<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Compass Capital Funds
-------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE>
COMPASS CAPITAL FUNDS/SM/
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
November 29, 1996
To the Shareholders of the
Compass International Bond Portfolio
A Special Meeting of Shareholders of the International Bond Portfolio (the
"Portfolio") of Compass Capital Funds (the "Fund") will be held on December 19,
1996 at 10:00 a.m. (local time) at the Bellevue Park Corporate Center, 400
Bellevue Parkway, Wilmington, Delaware 19809 for the following purposes:
(1) To consider and vote on a new sub-advisory agreement for the
Portfolio with BlackRock Financial Management, Inc. ("BlackRock"); and
(2) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The proposal referred to above is discussed in the Proxy Statement attached
to this Notice. Each shareholder is invited to attend the Special Meeting of
Shareholders in person. Shareholders of record at the close of business on
November 19, 1996 have the right to vote at the meeting. If you cannot be
present at the meeting, we urge you to complete and promptly return the enclosed
proxy in order that the meeting may be held and a maximum number of shares may
be voted.
MORGAN R. JONES
Secretary
<PAGE>
COMPASS CAPITAL FUNDS/SM/
400 BELLEVUE PARKWAY
SUITE 100
WILMINGTON, DELAWARE 19809
PROXY STATEMENT
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE BOARD OF TRUSTEES OF COMPASS CAPITAL FUNDS (THE "FUND") FOR USE
AT A SPECIAL MEETING OF SHAREHOLDERS OF THE INTERNATIONAL BOND PORTFOLIO (THE
"PORTFOLIO") TO BE HELD AT THE BELLEVUE PARK CORPORATE CENTER, 400 BELLEVUE
PARKWAY, WILMINGTON, DELAWARE 19809 ON DECEMBER 19, 1996 AT 10:00 A.M. (LOCAL
TIME). AS USED IN THIS PROXY STATEMENT, THE MEETING AND ANY ADJOURNMENT THEREOF
IS REFERRED TO AS THE "MEETING."
It is expected that the solicitation of proxies will be primarily by mail.
The Fund's officers and service contractors may also solicit proxies by
telephone, facsimile or personal interview. The Portfolio will bear all proxy
solicitation costs. Any shareholder giving a proxy may revoke it at any time
before it is exercised by submitting to the Fund a written notice of revocation
or a subsequently executed proxy, or by attending the Meeting and voting in
person. This Proxy Statement and the enclosed form of proxy are expected to be
distributed to shareholders on or about December 6, 1996.
A proxy is enclosed with this Proxy Statement. If the proxy is executed
properly and returned, the shares represented by it will be voted at the Meeting
in accordance with the instructions thereon. Each full share is entitled to one
vote and each fractional share to a proportionate fractional vote. If you do
not expect to be present at the Meeting and wish your shares to be voted, please
complete the enclosed proxy and mail it in the enclosed reply envelope.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE NEW SUB-ADVISORY AGREEMENT DESCRIBED IN THIS PROXY STATEMENT.
INTRODUCTION
As part of the ongoing restructuring and expansion of its asset management
business, PNC Bank Corp. ("PNC"), the parent corporation of the Fund's
investment adviser, has substantially enhanced its resources in connection with
the management of international fixed income investments.
BlackRock Financial Management, Inc. ("BlackRock"), PNC Bank's proprietary
fixed income manager and the domestic fixed income sub-adviser for the Fund, has
been managing international fixed income securities, primarily in the form of
Canadian dollar denominated portfolios, since 1991. Over the past 12 months,
BlackRock has
<PAGE>
broadened its international fixed income management capabilities to include all
of the countries contained within the Salomon Non-Dollar World Government Bond
Index which includes Europe, Continental Asia, South America, Africa and the
Pacific Rim.
In January 1996, Andrew Gordon joined BlackRock as a Principal and
Portfolio Manager to serve as the lead sector specialist in non-dollar bonds.
Mr. Gordon spent eight years with CS First Boston, pioneering the firm's Non-
Dollar Bond Fixed Income Research effort and brings over 13 years of non-dollar
investment expertise to BlackRock.
In addition to approximately $500 million invested in Canadian dollar
denominated securities, BlackRock also manages a newly formed portfolio, shares
of which are offered through private placement to a limited number of
sophisticated investors. The portfolio invests in a combination of domestic and
non-dollar fixed income securities.
BlackRock's investment philosophy and risk management strategy with respect
to international fixed income investing were key factors in the decision of Fund
management to recommend the appointment of BlackRock as the sub-adviser to the
Portfolio. BlackRock's investment philosophy and process for non-dollar bonds
is consistent with its existing investment process for the domestic bond
portfolios of the Fund. BlackRock's investment strategy emphasizes controlled
duration, sector rotation and relative value approach. BlackRock seeks to add
value through limited market overweights/underweights relative to benchmark and
security selection within markets.
BlackRock has developed a risk management approach for managing non-dollar
fixed income investments which is consistent with its risk management philosophy
for the Fund's domestic fixed income portfolios. As part of its risk management
strategy and process, BlackRock analyzes on a daily basis the interest rate
risk, yield curve risk, credit risk and sector allocations of the Fund's bond
portfolios relative to their benchmarks. BlackRock uses this information to
more effectively manage the volatility of the bond portfolios relative to their
benchmarks. In addition, an emphasis on diversification, ongoing credit
analysis and foreign currency hedging are important to BlackRock's risk
management process.
Another key factor considered by Fund management in recommending the
appointment of BlackRock as sub-adviser to the Portfolio is the internal control
of portfolio management style. Maintaining the highest possible integrity in
the portfolio management process is paramount to the Portfolio's investment
adviser, PNC Asset Management Group, Inc. ("PAMG"). The proprietary affiliation
of the PAMG sub-advisers provides the capability to maintain greater internal
control of the portfolio
-2-
<PAGE>
management process and will afford PAMG immediate access to information.
In addition, an integral part of the portfolio management process is
related to the overall business and market strategy of PAMG in serving the
Fund's shareholders. Each of the money managers within PNC contributes to the
overall strategy. BlackRock, as a subsidiary of PAMG, is an integral part of
the investment and strategic planning sessions within PAMG as it relates to
domestic and international fixed income securities.
At a meeting held on November 19, 1996 the Board of Trustees of the Fund
considered the foregoing matters and approved a new sub-advisory agreement (the
"New Agreement") for the Portfolio between PAMG and BlackRock. A copy of the
New Agreement, which is subject to shareholder approval at the Meeting, is
attached to this Proxy Statement as Exhibit A. The New Agreement is
substantially similar to the Portfolio's current sub-advisory agreement, except
for the identity of the new sub-adviser and the commencement and termination
dates. The description of the New Agreement that follows is qualified in its
entirety by Exhibit A.
If the New Agreement is approved by shareholders at the Meeting, PAMG will
continue to serve as the Portfolio's investment adviser under its existing
investment advisory agreement dated January 4, 1996, and BlackRock will replace
Morgan Grenfell Investment Services Limited ("Morgan Grenfell") as the
Portfolio's sub-adviser. As discussed below under "Information About the New
Agreement -- Description of Terms and Fees," PAMG has undertaken to waive
certain advisory fees payable by the Portfolio for the remainder of the current
fiscal year and for the fiscal year ending September 30, 1998 if the New
Agreement is approved by the Portfolio's shareholders. Morgan Grenfell
currently serves as the Portfolio's sub-adviser under a sub-advisory agreement
dated January 10, 1996 (the "Current Agreement").
INFORMATION ABOUT THE NEW AGREEMENT
DESCRIPTION OF TERMS AND FEES. The terms and conditions of, and the fees
payable under, the New Agreement with BlackRock are substantially similar to
those of the Current Agreement with Morgan Grenfell, except for the commencement
and termination dates and the contracting parties.
As investment adviser, PAMG has agreed, subject to the general supervision
of the Fund's Board of Trustees and in accordance with the Portfolio's
investment objective and policies, either directly or through a sub-adviser, to
manage the Portfolio's assets, and to provide investment research and to be
responsible for, make decisions with respect to and place orders for all
purchases and sales of portfolio securities.
-3-
<PAGE>
The New Agreement provides that BlackRock will supervise the day-to-day
operations of the Portfolio, subject to the oversight and supervision of PAMG
and the Fund's Board of Trustees. Pursuant to the New Agreement, BlackRock
will: (i) provide investment research and credit analysis concerning the
Portfolio's investments, (ii) conduct a continual program of investment for the
Portfolio's assets, (iii) determine what securities and other investments will
be purchased, retained or sold by the Portfolio, (iv) place orders for all
purchases and sales of the investments made for the Portfolio, and (v) maintain
the books and records as are required to support the Portfolio's operations (in
conjunction with record-keeping and accounting functions performed by PAMG as
investment adviser).
The contractual advisory fees payable by the Portfolio to PAMG, and the
contractual sub-advisory fees payable by PAMG, will not change as a result of
the approval of the New Agreement. The following chart sets forth annual
advisory and sub-advisory fee rates of PAMG and the Sub-Adviser for their
services to the Portfolio. THE SUB-ADVISORY FEES PAYABLE BY PAMG TO THE SUB-
ADVISER ARE THE RESPONSIBILITY OF PAMG, AND DO NOT REPRESENT AN ADDITIONAL
CHARGE TO THE PORTFOLIO.
MAXIMUM ANNUAL CONTRACTUAL FEE RATES
(COMPUTED DAILY AND PAYABLE MONTHLY
-----------------------------------
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
--------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE SUB-ADVISORY 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>
PAMG has voluntarily undertaken to waive advisory fees at the annual
rate of .05% of the Portfolio's average daily net assets for the remainder of
the current fiscal year and for the fiscal year ending September 30, 1998 if the
New Agreement is approved by the Portfolio's shareholders. The effect of this
waiver would decrease the advisory fee payable by the Portfolio to .50% for
those periods.
The aggregate investment advisory and sub-advisory fees paid for the
fiscal periods ended January 31, 1996 and September 30, 1996 and the
corresponding percentages of average daily net assets which the paid fees
represent are set forth below.
-4-
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE RATE OF
ADVISORY/SUB-ADVISORY ADVISORY/SUB-ADVISORY
FEES FEES
(NET OF WAIVERS) (NET OF WAIVERS)
----------------------- ----------------------
Advisory Sub-Advisory Advisory Sub-Advisory
Fees Fees Fees Fees
-------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Fiscal Period 3/1/95-1/31/96* $330,008 $165,004 .80% .40%
Fiscal Period 2/1/96-9/30/96* $133,798 $ 98,969 .55% .40%
</TABLE>
* Prior to February 13, 1996 (the "Portfolio Reorganization Date"), the
Portfolio operated as the International Fixed Income Fund of The Compass
Capital Group of Funds (the "Predecessor International Bond Portfolio").
Prior to that date, the Predecessor International Bond Portfolio received
advisory services from Midlantic Bank, N.A. until the merger of Midlantic
Corporation with PNC Bank Corp. on December 31, 1995, and thereafter from
PAMG for a fee payable at the annual rate of .80% of the average daily net
assets of the Predecessor International Bond Portfolio. Prior to the
Portfolio Reorganization Date, Morgan Grenfell was entitled to receive sub-
advisory fees at the maximum annual rate of .40% of the average daily net
assets of the Predecessor International Bond Portfolio. The table reflects
the advisory and sub-advisory fees paid with respect to the Predecessor
International Bond Portfolio for the periods presented prior to the
Portfolio Reorganization Date.
___________________________
The New Agreement provides that the Sub-Adviser will pay all expenses
incurred by it in connection with its activities under the agreement other than
the cost of securities, commodities and other investments, and brokerage
commissions and other transaction charges. The New Agreement also provides that
the Sub-Adviser will not be liable for any error of judgment or mistake of law
or for any loss suffered by the Portfolio in connection with the performance of
the agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Sub-
Adviser in the performance of its duties or from reckless disregard by it of its
obligations or duties under the agreement.
Under the New Agreement, in placing orders with brokers and dealers, the
Sub-Adviser will attempt to obtain prompt execution of orders at the most
favorable price. Consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the Sub-Adviser may,
in its discretion, purchase and sell portfolio securities to and from brokers
and dealers that provide research advice and other
-5-
<PAGE>
services. These brokerage and research services might consist of reports and
statistics on specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews of
the securities markets and the economy. Commissions paid to brokers or dealers
providing these services may be higher than those which other qualified brokers
or dealers would charge for effecting the same transactions, provided that PAMG
and the Sub-Adviser determine in good faith that such commissions are reasonable
in terms of either the transactions or their overall responsibility to the
Portfolio and to their other clients and that the total commissions paid by the
Portfolio are reasonable in relation to the long-term benefits to the Portfolio.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by PAMG and the Sub-Adviser, and
does not reduce the advisory fees payable to PAMG by the Portfolio. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other accounts
for which PAMG or the Sub-Adviser exercises investment discretion. Conversely,
the Portfolio may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such other accounts
or investment companies.
Investment decisions for the Portfolio and for other investment accounts
managed by PAMG and the Sub-Adviser will be made independently of each other in
light of differing conditions. However, the same investment decision may be
made for two or more of such accounts. In such cases, simultaneous transactions
are inevitable. Purchases or sales are then allocated in a manner believed by
PAMG or the Sub-Adviser to be equitable to each such account. While in some
cases this practice could have a detrimental effect on the price or value of the
security as far as the Portfolio is concerned, in other cases it may be
beneficial to the Portfolio. To the extent permitted by law, the Sub-Adviser
may aggregate the securities to be sold or purchased for the Portfolio with
those to be sold or purchased for other investment companies or accounts in
executing transactions. Portfolio securities will not be purchased from or sold
to PAMG, the Sub-Adviser, or any affiliated person except as permitted by the
1940 Act.
If approved by the shareholders, it is expected that the New Agreement will
become effective for the Portfolio on January 1, 1997, or as soon as practicable
thereafter, and will continue in effect until March 31, 1998. Thereafter, the
New Agreement would continue in effect for successive annual periods, provided
that its continuance is approved at least annually (i) by the vote of a majority
of those members of the Board of Trustees who are not "interested persons" (as
that term is defined in the 1940 Act) of any party to the New Agreement cast in
person at a meeting called for the purpose of voting on such approval and (ii)
by the Board of
-6-
<PAGE>
Trustees or by vote of a majority of the outstanding shares of the Portfolio.
The New Agreement provides that it will terminate automatically in the
event of its assignment. The New Agreement also provides that it is terminable,
without penalty, by the Fund (by vote of the Board of Trustees of the Fund or by
vote of a majority of the outstanding shares of the Portfolio) or by PAMG or the
Sub-Adviser on 60 days' written notice. The New Agreement provides that it will
terminate automatically upon any termination of the investment advisory
agreement between the Fund and PAMG.
EVALUATION BY THE FUND'S TRUSTEES. The Trustees of the Fund approved the
New Agreement at a meeting held on November 19, 1996. The New Agreement was
proposed in connection with the ongoing restructuring and expansion of PNC's
asset management business. The Trustees considered the terms of the New
Agreement, which are substantially similar to those of the Current Agreement.
In addition, the Trustees considered BlackRock's capabilities and resources, and
the experience of Mr. Gordon and other portfolio personnel in international
fixed income management. The Board also considered the fact that, unlike the
Portfolio's current sub-adviser, BlackRock is affiliated with PAMG, the
Portfolio's investment adviser, and that BlackRock is currently the sub-adviser
for each of the Fund's other long-term fixed income portfolios. In this regard
the Board of Trustees considered and accepted PAMG's and BlackRock's belief that
the interests of the Portfolio and its shareholders would be served by a new
investment management style that would be similar to the style used by
BlackRock for the Fund's other long-term fixed income portfolios and that this
investment style could be best executed for the Portfolio by BlackRock. The
Board of Trustees also considered other potential benefits from the retention of
BlackRock, including facilitation of an integrated investment approach for all
of the Fund's long-term fixed income portfolios, the promotion of timely access
to investment information and efficient trading execution by the portfolio
traders that provide sub-advisory services for the Fund, the improvement of
internal sub-advisory controls and the improvement of effective and coordinated
communications to shareholders and potential investors. The Board considered
each of these factors to be of material importance in connection with its
recommendation of the New Agreement. The Trustees also considered the types of
accounts that were invested in the Portfolio, the fees that would be payable to
BlackRock under the New Agreement and PAMG's and BlackRock's commitment to the
Portfolio and international fixed income investing. The Trustees also
considered the undertaking of PAMG to waive advisory fees payable by the
Portfolio for the remainder of the current fiscal year and for the fiscal year
ending September 30, 1998 if the New Agreement is approved by the Portfolio's
shareholders. Based on their consideration, analysis and evaluation of the
above factors and other information deemed by them to be relevant, the Board
concluded that the approval of the
-7-
<PAGE>
New Agreement would be in the best interests of the Portfolio and its
shareholders.
VOTING PROCEDURES. The approval of the New Agreement requires the
affirmative vote of the holders of a "majority of the outstanding shares" of the
Portfolio (as defined by the 1940 Act), which means the lesser of (a) the
holders of 67% or more of the shares of the Portfolio present at the Meeting if
the holders of more than 50% of the outstanding shares of the Portfolio are
present in person or by proxy or (b) more than 50% of the outstanding shares of
the Portfolio.
If the New Agreement is approved, the Portfolio's Current Agreement will be
terminated. If the New Agreement is not approved by the shareholders, the
Current Agreement will continue in effect for the Portfolio.
THE FUND'S BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
NEW AGREEMENT.
VOTING INFORMATION
RECORD DATE. Only shareholders of record at the close of business on
November 19, 1996 will be entitled to vote at the Meeting. On that date
3,433,546.657 shares of the Portfolio were outstanding.
QUORUM. A quorum is constituted by the presence in person or by proxy of
the holders of more than 50% of the outstanding shares of the Portfolio entitled
to vote at the Meeting. For purposes of determining the presence of a quorum
for transacting business at the Meeting, abstentions, but not broker "non-votes"
(that is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares on a particular matter with respect to which the brokers or nominees
do not have discretionary power), will be treated as shares that are present at
the Meeting but which have not been voted. Abstentions and broker "non-votes"
will have the effect of a "no" vote for purposes of obtaining the requisite
approval of the New Agreement.
In the event that a quorum is not present at the Meeting, or in the event
that a quorum is present at the Meeting but sufficient votes to approve the
proposal are not received, the persons named as proxies, or their substitutes,
may propose one or more adjournments of the Meeting to permit the further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares affected by the adjournment that are represented
and voting at the Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to vote
FOR a proposal in favor of
-8-
<PAGE>
such adjournments, and will vote those proxies required to be voted AGAINST a
proposal against any adjournment.
OTHER SHAREHOLDER INFORMATION. At the record date for the Meeting,
affiliates of PNC or their nominees held of record substantially all of the
outstanding shares of the Portfolio as agent or custodian for their customers.
At that date the name, address and share ownership of each person who may have
possessed sole or shared voting or investment power with respect to more than 5%
of the outstanding shares of the Portfolio's respective share classes were as
follows:
<TABLE>
<CAPTION>
PERCENTAGE
CLASS AND AMOUNT PERCENTAGE OF PORTFOLIO
OF OF CLASS SHARES
NAME AND ADDRESS SHARES OWNED OWNED OWNED
- ---------------- ------------ ----- -----
<S> <C> <C> <C>
Saxon & Co. 2,565,740.456 94.4% 74.4%
PNC Bank Institutional Shares
200 Stevens Drive
Suite 260
Income Collections
Lester, PA 19113
Saxon & Co. 565,467.888 82.8% 16.5%
PNC Bank Service Shares
200 Stevens Drive
Suite 260
Income Collections
Lester, PA 19113
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more than 25 percent of the voting securities
of a company is presumed to "control" such company. Under this definition, PNC
and its affiliates may be deemed to be controlling persons of the Portfolio and
the Fund. The Fund has been advised by PNC that, subject to its fiduciary
responsibilities, it intends to vote the Shares over which it has voting power
FOR and AGAINST the proposal discussed in this Proxy Statement in the same
proportions as the total votes that are cast FOR and AGAINST the proposal by
other, unaffiliated persons.
ADDITIONAL INFORMATION
BLACKROCK. BlackRock's principal offices are located at 345 Park
Avenue, New York, New York 10154.
BlackRock is registered as an investment adviser under the Investment
Advisers Act of 1940. BlackRock is a wholly-owned subsidiary of PAMG. All of
the capital stock of PAMG, which is located at 1600 Market Street, 29th Floor,
Philadelphia, Pennsylvania 19103, is owned by PNC Bank. All of the capital
stock of PNC Bank, which has principal offices at Broad and Chestnut
-9-
<PAGE>
Streets, Philadelphia, Pennsylvania 19101, is owned by PNC Bancorp, Inc. All of
the capital stock of PNC Bancorp, Inc., which is located at 3411 Silverside
Road, Wilmington, Delaware 19810, is owned by PNC Bank Corp. At November 27,
1996 Cede & Company (the nominee of Depository Trust Company) owned the
following securities issued by PNC Bank Corp.: 242,174,586 shares (72.93%) of
Common Stock; 3,410 shares (20.67%) of Cumulative Convertible Preferred Series A
Stock; 1281 shares (27.26%) of Cumulative Convertible Preferred Series B Stock;
46,716 shares (14.15%) of Cumulative Convertible Preferred Series C Stock; and
104,311 shares (23.35%) of Convertible Preferred Series D Stock. The address of
Cede & Company is P.O. Box 20, Bowling Green Station, New York, New York 10004.
To the Fund's knowledge, no other persons owned beneficially or of record 10% or
more of any class of issued and outstanding voting securities of PNC Bank Corp.
at November 27, 1996.
The name and principal occupation of the principal executive officers
and each director of BlackRock as of November 27, 1996 were as follows:
Laurence D. Fink, Chairman and Chief Executive Officer; Ralph L. Schlosstein,
President; and Richard C. Caldwell, Executive Vice President of PNC Bank Corp.
All of the above may be reached c/o BlackRock, 345 Park Avenue, New York, New
York 19154.
PAYMENTS TO AFFILIATES. PNC Bank, National Association ("PNC Bank")
serves as the custodian of the Fund's assets. The Fund pays PNC Bank, with
respect to the Portfolio, an annual fee for its custodial services equal to $.25
for each $1,000 of average gross assets for the first $50 million of the
Portfolio's average gross assets, $.20 for each $1,000 of average gross assets
for the next $50 million of the Portfolio's average gross assets, and $.15 per
each $1,000 of the average gross assets of the Portfolio in excess of $100
million.
Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and Compass
Distributors, Inc. ("CDI") serve as co-administrators to the Fund. CCG and PFPC
are affiliated with PAMG and the Sub-Adviser. CCG's offices are located at 345
Park Avenue, New York, New York 10154. PFPC's offices are located at 400
Bellevue Parkway, Wilmington, DE 19809. CDI, which also serves as the Fund's
distributor, maintains its offices at 259 Radnor-Chester Road, Suite 120,
Radnor, Pennsylvania 19087. CCG 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. PFPC and CDI are entitled to receive a combined fee, computed daily
and payable monthly, at the following annual rates: .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.
-10-
<PAGE>
PFPC also serves as the Fund's transfer agent, registrar and dividend
disbursing agent. For its services as transfer agent, PFPC receives fees with
respect to the Portfolio based upon the number of shareholder accounts
maintained by PFPC, the average net assets allocable to the Portfolio's Service
and Institutional Shares and out-of-pocket expenses. Specifically, PFPC
receives fees at the annual rate of .03% of the average daily net asset value of
the Portfolio's outstanding Service and Institutional Shares, plus account fees
and disbursements. With respect to the Portfolio's Investor Shares, PFPC
receives per account fees, with minimum annual fees of $24,000 for the
Portfolio, plus disbursements.
Affiliates of PAMG and the Sub-Adviser are also entitled to receive
fees ("Plan Fees") under the Fund's Amended and Restated Distribution and
Service Plan with respect to the Portfolio's Service, Investor A, Investor B and
Investor C Share classes at maximum annual rates of .30%, .50%, 1.15% and 1.15%
of the average daily net asset value of the Shares of the respective classes
that are outstanding from time to time. These fees are for shareholder liaison,
shareholder processing and distribution-related services.
The table below sets forth the custodial, administration and transfer
agency fees, as well as the Plan Fees, paid to affiliates of PAMG and the Sub-
Adviser during the fiscal periods ended January 31, 1996 and September 30, 1996:
<TABLE>
<CAPTION>
Custody Transfer Plan Fees- Plan Fees- Plan Fees-
Fees Administration Agency Fees Service Investor A Investor B
Paid Fees Paid Paid Shares Shares Shares
------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Period 3/1/95-
1/31/96* $55,484 $80,065 $27,237 $0 $0 $0
Fiscal Period 2/1/96-
9/30/96* $34,897 $27,459 $10,780 $49,444 $90 $70
</TABLE>
* On February 13, 1996 the Predecessor International Bond Portfolio was
reorganized into the Portfolio. The fees reflected in the table for
periods prior to that date were paid by the Predecessor Bond Portfolio.
It is expected that the entities named above will continue to provide the
services described to the Portfolio after the Meeting.
BANKING MATTERS. The Glass-Steagall Act, among other things, generally
prohibits banks from engaging in the business of underwriting securities,
although national and state-chartered banks are permitted to purchase and sell
securities upon the order and for the account of their customers. In 1971, the
United States Supreme Court held in Investment Company Institute v. Camp that
------------------------------------
the Glass-Steagall Act prohibits a national bank from operating a fund
-11-
<PAGE>
for the collective investment of managing agency accounts. Subsequently, the
Board of Governors of the Federal Reserve System (the "Board") issued a
regulation and interpretation to the effect that the Glass-Steagall Act and such
decision forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but do
not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent and custodian to an investment company. In 1981, the
United States Supreme Court held in Board of Governors of the Federal Reserve
-----------------------------------------
System v. Investment Company Institute that the Board did not exceed its
- ---------------------------------------
authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies.
The Sub-Adviser believes that it may perform the services contemplated by
the New Agreement without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. If, however, the Sub-Adviser were
prevented by judicial or administrative decisions or interpretations from
performing the services by the New Agreement, it is anticipated that the Board
would consider the possibility of selecting another qualified company. Any new
sub-advisory agreement would normally be subject to shareholder approval.
CURRENT AGREEMENT. The Current Agreement was approved by the Fund's Board
of Trustees on September 29, 1995 and by CDI, as Portfolio's sole shareholder,
on January 10, 1996 pursuant to the requirements of the 1940 Act. The Current
Agreement became effective on February 13, 1996, the Portfolio Reorganization
Date. Prior to the Portfolio Reorganization Date, Morgan Grenfell served as
sub-adviser to the Predecessor International Bond Portfolio under a sub-
investment advisory agreement dated June 19, 1991 that terminated automatically
on December 31, 1995, the date that Midlantic Corporation merged into PNC Bank
Corp. An interim sub-investment advisory agreement for the Predecessor
International Bond Portfolio, which was dated December 31, 1995 and thereafter
terminated on the Portfolio Reorganization Date, was approved by the Portfolio's
Board of Trustees on October 3, 1995 and by its shareholders on December 11,
1995.
OTHER MATTERS
No business other than the matter described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, the persons named in the enclosed proxy will vote thereon according to
their best judgment in the interests of the Portfolio.
-12-
<PAGE>
The Fund does not intend to hold annual meetings of shareholders for the
election of Board members and other business unless and until such time as less
than a majority of the Trustees holding office have been elected by the
shareholders, at which time the Board will call a shareholders meeting for the
election of Board members. Under certain circumstances, however, shareholders
have the right to call a meeting of shareholders to consider the removal of one
or more Board members and such meetings will be called when requested by the
holders of record of 10% or more of the outstanding shares of the Fund. To the
extent required by law, the Fund will assist in shareholder communications in
such matters.
Dated: November 29, 1996
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO COMPLETE THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE PORTFOLIO'S ANNUAL
REPORT TO SHAREHOLDERS DATED SEPTEMBER 30, 1996 TO ANY SHAREHOLDER UPON REQUEST.
THE PORTFOLIO'S ANNUAL REPORT TO SHAREHOLDERS MAY BE OBTAINED BY WRITING TO THE
FUND AT ITS ADDRESS SHOWN ABOVE OR BY CALLING (888) 426-6727.
-13-
<PAGE>
EXHIBIT A
SUB-ADVISORY AGREEMENT
International Bond Portfolio
AGREEMENT dated as of January __, 1997, between PNC Asset Management
Group, Inc., a Delaware corporation ("Adviser"), and BLACKROCK FINANCIAL
MANAGEMENT, INC., a Delaware limited corporation ("Sub-Adviser").
WHEREAS, Adviser has agreed to furnish investment advisory services to
the International Bond Portfolio (the "Portfolio") of Compass Capital Funds (the
"Fund"), an open-end, management investment company registered under the
Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, Adviser wishes to retain the Sub-Adviser to provide it with
sub-advisory services as described below in connection with Adviser's advisory
activities on behalf of the Portfolio; and
WHEREAS, the advisory agreement between Adviser and the Fund dated
January 4, 1996 (such Agreement or the most recent successor agreement between
such parties relating to advisory services to the Portfolio is referred to
herein as the "Advisory Agreement") contemplates that Adviser may sub-contract
investment advisory services with respect to the Portfolio to a sub-adviser
pursuant to a sub-advisory agreement agreeable to the Fund and approved in
accordance with the provisions of the 1940 Act; and
WHEREAS, this Agreement has been approved in accordance with the
provisions of the 1940 Act, and Sub-Adviser is willing to furnish such services
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser to act as sub-
-----------
adviser with respect to the Portfolio as provided in Section 2 of the Advisory
Agreement. Sub-Adviser accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. Services of Sub-Adviser. Subject to the oversight and
-----------------------
supervision of Adviser and the Fund's Board of Trustees, Sub-
A-1
<PAGE>
Adviser will supervise the day-to-day operations of the Portfolio and perform
the following services: (i) provide investment research and credit analysis
concerning the Portfolio's investments, (ii) conduct a continual program of
investment of the Portfolio's assets, (iii) determine what portion of the
Portfolio's assets will be invested in cash, cash equivalents and money market
instruments, (iv) place orders for all purchases and sales of the investments
made for the Portfolio, and (v) maintain the books and records as are required
to support Fund operations (in conjunction with record-keeping and accounting
functions performed by Adviser). In addition, Sub-Adviser will keep the Fund
and Adviser informed of developments materially affecting the Fund and shall, on
its own initiative, furnish to the Fund from time to time whatever information
Sub-Adviser believes appropriate for this purpose. Sub-Adviser will communicate
to Adviser on each day that a purchase or sale of an instrument is effected for
the Portfolio (i) the name of the issuer, (ii) the amount of the purchase or
sale, (iii) the name of the broker or dealer, if any, through which the purchase
or sale will be effected, (iv) the CUSIP number of the instrument, if any, and
(v) such other information as Adviser may reasonably require for purposes of
fulfilling its obligations to the Fund under the Advisory Agreement. Sub-
Adviser will provide the services rendered by it under this Agreement in
accordance with the Portfolio's investment objectives, policies and restrictions
as stated in the Portfolio's Prospectus and Statement of Additional Information
(as currently in effect and as they may be amended or supplemented from time to
time), and the resolutions of the Fund's Board of Trustees.
3. Other Sub-Adviser Covenants. Sub-Adviser further agrees that it:
---------------------------
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission (the "SEC") and will in addition conduct its
activities under this Agreement in accordance with other applicable law;
(b) will place orders either directly with the issuer or with any
broker or dealer. Subject to the other provisions of this paragraph, in placing
orders with brokers and dealers, Sub-Adviser will attempt to obtain the best
price and the most favorable execution of its orders. In placing orders, Sub-
Adviser will consider the experience and skill of the firm's securities traders
as well as the firm's financial responsibility and administrative efficiency.
Consistent with this obligation, Sub-Adviser may, subject to the approval of the
Fund's Board of Trustees, select brokers on the basis of the research,
statistical and pricing services they provide to the Portfolio and other clients
of Adviser or Sub-Adviser. Information and research received from such brokers
will be in addition to, and not in lieu of, the services required to be
performed by Sub-Adviser hereunder. A commission paid to such brokers may be
higher than that which
A-2
<PAGE>
another qualified broker would have charged for effecting the same transaction,
provided that Sub-Adviser determines in good faith that such commission is
reasonable in terms either of the transaction or the overall responsibility of
Adviser and Sub-Adviser to the Portfolio and their other clients and that the
total commissions paid by the Portfolio will be reasonable in relation to the
benefits to the Portfolio over the long-term. In addition, Sub-Adviser is
authorized to take into account the sale of shares of the Fund in allocating
purchase and sale orders for portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with Adviser, Sub-Adviser or
the Fund's distributor), provided that Sub-Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will the Portfolio's securities
be purchased from or sold to the Adviser, Sub-Adviser, the Fund's distributor or
any affiliated person thereof, except to the extent permitted by the SEC or by
applicable law;
(c) will maintain or cause Adviser to maintain books and records with
respect to the Portfolio's securities transactions and will render to Adviser
and the Fund's Board of Trustees such periodic and special reports as they may
request;
(d) will maintain a policy and practice of conducting its investment
advisory services hereunder independently of the commercial banking operations
of its affiliates. When Sub-Adviser makes investment recommendations for the
Portfolio, its investment advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale for
the Portfolio's account are customers of the commercial department of its
affiliates; and
(e) will treat confidentially and as proprietary information of the
Fund all records and other information relative to the Fund, the Portfolio's and
the Fund's prior, current or potential shareholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Fund.
4. Services Not Exclusive. Sub-Adviser's services hereunder are not
----------------------
deemed to be exclusive, and Sub-Adviser shall be free to render similar services
to others so long as its services under this Agreement are not impaired thereby.
A-3
<PAGE>
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, Sub-Adviser hereby agrees that all records which it
maintains for the Portfolio are the property of the Fund and further agrees to
surrender promptly to the Fund any such records upon the Fund's request. Sub-
Adviser further agrees 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 the
1940 Act.
6. Expenses. During the term of this Agreement, Sub-Adviser will
--------
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities, and other investments
(including brokerage commissions and other transaction charges, if any)
purchased or sold for the Portfolio.
7. Compensation. For the services which the Sub-Adviser will render
------------
to Adviser under this Agreement, Adviser will pay to Sub-Adviser a fee, computed
daily and payable monthly, at the following annual rates for the Portfolio: .40%
of the first $1 billion of the Portfolio's average daily net assets, .35% of the
next $1 billion of the Portfolio's average daily net assets, .325% of the next
$1 billion of the Portfolio's average daily net assets and .30% of the average
daily net assets of the Portfolio in excess of $3 billion.
If the Adviser waives any or all of its advisory fee payable under the
Advisory Agreement, or reimburses the Fund pursuant to Section 8(b) of that
Agreement, with respect to the Portfolio, the Sub-Adviser will bear its share of
the amount of such waiver or reimbursement by waiving fees otherwise payable to
it hereunder on a proportionate basis to be determined by comparing the
aggregate fees that would otherwise be paid to it hereunder with respect to the
Portfolio to the aggregate fees that would otherwise be paid by the Fund to the
Adviser under the Advisory Agreement with respect to the Portfolio. Adviser
shall inform Sub-Adviser prior to waiving any advisory fees.
8. Limitation on Liability. Sub-Adviser will not be liable for any
-----------------------
error of judgment or mistake of law or for any loss suffered by Adviser or by
the Portfolio in connection with the performance of this Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or 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 or duties under this Agreement.
9. Duration and Termination. This Agreement will become effective
------------------------
as of the date hereof and, unless sooner terminated as provided herein, shall
continue in effect until March 31, 1998. Thereafter, if not terminated, this
Agreement shall
A-4
<PAGE>
continue in effect for successive annual periods ending on March 31, provided
such continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Fund's Board of Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Fund's Board of Trustees
or by a vote of a majority of the outstanding voting securities of the
Portfolio. Notwithstanding the foregoing, this Agreement may be terminated at
any time, without the payment of any penalty, by the Fund (by vote of the Fund's
Board of Trustees or by vote of a majority of the outstanding voting securities
of the Portfolio), or by Adviser or Sub-Adviser on 60 days' written notice, and
will terminate automatically upon any termination of the Advisory Agreement
between the Fund and Adviser. This Agreement will also 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 meanings of such terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. Any amendment of this Agreement shall be
subject to the 1940 Act.
11. Miscellaneous. 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 on, and shall inure to the
benefit of, the parties hereto and their respective successors and shall be
governed by Delaware law.
12. Counterparts. This Agreement may be executed in counterparts by
------------
the parties hereto, each of which shall constitute an original counterpart, and
all of which, together, shall constitute one Agreement.
A-5
<PAGE>
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.
PNC ASSET MANAGEMENT GROUP, INC.
By:______________________________
BLACKROCK FINANCIAL MANAGEMENT INC.
By:______________________________
A-6
<PAGE>
PROXY
- -----
COMPASS CAPITAL FUNDS/SM/
INTERNATIONAL BOND PORTFOLIO
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Compass Capital
Funds/SM/ (the "Fund") for use at a Special Meeting of Shareholders (the
"Meeting") to be held at the Bellevue Park Corporate Center, 400 Bellevue
Parkway, Wilmington, DE 19809 on December 19, 1996 at 10:00 a.m. (local time).
The undersigned hereby appoints Karen H. Sabath and Linda L. Kaufmann,
and either of them, with full power of substitution, as proxies of the
undersigned to vote at the above-stated Meeting, and at all adjournments or
postponements thereof, all shares of beneficial interest evidencing interests in
the International Bond Portfolio (the "Portfolio") of the Fund that are held of
record by the undersigned on the record date for the Meeting, upon the following
matter AND UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING, IN
THEIR DISCRETION:
(1) Proposal to approve a new sub-advisory agreement between PNC
Asset Management Group, Inc. and Blackrock Financial Management, Inc. with
respect to the Portfolio:
[ ] For [ ] Against [ ] Abstain
Every properly signed proxy will be voted in the manner specified
thereon and, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE FOR PROPOSAL (1).
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name by an
authorized person.
Dated: _________________________, 1996
X
---------------------------------------
Signature
X
---------------------------------------
Signature, if held jointly
