill Lynch,
Callable 04/15/98 @ 100
7.05%, 05/15/03.................. 2,000 1,868
--------
6,590
--------
Soap (0.8%)
Procter and Gamble
7.375%, 03/01/23................. 2,000 1,858
--------
Trucking (3.0%)
United Parcel Service
8.375%, 04/01/20................. 7,000 7,324
--------
Total Corporate Bonds
(Cost $104,818,508).............. 102,242
--------
COLLATERALIZED MORTGAGE
OBLIGATIONS (3.4%)
Federal Home Loan Mortgage
Corporation
8.000%, 03/15/05................. 1,773 1,786
6.750%, 09/15/16................. 6,000 5,807
Federal National Mortgage
Association
9.500%, 09/25/18................. 789 802
--------
Total Collateralized Mortgage
Obligations
(Cost $8,505,143)................ 8,395
--------
Asset Backed Securities (4.7%)
American Express Master Trust
7.150%, 08/15/99................. 2,000 1,971
Chase Manhattan Master Credit
Card Trust
8.750%, 08/15/99................. 3,000 3,060
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98............. $ 703 $ 692
Merrill Lynch
5.500%, 05/15/98............. 1,102 1,091
5.125%, 07/15/98............. 1,654 1,630
Premier Auto Trust
4.900%, 10/15/98............. 3,218 3,135
--------
Total Asset Backed Securities
(Cost $11,775,461)........... 11,579
--------
GOVERNMENT POOLED MORTGAGES (1.3%)
Government National Mortgage
Association
9.000%, 09/15/16............. 539 559
9.000%, 10/15/19............. 334 346
9.000%, 11/15/19............. 544 564
9.000%, 12/15/19............. 273 283
8.500%, 03/15/20............. 208 211
8.500%, 04/15/20............. 1,255 1,276
--------
Total Government Pooled
Mortgages (Cost $3,025,554).. 3,239
--------
U.S. TREASURY OBLIGATIONS (37.9%)
U.S. Treasury Bond, Callable
02/15/02 @ 100
7.625%, 02/15/07............. 2,000 2,021
U.S. Treasury Bonds
7.250%, 05/15/16............. 10,000 9,656
8.750%, 05/15/17............. 2,000 2,243
8.125%, 08/15/19............. 6,000 6,343
7.875%, 02/15/21............. 1,000 1,030
6.250%, 08/15/23............. 5,000 4,256
U.S. Treasury Notes
5.125%, 11/15/95............. 3,000 2,974
4.250%, 12/31/95............. 5,000 4,911
4.625%, 02/15/96............. 7,500 7,372
5.125%, 03/31/96............. 2,000 1,971
7.375%, 05/15/96............. 1,000 1,009
4.375%, 11/15/96............. 3,000 2,887
6.500%, 11/30/96............. 2,000 1,992
6.500%, 05/15/97............. 2,000 1,985
6.750%, 05/31/97............. 3,000 2,993
Continued
39
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
FIXED INCOME FUND (CONTINUED)
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------- --------
U.S. TREASURY OBLIGATIONS, CONCLUDED:
U.S. Treasury Notes, continued:
6.500%, 08/15/97............... $ 1,000 $ 992
5.625%, 08/31/97............... 2,000 1,944
5.750%, 10/31/97............... 2,000 1,944
6.000%, 11/30/97............... 3,000 2,932
7.250%, 02/15/98............... 4,000 4,034
5.125%, 02/28/98............... 2,000 1,903
5.125%, 03/31/98............... 7,000 6,648
8.250%, 07/15/98............... 2,000 2,074
7.125%, 10/15/98............... 2,000 2,013
5.125%, 11/30/98............... 2,000 1,876
6.375%, 01/15/99............... 2,000 1,956
7.000%, 04/15/99............... 2,000 2,000
8.500%, 11/15/00............... 6,000 6,388
7.750%, 02/15/01............... 2,000 2,062
--------
Total U.S. Treasury Obligations
(Cost $95,074,699)............. 92,409
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (1.2%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99............... 3,000 2,989
--------
Total U.S. Government Agency
Obligations
(Cost $2,989,800).............. 2,989
--------
YANKEE BONDS (3.4%)
Hydro Quebec
9.400%, 02/01/21............... 3,000 3,236
Province of Ontario
8.000%, 10/17/01............... 5,000 5,088
--------
Total Yankee Bonds
(Cost $8,156,580).............. 8,324
--------
SHORT TERM INVESTMENTS (5.0%)
Temp Cash Fund................. 12,134 12,134
--------
Total Short Term Investments
(Cost $12,134,069)............. 12,134
--------
Total Investments (98.8%)
(Cost $246,479,814)............ 241,311
--------
FACE MARKET
AMOUNT VALUE
(000) (000)
------ ---------
OTHER ASSETS AND LIABILITIES (1.2%)
Other Assets and Liabilities, Net.. $ 2,827
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,271,783
outstanding shares of
beneficial interest................ 252,500
Accumulated net realized loss on
investments........................ (3,224)
Net unrealized depreciation on
investments........................ (5,168)
Undistributed net investment
income............................. 30
---------
Total Net Assets: (100.0%)......... $244,138
=========
Net Asset Value and Redemption
Price Per Share.................... $10.06
=========
Maximum Public Offering Price
Per Share ($10.06/96.25%).......... $10.45
=========
- -------------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
MUNICIPAL BOND FUND
MUNICIPAL BONDS (96.5%)
Arizona (3.5%)
Salt River Project, Series A, RB
5.300%, 01/01/03................... $ 500 $ 503
Scottsdale, Municipal Property
Corporation, RB, (FGIC),
Callable 11/01/02 @ 100
6.250%, 11/01/10................... 500 506
---------
1,009
---------
California (6.0%)
Azusa, Unified School District,
GO, (AMBAC)
5.100%, 05/01/07................... 830 784
The accompanying notes are an integral part of the finanial statements.
40
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONTINUED:
California, continued
State Public Power Authority,
San Juan Power Project,
Series A, RB, (MBIA), Callable
01/01/05 @ 100
5.375%, 01/01/10.............. $1,000 $ 945
-------
1,729
-------
Florida (1.9%)
Palm Beach County, Solid Waste
Authority, RB, Callable
07/01/97 @ 103
8.625%, 07/01/04.............. 500 553
-------
Hawaii (7.6%)
Honolulu, Series C, GO,
Prerefunded @ 101
7.150%, 06/01/00 (B).......... 1,000 1,102
State, Series BR, GO,
Prerefunded @ 100
7.000%, 06/01/00 (B).......... 1,000 1,086
-------
2,188
-------
Illinois (12.3%)
Chicago, School Finance
Authority, Series B, GO,
(MBIA), Callable
06/01/96 @ 102
7.600%, 06/01/02.............. 250 263
Kane County, Elgin Community
College Project, Series A, RB,
(FGIC)
5.300%, 12/01/09.............. 1,000 979
State Education Facilities
Authority, Shedd Aquarium
Society, Series A, RB,
Mandatory Put @ 102
8.625%, 09/26/97 (B) (C)...... 560 607
State Education Facilities
Authority, Wesleyan University
Project, RB
5.600%, 09/01/11 (C).......... 1,260 1,172
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
Winnebago and Boone Counties,
Rockford School District,
Series C, GO, (FGIC)
5.900%, 02/01/05.................. $ 500 $ 512
-------
3,533
-------
Kentucky (1.8%)
Jefferson County, Capital Project,
Series A, RB
5.650%, 08/15/03.................. 500 506
-------
Louisiana (1.7%)
State Recovery District Sales Tax
Revenue, VRDN, RB, (MBIA)
3.750%, 03/01/95 (A) (B).......... 500 500
-------
Michigan (3.2%)
State Municipal Bond Authority,
Revolving Fund, RB
5.400%, 10/01/14.................. 1,015 920
-------
Minnesota (3.3%)
State, GO
5.000%, 08/01/05.................. 1,000 956
-------
Nebraska (1.8%)
State Public Power Supply
Systems, RB, Callable
01/01/03 @ 102
6.000%, 01/01/08.................. 500 503
-------
New Hampshire (2.0%)
State Turnpike Authority,
Series A, RB, (FGIC), Callable
11/01/03 @ 100
7.000%, 11/01/06.................. 500 563
-------
Ohio (4.5%)
Columbus, Refuse Coal Fired
Plant, GO
6.625%, 09/15/01.................. 265 285
State Water Development
Authority, RB, (AMBAC),
Callable 12/01/02 @ 102
6.000%, 12/01/08.................. 1,000 1,015
-------
1,300
-------
Continued
41
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
MUNICIPAL BOND FUND (CONTINUED)
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONTINUED:
Pennsylvania (16.7%)
Geisinger Health System,
Series B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... $ 500 $ 500
Philadelphia, Hospital and Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 600 600
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)..... 700 699
Schuylkill County, Redevelopment
Authority, Commonwealth
Lease, Series A, RB, (FGIC),
Callable 06/01/03 @ 100
6.950%, 06/01/04................. 500 546
Solanco School District, GO,
(FGIC), Callable
02/15/04 @ 100
6.300%, 02/15/14................. 1,000 1,006
State Higher Education
Authority, Student Loan
Assistance Agency, Series A,
RB, (FGIC)
6.800%, 12/01/00................. 630 672
State Public School Building
Authority, Series D, RB,
(FGIC), Callable
07/01/02 @ 102
6.250%, 01/01/07................. 500 519
Westmoreland County, GO,
(AMBAC)
6.050%, 06/01/97................. 250 255
-------
4,797
-------
Puerto Rico (2.1%)
Telecom Authority, RB, (MBIA)
5.250%, 01/01/05................. 500 493
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
University of Puerto Rico,
Series L, RB, Callable
06/01/96 @ 102
7.750%, 06/01/07 (C)............. $ 100 $ 105
-------
598
-------
South Carolina (1.8%)
Piedmont, Municipal Power
Agency, RB, (MBIA)
6.250%, 01/01/09................. 500 525
-------
South Dakota (1.8%)
State Building Lease Authority,
Series A, RB, (CGIC)
6.375%, 09/01/05................. 500 529
-------
Tennessee (3.7%)
State, Series B, GO, Callable
06/01/01 @ 101.5
6.850%, 06/01/10................. 1,000 1,073
-------
Texas (3.8%)
Harris County, GO, Callable
08/01/01 @ 102
7.000%, 08/01/09................. 500 539
University of Texas, Series A,
RB, Callable 08/15/01 @ 102
7.000%, 08/15/07................. 500 546
-------
1,085
-------
Utah (1.7%)
Salt Lake City, Motor Fuel Excise
Tax, Series A, RB
5.400%, 02/01/03................. 500 487
-------
Vermont (7.4%)
Burlington, Waterworks Systems,
Series A, RB, (FGIC), Callable
07/01/97 @ 102
6.875%, 07/01/12................. 1,000 1,046
State, Series A, GO,
Prerefunded @ 102
6.750%, 02/01/00 (B)............. 1,000 1,087
-------
2,133
-------
Continued
42
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------ --------
MUNICIPAL BONDS, CONCLUDED:
Virginia (3.5%)
Loudoun County, Industrial
Development Authority,
Marriott Project, VRDN, RB
4.050%, 03/01/95 (A) (B) (C)....... $ 500 $ 500
State Housing Development
Authority, Series A, RB, AMT
6.700%, 07/01/05 (C)............... 500 518
--------
1,018
--------
Washington (1.8%)
Port of Seattle, Series A, RB,
Callable 11/01/02 @ 102
6.250%, 11/01/10................... 500 510
--------
Washington, D.C. (1.7%)
District of Columbia, Series C,
GO, (AMBAC),
Prerefunded @ 102
7.600%, 06/01/98 (B)............... 450 492
--------
Wisconsin (0.9%)
Milwaukee, Sewer District, GO
6.125%, 10/01/03................... 250 259
--------
Total Municipal Bonds
(Cost $28,048,080)................. 27,766
--------
SHORT TERM INVESTMENTS (3.6%)
SEI Institutional Tax-Free
Portfolio
3.93%, 03/07/95.................... 1,026 1,026
--------
Total Short Term Investment
(Cost $1,026,246).................. 1,026
--------
Total Investments (100.1%)
(Cost $29,074,326)................. 28,792
--------
OTHER ASSETS AND LIABILITIES (-0.1%)
Other Assets and Liabilities, Net.... (42)
--------
MARKET
VALUE
(000)
--------
NET ASSETS:
Portfolio shares (unlimited authorization-no
par value) based on 2,796,278 outstanding
shares of beneficial interest............... $30,114
Accumulated net realized loss on
investments................................. (1,091)
Net unrealized depreciation on investments.... (282)
Distributions in excess of net investment
income...................................... 9
--------
Total Net Assets: (100.0%).................... $28,750
========
Net Asset Value and Redemption Price Per
Share....................................... $ 10.28
========
Maximum Public Offering Price Per
Share ($10.28/96.25%)....................... $ 10.68
========
- -----------------------------------------------------
(A) Variable Rate Security-the rate reflected on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
CGIC-Capital Guaranty Insurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS (99.4%)
Kansas (0.4%)
Butler County, Solid Waste
Disposal, VRDN, RB, AMT
4.300%, 03/01/95 (A) (B) (C)..... $ 400 $ 400
-------
New Jersey (98.0%)
Absecon, Board of Education,
COP, (MBIA)
5.625%, 12/15/02................. 770 788
Bayshore, Bayshore Regional
Sewer Authority, Series A, RB,
(MBIA)
5.250%, 05/01/06................. 1,000 963
Bergen County, Utility Authority,
Series A, RB, (FGIC), Callable
06/15/02 @ 100
5.500%, 06/15/13................. 1,000 961
Bordentown, Sewage Authority,
Series D, RB, (MBIA)
5.100%, 12/01/05................. 635 609
Borough of Roselle, Fiscal Year
Adjustment Bonds, Series 1993,
GO, (MBIA)
4.850%, 10/15/05................. 1,000 920
Brick Township, Municipal
Utilities Authority, RB
6.750%, 12/01/16................. 1,000 1,089
Brigantine, GO, (MBIA), Callable
08/01/02 @ 101
6.250%, 08/01/03................. 730 778
Burlington County, Bridge
Commission, RB
5.150%, 10/01/05 (C)............. 1,000 975
Camden County, Improvement
Authority Lease, RB
5.700%, 12/01/05 (C)............. 500 499
Camden County, Improvement
Authority Lease, RB, Callable
12/01/02 @ 101
6.000%, 12/01/12 (C)............. 500 501
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
Camden County, Improvement
Authority, Health Services
Center Project, Series B, RB,
(AMBAC)
4.900%, 12/01/05................ $1,000 $ 935
Camden, Board of Education, GO,
(FSA)
5.000%, 10/01/05................ 450 428
Cape May County, Bridge
Commission, RB
6.500%, 06/01/00................ 350 364
Cape May County, Municipal
Utilities Authority, Series B,
RB, (FGIC)
4.900%, 01/01/09................ 1,000 909
Carteret, GO, (FGIC)
5.050%, 10/01/05................ 925 890
5.250%, 10/01/07................ 980 940
5.450%, 10/01/09................ 500 481
Cherry Hill Township, GO
6.000%, 06/01/06................ 500 514
Delaware River Joint Toll Bridge
Commission, RB, (FGIC)
6.250%, 07/01/12................ 400 412
Dover Township, GO, (AMBAC),
Callable 10/15/02 @ 102
6.000%, 10/15/03................ 1,000 1,050
Edison Township, GO
6.500%, 06/01/04................ 500 539
Edison Township, GO, (AMBAC)
4.800%, 01/01/05................ 750 696
5.000%, 01/01/07................ 1,000 918
Edison Township, School
Authority, GO
6.500%, 06/01/03................ 1,000 1,073
Essex County, Correctional
Facility Improvement,
RB, (AMBAC), Callable
12/01/06 @ 100
6.900%, 12/01/14................ 500 533
Continued
44
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Essex County, Improvement
Authority, Lease Capital
Equipment Program,
Series C, RB
7.000%, 09/01/98 (C)........... $ 310 $ 326
Essex County, Improvement
Authority, RB, (AMBAC)
5.300%, 12/01/06............... 1,000 968
Essex County, Series A, GO,
(MBIA)
4.600%, 10/01/03............... 1,500 1,412
Evesham Township, Municipal
Utilities Authority, Series B,
RB, (MBIA),
Callable 07/01/97 @ 100
6.800%, 07/01/01............... 1,010 1,054
6.850%, 07/01/02............... 1,080 1,126
Flemington-Raritan, GO
6.250%, 02/01/12 (C)........... 500 518
Gloucester County, Housing
Authority, RB
6.200%, 09/15/11 (C)........... 500 498
Hillside Township, GO, (MBIA)
6.600%, 02/15/07............... 1,000 1,061
Irvington Township, School
District Refunding Bonds,
Series 1993, GO, (FSA)
5.000%, 10/01/11............... 1,000 906
Knowlton Township, Board of
Education, GO
6.600%, 08/15/10............... 170 183
6.600%, 08/15/11............... 169 182
Lacey Township, Municipal
Utilities Authority, RB, (MBIA)
6.000%, 12/01/12............... 1,000 1,000
Landis, Sewer Authority,
RB, (FGIC)
5.400%, 10/01/06............... 500 486
Manchester Township, Board of
Education, COP, (MBIA)
5.300%, 12/15/07............... 500 476
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
Medford Township, Board of
Education, GO, (FGIC),
Callable 02/01/05 @ 100
5.950%, 02/01/11............... $ 500 $ 501
Mercer County, Hamilton Board
of Education Lease Project,
RB, (MBIA)
5.250%, 12/15/14............... 1,000 913
Mercer County, Improvement
Authority, Hamilton Township
Board of Education Project,
RB, (MBIA)
5.900%, 06/01/03............... 500 516
Mercer County, Improvement
Revenue Government Lease
Program, RB,
Prerefunded @ 101
7.250%, 12/01/98 (B)........... 985 1,067
Middletown Township, Sewer
Authority, Series A, RB, (FGIC)
5.000%, 01/01/06............... 1,000 933
5.050%, 01/01/07............... 1,095 1,017
5.100%, 01/01/08............... 1,750 1,609
Monmouth County, Utility
Authority, GO,
Callable 08/01/00 @ 102
7.000%, 08/01/06............... 1,000 1,081
Moorestown, School District,
GO, (AMBAC)
6.600%, 06/01/05............... 450 488
Morris Township, GO,
6.550%, 07/01/01............... 500 533
Morristown, GO, (FSA)
6.400%, 08/01/14............... 500 520
North Arlington, GO, (AMBAC)
4.800%, 02/01/12............... 600 527
4.800%, 02/01/13............... 441 386
North Bergen Township,
GO, (FSA)
5.900%, 08/15/01............... 500 519
North Bergen Township,
Municipal Utilities Authority,
RB, (FGIC)
5.200%, 12/15/07............... 1,000 956
Continued
45
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Northwest Bergen County,
Utilities Authority, RB, (MBIA)
5.900%, 07/15/06................ $ 755 $ 782
Nutley, GO
7.000%, 08/01/98................ 400 407
Ocean County, General
Improvement, GO
6.300%, 04/15/97................ 1,000 1,028
5.125%, 07/01/06................ 800 759
5.150%, 07/01/09................ 1,000 926
5.150%, 07/01/10................ 1,250 1,147
Ocean County, Series A, GO
6.250%, 10/01/01................ 1,280 1,347
Ocean County, Series A, GO,
Callable 10/01/01 @102
6.250%, 10/01/05................ 1,050 1,108
Ocean County, Utility Authority,
Series A, RB,
Callable 01/01/07 @ 100
6.300%, 01/01/12 (C)............ 1,005 1,039
Parsippany Troy Hills
Township, GO
4.700%, 12/01/04................ 1,000 928
Passaic Valley, Water
Commission, Series A,
RB, (FGIC)
5.950%, 12/15/02................ 500 529
Piscataway Township, School
District, COP, (FSA)
5.150%, 06/15/06................ 500 483
Point Pleasant, GO, (MBIA)
5.700%, 12/01/03................ 500 511
Port Authority, RB
5.200%, 09/01/13 (C)............ 1,000 914
Port Authority, RB,
Callable 04/01/96 @ 102
7.250%, 04/01/14 (C)............ 1,500 1,544
Scotch Plains Township, Senior
Citizen Housing, RB
5.625%, 09/01/13 (C)............ 500 470
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
South Plainfield, Board of
Education, COP, (MBIA),
Callable 06/15/02 @ 100
6.500%, 12/15/07............... $ 780 $ 824
South Plainfield, GO, (AMBAC)
4.750%, 09/01/08............... 1,030 937
State Building Authority, RB
7.150%, 06/15/99............... 200 217
State Building Authority, RB,
Prerefunded @ 102
7.200%, 06/15/99 (B)........... 1,200 1,316
State Economic Development
Authority, Trenton Office
Complex Project, RB
6.625%, 06/15/01............... 1,050 1,130
State Health Care Facility, St.
Clares-Riverside Medical
Center, RB, (MBIA)
5.750%, 07/01/14............... 500 489
State Highway Authority, Garden
State Parkway Project, RB
4.900%, 01/01/05 (C)........... 1,000 961
6.200%, 01/01/10............... 750 773
6.250%, 01/01/14............... 500 507
State Highway Authority, Garden
State Parkway Project, RB,
Callable 01/01/02 @ 102
6.000%, 01/01/05............... 1,350 1,401
State Housing Finance Agency,
Series A, RB
6.700%, 05/01/05 (C)........... 500 527
State Housing Finance Agency,
Series A, RB,
Callable 05/01/02 @ 102
6.700%, 11/01/05 (C)........... 1,000 1,054
6.950%, 11/01/13 (C)........... 750 783
State Sports & Exposition
Authority, State Contract
Bonds, Series A, RB
5.300%, 09/01/09............... 955 899
Continued
46
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State Transportation Authority,
Series A, RB
5.400%, 06/15/97............... $ 500 $ 508
6.000%, 06/15/00............... 1,030 1,069
State Turnpike Authority,
Series A, RB
6.400%, 01/01/02............... 250 265
State Turnpike Authority,
Series A, RB,
Callable 01/01/96 @ 100
6.900%, 01/01/14............... 970 983
State Turnpike Authority,
Series C, RB
6.500%, 01/01/16............... 500 528
State Turnpike Authority,
Series C, RB, (AMBAC)
6.250%, 01/01/10............... 1,350 1,380
State Wastewater Authority,
Series B, RB
7.000%, 05/15/04............... 950 1,022
State Wastewater Authority,
Treatment Trust,
RB, (AMBAC)
4.600%, 03/01/06............... 1,500 1,343
4.800%, 03/01/13............... 1,590 1,355
State Water Supply District
Authority, Wanaque North
Project, Series A, RB, (MBIA)
6.500%, 11/15/06............... 510 547
State, GO
7.000%, 04/01/97............... 1,350 1,404
6.250%, 09/15/01............... 1,000 1,063
State, GO, Callable
04/01/01 @ 100.50
7.000%, 04/01/03............... 500 544
State, GO,
Prerefunded @ 101.50
7.400%, 04/15/97 (B)........... 820 872
State, Port Authority Marine
Terminal, Series G, RB
5.500%, 01/01/15 (C)........... 2,280 2,152
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
State, Series C, GO, Callable
01/15/99 @ 101.5
6.500%, 01/15/08................. $1,000 $ 1,046
State, Series C, GO, Callable
01/15/99 @ 101.50
6.500%, 01/15/05................. 500 525
Stony Brook, Regional Sewer
Authority, Series B, RB
5.200%, 12/01/06 (C)............. 500 482
Tinton Falls, Board of Education,
GO, (MBIA), Callable
10/15/04 @ 100
5.875%, 10/15/09................. 1,010 1,009
Union County, Pollution Control
Financing Authority, Exxon
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 500 500
Wanaque Valley, Regional Sewer
Authority, Series B, RB,
(AMBAC)
5.650%, 09/01/08................. 585 581
Warren County, GO, (AMBAC)
4.650%, 09/15/06................. 500 464
Warren County, Pollution Control
Finance Authority, Resource
Recovery, RB, (MBIA), Callable
12/01/02 @ 102
6.350%, 12/01/04................. 500 542
Warren County, Pollution Control
Finance Authority, Series B,
RB, (MBIA)
5.700%, 12/01/03................. 500 518
Warren Hills, Regional School
District, COP, (FSA)
4.800%, 12/15/03................. 685 653
4.900%, 12/15/04................. 710 675
Warren Township, Sewer
Authority, RB
6.450%, 12/01/05................. 275 295
Weehawken, GO, (FSA)
6.150%, 07/01/04................. 350 371
Continued
47
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS, CONCLUDED:
New Jersey, continued:
West Long Branch, Board of
Education, COP, (MBIA)
5.000%, 12/15/09................... $1,380 $ 1,259
West Windsor Plainsboro,
Regional Board of Education,
Series 1993, COP, (MBIA)
5.800%, 03/15/06................... 1,000 1,024
Winslow Township, GO, (FGIC),
Callable 10/01/02 @ 102
6.400%, 10/01/05................... 870 914
Woodbridge Township, GO
5.800%, 08/15/03................... 500 514
6.050%, 08/15/05................... 500 521
Woodbridge Township, Series C,
GO
5.000%, 09/15/11................... 1,000 884
Woodbridge Township, Sewer
Utility, Series B, GO
5.000%, 09/15/10................... 965 858
-------
94,937
-------
Puerto Rico (1.0%)
University of Puerto Rico,
Series L, RB, Callable
06/01/96 @ 102
7.750%, 06/01/07 (C)............... 915 964
-------
Total Municipal Bonds
(Cost $97,958,123)................. 96,301
-------
Total Investments (99.4%)
(Cost $97,958,123)................. 96,301
-------
OTHER ASSETS AND LIABILITIES (0.6%)
Other Assets and Liabilities, Net.. 556
-------
MARKET
VALUE
(000)
--------
NET ASSETS:
Portfolio shares (unlimited authorization-no
par value) based on 8,857,006 outstanding
shares of beneficial interest............... $98,940
Accumulated net realized loss on
investments................................. (433)
Net unrealized depreciation on investments.... (1,657)
Undistributed net investment income........... 7
--------
Total Net Assets: (100.0%).................... $96,857
========
Net Asset Value and Redemption Price Per
Share....................................... $10.94
========
Maximum Public Offering Price Per Share
($10.94/96.25%)............................. $11.37
========
- ----------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
COP-Certificate of Participation
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
FSA-Financial Security Assurance
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL
BOND FUND
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
MUNICIPAL BONDS (104.3%)
Pennsylvania (104.3%)
Allegheny County, Children's
Hospital, Series A, RB, (MBIA),
Callable 07/01/98 @ 102
7.000%, 07/01/06................... $ 500 $ 531
Allegheny County, Series C-40,
GO, (AMBAC), Callable
05/01/02 @ 102
5.900%, 05/01/07................... 500 504
Allegheny County, Series C-42, GO
5.000%, 10/01/10................... 500 446
Beaver County, Industrial
Development Authority, J&L
Specialty Products Corporation,
RB, Callable 09/01/97 @ 100
6.600%, 09/01/10 (C)............... 500 508
Berks County, Second Series, GO,
(FGIC)
5.000%, 05/15/10................... 500 456
Bristol Township, School District,
Series A, GO, (MBIA)
5.000%, 02/15/07................... 500 465
Central Bucks, School District,
Series A, GO, (MBIA)
5.300%, 05/15/11................... 500 469
Deer Lakes, School District, GO,
(MBIA), Callable
01/15/04 @ 100
6.450%, 01/15/19 (B)............... 500 508
Lackawanna County, GO,
(AMBAC)
5.100%, 12/01/08................... 250 231
Lancaster, Parking Authority,
RB, Callable 01/01/96 @ 100
9.375%, 01/01/05................... 450 466
Manheim, Central School District,
GO, (FGIC)
6.100%, 05/15/14................... 1,000 1,000
North Penn, School District,
Series AA, GO
5.100%, 09/01/09................... 500 461
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
Philadelphia, Authority for
Industrial Development,
National Board of Medical
Examiners Project, RB,
Callable 05/01/02 @ 102
6.750%, 05/01/12................. $ 500 $ 516
Philadelphia, Hospitals and
Higher Education Facilities
Authority, Willis Eye Hospital
Project, RB
5.500%, 07/01/05................. 500 474
Pittsburgh, Series D, GO,
(AMBAC)
6.125%, 09/01/17................. 500 503
Pittsburgh, Urban
Redevelopment Authority,
Series A, RB
5.500%, 10/01/10................. 500 464
Pocono Mountain, School District,
Series AA, GO, (AMBAC),
Callable 04/01/02 @ 100
5.750%, 10/01/09 (B)............. 500 491
Seneca Valley, School District,
Series A, GO, (FGIC), Callable
07/01/02 @ 100
5.750%, 07/01/10................. 500 488
Southeastern Pennsylvania
Transportation Authority, RB
5.750%, 12/01/04................. 500 502
State Financing Authority, RB,
Callable 11/01/03 @ 102
6.600%, 11/01/09................. 500 507
State Higher Education
Authority, Drexel University
Project, RB, (MBIA), Callable
05/01/00 @ 100
7.250%, 05/01/10................. 500 529
State Higher Education
Authority, Susquehanna
University Project, RB,
(AMBAC), Callable
03/01/98 @ 101
6.900%, 03/01/02................. 750 787
Continued
49
<PAGE>
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------
February 28, 1995
PENNSYLVANIA MUNICIPAL
BOND FUND (CONTINUED)
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State Higher Education
Authority, Temple University
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)... $ 200 $ 200
State Higher Education
Authority, Thomas Jefferson
University Hospital Project,
RB, Callable 11/01/95 @ 102
9.100%, 07/01/01............... 200 209
State Higher Education
Authority, Thomas Jefferson
University Project, RB,
Prerefunded @ 102
7.550%, 11/01/00 (B)........... 500 566
State Higher Education
Authority, Trustees University
Project, Series A, RB, Callable
1/1/97 @ 100
6.625%, 01/01/17............... 250 252
State Housing Finance Agency,
Rental Housing Projects, Series
C, RB, Callable 07/01/04 @ 100
6.400%, 07/01/12 (C)........... 500 504
State Housing Finance Agency,
Single Family Mortgage
Revenue, Series 36, RB
5.250%, 04/01/07............... 500 466
State Intergovernmental
Cooperation Authority, City of
Philadelphia Funding Program,
RB, (MBIA)
5.600%, 06/15/15............... 500 472
State Turnpike Commission, Oil
Franchise Tax Project,
Series A, RB, (AMBAC)
5.875%, 12/01/08............... 500 494
State Turnpike Commission,
Series P, RB, (AMBAC)
6.000%, 12/01/09............... 500 505
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
Wattsburg Area, School District,
GO, (AMBAC), Callable
04/01/02 @ 100
6.350%, 04/01/15 (B)............... $ 500 $ 507
Wayne Highlands, School
District, GO, (FGIC), Callable
10/01/99 @ 100
6.000%, 04/01/12................... 500 497
West Chester, School District, GO
6.200%, 09/01/14................... 1,000 1,003
West View, Municipal Authority,
GO
9.000%, 05/15/99 (C)............... 400 460
--------
Total Municipal Bonds
(Cost $17,943,764)................. 17,441
--------
Total Investments (104.3%)
(Cost $17,943,764)................. 17,441
--------
OTHER ASSETS AND LIABILITIES (-4.3%)
Other Assets and Liabilities, Net.. (717)
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 1,743,326 outstanding
shares of beneficial interest...... 17,726
Accumulated net realized loss on
investments........................ (499)
Net unrealized depreciation on
investments........................ (503)
--------
Total Net Assets: (100.0%)......... $16,724
========
Net Asset Value and Redemption
Price Per Share.................... $9.59
========
Maximum Public Offering Price
Per Share ($9.59/96.25%)........... $9.96
========
- ---------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
Continued
50
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets.
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
INTERNATIONAL EQUITY FUND
MARKET
VALUE
SHARES (000)
------- -------
FOREIGN STOCKS (91.1%)
Argentina (0.8%)
YPF Sociedad Anonima ADR....... 14,000 $ 266
-------
Australia (3.0%)
Broken Hill Proprietary........ 33,565 462
Mim Holdings................... 130,000 200
News Corporation............... 83,294 371
-------
1,033
-------
Brazil (0.4%)
Acesita SA ADR*................ 7,000 139
-------
Chile (0.7%)
Five Arrow Chile Fund PC....... 100,000 250
Five Arrow Chile Fund Warrants,
Expire 05/31/99 *............ 20,000 9
-------
259
-------
Denmark (1.0%)
Tele Denmark A/S "B"........... 6,500 332
-------
Finland (0.7%)
Nokia AB....................... 1,700 256
-------
France (6.7%)
Alcatel Alsthom................ 2,442 197
AXA SA......................... 7,200 311
Carrefour...................... 880 359
Eaux Generale.................. 2,500 231
Groupe Danone.................. 2,250 324
L'Oreal........................ 1,500 334
MARKET
VALUE
SHARES (000)
------- -------
Lafarge-Coppee................... 3,378 $ 218
Societe Nationale Elf Aquitaine.. 5,068 364
-------
2,338
-------
Germany (4.3%)
Bayer AG......................... 1,300 321
Commerzbank AG................... 1,800 417
Karstadt AG...................... 1,000 404
Lufthansa AG *................... 2,500 347
-------
1,489
-------
Hong Kong (2.2%)
Hong Kong Telecommunications..... 170,000 306
Swire Pacific "A"................ 67,000 470
-------
776
-------
India (1.2%)
Hindalco Units................... 15,000 397
-------
Indonesia (1.0%)
Gadjah Tungal.................... 308,000 379
-------
Italy (1.5%)
Assicurazioni Generali SPA....... 11,450 259
Credito Italiano................. 222,368 239
Credito Italiano Warrants, Expire
12/31/97 *....................... 34,624 9
-------
507
-------
Japan (32.0%)
CSK................................ 21,000 574
Daiwa House Industries............. 39,000 570
East Japan Railway................. 267 1,178
Fuji Bank.......................... 42,000 904
KAO................................ 33,000 359
Mitsubishi Rayon................... 300,000 1,019
Nippon Paper Company............... 96,000 606
Nippon Telegraph & Telephone....... 160 1,143
Nippon Television Network.......... 2,660 546
NSK................................ 8,000 49
Pioneer Electronics................ 54,000 1,152
Sumitomo Trust & Banking........... 53,000 615
Toshiba Corporation................ 177,000 1,120
Toyo Ink Manufacturing............. 29,000 166
Yamaha Corporation................. 108,000 1,199
-------
11,200
-------
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------
February 28, 1995
INTERNATIONAL EQUITY
FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
------ -------
FOREIGN STOCKS, CONTINUED:
Malaysia (1.8%)
Malayan Banking.................. 34,500 $ 229
Perusahaan Otomobil.............. 63,000 222
Telekom Malaysia................. 27,000 189
-------
640
-------
Mexico (0.5%)
Grupo Carso SA ADR*.............. 25,000 162
Grupo Tribasa SA ADR*............ 3,000 18
-------
180
-------
Netherlands (3.9%)
ABN-Amro Holdings................ 8,532 311
Akzo NV.......................... 2,700 316
Elsevier NV...................... 39,000 382
International Nederlanden Group.. 7,147 350
-------
1,359
-------
Norway (0.7%)
Kvaerner AS Series B............. 5,467 237
-------
Singapore (2.5%)
City Developments................ 35,500 174
Jurong Shipyard.................. 38,000 317
United Overseas Bank............. 40,775 397
-------
888
-------
Spain (1.4%)
Banco de Santander............... 6,150 221
Banco de Santander New*.......... 1,466 52
Repsol Petroleum SA.............. 8,200 233
-------
506
-------
Sweden (1.8%)
Skandia Forrestry................ 15,000 265
Stora Kopparberg "B"............. 5,650 365
-------
630
-------
Switzerland (4.4%)
BBC Brown Boveri AG.............. 400 349
CS Holdings...................... 493 205
Nestle SA........................ 385 372
MARKET
VALUE
SHARES (000)
------- -------
Roche Holdings AG.................... 70 $ 388
Zurich Versicherung.................. 220 211
-------
1,525
-------
Taiwan (0.8%)
President Enterprise GDR*............ 2,171 40
Tuntex Distinct GDR*................. 20,004 240
-------
280
-------
Thailand (1.8%)
Siam Commercial Bank................. 34,000 295
TPI Polene......................... 44,250 344
-------
639
-------
United Kingdom (16.0%)
B.A.T. Industries.................... 72,545 478
British Petroleum.................... 81,000 508
BTR.................................. 103,830 515
BTR Warrants, Expire 11/26/98........ 1,146 1
Delta Group.......................... 33,500 240
Farnell Electronic................... 45,000 387
FKI.................................. 140,000 300
Granada Group........................ 64,000 516
Legal & General Group................ 60,000 420
Lloyds Bank.......................... 35,000 317
Reuters Holdings..................... 72,000 505
Tesco................................ 130,000 515
Unilever............................. 28,000 518
WPP Group............................ 215,000 369
-------
5,589
-------
Total Foreign Stocks
(Cost $30,983,755)................. 31,844
-------
CONVERTIBLE PREFERRED STOCKS (0.6%)
Australia (0.6%)
News Corporation..................... 47,647 189
-------
Netherlands (0.0%)
ABN-Amro Holdings.................... 349 12
-------
Total Convertible Preferred Stocks
(Cost $210,875).................... 201
-------
Continued
52
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
FOREIGN BONDS (1.2%)
South Korea (0.8%)
Daewoo Corporation,
6.568%, 12/31/04............. 525 $ 281
-------
Taiwan (0.4%)
Tecom Electronics & Machinery
2.750%, 04/15/04............. 170 142
-------
Total Foreign Bonds
(Cost $670,376).............. 423
-------
Total Investments
(92.9% of Net Assets)
(Cost $31,865,006)........... $32,468
-------
- ---------
* Non-income producing security
ADR-American Depository Receipt
GDR-Global Depository Receipt
PC-Participating Certificate
(1) In local currency
INTERNATIONAL FIXED
INCOME FUND
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
--------- -------
FOREIGN BONDS (91.3%)
Austria (2.2%)
Austria Republic
6.250%, 10/16/03..... 85,000 $ 987
-------
Canada (4.9%)
Canadian Government
9.750%, 12/01/01..... 2,900 2,240
-------
France (14.0%)
Credit Foncier
6.750%, 03/30/99..... 3,000 2,044
Government of France
7.000%, 11/12/99..... 12,000 2,339
8.500%, 04/25/03..... 10,000 2,017
-------
6,400
-------
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
--------- -------
Germany (30.9%)
African Development Bank
7.250%, 10/21/99.............. 2,000 $ 1,389
Deutschland Republic
6.250%, 01/04/24.............. 1,600 907
European Economic Community
6.500%, 03/10/00.............. 2,700 1,820
German Unity Fund
8.000%, 01/21/02.............. 3,000 2,129
KFW International Finance
7.250%, 12/03/97.............. 3,000 2,098
LKB Baden Wurt
6.000%, 05/10/99.............. 3,000 1,989
Norddeutsche Landesbank
6.000%, 01/05/04.............. 3,000 1,841
Westdeutsche Landesbank
6.250%, 09/15/03.............. 3,000 1,902
-------
14,075
-------
Italy (8.4%)
Republic of Italy
8.500%, 01/01/99.............. 3,750,000 1,993
Societe Nationale Chemin
11.500%, 10/18/99............. 3,100,000 1,840
-------
3,833
-------
Japan (17.9%)
Asian Development Bank
5.000%, 02/05/03.............. 190,000 2,029
Interamerican Development Bank
6.000%, 10/30/01.............. 180,000 2,036
Japanese Development Bank
6.500%, 09/20/01.............. 190,000 2,209
World Bank
4.500%, 03/20/03.............. 180,000 1,877
-------
8,151
-------
New Zealand (4.2%)
New Zealand Treasury,
8.224%, 03/08/95.............. 3,060 1,935
-------
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
February 28, 1995
INTERNATIONAL FIXED
INCOME FUND (CONTINUED)
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
FOREIGN BONDS, CONCLUDED:
United Kingdom (8.8%)
Abbey National Treasury
8.000%, 04/02/03......... 600 $877
National Power
10.625%, 03/26/01........ 600 1,003
United Kingdom Treasury
9.500%, 10/25/04......... 1,300 2,157
-------
4,037
-------
Total Foreign Bonds
(Cost $40,191,475)....... 41,658
-------
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
FOREIGN CURRENCY OPTIONS (0.0%)
United States (0.0%)
Deutsche Mark Put
06/08/95....................... 2,280 $4
-------
Total Foreign Currency Options
(Cost $61,674)................. 4
-------
Total Investments (91.3% of Net
Assets) (Cost $40,253,149)..... $41,662
=======
- ---------
(1) In local currency
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GROWTH FUND
<TABLE>
<CAPTION>
VALUE
(000)
--------
<S> <C>
ASSETS:
Investment Securities (Cost $120,023,153).................................. $131,281
Receivable-Accrued Income.................................................. 171
Receivable-Portfolio Securities Sold....................................... 8,486
Receivable-Capital Shares Sold............................................. 18
Other Assets............................................................... 29
--------
Total Assets............................................................. 139,985
--------
LIABILITIES:
Payable-Portfolio Securities Purchased..................................... (460)
Payable-Accrued Expenses................................................... (147)
Other liabilities.......................................................... (39)
--------
Total Liabilities........................................................ (646)
--------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 12,374,749
outstanding shares of beneficial interest................................ 130,313
Accumulated net realized loss on investments............................... (2,299)
Net unrealized appreciation on investments................................. 11,258
Undistributed net investment income........................................ 67
--------
Total Net Assets................................................... $139,339
========
Net Asset Value and Redemption Price Per Share................................. $11.26
========
Maximum Public Offering Price Per Share ($11.26/96.25%)........................ $11.70
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------
February 28, 1995
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C>
ASSETS:
Investment Securities (Cost $31,865,006)........................................ $32,468
Cash............................................................................ 3,207
Other Assets.................................................................... 107
-------
Total Assets................................................................ 35,782
-------
LIABILITIES:
Payable-Portfolio Securities Purchased.......................................... (677)
Other Liabilities............................................................... (168)
-------
Total Liabilities........................................................... (845)
-------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 2,930,999
outstanding shares of beneficial interest..................................... 34,494
Accumulated net realized loss on foreign currency transactions.................. (68)
Net unrealized depreciation on forward foreign currency contracts, foreign
currency and translation of other assets and liabilities in foreign currency.. (82)
Net unrealized appreciation on investments...................................... 593*
-------
Total Net Assets............................................................ $34,937
=======
Net Asset Value and Redemption Price Per Share...................................... $11.92
=======
Maximum Public Offering Price Per Share ($11.92/96.25%)............................. $12.38
=======
</TABLE>
- ---------
* Net of $10,000 accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
-------
<S> <C>
ASSETS:
Investment Securities (Cost $40,253,149).......................................... $41,662
Cash.............................................................................. 3,476
Receivable-Accrued Income......................................................... 1,257
Other Assets...................................................................... 6
-------
Total Assets.................................................................. 46,401
-------
LIABILITIES:
Other Liabilities................................................................. (744)
-------
Total Liabilities............................................................. (744)
-------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 4,341,116
outstanding shares of beneficial interest....................................... 45,195
Accumulated net realized loss on investments...................................... (827)
Net unrealized depreciation on forward foreign currency contracts, foreign
currency and translation of other assets and liabilities in foreign currency.... (617)
Net unrealized appreciation on investments........................................ 1,409
Undistributed net investment income............................................... 497
-------
Total Net Assets.............................................................. $45,657
=======
Net Asset Value and Redemption Price Per Share........................................ $ 10.52
=======
Maximum Public Offering Price Per Share ($10.52/96.25%)............................... $ 10.93
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
STATEMENT OF OPERATIONS (000)
- -------------------------------------------------------------------
February 28, 1995
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
CASH U.S. MUNICIPAL MUNICIPAL MUNICIPAL EQUITY
RESERVE TREASURY MONEY MONEY MONEY INCOME
FUND FUND FUND FUND FUND FUND
-------- -------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest income................................... $20,385 $16,299 $1,438 $1,224 $1,244 $ 325
Dividend income................................... - - - - - 9,344
Less: foreign taxes withheld...................... - - - - - -
------- -------- --------- ---------- ------------ ---------
Total investment income....................... 20,385 16,299 1,438 1,224 1,244 9,669
------- -------- --------- ---------- ------------ ---------
Expenses:
Administration fees............................... 769 648 81 71 82 509
Waiver of administration fees..................... - - - (26) (46) -
Investment advisory fees.......................... 1,495 1,259 180 158 147 1,981
Waiver of investment advisory fees................ - - - - (38) -
Custodian/Transfer agent fees..................... 90 69 19 28 26 88
Pricing fees...................................... 3 3 3 1 2 20
Professional fees................................. 69 53 8 7 5 42
Registration fees................................. 20 7 3 1 1 7
Trustee fees...................................... 13 12 1 1 1 8
Printing expenses................................. 51 40 5 4 2 24
Amortization of deferred organizational
costs........................................... - - - 4 5 -
Insurance and other fees.......................... 21 36 1 - 1 10
------- -------- --------- ---------- ------------ ---------
Total expenses................................ 2,531 2,127 301 249 188 2,689
------- -------- --------- ---------- ------------ ---------
Net investment income................................. 17,854 14,172 1,137 975 1,056 6,980
------- -------- --------- ---------- ------------ ---------
Net realized gain (loss) on securities sold........... (1,037) 3 (15) (7) (2) (2,336)
------- -------- --------- ---------- ------------ ---------
Net realized loss on forward foreign currency
contracts and foreign currency transactions......... - - - - - -
------- -------- --------- ---------- ------------ ---------
Change in unrealized appreciation on forward
foreign currency contracts, foreign currency
and translation of other assets and liabilities in
foreign currency.................................... - - - - - -
------- -------- --------- ---------- ------------ ---------
Change in unrealized appreciation (depreciation)
on investment securities............................ - - - - - 5,135
------- -------- --------- ---------- ------------ ---------
Net gain (loss) on investments........................ (1,037) 3 (15) (7) (2) 2,799
------- -------- --------- ---------- ------------ ---------
Increase (decrease) in net assets resulting from
operations.......................................... $16,817 $14,175 $1,122 $ 968 $1,054 $9,779
------- -------- --------- ---------- ------------ ---------
</TABLE>
- ---------
(1) Commenced operations on July 1, 1994.
* Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA INTERNATIONAL
SMALL CAP SHORT/ FIXED MUNICIPAL MUNICIPAL MUNICIPAL INTERNATIONAL FIXED
GROWTH VALUE BALANCED INTERMEDIATE INCOME BOND BOND BOND EQUITY INCOME
FUND FUND FUND(1) FUND FUND FUND FUND FUND FUND FUND
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 188 $ 40 $ 329 $ 14,002 $ 17,273 $ 1,810 $ 5,583 $1,002 $ 90 $ 3,270
1,836 482 169 - - - - - 502 -
- - - - - - - - (63) (15)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
2,024 522 498 14,002 17,273 1,810 5,583 1,002 529 3,255
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
242 44 19 408 453 59 183 34 62 81
- - (13) - - (26) (78) (22) - -
939 217 72 1,360 1,511 198 610 114 311 362
- - (34) - - (31) (2) (47) - -
56 41 19 62 66 34 46 29 85 86
8 1 - 13 16 3 6 2 14 6
21 3 2 36 40 5 16 3 7 7
3 1 4 7 6 1 2 1 8 3
2 1 - 8 7 1 3 1 1 1
12 2 2 23 25 3 10 2 4 3
- 4 1 - - - 4 6 5 5
5 - - 7 8 1 2 1 8 6
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,288 314 72 1,924 2,132 248 802 124 505 560
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
736 208 426 12,078 15,141 1,562 4,781 878 24 2,695
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,391 970 144 (3,296) (3,223) (1,090) (431) (481) 2,720 (827)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
- - - - - - - - (357) (2,318)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
- - - - - - - - 124* 32
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,259 (2,226) 587 (4,916) (11,359) (353) (3,631) (238) (5,307) 1,113
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
2,650 (1,256) 731 (8,212) (14,582) (1,443) (4,062) (719) (2,820) (2,000)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
$3,386 $(1,048) $1,157 $ 3,866 $ 559 $ 119 $ 719 $ 159 $(2,796) $ 695
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
</TABLE>
59
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------
For the years ended February 28,
<TABLE>
<CAPTION>
CASH RESERVE FUND U.S. TREASURY FUND
----------------------------- -----------------------
1995 1994 1995 1994
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income........................ $ 17,854 $ 12,186 $ 14,172 $ 9,185
Net realized gain (loss) on securities sold.. (1,037) 2 2 3
---------- ------------ ---------- -----------
Increase in net assets resulting from
investment operations.................. 16,817 12,188 14,174 9,188
---------- ------------ ---------- -----------
DISTRIBUTIONS:
Net investment income........................ (17,854) (12,186) (14,172) (9,185)
---------- ------------ ---------- -----------
Total distributions...................... (17,854) (12,186) (14,172) (9,185)
---------- ------------ ---------- -----------
SHARE TRANSACTIONS:
Shares issued................................ 749,041 997,057 904,680 1,266,098
Shares reinvested in lieu of cash
distributions.............................. 440 184 203 90
Shares redeemed.............................. (742,657) (1,025,246) (916,643) (1,235,303)
---------- ------------ ---------- -----------
Increase (decrease) in net assets from
capital share transactions............. 6,824 (28,005) (11,762) 30,885
---------- ------------ ---------- -----------
Contribution of capital from affiliate... 887 - - -
---------- ------------ ---------- -----------
Total increase (decrease) in net assets.. 6,674 (28,003) (11,760) 30,888
---------- ------------ ---------- -----------
NET ASSETS:
Beginning of period...................... 428,649 456,652 377,276 346,388
---------- ------------ ---------- -----------
End of period............................ $ 435,323 $ 428,649 $ 365,516 $ 377,276
========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
NEW JERSEY PENNSYLVANIA
MUNICIPAL MONEY MUNICIPAL MONEY MUNICIPAL MONEY
FUND FUND FUND
- ----------------------- --------------------- ---------------------
1995 1994 1995 1994 1995 1994
- ----------- ----------- ---------- ---------- ---------- ----------
$ 1,137 $ 1,223 $ 975 $ 703 $ 1,056 $ 348
(15) (21) (7) - (2) -
- ----------- ----------- ---------- ---------- ---------- ----------
1,122 1,202 968 703 1,054 348
- ----------- ----------- ---------- ---------- ---------- ----------
(1,137) (1,223) (975) (703) (1,056) (348)
- ----------- ----------- ---------- ---------- ---------- ----------
(1,137) (1,223) (975) (703) (1,056) (348)
- ----------- ----------- ---------- ---------- ---------- ----------
117,594 382,594 70,309 53,796 94,308 52,320
10 11 64 31 17 5
(119,744) (425,385) (66,164) (53,255) (85,499) (30,767)
- ----------- ----------- ---------- ---------- ---------- ----------
(2,140) (42,780) 4,209 572 8,826 21,558
- ----------- ----------- ---------- ---------- ---------- ----------
- - - - - -
- ----------- ----------- ---------- ---------- ---------- ----------
(2,155) (42,801) 4,202 572 8,824 21,558
- ----------- ----------- ---------- ---------- ---------- ----------
47,407 90,208 39,408 38,836 26,654 5,096
- ----------- ----------- ---------- ---------- ---------- ----------
$ 45,252 $ 47,407 $ 43,610 $ 39,408 $ 35,478 $ 26,654
=========== =========== ========== ========== ========== ==========
61
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------
For the years ended February 28,
<TABLE>
<CAPTION>
EQUITY INCOME GROWTH SMALL CAP VALUE BALANCED
FUND FUND FUND(1) FUND(2)
------------------- ------------------- -------------------- --------
1995 1994 1995 1994 1995 1994 1995
--------- --------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income............................. $ 6,980 $ 7,515 $ 736 $ 855 $ 208 $ 148 $ 426
Net realized gain (loss) on securities sold....... (2,336) 41,208 1,391 3,193 970 2,567 144
Change in unrealized appreciation (depreciation)
on investment securities........................ 5,135 (10,640) 1,259 2,905 (2,226) 123 587
--------- --------- --------- --------- ---------- --------- --------
Increase (decrease) in net assets from
operations.................................... 9,779 38,083 3,386 6,953 (1,048) 2,838 1,157
--------- --------- --------- --------- ---------- --------- --------
DISTRIBUTIONS:
Net investment income............................. (6,918) (7,523) (789) (734) (210) (153) (426)
Net realized gains................................ (23,258) (16,519) (3,216) (4,165) (1,457) (2,095) (14)
In excess of net realized gains................... - - - (480) - - -
--------- --------- --------- --------- ---------- --------- --------
Total distributions............................. (30,176) (24,042) (4,005) (5,379) (1,667) (2,248) (440)
--------- --------- --------- --------- ---------- --------- --------
SHARE TRANSACTIONS:
Proceeds from shares issued....................... 64,959 93,961 35,581 38,391 27,932 16,075 23,513
Dividends reinvested in lieu of cash
distributions................................... 24,070 18,186 3,390 4,735 1,390 1,882 103
Value of shares redeemed.......................... (61,887) (41,083) (49,615) (47,974) (22,494) (15,567) (400)
--------- --------- --------- --------- ---------- --------- --------
Increase (decrease) in net assets from share
transactions.................................. 27,142 71,064 (10,644) (4,848) 6,828 2,390 23,216
--------- --------- --------- --------- ---------- --------- --------
Total increase (decrease) in net assets......... 6,745 85,105 (11,263) (3,274) 4,113 2,980 23,933
--------- --------- --------- --------- ---------- --------- --------
NET ASSETS:
Beginning of period............................... 282,144 197,039 150,602 153,876 22,280 19,300 -
--------- --------- --------- --------- ---------- --------- --------
End of period..................................... $288,889 $282,144 $139,339 $150,602 $ 26,393 $ 22,280 $23,933
========= ========= ========= ========= ========== ========= ========
SHARE ISSUED AND REDEEMED:
Shares issued............................... 5,236 7,483 3,258 3,454 2,413 1,301 2,353
Shares issued in dividend
reinvestment.............................. 2,089 1,472 324 433 129 158 10
Shares redeemed............................. (5,163) (3,260) (4,518) (4,331) (1,950) (1,257) (40)
--------- --------- --------- --------- ---------- --------- --------
Net shares issued (redeemed)................ 2,162 5,695 (936) (444) 592 202 2,323
========= ========= ========= ========= ========== ========= ========
</TABLE>
(1) Formerly the Aggressive Equity Fund
(2) Commenced operations on July 1, 1994
(3) Commenced operations on August 31, 1993
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
The Compass Capital Group
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
SHORT/INTERMEDIATE FIXED INCOME MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL BOND
FUND FUND FUND FUND FUND(3)
- ------------------- ------------------- ------------------ ------------------- -----------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12,078 $ 12,640 $ 15,141 $ 13,917 $ 1,562 $ 1,424 $ 4,781 $ 3,784 $ 878 $ 338
(3,296) 1,541 (3,223) 4,806 (1,090) 823 (431) 108 (481) (17)
(4,916) (5,373) (11,359) (6,300) (353) (1,000) (3,631) (513) (238) (265)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
3,866 8,808 559 12,423 119 1,247 719 3,379 159 56
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(12,044) (12,640) (15,108) (13,917) (1,558) (1,421) (4,773) (3,784) (879) (342)
(470) (1,200) (968) (4,715) (376) (723) (73) (187) - -
- - - - - - - - - -
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(12,514) (13,840) (16,076) (18,632) (1,934) (2,144) (4,846) (3,971) (879) (342)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
34,390 132,070 31,547 93,524 8,262 18,362 21,923 73,255 4,515 21,895
6,046 8,757 4,989 8,275 475 710 1,934 1,729 101 30
(98,249) (53,591) (49,290) (31,296) (13,728) (5,301) (34,227) (10,207) (7,038) (1,773)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(57,813) 87,236 (12,754) 70,503 (4,991) 13,771 (10,370) 64,777 (2,422) 20,152
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(66,461) 82,204 (28,271) 64,294 (6,806) 12,874 (14,497) 64,185 (3,142) 19,866
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
268,235 186,031 272,409 208,115 35,556 22,682 111,354 47,169 19,866 -
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
$201,774 $268,235 $244,138 $272,409 $ 28,750 $35,556 $ 96,857 $111,354 $16,724 $19,866
========= ========= ========= ========= ========= ======== ========= ========= ======== ========
3,361 12,377 3,114 8,506 808 1,658 2,019 6,417 473 2,186
597 823 499 757 48 64 180 152 11 3
(9,629) (5,034) (4,890) (2,843) (1,355) (478) (3,191) (895) (753) (176)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(5,671) 8,166 (1,277) 6,420 (499) 1,244 (992) 5,674 (269) 2,013
========= ========= ========= ========= ========= ======== ========= ========= ======== ========
</TABLE>
63
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EQUIT FIXED INCOME
FUND FUND
------------------ ---------------------
1995 1994 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income.......................................................... $ 24 $ 23 $2,695 $2,608
Net realized gain (loss) on securities sold.................................... 2,720 1,516 (827) 1,909
Net realized gain (loss) on forward foreign currency contracts and foreign
currency transactions........................................................ (357) (148) (2,318) 1,001
Change in unrealized appreciation (depreciation) on forward foreign currency
contracts, foreign currency, and translation of other assets and liabilities
in foreign currency.......................................................... 124* (208) 32 (1,315)
Change in unrealized appreciation (depreciation) on investment securities...... (5,307) 5,136 1,113 (130)
--------- -------- -------- --------
Increase (decrease) in net assets from operations.......................... (2,796) 6,319 695 4,073
--------- -------- -------- --------
DISTRIBUTIONS:
Net investment income.......................................................... - (30) (570) (3,474)
Net realized gains............................................................. (2,565) (778) (1,055) (850)
--------- -------- -------- --------
Total distributions........................................................ (2,565) (808) (1,625) (4,324)
--------- -------- -------- --------
SHARE TRANSACTIONS:
Proceeds from shares issued.................................................... 11,521 16,452 7,438 11,860
Dividends reinvested in lieu of cash distributions............................. 2,543 765 1,240 2,385
Value of shares redeemed....................................................... (6,989) (2,968) (8,979) (5,363)
--------- -------- -------- --------
Increase (decrease) in net assets from share transactions.................. 7,075 14,249 (301) 8,882
--------- -------- -------- --------
Total increase (decrease) in net assets.................................... 1,714 19,760 (1,231) 8,631
--------- -------- -------- --------
NET ASSETS:
Beginning of period............................................................ 33,223 13,463 46,888 38,257
--------- -------- -------- --------
End of period.................................................................. $34,937 $33,223 $45,657 $46,888
========= ======== ======== ========
SHARE ISSUED AND REDEEMED:
Shares issued.............................................................. 837 1,270 717 1,068
Shares issued in dividend reinvestment..................................... 203 59 122 215
Shares redeemed............................................................ (518) (224) (861) (474)
--------- -------- -------- --------
Net shares issued (redeemed)............................................... 522 1,105 (22) 809
========= ======== ======== ========
</TABLE>
- ---------
* Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
FINANCIAL HIGHLIGHTS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET DISTRIBUTIONS NET NET EXPENSES INCOME AVERAGE AVERAGE
ASSET FROM ASSET ASSETS TO TO NET NET
VALUE NET NET VALUE END OF AVERAGE AVERAGE ASSETS ASSETS
BEGINNING INVESTMENT INVESTMENT END TOTAL PERIOD NET NET (EXCLUDING (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS ASSETS WAIVERS) WAIVERS)
--------- ---------- ------------- --------- ------ -------- -------- ------- ---------- ----------
- ---------------------------------
CASH RESERVE FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.04 $(0.04) $1.00 4.28% $435,323 0.59% 4.18% 0.59% 4.18%
1994 1.00 0.03 (0.03) 1.00 2.80 428,649 0.59 2.76 0.59 2.76
1993 1.00 0.03 (0.03) 1.00 3.30 456,652 0.59 3.24 0.59 3.24
1992 1.00 0.05 (0.05) 1.00 5.42 435,591 0.59 5.25 0.59 5.25
1991 1.00 0.08 (0.08) 1.00 7.84 408,815 0.58 7.57 0.59 7.56
1990 1.00 0.09 (0.09) 1.00 8.93 365,174 0.58 8.58 0.60 8.56
1989(1) 1.00 0.08 (0.08) 1.00 7.16* 381,082 0.47 7.49 0.56 7.40
<CAPTION>
- ---------------------------------
U.S. TREASURY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.04 $(0.04) $1.00 4.06% $365,516 0.59% 3.94% 0.59% 3.94%
1994 1.00 0.03 (0.03) 1.00 2.63 377,276 0.59 2.60 0.59 2.60
1993 1.00 0.03 (0.03) 1.00 3.00 346,388 0.62 3.10 0.62 3.10
1992 1.00 0.05 (0.05) 1.00 5.21 958,671 0.56 4.95 0.56 4.95
1991 1.00 0.07 (0.07) 1.00 7.50 434,436 0.56 7.25 0.57 7.24
1990 1.00 0.08 (0.08) 1.00 8.56 215,195 0.59 8.24 0.61 8.22
1989(2) 1.00 0.07 (0.07) 1.00 6.75* 129,971 0.50* 7.14* 0.56* 7.08*
<CAPTION>
- ---------------------------------
MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 $(0.03) $1.00 2.55% $45,252 0.67% 2.53% 0.67% 2.53%
1994 1.00 0.02 (0.02) 1.00 1.98 47,407 0.62 1.94 0.62 1.94
1993 1.00 0.03 (0.03) 1.00 2.48 90,208 0.67 2.45 0.67 2.45
1992 1.00 0.04 (0.04) 1.00 3.95 56,932 0.67 4.05 0.69 4.03
1991 1.00 0.06 (0.06) 1.00 5.67 176,209 0.61 5.54 0.63 5.52
1990 1.00 0.06 (0.06) 1.00 6.17 127,419 0.65 6.00 0.68 5.97
1989(1) 1.00 0.05 (0.05) 1.00 4.35* 123,300 0.57 5.03 0.66 4.94
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.02 $(0.02) $1.00 2.46% $43,610 0.63% 2.46% 0.70% 2.39%
1994 1.00 0.02 (0.02) 1.00 1.79 39,408 0.65 1.77 0.72 1.70
1993 1.00 0.02 (0.02) 1.00 2.19 38,836 0.73 2.17 0.76 2.14
1992(3) 1.00 0.02 (0.02) 1.00 3.53* 35,005 0.47* 3.44* 0.62* 3.29*
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 $(0.03) $1.00 2.71% $35,478 0.48% 2.68% 0.69% 2.47%
1994 1.00 0.02 (0.02) 1.00 2.25 26,654 0.22 2.35 0.80 1.77
1993 1.00 0.03 (0.03) 1.00 2.49 5,096 0.67 2.53 0.87 2.33
1992(4) 1.00 0.02 (0.02) 1.00 3.72* 22,145 0.58* 3.42* 0.62* 3.38*
</TABLE>
Footnotes on page 67 following table
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
REALIZED DISTRIBUTIONS
NET AND ----------------------------- NET
ASSET UNREALIZED IN EXCESS ASSET
VALUE NET GAINS OR NET OF NET VALUE
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED END OF TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS PERIOD RETURN
--------- ---------- ----------- ---------- -------- --------- ------ ---------
- ------------------------
EQUITY INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.71 $0.30 $ 0.14 $(0.30) $(0.99) - $11.86 3.87%
1994 11.94 0.38 1.63 (0.39) (0.85) - 12.71 16.78
1993 11.77 0.39 0.48 (0.39) (0.31) - 11.94 7.71
1992 11.12 0.45 1.24 (0.46) (0.58) - 11.77 16.07
1991 9.93 0.45 1.17 (0.43) - - 11.12 16.87
1990(5) 10.00 0.32 (0.07) (0.32) - - 9.93 7.79*
<CAPTION>
- ------------------------
GROWTH FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.31 $0.06 $ 0.22 $(0.06) $(0.27) $ - $11.26 2.75%
1994 11.19 0.05 0.46 (0.05) (0.30) (0.04) 11.31 4.74
1993 11.36 0.13 0.26 (0.13) (0.43) - 11.19 3.49
1992 11.72 0.21 1.35 (0.21) (1.71) - 11.36 14.93
1991 10.28 0.22 1.44 (0.22) - - 11.72 16.40
1990(5) 10.00 0.23 0.27 (0.22) - - 10.28 6.70*
<CAPTION>
- ------------------------
SMALL CAP VALUE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.33 $0.10 $(0.70) $(0.10) $(0.62) - $11.01 (4.70)%
1994 12.03 0.09 1.57 (0.09) (1.27) - 12.33 14.50
1993 12.01 0.05 0.10 (0.04) (0.09) - 12.03 1.42
1992(3) 10.00 0.04 2.01 (0.04) - - 12.01 32.73*
<CAPTION>
- ------------------------
BALANCED FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995(6) $10.00 $0.27 $ 0.30 $(0.27) - - $10.30 8.94%*
<CAPTION>
- ------------------------
SHORT/INTERMEDIATE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.47 $0.55 $(0.33) $(0.55) $(0.02) - $10.12 2.27%
1994 10.67 0.59 (0.14) (0.59) (0.06) - 10.47 3.71
1993 10.47 0.67 0.32 (0.67) (0.12) - 10.67 9.77
1992 10.17 0.70 0.34 (0.70) (0.04) - 10.47 10.58
1991 9.96 0.75 0.20 (0.74) - - 10.17 9.89
1990(5) 10.00 0.56 (0.05) (0.55) - - 9.96 6.96*
<CAPTION>
- ------------------------
FIXED INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.66 $0.61 $(0.56) $(0.61) $(0.04) - $10.06 0.65%
1994 10.88 0.62 (0.01) (0.62) (0.21) - 10.66 5.38
1993 10.52 0.71 0.66 (0.72) (0.29) - 10.88 13.69
1992 10.11 0.76 0.47 (0.76) (0.06) - 10.52 12.62
1991 9.84 0.79 0.26 (0.78) - - 10.11 11.18
1990(5) 10.00 0.53 (0.19) (0.50) - - 9.84 4.54*
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET EXPENSES INCOME AVERAGE AVERAGE
ASSETS TO TO NET NET
END OF AVERAGE AVERAGE ASSETS ASSETS PORTFOLIO
PERIOD NET NET (EXCLUDING (EXCLUDING TURNOVER
(000) ASSETS ASSETS WAIVERS) WAIVERS) RATE
-------- -------- ------------ ---------- ---------- ---------
- ------------------------
EQUITY INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $288,889 0.95% 2.47% 0.95% 2.47% 57.96%
1994 282,144 0.93 3.06 0.93 3.06 156.21
1993 197,039 1.00 3.33 1.00 3.33 70.84
1992 142,052 0.96 4.04 0.96 4.04 111.52
1991 82,167 0.94 4.65 0.98 4.61 98.75
1990(5) 32,115 0.93* 4.29* 1.06* 4.16* 54.08
<CAPTION>
- ------------------------
GROWTH FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $139,339 0.96% 0.55% 0.96% 0.55% 46.28%
1994 150,602 0.94 0.56 0.94 0.56 153.03
1993 153,876 0.98 1.14 0.98 1.14 114.83
1992 115,473 1.00 1.80 1.00 1.80 144.16
1991 113,335 0.92 2.08 0.96 2.04 91.32
1990(5) 81,998 0.90* 2.72* 1.00* 2.62* 41.69
<CAPTION>
- ------------------------
SMALL CAP VALUE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $26,393 1.30% 0.86% 1.30% 0.86% 15.84%
1994 22,280 1.31 0.72 1.31 0.72 49.34
1993 19,300 1.38 0.45 1.38 0.45 43.00
1992(3) 16,237 1.22* 0.65* 1.27* 0.60* 9.08
<CAPTION>
- ------------------------
BALANCED FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995(6) $23,933 0.70%* 4.10%* 1.15%* 3.65%* 30.63%
<CAPTION>
- ------------------------
SHORT/INTERMEDIATE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $201,774 0.85% 5.33% 0.85% 5.33% 53.66%
1994 268,235 0.84 5.02 0.84 5.02 58.80
1993 186,031 0.88 6.28 0.88 6.28 25.95
1992 128,225 0.85 6.90 0.85 6.90 57.81
1991 77,996 0.84 7.44 0.88 7.40 42.86
1990(5) 25,695 0.88* 7.41* 0.98* 7.31* 2.46
<CAPTION>
- ------------------------
FIXED INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $244,138 0.85% 6.02% 0.85% 6.02% 34.69%
1994 272,409 0.83 5.53 0.83 5.53 49.41
1993 208,115 0.87 6.62 0.87 6.62 36.88
1992 150,594 0.89 7.66 0.89 7.66 120.70
1991 110,935 0.82 7.97 0.86 7.93 63.33
1990(5) 71,228 0.82* 7.10* 0.98* 6.94* 12.97
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS
REALIZED ----------------------------
NET AND IN NET
ASSET UNREALIZED EXCESS ASSET
VALUE NET GAINS OR NET OF NET VALUE
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED END OF TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS PERIOD RETURN
--------- ---------- ----------- ---------- -------- -------- ------ -----------
- ---------------------------------
MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.79 $0.49 $(0.39) $(0.49) $(0.12) - $10.28 1.17%
1994 11.06 0.51 (0.03) (0.51) (0.24) - 10.79 4.35
1993 10.43 0.51 0.64 (0.52) - - 11.06 11.42
1992 10.25 0.60 0.19 (0.60) (0.01) - 10.43 8.40
1991 9.99 0.64 0.23 (0.61) - - 10.25 8.96
1990(7) 10.00 0.14 (0.02) (0.13) - - 9.99 4.81*
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.31 $0.51 $(0.36) $(0.51) $(0.01) - $10.94 1.49%
1994 11.30 0.54 0.04 (0.54) (0.03) - 11.31 5.18
1993 10.46 0.52 0.85 (0.53) - - 11.30 13.48
1992(3) 10.00 0.34 0.45 (0.33) - - 10.46 12.33*
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.87 $0.44 $(0.28) $(0.44) - - $9.59 1.81%
1994(8) 10.00 0.21 (0.13) (0.21) - - 9.87 1.53*
<CAPTION>
- ---------------------------------
INTERNATIONAL EQUITY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $13.79 $0.01 $(0.93) $ - $(0.95) $ - $11.92 (6.99)%
1994 10.32 0.03 3.88 (0.03) (0.41) - 13.79 38.19
1993 10.62 0.09 (0.34) (0.05) - - 10.32 (2.35)
1992(3) 10.00 0.02 0.63 - - (0.03) 10.62 9.88*
<CAPTION>
- ---------------------------------
INTERNATIONAL FIXED INCOME FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.75 $0.62 $(0.48) $(0.13) $(0.24) $ - $10.52 1.50%
1994 10.76 0.65 0.46 (0.90) (0.22) - 10.75 10.24
1993 10.21 0.52 0.47 (0.30) (0.14) - 10.76 9.55
1992(3) 10.00 0.31 0.26 - (0.06) (0.30) 10.21 8.92*
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET EXPENSES INCOME AVERAGE AVERAGE
ASSETS TO TO NET NET
END OF AVERAGE AVERAGE ASSETS ASSETS PORTFOLIO
PERIOD NET NET (EXCLUDING (EXCLUDING TURNOVER
(000) ASSETS ASSETS WAIVERS) WAIVERS) RATE
-------- -------- ------ ----------- ---------- -----------
- ---------------------------------
MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 28,750 0.75% 4.75% 0.93% 4.57% 60.86%
1994 35,556 0.69 4.66 0.96 4.39 80.70
1993 22,682 1.01 4.80 1.30 4.49 144.89
1992 11,299 0.75 5.81 1.31 5.25 114.78
1991 7,516 0.32 6.33 1.40 5.25 30.21
1990(7) 2,620 0.39* 5.85* 1.56* 4.68* 0.00
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 96,857 0.79% 4.71% 0.87% 4.63% 28.43%
1994 111,354 0.38 4.75 0.86 4.27 12.05
1993 47,169 0.48 5.04 1.04 4.48 16.09
1992(3) 10,673 0.52* 5.35* 1.29* 4.58* 0.00
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 16,724 0.65% 4.63% 1.01% 4.27% 48.91%
1994(8) 19,866 0.22* 4.27* 0.85* 3.64* 30.68
<CAPTION>
- ---------------------------------
INTERNATIONAL EQUITY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 34,937 1.46% 0.07% 1.46% 0.07% 47.68%
1994 33,223 1.59 0.11 1.59 0.11 51.30
1993 13,463 1.63 0.91 1.63 0.91 80.72
1992(3) 12,427 1.56* 0.25* 1.61* 0.20* 22.26
<CAPTION>
- ---------------------------------
INTERNATIONAL FIXED INCOME FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 45,657 1.24% 5.96% 1.24% 5.96% 130.64%
1994 46,888 1.38 6.00 1.38 6.00 128.14
1993 38,257 1.30 6.31 1.30 6.31 115.25
1992(3) 27,744 1.33* 6.79* 1.37* 6.75* 110.13
</TABLE>
- ----------------
* Annualized.
(1) Commenced operations on March 1, 1988.
(2) Commenced operations on March 24, 1988.
(3) Commenced operations on July 1, 1991.
(4) Commenced operations on August 15, 1991.
(5) Commenced operations on May 31, 1989.
(6) Commenced operations on July 1, 1994.
(7) Commenced operations on December 1, 1989.
(8) Commenced operations on August 31, 1993.
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------
February 28, 1995
1. ORGANIZATION:
The Compass Capital Group (the "Group") was organized on October 1, 1987,
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company established as a
Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest without par value. The Group presently offers
shares of the Cash Reserve Fund, U.S. Treasury Fund, Municipal Money Fund,
New Jersey Municipal Money Fund, Pennsylvania Municipal Money Fund, Equity
Income Fund, Growth Fund, Balanced Fund, Small Cap Value Fund (formerly
Aggressive Equity), Short/Intermediate Fund, Fixed Income Fund, Municipal
Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania Municipal Bond Fund,
International Equity Fund and International Fixed Income Fund (referred to
as a "Fund" or collectively as the "Funds"). Sales of shares of the Group
may be made to customers of Midlantic Bank N.A. ("Midlantic"), and to the
general public. Effective August 27, 1994, Midlantic National Bank, the
investment adviser to the Group, merged with Continental Bank and changed
its name to Midlantic Bank, N.A.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
Securities Valuation - Investments in equity securities which are traded on
a national securities exchange (or reported on the NASDAQ national market
system) are stated at the last quoted sales price if readily available for
such equity securities on each business day; other equity securities traded
in the over-the-counter market and listed equity securities for which no
sale was reported on that date are stated at the last quoted bid price.
Option contracts are valued at the last quoted bid price quoted on the
primary exchange or board of trade which such option contracts are stated.
Debt obligations exceeding sixty days to maturity for which market
quotations are readily available are valued at the most recently quoted bid
price. Foreign securities in the International Equity Fund and International
Fixed Income Fund (the "International Funds") are valued based upon
quotations from the primary market in which they are traded. Debt
obligations with sixty days or less remaining until maturity may be valued
at their amortized cost. Restricted and illiquid securities for which
quotations are not readily available are valued at fair value using methods
determined in good faith as approved by the Board of Trustees.
Security Transactions and Related Income - Security transactions are
accounted on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis.
Continued
68
<PAGE>
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
Dividend income is recorded on the ex-dividend date. Gains or losses realized
on sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds. Market discounts and premiums
are not amortized for financial reporting and Federal income tax purposes in
the taxable variable net asset value funds. Market premiums and original issue
discounts are amortized for financial reporting and Federal income tax purposes
in the Municipal Bond Fund, New Jersey Municipal Bond Fund, and Pennsylvania
Municipal Bond Fund.
Repurchase Agreements - The Group may enter into repurchase agreements with
member banks of the Federal Deposit Insurance Corporation ("FDIC") with
capital, surplus and undivided profits in excess of $100,000,000 (as of the
date of their most recently published financial statements) and from registered
broker/dealers whom Midlantic deems creditworthy under guidelines approved by
the Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase price
generally equals the price paid by the Group plus interest negotiated on the
basis of current short-term rates.
Securities pledged as collateral for repurchase agreements are held by the
custodian bank until the respective agreements mature. Provisions of the
repurchase agreements ensure that the market value of the collateral, including
accrued interest thereon, is sufficient in the event of default of the
counterparty.
The Group may also invest in tri-party repurchase agreements. Securities held
as collateral for tri-party repurchase agreements are maintained in a
segregated account by the broker's custodian bank until maturity of the
repurchase agreement.
If the counterparty defaults and the value of the collateral declines or if the
counterparty enters an insolvency proceeding, realization of the collateral by
the Funds may be delayed or limited.
Distributions to Shareholders - Distributions from net investment income are
declared daily and paid monthly for the money market funds. Distributions from
net investment income are declared and paid monthly for the variable net asset
value funds, excluding the Small Cap Value Fund which is paid quarterly and the
International Funds which are paid twice annually. Any net realized capital
gains are declared and distributed to shareholders at least annually.
Differences between undistributed net investment income or accumulated net
capital gains for financial reporting and tax purposes, if permanent, are
required to be reclassified to/from paid in capital.
Federal Income Taxes - It is the intention of the Group to continue to qualify
as a regulated investment company for Federal income tax purposes and
distribute all of its taxable income and net capital gains. Accordingly, no
provision for Federal income taxes is required.
Continued
69
<PAGE>
Notes to Financial Statements
- -------------------------------------------------------------------
February 28, 1995
Foreign Currency Translation - The books and records of the International Funds
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of such
transactions.
The International Funds do not isolate that portion of gains and losses on
investment securities which is due to changes in the foreign exchange rates
from that which is due to changes in market prices of such securities.
The International Funds report certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts - The International Funds enter into forward
foreign currency contracts as a hedge against either specific transactions or
portfolio positions. These contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized
until the contract settlement date. Such contracts, which protect the value of
a Fund's investment securities against a decline in the value of currency, do
not eliminate fluctuations in the underlying prices of the securities. They
simply establish an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a decline in the value of a
hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of such foreign currency increase.
The aggregate principal amounts of the contracts are not recorded as the Funds
intend to settle the contracts prior to delivery.
Other - Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Group are prorated to
the Funds on the basis of relative net assets.
Continued
70
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term and U.S. Government
securities) for the period ended February 28, 1995 were as follows:
PURCHASES SALES
(000) (000)
--------- --------
Equity Income Fund................ $164,247 $161,787
Growth Fund....................... 60,422 81,242
Small Cap Value Fund.............. 9,473 3,712
Balanced Fund..................... 16,372 3,398
Short/Intermediate Fund........... 37,876 55,497
Fixed Income Fund................. 34,404 49,965
Municipal Bond Fund............... 19,676 30,965
New Jersey Municipal Bond Fund.... 28,269 34,325
Pennsylvania Municipal Bond Fund.. 8,902 8,841
International Equity Fund......... 18,310 15,395
International Fixed Income Fund... 54,465 53,855
Purchases and sales of U.S. Government securities were:
PURCHASES SALES
(000) (000)
--------- -------
Balanced Fund............ $8,572 $1,101
Short/Intermediate Fund.. 70,018 95,269
Fixed Income Fund........ 43,792 38,074
4. RELATED PARTY TRANSACTIONS:
SEI Financial Management Corporation (the "Administrator") serves the Group
as Administrator. Under the terms of the administration agreement between the
Group and the Administrator, the Administrator earns an annual fee of .18% of
the daily net assets of the Funds. SEI Financial Services Company (the
"Distributor") serves the Group as Distributor pursuant to a distribution
agreement between the Group and the Distributor. The Distributor receives no
fee for its services.
Investment advisory services are provided to the Group by Midlantic. Under
the terms of the investment advisory agreement, Midlantic is entitled to
receive fees based on a percentage of the average net assets of the Funds.
The advisory fee is equal to .35% of the average daily net assets of the Cash
Reserve Fund and U.S. Treasury Fund; .40% of the Municipal Money Fund, New
Jersey Municipal Money Fund and Pennsylvania Municipal Money Fund; .60% of
the
Continued
71
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------
February 28, 1995
Short/Intermediate Fund, Fixed Income Fund, Municipal Bond Fund, New Jersey
Municipal Bond Fund and Pennsylvania Municipal Bond Fund; .70% of the Growth
Fund, Equity Income Fund and Balanced Fund; .80% of the International Fixed
Income Fund; and .90% of the Small Cap Value Fund and International Equity
Fund.
The Administrator and the Adviser have voluntarily agreed to waive a portion
of their fee on certain portfolios so that total expenses of such
portfolios will not exceed certain annual expense limitations.
Fisher Investments, Inc., Morgan Grenfell Investment Services Limited and
Seligman Henderson Co. have entered into subadvisory agreements with
Midlantic as subadvisors for the Small Cap Value Fund, International
Fixed Income Fund and International Equity Fund, respectively. Wellington
Management Company has also entered into a subadvisory agreement with
Midlantic for the Equity Income Fund and Growth Fund.
During the period ended February 28, 1995, Midlantic Corporation, an
affiliate of the Adviser, purchased a security from the Cash Reserve Fund
for $5,000,000 which represented the amortized cost and carrying value
of the security. The securities aggregate market value was $4,112,500 at the
time of purchase. In connection with this transaction the Fund recorded a
realized loss of $887,500 on the sale of the security in the statement of
operations along with offsetting capital contribution from the affiliate.
The transaction did not change the net asset value of the Fund.
5. INVESTMENT TRANSACTIONS:
At February 28, 1995 the total cost of securities and the net realized
gains or losses on securities sold for Federal income tax purposes was not
materially different from amounts reported for financial reporting purposes.
The aggregate unrealized appreciation and depreciation information at
February 28, 1995 for each variable net asset value fund is as follows:
<TABLE>
<CAPTION>
EQUITY SMALL SHORT/ FIXED
INCOME GROWTH CAP VALUE BALANCED INTERMEDIATE INCOME
(000) (000) (000) (000) (000) (000)
--------- -------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation................. $24,040 $15,696 $3,041 $ 795 $ 842 $ 2,315
Aggregate gross unrealized
depreciation................. (10,756) (4,438) (2,885) (208) (3,663) (7,483)
--------- -------- --------- -------- ------------ ---------
Net unrealized
appreciation/(depreciation).. $13,284 $11,258 $ 156 $ 587 $(2,821) $(5,168)
========= ======== ========= ======== ============ =========
</TABLE>
Continued
72
<PAGE>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL NEW JERSEY PENNSYLVANIA INTERNATIONAL INTERNATIONAL
BOND MUNICIPAL BOND MUNICIPAL BOND EQUITY FIXED INCOME
(000) (000) (000) (000) (000)
--------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation................. $ 189 $ 1,009 $ 25 $ 2,783 $1,777
Aggregate gross unrealized
depreciation................. (471) (2,666) (528) (2,190) (368)
--------- -------------- -------------- ------------- -------------
Net unrealized
appreciation/(depreciation).. $(282) $(1,657) $(503) $ 593 $1,409
========= ============== ============== ============= =============
</TABLE>
6. CAPITAL LOSS CARRYFORWARDS:
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal
year. The following deferred losses will be treated as arising on the first
day of the fiscal year ending February 29, 1996. Additionally, the following
capital losses realized by the funds as of February 28, 1995 are available to
offset future net capital gains through the following fiscal years:
DEFERRED CAPITAL
LOSSES LOSSES EXPIRATION
FUND (000) (000) DATE
- ----- -------- ------- ----------
Cash Reserve.................. - $ 150 2003
Municipal Money............... - 19 2003
Municipal Money............... - 16 2002
Municipal Money............... - 305 2001
New Jersey Municipal Money.... - 7 2003
Pennsylvania Municipal Money.. - 2 2003
Equity Income................. - 225 2003
Growth........................ 2,299 - -
International Fixed Income.... - 459 2003
Short/Intermediate............ 1,045 2,251 2003
Fixed Income.................. 1,010 2,214 2003
Municipal Bond................ 369 722 2003
New Jersey Municipal Bond..... 55 378 2003
Pennsylvania Municipal Bond... 410 89 2003
Continued
73
<PAGE>
Notes to Financial Statements
- -------------------------------------------------------------------------------
February 28, 1995
7. FORWARD FOREIGN CURRENCY CONTRACTS
A summary of forward foreign currency contracts that were outstanding at
February 28, 1995 is as follows:
<TABLE>
<CAPTION>
NET
CONTRACTS TO UNREALIZED
SETTLEMENT DELIVER/ APPRECIATION/
DATES RECEIVE IN EXCHANGE FOR (DEPRECIATION)
----------------- ---------------- --------------- --------------
INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C>
Foreign Currency Sale 04/20/95 JY 378,070,000 $ 3,850,000 $ (87,770)
--------------- --------------
INTERNATIONAL FIXED INCOME FUND
Foreign Currency Sales 03/08/95 NZ 1,600,000 $ 1,021,440 $ 8,857
03/14/95-04/21/95 DM 12,480,000 8,165,044 (409,269)
03/14/95-05/16/95 JY 740,000,000 7,542,623 (171,377)
03/14/95 SP 260,000,000 1,963,598 (72,331)
03/15/95 FF 10,500,000 1,938,342 (107,923)
04/21/95-05/16/95 UK 1,465,000 2,280,766 (27,628)
04/21/95-05/16/95 IT2,920,000,000 1,782,389 41,989
04/25/95 CA 1,100,000 770,470 (17,116)
--------------- --------------
$25,464,672 $(754,798)
=============== ==============
Foreign Currency Purchases 03/08/95 NZ 700,000 $ 440,538 $ 2,467
03/14/95 DM 330,000 219,124 7,395
03/14/95 SP 260,000,000 1,981,481 54,448
04/25/95 CA 1,100,000 774,806 12,780
--------------- --------------
$ 3,415,949 $ 77,090
=============== ==============
$(677,708)
==============
</TABLE>
CURRENCY LEGEND
- --------------------
CA Canadian Dollar
DM German Marks
FF French Francs
IT Italian Lira
JY Japanese Yen
NZ New Zealand Dollar
SP Spanish Pesetas
UK British Pounds Sterling
74
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS...................................... 1
STATEMENTS OF NET ASSETS/SCHEDULE OF INVESTMENTS............ 3
STATEMENTS OF ASSETS AND LIABILITIES........................ 38
STATEMENTS OF OPERATIONS.................................... 40
STATEMENTS OF CHANGES IN NET ASSETS......................... 42
FINANCIAL HIGHLIGHTS........................................ 47
NOTES TO FINANCIAL STATEMENTS............................... 50
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
STATEMENT OF NET ASSETS THE COMPASS CAPITAL GROUP
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
CASH RESERVE FUND
FACE AMOUNT VALUE
(000) (000)
----------- ---------
COMMERCIAL PAPER (23.1%)
ABN/AMRO New York
5.740%, 10/10/95................ $ 5,000 $ 4,969
Asset Securitization Cooperative
5.765%, 10/19/95................ 4,500 4,466
Bayerische Landesbank Girozentrale
5.740%, 09/18/95................ 5,000 4,987
Commerzbank A.G.
5.735%, 09/11/95................ 5,000 4,992
E.I. Dupont de Nemours
5.720%, 11/07/95................ 10,000 9,896
International Nederlanden U.S.
Funding Corporation
5.700%, 10/16/95................ 5,000 4,965
Jet Funding
5.898%, 10/31/95................ 10,197 10,097
MCA Funding
6.340%, 09/12/95................ 8,000 7,985
Mitsubishi International
5.830%, 10/24/95................ 5,000 4,958
New South Wales Treasury
5.600%, 01/09/96................ 10,000 9,803
New Zealand
5.781%, 11/20/95................ 4,000 3,949
Rexam PLC
5.750%, 09/13/95................ 5,000 4,991
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.793%, 09/19/95................ 5,000 4,986
Sherwood Medical
5.800%, 09/27/95................ 5,000 4,979
South Australian Government
Financing Authority
5.700%, 10/13/95................ 5,000 4,967
Southland
5.760%, 09/12/95................ 5,000 4,991
5.808%, 10/25/95................ 5,000 4,957
State Bank of New South Wales,
Delaware
6.270%, 09/07/95................ 10,000 9,990
---------
Total Commercial Paper
(Cost $110,928,205)............. 110,928
---------
CORPORATE BONDS (21.4%)
Abbey National North America
Corporation
7.400%, 12/15/95................ 10,000 10,024
American Express Centurion Bank
5.875%, 09/12/95 (A)............ 10,000 10,000
5.938%, 09/26/95 (A)............ 10,000 9,999
Associates
8.375%, 06/01/96................ 4,100 4,172
Continued
3
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Bear Stearns
6.313%, 09/15/95................ $ 3,500 $ 3,500
FCC National Bank, Delaware
5.700%, 09/06/95 (A)............ 10,000 10,000
Ford Motor Credit
8.625%, 04/15/96................ 6,100 6,187
General Electric Capital
5.950%, 09/01/95 (A)............ 5,000 5,000
5.960%, 09/01/95 (A)............ 5,000 5,000
6.150%, 09/01/95 (A)............ 10,000 9,999
Merrill Lynch
5.620%, 09/06/95 (A)............ 5,000 5,000
Nationsbank, North Carolina
5.375%, 12/01/95................ 10,350 10,330
Toyota Motor Credit
5.980%, 09/01/95 (A)............ 10,000 9,996
5.680%, 09/06/95 (A)............ 3,700 3,698
---------
Total Corporate Bonds
(Cost $102,905,314)............. 102,905
---------
ASSET BACKED SECURITIES (7.7%)
Ford Credit Auto Lease Trust
6.000%, 05/15/96................ 4,000 3,999
John Deere Owner Trust
5.812%, 09/15/95 (A)............ 8,113 8,113
Steers
6.190%, 09/01/95 (A)............ 10,000 10,000
5.987%, 09/18/95 (A)............ 10,000 10,000
5.941%, 11/18/95 (A)............ 5,000 5,000
---------
Total Asset Backed Securities
(Cost $37,112,288).............. 37,112
---------
GUARANTEED INVESTMENT CONTRACT
(2.1%)
Peoples Security Life
6.070%, 09/01/95 (A)............ 10,000 10,000
---------
Total Guaranteed Investment
Contract (Cost $10,000,000)..... 10,000
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(12.0%)
Federal Home Loan Bank
6.100%, 06/05/96................ 10,000 9,996
5.725%, 07/25/96................ 10,000 10,000
Federal Home Loan Mortgage
Corporation
6.000%, 09/01/95 (A)............ 5,000 5,005
Federal National Mortgage
Association
6.063%, 11/13/95................ 5,000 4,940
5.590%, 07/01/96................ 10,000 9,987
Continued
4
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
CASH RESERVE
FUND (CONTINUED)
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Small Business Administration
7.250%, 09/01/95 (A)............ $ 7,394 $ 7,554
Student Loan Marketing Association
5.670%, 09/06/95 (A)............ 5,000 4,983
6.080%, 07/01/96................ 5,000 5,000
---------
Total U.S. Government Agency
Obligations
(Cost $57,464,745).............. 57,465
---------
CERTIFICATES OF DEPOSIT (6.3%)
Bank of Tokyo
5.870%, 10/16/95................ 10,000 10,000
Canadian Imperial Bank
5.760%, 09/20/95................ 5,000 5,000
Mitsubishi Bank, New York
5.900%, 09/08/95................ 5,000 5,000
Sanwa Bank, New York
5.850%, 09/01/95................ 5,000 5,000
5.830%, 10/24/95................ 5,000 5,000
---------
Total Certificates of Deposit
(Cost $30,000,371).............. 30,000
---------
EURO CERTIFICATES OF DEPOSIT (2.1%)
Abbey National PLC, London
6.730%, 04/02/96................ 5,000 5,008
Abbey National Treasury Services
6.400%, 05/30/96................ 5,000 5,000
---------
Total Euro Certificates of Deposit
(Cost $10,007,857).............. 10,008
---------
BANKERS ACCEPTANCES (5.3%)
Bank of Tokyo, Los Angeles
5.900%, 11/06/95................ 5,000 4,947
Dai Ichi Kangyo Bank, New York
5.890%, 10/30/95................ 5,000 4,953
Mitsubishi Bank, New York
5.740%, 09/08/95................ 5,000 4,994
5.725%, 11/17/95................ 5,000 4,940
Sanwa Bank, New York
5.710%, 10/02/95................ 5,700 5,673
---------
Total Bankers Acceptances
(Cost $25,506,625).............. 25,507
---------
BANK NOTE (1.7%)
First National Bank of Chicago
6.130%, 08/26/96................ 8,000 8,000
---------
Total Bank Note
(Cost $8,000,000)............... 8,000
---------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
REPURCHASE AGREEMENTS (15.7%)
First Boston, 5.875%, dated
08/31/95, matures 09/01/95,
repurchase price $45,007,344
(collateralized by U.S. Treasury
Strips, par value $67,559,769,
maturities ranging from 11/15/95
to 05/15/14, market value
$46,279,516).................... $ 45,000 $ 45,000
Merrill Lynch, 5.875%, dated
08/31/95, matures 09/01/95,
repurchase price $30,557,986
(collateralized by U.S. Treasury
Bond, par value $375,000,
7.875%, 02/15/21, market value
$422,926, Federal Home Loan
Mortgage Corporation,
Collateralized Mortgage
Obligations, par value
$29,248,520, coupons ranging
from 0.00% to 8.50%, maturities
ranging from 03/15/97 to
07/15/23, market value
$25,926,413, Federal National
Mortgage Association,
Collateralized Mortgage
Obligation, par value
$4,700,000, 7.50%, 03/25/07,
market value $4,817,649)........ 30,553 30,553
---------
Total Repurchase Agreements
(Cost $75,553,000).............. 75,553
---------
Total Investments (97.4%)
(Cost $467,478,405)............. 467,478
---------
OTHER ASSETS AND LIABILITIES (2.6%)
Other Assets and Liabilities,
Net............................. 12,548
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 480,111,786 outstanding
shares of beneficial interest... 480,112
Accumulated net realized loss on
investments..................... (86)
---------
Total Net Assets: (100.0%)........ $ 480,026
---------
---------
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $ 1.00
---------
---------
- ------------------
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is
the rate in effect on August 31, 1995.
PLC--Public Limited Company
The accompanying notes are an integral part of the financial statements.
5
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
U.S. TREASURY FUND
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
U.S. TREASURY OBLIGATIONS (50.4%)
U.S. Treasury Bills
5.061%, 09/14/95................ $ 30,000 $ 29,945
5.366%, 09/21/95................ 55,000 54,833
5.373%, 09/28/95................ 25,000 24,900
5.410%, 10/12/95................ 25,000 24,847
5.390%, 01/18/96................ 10,000 9,789
5.755%, 05/02/96................ 15,000 14,438
U.S. Treasury Notes
3.875%, 10/31/95................ 25,000 24,918
4.250%, 11/30/95................ 15,000 14,942
4.000%, 01/31/96................ 15,000 14,896
4.625%, 02/15/96................ 25,000 24,879
5.875%, 05/31/96................ 10,000 10,007
U.S. Treasury Strips
5.685%, 11/15/95................ 25,000 24,718
6.140%, 02/15/96................ 10,000 9,731
---------
Total U.S. Treasury Obligations
(Cost $282,843,379)............. 282,843
---------
REPURCHASE AGREEMENTS (49.5%)
First Boston, 5.80% dated
08/31/95, matures 09/01/95,
repurchase price $55,008,861
(collateralized by U.S. Treasury
Bond, par value $53,271,000,
7.25%, maturing 08/15/22, market
value $56,219,133).............. 55,000 55,000
First Boston, 5.875%, dated
08/31/95, matures 09/01/95,
repurchase price $80,013,056
(collateralized by U.S. Treasury
Coupon Strips, par value
$117,537,005, maturities ranging
from 11/15/95 to 08/15/04,
market
FACE AMOUNT VALUE
(000) (000)
----------- ---------
value $82,216,664).............. 80,000 80,000
Goldman Sachs Group, 5.75%, dated
08/31/95, matures 09/01/95,
repurchase price $15,002,396
(collateralized by U.S Treasury
Notes, par value $15,033,000,
maturities ranging from 06/30/96
to 01/15/00, rates ranging from
5.625% to 6.375%, market value
$15,300,855).................... $ 15,000 $ 15,000
Merrill Lynch, 5.75%, dated
08/31/95, matures 09/01/95,
repurchase price $127,476,358
(collateralized by U.S. Treasury
Notes, par value $126,597,000,
maturities ranging from 2/15/98
to 08/15/98, rates ranging from
5.125% to 9.00%, market value
$130,008,310)................... 127,456 127,456
---------
Total Repurchase Agreements
(Cost $277,456,000)............. 277,456
---------
Total Investments (99.9%)
(Cost $560,299,379)............. 560,299
---------
OTHER ASSETS AND LIABILITIES (0.1%)
Other Assets and Liabilities,
Net............................. 416
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value) based
on 560,709,434 outstanding shares
of beneficial interest............ 560,709
Accumulated net realized gain on
investments....................... 6
---------
Total Net Assets: (100.0%)......... $ 560,715
---------
---------
Net Asset Value, Offering Price and
Redemption Price Per Share........ $ 1.00
---------
---------
The accompanying notes are an integral part of the financial statements.
6
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
FACE AMOUNT VALUE
(000) (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
MUNICIPAL MONEY FUND
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS (99.1%)
Alabama (2.9%)
Phenix City, Industrial
Development Board, Mead Coated
Board Project, Series A, VRDN,
RB
3.600%, 09/01/95 (A) (B) (C).... $ 1,000 $ 1,000
---------
Colorado (1.3%)
Jefferson County, School District,
Series C, Prerefunded @ 100, GO
8.200%, 12/15/95................ 440 445
---------
Georgia (4.3%)
Forsythe County, Industrial
Development Authority, American
BOA Incorporated Project, VRDN,
RB
3.900%, 09/07/95 (A) (B) (C).... 1,000 1,000
Savannah, Economic Development
Authority, Home Depot
Project-B, VRDN, RB
3.900%, 09/07/95 (A) (B) (C).... 500 500
---------
1,500
---------
Idaho (5.7%)
State, Housing Finance Authority,
RB
4.250%, 01/01/96 (C)............ 1,990 1,990
---------
Illinois (3.6%)
Chicago, VRDN, GO
3.650%, 09/07/95 (A) (B) (C).... 945 945
Southwestern, Industrial
Development Authority, Solid
Waste Disposal, Shell Oil
Company, Wood River Project,
VRDN, RB
3.650%, 09/01/95 (A) (B)........ 300 300
---------
1,245
---------
Louisiana (1.4%)
New Orleans, Aviation Board,
Series A, VRDN, RB, (MBIA)
3.500%, 09/07/95 (A) (B)........ 500 500
---------
Minnesota (4.5%)
Minneapolis-St. Paul, Housing
Finance Authority, Series A, RB
4.500%, 11/01/95 (B) (C)........ 625 625
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Minneapolis-St. Paul, Housing
Finance Authority, Series B, RB
4.250%, 02/01/96................ $ 955 $ 955
---------
1,580
---------
Montana (2.5%)
State, Series B-2, RB, AMT
4.625%, 10/01/95 (B) (C)........ 900 900
---------
New Hampshire (2.9%)
Hillsborough County, GO, TAN
3.780%, 12/28/95................ 1,000 1,000
---------
New Jersey (3.4%)
Mercer County, TAN
4.000%, 04/15/96................ 1,000 1,003
State, Economic Development
Authority, Hoffman-La Roche
Project, VRDN, RB
3.350%, 09/01/95 (A) (B) (C).... 200 200
---------
1,203
---------
New Mexico (1.4%)
Eddy County, Pollution Control IMC
Fertilizer Incorporated Project,
VRDN, RB
3.600%, 09/07/95 (A) (B) (C).... 500 500
---------
New York (4.3%)
Nassau County, BAN
5.250%, 11/15/95................ 1,000 1,002
New York City, EDL Construction
Project, Series A, RB, (MBIA)
4.000%, 10/01/95................ 500 500
---------
1,502
---------
Oregon (5.7%)
Klamath Falls, Salt Caves
Hydroelectric Project, Series A,
RB
4.400%, 05/01/96 (B)............ 1,000 1,000
Port of Saint Helens, Pollution
Control, General Electric
Project, Series A, VRDN, RB
3.650%, 09/01/95 (A) (B) (C).... 600 600
State, GO
4.250%, 03/01/96................ 390 390
---------
1,990
---------
Continued
7
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
FACE AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
Continued
7
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONTINUED:
Pennsylvania (33.3%)
Allegheny County, Hospital
Development Authority, Allegheny
General Hospital, Series B,
VRDN, RB
3.450%, 09/01/95 (A) (B)........ $ 2,000 $ 2,000
Berks County, Industrial
Development Authority, Sixth and
Penn Street Project, VRDN, RB
3.500%, 09/01/95 (A) (B) (C).... 200 200
Chester County, Industrial
Development Authority, The Woods
Project, VRDN, RB
3.700%, 09/07/95 (A) (B) (C).... 1,200 1,200
Delaware County, Industrial
Development Authority, Scott
Paper Company Project, Series A,
VRDN, RB
3.650%, 09/07/95 (A) (B) (C).... 500 500
Delaware County, Industrial
Development Authority, United
Parcel Services Project, Series
85, VRDN, RB
3.400%, 09/01/95 (A) (B)........ 1,100 1,100
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems Project, Series C, VRDN,
RB
3.400%, 09/01/95 (A) (B) (C).... 600 600
Montour County, Geisinger Health
System Authority, Series 1992 B,
VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... 1,900 1,900
Philadelphia, Series A, TRAN
4.500%, 06/27/96................ 1,000 1,004
Pottsgrove, School District,
Series A, GO (AMBAC)
3.750%, 10/15/95................ 685 685
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series K, VRDN, RB,
(AMBAC)
3.500%, 09/07/95 (A) (B)........ 800 800
Schuylkill County, Industrial
Development Authority, Westwood
Energy Project, VRDN, RB
FACE AMOUNT VALUE
(000) (000)
----------- ---------
3.600%, 09/01/95 (A) (B) (C).... 1,000 1,000
Venango, Industrial Development
Authority, Scrubgrass Project,
TECP
3.500%, 10/06/95................ $ 700 $ 700
---------
11,689
---------
Puerto Rico (2.8%)
Puerto Rico Government Development
Bank, TECP
3.400%, 09/08/95................ 1,000 1,000
---------
Rhode Island (1.7%)
State, Health & Education
Facilities, RB
5.000%, 09/01/95................ 600 600
---------
South Carolina (3.4%)
Charleston County, School
District, Series A, GO
4.400%, 02/01/96 (C)............ 695 697
State, Economic Development
Authority, Wellman Project, VRDN
3.700%, 09/01/95 (A) (B) (C).... 500 500
---------
1,197
---------
Texas (4.3%)
Houston, Water & Sewer Authority,
TECP
4.100%, 11/30/95................ 1,500 1,500
---------
Virginia (6.0%)
Hopewell, Industrial Development
Authority, Hadson Power, Series
13A, VRDN, RB, AMT
3.700%, 09/01/95 (A) (B) (C).... 1,100 1,100
State, Housing & Development
Authority, Series C, RB
3.700%, 10/12/95................ 1,000 1,000
---------
2,100
---------
Wyoming (3.7%)
Green River, VRDN, RB, AMT
3.700%, 09/01/95 (A) (B) (C).... 1,300 1,300
---------
Total Municipal Bonds
(Cost $34,741,426).............. 34,741
---------
Total Investments (99.1%)
(Cost $34,741,426).............. 34,741
---------
OTHER ASSETS AND LIABILITIES (0.9%)
Other Assets and Liabilities,
Net............................... 322
---------
Continued
8
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Continued
9
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL MONEY
FUND (CONTINUED)
VALUE
(000)
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 35,087,620 outstanding
shares of beneficial interest... 35,088
Accumulated net realized loss on
investments..................... (25)
---------
Total Net Assets: (100.0%)........ $ 35,063
---------
---------
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $ 1.00
---------
---------
- ------------------
(A) Variable Rate Security--The rate reported on
the Statement of Net Assets is the rate in effect
on August 31, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
BAN--Bond Anticipation Note
GO--General Obligation
RB--Revenue Bond
TAN--Tax Anticipation Note
TRAN--Tax and Revenue Anticipation Note
TECP--Tax Exempt Commercial Paper
VRDN--Variable Rate Demand Note
The following organizations have provided
underlying credit support for certain securities
as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
MBIA--Municipal Bond Insurance Association
FACE AMOUNT VALUE
(000) (000)
----------- ---------
NEW JERSEY MUNICIPAL
MONEY FUND
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS (103.0%)
New Jersey (91.3%)
Berkeley Heights, BAN
4.750%, 11/09/95................ $ 2,765 $ 2,767
Bernards Township, Sewer
Authority, RB,
Prerefunded @ 100
5.350%, 12/15/95 (B) (C)........ 2,000 2,008
East Windsor, BAN
4.550%, 04/18/96................ 2,000 2,007
Fort Lee, TAN
4.000%, 02/02/96................ 2,000 2,004
Galloway Township, BAN
4.100%, 03/14/96................ 1,000 1,002
Hackensack, BAN, GO
5.500%, 12/20/95................ 850 852
Jersey City, BAN, GO
5.250%, 11/17/95................ 2,000 2,002
Mercer County, Improvement
Authority, BAN
4.100%, 03/15/96................ 1,000 1,002
Montgomery Township, School
District Authority, TAN
5.000%, 03/01/96................ 1,500 1,505
North Brunswick Township, BAN
3.890%, 05/22/96................ 775 776
The accompanying notes are an integral part of the financial statements.
8
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Port Authority, Versatile
Structure Obligation, Series 1,
VRDN,
RB, AMT
3.450%, 09/01/95 (A) (B) (C).... 3,300 3,300
Port Authority, Versatile
Structure Obligation, Series 2,
VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... 1,400 1,400
Port Authority, Versatile
Structure Obligation, Series 3,
VRDN, RB
3.300%, 09/01/95 (A) (B) (C).... 1,500 1,500
Salem County, Pollution Control,
VRDN, RB
3.700%, 09/01/95 (A) (B) (C).... 500 500
Sayreville, TAN
4.000%, 04/16/96................ 1,500 1,503
State, Economic Development
Authority, TECP
3.900%, 09/01/95 (C)............ 1,000 1,000
FACE AMOUNT VALUE
(000) (000)
----------- ---------
The accompanying notes are an integral part of the financial statements.
9
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
FACE AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
State, Economic Development
Authority, 400 International
Drive Partners Project, VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... $ 700 $ 700
State, Economic Development
Authority, Filtra Corporation
Project, VRDN, RB
3.650%, 09/07/95 (A) (B) (C).... 1,000 1,000
State, Economic Development
Authority, First Management
Fellowship Project, Series B,
VRDN, RB
3.550%, 09/07/95 (A) (B) (C).... 1,000 1,000
State, Economic Development
Authority, Franciscan Oaks
Project, Series B, VRDN, RB
3.400%, 09/07/95 (A) (B) (C).... 400 400
State, Economic Development
Authority, Hillcrest Health
Services Systems Project, VRDN,
RB
3.350%, 09/07/95 (A) (B) (C).... 600 600
State, Economic Development
Authority, Hoffman-La Roche
Project, VRDN, RB, AMT
3.350%, 09/01/95 (A) (B) (C).... 700 700
State, Economic Development
Authority, Natural Gas
Facilities, Series A, VRDN, RB,
(AMBAC)
3.050%, 09/01/95 (A) (B)........ 900 900
State, Economic Development
Authority, Pollution Control,
Exxon Project, VRDN, RB
3.350%, 09/01/95 (A) (B)........ 1,700 1,700
FACE AMOUNT VALUE
(000) (000)
----------- ---------
State, Economic Development
Authority, Russell Berrie
Project, VRDN, RB
3.350%, 09/07/95 (A) (B) (C).... 200 200
State, Economic Development
Authority, Series C-1, VRDN, RB
3.650%, 09/07/95 (A) (B) (C).... 530 530
State, Economic Development
Authority, Series J, VRDN, RB,
AMT 3.600%, 09/07/95 (A) (B)
(C)............................. 650 650
State, Health Care Facilities
Hospital, Capital Asset
Financing, Series A, VRDN, RB
3.350%, 09/07/95 (A) (B) (C).... $ 600 $ 600
State, Health Care Facilities
Hospital, Capital Asset
Financing, Series D, VRDN, RB
3.350%, 09/07/95 (A) (B) (C).... 200 200
State, Health Care Facilities
Hospital, Hospital And Nursing
Home Improvement, VRDN, RB
3.350%, 09/07/95 (A) (B) (C).... 200 200
State, Highway Authority, Garden
State Parkway Project, RB,
Prerefunded @ 102
7.125%, 01/01/96 (B) (C)........ 1,740 1,793
State, Transportation Trust Fund,
Series A, RB
4.500%, 12/15/95................ 1,000 999
State, Turnpike Authority, Series
D, VRDN, RB
3.050%, 09/07/95 (A) (B)........ 4,000 3,999
Union County, Industrial Pollution
Control, Exxon Project, VRDN, RB
Continued
9
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
3.250%, 09/01/95 (A) (B)........ 1,000 1,000
Woodbridge Township, BAN, GO
4.480%, 10/06/95................ 3,000 3,000
---------
45,299
---------
Oregon (1.4%)
Port of Saint Helens, Pollution
Control, General Electric
Project, Series A, VRDN, RB, AMT
3.650%, 09/01/95 (A) (B) (C).... 700 700
FACE AMOUNT VALUE
(000) (000)
----------- ---------
---------
Puerto Rico (10.3%)
Government Development Bank, TECP
3.400%, 09/08/95................ 2,000 2,000
Government Development Bank, VRDN,
RB
3.200%, 09/07/95 (A) (B) (C).... 3,100 3,100
---------
5,100
---------
Continued
10
STATEMENT OF NET ASSETS
-------------------------August
31, 1995 (Unaudited)
NEW JERSEY MUNICIPALMONEY FUND
(CONTINUED)
VALUE
(000)
---------
MUNICIPAL BONDS, CONCLUDED:
Total Municipal Bonds (Cost
$51,098,548)...................... $ 51,099
---------
Total Investments (103.0%) (Cost
$51,098,548)...................... 51,099
---------
OTHER ASSETS AND LIABILITIES
(-3.0%)
Other Assets and Liabilities,
Net............................... (1,471)
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 49,635,696 outstanding shares
of beneficial interest............ 49,636
Accumulated net realized loss on
investments....................... (8)
---------
Total Net Assets: (100.0%)......... $ 49,628
---------
---------
Net Asset Value, Offering Price and
Redemption Price Per Share........ $ 1.00
---------
---------
- ------------------
(A) Variable Rate Security--The rate reported on
the Statement of Net Assets is the rate in effect
on August 31, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
BAN--Bond Anticipation Note
GO--General Obligation
RB--Revenue Bond
TAN--Tax Anticipation Note
TECP--Tax Exempt Commercial Paper
VRDN--Variable Rate Demand Note
The following organization has provided
underlying credit support for certain securities
as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
PENNSYLVANIA MUNICIPAL
MONEY FUND
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS (98.9%)
Pennsylvania (98.0%)
Allegheny County, Mortgage Backed
Security Program, Series F, RB
4.375%, 06/01/96 (B) (C)........ $ 975 $ 975
Allegheny County, Mortgage Backed
Security Program, Series G, RB
4.600%, 06/01/96 (B) (C)........ 250 250
Beaver County, Industrial
Development Authority, Duquesne
Light Project, Series A, VRDN,
RB
3.550%, 09/07/95 (A) (B) (C).... 500 500
Beaver County, Industrial
Development Authority, Duquesne
Light Project, Series B, VRDN,
RB
3.550%, 09/07/95 (A) (B) (C).... 1,000 1,000
Berks County, Industrial
Development Authority, VRDN, RB
3.800%, 09/01/95 (A) (B) (C).... 700 700
Carbon County, TECP
3.850%, 12/18/95................ 1,000 1,000
Chartiers Valley, Industrial And
Commercial Development
Authority, William Penn Place
Project, VRDN, RB
4.300%, 09/01/95 (A) (B) (C).... 200 200
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series A, VRDN,
RB
3.650%, 09/07/95 (A) (B) (C).... 500 500
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series C, VRDN,
RB
3.650%, 09/07/95 (A) (B) (C).... 900 900
Delaware County, Industrial
Development Authority, United
Parcel Services Project, Series
85, VRDN, RB
integral part of the financial
statements.10
FACE AMOUNT VALUE
(000) (000)
----------- ---------
3.400%, 09/01/95 (A) (B)........ 500 500
Emmaus, Subseries B-10, VRDN, RB
FACE AMOUNT VALUE
(000) (000)
----------- ---------
3.700%, 09/07/95 (A) (B) (C).... 1,800 1,800
integral part of the financial
statements.10
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
FACE AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Franklin County, Industrial
Development Authority,
Guarriello LP Project, Series A,
VRDN, RB
3.900%, 09/07/95 (A) (B) (C).... $ 945 $ 945
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems Project, Series C, VRDN,
RB
3.400%, 09/01/95 (A) (B) (C).... 400 400
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems, Series B, VRDN, RB
3.400%, 09/01/95 (A) (B) (C).... 250 250
Lehigh County, Industrial
Development Authority, Pollution
Control, VRDN, RB
3.700%, 09/01/95 (A) (B) (C).... 900 900
Luzerne County, Industrial
Development Authority, VRDN, RB,
AMT
3.850%, 09/07/95 (A) (B) (C).... 1,495 1,495
Montgomery County, Industrial
Development Authority, Quaker
Chemical Project, VRDN, RB
3.900%, 09/01/95 (A) (B) (C).... 500 500
Montgomery County, Industrial
Development Authority, TECP
3.550%, 11/02/95 (C)............ 1,000 1,000
3.750%, 11/16/95 (C)............ 500 500
Montour County, Health System
Authority, Geisinger Project,
Series B, VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... 1,000 1,000
Moon, Industrial Development
Authority, Flex-One Thorn Run
Project, VRDN, RB
3.850%, 09/01/95 (A) (B) (C).... 2,100 2,101
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Northeastern, Hospital Authority,
TECP, (MBIA)
3.950%, 09/01/95................ 600 600
3.700%, 09/11/95................ 500 500
3.800%, 12/13/95................ 500 500
Philadelphia, Hospital And Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... 1,000 1,000
Philadelphia, Hospital and Higher
Education Facilities Authority,
Frankford Hospital Project, RB
4.000%, 01/01/96 (C)............ $ 650 $ 650
Philadelphia, Industrial
Development Authority, Harbor
View Towers Project, VRDN, RB
3.750%, 09/07/95 (A) (B) (C).... 1,550 1,550
Philadelphia, Series A, TRAN, GO
4.500%, 06/27/96................ 1,000 1,004
Pittsburgh, Equipment Leasing
Authority, RB, (AMBAC)
6.400%, 10/01/95................ 500 501
Sayre, Health Care Facilities
Authority, Capital Financing
Project, Series H, VRDN, RB,
(AMBAC)
3.500%, 09/07/95 (A) (B)........ 290 290
Schuylkill County, Industrial
Development Authority, Westwood
Energy Project, VRDN, RB
3.600%, 09/01/95 (A) (B) (C).... 1,300 1,300
Schuylkill County, Industrial
Develpment Authority, Pine Grove
Landfill Project, VRDN, RB
3.750%, 09/01/95 (A) (B) (C).... 1,000 1,000
Continued
11
FACE AMOUNT VALUE
(000) (000)
----------- ---------
State, Economic Development
Authority, Series A1, VRDN, RB
3.900%, 09/07/95 (A) (B) (C).... 1,825 1,825
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB, AMT
3.550%, 09/07/95 (A) (B) (C).... 510 510
3.550%, 09/07/95 (A) (B) (C).... 100 100
State, Energy Development
Authority, Piney Creek Project,
Series A, VRDN, RB, AMT
FACE AMOUNT VALUE
(000) (000)
----------- ---------
3.700%, 09/07/95 (A) (B) (C).... 100 100
State, GO
5.500%, 11/15/95................ 1,000 1,002
State, Higher Education Authority,
Series A, VRDN, RB, AMT
3.750%, 09/07/95 (A) (B) (C).... 500 500
State, Higher Education Authority,
Series B, VRDN, RB, AMT
3.750%, 09/07/95 (A) (B) (C).... 300 300
Continued
12
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
PENNSYLVANIA MUNICIPAL
MONEY FUND (CONTINUED)
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, continued:
State, Higher Education Authority,
Temple University Project, VRDN,
RB
3.250%, 09/01/95 (A) (B)........ $ 300 $ 300
State, Housing Finance Agency,
Series O, RB, AMT
4.875%, 04/01/96................ 2,000 2,000
State, Industrial Development
Authority, RB, (AMBAC)
5.000%, 01/01/96................ 1,250 1,252
State, RB
5.250%, 04/05/96 (C)............ 1,500 1,507
Temple University, University
Funding Obligation, RB
5.000%, 05/22/96 (C)............ 1,500 1,507
Upper Allegheny, Sanitation
Authority, Series B, RB
4.500%, 01/15/96 (B)............ 1,500 1,503
Venango, Industrial Development
Authority, Scrubgrass Project,
TECP
3.500%, 10/06/95................ 1,000 1,000
Western Wayne, School District
Authority, Series AA, GO,
Prerefunded @ 100
6.650%, 10/15/95 (B)............ 1,000 1,003
---------
40,720
---------
Oregon (0.9%)
Port of Saint Helens, Pollution
Control, General Electric
Project, Series A, VRDN, RB, AMT
3.650%, 09/01/95 (A) (B) (C).... 400 400
---------
Total Municipal Bonds
(Cost $41,119,872).............. 41,120
---------
Total Investments (98.9%)
(Cost $41,119,872).............. 41,120
---------
OTHER ASSETS AND LIABILITIES (1.1%)
Other Assets and Liabilities,
Net............................... 445
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 41,565,150 outstanding
shares of beneficial interest... 41,565
---------
Total Net Assets: (100.0%)........ $ 41,565
---------
---------
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $ 1.00
---------
---------
- ------------------
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is
the rate in effect on August 31, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
GO--General Obligation
RB--Revenue Bond
TECP--Tax Exempt Commercial Paper
TRAN--Tax and Revenue Anticipation Note
VRDN--Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
MBIA--Municipal Bond Insurance Association
EQUITY INCOME FUND
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS (91.7%)
Air Conditioning (0.8%)
York International................. 63,200 $ 2,812
---------
Air Transportation (0.6%)
AMR*............................... 28,000 1,974
---------
Aircraft (4.1%)
BE Aerospace*...................... 239,800 1,799
Boeing............................. 52,500 3,347
Flightsafety International......... 51,000 2,263
Sequa, Class A*.................... 94,900 2,527
United Technologies................ 50,000 4,168
---------
14,104
---------
Aluminum (6.2%)
Aluminum of America................ 369,400 21,102
---------
Banks (1.8%)
California Federal Bank*........... 143,462 2,242
Coast Savings Financial*........... 63,600 1,773
Long Island Bancorp................ 83,800 2,126
---------
6,141
---------
Building & Construction (2.3%)
Centex Construction*............... 251,000 3,262
Ryland Group....................... 113,500 1,788
Southdown*......................... 144,300 2,742
---------
7,792
---------
Building & Construction Supplies
(0.6%)
CBI Industries..................... 82,000 2,009
---------
The accompanying notes are an integral part of the financial statements.
12
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS, CONTINUED:
Chemicals (2.1%)
IMC Global......................... 70,000 $ 4,428
Rhone Poulenc S.A., ADR............ 31,089 645
Technip ADS*....................... 65,700 2,105
---------
7,178
---------
Communications Equipment (0.4%)
Alcatel Alsthom, ADR............... 61,500 1,230
---------
Computers & Services (0.8%)
BMC Software*...................... 60,800 2,592
---------
Drilling Oil & Gas Wells (0.8%)
Noble Drilling*.................... 336,400 2,691
---------
Electric Utilities (5.3%)
Central Vermont Public Service..... 193,100 2,655
CMS Energy......................... 65,300 1,608
Entergy............................ 72,100 1,730
New York State Electric & Gas...... 49,100 1,185
Niagara Mohawk Power............... 462,200 5,546
SCE................................ 40,000 665
Unicom............................. 171,900 4,835
---------
18,224
---------
Electronic & Other Electrical
Equipment (0.4%)
Raychem............................ 33,700 1,479
---------
Financial Services (2.0%)
Brascan Limited, Class A........... 101,700 1,665
Lehman Brothers Holding............ 213,560 5,072
---------
6,737
---------
Food, Beverage & Tobacco (5.9%)
Chiquita Brands International...... 123,000 1,937
DiMon.............................. 201,500 3,526
Interstate Bakeries................ 253,600 4,945
Universal-Virginia................. 428,600 9,644
---------
20,052
---------
Gas/Natural Gas (2.4%)
Enserch............................ 55,100 902
Gulf Canada Resources*............. 232,600 1,090
MARKET
VALUE
SHARES (000)
----------- ---------
National Fuel Gas.................. 25,000 703
Seagull Energy*.................... 247,500 4,981
Washington Energy.................. 25,000 416
---------
8,092
---------
Glass Products (1.0%)
Corning............................ 109,500 3,572
---------
Insurance (13.8%)
Ace Limited........................ 264,700 $ 8,140
American Financial Group........... 130,000 4,014
Brierley Investments, ADR*......... 62,500 926
Chubb.............................. 89,100 8,130
Cigna.............................. 184,800 17,880
Enhance Financial Services......... 26,400 535
Horace Mann Educators.............. 60,100 1,705
Loews.............................. 20,800 2,733
Old Republic International......... 110,000 3,039
Zurich Reinsurance Centre*......... 12,500 369
---------
47,471
---------
Lodging (0.1%)
Red Lion Hotels*................... 8,900 206
---------
Lumber & Wood Products (0.2%)
Georgia-Pacific.................... 9,000 810
---------
Machinery (1.2%)
Cooper Cameron*.................... 37,338 882
Cooper Industries.................. 42,505 1,615
Crane.............................. 25,000 900
Wyman-Gordan*...................... 49,700 640
---------
4,037
---------
Marine Transportation (2.0%)
Alexander & Baldwin................ 138,700 3,156
OMI*............................... 198,300 1,537
Overseas Shipholding Group......... 40,400 843
Teekay Shipping*................... 61,600 1,463
---------
6,999
---------
Metals & Mining (0.6%)
Potash of Saskatchewan............. 35,800 2,036
---------
Paper & Paper Products (6.5%)
Continued
13
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
EQUITY INCOME FUND CONTINUED
MARKET
VALUE
SHARES (000)
----------- ---------
Boise Cascade...................... 50,200 2,152
International Paper................ 150,800 12,346
Kimberly-Clark..................... 65,000 4,152
Willamette Industries.............. 53,200 3,658
---------
22,308
---------
Petroleum (12.4%)
Amerada Hess....................... 79,000 3,743
Ashland............................ 108,900 3,566
MARKET
VALUE
SHARES (000)
----------- ---------
Atlantic Richfield................. 14,100 1,539
Burlington Resources............... 122,100 4,960
Imperial Oil....................... 45,500 1,632
Nordsk Hydro A.S., ADR............. 66,000 2,789
Oryx Energy*....................... 268,000 3,618
Petroleum Heat & Power,
Class A.......................... 443,700 3,661
Continued
14
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
EQUITY INCOME FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
----------- ---------
MARKET
VALUE
SHARES (000)
----------- ---------
Phillips Petroleum................ 116,600 $ 3,833
Shell Transport & Trading......... 10,000 694
Sun............................... 81,832 2,179
Unocal............................ 153,000 4,456
USX-Marathon Group................ 284,500 5,867
---------
42,537
---------
Photographic Equipment & Supplies (2.0%)
Eastman Kodak..................... 121,000 6,973
---------
Printing & Publishing (1.2%)
Jostens........................... 169,000 4,056
---------
Railroads (0.8%)
Canadian Pacific.................. 171,800 2,899
---------
Real Estate (4.2%)
American Real Estate Partners*.... 138,826 1,041
Equity Inns....................... 14,400 171
Essex Property Trust.............. 161,000 2,797
Koger Equity*..................... 230,500 2,147
Newhall Land & Farming............ 204,200 2,757
RFS Hotel Investors............... 18,000 257
Starwood Lodging*................. 26,600 708
Storage Equities.................. 101,900 1,872
Sun Communities................... 104,200 2,618
---------
14,368
---------
Refuse Systems (1.0%)
WMX Technologies.................. 118,100 3,469
---------
Retail (1.5%)
Hills Department Stores*.......... 119,251 1,610
Kmart............................. 254,700 3,470
---------
5,080
---------
Rubber & Plastic (1.0%)
Goodrich B. F..................... 58,000 3,451
---------
Steel & Steel Works (0.4%)
Precision Castparts............... 45,500 1,541
SHARES/ MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
---------
Telephones & Telecommunication
(5.3%)
BCE............................... 249,900 8,028
Comsat............................ 242,500 5,638
Portugal Telecom S.A., ADR*....... 60,100 1,089
Worldcom*......................... 95,614 3,221
---------
17,976
---------
Total Common Stocks
(Cost $267,087,713)............. 313,998
---------
CONVERTIBLE PREFERRED STOCKS (4.9%)
Boise Cascade, 7.48% Series G..... 99,800 3,555
Glendale Federal Savings Bank,
8.75% Series E.................. 211,450 8,854
Reynolds Metals Company, 7.00%
Series.......................... 65,600 3,518
Santa Fe Energy Resources,
Series A........................ 100,000 $ 963
---------
Total Convertible Preferred Stocks
(Cost $11,412,368).............. 16,890
---------
RIGHTS (0.0%)
California Federal Bank*.......... 14,346 95
---------
Total Rights
(Cost $62,764).................. 95
---------
CONVERTIBLE BONDS (1.4%)
AMR
6.125%, 11/01/24................ $ 4,775 4,823
---------
Total Convertible Bonds
(Cost $4,485,563)............... 4,823
---------
REPURCHASE AGREEMENT (1.5%)
Paine Webber, 5.80%, dated
08/31/95, matures 09/01/95,
repurchase price $5,044,813
(collateralized by U.S. Treasury
Bond, par value $4,925,000,
11.50%, 11/15/95, market value
$5,149,703)..................... 5,044 5,044
---------
Total Repurchase Agreement
The accompanying notes are an integral part of the financial statements.
14
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
EQUITY INCOME FUND (CONTINUED)
SHARES/ MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
(Cost $5,044,000)............... 5,044
---------
Total Investments (99.5%)
(Cost $288,092,408)............. 340,850
---------
OTHER ASSETS AND LIABILITIES (0.5%)
Other Assets and Liabilities,
Net............................... 1,834
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,375,121 outstanding
shares of beneficial interest... 278,118
Accumulated net realized gain on
investments..................... 11,809
Net unrealized appreciation
investments..................... 52,758
SHARES/ MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Distributions in excess of net
investment income............... (1)
---------
Total Net Assets: (100.0%)........ $ 342,684
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 14.06
---------
---------
Maximum Public Offering Price Per
Share ($14.06/95.50%)........... $ 14.72
---------
---------
- ------------------
*Non-income producing security
ADR--American Depository Receipt
The accompanying notes are an integral part of the financial statements.
15
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
SHARES/ MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
GROWTH FUND
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS (97.6%)
Air Conditioning (1.1%)
York International................. 38,700 $ 1,722
---------
Autoparts (1.5%)
Autozone*.......................... 90,100 2,421
---------
Banks (4.5%)
First Bank System.................. 90,400 4,124
State Street Boston................ 82,000 3,024
---------
7,148
---------
Broadcasting, Newspapers &
Advertising (3.9%)
Comcast, Special Class A........... 150,000 3,206
Viacom, Class B*................... 60,000 2,918
---------
6,124
---------
Building & Construction (1.0%)
Foster Wheeler..................... 44,900 1,656
---------
Chemical and Allied Products (6.0%)
Air Products and Chemicals......... 26,800 1,437
Engelhard.......................... 85,500 2,415
Nalco Chemical..................... 67,500 2,363
Zeneca Group PLC, ADR.............. 65,000 3,364
---------
9,579
---------
Communication Services (1.5%)
MFS Communications*................ 52,000 2,301
---------
Communications Equipment (3.2%)
Motorola........................... 37,000 2,766
Nokia, Class A, ADR................ 33,000 2,289
---------
5,055
---------
Computer Software (4.0%)
Compuware*......................... 62,000 1,403
Microsoft*......................... 27,000 2,497
Novell*............................ 138,000 2,484
---------
6,384
---------
Computer and Office Equipment (4.1%)
Computer Sciences*................. 50,000 3,013
MARKET
VALUE
SHARES (000)
----------- ---------
Hewlett Packard.................... 44,000 3,520
---------
6,533
---------
Electronic Components (4.8%)
AMP................................ 72,000 $ 2,925
General Instrument*................ 71,000 2,592
Hubbell, Class B................... 37,000 2,169
---------
7,686
---------
Financial Services (0.8%)
American Express................... 29,700 1,199
---------
Food & Beverage (4.5%)
Pepsico............................ 66,000 2,987
Sara Lee........................... 91,800 2,547
Sysco.............................. 55,300 1,590
---------
7,124
---------
Insurance (6.0%)
Ace Limited........................ 114,000 3,505
American International Group....... 39,750 3,205
American Re Insurance.............. 70,200 2,808
---------
9,518
---------
Mining (1.0%)
Minnesota Mining and
Manufacturing.................... 27,500 1,502
---------
Miscellaneous Business Services
(4.9%)
Automatic Data Processing.......... 42,000 2,730
Dun & Bradstreet................... 32,000 1,852
Policy Management Systems*......... 44,000 2,178
Sensormatic Electronics............ 51,000 1,071
---------
7,831
---------
Mortgage Bankers (2.4%)
Federal National Mortgage
Association...................... 40,000 3,815
---------
Continued
15
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
MARKET
VALUE
SHARES (000)
----------- ---------
Nursing Care Facilities (1.2%)
Beverly Enterprises*............... 138,000 1,829
---------
Oil Services (1.4%)
Schlumberger....................... 34,500 2,225
---------
Paper & Paper Products (3.1%)
International Paper................ 21,900 1,793
MARKET
VALUE
SHARES (000)
----------- ---------
Kimberly-Clark..................... 50,000 3,194
---------
4,987
---------
Petroleum (7.1%)
Amoco.............................. 54,000 3,443
Burlington Resources............... 54,000 2,194
Continued
16
MARKET
VALUE
SHARES (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
GROWTH FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
----------- ---------
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS, CONCLUDED:
Petroleum, continued:
Noble Affiliates.................. 69,000 $ 1,906
Unocal............................ 125,000 3,640
---------
11,183
---------
Pharmaceuticals (10.4%)
Abbott Laboratories............... 70,000 2,713
Genetics Institute*............... 54,000 2,120
Hafslund Nycomed-Cl B, ADR........ 92,889 2,229
Mallinckrodt Group................ 50,700 1,908
Morton International.............. 90,500 2,941
Perrigo*.......................... 100,000 1,350
Pfizer............................ 64,000 3,159
Rhone Poulenc Rorer............... 2,200 97
---------
16,517
---------
Printing & Publishing (4.0%)
E.W. Scripps...................... 66,000 2,219
Knight-Ridder..................... 26,800 1,508
Scholastic*....................... 43,000 2,634
---------
6,361
---------
Retail (4.8%)
Home Depot........................ 33,300 1,328
May Department Stores............. 56,000 2,373
Wal-Mart Stores................... 159,000 3,915
---------
7,616
---------
Rubber & Plastic (2.4%)
Illinois Tool Works............... 63,000 3,859
---------
Telephones & Telecommunication (6.6%)
AT&T.............................. 72,500 4,095
L.M. Ericsson Telephone, ADR...... 148,000 3,164
Vodafone Group, ADR............... 75,000 3,141
---------
10,400
---------
Trucking (1.4%)
M.S. Carriers*.................... 120,200 2,254
---------
Total Common Stocks
(Cost $127,914,695)............. 154,829
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
---------
REPURCHASE AGREEMENT (2.1%)
Paine Webber, 5.80%, dated
08/31/95, matures 09/01/95,
repurchase price $3,267,526
(collateralized by United States
Treasury Note, par value
$3,345,000, 4.375%, 11/15/96,
market value $3,332,945)........ $ 3,267 $ 3,267
---------
Total Repurchase Agreement
(Cost $3,267,000)............... 3,267
---------
Total Investments (99.7%)
(Cost $131,181,695)............. 158,096
---------
OTHER ASSETS AND LIABILITIES (0.3%)
Other Assets and Liabilities,
Net.............................. 450
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 12,264,782 outstanding
shares of beneficial interest... 129,039
Accumulated net realized gain on
investments..................... 2,593
Net unrealized appreciation on
investments..................... 26,914
---------
Total Net Assets: (100.0%)........ $ 158,546
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 12.93
---------
---------
Maximum Public Offering Price Per
Share ($12.93/95.50%)........... $ 13.54
---------
---------
- ------------------
*Non-income producing security
ADR--American Depository Receipt
PLC--Public Limited Company
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SMALL COMPANY FUND (CONTINUED)
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
SMALL COMPANY FUND
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS (91.4%)
Aircraft (0.1%)
Simula*............................ 1,300 $ 35
---------
Apparel/Textiles (3.0%)
Ashworth*.......................... 4,200 29
Nautica Enterprises*............... 10,400 329
Tommy Hilfiger*.................... 13,200 443
---------
801
---------
Autoparts (0.2%)
Edelbrock*......................... 2,700 42
---------
Bicycles (0.1%)
Cannondale*........................ 2,100 34
---------
Biotechnology (1.3%)
Northfield Laboratories*........... 2,000 34
Ostex International*............... 1,200 20
Watson Pharmaceuticals*............ 6,800 282
---------
336
---------
Casinos (1.5%)
Players International*............. 10,600 223
Station Casinos*................... 8,800 171
---------
394
---------
Computer Hardware (13.6%)
Alantec*........................... 7,100 284
Auspex Systems*.................... 2,500 39
Chips & Technologies*.............. 3,200 44
Cognex*............................ 6,200 309
Cybex Computer Products*........... 2,800 64
Digital Link*...................... 1,300 31
Hutchinson Technology*............. 5,000 391
Key Tronic*........................ 4,800 73
Komag*............................. 9,100 566
Quantum*........................... 19,900 478
Read-Rite*......................... 14,900 610
Stormedia*......................... 7,200 299
Western Digital*................... 19,200 396
---------
3,584
---------
MARKET
VALUE
SHARES (000)
----------- ---------
Computer Software (12.7%)
Altera*............................ 7,100 445
Applix*............................ 1,200 34
Aspen Technology*.................. 2,200 59
Diamond Multimedia Systems*........ 2,000 54
Discreet Logic*.................... 3,500 142
Electronic Arts*................... 6,000 228
Integrated Silicon Systems*........ 8,700 248
Intersolv*......................... 2,200 43
Minnesota Educational
Computing*....................... 1,800 $ 52
National Instruments*.............. 2,600 56
Number Nine Visual Technology*..... 2,600 47
Oak Technology*.................... 10,900 478
Parametric Technology*............. 7,200 398
Phamis*............................ 1,600 43
Pinnacle Systems*.................. 1,300 35
Platinum Software*................. 13,400 157
Project Software & Development*.... 1,000 29
Softdesk*.......................... 2,300 56
Summit Medical Systems*............ 1,900 29
Synopsys*.......................... 7,500 435
System Software Associates......... 7,900 249
Wind River Systems*................ 1,900 35
---------
3,352
---------
Cosmetics (0.1%)
Thermolase*........................ 1,400 28
---------
Electrical Equipment (1.8%)
Brooks Automation*................. 2,400 43
Gasonics International*............ 3,300 115
Level One Communications*.......... 1,600 40
Microchip Technology*.............. 7,500 284
---------
482
---------
Electronics (8.5%)
Brooktree*......................... 4,000 80
Cincinnati Microwave*.............. 13,500 243
GTI*............................... 15,400 337
Harman International*.............. 5,565 248
Continued
17
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
----------- ---------
Mackie Designs*.................... 3,300 50
Silicon Valley Group*.............. 3,500 151
Tencor Instrument*................. 9,400 407
Teradyne*.......................... 9,600 364
Ultratech Stepper*................. 9,100 359
---------
2,239
---------
Environmental Services (0.2%)
U.S. Filter*....................... 2,200 48
---------
MARKET
VALUE
SHARES (000)
----------- ---------
Financial Services (0.2%)
Credit Acceptance*................. 1,400 30
Sirrom Capital..................... 1,700 28
---------
58
---------
Food Processing (0.1%)
Opta Food Ingredients*............. 1,700 27
---------
Health & Allied Services (2.8%)
Community Health Systems*.......... 4,600 177
Continued
18
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SMALL COMPANY FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SMALL COMPANY FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS, CONTINUED:
Health & Allied Services, continued:
Healthsouth Rehabilitation*........ 8,400 $ 198
Horizon Mental Health
Management*...................... 1,400 21
Horizon/CMS Healthcare*............ 9,500 209
Integrated Health Services*........ 4,500 134
---------
739
---------
Health Maintenance Organizations (2.1%)
Healthsource*...................... 6,800 272
Inphynet Medical Management*....... 1,400 31
Mid Atlantic Medical Services*..... 8,600 160
Physicians Health Services*........ 2,500 70
United American Healthcare*........ 1,800 20
---------
553
---------
Insurance (0.2%)
Compdent*.......................... 1,600 44
---------
Lodging (1.8%)
Doubletree*........................ 2,600 50
Laquinta Inns...................... 14,300 429
---------
479
---------
Machinery (4.1%)
Computational Systems*............. 900 14
Duracraft*......................... 7,800 311
FSI International*................. 12,700 448
Novellus Systems*.................. 4,300 317
---------
1,090
---------
Medical Supplies (1.2%)
Avecor Cardiovascular*............. 2,700 36
Resmed*............................ 2,200 33
Tecnol Medical Products*........... 10,300 187
Thermedics*........................ 2,700 52
---------
308
---------
Miscellaneous Business Services
(0.9%)
ABR Information Services*.......... 2,800 63
Accustaff*......................... 1,500 42
MARKET
VALUE
SHARES (000)
----------- ---------
Career Horizons*................... 1,600 40
Healthplan Services*............... 1,600 30
National Wireless Holdings*........ 2,600 34
Transaction Systems Architects*.... 1,300 32
---------
241
---------
Miscellaneous Manufacturing (0.2%)
Chicago Miniature Lamp*............ 2,600 44
---------
Oil & Gas Field Services (0.5%)
Weatherford International*......... 10,600 139
---------
Oil and Gas Exploration (1.5%)
Barrett Resources*................. 8,700 $ 188
Belden & Blake*.................... 2,100 34
Reading & Bates*................... 13,800 167
---------
389
---------
Printing & Publishing (0.4%)
Mecklermedia*...................... 2,600 110
---------
Radio and Broadcasting Stations
(0.9%)
American Radio Systems*............ 8,200 234
---------
Real Estate (0.4%)
Felcor Suite Hotels................ 2,000 54
NHP*............................... 1,200 16
Winston Hotels..................... 3,000 33
---------
103
---------
Restaurants (7.0%)
Apple South........................ 9,600 235
Applebees International............ 7,600 228
Daka International*................ 400 11
Dave & Buster's*................... 1,800 31
Lone Star Steakhouse & Saloon*..... 13,100 524
Longhorn Steak*.................... 1,500 27
O'Charleys*........................ 3,900 65
Outback Steakhouse*................ 8,400 271
Papa John's International*......... 2,100 84
Rock Bottom Restaurants*........... 2,300 59
Starbucks*......................... 7,700 308
---------
Continued
18
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
----------- ---------
1,843
---------
Retail (8.9%)
Baby Superstore*................... 6,000 281
Borders Group*..................... 11,800 239
Corporate Express*................. 9,600 224
Dollar Tree Stores*................ 2,400 71
Friedman's, Class A*............... 11,900 277
Garden Ridge*...................... 1,700 53
Gymboree*.......................... 5,500 164
Hollywood Entertainment*........... 10,100 287
Just For Feet*..................... 3,600 105
MARKET
VALUE
SHARES (000)
----------- ---------
Moovies*........................... 1,900 36
Movie Gallery*..................... 1,600 76
Orchard Supply Hardware*........... 1,100 17
Proffitts*......................... 10,900 287
Sports & Recreation*............... 8,500 101
U.S. Office Products*.............. 2,500 43
West Marine*....................... 3,300 87
---------
2,348
---------
Continued
19
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SMALL COMPANY FUND (CONTINUED)
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS, CONTINUED:
Semiconductors & Related Devices (12.4%)
ACT Manufacturing*............... 1,900 $ 37
Actel*........................... 1,800 30
Alliance Semiconductor*.......... 11,500 450
Atmel*........................... 11,800 373
Cirrus Logic*.................... 9,800 534
Dallas Semiconductor*............ 3,600 86
KLA Instruments*................. 5,400 462
Lattice Semiconductor*........... 13,300 437
Micro Linear*.................... 3,700 58
S3*.............................. 11,700 459
Tower Semiconductor*............. 2,000 62
Tylan General*................... 1,800 30
VLSI Technology*................. 7,300 241
---------
3,259
---------
Telecommunication Equipment (1.4%)
Applied Digital Access*.......... 2,000 24
Colonial Data Technologies*...... 9,400 170
Inter-Tel*....................... 1,400 23
Spectrian*....................... 2,700 125
Symmetricom*..................... 1,700 38
---------
380
---------
Telecommunications (1.2%)
Mobile Telecommunication
Technology*.................... 3,300 101
Mobilemedia*..................... 9,000 218
---------
319
---------
Trucking (0.1%)
Trism*........................... 3,700 31
---------
Total Common Stocks
(Cost $21,921,699)............. 24,113
---------
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
REPURCHASE AGREEMENT (8.2%)
Lehman Mortgage Repurchase
Agreement, 5.80%, dated 08/31/95,
matures 09/01/95, repurchase
price $2,152,952 (collateralized
by Federal Home Loan Bank
Discount Note, par value
$2,240,000, 0.00%, maturing
12/28/95, market value
$2,198,560)...................... $ 2,153 $ 2,153
---------
Total Repurchase Agreement
(Cost $2,152,925).............. 2,153
---------
Total Investments (99.6%)
(Cost $24,074,624)............. 26,266
---------
OTHER ASSETS AND LIABILITIES
(0.4%)
Other Assets and Liabilities,
Net.............................. 109
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 2,051,961 outstanding
shares of beneficial
interest....................... 21,984
Accumulated net realized gain on
investments.................... 2,223
Net unrealized appreciation on
investments.................... 2,191
Distributions in excess of net
investment income.............. (23)
---------
Total Net Assets: (100.0%)....... $ 26,375
---------
---------
Net Asset Value and Redemption
Price Per Share................ $ 12.85
---------
---------
Maximum Public Offering Price Per
Share ($12.85/95.50%).......... $ 13.46
---------
---------
- ------------------
*Non-income producing security
The accompanying notes are an integral part of the financial statements.
19
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
BALANCED FUND
MARKET
VALUE
SHARES (000)
----------- ---------
COMMON STOCKS (52.2%)
Aerospace & Defense (1.1%)
Raytheon........................... 4,500 $ 364
---------
Aircraft (1.1%)
United Technologies................ 4,000 334
---------
Automotive (2.0%)
Dana............................... 10,000 299
Ford Motor......................... 11,000 337
---------
636
---------
Banks (3.3%)
Comerica........................... 6,500 231
JP Morgan.......................... 3,000 219
Keycorp............................ 7,400 229
Mellon Bank........................ 4,000 190
PNC Bank........................... 7,000 184
---------
1,053
---------
Chemicals (2.6%)
E.I. Dupont de Nemours............. 4,000 262
Loctite............................ 4,500 216
Witco.............................. 10,000 332
---------
810
---------
Communications Equipment (0.6%)
Harris............................. 3,500 202
---------
Computers & Services (2.1%)
Apple Computer..................... 4,000 172
Novell*............................ 13,200 238
Pitney Bowes....................... 6,500 264
---------
674
---------
Drugs (3.5%)
Bristol Myers Squibb............... 5,800 398
Merck.............................. 3,300 165
Schering Plough.................... 5,200 242
Warner Lambert..................... 3,500 316
---------
1,121
---------
Electrical Machinery Equipment
(1.1%)
Grainger (W.W.).................... 6,000 357
---------
Environmental Services (1.1%)
MARKET
VALUE
SHARES (000)
----------- ---------
WMX Technologies................... 11,800 347
---------
Financial Services (1.1%)
Federal National Mortgage
Association...................... 3,500 334
---------
Food, Beverage & Tobacco (4.3%)
American Brands.................... 8,000 $ 335
Anheuser Busch..................... 2,800 160
Archer Daniels Midland............. 15,750 262
Pepsico............................ 4,000 181
Philip Morris Companies............ 3,000 224
Sysco.............................. 7,000 201
---------
1,363
---------
Glass Products (1.0%)
Corning............................ 10,000 326
---------
Holding Company, Diversified (0.8%)
Hanson PLC, ADR.................... 15,000 257
---------
Household Furniture & Fixtures
(0.9%)
Masco.............................. 10,000 280
---------
Insurance (2.8%)
Chubb.............................. 3,700 338
Lincoln National................... 4,700 202
Loews.............................. 1,700 223
US Healthcare...................... 4,500 144
---------
907
---------
Machinery (2.6%)
BW/IP, Inc......................... 7,000 125
General Electric................... 7,000 412
Ingersoll Rand..................... 8,000 303
---------
840
---------
Miscellaneous Manufacturing (1.5%)
Minnesota Mining And
Manufacturing.................... 8,500 464
---------
Oil Services (1.0%)
Schlumberger....................... 5,000 323
---------
Paper & Paper Products (1.6%)
Continued
20
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
BALANCED FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
----------- ---------
Kimberly-Clark..................... 5,000 319
Weyerhaeuser....................... 4,000 184
---------
503
---------
Petroleum (3.1%)
Atlantic Richfield................. 2,500 273
MARKET
VALUE
SHARES (000)
----------- ---------
Burlington Resources............... 7,000 285
Chevron............................ 4,800 232
Texaco............................. 3,000 194
---------
984
---------
Continued
21
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
COMMON STOCKS, CONCLUDED:
Photographic Equipment & Supplies (1.1%)
Eastman Kodak..................... 6,200 $ 357
---------
Professional Services (0.8%)
Dun & Bradstreet.................. 4,500 260
---------
Railroads (1.6%)
Norfolk Southern.................. 4,000 283
Union Pacific..................... 3,500 229
---------
512
---------
Retail (2.2%)
J. C. Penney...................... 4,000 181
May Department Stores............. 8,000 339
Toys R US*........................ 7,500 195
---------
715
---------
Semiconductors/Instruments (0.8%)
Avnet............................. 5,000 258
---------
Telephones & Telecommunication (4.1%)
Airtouch Communications*.......... 8,500 276
AT&T.............................. 9,000 509
Bell Atlantic..................... 5,000 299
GTE............................... 5,800 212
---------
1,296
---------
Utilities (2.4%)
Dominion Resources of Virginia.... 8,500 307
General Public Utilities.......... 7,000 200
Pacific Gas and Electric.......... 9,000 259
---------
766
---------
Total Common Stocks
(Cost $14,809,331).............. 16,643
---------
CORPORATE BONDS (7.2%)
ABN/AMRO, New York
8.250%, 08/01/09................ $ 500 535
Anheuser Busch
7.500%, 12/01/97................ 300 308
Associates Corporation of North
America
7.250%, 05/15/98................ 200 205
Ford Motor Credit
7.500%, 06/15/04................ 250 259
General Electric Capital
8.000%, 01/15/98................ 200 208
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
Pepsico
6.250%, 09/01/99................ $ 200 $ 198
Wal-Mart Stores
8.000%, 09/15/06................ 300 330
WMX Technologies
8.250%, 11/15/99................ 250 265
---------
Total Corporate Bonds
(Cost $2,208,984)............... 2,308
---------
CONVERTIBLE BONDS (0.8%)
Time Warner
8.750%, 01/10/15................ 250 260
---------
Total Convertible Bonds
(Cost $250,469)
ASSET BACKED SECURITIES (0.8%)
American Express Master Trust
7.150%, 08/15/99................ 250 256
---------
Total Asset Backed Securities
(Cost $244,922)................. 256
---------
U. S. TREASURY OBLIGATIONS (28.4%)
United States Treasury Bonds
7.250%, 05/15/16................ 500 528
7.500%, 11/15/16................ 500 542
8.125%, 08/15/19................ 500 579
7.500%, 11/15/24................ 250 274
United States Treasury Notes
6.125%, 07/31/96................ 150 151
7.250%, 08/31/96................ 500 507
7.500%, 01/31/97................ 300 307
6.750%, 02/28/97................ 250 253
6.750%, 05/31/97................ 250 254
7.375%, 11/15/97................ 500 515
7.250%, 02/15/98................ 400 412
6.375%, 01/15/99................ 500 505
7.500%, 10/31/99................ 500 526
6.375%, 01/15/00................ 250 253
Continued
21
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
BALANCED FUND (CONTINUED)
7.125%, 02/29/00................ 650 676
7.500%, 11/15/01................ 650 696
7.500%, 05/15/02................ 500 536
6.375%, 08/15/02................ 500 505
7.250%, 05/15/04................ 500 530
7.250%, 08/15/04................ 250 265
7.875%, 11/15/04................ 250 276
---------
Total U. S. Treasury Obligations
(Cost $8,650,121)............... 9,090
---------
Continued
22
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
BALANCED FUND (CONTINUED)
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(1.0%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99................ $ 300 $ 310
---------
Total U.S. Government Agency
Obligations
(Cost $296,344)................. 310
---------
SHORT-TERM INVESTMENTS (8.3%)
Chemical Bank Repurchase
Agreement, 5.75%, dated
08/31/95, matures 09/01/95,
repurchase price $2,256,360
(collateralized by U.S. Treasury
Note, par value $2,190,000,
8.125%, maturing 02/15/98,
market value
$2,305,177)..................... 2,256 2,256
Temp Cash Fund.................... 380 380
---------
Total Short-Term Investments
(Cost $2,636,000)............... 2,636
---------
Total Investments (98.7%)
(Cost $29,096,171).............. 31,503
---------
OTHER ASSETS AND LIABILITIES (1.3%)
Other Assets and Liabilities,
Net............................... 404
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 2,872,437 shares of
beneficial interest............. 29,063
Accumulated net realized gain on
investments..................... 437
Net unrealized appreciation on
investments..................... 2,407
---------
Total Net Assets: (100.0%)........ $ 31,907
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 11.11
---------
---------
Maximum Public Offering Price Per
Share ($11.11/95.50%)........... $ 11.63
---------
---------
- ------------------
*Non-income producing security.
ADR--American Depository Receipt
PLC--Public Limited Company
SHORT/INTERMEDIATE FUND
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
CORPORATE BONDS (36.7%)
Automobile Finance (4.4%)
Ford Capital BV
9.000%, 08/15/98................ $ 1,000 $ 1,066
Ford Motor Credit
8.000%, 01/15/99................ 1,000 1,043
8.400%, 03/26/99................ 5,000 5,287
8.000%, 06/15/02................ 1,000 1,063
---------
8,459
---------
Beverages (8.8%)
Anheuser Busch
7.500%, 12/01/97................ 2,500 2,566
8.750%, 12/01/99................ 1,895 2,054
Coca-Cola
7.875%, 09/15/98................ 7,100 7,417
Pepsico
7.000%, 11/15/96................ 3,000 3,034
6.125%, 01/15/98................ 2,000 1,998
---------
17,069
---------
Business Credit Institutions (1.1%)
General Electric Capital
8.125%, 02/01/99................ 2,000 2,108
---------
Chemicals (1.8%)
E.I. Dupont de Nemours
8.450%, 10/15/96................ 3,500 3,592
---------
Electric Utility (3.7%)
Duke Power
7.500%, 04/01/99................ 4,000 4,140
Wisconsin Electric Power
5.875%, 10/01/97................ 3,000 2,985
---------
7,125
---------
Financial Services (7.4%)
Associates Corporation of North
America
5.300%, 09/04/95................ 1,000 1,000
7.625%, 04/15/98................ 2,400 2,421
7.875%, 09/30/01................ 1,000 1,058
Goldman Sachs
4.770%, 10/16/95................ 3,000 2,997
Household Finance
7.800%, 11/01/96................ 2,000 2,033
8.875%, 07/05/99................ 2,000 2,040
7.625%, 01/15/03................ 2,750 2,877
---------
14,426
---------
The accompanying notes are an integral part of the financial statements.
22
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
CORPORATE BONDS, CONCLUDED:
Petroleum Refining (3.7%)
Texaco Capital
9.000%, 11/15/96................ $ 1,500 $ 1,551
8.530%, 08/15/97................ 1,350 1,406
8.260%, 09/15/98................ 1,000 1,053
9.000%, 12/15/99................ 3,000 3,276
---------
7,286
---------
Retail-Eating Places (4.2%)
Bass America
6.750%, 08/01/99................ 5,000 5,037
8.125%, 03/31/02................ 1,000 1,074
McDonald's
6.750%, 02/15/03................ 2,000 2,000
---------
8,111
---------
Retail-Variety Stores (1.6%)
Wal-Mart Stores
8.000%, 05/01/96................ 3,000 3,038
---------
Total Corporate Bonds
(Cost $70,861,179).............. 71,214
---------
COLLATERALIZED MORTGAGE OBLIGATIONS
(2.1%)
Federal Home Loan Mortgage
Corporation
6.750%, 09/15/16................ 4,000 4,028
---------
Total Collateralized Mortgage
Obligations (Cost $4,033,750)... 4,028
---------
ASSET BACKED SECURITIES (14.9%)
American Express Master Trust
7.150%, 08/15/99................ 4,750 4,860
Chase Manhattan Master Trust
8.750%, 08/15/99................ 2,000 2,039
General Motors Acceptance
Corporation Grantor Trust
4.150%, 03/15/98................ 1,314 1,298
Merrill Lynch Asset Backed
5.500%, 05/15/98................ 1,096 1,092
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.125%, 07/15/98................ 1,030 1,025
Premier Auto Trust
4.900%, 10/15/98................ 736 728
4.650%, 11/02/99................ 4,344 4,272
Prime Credit Card Master Trust
6.750%, 10/31/05................ 2,000 2,014
Standard Credit Card Master Trust
8.875%, 09/07/99................ $ 5,000 $ 5,331
7.875%, 01/07/00................ 6,000 6,261
---------
Total Asset Backed Securities
(Cost $28,578,921).............. 28,920
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(2.2%)
Federal Home Loan Mortgage
Corporation
7.860%, 01/21/97................ 2,000 2,052
Tennessee Valley Authority
8.375%, 10/01/99................ 2,000 2,140
---------
Total U.S. Government Agency
Obligations
(Cost $4,004,410)............... 4,192
---------
U.S. TREASURY OBLIGATIONS (40.4%)
United States Treasury Notes
8.500%, 11/15/95................ 2,000 2,012
7.500%, 01/31/96................ 8,000 8,061
7.375%, 05/15/96................ 2,000 2,022
7.250%, 08/31/96................ 1,000 1,015
7.250%, 11/30/96................ 2,000 2,035
6.750%, 02/28/97................ 2,000 2,028
6.625%, 03/31/97................ 2,000 2,025
6.875%, 04/30/97................ 10,000 10,167
6.500%, 05/15/97................ 5,000 5,054
6.750%, 05/31/97................ 8,000 8,120
5.625%, 08/31/97................ 5,000 4,980
5.750%, 10/31/97................ 3,000 2,993
6.000%, 11/30/97................ 9,000 9,025
The accompanying notes are an integral part of the financial statements.
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
7.875%, 01/15/98................ 4,000 4,174
7.250%, 02/15/98................ 5,000 5,151
6.375%, 07/15/99................ 2,000 2,025
8.000%, 08/15/99................ 3,000 3,204
7.125%, 09/30/99................ 2,000 2,075
7.125%, 02/29/00................ 2,000 2,080
---------
Total U.S. Treasury Obligations
(Cost $78,013,927).............. 78,246
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
---------
SHORT-TERM INVESTMENT (2.6%)
Temp Cash Fund.................... 5,108 5,108
---------
Total Short-Term Investment
(Cost $5,108,488)............... 5,108
---------
Total Investments (98.9%)
(Cost $190,600,675)............. 191,708
---------
The accompanying notes are an integral part of the financial statements.
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SHORT/INTERMEDIATE FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
OTHER ASSETS AND LIABILITIES (1.1%)
Other Assets and Liabilities,
Net............................. $ 2,111
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 18,830,186 outstanding
shares of beneficial interest... 196,432
Accumulated net realized loss on
investments..................... (3,714)
Net unrealized appreciation on
investments..................... 1,107
Distributions in excess of net
investment income............... (6)
---------
Total Net Assets: (100.0%)........ $ 193,819
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 10.29
---------
---------
Maximum Public Offering Price Per
Share ($10.29/96.00%)........... $ 10.72
---------
---------
FIXED INCOME FUND
CORPORATE BONDS (44.5%)
Automobile Finance (3.4%)
Ford Capital BV
9.000%, 08/15/98................ $ 1,000 1,066
Ford Motor Credit
8.000%, 01/15/99................ 2,000 2,085
8.000%, 06/15/02................ 1,000 1,063
7.750%, 03/15/05................ 3,000 3,154
6.750%, 08/15/08................ 1,000 971
---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
8,339
---------
Banks (5.2%)
ABN-AMRO Bank, New York, Callable
08/01/04 @ 100
8.250%, 08/01/09................ 5,000 5,356
Banque Nationale de Paris
9.875%, 05/25/98................ 1,000 1,084
National Westminster Bank, New
York
9.450%, 05/01/01................ 4,000 4,490
Toronto Dominion Bank, New York
7.875%, 08/15/04................ 2,000 2,083
---------
13,013
---------
Beverages (3.8%)
Anheuser Busch
9.000%, 12/01/09................ $ 4,500 $ 5,377
Coca-Cola
7.875%, 09/15/98................ 1,955 2,043
Pepsico
6.125%, 01/15/98................ 2,000 1,998
---------
9,418
---------
Business Credit Institutions (0.4%)
General Electric Capital
8.125%, 02/01/99................ 1,000 1,054
---------
Commercial Printing (4.2%)
R.R. Donnelley & Sons
7.000%, 01/01/03................ 2,000 2,048
8.875%, 04/15/21................ 7,000 8,321
---------
10,369
---------
Electric Utility (0.4%)
Teco Energy
9.250%, 06/19/97................ 1,000 1,051
---------
Paper & Paper Products (3.3%)
The accompanying notes are an integral part of the financial statements.
24
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Kimberly-Clark, Callable
02/01/13 @ 100
7.875%, 02/01/23................ 3,750 3,909
Weyerhaeuser
8.840%, 04/12/99................ 4,000 4,295
---------
8,204
---------
Personal Credit Institutions (3.1%)
Associates Corporation of North
America
8.625%, 06/15/97................ 3,000 3,123
7.875%, 09/30/01................ 1,000 1,058
Associates Corporation of North
America, Callable 04/15/96 @ 100
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
7.625%, 04/15/98................ 1,000 1,009
Household Finance
7.625%, 01/15/03................ 2,500 2,616
---------
7,806
---------
Petroleum Refining (3.2%)
Texaco Capital
9.000%, 11/15/96................ 1,000 1,034
8.260%, 09/15/98................ 1,250 1,316
8.500%, 02/15/03................ 5,000 5,512
---------
7,862
---------
The accompanying notes are an integral part of the financial statements.
25
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
CORPORATE BONDS, CONCLUDED:
Railroads (1.9%)
Norfolk Southern
9.000%, 03/01/21................ $ 4,000 $ 4,795
---------
Retail-Department Stores (1.3%)
J.C. Penney, Callable 7/12/00 @
100
9.450%, 07/15/02................ 3,000 3,345
---------
Retail-Eating Places (6.6%)
Bass America
6.750%, 08/01/99................ 4,000 4,029
8.125%, 03/31/02................ 2,000 2,148
Grand Metropolitan Investment
7.125%, 09/15/04................ 5,000 5,122
McDonald's
7.375%, 07/15/02................ 2,000 2,118
6.750%, 02/15/03................ 3,000 3,000
---------
16,417
---------
Retail-Grocery Stores (2.0%)
Albertsons
4.820%, 03/25/96................ 5,000 4,963
---------
Retail-Variety Stores (0.8%)
Wal-Mart Stores
8.000%, 05/01/96................ 2,000 2,025
---------
Soap (0.8%)
Procter and Gamble
7.375%, 03/01/23................ 2,000 2,003
---------
Trucking (4.1%)
United Parcel Service
8.375%, 04/01/20................ 9,000 10,260
---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Total Corporate Bonds
(Cost $107,054,724)............. 110,924
---------
COLLATERALIZED MORTGAGE OBLIGATIONS
(3.2%)
Federal Home Loan Mortgage
Corporation
8.000%, 03/15/05................ 1,345 1,353
6.750%, 09/15/16................ 6,000 6,042
Federal National Mortgage
Association
9.500%, 09/25/18................ 627 639
---------
Total Collateralized Mortgage
Obligations
(Cost $7,941,153)............... 8,034
---------
ASSET BACKED SECURITIES (4.9%)
American Express Master Trust
7.150%, 08/15/99................ $ 2,000 $ 2,046
Chase Manhattan Master Credit Card
Trust
8.750%, 08/15/99................ 3,000 3,060
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98................ 434 429
Merrill Lynch Asset Backed
5.500%, 05/15/98................ 658 655
5.125%, 07/15/98................ 1,030 1,025
Premier Auto Trust
4.900%, 10/15/98................ 2,942 2,912
Standard Credit Card Master Trust
7.875%, 01/07/00................ 2,000 2,086
---------
Total Asset Backed Securities
(Cost $12,255,593).............. 12,213
---------
GOVERNMENT POOLED MORTGAGES (1.2%)
The accompanying notes are an integral part of the financial statements.
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Government National Mortgage
Association
9.000%, 09/15/16................ 518 544
9.000%, 10/15/19................ 293 307
9.000%, 11/15/19................ 506 532
9.000%, 12/15/19................ 271 285
8.500%, 03/15/20................ 206 214
8.500%, 04/15/20................ 1,122 1,167
---------
Total Government Pooled Mortgages
(Cost $2,799,959)............... 3,049
---------
U. S. TREASURY OBLIGATIONS (37.7%)
United States Treasury Bonds
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
7.250%, 05/15/16................ 10,000 10,556
8.750%, 05/15/17................ 2,000 2,448
8.125%, 08/15/19................ 7,000 8,112
7.875%, 02/15/21................ 3,000 3,398
7.125%, 02/15/23................ 3,000 3,138
United States Treasury Notes
7.375%, 05/15/96................ 1,000 1,011
4.375%, 11/15/96................ 3,000 2,953
6.500%, 11/30/96................ 2,000 2,018
6.625%, 03/31/97................ 2,000 2,025
The accompanying notes are an integral part of the financial statements.
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
FIXED INCOME FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
U.S. TREASURY OBLIGATIONS, CONCLUDED:
6.500%, 05/15/97................ $ 2,000 $ 2,022
6.750%, 05/31/97................ 3,000 3,045
6.500%, 08/15/97................ 1,000 1,012
5.625%, 08/31/97................ 2,000 1,992
5.750%, 10/31/97................ 2,000 1,995
6.000%, 11/30/97................ 6,000 6,017
7.250%, 02/15/98................ 4,000 4,121
5.125%, 02/28/98................ 2,000 1,965
5.125%, 03/31/98................ 5,000 4,907
8.250%, 07/15/98................ 2,000 2,120
7.125%, 10/15/98................ 2,000 2,066
5.125%, 11/30/98................ 2,000 1,949
7.000%, 04/15/99................ 2,000 2,063
6.375%, 07/15/99................ 2,000 2,025
7.125%, 09/30/99................ 2,000 2,075
7.125%, 02/29/00................ 4,000 4,160
6.250%, 05/31/00................ 2,000 2,012
8.500%, 11/15/00................ 6,000 6,638
7.500%, 11/15/01................ 1,000 1,067
6.375%, 08/15/02................ 2,000 2,018
7.250%, 08/15/04................ 2,850 3,025
---------
Total U. S. Treasury Obligations
(Cost $92,364,948).............. 93,953
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(1.2%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99................ 3,000 3,103
---------
Total U.S. Government Agency
Obligations
(Cost $2,989,800)............... 3,103
---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
YANKEE BONDS (4.0%)
Hydro Quebec
9.400%, 02/01/21................ 4,000 4,695
Province of Ontario
8.000%, 10/17/01................ 5,000 5,338
---------
Total Yankee Bonds
(Cost $9,357,210)............... 10,033
---------
SHORT TERM INVESTMENTS (1.6%)
Temp Cash Fund 3,948 3,948
---------
Total Short Term Investments
(Cost $3,947,569)............... 3,948
---------
Total Investments (98.3%)
(Cost $238,710,956)............. 245,257
---------
OTHER ASSETS AND LIABILITIES (1.7%)
Other Assets and Liabilities,
Net............................. $ 4,123
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 23,725,957 outstanding
shares of beneficial interest... 246,818
Accumulated net realized loss on
investments..................... (3,988)
Net unrealized appreciation on
investments..................... 6,546
Undistributed net investment
income.......................... 4
---------
Total Net Assets: (100.0%)........ $ 249,380
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 10.51
---------
---------
Maximum Public Offering Price Per
Share ($10.51/96.00%)........... $ 10.95
---------
---------
MUNICIPAL BOND FUND
The accompanying notes are an integral part of the financial statements.
STATEMENT OF NET ASSETS
<PAGE>
-------------------------------------------------------------------------
August 31, 1995
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS (99.0%)
Arizona (3.6%)
Salt River Project, Series A, RB
5.300%, 01/01/03................ $ 500 518
Scottsdale, Municipal Property
Corporation, RB, (FGIC),
Callable 11/01/02 @ 100
6.250%, 11/01/10................ 500 516
---------
1,034
---------
California (6.2%)
Azusa, Unified School District,
GO, (AMBAC)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.100%, 05/01/07................ 830 812
State, Public Power Authority, San
Juan Power Project, Series A,
RB, (MBIA),
Callable 01/01/05 @ 100
5.375%, 01/01/10................ 1,000 974
---------
1,786
---------
Florida (1.9%)
Palm Beach County, Solid Waste
Authority, RB, Callable
07/01/97 @ 103
8.625%, 07/01/04................ 500 548
---------
The accompanying notes are an integral part of the financial statements.
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONTINUED:
Georgia (1.8%)
Atlanta, Series A, GO
6.125%, 12/01/23................ $ 500 $ 505
---------
Hawaii (7.8%)
Honolulu, Series C, GO,
Prerefunded @ 101
7.150%, 06/01/00 (A)............ 1,000 1,129
State, Series RB, GO,
Prerefunded @ 100
7.000%, 06/01/00 (A)............ 1,000 1,115
---------
2,244
---------
Illinois (12.5%)
Chicago, School Finance
Authority, Series B, GO,
(MBIA), Callable 06/01/96 @
102
7.600%, 06/01/02.............. 250 261
Kane County, Elgin Community
College Project, Series A,
RB, (FGIC)
5,300%, 12/01/09................ 1,000 999
State, Education Facilities
Authority, Shedd Aquarium
Society, Series A, RB
8.625%, 0926/97 (A) (B)......... 560 601
State, Education Facilities
Authority, Wesleyan University
Project, RB
5.600%, 09/01/11 (B)............ 1,260 1,213
Winnebago and Boone Counties,
Rockford School District,
Series C, GO, (FGIC)
5.900%, 02/01/05................ 500 531
---------
3,605
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
---------
Kentucky (1.1%)
Jefferson County, Capital Project,
Series A, RB
5.650%, 08/15/03................ 300 317
---------
Michigan (3.4%)
State, Municipal Bond Authority,
Revolving Fund, RB
5.400%, 10/01/14................ 1,015 964
---------
Nebraska (1.8%)
State, Public Power Supply
Systems, RB, Callable
01/01/03 @ 102
6.000%, 01/01/08................ 500 524
---------
New York (8.8%)
State, Medical Care Facility,
Montefiore Medical Center,
RB, (AMBAC)
5.750%, 02/15/25................ $ 1,000 $ 968
State, Thruway Authority, Series
A, RB, (MBIA)
5.400%, 04/01/08................ 1,000 1,008
Triborough Bridge & Tunnel
Authority, Series X, RB
6.625%, 01/01/11 (A) (B)........ 500 551
---------
2,527
---------
Ohio (4.7%)
Columbus, Refuse Coal Fired
Plant, GO
6.625%, 09/15/01................ 265 295
State, Water Development
Authority, RB, (AMBAC), Callable
12/01/02 @ 102
6.000%, 12/01/08................ 1,000 1,049
---------
1,344
---------
Oklahoma (1.8%)
The accompanying notes are an integral part of the financial statements.
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
MUNICIPAL BOND FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
State, Grand River Dam
Authority, RB
5.875%, 06/01/07................ 500 531
---------
Oregon (1.9%)
Washington County, School District
No. 15, Forest Grove, GO,
(FGIC), Callable
06/01/04 @ 101
6.000%, 06/01/05................ 500 538
---------
Pennsylvania (5.9%)
Methacton School District, GO, (FGIC)
5.600%, 10/01/13................ 500 488
Seneca Valley School District,
Series A, GO, (FGIC), Callable
07/01/02 @ 100
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.750%, 07/01/10................ 500 502
State, Higher Education Facilities
Authority, Thomas Jefferson
University Hospital, RB,
Callable 11/01/95 @ 102
9.100%, 07/01/01................ 200 205
Wayne Highlands School District,
GO, (FGIC), Callable
10/01/99 @ 100
6.000%, 04/01/12................ 500 503
---------
1,698
---------
The accompanying notes are an integral part of the financial statements.
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
MUNICIPAL BOND
FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONCLUDED:
South Carolina (3.7%)
Piedmont, Municipal Power Agency,
RB, (FGIC)
6.250%, 01/01/18................ $ 500 $ 511
Piedmont, Municipal Power Agency,
RB, (MBIA)
6.250%, 01/01/09................ 500 538
---------
1,049
---------
South Dakota (1.9%)
State, Building Lease Authority,
Series A, RB, (CGIC)
6.375%, 09/01/05................ 500 545
---------
Tennessee (7.6%)
Memphis-Shelby County, Airport
Authority Revenue, Series B, RB,
AMT, (MBIA)
6.500%, 02/15/08 (A)............ 1,000 1,079
State, Series B, GO, Callable
06/01/01 @ 101.5
6.850%, 06/01/10................ 1,000 1,101
---------
2,180
---------
Texas (3.8%)
Harris County, GO, Callable
08/01/01 @ 102
7.000%, 08/01/09................ 500 547
University of Texas, Series A, RB,
Callable 08/15/01 @ 102
7.000%, 08/15/07................ 500 554
---------
1,101
---------
Utah (1.8%)
Salt Lake City, Motor Fuel Excise
Tax, Series A, RB
5.400%, 02/01/03................ 500 506
---------
Vermont (7.5%)
Burlington, Waterworks Systems,
Series A, RB, (FGIC), Callable
07/01/97 @ 102
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
6.875%, 07/01/12................ 1,000 1,049
State, Series A, GO,
Prerefunded @ 102
6.750%, 02/01/00 (A)............ 1,000 1,110
---------
2,159
---------
Virginia (1.8%)
State, Housing Development
Authority, Series A, RB, AMT
6.700%, 07/01/05 (B)............ 500 527
---------
Washington (5.1%)
Port of Seattle, Series A, RB,
Callable 11/01/02 @ 102
6.250%, 11/01/10................ $ 500 $ 518
State, Public Power Supply, Nuclear
Project No. 1, Series B, RB, (MBIA)
5.600%, 07/01/15................ 1,000 941
---------
1,459
---------
Washington, D.C. (1.7%)
District of Columbia, Series C,
GO, (AMBAC), Prerefunded @ 102
7.600%, 06/01/98 (A)............ 450 496
---------
Wisconsin (.9%)
Milwaukee, Sewer District, GO
6.125%, 10/01/03................ 250 273
---------
Total Municipal Bonds
(Cost $28,151,230).............. 28,460
---------
Total Investments (99.0%)
(Cost $28,151,230).............. 28,460
---------
OTHER ASSETS AND LIABILITIES (1.0%)
Other Assets and Liabilities,
Net............................. 277
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 2,720,728 outstanding
shares of beneficial interest... 29,343
Accumulated net realized loss on
investments..................... (915)
Net unrealized appreciation on
investments..................... 309
---------
The accompanying notes are an integral part of the financial statements.
28
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Total Net Assets: (100.0%)........ $ 28,737
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 10.56
---------
---------
Maximum Public Offering Price Per
Share ($10.56/96.00%)........... $ 11.00
---------
---------
- ------------------
(A) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(B) Securities are held in connection with a letter of credit or other credit
support.
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
AMT--Alternative Minimum Tax
GO--General Obligation
RB--Revenue Bond
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
CGIC--Capital Guaranty Insurance Company
FGIC--Financial Guaranty Insurance Company
MBIA--Municipal Bond Insurance Association
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
NEW JERSEY MUNICIPAL
BOND FUND
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS (99.0%)
New Jersey (92.3%)
Absecon, Board of Education, COP,
(MBIA)
5.625%, 12/15/02................ $ 770 $ 795
Bergen County, General
Improvement, GO
4.700%, 07/15/97................ 1,000 1,015
Bergen County, Utility Authority,
Series A, RB, (FGIC), Callable
06/15/02 @ 100
5.500%, 06/15/13................ 1,000 978
Borough of Roselle, Fiscal Year
Adjustment, Series 1993, GO,
(MBIA)
4.850%, 10/15/05................ 1,000 975
Brick Township, Municipal
Utilities Authority, RB
6.750%, 12/01/16................ 1,000 1,120
Brigantine, GO, (MBIA), Callable
08/01/02 @ 101
6.250%, 08/01/03................ 730 794
Camden County, Improvement
Authority Lease, RB
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.700%, 12/01/05 (C)............ 500 513
Camden County, Improvement
Authority Lease, RB, Callable
12/01/02 @ 101
6.000%, 12/01/12 (C)............ 500 508
Camden County, Improvement
Authority, Health Services
Center Project, Series B, RB,
(AMBAC)
4.900%, 12/01/05................ 1,000 988
Cape May County, Municipal
Utilities Authority, Series B,
RB, (FGIC), Callable 01/01/03 @
102
4.900%, 01/01/09................ 1,000 934
Carteret, GO, (FGIC), Callable
10/01/00 @ 101
5.250%, 10/01/07................ 980 975
5.450%, 10/01/09................ 500 498
Cherry Hill Township, GO, Callable
06/01/02 @ 102
6.000%, 06/01/06................ 500 528
Dover Township, GO, (AMBAC),
Callable 10/15/02 @ 102
6.000%, 10/15/03................ 1,000 1,075
Edison Township, GO
6.500%, 06/01/04................ 500 551
Edison Township, GO, (AMBAC),
Callable 01/01/04 @ 102
Continued
29
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.000%, 01/01/07................ $ 1,000 $ 985
Edison Township, School Authority,
GO
6.500%, 06/01/03................ 1,000 1,098
Essex County, Correctional
Facility Improvement, RB,
(AMBAC), Callable 12/01/06 @100
6.900%, 12/01/14................ 500 543
Essex County, Series A, GO,
(MBIA), Callable 10/01/01 @ 102
4.600%, 10/01/03................ 1,500 1,467
Evesham Township, Municipal
Utilities Authority, Series B,
RB, (MBIA), Callable 07/01/97 @
100
6.800%, 07/01/01................ 1,010 1,052
6.850%, 07/01/02................ 1,080 1,118
Flemington-Raritan, GO, Callable
02/01/05 @ 102
6.250%, 02/01/12 (C)............ 500 526
Irvington Township, School
District Refunding Bonds, Series
1993, GO, (FSA), Callable
10/01/02 @ 102
5.000%, 10/01/11................ 1,000 928
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Knowlton Township, Board of
Education, GO
6.600%, 08/15/10................ 170 188
6.600%, 08/15/11................ 169 185
Lacey Township, Municipal
Utilities Authority, RB, (MBIA),
Callable 12/01/03 @ 102
6.000%, 12/01/12................ 1,000 1,020
Landis, Sewer Authority, RB,
(FGIC)
5.400%, 10/01/06................ 500 504
Manchester Township, Board of
Education, COP, (MBIA), Callable
12/15/03 @ 102
5.300%, 12/15/07................ 500 489
Medford Township, Board of
Education, GO, (FGIC), Callable
02/01/05 @ 100
5.950%, 02/01/11................ 500 508
Mercer County, Hamilton Board of
Education Lease Project, RB,
(MBIA), Callable 12/15/03 @ 102
5.250%, 12/15/14................ 1,000 936
Continued
30
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Mercer County, Improvement
Authority, Hamilton Township
Board of Education Project, RB,
(MBIA), Callable 06/01/01 @ 102
5.900%, 06/01/03................ $ 500 $ 524
Mercer County, Improvement Revenue
Government Lease Program, RB,
Prerefunded @ 101
7.250%, 12/01/98 (B)............ 985 1,084
Middletown Township, Sewer
Authority, Series A, RB, (FGIC),
Callable 01/01/03 @ 101
5.050%, 01/01/07................ 1,095 1,081
Millburn Township, School
District, GO
5.350%, 07/15/10 (C)............ 1,150 1,156
Monroe Township, Board of
Education, GO, (FGIC)
5.200%, 08/01/15................ 500 471
Moorestown, School District, GO,
(AMBAC)
6.600%, 06/01/05................ 450 499
Morris County, GO, Callable
07/15/05 @ 100
5.000%, 07/15/13................ 1,000 926
Morris Township, GO
6.550%, 07/01/01................ 500 553
Morristown, GO, (FSA), Callable
08/01/05 @ 102
6.400%, 08/01/14................ 500 528
Newark, Board of Education, GO,
(MBIA), Callable 12/15/04 @ 102
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.875%, 12/15/13................ 1,000 1,004
North Arlington, GO, (AMBAC)
4.800%, 02/01/12................ 600 540
4.800%, 02/01/13................ 441 395
North Bergen Township, GO, (FSA)
5.900%, 08/15/01................ 500 529
Northwest Bergen County, Utilities
Authority, RB, (MBIA)
5.900%, 07/15/06................ 755 798
Nutley, GO
7.000%, 08/01/98................ 400 408
Ocean County, General Improvement,
GO
6.300%, 04/15/97................ 1,000 1,036
5.150%, 07/01/09................ 1,000 964
5.150%, 07/01/10................ 1,250 1,191
Ocean County, Series A, GO
6.250%, 10/01/01................ $ 1,280 $ 1,397
Ocean County, Series A, GO,
Callable 10/01/01 @ 102
6.250%, 10/01/05................ 500 537
Ocean County, Utility Authority,
Series A, RB, Callable
01/01/07 @ 100
6.300%, 01/01/12 (C)............ 1,005 1,051
Parsippany Troy Hills Township, GO
4.700%, 12/01/04................ 1,000 965
Passaic Valley, Water Commission,
Series A, RB, (FGIC)
5.950%, 12/15/02................ 500 536
Point Pleasant, GO, (MBIA)
5.700%, 12/01/03................ 500 524
Port Authority, Marine Terminal,
Series G, RB
5.500%, 01/01/15................ 2,280 2,120
Port Authority, RB
5.200%, 09/01/13 (C)............ 1,000 941
Continued
30
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
South Plainfield, GO, (AMBAC)
4.750%, 09/01/08................ 1,030 972
State, Building Authority, RB
7.150%, 06/15/99................ 200 220
State, Building Authority, RB,
Prerefunded @ 102
7.200%, 06/15/99 (B)............ 1,200 1,341
State, Economic Development
Authority, 89 Kiva L.P. Project,
RB
5.550%, 08/01/04 (C)............ 565 573
State, Economic Development
Authority, RB, AMT, Callable
07/01/05 @ 101
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
6.000%, 07/01/06 (C)............ 300 306
6.100%, 07/01/07 (C)............ 200 204
State, Economic Development
Authority, Trenton Office
Complex Project, RB, Callable
06/15/2000 @ 102
6.625%, 06/15/01................ 1,050 1,158
State, Economic Development
Authority, W.Y. Urban Holding
Project, RB, AMT
5.950%, 06/01/05 (C)............ 865 865
State, GO
7.000%, 04/01/97................ 1,350 1,412
6.250%, 09/15/01................ 1,000 1,094
Continued
31
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State, GO, Callable
04/01/01 @ 100.50
7.000%, 04/01/03................ $ 500 $ 556
State, GO, Prerefunded @ 101.50
7.400%, 04/15/97 (B)............ 820 874
State, Health Care Facility,
Cathedral Health Care, Series A,
RB, (FHA), Callable
02/15/01 @ 102
7.250%, 02/15/21................ 1,000 1,071
State, Health Care Facility, Dover
General Hospital And Medical
Center, RB, (MBIA), Callable
07/01/04 @ 102
5.875%, 07/01/12................ 500 504
State, Health Care Facility,
Jersey Shore Medical Center, RB,
(AMBAC), Callable
07/01/04 @ 102
6.250%, 07/01/16................ 500 519
State, Health Care Facility, St.
Clares-Riverside Medical Center,
RB, (MBIA), Callable
07/01/04 @ 102
5.750%, 07/01/14................ 500 495
State, Highway Authority, Garden
State Parkway Project, RB
4.900%, 01/01/05 (C)............ 1,000 1,001
6.200%, 01/01/10................ 750 794
State, Highway Authority, Garden
State Parkway Project, RB,
Callable 01/01/02 @ 102
6.000%, 01/01/05................ 1,350 1,446
6.250%, 01/01/14................ 500 513
State, Housing and Finance Agency,
Series A, RB,
Callable 05/01/02 @ 102
6.700%, 05/01/05 (C)............ 500 524
6.700%, 11/01/05 (C)............ 1,000 1,049
6.950%, 11/01/13 (C)............ 750 775
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
State, Refunding Bond, Series C,
RB, Callable 01/15/99 @ 101.25
6.500%, 01/15/04................ 1,000 1,078
State, Refunding Bond, Series C,
RB, Callable 01/15/99 @ 101.50
6.500%, 01/15/05................ 500 539
State, Series C, RB, Callable
01/15/99 @ 101.5
6.500%, 01/15/08................ $ 1,000 $ 1,078
State, Series D, GO
6.000%, 02/15/11................ 2,000 2,092
State, Sports & Exposition
Authority, Contract Bonds,
Series A, RB, Callable 09/01/05
@ 100
5.300%, 09/01/09................ 955 922
State, Sports & Exposition
Authority, Convention Center
Project, Series A, RB, (MBIA),
Callable 07/01/04 @ 100
6.000%, 07/01/12................ 1,000 1,013
State, Transportation Authority,
Series A, RB
5.400%, 06/15/97................ 500 512
6.000%, 06/15/00................ 1,030 1,101
State, Turnpike Authority, RB
6.400%, 01/01/02................ 250 273
6.500%, 01/01/16................ 500 541
State, Turnpike Authority, RB,
(AMBAC), Callable
01/01/03 @ 100
6.250%, 01/01/10................ 1,350 1,396
State, Turnpike Authority, Series
A, RB, Callable 01/01/96 @ 100
6.900%, 01/01/14................ 970 975
State, Wastewater Authority,
Series B, RB, Callable 05/15/99
@ 101.25
7.000%, 05/15/04................ 950 1,030
State, Wastewater Authority,
Treatment Trust, RB, (AMBAC),
Callable 03/01/05 @ 100
4.600%, 03/01/06................ 1,500 1,406
4.800%, 03/01/13................ 1,590 1,391
Continued
31
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
State, Water Supply District
Authority, Wanaque North
Project, Series A, RB, (MBIA)
6.500%, 11/15/06................ 510 553
Tinton Falls, Board of Education,
GO, (MBIA), Callable
10/15/04 @ 100
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
5.875%, 10/15/09................ 1,010 1,029
Union City, GO, (FSA)
6.375%, 11/01/07................ 485 529
Wanaque Valley, Regional Sewer
Authority, Series B, RB, (AMBAC)
5.650%, 09/01/08................ 585 596
Continued
32
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONCLUDED:
New Jersey, continued:
Warren County, GO, (AMBAC),
Callable 09/15/05 @ 100
4.650%, 09/15/06................ $ 500 $ 485
Warren County, Pollution Control
Finance Authority, Resource
Recovery, RB, (MBIA) Callable
12/01/02 @ 102
6.350%, 12/01/04................ 500 547
Warren County, Pollution Control
Finance Authority, Series B, RB,
(MBIA)
5.700%, 12/01/03................ 500 526
Warren Township, Sewer Authority,
RB, Callable 12/01/04 @ 100
6.450%, 12/01/05................ 275 302
Weehawken, GO, (FSA), Callable
07/01/03 @ 100
6.150%, 07/01/04................ 350 378
West Long Branch, Board of
Education, COP, (MBIA)
5.000%, 12/15/09................ 1,380 1,282
West Windsor Plainsboro, Regional
Board of Education, Series 1993,
COP, (MBIA), Callable
03/15/05 @ 100
5.800%, 03/15/06................ 1,000 1,045
Winslow Township, GO, (FGIC),
Callable 10/01/02 @ 102
6.400%, 10/01/05................ 870 934
Woodbridge Township, GO, Callable
08/15/02 @ 102
5.800%, 08/15/03................ 500 528
Woodbridge Township, GO, Callable
08/15/04 @ 100
6.050%, 08/15/05................ 500 534
Woodbridge Township, Series C, GO,
Callable 09/15/06 @ 100
5.000%, 09/15/11................ 1,000 916
Woodbridge Township, Sewer
Utility, Series B, GO
5.000%, 09/15/10................ 965 896
---------
90,245
---------
New York (1.6%)
Port Authority, Callable
04/01/96 @ 102
7.250%, 04/01/14 (C)............ 1,500 1,551
---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
Pennsylvania (1.5%)
Delaware River Joint Toll Bridge
Commission, RB, (FGIC), Callable
07/01/02 @100
6.250%, 07/01/12................ $ 1,400 $ 1,460
---------
Puerto Rico (3.0%)
Puerto Rico, Electric Power
Authority, RB, (CGIC)
6.125%, 07/01/08................ 1,000 1,090
Puerto Rico, Telecommunication
Revenue, RB, (MBIA)
5.250%, 01/01/05................ 500 506
University of Puerto Rico, Series
L, RB, Prerefunded @ 102
7.750%, 06/01/96 (B) (C)........ 1,015 1,064
University of Puerto Rico, Series
M, RB, (MBIA), Callable
06/01/07 @ 100
5.500%, 06/01/15................ 250 243
---------
2,903
---------
Virginia (0.6%)
Richmond, Industrial Development
Authority, Cogentrix-A, VRDN,
AMT
3.750%, 09/01/95 (A) (B) (C).... 600 600
---------
Total Municipal Bonds
(Cost $96,058,358).............. 96,759
---------
Total Investments (99.0%)
(Cost $96,058,358).............. 96,759
---------
OTHER ASSETS AND LIABILITIES (1.0%)
Other Assets and Liabilities,
Net............................... 993
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 8,708,827 outstanding
shares of beneficial interest... 97,309
Accumulated net realized loss on
investments..................... (261)
Net unrealized appreciation on
investments..................... 700
Undistributed net investment
income.......................... 4
---------
Total Net Assets: (100.0%)........ $ 97,752
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 11.22
---------
---------
Continued
32
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
NET ASSETS, CONCLUDED:
Maximum Public Offering Price Per
Share ($11.22/96.00%)........... $ 11.69
---------
---------
- ------------------
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is
the rate in effect on August 31, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
COP--Certificate of Participation
GO--General Obligation
RB--Revenue Bond
VRDN-- Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
CGIC--Capital Guaranty Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Authority
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
PENNSYLVANIA MUNICIPAL
BOND FUND
MUNICIPAL BONDS (96.3%)
Pennsylvania (96.3%)
Allegheny County, Childrens
Hospital, Series A, RB, (MBIA),
Callable 07/01/98 @ 102
7.000%, 07/01/06................
Allegheny County, Series C-42, GO
5.000%, 10/01/10................ 538
Berks County, Second Series, GO, $ 500 464
(FGIC) 500 470
5.000%, 05/15/10................ 500 MARKET
Center City District, Business FACE AMOUNT VALUE
Improvement, RB, (AMBAC) (000) (000)
----------- ---------
5.500%, 12/01/15................ 500 476
Central Bucks, School District,
Series A, GO, (MBIA)
5.300%, 05/15/11................ 300 288
Commodore Perry, School District,
GO, (MBIA)
5.500%, 02/01/12 (A)............ 1,170 1,125
Deer Lakes, School District, GO,
(MBIA), Callable 01/15/04 @ 100
6.450%, 01/15/19................ $ 500 $ 514
Lackawanna County, GO, (AMBAC)
5.100%, 12/01/08................ 250 244
Lancaster, Parking Authority, RB,
Callable 01/01/96 @ 100
9.375%, 01/01/05................ 450 457
North Penn, School District,
Series AA, GO, (STAID)
5.100%, 09/01/09................ 500 479
Pennsylvania Convention Center,
Series A, RB, Escrowed to
Maturity
6.700%, 09/01/16................ 750 840
Philadelphia, Industrial
Development Authority, National
Board of Medical Examiners
Project, RB, Callable 05/01/02 @
102
6.750%, 05/01/12................ 500 531
Philadelphia, Water and Wastewater
Treatment, RB, (MBIA)
6.750%, 08/01/03................ 500 563
5.600%, 08/01/18................ 500 476
Pittsburgh, Series D, GO, (AMBAC)
6.125%, 09/01/17................ 500 508
Pittsburgh, Urban Redevelopment
Authority, Series A, RB
5.500%, 10/01/10................ 500 468
Pocono Mountain, School District,
Series AA, GO, (AMBAC), Callable
04/01/02 @ 100
5.750%, 10/01/09................ 500 503
Ringgold, School District, RB,
(FSA), Callable 02/01/08 @ 100
The accompanying notes are an integral part of the financial statements.
33
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
PENNSYLVANIA MUNICIPAL
BOND FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
6.200%, 02/01/19................ 500 506
State, Financing Authority, RB,
Callable 11/01/03 @ 102
6.600%, 11/01/09................ 500 526
State, Higher Education Authority,
Drexel University Project, RB,
(MBIA), Callable 05/01/00 @ 100
7.250%, 05/01/10................ 500 551
State, Higher Education Authority,
Susquehanna University Project,
RB, (AMBAC), Callable 03/01/98 @
101
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
6.900%, 03/01/02................ 750 793
State, Higher Education Authority,
Thomas Jefferson University
Project, RB, Prerefunded @ 102
7.550%, 11/01/00 (A)............ 500 580
The accompanying notes are an integral part of the financial statements.
34
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
PENNSYLVANIA MUNICIPAL
BOND FUND (CONTINUED)
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State, Housing Finance Agency,
Rental Housing Projects, Series
C, RB, Callable 07/01/04 @ 100
6.400%, 07/01/12................ $ 500 $ 502
State, Industrial Development
Authority, Economic Development,
RB, (AMBAC)
5.800%, 07/01/09................ 700 716
State, Intergovernmental
Cooperation Authority, City of
Philadelphia Funding Program,
RB, (MBIA)
5.600%, 06/15/15................ 500 483
State, Public School Authority,
Midvalley School District
Project, Series D, RB, (FGIC),
Callable 07/01/02 @ 102
6.250%, 01/01/07................ 500 531
State, Turnpike Commission, Oil
Franchise Tax Project, Series A,
RB, (AMBAC)
5.875%, 12/01/08................ 500 509
State, Turnpike Commission, Series
P, RB, (AMBAC)
6.000%, 12/01/09................ 500 518
West Chester, School District, GO,
(STAID)
6.200%, 09/01/14................ 1,000 1,016
SHARES/ MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
West View, Municipal Authority, GO
Escrowed to Maturity
9.000%, 05/15/99................ 400 464
---------
16,639
---------
Total Municipal Bonds
(Cost $16,712,585).............. 16,639
---------
SHORT TERM INVESTMENTS (1.9%)
SEI Institutional Tax-Free
Portfolio....................... 319 319
---------
Total Short Term Investments (Cost
$319,000)....................... 319
---------
Total Investments (98.2%)
(Cost $17,031,585).............. 16,958
---------
OTHER ASSETS AND LIABILITIES (1.8%)
Other Assets and Liabilities,
Net............................... 311
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 1,752,088 outstanding
shares of beneficial interest... $ 17,816
Accumulated net realized loss on
investments..................... (474)
Net unrealized depreciation on
investments..................... (73)
---------
Total Net Assets: (100.0%)........ $ 17,269
---------
---------
Net Asset Value and Redemption
Price Per Share................. $ 9.86
---------
---------
Maximum Public Offering Price Per
Share ($9.86/96.00%)............ $ 10.27
---------
---------
- ------------------
(A) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
The accompanying notes are an integral part of the financial statements.
34
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
PENNSYLVANIA MUNICIPAL
BOND FUND (CONTINUED)
GO--General Obligation
RB--Revenue Bond
The following organizations have provided
underlying credit support for certain securities
as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
STAID--State Aid Withholding
INTERNATIONAL EQUITY FUND
FOREIGN COMMON STOCKS (93.5%)
Argentina (0.5%)
YPF Sociedad Anonima ADR.......... 14,000 $ 247
---------
Australia (3.1%)
Broken Hill Proprietary........... 51,221 743
MIM Holdings...................... 204,000 291
News Corporation.................. 72,294 415
---------
1,449
---------
Chile (0.7%)
Five Arrow Chile Fund PC.......... 100,000 293
Five Arrow Chile Fund Warrants,
Expire 05/31/99*................ 20,000 12
---------
305
---------
The accompanying notes are an integral part of the financial statements.
35
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
MARKET
VALUE
SHARES (000)
----------- ---------
FOREIGN COMMON STOCKS, CONTINUED:
Denmark (1.0%)
Tele Danmark A/S 'B'............... 8,779 $ 461
---------
France (8.1%)
AXA SA............................. 9,229 511
Carrefour.......................... 930 519
Eaux Generale...................... 5,122 542
Groupe Danone...................... 2,856 469
L'Oreal............................ 352 89
Lafarge-Coppee..................... 6,920 517
Societe Generale................... 5,305 555
Societe Nationale Elf Aquitaine.... 6,979 511
---------
3,713
---------
Germany (4.0%)
Bayer AG........................... 1,989 514
Commerzbank AG..................... 2,015 456
Karstadt AG........................ 851 379
Lufthansa AG....................... 3,341 492
---------
1,841
---------
Hong Kong (2.7%)
Hong Kong Telecommunications....... 328,800 595
Swire Pacific 'A'.................. 88,000 659
---------
1,254
---------
India (0.8%)
Hindalco Industries GDR*........... 10,000 350
---------
Indonesia (1.4%)
Gadjah Tungal...................... 887,000 646
---------
Italy (1.1%)
Assicurazioni Generali SPA......... 20,782 500
---------
Japan (30.2%)
Aoyama Trading..................... 8,300 221
CSK................................ 27,000 807
Denny's Japan...................... 8,000 221
East Japan Railway................. 273 1,299
Fuji Bank.......................... 1,000 21
MARKET
VALUE
SHARES (000)
----------- ---------
Joshin Denki....................... 16,000 205
KAO................................ 33,000 382
Mitsubishi Materials............... 146,000 726
Mitsui Marine & Fire Insurance..... 91,000 610
Mitsui O.S.K. Lines*............... 233,000 737
Nippon Telegraph & Telephone....... 160 1,447
Nippon Television Network.......... 1,660 391
Nomura Securities.................. 35,000 688
Pioneer Electronics................ 70,000 $ 1,340
Sumitomo Metal Industries.......... 242,000 676
Sumitomo Sitix..................... 20,000 303
Sumitomo Trust & Banking........... 53,000 721
Tokyo Steel Manufacturing.......... 11,000 212
Toshiba Corporation................ 205,000 1,481
Toyo Ink Manufacturing............. 35,000 198
Yamaha Corporation................. 97,000 1,290
---------
13,976
---------
Malaysia (1.6%)
Malayan Banking.................... 43,500 357
Perusahaan Otomobil................ 96,000 368
---------
725
---------
Mexico (0.7%)
Grupo Carso SA ADR*................ 25,000 309
---------
Netherlands (3.4%)
Akzo Nobel......................... 3,989 471
Elsevier NV........................ 41,997 531
International Nederlanden Group.... 9,918 551
---------
1,553
---------
Norway (1.9%)
Kvaerner AS Series B............... 10,649 395
Norsk Hydro........................ 11,415 484
---------
879
---------
Singapore (2.9%)
Jurong Shipyard.................... 104,000 725
United Overseas Bank............... 68,930 597
---------
Continued
35
MARKET
VALUE
SHARES (000)
----------- ---------
1,322
---------
South Korea (1.0%)
Samsung Electronics GDR*........... 86 5
Samsung Electronics New GDR*....... 7,000 441
---------
446
---------
Spain (1.9%)
Banco de Santander................. 12,168 498
Uralita*........................... 33,946 376
---------
874
---------
Sweden (2.3%)
Ericsson........................... 27,333 585
MARKET
VALUE
SHARES (000)
----------- ---------
Stora Kopparberg 'B'............... 37,639 470
---------
1,055
---------
Continued
36
SCHEDULE OF INVESTMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
INTERNATIONAL EQUITY FUND (CONTINUED)
MARKET
VALUE
SHARES (000)
----------- ---------
FOREIGN COMMON STOCKS, CONCLUDED:
Switzerland (4.8%)
BBC Brown Boveri AG................ 509 $ 537
Nestle SA.......................... 553 560
Roche Holding AG................... 79 529
Zurich Versicherung................ 2,300 588
---------
2,214
---------
Taiwan (0.3%)
Hocheng GDR........................ 18,750 145
---------
Thailand (1.8%)
Siam Cement........................ 6,000 409
Siam Commercial Bank............... 41,000 443
---------
852
---------
United Kingdom (17.3%)
B.A.T. Industries.................. 87,545 685
British Petroleum.................. 85,000 638
BTR................................ 141,830 750
BTR Warrants, Expire 11/26/98*..... 1,146 1
Caradon............................ 125,000 477
Delta Group........................ 49,000 364
Farnell Electronic................. 51,000 530
FKI................................ 190,000 528
Granada Group...................... 69,000 666
Reuters Holdings................... 82,000 712
Royal Bank of Scotland Group....... 80,000 576
Tesco.............................. 150,000 760
Unilever........................... 33,000 622
WPP Group.......................... 270,000 687
---------
7,996
---------
Total Foreign Common Stocks
(Cost $39,304,897)............... 43,112
---------
SHARES/
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
----------- ---------
CONVERTIBLE PREFERRED STOCK (0.0%)
Netherlands (0.0%)
ABN-Amro Holdings.................. 349 $ 13
---------
Total Convertible Preferred Stock
(Cost $11,554)................... 13
---------
FOREIGN BONDS (1.0%)
India (0.4%)
Gujarat Ambuja Cementos
3.500%, 06/30/99................. $ 150 207
---------
Taiwan (0.6%)
Tecom Electronics & Machinery
2.750%, 04/15/04................. $ 310 248
---------
Total Foreign Bonds
(Cost $492,700).................. 455
---------
Total Investments (94.5% of Net
Assets)
(Cost $39,809,151)............... $ 43,580
---------
---------
- ------------------
*Non-income producing security
ADR--American Depository Receipts
GDR--Global Depository Receipts
PC--Participating Certificates
(1) In local currency unless otherwise indicated
The accompanying notes are an integral part of the financial statements.
36
SCHEDULE OF INVESTMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SHARES/
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
----------- ---------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
SHARES/
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
----------- ---------
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
FOREIGN BONDS (87.3%)
Austria (3.3%)
Austria Republic
6.250%, 10/16/03................ JY 120,000 $ 1,484
-----------
Canada (3.9%)
Canadian Government
8.500%, 04/01/02................ 2,300 1,778
-----------
Denmark (7.5%)
Kingdom of Denmark
9.000%, 11/15/00................ 11,000 2,072
7.000%, 12/15/04................ 8,000 1,314
-----------
3,386
-----------
France (9.3%)
Credit Foncier
5.500%, 11/15/99................ 6,000 1,134
Government of France
7.000%, 11/12/99................ 12,000 2,420
8.500%, 04/25/03................ 3,000 642
-----------
4,196
-----------
Germany (29.8%)
African Development Bank
7.250%, 10/21/99................ 2,000 1,431
Deutsche Ausgleichsbank
6.500%, 09/25/00................ 2,000 1,384
Deutschland Republic
8.250%, 09/20/01................ 750 561
6.250%, 01/04/24................ 1,600 944
German Unity Fund
8.000%, 01/21/02................ 1,400 1,033
KFW International Finance
7.250%, 12/03/97................ 3,000 2,138
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
LKB Baden Wurt
6.000%, 05/10/99................ 3,000 2,080
Norddeutsche Landesbank
6.000%, 01/05/04................ 3,000 1,920
Westdeutsche Landesbank
6.250%, 09/15/03................ 3,000 1,980
-----------
13,471
-----------
Japan (13.8%)
Interamerican Development Bank
6.000%, 10/30/01................ 180,000 $ 2,152
Japanese Development Bank
6.500%, 09/20/01................ 170,000 2,083
World Bank
4.500%, 03/20/03................ 180,000 2,004
-----------
6,239
-----------
New Zealand (2.9%)
Government of New Zealand
6.500%, 02/15/00................ 1,050 642
8.000%, 04/15/04................ 1,050 686
-----------
1,328
-----------
Sweden (4.3%)
Kingdom of Sweden
13.000%, 06/15/01............... 12,500 1,929
-----------
United Kingdom (8.0%)
Abbey National Treasury
8.000%, 04/02/03................ 600 907
National Power
10.625%, 03/26/01............... 600 1,025
United Kingdom Treasury
9.500%, 04/18/05................ 1,000 1,690
The accompanying notes are an integral part of the financial statements.
37
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
-----------
3,622
-----------
United States (4.5%)
Federal National Mortgage
Association
6.000%, 08/23/00................ 3,000 2,043
-----------
Total Foreign Bonds
(Cost $37,811,504).............. 39,476
-----------
TIME DEPOSIT (3.2%)
Italy (3.2%)
Bank of Scotland
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
9.813%, 09/06/95................ 2,360,717 1,453
-----------
Total Time Deposit
(Cost $1,451,320)............... 1,453
-----------
Total Investments (90.5% of Net
Assets)
(Cost $39,262,824).............. $ 40,929
-----------
-----------
- ------------------
JY Japanese Yen
(1) In local currency unless otherwise indicated
The accompanying notes are an integral part of the financial statements.
38
SCHEDULE OF INVESTMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
FOREIGN BONDS (87.3%)
Austria (3.3%)
Austria Republic
6.250%, 10/16/03................ JY 120,000 $ 1,484
-----------
Canada (3.9%)
Canadian Government
8.500%, 04/01/02................ 2,300 1,778
-----------
Denmark (7.5%)
Kingdom of Denmark
9.000%, 11/15/00................ 11,000 2,072
7.000%, 12/15/04................ 8,000 1,314
-----------
3,386
-----------
France (9.3%)
Credit Foncier
5.500%, 11/15/99................ 6,000 1,134
Government of France
7.000%, 11/12/99................ 12,000 2,420
8.500%, 04/25/03................ 3,000 642
-----------
4,196
-----------
Germany (29.8%)
African Development Bank
7.250%, 10/21/99................ 2,000 1,431
Deutsche Ausgleichsbank
6.500%, 09/25/00................ 2,000 1,384
Deutschland Republic
8.250%, 09/20/01................ 750 561
6.250%, 01/04/24................ 1,600 944
German Unity Fund
8.000%, 01/21/02................ 1,400 1,033
KFW International Finance
7.250%, 12/03/97................ 3,000 2,138
LKB Baden Wurt
6.000%, 05/10/99................ 3,000 2,080
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
Norddeutsche Landesbank
6.000%, 01/05/04................ 3,000 1,920
Westdeutsche Landesbank
6.250%, 09/15/03................ 3,000 1,980
-----------
13,471
-----------
Japan (13.8%)
Interamerican Development Bank
6.000%, 10/30/01................ 180,000 $ 2,152
Japanese Development Bank
6.500%, 09/20/01................ 170,000 2,083
World Bank
4.500%, 03/20/03................ 180,000 2,004
-----------
6,239
-----------
New Zealand (2.9%)
Government of New Zealand
6.500%, 02/15/00................ 1,050 642
8.000%, 04/15/04................ 1,050 686
-----------
1,328
-----------
Sweden (4.3%)
Kingdom of Sweden
13.000%, 06/15/01............... 12,500 1,929
-----------
United Kingdom (8.0%)
Abbey National Treasury
8.000%, 04/02/03................ 600 907
National Power
10.625%, 03/26/01............... 600 1,025
United Kingdom Treasury
9.500%, 04/18/05................ 1,000 1,690
-----------
3,622
-----------
United States (4.5%)
The accompanying notes are an integral part of the financial statements.
37
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
Federal National Mortgage
Association
6.000%, 08/23/00................ 3,000 2,043
-----------
Total Foreign Bonds
(Cost $37,811,504).............. 39,476
-----------
TIME DEPOSIT (3.2%)
Italy (3.2%)
Bank of Scotland
9.813%, 09/06/95................ 2,360,717 1,453
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
-----------
Total Time Deposit
(Cost $1,451,320)............... 1,453
-----------
Total Investments (90.5% of Net
Assets)
(Cost $39,262,824).............. $ 40,929
-----------
-----------
- ------------------
JY Japanese Yen
(1) In local currency unless otherwise indicated
The accompanying notes are an integral part of the financial statements.
38
STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
(000)
---------
<S> <C>
ASSETS:
Investment Securities (Cost $39,809,151)........................................................ $ 43,580
Cash............................................................................................ 2,418
Receivable -- Portfolio Securities Sold......................................................... 827
Other Assets.................................................................................... 674
---------
Total Assets.................................................................................. 47,499
---------
LIABILITIES:
Payable -- Portfolio Securities Purchased....................................................... 1,291
Other Liabilities............................................................................... 104
---------
Total Liabilities............................................................................. 1,395
---------
NET ASSETS:
Portfolio shares (unlimited authorization -- no par value) based on 3,429,072 outstanding shares
of beneficial interest......................................................................... 40,943
Accumulated net realized gain on investments.................................................... 1,230
Accumulated net realized loss on foreign currency transactions.................................. (508)
Net unrealized appreciation on forward foreign currency contracts, foreign currency and
translation of other assets and liabilities in foreign currency................................ 413
Net unrealized appreciation on investments...................................................... 3,749*
Undistributed net investment income............................................................. 277
---------
Total Net Assets.............................................................................. $ 46,104
---------
---------
Net Asset Value and Redemption Price Per Share....................................................... $ 13.44
---------
---------
Maximum Public Offering Price Per Share ($13.44/95.50%).............................................. $ 14.07
---------
---------
</TABLE>
---------------------------
* Net of $22,000 accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
38
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP
-------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
<TABLE>
<CAPTION>
(000)
---------
<S> <C>
ASSETS:
Investment Securities (Cost $39,262,824).......................................................... $ 40,929
Cash.............................................................................................. 1,460
Receivable--Accrued Income........................................................................ 1,686
Receivable--Portfolio Securities Sold............................................................. 1,888
Unrealized Gain on Forward Foreign Currency Contracts............................................. 1,373
Other Assets...................................................................................... 8
---------
Total Assets................................................................................. 47,344
---------
LIABILITIES:
Payable--Portfolio Securities Purchased........................................................... 2,043
Other Liabilities................................................................................. 59
---------
Total Liabilities............................................................................ 2,102
---------
NET ASSETS:
Portfolio shares (unlimited authorization--no par value) based on 3,962,011 outstanding shares of
beneficial interest.............................................................................. 40,912
Accumulated net realized loss on investments...................................................... (132)
Accumulated net realized loss on foreign currency transactions.................................... (203)
Net unrealized appreciation on forward foreign currency contracts, foreign currency and
translation of other assets and liabilities in foreign currency.................................. 1,320
Net unrealized appreciation on investments........................................................ 1,666
Undistributed net investment income............................................................... 1,679
---------
Total Net Assets............................................................................. $ 45,242
---------
---------
Net Asset Value and Redemption Price Per Share......................................................... $ 11.42
---------
---------
Maximum Public Offering Price Per Share ($11.42/96.00%)................................................ $ 11.90
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
STATEMENT OF OPERATIONS (000)
-------------------------------------------------------------------------
For the Six-Month Period Ended August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
CASH U.S. NEW JERSEY PENNSYLVANIA
RESERVE TREASURY MUNICIPAL MUNICIPAL MONEY MUNICIPAL MONEY
FUND FUND MONEY FUND FUND FUND
----------- ----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest income.............................. $ 14,409 $ 11,845 $ 797 $ 893 $ 900
Dividend income.............................. -- -- -- -- --
Less: foreign taxes withheld................. -- -- -- -- --
----------- ----------- ----- ----- -----
Total investment income.................. 14,409 11,845 797 893 900
----------- ----------- ----- ----- -----
Expenses:
Administration fees.......................... 422 356 35 40 40
Investment advisory fees..................... 820 692 78 90 89
Custodian/Transfer agent fees................ 32 34 14 12 12
Pricing fees................................. 3 2 1 1 1
Professional fees............................ 33 27 4 3 3
Registration fees............................ 10 9 1 1 1
Trustee fees................................. 9 8 1 1 1
Printing expenses............................ 16 14 2 2 2
Amortization of deferred organizational
costs...................................... -- -- -- 3 2
Insurance and other fees..................... 8 21 1 -- 1
----------- ----------- ----- ----- -----
Total expenses........................... 1,353 1,163 137 153 152
----------- ----------- ----- ----- -----
Net investment income............................ 13,056 10,682 660 740 748
----------- ----------- ----- ----- -----
Net realized gain (loss) on securities sold...... 62 -- 15 -- 2
Net realized loss on forward foreign currency
contracts and foreign currency transactions.... -- -- -- -- --
Change in unrealized appreciation on forward
foreign currency contracts, foreign currency
and translation of other assets and liabilities
in foreign currency............................ -- -- -- -- --
Change in unrealized appreciation on
investment securities.......................... -- -- -- -- --
----------- ----------- ----- ----- -----
Net realized and unrealized gain on
investments.................................... 62 -- 15 -- 2
----------- ----------- ----- ----- -----
Increase in net assets resulting
from operations................................ $ 13,118 $ 10,682 $ 675 $ 740 $ 750
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
</TABLE>
EQUITY
FUND
---------
Investment income:
Interest income.............................. $ 522
Dividend income.............................. 4,246
Less: foreign taxes withheld................. --
---------
Total investment income.................. 4,768
---------
Expenses:
Administration fees.......................... 286
Investment advisory fees..................... 1,113
Custodian/Transfer agent fees................ 53
Pricing fees................................. 9
Professional fees............................ 22
Registration fees............................ 8
Trustee fees................................. 6
Printing expenses............................ 11
Amortization of deferred organizational
costs...................................... --
Insurance and other fees..................... 7
---------
Total expenses........................... 1,515
---------
Net investment income............................ 3,253
---------
Net realized gain (loss) on securities sold...... 14,167
Net realized loss on forward foreign currency
contracts and foreign currency transactions.... --
Change in unrealized appreciation on forward
foreign currency contracts, foreign currency
and translation of other assets and liabilities
in foreign currency............................ --
Change in unrealized appreciation on
investment securities.......................... 39,473
---------
Net realized and unrealized gain on
investments.................................... 53,640
---------
Increase in net assets resulting
from operations................................ $ 56,893
---------
---------
INCOME
-------------------------
* Net of $22,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
40
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY
SMALL SHORT/ FIXED MUNICIPAL PENNSYLVANIA
COMPANY BALANCED INTERMEDIATE INCOME MUNICIPAL BOND MUNICIPAL BOND
GROWTH FUND FUND FUND FUND FUND BOND FUND FUND FUND
----------- ----------- ----------- --------------- --------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 155 $ 32 $ 498 $ 6,884 $ 8,764 $ 789 $ 2,633 $ 476
1,217 189 252 -- -- -- -- --
-- -- -- -- -- -- -- --
----------- ----------- ----------- ------ --------- ----------- ------ -----
1,372 221 750 6,884 8,764 789 2,633 476
----------- ----------- ----------- ------ --------- ----------- ------ -----
135 22 26 181 226 26 88 16
526 112 102 603 751 87 293 52
26 18 20 25 26 13 22 12
3 1 1 8 12 2 7 1
11 2 2 16 20 3 8 1
3 1 1 6 6 1 3 1
4 1 1 4 5 1 2 --
5 1 1 9 10 1 4 1
-- 2 -- -- -- -- 2 3
2 -- -- 2 -- -- -- --
----------- ----------- ----------- ------ --------- ----------- ------ -----
715 160 154 854 1,056 134 429 87
----------- ----------- ----------- ------ --------- ----------- ------ -----
657 61 596 6,030 7,708 655 2,204 389
----------- ----------- ----------- ------ --------- ----------- ------ -----
4,805 1,713 293 (483) (848) 176 155 24
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
15,656 2,038 1,820 3,928 11,715 591 2,357 430
----------- ----------- ----------- ------ --------- ----------- ------ -----
20,461 3,751 2,113 3,445 10,867 767 2,512 454
----------- ----------- ----------- ------ --------- ----------- ------ -----
$ 21,118 $ 3,812 $ 2,709 $ 9,475 $ 18,575 $ 1,422 $ 4,716 $ 843
----------- ----------- ----------- ------ --------- ----------- ------ -----
----------- ----------- ----------- ------ --------- ----------- ------ -----
</TABLE>
INTERNATIONAL INTERNATIONAL
EQUITY FIXED INCOME
FUND FUND
--------------- ---------------
$ 54 $ 1,626
561 --
(51) --
------ ------
564 1,626
------ ------
41 47
178 182
54 49
(1) (5)
6 4
1 1
1 1
2 --
2 3
3 (6)
------ ------
287 276
------ ------
277 1,350
------ ------
1,230 695
(440) (203)
495 1,937
3,156* 257
------ ------
4,441 2,686
------ ------
$ 4,718 $ 4,036
------ ------
------ ------
41
STATEMENT OF CHANGES IN NET ASSETS (000)
-------------------------------------------------------------------------
For the Six Month Period Ended August 31, 1995 (Unaudited) and the Year
Ended February 28, 1995
<TABLE>
<CAPTION>
CASH RESERVE FUND U.S. TREASURY FUND
------------------------ ------------------------
03/01/95 03/01/94 03/01/95 03/01/94
TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income.................................. $ 13,056 $ 17,854 $ 10,682 $ 14,172
Net realized gain (loss) on securities sold............ 62 (1,037) -- 2
----------- ----------- ----------- -----------
Increase in net assets resulting from investment
operations........................................ 13,118 16,817 10,682 14,174
----------- ----------- ----------- -----------
DISTRIBUTIONS:
Net investment income.................................. (13,054) (17,854) (10,682) (14,172)
----------- ----------- ----------- -----------
Total distributions.................................. (13,054) (17,854) (10,682) (14,172)
----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Proceeds from shares issued............................ 470,044 749,041 693,307 904,680
Reinvestment of cash distributions..................... 440 440 192 203
Cost of shares redeemed................................ (425,845) (742,657) (498,300) (916,643)
----------- ----------- ----------- -----------
Increase (decrease) in net assets from capital share
transactions...................................... 44,639 6,824 195,199 (11,762)
----------- ----------- ----------- -----------
Contribution of capital from affiliate............... -- 887 -- --
----------- ----------- ----------- -----------
Total increase (decrease) in net assets.............. 44,703 6,674 195,199 (11,760)
----------- ----------- ----------- -----------
NET ASSETS:
Beginning of period.................................... 435,323 428,649 365,516 377,276
----------- ----------- ----------- -----------
End of period.......................................... $ 480,026 $ 435,323 $ 560,715 $ 365,516
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
NEW JERSEY PENNSYLVANIA
MUNICIPAL MONEY MUNICIPAL MONEY MUNICIPAL MONEY
FUND FUND FUND
------------------------ ------------------------ ------------------------
03/01/95 03/01/94 03/01/95 03/01/94 03/01/95 03/01/94
TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 660 $ 1,137 $ 740 $ 975 $ 748 $ 1,056
15 (15) -- (7) 2 (2)
----------- ----------- ----------- ----------- ----------- -----------
675 1,122 740 968 750 1,054
----------- ----------- ----------- ----------- ----------- -----------
(659) (1,137) (740) (975) (748) (1,056)
----------- ----------- ----------- ----------- ----------- -----------
(659) (1,137) (740) (975) (748) (1,056)
----------- ----------- ----------- ----------- ----------- -----------
39,984 117,594 43,883 70,309 64,397 94,308
6 10 64 64 23 17
(50,195) (119,744) (37,929) (66,164) (58,335) (85,499)
----------- ----------- ----------- ----------- ----------- -----------
(10,205) (2,140) 6,018 4,209 6,085 8,826
----------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
(10,189) (2,155) 6,018 4,202 6,087 8,824
----------- ----------- ----------- ----------- ----------- -----------
45,252 47,407 43,610 39,408 35,478 26,654
----------- ----------- ----------- ----------- ----------- -----------
$ 35,063 $ 45,252 $ 49,628 $ 43,610 $ 41,565 $ 35,478
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
43
STATEMENT OF CHANGES IN NET ASSETS (000)
-------------------------------------------------------------------------
For the Six-Month Period Ended August 31, 1995 (Unaudited) and the Year
Ended February 28, 1995
<TABLE>
<CAPTION>
SMALL
EQUITY INCOME GROWTH COMPANY BALANCED
FUND FUND FUND(1) FUND
------------------------ ------------------------ ------------------------ -----------
03/01/95 03/01/94 03/01/95 03/01/94 03/01/95 03/01/94 03/01/95
TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95 TO 08/31/95
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income......... $ 3,253 $ 6,980 $ 657 $ 736 $ 61 $ 208 $ 596
Net realized gain (loss) on
securities sold............. 14,167 (2,336) 4,805 1,391 1,713 970 293
Change in unrealized
appreciation (depreciation)
on investment securities.... 39,473 5,135 15,656 1,259 2,038 (2,226) 1,820
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations.... 56,893 9,779 21,118 3,386 3,812 (1,048) 2,709
----------- ----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS:
Net investment income......... (3,264) (6,918) (637) (789) (92) (210) (581)
Net realized gains............ -- (23,258) -- (3,216) -- (1,457) --
In excess of net realized
gains....................... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions......... (3,264) (30,176) (637) (4,005) (92) (1,667) (581)
----------- ----------- ----------- ----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Proceeds from shares issued... 20,653 64,959 7,522 35,581 3,052 27,932 7,630
Reinvestment of cash
distributions............... 1,422 24,070 274 3,390 31 1,390 196
Cost of shares redeemed....... (21,909) (61,887) (9,070) (49,615) (6,821) (22,494) (1,980)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from share
transactions.............. 166 27,142 (1,274) (10,644) (3,738) 6,828 5,846
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in
net assets................ 53,795 6,745 19,207 (11,263) (18) 4,113 7,974
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS:
Beginning of period........... 288,889 282,144 139,339 150,602 26,393 22,280 23,933
----------- ----------- ----------- ----------- ----------- ----------- -----------
End of period................. $ 342,684 $ 288,889 $ 158,546 $ 139,339 $ 26,375 $ 26,393 $ 31,907
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
SHARES ISSUED AND REDEEMED:
Issued.................. 1,600 5,236 614 3,258 250 2,413 713
Issued in lieu of cash
distributions......... 109 2,089 23 324 3 129 18
Redeemed................ (1,690) (5,163) (746) (4,518) (599) (1,950) (181)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net shares issued
(redeemed)............ 19 2,162 (109) (936) (346) 592 550
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
07/01/94(2)
TO 02/28/95
-----------
INVESTMENT ACTIVITIES:
Net investment income......... $ 426
Net realized gain (loss) on
securities sold............. 144
Change in unrealized
appreciation (depreciation)
on investment securities.... 587
-----------
Increase (decrease) in net
assets from operations.... 1,157
-----------
DISTRIBUTIONS:
Net investment income......... (426)
Net realized gains............ (14)
In excess of net realized
gains....................... --
-----------
Total distributions......... (440)
-----------
SHARE TRANSACTIONS:
Proceeds from shares issued... 23,513
Reinvestment of cash
distributions............... 103
Cost of shares redeemed....... (400)
-----------
Increase (decrease) in net
assets from share
transactions.............. 23,216
-----------
Total increase (decrease) in
net assets................ 23,933
-----------
NET ASSETS:
Beginning of period........... --
-----------
End of period................. $ 23,933
-----------
-----------
SHARES ISSUED AND REDEEMED:
Issued.................. 2,353
Issued in lieu of cash
distributions......... 10
Redeemed................ (40)
-----------
Net shares issued
(redeemed)............ 2,323
-----------
-----------
-------------------------
(1) Formerly the Small Cap Value Fund
(2) Commenced operations on July 1, 1994
The accompanying notes are an integral part of the financial statements.
44
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA
NEW JERSEY MUNICIPAL MUNICIPAL
SHORT/INTERMEDIATE FIXED INCOME MUNICIPAL BOND BOND BOND
FUND FUND FUND FUND FUND
------------------------ ------------------------ ------------------------ ------------------------ -----------
03/01/95 03/01/94 03/01/95 03/01/94 03/01/95 03/01/94 03/01/95 03/01/94 03/01/95
TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95 TO 08/31/95
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,030 $ 12,078 $ 7,708 $ 15,141 $ 655 $ 1,562 $ 2,204 $ 4,781 $ 389
(483) (3,296) (848) (3,223) 176 (1,090) 155 (431) 24
3,928 (4,916) 11,715 (11,359) 591 (353) 2,357 (3,631) 430
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
9,475 3,866 18,575 559 1,422 119 4,716 719 843
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(6,006) (12,044) (7,651) (15,108) (651) (1,558) (2,190) (4,773) (385)
-- (470) -- (968) -- (376) -- (73) --
-- -- -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(6,006) (12,514) (7,651) (16,076) (651) (1,934) (2,190) (4,846) (385)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
9,601 34,390 6,421 31,547 2,442 8,262 6,510 21,923 1,580
2,773 6,046 2,071 4,989 81 475 818 1,934 49
(23,798) (98,249) (14,174) (49,290) (3,307) (13,728) (8,959) (34,227) (1,542)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(11,424) (57,813) (5,682) (12,754) (784) (4,991) (1,631) (10,370) 87
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(7,955) (66,461) 5,242 (28,271) (13) (6,806) 895 (14,497) 545
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
201,774 268,235 244,138 272,409 28,750 35,556 96,857 111,354 16,724
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 193,819 $ 201,774 $ 249,380 $ 244,138 $ 28,737 $ 28,750 $ 97,752 $ 96,857 $ 17,269
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
935 3,361 619 3,114 233 808 585 2,019 162
271 597 200 499 8 48 74 180 5
(2,312) (9,629) (1,365) (4,890) (317) (1,355) (807) (3,191) (158)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(1,106) (5,671) (546) (1,277) (76) (499) (148) (992) 9
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
03/01/94
TO 02/28/95
-----------
$ 878
(481)
(238)
-----------
159
-----------
(879)
--
--
-----------
(879)
-----------
4,515
101
(7,038)
-----------
(2,422)
-----------
(3,142)
-----------
19,866
-----------
$ 16,724
-----------
-----------
473
11
(753)
-----------
(269)
-----------
-----------
45
STATEMENT OF CHANGES IN NET ASSETS (000)
-------------------------------------------------------------------------
For the Six-Month Period Ended August 31, 1995 (Unaudited) and the Year
Ended February 28, 1995
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EQUITY FIXED INCOME
FUND FUND
------------------------ ------------------------
03/01/95 03/01/94 03/01/95 03/01/94
TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income................................... $ 277 $ 24 $ 1,350 $ 2,695
Net realized gain (loss) on securities sold............. 1,230 2,720 695 (827)
Net realized loss on forward foreign currency contracts
and foreign currency transactions..................... (440) (357) (203) (2,318)
Change in unrealized appreciation on forward foreign
currency contracts, foreign currency, and translation
of other assets and liabilities in foreign currency... 495 124 1,937 32
Change in unrealized appreciation (depreciation) on
investment securities................................. 3,156(1) (5,307)(2) 257 1,113
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations..... 4,718 (2,796) 4,036 695
----------- ----------- ----------- -----------
DISTRIBUTIONS:
Net investment income................................... -- -- (168) (570)
Net realized gains...................................... -- (2,565) -- (1,055)
----------- ----------- ----------- -----------
Total distributions................................... -- (2,565) (168) (1,625)
----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Proceeds from shares issued............................. 10,032 11,521 2,245 7,438
Dividends reinvested in lieu of cash distributions...... -- 2,543 77 1,240
Value of shares redeemed................................ (3,583) (6,989) (6,605) (8,979)
----------- ----------- ----------- -----------
Increase (decrease) in net assets from share
transactions....................................... 6,449 7,075 (4,283) (301)
----------- ----------- ----------- -----------
Total increase (decrease) in net assets............... 11,167 1,714 (415) (1,231)
----------- ----------- ----------- -----------
NET ASSETS:
Beginning of period..................................... 34,937 33,223 45,657 46,888
----------- ----------- ----------- -----------
End of period........................................... $ 46,104 $ 34,937 $ 45,242 $ 45,657
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SHARE ISSUED AND REDEEMED:
Shares issued......................................... 776 837 200 717
Shares issued in dividend reinvestment................ -- 203 7 122
Shares redeemed....................................... (278) (518) (586) (861)
----------- ----------- ----------- -----------
Net shares issued (redeemed).......................... 498 522 (379) (22)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
-------------------------
(1) Net of $22,000 change in accrued foreign withholding taxes.
(2) Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
46
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS THE COMPASS CAPITAL GROUP
-------------------------------------------------------------------------
For the Six-Month Period Ended August 31, 1995 (Unaudited) and the
Periods Ended February 28,
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
RATIO OF
NET EXPENSES TO
NET ASSET DISTRIBUTIONS ASSETS RATIO OF RATIO OF AVERAGE NET
VALUE NET FROM NET NET ASSET END OF EXPENSES TO NET INCOME ASSETS
BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL PERIOD AVERAGE NET TO AVERAGE (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS NET ASSETS WAIVERS)
----------- ----------- ------------- ----------- ----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995** $ 1.00 $ 0.03 $ (0.03) $ 1.00 5.68%* $ 480,026 0.58%* 5.57%* 0.58%*
1995 1.00 0.04 (0.04) 1.00 4.28 435,323 0.59 4.18 0.59
1994 1.00 0.03 (0.03) 1.00 2.80 428,649 0.59 2.76 0.59
1993 1.00 0.03 (0.03) 1.00 3.30 456,652 0.59 3.24 0.59
1992 1.00 0.05 (0.05) 1.00 5.42 435,591 0.59 5.25 0.59
1991 1.00 0.08 (0.08) 1.00 7.84 408,815 0.58 7.57 0.59
1990 1.00 0.09 (0.09) 1.00 8.93 365,174 0.58 8.58 0.60
1989(1) 1.00 0.08 (0.08) 1.00 7.16* 381,082 0.47 7.49 0.56
</TABLE>
RATIO OF NET
AVERAGE NET
ASSETS
(EXCLUDING
WAIVERS)
-------------
INCOME TO
-------------------------------
CASH RESERVE FUND
-------------------------------
1994 2.76
1993 3.24
1992 5.25
1991 7.56
1990 8.56
1989(1) 7.40
-------------------------------
U.S. TREASURY FUND
-------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995** $ 1.00 $ 0.03 $ (0.03) $ 1.00 5.52%* $ 560,715 0.59%* 5.40%* 0.59%*
1995 1.00 0.04 (0.04) 1.00 4.06 365,516 0.59 3.94 0.59
1994 1.00 0.03 (0.03) 1.00 2.63 377,276 0.59 2.60 0.59
1993 1.00 0.03 (0.03) 1.00 3.00 346,388 0.62 3.10 0.62
1992 1.00 0.05 (0.05) 1.00 5.21 958,671 0.56 4.95 0.56
1991 1.00 0.07 (0.07) 1.00 7.50 434,436 0.56 7.25 0.57
1990 1.00 0.08 (0.08) 1.00 8.56 215,195 0.59 8.24 0.61
1989(2) 1.00 0.07 (0.07) 1.00 6.75* 129,971 0.50* .14* 0.56*
</TABLE>
1995** 5.40%*
1995 3.94
1994 2.60
1993 3.10
1992 4.95
1991 7.24
1990 8.22
1989(2) 7.08*
-----------------------------------
MUNICIPAL MONEY FUND
-----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995** $ 1.00 $ 0.02 $ (0.02) $ 1.00 3.42%* $ 35,063 0.70%* 3.38%* 0.70%*
1995 1.00 0.03 (0.03) 1.00 2.55 45,252 0.67 2.53 0.67
1994 1.00 0.02 (0.02) 1.00 1.98 47,407 0.62 1.94 0.62
1993 1.00 0.03 (0.03) 1.00 2.48 90,208 0.67 2.45 0.67
1992 1.00 0.04 (0.04) 1.00 3.95 56,932 0.67 4.05 0.69
1991 1.00 0.06 (0.06) 1.00 5.67 176,209 0.61 5.54 0.63
1990 1.00 0.06 (0.06) 1.00 6.17 127,419 0.65 6.00 0.68
1989(1) 1.00 0.05 (0.05) 1.00 4.35* 123,300 0.57 5.03 0.66
</TABLE>
1995** 3.38%*
1995 2.53
1994 1.94
1993 2.45
1992 4.03
1991 5.52
1990 5.97
1989(1) 4.94
---------------------------------------------------
NEW JERSEY MUNICIPAL MONEY FUND
---------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995** $ 1.00 $ 0.02 $ (0.02) $ 1.00 3.36%* $ 49,628 0.68%* 3.30%* 0.68%*
1995 1.00 0.02 (0.02) 1.00 2.46 43,610 0.63 2.46 0.70
1994 1.00 0.02 (0.02) 1.00 1.79 39,408 0.65 1.77 0.72
1993 1.00 0.02 (0.02) 1.00 2.19 38,836 0.73 2.17 0.76
1992(3) 1.00 0.02 (0.02) 1.00 3.53* 35,005 0.47* 3.44* 0.62*
</TABLE>
1995** 3.30%*
1995 2.39
1994 1.70
1993 2.14
1992(3) 3.29*
-----------------------------------------------------
PENNSYLVANIA MUNICIPAL MONEY FUND
-----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995** $ 1.00 $ 0.02 $ (0.02) $ 1.00 3.42%* $ 41,565 0.68%* 3.37%* 0.68%*
1995 1.00 0.03 (0.03) 1.00 2.71 35,478 0.48 2.68 0.69
1994 1.00 0.02 (0.02) 1.00 2.25 26,654 0.22 2.35 0.80
1993 1.00 0.03 (0.03) 1.00 2.49 5,096 0.67 2.53 0.87
1992(4) 1.00 0.02 (0.02) 1.00 3.72* 22,145 0.58* 3.42* 0.62*
</TABLE>
1995** 3.37%*
1995 2.47
1994 1.77
1993 2.33
1992(4) 3.38*
Footnotes on page 49 following table
The accompanying notes are an integral part of the financial statements.
47
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
For the Six Month Period Ended August 31, 1995 (Unaudited) and the
Periods Ended February 28,
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
DISTRIBUTIONS
REALIZED AND ------------------------------------- NET
NET ASSET UNREALIZED IN EXCESS ASSETS
VALUE NET GAINS OR NET OF NET NET ASSET END OF
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED VALUE END TOTAL PERIOD
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS OF PERIOD RETURN (000)
----------- ------------- ------------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------
EQUITY INCOME FUND
- -------------------------
1995** $ 11.86 $ 0.13 $ 2.20 $ (0.13) $ -- -- $ 14.06 19.77% $ 342,684
1995 12.71 0.30 0.14 (0.30) (0.99) -- 11.86 3.87 288,889
1994 11.94 0.38 1.63 (0.39) (0.85) -- 12.71 16.78 282,144
1993 11.77 0.39 0.48 (0.39) (0.31) -- 11.94 7.71 197,039
1992 11.12 0.45 1.24 (0.46) (0.58) -- 11.77 16.07 142,052
1991 9.93 0.45 1.17 (0.43) -- -- 11.12 16.87 82,167
1990(5) 10.00 0.32 (0.07) (0.32) -- -- 9.93 7.79* 32,115
- ----------------
GROWTH FUND
- ----------------
1995** $ 11.26 $ 0.05 $ 1.67 $ (0.05) $ -- $ -- $ 12.93 15.32% $ 158,546
1995 11.31 0.06 0.22 (0.06) (0.27) -- 11.26 2.75 139,339
1994 11.19 0.05 0.46 (0.05) (0.30) (0.04) 11.31 4.74 150,602
1993 11.36 0.13 0.26 (0.13) (0.43) -- 11.19 3.49 153,876
1992 11.72 0.21 1.35 (0.21) (1.71) -- 11.36 14.93 115,473
1991 10.28 0.22 1.44 (0.22) -- -- 11.72 16.40 113,335
1990(5) 10.00 0.23 0.27 (0.22) -- -- 10.28 6.70* 81,998
- --------------------------
SMALL COMPANY FUND
- --------------------------
1995** $ 11.01 $ 0.03 $ 1.85 $ (0.04) $ -- -- $ 12.85 17.16% $ 26,375
1995 12.33 0.10 (0.70) (0.10) (0.62) -- 11.01 (4.70) 26,393
1994 12.03 0.09 1.57 (0.09) (1.27) -- 12.33 14.50 22,280
1993 12.01 0.05 0.10 (0.04) (0.09) -- 12.03 1.42 19,300
1992(3) 10.00 0.04 2.01 (0.04) -- -- 12.01 32.73* 16,237
- ------------------
BALANCED FUND
- ------------------
1995** $ 10.30 $ 0.21 $ 0.81 $ (0.21) -- -- $ 11.11 10.00% $ 31,907
1995(6) 10.00 0.27 0.30 (0.27) -- -- 10.30 8.94* 23,933
- -------------------------------
SHORT/INTERMEDIATE FUND
- -------------------------------
1995** $ 10.12 $ 0.31 $ 0.17 $ (0.31) $ -- -- $ 10.29 4.82% $ 193,819
1995 10.47 0.55 (0.33) (0.55) (0.02) -- 10.12 2.27 201,774
1994 10.67 0.59 (0.14) (0.59) (0.06) -- 10.47 3.71 268,235
1993 10.47 0.67 0.32 (0.67) (0.12) -- 10.67 9.77 186,031
1992 10.17 0.70 0.34 (0.70) (0.04) -- 10.47 10.58 128,225
1991 9.96 0.75 0.20 (0.74) -- -- 10.17 9.89 77,996
1990(5) 10.00 0.56 (0.05) (0.55) -- -- 9.96 6.96* 25,695
- ------------------------
FIXED INCOME FUND
- ------------------------
1995** $ 10.06 $ 0.32 $ 0.45 $ (0.32) $ -- -- $ 10.51 7.74% $ 249,380
1995 10.66 0.61 (0.56) (0.61) (0.04) -- 10.06 0.65 244,138
1994 10.88 0.62 (0.01) (0.62) (0.21) -- 10.66 5.38 272,409
1993 10.52 0.71 0.66 (0.72) (0.29) -- 10.88 13.69 208,115
1992 10.11 0.76 0.47 (0.76) (0.06) -- 10.52 12.62 150,594
1991 9.84 0.79 0.26 (0.78) -- -- 10.11 11.18 110,935
1990(5) 10.00 0.53 (0.19) (0.50) -- -- 9.84 4.54* 71,228
</TABLE>
RATIO OF RATIO OF NET
RATIO OF RATIO OF AVERAGE NET AVERAGE NET
EXPENSES TO NET INCOME ASSETS ASSETS PORTFOLIO
AVERAGE NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
----------- ----------- ------------- ------------- -----------
- ---------
EQUITY IN
- ---------
1995** 0.95%* 2.05%* 0.95%* 2.05%* 34.00%
1995 0.95 2.47 0.95 2.47 57.96
1994 0.93 3.06 0.93 3.06 156.21
1993 1.00 3.33 1.00 3.33 70.84
1992 0.96 4.04 0.96 4.04 111.52
1991 0.94 4.65 0.98 4.61 98.75
1990(5) 0.93* 4.29* 1.06* 4.16* 54.08
- ---------
GROWTH FU
- ---------
1995** 0.95%* 0.87%* 0.95%* 0.87%* 30.98%
1995 0.96 0.55 0.96 0.55 46.28
1994 0.94 0.56 0.94 0.56 153.03
1993 0.98 1.14 0.98 1.14 114.83
1992 1.00 1.80 1.00 1.80 144.16
1991 0.92 2.08 0.96 2.04 91.32
1990(5) 0.90* 2.72* 1.00* 2.62* 41.69
- ---------
SMALL COM
- ---------
1995** 1.28%* 0.49%* 1.28%* 0.49%* 103.90%
1995 1.30 0.86 1.30 0.86 15.84
1994 1.31 0.72 1.31 0.72 49.34
1993 1.38 0.45 1.38 0.45 43.00
1992(3) 1.22* 0.65* 1.27* 0.60* 9.08
- ---------
BALANCED
- ---------
1995** 1.05%* 4.07%* 1.05%* 4.07%* 12.86%
1995(6) 0.70* 4.10* 1.15* 3.65* 30.63
- ---------
SHORT/INT
- ---------
1995** 0.85%* 6.00%* 0.85%* 6.00%* 25.80%
1995 0.85 5.33 0.85 5.33 53.66
1994 0.84 5.02 0.84 5.02 58.80
1993 0.88 6.28 0.88 6.28 25.95
1992 0.85 6.90 0.85 6.90 57.81
1991 0.84 7.44 0.88 7.40 42.86
1990(5) 0.88* 7.41* 0.98* 7.31* 2.46
- ---------
FIXED INC
- ---------
1995** 0.84%* 6.16%* 0.84%* 6.16%* 23.17%
1995 0.85 6.02 0.85 6.02 34.69
1994 0.83 5.53 0.83 5.53 49.41
1993 0.87 6.62 0.87 6.62 36.88
1992 0.89 7.66 0.89 7.66 120.70
1991 0.82 7.97 0.86 7.93 63.33
1990(5) 0.82* 7.10* 0.98* 6.94* 12.97
EXPENSES TO INCOME TO
The accompanying notes are an integral part of the financial statements.
48
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
For the period ended August 31, 1995
For a Share Outstanding Throughout each Period.
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS
REALIZED AND --------------------------------------- NET
NET ASSET UNREALIZED IN EXCESS ASSETS
VALUE NET GAINS OR NET OF NET NET ASSET END OF
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED VALUE END TOTAL PERIOD
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS OF PERIOD RETURN (000)
----------- ------------- ------------- ------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------
MUNICIPAL BOND FUND
- ---------------------------
1995** $ 10.28 $ 0.24 $ 0.28 $ (0.24) $ -- -- $ 10.56 5.06% $ 28,737
1995 10.79 0.49 (0.39) (0.49) (0.12) -- 10.28 1.17 28,750
1994 11.06 0.51 (0.03) (0.51) (0.24) -- 10.79 4.35 35,556
1993 10.43 0.51 0.64 (0.52) -- -- 11.06 11.42 22,682
1992 10.25 0.60 0.19 (0.60) (0.01) -- 10.43 8.40 11,299
1991 9.99 0.64 0.23 (0.61) -- -- 10.25 8.96 7,516
1990(7) 10.00 0.14 (0.02) (0.13) -- -- 9.99 4.81* 2,620
- ------------------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- ------------------------------------------
1995** $ 10.94 $ 0.25 $ 0.28 $ (0.25) $ -- -- $ 11.22 4.90% $ 97,752
1995 11.31 0.51 (0.36) (0.51) (0.01) -- 10.94 1.49 96,857
1994 11.30 0.54 0.04 (0.54) (0.03) -- 11.31 5.18 111,354
1993 10.46 0.52 0.85 (0.53) -- -- 11.30 13.48 47,169
1992(3) 10.00 0.34 0.45 (0.33) -- -- 10.46 12.33* 10,673
- --------------------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- --------------------------------------------
1995** $ 9.59 $ 0.22 $ 0.27 $ (0.22) -- -- $ 9.86 5.13% $ 17,269
1995 9.87 0.44 (0.28) (0.44) -- -- 9.59 1.81 16,724
1994(8) 10.00 0.21 (0.13) (0.21) -- -- 9.87 1.53* 19,866
- ---------------------------------
INTERNATIONAL EQUITY FUND
- ---------------------------------
1995** $ 11.92 $ 0.08 $ 1.44 $ -- $ -- $ -- $ 13.44 12.75% $ 46,104
1995 13.79 0.01 (0.93) -- (0.95) -- 11.92 (6.99) 34,937
1994 10.32 0.03 3.88 (0.03) (0.41) -- 13.79 38.19 33,223
1993 10.62 0.09 (0.34) (0.05) -- -- 10.32 (2.35) 13,463
1992(3) 10.00 0.02 0.63 -- -- (0.03) 10.62 9.88* 12,427
- -----------------------------------------
INTERNATIONAL FIXED INCOME FUND
- -----------------------------------------
1995** $ 10.52 $ 0.39 $ 0.55 $ (0.04) $ -- $ -- $ 11.42 8.96% $ 45,242
1995 10.75 0.62 (0.48) (0.13) (0.24) -- 10.52 1.50 45,657
1994 10.76 0.65 0.46 (0.90) (0.22) -- 10.75 10.24 46,888
1993 10.21 0.52 0.47 (0.30) (0.14) -- 10.76 9.55 38,257
1992(3) 10.00 0.31 0.26 -- (0.06) (0.30) 10.21 8.92* 27,744
</TABLE>
RATIO OF RATIO OF NET
RATIO OF RATIO OF AVERAGE NET AVERAGE NET
EXPENSES TO NET INCOME ASSETS ASSETS PORTFOLIO
AVERAGE NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
------------- ----------- ------------- ------------- -----------
- ---------
MUNICIPAL
- ---------
1995** 0.92%* 4.51%* 0.92%* 4.51%* 32.60%
1995 0.75 4.75 0.93 4.57 60.86
1994 0.69 4.66 0.96 4.39 80.70
1993 1.01 4.80 1.30 4.49 144.89
1992 0.75 5.81 1.31 5.25 114.78
1991 0.32 6.33 1.40 5.25 30.21
1990(7) 0.39* 5.85* 1.56* 4.68* 0.00
- ---------
NEW JERSE
- ---------
1995** 0.88%* 4.51%* 0.88%* 4.51%* 18.47%
1995 0.79 4.71 0.87 4.63 28.43
1994 0.38 4.75 0.86 4.27 12.05
1993 0.48 5.04 1.04 4.48 16.09
1992(3) 0.52* 5.35* 1.29* 4.58* 0.00
- ---------
PENNSYLVA
- ---------
1995** 1.00%* 4.48%* 1.00%* 4.48%* 50.34%
1995 0.65 4.63 1.01 4.27 48.91
1994(8) 0.22* 4.27* 0.85* 3.64* 30.68
- ---------
INTERNATI
- ---------
1995** 1.41%* 1.37%* 1.41%* 1.37%* 34.74%
1995 1.46 0.07 1.46 0.07 47.68
1994 1.59 0.11 1.59 0.11 51.30
1993 1.63 0.91 1.63 0.91 80.72
1992(3) 1.56* 0.25* 1.61* 0.20* 22.26
- ---------
INTERNATI
- ---------
1995** 1.18%* 5.75%* 1.18%* 5.75%* 58.50%
1995 1.24 5.96 1.24 5.96 130.64
1994 1.38 6.00 1.38 6.00 128.14
1993 1.30 6.31 1.30 6.31 115.25
1992(3) 1.33* 6.79* 1.37* 6.75* 110.13
EXPENSES TO INCOME TO
- ------------------
* Annualized.
** For the 6 months ended August 31, 1995.
(1) Commenced operations on March 1, 1988.
(2) Commenced operations on March 24, 1988.
(3) Commenced operations on July 1, 1991.
(4) Commenced operations on August 15, 1991.
The accompanying notes are an integral part of the financial statements.
49
(5) Commenced operations on May 31, 1989.
(6) Commenced operations on July 1, 1994.
(7) Commenced operations on December 1, 1989.
(8) Commenced operations on August 31, 1993.
The accompanying notes are an integral part of the financial statements.
50
NOTES TO FINANICAL STATEMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
1. ORGANIZATION:
The Compass Capital Group (the 'Group') was organized on October
1, 1987, and is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management
investment company established as a Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares
which are units of beneficial interest without par value. The
Group presently offers shares of the Cash Reserve Fund, U.S.
Treasury Fund, Municipal Money Fund, New Jersey Municipal Money
Fund, Pennsylvania Municipal Money Fund, Equity Income Fund,
Growth Fund, Small Company Fund (formerly Small Cap Value),
Balanced Fund, Short/Intermediate Fund, Fixed Income Fund,
Municipal Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania
Municipal Bond Fund, International Equity Fund and International
Fixed Income Fund (referred to as a 'Fund' or collectively as the
'Funds'). Sales of shares of the Group may be made to customers
of Midlantic Bank N.A. ('Midlantic'), and to the general public.
Effective August 27, 1994, Midlantic National Bank, the
investment adviser to the Group, merged with Continental Bank and
changed its name to Midlantic Bank, N.A.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies
followed by the Group in the preparation of its financial
statements. The policies are in conformity with generally
accepted accounting principles.
Securities Valuation -- Investments in equity securities which
are traded on a national securities exchange (or reported on the
NASDAQ national market system) are stated at the last quoted
sales price if readily available for such equity securities on
each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no
sale was reported on that date are stated at the last quoted bid
price. Option contracts are valued at the last quoted bid price
quoted on the primary exchange or board of trade which such
option contracts are stated. Debt obligations exceeding sixty
days to maturity for which market quotations are readily
available are valued at the most recently quoted bid price.
Foreign securities in the International Equity Fund and
International Fixed Income Fund (the 'International Funds') are
valued based upon quotations from the primary market in which
they are traded. Debt obligations with sixty days or less
remaining until maturity may be valued at their amortized cost.
Restricted and illiquid securities for which quotations are not
readily available are valued at fair value using methods
determined in good faith as approved by the Board of Trustees.
Security Transactions and Related Income -- Security transactions
are accounted on the date the security is purchased or sold
(trade date). Interest income is recognized on the accrual basis.
Continued
50
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
Dividend income is recorded on the ex-dividend date. Gains or
losses realized on sales of securities are determined by
comparing the identified cost of the security lot sold with the
net sales proceeds. Market discounts and premiums are not
amortized for financial reporting and Federal income tax purposes
in the taxable variable net asset value funds. Market premiums
and original issue discounts are amortized for financial
reporting and Federal income tax purposes in the Municipal Bond
Fund, New Jersey Municipal Bond Fund, and Pennsylvania Municipal
Bond Fund.
Repurchase Agreements -- The Group may enter into repurchase
agreements with member banks of the Federal Deposit Insurance
Corporation ('FDIC') with capital, surplus and undivided profits
in excess of $100,000,000 (as of the date of their most recently
published financial statements) and from registered
broker/dealers whom Midlantic deems creditworthy under guidelines
approved by the Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon
date and price. The repurchase price generally equals the price
paid by the Group plus interest negotiated on the basis of
current short-term rates.
Securities pledged as collateral for repurchase agreements are
held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the
market value of the collateral, including accrued interest
thereon, is sufficient in the event of default of the
counterparty.
The Group may also invest in tri-party repurchase agreements.
Securities held as collateral for tri-party repurchase agreements
are maintained in a segregated account by the broker's custodian
bank until maturity of the repurchase agreement.
If the counterparty defaults and the value of the collateral
declines or if the counterparty enters an insolvency proceeding,
realization of the collateral by the Funds may be delayed or
limited.
Distributions to Shareholders -- Distributions from net
investment income are declared daily and paid monthly for the
money market funds. Distributions from net investment income are
declared and paid monthly for the variable net asset value funds,
excluding the Small Company Fund which is paid quarterly and the
International Funds which are paid twice annually. Any net
realized capital gains are declared and distributed to
shareholders at least annually.
Differences between undistributed net investment income or
accumulated net capital gains for financial reporting and tax
purposes, if permanent, are required to be reclassified to/from
paid in capital.
Federal Income Taxes -- It is the intention of the Group to
continue to qualify as a regulated investment company for Federal
income tax purposes and distribute all of its taxable income and
net capital gains. Accordingly, no provision for Federal income
taxes is required.
Continued
51
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
Foreign Currency Translation -- The books and records of the
International Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the
following basis:
(I) market value of investment securities, assets and
liabilities at the current rate of exchange; and
(II) purchases and sales of investment securities, income and
expenses at the relevant rates of exchange prevailing on the
respective dates of such transactions.
The International Funds do not isolate that portion of gains and
losses on investment securities which is due to changes in the
foreign exchange rates from that which is due to changes in
market prices of such securities.
The International Funds report certain foreign currency related
transactions as components of realized and unrealized gains for
financial reporting purposes, whereas such components are treated
as ordinary income for Federal income tax purposes.
Forward Foreign Currency Contracts -- The International Funds
enter into forward foreign currency contracts as a hedge against
either specific transactions or portfolio positions. These
contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded as
unrealized until the contract settlement date. Such contracts,
which protect the value of a Fund's investment securities against
a decline in the value of currency, do not eliminate fluctuations
in the underlying prices of the securities. They simply establish
an exchange rate at a future date. Also, although such contracts
tend to minimize the risk of loss due to a decline in the value
of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such
foreign currency increase.
The aggregate principal amounts of the contracts are not recorded
as the Funds intend to settle the contracts prior to delivery.
Other -- Expenses that are directly related to one of the Funds
are charged directly to that Fund. Other operating expenses of
the Group are prorated to the Funds on the basis of relative net
assets.
Continued
52
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term and U.S.
Government securities) for the six month period ended August 31,
1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
----------- ----------
<S> <C> <C>
Equity Income Fund.................................................................... $ 103,452 $ 106,584
Growth Fund........................................................................... 49,938 44,529
Small Company Fund.................................................................... 24,818 30,612
Balanced Fund......................................................................... 6,400 2,315
Short/Intermediate Fund............................................................... 27,816 27,785
Fixed Income Fund..................................................................... 28,383 20,250
Municipal Bond Fund................................................................... 11,579 8,986
New Jersey Municipal Bond Fund........................................................ 17,082 18,687
Pennsylvania Municipal Bond Fund...................................................... 8,575 9,373
International Equity Fund............................................................. 19,223 12,741
International Fixed Income Fund....................................................... 23,804 27,966
Purchases and sales of U.S. Government securities were:
</TABLE>
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
----------- ----------
<S> <C> <C>
Balanced Fund......................................................................... $ 2,424 $ 934
Short/Intermediate Fund............................................................... 18,463 26,172
Fixed Income Fund..................................................................... 29,755 33,267
</TABLE>
4. RELATED PARTY TRANSACTIONS:
SEI Financial Management Corporation (the 'Administrator') serves
the Group as Administrator. Under the terms of the administration
agreement between the Group and the Administrator, the
Administrator earns an annual fee of .18% of the daily net assets
of the Funds. SEI Financial Services Company (the 'Distributor')
serves the Group as Distributor pursuant to a distribution
agreement between the Group and the Distributor. The Distributor
receives no fee for its services.
Investment advisory services are provided to the Group by
Midlantic. Under the terms of the investment advisory agreement,
Midlantic is entitled to receive fees based on a percentage of
the average net assets of the Funds. The advisory fee is equal to
.35% of the average daily net assets of the Cash Reserve Fund and
U.S. Treasury Fund; .40% of the Municipal Money Fund, New Jersey
Municipal Money Fund and Pennsylvania Municipal Money Fund; .60%
of the Short/Intermediate Fund, Fixed Income Fund, Municipal Bond
Fund, New Jersey Municipal Bond Fund and Pennsylvania Municipal
Bond Fund; .70% of the Growth Fund, Equity Income Fund and
Balanced Fund; .80% of the International Fixed Income Fund; and
.90% of the Small Company Fund and International Equity Fund.
Continued
53
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
Wall Street Associates, Morgan Grenfell Investment Services
Limited and Seligman Henderson Co. serve as subadvisors for the
Small Company Fund, International Fixed Income Fund and
International Equity Fund, respectively pursuant to subadvisory
agreements with Midlantic. Wellington Management Company
('Wellington') serves as subadvisor to the Equity Income Fund and
Growth Fund pursuant to a subadvisory agreement among Midlantic,
Wellington and the Group.
5. INVESTMENT TRANSACTIONS:
At August 31, 1995 the total cost of securities and the net
realized gains or losses on securities sold for Federal income
tax purposes was not materially different from amounts reported
for financial reporting purposes. The aggregate unrealized
appreciation and depreciation information at August 31, 1995 for
each variable net asset value fund is as follows:
<TABLE>
<CAPTION>
EQUITY SMALL SHORT/ FIXED
INCOME GROWTH COMPANY BALANCED INTERMEDIATE INCOME
(000) (000) (000) (000) (000) (000)
--------- --------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation......................... $ 57,974 $ 29,549 $ 2,653 $ 2,567 $ 2,660 $ 8,150
Aggregate gross unrealized
depreciation......................... (5,216) (2,635) (462) (160) (1,553) (1,604)
--------- --------- ----------- ----------- ------- -----------
Net unrealized appreciation............ $ 52,758 $ 26,914 $ 2,191 $ 2,407 $ 1,107 $ 6,546
--------- --------- ----------- ----------- ------- -----------
--------- --------- ----------- ----------- ------- -----------
<CAPTION>
NEW JERSEY PENNSYLVANIA INTERNATIONAL INTERNATIONAL
MUNICIPAL MUNICIPAL BOND MUNICIPAL BOND EQUITY FIXED INCOME
BOND (000) (000) (000) (000) (000)
------------- ----------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation............... $ 474 $ 1,835 $ 117 $ 4,959 1,947
Aggregate gross unrealized
depreciation............... (165) (1,135) (190) (1,210) (281)
------ -------- ------ -------------- -------
Net unrealized appreciation/
(depreciation)............. $ 309 $ 700 $ (73) $ 3,749 $ 1,666
------ -------- ------ -------------- -------
------ -------- ------ -------------- -------
</TABLE>
6. RECENT AND SUBSEQUENT EVENTS:
On July 10, 1995, Midlantic Corporation, the parent corporation
of the investment adviser of the Group, entered into a merger
agreement with PNC Banc Corp. As a result, the Trustees of the
Group will call a special meeting of the shareholders to vote on
the following proposal: Shareholders of the Group will vote to
approve or disapprove an asset purchase agreement which provides
for (A) the transfer of assets and liabilities of the Group's
investment portfolios to corresponding portfolios of The PNC Fund
(the 'Compass Transaction') and (B) the approval of interim
investment advisory and sub-advisory agreements for the Group's
investment portfolios if the merger of Midlantic Corporation and
Continued
54
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
PNC Banc Corp. occurs before the closing of the Compass
Transaction. Detailed information about the proposed transaction
will be described in the Proxy Statement mailed to the
Shareholders.
7. FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT AUGUST 31, 1995
<TABLE>
<CAPTION>
CONTRACTS TO UNREALIZED
DELIVER/ APPRECIATION/
MATURITY DATES RECEIVE IN EXCHANGE FOR (DEPRECIATION)
------------------- -------------------- ----------------- ----------------
INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C>
Foreign Currency Sale......... 11/10/95 JY 614,312,000 $ 6,800,000 $ 447,723
----------------- ----------------
----------------- ----------------
INTERNATIONAL FIXED INCOME FUND
Foreign Currency Sales........ 09/08/95-11/17/95 FF 21,900,000 $ 4,439,940 $ 98,331
09/21/95-11/29/95 DK 19,920,000 3,555,673 55,634
10/13/95-11/20/95 DM 23,360,000 16,382,762 411,318
10/13/95-11/13/95 JY 788,250,000 8,878,225 735,175
11/14/95 NZ 2,100,000 1,369,673 13,913
11/16/95 UK 2,510,000 3,913,090 47,976
11/17/95 CA 2,300,000 1,686,835 (24,372)
11/17/95 SK 5,000,000 684,463 3,480
----------------- ----------------
$ 40,910,661 $ 1,341,455
----------------- ----------------
----------------- ----------------
</TABLE>
CURRENCY LEGEND
CA Canadian Dollar
DK Danish Kroner
DM German Marks
FF French Francs
JY Japanese Yen
NZ New Zealand Dollar
SK Swedish Krona
UK British Pounds Sterling
At August 31, 1995, the International Fixed Income Fund had
unrealized gains on closed but unsettled foward foreign currency
contracts of $31,987 scheduled to settle on September 18, 1995.
55
NOTES
