<PAGE>
[ART]
PROSPECTUS
BOND
PORTFOLIO
Investor C
Shares
COMPASS
---------------------
[LOGO] CAPITAL FUNDS
NOT Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
and involve risk including
possible loss of principal.
<PAGE>
The Bond Portfolios Investor C Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital Funds SM ("Compass Capital" or the "Fund")
consist of twenty-eight investment portfolios. This Prospectus
describes the Investor C 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.
<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 11.
<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 And Risks 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?................................... 45
How Is Performance Calculated?............................... 46
How Can I Get More Information?.............................. 48
</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>
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(/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 18 months. 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 .80% and .80%, respectively, and "Total Portfolio operating expenses"
would be 2.05% 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>
What Are The Expenses Of The Portfolios? (continued)
- ----------------------------------------------------------
<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(/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 18 months. 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
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 .80% and .80%, respec-
tively, and "Total Portfolio operating expenses" would be 2.05% 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>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL BOND TAX-FREE 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 PORTOLIO OPERATING EXPENSES
(AFTER FEE WAIVERS AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/2/) .55% .30%
12b-1 fees(/3/) .75 .75
Other operating expenses (after fee
waivers and expense
reimbursements)(/2/) .90 .72
---------- -----
Shareholder servicing fee .25 .25
Shareholder processing fee .15 .15
Other expenses .50 .32
-------- ---
Total Portfolio operating expenses
(after fee waivers and expense
reimbursements)(/2/) 2.20% 1.77%
========== =====
</TABLE>
(1) This amount applies to redemptions during the first 18 months. 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 .50%, respectively,
and administration fees would be .23% for each Portfolio. In addition, the
Expense Summary reflects reimbursements made to the Tax-Free Income Portfo-
lio 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 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 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 .98% and .82%, respectively,
and "Total Portfolio operating expenses" would be 2.28% and 2.07%, respec-
tively, 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>
What Are The Expenses Of The Portfolios? (continued)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA NEW JERSEY
TAX-FREE INCOME TAX-FREE 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(/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 18 months. 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 .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 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 .82% and .85%,
respectively, and "Total Portfolio operating expenses" would be 2.07% and
2.10%, 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.
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 69 118 253
C Shares (No Redemption) 22 69 118 253
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?
- --------------------------------------------------------------------------------
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 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 MINIMUM
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.
** 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.
12
<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
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 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; 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 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 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 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 ("Municipal Obligations"). 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 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 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); 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. 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 (when added
together with any other taxable investments held by the Portfolio) in private
activity bonds the interest on which is an item of tax preference for purposes
of the Federal alternative minimum tax ("AMT Paper"). In addition, each Tax-
Free Portfolio may invest 25% or more of its net assets in Municipal Obliga-
tions 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 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.
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). 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 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 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 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>
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.
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 predetermined interest rate, to receive payments of inter-
est on a notional principal amount from the party selling such interest rate
floor.
20
<PAGE>
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 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.
21
<PAGE>
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 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 inter-
22
<PAGE>
est. 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 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.
23
<PAGE>
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 a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account to en-
sure 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.
24
<PAGE>
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 rates for the Tax-Free Portfolios will not exceed
100%. The annual portfolio turnover rates for the other Portfolios may be high,
and may exceed 500%. A Portfolio's annual portfolio turnover rate will not be a
factor preventing a sale or purchase when the sub-adviser believes investment
considerations 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
and greater realized capital gains which are taxable as ordinary income to
shareholders.
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, and 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 .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%; 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%.
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
Compass Capital's distributor, subject to the requirements of
best execution.
ADMINISTRATORS Compass 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, National Association ("PNC Bank") serves as the
AGENT, Portfolios' custodian and PFPC serves as their transfer agent
DIVIDEND and dividend disbursing agent.
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 for
distribution and sales support services. The distribution fees
will be used primarily to compensate the Distributor for dis-
tribution services and to compensate the Distributor and PNC
Bank affiliates for sales support services provided in connec-
tion with the offering and sale of Investor C Shares. The dis-
tribution fees may also be used to reimburse the Distributor
and PNC Bank affiliates for related expenses, including pay-
ments to brokers, dealers, financial institutions and industry
professionals ("Service Organizations") 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 recip-
ients as they choose (for example, to defray their overhead
expenses).
Under the Plan, the Fund intends to enter into service ar-
rangements 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; as-
sisting customers in designating and changing dividend op-
tions, account designations and addresses; and other similar
shareholder liaison services. In consideration for a separate
share-
30
<PAGE>
holder processing fee of up to .15% (annualized) of the average
daily net asset value of Investor C Shares owned by their cus-
tomers, Service Organizations 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-ac-
counting with respect to Investor C 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 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. Brokers will receive
commissions equal to 1% of Investor C Shares sold by them plus
ongoing fees under the Fund's Distribution and Service Plan as
described above under "Who Manages the Fund?" These commis-
sions and payments may be different than the reallowances or
placement fees paid to dealers in connection with sales of In-
vestor A Shares and Investor B Shares. 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 under "How Are Shares Purchased?"
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. 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 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 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. 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.
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 employee benefit 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 purchase 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 Share-
holder Features Of The Fund?--Systematic Withdrawal Plan." In addition, no con-
tingent 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. Each Portfolio will declare a dividend each day on "set-
tled" shares (i.e., shares for which the particular Portfolio has received pay-
ment 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. Over the course of a year, substantially
all of the Portfolios' net investment income will be declared as dividends. The
amount of the daily dividend for each Portfolio will be based on periodic pro-
jections of its net investment income. All dividends are paid within ten days
after the end of each month. Net realized capital gains (including net short-
term capital gains), if any, will be distributed by each Portfolio at least an-
nually.
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. 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 interest dividends received by the shareholder.
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").
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
43
<PAGE>
subject to the Personal Income Tax and Corporate Net Income Tax. Such gain may
also be subject to the School District Tax, except that gain realized with re-
spect 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 corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
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 FundsSM. The Declaration of Trust authorizes the Board of
Trustees to classify and reclassify any unissued shares into one or more clas-
ses of shares. Pursuant to this authority, the Trustees have authorized the is-
suance of an unlimited number of shares in twenty-eight investment portfolios.
Each Portfolio, other than the Government Income Portfolio, offers five sepa-
rate classes of shares--Institutional Shares, Service Shares, Investor A
Shares, Investor B Shares and Investor C Shares. The Government Income Portfo-
lio offers Investor A Shares, Investor B Shares and Investor C Shares. This
prospectus relates only to Investor C Shares of the eight Portfolios described
herein. Prior to the date of this prospectus, no Investor C Shares had been
sold to the public.
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.
45
<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 deferred 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-
46
<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.
47
<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 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.
48
<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>
49
<PAGE>
COMPASS COMPASS CAPITAL FUNDS--NEW ACCOUNT APPLICATION
- --------------------- Mail completed application to:
[LOGO] CAPITAL FUNDS PFPC--Attention: Compass Funds, P.O. Box 8907
Wilmington, Delaware 19899-8907
================================================================================
1. REGISTRATION
================================================================================
PLEASE PRINT
[_] Individual
- -------------------------------------------------
Owner Social Security #/ [_] Joint Tenant
Tax Identification #
[_] Custodian
- -------------------------------------------------
Co-owner*, minor, trust Social Security #/ [_] UGMA ___________ (state)
Tax Identification #
[_] Corporation
- -------------------------------------------------
Street Address [_] Other __________________
- -------------------------------------------------
City State Zip Code
- -------------------------------------------------
Telephone # (Day) (Evening)
Citizen(s) [_] USA or [_] other, please specify ____________________________
*For joint registration, both must sign the applications in Section 5. The
registration will be as joint tenants with the right of survivorship and not as
tenants in common, unless otherwise stated.
================================================================================
2. INVESTMENTS
================================================================================
Enclosed is my check for $ ______ (minimum of $500 per Portfolio except the
minimum is $100 per Portfolio for employees of the Fund, the Fund's adviser,
sub-advisers, distributor or transfer agent or employee of any such service
provider's affiliate) made payable to "Compass Capital Funds."
[_] SHORT GOVERNMENT PORTFOLIO $ _______ [_] INTERNATIONAL BOND $ ______
(379-074) PORTFOLIO
(SERIES C SHARES) (379-080)
(SERIES C SHARES)
[_] INTERMEDIATE GOVERNMENT $ _______ [_] TAX-FREE INCOME $ ______
PORTFOLIO PORTFOLIO
(379-083) (379-082)
(SERIES C SHARES) (SERIES C SHARES)
[_] CORE BOND PORTFOLIO $ _______ [_] NEW JERSEY TAX-FREE $ ______
(379-084) INCOME PORTFOLIO
(SERIES C SHARES) (379-078)
(SERIES C SHARES)
[_] GOVERNMENT INCOME $ _______ [_] PENNSYLVANIA $ ______
PORTFOLIO TAX-FREE INCOME
(379-077) PORTFOLIO
(SERIES C SHARES) (379-076)
(SERIES C SHARES)
Series C Investor Shares are subject to a contingent deferred sales charge.
================================================================================
3. OPTIONS
================================================================================
A. DIVIDEND ELECTION
Unless you elect otherwise, all dividends and capital gains distributes will
be automatically reinvested in additional shares. If you prefer to be paid in
cash each month, check the appropriate box below.
Dividends: [_] pay in cash [_] reinvest
Capital Gains: [_] pay in cash [_] reinvest
If you elect to be paid in cash, you mush check one of the boxes below. If you
do not check any box your distribution will be paid by check to the address of
record.
[_] I request the above distributions be sent by check to the address of record.
[_] I request the above distributions be sent by check to the special payee
whose address is specified below:
Name of Bank or Individual ______________ Bank Account # (if applicable) ______
Street Address __________________ City _____________ State ______ Zip ________
[_] I request the above distributions to be sent electronically to my financial
institution as specified below:
Name on Bank Account _______________________ Name of Bank _____________________
Account # _______________________________________ Type: [_] Checking [_] Savings
Routing # (ABA#) ________________ Bank Address _________________________________
_________________________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
- --------------------------------------------------------------------------------
B. WIRE REDEMPTIONS PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS NOT
WANTED.
The Fund or its agents are authorized to honor telephone or other
instructions from any person for the redemption of Compass Capital Funds
Shares. Proceeds are to be wire transferred to the bank account referenced
below ($10,00 minimum per redemption). Shareholders holding share
certificates are not eligible for wire redemption.
Name of Depositor ______________________________________________________________
(as shown on bank records)
Name of Bank ____________________ ABA # _______________ Account # _____________
(a savings and loan or credit union may not be able to receive wire redemptions)
Street Address of Bank ______________ City _______________ State _____ Zip _____
PLEASE SEE REVERSE SIDE OF APPLICATION.
<PAGE>
- --------------------------------------------------------------------------------
C. SYSTEMATIC WITHDRAWAL
[_] Systematic Withdrawal Plan request a minimum account balance of $10,000 in
shares at the current offering price. Minimum withdrawal $100. Each withdrawal
redemption will be processed on or about the 25th of the month and mailed as
soon as possible thereafter. Shareholders holding share certificates are not
eligible for the Systematic Withdrawal Plan because share certificates must
accompany all withdrawal requests.
Start (month) __________ $ (amount) ________ [_] Monthly [_] Every Other Month
[_] Quarterly [_] Semi-annually
[_] Annually
PAYMENT METHOD PLEASE CHECK ON OF THE FOLLOWING:
If you do not check any box your proceeds will be paid by check to the address
of record.
[_] I request the proceeds will be paid by check to the address of record.
[_] I request the proceeds to be sent by check payable to a person or
organization different than as registered.
Name of Bank or Individual ______________ Bank Account # (if applicable) ______
Street Address __________________ City _____________ State ______ Zip ________
[_] I request the above distributions to be sent electronically to my financial
institution as specified below:
Name on Bank Account _______________________ Name of Bank _____________________
Account # _______________________________________ Type: [_] Checking [_] Savings
Routing # (ABA#) ________________ Bank Address _________________________________
_________________________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
- --------------------------------------------------------------------------------
D. TELEPHONE EXCHANGE IF YOU DO NOT WISH THIS PRIVILEGE, PLEASE CHECK THIS
BOX [_]
Your account will automatically provide for the telephone exchange of Series C
Shares of one Portfolio for Series C Shares of other investment portfolios
offered by the Fund. Then, when you wish to exchange shares, all you need to do
is call (800) 441-7762. Shareholders holding share certificates may not exchange
shares by telephone. The same registration and address will be used as listed on
this form under "Registration". It is understood that neither PFPC nor the Fund
will be liable for any loss, liability, cost or expense for acting upon
telephone exchange requests reasonably believed to be genuine.
- --------------------------------------------------------------------------------
E. AUTOMATIC INVESTING
This program provides for the investments to be made automatically by
authorizing PFPC to withdraw funds from you bank account. An initial minimum
investment of $50 per Portfolio, and subsequent investments of at least $50, are
required. The Program requires additional information so that PFPC may contact
your bank to make sure the arrangement is properly established. This may not be
used with a Systematic withdraw Program.
[_] CHECK HERE AND THE PROPER FORM WILL BE SENT TO YOU.
================================================================================
4. TAXPAYER IDENTIFICATION CERTIFICATION
================================================================================
Under penalty of perjury, I certify with my signature below that the number
shown in this section of the application is my correct taxpayer identification
number and that I am not subject to backup withholding as a result of a failure
to report all interest or dividend's, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding.
[_] The Internal Revenue Service has notified me that I am subject to backup
withholding.
_________________________________ _________________________________
(Signature) (Signature)
_________________________________ _________________________________
(President, Trustee, General (Co-owner, Secretary of
Partner or Agent) Corporation, Co-trustee, etc.)
================================================================================
5. SIGNATURES
================================================================================
Citizenship: [_] U.S. [_] Other _______________ Please provide
Phone # (___) _________________
Sign below exactly as printed in Registration.
I (we) and (are) of legal age and have read the Prospectus. I (we) hereby
certify that each of the persons listed below has been duly elected, and is now
legally holding the office set below his name and has the authority to make this
authorization.
Please print below if signing on behalf of a business or trust.
_________________________________ _________________________________
(Signature) (Signature)
_________________________________ _________________________________
(President, Trustee, General (Co-owner, Secretary of
Partner or Agent) Corporation, Co-trustee, etc.)
================================================================================
6. INVESTMENT DEALER
================================================================================
MUST BE COMPLETED BY DEALER.
_______________________________ ________________________________________
First Name Representative's Name (print)
NSCC Dealer # _________________ ________________________________________
Representative # Phone #
_______________________________ ________________________________________
Branch Street Address City State Zip
_______________________________
Branch #
_______________________________ ________________________________________
Representative's Signature Date
FOR ASSISTANCE IN COMPLETING THIS APPLICATION CALL (800) 441-7762.
<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.
------------------
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
PROSPECTUS
January 16, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[ART]
PROSPECTUS
EQUITY
PORTFOLIO
Investor C
Shares
COMPASS
---------------------
[LOGO] CAPITAL FUNDS
NOT Investments are not FDIC insured, are
FDIC not deposits or obligations of any bank,
and involve risk including
possible loss of principal.
<PAGE>
The Equity Portfolios Investor C Shares January 16, 1996
- --------------------------------------------------------------------------------
Compass Capital FundsSM ("Compass Capital" or the "Fund") con-
sist 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 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.
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
Growth and Income
Russell 1000
Value Equity Value Index
Russell 1000 Growth
Growth Equity Growth
Index
Russell 2000 Small Company Growth
Small Cap Index
Value Equity Russell 2000 Small Company Growth
Growth
Small Cap Index
Growth Equity EAFE Index International
International
Equity MSCI Emerging Markets
Emerging
International Markets
EmergingMarkets Free Index
Growth and Income
S&P 500
Select Equity Index
S&P 500 S&P 500 Index
Index Equity Index
S&P 500 Balanced
Balanced Index and
Salomon
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 "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 And Risks 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(/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 18 months. 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 .78%, .80% and .81%, respec-
tively, and "Total Portfolio operating expenses" would be 2.08%, 2.10% and
2.14%, 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>
What Are The Expenses Of The Portfolios? (continued)
- --------------------------------------------------------------------------------
<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(/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 18 months. 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 .81%, .90% and 1.15%, respectively, and "Total Portfolio
operating 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
(AFTER FEE WAIVERS AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/2/)(/3/) .50% .025% .50%
12b-1 fees(/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 18 months. 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% for the Select Equity
and Balanced Portfolios, 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 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 .80%, .78% and .83%, respectively, and "Total Portfolio
operating expenses" would be 2.10%, 1.59% and 2.13%, respectively, for In-
vestor 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 this 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, 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?
- --------------------------------------------------------------------------------
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 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. No assurance
can be given that a Portfolio will achieve its investment ob-
jective.
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 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.
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, indirectly Index in approximately the
through the U.S. Large same 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: 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 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 depository receipts.
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"), 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 considera-
19
<PAGE>
tions 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 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
20
<PAGE>
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 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 .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>
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY
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
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%.
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.
28
<PAGE>
ADMINISTRATORS Compass 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, National Association ("PNC Bank") serves as the Port-
AGENT, folios' custodian and PFPC serves as their transfer agent and
DIVIDEND dividend disbursing agent.
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 for distribution
and sales support services. The distribution fees will be used
primarily to compensate the Distributor for distribution serv-
ices and to compensate the Distributor and PNC Bank affiliates
for sales support services provided in connection with the of-
fering and sale of Investor C Shares. The distribution fees may
also be used to reimburse the Distributor and PNC Bank affili-
ates for related expenses, including payments to brokers, deal-
ers, 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 ar-
rangements 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; as-
sisting customers in designating and changing dividend op-
tions, account designations and addresses; 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 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 cus-
tomers; providing sub-accounting with respect to Investor C
Shares beneficially owned by customers or the information nec-
essary 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 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. Brokers will receive commis-
sions equal to 1% of Investor C Shares sold by them plus ongo-
ing fees under the Fund's Distribution and Service Plan and
described under "Who Manages the Fund?". These commissions and
payments may be different than the reallowances or placement
fees paid to dealers in connection with sales of Investor A
Shares and Investor B shares. 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 under "How Are Shares Purchased?"
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. 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 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 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 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 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. 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. 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.
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 employee benefit 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 purchase 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 Share-
holder Features Of The Fund?--Systematic Withdrawal Plan." In addition, no con-
tingent 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.
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
42
<PAGE>
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(R) Fund to
Compass Capital Funds SM. The Declaration of Trust authorizes the Board of
Trustees to classify and reclassify any unissued shares into one or more clas-
ses of shares. Pursuant to this authority, the Trustees have authorized the is-
suance 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 prospectus relates only to Investor C Shares of the nine portfolios de-
scribed herein. Prior to the date of this prospectus, no Investor C Shares had
been sold to the public.
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
44
<PAGE>
Master Portfolio at net asset value. The net asset value of the Index Equity
Portfolio will respond to increases and decreases in the value of the Index
Master Portfolio's securities and to the expenses of the Index Master Portfolio
allocable to the Index Equity Portfolio (as well as its own expenses). The In-
dex 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 determines that it is in the best interests of the Index
Equity Portfolio to do so. Upon withdrawal, the Board of Trustees would con-
sider 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 Equity Portfolio or the hiring of an in-
vestment 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
45
<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 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 deferred 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, the "stocks, bonds and inflation Index" published an-
nually 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 Investor C Shares pub-
lished by nationally recognized ranking services, and information as reported
in financial publications such as Business Week, Fortune, Institutional Invest-
or, 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. 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.
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 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 mortgage and
investment grade fixed rate corporates with
a maturity of 1 year or longer.
</TABLE>
50
<PAGE>
COMPASS COMPASS CAPITAL FUNDS--NEW ACCOUNT APPLICATION
- --------------------- Mail completed application to:
[LOGO] CAPITAL FUNDS PFPC--Attention: Compass Funds, P.O. Box 8907
Wilmington, Delaware 19899-8907
================================================================================
1. REGISTRATION
================================================================================
PLEASE PRINT
[_] Individual
- -------------------------------------------------
Owner Social Security #/ [_] Joint Tenant
Tax Identification #
[_] Custodian
- -------------------------------------------------
Co-owner*, minor, trust Social Security #/ [_] UGMA ___________ (state)
Tax Identification #
[_] Corporation
- -------------------------------------------------
Street Address [_] Other __________________
- -------------------------------------------------
City State Zip Code
- -------------------------------------------------
Telephone # (Day) (Evening)
Citizen(s) [_] USA or [_] other, please specify ____________________________
*For joint registration, both must sign the applications in Section 5. The
registration will be as joint tenants with the right of survivorship and not as
tenants in common, unless otherwise stated.
================================================================================
2. INVESTMENTS
================================================================================
Enclosed is my check for $ ______ (minimum of $500 per Portfolio except the
minimum is $100 per Portfolio for employees of the Fund, the Fund's adviser,
sub-advisers, distributor or transfer agent or employee of any such service
provider's affiliate) made payable to "Compass Capital Funds."
[_] BALANCED PORTFOLIO $ _______ [_] SMALL CAP GROWTH $ ______
(379-087) EQUITY PORTFOLIO
(SERIES C SHARES) (379-092)
(SERIES C SHARES)
[_] INDEX EQUITY PORTFOLIO $ _______ [_] SMALL CAP VALUE $ ______
(379-090) EQUITY PORTFOLIO
(SERIES C SHARES) (379-091)
(SERIES C SHARES)
[_] SELECT EQUITY PORTFOLIO $ _______ [_] INTERNATIONAL $ ______
(379-093) EQUITY PORTFOLIO
(SERIES C SHARES) (379-088)
(SERIES C SHARES)
[_] VALUE EQUITY PORTFOLIO $ _______ [_] INTERNATIONAL $ ______
(379-089) EMERGING MARKETS
(SERIES C SHARES) PORTFOLIO
(379-085)
(SERIES C SHARES)
[_] GROWTH EQUITY PORTFOLIO $ _______
(379-086)
(SERIES C SHARES)
Series C Investor Shares are subject to a contingent deferred sales charge.
================================================================================
3. OPTIONS
================================================================================
A. DIVIDEND ELECTION
Unless you elect otherwise, all dividends and capital gains distributes will
be automatically reinvested in additional shares. If you prefer to be paid in
cash each month, check the appropriate box below.
Dividends: [_] pay in cash [_] reinvest
Capital Gains: [_] pay in cash [_] reinvest
If you elect to be paid in cash, you mush check one of the boxes below. If you
do not check any box your distribution will be paid by check to the address of
record.
[_] I request the above distributions be sent by check to the address of record.
[_] I request the above distributions be sent by check to the special payee
whose address is specified below:
Name of Bank or Individual ______________ Bank Account # (if applicable) ______
Street Address __________________ City _____________ State ______ Zip ________
[_] I request the above distributions to be sent electronically to my financial
institution as specified below:
Name on Bank Account _______________________ Name of Bank _____________________
Account # _______________________________________ Type: [_] Checking [_] Savings
Routing # (ABA#) ________________ Bank Address _________________________________
_________________________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
- --------------------------------------------------------------------------------
B. WIRE REDEMPTIONS PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS NOT
WANTED.
The Fund or its agents are authorized to honor telephone or other
instructions from any person for the redemption of Compass Capital Funds
Shares. Proceeds are to be wire transferred to the bank account referenced
below ($10,00 minimum per redemption). Shareholders holding share
certificates are not eligible for wire redemption.
Name of Depositor ______________________________________________________________
(as shown on bank records)
Name of Bank ____________________ ABA # _______________ Account # _____________
(a savings and loan or credit union may not be able to receive wire redemptions)
Street Address of Bank ______________ City _______________ State _____ Zip _____
PLEASE SEE REVERSE SIDE OF APPLICATION.
<PAGE>
- --------------------------------------------------------------------------------
C. SYSTEMATIC WITHDRAWAL
[_] Systematic Withdrawal Plan request a minimum account balance of $10,000 in
shares at the current offering price. Minimum withdrawal $100. Each withdrawal
redemption will be processed on or about the 25th of the month and mailed as
soon as possible thereafter. Shareholders holding share certificates are not
eligible for the Systematic Withdrawal Plan because share certificates must
accompany all withdrawal requests.
Start (month) __________ $ (amount) ________ [_] Monthly [_] Every Other Month
[_] Quarterly [_] Semi-annually
[_] Annually
PAYMENT METHOD PLEASE CHECK ON OF THE FOLLOWING:
If you do not check any box your proceeds will be paid by check to the address
of record.
[_] I request the proceeds will be paid by check to the address of record.
[_] I request the proceeds to be sent by check payable to a person or
organization different than as registered.
Name of Bank or Individual ______________ Bank Account # (if applicable) ______
Street Address __________________ City _____________ State ______ Zip ________
[_] I request the above distributions to be sent electronically to my financial
institution as specified below:
Name on Bank Account _______________________ Name of Bank _____________________
Account # _______________________________________ Type: [_] Checking [_] Savings
Routing # (ABA#) ________________ Bank Address _________________________________
_________________________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
- --------------------------------------------------------------------------------
D. TELEPHONE EXCHANGE IF YOU DO NOT WISH THIS PRIVILEGE, PLEASE CHECK THIS
BOX [_]
Your account will automatically provide for the telephone exchange of Series C
Shares of one Portfolio and for Series C Shares of other investment portfolios
offered by the Fund. Then, when you wish to exchange shares, all you need to do
is call (800) 441-7762. Shareholders holding share certificates may not exchange
shares by telephone. The same registration and address will be used as listed on
this form under "Registration". It is understood that neither PFPC nor the Fund
will be liable for any loss, liability, cost or expense for acting upon
telephone exchange requests reasonably believed to be genuine.
- --------------------------------------------------------------------------------
E. AUTOMATIC INVESTING
This program provides for the investments to be made automatically by
authorizing PFPC to withdraw funds from you bank account. An initial minimum
investment of $50 per Portfolio, and subsequent investments of at least $50, are
required. The Program requires additional information so that PFPC may contact
your bank to make sure the arrangement is properly established. This may not be
used with a Systematic withdraw Program.
[_] CHECK HERE AND THE PROPER FORM WILL BE SENT TO YOU.
================================================================================
4. TAXPAYER IDENTIFICATION CERTIFICATION
================================================================================
Under penalty of perjury, I certify with my signature below that the number
shown in this section of the application is my correct taxpayer identification
number and that I am not subject to backup withholding as a result of a failure
to report all interest or dividend's, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding.
If you are subject to backup withholding, check the box in front of the
following statement.
[_] The Internal Revenue Service has notified me that I am subject to backup
withholding.
_________________________________ _________________________________
(Signature) (Signature)
_________________________________ _________________________________
(President, Trustee, General (Co-owner, Secretary of
Partner or Agent) Corporation, Co-trustee, etc.)
================================================================================
5. SIGNATURES
================================================================================
Citizenship: [_] U.S. [_] Other _______________ Please provide
Phone # (___) _________________
Sign below exactly as printed in Registration.
I (we) and (are) of legal age and have read the Prospectus. I (we) hereby
certify that each of the persons listed below has been duly elected, and is now
legally holding the office set below his name and has the authority to make this
authorization.
Please print below if signing on behalf of a business or trust.
_________________________________ _________________________________
(Signature) (Signature)
_________________________________ _________________________________
(President, Trustee, General (Co-owner, Secretary of
Partner or Agent) Corporation, Co-trustee, etc.)
================================================================================
6. INVESTMENT DEALER
================================================================================
MUST BE COMPLETED BY DEALER.
_______________________________ ________________________________________
First Name Representative's Name (print)
NSCC Dealer # _________________ ________________________________________
Representative # Phone #
_______________________________ ________________________________________
Branch Street Address City State Zip
_______________________________
Branch #
_______________________________ ________________________________________
Representative's Signature Date
FOR ASSISTANCE IN COMPLETING THIS APPLICATION CALL (800) 441-7762.
<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. 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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ART]
THE EQUITY
PORTFOLIOS
INVESTOR C SHARES
PROSPECTUS
January 16, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
