===============================================================================
COMPASS CAPITAL
FUNDS
NEW JERSEY MUNICIPAL MONEY
MARKET PORTFOLIO
NEW JERSEY TAX-FREE INCOME
PORTFOLIO
ANNUAL REPORT TO SHAREHOLDERS
JANUARY 31, 1996
===============================================================================
<PAGE>
COMPASS CAPITAL FUNDS
Dear Shareholder,
As you are aware, PNC Bank Corp. ("PNC") and Midlantic Corporation
("Midlantic") merged in December 1995. Following the consummation of the merger,
PNC consolidated Midlantic's Compass Funds ("Compass") with the PNC(REGISTRATION
MARK) Fund, which was managed by other PNC affiliates, in order to create one
consolidated family of mutual funds.
Effective January 16, 1996 the consolidated entity adopted the name Compass
Capital Funds (the "Fund"), with PNC Asset Management Group, Inc. and
PNCInstitutional Management Corporation ("PIMC") serving as the Fund's
investment advisers. Compass Capital Funds is sub-advised by PNC's premier money
managers -- BlackRock Financial Management, Inc. ("BlackRock") for the fixed
income funds, Provident Capital Management for the value equity funds, PNC
Equity Advisors Company for the growth equity funds and PNC Bank, National
Association ("PNCBank") and PIMC for the money market funds. The International
Bond portfolio will continue to be sub-advised by Morgan Grenfell Investment
Services Limited.
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
The Compass New Jersey Municipal Money Market Fund has changed its name to
Compass Capital New Jersey Municipal Money Market Portfolio effective January
13, 1996. PNC Bank serves as sub-adviser and is responsible for the day-to-day
management of the portfolio. The investment objective and policies of the New
Jersey Municipal Money Market Portfolio are similar to those of the Compass New
Jersey Municipal Money Market Fund.
Total net assets of the Fund increased by $68.6 million during the month of
January 1996, due to the merger of the Midlantic New Jersey Municipal Money
Market Fund and the PNC New Jersey Municipal Money Market Portfolio. The
combined funds, as of January 13, 1996, are called the Compass Capital New
Jersey Municipal Money Market Portfolio.
As of January 31, 1996, variable rate demand notes represented only 63% of
the Portfolio, down from 72% at year-end 1995. The Portfolio's average weighted
maturity was 32 days on January 31, 1996.
NEW JERSEY TAX-FREE INCOME PORTFOLIO
The Compass New Jersey Municipal Bond Fund has changed its name to the
Compass Capital New Jersey Tax-Free Income Portfolio effective January 13, 1996.
BlackRock serves as sub-adviser and is responsible for the day to day management
of the Portfolio. The investment objective and policies of the New
Jersey Tax-Free Income Portfolio are similar to those of the Compass New
Jersey Municipal Bond Fund.
The New Jersey Tax-Free Income Portfolio is an open-end municipal bond fund
which invests primarily in New Jersey municipal bonds in order to provide its
shareholders with monthly income
<PAGE>
that is exempt from Federal, New Jersey state and local income taxes consistent
with the preservation of capital. The portfolio managers of the Portfolio strive
to select municipal bonds that will provided for a competitive return on
shareholder investments. Given the impressive performance of the fixed income
markets last year, the Portfolio posted a 10.35% total return for the Service
Class versus its benchmark index, the Lehman Brothers Local GO (General
Obligation) Index, which posted a return of 11.83% for the eleven months ended
January 31, 1996.
The following financial report covers the eleven month period from March 1,
1995 to January 31, 1996. We have included here a detailed discussion of the
fixed income and municipal bond markets.
THE FIXED-INCOME MARKETS
The spectacular rally in the fixed income markets in which interest rates
declined and the value of fixed income securities increased dramatically changed
the landscape for investors in 1995. Weak inflationary data and the belief that
a balanced Federal budget resolution will eventually be struck sustained
investor demand for bonds despite two partial government shutdowns near the end
of the year. As a whole, U.S. economic growth appeared to have slowed from its
torrid pace in 1994, despite a surprisingly robust third quarter. Consequently,
interest rates continued to grind lower over the year. The Federal Reserve,
noting the sluggish economy and that inflation data was more favorable than
anticipated, voted to reduce the Fed funds target rate by 0.25% on December 19
and again on January 31 to its current target rate of 5.25%.
The fixed income markets continued their bullish charge into the first five
weeks of 1996. In February, however, the market reacted to favorable economic
data, including an unexpectedly strong employment report and Fed Chairman
Greenspan's optimistic assessment of the U.S. economy, causing yields on both
taxable and tax-exempt securities to increase as a sell-off occurred in the
fixed income markets. Despite the recent downturn, BlackRock remains carefully
optimistic towards the fixed income markets in 1996. We anticipate some
near-term volatility as market participants try to predict the actions of the
Federal Reserve. If the economy exhibits clearer signs of moderating growth and
subdued inflation on a longer-term basis, the Fed might be encouraged to resume
monetary easing which would again create an attractive marketplace for fixed
income investors.
THE TAX-EXEMPT MARKET
The lower yield environment and the steep shape of the municipal yield
curve encouraged both retail and institutional investors to target longer
maturities for incremental yield towards the end of 1995. The spread between the
yields of 2- and 30-year paper narrowed and the municipal yield curve flattened
by the end of the fourth quarter of 1995, partially due to ongoing income tax
simplification concerns which tempered demand, and increased supply from new
issuance and refunding activity in November and December.
The most significant factor affecting the municipal market in 1995 was the
tax reform debates in Washington. Most notably, several members of Congress and
Presidential hopefuls including Steve Forbes have earnestly proposed tax
simplification in the form of a flat tax on earned and unearned income. On
January 17, 1996, The Commission on Economic Growth and Tax Reform, headed by
former congressman Jack Kemp, released its much anticipated conclusions. The
report emphasized a need for tax simplification towards a single tax bracket
without definitely recommending a particular rate of taxation, thus setting the
stage for increased discussion on this issue in the coming election year.
2
<PAGE>
Recently, these flat tax proposals have come under intensifying opposition,
thus reducing their chance of survival and increasing demand for municipal
bonds. Year-to-date 1996, municipal securities have outperformed taxable
securities by as much as 7% as investor fear of tax reform has dissipated and
new issue supply has decreased. Continued demand from both retail investors and
property and casualty insurers has led to strong technical conditions while
secondary market supply is historically low.
While the market has indeed rallied and yields have declined over the past
year, municipal securities continue to trade at attractive yield ratios to
Treasuries. BlackRock believes that municipal securities have the potential to
be the best performing sector of the fixed income markets in 1996 as tax reform
concerns which have been adversely affecting municipal bond demand are
eliminated.
Comparison of Change in Value of a $10,000 Investment
in the Service Class of New Jersey Tax-Free Income
Portfolio and the Lehman Local General Obligation Index
NEW JERSEY TAX-FREE INCOME
(CHART)
[GRAPHIC OMITTED]
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
One year 13.03%
From Inception 8.31%
- ------------------------------------------------------
PLOT POINTS:
COMPASS NJ TAX-FREE LEHMAN LOCAL GO
7/1/91 $10,000 $10,000
2/29/92 $10,802 $10,500
2/28/93 $12,247 $12,329
2/28/94 $12,882 $12,939
2/28/95 $13,074 $13,161
1/31/96 $14,427 $14,573
Past performance is not predictive of future results.
SERVICE CLASS
3
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NEW JERSEY -- 93.8%
Barnegat Township GO
Series 1995 MB
4.70% 11/01/96 130 $ 130,900
Berkeley Township GO
Series 1995 MB
4.625% 11/15/96 250 251,477
Camden County Improvement
Authority (Jewish Community
Center Project) Series 1995 DN
3.25%** 02/07/96 1,525 1,525,000
Cumberland County
Series 1995 BAN
4.00% 05/17/96 250 250,213
Deptford Township GO
Series 1995 MB
5.00% 12/01/96 101 102,071
East Windsor Township
Series 1995 BAN
4.55% 04/18/96 2,000 2,002,324
Essex County Public Improvement
Authority Revenue (County Asset
Sale Project) Series 1995 DN
3.00%** 02/07/96 4,000 4,000,000
Fort Lee Series 1995 TAN
4.00% 02/02/96 2,000 2,000,024
Franklin Lakes Series 1995 BAN
3.625% 03/14/96 2,500 2,500,628
Galloway Township Series 1995 BAN
4.10% 03/14/96 1,000 1,000,447
Health Care Facilities (Hospital
Capital Asset Financing Project)
Series 1985C DN
2.90%** 02/01/96 200 200,000
2.90%** 02/07/96 600 600,000
Manasquan Board of Education GO
Series 1995 MB
5.125% 01/15/97 160 161,880
Mercer County Improvement Revenue
(Pooled Government Loan Project)
Series 1985 DN
2.95%** 02/07/96 3,300 3,300,000
Mercer County Improvement Authority
Revenue Lease Series 1996 MB
4.25% 12/01/96 415 417,341
Mercer County Improvement Authority
Series 1995 BAN
4.10% 03/15/96 1,000 1,000,399
PAR
MATURITY (000) VALUE
-------- ---------- ---------
Montgomery Township School District
Series 1995 TAN
5.00% 03/01/96 1,500 $1,500,812
New Jersey EDA (Russell Berrie
Company Project) Series 1983 DN
3.10%** 02/07/96 200 200,000
New Jersey EDA (Resource Recovery
Improvements) Series 1989J DN
3.20%** 02/07/96 650 650,000
New Jersey EDA TECP
3.15% 02/09/96 1,100 1,100,000
3.10% 02/20/96 500 500,000
3.60% 03/05/96 2,000 2,000,000
3.20% 03/06/96 2,000 2,000,000
3.10% 04/09/96 1,000 1,000,000
3.30% 05/23/96 1,000 1,000,000
New Jersey EDA (East Meadow
Corporation Project B)
Series 1986B DN
3.35%** 02/07/96 4,770 4,770,000
New Jersey EDA (Filtra Corporation
Project) Series 1995 DN
3.35%** 02/01/96 1,000 1,000,000
New Jersey EDA (Franciscan Oaks
Project B) Series 1992B DN
3.00%** 02/07/96 400 400,000
New Jersey EDA (Hoffman la Roche,
Inc. Project) Series 1993 DN
3.60%** 02/01/96 1,000 1,000,000
New Jersey EDA (International
Vitamin Corporation Project)
Series 1995 DN
3.35%** 02/01/96 1,000 1,000,000
New Jersey EDA (Manhattan Bagel
Company, Inc. Project)
Series 1995 DN
3.35%** 02/07/96 1,000 1,000,000
New Jersey EDA (Nandan Co. Project)
Series 1995 DN
3.60%** 02/07/96 1,000 1,000,000
New Jersey EDA (Natural Gas
Company) Series 1995A DN
3.40%** 02/01/96 1,200 1,200,000
New Jersey EDA (Thermal Energy
Ltd. Project) Series 1995 MB
3.70% 12/01/96 500 500,000
New Jersey EDA Series 1992C DN
3.15%** 02/07/96 530 530,000
See accompanying notes to financial statements.
4
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NEW JERSEY (CONTINUED)
New Jersey EDA PCR
Series 1996 DN
3.10%** 02/20/96 500 $ 500,000
New Jersey EDA Revenue (Hillcrest
Health Services Systems Project)
Series 1995 DN
3.35%** 02/07/96 2,600 2,600,000
New Jersey EDA (Fellowship Valley
Project) Series 1995B DN
3.05%** 02/07/96 1,000 1,000,000
New Jersey EDA Series 1992D DN
3.15%** 02/07/96 2,065 2,065,000
New Jersey GO Series 1992D MB
4.20% 02/15/96 500 500,066
New Jersey Health Care Facilities
Series 1985D DN
2.90%** 02/01/96 200 200,000
New Jersey Sports and Exposition
Authority State Contract
Series 1992C DN
2.85%** 02/07/96 4,700 4,700,000
New Jersey State Custodial Receipts
Series 1995D DN
3.10%** 02/07/96 1,800 1,800,000
New Jersey State Housing Finance
Agency General Resolution
Series 1992A MB
3.70% 02/01/96 2,000 2,000,000
New Jersey TECP
3.05% 03/01/96 2,000 2,000,000
New Jersey State Transportation
Trust Fund Authority
Series 1993A MB
3.80% 06/15/96 800 800,000
New Jersey State Transportation
Trust Fund Authority Transportation
System Series 1995A DN
3.10%** 02/07/96 4,700 4,700,000
New Jersey Turnpike Authority
Series 1991D DN
2.80%** 02/07/96 3,200 3,200,000
North Brunswick Township
Series 1995 BAN
3.89% 05/22/96 775 775,397
Parsippany Troy Hills Township
Series 1995 BAN
4.00% 11/01/96 2,000 2,004,324
PAR
MATURITY (000) VALUE
-------- ---------- ---------
Rumson Series 1995 BAN
3.84% 06/21/96 400 $ 400,072
Salem County IDA PCR (E.I. Dupont
de Nemours and Company Project)
Series 1982A DN
3.60%** 02/07/96 2,500 2,500,000
Sayreville Series 1995 BAN
4.00% 04/16/96 1,500 1,500,871
Sea Isle City GO Series 1995 MB
4.50% 12/01/96 375 377,617
Union County (Exxon Corporation
Project) Series 1989 DN
3.45%** 02/01/96 1,800 1,800,000
Woodbridge Township
Series 1995 BAN
3.67% 07/03/96 500 499,471
-----------
77,716,334
-----------
PUERTO RICO -- 5.6%
Puerto Rico Government
Development Bank Adjustable
Refunding Series 1985 DN
2.80%** 02/07/96 3,600 3,600,000
Puerto Rico Highway and
Transportation Authority
Series 1993X DN
2.80%** 02/07/96 500 500,000
Puerto Rico Industrial, Medical, and
Environmental Pollution Control
Facilities Financing Authority
(Ana G. Mendez Educational
Foundation Project)
Series 1985 DN
3.20%** 02/07/96 500 500,000
-----------
4,600,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Total Cost $82,316,334*) 99.4% $82,316,334
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.6% 498,376
------ -----------
See accompanying notes to financial statements.
5
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NET ASSETS (Equivalent to $1.00
per share based on 4,195,000
Institutional shares and
56,975,137 Service shares
and 21,662,073 Investor A
shares outstanding) 100.0% $82,814,710
====== ===========
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
INVESTOR A SHARE
($82,814,710 / 82,832,210) $1.00
===========
- ------------
*Aggregate cost for federal tax purposes.
**Rates shown are rates as of January 31, 1996, and the maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
----------------------------------------------------
INVESTMENT ABBREVIATIONS
BAN Bond Anticipation Note
DN Demand Note
EDA Economic Development Authority
GO General Obligation
IDA Industrial Development Authority
MB Municipal Bond
PCR Pollution Control Revenue
RAN Revenue Anticipation Note
TAN Tax Anticipation Note
TECP Tax-Exempt Commercial Paper
----------------------------------------------------
See accompanying notes to financial statements.
6
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NEW JERSEY (CONTINUED)
Absecon Board of Education
Unlimited Tax General Obligation
Bonds Series 1992
5.625% 12/15/02 770 $ 802,725
Bergen County Unlimited Authority
Revenue Bonds Series 1992A
5.50% 06/15/13 1,000 1,010,000
Bergen County Unlimited Tax
General Obligation Bonds
Series 1995
4.70% 07/15/97 1,000 1,016,250
Brick Township Municipal Utilities
Authority Revenue Bonds
Series 1977
6.75% 12/01/16 1,000 1,195,000
Brigantine Unlimited Tax General
Obligation Bonds Series 1992
6.25% 08/01/03 730 810,300
Camden County Improvement
Authority Lease Revenue Bonds
Series 1992
5.70% 12/01/05 500 526,250
6.00% 12/01/12 500 524,375
Cape May Authority Sewer Revenue
Bonds Series 1993B
4.90% 01/01/09 1,000 992,500
Cherry Hill Township Unlimited Tax
General Obligation Series 1992
6.00% 06/01/06 500 541,250
Dover Township Unlimited Tax
General Obligation Bonds
Series 1992
6.00% 10/15/03 1,000 1,112,500
Edison Township Unlimited Tax
General Obligation Bonds
Series 1991
6.50% 06/01/03 1,000 1,121,250
6.50% 06/01/04 500 565,000
Edison Township Unlimited Tax
General Obligation Bonds
Series 1993
5.00% 01/01/07 1,000 1,022,500
Essex County Improvement Authority
Lease Revenue Bonds (Jail and
Youth Housing Projects)
Series 1994
6.90% 12/01/14 500 576,875
PAR
MATURITY (000) VALUE
-------- ---------- ---------
Evesham Municipal Utilities Authority
Revenue Bonds Series 1990B
6.80% 07/01/01 1,010 $1,044,087
6.85% 07/01/02 1,080 1,116,450
Evesham Municipal Utilities Authority
Revenue Bonds Series 1993A
5.60% 07/01/15 2,500 2,562,500
Flemington -- Raritan School District
Unlimited Tax General Obligation
Bonds Series 1995
6.25% 02/01/12 500 546,875
Irvington Township Unlimited Tax
General Obligation Bonds
Series 1993
5.00% 10/01/11 1,000 983,750
Knowlton Township Board of
Education Unlimited Tax General
Obligation Bonds Series 1991
6.60% 08/15/11 169 195,617
Lacey Township Water Authority
Revenue Bonds Series 1993
6.00% 12/01/12 1,000 1,066,250
Landis Sewer Authority Revenue
Bonds Series 1993
5.40% 10/01/06 500 528,125
Medford Township Board of Education
Unlimited Tax General Obligation
Bonds Series 1995
5.95% 02/01/11 500 527,500
Mercer County Improvement Revenue
Bonds (Government Lease
Program) Series 1990
7.25% 12/01/98 985 1,081,037
Mercer County Improvement Revenue
Bonds (Hamilton Lease Project)
Series 1993
5.25% 12/15/14 1,000 1,000,000
Mercer County Improvement Revenue
Bonds (Hamilton Board of Education
Project) Series 1992
5.90% 06/01/03 500 541,250
Middletown Township Sewer Authority
Revenue Bonds Series 1993A
5.05% 01/01/07 1,095 1,110,056
Millburn Township School District
Unlimited Tax General Obligation
Bonds Series 1995
5.35% 07/15/10 1,150 1,193,125
See accompanying notes to financial statements.
7
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NEW JERSEY (CONTINUED)
Moorestown Township School District
Unlimited Tax General Obligation
Bonds Series 1991
6.60% 06/01/05 450 $ 513,562
Morris City General Obligation Bonds
Series 1995
6.00% 07/15/04 2,443 2,705,622
Morris County Unlimited Tax General
Obligation Bonds Series 1995
5.00% 07/15/13 1,000 988,750
Morris Township Unlimited Tax
General Obligation Bonds
Series 1991
6.55% 07/01/01 500 560,000
Morristown Unlimited Tax General
Obligation Bonds Series 1995
6.40% 08/01/14 500 556,875
New Jersey Building Authority
Revenue Bonds Series 1989
7.15% 06/15/99 200 220,250
7.20% 06/15/00 1,200 1,341,000
New Jersey Economic Development
Authority Marketing Transition
Facility Revenue Bonds
Series 1991A
5.70% 07/01/05 1,500 1,618,125
New Jersey Economic Development
Authority Revenue Bonds (Invamed
Income Project) Series 1995
6.00% 07/01/06 300 319,500
6.10% 07/01/07 200 213,000
New Jersey Economic Development
Authority Revenue Bonds
Series 1989
6.625% 06/15/01 1,050 1,169,438
New Jersey Economic Development
Authority Revenue Bonds
Series 1995
5.55% 08/01/04 565 605,963
5.95% 06/01/05 865 903,925
New Jersey Health Care Facilities
Financing Authority Revenue Bonds
(Dover General Hospital and
Medical Center) Series 1994
5.875% 07/01/12 500 528,750
New Jersey Health Center Facilities
Financing Authority Revenue Bonds
Series 1990
7.25% 02/15/21 1,000 1,092,500
PAR
MATURITY (000) VALUE
-------- ---------- ---------
New Jersey Health Care Facilities
Financing Authority Revenue Bonds
(St. Clares-Riverside Medical
Center) Series 1994
5.75% 07/01/14 500 $ 518,750
New Jersey Health Care Facility
Financing Authority Revenue Bonds
Series 1994
6.25% 07/01/16 500 541,250
New Jersey Sports and Exposition
Revenue Bonds Series 1993A
5.30% 09/01/09 955 972,906
New Jersey Sports and Exposition
Authority Convention Center Luxury
Tax Revenue Bonds Series 1992A
6.00% 07/01/12 1,000 1,060,000
New Jersey State Highway Authority
Garden State Parkway Revenue
Bonds Series 1992
6.00% 01/01/05 1,350 1,471,500
6.20% 01/01/10 750 826,875
6.25% 01/01/14 500 535,625
New Jersey State Highway Authority
Garden State Parkway Revenue
Bonds Series 1993
4.90% 01/01/05 1,000 1,030,000
New Jersey State Housing and
Mortgage Finance Agency
Revenue Bonds Series 1992A
6.70% 05/01/05 500 537,500
6.70% 11/01/05 1,000 1,075,000
6.95% 11/01/13 750 796,875
New Jersey State Transportation
Authority Revenue Bonds
Series 1992A
6.00% 06/15/00 1,030 1,107,250
New Jersey State Turnpike Authority
Revenue Bonds Series 1991A
6.40% 01/01/02 250 271,563
6.90% 01/01/14 970 977,818
New Jersey State Turnpike Authority
Revenue Bonds Series 1991C
6.25% 01/01/10 1,350 1,431,000
6.50% 01/01/16 500 556,875
New Jersey State Unlimited Tax
General Obligation Bonds
Series 1987
7.40% 04/15/06 500 529,375
See accompanying notes to financial statements.
8
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NEW JERSEY (CONTINUED)
New Jersey State Unlimited Tax
General Obligation Bonds
Series 1989C
6.50% 01/15/04 1,000 $1,080,000
6.50% 01/15/08 1,000 1,082,500
New Jersey State Unlimited Tax
General Obligation Bonds
Series 1990
7.00% 04/01/03 500 565,625
New Jersey State Unlimited Tax
General Obligation Bonds
Series 1991
6.25% 09/15/01 1,000 1,105,000
New Jersey State Unlimited Tax
General Obligation Bonds
Series 1992D
6.00% 02/15/11 2,000 2,207,500
New Jersey State Unlimited Tax
General Obligation Bonds
Series 1997
7.00% 04/01/97 1,350 1,402,313
New Jersey Wastewater Revenue
Bonds Series 1989B
7.00% 05/15/04 950 1,042,625
New Jersey Wastewater Treatment
Trust Revenue Bonds Series 1993
4.60% 03/01/06 1,500 1,492,500
4.80% 03/01/13 1,590 1,506,525
New Jersey State Transportation
Authority Revenue Bonds
Series 1992A
5.40% 06/15/97 500 511,875
Newark Board of Education Unlimited
Tax General Obligation Bonds
Series 1994
5.875% 12/15/13 1,000 1,050,000
North Arlington Unlimited Tax General
Obligation Series 1994
4.80% 02/01/13 441 421,706
North Bergen Township Unlimited Tax
General Obligation Bonds
Series 1992
5.90% 08/15/01 500 538,750
North Jersey Water Supply Revenue
Bonds (Wanaque North Project)
Series 1991A
6.50% 11/15/06 510 567,375
PAR
MATURITY (000) VALUE
-------- ---------- ---------
Northwest Bergen County Revenue
Bonds Series 1992
5.90% 07/15/06 755 $ 823,894
Ocean County Unlimited Tax General
Obligation Bonds Series 1991
6.30% 04/15/97 1,000 1,031,250
6.25% 10/01/01 1,280 1,409,600
Ocean County Unlimited Tax General
Obligation Bonds Series 1993
5.15% 07/01/09 1,000 1,007,500
5.15% 07/01/10 1,250 1,256,250
Ocean County Utility Authority
Revenue Bonds Series 1995A
6.30% 01/01/12 1,005 1,095,450
Parsippany Troy Hills Township
Unlimited Tax General Obligation
Bonds
4.70% 12/01/04 1,000 1,011,250
Passaic Valley Water Commission
Supply Revenue Bonds
Series 1992A
5.95% 12/15/02 500 549,375
Point Pleasant Unlimited Tax General
Obligation Bonds Series 1995
5.70% 12/01/03 500 538,750
Roselle Unlimited Tax General
Obligation Bonds Series 1993
4.85% 10/15/05 1,000 1,011,250
South Jersey Port Corporation
Revenue Bonds Series 1993G
5.50% 01/01/15 2,280 2,282,850
South Plainfield Unlimited Tax General
Obligation Bonds Series 1993
4.75% 09/01/08 1,030 1,014,550
Tinton Falls Schools Unlimited Tax
General Obligation Bonds
Series 1994
5.875% 10/15/09 1,010 1,060,500
Union City Unlimited Tax General
Obligation Bonds Series 1992
6.375% 11/01/07 485 549,869
Wanaque Valley Regular Sewer
Authority Revenue Bonds
Series 1993B
5.65% 09/01/08 585 620,100
Warren County Pollution Control
Financing Authority Revenue
Bonds Series 1992B
5.70% 12/01/03 500 546,250
See accompanying notes to financial statements.
9
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NEW JERSEY (CONTINUED)
Washington Township Unlimited Tax
General Obligation Bonds
Series 1996
5.00% 02/01/04 1,600 $1,650,000
Weehawken Township Unlimited Tax
General Obligation Bonds
Series 1992
6.15% 07/01/04 350 384,563
West Long Branch Board of Education
Unlimited Tax General Obligation
Bonds Series 1994
5.00% 12/15/09 1,380 1,369,650
West Windsor Plainsboro Township
Board of Education General
Obligation Bonds Series 1993
5.80% 03/15/06 1,000 1,082,500
Winslow Township Unlimited Tax
General Obligation Bonds Series
6.40% 10/01/05 870 954,825
Woodbridge Township Unlimited Tax
General Obligation Bonds
Series 1992
5.80% 08/15/03 500 540,625
6.05% 08/15/05 500 543,125
Woodbridge Township Unlimited Tax
General Obligation Bonds
Series 1994B
5.00% 09/15/10 965 948,113
Woodbridge Township Unlimited Tax
General Obligation Bonds
Series 1994C
5.00% 09/15/11 1,000 973,750
-----------
91,720,952
-----------
NEW YORK -- 2.6%
Port Authority Revenue Bonds
Series 1989
7.25% 04/01/14 1,500 1,537,080
Port Authority Revenue Bonds
Series 1993A
5.20% 09/01/13 1,000 1,003,750
-----------
2,540,830
-----------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
PENNSYLVANIA -- 1.5%
Delaware River Joint Toll Bridge
Revenue Bonds Series 1992
6.25% 07/01/12 1,400 $1,491,000
-----------
PUERTO RICO -- 2.2%
Puerto Rico Electric Power Authority
Revenue Bonds Series 1994S
6.125% 07/01/08 1,000 1,122,500
University of Puerto Rico Revenue
Bonds Series 1988L
7.75% 06/01/07 1,015 1,050,180
-----------
2,172,680
-----------
SOUTH CAROLINA -- 0.8%
Charleston County South Carolina
Revenue Bonds Shell Oil Company
Series 1985
3.40% 01/01/07 800 800,000
-----------
TOTAL MUNICIPAL BONDS
(Cost $95,087,580) $98,725,462
-----------
NUMBER
OF SHARES
------------
TEMPORARY INVESTMENTS -- 0.1%
Smith Barney Tax Free Money
Market Fund
(Cost $105,222) 105,222 105,222
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $95,192,802*) 100.8% $98,830,684
LIABILITIES IN EXCESS OF OTHER
ASSETS (.8%) ( 840,478)
------- -----------
NET ASSETS (Applicable to 8,438,691
Service Shares and 1,237
Investor A Shares outstanding) 100.0% $97,990,206
======= ===========
See accompanying notes to financial statements.
10
<PAGE>
COMPASS CAPITAL FUNDS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
JANUARY 31, 1996
- -------------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
-------- ---------- ---------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
SERVICE SHARE
($97,975,844 / 8,438,691) $11.61
============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($14,362 / 1,237) $11.61
============
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($11.61 / .960) $12.09
============
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a
tax basis is as follows:
Gross unrealized appreciation $ 3,662,331
Gross unrealized depreciation (24,449)
------------
$ 3,637,882
============
See accompanying notes to financial statements.
11
<PAGE>
COMPASS CAPITAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIOD MARCH 1, 1995 THROUGH JANUARY 31, 1996
<TABLE>
<CAPTION>
NEW JERSEY NEW JERSEY
MUNICIPAL TAX-FREE
MONEY MARKET INCOME
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
Investment Income:
Interest ................................................................. $ 1,715,966 $ 4,777,540
-------------- --------------
Expenses:
Investment advisory fee .................................................. 179,660 537,769
Administration fee ....................................................... 80,404 164,026
Custodian fee ............................................................ 8,188 9,758
Transfer agent fee ....................................................... 27,407 68,874
Service fees ............................................................. 7,552 12,814
Distribution fees ........................................................ 2,997 1
Legal and audit .......................................................... 6,831 14,780
Printing ................................................................. 3,488 4,744
Registration fees and expenses ........................................... 5,012 2,550
Organization ............................................................. 10,845 7,914
Trustees' fees and officer's salary ...................................... 2,222 3,853
Other .................................................................... (7,776) 16,632
-------------- --------------
326,830 843,715
Less fees voluntarily waived ............................................. (17,527) (13,871)
-------------- --------------
Total expenses ........................................................ 309,303 829,844
-------------- --------------
Net investment income .................................................... 1,406,663 3,947,696
-------------- --------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions .................... (285) 366,047
Change in unrealized appreciation on investments ......................... -- 5,294,882
-------------- --------------
Net gain (loss) on investments ........................................... (285) 5,660,929
-------------- --------------
Net increase in net assets resulting from operations ..................... $ 1,406,378 $ 9,608,625
============== =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
COMPASS CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL NEW JERSEY TAX-FREE
MONEY MARKET PORTFOLIO INCOME PORTFOLIO
--------------------------- ----------------------------
FOR THE FOR THE
PERIOD PERIOD
3/1/95 FOR THE 3/1/95 FOR THE
THROUGH YEAR ENDED THROUGH YEAR ENDED
1/31/96 2/28/95 1/31/96 2/28/95
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Increase in net assets:
Operations
Net investment income ............................... $ 1,406,663 $ 975,000 $ 3,947,696 $ 4,781,000
Net realized gain (loss) on investments ............. (285) (7,000) 5,660,929 (4,062,000)
----------- ----------- ----------- ------------
Net increase in net assets resulting
from operations ................................... 1,406,378 968,000 9,608,625 719,000
----------- ----------- ----------- ------------
Distributions to shareholders from:
Net investment income
Institutional Shares .............................. (5,649) -- -- --
Service Shares** .................................. (1,388,324) (975,000) (3,798,344) (4,773,000)
Investor A Shares ................................. (22,768) -- (1) --
----------- ----------- ----------- ------------
Total distributions from net investment
income ....................................... (1,416,741) (975,000) (3,798,345) (4,773,000)
----------- ----------- ----------- ------------
Net realized gains
Service Shares .................................... -- -- -- (73,000)
----------- ----------- ----------- ------------
Total distributions from net realized gains .... -- -- -- (73,000)
----------- ----------- ----------- ------------
Total distributions to shareholders ............ (1,416,741) (975,000) (3,798,345) (4,846,000)
----------- ----------- ----------- ------------
Capital share transactions .......................... 39,215,073 4,209,000 (4,677,074) (10,370,000)
----------- ----------- ----------- ------------
Total increase (decrease) in net assets ............. 39,204,710 4,202,000 1,133,206 (14,497,000)
Net assets:
Beginning of period ................................. 43,610,000 39,408,000 96,857,000 111,354,000
----------- ----------- ----------- ------------
End of period ....................................... $82,814,710 $43,610,000 $97,990,206 $96,857,000
=========== =========== =========== ===========
<FN>
- --------
** Service Shares includes all activity of the prior class of shares for all periods before January 13, 1996, the date of
the merger.
</FN>
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
COMPASS CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS3
-------------------- ---------------------------------------------------------
FOR THE FOR THE
PERIOD FOR THE PERIOD
1/16/96 1 PERIOD FOR THE FOR THE FOR THE 7/1/91 1
THROUGH ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
1/31/96 1/31/96 2/28/95 2/28/94 2/28/93 2/28/92
-------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income ......................... 0.00 0.03 0.02 0.02 0.02 0.02
Net gain (loss) on investments ................ -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Total from investment operations .......... 0.00 0.03 0.02 0.02 0.02 0.02
-------- ------- ------- ------- ------- -------
Less distributions
Distributions from net investment income ...... 0.00 (0.03) (0.02) (0.02) (0.02) (0.02)
Distributions from net realized capital gains . -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Total distributions ....................... 0.00 (0.03) (0.02) (0.02) (0.02) (0.02)
-------- ------- ------- ------- ------- -------
Net asset value at end of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= =======
Total return .................................... 3.07%2 3.23%2 2.46% 1.79% 2.19% 3.53%2
Ratios/Supplemental data
Net assets at end of period (in thousands) .... $ 4,195 $56,958 $43,610 $39,408 $38,836 $35,005
Ratios of expenses to average net assets
After advisory/administration fee waivers ... 0.29%2 0.70%2 0.63% 0.65% 0.73% 0.47%2
Before advisory/administration fee waivers .. 0.78%2 0.74%2 0.70% 0.72% 0.76% 0.62%2
Ratios of net investment income to average
net assets
After advisory/administration fee waivers ... 3.07%2 3.17%2 2.46% 1.77% 2.17% 3.44%2
Before advisory/administration fee waivers .. 2.58%2 3.13%2 2.39% 1.70% 2.14% 3.29%2
- --------
<FN>
1 Commencement of operations.
2 Annualized.
3 Service Class includes all activity of the prior class of shares for all periods before January 13, 1996, the date of
the merger.
</FN>
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
COMPASS CAPITAL FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL
MONEY MARKET PORTFOLIO
-------------------------
INVESTOR A CLASS
-------------------------
FOR THE
PERIOD
1/16/96 1
THROUGH
1/31/96
-------------------------
<S> <C>
Net asset value at beginning of year ........................................... $ 1.00
-------
Income from investment operations
Net investment income ........................................................ 0.00
Net gain (loss) on investments ............................................... --
-------
Total from investment operations ......................................... 0.00
-------
Less distributions
Distributions from net investment income ..................................... 0.00
Distributions from net realized capital gains ................................ --
-------
Total distributions 0.00
-------
Net asset value at end of period ............................................... $ 1.00
=======
Total return ................................................................... 2.66%2
Ratios/Supplemental data
Net assets at end of period (in thousands) ................................... $21,662
Ratios of expenses to average net assets
After advisory/administration fee waivers .................................. 0.71%2
Before advisory/administration fee waivers ................................. 1.20%2
Ratios of net investment income to average net assets
After advisory/administration fee waivers .................................. 2.66%2
Before advisory/administration fee waivers ................................. 2.17%2
- ---------
<FN>
1 Commencement of operations.
2 Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
COMPASS CAPITAL FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
NEW JERSEY TAX-FREE INCOME PORTFOLIO
----------------------------------------------------- INVESTOR
SERVICE CLASS4 A CLASS
------------------------------------------------------ --------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
3/1/95 YEAR YEAR YEAR 7/01/91 1 1/26/96 1
THROUGH ENDED ENDED ENDED THROUGH THROUGH
1/31/96 2/28/95 2/28/94 2/28/93 2/29/92 1/31/96
-------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ............... $ 10.94 $ 11.31 $ 11.30 $ 10.46 $ 10.00 $ 11.54
------- ------- -------- ------- ------- -------
Income from investment operations
Net investment income ............................. 0.46 0.51 0.54 0.52 0.34 0.00
Net gain (loss) on investments (both
realized and unrealized) ........................ 0.65 (0.36) 0.04 0.85 0.45 0.07
------- ------- -------- ------- ------- -------
Total from investment operations ............. 1.11 0.15 0.58 1.37 0.79 0.07
------- ------- -------- ------- ------- -------
Less distributions
Distributions from net investment income .......... (0.44) (0.51) (0.54) (0.53) (0.33) 0.00
Distributions from net realized capital gains ..... -- (0.01) (0.03) -- -- --
------- ------- -------- ------- ------- -------
Total distributions ........................... (0.44) (0.52) (0.57) (0.53) (0.33) 0.00
------- ------- -------- ------- ------- -------
Net asset value at end of period ..................... $ 11.61 $ 10.94 $ 11.31 $ 11.30 $ 10.46 $ 11.61
======= ======= ======= ======= ======= =======
Total return ......................................... 10.35%3 1.49% 5.18% 13.48% 8.02%3 0.63%3
Ratios/Supplemental data
Net assets at end of period (in thousands) ........ $97,976 $96,857 $111,354 $47,169 $10,673 $ 14
Ratios of total expenses to average net assets
After advisory/administration fee waivers ....... 0.88%2 0.79% 0.38% 0.48% 0.52%2 1.02%2
Before advisory/administration fee waivers ...... 0.90%2 0.87% 0.86% 1.04% 1.29%2 1.36%2
Ratios of net investment income to average
net assets
After advisory/administration fee waivers ....... 4.43%2 4.71% 4.75% 5.04% 5.35%2 2.79%2
Before advisory/administration fee waivers ...... 4.41%2 4.63% 4.27% 4.48% 4.58%2 2.45%2
Portfolio turnover rate .............................. 26% 28% 12% 16% 0% 26%
- --------
<FN>
1 Commencement of operations.
2 Annualized.
3 Not annualized.
4 Service Class includes all activity of the prior class of shares for all periods beforeJanuary 13, 1996, the date of
the merger.
</FN>
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
THE COMPASS CAPITAL GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
Compass Capital Funds (the "Fund") formerly The PNC Fund, was organized on
December 22, 1988 as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund consists of twenty-eight separate Portfolios: Money Market
Portfolio, Municipal Money Market Portfolio, U.S. Treasury Money Market
Portfolio, Ohio Municipal Money Market Portfolio, Pennsylvania Municipal Money
Market Portfolio, North Carolina Municipal Money Market Portfolio, Virginia
Municipal Money Market Portfolio, New Jersey Municipal Money Market Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Select Equity Portfolio, Index Equity Portfolio, Small Cap Value
Equity Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio, Balanced Portfolio, Managed Income Portfolio, Tax-Free Income
Portfolio, Core Bond Portfolio, Intermediate Government Bond Portfolio, Ohio
Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio, New Jersey
Tax-Free Income Portfolio, Short Government Bond Portfolio, Intermediate Bond
Portfolio, International Bond Portfolio and Government Income Portfolio.
On September 29, 1995 and October 2, 1995, respectively, the Board of
Trustees of the Fund and the Board of Trustees of The Compass Capital Group of
Funds ("Compass") approved an asset purchase agreement providing for the
transfer of all of the assets and liabilities of the New Jersey Municipal Money
Fund (the "Predecessor Money Fund") and the New Jersey Municipal Bond Fund (the
"Predecessor Bond Fund" and, collectively with the Predecessor Money Fund, the
"Predecessor Funds") of Compass to the New Jersey Municipal Money Market and the
New Jersey Tax-Free Income Portfolios, respectively, of the Fund. At a special
meeting of shareholders held on December 11, 1995, the shareholders of the
Predecessor Funds voted to approve the asset purchase agreement. Pursuant to the
asset purchase agreement, on January 13, 1996 all of the assets and liabilities
of the Predecessor Money Fund and the Predecessor Bond Fund were transferred to
the New Jersey Municipal Money Market Portfolio and the New Jersey Tax-Free
Income Portfolio, respectively, and each Portfolio assumed the prior operating
history of its corresponding Predecessor Fund. This report relates solely to the
New Jersey Municipal Money Market and New Jersey Tax-Free Income Portfolios (the
"Portfolios").
Each Portfolio has five classes of shares, one class being referred to as
the Service shares, one class being referred to as the Institutional shares, one
class being referred to as the Investor A shares, one class being referred to as
the Investor B shares, and one class being referred to as the Investor C shares.
No Institutional shares had been issued for the New Jersey Tax-Free Income
Portfolio, and no Investor B or Investor C shares have been issued for either
Portfolio through January 31, 1996. Series A Investor, Series B Investor, Series
C Investor, Institutional and Service shares in a Portfolio represent equal pro
rata interests in such Portfolio, except that they bear different expenses which
reflect the difference in the range of services provided to them. Pursuant to
the Fund's Amended and Restated Distribution and Service Plan (the "Plan"),
Series A Investor shares may bear the expense of distribution fees at an annual
rate not to exceed .10% of the average daily net asset value of each Portfolio's
outstanding Series A Investor shares. Under the Plan, Series A Investor shares
may also bear the expense of service fees and shareholder processing fees at
annual rates not to exceed .25% and .15%, respectively, of the average daily net
asset value of each Portfolio's outstanding Series A Investor shares. Pursuant
to the Plan, Series B and Series C Investor shares may bear the expense of
distribution fees at an annual rate not to exceed .75% of the average daily net
asset value of each Portfolio's outstanding Series B and Series C Investor
shares, respectively. Under the Plan, Series B and Series C Investor shares may
also bear the expense of service fees and shareholder processing fees at annual
rates not to exceed .25% and .15%, respectively, of the average daily net assets
of each Portfolio's Series B and Series C Investor shares, respectively.
Pursuant to the Plan, Service shares may bear the expense of service fees and
shareholder processing fees at annual rates not to exceed .15% and .15%,
respectively, of the average daily net assets of each Portfolio's outstanding
Service shares. Institutional shares do not bear the expense of distribution
fees, service fees or shareholder processing fees under the Plan. In addition,
Institutional and Service shares bear a Transfer
17
<PAGE>
THE COMPASS CAPITAL GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
Agent fee at an annual rate not to exceed .03% and Series A Investor,
Series B Investor and Series C Investor shares bear a Transfer Agent fee at an
annual rate not to exceed .10% of the average daily net assets of such
respective classes.
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION--Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Tax-exempt bonds are valued
on the basis of quotations provided by a pricing service which uses information
with respect to transactions on bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Short-term obligations with maturities of
60 days or less are valued at amortized cost which approximates market value.
Under this method, securities are valued at cost when purchased and thereafter,
a constant proportionate amortization of any discount or premium is recorded
until the maturity of the security. With respect to the New Jersey Municipal
Money Market Portfolio, the Fund seeks to maintain the net asset value per share
at $1.00, and regular review and monitoring of the amortized cost valuation is
performed in an attempt to avoid dilution or other unfair results to
shareholders. Discounts and premiums on debt securities are amortized for book
and tax purposes using the effective yield-to-maturity method over the term of
the instrument.
DIVIDENDS TO SHAREHOLDERS--The net investment income of each Portfolio is
declared daily to investors who are shareholders of such Portfolio at, and whose
payment for share purchases are available to the particular Portfolio in Federal
funds by, the close of business on the day of declaration. Net realized capital
gains, if any, will be distributed at least annually. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for Federal income tax
purposes due to differences between generally accepted accounting principles and
tax accounting, related to the character of income and expense recognition.
FEDERAL TAXES--No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
SECURITY TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Certain expenses, principally fees relating to the Plan, are class specific
expenses. Expenses not directly attributable to a specific Portfolio or class
are allocated among all of the Portfolios or classes of the Fund based on their
relative net assets.
ORGANIZATION COSTS--Costs incurred by each Portfolio in connection with its
organization, registration and initial public offering have been deferred and
are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Asset Management Group,
Inc. ("PAMG"), which is a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as adviser for the New Jersey Tax-Free Income
Portfolio and PNC Institutional Management Corporation ("PIMC") serves as
adviser for the New Jersey Municipal Money Market Portfolio. PNC Bank serves as
sub-adviser for the New Jersey Municipal Money Market Portfolio. BlackRock
Financial Management, Inc. ("BlackRock"), a wholly-owned sub-
18
<PAGE>
THE COMPASS CAPITAL GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
sidiary of PAMG, serves as sub-adviser for the New Jersey Tax-Free Income
Portfolio. PNC Bank, PAMG, PIMC and BlackRock are indirect wholly-owned
subsidiary of PNC Bank Corp.
For its advisory services, PAMG and PIMC are entitled to receive fees at
the following annual rates, computed daily and payable monthly, based on each
Portfolio's average daily net assets: New Jersey Municipal Money Market
Portfolio -- .45% of the first $1 billion, .40% of the next $1 billion, .375% of
the next $1 billion and .35% of net assets in excess of $3 billion; and New
Jersey Tax-Free Income Portfolio -- .50% of the first $1 billion, .45% of the
next $1 billion, .425% of the next $1 billion and .40% of net assets in excess
of $3 billion. Prior to January 2, 1996, Midlantic served as adviser to the
Portfolios at the following annual rates, based on each Portfolio's average
daily net assets: of .40% for the New Jersey Municipal Money Portfolio and .60%
for the New Jersey Tax-Free Income Portfolio.
PAMG and PIMC may, at their discretion, waive all or any portion of their
advisory fee for the Portfolios. For the period ended January 31, 1996, advisory
fees and waivers for each Portfolio were as follows:
GROSS NET ADVISORY
ADVISORY FEE WAIVER FEE
--------------- -------- ---------------
New Jersey Municipal Money
Market Portfolio $179,660 $13,836 $165,824
New Jersey Tax-Free Income
Portfolio 537,769 8,520 529,249
PAMG and PIMC pay BlackRock and PNC Bank, respectively, fees for their
sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
Compass Capital Group, Inc. ("CCG") and Compass Distributors, Inc. ("CDI") act
as co-administrators for the Fund. The combined administration fee is computed
daily and payable monthly, based on a percentage of the average daily net assets
of each Portfolio, at the following annual rates: New Jersey Municipal Money
Market Portfolio -- .18% of the first $500 million, .16% of the next $500
million, .14% of the next $1 billion and .13% of average daily net assets in
excess of $2 billion; and New Jersey Tax-Free Income Portfolio -- .23% of the
first $500 million, .21% of the next $500 million, .19% of the next $1 billion
and .18% of average daily net assets in excess of $2 billion. Prior to January
16, 1996, SEI Financial Services Company served as Administrator to the
Portfolios at an annual rate of .18% of average daily net assets.
PFPC, CDI and CCG may, at their discretion, voluntarily waive all or any
portion of their administration fees for any Portfolio. For the period ended
January 31, 1996, administration fees and waivers for each Portfolio were as
follows:
GROSS NET
ADMINISTRATION ADVISORY
FEE WAIVER FEE
----------------- -------- ----------
New Jersey Municipal Money
Market Portfolio $ 80,404 $3,691 $ 76,713
New Jersey Tax-Free Income
Portfolio 164,026 5,351 158,675
19
<PAGE>
THE COMPASS CAPITAL GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
In addition, PNC Bank serves as custodian for the Portfolios. PFPC serves
as transfer and dividend disbursing agent.
PIMC, PFPC and CDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the period ended January
31, 1996.
(C) PURCHASES AND SALES OF SECURITIES
For the period ended January 31, 1996, purchases and sales of securities
for the New Jersey Tax-Free Income Portfolio, other than short-term and
government securities, were $23,728,847 and $26,257,462 respectively.
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------
FOR THE PERIOD ENDED FOR THE YEAR ENDED
1/31/96 2/28/95
--------------------------------------------------------------
SHARES VALUE SHARES VALUE
------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Prior Class
Exchanged in merger (56,147,148) ($56,147,148) 0 $ 0
Shares sold 68,505,533 68,505,533 70,309,000 70,309,000
Shares issued in reinvestment of dividends 124,356 124,356 64,000 64,000
Shares redeemed (56,100,370) (56,100,370) (66,164,000) (66,164,000)
----------- ----------- ----------- -----------
(43,617,629) (43,617,629) 4,209,000 4,209,000
Institutional Class
Shares sold 0 0 0 0
Shares issued in merger 4,195,000 4,195,000 0 0
Shares issued in reinvestment of dividends 0 0 0 0
Shares redeemed 0 0 0 0
------------ ------------ ------------ ------------
4,195,000 4,195,000 0 0
Service Class
Exchanged in merger 56,147,148 56,154,777 0 0
Shares sold 2,238,112 2,238,112 0 0
Shares issued in merger 559,547 559,547 0 0
Shares issued in reinvestment of dividends 0 0 0 0
Shares redeemed (1,976,807) (1,976,807) 0 0
------------ ------------ ------------ ------------
56,968,000 56,975,629 0 0
Investor A Class
Shares sold 12,203,184 12,203,184 0 0
Shares issued in merger 12,053,281 12,053,281 0 0
Shares issued in reinvestment of dividends 45,768 45,768 0 0
Shares redeemed (2,640,160) (2,640,160) 0 0
------------ ------------ ------------ ------------
21,662,073 21,662,073 0 0
Net Increase 39,207,444 $39,215,073 4,209,000 $4,209,000
============ ============ ============ ============
</TABLE>
20
<PAGE>
THE COMPASS CAPITAL GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
<TABLE>
<CAPTION>
(D) CAPITAL SHARES (CONTINUED)
NEW JERSEY TAX-FREE INCOME PORTFOLIO
------------------------------------------------------------
FOR THE PERIOD ENDED FOR THE YEAR ENDED
1/31/96 2/28/95
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Prior Class
Exchanged in merger (8,451,862) ($94,366,666) 0 $ 0
Shares sold 790,370 8,844,324 2,019,000 21,923,000
Shares issued in reinvestment of dividends 122,048 1,368,581 180,000 1,934,000
Shares redeemed (1,317,562) (14,786,239) (3,191,000) (34,227,000)
---------- ------------ ---------- -----------
(8,857,006) (98,940,000) (992,000) (10,370,000)
Service Class
Exchanged in merger 8,451,862 94,366,666 0 0
Shares sold 75,252 843,989 0 0
Shares issued in reinvestment of dividends 0 0 0 0
Shares redeemed (83,191) (962,039) 0 0
---------- ------------ ---------- -----------
8,443,923 94,248,616 0 0
Investor A Class
Shares sold 1,237 14,310 0 0
Shares issued in reinvestment of dividends 0 0 0 0
Shares redeemed 0 0 0 0
---------- ------------ ---------- -----------
1,237 14,310 0 0
Net decrease (411,846) ($4,677,074) (992,000) ($10,370,000)
========== ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
(E) AT JANUARY 31, 1996, NET ASSETS CONSISTED OF:
NEW JERSEY NEW JERSEY
MUNICIPAL TAX-FREE
MONEY MARKET INCOME
PORTFOLIO PORTFOLIO
------------ -----------
<S> <C> <C>
Capital paid-in $82,822,132 $94,262,926
Undistributed net investment income -- 156,351
Accumulated net realized gain (loss) on
investment transactions (7,422) (66,953)
Net unrealized appreciation (depreciation) on investments -- 3,637,882
------------ -----------
$82,814,710 $97,990,206
============ ===========
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE COMPASS CAPITAL FUNDS:
We have audited the accompanying statements of net assets of the New Jersey
Municipal Money Market and the New Jersey Tax-Free Income Portfolios, formerly
the Compass CapitalNew Jersey Municipal Money Market Fund and the Compass
Capital New Jersey Municipal Bond Fund, respectively, prior to the merger on
January 13, 1996, of The Compass Capital Funds, as of January 31, 1996, and the
related statement of operations for the period from March 1, 1995 to January 31,
1996, the statements of changes in net assets for the period from March 1, 1995
to January 31, 1996 and for the year ended February 28, 1995, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian and brokers as of January 31, 1996. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
New Jersey Municipal Money Market and the New Jersey Tax Free Income Portfolios
of The Compass Capital Funds, as of January 31, 1996 and the results of their
operations for the period from March 1, 1995 to January 31, 1996, the changes in
their net assets for the period from March 1, 1995 to January 31, 1996 and for
the year ended February 28, 1995, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 15, 1996
22
<PAGE>
============================================
Investment Adviser -- New Jersey
Municipal Money Market Portfolio
PNC Institutional Management Corporation
Wilmington, Delaware 19809
Sub-Adviser -- New Jersey Municipal
Money Market Portfolio and Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Investment Adviser -- New Jersey
Tax-Free Income Portfolio
PNC Asset Management Group, Inc.
Philadelphia, Pennsylvania 19101
Sub-Adviser -- New Jersey Tax-Free
Income Portfolio
BlackRock Financial Management, Inc.
New York, New York 10154
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Compass Distributors, Inc.
Radnor, Pennsylvania 19087
Co-Administrator
Compass Capital Group, Inc.
New York, New York 10154
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand,L.L.P.
Philadelphia, Pennsylvania 19103
============================================
