<PAGE>
January 1, 1997
- --------------------------------------------------------------------------------
THE EQUITY PORTFOLIOS INVESTOR SHARES
- --------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 9
What Are The Portfolios?..................................... 19
What Are The Differences Among The Portfolios?............... 20
What Additional Investment Policies And Risks Apply?......... 22
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 31
Who Manages The Fund?........................................ 32
What Pricing Options Are Available To Investors?............. 38
What Are The Key Considerations In Selecting A Pricing
Option?..................................................... 40
How Are Shares Purchased?.................................... 41
How Are Shares Redeemed?..................................... 42
What Are The Shareholder Features Of The Fund?............... 44
What Is The Schedule Of Sales Charges And Exemptions?........ 46
How Is Net Asset Value Calculated?........................... 50
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 50
How Are Fund Distributions Taxed?............................ 51
How Is the Fund Organized?................................... 52
How Is Performance Calculated?............................... 54
Other Information On The Performance Of PNC Equity Advisors
Company..................................................... 55
How Can I Get More Information?.............................. 57
</TABLE>
This Prospectus contains information about the Compass Capital
equity Portfolios that a prospective investor needs to know be-
fore investing. Please keep it for future reference. A Statement
of Additional Information dated January 1, 1997 has been filed
with the Securities and Exchange Commission (the "SEC"). The
Statement of Additional Information may be obtained free of
charge from the Fund by calling (800) 441-7762. The Statement of
Additional Information, as supplemented from time to time, is in-
corporated 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED.
The Index Equity Portfolio seeks to achieve its investment objec-
tive by investing all of its investable assets in a series of
shares (the "Index Master Portfolio") of The DFA Investment Trust
Company, another open-end management investment company, rather
than through a portfolio of various securities. The investment
experience of the Index Equity Portfolio corresponds directly
with the investment experience of the Index Master Portfolio. The
Index Master Portfolio has substantially the same investment ob-
jective, policies and limitations as the Index Equity Portfolio
and, except as specifically 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 COMPASS CAPITAL FUND Family consists of 30 portfolios and
has been structured to include many different investment styles
so that investors may participate across multiple disciplines
in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of
eleven diversified investment portfolios (the "Portfolios")
that provide investors with a broad spectrum of investment al-
ternatives within the equity sector. Eight of these Portfolios
invest in U.S. stocks, two Portfolios invest in non-U.S. inter-
national stocks and one Portfolio invests in a combination of
U.S. stocks and bonds. A detailed description of each Portfolio
begins on page 19 and a summary of each Performance Benchmark
is contained in the Appendix.
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PERFORMANCE BENCHMARK LIPPER PEER GROUP
<S> <C> <C>
LARGE CAP VALUE Russell 1000 Value Index Growth and Income
EQUITY
LARGE CAP GROWTH Russell 1000 Growth Growth
EQUITY Index
MID-CAP VALUE EQUITY Russell Midcap Value Midcap
Index
MID-CAP GROWTH EQUITY Russell Midcap Growth Midcap
Index
SMALL CAP VALUE Russell 2000 Value Index Small Company Growth
EQUITY
SMALL CAP GROWTH Russell 2000 Growth Small Company Growth
EQUITY Index
INTERNATIONAL EQUITY EAFE Index International
INTERNATIONAL MSCI Emerging Markets
EMERGING Emerging Markets Free
MARKETS Index
SELECT EQUITY S&P 500 Index Growth and Income
INDEX EQUITY S&P 500 Index S&P 500 Index
BALANCED S&P 500 Index and Balanced
Salomon Broad Investment
Grade Index
</TABLE>
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfo-
CAPITAL lios. We intend this document to be an effective tool as you
EQUITY explore different directions in equity investing.
PORTFOLIOS
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective. The Portfolios will hold equity securi-
EQUITY ties, and some or all of the Portfolios may acquire warrants,
INVESTING foreign securities and illiquid securities; enter into repur-
chase and reverse repurchase agreements; lend portfolio securi-
ties to third parties; and enter into futures contracts and op-
tions and forward currency exchange contracts. These and the
other investment practices set forth below, and their associ-
ated risks, deserve careful consideration. Certain risks asso-
ciated with international investments are heightened because of
currency fluctuations and investments in emerging markets. See
"What Additional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased" and "How Are Shares
CAPITAL Redeemed?"
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Investor Shares
of the Portfolios for the fiscal year ended September 30, 1996 as a percentage
of average daily net assets. The figures shown for each Portfolio have been re-
stated to reflect current expenses and fee waivers. Because no Investor C
Shares of the Large Cap Growth Equity, Small Cap Value Equity, International
Equity, International Emerging Markets and Balanced Portfolios and no shares of
any class of the Mid-Cap Value Equity and Mid-Cap Growth Equity Portfolios were
outstanding during the fiscal year ended September 30, 1996, the figures shown
for these share classes under "Other expenses" are estimates for the current
fiscal year. An example based on the summary is also shown.
<TABLE>
<CAPTION>
LARGE CAP LARGE CAP MID-CAP
VALUE EQUITY GROWTH EQUITY VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Front-End
Sales Charge(/1/)
(as a percentage of
offering price) 4.5% None None 4.5% None None 4.5% None None
Maximum Deferred
Sales
Charge(/1/)(/2/)
(as a percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested
Dividends None None None None None None None None None
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after
fee waivers)(/3/) .49% .49% .49% .49% .49% .49% .80% .80% .80%
12b-1 fees(/3/)(/4/) .00 .75 .75 .00 .75 .75 .00 .75 .75
Other operating
expenses
(after fee waivers)
(/3/) .73 .73 .73 .73 .73 .73 .81 .81 .81
---- ---- ---- ---- ---- ---- ---- ---- ----
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .33 .33 .33 .33 .33 .33 .41 .41 .41
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.22% 1.97% 1.97% 1.22% 1.97% 1.97% 1.61% 2.36% 2.36%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55% for each class of each
Portfolio and administration fees would be .21% for each class of the Large
Cap Value Equity Portfolio and .23% for each class of each other 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 ex-
penses during the remainder of the current fiscal year at the levels set
forth in the table. Without waivers, "Other operating expenses" would be:
(i) .78%, .79% and .89%, respectively, for Investor A Shares, Investor B
Shares, and Investor C Shares, and "Total Portfolio operating expenses"
would be: (ii) 1.33%, 1.34% and 1.69%, respectively, for Investor A Shares;
and (iii) 2.08%, 2.09% and 2.44%, respectively, for Investor B Shares and
Investor C Shares. The Portfolios do not expect to incur 12b-1 fees in ex-
cess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?". Long-term investors in Investor Shares may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the National Association of Securities Dealers, Inc. ("NASD").
4.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID-CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH
EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Front-End
Sales Charge(/1/)
(as a percentage of
offering price) 4.5% None None 4.5% None None 4.5% None None
Maximum Deferred
Sales
Charge(/1/)(/2/)
(as a percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested
Dividends None None None None None None None None None
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after
fee waivers)(/3/) .80% .80% .80% .54% .54% .54% .54% .54% .54%
12b-1 fees(/3/)(/4/) .00 .75 .75 .00 .75 .75 .00 .75 .75
Other operating
expenses
(after fee
waivers)(/3/) .81 .81 .81 .79 .79 .79 .79 .79 .79
---- ---- ---- ---- ---- ---- ---- ---- ----
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .41 .41 .41 .39 .39 .39 .39 .39 .39
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.61% 2.36% 2.36% 1.33% 2.08% 2.08% 1.33% 2.08% 2.08%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55%, .80% and .80% for the
Small Cap Growth Equity, Mid-Cap Value Equity and Mid-Cap Growth Equity
Portfolios, respectively, and administration fees would be .23% for each
class of each Portfolio. PAMG and the Portfolios' administrators are under
no obligation to waive or continue waiving their fees, but have informed
the Fund that they expect to waive fees as necessary to maintain the Port-
folios' total operating expenses during the remainder of the current fiscal
year at the levels set forth in the table. Without waivers, "Other operat-
ing expenses" would be: (i) .89%, .80% and .80% respectively, for Investor
A Shares; and (ii) .89%, .80% and .80% respectively, for Investor B Shares
and Investor C Shares; and "Total Portfolio operating expenses" would be:
(iii) 1.69%, 1.35% and 1.35%, respectively, for Investor A Shares; and
(iv) 2.44%, 2.10% and 2.10 respectively, for Investor B Shares and Investor
C Shares. The Portfolios do not expect to incur 12b-1 fees in excess of
.005% with respect to Investor A Shares (otherwise payable at the maximum
rate of .10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" Long-term investors in Investor Shares may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
5.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EMERGING
EQUITY MARKETS
PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 5.0% None None 5.0% None None
Maximum Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested Dividends None None None None None None
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/3/) .70% .70% .70% 1.15% 1.15% 1.15%
12b-1 fees(/3/)(/4/) .00 .75 .75 .00 .75 .75
Other operating expenses
(after fee
waivers)(/3/) .83 .83 .83 1.10 1.10 1.10
---- ---- ---- ---- ---- ----
Shareholder servicing
fee .25 .25 .25 .25 .25 .25
Shareholder processing
fee .15 .15 .15 .15 .15 .15
Other expenses .43 .43 .43 .70 .70 .70
--- --- --- --- --- ---
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.53% 2.28% 2.28% 2.25% 3.00% 3.00%
==== ==== ==== ==== ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .75% and 1.25% for the Inter-
national Equity and International Emerging Markets Portfolios, respective-
ly, and administration fees would be .23% for each class of each Portfolio.
PAMG and the Portfolios' administrators are under no obligation to waive or
continue waiving their fees, but have informed the Fund that they expect to
waive fees as necessary to maintain the Portfolios' total operating ex-
penses during the remainder of the current fiscal year at the levels set
forth in the table. Without waivers, "Other operating expenses" would be:
(i) .88% and 1.10%, respectively, for Investor A Shares; and (ii) .88% and
1.10%, respectively, for Investor B Shares and Investor C Shares; and "To-
tal Portfolio operating expenses" would be: (iii) 1.63% and 2.35%, respec-
tively, for Investor A Shares; and (iv) 2.38% and 3.10%, respectively, for
Investor B Shares and Investor C Shares. The Portfolios do not expect to
incur 12b-1 fees in excess of .005% with respect to Investor A Shares (oth-
erwise payable at the maximum rate of .10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" Long-term investors in Investor Shares may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
6.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECT EQUITY INDEX EQUITY BALANCED
PORTFOLIO PORTFOLIO+ PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Front-End
Sales Charge(/1/)
(as a percentage of
offering price) 4.5% None None 3.0% None None 4.5% None None
Maximum Deferred
Sales
Charge(/1/)(/2/)
(as a percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested
Dividends None None None None None None None None None
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after
fee
waivers)(/3/)(/4/) .50% .50% .50% .025% .025% .025% .50% .50% .50%
12b-1 fees(/3/)(/5/) .00 .75 .75 .00 .75 .75 .00 .75 .75
Other operating
expenses
(after fee
waivers)(/3/) .72 .72 .72 .625 .625 .625 .71 .77 .77
---- ---- ---- ---- ---- ---- ---- ---- ----
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .32 .32 .32 .225 .225 .225 .31 .37 .37
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.22% 1.97% 1.97% .65% 1.40% 1.40% 1.21% 2.02% 2.02%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55% and .55% for the Select
Equity and Balanced Portfolios, respectively, and administration fees would
be .23% for each class of each Portfolio. PAMG and the Portfolios' adminis-
trators 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 Portfolio's total operating expenses during the remainder of
the current fiscal year at the levels set forth in the table. Without waiv-
ers, "Other operating expenses" would be: (i) .80%, .81% and .76% , respec-
tively, for Investor A Shares; and (ii) .80%, .81% and .82%, respectively,
for Investor B Shares and Investor C Shares; and "Total Portfolio operating
expenses" would be: (iii) 1.35%, 1.01% and 1.31%, respectively, for In-
vestor A Shares; and (iv) 2.10%, 1.76% and 2.12%, respectively, for In-
vestor B Shares and Investor C Shares. The Portfolios do not expect to in-
cur 12b-1 fees in excess of .005% with respect to Investor A Shares (other-
wise payable at the maximum rate of .10%) during the current fiscal year.
(4) Advisory fees with respect to the Index Equity Portfolio represent advisory
fees of the Index Master Portfolio.
(5) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selection A Pricing Op-
tion?" Long-term investors in Investor Shares may pay more than the eco-
nomic 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.
7.
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, (2) redemption at the end of each time
period and (3) with respect to Investor B shares only, no redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Large Cap Value Equity Portfolio
A Shares* $57 $82 $109 $186
B Shares (Redemption)** 65 99 129 210***
B Shares (No Redemption) 20 62 106 210***
C Shares 20 62 106 230
Large Cap Growth Equity Portfolio
A Shares* 57 82 109 186
B Shares (Redemption)** 65 99 129 210***
B Shares (No Redemption) 20 62 106 210***
C Shares 20 62 106 230
Mid-Cap Value Equity Portfolio
A Shares* 61 94 N/A N/A
B Shares (Redemption)** 69 111 N/A N/A
B Shares (No Redemption) 24 75 N/A N/A
C Shares 24 75 N/A N/A
Mid-Cap Growth Equity Portfolio
A Shares* 61 94 N/A N/A
B Shares (Redemption)** 69 111 N/A N/A
B Shares (No Redemption) 24 75 N/A N/A
C Shares 24 75 N/A N/A
Small Cap Value Equity Portfolio
A Shares* 58 85 115 198
B Shares (Redemption)** 66 102 134 222***
B Shares (No Redemption) 21 65 112 222***
C Shares 21 65 112 241
Small Cap Growth Equity Portfolio
A Shares* 58 85 115 198
B Shares (Redemption)** 66 102 134 222***
B Shares (No Redemption) 21 65 112 222***
C Shares 21 65 112 241
International Equity Portfolio
A Shares* 65 96 129 223
B Shares (Redemption)** 68 108 144 242***
B Shares (No Redemption) 23 71 122 242***
C Shares 23 71 122 262
International Emerging Markets
Portfolio
A Shares* 72 117 164 296
B Shares (Redemption)** 75 129 179 314***
B Shares (No Redemption) 30 93 158 314***
C Shares 30 93 158 332
Select Equity Portfolio
A Shares* 57 82 109 186
B Shares (Redemption)** 65 99 129 210***
B Shares (No Redemption) 20 62 106 210***
C Shares 20 62 106 230
Index Equity Portfolio
A Shares* 36 50 65 109
B Shares (Redemption)** 59 82 100 147***
B Shares (No Redemption) 17 44 77 147***
C Shares 17 44 77 168
Balanced Portfolio
A Shares* 57 82 108 185
B Shares (Redemption)** 66 100 131 214***
B Shares (No Redemption) 21 63 109 214***
C Shares 21 63 109 235
</TABLE>
* Reflects the imposition of the maximum front-end sales charge at the begin-
ning of the period.
** Reflects the deduction of the deferred sales charge.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
eight years.
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses (including the Index Equity Portfolio's pro
rata share of the Index Master Portfolio's advisory fees and operating ex-
penses) an investor will bear either directly or indirectly. They do not re-
flect any charges that may be imposed by brokers or other institutions directly
on their customer accounts in connection with investments in the Portfolios.
For a detailed description of the expenses, see "Who Manages The Fund?"
The Board of Trustees of the Fund believes that the aggregate per share ex-
penses of the Index Equity Portfolio and the Index Master Portfolio in which
the Index Equity Portfolio's assets are invested are approximately equal to the
expenses which the Index Equity Portfolio would incur if the Fund retained the
services of an investment adviser for the Index Equity Portfolio and the assets
of the Index Equity Portfolio were invested directly in the type of securities
held by the Index Master Portfolio.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
8.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and has been audited by the
Portfolios' independent accountants. This financial information
should be read together with those financial statements. Fur-
ther information about the performance of the Portfolios is
available in the Fund's annual shareholder reports. Both the
Statement of Additional Information and the annual shareholder
reports may be obtained from the Fund free of charge by calling
(800) 441-7762. Information concerning the historical invest-
ment results of Investor A Shares of the Index Equity Portfolio
reflects the financial experience of that Portfolio prior to
its conversion on June 2, 1996 to a feeder portfolio of the In-
dex Master Portfolio. During the periods presented the Large
Cap Growth Equity, Small Cap Value Equity, International Equi-
ty, International Emerging Markets and Balanced Portfolios had
no Investor C Shares outstanding, and the Mid-Cap Value Equity
Portfolio and Mid-Cap Growth Equity Portfolio had not commenced
investment operations.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LARGE CAP VALUE EQUITY PORTFOLIO
(FORMERLY THE VALUE EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
INVESTOR B INVESTOR C
INVESTOR A SHARES SHARES SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR YEAR YEAR YEAR 5/02/92/1/ 1/18/96/1/ 8/16/96/1/
ENDED ENDED ENDED ENDED THROUGH THROUGH THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/96 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.92 $ 11.62 $ 11.69 $ 9.78 $10.00 $ 13.56 $ 14.91
------- ------- ------- ------ ------ ------- -------
Income from investment
operations
Net investment income .28 0.27 0.23 0.22 0.12 0.13 0.02
Net gain (loss) on
investments
(both realized and
unrealized) 2.41 2.56 0.15 1.91 (0.24) 1.80 0.45
------- ------- ------- ------ ------ ------- -------
Total from investment
operations 2.69 2.83 0.38 2.13 (0.12) 1.93 0.47
------- ------- ------- ------ ------ ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.29) (0.28) (0.23) (0.22) (0.10) (0.17) (0.06)
Distributions from net
realized capital gains (0.97) (0.25) (0.22) - - - - - - - -
------- ------- ------- ------ ------ ------- -------
Total distributions (1.26) (0.53) (0.45) (0.22) (0.10) (0.17) (0.06)
------- ------- ------- ------ ------ ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 15.35 $ 13.92 $ 11.62 $11.69 $ 9.78 $ 15.32 $ 15.32
======= ======= ======= ====== ====== ======= =======
Total return 20.52%/3/ 25.22%/3/ 3.32%/3/ 21.95%/3/ (1.19)%/3/ 14.26%/3/ 3.16%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $26,190 $16,910 $10,412 $4,865 $ 16 $ 3,152 $ 205
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.22% 1.11% 1.05% 0.92% 0.85%/2/ 1.92%/2/ 1.80%/2/
Before
advisory/administration
fee waivers 1.31% 1.25% 1.21% 0.95% 0.85%/2/ 2.00%/2/ 1.88%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.93% 2.24% 2.08% 1.96% 2.62%/2/ 1.34%/2/ 1.29%/2/
Before
advisory/administration
fee waivers 1.84% 2.10% 1.92% 1.93% 2.62%/2/ 1.25%/2/ 1.20%/2/
PORTFOLIO TURNOVER RATE 64% 12% 11% 11% 13% 64% 64%
AVERAGE COMMISSION
RATE/4/ $0.0556 N/A N/A N/A N/A $0.0556 $0.0556
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LARGE CAP GROWTH EQUITY PORTFOLIO
(FORMERLY THE GROWTH EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
INVESTOR
INVESTOR A SHARES B SHARES
FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR 5/02/92/1/ 1/24/96/1/
ENDED ENDED ENDED ENDED THROUGH THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/96
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.01 $ 10.16 $ 11.57 $ 9.92 $10.09 $ 13.08
------- ------- ------- ------ ------ -------
Income from investment
operations
Net investment income 0.02 0.08 0.02 0.02 0.08 (0.02)
Net gain (loss) on
investments
(both realized
and unrealized) 2.29 2.87 (1.33) 2.10 (0.10) 1.80
------- ------- ------- ------ ------ -------
Total from investment
operations 2.31 2.95 (1.31) 2.12 (0.02) 1.78
------- ------- ------- ------ ------ -------
LESS DISTRIBUTIONS
Distributions from net
investment income - - (0.10) - - (0.07) (0.15) - -
Distributions from
capital (0.38) - - - - (0.01) - - - -
Distributions from net
realized capital gains - - (0.10) (0.39) - - - -
------- ------- ------- ------ ------ -------
Total distributions (0.38) (0.10) (0.10) (0.47) (0.15) - -
------- ------- ------- ------ ------ -------
NET ASSET VALUE AT END OF
PERIOD $ 14.94 $ 13.01 $ 10.16 $11.57 $ 9.92 $ 14.86
======= ======= ======= ====== ====== =======
Total return 18.18%/3/ 29.26%/3/ (11.38)%/3/ 22.08%/3/ (0.17)%/3/ 13.61%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $16,579 $10,034 $ 5,049 $2,362 $ 239 $ 2,364
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.22% 1.11% 1.05% 0.91% 0.85%/2/ 1.93%/2/
Before
advisory/administration
fee waivers 1.34% 1.29% 1.29% 0.97% 0.86%/2/ 2.05%/2/
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 0.15% 0.76% 0.29% 0.18% 2.07%/2/ (0.47)%/2/
Before
advisory/administration
fee waivers 0.04% 0.58% 0.05% 0.12% 2.06%/2/ (0.58)%/2/
PORTFOLIO TURNOVER RATE 58% 55% 212% 175% 162% 58%
AVERAGE COMMISSION
RATE/4/ $0.0598 N/A N/A N/A N/A $0.0598
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
11.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR 6/02/92/1/ YEAR 10/03/94/1/
ENDED ENDED ENDED ENDED THROUGH ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 15.14 $ 13.58 $ 13.07 $10.14 $10.06 $ 15.06 $ 13.51
------- ------- ------- ------ ------ ------- -------
Income from investment
operations
Net investment income 0.03 - - (0.01) 0.03 0.02 (0.04) (0.05)
Net gain (loss) on
investments
(both realized and
unrealized) 1.69 2.17 0.77 3.02 0.07 1.65 2.21
------- ------- ------- ------ ------ ------- -------
Total from investment
operations 1.72 2.17 0.76 3.05 0.09 1.61 2.16
------- ------- ------- ------ ------ ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.02) - - - - (0.04) (0.01) - - - -
Distributions from net
realized capital gains (0.87) (0.61) (0.25) (0.08) - - (0.87) (0.61)
------- ------- ------- ------ ------ ------- -------
Total distributions (0.89) (0.61) (0.25) (0.12) (0.01) (0.87) (0.61)
------- ------- ------- ------ ------ ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 15.97 $ 15.14 $ 13.58 $13.07 $10.14 $ 15.80 $ 15.06
======= ======= ======= ====== ====== ======= =======
Total return 12.06%/3/ 16.96%/3/ 5.93%/3/ 30.36%/3/ 0.89%/3/ 11.34%/3/ 16.95%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $24,605 $21,563 $16,884 $9,084 $ 62 $ 2,357 $ 1,477
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.32% 1.18% 1.13% 0.94% 0.85%/2/ 2.04% 1.80%/2/
Before
advisory/administration
fee waivers 1.33% 1.28% 1.25% 0.98% 0.89%/2/ 2.05% 1.89%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.20% 0.00% (0.11)% 0.19% 0.51%/2/ (0.50)% (0.61)%/2/
Before
advisory/administration
fee waivers 0.19% (0.09)% (0.23)% 0.15% 0.47%/2/ (0.51)% (0.70)%/2/
PORTFOLIO TURNOVER RATE 50% 31% 18% 41% 17% 50% 31%
AVERAGE COMMISSION
RATE/5/ $0.0580 N/A N/A N/A N/A $0.0580 N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
12.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B INVESTOR C
INVESTOR A SHARES SHARES SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR YEAR YEAR 9/15/93/1/ 1/18/96/1/ 9/6/96/1/
ENDED ENDED ENDED THROUGH THROUGH THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/96 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.98 $10.12 $10.47 $ 9.96 $ 14.87 $ 19.66
------- ------ ------ ------ ------- ------- ---
Income from investment
operations
Net investment income (0.06) (0.02) - - - - (0.07) (0.01)
Net gain (loss) on
investments
(both realized and
unrealized) 6.77 4.88 (0.35) 0.51 6.73 1.88
------- ------ ------ ------ ------- ------- ---
Total from investment
operations 6.71 4.86 (0.35) 0.51 6.66 1.87
------- ------ ------ ------ ------- ------- ---
LESS DISTRIBUTIONS
Distributions from net
investment income - - - - - - - - - - - -
Distributions from net
realized capital gains - - - - - - - - - - - -
------- ------ ------ ------ ------- ------- ---
Total distributions - - - - - - - - - - - -
------- ------ ------ ------ ------- ------- ---
NET ASSET VALUE AT END OF
PERIOD $ 21.69 $14.98 $10.12 $10.47 $ 21.53 $ 21.53
======= ====== ====== ====== ======= ======= ===
Total return 44.79%/3/ 48.02%/3/ (3.33)%/3/ 5.12%/3/ 38.27%/3/ 9.51%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $27,954 $7,348 $1,620 $ 41 $ 6,520 $ 329
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.33% 1.20% 0.86% 1.13%/2/ 2.06%/2/ 1.74%/2/
Before
advisory/administration
fee waivers 1.35% 1.33% 1.42% 1.82%/2/ 2.08%/2/ 1.76%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers (0.55)% (0.24)% 0.07% (0.48)%/2/ (1.34)%/2/ (0.93)%
Before
advisory/administration
fee waivers (0.57)% (0.36)% (0.49)% (1.17)%/2/ (1.36)%/2/ (0.95)%/2/
PORTFOLIO TURNOVER RATE 89% 74% 89% 9% 89% 89%
AVERAGE COMMISSION
RATE/4/ $0.0569 N/A N/A N/A $0.0569 $0.0569
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
13.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR 6/02/92/1/ YEAR 10/03/94/1/
ENDED ENDED ENDED ENDED THROUGH ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.24 $ 13.40 $ 12.47 $ 9.87 $10.68 $ 13.20 $ 13.35
------- ------- ------- ------ ------ ------- -------
Income from investment
operations
Net investment income 0.14 0.11 0.12 0.12 0.09 0.08 0.05
Net gain (loss) on
investments
(both realized and
unrealized) 0.81 0.13 1.15 2.59 (0.83) 0.77 0.16
------- ------- ------- ------ ------ ------- -------
Total from investment
operations 0.95 0.24 1.27 2.71 (0.74) 0.85 0.21
------- ------- ------- ------ ------ ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.16) (0.04) (0.09) (0.11) (0.07) (0.15) - -
Distributions from net
realized capital gains (0.67) (0.36) (0.25) - - - - (0.67) (0.36)
------- ------- ------- ------ ------ ------- -------
Total distributions (0.83) (0.40) (0.34) (0.11) (0.07) (0.82) (0.36)
------- ------- ------- ------ ------ ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 13.36 $ 13.24 $ 13.40 $12.47 $ 9.87 $ 13.23 $ 13.20
======= ======= ======= ====== ====== ======= =======
Total return 7.58%/3/ 2.00%/3/ 10.24%/3/ 27.72%/3/ (6.94)%/3/ 6.81%/3/ 1.77%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $19,842 $17,721 $14,433 $3,669 $ 58 $ 2,692 $ 1,071
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.53% 1.40% 1.35% 1.25% 1.20%/2/ 2.23% 2.06%/2/
Before
advisory/administration
fee waivers 1.64% 1.58% 1.54% 1.31% 1.21%/2/ 2.34% 2.23%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.45% 0.97% 0.96% 1.27% 2.59%/2/ (0.18)% 0.59%/2/
Before
advisory/administration
fee waivers 0.34% 0.80% 0.77% 1.21% 2.58%/2/ (0.29)% 0.41%/2/
PORTFOLIO TURNOVER RATE 70% 105% 37% 31% 16% 70% 105%
AVERAGE COMMISSION
RATE/4/ $0.0158 N/A N/A N/A N/A $0.0158 N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
14.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR
INVESTOR A SHARES B SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 6/17/94/1/ 7/2/96/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/96
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.18 $10.54 $10.00 $ 8.85
------- ------ ------ -------
Income from investment
operations
Net investment income 0.02 0.03 0.02 - -
Net gain (loss) on
investments (both
realized and unrealized) 0.52 (2.14) 0.52 (0.16)
------- ------ ------ -------
Total from investment
operations 0.54 (2.11) 0.54 (0.16)
------- ------ ------ -------
LESS DISTRIBUTIONS
Distributions from net
investment income - - (0.05) - - - -
Distribution from capital - - (0.01) - - - -
Distributions from net
realized capital gains (0.01) (0.19) - - - -
------- ------ ------ -------
Total distributions (0.01) (0.25) - - - -
------- ------ ------ -------
NET ASSET VALUE AT END OF
PERIOD $ 8.71 $ 8.18 $10.54 $ 8.69
======= ====== ====== =======
Total return 6.49%/3/ (20.12)%/3/ 5.40%/3/ (1.81)%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 2,996 $2,563 $2,857 $ 216
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 2.25% 2.20% 2.15%/2/ 2.90%/2/
Before
advisory/administration
fee waivers 2.35% 2.44% 3.13%/2/ 3.00%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.45% 1.54% 0.74% 0.17%/2/
Before
advisory/administration
fee waivers 0.35% 1.30% (0.24)%/2/ 0.07%/2/
PORTFOLIO TURNOVER RATE 44% 75% 4% 44%
AVERAGE COMMISSION RATE/4/ $0.0018 N/A N/A $0.0018
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
15.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SELECT EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B INVESTOR C
INVESTOR A SHARES SHARES SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR YEAR 10/13/93/1/ 3/27/96/1/ 9/27/96/1/
ENDED ENDED THROUGH THROUGH THROUGH
9/30/96 9/30/95 9/30/94 9/30/96 9/30/96
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.88 $ 9.92 $ 9.96 $ 12.83 $ 13.52
------- ------ ------ ------- -------
Income from investment
operations
Net investment income 0.15 0.20 0.18 0.04 - -
Net gain (loss) on
investments (both
realized and
unrealized) 2.07 2.06 (0.03) 0.73 0.02
------- ------ ------ ------- -------
Total from investment
operations 2.22 2.26 0.15 0.77 0.02
------- ------ ------ ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.15) (0.18) (0.19) (0.06) - -
Distributions from net
realized capital gains (0.39) (0.12) - - - - - -
------- ------ ------ ------- -------
Total distributions (0.54) (0.30) (0.19) (0.06) - -
------- ------ ------ ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 13.56 $11.88 $ 9.92 $ 13.54 $ 13.54
======= ====== ====== ======= =======
Total return 19.23%/3/ 23.29%/3/ 1.54%/3/ 6.58%/3/ 0.15%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 6,228 $3,808 $ 601 $ 1,196 $ 50
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.21% 1.12% 1.05%/2/ 1.92%/2/ 0.00%/2/
Before
advisory/administration
fee waivers 1.34% 1.30% 1.34%/2/ 2.04%/2/ 0.00%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.24% 1.91% 1.89%/2/ 0.59%/2/ 0.00%/2/
Before
advisory/administration
fee waivers 1.11% 1.73% 1.60%/2/ 0.46%/2/ 0.00%/2/
PORTFOLIO TURNOVER RATE .55% 51% 88% 55% 55%
AVERAGE COMMISSION
RATE/4/ $0.0487 N/A N/A $0.0487 $0.0487
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
16.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B INVESTOR C
INVESTOR A SHARES SHARES SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR YEAR YEAR YEAR 7/29/92/1/ 2/7/96/1/ 8/14/96/1/
ENDED ENDED ENDED ENDED THROUGH THROUGH THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/96 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.58 $10.93 $11.02 $10.06 $10.07 $ 13.20 $ 13.47
------- ------ ------ ------ ------ ------- -------
Income from investment
operations
Net investment income 0.27 0.34 0.25 0.27 0.10 0.08 0.02
Net gain (loss) on
investments
(both realized and
unrealized) 2.09 2.73 0.04 0.96 (0.01) 0.77 0.50
------- ------ ------ ------ ------ ------- -------
Total from investment
operations 2.36 3.07 0.29 1.23 0.09 0.85 0.52
------- ------ ------ ------ ------ ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.28) (0.30) (0.27) (0.27) (0.10) (0.12) (0.06)
Distributions from net
realized capital gains (1.70) (0.12) (0.11) - - - - - - - -
------- ------ ------ ------ ------ ------- -------
Total distributions (1.98) (0.42) (0.38) (0.27) (0.10) (0.12) - -
------- ------ ------ ------ ------ ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 13.96 $13.58 $10.93 $11.02 $10.06 $ 13.93 $ 13.93
======= ====== ====== ====== ====== ======= =======
Total return 19.31%/3/ 28.77%/3/ 2.66%/3/ 12.33%/3/ 0.91%/3/ 6.50%/3/ 3.90%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $12,752 $6,501 $2,632 $1,263 $ 56 $ 2,904 $ 432
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.65%/4/ 0.61% 0.55% 0.49% 0.45%/2/ 1.38%/2/ 1.25%/2/
Before
advisory/administration
fee waivers 0.97% 0.95% 0.92% 0.61% 0.64%/2/ 1.60%/2/,/4/ 1.43%/2/,/4/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.81% 2.44% 2.35% 2.48% 2.85%/2/ 0.93%/2/ 0.71%/2/
Before
advisory/administration
fee waivers 1.49% 2.10% 1.98% 2.36% 2.66%/2/ 0.71%/2/ 0.53%/2/
PORTFOLIO TURNOVER RATE 18%/5/,/6/ 18% 17% 8% 23% 18%/5/,/6/ 18%/5/,/6/
AVERAGE COMMISSION RATE $0.0319/5/,/6/ N/A N/A N/A N/A $0.0319/5/,/6/ $0.0319/5/,/6/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Including expenses allocated from The U.S. Large Company Series of The DFA
Investment Trust Company of 0.13%.
/5/For the period from October 1, 1995 through May 31, 1996.
/6/See footnotes to the financial statements of The DFA Investment Trust
Company.
17.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR 5/14/90/1/
ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.73 $ 11.98 $ 12.42 $ 11.53 $10.82 $ 9.13 $10.00
------- ------- ------- ------- ------ ------ ------
Income from investment
operations
Net investment income 0.40 0.43 0.32 0.30 0.34 0.38 0.12
Net realized gain (loss)
on investments 1.49 1.88 (0.38) 1.14 1.22 1.77 (0.88)
------- ------- ------- ------- ------ ------ ------
Total from investment
operations 1.89 2.31 (0.06) 1.44 1.56 2.15 (0.76)
------- ------- ------- ------- ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.39) (0.42) (0.32) (0.29) (0.39) (0.34) (0.11)
Distributions from net
realized capital gains (0.13) (0.14) (0.06) (0.26) (0.46) (0.12) - -
------- ------- ------- ------- ------ ------ ------
Total distributions (0.52) (0.56) (0.38) (0.55) (0.85) (0.46) (0.11)
------- ------- ------- ------- ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 15.10 $ 13.73 $ 11.98 $ 12.42 $11.53 $10.82 $ 9.13
======= ======= ======= ======= ====== ====== ======
Total return 13.98%/3/ 19.86%/3/ (0.50)%/3/ 12.80%/3/ 15.17%/3/ 24.04%/3/ (7.64)%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period
(in thousands) $71,899 $67,892 $62,307 $39,529 $8,481 $4,265 $3,960
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.19% 1.07% 1.05% 0.91% 0.95% 1.15% 1.15%/2/
Before
advisory/administration
fee waivers 1.30% 1.28% 1.31% 1.09% 1.51% 1.86% 1.90%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 2.75% 3.38% 2.77% 2.79% 3.28% 3.70% 3.07%/2/
Before
advisory/administration
fee waivers 2.65% 3.16% 2.51% 2.61% 2.72% 2.99% 2.32%/2/
PORTFOLIO TURNOVER RATE 275% 154% 54% 32% 36% 45% 37%
AVERAGE COMMISSION
RATE/4/ $0.0599 N/A N/A N/A N/A N/A N/A
<CAPTION>
INVESTOR B
SHARES
FOR THE
PERIOD
YEAR 10/03/94/1/
ENDED THROUGH
9/30/96 9/30/95
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.69 $11.95
----------- -------------
Income from investment
operations
Net investment income 0.31 0.33
Net realized gain (loss)
on investments 1.47 1.93
----------- -------------
Total from investment
operations 1.78 2.26
----------- -------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (0.38)
Distributions from net
realized capital gains (0.13) (0.14)
----------- -------------
Total distributions (0.43) (0.52)
----------- -------------
NET ASSET VALUE AT END OF
PERIOD $ 15.04 $13.69
=========== =============
Total return 13.14%/3/ 19.38%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period
(in thousands) $ 7,333 $3,124
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.98% 1.72%/2/
Before
advisory/administration
fee waivers 2.09% 1.94%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.99% 2.71%/2/
Before
advisory/administration
fee waivers 1.88% 2.49%/2/
PORTFOLIO TURNOVER RATE 275% 154%/2/
AVERAGE COMMISSION
RATE/4/ $0.0599 N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
18.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 30 portfolios and
has been structured to include many different investment styles
so that investors may participate across multiple disciplines
in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of
eleven investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity
sector. Eight of these Portfolios invest primarily in U.S.
stocks, two Portfolios invest in non-U.S. international stocks
and one Portfolio invests in a combination of U.S. stocks and
bonds.
In certain investment cycles and over certain holding periods,
an equity fund that invests according to a "value" style or a
"growth" style may perform above or below the market. An in-
vestment program that combines these multiple disciplines al-
lows investors to select from among these various product op-
tions in the way that most closely fits the investor's invest-
ment goals and sentiments.
INVESTMENT Each of the eleven Compass Capital Equity Portfolios seeks to
OBJECTIVES provide long-term Capital Appreciation.
The Select Equity, Large Cap Value Equity and Mid-Cap Value Eq-
uity Portfolios pursue a secondary objective of Current Income
from dividends.
The Balanced Portfolio pursues a secondary objective of Current
Income from an allocation to fixed income securities.
To meet its investment objective, each Portfolio employs a spe-
cific investment style, as described on the following two
pages. No assurance can be given that a Portfolio will achieve
its investment objective.
19.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE DIFFERENCES AMONG THE PORTFOLIOS?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
Large Cap Value Pursues equity Stocks with Russell 1000
Equity securities (defined as price/earnings and Value Index
common stocks or price/book ratios at time
securities convertible of purchase below average
into common stocks) for benchmark and
which the sub-adviser capitalization in excess
believes are of $5 billion.
undervalued. A
security's earnings
trend and its dividend
growth rate will also be
factors considered in
security selection.
Large Cap Growth Pursues stocks with Stocks with growth rate Russell 1000
Equity earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
stocks which the sub- capitalization in excess
adviser considers to of $5 billion.
have favorable and
above-average earnings
growth prospects.
Mid-Cap Pursues mid cap stocks Stocks with low Russell Midcap
Value Equity and sectors which the price/earnings, Value Index
sub-adviser believes are price/book, price/cash
undervalued. A flow or price/sales
security's earnings ratios at the time of
trend and its dividend purchase relative to
growth rate will also be their respective sectors
factors considered in or the benchmark and
security selection. capitalization between $1
billion and $5 billion.
Mid-Cap Growth Pursues mid cap stocks Stocks with growth rate Russell Midcap
Equity with earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
stocks which the sub- capitalization between $1
adviser considers to billion and $5 billion.
have favorable and
above-average earnings
growth prospects.
Small Cap Value Pursues small cap stocks Stocks with Russell 2000
Equity which the sub-adviser price/earnings and Value Index
believes are price/book ratios at time
undervalued. A of purchase below average
security's earnings for benchmark and
trend and its dividend capitalization below $1
growth rate will also be billion.
factors considered in
security selection.
Small Cap Growth Pursues small cap stocks Stocks with growth rate Russell 2000
Equity with earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
small cap stocks which capitalization below $1
the sub-adviser billion.
considers to have
favorable and above-
average earnings growth
prospects.
International Pursues non-dollar Portfolio assets are EAFE Index
Equity denominated stocks of primarily invested in
issuers in countries international stocks.
included in the Morgan
Stanley Capital Stocks with
International Europe, price/earnings ratios
Australia and the Far below average for a
East Index ("EAFE"). security's home market or
Within this universe, a stock exchange.
value style of investing
is employed to select Diversification across
stocks which the sub- countries, industry
adviser believes are groups and companies with
undervalued. A investment at all times
security's earnings in at least three foreign
trend and its price countries.
momentum will also be
factors considered in
security selection. The
sub-adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign
countries, expected
levels of inflation,
government policies
influencing business
conditions and the
outlook for currency
relationships.
</TABLE>
*For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
20.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
International Pursues non-dollar Portfolio assets are MSCI Emerging
Emerging Markets denominated stocks of primarily invested in Markets Free
issuers in emerging stocks of emerging market Index
country markets issuers.
(generally any country
considered to be Stocks with
emerging or developing price/earnings ratios
by the World Bank, the below average for a
International Finance security's home market or
Corporation or the stock exchange.
United Nations). Within
this universe, a value Ordinarily, stocks of
style of investing is issuers in at least three
employed to select emerging markets will be
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 Similar sector weightings S&P 500 Index
growth style as sub- as benchmark, with over-
adviser identifies or under-weighting in
market opportunity. particular securities
within those sectors.
Index Equity Invests all of its The Index Master S&P 500 Index
assets indirectly, Portfolio holds
through the U.S. Large substantially all the
Company Series (the stocks of the S&P 500
"Index Master Index in approximately
Portfolio") of The DFA the same proportions as
Investment Trust they are represented in
Company, in the stocks the Index.
of the S&P 500 Index
using a passive
investment style that
pursues the replication
of the S&P 500 Index
return.
Balanced Holds a blend of equity Maintains a minimum 25% S&P 500 and
and fixed income investment in fixed Salomon Broad
securities to deliver income senior securities. Investment
total return through Grade Index
capital appreciation and
current income.
Equity Portion: Combines Equity Portion:
value and growth style Similar sector weightings
as sub-adviser as benchmark, with over-
identifies market or under- weighting in
opportunity. particular securities
within those sectors.
Fixed Income Portion: Fixed Income Portion:
Combines sector rotation Dollar-denominated
and security selection investment grade bonds,
across a broad universe including U.S.
of fixed income Government, mortgage-
securities. 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.
21.
<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 to-
tal assets in equity securities. The Portfolios will invest primarily in eq-
uity securities of U.S. issuers, except the International Equity and Interna-
tional Emerging Markets Portfolios, which will invest primarily in foreign is-
suers. Equity securities include common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity inter-
ests in trusts and partnerships; and depositary 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 Con-
tinental Depository Receipts, are receipts issued in Europe, typically by for-
eign banks and trust companies, that evidence ownership of either foreign or
domestic underlying 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 concerning the issuer may not be as current as for spon-
sored 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 considera-
tions as described below under "International Portfolios."
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment
objective, each Portfolio (other than the Index Master Portfolio) may write
covered call options, buy put options, buy call options and write secured put
options 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, securities indices, or the yield differential between
two securities, or, in the case of the International Equity and International
Emerging Markets Portfolios, foreign currencies, 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 when the ag-
gregate premiums on outstanding options exceed 5% of its net assets at the
time of purchase, and will not write options on more than 25% of the value of
its net assets (measured at the time an option is written). Options trading is
a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corpora-
tion, which performs the obligations of its members if they default.
To the extent consistent with its investment objective, each Portfolio may
also invest in futures contracts and options on futures contracts to commit
funds awaiting investment in stocks or maintain cash liquidity or, except with
respect to the Index Master Portfolio, for other hedging purposes. The value
of a Portfolio's contracts may equal or exceed 100% of its 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
22.
<PAGE>
- --------------------------------------------------------------------------------
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, a Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid 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 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 as a temporary defensive measure if its sub-adviser determines that
market conditions warrant, each Portfolio other than the Index Master Portfolio
may also invest without limitation in high quality money market instruments.
The Balanced Portfolio may also invest in these securities in furtherance of
its investment objective. The Index Master Portfolio may invest a portion of
its assets, normally not more than 5% of its net assets, in certain short-term
fixed income obligations in order to maintain liquidity or to invest temporar-
ily uncommitted cash balances.
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign is-
suers, bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and obli-
gations of supranational organizations. Generally, such obligations will mature
within one year from the date of settlement, but may mature within two years
from the date of settlement. Under a repurchase agreement, a Portfolio agrees
to purchase securities from financial institutions 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 adverse market action, expenses
and/or delays in connection with the disposition of the underlying securities.
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 or market action. When-issued and forward commitment transactions involve
the risk, however, that the price or yield obtained in a transaction may be
less favorable than the price or yield available in the market when the securi-
ties 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 ab-
sent unusual market conditions.
23.
<PAGE>
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REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to borrow money. 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 de-
cline in value suffered by the Portfolio's securities. Borrowings may be made
by each Portfolio through reverse repurchase agreements under which the Portfo-
lio sells portfolio securities to financial institutions such as banks and bro-
ker-dealers and agrees to repurchase them at a particular date and price. A
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 reverse repurchase agree-
ment. The Index Master Portfolio does not intend to invest in reverse repur-
chase agreements. The Balanced Portfolio may utilize reverse repurchase agree-
ments when it is anticipated that the interest income to be earned from the in-
vestment of the proceeds of the transaction is greater than the interest ex-
pense of the transaction. This use of reverse repurchase agreements may be re-
garded as leveraging and, therefore, speculative. Reverse repurchase agreements
involve the risks that the interest income earned in the investment of the pro-
ceeds will be less than the interest expense, that the market value of the se-
curities 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 re-
turned to the Portfolio. During the time a reverse repurchase agreement is out-
standing, a Portfolio will maintain a segregated account with the Fund's custo-
dian containing cash, U.S. Government or other appropriate liquid securities
having a value at least equal to the repurchase price. A Portfolio's reverse
repurchase agreements, together with any other borrowings, will not exceed, in
the aggregate, 33 1/3% of the value of its total assets (33% in the case of the
Index Master Portfolio). In addition, the Balanced Portfolio may borrow up to
an additional 5% of its total assets for temporary purposes. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolios (other than
the Index Master Portfolio and the Balanced Portfolio) will not make any in-
vestments.
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. Such
Portfolios may also invest in securities issued by other investment companies
with similar investment objectives. The International Equity and International
Emerging Markets Portfolios may purchase shares of investment companies invest-
ing primarily in foreign securities, including so-called "country funds." Coun-
try funds have portfolios consisting exclusively of securities of issuers lo-
cated 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 Investment Company Act of 1940 (the "1940
Act"). As a shareholder of another investment company, a Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addi-
tion 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
24.
<PAGE>
- --------------------------------------------------------------------------------
Act. These securities will not be considered illiquid so long as it is deter-
mined by the adviser or sub-adviser that an adequate trading market exists for
the securities. This investment practice could have the effect of increasing
the level of illiquidity in a Portfolio during any period that qualified insti-
tutional buyers become uninterested in purchasing these restricted securities.
SMALL CAP AND MID-CAP 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 organizations (less than $1 billion at
the time of purchase). Similarly, the Mid-Cap Value Equity Portfolio and Mid-
Cap Growth Equity Portfolio will invest, under normal market conditions, at
least 90% (and in any event at least 65%) of their respective total assets in
equity securities of medium-capitalized organizations (between $1 billion and
$5 billion at the time of purchase). These organizations will normally have
more limited product lines, markets and financial resources and will be depen-
dent upon a more limited management group than larger capitalized companies.
INDEX EQUITY AND INDEX MASTER PORTFOLIOS. During normal market conditions, the
Index Master Portfolio (in which all of the assets of the Index Equity Portfo-
lio are invested) invests at least 95% of the value of its total assets in se-
curities included in the Standard & Poor's 500(R) Composite Stock Price Index
(the "S&P 500 Index")*. The Index Master Portfolio intends to invest in all of
the stocks that comprise the S&P 500 Index in approximately the same propor-
tions as they are represented in the Index. The Portfolio operates as an index
portfolio and, therefore, is not actively managed (through the use of economic,
financial or market analysis), and adverse performance will ordinarily not re-
sult in the elimination of a stock from the Portfolio. The Portfolio will re-
main fully invested in common stocks even when stock prices are generally fall-
ing. Ordinarily, portfolio securities will not be sold except to reflect addi-
tions or deletions of the stocks that comprise the S&P 500 Index, including
mergers, reorganizations and similar transactions and, to the extent necessary,
to provide cash to pay redemptions of the Portfolio's shares. The investment
performance of the Index Master Portfolio and the Index Equity Portfolio is ex-
pected 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 and 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 WARRANTY, EXPRESS OR IM-
PLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P
- ------
* "Standard & Poor's(R)," "S&P(R)," "S&P500(R)," "Standard & Poor's 500(R)" and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by the Fund and The DFA Investment Trust Company.
25.
<PAGE>
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MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT 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, Bulgaria, Chile, China, Colombia, The Czech Repub-
lic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, Lebanon, Malay-
sia, Mexico, Morocco, Peru, The Philippines, Poland, Romania, Russia, South Af-
rica, South Korea, Taiwan, Thailand, Tunisia, Turkey, Venezuela, Vietnam and
Zimbabwe. 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 characteristic of more devel-
oped countries. Some of these countries may have in the past failed to recog-
nize private property rights and have at times nationalized or expropriated the
assets of private companies. As a result, the risks described above, including
the risks of nationalization or expropriation of assets, may be heightened. In
addition, unanticipated political or social developments may affect the value
of investments in these countries and the availability to a Portfolio of addi-
tional investments in emerging market countries. The small size and inexperi-
ence of the securities markets in certain of these countries and the limited
volume of trading in securities in these countries may make investments in the
countries illiquid and more volatile than investments in Japan or most Western
European countries. There may be little financial or accounting information
available with respect to issuers located in certain emerging market countries,
and it may be difficult to assess the value or prospects of an investment in
such issuers.
26.
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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. From time to time the International Eq-
uity Portfolio may invest more than 25% of its total assets in the securities
of issuers located in Japan. Investments of 25% or more of the Portfolio's to-
tal assets in this or any other country will make the Portfolio's performance
more dependent upon the political and economic circumstances of a particular
country than a mutual fund that is more widely diversified among issuers in
different countries. For example, in the past events in the Japanese economy as
well as social developments and natural disasters have affected Japanese secu-
rities and currency markets, and have periodically disrupted the relationship
of the Japanese yen with other currencies and with the U.S. dollar.
The International Equity and International Emerging Markets Portfolios may (but
are not required to) use forward foreign currency exchange contracts to hedge
against movements in the value of foreign currencies (including the European
Currency Unit) relative to the U.S. dollar in connection with specific portfo-
lio transactions or with respect to portfolio positions. A forward foreign cur-
rency exchange contract involves an obligation to purchase or sell a specified
currency at a future 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 a Portfolio to establish a rate of ex-
change 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), ob-
ligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities and state and local municipal obligations. These securities
will be rated at the time of purchase within the four highest rating groups as-
signed by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rat-
ings Group ("S&P") or another nationally recognized statistical rating organi-
zation. If unrated, the securities will be determined at the time of purchase
to be of comparable quality by the sub-adviser. Securities rated "Baa" by
Moody's or "BBB" by S&P, respectively, are generally considered to be invest-
ment grade although they have speculative characteristics. If a fixed income
security is reduced below Baa by Moody's or BBB by S&P, the Portfolio's sub-
adviser will dispose of the security in an orderly fashion as soon as practica-
ble. Investments in securities of foreign issuers, which present additional in-
vestment considerations as described above under "International Portfolios,"
will be limited to 5% of the Portfolio's total assets.
The Balanced Portfolio may make significant investments in residential and com-
mercial mortgage-related and other asset-backed securities (i.e., securities
backed by home equity loans, installment sale contracts, credit card receiv-
ables or other assets) issued by governmental entities and private issuers.
The Balanced Portfolio may acquire several types of mortgage-related securi-
ties, including 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 obliga-
tions ("CMOs"), which provide the holder with a specified interest in the cash
flow of a pool of underlying mortgages or other mortgage-backed securities. Is-
suers 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 multi-
ple classes, each with a specified fixed or floating interest rate and a final
distribution date. The relative payment rights of the various CMO classes may
be structured in many ways. In most cases, however, payments of principal are
applied to the CMO classes in the order of their respective stated maturities,
so that no principal payments will be made on a CMO class until all other clas-
ses having an earlier stated maturity date are paid in full. The classes may
include accrual certificates (also known as "Z-Bonds"), which only accrue in-
terest at a specified rate until other specified classes have been retired and
are converted thereafter to interest-paying securities. They may also include
planned amortization classes ("PACs") which generally require, within certain
limits, that specified amounts of principal be applied on each payment date,
and generally exhibit less yield and market volatility than other classes.
27.
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Non-mortgage asset-backed securities involve risks that are not presented by
mortgage-related securities. Primarily, these securities do not have the bene-
fit of the same security interest in the underlying collateral. Credit card re-
ceivables are generally unsecured, and the debtors are entitled to the protec-
tion of a number of state and Federal consumer credit laws 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 vehicles 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.
The yield and maturity characteristics of mortgage-related and other asset-
backed securities differ from traditional debt securities. A major difference
is that the principal amount of the obligations may be prepaid at any time be-
cause the underlying assets (i.e., loans) generally may be prepaid at any time.
The average life of a mortgage-related instrument, in particular, is likely to
be substantially less than the original maturity of the mortgage pools under-
lying the securities as the result of scheduled principal payments and mortgage
prepayments. In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to ex-
perience substantial prepayments.
The relationship between prepayments and interest rates may give some high-
yielding asset-backed securities less potential for growth in value than con-
ventional bonds with comparable maturities. In addition, in periods of falling
interest rates, the rate of prepayments tends to increase. During such periods,
the reinvestment of prepayment proceeds by the Balanced Portfolio will gener-
ally 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 and maturity may be difficult to predict precisely. To
the extent that the Balanced Portfolio purchases asset-backed securities at a
premium, prepayments (which may be made without penalty) may result in loss of
the Balanced Portfolio's principal investment to the extent of premium paid.
The Balanced Portfolio may from time to time purchase in the secondary market
certain mortgage pass-through securities packaged and master serviced by PNC
Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp.
succeeded to rights and duties of Sears Mortgage) or mortgage-related securi-
ties containing loans or mortgages originated by PNC Bank, National Association
("PNC Bank") or its affiliates. It is possible that, under some circumstances,
PNC Mortgage Securities Corp. or its affiliates could have interests that are
in conflict with the holders of these mortgage-backed securities, and such
holders could have rights against PNC Mortgage Securities Corp. or its affili-
ates.
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 are supported
by the full faith and credit of the U.S. Treasury. Others are supported by the
right of the issuer to borrow from the U.S. Treasury; and still others are sup-
ported only by the credit of the agency or instrumentality issuing the obliga-
tion. No assurance can be given that the U.S. Government will provide financial
support to U.S. Government-sponsored instrumentalities 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, as well as
Treasury receipts and other stripped securities, 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 dis-
count to their "face value" and may (particularly in the case of stripped mort-
gage-backed securities) exhibit greater price volatility than ordinary debt se-
curities because of the manner in which their principal and interest are re-
turned to investors.
The Balanced Portfolio may also purchase zero-coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments) and state and local
government obligations. Zero-coupon bonds are subject
28.
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to greater market fluctuations from changing interest rates than debt obliga-
tions of comparable maturities which make current distributions of interest.
Municipal obligations may be purchased when the Portfolio's sub-adviser be-
lieves that their return, on a pre-tax basis, will be comparable to the returns
of other permitted investments. Dividends paid by the Portfolio that are de-
rived from interest on municipal obligations will be taxable to shareholders.
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 those 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 securities having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that its value is maintained. The Portfolio's dollar rolls,
together with its reverse repurchase agreements and other borrowings, will not
exceed, in the aggregate, 33 1/3% of the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Portfo-
lio sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted. Successful use of mortgage dollar
rolls may depend upon the sub-adviser's ability to correctly predict interest
rates and prepayments. There is no assurance that dollar rolls can be success-
fully employed.
The Balanced Portfolio may enter into interest rate swaps and may purchase or
sell interest rate caps and floors. The Portfolio may enter into these transac-
tions primarily to preserve a return or spread on a particular investment or
portion of its holdings, as a duration management technique or to protect
against an increase in the price of securities the Portfolio anticipates pur-
chasing at a later date. The Portfolio intends to use these transactions as a
hedge and not as a speculative investment.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. 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.
The Balanced Portfolio 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. Although the Portfolio does not
currently intend to do so under current market conditions, the Portfolio may
invest up to 10% of its total assets in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate of an inverse floater re-
sets in the opposite direction from the market rate of interest to which it is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the
29.
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magnitude of the change in the index rate of interest. The higher degree of
leverage inherent in inverse floaters is associated with greater volatility in
their market values. Unrated variable and floating rate instruments will be
comparable in quality to investment grade securities as determined by the Port-
folio's sub-advisers. The absence of an active secondary market with respect to
particular variable and floating rate instruments, however, could make it dif-
ficult 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.
The Portfolio may only make short sales of securities "against-the-box." A
short sale is a transaction in which the Portfolio sells a security it does not
own in anticipation that the market price of that security will decline. The
Portfolio 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 port-
folio flexibility. In a short sale "against-the-box," at the time of sale, the
Portfolio owns or has the immediate and unconditional right to acquire the
identical security at no additional cost. When selling short "against-the-box,"
the Portfolio forgoes an opportunity for capital appreciation in the security.
The market value of the Balanced Portfolio's investments in fixed income secu-
rities 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 securities generally
decline. Changes in the financial strength of an issuer or changes in the rat-
ings of any particular security may also affect the value of these investments.
PORTFOLIO TURNOVER RATES. Under normal market conditions, it is expected that
the annual portfolio turnover rate for the Mid-Cap Value Equity and Mid-Cap
Growth Equity Portfolios will not exceed 100%. The past portfolio turnover
rates of the other Portfolios are set forth above under "What Are The Portfo-
lios' Financial Highlights?" A Portfolio's annual portfolio turnover rate will
not be a factor preventing a sale or purchase when the adviser or 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 may result in the realization of short-term capital
gains that are taxable to shareholders as ordinary income.
30.
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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
change to a Portfolio's investment objective. 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 obligations of the U.S. Government and its in-
strumentalities and related repurchase 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
(33% of net assets in the case of the Index Master Portfolio) 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 as that Portfolio.
31.
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WHO MANAGES THE FUND?
- -------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund and of The DFA Invest-
TRUSTEES ment Trust Company (in which the assets of the Fund's Index
Equity Portfolio are invested) are managed under the direc-
tion of their separate Boards of Trustees. The following
persons currently serve as trustees of Compass Capital
Funds:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial
Officer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School,
University of Pennsylvania.
David R. Wilmerding, Jr.--Chairman, Gee, Wilmerding & Asso-
ciates, 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, Inc. ("PAMG"), except with respect to the Index Eq-
uity Portfolio. Each of the Portfolios within the Compass
Capital Fund family (except the Index Equity Portfolio) 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>
Large Cap Value Equity PCM(/1/) 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
manager since 1995.
Large Cap Growth Equity PEAC(/2/) Robert K. Urquhart; investment manager with
PEAC 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.
Mid-Cap Value Equity PCM(/1/) Benedit E. Capaldi (see above); Portfolio co-
manager since its inception.
Daniel B. Eagan; portfolio manager with PCM
since 1995; director of investment strategy
at PAMG during 1994 and 1995; prior to 1994,
served as Senior research consultant for
Mercer Investment Consulting. Portfolio co-
manager since its inception.
</TABLE>
32.
<PAGE>
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<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ------------------------ -----------------
<S> <C> <C>
Mid-Cap Growth Equity PEAC(/2/) William C. McVail; investment manager with
PEAC since 1994; prior to joining PEAC,
equity and fixed income analyst with PNC
Bank; Portfolio co-manager since its
inception.
William J. Wykle; investment manager with
PEAC since 1995; investment manager with PNC
Bank, National Association since 1986;
Portfolio co-manager since its inception.
Small Cap Value Equity PCM(/1/) Christian K. Stadlinger; Vice President of
PCM since July 1996; prior to joining PCM,
Portfolio Manager and Research Analyst with
Morgan Stanley Asset Management; Portfolio
manager since July 1996.
Small Cap Growth Equity PEAC(/2/) William J. Wykle (see above); Portfolio co-
manager since its inception.
William C. McVail; (see above); Portfolio co-
manager since inception.
International Equity CastleInternational(/4/) Gordon Anderson; Managing and Investment
Director since 1996; prior to joining
CastleInternational, Investment Director of
Dunedin Fund Managers Ltd.; Portfolio manager
since 1996.
International Emerging CastleInternational(/4/) Euan Rae; Senior Investment Manager since
Markets 1996; prior to joining CastleInternational,
Head of Emerging Markets at Dunedin Fund
Managers Ltd. and Investment Manager with
Edinburgh Fund Managers; Portfolio manager
since 1996.
Select Equity PCM(/1/) Daniel B. Eagan (see p. 32); Portfolio
manager since 1995.
Balanced PCM and R. Andrew Damm; senior investment strategist
BlackRock(/1/)(/3/) with PAMG since 1995; portfolio manager with
PNC Bank from 1988 to 1995; Portfolio co-
manager since 1996.
Stephen Utkus is the Director of Investment
Strategy for PNC Asset Management Group, and
plays a critical role in developing and
implementing PNC Bank's asset allocation
program, the PNC Blended Investment
Capability as well as PNC's investment policy
as a whole. Previously, he worked at The
Vanguard Group in asset allocation and
product development. He has served as co-
manager of the Balanced Portfolio since 1996.
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 1600
Market Street, 27th Floor, Philadelphia, PA 19103.
(2) PNC Equity Advisors Company ("PEAC") has its primary offices at 1600 Market
Street, 27th Floor, Philadelphia, PA 19103.
(3) BlackRock Financial Management, Inc. ("BlackRock") has its primary offices
at 345 Park Avenue, New York, New York 10154.
(4) CastleInternational Asset Management Limited ("CastleInternational") has
its primary offices at 7 Castle Street, Edinburgh, Scotland, EH2 3AH.
33.
<PAGE>
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PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1600
Market Street, 29th Floor, Philadelphia, Pennsylvania 19103.
PAMG is an indirect wholly-owned subsidiary of PNC Bank
Corp., a multi-bank holding company.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-advisers are entitled to fees, com-
puted daily on a portfolio-by-portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG
and the sub-advisers intend to waive a portion of their fees
during the current fiscal year. All sub-advisory fees are
paid by PAMG and do not represent an extra charge to the
Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO EXCEPT
THE INDEX EQUITY, MID-CAP VALUE EQUITY, MID-CAP GROWTH EQUITY
AND THE INTERNATIONAL PORTFOLIOS (BEFORE WAIVERS)
<TABLE>
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .550% .400%
$1 billion -- $2 billion .500 .350
$2 billion -- $3 billion .475 .325
greater than $3 billion .450 .300
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE MID-CAP VALUE
EQUITY AND
MID-CAP GROWTH EQUITY PORTFOLIOS (BEFORE WAIVERS)
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .800% .650%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .500
greater than $3 billion .625 .475
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE
INTERNATIONAL EQUITY PORTFOLIO (BEFORE WAIVERS)
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .750% .600%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .525
greater than $3 billion .650 .500
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE
INTERNATIONAL EMERGING MARKETS PORTFOLIO (BEFORE WAIVERS)
<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>
34.
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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 be-
lieves it is comparable to the rates paid by many other funds
with similar investment objectives and policies and is appro-
priate for the Portfolio in light of its investment objective
and policies.
For their last fiscal year the Portfolios paid investment advi-
sory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Large Cap Value Equity Portfolio, .49%; Large Cap Growth
Equity Portfolio, .49%; Small Cap Value Equity Portfolio, .54%;
Small Cap Growth Equity Portfolio, .54%; International Equity
Portfolio, .68%; International Emerging Markets Portfolio,
1.15%; Select Equity Portfolio, .49%; and Balanced Portfolio,
.49%. For the period from October 1, 1995 through June 1, 1996,
the Index Equity Portfolio paid investment advisory fees to its
former investment adviser at the annual rate of .01% of its av-
erage daily net assets.
The Portfolios' sub-advisers strive to achieve best execution
on all transactions. Infrequently, brokerage transactions for
the Portfolios may be directed to registered broker/dealers who
have entered into dealer agreements with Compass Capital's dis-
tributor.
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 in-
vestors. DFA's assets under management totalled approximately
$18.5 billion at October 31, 1996. David G. Booth and Rex A.
Sinquefield, both of whom are trustees and officers of The DFA
Investment Trust Company and directors, officers and sharehold-
ers of DFA, 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 Invest-
ment Committee is composed of certain officers and directors of
DFA who are elected annually. DFA provides the Index Master
Portfolio with a trading department and selects brokers and
dealers to effect securities transactions.
For the investment advisory services provided to the Index Mas-
ter Portfolio under the advisory agreement, DFA is entitled to
receive a fee at the annual rate of .025% of the Index Master
Portfolio's average daily net assets. For the Index Master
Portfolio's fiscal year ended November 30, 1996, DFA received a
monthly fee for its investment advisory services which, on an
annual basis, equaled .025% of the Index Master Portfolio's net
assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators") serve
as the Fund's co-administrators. CCG and PFPC are indirect
wholly-owned subsidiaries of PNC Bank Corp. CDI is a wholly-
owned subsidiary of Provident Distributors, Inc. ("PDI"). A ma-
jority of the outstanding stock of PDI is owned by its offi-
cers.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and
35.
<PAGE>
- --------------------------------------------------------------------------------
fund accounting. As compensation for these services, CCG is
entitled to receive a fee, computed daily and payable month-
ly, 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 an-
nual rate of .20% of the first $500 million of each Portfo-
lio's average daily net assets, .18% of the next $500 million
of each Portfolio's average daily net assets, .16% of the
next $1 billion of each Portfolio's average daily net assets
and .15% of each Portfolio's average daily net assets in ex-
cess of $2 billion. From time to time the Administrators may
waive some or all of their administration fees from a Portfo-
lio. PFPC serves as the administrative services, dividend
disbursing and transfer agent to the Index Master Portfolio,
for which PFPC is entitled to compensation at the annual rate
of .015% of the Index Master Portfolio's net assets.
For information about the operating expenses the Portfolios
paid for the most recent fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER AGENT, PNC Bank serves as the Portfolios' custodian and PFPC serves
DIVIDEND as their transfer agent and dividend disbursing agent.
DISBURSING
AGENT AND
CUSTODIAN
DISTRIBUTION Under the Fund's Distribution and Service Plan (the "Plan"),
AND SERVICE Investor Shares of the Portfolios bear the expense of pay-
PLAN ments ("distribution fees") made to CDI, as the Fund's dis-
tributor (the "Distributor"), or affiliates of PNC Bank, for
distribution and sales support services. The distribution
fees may be used to compensate the Distributor for distribu-
tion services and to compensate the Distributor and PNC Bank
affiliates for sales support services provided in connection
with the offering and sale of Investor Shares. The distribu-
tion fees may also be used to reimburse the Distributor and
PNC Bank affiliates for related expenses, including payments
to brokers, dealers, financial institutions and industry pro-
fessionals ("Service Organizations") for sales support serv-
ices and related expenses. Distribution fees payable under
the Plan will not exceed .10% (annualized) of the average
daily net asset value of each Portfolio's outstanding In-
vestor A Shares and .75% (annualized) of the average daily
net asset value of each Portfolio's outstanding Investor B
and Investor C Shares. Payments under the Plan are not tied
directly to out-of-pocket expenses and therefore may be used
by the recipients as they choose (for example, to defray
their overhead expenses). The Plan also permits the Distribu-
tor, PAMG, the Administrators and other companies that re-
ceive fees from the Fund to make payments relating to distri-
bution and sales support activities out of their past profits
or other sources available to them.
Under the Plan, the Fund intends to enter into service ar-
rangements with Service Organizations (including PNC Bank and
its affiliates) with respect to each class of Investor Shares
pursuant to which Service Organizations will render certain
support services to their customers who are the beneficial
owners of Investor Shares. In consideration for a shareholder
servicing fee of up to .25% (annualized) of the average daily
net asset value of Investor Shares owned by their customers,
Service Organizations may provide one or more of the follow-
ing services: responding to customer inquiries relating to
the services performed by the Service Organization and to
customer inquiries concerning their investments in Investor
Shares; assisting customers in designating and changing divi-
dend options, account designations and addresses;
36.
<PAGE>
- --------------------------------------------------------------------------------
and providing other similar shareholder liaison services. In
consideration for a separate shareholder processing fee of up
to .15% (annualized) of the average daily net asset value of
Investor Shares owned by their customers, Service Organizations
may provide one or more of these additional services to such
customers: processing purchase and redemption requests from
customers and placing orders with the Fund's transfer agent or
the Distributor; processing dividend payments from the Fund on
behalf of customers; providing sub-accounting with respect to
Investor Shares beneficially owned by customers or the informa-
tion necessary for sub-accounting; and providing other similar
services.
Service Organizations may charge their clients additional fees
for account services. Customers who are beneficial owners of
Investor Shares should read this Prospectus in light of the
terms and fees governing their accounts with Service Organiza-
tions.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Service Organizations under their service agreements will
not be prohibited under these laws. Under state securities
laws, banks and financial institutions that receive payments
from the Fund may be required to register as dealers.
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, distribution 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 informa-
tion and of printing and distributing prospectuses and state-
ments of additional information to existing shareholders, ex-
penses relating to shareholder reports, shareholder meetings
and proxy solicitations, insurance premiums, the expense of in-
dependent 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 equitable.
37.
<PAGE>
- --------------------------------------------------------------------------------
WHAT PRICING OPTIONS ARE AVAILABLE TO INVESTORS?
- --------------------------------------------------------------------------------
The Equity Portfolios of Compass Capital Funds offer differ-
ent pricing options to investors in the form of different
share classes. These options are described below:
A SHARES (FRONT-END LOAD)
One time, front-end sales charge at time of purchase
No charges or fees at any time for redeeming shares
Lower ongoing expenses
Free exchanges with other A Shares in the Compass Capital
Funds family
A Shares may make sense for investors with a long-term in-
vestment horizon who prefer to pay a one-time front-end sales
charge and have reduced ongoing fees.
B SHARES (BACK-END LOAD)
No front-end sales charge at time of purchase
Contingent deferred sales charge (CDSC) if shares are re-
deemed, declining over 6 years from a high of 4.50%
Free exchanges with other B Shares in the Compass Capital
Funds family
Automatically convert to A Shares eight years from purchase
B Shares may make sense for investors who prefer to pay for
professional investment advice on an ongoing basis (asset-
based sales charge) rather than with a traditional, one-time
front-end sales charge.
C SHARES (LEVEL LOAD)
No front-end sales charge at time of purchase
Contingent deferred sales charge (CDSC) of 1.00% if shares
are redeemed within 12 months of purchase
Free exchanges with other C Shares in the Compass Capital
Funds family
C Shares may make sense for shorter term (relative to both A
and B Shares) investors who prefer to pay for professional
investment advice on an ongoing basis (asset-based sales
charge) rather than with a traditional, one-time front-end
sales charge. Such investors may plan to make substantial re-
demptions within 6 years of purchase.
38.
<PAGE>
- --------------------------------------------------------------------------------
THE PRICING OPTIONS FOR EACH PORTFOLIO ARE DESCRIBED IN THE TABLES BELOW:
LARGE CAP VALUE EQUITY , LARGE CAP GROWTH EQUITY, SMALL CAP
VALUE EQUITY, SMALL CAP GROWTH EQUITY, MID-CAP VALUE EQUITY,
MID-CAP GROWTH EQUITY, SELECT EQUITY AND BALANCED PORTFOLIOS:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge 4.50% 0.00% 0.00%
12b-1 Fee 0.00%* 0.75% 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00% 1.00%
(Depends on when (If redeemed within 12
shares are redeemed) months of purchase)
INTERNATIONAL EQUITY AND INTERNATIONAL EMERGING MARKETS
PORTFOLIOS:
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge 5.00% 0.00% 0.00%
12b-1 Fee 0.00%* 0.75% 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00% 1.00%
(Depends on when (If redeemed within 12
shares are redeemed) months of purchase)
INDEX EQUITY PORTFOLIO
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge 3.00% 0.00% 0.00%
12b-1 Fee 0.00%* 0.75% 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00% 1.00%
(Depends on when (If redeemed within 12
shares are redeemed) months of purchase)
</TABLE>
* The Portfolios do not expect to incur 12b-1 fees in excess of .005% with
respect to Investor A Shares during the current fiscal year.
Investors wishing to purchase shares of the Portfolios may do so either by
mailing the investment application attached to this Prospectus along with a
check or by wiring money as specified below under "How Are Shares Purchased?"
39.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ARE THE KEY CONSIDERATIONS IN SELECTING A PRICING OPTION?
- -------------------------------------------------------------------------------
In deciding which class of Investor Shares to purchase, investors should con-
sider the following:
INTENDED HOLDING PERIOD. Over time, the cumulative distribution fees on a
Portfolio's Investor B Shares and Investor C Shares will exceed the expense of
the maximum initial sales charge on Investor A Shares. For example, if net as-
set value remains constant, the Investor B Shares' and Investor C Shares' ag-
gregate distribution fees would be equal to the Investor A Shares' initial
maximum sales charge from four to seven years after purchase (depending on the
Portfolio). Thereafter, Investor B Shares and Investor C Shares would bear
higher aggregate expenses. Investor B and Investor C shareholders, however,
enjoy the benefit of permitting all their dollars to work from the time the
investments are made. Any positive investment return on the additional in-
vested amount would partially or wholly offset the higher annual expenses
borne by Investor B Shares and Investor C Shares.
Because the Portfolios' future returns cannot be predicted, however, there can
be no assurance that such a positive return will be achieved.
At the end of eight years after the date of purchase, Investor B Shares will
convert automatically to Investor A Shares, based on the relative net asset
values of shares of each class. Investor B Shares acquired through reinvest-
ment of dividends or distributions are also converted at the earlier of these
dates--eight years after the reinvestment date or the date of conversion of
the most recently purchased Investor B Shares that were not acquired through
reinvestment. Investor C Shares have no conversion feature.
Unless a sales charge waiver applies, Investor B shareholders pay a contingent
deferred sales charge if they redeem during the first six years after pur-
chase, and Investor C shareholders pay a contingent deferred sales charge if
they redeem during the first twelve months after purchase. Investors expecting
to redeem during these periods should consider the cost of the applicable con-
tingent deferred sales charge in addition to the aggregate annual Investor B
or Investor C distribution fees, as compared with the cost of the initial
sales charges applicable to the Investor A Shares.
Investor B Shares of the Portfolios purchased on or before January 12, 1996
are subject to a CDSC of 4.50% of the lesser of the original purchase price or
the net asset value of Investor B Shares at the time of redemption. This de-
ferred sales charge is reduced for shares held more than one year. Investor B
Shares of a Portfolio purchased on or before January 12, 1996 convert to In-
vestor A Shares of the Portfolio at the end of six years after purchase. For
more information about Investor B Shares purchased on or before January 12,
1996 and the deferred sales charge payable on their redemption, call PFPC at
(800) 441-7762.
REDUCED SALES CHARGES. Because of reductions in the front-end sales charge for
purchases of Investor A Shares aggregating $25,000 or more, it may be advanta-
geous for investors purchasing large quantities of Investor Shares to purchase
Investor A Shares. In any event, the Fund will not accept any purchase order
for $1,000,000 or more of Investor B Shares or Investor C Shares.
WAIVER OF SALES CHARGES. The entire initial sales charge on Investor A Shares
of a Portfolio may be waived for certain eligible purchasers allowing their
entire purchase price to be immediately invested in a Portfolio. The contin-
gent deferred sales charge may be waived upon redemption of certain Investor B
Shares and Investor C Shares.
40.
<PAGE>
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HOW ARE SHARES PURCHASED?
- --------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor Shares through a
broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-advisers, Distributor or transfer agent or em-
ployees of their affiliates is $100, unless payment is made through a payroll
deduction program in which case the minimum investment is $25.
When placing purchase orders, investors should specify whether the order is for
Investor A, Investor B or Investor C Shares of a Portfolio. All share purchase
orders that fail to specify a class will automatically be invested in Investor
A Shares.
PURCHASES THROUGH BROKERS. Shares may be purchased through brokers which have
entered into dealer agreements with the Distributor. Purchase orders received
by a broker and transmitted to the transfer agent before the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time) on a
Business Day will be effected at the net asset value determined that day, plus
any applicable sales charge. Payment for an order may be made by the broker in
Federal funds or other funds immediately available to the Portfolios' custodian
no later than 4:00 p.m. (Eastern time) on the third Business Day following re-
ceipt of the purchase order.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described above,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial pur-
chase amount payable to Compass Capital Funds. An Account Application Form may
be obtained by calling (800) 441-7762. The name of the Portfolio with respect
to which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, specify
the class of Investor Shares and include the name of the account registration
and the shareholder account number. Before wiring any funds, an investor must
call PFPC at (800) 441-7762 in order to confirm the wire instructions. Purchase
orders which are received by PFPC, together with payment, before the close of
regular trading hours on the New York Stock Exchange (currently 4:00 p.m. East-
ern time) on any Business Day (as defined below) are priced at the applicable
net asset value next determined on that day, plus any applicable sales charge.
OTHER PURCHASE INFORMATION. Shares of each Portfolio of the Fund are sold on a
continuous basis by CDI as the Distributor. CDI maintains its principal offices
at Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961.
Purchases may be effected on weekdays on which both the New York Stock Exchange
and the Federal Reserve Bank of Philadelphia are open for business (a "Business
Day"). Payment for orders which are not received or accepted will be returned
after prompt inquiry. The issuance of shares is recorded on the books of the
Fund. No certificates will be issued for shares. Payments for shares of a Port-
folio 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 modify or waive
the minimum initial or subsequent investment requirement.
41.
<PAGE>
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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, if applicable, there is no charge for a re-
demption. Shareholders may also place redemption requests through a broker or
other institution, which may charge a fee for this service.
WHEN REDEEMING INVESTOR SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD INDICATE
WHETHER THEY ARE REDEEMING INVESTOR A SHARES, INVESTOR B SHARES OR INVESTOR C
SHARES. If a redeeming shareholder owns both Investor A Shares and Investor B
Shares or Investor C Shares in the same Portfolio, the Investor A Shares will
be redeemed first unless the shareholder indicates otherwise. If a redeeming
shareholder owns both Investor B Shares and Investor C Shares in the same
Portfolio, the redemption order will be processed to minimize the amount of
the contingent deferred sales charge that will be charged unless the share-
holder 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 institu-
tion. Eligible guarantor institutions generally include banks, broker/dealers,
credit unions, national securities exchanges, registered securities associa-
tions, clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding Investor A Share certificates
must send their certificates with the redemption request. Additional documen-
tary evidence of authority is required by PFPC in the event redemption is re-
quested by a corporation, partnership, trust, fiduciary, executor or adminis-
trator.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by Federal wire transfer to a single previously desig-
nated bank account. Once authorization is on file, PFPC will honor requests by
any person by telephone at (800) 441-7762 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 termi-
nate these redemption privileges. If the proceeds of a redemption would exceed
$25,000, the redemption request must be in writing and will be subject to the
signature guarantee requirement described above. This privilege may not be
used to redeem Investor A Shares in certificated form. During periods of sub-
stantial economic or market change, telephone redemptions may be difficult to
complete. Redemption requests may also be mailed to PFPC at P.O. Box 8907,
Wilmington, Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. To change the name of the single designated bank account
to receive wire redemption proceeds, it is necessary to send a written request
(with a guaranteed signature as described above) to Compass Capital Funds c/o
PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
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
42.
<PAGE>
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loss, liability, cost or expense for acting upon telephone instructions reason-
ably believed to be genuine in accordance with such procedures.
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 required minimum initial investment as the re-
sult of a redemption or an exchange request. A shareholder will be notified in
writing that the value of the shareholder's account in a Portfolio is less than
the required amount and will be allowed 30 days to make additional investments
before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by Compass Capital Funds c/o PFPC, P.O. Box 8907, Wil-
mington, Delaware 19899-8907. Proceeds from the redemption of shares will be
reduced by the amount of any applicable contingent deferred sales charge. Un-
less another payment option is used as described above, payment for redeemed
shares is normally made by check mailed within seven days after acceptance by
PFPC of the request and any other necessary documents in proper order. Payment
may, however, be postponed or the right of redemption suspended as provided by
the rules of the SEC. If the shares to be redeemed have been recently purchased
by check, the Fund's transfer agent may delay the payment of redemption pro-
ceeds, 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.
43.
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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.
EXCHANGE PRIVILEGE. Investor A, Investor B and Investor C Shares of each Port-
folio may be exchanged for shares of the same class of other portfolios of the
Fund which offer that class of shares, based on their respective net asset val-
ues. Exchanges of Investor A Shares may be subject to the difference between
the sales charge previously paid on the exchanged shares and the higher sales
charge (if any) payable with respect to the shares acquired in the exchange.
Investor A Shares of money market portfolios of the Fund that were (1) acquired
through the use of the exchange privilege and (2) can be traced back to a pur-
chase of shares in one or more investment portfolios of the Fund for which a
sales charge was paid, can be exchanged for Investor A Shares of a portfolio
subject to differential sales charges as applicable.
The exchange of Investor B and 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. Share-
holders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange re-
quests. To add this feature to an existing account that previously did not pro-
vide this option, a Telephone Exchange Authorization Form must be filed with
PFPC. This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone at (800) 441-7762 to request
the exchange. During periods of substantial economic or market change, tele-
phone exchanges may be difficult to complete and shareholders may have to sub-
mit 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.
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.
44.
<PAGE>
- --------------------------------------------------------------------------------
The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine in accordance with such procedures. Exchange orders may also be
sent by mail to the shareholder's broker or to PFPC at P.O. Box 8907, Wilming-
ton, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts. Upon commencement of the SWP, the account must have a cur-
rent value of $10,000 or more in a Portfolio. Shareholders may elect to receive
automatic cash payments of $100 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC. Purchases of additional Investor A Shares of the
Fund concurrently with withdrawals may be disadvantageous to investors because
of the sales charges involved and, therefore, are discouraged. No contingent
deferred sales charge will be assessed on redemptions of Investor B or Investor
C Shares made through the SWP that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
SWP redemptions of Investor B or 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 as-
set value on the redemption date. SWP redemptions of Investor B or Investor C
Shares in excess of this limit are still subject to the applicable CDSC.
45.
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WHAT IS THE SCHEDULE OF SALES CHARGES AND EXEMPTIONS?
- --------------------------------------------------------------------------------
INVESTOR A Investor A Shares are subject to a front-end sales charge de-
SHARES termined in accordance with the following schedules:
ALL PORTFOLIOS EXCEPT INTERNATIONAL PORTFOLIOS AND INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
REALLOWANCE OR
PLACEMENT FEES
SALES CHARGE SALES CHARGE TO DEALERS
AMOUNT OF TRANSACTION AS % OF AS % OF NET (AS % OF
AT OFFERING PRICE OFFERING PRICE ASSET VALUE OFFERING PRICE)
<S> <C> <C> <C>
Less than $25,000 4.50% 4.71% 4.00%
$25,000 but less than $50,000 4.25 4.44 3.75
$50,000 but less than $100,000 4.00 4.17 3.50
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than
$1,000,000 1.50 1.52 1.25
$1,000,000 and over 0.00* 0.00* 1.00**
INTERNATIONAL EQUITY AND INTERNATIONAL EMERGING MARKETS PORTFOLIOS
<CAPTION>
REALLOWANCE OR
PLACEMENT FEES
SALES CHARGE SALES CHARGE TO DEALERS
AMOUNT OF TRANSACTION AS % OF AS % OF NET (AS % OF
AT OFFERING PRICE OFFERING PRICE ASSET VALUE OFFERING PRICE)
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$25,000 but less than $50,000 4.75 4.99 4.25
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 4.00 4.17 3.50
$250,000 but less than $500,000 3.00 3.09 2.50
$500,000 but less than
$1,000,000 2.00 2.04 1.50
$1,000,000 and over 0.00* 0.00* 1.00**
INDEX EQUITY PORTFOLIO
<CAPTION>
REALLOWANCE OR
PLACEMENT FEES
SALES CHARGE SALES CHARGE TO DEALERS
AMOUNT OF TRANSACTION AS % OF AS % OF NET (AS % OF
AT OFFERING PRICE OFFERING PRICE ASSET VALUE OFFERING PRICE)
<S> <C> <C> <C>
Less than $25,000 3.00% 3.09% 2.50%
$25,000 but less than $50,000 2.75 2.83 2.25
$50,000 but less than $100,000 2.50 2.56 2.00
$100,000 but less than $250,000 2.00 2.04 1.75
$250,000 but less than $500,000 1.50 1.52 1.25
$500,000 but less than
$1,000,000 1.00 1.01 0.75
$1,000,000 and over 0.00* 0.00* 0.75**
</TABLE>
* There is no initial sales charge on purchases of $1,000,000 or more of In-
vestor A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the offering price or the net asset value of the
shares on the redemption date for shares redeemed within 18 months after pur-
chase.
** The Distributor may pay placement fees to dealers of up to 0.75% of the of-
fering price on purchases of Investor A Shares of $1,000,000 or more.
46.
<PAGE>
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During special promotions, the entire sales charge may be reallowed to dealers.
Dealers who receive 90% or more of the sales charge may be deemed to be "under-
writers" under the 1933 Act. The amount of the sales charge not reallowed to
dealers may be paid to broker-dealer affiliates of PNC Bank Corp. who provide
sales support services. The Distributor, CCG and/or their affiliates may also
pay additional compensation, out of their assets and not as an additional
charge to the Portfolios, to dealers in connection with the sale and distribu-
tion of shares (such as additional payments based on new sales), and may, sub-
ject to applicable NASD regulations, contribute to various non-cash and cash
incentive arrangements to promote the sale of shares, as well as sponsor vari-
ous educational programs, sales contests and promotions in which participants
may receive reimbursement of expenses, entertainment and prizes such as travel
awards, merchandise and cash. For further information, see "Investment Adviso-
ry, Administration, Distribution and Servicing Arrangements" in the Statement
of Additional Information.
SALES CHARGE WAIVERS--INVESTOR A SHARES. The following persons associated with
the Fund, the Distributor, the Fund's investment adviser, sub-advisers or
transfer agent and their affiliates may buy Investor A Shares without paying a
sales charge to the extent permitted by these firms: (a) officers, directors
and partners (and their spouses and minor children); (b) employees and retirees
(and their spouses and minor children); (c) registered representatives of bro-
kers who have entered into selling agreements with the Distributor; (d) spouses
or children of such persons; and (e) any trust, pension, profit-sharing or
other benefit plan for any of the persons set forth in (a) through (c). The
following persons may also buy Investor A Shares without paying a sales charge:
(a) persons investing through an authorized payroll deduction plan; (b) persons
investing through an authorized investment plan for organizations which operate
under Section 501(c)(3) of the Internal Revenue Code; (c) registered investment
advisers, trust companies and bank trust departments exercising discretionary
investment authority with respect to amounts to be invested in a Portfolio,
provided that the aggregate amount invested pursuant to this exemption equals
at least $250,000; and (d) persons participating in a "wrap account" or similar
program under which they pay advisory fees to a broker-dealer or other finan-
cial institution. Investors who qualify for any of these exemptions from the
sales charge must purchase Investor A Shares.
QUALIFIED PLANS. The sales charge (as a percentage of the offering price) pay-
able by qualified employee benefit plans ("Qualified Plans") having at least 20
employees eligible to participate in purchases of Investor A Shares of the
Portfolios aggregating less than $500,000 will be 1.00%. No sales charge will
apply to purchases by Qualified Plans of Investor A Shares aggregating $500,000
and above. The sales charge payable by Qualified Plans having less than 20 em-
ployees eligible to participate in purchases of Investor A Shares of the Port-
folios aggregating less than $500,000 will be 2.50% (1.50% with respect to
shares of the Index Equity Portfolio). The above schedule will apply to pur-
chases by such Qualified Plans of Investor A Shares aggregating $500,000 and
above.
QUANTITY DISCOUNTS. As shown above, larger purchases may reduce the sales
charge price. Upon notice to the investor's broker or the transfer agent, pur-
chases of Investor A Shares made at any one time by the following persons may
be considered when calculating the sales charge: (a) an individual, his or her
spouse, and their children under the age of 21; (b) a trustee or fiduciary of a
single trust estate or single fiduciary account; or (c) any organized group
which has been in existence for more than six months, if it is not organized
for the purpose of buying redeemable securities of a registered investment com-
pany, and if the purchase is made through a central administrator, or through a
single dealer, or by other means which result in economy of sales effort or ex-
pense. An organized group does not include a group of individuals whose sole
organizational connection is participation as credit card holders of a company,
policyholders of an insurance company, customers of either a bank or
broker/dealer or clients of an investment adviser. Purchases made by an orga-
nized group may include, for example, a trustee or other fiduciary purchasing
for a single fiduciary account or other employee benefit plan purchases made
through a payroll deduction plan.
47.
<PAGE>
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REDUCED SALES CHARGES--INVESTOR A SHARES
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of
an investor's existing Investor A Shares in any of the Portfolios that are
subject to a front-end sales charge or the total amount of an investor's ini-
tial investment in such shares, less redemptions (whichever is greater) may be
combined with the amount of the investor's current purchase in determining the
applicable sales charge. In order to receive the cumulative quantity reduc-
tion, previous purchases of Investor A Shares must be called to the attention
of PFPC by the investor at the time of the current purchase.
REINVESTMENT PRIVILEGE. Upon redemption of Investor A Shares of a Portfolio
(or Investor A Shares of another non-money market portfolio of the Fund), a
shareholder has a one-time right, to be exercised within 60 days, to reinvest
the redemption proceeds without any sales charges. PFPC must be notified of
the reinvestment in writing by the purchaser, or by his or her broker, at the
time purchase is made in order to eliminate a sales charge. An investor should
consult a tax adviser concerning the tax consequences of use of the reinvest-
ment privilege.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Investor A Shares at net asset value, without a sales charge,
with the proceeds from the redemption of shares of any other investment com-
pany which were sold with a sales charge or commission. This does not include
shares of an affiliated mutual fund which were or would be subject to a con-
tingent deferred sales charge upon redemption. Such purchases must be made
within 60 days of the redemption, and the Fund must be notified by the in-
vestor in writing, or by his or her financial institution, at the time the
purchase of Investor A Shares is made.
LETTER OF INTENT. An investor may qualify for a reduced sales charge immedi-
ately by signing a Letter of Intent stating the investor's intention to invest
during the next 13 months a specified amount in Investor A Shares which, if
made at one time, would qualify for a reduced sales charge. The Letter of In-
tent may be signed at any time within 90 days after the first investment to be
included in the Letter of Intent. The initial investment must meet the minimum
initial investment requirement and represent at least 5% of the total intended
investment. The investor must instruct PFPC upon making subsequent purchases
that such purchases are subject to a Letter of Intent. All dividends and capi-
tal gains of a Portfolio that are invested in additional Investor A Shares of
the same Portfolio are applied to the Letter of Intent.
During the term of a Letter of Intent, the Fund's transfer agent will hold In-
vestor A Shares representing 5% of the indicated amount in escrow for payment
of a higher sales load if the full amount indicated in the Letter of Intent is
not purchased. The escrowed Investor A Shares will be released when the full
amount indicated has been purchased. Any redemptions made during the 13-month
period will be subtracted from the amount of purchases in determining whether
the Letter of Intent has been completed.
If the full amount indicated is not purchased within the 13-month period, the
investor will be required to pay an amount equal to the difference between the
sales charge actually paid and the sales charge the investor would have had to
pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the ex-
piration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Investor A
Shares held in escrow to realize the difference.
PURCHASES OF INVESTOR B SHARES. Investor B Shares are subject to a deferred
sales charge at the rates set forth in the chart below if they are redeemed
within six years of purchase. The deferred sales charge on Investor B Shares
is based on the lesser of the offering price or the net asset value of the In-
vestor B Shares on the redemption date. Dealers will generally receive commis-
sions equal to 4.00% of Investor B Shares sold by them plus ongoing fees under
the Fund's Distribution and Service Plan and described under "Who Manages the
Fund?" Dealers may not receive a commission in connection with sales of In-
vestor B Shares to
48.
<PAGE>
- --------------------------------------------------------------------------------
certain retirement plans sponsored by the Fund, CCG or its affiliates, but may
receive fees under the Distribution and Service Plan. These commissions and
payments may be different than the reallowances, placement fees and commissions
paid to dealers in connection with sales of Investor A Shares and Investor C
Shares. See "What Is The Schedule Of Sales Charges And Exemptions--Investor A
Shares" for information on additional sales incentives which the Distributor,
CCG and/or their affiliates may provide to dealers in connection with the sale
of shares.
The amount of any contingent deferred sales charge an investor must pay on In-
vestor B Shares depends on the number of years that elapse between the purchase
date and the date the Investor B Shares are redeemed as set forth in the fol-
lowing chart:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
<S> <C>
Less than one 4.50%
More than one, but less than two 4.00
More than two, but less than three 3.50
More than three, but less than four 3.00
More than four, but less than five 2.00
More than five, but less than six 1.00
More than six, but less than seven 0.00
More than seven, but less than eight 0.00
</TABLE>
PURCHASES OF INVESTOR C SHARES. Investor C Shares are subject to a deferred
sales charge of 1.00% based on the lesser of the offering price or the net as-
set value of the Investor C Shares on the redemption date if redeemed within
twelve months after purchase. Dealers will generally receive commissions equal
to 1.00% of the Investor C Shares sold by them plus ongoing fees under the
Fund's Distribution and Service Plan and described under "Who Manages the
Fund?" Dealers may not receive a commission in connection with sales of In-
vestor C Shares to certain retirement plans sponsored by the Fund, CCG or its
affiliates, but may receive fees under the Distribution and Service Plan. These
commissions and payments, may be different than the reallowances, placement
fees and commissions paid to dealers in connection with sales of Investor A
Shares and Investor B Shares. See "What Is The Schedule Of Sales Charges And
Exemptions--Investor A Shares" for information on additional sales incentives
which the Distributor, CCG and/or their affiliates may provide to dealers in
connection with the sale of shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE--INVESTOR B AND INVESTOR C
SHARES. The contingent deferred sales charge on Investor B Shares and Investor
C Shares is not charged in connection with: (1) exchanges described in "What
Are The Shareholder Features Of The Fund?--Exchange Privilege"; (2) redemptions
made in connection with minimum required distributions from IRA, 403(b)(7) and
Qualified Plan accounts due to the shareholder reaching age 70 1/2; (3) redemp-
tions made with respect to certain retirement plans sponsored by the Fund, CCG
or its affiliates; (4) redemptions in connection with a shareholder's death or
disability (as defined in the Internal Revenue Code) subsequent to the purchase
of Investor B Shares or Investor C Shares; (5) involuntary redemptions of In-
vestor B Shares or Investor C Shares in accounts with low balances as described
in "How Are Shares Redeemed?"; and (6) redemptions made pursuant to the System-
atic Withdrawal Plan, subject to the limitations set forth above under "What
Are The Shareholder Features Of The Fund?--Systematic Withdrawal Plan." In ad-
dition, no contingent deferred sales charge is charged on Investor B Shares or
Investor C Shares acquired through the reinvestment of dividends or
distributions.
When an investor redeems Investor B Shares or Investor C Shares, the redemption
order is processed to minimize the amount of the contingent deferred sales
charge that will be charged. Investor B Shares and Investor C Shares are re-
deemed first from those shares that are not subject to the deferred sales load
(i.e., shares that were acquired through reinvestment of dividends or distribu-
tions) and after that from the shares that have been held the longest.
49.
<PAGE>
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HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for each class of Investor Shares of
each Portfolio as of the close of regular trading hours on the NYSE (currently
4:00 p.m. Eastern Time) on each Business Day by dividing the value of all secu-
rities and other assets owned by a Portfolio (including, for the Index Equity
Portfolio, all of its shares in the Index Master Portfolio) that are allocated
to a particular class of shares, less the liabilities charged to that class, by
the number of shares of the class that are outstanding. The net asset value per
share of the Index Master Portfolio is calculated as of the close of the NYSE
by dividing the total market value of its investments and other assets, less
any liabilities, by the total outstanding shares of the Index Master Portfolio.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices, or the mean between bid and asked prices,
that are provided by securities dealers or pricing services. Portfolio securi-
ties which are primarily traded on foreign securities exchanges are normally
valued at the preceding closing values of such securities on their respective
exchanges. Securities for which market quotations are not readily available are
valued at fair market value as determined in good faith by or under the direc-
tion 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 super-
vision of the Board of Trustees determines such method does not represent fair
value.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Each Portfolio of the Fund will distribute substantially all of its net invest-
ment income and net realized capital gains, if any, to shareholders. The net
investment income of each Portfolio is declared quarterly as a dividend to in-
vestors who are shareholders of the Portfolio at the close of business on the
day of declaration. All dividends are paid not later than 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 of the Fund at least annu-
ally. The period for which dividends are payable and the time for payment are
subject to change by the Fund's Board of Trustees.
Distributions are reinvested at net asset value in additional full and frac-
tional shares of the same class on which the distributions are paid, unless a
shareholder elects to receive distributions in cash. This election, or any rev-
ocation thereof, must be made in writing to PFPC, and will become effective
with respect to distributions paid after its receipt by PFPC.
The Index Equity Portfolio seeks its investment objective by investing all of
its investable assets in the Index Master Portfolio, and the Index Equity Port-
folio is 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, is the Index Equity Portfolio's net investment
income from which dividends are distributed as described above. The Index Mas-
ter Portfolio also allocates to the Index Equity Portfolio its pro rata share
of capital gains, if any, realized by the Index Master Portfolio.
50.
<PAGE>
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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 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 distributions.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
An investor considering buying shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption,
transfer or exchange of shares depending upon their tax basis and their price
at the time of redemption, transfer or exchange. Generally, shareholders may
include sales charges paid on the purchase of shares in their tax basis for the
purposes of determining gain or loss on a redemption, transfer or exchange of
such shares. However, if a shareholder exchanges the shares for shares of an-
other Portfolio within 90 days of purchase and is able to reduce the sales
charges applicable to the new shares (by virtue of the Fund's exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged shares for the purpose of determining gain or
loss but may be included (subject to the same limitation) in the tax basis of
the new shares.
Dividends and certain interest income earned by a Portfolio from foreign secu-
rities may be subject to foreign withholding taxes or other taxes. So long as
more than 50% of the value of a Portfolio's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Port-
folio may elect, for U.S. Federal income tax purposes, to treat certain foreign
taxes paid by it, including generally any withholding taxes and other foreign
income taxes, as paid by its shareholders. It is possible that the Interna-
tional Equity and International Emerging Markets Portfolios will make this
election in certain years. If a Portfolio makes the election, the amount of
such foreign taxes paid by the Portfolio will be included in its shareholders'
income pro rata (in addition to taxable distributions actually received by
them), and each shareholder will be entitled either (a) to credit a proportion-
ate amount of such taxes against a shareholder's U.S. Federal income tax lia-
bilities, or (b) if a shareholder itemizes deductions, to deduct such propor-
tionate amounts from U.S. Federal taxable income.
The Index Master Portfolio is classified as a partnership for Federal income
tax purposes. As such, the Index Master Portfolio will not be subject to Fed-
eral income tax, and the Index Equity Portfolio will be allocated its propor-
tionate share of the income and realized and unrealized gains and losses of the
Index Master Portfolio.
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.
51.
<PAGE>
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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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates to Investor A Shares, Investor B Shares and Investor C Shares
of the eleven Portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The performance of each class of Investor Shares
may be different. The Fund offers various services and privileges in connection
with its Investor Shares that are not generally offered in connection with its
Institutional and Service Shares, including an automatic investment plan and an
automatic withdrawal plan. For further information regarding the Fund's Insti-
tutional 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 that 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 November 30, 1996, PNC Bank held of record approximately 70% 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, seeks to achieve its investment objective by investing all of its
investable assets in the Index Master Portfolio. The Index Equity Portfolio
purchases shares of the Index Master Portfolio at net asset value. The net as-
set value of the Index Equity Portfolio responds 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 Index Equity Portfolio may withdraw its investment in the
Index Master Portfolio at any time upon 30 days notice to the Index Master
Portfolio if the Board of Trustees of the Fund determines that it is in the
best interests of the Index Equity Portfolio to do so. Upon withdrawal, the
Board of Trustees would consider what action might be taken, including the in-
vestment 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 investment adviser to manage 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
52.
<PAGE>
- --------------------------------------------------------------------------------
Portfolio nor its shareholders will be adversely affected by reason of the In-
dex Equity Portfolio's investing in the Index Master Portfolio.
The shares of the Index Master Portfolio are offered to institutional investors
in private placements for the purpose of increasing the funds available for in-
vestment and achieving economies of scale that might be available at higher as-
set levels. The expenses of such other institutional investors and their re-
turns may differ from those of the Index Equity Portfolio. While investment 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 Portfolio
could experience higher pro rata operating expenses and correspondingly lower
returns. In addition, institutional investors that have a greater pro rata own-
ership 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 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 mate-
rial degree the rights and preferences of the shares of the Index Master Port-
folio or to increase or decrease their par value. 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 sharehold-
ers) of the Index Master Portfolio.
When the Index Equity Portfolio, as a shareholder of the Index Master Portfo-
lio, votes on matters pertaining to the Index Master Portfolio, the Index Eq-
uity Portfolio, if required under the 1940 Act or other applicable law, would
hold a meeting of its shareholders and would cast its votes proportionately as
instructed by Index Equity Portfolio shareholders. In such cases, shareholders
of the Index Equity Portfolio, 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. As of the date of this Prospectus, one other feeder fund
invests all of its investable assets in the Index Master Portfolio. For infor-
mation about other funds that may invest in the Index Master Portfolio, please
contact DFA at (310) 395-8005 or contact your broker.
53.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Performance information for each class of Investor Shares of the Portfolios may
be quoted in advertisements and communications to shareholders. Total return
will be calculated on an average annual total return basis for various periods.
Average annual total return reflects the average annual percentage change in
value of an investment in Investor Shares of a Portfolio over the measuring pe-
riod. Total return may also be calculated on an aggregate total return basis.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return assume that dividend
and capital gain distributions made by a Portfolio with respect to a class of
shares are reinvested in shares of the same class, and also reflect the maximum
sales load charged by the Portfolio with respect to a class of shares. When,
however, a Portfolio compares the total return of a share class to that of
other funds or relevant indices, total return may also be computed without re-
flecting the sales load.
The yield of a class of shares of the Balanced Portfolio is computed by divid-
ing the net income allocated to that class during a 30-day (or one month) pe-
riod by the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis.
The performance of a share class may be compared to the performance of other
mutual funds with similar investment objectives and to relevant indices, as
well as to ratings or rankings prepared by independent services or other finan-
cial or industry publications that monitor the performance of mutual funds. For
example, the performance of a class of shares may be compared to data prepared
by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. and Wei-
senberger Investment Company Service, and to the performance of the Dow Jones
Industrial Average, the "stocks, bonds and inflation Index" published annually
by Ibbotson Associates, the Lipper International Fund Index, the Lehman Govern-
ment Corporate Bond Index and the Financial Times World Stock Index, as well as
the benchmarks attached to this Prospectus. Performance information may also
include evaluations of the Portfolios and their share classes published by na-
tionally recognized ranking services, and information as reported in financial
publications such as Business Week, Fortune, Institutional Investor, Money Mag-
azine, Forbes, Barron's, The Wall Street Journal and The New York Times, or in
publications of a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of a class of shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of dividends in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Investor Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for In-
vestor Shares of a Portfolio cannot necessarily be used to compare an invest-
ment in such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other institu-
tions directly to their customer accounts in connection with investments in In-
vestor Shares will not be included in the Portfolio performance calculations.
54.
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION ON THE PERFORMANCE OF PNC EQUITY ADVISORS COMPANY
The tables below set forth performance information relating to the Small Cap
Growth Equity Portfolio and a small cap growth equity account (the "Small Cap
Account") that is also managed by PEAC for certain trust accounts and which has
investment objectives, policies, strategies and risks substantially similar to
those of the Small Cap Growth Equity Portfolio. The performance of the Small
Cap Account has been restated to reflect certain expenses as set forth in foot-
notes 2 and 3 to the table, but does not reflect the deduction of the sales
charges applicable to Investor Shares. These sales charges, if reflected, would
result in lower performance figures.
The performance data for the Small Cap Account is included to provide investors
with a longer performance record for PEAC in managing an account substantially
similar to the Small Cap Growth Equity Portfolio as measured against the Rus-
sell 2000 Growth Index. The Small Cap Account performance data does not repre-
sent the past, present or future performance of the Small Cap Growth Equity
Portfolio. Past performance is no guarantee of future results; investors should
not consider this performance data as an indication of future performance of
the Small Cap Growth Equity Portfolio or of PEAC. Share prices and investment
returns will fluctuate reflecting market conditions and cash flows, as well as
changes in company-specific fundamentals of portfolio securities. Consequently,
investments in either the Small Cap Growth Equity Portfolio or the Small Cap
Account may be worth more or less than their original cost at the time of re-
demption. The performance presentation is not audited.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns also reflect the brokerage costs borne by the Small Cap
Growth Equity Portfolio and the Small Cap Account for all periods presented.
The use of a different methodology to calculate performance could result in
different performance data.
The Small Cap Account was not subject to the same types of expenses and liquid-
ity requirements to which the Small Cap Growth Equity Portfolio is subject nor
to the diversification requirements, specific tax restrictions and investment
limitations imposed on the Small Cap Growth Equity Portfolio by the 1940 Act or
Subchapter M of the Internal Revenue Code. Consequently, the performance re-
sults for the Small Cap Account could have been adversely affected if the Small
Cap Account had been regulated as an investment company under the federal secu-
rities laws.
PEAC'S SMALL CAP GROWTH EQUITY PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
SMALL CAP GROWTH SMALL CAP GROWTH
EQUITY PORTFOLIO EQUITY PORTFOLIO
INVESTOR A INVESTOR A
YEAR OR PERIODS SHARES (LOAD SHARES (NO SMALL CAP RUSSELL 2000
ENDED 9/30/96 ADJUSTED)(/1/) LOAD)(/1/) ACCOUNT(/2/) GROWTH INDEX(3)
--------------- ---------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C>
One Year................ 38.24% 44.79% 47.06% 13.13%
Three Years............. 25.55% 27.48% 26.98% 12.73%
Five Years.............. N/A N/A 29.81% 15.76%
From Inception(/4/)..... 27.00% 28.94% 23.04% 10.07%(/5/)
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH
EQUITY PORTFOLIO SMALL CAP GROWTH
INVESTOR B SHARES EQUITY PORTFOLIO
YEAR OR PERIODS (LOAD INVESTOR B SHARES SMALL CAP RUSSELL 2000
ENDED 9/30/96 ADJUSTED)(/1/) (NO LOAD)(/1/) ACCOUNT(/6/) GROWTH INDEX(3)
--------------- ----------------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C>
One Year................ 37.28% 43.75% 46.06% 13.13%
Three Years............. 25.67% 27.17% 26.08% 12.73%
Five Years.............. N/A N/A 28.89% 15.76%
From Inception(/4/)..... 27.35% 28.63% 22.17% 10.07%(/5/)
</TABLE>
55.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP GROWTH SMALL CAP GROWTH
EQUITY PORTFOLIO EQUITY PORTFOLIO
INVESTOR C INVESTOR C
YEAR OR PERIODS SHARES (LOAD SHARES (NO SMALL CAP RUSSELL 2000
ENDED 9/30/96 ADJUSTED)(/1/) LOAD)(/1/) ACCOUNT(/6/) GROWTH INDEX(3)
--------------- ---------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C>
One Year................ 42.31% 43.75% 46.06% 13.13%
Three Years............. 27.17% 27.17% 26.08% 12.73%
Five Years.............. N/A N/A 28.89% 15.76%
From Inception(/4/)..... 28.63% 28.63% 22.17% 10.07%(/5/)
</TABLE>
- --------
(1) Total return reflects the performance of Investor A, B and C Shares of the
Small Cap Growth Equity Portfolio since the commencement of operations of
the Portfolio rather than the dates Investor A, B and C Shares in the Port-
folio were introduced. Performance information for the Portfolio's Investor
A, B and C Shares prior to their introduction dates on 9/15/93, 1/18/96 and
9/6/96, respectively, does not reflect distribution, shareholder servicing,
shareholder processing and certain other expenses borne by Investor A, B
and C Shares which, if reflected, would reduce the performance quoted for
such periods. Performance information presented for Investor A, B and C
Shares of the Portfolio prior to their introduction is based upon histori-
cal expenses of predecessor classes of shares in the Portfolio which do not
reflect the actual expenses that an investor would have incurred as a
holder of Investor A, B or C Shares of the Portfolio. This performance in-
formation has been restated to reflect the current maximum front-end sales
charge (in the case of Investor A Shares) or the maximum contingent de-
ferred sales charge (in the case of Investor B and C Shares) when presented
inclusive of sales charges. Additional performance information is presented
which does not reflect the deduction of sales charges. The performance
quoted reflects fee waivers by the Portfolio's service providers. The Port-
folio's performance would have been lower in the absence of such waivers.
(2) The performance has been restated to reflect a total expense ratio of
1.33%, which is the total expense ratio that Investor A Shares of the Small
Cap Growth Equity Portfolio are expected to incur during the current fiscal
year and which reflects an advisory fee of .54% of its average daily net
assets. This expense ratio reflects voluntary fee waivers by the Portfo-
lio's service providers which may be modified or terminated at any time. In
restating the total returns of the Small Cap Account, these expenses were
calculated on a quarterly basis for the periods presented. The calculation
of these expenses on a more frequent basis would result in lower perfor-
mance figures.
(3) Total return data is presented for each period. The Russell 2000 Growth In-
dex reflects the investment of income dividends and capital gain distribu-
tions, if any, but does not reflect fees, brokerage commissions or other
expenses of investing. The Russell 2000 Growth Index is an unmanaged secu-
rities index, and an investment cannot be made directly in the Russell 2000
Growth Index. For more information on the Russell 2000 Growth Index, see
the Appendix to this Prospectus.
(4) The Small Cap Growth Equity Portfolio and the Small Cap Account commenced
investment operations on 9/14/93 and 8/1/87, respectively.
(5)Reflects the average annual total return of the Russell 2000 Growth Index
from 8/1/87.
(6) The performance has been restated to reflect a total expense ratio of
2.08%, which is the total expense ratio that Investor B and C Shares of the
Small Cap Growth Equity Portfolio are expected to incur during the current
fiscal year and which reflects an advisory fee of .54% of its average daily
net assets. This expense ratio reflects voluntary fee waivers by the Port-
folio's service providers which may be modified or terminated at any time.
In restating the total returns of the Small Cap Account, these expenses
were calculated on a quarterly basis for the periods presented. The calcu-
lation of these expenses on a more frequent basis would result in lower
performance figures.
56.
<PAGE>
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HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7762
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7762
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7762
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
57.
<PAGE>
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APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Large Cap 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.
Large Cap 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.
Mid-Cap Value Equity Russell Midcap Value The Russell Midcap Value Index consists of
Index the bottom 800 securities of the Russell
1000 Index with less-than-average growth
orientation as ranked by total market
capitalization.
Mid-Cap Growth Equity Russell Midcap Growth The Russell Midcap Growth Index consists of
Index the bottom 800 securities of the Russell
1000 Index with greater-than-average growth
orientation as ranked by total market
capitalization.
Small Cap Value Equity Russell 2000 Value Index The Russell 2000 Value Index contains those
Russell 2000 securities with a less-than-
average growth orientation. Securities in
this index generally have lower price-to-
book and price-earnings ratios than those
in the Russell 2000 Growth Index.
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 is a market value-weighted
average of the performance of over 900
securities listed on the stock exchanges of
such countries.
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, Africa
and the Pacific Basin. The MSCI EMF Index
excludes closed markets and those shares in
otherwise free markets which are not
purchasable by foreigners.
Select Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Index Equity S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Balanced S&P 500 Index An unmanaged index of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The Index is heavily
weighted toward stocks with large market
capitalizations and represents
approximately two-thirds of the total
market value of all domestic common stocks.
Salomon Broad Investment An unmanaged index of 3500 bonds. The Broad
Grade Index Investment Grade Index is market
capitalization weighted and includes
Treasury, Government sponsored mortgages
and investment grade fixed rate corporates
with a maturity of 1 year or longer.
</TABLE>
58.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment styleSM.
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity Small Cap Growth Equity
Large Cap Value Equity Small Cap Value Equity
Mid-Cap Growth Equity International Equity
Mid-Cap Value Equity International Emerging Markets
Index Equity
Select Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- --------------------------------------------------------------------------------
THE EQUITY PORTFOLIOS INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 6
What Are The Portfolios?..................................... 15
What Are The Differences Among The Portfolios?............... 16
What Additional Investment Policies And Risks Apply?......... 18
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 27
Who Manages The Fund?........................................ 28
How Are Shares Purchased And Redeemed?....................... 33
How Is Net Asset Value Calculated?........................... 35
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 35
How Are Fund Distributions Taxed?............................ 36
How Is The Fund Organized?................................... 37
How Is Performance Calculated?............................... 40
Other Information On The Performance Of PNC Equity Advisors
Company..................................................... 41
How Can I Get More Information?.............................. 43
</TABLE>
This Prospectus contains information about the Compass Capital
equity Portfolios that a prospective investor needs to know be-
fore investing. Please keep it for future reference. A Statement
of Additional Information dated January 1, 1997 has been filed
with the Securities and Exchange Commission (the "SEC"). The
Statement of Additional Information may be obtained free of
charge from the Fund by calling (800) 441-7764. The Statement of
Additional Information, as supplemented from time to time, is in-
corporated 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED.
The Index Equity Portfolio seeks to achieve its investment objec-
tive by investing all of its investable assets in a series of
shares (the "Index Master Portfolio") of The DFA Investment Trust
Company, another open-end management investment company, rather
than through a portfolio of various securities. The investment
experience of the Index Equity Portfolio corresponds directly
with the investment experience of the Index Master Portfolio. The
Index Master Portfolio has substantially the same investment ob-
jective, policies and limitations as the Index Equity Portfolio
and, except as specifically 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 COMPASS CAPITAL FUND family consists of 30 portfolios and
has been structured to include many different investment styles
so that investors may participate across multiple disciplines
in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of
eleven diversified investment portfolios (the "Portfolios")
that provide investors with a broad spectrum of investment al-
ternatives within the equity sector. Eight of these Portfolios
invest in U.S. stocks, two Portfolios invest in non-U.S. inter-
national stocks and one Portfolio invests in a combination of
U.S. stocks and bonds. A detailed description of each Portfolio
begins on page 15 and a summary of each Performance Benchmark
is contained in the Appendix.
COMPASS PERFORMANCE LIPPER PEER GROUP
CAPITAL BENCHMARK
PORTFOLIO
LARGE CAP Russell 1000 Growth and Income
VALUE EQUITY Value Index
LARGE CAP Russell 1000 Growth
GROWTH EQUITY Growth Index
MID-CAP VALUE Russell Midcap Midcap
EQUITY Value Index
MID-CAP GROWTH Russell Midcap Midcap
EQUITY Growth Index
SMALL CAP Russell 2000 Small Company Growth
VALUE EQUITY Value Index
SMALL CAP Russell 2000 Small Company Growth
GROWTH EQUITY Growth Index
INTERNATIONAL EAFE Index International
EQUITY
INTERNATIONAL MSCI Emerging Emerging Markets
EMERGING Markets Free
MARKETS Index
SELECT EQUITY S&P 500 Index Growth and Income
INDEX EQUITY S&P 500 Index S&P 500 Index
BALANCED S&P 500 Index Balanced
and Salomon
Broad
Investment
Grade Index
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfo-
CAPITAL lios. We intend this document to be an effective tool as you
EQUITY explore different directions in equity investing.
PORTFOLIOS
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective. The Portfolios will hold equity securi-
EQUITY ties, and some or all of the Portfolios may acquire warrants,
INVESTING foreign securities and illiquid securities; enter into repur-
chase and reverse repurchase agreements; lend portfolio securi-
ties to third parties; and enter into futures contracts and op-
tions and forward currency exchange contracts. These and the
other investment practices set forth below, and their associ-
ated risks, deserve careful consideration. Certain risks asso-
ciated with international investments are heightened because of
currency fluctuations and investments in emerging markets. See
"What Additional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?"
CAPITAL
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Institutional
Shares of the Portfolios for the fiscal year ended September 30, 1996 as a per-
centage of average daily net assets. The figures shown for the Small Cap Value
Equity, International Equity, Select Equity and Balanced Portfolios have been
restated to reflect current expenses and fee waivers. Because the Mid-Cap Value
Equity Portfolio and Mid-Cap Growth Equity Portfolio are new, the figures shown
for these two Portfolios under "Other expenses" are estimates for the current
fiscal year. An example based on the summary is also shown.
<TABLE>
<CAPTION>
LARGE CAP LARGE CAP MID-CAP SMALL CAP SMALL CAP
VALUE GROWTH MID-CAP GROWTH VALUE GROWTH
EQUITY EQUITY VALUE EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .49% .49% .80% .80% .54% .54%
Other operating expenses .26 .26 .34 .34 .32 .32
--- --- --- --- --- ---
Administration fees
(after fee
waivers)(/1/) .18 .17 .15 .15 .22 .22
Other expenses .08 .09 .19 .19 .10 .10
--- --- --- --- --- ---
Total Portfolio
operating expenses
(after fee
waivers)(/1/) .75% .75% 1.14% 1.14% .86% .86%
=== === ==== ==== === ===
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EMERGING SELECT INDEX
EQUITY MARKETS EQUITY EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO+ PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/1/)(/2/) .70% 1.15% .50% .025% .50%
Other operating expenses .36 .63 .25 .155 .30
--- --- --- ---- ---
Administration fees
(after fee
waivers)(/1/) .18 .23 .17 .045 .18
Other expenses .18 .40 .08 .110 .12
--- --- --- ---- ---
Total Portfolio
operating expenses
(after fee
waivers)(/1/) 1.06% 1.78% .75% .18% .80%
==== ==== === === ===
</TABLE>
(1) Without waivers, advisory fees would be .80% for the Mid-Cap Value Equity
and Mid-Cap Growth Equity Portfolios, .75% and 1.25%, respectively, for the
International Equity and International Emerging Markets Portfolios and .55%
for each of the other Portfolios and administration fees would be .21% for
the Large Cap Value Equity Portfolio and .23% for each other 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 ex-
penses during the remainder of the current fiscal year at the levels set
forth in the table. Without waivers, "Other operating expenses" would be
.31%, .32%, .42%, .42%, .33%, 33%, .41%, .63%, .33%, .34% and .35%, respec-
tively, and "Total Portfolio operating expenses" would be .86%, .87%,
1.22%, 1.22%, .88%, .88%, 1.16%, 1.88%, .88%, .54% and .90%, respectively.
(2) Advisory fees with respect to the Index Equity Portfolio represent advisory
fees of the Index Master Portfolio.
+ Includes the operating expenses of the Index Master Portfolio that are allo-
cable to the Index Equity Portfolio.
4.
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return, and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Large Cap Value Equity Portfolio $ 8 $24 $42 $ 93
Large Cap Growth Equity Portfolio 8 24 42 93
Mid-Cap Value Equity Portfolio 12 36 N/A N/A
Mid-Cap Growth Equity Portfolio 12 36 N/A N/A
Small Cap Value Equity Portfolio 9 27 48 106
Small Cap Growth Equity Portfolio 9 27 48 106
International Equity Portfolio 11 34 58 129
International Emerging Markets
Portfolio 18 56 96 209
Select Equity Portfolio 8 24 42 93
Index Equity Portfolio 2 6 10 23
Balanced Portfolio 8 26 44 99
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the costs and expenses (including the Index Equity Portfolio's pro rata
share of the Index Master Portfolio's advisory fees and operating expenses) an
investor will bear either directly or indirectly. They do not reflect any
charges that may be imposed by affiliates of the Portfolios' investment adviser
or other institutions directly on their customer accounts in connection with
investments in the Portfolios.
The Board of Trustees of the Fund believes that the aggregate per share ex-
penses of the Index Equity Portfolio and the Index Master Portfolio in which
the Index Equity Portfolio's assets are invested are approximately equal to the
expenses which the Index Equity Portfolio would incur if the Fund retained the
services of an investment adviser for the Index Equity Portfolio and the assets
of the Index Equity Portfolio were invested directly in the type of securities
held by the Index Master Portfolio.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
5.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- -------------------------------------------------------------------------------
The following financial information has been derived from
the financial statements incorporated by reference into the
Statement of Additional Information and has been audited by
the Portfolios' independent accountant. This financial in-
formation should be read together with those financial
statements. Further information about the performance of the
Portfolios is available in the Fund's annual shareholder re-
ports. Both the Statement of Additional Information and the
annual shareholder reports may be obtained from the Fund
free of charge by calling (800) 441-7764. Information con-
cerning the historical investment results of Institutional
Shares of the Index Equity Portfolio reflects the financial
experience of that Portfolio prior to its conversion on June
2, 1996 to a feeder portfolio of the Index Master Portfolio.
During the periods presented the Mid-Cap Value Equity Port-
folio and Mid-Cap Growth Equity Portfolio had not commenced
investment operations.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LARGE CAP VALUE EQUITY PORTFOLIO
(FORMERLY THE VALUE EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 4/20/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGIN-
NING OF PERIOD $ 13.92 $ 11.62 $ 11.68 $ 9.78 $ 10.00
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.35 0.34 0.27 0.22 0.12
Net gain (loss) on
investments (both
realized and
unrealized) 2.41 2.54 0.16 1.91 (0.24)
-------- -------- -------- -------- --------
Total from investment
operations 2.76 2.88 0.43 2.13 (0.12)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.36) (0.33) (0.27) (0.23) (0.10)
Distributions from net
realized capital gains (0.97) (0.25) (0.22) - - - -
-------- -------- -------- -------- --------
Total distributions (1.33) (0.58) (0.49) (0.23) (0.10)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 15.35 $ 13.92 $ 11.62 $ 11.68 $ 9.78
======== ======== ======== ======== ========
Total return 21.01% 25.73% 3.76% 21.92% 1.19%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of pe-
riod (in thousands) $731,024 $508,273 $577,996 $432,776 $322,806
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.75% 0.67% 0.65% 0.80% 0.85%/2/
Before
advisory/administration
fee waivers 0.84% 0.81% 0.81% 0.83% 0.85%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 2.40% 2.68% 2.44% 2.07% 2.62%/2/
Before
advisory/administration
fee waivers 2.32% 2.53% 2.28% 2.04% 2.62%/2/
PORTFOLIO TURNOVER RATE 64% 12% 11% 11% 13%
AVERAGE COMMISSION
RATE/3/ $ 0.0556 N/A N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period.
6.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LARGE CAP GROWTH EQUITY PORTFOLIO
(FORMERLY THE GROWTH EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.03 $ 10.19 $ 11.58 $ 9.92 $ 10.28 $ 9.98 $ 10.00
-------- -------- ------- -------- ------- ------- -------
Income from investment
operations
Net investment income 0.08 0.13 0.06 0.06 0.21 0.24 0.31
Net gain (loss) on
investments
(both realized and
unrealized) 2.29 2.88 (1.34) 2.07 0.30 1.51 (0.26)
-------- -------- ------- -------- ------- ------- -------
Total from investment
operations 2.37 3.01 (1.28) 2.13 0.51 1.75 0.05
-------- -------- ------- -------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.06) (0.17) (0.01) (0.07) (0.37) (0.32) (0.07)
Distributions from capi-
tal - - - - - - (0.01) - - - - - -
Distributions from net
realized capital gains (0.38) - - (0.10) (0.39) (0.50) (1.13) - -
-------- -------- ------- -------- ------- ------- -------
Total distributions (0.44) (0.17) (0.11) (0.47) (0.87) (1.45) (0.07)
-------- -------- ------- -------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 14.96 $ 13.03 $ 10.19 $ 11.58 $ 9.92 $ 10.28 $ 9.98
======== ======== ======= ======== ======= ======= =======
Total return 18.67% 29.88% (11.14)% 22.18% 4.98% 19.47% 0.40%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $481,171 $211,543 $97,834 $100,049 $58,372 $54,912 $39,790
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.75% 0.67% 0.65% 0.81% 0.85% 0.85% 0.85%/2/
Before
advisory/administration
fee waivers 0.86% 0.85% 0.89% 0.87% 0.86% 0.91% 0.88%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.63% 1.20% 0.62% 0.50% 2.07% 2.59% 2.75%/2/
Before
advisory/administration
fee waivers 0.51% 1.01% 0.38% 0.44% 2.06% 2.53% 2.72%/2/
PORTFOLIO TURNOVER RATE 58% 55% 212% 175% 162% 211% 149%
AVERAGE COMMISSION
RATE/3/ $ 0.0598 N/A N/A N/A N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
7.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 4/13/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGIN-
NING OF PERIOD $ 15.16 $ 13.62 $ 13.08 $ 10.14 $ 10.00
-------- -------- -------- -------- -------
Income from investment
operations
Net investment income 0.10 0.06 0.04 0.04 0.02
Net gain (loss) on
investments
(both realized and
unrealized) 1.70 2.17 0.77 3.02 0.13
-------- -------- -------- -------- -------
Total from investment
operations 1.80 2.23 0.81 3.06 0.15
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.11) (0.08) (0.02) (0.04) (0.01)
Distributions from net
realized capital gains (0.87) (0.61) (0.25) (0.08) - -
-------- -------- -------- -------- -------
Total distributions (0.98) (0.69) (0.27) (0.12) (0.01)
-------- -------- -------- -------- -------
NET ASSET VALUE AT END OF
PERIOD $ 15.98 $ 15.16 $ 13.62 $ 13.08 $ 10.14
======== ======== ======== ======== =======
Total return 12.64% 17.43% 6.28% 30.36% 1.50%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of pe-
riod (in thousands) $214,828 $168,334 $168,360 $128,805 $75,045
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.85% 0.75% 0.73% 0.83% 0.85%/2/
Before
advisory/administration
fee waivers 0.86% 0.84% 0.85% 0.87% 0.89%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.68% 0.44% 0.28% 0.31% 0.51%/2/
Before
advisory/administration
fee waivers 0.67% 0.35% 0.16% 0.27% 0.47%/2/
PORTFOLIO TURNOVER RATE 50% 31% 18% 41% 17%
AVERAGE COMMISSION
RATE/3/ $0.0580 N/A N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
8.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 9/14/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 15.06 $ 10.16 $ 10.47 $ 10.00
-------- -------- ------- -------
Income from investment operations
Net investment income (0.01) 0.02 0.03 - -
Net gain (loss) on investments
(both realized and unrealized) 6.91 4.90 (0.33) 0.47
-------- -------- ------- -------
Total from investment operations 6.90 4.92 (0.30) 0.47
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.02) (0.02) (0.01) - -
Distributions from net realized
capital gains - - - - - - - -
-------- -------- ------- -------
Total distributions (0.02) (0.02) (0.01) - -
-------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 21.94 $ 15.06 $ 10.16 $ 10.47
======== ======== ======= =======
Total return 45.87% 48.50% (2.89)% 4.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $299,563 $145,915 $65,612 $11,310
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.86% 0.75% 0.48% 0.73%/2/
Before advisory/administration
fee waivers 0.88% 0.88% 1.04% 1.42%/2/
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers (0.07)% 0.22% 0.45% (0.11)%/2/
Before advisory/administration
fee waivers (0.09)% 0.09% (0.10)% (0.80)%/2/
PORTFOLIO TURNOVER RATE 89% 74% 89% 9%
AVERAGE COMMISSION RATE/3/ $ 0.0569 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 4/27/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.27 $ 13.44 $ 12.48 $ 9.87 $ 10.00
-------- -------- -------- -------- -------
Income from investment
operations
Net investment income 0.17 0.17 0.15 0.11 0.11
Net realized gain (loss)
on investments 0.84 0.13 1.17 2.61 (0.17)
-------- -------- -------- -------- -------
Total from investment
operations 1.01 0.30 1.32 2.72 (0.06)
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.18) (0.11) (0.11) (0.11) (0.07)
Distributions from net
realized capital gains (0.67) (0.36) (0.25) - - - -
-------- -------- -------- -------- -------
Total distributions (0.85) (0.47) (0.36) (0.11) (0.07)
-------- -------- -------- -------- -------
NET ASSET VALUE AT END OF
PERIOD $ 13.43 $ 13.27 $ 13.44 $ 12.48 $ 9.87
======== ======== ======== ======== =======
Total return 8.01% 2.46% 10.71% 27.72% (0.61)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of pe-
riod (in thousands) $388,588 $312,588 $284,905 $131,052 $60,357
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06% 0.97% 0.95% 1.10% 1.20%/2/
Before
advisory/administration
fee waivers 1.17% 1.14% 1.14% 1.16% 1.21%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.90% 1.42% 1.27% 1.17% 2.59%/2/
Before
advisory/administration
fee waivers 0.79% 1.24% 1.08% 1.11% 2.58%/2/
PORTFOLIO TURNOVER RATE 70% 105% 37% 31% 15%
AVERAGE COMMISSION
RATE/3/ $ 0.0158 N/A N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR 6/17/94/1/
ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 8.19 $ 10.56 $10.00
------- ------- ------
Income from investment operations
Net investment income 0.08 0.08 0.03
Net gain (loss) on investments (both realized
and unrealized) 0.50 (2.15) 0.53
------- ------- ------
Total from investment operations 0.58 2.07 0.56
------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment income - - (0.10) - -
Distributions from Capital - - (0.01) - -
Distributions from net realized capital gains (0.01) (0.19) - -
------- ------- ------
Total distributions (0.01) (0.30) - -
------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 8.76 $ 8.19 $10.56
======= ======= ======
Total return 6.97% (19.72)% 5.60%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $68,664 $29,319 $2,511
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.78% 1.78% 1.75%/2/
Before advisory/administration fee waivers 1.88% 2.02% 2.73%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 0.96% 1.90% 1.19%/2/
Before advisory/administration fee waivers 0.87% 1.66% 0.21%/2/
PORTFOLIO TURNOVER RATE 44% 75% 4%
AVERAGE COMMISSION RATE/3/ $0.0018 N/A N/A
</TABLE>
/1/Commencement of operations of share classes.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
11.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SELECT EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 9/13/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PE-
RIOD $ 11.88 $ 9.92 $ 9.97 $ 10.00
-------- -------- ------- -------
Income from investment operations
Net investment income 0.21 0.22 0.22 0.01
Net gain (loss) on investments
(both realized and unrealized) 2.08 2.08 (0.04) (0.04)
-------- -------- ------- -------
Total from investment operations 2.29 2.30 0.18 (0.03)
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.21) (0.22) (0.23) - -
Distributions from net realized
capital gains (0.39) (0.12) - - - -
-------- -------- ------- -------
Total distributions (0.60) (0.34) (0.23) - -
-------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.57 $ 11.88 $ 9.92 $ 9.97
======== ======== ======= =======
Total return 19.84% 23.76% 1.79% (.30)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $274,434 $238,813 $48,123 $69,268
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.74% 0.67% 0.65% 0.65%/2/
Before advisory/administration fee
waivers 0.87% 0.85% 0.93% 0.87%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 1.70% 2.35% 2.11% 2.17%/2/
Before advisory/administration fee
waivers 1.58% 2.17% 1.82% 1.95%/2/
PORTFOLIO TURNOVER RATE 55% 51% 88% 2%
AVERAGE COMMISSION RATE/3/ $ 0.0487 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
12.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 4/20/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGIN-
NING OF PERIOD $ 13.58 $ 10.93 $ 11.02 $ 10.06 $ 10.00
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.30 0.38 0.31 0.27 0.13
Net realized gain (loss)
on investments 2.13 2.73 0.03 0.97 0.03
-------- -------- -------- -------- --------
Total from investment
operations 2.43 3.11 0.34 1.24 0.16
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.34) (0.34) (0.32) (0.28) (0.10)
Distributions from net
realized capital gains (1.70) (0.12) (0.11) - - - -
-------- -------- -------- -------- --------
Total distributions (2.04) (0.46) (0.43) (0.28) (0.10)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 13.97 $ 13.58 $ 10.93 $ 11.02 $ 10.06
======== ======== ======== ======== ========
Total return 19.82% 29.30% 3.07% 12.40% 1.62%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of pe-
riod (in thousands) $127,076 $109,433 $147,746 $186,163 $175,888
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.18% 0.17% 0.15% 0.40% 0.45%/2/
Before
advisory/administration
fee waivers 0.50%/3/ 0.50% 0.52% 0.52% 0.64%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 2.29% 2.92% 2.72% 2.46% 2.85%/2/
Before
advisory/administration
fee waivers 1.98% 2.59% 2.35% 2.34% 2.66%/2/
PORTFOLIO TURNOVER RATE 18%/4/, /5/ 18% 17% 8% 23%
AVERAGE COMMISSION RATE $ 0.0319 /4/, /5/ N/A N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Including expenses allocated from the U.S. Large Company Series of The DFA
Investment Trust Company of 0.13%.
/4/For the period from October 1, 1995 through May 31, 1996.
/5/See footnotes to the financial statements of The DFA Investment Trust Compa-
ny.
13.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 5/1/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 13.73 $ 11.98 $ 12.42 $ 11.53 $11.01
------- ------- ------- ------- ------
Income from investment opera-
tions
Net investment income 0.46 0.46 0.38 0.30 0.17
Net realized gain (loss) on
investments 1.49 1.90 (0.39) 1.15 0.51
------- ------- ------- ------- ------
Total from investment opera-
tions 1.95 2.36 (0.01) 1.45 0.68
------- ------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net in-
vestment income (0.45) (0.47) (0.37) (0.30) (0.16)
Distributions from net real-
ized capital gains (0.13) (0.14) (0.06) (0.26) - -
------- ------- ------- ------- ------
Total distributions (0.58) (0.61) (0.43) (0.56) (0.16)
------- ------- ------- ------- ------
NET ASSET VALUE AT END OF PE-
RIOD $ 15.10 $ 13.73 $ 11.98 $ 12.42 $11.53
======= ======= ======= ======= ======
Total return 14.43% 20.32% (0.11)% 12.86% 6.23%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $37,567 $24,525 $17,610 $12,928 $2,501
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.79% 0.67% 0.65% 0.80% 0.95%/2/
Before
advisory/administration fee
waivers 0.90% 0.88% 0.91% 0.98% 1.51%/2/
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 3.16% 3.78% 3.16% 2.89% 3.28%/2/
Before
advisory/administration fee
waivers 3.06% 3.56% 2.89% 2.71% 2.72%/2/
PORTFOLIO TURNOVER RATE 275% 154% 54% 32% 36%
AVERAGE COMMISSION RATE/3/ $0.0599 N/A N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
14.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 30 portfolios and
has been structured to include many different investment styles
so that investors may participate across multiple disciplines
in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of
eleven investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity
sector. Eight of these Portfolios invest primarily in U.S.
stocks, two Portfolios invest in non-U.S. international stocks
and one Portfolio invests in a combination of U.S. stocks and
bonds.
In certain investment cycles and over certain holding periods,
an equity fund that invests according to a "value" style or a
"growth" style may perform above or below the market. An in-
vestment program that combines these multiple disciplines al-
lows investors to select from among these various product op-
tions in the way that most closely fits the investor's goals
and sentiments.
INVESTMENT Each of the eleven Compass Capital Equity Portfolios seeks to
OBJECTIVES provide long-term Capital Appreciation.
The Select Equity, Large Cap Value Equity and Mid-Cap Value Eq-
uity Portfolios pursue a secondary objective of Current Income
from dividends.
The Balanced Portfolio pursues a secondary objective of Current
Income from an allocation to fixed income securities.
To meet its investment objective, each Portfolio employs a spe-
cific investment style, as described on the following two
pages. No assurance can be made that a Portfolio will achieve
its investment objective.
15.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE DIFFERENCES
AMONG THE PORTFOLIOS?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
Large Cap Value Pursues equity Stocks with Russell 1000
Equity securities (defined as price/earnings and Value Index
common stocks or price/book ratios at time
securities convertible of purchase below average
into common stocks) for benchmark and
which the sub-adviser capitalization in excess
believes are of $5 billion.
undervalued. A
security's earnings
trend and its dividend
growth rate will also be
factors considered in
security selection.
Large Cap Growth Pursues stocks with Stocks with growth rate Russell 1000
Equity earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
stocks which the sub- capitalization in excess
adviser considers to of $5 billion.
have favorable and
above-average earnings
growth prospects.
Mid-Cap Value Pursues mid cap stocks Stocks with low Russell Midcap
Equity and sectors which the price/earnings, Value Index
sub-adviser believes are price/book, price/cash
undervalued. A flow or price/sales
security's earnings ratios at the time of
trend and its dividend purchase relative to
growth rate will also be their respective sectors
factors considered in or the benchmark and
security selection. capitalization between $1
billion and $5 billion.
Mid-Cap Growth Pursues mid cap stocks Stocks with growth rate Russell Midcap
Equity with earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
stocks which the sub- capitalization between $1
adviser considers to billion and $5 billion.
have favorable and
above-average earnings
growth prospects.
Small Cap Value Pursues small cap stocks Stocks with Russell 2000
Equity which the sub-adviser price/earnings and Value Index
believes are price/book ratios at time
undervalued. A of purchase below average
security's earnings for benchmark and
trend and its dividend capitalization below $1
growth rate will also be billion.
factors considered in
security selection.
Small Cap Growth Pursues small cap stocks Stocks with growth rate Russell 2000
Equity with earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
small cap stocks which capitalization below $1
the sub-adviser billion.
considers to have
favorable and above-
average earnings growth
prospects.
International Pursues non-dollar Portfolio assets are EAFE Index
Equity denominated stocks of primarily invested in
issuers in countries international stocks.
included in the Morgan
Stanley Capital Stocks with
International Europe, price/earnings ratios
Australia and the Far below average for a
East Index ("EAFE"). security's home market or
Within this universe, a stock exchange.
value style of investing
is employed to select Diversification across
stocks which the sub- countries, industry
adviser believes are groups and companies with
undervalued. A investment at all times
security's earnings in at least three foreign
trend and its price countries.
momentum will also be
factors considered in
security selection. The
sub-adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign
countries, expected
levels of inflation,
government policies
influencing business
conditions and the
outlook for currency
relationships.
</TABLE>
*For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
16.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
International Pursues non-dollar Portfolio assets are MSCI
Emerging Markets denominated stocks of primarily invested in Emerging
issuers in emerging stocks of emerging market Markets Free
country markets issuers. Index
(generally any country
considered to be Stocks with
emerging or developing price/earnings ratios
by the World Bank, the below average for a
International Finance security's home market or
Corporation or the stock exchange.
United Nations). Within
this universe, a value Ordinarily, stocks of
style of investing is issuers in at least three
employed to select emerging markets will be
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 Similar sector weightings S&P 500 Index
growth style as sub- as benchmark, with over-
adviser identifies or under-weighting in
market opportunity. particular securities
within those sectors.
Index Equity Invests all of its The Index Master S&P 500 Index
assets indirectly, Portfolio holds
through the U.S. Large substantially all the
Company Series (the stocks of the S&P 500
"Index Master Index in approximately
Portfolio") of The DFA the same proportions as
Investment Trust Company they are represented in
in the stocks of the S&P the Index.
500 Index using a
passive investment style
that pursues the
replication of the S&P
500 Index return.
Balanced Holds a blend of equity Maintains a minimum 25% S&P 500 and
and fixed income investment in fixed Salomon Broad
securities to deliver income senior securities. Investment
total return through Grade Index
capital appreciation and
current income.
Equity Portion: Combines Equity Portion: Similar
value and growth style sector weightings as
as sub-adviser benchmark, with over- or
identifies market under- weighting in
opportunity. particular securities
within those sectors.
Fixed Income Portion: Fixed Income Portion:
Combines sector rotation Dollar-denominated
and security selection investment grade bonds,
across a broad universe including U.S.
of fixed income Government, mortgage-
securities. 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.
17.
<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 to-
tal assets in equity securities. The Portfolios will invest primarily in eq-
uity securities of U.S. issuers, except the International Equity and Interna-
tional Emerging Markets Portfolios, which will invest primarily in foreign is-
suers. Equity securities include common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity inter-
ests in trusts and partnerships; and depositary 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 Con-
tinental Depository Receipts, are receipts issued in Europe, typically by for-
eign banks and trust companies, that evidence ownership of either foreign or
domestic underlying 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 concerning the issuer may not be as current as for spon-
sored 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 considera-
tions as described below under "International Portfolios."
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment
objective, each Portfolio (other than the Index Master Portfolio) may write
covered call options, buy put options, buy call options and write secured put
options 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, securities indices, or the yield differential between
two securities, or, in the case of the International Equity and International
Emerging Markets Portfolios, foreign currencies, 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 when the ag-
gregate premiums on outstanding options exceed 5% of its net assets at the
time of purchase, and will not write options on more than 25% of the value of
its net assets (measured at the time an option is written). Options trading is
a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corpora-
tion, which performs the obligations of its members if they default.
To the extent consistent with its investment objective, each Portfolio may
also invest in futures contracts and options on futures contracts to commit
funds awaiting investment in stocks or maintain cash liquidity or, except with
respect to the Index Master Portfolio, for other hedging purposes. The value
of a Portfolio's contracts may equal or exceed 100% of its 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
18.
<PAGE>
- --------------------------------------------------------------------------------
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, a Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid 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 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 as a temporary defensive measure if its sub-adviser determines that
market conditions warrant, each Portfolio other than the Index Master Portfolio
may also invest without limitation in high quality money market instruments.
The Balanced Portfolio may also invest in these securities in furtherance of
its investment objective. The Index Master Portfolio may invest a portion of
its assets, normally not more than 5% of its net assets, in certain short-term
fixed income obligations in order to maintain liquidity or to invest temporar-
ily uncommitted cash balances.
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign is-
suers, bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and obli-
gations of supranational organizations. Generally, such obligations will mature
within one year from the date of settlement, but may mature within two years
from the date of settlement. Under a repurchase agreement, a Portfolio agrees
to purchase securities from financial institutions 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 adverse market action, expenses
and/or delays in connection with the disposition of the underlying securities.
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 or market action. When-issued and forward commitment transactions involve
the risk, however, that the price or yield obtained in a transaction may be
less favorable than the price or yield available in the market when the securi-
ties 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 ab-
sent unusual market conditions.
19.
<PAGE>
- --------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to borrow money. 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 de-
cline in value suffered by the Portfolio's securities. Borrowings may be made
by each Portfolio through reverse repurchase agreements under which the Portfo-
lio sells portfolio securities to financial institutions such as banks and bro-
ker-dealers and agrees to repurchase them at a particular date and price. A
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 reverse repurchase agree-
ment. The Index Master Portfolio does not intend to invest in reverse repur-
chase agreements. The Balanced Portfolio may utilize reverse repurchase agree-
ments when it is anticipated that the interest income to be earned from the in-
vestment of the proceeds of the transaction is greater than the interest ex-
pense of the transaction. This use of reverse repurchase agreements may be re-
garded as leveraging and, therefore, speculative. Reverse repurchase agreements
involve the risks that the interest income earned in the investment of the pro-
ceeds will be less than the interest expense, that the market value of the se-
curities 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 re-
turned to the Portfolio. During the time a reverse repurchase agreement is out-
standing, a Portfolio will maintain a segregated account with the Fund's custo-
dian containing cash, U.S. Government or other appropriate liquid securities
having a value at least equal to the repurchase price. A Portfolio's reverse
repurchase agreements, together with any other borrowings, will not exceed, in
the aggregate, 33 1/3% of the value of its total assets (33% in the case of the
Index Master Portfolio). In addition, the Balanced Portfolio may borrow up to
an additional 5% of its total assets for temporary purposes. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolios (other than
the Index Master Portfolio and the Balanced Portfolio) will not make any in-
vestments.
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. Such
Portfolios may also invest in securities issued by other investment companies
with similar investment objectives. The International Equity and International
Emerging Markets Portfolios may purchase shares of investment companies invest-
ing primarily in foreign securities, including so-called "country funds." Coun-
try funds have portfolios consisting exclusively of securities of issuers lo-
cated 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 Investment Company Act of 1940 (the "1940
Act"). As a shareholder of another investment company, a Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addi-
tion 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
20.
<PAGE>
- --------------------------------------------------------------------------------
Act. These securities will not be considered illiquid so long as it is deter-
mined by the adviser or sub-adviser that an adequate trading market exists for
the securities. This investment practice could have the effect of increasing
the level of illiquidity in a Portfolio during any period that qualified insti-
tutional buyers become uninterested in purchasing these restricted securities.
SMALL CAP AND MID-CAP 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 organizations (less than $1 billion at
the time of purchase). Similarly, the Mid-Cap Value Equity Portfolio and Mid-
Cap Growth Equity Portfolio will invest, under normal market conditions, at
least 90% (and in any event at least 65%) of their respective total assets in
equity securities of medium-capitalized organizations (between $1 billion and
$5 billion at the time of purchase). These organizations will normally have
more limited product lines, markets and financial resources and will be depen-
dent upon a more limited management group than larger capitalized companies.
INDEX EQUITY AND INDEX MASTER PORTFOLIOS. During normal market conditions, the
Index Master Portfolio (in which all of the assets of the Index Equity Portfo-
lio are invested) invests at least 95% of the value of its total assets in se-
curities included in the Standard & Poor's 500(R) Composite Stock Price Index
(the "S&P 500 Index")*. The Index Master Portfolio intends to invest in all of
the stocks that comprise the S&P 500 Index in approximately the same propor-
tions as they are represented in the Index. The Portfolio operates as an index
portfolio and, therefore, is not actively managed (through the use of economic,
financial or market analysis), and adverse performance will ordinarily not re-
sult in the elimination of a stock from the Portfolio. The Portfolio will re-
main fully invested in common stocks even when stock prices are generally fall-
ing. Ordinarily, portfolio securities will not be sold except to reflect addi-
tions or deletions of the stocks that comprise the S&P 500 Index, including
mergers, reorganizations and similar transactions and, to the extent necessary,
to provide cash to pay redemptions of the Portfolio's shares. The investment
performance of the Index Master Portfolio and the Index Equity Portfolio is ex-
pected 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 and 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 WARRANTY, EXPRESS OR IM-
PLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF
- ------
* "Standard & Poor's(R)," "S&P(R)," "S&P500(R)," "Standard & Poor's 500(R)" and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by the Fund and The DFA Investment Trust Company.
21.
<PAGE>
- --------------------------------------------------------------------------------
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 FOREGO-
ING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDI-
RECT, 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, Bulgaria, Chile, China, Colombia, The Czech Repub-
lic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, Lebanon, Malay-
sia, Mexico, Morocco, Peru, The Philippines, Poland, Romania, Russia, South Af-
rica, South Korea, Taiwan, Thailand, Tunisia, Turkey, Venezuela, Vietnam and
Zimbabwe. 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 characteristic of more devel-
oped countries. Some of these countries may have in the past failed to recog-
nize private property rights and have at times nationalized or expropriated the
assets of private companies. As a result, the risks described above, including
the risks of nationalization or expropriation of assets, may be heightened. In
addition, unanticipated political or social developments may affect the value
of investments in these countries and the availability to a Portfolio of addi-
tional investments in emerging market countries. The small size and inexperi-
ence of the securities markets in certain of these countries and the limited
volume of trading in securities in these countries may make investments in the
countries illiquid and more volatile than investments in Japan or most Western
European countries. There may be little financial or accounting information
available with respect to issuers located in certain emerging market countries,
and it may be difficult to assess the value or prospects of an investment in
such issuers.
The International Equity Portfolio invests primarily in equity securities of
issuers located in countries included in EAFE. Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Italy, Japan,
22.
<PAGE>
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Netherlands, New Zealand, Norway, Singapore, Malaysia, Spain, Sweden, Switzer-
land and the United Kingdom are currently included in EAFE. From time to time
the International Equity Portfolio may invest more than 25% of its total assets
in the securities of issuers located in Japan. Investments of 25% or more of
the Portfolio's total assets in this or any other country will make the Portfo-
lio's performance more dependent upon the political and economic circumstances
of a particular country than a mutual fund that is more widely diversified
among issuers in different countries. For example, in the past events in the
Japanese economy as well as social developments and natural disasters have af-
fected Japanese securities and currency markets, and have periodically dis-
rupted the relationship of the Japanese yen with other currencies and with the
U.S. dollar.
The International Equity and International Emerging Markets Portfolios may (but
are not required to) use forward foreign currency exchange contracts to hedge
against movements in the value of foreign currencies (including the European
Currency Unit) relative to the U.S. dollar in connection with specific portfo-
lio transactions or with respect to portfolio positions. A forward foreign cur-
rency exchange contract involves an obligation to purchase or sell a specified
currency at a future 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 a Portfolio to establish a rate of ex-
change 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), ob-
ligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities and state and local Municipal obligations. These securities
will be rated at the time of purchase within the four highest rating groups as-
signed by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rat-
ings Group ("S&P") or another nationally recognized statistical rating organi-
zation. If unrated, the securities will be determined at the time of purchase
to be of comparable quality by the sub-adviser. Securities rated "Baa" by
Moody's or "BBB" by S&P, respectively, are generally considered to be invest-
ment grade although they have speculative characteristics. If a fixed income
security is reduced below Baa by Moody's or BBB by S&P, the Portfolio's sub-
adviser will dispose of the security in an orderly fashion as soon as practica-
ble. Investments in securities of foreign issuers, which present additional in-
vestment considerations as described above under "International Portfolios,"
will be limited to 5% of the Portfolio's total assets.
The Balanced Portfolio may make significant investments in residential and com-
mercial mortgage-related and other asset-backed securities (i.e., securities
backed by home equity loans, installment sale contracts, credit card receiv-
ables or other assets) issued by governmental entities and private issuers.
The Balanced Portfolio may acquire several types of mortgage-related securi-
ties, including 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 obliga-
tions ("CMOs"), which provide the holder with a specified interest in the cash
flow of a pool of underlying mortgages or other mortgage-backed securities. Is-
suers 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 multi-
ple classes, each with a specified fixed or floating interest rate and a final
distribution date. The relative payment rights of the various CMO classes may
be structured in many ways. In most cases, however, payments of principal are
applied to the CMO classes in the order of their respective stated maturities,
so that no principal payments will be made on a CMO class until all other clas-
ses having an earlier stated maturity date are paid in full. The classes may
include accrual certificates (also known as "Z-Bonds"), which only accrue in-
terest at a specified rate until other specified classes have been retired and
are converted thereafter to interest-paying securities. They may also include
planned amortization classes ("PACs") which generally require, within certain
limits, that specified amounts of principal be applied on each payment date,
and generally exhibit less yield and market volatility than other classes.
Non-mortgage asset-backed securities involve risks that are not presented by
mortgage-related securities. Primarily, these securities do not have the bene-
fit of the same security interest in the underlying collateral.
23.
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Credit card receivables are generally unsecured, and the debtors are entitled
to the protection of a number of state and Federal consumer credit laws 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 per-
mit 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
vehicles involved in a typical issuance and technical requirements under state
laws, the trustees for the holders of the automobile receivables may not have
an effective security interest in all of the obligations backing such receiv-
able. Therefore, there is a possibility that recoveries on repossessed collat-
eral may not, in some cases, be able to support payments on these securities.
The yield and maturity characteristics of mortgage-related and other asset-
backed securities differ from traditional debt securities. A major difference
is that the principal amount of the obligations may be prepaid at any time be-
cause the underlying assets (i.e., loans) generally may be prepaid at any
time. The average life of a mortgage-related 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. In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments.
The relationship between prepayments and interest rates may give some high-
yielding asset-backed securities less potential for growth in value than con-
ventional bonds with comparable maturities. In addition, in periods of falling
interest rates, the rate of prepayments tends to increase. During such peri-
ods, the reinvestment of prepayment proceeds by the Balanced Portfolio will
generally be at lower rates than the rates that were carried by the obliga-
tions that have been prepaid. Because of these and other reasons, an asset-
backed security's total return and maturity may be difficult to predict pre-
cisely. To the extent that the Balanced Portfolio purchases asset-backed secu-
rities at a premium, prepayments (which may be made without penalty) may re-
sult in loss of the Balanced Portfolio's principal investment to the extent of
premium paid.
The Balanced Portfolio may from time to time purchase in the secondary market
certain mortgage pass-through securities packaged and master serviced by PNC
Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp.
succeeded to rights and duties of Sears Mortgage) or mortgage-related securi-
ties containing loans or mortgages originated by PNC Bank, National Associa-
tion ("PNC Bank") or its affiliates. It is possible that, under some circum-
stances, PNC Mortgage Securities Corp. or its affiliates could have interests
that are in conflict with the holders of these mortgage-backed securities, and
such holders could have rights against PNC Mortgage Securities Corp. or its
affiliates.
The Balanced Fund may also purchase obligations issued or guaranteed by the
U.S. Government and U.S. Government agencies and instrumentalities. Obliga-
tions of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury. Others are sup-
ported by the right of the issuer to borrow from the U.S. Treasury; and still
others are supported only by the credit of the agency or instrumentality issu-
ing the obligation. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored instrumentalities 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 cer-
tificates ("CATs")). The Balanced Portfolio may purchase these certificates,
as well as Treasury receipts and other stripped securities, which represent
beneficial ownership interests in either future interest payments or the fu-
ture principal payments on U.S. Government obligations. These instruments are
issued at a discount to their "face value" and may (particularly 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) and state and
local government obligations. Zero-coupon bonds are subject
24.
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to greater market fluctuations from changing interest rates than debt obliga-
tions of comparable maturities which make current distributions of interest.
Municipal obligations may be purchased when the Portfolio's sub-adviser be-
lieves that their return, on a pre-tax basis, will be comparable to the returns
of other permitted investments. Dividends paid by the Portfolio that are de-
rived from interest on municipal obligations will be taxable to shareholders.
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 those 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 securities having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that its value is maintained. The Portfolio's dollar rolls,
together with its reverse repurchase agreements and other borrowings, will not
exceed, in the aggregate, 33 1/3% of the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Portfo-
lio sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted. Successful use of mortgage dollar
rolls may depend upon the sub-adviser's ability to correctly predict interest
rates and prepayments. There is no assurance that dollar rolls can be success-
fully employed.
The Balanced Portfolio may enter into interest rate swaps and may purchase or
sell interest rate caps and floors. The Portfolio may enter into these transac-
tions primarily to preserve a return or spread on a particular investment or
portion of its holdings, as a duration management technique or to protect
against an increase in the price of securities the Portfolio anticipates pur-
chasing at a later date. The Portfolio intends to use these transactions as a
hedge and not as a speculative investment.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. 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.
The Balanced Portfolio 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. Although the Portfolio does not
currently intend to do so under current market conditions, the Portfolio may
invest up to 10% of its total assets in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate of an inverse floater re-
sets in the opposite direction from the market rate of interest to which it is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the
25.
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magnitude of the change in the index rate of interest. The higher degree of
leverage inherent in inverse floaters is associated with greater volatility in
their market values. Unrated variable and floating rate instruments will be
comparable in quality to investment grade securities as determined by the Port-
folio's sub-advisers. The absence of an active secondary market with respect to
particular variable and floating rate instruments, however, could make it dif-
ficult 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.
The Portfolio may only make short sales of securities "against-the-box." A
short sale is a transaction in which the Portfolio sells a security it does not
own in anticipation that the market price of that security will decline. The
Portfolio 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 port-
folio flexibility. In a short sale "against-the-box," at the time of sale, the
Portfolio owns or has the immediate and unconditional right to acquire the
identical security at no additional cost. When selling short "against-the-box,"
the Portfolio forgoes an opportunity for capital appreciation in the security.
The market value of the Balanced Portfolio's investments in fixed income secu-
rities 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 securities generally
decline. Changes in the financial strength of an issuer or changes in the rat-
ings of any particular security may also affect the value of these investments.
PORTFOLIO TURNOVER RATES. Under normal market conditions, it is expected that
the annual portfolio turnover rate for the Mid-Cap Value Equity and Mid-Cap
Growth Equity Portfolios will not exceed 100%. The past portfolio turnover
rates of the other Portfolios are set forth above under "What Are The Financial
Highlights?" A Portfolio's annual portfolio turnover rate will not be a factor
preventing a sale or purchase when the adviser or sub-adviser believes invest-
ment 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 may result in the realization of short-term capital gains that are taxable
to shareholders as ordinary income.
26.
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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
change to a Portfolio's investment objective. 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 obligations of the U.S. Government and its in-
strumentalities and related repurchase 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
(33% of net assets in the case of the Index Master Portfolio) 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 as that Portfolio.
27.
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WHO MANAGES THE FUND?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund and of The DFA Invest-
TRUSTEES ment Trust Company (in which the assets of the Fund's Index
Equity Portfolio are invested) are managed under the direc-
tion of their separate Boards of Trustees. The following per-
sons currently 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.--Chairman, Gee, Wilmerding & Associ-
ates, 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, Inc. ("PAMG"), except with respect to the Index Equity
Portfolio. Each of the Portfolios within the Compass Capital
Fund family (except the Index Equity Portfolio) 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>
Large Cap Value Equity PCM(/1/) 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
manager since 1995.
Large Cap Growth Equity PEAC(/2/) Robert K. Urquhart; investment manager with
PEAC 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.
Mid-Cap Value Equity PCM(/1/) Benedict E. Capaldi (see above); Portfolio
co-manager since its inception.
Daniel B. Eagan; portfolio manager with PCM
since 1995; director of investment strategy
at PAMG during 1994 and 1995; prior to 1994,
served as senior research consultant for
Mercer Investment Consulting. Portfolio co-
manager since its inception.
</TABLE>
28.
<PAGE>
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<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ----------- -----------------
<S> <C> <C>
Mid-Cap Growth Equity PEAC(/2/) William C. McVail; investment manager with
PEAC since 1994; prior to joining PEAC,
equity and fixed income analyst with PNC
Bank; Portfolio co-manager since its
inception.
William J. Wykle; investment manager with
PEAC since 1995; investment manager with PNC
Bank, National Association since 1986;
Portfolio co-manager since its inception.
Small Cap Value Equity PCM(/1/) Christian K. Stadlinger; Vice President of
PCM since July 1996; prior to joining PCM,
Portfolio Manager and Research Analyst with
Morgan Stanley Asset Management; Portfolio
manager since July 1996.
Small Cap Growth Equity PEAC(/2/) William J. Wykle (see above); Portfolio co-
manager since its inception.
William C. McVail; (see above); Portfolio co-
manager since inception.
International Equity CastleInternational(/4/) Gordon Anderson; Managing and Investment
Director since 1996; prior to joining
CastleInternational, Investment Director of
Dunedin Fund Managers Ltd.; Portfolio manager
since 1996.
International Emerging CastleInternational(/4/) Euan Rae; Senior Investment Manager since
Markets 1996; prior to joining CastleInternational,
Head of Emerging Markets at Dunedin Fund
Managers Ltd. and investment manager with
Edinburgh Fund Managers; Portfolio manager
since 1996.
Select Equity PCM(/1/) Daniel B. Eagan (see p. 28); Portfolio
manager since 1995.
Balanced PCM and R. Andrew Damm; Senior investment strategist
BlackRock(/1/)(/3/) with PAMG since 1995; portfolio manager with
PNC Bank from 1988 to 1995; Portfolio co-
manager since 1996.
Stephen Utkus is the Director of Investment
Strategy for PNC Asset Management Group, and
plays a critical role in developing and
implementing PNC Bank's asset allocation
program, the PNC Blended Investment
Capability as well as PNC's investment policy
as a whole. Previously, he worked at The
Vanguard Group in asset allocation and
product development. He has served as co-
manager of the Balanced Portfolio since 1996.
Robert S. Kapito; Vice Chairman of BlackRock
since 1988; Portfolio co-manager since 1995.
</TABLE>
29.
<PAGE>
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<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ----------- -----------------
<S> <C> <C>
Balanced (cont) 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 1600
Market Street, 27th Floor, Philadelphia, PA 19103.
(2) PNC Equity Advisors Company ("PEAC") has its primary offices at 1600 Market
Street, 27th Floor, Philadelphia, PA 19103.
(3) BlackRock Financial Management, Inc. ("BlackRock") has its primary offices
at 345 Park Avenue, New York, New York 10154.
(4) CastleInternational Asset Management Limited ("CastleInternational") has
its primary offices at 7 Castle Street, Edinburgh, Scotland, EH2 3AH.
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1600
Market Street, 29th Floor, Philadelphia, Pennsylvania 19103.
PAMG is an indirect wholly-owned subsidiary of PNC Bank
Corp., a multi-bank holding company.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-advisers are entitled to fees, com-
puted daily on a portfolio-by-portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG
and the sub-advisers intend to waive a portion of their fees
during the current fiscal year. All sub-advisory fees are
paid by PAMG and do not represent an extra charge to the
Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO
EXCEPTTHE INDEX EQUITY, MID-CAP VALUE EQUITY, MID-CAP GROWTH
EQUITY AND THE INTERNATIONAL PORTFOLIOS (BEFORE WAIVERS)
<TABLE>
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .550% .400%
$1 billion -- $2 billion .500 .350
$2 billion -- $3 billion .475 .325
greater than $3 billion .450 .300
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE MID-CAP VALUE
EQUITY AND
MID-CAP GROWTH EQUITY PORTFOLIOS (BEFORE WAIVERS)
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .800% .650%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .500
greater than $3 billion .625 .475
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL
EQUITY PORTFOLIO (BEFORE WAIVERS)
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .750% .600%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .525
greater than $3 billion .650 .500
</TABLE>
30.
<PAGE>
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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>
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 be-
lieves it is comparable to the rates paid by many other funds
with similar investment objectives and policies and is appro-
priate for the Portfolio in light of its investment objective
and policies.
For their last fiscal year the Portfolios paid investment advi-
sory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Large Cap Value Equity Portfolio, .49%; Large Cap Growth
Equity Portfolio, .49%; Small Cap Value Equity Portfolio, .54%;
Small Cap Growth Equity Portfolio, .54%; International Equity
Portfolio, .68%; International Emerging Markets Portfolio,
1.15%; Select Equity Portfolio, .49%; and Balanced Portfolio,
.49%. For the period from October 1, 1995 through June 1, 1996,
the Index Equity Portfolio paid investment advisory fees to its
former investment adviser at the annual rate of .01% of its av-
erage daily net assets.
The Portfolios' sub-advisers strive to achieve best execution
on all transactions. Infrequently, brokerage transactions for
the Portfolios may be directed to 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 in-
vestors. DFA's assets under management totalled approximately
$18.5 billion at October 31, 1996. David G. Booth and Rex A.
Sinquefield, both of whom are trustees and officers of The DFA
Investment Trust Company and directors,officers and sharehold-
ers of DFA, 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 Invest-
ment Committee is composed of certain officers and directors of
DFA who are elected annually. DFA provides the Index Master
Portfolio with a trading department and selects brokers and
dealers to effect securities transactions.
For the investment advisory services provided to the Index Mas-
ter Portfolio under the advisory agreement, DFA is entitled to
receive a fee at the annual rate of .025% of the Index Master
Portfolio's average daily net assets. For the Index Master
Portfolio's fiscal year ended November 30, 1996, DFA received a
monthly fee for its investment advisory services which, on an
annual basis, equaled .025% of the Index Master Portfolio's net
assets.
31.
<PAGE>
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ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the Fund's co-administrators. CCG and PFPC are indi-
rect wholly-owned subsidiaries of PNC Bank Corp. CDI is a
wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). A majority of the outstanding stock of PDI is owned
by its officers.
The Administrators generally assist the Fund in all aspects
of its administration and operation, including matters relat-
ing to the maintenance of financial records and fund account-
ing. As compensation for these services, CCG is entitled to
receive a fee, computed daily and payable monthly, at an an-
nual rate of .03% of each Portfolio's average daily net as-
sets, and PFPC and CDI are entitled to receive a combined
fee, computed daily and payable monthly, at an annual rate of
.20% of the first $500 million of each Portfolio's average
daily net assets, .18% of the next $500 million of each Port-
folio's average daily net assets, .16% of the next $1 billion
of each Portfolio's average daily net assets and .15% of each
Portfolio's average daily net assets in excess of $2 billion.
From time to time the Administrators may waive some or all of
their administration fees from a Portfolio. PFPC serves as
the administrative services, dividend disbursing and transfer
agent to the Index Master Portfolio, for which PFPC is enti-
tled to compensation at the annual rate of .015% of the Index
Master Portfolio's net assets.
For information about the operating expenses the Portfolios
paid for the most recent fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER AGENT, PNC Bank serves as the Portfolios' custodian and PFPC serves
DIVIDEND as their transfer agent and dividend disbursing agent.
DISBURSING
AGENT AND
CUSTODIAN
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses in-
clude, but are not limited to, fees paid to the investment
adviser and the Administrators, transfer agency and custodian
fees, trustee fees, taxes, interest, professional fees, fees
and expenses in registering and qualifying the Portfolios and
their shares for distribution under Federal and state securi-
ties laws, expenses of preparing prospectuses and statements
of additional information and of printing and distributing
prospectuses and statements of additional information to ex-
isting shareholders, expenses relating to shareholder re-
ports, shareholder meetings and proxy solicitations, insur-
ance 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
equitable.
32.
<PAGE>
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HOW ARE SHARES PURCHASED AND REDEEMED?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of each Portfolio of the Fund are offered on a continuous
basis by CDI as distributor (the "Distributor"). CDI maintains its principal
offices at Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-
2961.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Fund is not required or permitted under the Plan to
make distribution payments with respect to Institutional Shares. However, the
Plan permits CDI, PAMG, the Administrators and other companies that receive
fees from the Fund to make payments relating to distribution and sales support
activities out of their past profits or other sources available to them which,
subject to applicable NASD regulations, may include contributions to various
non-cash and cash incentive arrangements to promote the sale of shares, as well
as sponsorship of various educational programs, sales contests and promotions
in which participants may receive reimbursement of expenses, entertainment and
prizes such as travel awards, merchandise and cash. For further information,
see "Investment Advisory, Administration, Distribution, and Servicing Arrange-
ments" in the Statement of Additional Information.
PURCHASE OF SHARES. Institutional Shares are offered to institutional invest-
ors, including registered investment advisers with a minimum investment of
$500,000 and individuals with a minimum investment of $2,000,000.
Institutional Shares are sold at their net asset value per Share next computed
after an order is received by PFPC. Orders received by PFPC by 4:00 p.m. (East-
ern Time) on a Business Day are priced the same day. A "Business Day" is any
weekday that the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open for business.
Purchase orders may be placed by telephoning PFPC at (800) 441-7450. Orders re-
ceived by PFPC after 4:00 p.m. (Eastern Time) are priced on the following Busi-
ness Day.
Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Fund's custodian. Payment may also, in
the discretion of the Fund, be made in the form of securities that are permis-
sible investments for the respective Portfolios. For further information, see
the Statement of Additional Information. The minimum initial investment for in-
stitutions is $5,000. There is no minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Institutional Shares.
REDEMPTION OF SHARES. Redemption orders for Institutional Shares may be placed
by telephoning PFPC at (800) 441-7450. Institutional Shares are redeemed at
their net asset value per share next determined after PFPC's receipt of the re-
demption order. The Fund, the Administrators and the Distributor will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Fund and its service providers will not be liable for any
loss, liability, cost or expense for acting upon telephone instructions that
are reasonably believed to be genuine in accordance with such procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the next Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received after 4:00 p.m. (Eastern Time) or on a day when the Fund's custo-
dian is closed is normally wired in Federal funds on the next Business Day fol-
lowing redemption on which the Fund's custodian is open for business. The Fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgment of PAMG, an earlier payment could
adversely affect a Portfolio. No charge for wiring redemption payments is im-
posed by the Fund.
33.
<PAGE>
- --------------------------------------------------------------------------------
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund may redeem Institutional Shares in any Portfolio account if the ac-
count balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 on thirty days'
written notice.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
34.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Institutional Shares of each Port-
folio as of the close of regular trading hours on the NYSE (currently 4:00 p.m.
Eastern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio (including, for the Index Equity Portfolio,
all of its shares in the Index Master Portfolio) that are allocated to its In-
stitutional Shares, less the liabilities charged to its Institutional Shares,
by the number of its Institutional Shares that are outstanding. The net asset
value per share of the Index Master Portfolio is calculated as of the close of
the NYSE by dividing the total market value of its investments and other as-
sets, less any liabilities, by the total outstanding shares of the Index Master
Portfolio.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices, or the mean between bid and asked prices,
that are provided by securities dealers or pricing services. Portfolio securi-
ties which are primarily traded on foreign securities exchanges are normally
valued at the preceding closing values of such securities on their respective
exchanges. Securities for which market quotations are not readily available are
valued at fair market value as determined in good faith by or under the direc-
tion 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 super-
vision of the Board of Trustees determines such method does not represent fair
value.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Each Portfolio of the Fund will distribute substantially all of its net invest-
ment income and net realized capital gains, if any, to shareholders. The net
investment income of each Portfolio is declared quarterly as a dividend to in-
vestors who are shareholders of the Portfolio at the close of business on the
day of declaration. All dividends are paid not later than 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 of the Fund at least annu-
ally. The period for which dividends are payable and the time for payment are
subject to change by the Fund's Board of Trustees.
Distributions are reinvested at net asset value in additional full and frac-
tional Institutional Shares of the relevant Portfolio, unless a shareholder
elects to receive distributions in cash. This election, or any revocation
thereof, must be made in writing to PFPC, and will become effective with re-
spect to distributions paid after its receipt by PFPC.
The Index Equity Portfolio seeks its investment objective by investing all of
its investable assets in the Index Master Portfolio, and the Index Equity Port-
folio is 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, is the Index Equity Portfolio's net investment
income from which dividends are distributed as described above. The Index Mas-
ter Portfolio also allocates to the Index Equity Portfolio its pro rata share
of capital gains, if any, realized by the Index Master Portfolio.
35.
<PAGE>
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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 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 distributions.
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 shareholder will be entitled either (a) to credit a proportion-
ate amount of such taxes against a shareholder's U.S. Federal income tax lia-
bilities, or (b) if a shareholder itemizes deductions, to deduct such propor-
tionate amounts from U.S. Federal taxable income.
The Index Master Portfolio is classified as a partnership for Federal income
tax purposes. As such, the Index Master Portfolio will not be subject to Fed-
eral income tax, and the Index Equity Portfolio will be allocated its propor-
tionate share of the income and realized and unrealized gains and losses of the
Index Master Portfolio.
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.
36.
<PAGE>
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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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Institutional Shares of the eleven Portfolios described
herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The performance of each class of Investor Shares
may be different. The Fund offers various services and privileges in connection
with its Investor Shares that are not generally offered in connection with its
Institutional and Service Shares, including an automatic investment plan and an
automatic withdrawal plan. For further information regarding the Fund's Service
or Investor Share classes, contact PFPC at (800) 441-7764 (Service Shares) or
(800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets that 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 November 30, 1996, PNC Bank held of record approximately 70% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
MASTER-FEEDER STRUCTURE. The Index Equity Portfolio, unlike many other invest-
ment companies which directly acquire and manage their own portfolio of securi-
ties, seeks to achieve its investment objective by investing all of its
investable assets in the Index Master Portfolio. The Index Equity Portfolio
purchases shares of the Index Master Portfolio at net asset value. The net as-
set value of the Index Equity Portfolio responds 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 Index Equity Portfolio may withdraw its investment in the
Index Master Portfolio at any time upon 30 days notice to the Index Master
Portfolio if the Board of Trustees of the Fund determines that it is in the
best interests of the Index Equity Portfolio to do so. Upon withdrawal, the
Board of Trustees would consider what action might be taken, including the in-
vestment 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 investment adviser to manage 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
37.
<PAGE>
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institutional investors that may invest in the Index Master Portfolio from time
to time (e.g. other investment companies) will each bear a share of all liabil-
ities of the Index Master 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 manage-
ment 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 are offered to institutional investors
in private placements for the purpose of increasing the funds available for in-
vestment and achieving economies of scale that might be available at higher as-
set levels. The expenses of such other institutional investors and their re-
turns may differ from those of the Index Equity Portfolio. While investment 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 Portfolio
could experience higher pro rata operating expenses and correspondingly lower
returns. In addition, institutional investors that have a greater pro rata own-
ership 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 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 mate-
rial degree the rights and preferences of the shares of the Index Master Port-
folio or to increase or decrease their par value. 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 sharehold-
ers) of the Index Master Portfolio.
When the Index Equity Portfolio, as a shareholder of the Index Master Portfo-
lio, votes on matters pertaining to the Index Master Portfolio, the Index Eq-
uity Portfolio, if required under the 1940 Act or other applicable law, would
hold a meeting of its shareholders and would cast its votes proportionately as
instructed by Index Equity Portfolio shareholders. In such cases, shareholders
of the Index Equity Portfolio, 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
38.
<PAGE>
- --------------------------------------------------------------------------------
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 experience with the operation of this policy. There may
also be other investment companies or entities through which you can invest in
the Index Master Portfolio which may have different sales charges, fees and
other expenses which may affect performance. As of the date of this Prospectus,
one other feeder fund invests all of its investable assets in the Index Master
Portfolio. For information about other funds that may invest in the Index Mas-
ter Portfolio, please contact DFA at (310) 395-8005 or contact your broker.
39.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Performance information for Institutional Shares of the Portfolios may be
quoted in advertisements and communications to shareholders. Total return will
be calculated on an average annual total return basis for various periods. Av-
erage annual total return reflects the average annual percentage change in
value of an investment in Institutional Shares of a Portfolio over the measur-
ing period. Total return may also be calculated on an aggregate total return
basis. Aggregate total return reflects the total percentage change in value
over the measuring period. Both methods of calculating total return assume that
dividend and capital gain distributions made by a Portfolio with respect to its
Institutional Shares are reinvested in Institutional Shares.
The yield of Institutional Shares of the Balanced Portfolio is computed by di-
viding the net income allocated to that class during a 30-day (or one month)
period by the net asset value per share on the last day of the period and
annualizing the result on a semi-annual basis.
The performance of a Portfolio's Institutional Shares may be compared to the
performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the performance of a Portfolio's Institu-
tional Shares may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service, and to the performance of the Dow Jones Industrial Average, the
"stocks, bonds and inflation Index" published annually by Ibbotson Associates,
the Lipper International Fund Index, the Lehman Government Corporate Bond Index
and the Financial Times World Stock Index, as well as the benchmarks attached
to this Prospectus. Performance information may also include evaluations of the
Portfolios and their Institutional Shares published by nationally recognized
ranking services, and information as reported in financial publications such as
Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Institutional Shares of a particular Portfolio, a Portfolio
may provide other information demonstrating hypothetical investment returns.
This information may include, but is not limited to, illustrating the com-
pounding effects of dividends in a dividend reinvestment plan or the impact of
tax-deferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Institutional Shares, when redeemed, may be worth more or less
than their original cost. Since performance will fluctuate, performance data
for Institutional Shares of a Portfolio cannot necessarily be used to compare
an investment in such shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Performance is generally a function of the kind
and quality of the instruments held in a portfolio, portfolio maturity, operat-
ing expenses and market conditions. Any fees charged by brokers or other insti-
tutions directly to their customer accounts in connection with investments in
Institutional Shares will not be included in the Portfolio performance calcula-
tions.
40.
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION ON THE PERFORMANCE OF PNC EQUITY ADVISORS COMPANY
The tables below set forth performance information relating to the Small Cap
Growth Equity Portfolio and a small cap growth equity account (the "Small Cap
Account") that is also managed by PEAC for certain trust accounts and which has
investment objectives, policies, strategies and risks substantially similar to
those of the Small Cap Growth Equity Portfolio. The performance of the Small
Cap Account has been restated to reflect certain expenses, as set forth in
footnote 2 to the table.
The performance data for the Small Cap Account is included to provide investors
with a longer performance record for PEAC in managing an account substantially
similar to the Small Cap Growth Equity Portfolio as measured against the Rus-
sell 2000 Growth Index. The Small Cap Account performance data does not repre-
sent the past, present or future performance of the Small Cap Growth Equity
Portfolio. Past performance is no guarantee of future results; investors should
not consider this performance data as an indication of future performance of
the Small Cap Growth Equity Portfolio or of PEAC. Share prices and investment
returns will fluctuate reflecting market conditions and cash flows, as well as
changes in company-specific fundamentals of portfolio securities. Consequently,
investments in either the Small Cap Growth Equity Portfolio or the Small Cap
Account may be worth more or less than their original cost at the time of re-
demption. The performance presentation is not audited.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns also reflect the brokerage costs borne by the Small Cap
Growth Equity Portfolio and the Small Cap Account for all periods presented.
The use of a different methodology to calculate performance could result in
different performance data.
The Small Cap Account was not subject to the same types of expenses and liquid-
ity requirements to which the Small Cap Growth Equity Portfolio is subject nor
to the diversification requirements, specific tax restrictions and investment
limitations imposed on the Small Cap Growth Equity Portfolio by the 1940 Act or
Subchapter M of the Internal Revenue Code. Consequently, the performance re-
sults for the Small Cap Account could have been adversely affected if the Small
Cap Account had been regulated as an investment company under the federal secu-
rities laws.
PEAC'S SMALL CAP GROWTH EQUITY PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
SMALL CAP GROWTH
YEAR OR PERIODS EQUITY SMALL CAP RUSSELL 2000
ENDED 9/30/96 PORTFOLIO(/1/) ACCOUNT(/2/) GROWTH INDEX(/3/)
--------------- ---------------- ------------ -----------------
<S> <C> <C> <C>
One Year.................. 45.87% 47.69% 13.13%
Three Years............... 28.13% 27.54% 12.73%
Five Years................ N/A 30.38% 15.76%
From Inception(/4/)....... 29.56% 23.59% 10.07%(/5/)
</TABLE>
- ------
(1) Total return reflects the performance of Institutional Shares of the Small
Cap Growth Equity Portfolio. The performance quoted reflects fee waivers
by the Portfolio's service providers. The Portfolio's performance would
have been lower in the absence of such waivers.
(2) The performance has been restated to reflect a total expense ratio of .86%,
which is the total expense ratio that Institutional Shares of the Small Cap
Growth Equity Portfolio are expected to incur during the current fiscal
year and which reflects an advisory fee of .54% of its average daily net
assets. This expense ratio reflects voluntary fee waivers by the Portfo-
lio's service providers which may be modified or terminated at any time. In
restating the total returns of the Small Cap Account, these expenses were
calculated on a quarterly basis for the periods presented. The calculation
of these expenses on a more frequent basis would result in lower perfor-
mance figures.
41.
<PAGE>
- --------------------------------------------------------------------------------
(3) Total return data is presented for each period. The Russell 2000 Growth In-
dex reflects the investment of income dividends and capital gain distribu-
tions, if any, but does not reflect fees, brokerage commissions or other
expenses of investing. The Russell 2000 Growth Index is an unmanaged secu-
rities index, and an investment cannot be made directly in the Russell 2000
Growth Index. For more information on the Russell 2000 Growth Index, see
the Appendix to this Prospectus.
(4) The Small Cap Growth Equity Portfolio and the Small Cap Account commenced
investment operations on 9/14/93 and 8/1/87, respectively.
(5) Reflects the average annual total return of the Russell 2000 Growth Index
from 8/1/87.
42.
<PAGE>
- --------------------------------------------------------------------------------
HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
CONVENIENT WAYS TO ACCESS FUND INFORMATION
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7764
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7764
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7450
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
43.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Large Cap Value Equity Russell 1000 An index composed of those Russell 1000 securities
Value Index 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.
Large Cap Growth Equity Russell 1000 The Russell 1000 Growth Index contains those Russell
Growth Index 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.
Mid-Cap Value Equity Russell Midcap The Russell Midcap Value Index consists of the
Value Index bottom 800 securities of the Russell 1000 Index with
less-than-average growth orientation as ranked by
total market capitalization.
Mid-Cap Growth Equity Russell Midcap The Russell Midcap Growth Index consists of the
Growth Index bottom 800 securities of the Russell 1000 Index with
greater-than-average growth orientation as ranked by
total market capitalization.
Small Cap Value Equity Russell 2000 The Russell 2000 Value Index contains those Russell
Value Index 2000 securities with a less-than-average growth
orientation. Securities in this index generally have
lower price-to-book and price-earnings ratios than
those in the Russell 2000 Growth Index.
Small Cap Growth Equity Russell 2000 An index composed of those Russell 2000 securities
Growth Index 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 is a
market value-weighted average of the performance of
over 900 securities listed on the stock exchanges of
such countries.
International Emerging MSCI Emerging The Morgan Stanley Capital International (MSCI)
Markets Markets Free Emerging Markets Free Index (EMF) is a market
Index capitalization weighted index composed of companies
representative of the market structure of 22
Emerging Market countries in Europe, Latin America,
Africa and the Pacific Basin. The MSCI EMF Index
excludes closed markets and those shares in
otherwise free markets which are not purchasable by
foreigners.
Select Equity S&P 500 Index An unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward
stocks with large market capitalizations and
represents approximately two-thirds of the total
market value of all domestic common stocks.
Index Equity S&P 500 Index An unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward
stocks with large market capitalizations and
represents approximately two-thirds of the total
market value of all domestic common stocks.
Balanced S&P 500 Index An unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward
stocks with large market capitalizations and
represents approximately two-thirds of the total
market value of all domestic common stocks.
Salomon Broad An unmanaged index of 3500 bonds. The Broad
Investment Investment Grade Index is market capitalization
Grade Index weighted and includes Treasury, Government sponsored
mortgages and investment grade fixed rate corporates
with a maturity of 1 year or longer.
</TABLE>
44.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of invest-
ment goals. Each portfolio is managed by recognized experts in equity, fixed
income, international, and tax-free investing who adhere to a pure investment
style SM.
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity Small Cap Growth Equity
Large Cap Value Equity Small Cap Value Equity
Mid-Cap Growth Equity International Equity
Mid-Cap Value Equity International Emerging Markets
Index Equity
Select Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- --------------------------------------------------------------------------------
THE EQUITY PORTFOLIOS SERVICE SHARES
- --------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 6
What Are The Portfolios?..................................... 15
What Are The Differences Among The Portfolios?............... 16
What Additional Investment Policies And Risks Apply?......... 18
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 27
Who Manages The Fund?........................................ 28
How Are Shares Purchased And Redeemed?....................... 34
What Special Purchase And Redemption Procedures May Apply?... 36
How Is Net Asset Value Calculated?........................... 38
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 38
How Are Fund Distributions Taxed?............................ 39
How Is the Fund Organized?................................... 40
How Is Performance Calculated?............................... 43
Other Information On The Performance Of PNC Equity Advisors
Company..................................................... 44
How Can I Get More Information?.............................. 46
</TABLE>
This Prospectus contains information about the Compass Capital
equity Portfolios that a prospective investor needs to know be-
fore investing. Please keep it for future reference. A Statement
of Additional Information dated January 1, 1997 has been filed
with the Securities and Exchange Commission (the "SEC"). The
Statement of Additional Information may be obtained free of
charge from the Fund by calling (800) 441-7764. The Statement of
Additional Information, as supplemented from time to time, is in-
corporated 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED.
The Index Equity Portfolio seeks to achieve its investment objec-
tive by investing all of its investable assets in a series of
shares (the "Index Master Portfolio") of The DFA Investment Trust
Company, another open-end management investment company, rather
than through a portfolio of various securities. The investment
experience of the Index Equity Portfolio corresponds directly
with the investment experience of the Index Master Portfolio. The
Index Master Portfolio has substantially the same investment ob-
jective, policies and limitations as the Index Equity Portfolio
and, except as specifically 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 COMPASS CAPITAL FUND family consists of 30 portfolios and
has been structured to include many different investment styles
so that investors may participate across multiple disciplines
in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of
eleven diversified investment portfolios (the "Portfolios")
that provide investors with a broad spectrum of investment al-
ternatives within the equity sector. Eight of these Portfolios
invest in U.S. stocks, two Portfolios invest in non-U.S. inter-
national stocks and one Portfolio invests in a combination of
U.S. stocks and bonds. A detailed description of each Portfolio
begins on page 15 and a summary of each Performance Benchmark
is contained in the Appendix.
COMPASS PERFORMANCE LIPPER PEER GROUP
CAPITAL BENCHMARK
PORTFOLIO
LARGE CAP Russell 1000 Growth and Income
VALUE EQUITY Value Index
LARGE CAP Russell 1000 Growth
GROWTH EQUITY Growth Index
MID-CAP VALUE Russell Midcap Midcap
EQUITY Value Index
MID-CAP GROWTH Russell Midcap Midcap
EQUITY Growth Index
SMALL CAP Russell 2000 Small Company Growth
VALUE EQUITY Value Index
SMALL CAP Russell 2000 Small Company Growth
GROWTH EQUITY Growth Index
INTERNATIONAL EAFE Index International
EQUITY
INTERNATIONAL MSCI Emerging Markets
EMERGING Emerging
MARKETS Markets Free
Index
SELECT EQUITY S&P 500 Index Growth and Income
INDEX EQUITY S&P 500 Index S&P 500 Index
BALANCED S&P 500 Index Balanced
and Salomon
Broad Investment
Grade Index
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfo-
CAPITAL lios. We intend this document to be an effective tool as you
EQUITY explore different directions in equity investing.
PORTFOLIOS
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective. The Portfolios will hold equity securi-
EQUITY ties, and some or all of the Portfolios may acquire warrants,
INVESTING foreign securities and illiquid securities; enter into repur-
chase and reverse repurchase agreements; lend portfolio securi-
ties to third parties; and enter into futures contracts and op-
tions and forward currency exchange contracts. These and the
other investment practices set forth below, and their associ-
ated risks, deserve careful consideration. Certain risks asso-
ciated with international investments are heightened because of
currency fluctuations and investments in emerging markets. See
"What Additional Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?" and
CAPITAL "What Special Purchase And Redemption Procedures May Apply?"
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Service Shares
of the Portfolios for the fiscal year ended September 30, 1996 as a percentage
of average daily net assets. The figures shown for the Small Cap Value Equity,
International Equity, Select Equity and Balanced Portfolios have been restated
to reflect current expenses and fee waivers. Because the Mid-Cap Value Equity
Portfolio and Mid-Cap Growth Equity Portfolio are new, the figures shown for
these two Portfolios under "Other expenses" are estimates for the current fis-
cal year. An example based on the summary is also shown.
<TABLE>
<CAPTION>
LARGE CAP LARGE CAP MID-CAP SMALL CAP SMALL CAP
VALUE GROWTH MID-CAP GROWTH VALUE GROWTH
EQUITY EQUITY VALUE EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees
(after fee waivers)(/1/) .49% .49% .80% .80% .54% .54%
Other operating expenses .56 .56 .64 .64 .62 .62
----- ----- ------- ----- ----- -----
Administration fees
(after fee waivers)(/1/) .18 .17 .15 .15 .22 .22
Shareholder servicing
fees .15 .15 .15 .15 .15 .15
Other expenses .23 .24 .34 .34 .25 .25
---- ---- ------ ---- ---- ----
Total Portfolio operating
expenses
(after fee waivers)(/1/) 1.05% 1.05% 1.44% 1.44% 1.16% 1.16%
===== ===== ======= ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EMERGING SELECT INDEX
EQUITY MARKETS EQUITY EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO+ PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees
(after fee waivers)(/1/)(/2/) .70% 1.15% .50% .025% .50%
Other operating expenses .66 .93 .56 .455 .60
------- ------- ----- ----- -----
Administration fees
(after fee waivers)(/1/) .18 .23 .17 .045 .18
Shareholder servicing fees .15 .15 .15 .150 .15
Other expenses .33 .55 .24 .260 .27
------ ------ ---- ----- ----
Total Portfolio operating
expenses
(after fee waivers)(/1/) 1.36% 2.08% 1.06% .480% 1.10%
======= ======= ===== ===== =====
</TABLE>
(1) Without waivers, advisory fees would be .80% for the Mid-Cap Value Equity
and Mid-Cap Growth Equity Portfolios, .75% and 1.25%, respectively, for the
International Equity and International Emerging Markets Portfolios and .55%
for each of the remaining Portfolios and administration fees would be .21%
for the Large Cap Value Equity Portfolio and .23% for each other 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 ex-
penses during the remainder of the current fiscal year at the levels set
forth in the table. Without waivers, "Other operating expenses" would be
.61%, .62%, .72%, .72%, .63%, .63%, .71%, .93%, .64%, .64% and .65%, re-
spectively, and "Total Portfolio operating expenses" would be 1.16%, 1.17%,
1.52%, 1.52%, 1.18%, 1.18%, 1.46%, 2.18%, 1.19%, .84% and 1.20%, respec-
tively.
(2) Advisory fees with respect to the Index Equity Portfolio represent advisory
fees of the Index Master Portfolio.
+ Includes the operating expenses of the Index Master Portfolio that are allo-
cable to the Index Equity Portfolio.
4.
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Large Cap Value Equity Portfolio $11 $33 $ 58 $128
Large Cap Growth Equity Portfolio 11 33 58 128
Mid-Cap Value Equity Portfolio 15 46 N/A N/A
Mid-Cap Growth Equity Portfolio 15 46 N/A N/A
Small Cap Value Equity Portfolio 12 37 64 141
Small Cap Growth Equity Portfolio 12 37 64 141
International Equity Portfolio 14 43 74 164
International Emerging Markets
Portfolio 21 65 112 241
Select Equity Portfolio 11 33 58 128
Index Equity Portfolio 5 15 27 60
Balanced Portfolio 11 35 61 134
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the costs and expenses (including the Index Equity Portfolio's pro rata
share of the Index Master Portfolio's advisory fees and operating expenses) an
investor will bear either directly or indirectly. They do not reflect any
charges that may be imposed by affiliates of the Portfolios' investment adviser
or other institutions directly on their customer accounts in connection with
investments in the Portfolios.
The Board of Trustees of the Fund believes that the aggregate per share ex-
penses of the Index Equity Portfolio and the Index Master Portfolio in which
the Index Equity Portfolio's assets are invested are approximately equal to the
expenses which the Index Equity Portfolio would incur if the Fund retained the
services of an investment adviser for the Index Equity Portfolio and the assets
of the Index Equity Portfolio were invested directly in the type of securities
held by the Index Master Portfolio.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
5.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- -------------------------------------------------------------------------------
The following financial information has been derived from
the financial statements incorporated by reference into the
Statement of Additional Information and has been audited by
the Portfolios' independent accountant. This financial in-
formation should be read together with those financial
statements. Further information about the performance of the
Portfolios is available in the Fund's annual shareholder re-
ports. Both the Statement of Additional Information and the
annual shareholder reports may be obtained from the Fund
free of charge by calling (800) 441-7764. Information con-
cerning the historical investment results of Service Shares
of the Index Equity Portfolio reflects the financial experi-
ence of that Portfolio prior to its conversion on June 2,
1996 to a feeder portfolio of the Index Master Portfolio.
During the periods presented the Mid-Cap Value Equity Port-
folio and Mid-Cap Growth Equity Portfolio had not commenced
investment operations.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LARGE CAP VALUE EQUITY PORTFOLIO
(FORMERLY THE VALUE EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.92 $ 11.62 $ 11.68 $ 11.21
-------- -------- -------- -------
Income from investment operations
Net investment income 0.32 0.30 0.25 0.04
Net gain (loss) on investments
(both realized and unrealized) 2.40 2.55 0.16 0.48
-------- -------- -------- -------
Total from investment operations 2.72 2.85 0.41 0.52
-------- -------- -------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.32) (0.30) (0.25) (0.05)
Distributions from net realized
capital gains (0.97) (0.25) (0.22) - -
-------- -------- -------- -------
Total distributions (1.29) (0.55) (0.47) (0.05)
-------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD $ 15.35 $ 13.92 $ 11.62 $ 11.68
======== ======== ======== =======
Total return 20.68% 25.40% 3.51% 4.64%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $457,283 $170,832 $105,035 $23,137
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.05% 0.95% 0.90% 0.91%/2/
Before advisory/administration fee
waivers 1.14% 1.09% 1.06% 0.94%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.13% 2.40% 2.24% 2.44%/2/
Before advisory/administration fee
waivers 2.04% 2.26% 2.08% 2.41%/2/
PORTFOLIO TURNOVER RATE 64% 12% 11% 11%
AVERAGE COMMISSION RATE/3/ $ 0.0556 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
6.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LARGE CAP GROWTH EQUITY PORTFOLIO
(FORMERLY THE GROWTH EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.02 $ 10.18 $ 11.57 $10.54
-------- ------- ------- ------
Income from investment operations
Net investment income 0.05 0.10 0.03 - -
Net gain (loss) on investments
(both realized and unrealized) 2.28 2.87 (1.32) 1.03
-------- ------- ------- ------
Total from investment operations 2.33 2.97 (1.29) 1.03
-------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.02) (0.13) - - - -
Distributions from capital - - - - - - - -
Distributions from net realized
capital gains (0.38) - - (0.10) - -
-------- ------- ------- ------
Total distributions (0.40) (0.13) (0.10) - -
-------- ------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 14.95 $ 13.02 $ 10.18 $11.57
======== ======= ======= ======
Total return 18.34% 29.43% (11.20)% 9.77%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $191,023 $76,769 $36,752 $8,606
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.05% 0.95% 0.90% 0.89%/2/
Before advisory/administration fee
waivers 1.17% 1.13% 1.14% 0.95%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.31% 0.91% 0.51% (0.03)%/2/
Before advisory/administration fee
waivers 0.20% 0.73% 0.26% (0.09)%/2/
PORTFOLIO TURNOVER RATE 58% 55% 212% 175%
AVERAGE COMMISSION RATE/3/ $ 0.0598% N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
7.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 15.15 $ 13.59 $ 13.08 $ 12.28
------- ------- ------- -------
Income from investment operations
Net investment income 0.06 0.02 - - - -
Net gain (loss) on investments
(both realized and unrealized) 1.70 2.18 0.77 0.80
------- ------- ------- -------
Total from investment operations 1.76 2.20 0.77 0.80
------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.06) (0.03) (0.01) - -
Distributions from net realized
capital gains (0.87) (0.61) (0.25) - -
------- ------- ------- -------
Total distributions (0.93) (0.64) (0.26) - -
------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 15.98 $ 15.15 $ 13.59 $ 13.08
======= ======= ======= =======
Total return 12.30% 17.17% 5.96% 6.51%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $80,981 $61,313 $45,372 $21,689
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.15% 1.02% 0.98% 0.99%/2/
Before advisory/administration fee
waivers 1.16% 1.12% 1.10% 1.03%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.38% 0.16% 0.03% 0.12%/2/
Before advisory/administration fee
waivers 0.37% 0.07% (0.09)% 0.08%/2/
PORTFOLIO TURNOVER RATE 50% 31% 18% 41%
AVERAGE COMMISSION RATE/3/ $0.0580 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
8.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SMALL CAP GROWTH EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 9/15/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 15.02 $ 10.14 $ 10.47 $ 9.96
-------- ------- ------- ------
Income from investment operations
Net investment income (0.06) (0.01) 0.01 - -
Net gain (loss) on investments
(both realized and unrealized) 6.84 4.89 (0.34) 0.51
-------- ------- ------- ------
Total from investment operations 6.78 4.88 (0.33) 0.51
-------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment
income - - - - - - - -
Distributions from net realized
capital gains - - - - - - - -
-------- ------- ------- ------
Total distributions - - - - - - - -
-------- ------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 21.80 $ 15.02 $ 10.14 $10.47
======== ======= ======= ======
Total return 45.14% 48.13% (3.12)% 5.12%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $158,901 $62,604 $22,648 $ 911
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.16% 1.03% 0.71% 0.99%/2/
Before advisory/administration
fee waivers 1.18% 1.16% 1.27% 1.68%/2/
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers (0.38)% (0.07)% 0.21% (0.34)%/2/
Before advisory/administration
fee waivers (0.40)% (0.20)% (0.34)% (1.03)%/2/
PORTFOLIO TURNOVER RATE 89% 74% 89% 9%
AVERAGE COMMISSION RATE/3/ $ 0.0569 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.24 $ 13.41 $ 12.47 $ 11.76
-------- -------- ------- -------
Income from investment operations
Net investment income 0.19 0.11 0.14 0.02
Net realized gain (loss) on
investments 0.78 0.16 1.14 0.69
-------- -------- ------- -------
Total from investment operations 0.97 0.27 1.28 0.71
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.17) (0.08) (0.09) - -
Distributions from net realized
capital gains (0.67) (0.36) (0.25) - -
-------- -------- ------- -------
Total distributions (0.84) (0.44) (0.34) - -
-------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.37 $ 13.24 $ 13.41 $ 12.47
======== ======== ======= =======
Total return 7.71% 2.19% 10.36% 6.03%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $161,321 $106,045 $75,174 $11,985
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.36% 1.25% 1.20% 1.18%/2/
Before advisory/administration fee
waivers 1.47% 1.42% 1.39% 1.24%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.71% 1.16% 1.09% 1.01%/2/
Before advisory/administration fee
waivers 0.60% 0.98% 0.90% 0.95%/2/
PORTFOLIO TURNOVER RATE 70% 105% 37% 31%
AVERAGE COMMISSION RATE/3/ $ 0.0158 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR YEAR 6/17/94/1/
ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 8.18 $ 10.55 $10.00
------- ------- ------
Income from investment operations
Net investment income 0.04 0.06 0.02
Net gain (loss) on investments (both realized
and unrealized) 0.51 (2.15) 0.53
------- ------- ------
Total from investment operations 0.55 (2.09) 0.55
------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment income - - (0.08) - -
Distributions from Capital - - (0.01) - -
Distributions from net realized capital gains (0.01) (0.19) - -
------- ------- ------
Total distributions (0.01) (0.28) - -
------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 8.72 $ 8.18 $10.55
======= ======= ======
Total return 6.61% (19.91)% 5.50%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $37,987 $15,020 $3,505
Ratios of expenses to average net assets
After advisory/administration fee waivers 2.08% 2.06% 2.00%/2/
Before advisory/administration fee waivers 2.18% 2.30% 2.98%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 0.70% 1.72% 1.10%/2/
Before advisory/administration fee waivers 0.60% 1.48% 0.12%/2/
PORTFOLIO TURNOVER RATE 44% 75% 4%
AVERAGE COMMISSION RATE/3/ $0.0018 NA NA
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
11.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SELECT EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR YEAR YEAR 9/15/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 11.88 $ 9.92 $ 9.97 $10.00
-------- ------- ------- ------
Income from investment operations
Net investment income 0.17 0.22 0.19 - -
Net gain (loss) on investments (both
realized and unrealized) 2.07 2.05 (0.04) (0.03)
-------- ------- ------- ------
Total from investment operations 2.24 2.27 0.15 (0.03)
-------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.17) (0.19) (0.20) - -
Distributions from net realized
capital gains (0.39) (0.12) - - - -
-------- ------- ------- ------
Total distributions (0.56) (0.31) (0.20) - -
-------- ------- ------- ------
NET ASSET VALUE AT END OF PERIOD $ 13.56 $ 11.88 $ 9.92 $ 9.97
======== ======= ======= ======
Total return 19.43% 23.43% 1.55% (.30)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $113,777 $83,705 $49,293 $ 704
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.04% 0.95% 0.90% 0.90%/2/
Before advisory/administration fee
waivers 1.17% 1.13% 1.18% 1.12%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 1.41% 2.10% 1.96% 1.92%/2/
Before advisory/administration fee
waivers 1.28% 1.91% 1.68% 1.70%/2/
PORTFOLIO TURNOVER RATE 55% 51% 88% 2%
AVERAGE COMMISSION RATE/3/ $ 0.0487 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
12.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INDEX EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 13.58 $ 10.93 $ 11.02 $ 10.76
-------- ------- ------- -------
Income from investment
operations
Net investment income 0.29 0.35 0.29 0.05
Net gain (loss) on
investments (both realized
and unrealized) 2.10 2.73 0.02 0.29
-------- ------- ------- -------
Total from investment
operations 2.39 3.08 0.31 0.34
-------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (0.31) (0.29) (0.08)
Distributions from net
realized capital gains (1.70) (0.12) (0.11) - -
-------- ------- ------- -------
Total distributions (2.00) (0.43) (0.40) (0.08)
-------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 13.97 $ 13.58 $ 10.93 $ 11.02
======== ======= ======= =======
Total return 19.45% 28.99% 2.78% 3.16%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $103,080 $61,536 $27,376 $12,441
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.48% 0.45% 0.40% 0.41%/2/
Before
advisory/administration fee
waivers 0.80%/3/ 0.79% 0.77% 0.53%/2/
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 1.98% 2.62% 2.49% 3.04%/2/
Before
advisory/administration fee
waivers 1.67% 2.28% 2.12% 2.92%/2/
PORTFOLIO TURNOVER RATE 18%/4/,/5/ 18% 17% 8%
AVERAGE COMMISSION RATE 0.0319/4/,/5/ N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Including expenses allocated from The U.S. Large Company Series of The DFA
Investment Trust Company of 0.13%.
/4/For the period from October 1, 1995 through May 31, 1996.
/5/See footnotes to the financial statements of The DFA Investment Trust
Company.
13.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.72 $ 11.98 $ 12.42 $ 12.05
-------- ------- ------- -------
Income from investment operations
Net investment income 0.42 0.44 0.34 0.06
Net realized gain (loss) on
investments 1.49 1.88 (0.38) 0.38
-------- ------- ------- -------
Total from investment operations 1.91 2.32 (0.04) 0.44
-------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.41) (0.44) (0.34) (0.07)
Distributions from net realized
capital gains (0.13) (0.14) (0.06) - -
-------- ------- ------- -------
Total distributions (0.54) (0.58) (0.40) (0.07)
-------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 15.09 $ 13.72 $ 11.98 $ 12.42
======== ======= ======= =======
Total return 14.11% 19.94% (0.36)% 3.66%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $134,121 $85,668 $66,024 $15,842
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.09% 0.94% 0.90% 0.93%/2/
Before advisory/administration fee
waivers 1.20% 1.16% 1.16% 1.11%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.87% 3.49% 2.96% 2.75%/2/
Before advisory/administration fee
waivers 2.76% 3.28% 2.70% 2.57%/2/
PORTFOLIO TURNOVER RATE 275% 154% 54% 32%
AVERAGE COMMISSION RATE/3/ $ 0.0599 N/A N/A N/A
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
14.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 30 portfolios and
has been structured to include many different investment styles
so that investors may participate across multiple disciplines
in order to seek their long-term financial goals.
The Equity Portfolios of COMPASS CAPITAL FUNDS consist of
eleven investment portfolios that provide investors with a
broad spectrum of investment alternatives within the equity
sector. Eight of these Portfolios invest primarily in U.S.
stocks, two Portfolios invest in non-U.S. international stocks
and one Portfolio invests in a combination of U.S. stocks and
bonds.
In certain investment cycles and over certain holding periods,
an equity fund that invests according to a "value" style or a
"growth" style may perform above or below the market. An in-
vestment program that combines these multiple disciplines al-
lows investors to select from among these various product op-
tions in the way that most closely fits the investor's goals
and sentiments.
INVESTMENT Each of the eleven Compass Capital Equity Portfolios seeks to
OBJECTIVES provide long-term Capital Appreciation.
The Select Equity, Large Cap Value Equity and Mid-Cap Value Eq-
uity Portfolios pursue a secondary objective of Current Income
from dividends.
The Balanced Portfolio pursues a secondary objective of Current
Income from an allocation to fixed income securities.
To meet its investment objective, each Portfolio employs a spe-
cific investment style, as described on the following two
pages. No assurance can be made that a Portfolio will achieve
its investment objective.
15.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE DIFFERENCES AMONG THE PORTFOLIOS?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
Large Cap Value Pursues equity Stocks with Russell 1000
Equity securities (defined as price/earnings and Value Index
common stocks or price/book ratios at time
securities convertible of purchase below average
into common stocks) for benchmark and
which the sub-adviser capitalization in excess
believes are of $5 billion.
undervalued. A
security's earnings
trend and its dividend
growth rate will also be
factors considered in
security selection.
Large Cap Growth Pursues stocks with Stocks with growth rate Russell 1000
Equity earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
stocks which the sub- capitalization in excess
adviser considers to of $5 billion.
have favorable and
above-average earnings
growth prospects.
Mid-Cap Value Pursues mid cap stocks Stocks with low Russell Midcap
Equity and sectors which the price/earnings, Value Index
sub-adviser believes are price/book, price/cash
undervalued. A flow or price/sales
security's earnings ratios at the time of
trend and its dividend purchase relative to
growth rate will also be their respective sectors
factors considered in or the benchmark and
security selection. capitalization between $1
billion and $5 billion.
Mid-Cap Growth Pursues mid cap stocks Stocks with growth rate Russell Midcap
Equity with earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
stocks which the sub- capitalization between $1
adviser considers to billion and $5 billion.
have favorable and
above-average earnings
growth prospects.
Small Cap Value Pursues small cap stocks Stocks with Russell 2000
Equity which the sub-adviser price/earnings and Value Index
believes are price/book ratios at time
undervalued. A of purchase below average
security's earnings for benchmark and
trend and its dividend capitalization below $1
growth rate will also be billion.
factors considered in
security selection.
Small Cap Growth Pursues small cap stocks Stocks with growth rate Russell 2000
Equity with earnings growth estimates in excess of Growth Index
potential. Emphasizes average for benchmark and
small cap stocks which capitalization below $1
the sub-adviser billion.
considers to have
favorable and above-
average earnings growth
prospects.
International Pursues non-dollar Portfolio assets are EAFE Index
Equity denominated stocks of primarily invested in
issuers in countries international stocks.
included in the Morgan
Stanley Capital Stocks with
International Europe, price/earnings ratios
Australia and the Far below average for a
East Index ("EAFE"). security's home market or
Within this universe, a stock exchange.
value style of investing
is employed to select Diversification across
stocks which the sub- countries, industry
adviser believes are groups and companies with
undervalued. A investment at all times
security's earnings in at least three foreign
trend and its price countries.
momentum will also be
factors considered in
security selection. The
sub-adviser will also
consider macroeconomic
factors such as the
prospects for relative
economic growth among
certain foreign
countries, expected
levels of inflation,
government policies
influencing business
conditions and the
outlook for currency
relationships.
</TABLE>
*For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
16.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS PERFORMANCE
CAPITAL FUND INVESTMENT STYLE PORTFOLIO EMPHASIS BENCHMARK*
<C> <S> <C> <C>
International Pursues non-dollar Portfolio assets are MSCI
Emerging Markets denominated stocks of primarily invested in International
issuers in emerging stocks of emerging market Emerging
country markets issuers. Markets Free
(generally any country Index
considered to be Stocks with
emerging or developing price/earnings ratios
by the World Bank, the below average for a
International Finance security's home market or
Corporation or the stock exchange.
United Nations). Within
this universe, a value Ordinarily, stocks of
style of investing is issuers in at least three
employed to select emerging markets will be
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 Similar sector weightings S&P 500 Index
growth style as sub- as benchmark, with over-
adviser identifies or under-weighting in
market opportunity. particular securities
within those sectors.
Index Equity Invests all of its The Index Master S&P 500 Index
assets indirectly, Portfolio holds
through the U.S. Large substantially all the
Company Series (the stocks of the S&P 500
"Index Master Index in approximately
Portfolio") of The DFA the same proportions as
Investment Trust Company they are represented in
in the stocks of the S&P the Index.
500 Index using a
passive investment style
that pursues the
replication of the S&P
500 Index return.
Balanced Holds a blend of equity Maintains a minimum 25% S&P 500 and
and fixed income investment in fixed Salomon Broad
securities to deliver income senior securities. Investment
total return through Grade Index
capital appreciation and
current income.
Equity Portion: Combines Equity Portion: Similar
value and growth style sector weightings as
as sub-adviser benchmark, with over- or
identifies market under weighting in
opportunity. particular securities
within those sectors.
Fixed Income Portion: Fixed Income Portion:
Combines sector rotation Dollar- denominated
and security selection investment grade bonds,
across a broad universe including U.S.
of fixed income Government, mortgage-
securities. 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.
17.
<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 to-
tal assets in equity securities. The Portfolios will invest primarily in eq-
uity securities of U.S. issuers, except the International Equity and Interna-
tional Emerging Markets Portfolios, which will invest primarily in foreign is-
suers. Equity securities include common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity inter-
ests in trusts and partnerships; and depositary 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 Con-
tinental Depository Receipts, are receipts issued in Europe, typically by for-
eign banks and trust companies, that evidence ownership of either foreign or
domestic underlying 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 concerning the issuer may not be as current as for spon-
sored 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 considera-
tions as described below under "International Portfolios."
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment
objective, each Portfolio (other than the Index Master Portfolio) may write
covered call options, buy put options, buy call options and write secured put
options 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, securities indices, or the yield differential between
two securities, or, in the case of the International Equity and International
Emerging Markets Portfolios, foreign currencies, 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 when the ag-
gregate premiums on outstanding options exceed 5% of its net assets at the
time of purchase, and will not write options on more than 25% of the value of
its net assets (measured at the time an option is written). Options trading is
a highly specialized activity that entails greater than ordinary investment
risks. In addition, unlisted options are not subject to the protections af-
forded purchasers of listed options issued by the Options Clearing Corpora-
tion, which performs the obligations of its members if they default.
To the extent consistent with its investment objective, each Portfolio may
also invest in futures contracts and options on futures contracts to commit
funds awaiting investment in stocks or maintain cash liquidity or, except with
respect to the Index Master Portfolio, for other hedging purposes. The value
of a Portfolio's contracts may equal or exceed 100% of its 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
18.
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offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, a Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid 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 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 as a temporary defensive measure if its sub-adviser determines that
market conditions warrant, each Portfolio other than the Index Master Portfolio
may also invest without limitation in high quality money market instruments.
The Balanced Portfolio may also invest in these securities in furtherance of
its investment objective. The Index Master Portfolio may invest a portion of
its assets, normally not more than 5% of its net assets, in certain short-term
fixed income obligations in order to maintain liquidity or to invest temporar-
ily uncommitted cash balances.
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign is-
suers, bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and obli-
gations of supranational organizations. Generally, such obligations will mature
within one year from the date of settlement, but may mature within two years
from the date of settlement. Under a repurchase agreement, a Portfolio agrees
to purchase securities from financial institutions 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 adverse market action, expenses
and/or delays in connection with the disposition of the underlying securities.
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 or market action. When-issued and forward commitment transactions involve
the risk, however, that the price or yield obtained in a transaction may be
less favorable than the price or yield available in the market when the securi-
ties 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 ab-
sent unusual market conditions.
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REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Each Portfolio is autho-
rized to borrow money. 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 de-
cline in value suffered by the Portfolio's securities. Borrowings may be made
by each Portfolio through reverse repurchase agreements under which the Portfo-
lio sells portfolio securities to financial institutions such as banks and bro-
ker-dealers and agrees to repurchase them at a particular date and price. A
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 reverse repurchase agree-
ment. The Index Master Portfolio does not intend to invest in reverse repur-
chase agreements. The Balanced Portfolio may utilize reverse repurchase agree-
ments when it is anticipated that the interest income to be earned from the in-
vestment of the proceeds of the transaction is greater than the interest ex-
pense of the transaction. This use of reverse repurchase agreements may be re-
garded as leveraging and, therefore, speculative. Reverse repurchase agreements
involve the risks that the interest income earned in the investment of the pro-
ceeds will be less than the interest expense, that the market value of the se-
curities 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 re-
turned to the Portfolio. During the time a reverse repurchase agreement is out-
standing, a Portfolio will maintain a segregated account with the Fund's custo-
dian containing cash, U.S. Government or other appropriate liquid securities
having a value at least equal to the repurchase price. A Portfolio's reverse
repurchase agreements, together with any other borrowings, will not exceed, in
the aggregate, 33 1/3% of the value of its total assets (33% in the case of the
Index Master Portfolio). In addition, the Balanced Portfolio may borrow up to
an additional 5% of its total assets for temporary purposes. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolios (other than
the Index Master Portfolio and the Balanced Portfolio) will not make any in-
vestments.
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. Such
Portfolios may also invest in securities issued by other investment companies
with similar investment objectives. The International Equity and International
Emerging Markets Portfolios may purchase shares of investment companies invest-
ing primarily in foreign securities, including so-called "country funds." Coun-
try funds have portfolios consisting exclusively of securities of issuers lo-
cated 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 Investment Company Act of 1940 (the "1940
Act"). As a shareholder of another investment company, a Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addi-
tion 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
20.
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Act. These securities will not be considered illiquid so long as it is deter-
mined by the adviser or sub-adviser that an adequate trading market exists for
the securities. This investment practice could have the effect of increasing
the level of illiquidity in a Portfolio during any period that qualified insti-
tutional buyers become uninterested in purchasing these restricted securities.
SMALL CAP AND MID-CAP 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 organizations (less than $1 billion at
the time of purchase). Similarly, the Mid-Cap Value Equity Portfolio and Mid-
Cap Growth Equity Portfolio will invest, under normal market conditions, at
least 90% (and in any event at least 65%) or their respective total assets in
equity securities of medium-capitalized organizations (between $1 billion and
$5 billion at the time of purchase). These organizations will normally have
more limited product lines, markets and financial resources and will be more
dependent upon a limited management group than larger capitalized companies.
INDEX EQUITY AND INDEX MASTER PORTFOLIOS. During normal market conditions, the
Index Master Portfolio (in which all of the assets of the Index Equity Portfo-
lio are invested) invests at least 95% of the value of its total assets in se-
curities included in the Standard & Poor's 500(R) Composite Stock Price Index
(the "S&P 500 Index")*. The Index Master Portfolio intends to invest in all of
the stocks that comprise the S&P 500 Index in approximately the same propor-
tions as they are represented in the Index. The Portfolio operates as an index
portfolio and, therefore, is not actively managed (through the use of economic,
financial or market analysis), and adverse performance will ordinarily not re-
sult in the elimination of a stock from the Portfolio. The Portfolio will re-
main fully invested in common stocks even when stock prices are generally fall-
ing. Ordinarily, portfolio securities will not be sold except to reflect addi-
tions or deletions of the stocks that comprise the S&P 500 Index, including
mergers, reorganizations and similar transactions and, to the extent necessary,
to provide cash to pay redemptions of the Portfolio's shares. The investment
performance of the Index Master Portfolio and the Index Equity Portfolio is ex-
pected 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 and 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 and 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 WARRANTY, EXPRESS OR IM-
PLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF
- ------
* "Standard & Poor's(R)," "S&P," "S&P 500(R)," "Standard & Poor's 500(R)" and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by the Fund and The DFA Investment Trust Company.
21.
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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 FOREGO-
ING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDI-
RECT, 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, Bulgaria, Chile, China, Colombia, The Czech Repub-
lic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, Lebanon, Malay-
sia, Mexico, Morocco, Peru, The Philippines, Poland, Romania, Russia, South Af-
rica, South Korea, Taiwan, Thailand, Tunisia, Turkey, Venezuela, Vietnam and
Zimbabwe. 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 characteristic of more devel-
oped countries. Some of these countries may have in the past failed to recog-
nize private property rights and have at times nationalized or expropriated the
assets of private companies. As a result, the risks described above, including
the risks of nationalization or expropriation of assets, may be heightened. In
addition, unanticipated political or social developments may affect the value
of investments in these countries and the availability to a Portfolio of addi-
tional investments in emerging market countries. The small size and inexperi-
ence of the securities markets in certain of these countries and the limited
volume of trading in securities in these countries may make investments in the
countries illiquid and more volatile than investments in Japan or most Western
European countries. There may be little financial or accounting information
available with respect to issuers located in certain emerging market countries,
and it may be difficult to assess the value or prospects of an investment in
such issuers.
The International Equity Portfolio invests primarily in equity securities of
issuers located in countries included in EAFE. Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Italy, Japan,
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Netherlands, New Zealand, Norway, Singapore, Malaysia, Spain, Sweden, Switzer-
land and the United Kingdom are currently included in EAFE. From time to time
the International Equity Portfolio may invest more than 25% of its total assets
in the securities of issuers located in Japan. Investments of 25% or more of
the Portfolio's total assets in this or any other country will make the Portfo-
lio's performance more dependent upon the political and economic circumstances
of a particular country than a mutual fund that is more widely diversified
among issuers in different countries. For example, in the past events in the
Japanese economy as well as social developments and natural disasters have af-
fected Japanese securities and currency markets, and have periodically dis-
rupted the relationship of the Japanese yen with other currencies and with the
U.S. dollar.
The International Equity and International Emerging Markets Portfolios may (but
are not required to) use forward foreign currency exchange contracts to hedge
against movements in the value of foreign currencies (including the European
Currency Unit) relative to the U.S. dollar in connection with specific portfo-
lio transactions or with respect to portfolio positions. A forward foreign cur-
rency exchange contract involves an obligation to purchase or sell a specified
currency at a future 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 a Portfolio to establish a rate of ex-
change 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), ob-
ligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities and state and local municipal obligations. These securities
will be rated at the time of purchase within the four highest rating groups as-
signed by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rat-
ings Group ("S&P") or another nationally recognized statistical rating agency.
If unrated, the securities will be determined at the time of purchase to be of
comparable quality by the sub-adviser. Securities rated "Baa" by Moody's or
"BBB" by S&P, respectively, are generally considered to be investment grade al-
though they have speculative characteristics. If a fixed income security is re-
duced below Baa by Moody's or BBB by S&P, the Portfolio's sub-adviser will dis-
pose of the security in an orderly fashion as soon as practicable. Investments
in securities of foreign issuers, which present additional investment consider-
ations as described above under "International Portfolios," will be limited to
5% of the Portfolio's total assets.
The Balanced Portfolio may make significant investments in residential and com-
mercial mortgage-related and other asset-backed securities (i.e., securities
backed by home equity loans, installment sale contracts, credit card receiv-
ables or other assets) issued by governmental entities and private issuers.
The Balanced Portfolio may acquire several types of mortgage-related securi-
ties, including 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 obliga-
tions ("CMOs"), which provide the holder with a specified interest in the cash
flow of a pool of underlying mortgages or other mortgage-backed securities. Is-
suers 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 multi-
ple classes, each with a specified fixed or floating interest rate and a final
distribution date. The relative payment rights of the various CMO classes may
be structured in many ways. In most cases, however, payments of principal are
applied to the CMO classes in the order of their respective stated maturities,
so that no principal payments will be made on a CMO class until all other clas-
ses having an earlier stated maturity date are paid in full. The classes may
include accrual certificates (also known as "Z-Bonds"), which only accrue in-
terest at a specified rate until other specified classes have been retired and
are converted thereafter to interest-paying securities. They may also include
planned amortization classes ("PACs") which generally require, within certain
limits, that specified amounts of principal be applied on each payment date,
and generally exhibit less yield and market volatility than other classes.
Non-mortgage asset-backed securities involve risks that are not presented by
mortgage-related securities. Primarily, these securities do not have the bene-
fit of the same security interest in the underlying collateral.
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Credit card receivables are generally unsecured, and the debtors are entitled
to the protection of a number of state and Federal consumer credit laws 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 trustees for the holders of the automobile receivables may not have
an effective security interest in all of the obligations backing such receiv-
ables. Therefore, there is a possibility that recoveries on repossessed collat-
eral may not, in some cases, be able to support payments on these securities.
The yield and maturity characteristics of mortgage-related and other asset-
backed securities differ from traditional debt securities. A major difference
is that the principal amount of the obligations may be prepaid at any time be-
cause the underlying assets (i.e. loans) generally may be prepaid at any time.
The average life of a mortgage-related instrument, in particular, is likely to
be substantially less than the original maturity of the mortgage pools under-
lying the securities as the result of scheduled principal payments and mortgage
prepayments. In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to ex-
perience substantial prepayments.
The relationship between prepayments and interest rates may give some high-
yielding asset-backed securities less potential for growth in value than con-
ventional bonds with comparable maturities. In addition, in periods of falling
interest rates, the rate of prepayments tends to increase. During such periods,
the reinvestment of prepayment proceeds by the Balanced Portfolio will gener-
ally 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 and maturity may be difficult to predict precisely. To
the extent that the Balanced Portfolio purchases asset-backed securities at a
premium, prepayments (which may be made without penalty) may result in loss of
the Balanced Portfolio's principal investment to the extent of premium paid.
The Balanced Portfolio may from time to time purchase in the secondary market
certain mortgage pass-through securities packaged and master serviced by PNC
Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp.
succeeded to rights and duties of Sears Mortgage) or mortgage-related securi-
ties containing loans or mortgages originated by PNC Bank, National Association
("PNC Bank") or its affiliates. It is possible that, under some circumstances,
PNC Mortgage Securities Corp. or its affiliates could have interests that are
in conflict with the holders of these mortgage-backed securities, and such
holders could have rights against PNC Mortgage Securities Corp. or its affili-
ates.
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 are supported
by the full faith and credit of the U.S. Treasury. Others are supported by the
right of the issuer to borrow from the U.S. Treasury; and still others are sup-
ported only by the credit of the agency or instrumentality issuing the obliga-
tion. No assurance can be given that the U.S. Government will provide financial
support to U.S. Government-sponsored instrumentalities 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, as well as
Treasury receipts and other stripped securities, 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 dis-
count to their "face value" and may (particularly in the case of stripped mort-
gage-backed securities) exhibit greater price volatility than ordinary debt se-
curities because of the manner in which their principal and interest are re-
turned to investors.
The Balanced Portfolio may also purchase zero-coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments) and state and local
government obligations. Zero-coupon bonds are subject
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to greater market fluctuations from changing interest rates than debt obliga-
tions of comparable maturities which make current distributions of interest.
Municipal obligations may be purchased when the Portfolio's sub-adviser be-
lieves that their return, on a pre-tax basis, will be comparable to the returns
of other permitted investments. Dividends paid by the Portfolio that are de-
rived from interest on municipal obligations will be taxable to shareholders.
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 those 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 securities having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that its value is maintained. The Portfolio's dollar rolls,
together with its reverse repurchase agreements and other borrowings, will not
exceed, in the aggregate, 33 1/3% of the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Portfo-
lio sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted. Successful use of mortgage dollar
rolls may depend upon the sub-adviser's ability to correctly predict interest
rates and prepayments. There is no assurance that dollar rolls can be success-
fully employed.
The Balanced Portfolio may enter into interest rate swaps and may purchase or
sell interest rate caps and floors. The Portfolio may enter into these transac-
tions primarily to preserve a return or spread on a particular investment or
portion of its holdings, as a duration management technique or to protect
against an increase in the price of securities the Portfolio anticipates pur-
chasing at a later date. The Portfolio intends to use these transactions as a
hedge and not as a speculative investment.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. 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.
The Balanced Portfolio 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. Although the Portfolio does not
currently intend to do so under current market conditions, the Portfolio may
invest up to 10% of its total assets in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate of an inverse floater re-
sets in the opposite direction from the market rate of interest to which it is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the
25.
<PAGE>
- --------------------------------------------------------------------------------
magnitude of the change in the index rate of interest. The higher degree of
leverage inherent in inverse floaters is associated with greater volatility in
their market values. Unrated variable and floating rate instruments will be
comparable in quality to investment grade securities as determined by the Port-
folio's sub-advisers. The absence of an active secondary market with respect to
particular variable and floating rate instruments, however, could make it dif-
ficult 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.
The Portfolio may only make short sales of securities "against-the-box." A
short sale is a transaction in which the Portfolio sells a security it does not
own in anticipation that the market price of that security will decline. The
Portfolio 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 port-
folio flexibility. In a short sale "against-the-box," at the time of sale, the
Portfolio owns or has the immediate and unconditional right to acquire the
identical security at no additional cost. When selling short "against-the-box,"
the Portfolio forgoes an opportunity for capital appreciation in the security.
The market value of the Balanced Portfolio's investments in fixed income secu-
rities 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 securities generally
decline. Changes in the financial strength of an issuer or changes in the rat-
ings of any particular security may also affect the value of these investments.
PORTFOLIO TURNOVER RATES. Under normal market conditions, it is expected that
the annual portfolio turnover rate for the Mid-Cap Value Equity and Mid-Cap
Growth Equity Portfolios will not exceed 100%. The past portfolio turnover
rates of the other Portfolios are set forth above under "What Are The Portfo-
lios' Financial Highlights?" A Portfolio's annual portfolio turnover rate will
not be a factor preventing a sale or purchase when the adviser or 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 may result in the realization of short-term capital
gains that are taxable to shareholders as ordinary income.
26.
<PAGE>
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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
change to a Portfolio's investment objective. 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 obligations of the U.S. Government and its in-
strumentalities and related repurchase 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
(33% of net assets in the case of the Index Master Portfolio) 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 as that Portfolio.
27.
<PAGE>
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WHO MANAGES THE FUND?
- -------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund and of The DFA Invest-
TRUSTEES ment Trust Company (in which the assets of the Fund's Index
Equity Portfolio are invested) are managed under the direc-
tion of their separate Boards of Trustees. The following
persons currently 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.--Chairman, Gee, Wilmerding & Associ-
ates, 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, Inc. ("PAMG"), except with respect to the Index Eq-
uity Portfolio. Each of the Portfolios within the Compass
Capital Fund family (except the Index Equity Portfolio) 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>
Large Cap Value Equity PCM(/1/) 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
manager since 1995.
Large Cap Growth Equity PEAC(/2/) Robert K. Urquhart; investment manager with
PEAC 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.
Mid-Cap Value Equity PCM(/1/) Benedict E. Capaldi (see above); Portfolio
co-manager since its inception.
Daniel B. Egan; portfolio manager with PCM
since 1995; director of investment strategy
at PAMG during 1994 and 1995; prior to 1994,
served as senior research consultant for
Mercer Investment Consulting. Portfolio co-
manager since its inception.
</TABLE>
28.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
COMPASS CAPITAL PORTFOLIO SUB-ADVISER PORTFOLIO MANAGER
- ------------------------- ------------------------ -----------------
<S> <C> <C>
Mid-Cap Growth Equity PEAC(/2/) William C. McVail; investment manager with
PEAC since 1994; prior to joining PEAC,
equity and fixed income analyst with PNC
Bank; Portfolio co-manager since its
inception.
William J. Wykle; investment manager with
PEAC since 1995; investment manager with PNC
Bank, National Association since 1986;
Portfolio co-manager since its inception.
Small Cap Value Equity PCM(/1/) Christian K. Stadlinger; Vice President of
PCM since July 1996; prior to joining PCM,
Portfolio Manager and Research Analyst with
Morgan Stanley Asset Management; Portfolio
manager since July 1996.
Small Cap Growth Equity PEAC(/2/) William J. Wykle (see above); Portfolio co-
manager since its inception.
William C. McVail; (see above); Portfolio co-
manager since inception.
International Equity CastleInternational(/4/) Gordon Anderson; Managing and Investment
Director since 1996; prior to joining
CastleInternational, Investment Director of
Dunedin Fund Managers Ltd.; Portfolio manager
since 1996.
International Emerging CastleInternational(/4/) Euan Rae; Senior Investment Manager since
Markets 1996; prior to joining CastleInternational,
Head of Emerging Markets at Dunedin Fund
Managers Ltd. and investment manager with
Edinburgh Fund Managers; Portfolio manager
since 1996.
Select Equity PCM(/1/) Daniel B. Eagan (see p. 28); Portfolio
manager since 1995.
Balanced PCM and R. Andrew Damm; senior investment strategist
BlackRock(/1/) (/3/) with PAMG since 1995; portfolio manager with
PNC Bank from 1988 to 1995; Portfolio co-
manager since 1996.
Stephen Utkus is the Director of Investment
Strategy for PNC Asset Management Group, and
plays a critical role in developing and
implementing PNC Bank's asset allocation
program, the PNC Blended Investment
Capability as well as PNC's investment policy
as a whole. Previously, he worked at The
Vanguard Group in asset allocation and
product development. He has served as co-
manager of the Balanced Portfolio since 1996.
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 1600
Market Street, 27th Floor, Philadelphia, PA 19103.
(2) PNC Equity Advisors Company ("PEAC") has its primary offices at 1600 Market
Street, 27th Floor, Philadelphia, PA 19103.
(3) BlackRock Financial Management, Inc. ("BlackRock") has its primary offices
at 345 Park Avenue, New York, New York 10154.
(4) CastleInternational Asset Management Limited ("CastleInternational") has
its primary offices at 7 Castle Street, Edinburgh, Scotland, EH2 3AH.
29.
<PAGE>
- --------------------------------------------------------------------------------
PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1600
Market Street, 29th Floor, Philadelphia, Pennsylvania 19103.
PAMG is an indirect wholly-owned subsidiary of PNC Bank
Corp., a multi-bank holding company.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-advisers are entitled to fees, com-
puted daily on a portfolio-by-portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are the Expenses of the Portfolios?" PAMG
and the sub-advisers intend to waive a portion of their fees
during the current fiscal year. All sub-advisory fees are
paid by PAMG and do not represent an extra charge to the
Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO
EXCEPT THE INDEX EQUITY, MID-CAP VALUE EQUITY, MID-CAP GROWTH
EQUITY AND THE INTERNATIONAL PORTFOLIOS (BEFORE WAIVERS)
<TABLE>
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .550% .400%
$1 billion--$2 billion .500 .350
$2 billion--$3 billion .475 .325
greater than $3 billion .450 .300
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE MID-CAP VALUE
EQUITY AND
MID-CAP GROWTH EQUITY PORTFOLIOS (BEFORE WAIVERS)
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .800% .650%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .500
greater than $3 billion .625 .475
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL
EQUITY PORTFOLIO (BEFORE WAIVERS)
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .750% .600%
$1 billion -- $2 billion .700 .550
$2 billion -- $3 billion .675 .525
greater than $3 billion .650 .500
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE INTERNATIONAL
EMERGING MARKETS PORTFOLIO (BEFORE WAIVERS)
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion 1.250% 1.100%
$1 billion -- $2 billion 1.200 1.050
$2 billion -- $3 billion 1.155 1.005
greater than $3 billion 1.100 0.950
</TABLE>
30.
<PAGE>
- --------------------------------------------------------------------------------
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 be-
lieves it is comparable to the rates paid by many other funds
with similar investment objectives and policies and is appro-
priate for the Portfolio in light of its investment objective
and policies.
For their last fiscal year the Portfolios paid investment advi-
sory fees at the following annual rates (expressed as a per-
centage of average daily net assets) after voluntary fee waiv-
ers: Large Cap Value Equity Portfolio, .49%; Large Cap Growth
Equity Portfolio, .49%; Small Cap Value Equity Portfolio, .54%;
Small Cap Growth Equity Portfolio, .54%; International Equity
Portfolio, .68%; International Emerging Markets Portfolio,
1.15%; Select Equity Portfolio, .49%; and Balanced Portfolio,
.49%. For the period from October 1, 1995 through June 1, 1996,
the Index Equity Portfolio paid investment advisory fees to its
former investment adviser at the annual rate of .01% of its av-
erage daily net assets.
The Portfolios' sub-advisers strive to achieve best execution
on all transactions. Infrequently, brokerage transactions for
the Portfolios may be directed to registered broker/dealers who
have entered into dealer agreements with Compass Capital's dis-
tributor.
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 in-
vestors. DFA's assets under management totalled approximately
$18.5 billion at October 31, 1996. David G. Booth and Rex A.
Sinquefield, both of whom are trustees and officers of The DFA
Investment Trust Company and directors, officers and sharehold-
ers of DFA, 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 Invest-
ment Committee is composed of certain officers and directors of
DFA who are elected annually. DFA provides the Index Master
Portfolio with a trading department and selects brokers and
dealers to effect securities transactions.
For the investment advisory services provided to the Index Mas-
ter Portfolio under the advisory agreement, DFA is entitled to
receive a fee at the annual rate of .025% of the Index Master
Portfolio's average daily net assets. For the Index Master
Portfolio's fiscal year ended November 30, 1996, DFA received a
monthly fee for its investment advisory services which, on an
annual basis, equaled .025% of the Index Master Portfolio's net
assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators") serve
as the Fund's co-administrators. CCG and PFPC are indirect
wholly-owned subsidiaries of PNC Bank Corp. CDI is a wholly-
owned subsidiary of Provident Distributors, Inc. ("PDI"). A ma-
jority of the outstanding stock of PDI is owned by its offi-
cers.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and
31.
<PAGE>
- -------------------------------------------------------------------------------
fund accounting. As compensation for these services, CCG is
entitled to receive a fee, computed daily and payable month-
ly, 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 an-
nual rate of .20% of the first $500 million of each Portfo-
lio's average daily net assets, .18% of the next $500 mil-
lion of each Portfolio's average daily net assets, .16% of
the next $1 billion of each Portfolio's average daily net
assets and .15% of each Portfolio's average daily net assets
in excess of $2 billion. From time to time the Administra-
tors may waive some or all of their administration fees from
a Portfolio. PFPC serves as the administrative services,
dividend disbursing and transfer agent to the Index Master
Portfolio, for which PFPC is entitled to compensation at the
annual rate of .015% of the Index Master Portfolio's net as-
sets.
For information about the operating expenses the Portfolios
paid for the most recent fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves
AGENT, as their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
SHAREHOLDER The Fund intends to enter into service arrangements with in-
SERVICING stitutional investors ("Institutions") (including PNC Bank
and its affiliates) which provide that the Institutions will
render support services to their customers who are the bene-
ficial owners of Service Shares. These services are intended
to supplement the services provided by the Fund's Adminis-
trators and transfer agent to the Fund's shareholders of
record. In consideration for payment of a shareholder
processing fee of up to .15% (on an annualized basis) of the
average daily net asset value of Service Shares owned bene-
ficially by their customers, Institutions may provide one or
more of the following services: processing purchase and re-
demption requests from customers and placing orders with the
Fund's transfer agent or the distributor; processing divi-
dend payments from the Fund on behalf of customers; provid-
ing sub-accounting with respect to Service Shares benefi-
cially owned by customers or the information necessary for
sub-accounting; and providing other similar services. In
consideration for payment of a separate shareholder servic-
ing fee of up to .15% (on an annualized basis) of the aver-
age daily net asset value of Service Shares owned benefi-
cially by their customers, Institutions may provide one or
more of these additional services to such customers: re-
sponding to customer inquiries relating to the services per-
formed by the Institution and to customer inquiries concern-
ing their investments in Service Shares; assisting customers
in designating and changing dividend options, account desig-
nations and addresses; and providing other similar share-
holder liaison services. Customers who are beneficial owners
of Service Shares should read this Prospectus in light of
the terms and fees governing their accounts with
Institutions.
Conflict-of-interest restrictions may apply to the receipt
of compensation paid by the Fund in connection with the in-
vestment of fiduciary funds in Portfolio shares. Institu-
tions, including banks regulated by the Comptroller of the
Currency, Federal Reserve Board and state banking commis-
sions, and investment advisers and other money managers sub-
ject to the jurisdiction of the SEC, the Department of Labor
or state securities commissions, are urged to consult their
legal counsel before entering into agreements with the Fund.
32.
<PAGE>
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Institutions under their service agreements will not be pro-
hibited under these laws. Under state securities laws, banks
and financial institutions that receive payments from the Fund
may be required to register as dealers.
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 qual-
ifying the Portfolios and their shares for distribution under
Federal and state securities laws, expenses of preparing pro-
spectuses and statements of additional information and of
printing and distributing prospectuses and statements of addi-
tional information to existing shareholders, expenses relating
to shareholder reports, shareholder meetings and proxy solici-
tations, insurance premiums, the expense of independent 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 be-
long to a particular investment portfolio will be allocated
among all investment portfolios by or under the direction of
the Board of Trustees in a manner the Board determines to be
fair and equitable.
33.
<PAGE>
- -------------------------------------------------------------------------------
HOW ARE SHARES PURCHASED AND REDEEMED?
- -------------------------------------------------------------------------------
DISTRIBUTOR. Shares of each Portfolio of the Fund are offered on a continuous
basis by CDI as distributor (the "Distributor"). CDI maintains its principal
offices at Four Falls Corporate Center, 6th Floor, West Conshohocken, PA
19428-2961.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Fund is not required or permitted under the Plan to
make distribution payments with respect to Service Shares. However, the Plan
permits CDI, PAMG, the Administrators and other companies that receive fees
from the Fund to make payments relating to distribution and sales support ac-
tivities out of their past profits or other sources available to them which,
subject to applicable NASD regulations, may include contributions to various
non-cash and cash incentive arrangements to promote the sale of shares, as
well as sponsorship of various educational programs, sales contests and promo-
tions in which participants may receive reimbursement of expenses, entertain-
ment and prizes such as travel awards, merchandise and cash. For further in-
formation, see "Investment Advisory, Administration, Distribution and Servic-
ing Arrangements" in the Statement of Additional Information.
PURCHASE OF SHARES. Service Shares are offered without a sales load to Insti-
tutions acting on behalf of their customers, as well as to certain persons who
were shareholders of Compass Capital Group of Funds at the time of its combi-
nation with The PNC(R) Fund during the first quarter of 1996. Service Shares
will normally be held of record by Institutions or in the names of nominees of
Institutions. Share purchases are normally effected through a customer's ac-
count at an Institution through procedures established in connection with the
requirements of the account. In these cases, confirmations of share purchases
and redemptions will be sent to the Institutions. Beneficial ownership of
shares will be recorded by the Institutions and reflected in the account
statements provided by such Institutions to their customers. Investors wishing
to purchase shares should contact their Institutions.
Service Shares are sold at their net asset value per share next computed after
an order is received by PFPC. Orders received by PFPC by 4:00 p.m. (Eastern
Time) on a Business Day are priced the same day. A "Business Day" is any week-
day that the New York Stock Exchange (the "NYSE") and the Federal Reserve Bank
of Philadelphia (the "FRB") are open for business. Purchase orders may be
placed by telephoning PFPC at (800) 441-7450. Orders received by PFPC after
4:00 p.m. (Eastern Time) are priced on the following Business Day.
Payment for Service Shares must normally be made in Federal funds or other
funds immediately available to the Fund's custodian. Payment may also, in the
discretion of the Fund, be made in the form of securities that are permissible
investments for the respective Portfolios. For further information, see the
Statement of Additional Information. The minimum initial investment is $5,000;
however, Institutions may set a higher minimum for their customers. There is
no minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Service Shares.
REDEMPTION OF SHARES. Customers of Institutions may redeem Service Shares in
accordance with the procedures applicable to their accounts with the Institu-
tions. These procedures will vary according to the type of account and the In-
stitution involved, and customers should consult their account managers in
this regard. It is the responsibility of Institutions to transmit redemption
orders to PFPC and credit their customers' accounts with redemption proceeds
on a timely basis. In the case of shareholders holding share certificates, the
certificates must accompany the redemption request.
Institutions may place redemption orders by telephoning PFPC at (800) 441-
7450. Shares are redeemed at their net asset value per share next determined
after PFPC's receipt of the redemption order. The Fund, the
34.
<PAGE>
- --------------------------------------------------------------------------------
Administrators and the Distributor will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. The Fund and its serv-
ice providers will not be liable for any loss, liability, cost or expense for
acting upon telephone instructions that are reasonably believed to be genuine
in accordance with such procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the next Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received after 4:00 p.m. (Eastern Time) or on a day when the Fund's custo-
dian is closed is normally wired in Federal funds on the next Business Day fol-
lowing redemption on which the Fund's custodian is open for business. The Fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgment of PAMG, an earlier payment could
adversely affect a Portfolio. No charge for wiring redemption payments is im-
posed by the Fund, although Institutions may charge their customer accounts for
redemption services. Information relating to such redemption services and
charges, if any, should be obtained by customers from their Institutions.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
400 Bellevue Parkway, Wilmington, DE 19809.
The Fund may redeem Service Shares in any Portfolio account if the account bal-
ance drops below $5,000 as the result of redemption requests and the share-
holder does not increase the balance to at least $5,000 upon thirty days' writ-
ten notice. If a customer has agreed with an Institution to maintain a minimum
balance in his or her account with the Institution, and the balance in the ac-
count falls below that minimum, the customer may be obligated to redeem all or
part of his or her shares in the Portfolios to the extent necessary to maintain
the minimum balance required.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
35.
<PAGE>
- --------------------------------------------------------------------------------
WHAT SPECIAL PURCHASE AND REDEMPTION PROCEDURES MAY APPLY?
- --------------------------------------------------------------------------------
Persons who were shareholders of an investment portfolio of the Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC(R) Fund
may also purchase and redeem Service Shares of the same Portfolio and for the
same account in which they held shares on that date through the procedures de-
scribed in this section.
PURCHASES. Purchase orders may be placed through PFPC. The minimum investment
is $100. Purchases through the Automatic Investment Plan described below are
subject to a lower purchase minimum. The name of the Portfolio with respect to
which shares are purchased must appear on the check or Federal Reserve Draft.
Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, class of
the Portfolio, the name of the account registration, and the shareholder ac-
count number. Before wiring any funds, however, an investor must call PFPC at
(800) 441-7762 in order to confirm the wire instructions. Purchase orders which
are received by PFPC, together with payment, before the close of regular trad-
ing hours on the NYSE (currently 4:00 p.m. Eastern Time) on any Business Day
(as defined above) are priced according to the net asset value next determined
on that day.
The Portfolios offer an Automatic Investment Plan ("AIP") whereby an investor
in shares of a Portfolio may arrange for periodic investments in that Portfolio
through automatic deductions from a checking or savings account by completing
the AIP Application Form which may be obtained from PFPC. The minimum pre-
authorized investment amount is $50.
REDEMPTIONS. Shareholders may redeem for cash some or all of their shares of
the Portfolios at any time by sending a written redemption request in proper
form to Compass Capital Funds c/o PFPC Inc., P.O. Box 8907, Wilmington, Dela-
ware 19899-8907.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding share certificates must send
their certificates with the redemption request. Additional documentary evidence
of authority is required by PFPC in the event redemption is requested by a cor-
poration, partnership, trust, fiduciary, executor or administrator.
If a shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or
by Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone
at (800) 441-7762 or other means. The minimum amount that may be sent by check
is $500, while the minimum amount that may be wired is $10,000. Compass Capital
reserves the right to change these minimums or to terminate these redemption
privileges. If the proceeds of a redemption would exceed $25,000, the redemp-
tion request must be in writing and will be subject to the signature guarantee
requirement described above. This privilege may not be used to redeem shares in
certificated form.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
36.
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Compass Capital is not responsible for the efficiency of the Federal wire sys-
tem or the shareholder's firm or bank. Compass Capital does not currently
charge for wire transfers. The shareholder is responsible for any charges im-
posed by the shareholder's bank. To change the name of the single designated
bank account to receive wire redemption proceeds, it is necessary to send a
written request (with a guaranteed signature as described above) to Compass
Capital Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital reserves the right to refuse a telephone redemption if it be-
lieves it advisable to do so. The Fund, the Administrators and the Distributor
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Compass Capital, the Administrators and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions reasonably believed to be genuine in accordance with
such procedures.
Compass Capital offers a Systematic Withdrawal Plan ("SWP") which may be used
by investors who wish to receive regular distributions from their accounts.
Upon commencement of the SWP, the account must have a current value of $10,000
or more in a Portfolio. Shareholders may elect to receive automatic cash pay-
ments of $100 or more either monthly, every other month, quarterly, three times
a year, semi-annually, or annually. Automatic withdrawals are normally proc-
essed on the 25th day of the applicable month or, if such day is not a Business
Day, on the next Business Day and are paid promptly thereafter. An investor may
utilize the SWP by completing the SWP Application Form which may be obtained
from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC.
37.
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HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Service Shares of each Portfolio
as of the close of regular trading hours on the NYSE (currently 4:00 p.m. East-
ern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio (including, for the Index Equity Portfolio,
all of its shares in the Index Master Portfolio) that are allocated to its
Service Shares, less the liabilities charged to its Service Shares, by the num-
ber of its Service Shares that are outstanding. The net asset value per share
of the Index Master Portfolio is calculated as of the close of the NYSE by di-
viding the total market value of its investments and other assets, less any li-
abilities, by the total outstanding shares of the Index Master Portfolio.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices, or the mean between bid and asked prices,
that are provided by securities dealers or pricing services. Portfolio securi-
ties which are primarily traded on foreign securities exchanges are normally
valued at the preceding closing values of such securities on their respective
exchanges. Securities for which market quotations are not readily available are
valued at fair market value as determined in good faith by or under the direc-
tion 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 super-
vision of the Board of Trustees determines such method does not represent fair
value.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Each Portfolio of the Fund will distribute substantially all of its net invest-
ment income and net realized capital gains, if any, to shareholders. The net
investment income of each Portfolio is declared quarterly as a dividend to in-
vestors who are shareholders of the Portfolio at the close of business on the
day of declaration. All dividends are paid not later than 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 of the Fund at least annu-
ally. The period for which dividends are payable and the time for payment are
subject to change by the Fund's Board of Trustees.
Distributions are reinvested at net asset value in additional full and frac-
tional Service Shares of the relevant Portfolio, unless a shareholder elects to
receive distributions in cash. This election, or any revocation thereof, must
be made in writing to PFPC, and will become effective with respect to distribu-
tions paid after its receipt by PFPC.
The Index Equity Portfolio seeks its investment objective by investing all of
its investable assets in the Index Master Portfolio, and the Index Equity Port-
folio is 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, is the Index Equity Portfolio's net investment
income from which dividends are distributed as described above. The Index Mas-
ter Portfolio also allocates to the Index Equity Portfolio its pro rata share
of capital gains, if any, realized by the Index Master Portfolio.
38.
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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 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 distributions.
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 shareholder will be entitled either (a) to credit a proportion-
ate amount of such taxes against a shareholder's U.S. Federal income tax lia-
bilities, or (b) if a shareholder itemizes deductions, to deduct such propor-
tionate amounts from U.S. Federal taxable income.
The Index Master Portfolio is classified as a partnership for Federal income
tax purposes. As such, the Index Master Portfolio will not be subject to Fed-
eral income tax, and the Index Equity Portfolio will be allocated its propor-
tionate share of the income and realized and unrealized gains and losses of the
Index Master Portfolio.
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.
39.
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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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Service Shares of the eleven Portfolios described here-
in.
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 performance of each class of Investor Shares
may be different. The Fund offers various services and privileges in connection
with its Investor Shares that are not generally offered in connection with its
Institutional and Service Shares, including an automatic investment plan and an
automatic withdrawal plan. For further information regarding the Fund's Insti-
tutional or Investor Share classes, contact PFPC at (800) 441-7764 (Institu-
tional Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets that 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 November 30, 1996, PNC Bank held of record approximately 70% of the Fund's
outstanding shares, as trustee on behalf of individual and institutional in-
vestors, and may be deemed a controlling person of the Fund under the 1940 Act.
PNC Bank is a subsidiary of PNC Bank Corp.
MASTER-FEEDER STRUCTURE. The Index Equity Portfolio, unlike many other invest-
ment companies which directly acquire and manage their own portfolio of securi-
ties, seeks to achieve its investment objective by investing all of its
investable assets in the Index Master Portfolio. The Index Equity Portfolio
purchases shares of the Index Master Portfolio at net asset value. The net as-
set value of the Index Equity Portfolio responds 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 Index Equity Portfolio may withdraw its investment in the
Index Master Portfolio at any time upon 30 days notice to the Index Master
Portfolio if the Board of Trustees of the Fund determines that it is in the
best interests of the Index Equity Portfolio to do so. Upon withdrawal, the
Board of Trustees would consider what action might be taken, including the in-
vestment 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 investment adviser to manage 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
40.
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investors that may invest in the Index Master Portfolio from time to time (e.g.
other investment companies) will each bear a share of all liabilities of the
Index Master 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 Mas-
ter Portfolio.
The shares of the Index Master Portfolio are offered to institutional investors
in private placements for the purpose of increasing the funds available for in-
vestment and achieving economies of scale that might be available at higher as-
set levels. The expenses of such other institutional investors and their re-
turns may differ from those of the Index Equity Portfolio. While investment 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 Portfolio
could experience higher pro rata operating expenses and correspondingly lower
returns. In addition, institutional investors that have a greater pro rata own-
ership 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 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 mate-
rial degree the rights and preferences of the shares of the Index Master Port-
folio or to increase or decrease their par value. 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 sharehold-
ers) of the Index Master Portfolio.
When the Index Equity Portfolio, as a shareholder of the Index Master Portfo-
lio, votes on matters pertaining to the Index Master Portfolio, the Index Eq-
uity Portfolio, if required under the 1940 Act or other applicable law, would
hold a meeting of its shareholders and would cast its votes proportionately as
instructed by Index Equity Portfolio shareholders. In such cases, shareholders
of the Index Equity Portfolio, 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
41.
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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 experience with the operation of this policy. There may
also be other investment companies or entities through which you can invest in
the Index Master Portfolio which may have different sales charges, fees and
other expenses which may affect performance. As of the date of this Prospectus,
one other feeder fund invests all of its investable assets in the Index Master
Portfolio. For information about other funds that may invest in the Master In-
dex Portfolio, please contact DFA at (310) 395-8005 or contact your broker.
42.
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HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Performance information for Service Shares of the Portfolios may be quoted in
advertisements and communications to shareholders. Total return will be calcu-
lated on an average annual total return basis for various periods. Average an-
nual total return reflects the average annual percentage change in value of an
investment in Service Shares of a Portfolio over the measuring period. Total
return may also be calculated on an aggregate total return basis. Aggregate to-
tal return reflects the total percentage change in value over the measuring pe-
riod. Both methods of calculating total return assume that dividend and capital
gain distributions made by a Portfolio with respect to its Service Shares are
reinvested in shares of the same class.
The yield of Service Shares of the Balanced Portfolio is computed by dividing
the net income allocated to its Service Shares during a 30-day (or one month)
period by the net asset value per share on the last day of the period and
annualizing the result on a semi-annual basis.
The performance of a Portfolio's Service Shares may be compared to the perfor-
mance of other mutual funds with similar investment objectives and to relevant
indices, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of a Portfolio's Service Shares may be com-
pared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service, and to the per-
formance of the Dow Jones Industrial Average, the "stocks, bonds and inflation
Index" published annually by Ibbotson Associates, the Lipper International Fund
Index, the Lehman Government Corporate Bond Index and the Financial Times World
Stock Index, as well as the benchmarks attached to this Prospectus. Performance
information may also include evaluations of the Portfolios and their Service
Shares published by nationally recognized ranking services, and information as
reported in financial publications such as Business Week, Fortune, Institu-
tional Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Service Shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of dividends in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Service Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for
Service Shares of a Portfolio cannot necessarily be used to compare an invest-
ment in such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other institu-
tions directly to their customer accounts in connection with investments in
Service Shares will not be included in the Portfolio performance calculations.
43.
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OTHER INFORMATION ON THE PERFORMANCE OF PNC EQUITY ADVISORS COMPANY
The tables below set forth performance information relating to the Small Cap
Growth Equity Portfolio and a small cap growth equity account (the "Small Cap
Account") that is also managed by PEAC for certain trust accounts and which has
investment objectives, policies, strategies and risks substantially similar to
those of the Small Cap Growth Equity Portfolio. The performance of the Small
Cap Account has been restated to reflect certain expenses, as set forth in
footnote 2 to the table.
The performance data for the Small Cap Account is included to provide investors
with a longer performance record for PEAC in managing an account substantially
similar to the Small Cap Growth Equity Portfolio as measured against the Rus-
sell 2000 Growth Index. The Small Cap Account performance data does not repre-
sent the past, present or future performance of the Small Cap Growth Equity
Portfolio. Past performance is no guarantee of future results; investors should
not consider this performance data as an indication of future performance of
the Small Cap Growth Equity Portfolio or of PEAC. Share prices and investment
returns will fluctuate reflecting market conditions and cash flows, as well as
changes in company-specific fundamentals of portfolio securities. Consequently,
investments in either the Small Cap Growth Equity Portfolio or the Small Cap
Account may be worth more or less than their original cost at the time of re-
demption. The performance presentation is not audited.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns also reflect the brokerage costs borne by the Small Cap
Growth Equity Portfolio and the Small Cap Account for all periods presented.
The use of a different methodology to calculate performance could result in
different performance data.
The Small Cap Account was not subject to the same types of expenses and liquid-
ity requirements to which the Small Cap Growth Equity Portfolio is subject nor
to the diversification requirements, specific tax restrictions and investment
limitations imposed on the Small Cap Growth Equity Portfolio by the 1940 Act or
Subchapter M of the Internal Revenue Code. Consequently, the performance re-
sults for the Small Cap Account could have been adversely affected if the Small
Cap Account had been regulated as an investment company under the federal secu-
rities laws.
PEAC'S SMALL CAP GROWTH EQUITY PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
SMALL CAP GROWTH
YEAR OR PERIODS EQUITY SMALL CAP RUSSELL 2000
ENDED 9/30/96 PORTFOLIO(/1/) ACCOUNT(/2/) GROWTH INDEX(/3/)
--------------- ---------------- ------------ -----------------
<S> <C> <C> <C>
One Year.................. 45.14% 47.29% 13.13%
Three Years............... 27.71% 27.18% 12.73%
Five Years................ N/A 30.01% 15.76%
From Inception(/4/)....... 29.16% 23.24% 10.07%(/5/)
</TABLE>
- --------
(1) Total return reflects the performance of Service Shares of the Small Cap
Growth Equity Portfolio since the commencement of operations of the Port-
folio rather than the date Service Shares in the Portfolio were intro-
duced. Performance information for the Portfolio's Service Shares prior to
their introduction date on 9/15/93 does not reflect shareholder servicing,
shareholder processing and certain other expenses borne by Service Shares
which, if reflected, would reduce the performance quoted for such period.
Performance information presented for Service Shares of the Portfolio
prior to their introduction is based upon historical expenses of the
Portfolio's Institutional Shares which do not reflect the actual expenses
that an investor would have incurred as a holder of Service Shares of the
Portfolio. The performance quoted reflects fee waivers by the Portfolio's
service providers. The Portfolio's performance would have been lower in
the absence of such waivers.
(2) The performance has been restated to reflect a total expense ratio of
1.16%, which is the total expense ratio that Service Shares of the Small
Cap Growth Equity Portfolio are expected to incur during the current fiscal
year and which reflects an advisory fee of .54% of its average daily net
assets. This expense ratio reflects voluntary fee waivers by the Portfo-
lio's service providers which may be modified or terminated at any time. In
restating the total returns of the Small Cap Account, these expenses were
calculated on a quarterly basis for the periods presented. The calculation
of these expenses on a more frequent basis would result in lower perfor-
mance figures.
44.
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(3) Total return data is presented for each period. The Russell 2000 Growth In-
dex reflects the investment of income dividends and capital gain distribu-
tions, if any, but does not reflect fees, brokerage commissions or other
expenses of investing. The Russell 2000 Growth Index is an unmanaged secu-
rities index, and an investment cannot be made directly in the Russell 2000
Growth Index. For more information on the Russell 2000 Growth Index, see
the Appendix to this Prospectus.
(4) The Small Cap Growth Equity Portfolio and the Small Cap Account commenced
investment operations on 9/14/93 and 8/1/87, respectively.
(5) Reflects the average annual total return of the Russell 2000 Growth Index
from 8/1/87.
45.
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HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7764
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7764
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7764
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
46.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Large Cap Value Equity Russell 1000 An index composed of those Russell 1000 securities
Value Index 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.
Large Cap Growth Equity Russell 1000 The Russell 1000 Growth Index contains those Russell
Growth Index 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.
Mid-Cap Value Equity Russell Midcap The Russell Midcap Value Index consists of the
Value Index bottom 800 securities of the Russell 1000 Index with
less-than-average growth orientation as ranked by
total market capitalization.
Mid-Cap Growth Equity Russell Midcap The Russell Midcap Growth Index consists of the
Growth Index bottom 800 securities of the Russell 1000 Index with
greater-than-average growth orientation as ranked by
total market capitalization.
Small Cap Value Equity Russell 2000 The Russell 2000 Value Index contains those Russell
Value Index 2000 securities with a less-than-average growth
orientation. Securities in this index generally have
lower price-to-book and price-earnings ratios than
those in the Russell 2000 Growth Index.
Small Cap Growth Equity Russell 2000 An index composed of those Russell 2000 securities
Growth Index 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 is a
market value-weighted average of the performance of
over 900 securities listed on the stock exchanges of
such countries.
International Emerging MSCI Emerging The Morgan Stanley Capital International (MSCI)
Markets Markets Free Emerging Markets Free Index (EMF) is a market
Index capitalization weighted index composed of companies
representative of the market structure of 22
Emerging Market countries in Europe, Latin America,
Africa and the Pacific Basin. The MSCI EMF Index
excludes closed markets and those shares in
otherwise free markets which are not purchasable by
foreigners.
Select Equity S&P 500 Index An unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward
stocks with large market capitalizations and
represents approximately two-thirds of the total
market value of all domestic common stocks.
Index Equity S&P 500 Index An unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward
stocks with large market capitalizations and
represents approximately two-thirds of the total
market value of all domestic common stocks.
Balanced S&P 500 Index An unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward
stocks with large market capitalizations and
represents approximately two-thirds of the total
market value of all domestic common stocks.
Salomon Broad An unmanaged index of 3500 bonds. The Broad
Investment Investment Grade Index is market capitalization
Grade Index weighted and includes Treasury, Government sponsored
mortgages and investment grade fixed rate corporates
with a maturity of 1 year or longer.
</TABLE>
47.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment styleSM.
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity International Equity
Large Cap Value Equity International Emerging Markets
Mid-Cap Growth Equity Index Equity
Mid-Cap Value Equity Select Equity
Small Cap Growth Equity
Small Cap Value Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- --------------------------------------------------------------------------------
THE BOND PORTFOLIOS INVESTOR SHARES
- --------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 9
What Are The Portfolios?..................................... 20
What Are The Differences Among The Portfolios?............... 21
What Types Of Securities Are In The Portfolios?.............. 22
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 23
What Additional Investment Policies And Risks Apply?......... 24
Who Manages The Fund?........................................ 34
What Pricing Options Are Available To Investors?............. 38
What Are The Key Considerations In Selecting A Pricing
Option?..................................................... 40
How Are Shares Purchased?.................................... 41
How Are Shares Redeemed?..................................... 42
What Are The Shareholder Features Of The Fund?............... 44
What Is The Schedule Of Sales Charges And Exemptions?........ 46
How Is Net Asset Value Calculated?........................... 51
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 51
How Are Fund Distributions Taxed?............................ 52
How Is The Fund Organized?................................... 55
How Is Performance Calculated?............................... 56
How Can I Get More Information?.............................. 58
</TABLE>
This Prospectus contains information about the Compass Capital
bond Portfolios that a prospective investor needs to know before
investing. Please keep it for future reference. A Statement of
Additional Information dated January 1, 1997 has been filed with
the Securities and Exchange Commission (the "SEC"). The Statement
of Additional Information may be obtained free of charge from the
Fund by calling (800) 441-7762. The Statement of Additional In-
formation, 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC TAX-FREE PORTFOLIOS ARE INTENDED
ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
2.
<PAGE>
- --------------------------------------------------------------------------------
THE BOND PORTFOLIOS OF COMPASS CAPITAL FUNDS
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 30 portfolios and
has been structured to include many different investment styles
across the spectrum of fixed income investments so that invest-
ors may participate across multiple disciplines in order to
seek their long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of eleven
investment portfolios (the "Portfolios") that provide investors
with a broad spectrum of investment alternatives within the
fixed income sector. Seven of these Portfolios invest in tax-
able bonds, and four of these Portfolios invest in tax-exempt
bonds. A detailed description of each Portfolio begins on page
20.
COMPASS PERFORMANCE LIPPER PEER GROUP
PORTFOLIO BENCHMARK
CAPITAL
LOW DURATION Merrill 1-3 Short-Intermediate U.S.
BOND Year Treasury Government
(PREVIOUSLY Index
CALLED THE
SHORT
GOVERNMENT
BOND
PORTFOLIO)
INTERMEDIATE Lehman Brothers Intermediate U.S.
GOVERNMENT Intermediate Government
BOND Government
INTERMEDIATE Lehman Brothers Intermediate
BOND Intermediate Government/Corporate
Government/Corporate
CORE BOND Lehman Intermediate Investment
Aggregate Grade Debt
MANAGED INCOME Lehman Corporate Debt A-Rated
Aggregate
INTERNATIONAL Salomon Non- International Income
BOND U.S. Hedged
World
Government
Bond Index
TAX-FREE Lehman General Municipal Debt
INCOME Municipal Bond
Index
PA TAX-FREE Lehman Local GO PA Municipal Debt
INCOME Index
NJ TAX-FREE Lehman Local GO NJ Municipal Debt
INCOME Index
OH TAX FREE Lehman Local GO OH Municipal Debt
INCOME Index
This Prospectus has been crafted to provide detailed, accurate
UNDERSTANDING and comprehensive information on the Compass Capital Portfo-
THE COMPASS lios. We intend this document to be an effective tool as you
CAPITAL BOND explore different directions in fixed income investing.
PORTFOLIOS
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective. Some or all of the Portfolios may pur-
BOND chase mortgage-related, asset-backed, foreign and illiquid se-
INVESTING curities; enter into repurchase and reverse repurchase agree-
ments and engage in leveraging techniques; lend portfolio secu-
rities to third parties; and enter into futures contracts and
options. Each of the Pennsylvania, New Jersey and Ohio Tax-Free
Income Portfolios (the "State-Specific Tax-Free Portfolios")
concentrates in the securities of issuers located in a particu-
lar state, and is non-diversified, which means that its perfor-
mance may be dependent upon the performance of a smaller number
of securities than the other Portfolios, which are considered
diversified. See "What Additional Investment Policies And Risks
Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased" and "How Are Shares
CAPITAL Redeemed?"
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Investor Shares
of the Portfolios for the fiscal year ended September 30, 1996 as a percentage
of average daily net assets. The figures shown for each Portfolio except the
Low Duration Bond and Managed Income Portfolios have been restated to reflect
current expenses and fee waivers. Because no Investor B or Investor C Shares of
the Low Duration Bond, Intermediate Government Bond, Intermediate Bond and Man-
aged Income Portfolios and no Investor C Shares of the Core Bond, Government
Income, Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free In-
come and Ohio Tax-Free Income Portfolios were outstanding during the fiscal
year ended September 30, 1996, the figures shown for those share classes under
"Other expenses" are estimates for the current fiscal year. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
LOW INTERMEDIATE INTERMEDIATE
DURATION BOND GOVERNMENT BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Front-
End Sales
Charge(/1/)
(as a
percentage of
offering price) 3.0% None None 4.0% None None 4.0% None None
Maximum Deferred
Sales
Charge(/1/)(/2/)
(as a
percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested
Dividends None None None None None None None None None
ANNUAL PORTFOLIO
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory fees
(after fee
waivers)(/3/) .30% .30% .30% .30% .30% .30% .30% .30% .30%
12b-1
fees(/3/)(/4/) .00 .75 .75 .00 .75 .75 .00 .75 .75
Other operating
expenses (after
fee
waivers)(/3/) .72 .72 .72 .72 .72 .72 .72 .72 .72
--- --- --- --- --- --- --- --- ---
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .32 .32 .32 .32 .32 .32 .32 .32 .32
--- --- --- --- --- --- --- --- ---
Total Portfolio
operating
expenses (after
fee
waivers)(/3/) 1.02% 1.77% 1.77% 1.02% 1.77% 1.77% 1.02% 1.77% 1.77%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .50% and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive fees or reimburse expenses,
but have informed the Fund that they expect to waive fees and reimburse ex-
penses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. Without waivers, "Other operating expenses" would be: (i)
.80%, .80% and .82%, respectively, for Investor A Shares; and (ii) .80%,
.80% and .82% respectively, for Investor B Shares and Investor C Shares;
and "Total Portfolio operating expenses" would be: (iii) 1.30%, 1.30% and
1.32%, respectively, for Investor A Shares; and (iv) 2.05%, 2.05% and
2.07%, respectively, for Investor B Shares and Investor C Shares. The Port-
folios do not expect to incur 12b-1 fees in excess of .005% with respect to
Investor A Shares (otherwise payable at the maximum rate of .10%) during
the current fiscal year. See "What are the Portfolios' Financial High-
lights?" for information about interest paid by the Portfolios in connec-
tion with their investment activity.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" Long-term investors in Investor Shares may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the National Association of Securities Dealers, Inc. ("NASD").
4.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED
CORE BOND GOVERNMENT INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Front-
End Sales
Charge(/1/)
(as a
percentage of
offering price) 4.0% None None 4.5% None None 4.5% None None
Maximum Deferred
Sales
Charge(/1/)(/2/)
(as a
percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested
Dividends None None None None None None None None None
ANNUAL PORTFOLIO
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory fees
(after fee
waivers)(/3/) .30% .30% .30% .30% .30% .30% .35% .35% .35%
12b-1
fees(/3/)(/4/) .00 .75 .75 .00 .75 .75 .00 .75 .75
Other operating
expenses (after
fee
waivers)(/3/) .72 .72 .72 .72 .72 .72 .70 .70 .70
--- --- --- --- --- --- --- --- ---
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .32 .32 .32 .32 .32 .32 .30 .30 .30
--- --- --- --- --- --- --- --- ---
Total Portfolio
operating
expenses (after
fee
waivers)(/3/) 1.02% 1.77% 1.77% 1.02% 1.77% 1.77% 1.05% 1.80% 1.80%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .50% and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive fees or reimburse expenses,
but have informed the Fund that they expect to waive fees and reimburse ex-
penses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. Without waivers, "Other operating expenses" would be: (i)
.81%, .94% and .75%, respectively, for Investor A Shares; and (ii) .81%,
.94% and .75%, respectively, for Investor B Shares and Investor C Shares;
and "Total Portfolio operating expenses" would be: (iii) 1.31%, 1.44% and
1.25%, respectively, for Investor A Shares; (iv) 2.06%, 2.19% and 2.00%,
respectively, for Investor B Shares; and (v) 2.06%, 2.19% and 2.00%, re-
spectively, for Investor C Shares. The Portfolios do not expect to incur
12b-1 fees in excess of .005% with respect to Investor A Shares (otherwise
payable at the maximum rate of .10%) during the current fiscal year. See
"What are the Portfolios' Financial Highlights?" for information about in-
terest paid by the Portfolios in connection with their investment activity.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" Long-term investors in Investor Shares may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
5.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA
INTERNATIONAL BOND TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Front-
End Sales
Charge(/1/)
(as a
percentage of
offering price) 5.0% None None 4.0% None None 4.0% None None
Maximum Deferred
Sales
Charge(/1/)(/2/)
(as a
percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested
Dividends None None None None None None None None None
ANNUAL PORTFOLIO
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory fees
(after fee
waivers)(/3/) .50% .50% .50% .30% .30% .30% .30% .30% .30%
12b-1
fees(/3/)(/4/) .00 .75 .75 .00 .75 .75 .00 .75 .75
Other operating
expenses (after
fee waivers and
expense
reimbursements)(/3/) .95 .95 .95 .72 .72 .72 .67 .72 .72
--- --- --- --- --- --- --- --- ---
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .55 .55 .55 .32 .32 .32 .27 .32 .32
--- --- --- --- --- --- --- --- ---
Total Portfolio
operating
expenses
(after fee
waivers and
expense
reimbursements)(/3/) 1.45% 2.20% 2.20% 1.02% 1.77% 1.77% .97% 1.77% 1.77%
==== ==== ==== ==== ==== ==== === ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .55%, .50% and .50%, respec-
tively, and administration fees would be .23% for each class of each Port-
folio. In addition, the Expense Summary reflects reimbursements made to the
Tax-Free Income Portfolio by the adviser. PAMG and the Portfolios' adminis-
trators are under no obligation to waive fees or reimburse expenses, but
have informed the Fund that they expect to waive fees and reimburse ex-
penses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. Without waivers, "Other operating expenses" would be: (i)
1.03%, .84% and .76%, respectively, for Investor A Shares; (ii) 1.03%, .84%
and .81%, respectively, for Investor B Shares and Investor C Shares; and
"Total Portfolio operating expenses" would be: (iv) 1.58%, 1.34% and 1.26%,
respectively, for Investor A Shares; and (v) 2.33%, 2.09% and 2.06%, re-
spectively, for Investor B Shares and Investor C Shares. The Portfolios do
not expect to incur 12b-1 fees in excess of .005% with respect to Investor
A Shares (otherwise payable at the maximum rate of .10%) during the current
fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are the Key Considerations in Selecting a Pricing Op-
tion?" Long-term investors in Investor Shares may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
6.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY OHIO
TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Front-End Sales
Charge(/1/)
(as a percentage of
offering price) 4.0% None None 4.0% None None
Maximum Deferred Sales
Charge(/1/)(/2/)
(as a percentage of
offering price) None 4.5% 1.0% None 4.5% 1.0%
Sales Charge on
Reinvested Dividends None None None None None None
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)(/3/) .30% .30% .30% .30% .30% .30%
12b-1 fees(/3/)(/4/) .00 .75 .75 .00 .75 .75
Other operating expenses
(after fee
waivers)(/3/) .72 .72 .72 .72 .72 .72
--- --- --- --- --- ---
Shareholder servicing
fee .25 .25 .25 .25 .25 .25
Shareholder processing
fee .15 .15 .15 .15 .15 .15
Other expenses .32 .32 .32 .32 .32 .32
--- --- --- --- --- ---
Total Portfolio
operating expenses
(after fee
waivers)(/3/) 1.02% 1.77% 1.77% 1.02% 1.77% 1.77%
==== ==== ==== ==== ==== ====
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Investor A Shares that
are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. See "What Is the Schedule of Sales Charges and Exemp-
tions?"
(2) This amount applies to redemptions during the first year. The deferred
sales charge for Investor B Shares decreases for redemptions made in subse-
quent years. No deferred sales charge is charged after the sixth year on
Investor B Shares or after the first year on Investor C Shares. See "What
Is the Schedule of Sales Charges and Exemptions?"
(3) "Other expenses" includes the administration fees payable by the portfo-
lios. Without waivers, advisory fees would be .50% and administration fees
would be .23% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive fees or reimburse expenses,
but have informed the Fund that they expect to waive fees and reimburse ex-
penses during the remainder of the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth
in the table. Without waivers, "Other operating expenses" would be: (i)
.84% and .85%, respectively, for Investor A Shares and Investor B Shares;
and (ii) .84% and .85% for Investor C Shares; and "Total Portfolio operat-
ing expenses" would be: (iii) 1.34% and 1.35% for Investor A Shares; (iv)
2.09% and 2.10% for Investor B Shares; and (v) 2.09% and 2.10% for Investor
C Shares. The Portfolios do not expect to incur 12b-1 fees in excess of
.005% with respect to Investor A Shares (otherwise payable at the maximum
rate of .10%) during the current fiscal year.
(4) Investors with a long-term perspective may prefer Investor A Shares, as de-
scribed under "What Are The Key Considerations In Selecting A Pricing Op-
tion?" Long-term investors in Investor Shares may pay more than the eco-
nomic equivalent of the maximum front-end sales charges permitted by the
rules of the NASD.
7.
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, (2) redemption at the end of each time
period and (3) with respect to Investor B Shares only, no redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Low Duration Bond Portfolio
A Shares* $40 $61 $ 85 $151
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
Intermediate Government Bond
Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
Intermediate Bond Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
Core Bond Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
Government Income Portfolio
A Shares* 55 76 99 164
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
Managed Income Portfolio
A Shares* 55 77 100 167
B Shares (Redemption)** 63 94 120 182***
B Shares (No Redemption) 18 57 97 182***
C Shares 18 57 97 212
International Bond Portfolio
A Shares* 64 94 125 215
B Shares (Redemption)** 67 106 140 234***
B Shares (No Redemption) 22 69 118 234***
C Shares 22 69 118 253
Tax-Free Income Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
Pennsylvania Tax-Free Income
Portfolio
A Shares* 50 70 91 154
B Shares (Redemption)** 63 93 119 177***
B Shares (No Redemption) 18 56 96 177***
C Shares 18 56 96 208
New Jersey Tax-Free Income
Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
Ohio Tax-Free Income Portfolio
A Shares* 50 71 94 160
B Shares (Redemption)** 63 93 119 179***
B Shares (No Redemption) 18 56 96 179***
C Shares 18 56 96 208
</TABLE>
* Reflects the imposition of the maximum front-end sales charge at the begin-
ning of the period.
** Reflects the deduction of the deferred sales charge.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses that an investor in the Portfolios will bear
either directly or indirectly. They do not reflect any charges that may be im-
posed by brokers or other institutions directly on their customer accounts in
connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
8.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and has been audited by the
Portfolios' independent accountants. The financial statements
of the Core Bond Portfolio and the Low Duration Bond Portfolio
(formerly, the Short Government Bond Portfolio) for the year
ended June 30, 1995 were audited by other auditors. Please re-
fer to a revised auditor's report under "Other Information"
which makes reference to the audits performed by those other
auditors. This financial information should be read together
with those financial statements. Further information about the
performance of the Portfolios is available in the Fund's annual
shareholder reports. Both the Statement of Additional Informa-
tion and the annual shareholder reports may be obtained from
the Fund free of charge by calling (800) 441-7762. During the
periods shown, no Investor B or Investor C Shares of the Low
Duration Bond, Intermediate Government Bond, Intermediate Bond
and Managed Income Portfolios and no Investor C Shares of the
Core Bond, Government Income, Tax-Free Income, Pennsylvania
Tax-Free Income, New-Jersey Tax-Free Income and Ohio Tax-Free
Income Portfolios were outstanding.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LOW DURATION BOND PORTFOLIO+
(FORMERLY, THE SHORT GOVERNMENT BOND PORTFOLIO)
<TABLE>
<CAPTION>
INVESTOR A SHARES
APRIL 1, 1996 JANUARY 13, 1996/1/
THROUGH THROUGH
SEPTEMBER 30, 1996 MARCH 31, 1996
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.79 $ 9.91
------ ------
Net investment income 0.25 0.10
Net realized and unrealized loss on
investments (0.01) (0.12)
------ ------
Net increase from investment
operations 0.24 (0.02)
------ ------
Distributions from net investment
income (0.24) (0.10)
Distributions from net realized
capital gains -- --
------ ------
Total dividends and distributions (0.24) (0.10)
------ ------
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 9.79
====== ======
Total investment return/3/ 2.46% (0.15)%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.02%/2/,/4/ 1.01%/2/,/4/
Excluding waivers 1.30%/2/ 1.21%/2/
Net investment income
Excluding waivers 5.20%/2/ 4.94%/2/
SUPPLEMENTAL DATA:
4.92%/2/ 4.74%/2/
PORTFOLIO TURNOVER 228% 185%
NET ASSETS, END OF PERIOD (IN
THOUSANDS) $ 938 $ 719
</TABLE>
+This Portfolio commenced operations on July 17, 1992 as the Short Duration
Portfolio, a separate investment portfolio (the "Predecessor Low Duration Bond
Portfolio") of The BFM Institutional Trust Inc., which was organized as a Mary-
land business corporation. On January 13, 1996, the assets and liabilities of
the Predecessor Low Duration Bond Portfolio were transferred to this Portfolio,
and were combined with the assets of a pre-existing portfolio of investments
maintained by the Fund.
/1/Commencement of investment operations of share class.
/2/Annualized.
/3/Sales load not reflected in total return.
/4/Including interest expense, ratios would have been 1.12% for the year ended
September 30, 1996 and 1.34% for the year ended March 31, 1996.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 5/11/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.03 $ 9.64 $10.60 $10.46 $10.05
------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.55 0.55 0.53 0.54 0.24
Net gain (loss) on
investments (both
realized and
unrealized) (0.13) 0.39 (0.87) 0.16 0.41
------ ------ ------ ------ ------
Total from investment
operations 0.42 0.94 (0.34) 0.70 0.65
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.53) (0.55) (0.52) (0.54) (0.24)
Distributions from net
realized capital gains - - - - (0.10) (0.02) - -
------ ------ ------ ------ ------
Total distributions (0.53) (0.55) (0.62) (0.56) (0.24)
------ ------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 9.92 $10.03 $ 9.64 $10.60 $10.46
====== ====== ====== ====== ======
Total return 4.36%/3/ 9.98%/3/ (3.36)%/3/ 6.84%/3/ 6.64%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $5,903 $9,802 $8,508 $7,666 $1,484
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.95%/4/ 0.70%/4/ 0.65% 0.76% 0.80%/2/
Before
advisory/administration
fee waivers 1.25% 1.07% 1.05% 0.84% 0.80%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.64% 5.67% 5.24% 5.19% 5.28%/2/
Before
advisory/administration
fee waivers 5.35% 5.30% 4.84% 5.11% 5.28%/2/
PORTFOLIO TURNOVER RATE 580% 247% 9% 80% 38%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Sales load not reflected in total return.
/4/Including interest expense, ratios would have been 1.14% for the year ended
September 30, 1996 and 0.70% for the year ended September 30, 1995.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE BOND PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR 5/20/94/1/
ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $9.43 $ 9.05 $ 9.23
----- ------ ------
Income from investment operations
Net investment income 0.52 0.54 0.20
Net gain (loss) on investments (both
realized and unrealized) (0.09) 0.38 (0.17)
----- ------ ------
Total from investment operations 0.43 0.92 0.03
----- ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.51) (0.54) (0.21)
Distributions from net realized capital
gains (0.03) - - - -
----- ------ ------
Total distributions (0.54) (0.54) (0.21)
----- ------ ------
NET ASSET VALUE AT END OF PERIOD $9.32 $ 9.43 $ 9.05
===== ====== ======
Total return 4.74%/3/ 10.35%/3/ 0.31%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $9.35 $ 647 $ 87
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.97%/4/ 0.76%/4/ 0.85%/2/
Before advisory/administration fee waivers 1.27% 1.19% 1.28%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 5.83% 5.89% 5.35%/2/
Before advisory/administration fee waivers 5.53% 5.55% 4.92%/2/
PORTFOLIO TURNOVER RATE 670% 262% 92%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Sales load not reflected in total return.
/4/Including interest expense, ratios would have been 1.27% for the year ended
September 30, 1996 and 0.84% for the year ended September 30, 1995.
11.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CORE BOND PORTFOLIO+
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD PERIOD
4/1/96 1/31/96/1/ 4/1/96 3/18/96/1/
THROUGH THROUGH THROUGH THROUGH
9/30/96 3/31/96 9/30/96 3/31/96
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period $ 9.61 $ 9.99 $ 9.61 $ 9.58
------ ------ ------ ------
Net investment income 0.28 0.08 0.26 0.01
Net realized and unrealized
gains on investments (0.06) (0.38) (0.07) 0.03
------ ------ ------ ------
Net (decrease) increase from
investment operations 0.22 (0.30) 0.19 0.04
------ ------ ------ ------
Dividends from net
investment income (0.28) (0.08) (0.25) (0.01)
Distributions from net
realized capital gains - - - - - - - -
Total dividends and
distributions (0.28) (0.08) - - - -
------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 9.55 $ 9.61 $ 9.55 $9.61
====== ====== ====== ======
Total investment return/3/ 2.36% (2.96)% 1.98% 0.33%
RATIOS TO AVERAGE NET
ASSETS:
Expenses/2/ 1.02%/4/ 1.02%/4/ 1.72%/4/ 1.77%/4/
Excluding waivers/2/ 1.31% 1.27% 2.01% 2.02%
Net investment income/2/ 6.29% 5.43% 5.68% 4.71%
Excluding waivers/2/ 6.00% 5.19% 5.39% 4.46%
SUPPLEMENTAL DATA:
Portfolio turnover 308% 723% 308% 723%
Net assets, end of period
(in thousands) $ 320 $ 80 $1,497 $ 77
</TABLE>
+ This Portfolio commenced operations on December 9, 1992 as the Core Fixed In-
come Portfolio, a separate investment portfolio (the "Predecessor Core Bond
Portfolio") of The BFM Institutional Trust Inc., which was organized as a
Maryland business corporation. On January 13, 1996, the assets and liabili-
ties of the Predecessor Core Bond Portfolio were transferred to this Portfo-
lio, which had no prior operating history.
/1/Commencement of investment operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Including interest expense, ratios for the Investor A and Investor B Classes
would have been 1.27% and 2.00%, respectively, for the period ended September
30, 1996, and 1.11% and 1.86% for the period ended March 31, 1996. For the
periods prior to March 31, 1996, interest income was presented net of inter-
est expense.
12.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GOVERNMENT INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR 10/03/94/1/ YEAR 10/03/94/1/
ENDED THROUGH ENDED THROUGH
9/30/96 9/30/95 9/30/96 9/30/95
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.68 $10.00 $10.68 $ 10.00
------ ------ ------- -------
Income from investment
operations
Net investment income 0.68 0.55 0.60 0.50
Net gain (loss) on
investments (both
realized and
unrealized) (0.22) 0.68 (0.21) 0.68
------ ------ ------- -------
Total from investment
operations 0.46 1.23 0.39 1.18
------ ------ ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.66) (0.55) (0.59) (0.50)
Distribution in excess
of net investment
income
Distributions from net
realized capital gains (0.28) - - (0.28) - -
Distributions in excess
of net realized gains - - - - - - - -
------ ------ ------- -------
Total distributions (0.94) (0.55) (0.87) (0.50)
------ ------ ------- -------
NET ASSET VALUE AT END OF
PERIOD $10.20 $10.68 $10.20 $ 10.68
====== ====== ======= =======
Total return 4.43%/3/ 14.27%/3/ 3.68%/3/ 13.52%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $3,651 $2,990 $11,119 $10,188
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.91%/4/ 0.37%/2/, /4/ 1.64%/4/ 1.05%/2/, /4/
Before
advisory/administration
fee waivers 1.67% 1.81%/2/ 2.40% 2.50%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 8.59% 6.89%/2/ 7.81% 6.17%/2/
Before
advisory/administration
fee waivers 7.83% 5.44%/2/ 7.05% 4.72%/2/
PORTFOLIO TURNOVER RATE 434% 258% 434% 258%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Including interest expense, ratios for the Investor A and Investor B Shares
would have been 2.96% and 3.69%, respectively, for the year ended September 30,
1996, and 0.92% and 1.60%, respectively, for the period ended September 30,
1995.
13.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MANAGED INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 2/05/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.38 $ 9.79 $ 11.18 $10.74 $10.40
------- ------- ------- ------ ------
Income from investment
operations
Net investment income 0.59 0.60 0.57 0.66 0.46
Net gain (loss) on
investments (both
realized and
unrealized) (0.20) 0.60 (1.19) 0.57 0.34
------- ------- ------- ------ ------
Total from investment
operations 0.39 1.20 (0.62) 1.23 0.80
------- ------- ------- ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.58) (0.60) (0.60) (0.66) (0.46)
Distribution in excess
of net investment
income - - (0.01) (0.02) - - - -
Distributions from net
realized capital gains (0.10) - - (0.14) (0.13) - -
Distributions in excess
of net realized gains - - - - (0.01) - - - -
------- ------- ------- ------ ------
Total distributions (0.68) (0.61) (0.77) (0.79) (0.46)
------- ------- ------- ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 10.09 $ 10.38 $ 9.79 $11.18 $10.74
======= ======= ======= ====== ======
Total return 3.83%/3/ 12.74%/3/ (5.76)%/3/ 12.13%/3/ 7.86%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $11,193 $11,977 $10,921 $7,252 $1,417
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.05% 1.05% 1.00% 0.84% 0.80%/2/
Before
advisory/administration
fee waivers 1.29% 1.25% 1.22% 0.88% 0.80%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.67% 5.96% 5.66% 6.09% 6.28%/2/
Before
advisory/administration
fee waivers 5.44% 5.76% 5.44% 6.05% 6.28%/2/
PORTFOLIO TURNOVER RATE 638% 203% 61% 72% 56%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Sales load not reflected in total return.
14.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL BOND PORTFOLIO+
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES INVESTOR C SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
4/22/96/1/ 4/19/96/1/ 9/11/96/1/
THROUGH THROUGH THROUGH
9/30/96 9/30/96 9/30/96
<S> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $11.37 $11.36 $11.58
------ ------ ------
Income from investment
operations
Net investment income 0.26 0.22 0.02
Net (loss) gain on
investments (both
realized and
unrealized) 0.32 0.33 0.12
------ ------ ------
Total from investment
operations 0.58 0.55 0.14
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.24) (0.20) (0.01)
Distributions from net
realized capital gains - - - - - -
In Excess of Net
Realized Gains - - - - - -
------ ------ ------
Total distributions (0.24) (0.20) (0.01)
------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $11.71 $11.71 $11.71
====== ====== ======
Total return/3/ 5.13% 4.90% 1.24%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 176 $ 136 $ 19
Ratios of expenses to
average net assets 1.45%/2/ 2.09%/2/ 1.53%/2/
Excluding waivers 1.86%/2/ 2.49%/2/ 1.93%/2/
Ratios of net investment
income to average net
assets 5.29%/2/ 4.61%/2/ 2.79%/2/
Excluding waivers 4.88%/2/ 4.21%/2/ 2.38%/2/
PORTFOLIO TURNOVER RATE 108% 108% 108%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the Compass Interna-
tional Fixed Income Fund, a separate investment portfolio (the "Predecessor
International Bond Portfolio") of Compass Capital Group, which was organized
as a Massachusetts business trust. The assets and liabilities of the Prede-
cessor International Bond Portfolio were transferred to this Portfolio, which
had no prior operating history, on February 13, 1996. For the periods pre-
sented, this Portfolio received Sub-advisory services from another company
that was unaffiliated with PAMG and BlackRock.
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
15.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR 5/14/90/1/ 7/18/96/1/
ENDED ENDED ENDED ENDED ENDED ENDED THROUGH THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.61 $10.04 $11.31 $10.60 $10.33 $ 9.91 $10.00 $ 10.74
------ ------ ------ ------ ------ ------ ------ -------
Income from investment
operations
Net investment income 0.45 0.48 0.48 0.55 0.58 0.64 0.25 0.08
Net gain (loss) on
investments (both
realized and
unrealized) 0.21 0.59 (0.93) 0.83 0.49 0.46 (0.11) 0.10
------ ------ ------ ------ ------ ------ ------ -------
Total from investment
operations 0.66 1.07 (0.45) 1.38 1.07 1.10 0.14 0.18
------ ------ ------ ------ ------ ------ ------ -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.43) (0.48) (0.48) (0.55) (0.59) (0.66) (0.23) (0.08)
Distributions from net
realized capital gains - - (0.02) (0.34) (0.12) (0.21) (0.02) - - - -
------ ------ ------ ------ ------ ------ ------ -------
Total distributions (0.43) (0.50) (0.82) (0.67) (0.80) (0.68) (0.23) (0.08)
------ ------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE AT END OF
PERIOD $10.84 $10.61 $10.04 $11.31 $10.60 $10.33 $ 9.91 $ 10.84
====== ====== ====== ====== ====== ====== ====== =======
Total return 6.94%/3/ 10.99%/3/ (4.19)%/3/ 13.48%/3/ 10.67%/3/ 11.40%/3/ 1.40%/3/ 1.72%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $4,873 $6,591 $6,972 $7,831 $7,349 $3,510 $4,044 $ 10
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.04% 1.00% 0.95% 0.57% 0.53% 1.00% 1.00%/2/ 1.65%/2/
Before
advisory/administration
fee waivers 1.37% 1.78% 2.18% 1.36% 1.67% 1.89% 1.70%/2/ 1.98%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.67% 4.74% 4.53% 5.06% 5.56% 6.23% 6.56%/2/ 3.84%/2/
Before
advisory/administration
fee waivers 4.35% 3.96% 3.30% 4.27% 4.42% 5.34% 5.86%/2/ 3.51%/2/
PORTFOLIO TURNOVER RATE 268% 92% 40% 71% 38% 95% 18% 268%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
16.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 12/1/92/1/ YEAR 10/03/94/1/
ENDED ENDED ENDED THROUGH ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.33 $ 9.82 $ 10.70 $ 10.00 $10.33 $ 9.82
------- ------- ------- ------- ------ ------
Income from investment
operations
Net investment income 0.48 0.48 0.52 0.42 0.40 0.42
Net gain (loss) on
investments (both
realized and
unrealized) 0.11 0.51 (0.85) 0.73 0.11 0.51
------- ------- ------- ------- ------ ------
Total from investment
operations 0.59 0.99 (0.33) 1.15 0.51 0.93
------- ------- ------- ------- ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.48) (0.48) (0.52) (0.42) (0.40) (0.42)
Distributions from net
realized capital gains - - - - (0.03) (0.03) - - - -
------- ------- ------- ------- ------ ------
Total distributions (0.48) (0.48) (0.55) (0.45) (0.40) (0.42)
------- ------- ------- ------- ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 10.44 $ 10.33 $ 9.82 $ 10.70 $10.44 $10.33
======= ======= ======= ======= ====== ======
Total return 5.81%/3/ 10.30%/3/ (3.06)%/3/ 11.69%/3/ 15.23%/3/ 9.69%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $38,031 $42,775 $46,563 $35,934 $7,974 $4,008
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.00% 0.98% 0.41% 0.07%/2/ 1.74% 1.57%/2/
Before
advisory/administration
fee waivers 1.30% 1.30% 1.01% 0.95%/2/ 2.03% 1.89%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.58% 4.88% 5.06% 5.19%/2/ 3.81% 4.07%/2/
Before
advisory/administration
fee waivers 4.29% 4.56% 4.46% 4.31%/2/ 3.51% 3.75%/2/
PORTFOLIO TURNOVER RATE 119% 66% 30% 40% 119% 66%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
17.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY TAX-FREE INCOME PORTFOLIO+
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
2/1/96 1/26/96/1/ 7/2/96/1/
THROUGH THROUGH THROUGH
9/30/96 1/31/96 9/30/96
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $11.61 $11.54 $11.15
------ ------ ------
Income from investment operations
Net investment income 0.34 - - 0.09
Net (loss) gain on investments
(both realized and unrealized) (0.34) 0.07 0.12
------ ------ ------
Total from investment operations 0.00 0.07 0.21
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.34) - - (0.09)
Distributions from net realized
capital gains - - - - - -
------ ------ ------
Total distributions (0.34) - - (0.09)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $11.27 $11.61 $11.27
====== ====== ======
Total return/3/ (0.01)% 0.63% 2.04%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 894 $ 14 $ 30
Ratios of expenses to average net
assets 1.01%/2/ 1.02%/2/ 1.74%/2/
Excluding waivers 1.33%/2/ 1.36%/2/ 2.06%/2/
Ratios of net investment income to
average net assets 4.29%/2/ 2.79%/2/ 3.48%/2/
Excluding waivers 3.98%/2/ 2.45%/2/ 3.16%/2/
PORTFOLIO TURNOVER RATE 109% 26% 109%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the New Jersey Munici-
pal Bond Fund, a separate investment portfolio (the "Predecessor New Jersey
Tax-Free Income Portfolio") of Compass Capital Group, which was organized as
a Massachusetts business trust. On January 13, 1996, the assets and liabili-
ties of the Predecessor New Jersey Tax-Free Income Portfolio were transferred
to this Portfolio, which had no prior operating history.
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
18.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 12/1/92/1/ YEAR 10/13/94/1/
ENDED ENDED ENDED THROUGH ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.05 $ 9.60 $10.53 $10.00 $10.05 $ 9.58
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.46 0.52 0.53 0.36 0.38 0.42
Net gain (loss) on
investments (both
realized and
unrealized) 0.10 0.45 (0.91) 0.53 0.10 0.47
------ ------ ------ ------ ------ ------
Total from investment
operations 0.56 0.97 (0.38) 0.89 0.48 0.89
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.46) (0.52) (0.53) (0.36) (0.38) (0.42)
Distributions from net
realized capital gains - - - - (0.02) - - - - - -
------ ------ ------ ------ ------ ------
Total distributions (0.46) (0.52) (0.55) (0.36) (0.38) (0.42)
------ ------ ------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $10.15 $10.05 $ 9.60 $10.53 $10.15 $10.05
====== ====== ====== ====== ====== ======
Total return/3/ 5.66% 10.46% (3.75)% 9.10% 4.78% 9.33%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $2,833 $3,303 $3,825 $2,386 $ 161 $ 106
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.91% 0.38% 0.10% 0.07%/2/ 1.66% 1.17%/2/
Before
advisory/administration
fee waivers 1.50% 1.45% 1.49% 2.58%/2/ 2.26% 2.25%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.57% 5.42% 5.18% 4.90%/2/ 3.80% 4.48%/2/
Before
advisory/administration
fee waivers 3.98% 4.35% 3.79% 2.39%/2/ 3.21% 3.41%/2/
PORTFOLIO TURNOVER RATE 136% 63% 61% 36% 136% 63%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
19.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 30 portfolios and
has been structured to include many different investment
styles across the spectrum of fixed income investments so
that investors may participate across multiple disciplines in
order to seek their long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of
eleven investment portfolios that provide investors with a
broad spectrum of investment alternatives within the fixed
income sector. Seven of these Portfolios invest solely in
taxable bonds and four of these Portfolios invest in tax-ex-
empt bonds.
In certain investment cycles and over certain holding peri-
ods, a fund that invests in any one of these styles may per-
form above or below the market. An investment program that
combines these multiple disciplines allows investors to se-
lect from among these various product options in the way that
most closely fits the individual's investment goals and sen-
timents.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Low Duration Bond To realize a rate of return that
exceeds the total return of the
Merrill Lynch 1-3 year Treasury Index.
Intermediate Government To seek current income consistent with
Bond, Intermediate Bond, the preservation of capital.
Government Income, Managed
Income and International
Bond
Core Bond To realize a total rate of return that
exceeds the total return of the Lehman
Brothers Aggregate Index.
Tax-Free Income, To seek as high a level of current
Pennsylvania Tax-Free income exempt from Federal income tax
Income, New Jersey Tax-Free and, to the extent possible for each
Income and Ohio Tax-Free State-Specific Tax-Free Portfolio,
Income income tax of the specific state in
which the Portfolio concentrates, as
is consistent with preservation of
capital.
</TABLE>
20.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE DIFFERENCES AMONG THE PORTFOLIOS?
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS:
<TABLE>
<CAPTION>
DOLLAR-
WEIGHTED
AVERAGE MIN
PERFORMANCE MATURITY CREDIT QUALITY CREDIT
PORTFOLIO BENCHMARK* (APPROXIMATE)** CONCENTRATION QUALITY
<S> <C> <C> <C> <C>
Low Duration Merrill 1-3 Year Treasury 3-5 Years Gov't/Agency AAA
Bond Index
Intermediate Lehman Brothers 5-10 Years Gov't/Agency AAA
Gov't Bond Intermediate Gov't
Intermediate Lehman Brothers 5-10 Years Investment Grade BBB
Bond Intermediate Gov't/Corp Spectrum
Core Bond Lehman Aggregate 5-10 Years Investment Grade BBB
Spectrum
Gov't Income Lehman Mortgage/ 10-15 Years Gov't/Agency AAA
10 Year Treasury
Managed Lehman Aggregate 5-10 Years Investment Grade BBB
Income Spectrum
International Salomon Non-U.S. Hedged 5-15 Years AA, AAA, BBB
Bond World Government Bond Gov't/Agency
Index
Tax-Free Lehman Municipal Bond 10-15 Years Investment Grade BBB
Income Index Spectrum
PA Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
NJ Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
OH Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
</TABLE>
*For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
**The Portfolios' sub-adviser will normally attempt to structure the Portfolios
to have comparable durations to the benchmarks. Duration, which measures price
sensitivity to interest rate changes, is not necessarily equal to average matu-
rity.
21.
<PAGE>
- --------------------------------------------------------------------------------
WHAT TYPES OF SECURITIES ARE IN THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following table summarizes the types of securities found in each Portfolio
according to the following designations:
Yes: The Portfolio will hold a significant concentration of these securi-
ties 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>
Low Duration Yes Yes Yes Elig. Elig. Elig. No Elig.
Bond
Intermediate Yes Yes Yes Elig. Yes Elig. No Elig.
Gov't Bond
Intermediate Yes Yes Yes Elig. Yes Yes No Elig.
Bond
Core Bond Yes Yes Yes Elig. Yes Yes No Elig.
Gov't Income Yes Yes Yes Elig. Yes Yes No Elig.
Managed Yes Yes Yes Elig. Yes Yes Elig. Elig.
Income
International Elig. Elig. Elig. Elig. Elig. Elig. Yes Elig.
Bond
Tax-Free Temp. No No No No No No Yes
Income
PA Tax-Free Temp. No No No No No No Yes
Income
NJ Tax-Free Temp. No No No No No No Yes
Income
OH Tax Free Temp. No No No No No No Yes
Income
</TABLE>
/1/MBS = mortgage-backed securities
/2/ABS = asset-backed securities
22.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FUNDAMENTAL INVESTMENT LIMITATIONS?
- --------------------------------------------------------------------------------
A Portfolio's investment objective and policies may be changed by the Fund's
Board of Trustees without shareholder approval. However, shareholders will be
given at least 30 days' notice before any change to a Portfolio's investment
objective. No assurance can be provided that a Portfolio will achieve its in-
vestment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities) if more than 5% of
its total assets will be invested in the securities of any one issuer, ex-
cept that up to 25% of a Portfolio's total assets may be invested without
regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(3) in the case of each Tax-Free Portfolio (as defined below), invest less than
80% of its net assets 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 securi-
ties) 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 Portfolio's total assets may be in-
vested 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).
The investment limitations stated above are applied at the time investment se-
curities are purchased.
23.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ADDITIONAL INVESTMENT POLICIES AND RISKS APPLY?
- -------------------------------------------------------------------------------
INVESTMENT QUALITY. Securities acquired by the Low Duration Portfolio, Inter-
mediate Government Bond Portfolio and Government Income Portfolio 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 rating categories by Standard & Poor's Rat-
ings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Co. or Fitch Investor Services, Inc.) or, if unrated, of comparable
quality as determined by the Portfolios' sub-adviser. Securities rated "Baa"
on "BBB" are generally considered to be investment grade although they have
speculative characteristics. If a security's rating is reduced below the mini-
mum 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 Intermediate Government
Bond Portfolio and Government Income Portfolio (the "Government Portfolios")
will invest at least 65% of their total assets in obligations issued or guar-
anteed by the U.S. Government, its agencies or instrumentalities and related
repurchase agreements during normal market conditions. Under normal market
conditions, the International Bond Portfolio will invest at least 65% of its
total assets in the debt obligations of foreign issuers located in at least
three different foreign countries. The Pennsylvania Tax-Free Income Portfolio,
New Jersey Tax-Free Income Portfolio and Ohio Tax-Free Income Portfolio (the
"State-Specific Tax-Free Portfolios") and the Tax-Free Income Portfolio (to-
gether with the "State-Specific Tax-Free Portfolios," the "Tax-Free Portfo-
lios") will invest, during normal market conditions, at least 80% of their net
assets in obligations issued by or on behalf of states, territories and pos-
sessions of the United States, the District of Columbia and their political
sub-divisions, agencies, instrumentalities and authorities and related tax-ex-
empt derivative securities the interest on which is exempt from regular Fed-
eral income tax and is not an item of tax preference for purposes of the Fed-
eral 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 in-
dicated by its name ("State-Specific Obligations"). The Tax-Free Income Port-
folio intends to invest no more than 25% of its net assets in Municipal Obli-
gations of issuers located in the same state. During temporary defensive peri-
ods 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. The Managed Income Portfolio may invest up
to 10% of its total assets in debt securities of foreign issuers and may hold
from time to time various foreign currencies pending investment or conversion
into U.S. dollars. Investing in securities of foreign issuers involves consid-
erations not typically associated with investing in securities of companies
organized and operated in the United States. Because foreign securities gener-
ally are denominated and pay dividends or interest in foreign currencies, the
value of a Portfolio that invests in foreign securities will be affected fa-
vorably 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, limitations on the removal of funds or
assets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies
in the U.S. or abroad could result in appreciation or depreciation of portfo-
lio securities and could favorably or adversely affect a Portfolio's opera-
tions. In general, less information is publicly available with respect to for-
eign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial report-
ing requirements applicable to issuers in the United States. While the volume
of transactions effected on foreign
24.
<PAGE>
- --------------------------------------------------------------------------------
stock exchanges has increased in recent years, it remains appreciably below
that of the New York Stock Exchange. Accordingly, a Portfolio's foreign invest-
ments 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 government 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.
Because the securities markets in these countries are highly developed, the In-
ternational Bond Portfolio may invest more than 25% of its total assets in the
securities of issuers located in Canada, France, Germany, Japan and the United
Kingdom. Investments of 25% or more of the Portfolio's total assets in a par-
ticular country will make the Portfolio's performance more dependent upon the
political and economic circumstances of a particular country than a mutual fund
that is more widely diversified among issuers in different countries.
To maintain greater flexibility, the International Bond Portfolio may invest in
instruments which have the characteristics of futures contracts. These 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 "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
25.
<PAGE>
- --------------------------------------------------------------------------------
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that is not yet as marketable as
more conventional securities.
Each Tax-Free Portfolio may invest up to 20% of its total assets in private ac-
tivity bonds the interest on which is an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Paper") when added together with any
other taxable investments held by the Portfolio. In addition, each Tax-Free
Portfolio may invest 25% or more of its assets in Municipal Obligations the in-
terest on which is paid solely from revenues of similar projects. To the extent
a Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the particular risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
The Tax-Free Income Portfolio is classified as a diversified portfolio, and the
State-Specific Tax-Free Portfolios are classified as non-diversified portfo-
lios, under the 1940 Act. Investment returns on a non-diversified portfolio
typically are dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall value of a non-di-
versified portfolio more than it would a diversified portfolio.
Each Tax-Free Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a spec-
ified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the commit-
ment relates. The Tax-Free Portfolios may also invest in tax-exempt derivative
securities relating to Municipal Obligations, including tender option bonds,
participations, beneficial interests in trusts and partnership interests.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may be less extensive than the information for public cor-
porations, and the secondary market for Municipal Obligations may be less liq-
uid than that for taxable obligations. Accordingly, the ability of a Portfolio
to buy and sell Municipal Obligations may, at any particular time and with re-
spect to any particular securities, be limited. In addition, Municipal Obliga-
tions purchased by the Portfolios include obligations backed by letters of
credit and other forms of credit enhancement issued by domestic and foreign
banks, as well as other financial institutions. Changes in the credit quality
of these institutions could cause loss to a Tax-Free Portfolio and affect its
share price.
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 service providers 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 derivative securities, or
the bases for such opinions.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. The Portfolios (except the Tax-
Free Portfolios) may make significant investments in residential and commercial
mortgage-related and other asset-backed securities (i.e., securities backed by
home equity loans, installment sale contracts, credit card receivables or other
assets) issued by governmental entities and private issuers.
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
26.
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may be structured in a variety of ways. In most cases, however, payments of
principal are applied to the CMO classes in the order of their respective
stated maturities, so that no 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 retired and are converted thereafter to interest-paying securities.
They may also include planned amortization classes ("PACs") which generally re-
quire, within certain limits, that specified amounts of principal be applied on
each payment date, and generally exhibit less yield and market volatility than
other classes.
Non-mortgage asset-backed securities involve risks that are not presented by
mortgage-related securities. Primarily, these securities do not have the bene-
fit of the same security interest in the underlying collateral. Credit card re-
ceivables are generally unsecured, and the debtors are entitled to the protec-
tion of a number of state and Federal consumer credit laws 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 vehicles 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.
The yield and maturity characteristics of mortgage-related and other asset-
backed securities differ from traditional debt securities. A major difference
is that the principal amount of the obligations may normally be prepaid at any
time because the underlying assets (i.e., loans) generally may be prepaid at
any time. In calculating the average weighted maturity of a Portfolio, the ma-
turity of mortgage-related and other asset-backed securities held by the Port-
folio will be based on estimates of average life which take prepayments into
account. The average life of a mortgage-related 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. In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments.
The relationship between prepayments and interest rates may give some high-
yielding asset-backed securities less potential for growth in value than con-
ventional bonds with comparable maturities. In addition, in periods of falling
interest rates, the rate of prepayments tends to increase. During such periods,
the reinvestment of prepayment proceeds by a 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 and maturity may be difficult to predict precisely. To the extent that a
Portfolio purchases asset-backed securities at a premium, prepayments (which
may be made without penalty) may result in loss of the Portfolio's principal
investment to the extent of premium paid.
The Portfolios may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged and master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears Mortgage) or mortgage-related securities contain-
ing loans or mortgages originated by PNC Bank, National Association ("PNC
Bank") or its affiliates. It is possible that under some circumstances, PNC
Mortgage Securities Corp. or its affiliates could have interests that are in
conflict with the holders of these mortgage-backed securities, and such holders
could have rights against PNC Mortgage Securities Corp. or its affiliates.
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
27.
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the future interest payments or the future principal payments on U.S. Govern-
ment and other obligations. 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, particularly SMBS, may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal
and interest are returned to investors. The International Bond Portfolio also
may purchase "stripped" securities that evidence ownership in the future inter-
est 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.
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 investment
objectives, the Portfolios (except the Tax-Free Portfolios) may invest in debt
obligations of domestic or foreign corporations and banks, and may acquire com-
mercial 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 obliga-
tions may be general obligations of the parent bank or may be limited to the
issuing branch or subsidiary by the terms of a specific obligation or by gov-
ernment regulation. The Portfolios may also make interest-bearing savings de-
posits 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 Government National Mort-
gage Association are supported by the United States' full faith and credit;
others such as those of the Federal National Mortgage Association and the Stu-
dent 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 Federal Home Loan Mortgage Corporation are supported only by the credit
of the instrumentality. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or instrumen-
talities 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 may enter into these transactions primarily to preserve a return or spread
on a particular investment or portion of their holdings, as a duration manage-
ment technique or to protect against an increase in the price of securities 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
28.
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interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below
a predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor.
In addition, the International Bond Portfolio may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future 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, securities indices, or the yield differential between two
securities or, in the case of the International Bond Portfolio, foreign curren-
cies, 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 when 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 afforded purchasers of listed options issued by the Options
Clearing Corporation, which performs the obligations of its members if they de-
fault.
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 its total assets, although a Portfolio will not purchase 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 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 certain securities, the cash value of a securities index or a stated quan-
tity of a foreign currency. A Portfolio may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, a Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid assets or will otherwise
cover its position in accordance with applicable SEC requirements.
29.
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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; (d) the
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors; and (e)
the possibility that the counterparty will default in the performance of its
obligations. For further discussion of risks involved with domestic and foreign
futures and options, see 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 interest. The higher de-
gree of leverage inherent in inverse floaters is associated with greater vola-
tility in their market values. Issuers of unrated variable and floating rate
instruments must satisfy the same criteria as set forth above for a Portfolio.
The absence of an active secondary market with respect to particular variable
and floating rate instruments, however, could make it difficult for a 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 borrow money. 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 de-
cline 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
30.
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agrees to repurchase them at a particular date and price. The Portfolios may
use the proceeds of reverse repurchase agreements to purchase other securities
either maturing, or under an agreement to resell, on a date simultaneous with
or prior to the expiration of the reverse repurchase agreement. The Portfolios
(except the Tax-Free Portfolios) may use reverse repurchase 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 interest expense of the trans-
action. 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 obli-
gated to repurchase and that the securities may not be returned to the Portfo-
lio. During the time a reverse repurchase agreement is outstanding, a Portfolio
will maintain a segregated account with the Fund's custodian containing cash,
U.S. Government or other appropriate liquid 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, a Portfolio (except the
Tax-Free Portfolios) may borrow up to an additional 5% of its total assets for
temporary purposes.
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by other
investment companies within the limits prescribed by the 1940 Act. As a share-
holder of another investment company, a Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that each Portfolio bears directly in connection with its
own operations.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of the
value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and 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.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' sub-adviser that an adequate trading market exists for the se-
curities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified institu-
tional buyers become uninterested in purchasing these restricted securities.
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 or market action.
When-issued and forward commitment transactions involve the risk, however, that
the price or yield obtained in a transaction may be less favorable than the
price or yield available in the market when the securities delivery takes
place. Each 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 those 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 in-
31.
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come 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 a Portfolio
compared with what the performance would have been without the use of dollar
rolls. At the time a Portfolio enters into a dollar roll transaction, it will
place in a segregated account maintained with its custodian cash, U.S. Govern-
ment securities or other liquid securities having a value equal to the repur-
chase price (including accrued interest) and will subsequently monitor the ac-
count to ensure that its value is maintained. A Portfolio's dollar rolls, to-
gether with its reverse repurchase agreements and other borrowings, will not
exceed, in the aggregate, 33 1/3% of the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties a Portfolio is required to purchase may decline below the agreed upon re-
purchase price of those securities. If the broker/dealer to whom a Portfolio
sells securities becomes insolvent, the Portfolio's right to purchase or repur-
chase securities may be restricted. Successful use of mortgage dollar rolls may
depend upon the sub-adviser's ability to correctly predict interest rates and
prepayments. There is no assurance that dollar rolls can be successfully em-
ployed.
SHORT SALES. The Portfolios may only make short sales of securities "against-
the-box." A short sale is a transaction in which a Portfolio sells a security
it does not own in anticipation that the market price of that security will de-
cline. The Portfolios may make short sales both as a form of hedging to offset
potential declines in long positions in similar securities and in order to
maintain portfolio flexibility. In a short sale "against-the-box," at the time
of sale, the Portfolio owns or has the immediate and unconditional right to ac-
quire the identical security at no additional cost. When selling short
"against-the-box," a Portfolio forgoes an opportunity for capital appreciation
in the security.
PORTFOLIO TURNOVER RATES. The past portfolio turnover rates of the Portfolios
are set forth above under "What Are the Portfolios' Financial Highlights?" A
Portfolio's annual portfolio turnover rate will not be a factor preventing a
sale or purchase when the sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates will
generally result in higher transaction costs to a Portfolio and may result in
the realization of short-term capital gains that are taxable to shareholders as
ordinary income.
INTEREST RATE AND EXTENSION RISK. The value of fixed income securities in the
Portfolios can be expected to vary inversely with changes in prevailing inter-
est rates. Fixed income securities with longer maturities, which tend to pro-
duce 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 securities, 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. Although the Portfolios' sub-adviser will normally attempt to
structure each Portfolio to have a comparable duration to its benchmark as
stated for that section, there can be no assurance that it will be able to do
so at all times.
STATE-SPECIFIC TAX-FREE PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Tax-Free Portfolios in State-Spe-
cific Obligations raises special investment considerations. In particular,
changes in the economic condition and governmental policies of a state and its
political subdivisions could adversely affect the value of a Portfolio's
shares. Certain matters relating to the states in which the State-Specific Tax-
Free Portfolios invest are described below. For further information, see "Spe-
cial Considerations Regarding State-Specific Obligations" in the Statement of
Additional Information.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following four
years. As of June 30, 1995, the General Fund had a surplus of $688.3 million.
For the fiscal year ended June 30, 1996, the General Fund's expenditures ex-
ceeded available revenues by approxi-
32.
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mately $253 million; this shortfall was funded by the General Fund's unappro-
priated surplus. Rising unemployment, a relatively high proportion of persons
65 and older in the Commonwealth and court ordered increases in healthcare re-
imbursement rates place increased pressures on the tax resources of the Common-
wealth and its municipalities. The Commonwealth has sold a substantial amount
of bonds over the past several years, but the debt burden remains moderate. Em-
ployment growth has shifted to the trade and service sectors, with losses in
more high-paid manufacturing positions. A new governor took office in January
1995, but the Commonwealth has continued 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. This
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness. In past
years, the State's overall unemployment rate has been somewhat higher than the
national figure. For example, the reported 1990 average monthly State rate was
5.7%, compared to the 5.5% national figure. However, for the last five years
the State rates were below the national rates (4.8% versus 5.6% in 1995). The
unemployment rate and its effects vary among particular geographic areas of the
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government fi-
nances generally will not adversely affect the market value of Ohio State-Spe-
cific Obligations held in the Portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
33.
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WHO MANAGES THE FUND?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the
TRUSTEES direction of its Board of Trustees. The following persons
currently serve on the Board:
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.--Chairman, Gee, Wilmerding & Associ-
ates, Inc.
ADVISER AND The Adviser to the Compass Capital Funds is PNC Asset Manage-
SUB-ADVISER ment Group ("PAMG"). Each of the Portfolios within the Com-
pass Capital Fund family is managed by a specialized portfo-
lio manager who is a member of PAMG's fixed income portfolio
management subsidiary, BlackRock Financial Management, Inc.
("BlackRock"). BlackRock has its primary offices at 345 Park
Avenue, New York, New York 10154.
The eleven Portfolios and their portfolio managers are as
follows:
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PORTFOLIO MANAGER
------------------------- -----------------
<C> <S>
Low Duration Bond Robert S. Kapito; Vice Chairman of BlackRock
since 1988; Portfolio co-manager since its
inception.
Scott Amero; Managing Director of BlackRock since
1990; Portfolio co-manager since its inception.
Jody Kochansky; Vice President of BlackRock since
1992; Portfolio co-manager since 1995.
Intermediate Government Bond Robert S. Kapito and Scott Amero (see above) and
Michael P. Lustig; Mr. Lustig has been Vice
President of BlackRock since 1989; Messrs.
Kapito, Lustig and Amero have been Portfolio co-
managers since 1995.
Intermediate Bond Robert S. Kapito, Michael P. Lustig and Scott
Amero (see above); Messrs. Kapito, Lustig and
Amero have been Portfolio co-managers since 1995.
Core Bond Scott Amero (see above); Mr. Amero has been
Portfolio manager since its inception.
Government Income Robert S. Kapito, Michael P. Lustig and Scott
Amero (see above); Messrs. Kapito, Lustig and
Amero have been Portfolio co-managers since 1995.
Managed Income 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 Andrew Gordon; Portfolio manager at BlackRock
since 1996; responsible for non-dollar research
at Barclay Investments from 1994 to 1996 and at
CS First Boston from 1986 to 1994; Portfolio
manager since January 1997.
</TABLE>
34.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PORTFOLIO MANAGER
------------------------- -----------------
<C> <S>
Tax-Free Income 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 Income Kevin Klingert (see above); Portfolio manager
since 1995.
New Jersey Tax-Free Income Kevin Klingert (see above); Portfolio manager
since 1995.
Ohio Tax-Free Income Kevin Klingert (see above); Portfolio manager
since 1995.
</TABLE>
PAMG was organized in 1994 to perform advisory services for in-
vestment companies, and has its principal offices at 1600 Mar-
ket Street, 29th Floor, Philadelphia, Pennsylvania 19103. PAMG
is an indirect wholly-owned subsidiary of PNC Bank Corp., a
multi-bank holding company.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-adviser are entitled to fees, computed
daily on a Portfolio-by-Portfolio basis and payable monthly, at
the maximum annual rates set forth below. As stated under "What
Are The Expenses Of The Portfolios?" PAMG and the sub-adviser
intend to waive a portion of their fees during the current fis-
cal year. All sub-advisory fees are paid by PAMG, and do not
represent an extra charge to the Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)
<TABLE>
<CAPTION>
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL
BOND PORTFOLIO INTERNATIONAL BOND PORTFOLIO
------------------------- ----------------------------------
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE ADVISORY FEE FEE
----------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
first $1 billion .500% .350% .550% .400%
$1 billion--$2 billion .450 .300 .500 .350
$2 billion--$3 billion .425 .275 .475 .325
greater than $3 billion .400 .250 .450 .300
</TABLE>
For the twelve months ended September 30, 1996, the Portfolios
(other than the Low Duration Bond, Core Bond, International
Bond and New Jersey Tax-Free Income Portfolios) paid investment
advisory fees at the following annual rates (expressed as a
percentage of average daily net assets) after voluntary fee
waivers: Intermediate Government Bond Portfolio, .28%; Interme-
diate Bond Portfolio, .30%; Government Income Portfolio, .30%;
Managed Income Portfolio, .35%; Tax-Free Income Portfolio,
.28%; Pennsylvania Tax-Free Income Portfolio, .29%; and Ohio
Tax-Free Income Portfolio, .06%. For the period from April 1,
1996 through September 30, 1996, the Low Duration Bond and Core
Bond Portfolios paid investment advisory fees, after voluntary
fee waivers, at the annual rates of .30% and .30% of their re-
spective average daily net assets. For the periods from Febru-
ary 1, 1996 and February 13, 1996, respectively, through Sep-
tember 30, 1996, the New Jersey Tax-Free Income and Interna-
tional Bond Portfolios paid investment advisory fees, after
voluntary fee waivers, at the annual rates of .30% and .55% of
their respective average daily net assets.
The Portfolios' sub-adviser strives to achieve best execution
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.
35.
<PAGE>
- -------------------------------------------------------------------------------
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the Fund's co-administrators. CCG and PFPC are in-
direct wholly-owned subsidiaries of PNC Bank Corp. CDI is a
wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). A majority of the outstanding stock of PDI is owned
by its officers.
The Administrators generally assist the Fund in all aspects
of its administration and operation, including matters re-
lating to the maintenance of financial records and fund ac-
counting. As compensation for these services, CCG is enti-
tled 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 com-
bined fee, computed daily and payable monthly, at an annual
rate of .20% of the first $500 million of each Portfolio's
average daily net assets, .18% of the next $500 million of
each Portfolio's average daily net assets, .16% of the next
$1 billion of each Portfolio's average daily net assets and
.15% of each Portfolio's average daily net assets in excess
of $2 billion. From time to time the Administrators may
waive some or all of their administration fees from a Port-
folio.
For information about the operating expenses the Portfolios
paid for the most recent fiscal period, see "What Are the
Expenses of the Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves
AGENT, as their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
DISTRIBUTION Under the Fund's Distribution and Service Plan (the "Plan"),
AND SERVICE Investor Shares of the Portfolios bear the expense of pay-
PLAN ments ("distribution fees") made to CDI, as the Fund's dis-
tributor (the "Distributor"), or affiliates of PNC Bank, for
distribution and sales support services. The distribution
fees may be used to compensate the Distributor for distribu-
tion services and to compensate the Distributor and PNC Bank
affiliates for sales support services provided in connection
with the offering and sale of Investor Shares. The distribu-
tion fees may also be used to reimburse the Distributor and
PNC Bank affiliates for related expenses, including payments
to brokers, dealers, financial institutions and industry
professionals ("Service Organizations") for sales support
services and related expenses. Distribution fees payable un-
der the Plan will not exceed .10% (annualized) of the aver-
age daily net asset value of each Portfolio's outstanding
Investor A Shares and .75% (annualized) of the average daily
net asset value of each Portfolio's outstanding Investor B
and Investor C Shares. Payments under the Plan are not tied
directly to out-of-pocket expenses and therefore may be used
by the recipients as they choose (for example, to defray
their overhead expenses). The Plan also permits the Distrib-
utor, PAMG, the Administrators and other companies that re-
ceive fees from the Fund to make payments relating to dis-
tribution and sales support activities out of their past
profits or other sources available to them.
Under the Plan, the Fund intends to enter into service ar-
rangements with Service Organizations (including PNC Bank
and its affiliates) with respect to each class of Investor
Shares pursuant to which Service Organizations will render
certain support services to their customers who are the ben-
eficial owners of Investor Shares. In consideration for a
shareholder servicing fee of up to .25% (annualized) of the
aver-
36.
<PAGE>
- --------------------------------------------------------------------------------
age daily net asset value of Investor Shares owned by their
customers, Service Organizations may provide one or more of the
following services: responding to customer inquiries relating
to the services performed by the Service Organization and to
customer inquiries concerning their investments in Investor
Shares; assisting customers in designating and changing divi-
dend options, account designations and addresses; and providing
other similar shareholder liaison services. In consideration
for a separate shareholder processing fee of up to .15%
(annualized) of the average daily net asset value of Investor
Shares owned by their customers, Service Organizations may pro-
vide one or more of these additional services to such custom-
ers: 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 be-
half of customers; providing sub-accounting with respect to In-
vestor Shares beneficially owned by customers or the informa-
tion necessary for sub-accounting; and providing other similar
services.
Service Organizations may charge their clients additional fees
for account services. Customers who are beneficial owners of
Investor Shares should read this Prospectus in light of the
terms and fees governing their accounts with Service Organiza-
tions.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Service Organizations under their service agreements will
not be prohibited under these laws. Under state securities
laws, banks and financial institutions that receive payments
from the Fund may be required to register as dealers.
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, distribution fees, fees and expenses in registering
and qualifying the Portfolios and their shares for distribution
under Federal and state securities laws, expenses of preparing
prospectuses and statements of additional information and of
printing and distributing prospectuses and statements of addi-
tional information to existing shareholders, expenses relating
to shareholder reports, shareholder meetings and proxy solici-
tations, 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 be-
long to a particular investment portfolio will be allocated
among all investment portfolios by or under the direction of
the Board of Trustees in a manner the Board determines to be
fair and equitable.
37.
<PAGE>
- --------------------------------------------------------------------------------
WHAT PRICING OPTIONS ARE AVAILABLE TO INVESTORS?
- --------------------------------------------------------------------------------
The Bond Portfolios of Compass Capital Funds offer different
pricing options to investors in the form of different share
classes. These options are described below:
A SHARES (FRONT-END LOAD)
One time, front-end sales charge at time of purchase
No charges or fees at any time for redeeming shares
Lower ongoing expenses
Free exchanges with other A Shares in the Compass Capital
Funds family
A Shares may make sense for investors with a long-term in-
vestment horizon who prefer to pay a one-time front-end sales
charge and have reduced ongoing fees.
B SHARES (BACK-END LOAD)
No front-end sales charge at time of purchase
Contingent deferred sales charge (CDSC) if shares are re-
deemed, declining over 6 years from a high of 4.50%
Free exchanges with other B Shares in the Compass Capital
Funds family
Automatically convert to A Shares seven years from purchase
B Shares may make sense for investors who prefer to pay for
professional investment advice on an ongoing basis (asset-
based sales charge) rather than with a traditional, one-time
front-end sales charge.
C SHARES (LEVEL LOAD)
No front-end sales charge at time of purchase
Contingent deferred sales charge (CDSC) of 1.00% if shares
are redeemed within 12 months of purchase
Free exchanges with other C Shares in the Compass Capital
Funds family
C Shares may make sense for shorter term (relative to both A
and B Shares) investors who prefer to pay for professional
investment advice on an ongoing basis (asset-based sales
charge) rather than with a traditional, one-time front-end
sales charge. Such investors may plan to make substantial
redemptions within 6 years of purchase.
38.
<PAGE>
- --------------------------------------------------------------------------------
THE PRICING OPTIONS FOR EACH PORTFOLIO ARE DESCRIBED IN THE TABLES BELOW:
INTERMEDIATE GOVERNMENT BOND, INTERMEDIATE BOND, CORE BOND, TAX-FREE INCOME,
PENNSYLVANIA TAX-FREE INCOME, NEW JERSEY TAX-FREE INCOME AND OHIO TAX-FREE
INCOME PORTFOLIOS:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge 4.00% 0.00% 0.00%
12b-1 Fee 0.00%* 0.75% 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00% 1.00%
(Depends on when (If redeemed within
shares are redeemed) 12 months of purchase)
</TABLE>
GOVERNMENT INCOME AND MANAGED INCOME PORTFOLIOS:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge 4.50% 0.00% 0.00%
12b-1 Fee 0.00%* 0.75% 0.75%
CDSC (Redemption Charge) 0.00% 4.50%-0.00% 1.00%
(Depends on when (If redeemed within
shares are redeemed) 12 months of purchase)
</TABLE>
LOW DURATION BOND PORTFOLIO:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge................. 3.00% 0.00% 0.00%
12b-1 Fee............... 0.00%* 0.75% 0.75%
CDSC (Redemption
Charge)................ 0.00% 4.50%-0.00% 1.00%
(Depends on when (If redeemed within
shares are redeemed) 12 months of purchase)
</TABLE>
INTERNATIONAL BOND PORTFOLIO:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge................. 5.00% 0.00% 0.00%
12b-1 Fee............... 0.00%* 0.75% 0.75%
CDSC (Redemption
Charge)................ 0.00% 4.50%-0.00% 1.00%
(Depends on when (If redeemed within
shares are redeemed) 12 months of purchase)
</TABLE>
*The Portfolios do not expect to incur 12b-1 fees in excess of .005% with re-
spect to Investor A Shares during the current fiscal year.
Investors wishing to purchase shares of the Portfolios may do so either by
mailing the investment application attached to this Prospectus along with a
check or by wiring money as specified below under "How Are Shares Purchased?"
39.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ARE THE KEY CONSIDERATIONS IN SELECTING A PRICING OPTION?
- -------------------------------------------------------------------------------
In deciding which class of Investor Shares to purchase, investors should con-
sider the following:
Intended Holding Period. Over time, the cumulative distribution fees on a
Portfolio's Investor B Shares and Investor C Shares will exceed the expense of
the maximum initial sales charge on Investor A Shares. For example, if net as-
set value remains constant, the Investor B Shares' and Investor C Shares' ag-
gregate distribution fees would be equal to the Investor A Shares' initial
maximum sales charge from four to seven years after purchase (depending on the
Portfolio). Thereafter, Investor B Shares and Investor C Shares would bear
higher aggregate expenses. Investor B and Investor C shareholders, however,
enjoy the benefit of permitting all their dollars to work from the time the
investments are made. Any positive investment return on the additional in-
vested amount would partially or wholly offset the higher annual expenses
borne by Investor B Shares and Investor C Shares.
Because the Portfolios' future returns cannot be predicted, however, there can
be no assurance that such a positive return will be achieved.
At the end of seven years after the date of purchase, Investor B Shares will
convert automatically to Investor A Shares, based on the relative net asset
values of shares of each class. Investor B Shares acquired through reinvest-
ment of dividends or distributions are also converted at the earlier of these
dates--seven years after the reinvestment date or the date of conversion of
the most recently purchased Investor B Shares that were not acquired through
reinvestment. Investor C Shares have no conversion feature.
Unless a sales charge waiver applies, Investor B shareholders pay a contingent
deferred sales charge if they redeem during the first six years after pur-
chase, and Investor C shareholders pay a contingent deferred sales charge if
they redeem during the first twelve months after purchase. Investors expecting
to redeem during these periods should consider the cost of the applicable con-
tingent deferred sales charge in addition to the aggregate annual Investor B
or Investor C distribution fees, as compared with the cost of the applicable
initial sales charges applicable to the Investor A Shares.
Investor B Shares of the Portfolios purchased on or before January 12, 1996
are subject to a CDSC of 4.50% of the lesser of the original purchase price or
the net asset value of Investor B Shares at the time of redemption. This de-
ferred sales charge is reduced for shares held more than one year. Investor B
Shares of a Portfolio purchased on or before January 12, 1996 convert to In-
vestor A Shares of the Portfolio at the end of six years after purchase. For
more information about Investor B Shares purchased before January 12, 1996 and
the deferred sales charge payable on their redemption, call PFPC at (800) 441-
7762.
Reduced Sales Charges. Because of reductions in the front-end sales charge
for purchases of Investor A Shares aggregating $25,000 or more, it may be ad-
vantageous for investors purchasing large quantities of Investor Shares to
purchase Investor A Shares. In any event, the Fund will not accept any pur-
chase order for $1,000,000 or more of Investor B Shares or Investor C Shares.
Waiver of Sales Charges. The entire initial sales charge on Investor A Shares
of a Portfolio may be waived for certain eligible purchasers allowing their
entire purchase price to be immediately invested in a Portfolio. The contin-
gent deferred sales charge may be waived upon redemption of certain Investor B
Shares and Investor C Shares.
40.
<PAGE>
- --------------------------------------------------------------------------------
HOW ARE SHARES PURCHASED?
- --------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor Shares through a
broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-adviser, Distributor or transfer agent or em-
ployees of their affiliates is $100, unless payment is made through a payroll
deduction program in which case the minimum investment is $25.
When placing purchase orders, investors should specify whether the order is for
Investor A, Investor B or Investor C Shares of a Portfolio. All share purchase
orders that fail to specify a class will automatically be invested in Investor
A Shares.
PURCHASES THROUGH BROKERS. Shares of the Portfolios may be purchased through
brokers which have entered into dealer agreements with the Distributor. Pur-
chase orders received by a broker and transmitted to the transfer agent before
the close of regular trading on the New York Stock Exchange (currently 4:00
p.m. Eastern time) on a Business Day will be effected at the net asset value
determined that day, plus any applicable sales charge. Payment for an order may
be made by the broker in Federal funds or other funds immediately available to
the Portfolios' custodian no later than 4:00 p.m. (Eastern time) on the third
Business Day following receipt of the purchase order.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described above,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial pur-
chase amount payable to Compass Capital Funds. An Account Application Form may
be obtained by calling (800) 441-7762. The name of the Portfolio with respect
to which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, specify
the class of Investor Shares, and include the name of the account registration
and the shareholder account number. Before wiring any funds, an investor must
call PFPC at (800) 441-7762 in order to confirm the wire instructions. Purchase
orders which are received by PFPC, together with payment, before the close of
regular trading hours on the New York Stock Exchange (currently 4:00 p.m. East-
ern time) on any Business Day (as defined below) are priced at the applicable
net asset value next determined on that day, plus any applicable sales charge.
OTHER PURCHASE INFORMATION. Shares of each Portfolio are sold on a continuous
basis by CDI as the Distributor. CDI maintains its principal offices at Four
Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961. Purchases
may be effected on weekdays on which both the New York Stock Exchange and the
Federal Reserve Bank of Philadelphia are open for business (a "Business Day").
Payment for orders which are not received or accepted will be returned after
prompt inquiry. The issuance of shares is recorded on the books of the Fund. No
certificates will be issued for shares. Payments for shares of a Portfolio may,
in the discretion of the Fund's investment adviser, be made in the form of se-
curities that are permissible investments for that Portfolio. Compass Capital
reserves the right to reject any purchase order or to modify or waive the mini-
mum initial or subsequent investment requirement.
41.
<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, if applicable, there is no charge for a re-
demption. Shareholders may also place redemption requests through a broker or
other institution, which may charge a fee for this service.
WHEN REDEEMING INVESTOR SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD INDICATE
WHETHER THEY ARE REDEEMING INVESTOR A SHARES, INVESTOR B SHARES OR INVESTOR C
SHARES. If a redeeming shareholder owns both Investor A Shares and Investor B
or Investor C Shares in the same Portfolio, the Investor A Shares will be re-
deemed first unless the shareholder indicates otherwise. If a redeeming share-
holder owns both Investor B Shares and Investor C Shares in the same Portfo-
lio, the redemption order will be processed to minimize the amount of the con-
tingent deferred sales charge that will be charged unless the shareholder in-
dicates 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 institu-
tion. Eligible guarantor institutions generally include banks, broker/dealers,
credit unions, national securities exchanges, registered securities associa-
tions, clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding Investor A Share certificates
must send their certificates with the redemption request. Additional documen-
tary evidence of authority is required by PFPC in the event redemption is re-
quested by a corporation, partnership, trust, fiduciary, executor or adminis-
trator.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by Federal wire transfer to a single previously desig-
nated bank account. Once authorization is on file, PFPC will honor requests by
any person by telephone at (800) 441-7762 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 termi-
nate these redemption privileges. If the proceeds of a redemption would exceed
$25,000, the redemption request must be in writing and will be subject to the
signature guarantee requirement described above. This privilege may not be
used to redeem Investor A Shares in certificated form. During periods of sub-
stantial economic or market change, telephone redemptions may be difficult to
complete. Redemption requests may also be mailed to PFPC at P.O. Box 8907,
Wilmington, Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. To change the name of the single designated bank account
to receive wire redemption proceeds, it is necessary to send a written request
(with a guaranteed signature as described above) to Compass Capital Funds c/o
PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
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
42.
<PAGE>
- --------------------------------------------------------------------------------
loss, liability, cost or expense for acting upon telephone instructions reason-
ably believed to be genuine in accordance with such procedures.
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 required minimum initial investment as the re-
sult of a redemption or an exchange request. A shareholder will be notified in
writing that the value of the shareholder's account in a Portfolio is less than
the required amount and will be allowed 30 days to make additional investments
before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by Compass Capital Funds c/o PFPC, P.O. Box 8907, Wil-
mington, Delaware 19899-8907. Proceeds from the redemption of shares will be
reduced by the amount of any applicable contingent deferred sales charge. Un-
less another payment option is used as described above, payment for redeemed
shares is normally made by check mailed within seven days after acceptance by
PFPC of the request and any other necessary documents in proper order. Payment
may, however, be postponed or the right of redemption suspended as provided by
the rules of the SEC. If the shares to be redeemed have been recently purchased
by check, the Fund's transfer agent may delay the payment of redemption pro-
ceeds, 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.
43.
<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.
EXCHANGE PRIVILEGE. Investor A, Investor B and Investor C Shares of each Port-
folio may be exchanged for shares of the same class of other portfolios of the
Fund which offer that class of shares, based on their respective net asset val-
ues. Exchanges of Investor A Shares may be subject to the difference between
the sales charge previously paid on the exchanged shares and the higher sales
charge (if any) payable with respect to the shares acquired in the exchange.
Investor A Shares of money market portfolios of the Fund that were (1) acquired
through the use of the exchange privilege and (2) can be traced back to a pur-
chase of shares in one or more investment portfolios of the Fund for which a
sales charge was paid, can be exchanged for Investor A Shares of a portfolio
subject to differential sales charges as applicable.
The exchange of Investor B and 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. Share-
holders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange re-
quests. To add this feature to an existing account that previously did not pro-
vide for this option, a Telephone Exchange Authorization Form must be filed
with PFPC. This form is available from PFPC. Once this election has been made,
the shareholder may simply contact PFPC by telephone at (800) 441-7762 to re-
quest 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.
44.
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The Fund reserves the right to modify or terminate the exchange privilege at
any time. Notice will be given to shareholders of any material modification or
termination except where notice is not required.
The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine in accordance with such procedures. Exchange orders may also be
sent by mail to the shareholder's broker or to PFPC at P.O. Box 8907, Wilming-
ton, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts. Upon commencement of the SWP, the account must have a cur-
rent value of $10,000 or more in a Portfolio. Shareholders may elect to receive
automatic cash payments of $100 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC. Purchases of additional Investor A Shares of the
Fund concurrently with withdrawals may be disadvantageous to investors because
of the sales charges involved and, therefore, are discouraged. No contingent
deferred sales charge will be assessed on redemptions of Investor B or Investor
C Shares made through the SWP that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
SWP redemptions of Investor B or 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 as-
set value on the redemption date. SWP redemptions of Investor B or Investor C
Shares in excess of this limit are still subject to the applicable CDSC.
45.
<PAGE>
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WHAT IS THE SCHEDULE OF SALES CHARGES AND EXEMPTIONS?
- --------------------------------------------------------------------------------
INVESTOR A Investor A Shares are subject to a front-end sales charge de-
SHARES termined in accordance with the following schedules:
LOW DURATION BOND PORTFOLIO:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 3.00% 3.09% 2.50%
$25,000 but less than $50,000 2.75 2.83 2.25
$50,000 but less than $100,000 2.50 2.56 2.00
$100,000 but less than $250,000 2.00 2.04 1.75
$250,000 but less than $500,000 1.50 1.52 1.25
$500,000 but less than $1,000,000 1.00 1.01 0.75
$1,000,000 and over 0.00* 0.00* 0.75**
</TABLE>
INTERMEDIATE GOVERNMENT BOND, INTERMEDIATE BOND, CORE BOND, TAX-FREE INCOME,
PENNSYLVANIA TAX-FREE INCOME, NEW JERSEY TAX-FREE INCOME AND OHIO TAX-FREE
INCOME PORTFOLIOS:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 4.00% 4.17% 3.50%
$25,000 but less than $50,000 3.75 3.90 3.25
$50,000 but less than $100,000 3.50 3.63 3.00
$100,000 but less than $250,000 3.00 3.09 2.50
$250,000 but less than $500,000 2.00 2.04 1.50
$500,000 but less than $1,000,000 1.00 1.01 0.75
$1,000,000 and over 0.00* 0.00* 0.75**
</TABLE>
* There is no initial sales charge on purchase of $1,000,000 or more of In-
vestor A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the offering price or the net asset value of the
shares on the redemption date for shares redeemed within 18 months after pur-
chase.
** The Distributor may pay placement fees to dealers of up to 0.75% of the of-
fering price on purchases of Investor A Shares of $1,000,000 or more.
46.
<PAGE>
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GOVERNMENT INCOME AND MANAGED INCOME PORTFOLIOS:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 4.50% 4.71% 4.00%
$25,000 but less than $50,000 4.25 4.70 3.75
$50,000 but less than $100,000 4.00 4.17 3.50
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 1.50 1.52 1.25
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
INTERNATIONAL BOND PORTFOLIO:
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES PLACEMENT
CHARGE AS SALES FEES
% CHARGE AS TO DEALERS
OF % (AS % OF
AMOUNT OF TRANSACTION OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$25,000 but less than $50,000 4.75 4.99 4.25
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 4.00 4.17 3.50
$250,000 but less than $500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.50
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
*There is no initial sales charge on purchase of $1,000,000 or more of Investor
A Shares; however, a contingent deferred sales charge of 1.00% will be imposed
on the lesser of the offering price or the net asset value of the shares on the
redemption date for shares redeemed within 18 months after purchase.
**The Distributor may pay placement fees to dealers of up to 1.00% of the of-
fering price on purchases of Investor A Shares of $1,000,000 or more.
During special promotions, the entire sales charge may be reallowed to dealers.
Dealers who receive 90% or more of the sales charge may be deemed to be "under-
writers" under the 1933 Act. The amount of the sales charge not reallowed to
dealers may be paid to broker-dealer affiliates of PNC Bank Corp. who provide
sales support services. The Distributor, CCG and/or their affiliates may also
pay additional compensation, out of their assets and not as an additional
charge to the Portfolios, to dealers in connection with the sale and distribu-
tion of shares (such as additional payments based on new sales), and may, sub-
ject to applicable NASD regulations, contribute to various non-cash and cash
incentive arrangements to promote the sale of shares, as well as sponsor vari-
ous educational programs, sales contests and promotions in which participants
may receive reimbursement of expenses, entertainment and prizes such as travel
awards, merchandise and cash. For further information, see "Investment Adviso-
ry, Administration, Distribution and Servicing Arrangements" in the Statement
of Additional Information.
SALES CHARGE WAIVERS--INVESTOR A SHARES. The following persons associated with
the Fund, the Distributor, the Fund's investment adviser, sub-adviser or trans-
fer agent and their affiliates may buy Investor A Shares without paying a sales
charge to the extent permitted by these firms: (a) officers, directors and part-
47.
<PAGE>
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ners (and their spouses and minor children); (b) employees and retirees (and
their spouses and minor children); (c) registered representatives of brokers
who have entered into selling agreements with the Distributor; (d) spouses or
children of such persons; and (e) any trust, pension, profit-sharing or other
benefit plan for any of the persons set forth in (a) through (c). The follow-
ing persons may also buy Investor A Shares without paying a sales charge: (a)
persons investing through an authorized payroll deduction plan; (b) persons
investing through an authorized investment plan for organizations which oper-
ate under Section 501(c)(3) of the Internal Revenue Code; (c) registered in-
vestment advisers, trust companies and bank trust departments exercising dis-
cretionary investment authority with respect to amounts to be invested in a
Portfolio, provided that the aggregate amount invested pursuant to this exemp-
tion equals at least $250,000; and (d) persons participating in a "wrap ac-
count" or similar program under which they pay advisory fees to a broker-
dealer or other financial institution. INVESTORS WHO QUALIFY FOR ANY OF THESE
EXEMPTIONS FROM THE SALES CHARGE MUST PURCHASE INVESTOR A SHARES.
QUALIFIED PLANS. The sales charge (as a percentage of the offering price) pay-
able by qualified employee benefit plans ("Qualified Plans") having at least
20 employees eligible to participate in purchases of Investor A Shares of the
Portfolios aggregating less than $500,000 will be 1.00%. No sales charge will
apply to purchases by Qualified Plans of Investor A Shares aggregating
$500,000 and above. The sales charge payable by Qualified Plans having less
than 20 employees eligible to participate in purchases of Investor A Shares of
the Portfolios aggregating less than $500,000 will be 2.50% (1.50% with re-
spect to shares of the Low Duration Bond Portfolio.) The above schedules will
apply to purchases by such Qualified Plans of Investor A Shares aggregating
$500,000 and above.
QUANTITY DISCOUNTS. As shown above, larger purchases may reduce the sales
charge price. Upon notice to the investor's broker or the transfer agent, pur-
chases of Investor A Shares made at any one time by the following persons may
be considered when calculating the sales charge: (a) an individual, his or her
spouse, and their children under the age of 21; (b) a trustee or fiduciary of
a single trust estate or single fiduciary account; or (c) any organized group
which has been in existence for more than six months, if it is not organized
for the purpose of buying redeemable securities of a registered investment
company, and if the purchase is made through a central administrator, or
through a single dealer, or by other means which result in economy of sales
effort or expense. An organized group does not include a group of individuals
whose sole organizational connection is participation as credit card holders
of a company, policyholders of an insurance company, customers of either a
bank or broker/dealer or clients of an investment adviser. Purchases made by
an organized group may include, for example, a trustee or other fiduciary pur-
chasing for a single fiduciary account or other employee benefit plan pur-
chases made through a payroll deduction plan.
REDUCED SALES CHARGES--INVESTOR A SHARES
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of
an investor's existing Investor A Shares in any of the Portfolios that are
subject to a front-end sales charge or the total amount of an investor's ini-
tial investment in such shares, less redemptions (whichever is greater) may be
combined with the amount of the investor's current purchase in determining the
applicable sales charge. IN ORDER TO RECEIVE THE CUMULATIVE QUANTITY REDUC-
TION, PREVIOUS PURCHASES OF INVESTOR A SHARES MUST BE CALLED TO THE ATTENTION
OF PFPC BY THE INVESTOR AT THE TIME OF THE CURRENT PURCHASE.
REINVESTMENT PRIVILEGE. Upon redemption of Investor A Shares of a Portfolio
(or Investor A Shares of another non-money market portfolio of the Fund), a
shareholder has a one-time right, to be exercised within 60 days, to reinvest
the redemption proceeds without any sales charges. PFPC must be notified of
the reinvestment in writing by the purchaser, or by his or her broker, at the
time the purchase is made in order to eliminate a sales charge. An investor
should consult a tax adviser concerning the tax consequences of use of the re-
investment privilege.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Investor A Shares at net asset value, without a sales charge,
with the proceeds from the redemption of shares
48.
<PAGE>
- --------------------------------------------------------------------------------
of any other investment company which were sold with a sales charge or commis-
sion. This does not include shares of an affiliated mutual fund which were or
would be subject to a contingent deferred sales charge upon redemption. Such
purchases must be made within 60 days of the redemption, and the Fund must be
notified by the investor in writing, or by his or her financial institution, at
the time the purchase of Investor A Shares is made.
LETTER OF INTENT. An investor may qualify for a reduced sales charge immedi-
ately by signing a Letter of Intent stating the investor's intention to invest
during the next 13 months a specified amount in Investor A Shares which, if
made at one time, would qualify for a reduced sales charge. The Letter of In-
tent may be signed at any time within 90 days after the first investment to be
included in the Letter of Intent. The initial investment must meet the minimum
initial investment requirement and represent at least 5% of the total intended
investment. THE INVESTOR MUST INSTRUCT PFPC UPON MAKING SUBSEQUENT PURCHASES
THAT SUCH PURCHASES ARE SUBJECT TO A LETTER OF INTENT. All dividends and capi-
tal gains of a Portfolio that are invested in additional Investor A Shares of
the same Portfolio are applied to the Letter of Intent.
During the term of a Letter of Intent, the Fund's transfer agent will hold In-
vestor A Shares representing 5% of the indicated amount in escrow for payment
of a higher sales load if the full amount indicated in the Letter of Intent is
not purchased. The escrowed Investor A Shares will be released when the full
amount indicated has been purchased. Any redemptions made during the 13-month
period will be subtracted from the amount of purchases in determining whether
the Letter of Intent has been completed.
If the full amount indicated is not purchased within the 13-month period, the
investor will be required to pay an amount equal to the difference between the
sales charge actually paid and the sales charge the investor would have had to
pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the ex-
piration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Investor A
Shares held in escrow to realize the difference.
PURCHASES OF INVESTOR B SHARES. Investor B Shares are subject to a deferred
sales charge at the rates set forth in the chart below if they are redeemed
within six years of purchase. The deferred sales charge on Investor B Shares is
based on the lesser of the offering price or the net asset value of the In-
vestor B Shares on the redemption date. Dealers will generally receive commis-
sions equal to 4.00% of the Investor B Shares sold by them plus ongoing fees
under the Fund's Distribution and Service Plan and described under "Who Manages
The Fund?" Dealers may not receive a commission in connection with sales of In-
vestor B Shares to certain retirement plans sponsored by the Fund, CCG or its
affiliates, but may receive fees under the Distribution and Service Plan. These
commissions and payments may be different than the reallowances, placement fees
and commissions paid to dealers in connection with sales of Investor A Shares
and Investor C Shares. See "What Is The Schedule Of Sales Charges And Exemp-
tions--Investor A Shares" for information on additional sales incentives which
the Distributor, CCG and/or their affiliates may provide to dealers in connec-
tion with the sale of shares.
49.
<PAGE>
- --------------------------------------------------------------------------------
The amount of any contingent deferred sales charge an investor must pay on In-
vestor B Shares depends on the number of years that elapse between the purchase
date and the date the Investor B Shares are redeemed as set forth in the fol-
lowing chart:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
<S> <C>
Less than one 4.50%
More than one, but less than two 4.00
More than two, but less than three 3.50
More than three, but less than four 3.00
More than four, but less than five 2.00
More than five, but less than six 1.00
More than six, but less than seven 0.00
</TABLE>
PURCHASES OF INVESTOR C SHARES. Investor C Shares are subject to a deferred
sales charge of 1.00% based on the lesser of the offering price or the net as-
set value of the Investor C Shares on the redemption date if redeemed within
twelve months after purchase. Dealers will generally receive commissions equal
to 1.00% of the 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?" Dealers may not receive a commission in connection with sales of In-
vestor C Shares to certain retirement plans sponsored by the Fund, CCG or its
affiliates, but may receive fees under the Distribution and Service Plan. These
commissions and payments may be different than the reallowances, placement fees
and commissions paid to dealers in connection with sales of Investor A Shares
and Investor B Shares. See "What Is The Schedule Of Sales Charges And Exemp-
tions--Investor A Shares" for information on additional sales incentives which
the Distributor, CCG and/or their affiliates may provide to dealers in connec-
tion with the sale of shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The contingent deferred
sales charge on Investor B Shares and Investor C Shares is not charged in con-
nection with: (1) exchanges described in "What Are the Shareholder Features of
the Fund?--Exchange Privilege"; (2) redemptions made in connection with minimum
required distributions from IRA, 403(b)(7) and Qualified Plan accounts due to
the shareholder reaching age 70 1/2; (3) redemptions made with respect to cer-
tain retirement plans sponsored by the Fund, CCG or its affiliates; (4) redemp-
tions in connection with a shareholder's death or disability (as defined in the
Internal Revenue Code) subsequent to the purchase of Investor B or Investor C
Shares; (5) involuntary redemptions of Investor B or Investor C Shares in ac-
counts with low balances as described in "How Are Shares Redeemed?"; and (6)
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth above under "What Are the Shareholder Features of the
Fund?--Systematic Withdrawal Plan." In addition, no contingent deferred sales
charge is charged on Investor B or Investor C Shares acquired through the rein-
vestment of dividends or distributions.
When an investor redeems Investor B or Investor C Shares, the redemption order
is processed to minimize the amount of the contingent deferred sales charge
that will be charged. Investor B and 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 reinvestment of dividends or distributions) and after
that from the shares that have been held the longest.
50.
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HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for each class of Investor Shares of
each Portfolio as of the close of regular trading hours on the NYSE (currently
4:00 p.m. Eastern Time) on each Business Day by dividing the value of all secu-
rities and other assets owned by a Portfolio that are allocated to a particular
class of shares, less the liabilities charged to that class, by the number of
shares of the class that are outstanding.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices, or the mean between bid and asked prices,
that are provided by securities dealers or pricing services. Portfolio securi-
ties which are primarily traded on foreign securities exchanges are normally
valued at the preceding closing values of such securities on their respective
exchanges. Securities for which market quotations are not readily available are
valued at fair market value as determined in good faith by or under the direc-
tion of the 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.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. All distributions are
reinvested at net asset value in the form of additional full and fractional
shares of the same class of shares of the relevant Portfolio unless a share-
holder elects otherwise. Such election, or any revocation thereof, must be made
in writing to PFPC, and will become effective with respect to dividends paid
after its receipt by PFPC. Each Portfolio declares 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 Portfolio's 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.
51.
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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), 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 shares. All other distributions, to the extent tax-
able, 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 activ-
ity bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and non-corporate taxpayers in determining alterna-
tive minimum and environmental tax liability. Second, "exempt interest divi-
dends" must be taken into account by corporate taxpayers in determining cer-
tain adjustments for alternative minimum and environmental tax purposes. In
addition, investors should be aware of the possibility of state and local al-
ternative minimum or minimum income tax liability on interest from private ac-
tivity bonds. Shareholders who are recipients of Social Security Act or Rail-
road Retirement Act benefits should note that "exempt interest dividends" will
be taken into account in determining 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.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
An investor considering buying shares on or just before a dividend record date
should be aware that the amount of the forthcoming dividend payment, although
in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption,
transfer or exchange of shares depending upon their tax basis and their price
at the time of redemption, transfer or exchange. Generally, shareholders may
include sales charges paid on the purchase of shares in their tax basis for
the purposes of determining gain or loss on a redemption, transfer or exchange
of such shares. However, if a shareholder exchanges the shares for shares of
another Portfolio within 90 days of purchase and is able to reduce the sales
charges applicable to the new shares (by virtue of the Fund's exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged shares for the purpose of determining gain or
loss but may be included (subject to the same limitation) in the tax basis of
the new shares.
Any loss upon the sale or exchange of shares held for six months or less will
be disallowed for Federal income tax purposes to the extent of any exempt in-
terest dividends received by the shareholder. For the
52.
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Ohio Tax-Free Income Portfolio, the loss will be disallowed for Ohio income tax
purposes to the same extent, even though, for Ohio income tax purposes, some
portion of such dividends actually may have been subject to Ohio income tax.
It is expected that dividends and certain interest income earned by the Inter-
national Bond Portfolio from foreign securities will be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of a taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. Federal
income tax purposes, to treat certain foreign taxes paid by it, including gen-
erally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio intends to make this election. As a result, the
amount of such foreign taxes paid by the Portfolio will be included in its
shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder generally will be entitled either (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 pro-
portionate amounts from U.S. income, should the shareholder so choose.
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, shareholders who are non-resident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to differ-
ent Federal income tax treatment. Future legislative or administrative changes
or court decisions may materially affect the tax consequences of investing in a
Portfolio. For additional information concerning the tax treatment of dividends
and distributions by the states listed below, including certain restrictions
applicable to such treatment, see "Taxes" in the Statement of Additional Infor-
mation.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder attributable
to interest realized by the Pennsylvania Tax-Free Income Portfolio from Penn-
sylvania State-Specific Obligations or attributable to insurance proceeds on
account of such interest, is not taxable to individuals, estates or trusts un-
der 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 exempt for Federal income tax purposes); nor to individuals under the Phil-
adelphia 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 State-
Specific Obligations is taxable under the Personal Income Tax, the Corporate
Net Income Tax, and, unless these assets were held by the Pennsylvania Tax-Free
Income 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 State-Specific Obligations held by the Pennsylvania Tax-Free
Income Portfolio, such gain may be subject to the Personal Income Tax and Cor-
porate Net Income Tax. Such gain may also be subject to the School District
Tax, except that gain realized with respect to a share held for more than six
months is not subject to the School District Tax.
This discussion does not address the extent, if any, to which shares, or inter-
est and gain thereon, is subject to, or included in the measure of, the special
taxes imposed by the Commonwealth of Pennsylvania on banks and other financial
institutions or with respect to any privilege, excise, franchise or other tax
imposed on business entities not discussed above (including the Corporate Capi-
tal Stock/Foreign Franchise Tax).
Shareholders of the Pennsylvania Tax-Free Income Portfolio are not subject to
the Pennsylvania County Personal Property Tax to the extent that the Portfolio
is comprised of Pennsylvania State-Specific Obligations and
53.
<PAGE>
- --------------------------------------------------------------------------------
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. 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.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio per-
sonal income tax or municipal or school district income taxes in Ohio will not
be subject to such taxes on distributions from the Ohio Tax-Free Income Portfo-
lio to the extent that such distributions are properly attributable to interest
on Ohio State-Specific Obligations or obligations issued by the U.S. Govern-
ment, its agencies, instrumentalities or territories (if the interest on such
obligations is exempt from state income taxation under the laws of the United
States). Corporations that are subject to the Ohio corporation franchise tax
will not have to include distributions from the Ohio Tax-Free Income Portfolio
in their net income base for purposes of calculating their Ohio corporation
franchise tax liability to the extent that such distributions either constitute
exempt-interest dividends for Federal income tax purposes or are properly at-
tributable to interest on Ohio State-Specific Obligations or the U.S. obliga-
tions described above. However, Shares of the Ohio Tax-Free Income Portfolio
will be included in a corporation's net worth base for purposes of calculating
the Ohio corporation franchise tax. Distributions properly attributable to gain
on the sale, exchange or other disposition of Ohio State-Specific Obligations
will not be subject to the Ohio personal income tax, or municipal or school
district income taxes in Ohio and will not be included in the net income base
of the Ohio corporation franchise tax. Distributions attributable to other
sources will be subject to the Ohio personal income tax and the Ohio corpora-
tion franchise tax.
54.
<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 thirty investment portfolios. Each
Portfolio, other than the Government Income Portfolio, offers five separate
classes of shares--Institutional Shares, Service Shares, Investor A Shares, In-
vestor B Shares and Investor C Shares. The Government Income Portfolio offers
only Investor A Shares, Investor B Shares and Investor C Shares. This prospec-
tus relates only to Investor A Shares, Investor B Shares and Investor C Shares
of the Portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's three
classes of Investor Shares. The performance of each class of Investor Shares
may be different. The Fund offers various services and privileges in connection
with its Investor Shares that are not generally offered in connection with its
Institutional and Service Shares, including an automatic investment plan and an
automatic withdrawal plan. For further information regarding the Fund's Insti-
tutional 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 that 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 November 30, 1996, PNC Bank held of record approximately 70% 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.
55.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Performance information for each class of Investor Shares of the Portfolios may
be quoted in advertisements and communications to shareholders. Total return
will be calculated on an average annual total return basis for various periods.
Average annual total return reflects the average annual percentage change in
value of an investment in Investor Shares of a Portfolio over the measuring pe-
riod. Total return may also be calculated on an aggregate total return basis.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return assume that dividend
and capital gain distributions made by a Portfolio with respect to a class of
shares are reinvested in shares of the same class, and also reflect the maximum
sales load charged by the Portfolio with respect to a class of shares. When,
however, a Portfolio compares the total return of a share class to that of
other funds or relevant indices, total return may also be computed without re-
flecting the sales load.
The yield of a class of shares is computed by dividing the Portfolio's net in-
come per share allocated to that class during a 30-day (or one month) period by
the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis. Each Tax-Free Portfolio's "tax-
equivalent yield" may also be quoted, which shows the level of taxable yield
needed to produce an after-tax equivalent to a Portfolio's tax-free yield. This
is done by increasing the Portfolio's yield (calculated above) by the amount
necessary to reflect the payment of Federal and/or state income tax at a stated
tax rate.
The performance of a class of a Portfolio's Investor Shares may be compared to
the performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the performance of a class of a Portfolio's
Investor Shares may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service, and with the performance of the Lehman GMNA Index, the T-Bill Index,
the "stocks, bonds and inflation index" published annually by Ibbotson Associ-
ates and the Lehman Government Corporate Bond Index, as well as the benchmarks
attached to this Prospectus. Performance information may also include evalua-
tions of the Portfolios and their share classes 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 a class of shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of dividends in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Investor Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for In-
vestor Shares of a Portfolio cannot necessarily be used to compare an invest-
ment in such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other institu-
tions directly to their customer accounts in connection with investments in In-
vestor Shares will not be included in the Portfolio performance calculations.
56.
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of the Compass Capital Funds:
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of the Short Government Bond, Intermediate
Government Bond, Intermediate Bond, Core Bond, Government Income, Managed In-
come, International Bond, Tax-Free Income and New Jersey Tax-Free Income Port-
folios of the Compass Capital Fund, and the statements of net assets of the
Pennsylvania Tax-Free Income and Ohio Tax-Free Income Portfolios of the Compass
Capital Funds as of September 30, 1996, and the related statements of opera-
tions for the periods then ended, the statements of changes in net assets for
each of the two years (or periods) in the period then ended, and the financial
highlights for each of the periods presented (except for those statements which
have been audited by other auditors as discussed below). These financial state-
ments 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. The statements of changes in net as-
sets for the year ended June 30, 1995, and the financial highlights for the
year ended June 30, 1995 and each of the prior periods presented of the Short
Government Bond and Core Bond Portfolios, formerly the BFM Institutional Trust
Short Duration and Core Fixed Income Portfolios (the "BFM Funds"), respectively
were audited by other auditors, whose report dated August 7, 1995 expressed an
unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of materials misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian and brokers as of September 30, 1996. An audit also includes assess-
ing the accounting principles used and significant estimates made by manage-
ment, 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
Compass Capital Funds (Short Government Bond, Intermediate Government Bond, In-
termediate Bond, Core Bond, Government Income, Managed Income, International
Bond, Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free and
Ohio Tax-Free Income Portfolios), as of September 30, 1996, and the results of
their operations for the periods then ended, the changes in their net assets
for each of the two years (or periods) in the period then ended (except for the
year ended June 30, 1995 for the BFM Funds which have been audited by other au-
ditors), and the financial highlights for each of the periods presented (except
for the year ended June 30, 1995 and prior periods for the BFM Funds which have
been audited by other auditors), in conformity with generally accepted account-
ing principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 22, 1996
57.
<PAGE>
- --------------------------------------------------------------------------------
HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7762
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7762
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7762
REDEMPTIONS: Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
58.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Low Duration Bond Merrill 1-3 Year Treasuries with maturities ranging from 1
Treasury Index to 2.99 years
Intermediate Government Lehman Brothers Treasury and agency issues in the Lehman
Bond Intermediate Government Aggregate, excluding maturities above 9.99
years
Intermediate Bond Lehman Brothers Treasury, agency and corporate issues in
Intermediate Gov't/Corp the Lehman Aggregate, excluding maturities
above 9.99 years
Core Bond Lehman Aggregate The Lehman Aggregate contains issues that
meet the following criteria:
. At least $100 million par amount
outstanding for entry and exit
. Rated investment grade (at least Baa-3)
by Moody's or S&P (if not rated by
Moody's)
. At least one year at maturity
. Coupon must have a fixed rate
. Excludes CMOs, ARMs, manufactured homes,
non-agency bonds, buydowns, graduated
equity mortgages, project loans and non-
conforming ("jumbo") mortgages
. As of November 1996, the composition of
the Lehman Brothers Aggregate Index is:
52% allocation to Treasury and government
securities
29% allocation to mortgage-backed
securities
19% allocation to corporate and asset-
backed securities
Government Income Lehman Mortgage/10 Year 50% allocation to the mortgage component of
Treasury the Lehman Aggregate Index and a 50%
allocation to the Merrill Lynch 10 Year
Index
Managed Income 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 November 1996, the composition of
the Lehman Brothers Aggregate Index is:
52% allocation to Treasury and government
securities
29% allocation to mortgage-backed
securities
19% allocation to corporate and asset-
backed securities
International Bond Salomon Non-U.S. Hedged A market-capitalization weighted benchmark
World Government Bond that tracks the performance of the 13
Index Government bond markets of Australia,
Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands,
Spain, Sweden and the United Kingdom. The
currency-hedged return is computed by using
a rolling one-month forward exchange
contract as a hedging instrument.
Tax-Free Income Lehman Municipal Bond All of the bonds in the following Municipal
Index Indices possess the following
characteristics:
. A minimum credit rating of Baa-3
. Outstanding par value of at least $3
million
. Must be issued as part of a deal of at
least $50 million
. Individual bonds must have been issued
within the last 5 years
. Remaining maturity of not less than one
year
Excludes bonds subject to the alternative
minimum tax (AMT), taxable municipal bonds,
and floating-rate or zero coupon municipal
bonds
Pennsylvania Tax-Free Lehman Local GO Index Local general obligation bonds
Income
New Jersey Tax-Free Lehman Local GO Index Local general obligation bonds
Income
Ohio Tax-Free Income Lehman Local GO Index Local general obligation bonds
</TABLE>
59.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment styleSM.
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity Small Cap Growth Equity
Large Cap Value Equity Small Cap Value Equity
Mid-Cap Growth Equity International Equity
Mid-Cap Value Equity International Emerging Markets
Index Equity
Select Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- -------------------------------------------------------------------------------
THE BOND PORTFOLIOS INSTITUTIONAL SHARES
- -------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 6
What Are The Portfolios?..................................... 14
What Are The Differences Among The Portfolios?............... 15
What Types Of Securities Are In The Portfolios?.............. 16
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 17
What Additional Investment Policies And Risks Apply?......... 18
Who Manages The Fund?........................................ 28
How Are Shares Purchased And Redeemed?....................... 32
How Is Net Asset Value Calculated?........................... 34
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 34
How Are Fund Distributions Taxed?............................ 35
How Is The Fund Organized?................................... 38
How Is Performance Calculated?............................... 39
How Can I Get More Information?.............................. 41
</TABLE>
This Prospectus contains information about the Compass Capital
bond Portfolios that a prospective investor needs to know before
investing. Please keep it for future reference. A Statement of
Additional Information dated January 1, 1997 has been filed with
the Securities and Exchange Commission (the "SEC"). The State-
ment of Additional Information may be obtained free of charge
from the Fund by calling (800) 441-7764. The Statement of Addi-
tional Information, as supplemented from time to time, is incor-
porated 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT 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 SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC TAX-FREE PORTFOLIOS
ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
2.
<PAGE>
- --------------------------------------------------------------------------------
THE BOND PORTFOLIOS OF COMPASS CAPITAL FUNDS
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 30 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 ten in-
vestment portfolios (the "Portfolios") that provide investors
with a broad spectrum of investment alternatives within the
fixed income sector. Six of these Portfolios invest in taxable
bonds, and four of these Portfolios invest in tax-exempt bonds.
A detailed description of each Portfolio begins on page 14.
COMPASS PERFORMANCE LIPPER PEER GROUP
PORTFOLIO BENCHMARK
CAPITAL
LOW DURATION Merrill 1-3 Short-Intermediate U.S.
BOND Year Treasury Government
(PREVIOUSLY Index
CALLED THE
SHORT
GOVERNMENT
BOND
PORTFOLIO)
INTERMEDIATE Lehman Brothers Intermediate U.S.
GOVERNMENT Intermediate Government
BOND Government
INTERMEDIATE Lehman Brothers Intermediate
BOND Intermediate Government/Corporate
Government/Corporate
CORE BOND Lehman Intermediate Investment
Aggregate Grade Debt
MANAGED INCOME Lehman Corporate Debt A-Rated
Aggregate
INTERNATIONAL Salomon Non-
BOND U.S. Hedged International Income
World
Government
Bond Index
TAX-FREE Lehman General Municipal Debt
INCOME Municipal Bond
Index
PA TAX-FREE Lehman Local GO PA Municipal Debt
INCOME Index
NJ TAX-FREE Lehman Local GO NJ Municipal Debt
INCOME Index
OH TAX FREE Lehman Local GO OH Municipal Debt
INCOME Index
UNDERSTANDING
THE COMPASS
CAPITAL BOND This Prospectus has been crafted to provide detailed, accurate
PORTFOLIOS and comprehensive information on the Compass Capital Portfo-
lios. We intend this document to be an effective tool as you
explore different directions in fixed income investing.
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective. Some or all of the Portfolios may pur-
BOND chase mortgage-related, asset-backed, foreign and illiquid se-
INVESTING curities; enter into repurchase and reverse repurchase agree-
ments and engage in leveraging techniques; lend portfolio secu-
rities to third parties; and enter into futures contracts and
options. Each of the Pennsylvania, New Jersey and Ohio Tax-Free
Income Portfolios (the "State-Specific Tax-Free Portfolios")
concentrates in the securities of issuers located in a particu-
lar state, and is non-diversified, which means that its perfor-
mance may be dependent upon the performance of a smaller number
of securities than the other Portfolios, which are considered
diversified. See "What Additional Investment Policies And Risks
Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?"
CAPITAL
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Institutional
Shares of the Portfolios for the fiscal period ended September 30, 1996 as a
percentage of average daily net assets. The figures shown for the Intermediate
Government Bond, Intermediate Bond, International Bond, Tax-Free Income, Penn-
sylvania Tax-Free Income and Ohio Tax-Free Income Portfolios have been restated
to reflect current expenses and fee waivers. Because no Institutional Shares of
the New Jersey Tax-Free Income Portfolio were outstanding during the fiscal
year ended September 30, 1996, the figure shown for that Portfolio under "Other
expenses" is estimated for the current fiscal year. An example based on the
summary is also shown.
<TABLE>
<CAPTION>
LOW INTERMEDIATE
DURATION GOVERNMENT INTERMEDIATE
BOND BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/1/) .30% .30% .30%
Other operating expenses .25 .25 .25
--- --- ---
Administration fees
(after fee waivers)(/1/) .15 .15 .13
Other expenses .10 .10 .12
--- --- ---
Total Portfolio operating expenses (after
fee waivers)(/1/) .55% .55% .55%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
CORE BOND MANAGED INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/1/) .30% .35%
Other operating expenses .25 .23
--- ---
Administration fees (after fee waivers)(/1/) .14 .15
Other expenses .11 .08
--- ---
Total Portfolio operating expenses (after fee
waivers)(/1/) .55% .58%
=== ===
</TABLE>
(1) Without waivers, advisory fees would be .50% and administration fees would
be .23% for each Portfolio. PAMG and the Portfolios' administrators are 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. With-
out waivers, "Other operating expenses" would be .33%, .33%, .35%, .34% and
.31%, respectively, and "Total Portfolio operating expenses" would be .83%,
.83%, .85%, .84% and .81%, respectively. See "What are the Portfolios' Fi-
nancial Highlights?" for information about interest paid by the Portfolios
in connection with their investment activity.
4.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA
INTERNATIONAL BOND TAX-FREE INCOME TAX-FREE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .50% .30% .30%
Other operating expenses .48 .25 .25
--------- ------- --------
Administration fees
(after fee
waivers)(/1/) .15 .11 .14
Other expenses (after
expense reimbursement) .33 .14 .11
--------- ------- --------
Total Portfolio
operating expenses
(after fee waivers and
expense reimbursements)
(/1/) .98% .55% .55%
========= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY OHIO
TAX- TAX-
FREE INCOME FREE INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)(/1/) .30% .30%
Other operating expenses .25 .25
----- -----
Administration fees (after fee waivers)(/1/) .11 .10
Other expenses .14 .15
----- -----
Total Portfolio operating expenses (after fee
waivers)(/1/) .55% .55%
===== =====
</TABLE>
(1)Without waivers, advisory fees would be .55%, .50%, .50%, .50% and .50%, re-
spectively, and administration fees would be .23% for each Portfolio. In addi-
tion, the Expense Summary reflects reimbursements made to the Tax-Free Income
Portfolio by the adviser. PAMG and the Portfolios' administrators are under no
obligation to waive fees or reimburse expenses, but have 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 operat-
ing expenses at the levels set forth in the table. Without waivers, "Other op-
erating expenses" would be .56%, .37%, .34%, .37% and .38% respectively, and
"Total Portfolio operating expenses" would be 1.11%, .87%, .84%, .87% and
.88%, respectively.
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return, and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Low Duration Bond Portfolio $ 6 $18 $31 $ 69
Intermediate Government Bond
Portfolio 6 18 31 69
Intermediate Bond Portfolio 6 18 31 69
Core Bond Portfolio 6 18 31 69
Managed Income Portfolio 6 19 32 73
International Bond Portfolio 10 31 51 120
Tax-Free Income Portfolio 6 18 31 69
Pennsylvania Tax-Free Income
Portfolio 6 18 31 69
New Jersey Tax-Free Income Portfolio 6 18 31 69
Ohio Tax-Free Income Portfolio 6 18 31 69
</TABLE>
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses that an investor in the Portfolios will bear
either directly or indirectly. They do not reflect any charges that may be im-
posed by brokers or other institutions directly on their customer accounts in
connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
5.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- -------------------------------------------------------------------------------
The following financial information has been derived from
the financial statements incorporated by reference into the
Statement of Additional Information and has been audited by
the Portfolios' independent accountants. The financial high-
lights of the Core Bond Portfolio and the Low Duration Bond
Portfolio (formerly, the Short Government Bond Portfolio)
for the periods ended June 30, 1995, 1994 and 1993 were au-
dited by other auditors. Please refer to a revised auditor's
report under "Other Information" which makes reference to
the audits performed by those other auditors. This financial
information should be read together with those financial
statements. Further information about the performance of the
Portfolios is available in the Fund's annual shareholder re-
ports. Both the Statement of Additional Information and the
annual shareholder reports may be obtained from the Fund
free of charge by calling (800) 441-7764. During the periods
shown, no Institutional Shares of the New Jersey Tax-Free
Income Portfolio were outstanding.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LOW DURATION BOND PORTFOLIO+
(FORMERLY, THE SHORT GOVERNMENT BOND PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD
APRIL 1, 1996 JULY 1, 1995 YEAR YEAR JULY 17, 1992(/1/)
THROUGH THROUGH ENDED ENDED THROUGH
SEPTEMBER 30, 1996 MARCH 31, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 9.79 $ 9.83 $ 9.71 $ 9.96 $ 10.00
-------- ------- ------- ------- -------
Net investment income 0.28 0.42 0.58 0.48 0.51
Net realized and
unrealized loss on
investments (0.01) - - 0.13 (0.25) (0.06)
-------- ------- ------- ------- -------
Net increase from
investment operations 0.27 0.42 0.71 0.23 0.45
-------- ------- ------- ------- -------
Dividends from net
investment income (0.27) (0.41) (0.58) (0.48) (0.49)
Distributions from net
realized capital gains - - (0.01) (0.01) - - - -
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.27) (0.46) (0.59) (0.48) (0.49)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 9.79 $ 9.79 $ 9.83 $ 9.71 $ 9.96
======== ======= ======= ======= =======
Total investment return 2.70% 4.25% 6.99% 2.33% 4.63%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.55%/2/,/3/ 0.63%/2/,/3/ 0.57% 0.57% 0.56%/2/
Excluding Waivers 0.83%/2/ 0.83%/2/ 1.05% 1.02% 0.66%/2/
Net investment income 5.72%/2/ 5.25%/2/ 6.08% 4.70% 5.32%/2/
Excluding Waivers 5.45%/2/ 5.05%/2/ 5.60% 4.25% 5.22%/2/
SUPPLEMENTAL DATA:
Portfolio turnover 228% 185% 586% 455% 513%
Net assets, end of
period (in thousands) $135,686 $52,843 $44,486 $31,265 $51,611
</TABLE>
+ This Portfolio commenced operations on July 17, 1992 as the Short Duration
Portfolio, a separate investment portfolio (the "Predecessor Low Duration
Bond Portfolio") of The BFM Institutional Trust Inc., which was organized as
a Maryland business corporation. On January 13, 1996, the assets and
liabilities of the Predecessor Low Duration Bond Portfolio were transferred
to this Portfolio, and were combined with the assets of a pre-existing
portfolio investment maintained by the Fund.
/1Commencement/of investment operations of share class.
/2Annualized./
/3Including/interest expense, ratios would have been 0.64% for the period
ended September 30, 1996 and 0.96% for the period ended March 31, 1996. For
the periods prior to March 31, 1996, interest income was presented net of
interest expense.
6.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 4/20/92/1/
ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.02 $ 9.64 $ 10.60 $ 10.46 $ 10.00
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.58 0.58 0.55 0.54 0.24
Net gain (loss) on
investments
(both realized and
unrealized) (0.11) 0.38 (0.86) 0.16 0.46
-------- -------- -------- -------- --------
Total from investment
operations 0.47 0.96 (0.31) 0.70 0.70
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.57) (0.58) (0.55) (0.54) (0.24)
Distributions from net
realized capital gains - - - - (0.10) (0.02) - -
-------- -------- -------- -------- --------
Total distributions (0.57) (0.58) (0.65) (0.56) (0.24)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 9.92 $ 10.02 $ 9.64 $ 10.60 $ 10.46
======== ======== ======== ======== ========
Total return 4.82% 10.28% (3.08)% 6.88% 7.14%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $126,312 $134,835 $128,974 $137,065 $105,620
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.53%/3/ 0.42%/3/ 0.40% 0.73% 0.80%/2/
Before
advisory/administration
fee waivers 0.83% 0.79% 0.80% 0.81% 0.80%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.03% 5.94% 5.48% 5.23% 5.28%/2/
Before
advisory/administration
fee waivers 5.73% 5.57% 5.08% 5.15% 5.28%/2/
PORTFOLIO TURNOVER RATE 580% 247% 9% 80% 38%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 0.83% for the period
ended September 30, 1996, and 0.55% for the period ended September 30, 1995.
7.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 9/17/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 9.43 $ 9.05 $ 10.01 $ 10.00
-------- -------- ------- -------
Income from investment
operations
Net investment income 0.56 0.56 0.54 0.02
Net gain (loss) on
investments
(both realized and
unrealized) (0.09) 0.38 (0.88) (0.01)
-------- -------- ------- -------
Total from investment
operations 0.47 0.94 (0.34) 0.01
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.55) (0.56) (0.56) - -
Distributions from net
realized capital gains (0.03) - - (0.06) - -
-------- -------- ------- -------
Total distributions (0.58) (0.56) (0.62) - -
-------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 9.32 $ 9.43 $ 9.05 $ 10.01
======== ======== ======= =======
Total return 5.10% 10.76% (3.52)% 0.10%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $207,909 $124,979 $71,896 $56,713
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 0.53%/3/ 0.47%/3/ 0.45% 0.45%/2/
Before
advisory/administration fee
waivers 0.83% 0.89% 0.88% 0.84%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers 6.27% 6.18% 5.54% 4.72%/2/
Before
advisory/administration fee
waivers 5.97% 5.84% 5.11% 4.33%/2/
PORTFOLIO TURNOVER RATE 670% 262% 92% 4%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 0.83% for the period
ended September 30, 1996, and 0.55% for the period ended September 30, 1995.
8.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CORE BOND PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD
APRIL 1, 1996 JULY 1, 1995 YEAR YEAR DECEMBER 9, 1992/1/
THROUGH THROUGH ENDED ENDED THROUGH
SEPTEMBER 30, 1996 MARCH 31, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.61 $ 9.85 $ 9.36 $ 10.37 $10.00
-------- ------- ------- ------- ------
Net investment income
(net of $.004, $.003 and
$.001, respectively, of
interest expense)(**) 0.30 0.47 0.62 0.55 0.32
Net realized and
unrealized gains on
investments (0.06) (0.07) 0.50 (0.60) 0.37
-------- ------- ------- ------- ------
Net (decrease) increase
from investment
operations 0.24 0.40 1.12 (0.05) 0.69
-------- ------- ------- ------- ------
Dividends from net
investment income (0.30) (0.47) (0.62) (0.55) (0.32)
Distributions from net
realized capital gains - - (0.17) (0.01) (0.41) - -
-------- ------- ------- ------- ------
Total dividends and
distributions (0.30) (0.64) (0.63) (0.96) (0.32)
-------- ------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD $ 9.55 $ 9.61 $ 9.85 $ 9.36 $10.37
======== ======= ======= ======= ======
Total investment
return(***) 2.55% 3.93% 11.79% (0.69)% 6.88%
RATIOS TO AVERAGE NET
ASSETS:
Expenses(*) 0.55%/2/,/3/ 0.66%/2/,/3/ 0.55% 0.55% 0.55%/2/
Excluding Waivers 0.84%/2/ 0.91%/2/ 1.75% 2.65% 2.44%/2/
Net investment
income(**) 6.75%/2/ 5.89%/2/ 6.62% 5.61% 5.57%/2/
Excluding Waivers 6.45%/2/ 5.64%/2/ 5.43% 3.51% 3.68%/2/
SUPPLEMENTAL DATA:
PORTFOLIO TURNOVER 308% 723% 435% 722% 354%
Net assets, end of
period (in thousands) $162,626 $64,707 $32,191 $12,507 $7,803
</TABLE>
+ This Portfolio commenced operations on December 9, 1992 as the Core Fixed
Income Portfolio, a separate investment portfolio (the "Predecessor Core Bond
Portfolio") of The BFM Institutional Trust Inc., which was organized as a
Maryland business corporation. On January 13, 1996, the assets and
liabilities of the Predecessor Core Bond Portfolio were transferred to this
Portfolio, which had no prior operating history.
/1Commencement/of investment operations of share class.
/2Annualized./
/3Including/interest expense, ratios would have been 0.80% for the period ended
September 30, 1996, and 0.75% for the period ended March 31, 1996. For the
periods prior to March 31, 1996 interest income was presented net of interest
expense.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MANAGED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.38 $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70 $ 10.00
-------- -------- -------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.64 0.65 0.64 0.67 0.69 0.74 0.66
Net gain (loss) on
investments (both
realized and
unrealized) (0.21) 0.60 (1.21) 0.56 0.48 0.63 (0.29)
-------- -------- -------- -------- -------- ------- -------
Total from investment
operations 0.43 1.25 (0.57) 1.23 1.17 1.37 0.37
-------- -------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.62) (0.65) (0.64) (0.67) (0.69) (0.73) (0.66)
Distribution in excess
of net investment
income - - (0.01) (0.02) - - - - (0.08) (0.01)
Distributions from net
realized capital gains (0.10) - - (0.14) (0.13) - - - - - -
Distributions in excess
of net realized gains - - - - (0.01) - - - - - - - -
-------- -------- -------- -------- -------- ------- -------
Total distributions (0.72) (0.66) (0.81) (0.80) (0.69) (0.81) (0.67)
-------- -------- -------- -------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 10.09 $ 10.38 $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70
======== ======== ======== ======== ======== ======= =======
Total return 4.33% 13.27% (5.27)% 12.13% 11.80% 14.74% 3.80%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $564,744 $443,148 $395,060 $341,791 $314,075 $52,802 $38,328
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.58% 0.57% 0.55% 0.74% 0.80% 0.80% 0.80%/2/
Before
advisory/administration
fee waivers 0.81% 0.77% 0.77% 0.78% 0.80% 0.84% 0.82%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.17% 6.44% 6.11% 6.25% 6.28% 7.36% 7.31%/2/
Before
advisory/administration
fee waivers 5.95% 6.24% 5.89% 6.21% 6.28% 7.32% 7.29%/2/
PORTFOLIO TURNOVER RATE 638% 203% 61% 72% 56% 38% 18%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL BOND PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE
PERIOD
6/10/96/1/
THROUGH
9/30/96
<S> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.37
-------
Income from investment operations
Net investment income 0.21
Net (loss) gain on investments (both realized and unrealized) 0.30
-------
Total from investment operations 0.51
-------
LESS DISTRIBUTIONS
Distributions from net investment income (0.17)
Distributions from net realized capital gains - -
-------
In Excess of Net Realized Gains
Total distributions (0.17)
-------
NET ASSET VALUE AT END OF PERIOD $ 11.71
=======
Total return 4.48%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $30,882
Ratios of expenses to average net assets 0.92%/2/
Excluding waivers 1.32%/2/
Ratios of net investment income to average net assets 6.28%/2/
Excluding waivers 5.88%/2/
PORTFOLIO TURNOVER RATE 108%
</TABLE>
+This Portfolio commenced operations on July 1, 1991 as the Compass Interna-
tional Fixed Income Fund, a separate investment portfolio (the "Predecessor In-
ternational Bond Portfolio") of Compass Capital Group, which was organized as a
Massachusetts business trust. The assets and liabilities of the Predecessor In-
ternational Bond Portfolio were transferred to this Portfolio, which had no
prior operating history, on February 13, 1996. For the periods presented, this
Portfolio received Sub-advisory services from another company that was unaffil-
iated with PAMG and BlackRock.
1 Commencement of operations of share class.
2 Annualized.
11.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 1/21/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $10.61 $10.04 $11.31 $10.61
------ ------ ------ ------
Income from investment operations
Net investment income 0.49 0.53 0.53 0.42
Net gain (loss) on investments (both
realized and unrealized) 0.28 0.59 (0.93) 0.70
------ ------ ------ ------
Total from investment operations 0.77 1.12 (0.40) 1.12
------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.54) (0.53) (0.53) (0.42)
Distributions from net realized
capital gains - - (0.02) (0.34) - -
------ ------ ------ ------
Total distributions (0.54) (0.55) (0.87) (0.42)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.84 $10.61 $10.04 $11.31
====== ====== ====== ======
Total return 7.45% 11.54% (3.77)% 10.72%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $8,350 $ 271 $ 132 $ 675
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.55% 0.52% 0.50% 0.50%/2/
Before advisory/administration fee
waivers 0.89% 1.30% 1.73% 1.28%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 5.10% 5.19% 4.97% 5.14%/2/
Before advisory/administration fee
waivers 4.78% 4.41% 3.74% 4.36%/2/
PORTFOLIO TURNOVER RATE 268% 92% 40% 71%
</TABLE>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 12/1/92/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $10 .33 $ 9.82 $10.70 $10.00
------- ------ ------ ------
Income from investment operations
Net investment income 0.52 0.52 0.53 0.39
Net gain (loss) on investments (both
realized and unrealized) 0.12 0.51 (0.85) 0.73
------- ------ ------ ------
Total from investment operations 0.64 1.03 (0.32) 1.12
------- ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.53) (0.52) (0.53) (0.39)
Distributions from net realized
capital gains - - - - (0.03) (0.03)
------- ------ ------ ------
Total distributions (0.53) (0.52) (0.56) (0.42)
------- ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.44 $10.33 $ 9.82 $10.70
======= ====== ====== ======
Total return 6.29% 10.81% (2.96)% 11.69%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 3,609 $2,092 $ 639 $ 256
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.55% 0.52% 0.39% 0.09%/2/
Before advisory/administration fee
waivers 0.85% 0.84% 0.99% 0.97%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 5.01% 5.23% 5.27% 5.19%/2/
Before advisory/administration fee
waivers 4.72% 4.91% 4.67% 4.31%/2/
PORTFOLIO TURNOVER RATE 119% 66% 30% 40%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
12.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 12/1/92/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $10.05 $ 9.60 $10.53 $10.00
------ ------ ------ ------
Income from investment operations
Net investment income 0.50 0.55 0.53 0.36
Net gain (loss) on investments (both
realized and unrealized) 0.10 0.45 (0.91) 0.53
------ ------ ------ ------
Total from investment operations 0.60 1.00 (0.38) 0.89
------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.50) (0.55) (0.53) (0.36)
Distributions from net realized
capital gains - - - - (0.02) - -
------ ------ ------ ------
Total distributions (0.50) (0.55) (0.55) (0.36)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.15 $10.05 $ 9.60 $10.53
====== ====== ====== ======
Total return 6.12% 10.75% (3.75)% 9.10%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 409 $ 200 $ 127 $1,676
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.51% 0.12% 0.10% 0.08%/2/
Before advisory/administration fee
waivers 1.10% 1.19% 1.49% 2.59%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.96% 5.61% 5.16% 4.99%/2/
Before advisory/administration fee
waivers 4.37% 4.54% 3.77% 2.48%/2/
PORTFOLIO TURNOVER RATE 136% 63% 61% 36%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
13.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 30 portfolios and
has been structured to include many different investment
styles across the spectrum of fixed income investments so
that investors may participate across multiple disciplines in
order to seek their long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of ten
investment portfolios that provide investors with a broad
spectrum of investment alternatives within the fixed income
sector. Six of these Portfolios invest solely in taxable
bonds and four of these Portfolios invest in tax-exempt
bonds.
In certain investment cycles and over certain holding peri-
ods, a fund that invests in any one of these styles may per-
form above or below the market. An investment program that
combines these multiple disciplines allows investors to se-
lect from among these various product options in the way that
most closely fits the investor's goals and sentiments.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Low Duration Bond To realize a rate of return that
exceeds the total return of the
Merrill Lynch 1-3 year Treasury Index.
Intermediate Government To seek current income consistent with
Bond, Intermediate Bond, the preservation of capital.
Managed Income and
International Bond
Core Bond To realize a total rate of return that
exceeds the total return of the Lehman
Brothers Aggregate Index.
Tax-Free Income, To seek as high a level of current
Pennsylvania Tax-Free income exempt from Federal income tax
Income, New Jersey Tax- and, to the extent possible for each
Free Income and Ohio State-Specific Tax-Free Portfolio,
Tax-Free Income income tax of the specific state in
which the Portfolio concentrates, as
is consistent with preservation of
capital.
</TABLE>
14.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE DIFFERENCES AMONG THE PORTFOLIOS?
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS:
<TABLE>
<CAPTION>
DOLLAR-
WEIGHTED
AVERAGE MIN
PERFORMANCE MATURITY CREDIT QUALITY CREDIT
PORTFOLIO BENCHMARK* (APPROXIMATE)** CONCENTRATION QUALITY
<S> <C> <C> <C> <C>
Low Duration Merrill 1-3 Year 3-5 Years Gov't/Agency AAA
Bond Treasury Index
Intermediate Lehman Brothers 5-10 Years Gov't/Agency AAA
Gov't Bond Intermediate Gov't
Intermediate Lehman Brothers 5-10 Years Investment Grade BBB
Bond Intermediate Spectrum
Gov't/Corp
Core Bond Lehman Aggregate 5-10 Years Investment Grade BBB
Spectrum
Managed Lehman Aggregate 5-10 Years Investment Grade BBB
Income Spectrum
International Salomon Non-U.S. 5-15 Years AA, AAA, BBB
Bond Hedged World Gov't/Agency
Government Bond Index
Tax-Free Lehman Municipal Bond 10-15 Years Investment Grade BBB
Income Index Spectrum
PA Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
NJ Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
OH Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
</TABLE>
*For more information on a Portfolio's benchmark, see the Appendix at the back
of this Prospectus.
**The Portfolios' sub-adviser will normally attempt to structure the Portfolios
to have comparable durations to the benchmarks. Duration, which measures price
sensitivity to interest rate changes, is not necessarily equal to average matu-
rity.
15.
<PAGE>
- --------------------------------------------------------------------------------
WHAT TYPES OF SECURITIES ARE IN THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following table summarizes the types of securities found in each Portfolio,
according to the following designations:
Yes:The Portfolio will hold a significant concentration of these securities
at all times.
Elig.: Eligible; the Portfolio may purchase these securities, but they may or
may not be a significant holding at a given time.
Temp.: Temporary; the Portfolio may purchase these securities, but under nor-
mal market conditions is not expected to do so.
No:The Portfolio may not purchase these securities.
<TABLE>
<CAPTION>
NON FOREIGN
AGENCY/ SECURITIES/
AGENCY COMMERCIAL CURRENCY
TREASURIES AGENCIES MBS/1/ MBS/1/ CORP. ABS/2/ RISK MUNICIPALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low Duration Yes Yes Yes Elig. Elig. Elig. No Elig.
Bond
Intermediate Yes Yes Yes Elig. Yes Elig. No Elig.
Gov't Bond
Intermediate Yes Yes Yes Elig. Yes Yes No Elig.
Bond
Core Bond Yes Yes Yes Elig. Yes Yes No Elig.
Managed Yes Yes Yes Elig. Yes Yes Elig. Elig.
Income
International Elig. Elig. Elig. Elig. Elig. Elig. Yes Elig.
Bond
Tax-Free Temp. No No No No No No Yes
Income
PA Tax-Free Temp. No No No No No No Yes
Income
NJ Tax-Free Temp. No No No No No No Yes
Income
OH Tax Free Temp. No No No No No No Yes
Income
</TABLE>
/1/MBS = mortgage-backed securities
/2/ABS = asset-backed securities
16.
<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 change to a Portfolio's investment
objective. No assurance can be provided that a Portfolio will achieve its in-
vestment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities) if more than 5% of
its total assets will be invested in the securities of any one issuer, ex-
cept that up to 25% of a Portfolio's total assets may be invested without
regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(3) in the case of each Tax-Free Portfolio (as defined below), invest less than
80% of its net assets 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 securi-
ties) 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 Portfolio's total assets may be in-
vested 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).
The investment limitations stated above are applied at the time investment se-
curities are purchased.
17.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ADDITIONAL INVESTMENT POLICIES AND RISKS APPLY?
- --------------------------------------------------------------------------------
INVESTMENT QUALITY. Securities acquired by the Low Duration Bond Portfolio and
Intermediate Government Bond Portfolio will be rated in the highest rating cat-
egory at the time of purchase or, if unrated, of comparable quality as deter-
mined by the Portfolios' sub-adviser. Securities acquired by the other Portfo-
lios will be rated investment grade at the time of purchase (within the four
highest rating categories by Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co. or Fitch Investor
Services, Inc.) or, if unrated, of comparable quality as determined by the
Portfolios' sub-adviser. Securities rated "Baa" on "BBB" are generally consid-
ered to be investment grade although they have speculative characteristics. If
a security's rating 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 Intermediate Government
Bond Portfolio will invest at least 65% of its total assets in obligations is-
sued or guaranteed by the U.S. Government, its agencies or instrumentalities
and related repurchase agreements during normal market conditions. Under normal
market conditions, the International Bond Portfolio will invest at least 65% of
its total assets in the debt obligations of foreign issuers located in at least
three different foreign countries. The Pennsylvania Tax-Free Income Portfolio,
New Jersey Tax-Free Income Portfolio and Ohio Tax-Free Income Portfolio (the
"State-Specific Tax-Free Portfolios") and the Tax-Free Income Portfolio (to-
gether with the "State-Specific Tax-Free Portfolios," the "Tax-Free Portfo-
lios") will invest, during normal market conditions, at least 80% of their net
assets in obligations issued by or on behalf of states, territories and posses-
sions of the United States, the District of Columbia and their political sub-
divisions, agencies, instrumentalities and authorities and related tax-exempt
derivative securities the interest on which is exempt from regular Federal in-
come tax and is not an item of tax preference for purposes of the Federal al-
ternative minimum tax ("Municipal Obligations"). In addition, each State-Spe-
cific 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 ("State-Specific Obligations"). The Tax-Free Income Portfolio intends
to invest no more than 25% of its net assets in Municipal Obligations of is-
suers located in the same state. During temporary defensive periods each Tax-
Free Portfolio may invest without limitation in securities that are not Munici-
pal Obligations and may hold without limitation uninvested cash reserves.
FOREIGN INVESTMENTS. The International Bond Portfolio will invest primarily in
foreign securities and currencies. The Managed Income Portfolio may invest up
to 10% of its total assets in debt securities of foreign issuers and may hold
from time to time various foreign currencies pending investment or conversion
into U.S. dollars. Investing in securities of foreign issuers involves consid-
erations not typically associated with investing in securities of companies or-
ganized and operated in the United States. Because foreign securities generally
are denominated and pay dividends or interest in foreign currencies, the value
of a Portfolio that invests in foreign securities will be affected favorably or
unfavorably by changes in currency exchange rates.
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitations on the removal of funds or
assets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations. In
general, less information is publicly available with respect to foreign issuers
than is available with respect to U.S. companies. Most foreign companies are
also not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. While the volume of transactions
effected on foreign stock exchanges has increased in recent years, it remains
appreciably below that of the New York Stock Exchange. Accordingly, a Portfo-
lio's foreign investments may be less liquid and their prices may be more vola-
tile than comparable investments in securities in U.S. companies. In addition,
there is generally less gov-
18.
<PAGE>
- --------------------------------------------------------------------------------
ernment 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.
Because the securities markets in these countries are highly developed, the In-
ternational Bond Portfolio may invest more that 25% of its total assets in the
securities of issuers located in Canada, France, Germany, Japan and the United
Kingdom. Investments of 25% or more of the Portfolio's total assets in a par-
ticular country will make the Portfolio's performance more dependent upon the
political and economic circumstances of a particular country than a mutual fund
that is more widely diversified among issuers in different countries.
To maintain greater flexibility, the International Bond Portfolio may invest in
instruments which have the characteristics of futures contracts. These 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 "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.
19.
<PAGE>
- --------------------------------------------------------------------------------
Each Tax-Free Portfolio may invest up to 20% of its total assets in private ac-
tivity bonds the interest on which is an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Paper") when added together with any
other taxable investments held by the Portfolio. In addition, each Tax-Free
Portfolio may invest 25% or more of its assets in Municipal Obligations the in-
terest on which is paid solely from revenues of similar projects. To the extent
a Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the particular risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
The Tax-Free Income Portfolio is classified as a diversified portfolio, and the
State-Specific Tax-Free Portfolios are classified as non-diversified portfo-
lios, under the 1940 Act. Investment returns on a non-diversified portfolio
typically are dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall value of a non-di-
versified portfolio more than it would a diversified portfolio.
Each Tax-Free Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a spec-
ified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the commit-
ment relates. The Tax-Free Portfolios may also invest in tax-exempt derivative
securities relating to Municipal Obligations, including tender option bonds,
participations, beneficial interests in trusts and partnership interests.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may be less extensive than the information for public cor-
porations, and the secondary market for Municipal Obligations may be less liq-
uid than that for taxable obligations. Accordingly, the ability of a Portfolio
to buy and sell Municipal Obligations may, at any particular time and with re-
spect to any particular securities, be limited. In addition, Municipal Obliga-
tions purchased by the Portfolios include obligations backed by letters of
credit and other forms of credit enhancement issued by domestic and foreign
banks, as well as other financial institutions. Changes in the credit quality
of these institutions could cause loss to a Tax-Free Portfolio and affect its
share price.
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 service providers 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 derivative securities, or
the bases for such opinions.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. The Portfolios (except the Tax-
Free Portfolios) may make significant investments in residential and commercial
mortgage-related and other asset-backed securities (i.e., securities backed by
home equity loans, installment sale contracts, credit card receivables or other
assets) issued by governmental entities and private issuers.
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. In most cases, however, payments of principal are applied
to the CMO classes in the order of their respective stated maturities, so that
no principal payments will be made on a CMO class until all other classes hav-
ing 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 retired and are con-
verted thereafter to interest-paying securities. They may also include planned
amortization classes ("PACs") which generally require, within certain limits,
that speci-
20.
<PAGE>
- --------------------------------------------------------------------------------
fied amounts of principal be applied on each payment date, and generally ex-
hibit less yield and market volatility than other classes.
Non-mortgage asset-backed securities involve risks that are not presented by
mortgage-related securities. Primarily, these securities do not have the bene-
fit of the same security interest in the underlying collateral. Credit card re-
ceivables are generally unsecured, and the debtors are entitled to the protec-
tion 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 pur-
chaser would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of vehicles
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. There-
fore, there is a possibility that recoveries on repossessed collateral may not,
in some cases, be able to support payments on these securities.
The yield and maturity characteristics of mortgage-related and other asset-
backed securities differ from traditional debt securities. A major difference
is that the principal amount of the obligations may normally be prepaid at any
time because the underlying assets (i.e., loans) generally may be prepaid at
any time. In calculating the average weighted maturity of a Portfolio, the ma-
turity of mortgage-related and other asset-backed securities held by the Port-
folio will be based on estimates of average life which take prepayments into
account. The average life of a mortgage-related 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. In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments.
The relationship between prepayments and interest rates may give some high-
yielding asset-backed securities less potential for growth in value than con-
ventional bonds with comparable maturities. In addition, in periods of falling
interest rates, the rate of prepayments tends to increase. During such periods,
the reinvestment of prepayment proceeds by a 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 and maturity may be difficult to predict precisely. To the extent that a
Portfolio purchases asset-backed securities at a premium, prepayments (which
may be made without penalty) may result in loss of the Portfolio's principal
investment to the extent of premium paid.
The Portfolios may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged and master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears Mortgage) or mortgage-related securities contain-
ing loans or mortgages originated by PNC Bank, National Association ("PNC
Bank") or its affiliates. It is possible that under some circumstances, PNC
Mortgage Securities Corp. or its affiliates could have interests that are in
conflict with the holders of these mortgage-backed securities, and such holders
could have rights against PNC Mortgage Securities Corp. or its affiliates.
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.
21.
<PAGE>
- --------------------------------------------------------------------------------
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.
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 investment
objectives, the Portfolios (except the Tax-Free Portfolios) may invest in debt
obligations of domestic or foreign corporations and banks, and may acquire com-
mercial 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 obliga-
tions may be general obligations of the parent bank or may be limited to the
issuing branch or subsidiary by the terms of a specific obligation or by gov-
ernment regulation. The Portfolios may also make interest-bearing savings de-
posits 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 Government National Mort-
gage Association are supported by the United States' full faith and credit;
others such as those of the Federal National Mortgage Association and the Stu-
dent 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 Federal Home Loan Mortgage Corporation are supported only by the credit
of the instrumentality. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or instrumen-
talities 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 may enter into these transactions primarily to preserve a return or spread
on a particular investment or portion of their holdings, as a duration manage-
ment technique or to protect against an increase in the price of securities 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.
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
22.
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transactions in portfolio securities denominated in that foreign currency, and
may also enter into contracts to purchase or sell foreign currencies at a fu-
ture date ("forward contracts") and purchase and sell foreign currency futures
contracts (futures contracts). The Portfolio may also purchase exchange-listed
and over-the-counter call and put options on futures contracts and on foreign
currencies, and may write covered call options on up to 100% of the currencies
in its portfolio. In order to protect against currency fluctuations, the Inter-
national Bond Portfolio may enter into currency swaps. Currency swaps involve
the exchange of the rights of the Portfolio and another party to make or re-
ceive 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, securities indices or the yield differential between two
securities, or, in the case of the International Bond Portfolio, foreign cur-
rencies, 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 pur-
chase put and call options when 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 afforded 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 its total assets, although a Portfolio will not purchase 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 entered in to 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 certain securities, the cash value of a securities index or a stated quan-
tity of a foreign currency. A Portfolio may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, a Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid 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; (d) the
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors; and (e)
the possibility that the counterparty will default to the performance of its
obligations. For further discussion of risks involved with domestic and foreign
futures and options, see the Statement of Additional Information.
23.
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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 interest. The higher de-
gree of leverage inherent in inverse floaters is associated with greater vola-
tility in their market values. Issuers of unrated variable and floating rate
instruments must satisfy the same criteria as set forth above for a Portfolio.
The absence of an active secondary market with respect to particular variable
and floating rate instruments, however, could make it difficult for a 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 borrow money. 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 de-
cline in value suffered by the Portfolio's securities. Borrowings may be made
through reverse repurchase agreements under which a Portfolio sells portfolio
securities to financial institutions such as banks and broker-dealers and
agrees to repurchase them at a particular date and price. The Portfolios may
use the proceeds of reverse repurchase agreements to purchase other securities
either maturing, or under an agreement to resell, on a date simultaneous with
or prior to the expiration of the reverse repurchase agreement. The Portfolios
(except the Tax-Free Portfolios) may use reverse repurchase 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 interest expense of the trans-
action. 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 obli-
gated to repurchase and that the securities may not be returned to the Portfo-
lio. During the time a reverse repurchase agreement is outstand-
24.
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ing, a Portfolio will maintain a segregated account with the Fund's custodian
containing cash, U.S. Government or other appropriate liquid securities having
a value at least equal to the repurchase price. A Portfolio's reverse repur-
chase agreements, together with any other borrowings, will not exceed, 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.
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.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' sub-adviser that an adequate trading market exists for the se-
curities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified institu-
tional buyers become uninterested in purchasing these restricted securities.
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 or market action.
When-issued and forward commitment transactions involve the risk, however, that
the price or yield obtained in a transaction may be less favorable than the
price or yield available in the market when the securities delivery takes
place. Each 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 those 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 a Portfo-
lio enters into a dollar roll transaction, it will place in a segregated ac-
count maintained with its custodian cash, U.S. Government securities or other
liquid securities having a value equal to the repurchase price (including ac-
crued interest) and will subsequently monitor the account to ensure that its
value is maintained. A Portfolio's dollar rolls, together with its reverse re-
purchase agreements and other borrowings, will not exceed, in the aggregate, 33
1/3% of the value of its total assets.
Dollar roll transactions involve the risk that the market value of the securi-
ties a Portfolio is required to purchase may decline below the agreed upon re-
purchase price of those securities. If the broker/dealer to
25.
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whom a Portfolio sells securities becomes insolvent, the Portfolio's right to
purchase or repurchase securities may be restricted. Successful use of mortgage
dollar rolls may depend upon the sub-adviser's ability to correctly predict in-
terest rates and prepayments. There is no assurance that dollar rolls can be
successfully employed.
SHORT SALES. The Portfolios may only make short sales of securities "against-
the-box." A short sale is a transaction in which a Portfolio sells a security
it does not own in anticipation that the market price of that security will de-
cline. The Portfolios may make short sales both as a form of hedging to offset
potential declines in long positions in similar securities and in order to
maintain portfolio flexibility. In a short sale "against-the-box," at the time
of sale, the Portfolio owns or has the immediate and unconditional right to ac-
quire the identical security at no additional cost. When selling short
"against-the-box," a Portfolio forgoes an opportunity for capital appreciation
in the security.
PORTFOLIO TURNOVER RATES. The past portfolio turnover rates of the Portfolios
are set forth above under "What Are the Portfolios' Financial Highlights?" A
Portfolio's annual portfolio turnover rate will not be a factor preventing a
sale or purchase when the sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates will
generally result in higher transaction costs to a Portfolio and may result in
the realization of short-term capital gains that are taxable to shareholders as
ordinary income.
INTEREST RATE AND EXTENSION RISK. The value of fixed income securities in the
Portfolios can be expected to vary inversely with changes in prevailing inter-
est rates. Fixed income securities with longer maturities, which tend to pro-
duce 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 securities, 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. Although the Portfolios' sub-adviser will normally attempt to
structure each Portfolio to have a comparable duration to its benchmark as
stated in that section, there can be no assurance that it will be able to do so
at all times.
STATE-SPECIFIC TAX-FREE PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Tax-Free Portfolios in State-Spe-
cific Obligations raises special investment considerations. In particular,
changes in the economic condition and governmental policies of a state and its
political subdivisions could adversely affect the value of a Portfolio's
shares. Certain matters relating to the states in which the State-Specific Tax-
Free Portfolios invest are described below. For further information, see "Spe-
cial Considerations Regarding State-Specific Obligations" in the Statement of
Additional Information.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following four
years. As of June 30, 1995, the General Fund had a surplus of $688.3 million.
For the fiscal year ended June 30, 1996, the General Fund's expenditures ex-
ceeded available revenues by approximately $253 million; this shortfall was
funded by the General Fund's unappropriated surplus. Rising unemployment, a
relatively high proportion of persons 65 and older in the Commonwealth and
court ordered increases in healthcare reimbursement rates place increased pres-
sures on the tax resources of the Commonwealth and its municipalities. The Com-
monwealth has sold a substantial amount of bonds over the past several years,
but the debt burden remains moderate. Employment growth has shifted to the
trade and service sectors, with losses in more high-paid manufacturing posi-
tions. A new governor took office in January 1995, but the Commonwealth has
continued 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
26.
<PAGE>
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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 instrumentalities. While New Jersey's eco-
nomic base has become more diversified over time and thus its economy appears
to be less vulnerable during recessionary periods, a recurrence of high levels
of unemployment could adversely affect New Jersey's overall economy and the
ability of New Jersey and its political subdivisions and instrumentalities to
meet their financial obligations. In addition, New Jersey maintains a balanced
budget which restricts total appropriation increases to only 5% annually with
respect to any municipality or county. This balanced budget plan may actually
adversely affect a particular municipality's or county's ability to repay its
obligations.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness. In past
years, the State's overall unemployment rate has been somewhat higher than the
national figure. For example, the reported 1990 average monthly State rate was
5.7%, compared to the 5.5% national figure. However, for the last five years
the State rates were below the national rates (4.8% versus 5.6% in 1995). The
unemployment rate and its effects vary among particular geographic areas of the
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government fi-
nances generally will not adversely affect the market value of Ohio State-Spe-
cific Obligations held in the Portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
27.
<PAGE>
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WHO MANAGES THE FUND?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the
TRUSTEES direction of its Board of Trustees. The following persons
currently serve on the Board:
William O. Albertini--Executive Vice President and Chief Fi-
nancial Officer of Bell Atlantic Corporation.
Raymond J. Clark--Treasurer of Princeton University.
Robert M. Hernandez--Vice Chairman and Chief Financial
Officer of USX Corporation.
Anthony M. Santomero--Deputy Dean of The Wharton School,
University of Pennsylvania.
David R. Wilmerding, Jr.--Chairman, Gee, Wilmerding & Associ-
ates, Inc.
ADVISER AND The Adviser to the Compass Capital Funds is PNC Asset Manage-
SUB-ADVISER ment Group ("PAMG"). Each of the Portfolios within the Com-
pass Capital Fund family is managed by a specialized portfo-
lio manager who is a member of PAMG's fixed income portfolio
management subsidiary, BlackRock Financial Management, Inc.
("BlackRock"). BlackRock has its primary offices at 345 Park
Avenue, New York, New York 10154.
The ten Portfolios and their portfolio managers are as fol-
lows:
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PORTFOLIO MANAGER
------------------------- -----------------
<S> <C>
Low Duration Bond Robert S. Kapito; Vice Chairman of
BlackRock since 1988; Portfolio co-manager
since its inception.
Scott Amero; Managing Director of BlackRock
since 1990; Portfolio co-manager since its
inception.
Jody Kochansky; Vice President of BlackRock
since 1992; Portfolio co-manager since
1995.
Intermediate Government Bond Robert S. Kapito and Scott Amero (see
above) and Michael P. Lustig; Mr. Lustig
has been Vice President of BlackRock since
1989; Messrs. Kapito, Lustig and Amero have
been Portfolio co-managers since 1995.
Intermediate Bond Robert S. Kapito, Michael P. Lustig and
Scott Amero (see above); Messrs. Kapito,
Lustig and Amero have been Portfolio co-
managers since 1995.
Core Bond Scott Amero (see above); Mr. Amero has been
Portfolio manager since its inception.
Managed Income 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 Andrew Gordon; portfolio manager at
BlackRock since 1996; responsible for non-
dollar research at Barclay Investments from
1994 to 1996 and at CS First Boston from
1986 to 1994; Portfolio manager since
January 1997.
</TABLE>
28.
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<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PORTFOLIO MANAGER
------------------------- -----------------
<S> <C>
Tax-Free Income 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 Income Kevin Klingert (see above); Portfolio
manager since 1995.
New Jersey Tax-Free Income Kevin Klingert (see above); Portfolio
manager since 1995.
Ohio Tax-Free Income Kevin Klingert (see above); Portfolio
manager since 1995.
</TABLE>
29.
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PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1600
Market Street, 29th Floor, Philadelphia, Pennsylvania 19103.
PAMG is an indirect wholly-owned subsidiary of PNC Bank
Corp., a multi-bank holding company.
For their investment advisory and sub-advisory services,
PAMG and the Portfolios' sub-adviser are entitled to fees,
computed daily on a Portfolio-by-Portfolio basis and payable
monthly, at the maximum annual rates set forth below. As
stated under "What Are The Expenses Of The Portfolios?" PAMG
and the sub-adviser intend to waive a portion of their fees
during the current fiscal year. All sub-advisory fees are
paid by PAMG, and do not represent an extra charge to the
Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)
<TABLE>
<CAPTION>
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL
BOND PORTFOLIO INTERNATIONAL BOND PORTFOLIO
------------------------- ----------------------------------
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE ADVISORY FEE FEE
<S> <C> <C> <C> <C>
first $1 billion .500% .350% .550% .400%
$1 billion--$2 billion .450 .300 .500 .350
$2 billion--$3 billion .425 .275 .475 .325
greater than $3 billion .400 .250 .450 .300
</TABLE>
For the twelve months ended September 30, 1996, the Portfo-
lios (other than the Low Duration Bond, Core Bond, Interna-
tional Bond and New Jersey Tax-Free Income Portfolios) paid
investment advisory fees at the following annual rates (ex-
pressed as a percentage of average daily net assets) after
voluntary fee waivers: Intermediate Government Bond Portfo-
lio, .28%; Intermediate Bond Portfolio, .30%; Managed Income
Portfolio, .35%; Tax-Free Income Portfolio, .28%; Pennsylva-
nia Tax-Free Income Portfolio, .29%; and Ohio Tax-Free In-
come Portfolio, .06%. For the period from April 1, 1996
through September 30, 1996, the Low Duration Bond and Core
Bond Portfolios paid investment advisory fees, after volun-
tary fee waivers, at the annual rates of .30% and .30% of
their respective average daily net assets. For the periods
from February 1, 1996 and February 13, 1996, respectively,
through September 30, 1996, the New Jersey Tax-Free Income
and International Bond Portfolios paid investment advisory
fees, after voluntary fee waivers, at the annual rates of
.30% and .55% of their respective average daily net assets.
The Portfolios' sub-adviser strives to achieve best execu-
tion on all transactions. Infrequently, brokerage transac-
tions for the Portfolios may be directed through registered
broker/dealers who have entered into dealer agreements with
Compass Capital's distributor, subject to the requirements
of best execution.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC") and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the Fund's co-administrators. CCG and PFPC are in-
direct wholly-owned subsidiaries of PNC Bank Corp. CDI is a
wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). A majority of the outstanding stock of PDI is owned
by its officers.
The Administrators generally assist the Fund in all aspects
of its administration and operation, including matters re-
lating to the maintenance of financial records and fund ac-
counting. As compensation for these services, CCG is enti-
tled to receive a
30.
<PAGE>
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fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .20% of the first $500
million of each Portfolio's average daily net assets, .18% of
the next $500 million of each Portfolio's average daily net as-
sets, .16% of the next $1 billion of each Portfolio's average
daily net assets and .15% of each Portfolio's average daily net
assets in excess of $2 billion. From time to time the Adminis-
trators may waive some or all of their administration fees from
a Portfolio.
For information about the operating expenses the Portfolios
paid for the most recent fiscal period, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves as
AGENT, their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, fees and expenses in registering
and qualifying the Portfolios and their shares for distribution
under Federal and state securities laws, expenses of preparing
prospectuses and statements of additional information and of
printing and distributing prospectuses and statements of addi-
tional information to existing shareholders, expenses relating
to shareholder reports, shareholder meetings and proxy solici-
tations, 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 be-
long to a particular investment portfolio will be allocated
among all investment portfolios by or under the direction of
the Board of Trustees in a manner the Board determines to be
fair and equitable.
31.
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HOW ARE SHARES PURCHASED AND REDEEMED?
- -------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at
Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Fund is not required or permitted under the Plan to
make distribution payments with respect to Institutional Shares. However, the
Plan permits CDI, PAMG, the Administrators and other companies that receive
fees from the Fund to make payments relating to distribution and sales support
activities out of their past profits or other sources available to them which,
subject to applicable NASD regulations, may include contributions to various
non-cash and cash incentive arrangements to promote the sale of shares, as
well as sponsorship of various educational programs, sales contests and promo-
tions in which participants may receive reimbursement of expenses, entertain-
ment and prizes such as travel awards, merchandise and cash. For further in-
formation, see "Investment Advisory, Administration, Distribution and Servic-
ing Arrangements" in the Statement of Additional Information.
PURCHASE OF SHARES. Institutional Shares are offered to institutional invest-
ors, including registered investment advisers with a minimum investment of
$500,000 and individuals with a minimum investment of $2,000,000.
Institutional Shares are sold at their net asset value per share next computed
after an order is received by PFPC. Orders received by PFPC by 4:00 p.m.
(Eastern Time) on a Business Day are priced the same day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal Re-
serve Bank of Philadelphia (the "FRB") are open for business.
Purchase orders may be placed by telephoning PFPC at (800) 441-7450. Orders
received by PFPC after 4:00 p.m. (Eastern Time) are priced on the following
Business Day.
Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Fund's custodian. Payment may also,
in the discretion of the Fund, be made in the form of securities that are per-
missible investments for the respective Portfolios. For further information,
see the Statement of Additional Information. The minimum initial investment
for institutions is $5,000. There is no minimum subsequent investment require-
ment.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Institutional Shares.
REDEMPTION OF SHARES. Redemption orders for Institutional Shares may be placed
by telephoning PFPC at (800) 441-7450. Institutional Shares are redeemed at
their net asset value per share next determined after PFPC's receipt of the
redemption order. The Fund, the Administrators and the Distributor will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Fund and its service providers will not be liable for any
loss, liability, cost or expense for acting upon telephone instructions that
are reasonably believed to be genuine in accordance with such procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the next Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption
orders received after 4:00 p.m. (Eastern Time) or on a day when the Fund's
custodian is closed is normally wired in Federal funds on the next Business
Day following redemption on which the Fund's custodian is open for business.
The Fund reserves the right to wire redemption proceeds within seven days af-
ter receiving a redemp-
32.
<PAGE>
- --------------------------------------------------------------------------------
tion order if, in the judgment of PAMG, an earlier payment could adversely af-
fect a Portfolio. No charge for wiring redemption payments is imposed by the
Fund.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund may redeem Institutional Shares in any Portfolio account if the ac-
count balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 on thirty days'
written notice.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
33.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Institutional Shares of each Port-
folio as of the close of regular trading hours on the NYSE (currently 4:00 p.m.
Eastern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio that are allocated to its Institutional
Shares, less the liabilities charged to its Institutional Shares, by the number
of its Institutional Shares that are outstanding.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices, or the mean between bid and asked prices,
that are provided by securities dealers or pricing services. Portfolio securi-
ties which are primarily traded on foreign securities exchanges are normally
valued at the preceding closing values of such securities on their respective
exchanges. Securities for which market quotations are not readily available are
valued at fair market value as determined in good faith by or under the direc-
tion of the 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.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. All distributions are
reinvested at net asset value in the form of additional full and fractional
shares of Institutional Shares of the relevant Portfolio unless a shareholder
elects otherwise. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC. Each Portfolio declares a dividend each day on "settled"
shares (i.e. shares for which the particular Portfolio has received payment in
Federal funds) on the first Business day after a purchase order is placed with
the Fund. Payments by check are normally converted to Federal funds within two
Business Days of receipt. 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 projections 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 annually.
34.
<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), 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 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. In addition,
investors should be aware of the possibility of state and local alternative
minimum or minimum income tax liability on interest from private activity
bonds. Shareholders who are recipients of Social Security Act or Railroad Re-
tirement Act benefits should note that "exempt interest dividends" will be
taken into account in determining 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.
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. Any loss upon the sale or ex-
change of shares held for six months or less will be disallowed for Federal in-
come tax purposes to the extent of any exempt interest dividends received by
the shareholder. For the Ohio Tax-Free Income Portfolio, the loss will be dis-
allowed for Ohio income tax purposes to the same extent, even though, for Ohio
income tax purposes, some portion of such dividends actually may have been sub-
ject to Ohio income tax.
It is expected that dividends and certain interest income earned by the Inter-
national Bond Portfolio from foreign securities will be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of a taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. Federal
income tax purposes, to treat certain foreign taxes paid by it, including gen-
erally any withholding taxes and other foreign income taxes, as paid by its
shareholders.
35.
<PAGE>
- --------------------------------------------------------------------------------
The Portfolio intends to make this election. As a result, the amount of such
foreign taxes paid by the Portfolio will be included in its shareholders' in-
come pro rata (in addition to taxable distributions actually received by them),
and each shareholder generally will be entitled either (a) to credit a propor-
tionate 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, should the shareholder so choose.
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
addition,shareholders who are non-resident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to differ-
ent Federal income tax treatment. Future legislative or administrative changes
or court decisions may materially affect the tax consequences of investing in a
Portfolio. For additional information concerning the tax treatment of dividends
and distributions by the states listed below, including certain restrictions
applicable to such treatment, see "Taxes" in the Statement of Additional Infor-
mation.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder attributable
to interest realized by the Pennsylvania Tax-Free Income Portfolio from Penn-
sylvania State-Specific Obligations or attributable to insurance proceeds on
account of such interest, is not taxable to individuals, estates or trusts un-
der 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 exempt for Federal income tax purposes); nor to individuals under the Phil-
adelphia 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 State-
Specific Obligations is taxable under the Personal Income Tax, the Corporate
Net Income Tax, and, unless these assets were held by the Pennsylvania Tax-Free
Income 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 State-Specific Obligations held by the Pennsylvania Tax-Free
Income Portfolio, such gain may be subject to the Personal Income Tax and Cor-
porate Net Income Tax. Such gain may also be subject to the School District
Tax, except that gain realized with respect to a share held for more than six
months is not subject to the School District Tax.
This discussion does not address the extent, if any, to which shares, or inter-
est and gain thereon, is subject to, or included in the measure of, the special
taxes imposed by the Commonwealth of Pennsylvania on banks and other financial
institutions or with respect to any privilege, excise, franchise or other tax
imposed on business entities not discussed above (including the Corporate Capi-
tal Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Tax-Free Income Portfolio are not subject to
the Pennsylvania County Personal Property Tax to the extent that the Portfolio
is comprised of Pennsylvania State-Specific Obligations and Federal obligations
(if the interest on such obligations is exempt from state and local taxation
under the laws of the United States).
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. Shares of the Portfolio are not subject to property taxation by New
Jersey or its political subdivisions.
36.
<PAGE>
- --------------------------------------------------------------------------------
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio per-
sonal income tax or municipal or school district income taxes in Ohio will not
be subject to such taxes on distributions from the Ohio Tax-Free Income Portfo-
lio to the extent that such distributions are properly attributable to interest
on Ohio State-Specific Obligations or obligations issued by the U.S. Govern-
ment, its agencies, instrumentalities or territories (if the interest on such
obligations is exempt from state income taxation under the laws of the United
States) Corporations that are subject to the Ohio corporation franchise tax
will not have to include distributions from the Ohio Tax-Free Income Portfolio
in their net income base for purposes of calculating their Ohio corporation
franchise tax liability to the extent that such distributions either constitute
exempt-interest dividends for Federal income tax purposes or are properly at-
tributable to interest on Ohio State-Specific Obligations or the U.S. obliga-
tions described above. However, Shares of the Ohio Tax-Free Income Portfolio
will be included in a corporation's net worth base for purposes of calculating
the Ohio corporation franchise tax. Distributions properly attributable to gain
on the sale, exchange or other disposition of Ohio State-Specific Obligations
will not be subject to the Ohio personal income tax, or municipal or school
district income taxes in Ohio and will not be included in the net income base
of the Ohio corporation franchise tax. Distributions attributable to other
sources will be subject to the Ohio personal income tax and the Ohio corpora-
tion franchise tax.
37.
<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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Institutional Shares of the Portfolios described here-
in.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's classes
of Investor Shares. The performance of each class of Investor Shares may be
different. The Fund offers various services and privileges in connection with
its Investor Shares that are not generally offered in connection with its In-
stitutional and Service Shares, including an automatic investment plan and an
automatic withdrawal plan. For further information regarding the Fund's Service
and Investor Share classes, contact PFPC at (800) 441-7764 (Service Shares) or
(800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets that 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 November 30, 1996, PNC Bank held of record approximately 70% 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.
38.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Performance information for Institutional Shares of the Portfolios may be
quoted in advertisements and communications to shareholders. Total return will
be calculated on an average annual total return basis for various periods. Av-
erage annual total return reflects the average annual percentage change in
value of an investment in Institutional Shares of a Portfolio over the measur-
ing period. Total return may also be calculated on an aggregate total return
basis. Aggregate total return reflects the total percentage change in value
over the measuring period. Both methods of calculating total return assume that
dividend and capital gain distributions made by a Portfolio with respect to its
Institutional Shares are reinvested in Institutional Shares.
The yield of Institutional Shares is computed by dividing the Portfolio's net
income per share allocated to its Institutional Shares during a 30-day (or one
month) period by the net asset value per share on the last day of the period
and annualizing the result on a semi-annual basis. Each Tax-Free Portfolio's
"tax-equivalent yield" may also be quoted, which shows the level of taxable
yield needed to produce an after-tax equivalent to a Portfolio's tax-free
yield. This is done by increasing the Portfolio's yield (calculated above) by
the amount necessary to reflect the payment of Federal and/or state income tax
at a stated tax rate.
The performance of a Portfolio's Institutional Shares may be compared to the
performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the performance of a Portfolio's Institu-
tional Shares may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service, and with the performance of the Lehman GMNA Index, the T-Bill Index,
the "stocks, bonds and inflation index" published annually by Ibbotson Associ-
ates and the Lehman Government Corporate Bond Index, as well as the benchmarks
attached to this Prospectus. Performance information may also include evalua-
tions of the Portfolios and their Institutional Shares published by nationally
recognized ranking services, and information as reported in financial publica-
tions such as Business Week, Fortune, Institutional Investor, Money Magazine,
Forbes, Barron's, The Wall Street Journal and The New York Times, or in publi-
cations of a local or regional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Institutional Shares of a particular Portfolio, a Portfolio
may provide other information demonstrating hypothetical investment returns.
This information may include, but is not limited to, illustrating the com-
pounding effects of dividends in a dividend reinvestment plan or the impact of
tax-deferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Institutional Shares, when redeemed, may be worth more or less
than their original cost. Since performance will fluctuate, performance data
for Institutional Shares of a Portfolio cannot necessarily be used to compare
an investment in such shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Performance is generally a function of the kind
and quality of the instruments held in a portfolio, portfolio maturity, operat-
ing expenses and market conditions. Any fees charged by brokers or other insti-
tutions directly to their customer accounts in connection with investments in
Institutional Shares will not be included in the Portfolio performance calcula-
tions.
39.
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of the Compass Capital Funds:
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of the Short Government Bond, Intermediate
Government Bond, Intermediate Bond, Core Bond, Government Income, Managed In-
come, International Bond, Tax-Free Income and New Jersey Tax-Free Income Port-
folios of the Compass Capital Fund, and the statements of net assets of the
Pennsylvania Tax-Free Income and Ohio Tax-Free Income Portfolios of the Compass
Capital Funds as of September 30, 1996, and the related statements of opera-
tions for the periods then ended, the statements of changes in net assets for
each of the two years (or periods) in the period then ended, and the financial
highlights for each of the periods presented (except for those statements which
have been audited by other auditors as discussed below). These financial state-
ments 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. The statements of changes in net as-
sets for the year ended June 30, 1995, and the financial highlights for the
year ended June 30, 1995 and each of the prior periods presented of the Short
Government Bond and Core Bond Portfolios, formerly the BFM Institutional Trust
Short Duration and Core Fixed Income Portfolios (the "BFM Funds"), respectively
were audited by other auditors, whose report dated August 7, 1995 expressed an
unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of materials misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian and brokers as of September 30, 1996. An audit also includes assess-
ing the accounting principles used and significant estimates made by manage-
ment, 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
Compass Capital Funds (Short Government Bond, Intermediate Government Bond, In-
termediate Bond, Core Bond, Government Income, Managed Income, International
Bond, Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free and
Ohio Tax-Free Income Portfolios), as of September 30, 1996, and the results of
their operations for the periods then ended, the changes in their net assets
for each of the two years (or periods) in the period then ended (except for the
year ended June 30, 1995 for the BFM Funds which have been audited by other au-
ditors), and the financial highlights for each of the periods presented (except
for the year ended June 30, 1995 and prior periods for the BFM Funds which have
been audited by other auditors), in conformity with generally accepted account-
ing principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 22, 1996
40.
<PAGE>
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HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
CONVENIENT WAYS TO ACCESS FUND INFORMATION
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7764
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7764
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7450
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
41.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Low Duration Bond Merrill 1-3 Year Treasuries with maturities ranging from 1 to 2.99
Treasury Index years
Intermediate Government Lehman Brothers Treasury and agency issues in the Lehman Aggregate,
Bond Intermediate Government excluding maturities above 9.99 years
Intermediate Bond Lehman Brothers Treasury, agency and corporate issues in the Lehman
Intermediate Gov't/Corp 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 November 1996, the composition of the Lehman
Brothers Aggregate Index is:
52% allocation to Treasury and government securities
29% allocation to mortgage-backed securities
19% allocation to corporate and asset-backed
securities
Managed Income 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 November 1996, the composition of the Lehman
Brothers Aggregate Index is:
52% allocation to Treasury and government securities
29% allocation to mortgage-backed securities
19% allocation to corporate and asset-backed
securities
International Bond Salomon Non-U.S. A market-capitalization weighted benchmark that
Hedged World tracks the performance of the 13 Government bond
Government Bond Index 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 All of the bonds in the following Municipal Indices
Bond Index possess the following characteristics:
. A minimum credit rating of Baa-3
. Outstanding par value of at least $3 million
.Must be issued as part of a deal of at least $50
million
. Individual bonds must have been issued within the
last 5 years
. Remaining maturity of not less than one year
Excludes bonds subject to the alternative minimum
tax (AMT), taxable municipal bonds, and floating-
rate or zero coupon municipal bonds
Pennsylvania Tax-Free Lehman Local GO Index Local general obligation bonds
Income
New Jersey Tax-Free Lehman Local GO Index Local general obligation bonds
Income
Ohio Tax-Free Income Lehman Local GO Index Local general obligation bonds
</TABLE>
42.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment style.SM
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity Small Cap Growth Equity
Large Cap Value Equity Small Cap Value Equity
Mid-Cap Growth Equity International Equity
Mid-Cap Value Equity International Emerging Markets
Index Equity
Select Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- --------------------------------------------------------------------------------
THE BOND PORTFOLIOS SERVICE SHARES
- --------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 7
What Are The Portfolios?..................................... 16
What Are The Differences Among The Portfolios?............... 17
What Types of Securities Are In The Portfolios?.............. 17
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 18
What Additional Investment Policies And Risks Apply?......... 19
Who Manages The Fund?........................................ 29
How Are Shares Purchased And Redeemed?....................... 34
What Special Purchase And Redemption Procedures May Apply?... 36
How Is Net Asset Value Calculated?........................... 38
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 38
How Are Fund Distributions Taxed?............................ 39
How Is the Fund Organized?................................... 42
How Is Performance Calculated?............................... 43
Other Information............................................ 44
How Can I Get More Information?.............................. 45
</TABLE>
This Prospectus contains information about the Compass Capital
bond Portfolios that a prospective investor needs to know before
investing. Please keep it for future reference. A Statement of
Additional Information dated January 1, 1997 has been filed with
the Securities and Exchange Commission (the "SEC"). The Statement
of Additional Information may be obtained free of charge from the
Fund by calling (800) 441-7764. The Statement of Additional In-
formation, 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC TAX-FREE PORTFOLIOS ARE INTENDED
ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
2.
<PAGE>
- --------------------------------------------------------------------------------
THE BOND PORTFOLIOS OF COMPASS CAPITAL FUNDS
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 30 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 ten in-
vestment portfolios (the "Portfolios") that provide investors
with a broad spectrum of investment alternatives within the
fixed income sector. Six of these Portfolios invest in taxable
bonds, and four of these Portfolios invest in tax-exempt bonds.
A detailed description of each Portfolio begins on page 16.
COMPASS PERFORMANCE LIPPER PEER GROUP
CAPITAL BENCHMARK
PORTFOLIO
LOW DURATION Merrill 1-3 Short-Intermediate U.S.
BOND Year Treasury Government
(PREVIOUSLY Index
CALLED THE
SHORT
GOVERNMENT
BOND
PORTFOLIO)
INTERMEDIATE Lehman Brothers Intermediate U.S.
GOVERNMENT Intermediate Government
BOND Government
INTERMEDIATE Lehman Brothers Intermediate
BOND Intermediate Government/Corporate
Government/Corporate
CORE BOND Lehman Intermediate Investment
MANAGED INCOME Aggregate Grade Debt
Lehman Corporate Debt A-Rated
Aggregate
INTERNATIONAL Salomon Non- International Income
BOND U.S. Hedged
World
Government
Bond Index
TAX-FREE Lehman General Municipal Debt
INCOME Municipal Bond
Index
PA TAX-FREE Lehman Local GO PA Municipal Debt
INCOME Index
NJ TAX-FREE Lehman Local GO NJ Municipal Debt
INCOME Index
OH TAX FREE Lehman Local GO OH Municipal Debt
INCOME Index
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.
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective. Some or all of the Portfolios may pur-
BOND chase mortgage-related, asset-backed, foreign and illiquid se-
INVESTING curities; enter into repurchase and reverse repurchase agree-
ments and engage in leveraging techniques; lend portfolio secu-
rities to third parties; and enter into futures contracts and
options. Each of the Pennsylvania, New Jersey and Ohio Tax-Free
Income Portfolios (the "State-Specific Tax-Free Portfolios")
concentrates in the securities of issuers located in a particu-
lar state, and is non-diversified, which means that its perfor-
mance may be dependent upon the performance of a smaller number
of securities than the other Portfolios, which are considered
diversified. See "What Additional Investment Policies And Risks
Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?" and
CAPITAL "What Special Purchase And Redemption Procedures May Apply?"
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Service Shares
of the Portfolios after fee waivers for the fiscal period ended September 30,
1996 as a percentage of average daily net assets. The figures shown for the In-
termediate Government Bond, Intermediate Bond, International, Tax-Free Income,
Pennsylvania Tax-Free Income and Ohio Tax-Free Income Portfolios have been re-
stated to reflect current expenses and fee waivers. An example based on the
summary is also shown.
<TABLE>
<CAPTION>
LOW INTERMEDIATE
DURATION GOVERNMENT INTERMEDIATE
BOND BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/1/) .30% .30% .30%
Other operating expenses .55 .55 .55
----- ------ ------
Administration fees (after fee
waivers)(/1/) .15 .15 .13
Shareholder servicing fees .15 .15 .15
Other expenses .25 .25 .27
---- ----- -----
Total Portfolio operating expenses
(after fee waivers)(/1/) .85% .85% .85%
===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
CORE MANAGED
BOND INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .30% .35%
Other operating expenses .55 .53
----- -----
Administration fees (after
fee waivers)(/1/) .14 .15
Shareholder servicing fees .15 .15
Other expenses .26 .23
---- ----
Total Portfolio operating
expenses
(after fee waivers)(/1/) .85% .88%
===== =====
</TABLE>
(1) Without waivers, advisory fees would be .50% and administration fees would
be .23% for each Portfolio. PAMG and the Portfolios' administrators are un-
der no obligation to waive fees or reimburse expenses, but have informed
the Fund that they expect to waive fees and reimburse expenses during the
remainder of the current fiscal year as necessary to maintain the Portfo-
lios' total operating expenses at the levels set forth in the table. With-
out waivers, "Other operating expenses" would be .63%, .63%, .65%, .64% and
.61%, respectively, and "Total Portfolio operating expenses" would be
1.13%, 1.13%, 1.15%, 1.14% and 1.11%, respectively. See "What are the Port-
folios' Financial Highlights?" for information about interest paid by the
Portfolios in connection with their investment activity.
4.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA
INTERNATIONAL TAX-FREE TAX-FREE
BOND INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Advisory fees (after fee
waivers)(/1/) .50% .30% .30%
Other operating expenses .78 .55 .55
--- --- ---
Administration fees (after fee
waivers)(/1/) .15 .11 .14
Shareholder servicing fees .15 .15 .15
Other expenses (after expense
reimbursements) .48 .29 .26
--- --- ---
Total Portfolio operating expenses
(after fee waivers and expense
reimbursements)(/1/) 1.28% .85% .85%
==== === ===
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY OHIO
TAX-FREE TAX-FREE
INCOME INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fees (after fee
waivers)(/1/) .30% .30%
Other operating expenses .55 .55
--- ---
Administration fees (after
fee waivers)(/1/) .11 .10
Shareholder servicing fees .15 .15
Other expenses .29 .30
---- ----
Total Portfolio operating
expenses
(after fee waivers)(/1/) .85% .85%
=== ===
</TABLE>
(1) Without waivers, advisory fees would be .55%, .50%, .50%, .50% and .50%,
respectively, and administration fees would be .23% for each Portfolio. In
addition, the Expense Summary reflects reimbursements made to the Tax-Free
Income Portfolio by the adviser. PAMG and the Portfolio's 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.
Without waivers, "Other operating expenses" would be .86%, .67%, .64%, .67%
and .68% respectively, and "Total Portfolio operating expenses" would be
1.41%, 1.17%, 1.14%,1.17% and 1.18%, respectively.
5.
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Low Duration Bond Portfolio $ 9 $27 $47 $105
Intermediate Government Bond
Portfolio 9 27 47 105
Intermediate Bond Portfolio 9 27 47 105
Core Bond Portfolio 9 27 47 105
Managed Income Portfolio 9 28 49 108
International Bond Portfolio 11 33 57 127
Tax-Free Income Portfolio 9 27 47 105
Pennsylvania Tax-Free Income
Portfolio 9 27 47 105
New Jersey Tax-Free Income Portfolio 9 27 47 105
Ohio Tax-Free Income Portfolio 9 27 47 105
</TABLE>
The foregoing Tables and Example are intended to assist investors in under-
standing the costs and expenses that an investor in the Portfolios will bear
either directly or indirectly. They do not reflect any charges that may be im-
posed by brokers or other institutions directly on their customer accounts in
connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
6.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information and has been audited by the
Portfolios' independent accountants. The financial statements
of the Core Bond Portfolio and the Low Duration Portfolio (for-
merly, the Short Government Bond Portfolio) for the year ended
June 30, 1995 were audited by other auditors. Please refer to a
revised auditor's report under "Other Information" which makes
reference to the audits performed by those other auditors. This
financial information should be read together with those finan-
cial statements. Further information about the performance of
the Portfolios is available in the Fund's annual shareholder
reports. Both the Statement of Additional Information and the
annual shareholder reports may be obtained from the Fund free
of charge by calling (800) 441-7764.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
LOW DURATION BOND PORTFOLIO+
(FORMERLY, THE SHORT GOVERNMENT BOND PORTFOLIO)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
APRIL 1, 1996 JANUARY 13, 1996/1/
THROUGH THROUGH
SEPTEMBER 30, 1996 MARCH 31, 1996
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.79 $ 9.91
------- --------
Net investment income (net of $.014,
$.011 and $.005 respectively,
of interest expense) 0.26 0.11
Net realized and unrealized loss on
investments (0.01) (0.12)
------- --------
Net increase from investment operations 0.25 (0.01)
------- --------
Dividends from net investment income (0.25) (0.11)
Distributions from net realized capital
gains - - - -
------- --------
Total dividends and distributions (0.25) (0.11)
------- --------
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 9.79
======= ========
Total investment return 2.54% (0.11)%
RATIOS TO AVERAGE NET ASSETS:
Expenses/2/ 0.85%/3/ 0.85%/3/
Excluding waivers/2/ 1.13% 1.05%
Net investment income/2/ 5.40% 5.25%
Excluding waivers/2/ 5.13% 5.05%
SUPPLEMENTAL DATA:
Portfolio turnover 228% 185%
Net assets, end of period (in
thousands) $91,870 $181,670
</TABLE>
+ This Portfolio commenced operations on July 17, 1992 as the Short Duration
Portfolio, a separate investment portfolio (the "Predecessor Low Duration
Bond Portfolio") of The BFM Institutional Trust Inc., which was organized as
a Maryland business corporation. On January 13, 1996, the assets and
liabilities of the Predecessor Low Duration Bond Portfolio were transferred
to this Portfolio, and were combined with the assets of a pre-existing
portfolio of investments maintained by the Fund.
/1/Commencement of investment operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 0.97% for the period ended
September 30, 1996 and 1.18% for the period ended March 31, 1996. For the
periods prior to March 31, 1996, interest income was presented net of
interest expense.
7.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29//93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 10.02 $ 9.64 $ 10.60 $ 10.45
------- ------- ------- -------
Income from investment
operations
Net investment income 0.56 0.56 0.53 0.09
Net gain (loss) on investments
(both realized and
unrealized) (0.12) 0.37 (0.86) 0.15
------- ------- ------- -------
Total from investment
operations 0.44 0.93 (0.33) 0.24
------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.54) (0.55) (0.53) (0.09)
Distributions from net
realized capital gains - - - - (0.10) - -
------- ------- ------- -------
Total distributions (0.54) (0.55) (0.63) (0.09)
------- ------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 9.92 $ 10.02 $ 9.64 $ 10.60
======= ======= ======= =======
Total return 4.51% 9.99% (3.31)% 2.30%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $47,494 $49,762 $60,812 $15,035
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.83%/3/ 0.69%/3/ 0.65% 0.67%/2/
Before advisory/administration
fee waivers 1.13% 1.06% 1.05% 0.75%/2/
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 5.73% 5.67% 5.30% 5.14%/2/
Before advisory/administration
fee waivers 5.43% 5.30% 4.90% 5.06%/2/
PORTFOLIO TURNOVER RATE 580% 247% 9% 80%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 1.00% for the period ended
September 30, 1996, and 0.69% for the period ended September 30, 1995.
8.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERMEDIATE BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 9/29//93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 9.43 $ 9.05 $ 10.01 $ 9.99
------- ------- ------- ------
Income from investment
operations
Net investment income 0.53 0.54 0.54 - -
Net gain (loss) on investments
(both realized and
unrealized) (0.09) 0.38 (0.91) 0.02
------- ------- ------- ------
Total from investment
operations 0.44 0.92 (0.37) 0.02
------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.52) (0.54) (0.53) - -
Distributions from net
realized capital gains (0.03) - - (0.06) - -
------- ------- ------- ------
Total distributions (0.55) (0.54) (0.59) - -
------- ------- ------- ------
NET ASSET VALUE AT END OF
PERIOD $ 9.32 $ 9.43 $ 9.05 $10.01
======= ======= ======= ======
Total return 4.79% 10.46% (3.80)% 0.20%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $45,362 $36,718 $35,764 $ 91
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.83%/3/ 0.74%/3/ 0.70% 0.70%/2/
Before advisory/administration
fee waivers 1.13% 1.09% 1.13% 1.09%/2/
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 5.98% 5.90% 5.33% 4.35%/2/
Before advisory/administration
fee waivers 5.67% 5.55% 4.90% 3.96%/2/
PORTFOLIO TURNOVER RATE 670% 262% 92% 4%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 1.14% for the period ended
September 30, 1996, and 0.82% for the period ended September 30, 1995.
9.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CORE BOND PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
4/1/96 1/13/96/1/
THROUGH THROUGH
9/30/96 3/31/96
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.61 $ 9.91
-------- --------
Net investment income (net of $.004,
$.003 and $.001, respectively, of
interest expense)/2/ 0.30 0.11
Net realized and unrealized gains on
investments (0.07) (0.30)
-------- --------
Net (decrease) increase from investment
operations 0.23 (0.19)
-------- --------
Dividends from net investment income (0.29) (0.11)
Distributions from net realized capital
gains - - - -
Total dividends and distributions (0.29) (0.11)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 9.55 $ 9.61
======== ========
Total investment return 2.40% (1.90)%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.85%/2/,/3/ 0.85%/2/,/3/
Excluding waivers 1.14%/2/ 1.10%/2/
Net investment income/2/ 6.33%/2/ 5.46%/2/
Excluding waivers 6.04%/2/ 5.21%/2/
SUPPLEMENTAL DATA:
Portfolio turnover 308% 723%
Net assets, end of period (in
thousands) $117,207 $232,040
</TABLE>
+ This Portfolio commenced operations on December 9, 1992 as the Core Fixed
Income Portfolio, a separate investment portfolio (the "Predecessor Core
Bond Portfolio") of The BFM Institutional Trust Inc., which was organized as
a Maryland business corporation. On January 13, 1996, the assets and
liabilities of the Predecessor Core Bond Portfolio were transferred to this
Portfolio, which had no prior operating history.
/1/Commencement of investment operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 1.08% for the period
ended September 30, 1996, and 0.94% for the period ended March 31, 1996. For
the periods prior to March 31, 1996, interest income was presented net of
interest expense.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MANAGED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 10.38 $ 9.79 $ 11.17 $ 10.96
-------- -------- ------- -------
Income from investment operations
Net investment income 0.61 0.63 0.59 0.11
Net gain (loss) on investments
(both realized and unrealized) (0.20) 0.60 (1.18) 0.21
-------- -------- ------- -------
Total from investment operations 0.41 1.23 (0.59) 0.32
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.60) (0.63) (0.62) (0.11)
Distribution in excess of net
investment income - - (0.01) (0.02) - -
Distributions from net realized
capital gains (0.10) - - (0.14) - -
Distributions in excess of net
realized gains - - (0.01) - -
-------- -------- ------- -------
Total distributions (0.70) (0.64) (0.79) (0.11)
-------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.09 $ 10.38 $ 9.79 $ 11.17
======== ======== ======= =======
Total return 4.05% 12.97% (5.49)% 2.93%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $165,073 $116,846 $67,655 $15,322
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.88% 0.85% 0.80% 0.80%/2/
Before advisory/administration fee
waivers 1.11% 1.05% 1.02% 0.84%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 5.87% 6.14% 5.95% 5.83%/2/
Before advisory/administration fee
waivers 5.65% 5.94% 5.73% 5.79%/2/
PORTFOLIO TURNOVER RATE 638% 203% 61% 72%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
11.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INTERNATIONAL BOND PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
2/1/96 3/1/95 YEAR YEAR YEAR 7/1/91
THROUGH THROUGH ENDED ENDED ENDED THROUGH
9/30/96 1/31/96 2/28/95 2/28/94 2/28/93 2/29/92/1/
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $11.39 $ 10.52 $ 10.75 $ 10.76 $ 10.21 $ 10.00
------ ------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.89 0.62 0.62 0.65 0.52 0.31
Net (loss) gain on
investments (both
realized and
unrealized) (0.29) 1.13 (0.48) 0.46 0.47 0.26
------ ------- ------- ------- ------- -------
Total from investment
operations 0.60 1.75 (0.14) 1.11 0.99 0.57
------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.28) (0.88) (0.13) (0.90) (0.30) - -
Distributions from net
realized capital gains - - - - (0.24) (0.22) (0.14) (0.36)
------ ------- ------- ------- ------- -------
In Excess of Net
Realized Gains - - - - - - - - - - - -
Total distributions (0.28) (0.88) (0.37) 1.12 (0.44) (0.36)
------ ------- ------- ------- ------- -------
NET ASSET VALUE AT END
OF PERIOD $11.71 $ 11.39 $ 10.52 $ 10.75 $ 10.76 $ 10.21
====== ======= ======= ======= ======= =======
Total return 5.39% 16.79% 1.50% 10.24% 9.55% 5.84%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $7,836 $37,627 $45,657 $46,888 $38,257 $27,744
Ratios of expenses to
average net assets 1.09%/2/ 1.23%/2/ 1.24% 1.38% 1.30% 1.33%/2/
Excluding waivers 1.20%/2/ 1.23%/2/ 1.24% 1.38% 1.30% 1.37%/2/
Ratios of net
investment income to
average net assets 3.82%/2/ 5.62%/2/ 5.96% 6.00% 6.31% 6.79%/2/
Excluding waivers 3.72%/2/ 5.62%/2/ 5.96% 6.00% 6.31% 6.75%/2/
PORTFOLIO TURNOVER RATE 108% 159% 131% 128% 115% 110%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the Compass
International Fixed Income Fund, a separate investment portfolio (the
"Predecessor International Bond Portfolio") of Compass Capital Group, which
was organized as a Massachusetts business trust. The assets and liabilities
of the Predecessor International Bond Portfolio were transferred to this
Portfolio, which had no prior operating history, on February 13, 1996. For
the periods presented, this Portfolio received Sub-advisory services from
another company that was unaffiliated with PAMG and BlackRock.
/1/Share class commenced operations on July 1, 1991.
/2/Annualized.
12.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 10.61 $10.04 $11.31 $10.97
------- ------ ------ ------
Income from investment operations
Net investment income 0.51 0.50 0.51 0.09
Net gain (loss) on investments (both
realized and unrealized) 0.23 0.59 (0.93) 0.34
------- ------ ------ ------
Total from investment operations 0.74 1.09 (0.42) 0.43
------- ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.51) (0.50) (0.51) (0.09)
Distributions from net realized
capital gains - - (0.02) (0.34) - -
------- ------ ------ ------
Total distributions (0.51) (0.52) (0.85) (0.09)
------- ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.84 $10.61 $10.04 $11.31
======= ====== ====== ======
Total return 7.14% 11.24% (4.02)% 3.92%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $36,161 $4,713 $2,109 $ 634
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.85% 0.80% 0.75% 0.71%/2/
Before advisory/administration fee
waivers 1.18% 1.57% 1.98% 1.49%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.88% 4.92% 4.75% 4.99%/2/
Before advisory/administration fee
waivers 4.56% 4.15% 3.52% 4.21%/2/
PORTFOLIO TURNOVER RATE 268% 92% 40% 71%
</TABLE>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/94
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 10.33 $ 9.82 $ 10.70 $ 10.43
------- ------- ------- -------
Income from investment operations
Net investment income 0.50 0.50 0.51 0.09
Net gain (loss) on investments (both
realized and unrealized) 0.11 0.51 (0.85) 0.28
------- ------- ------- -------
Total from investment operations 0.61 1.01 (0.34) 0.37
------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.50) (0.50) (0.51) (0.09)
Distributions from net realized
capital gains - - - - (0.03) (0.01)
------- ------- ------- -------
Total distributions (0.50) (0.50) (0.54) (0.10)
------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.44 $ 10.33 $ 9.82 $ 10.70
======= ======= ======= =======
Total return 5.97% 10.51% (3.20)% 3.54%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $34,297 $13,815 $11,518 $ 3,894
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.85% 0.79% 0.55% 0.34%/2/
Before advisory/administration fee
waivers 1.15% 1.11% 1.15% 1.22%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.74% 5.04% 4.97% 4.90%/2/
Before advisory/administration fee
waivers 4.44% 4.72% 4.37% 4.02%/2/
PORTFOLIO TURNOVER RATE 119% 66% 30% 40%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
13.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY TAX-FREE INCOME PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD
2/1/96 3/1/95 YEAR YEAR YEAR PERIOD
THROUGH THROUGH ENDED ENDED ENDED ENDED
9/30/96 1/31/96 2/28/95 2/28/94 2/28/93 2/28/92/1/
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.61 $ 10.94 $ 11.31 $ 11.30 $ 10.46 $ 10.00
------- ------- ------- -------- ------- -------
Income from investment
operations
Net investment income 0.73 0.46 0.51 0.54 0.52 0.34
Net (loss) gain on
investments (both
realized and
unrealized) (0.32) 0.65 (0.36) 0.04 0.85 0.45
------- ------- ------- -------- ------- -------
Total from investment
operations 0.41 1.11 0.15 0.58 1.37 0.79
------- ------- ------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.75) (0.44) (0.51) (0.54) (0.53) (0.33)
Distributions from net
realized capital gains - - - - (0.01) (0.03) - - - -
------- ------- ------- -------- ------- -------
Total distributions (0.75) (0.44) (0.52) (0.57) (0.53) (0.33)
------- ------- ------- -------- ------- -------
NET ASSET VALUE AT END
OF PERIOD $ 11.27 $ 11.61 $ 10.94 $ 11.31 $ 11.30 $ 10.46
======= ======= ======= ======== ======= =======
Total return 0.15% 10.35% 1.49% 5.18% 13.48% 12.33%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $88,077 $97,976 $96,857 $111,354 $47,169 $10,673
Ratios of expenses to
average net assets 0.85%/2/ 0.88%/2/ 0.79% 0.38% 0.48% 0.52%/2/
Excluding waivers 1.17%/2/ 0.90%/2/ 0.87% 0.86% 1.04% 1.29%/2/
Ratios of net
investment income to
average net assets 4.44%/2/ 4.43%/2/ 4.71% 4.75% 5.04% 5.35%/2/
Excluding waivers 4.13%/2/ 4.41%/2/ 4.63% 4.27% 4.48% 4.58%/2/
PORTFOLIO TURNOVER RATE 109% 26% 28% 12% 16% 0%
</TABLE>
+ This Portfolio commenced operations on July 1, 1991 as the New Jersey
Municipal Bond Fund, a separate investment portfolio (the "Predecessor New
Jersey Tax-Free Income Portfolio") of Compass Capital Group, which was
organized as a Massachusetts business trust. On January 13, 1996, the assets
and liabilities of the Predecessor New Jersey Tax-Free Income Portfolio were
transferred to this Portfolio, which had no prior operating history.
/1/Share class commenced operations on July 1, 1991.
/2/Annualized.
14.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 7/29/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/94
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $10.05 $ 9.60 $10.53 $10.24
------ ------ ------ ------
Income from investment operations
Net investment income 0.48 0.52 0.49 0.09
Net gain (loss) on investments (both
realized and unrealized) 0.10 0.45 (0.91) 0.29
------ ------ ------ ------
Total from investment operations 0.58 0.97 (0.42) 0.38
------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.48) (0.52) (0.49) (0.09)
Distributions from net realized
capital gains - - - - (0.02) - -
------ ------ ------ ------
Total distributions (0.48) (0.52) (0.51) (0.09)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $10.15 $10.05 $ 9.60 $10.53
====== ====== ====== ======
Total return 5.80% 10.45% (4.00)% 3.68%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $6,377 $5,150 $4,428 $ 907
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.79% 0.39% 0.35% 0.32%/2/
Before advisory/administration fee
waivers 1.38% 1.46% 1.74% 2.83%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.69% 5.39% 5.06% 4.71%/2/
Before advisory/administration fee
waivers 4.10% 4.31% 3.67% 2.20%/2/
PORTFOLIO TURNOVER RATE 136% 63% 61% 36%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
15.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND family consists of 30 portfolios and
has been structured to include many different investment
styles across the spectrum of fixed income investments so
that investors may participate across multiple disciplines in
order to seek their long-term financial goals.
The Bond Portfolios of COMPASS CAPITAL FUNDS consist of ten
investment portfolios that provide investors with a broad
spectrum of investment alternatives within the fixed income
sector. Six of these Portfolios invest solely in taxable
bonds and four of these Portfolios invest in tax-exempt
bonds.
In certain investment cycles and over certain holding peri-
ods, a fund that invests in any one of these styles may per-
form above or below the market. An investment program that
combines these multiple disciplines allows investors to se-
lect from among these various product options in the way that
most closely fits the investor's goals and sentiments.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Low Duration Bond To realize a rate of return that
exceeds the total return of the
Merrill Lynch 1-3 year Treasury
Index.
Intermediate Government Bond, To seek current income consistent
Intermediate Bond, Managed with the preservation of capital.
Income and International
Bond
Core Bond To realize a total rate of return
that exceeds the total return of
the Lehman Brothers Aggregate
Index.
Tax-Free Income, Pennsylvania To seek as high a level of
Tax-Free Income, New Jersey current income exempt from
Tax-Free Income and Ohio Federal income tax and, to the
Tax-Free Income extent possible for each State-
Specific Tax-Free Portfolio,
income tax of the specific state
in which the Portfolio
concentrates, as is consistent
with preservation of capital.
</TABLE>
16.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE DIFFERENCES AMONG THE PORTFOLIOS?
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS:
<TABLE>
<CAPTION>
DOLLAR-WEIGHTED MIN
PERFORMANCE AVERAGE MATURITY CREDIT QUALITY CREDIT
PORTFOLIO BENCHMARK* (APPROXIMATE)** CONCENTRATION QUALITY
<S> <C> <C> <C> <C>
Low Duration Merrill 1-3 Year 3-5 Years Gov't/Agency AAA
Bond Treasury Index
Intermediate Lehman Brothers 5-10 Years Gov't/Agency AAA
Gov't Bond Intermediate Gov't
Intermediate Lehman Brothers 5-10 Years Investment Grade BBB
Bond Intermediate Gov't/Corp Spectrum
Core Bond Lehman Aggregate 5-10 Years Investment Grade BBB
Spectrum
Managed Lehman Aggregate 5-10 Years Investment Grade BBB
Income Spectrum
International Salomon Non-U.S. Hedged 5-15 Years AA, AAA, BBB
Bond World Government Gov't/Agency
Bond Index
Tax-Free Lehman Municipal 10-15 Years Investment Grade BBB
Income Bond Index Spectrum
PA Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
NJ Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
OH Tax-Free Lehman Local GO Index 10-15 Years Investment Grade BBB
Income Spectrum
</TABLE>
* For more information on a Portfolio's benchmark, see the Appendix at the
back of this Prospectus.
** The Portfolios' sub-adviser will normally attempt to structure the Portfo-
lios to have comparable durations to the benchmarks. Duration, which mea-
sures price sensitivity to interest rate changes, is not necessarily equal
to average maturity.
WHAT TYPES OF SECURITIES ARE IN THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following table summarizes the types of securities found in each Portfolio
according to the following designations:
Yes:The Portfolio will hold a significant concentration of these securities
at all times.
Elig.: Eligible; the Portfolio may purchase these securities, but they may or
may not be a significant holding at a given time.
Temp.: Temporary; the Portfolio may purchase these securities, but under nor-
mal market conditions is not expected to do so.
No: The Portfolio may not purchase these securities.
<TABLE>
<CAPTION>
NON FOREIGN
AGENCY/ SECURITIES/
AGENCY COMMERCIAL CURRENCY
TREASURIES AGENCIES MBS/1/ MBS/1/ CORP. ABS/2/ RISK MUNICIPALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low Duration Yes Yes Yes Elig. Elig. Elig. No Elig.
Bond
Intermediate Yes Yes Yes Elig. Yes Elig. No Elig.
Gov't Bond
Intermediate Yes Yes Yes Elig. Yes Yes No Elig.
Bond
Core Bond Yes Yes Yes Elig. Yes Yes No Elig.
Managed Yes Yes Yes Elig. Yes Yes Elig. Elig.
Income
International Elig. Elig. Elig. Elig. Elig. Elig. Yes Elig.
Bond
Tax-Free Temp. No No No No No No Yes
Income
PA Tax-Free Temp. No No No No No No Yes
Income
NJ Tax-Free Temp. No No No No No No Yes
Income
OH Tax Free Temp. No No No No No No Yes
Income
</TABLE>
/1/MBS= mortgage-backed securities
/2/ABS= asset-backed securities
17.
<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 change to a Portfolio's investment
objective. No assurance can be provided that a Portfolio will achieve its in-
vestment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities) if more than 5% of
its total assets will be invested in the securities of any one issuer, ex-
cept that up to 25% of a Portfolio's total assets may be invested without
regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(3) in the case of each Tax-Free Portfolio (as defined below), invest less than
80% of its net assets 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 securi-
ties) 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 Portfolio's total assets may be in-
vested 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).
The investment limitations stated above are applied at the time investment se-
curities are purchased.
18.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ADDITIONAL INVESTMENT POLICIES AND RISKS APPLY?
- --------------------------------------------------------------------------------
INVESTMENT QUALITY. Securities acquired by the Low Duration Bond Portfolio and
Intermediate Government Bond Portfolio will be rated in the highest rating cat-
egory at the time of purchase or, if unrated, of comparable quality as deter-
mined by the Portfolios' sub-adviser. Securities acquired by the other Portfo-
lios will be rated investment grade at the time of purchase (within the four
highest rating categories by Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co. or Fitch Investor
Services, Inc.) or, if unrated, of comparable quality as determined by the
Portfolios' sub-adviser. Securities rated "Baa" or "BBB" are generally consid-
ered to be investment grade although they have speculative characteristics. If
a security's rating 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 Intermediate Government
Bond Portfolio will invest at least 65% of its total assets in obligations is-
sued or guaranteed by the U.S. Government, its agencies or instrumentalities
and related repurchase agreements during normal market conditions. Under normal
market conditions, the International Bond Portfolio will invest at least 65% of
its total assets in the debt obligations of foreign issuers located in at least
three different foreign countries. The Pennsylvania Tax-Free Income Portfolio,
New Jersey Tax-Free Income Portfolio and Ohio Tax-Free Income Portfolio (the
"State-Specific Tax-Free Portfolios") and the Tax-Free Income Portfolio (to-
gether with the "State-Specific Tax-Free Portfolios," the "Tax-Free Portfo-
lios") will invest, during normal market conditions, at least 80% of their net
assets in obligations issued by or on behalf of states, territories and posses-
sions of the United States, the District of Columbia and their political sub-
divisions, agencies, instrumentalities and authorities and related tax-exempt
derivative securities the interest on which is exempt from regular Federal in-
come tax and is not an item of tax preference for purposes of the Federal al-
ternative minimum tax ("Municipal Obligations"). In addition, each State-Spe-
cific 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 ("State-Specific Obligations"). The Tax-Free Income Portfolio intends
to invest no more than 25% of its net assets in Municipal Obligations of is-
suers located in the same state. During temporary defensive periods each Tax-
Free Portfolio may invest without limitation in securities that are not Munici-
pal Obligations and may hold without limitation uninvested cash reserves.
FOREIGN INVESTMENTS. The International Bond Portfolio will invest primarily in
foreign securities and currencies. The Managed Income Portfolio may invest up
to 10% of its total assets in debt securities of foreign issuers and may hold
from time to time various foreign currencies pending investment or conversion
into U.S. dollars. Investing in securities of foreign issuers involves consid-
erations not typically associated with investing in securities of companies or-
ganized and operated in the United States. Because foreign securities generally
are denominated and pay dividends or interest in foreign currencies, the value
of a Portfolio that invests in foreign securities will be affected favorably or
unfavorably by changes in currency exchange rates.
A Portfolio's investments in foreign securities may also be adversely affected
by changes in foreign political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, limitations on the removal of funds or
assets, or imposition of (or change in) exchange control regulations. In addi-
tion, changes in government administrations or economic or monetary policies in
the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect a Portfolio's operations. In
general, less information is publicly available with respect to foreign issuers
than is available with respect to U.S. companies. Most foreign companies are
also not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. While the volume of transactions
effected on foreign stock exchanges has increased in recent years, it remains
appreciably below that of the New York Stock Exchange. Accordingly, a Portfo-
lio's foreign investments may be less liquid and their prices may be more
19.
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
Because the securities markets in these countries are highly developed, the In-
ternational Bond Portfolio may invest more than 25% of its total assets in the
securities of issuers located in Canada, France, Germany, Japan and the United
Kingdom. Investments of 25% or more of the Portfolio's total assets in a par-
ticular country will make the Portfolio's performance more dependent upon the
political and economic circumstances of a particular country than a mutual fund
that is more widely diversified among issuers in different countries.
To maintain greater flexibility, the International Bond Portfolio may invest in
instruments which have the characteristics of futures contracts. These 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 "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,
disposition of the
20.
<PAGE>
- --------------------------------------------------------------------------------
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that is not yet as marketable as
more conventional securities.
Each Tax-Free Portfolio may invest up to 20% of its total assets in private ac-
tivity bonds the interest on which is an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Paper") when added together with any
other taxable investments held by the Portfolio. In addition, each Tax-Free
Portfolio may invest 25% or more of its assets in Municipal Obligations the in-
terest on which is paid solely from revenues of similar projects. To the extent
a Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the particular risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
The Tax-Free Income Portfolio is classified as a diversified portfolio, and the
State-Specific Tax-Free Portfolios are classified as non-diversified portfo-
lios, under the 1940 Act. Investment returns on a non-diversified portfolio
typically are dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the
change in value of any one security may affect the overall value of a non-di-
versified portfolio more than it would a diversified portfolio.
Each Tax-Free Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a spec-
ified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the commit-
ment relates. The Tax-Free Portfolios may invest in tax-exempt derivative secu-
rities relating to Municipal Obligations, including tender option bonds, par-
ticipations, beneficial interests in trusts and partnership interests.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may be less extensive than the information for public cor-
porations, and the secondary market for Municipal Obligations may be less liq-
uid than that for taxable obligations. Accordingly, the ability of a Portfolio
to buy and sell Municipal Obligations may, at any particular time and with re-
spect to any particular securities, be limited. In addition, Municipal Obliga-
tions purchased by the Portfolios include obligations backed by letters of
credit and other forms of credit enhancement issued by domestic and foreign
banks, as well as other financial institutions. Changes in the credit quality
of these institutions could cause loss to a Tax-Free Portfolio and affect its
share price.
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 service providers 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 derivative securities, or
the bases for such opinions.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. The Portfolios (except the Tax-
Free Portfolios) may make significant investments in residential and commercial
mortgage-related and other asset-backed securities (i.e., securities backed by
home equity loans, installment sale contracts, credit card receivables or other
assets) issued by governmental entities and private issuers.
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
21.
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may be structured in a variety of ways. In most cases, however, payments of
principal are applied to the CMO classes in the order of their respective
stated maturities, so that no 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 retired and are converted thereafter to interest-paying securities.
They may also include planned amortization classes ("PACs") which generally
require, within certain limits, that specified amounts of principal be applied
on each payment date, and generally exhibit less yield and market volatility
than other classes.
Non-mortgage asset-backed securities involve risks that are not presented by
mortgage-related securities. Primarily, these securities do not have the bene-
fit of the same security interest in the underlying collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the pro-
tection 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 per-
mit 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
vehicles 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 receiv-
ables. Therefore, there is a possibility that recoveries on repossessed col-
lateral may not, in some cases, be able to support payments on these securi-
ties.
The yield and maturity characteristics of mortgage-related and other asset-
backed securities differ from traditional debt securities. A major difference
is that the principal amount of the obligations may normally be prepaid at any
time because the underlying assets (i.e., loans) generally may be prepaid at
any time. In calculating the average weighted maturity of a Portfolio, the ma-
turity of mortgage-related and other asset-backed securities held by the Port-
folio will be based on estimates of average life which take prepayments into
account. The average life of a mortgage-related 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. In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments.
The relationship between prepayments and interest rates may give some high-
yielding asset-backed securities less potential for growth in value than con-
ventional bonds with comparable maturities. In addition, in periods of falling
interest rates, the rate of prepayments tends to increase. During such peri-
ods, the reinvestment of prepayment proceeds by a 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 and maturity may be difficult to predict precisely. To the extent
that a Portfolio purchases asset-backed securities at a premium, prepayments
(which may be made without penalty) may result in loss of the Portfolio's
principal investment to the extent of premium paid.
The Portfolios may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged and master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears Mortgage) or mortgage-related securities con-
taining loans or mortgages originated by PNC Bank, National Association ("PNC
Bank") or its affiliates. It is possible that under some circumstances, PNC
Mortgage Securities Corp. or its affiliates could have interests that are in
conflict with the holders of these mortgage-backed securities, and such hold-
ers could have rights against PNC Mortgage Securities Corp. or its affiliates.
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.
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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 in-
clude 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.
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 investment
objectives, the Portfolios (except the Tax-Free Portfolios) may invest in debt
obligations of domestic or foreign corporations and banks, and may acquire com-
mercial 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 obliga-
tions may be general obligations of the parent bank or may be limited to the
issuing branch or subsidiary by the terms of a specific obligation or by gov-
ernment regulation. The Portfolios may also make interest-bearing savings de-
posits 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 Government National Mort-
gage Association are supported by the United States' full faith and credit;
others such as those of the Federal National Mortgage Association and the Stu-
dent 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 Federal Home Loan Mortgage Corporation are supported only by the credit
of the instrumentality. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or instrumen-
talities 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 may 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
23.
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falls below a predetermined interest rate, to receive payments of interest on
a notional principal amount from the party selling such interest rate floor.
In addition, the International Bond Portfolio may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future
exchange rates. The Portfolio may engage in foreign currency exchange transac-
tions in connection with the purchase and sale of portfolio securities (trans-
action hedging) and to protect the value of specific portfolio positions (po-
sition hedging). The Portfolio may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection with the set-
tlement of transactions in portfolio securities denominated in that foreign
currency, and may also enter into contracts to purchase or sell foreign cur-
rencies at a future date ("forward contracts") and purchase and sell foreign
currency futures contracts (futures contracts). The Portfolio may also pur-
chase exchange-listed and over-the-counter call and put options on futures
contracts and on foreign currencies, and may write covered call options on up
to 100% of the currencies in its portfolio. In order to protect against cur-
rency fluctuations, the International Bond Portfolio may enter into currency
swaps. Currency swaps involve the exchange of the rights of the Portfolio and
another party to make or receive payments in specified currencies.
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment
objective, each Portfolio may write covered call options, buy put options, buy
call options and write secured put options for the purpose of hedging or earn-
ing additional income, which may be deemed speculative, or, with respect to
the International Bond Portfolio, cross-hedging. These options may relate to
particular securities, securities indices, or the yield differential between
two securities or, in the case of the International Bond Portfolio, foreign
currencies, 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 when the aggregate premiums on outstanding op-
tions 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 afforded purchasers of listed options is-
sued 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
purposes or to maintain liquidity. The value of a Portfolio's contracts may
equal or exceed 100% of its 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 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 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 uti-
lize futures contracts in anticipation of changes in the composition of its
holdings or in currency exchange rates.
A Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Portfolio purchases an option
on a futures contract, it has the right to assume a position as a purchaser or
a seller of a futures contract at a specified exercise price during the option
period. When a Portfolio sells an option on a futures contract, it becomes ob-
ligated to sell or buy a futures contract if the option is exercised. In con-
nection with a Portfolio's position in a futures contract or related option,
the Fund will create a segregated account of liquid assets or will otherwise
cover its position in accordance with applicable SEC requirements.
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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; (d) the
sub-adviser's inability to predict correctly the direction of securities pric-
es, interest rates, currency exchange rates and other economic factors; and (e)
the possibility that the counterparty will default in the performance of its
obligations. For further discussion of risks involved with domestic and foreign
futures and options, see 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 interest. The higher de-
gree of leverage inherent in inverse floaters is associated with greater vola-
tility in their market values. Issuers of unrated variable and floating rate
instruments must satisfy the same criteria as set forth above for a Portfolio.
The absence of an active secondary market with respect to particular variable
and floating rate instruments, however, could make it difficult for a 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 borrow money. 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 de-
cline in value suffered by the Portfolio's securities.
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Borrowings may be made through reverse repurchase agreements under which a
Portfolio sells portfolio securities to financial institutions such as banks
and broker-dealers and agrees to repurchase them at a particular date and
price. The Portfolios may use the proceeds of reverse repurchase agreements to
purchase other securities either maturing, or under an agreement to resell, on
a date simultaneous with or prior to the expiration of the reverse repurchase
agreement. The Portfolios (except the Tax-Free Portfolios) may use reverse re-
purchase 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 interest expense of the transaction. This use of reverse repurchase agree-
ments may be regarded as leveraging and, therefore, speculative. Reverse repur-
chase agreements involve the risks that the interest income earned in the in-
vestment of the proceeds will be less than the interest expense, that the mar-
ket 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 containing cash, U.S. Government or other appropriate liq-
uid debt securities having a value at least equal to the repurchase price. A
Portfolio's reverse repurchase agreements, together with any other borrowings,
will not exceed, in the aggregate, 33 1/3% of the value of its total assets. In
addition, a Portfolio (except the Tax-Free Portfolios) may borrow up to an ad-
ditional 5% of its total assets for temporary purposes.
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by other
investment companies within the limits prescribed by the 1940 Act. As a share-
holder of another investment company, a Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that each Portfolio bears directly in connection with its
own operations.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of the
value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and 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.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' sub-adviser that an adequate trading market exists for the se-
curities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified institu-
tional buyers become uninterested in purchasing these restricted securities.
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 or market action.
When-issued and forward commitment transactions involve the risk, however, that
the price or yield obtained in a transaction may be less favorable than the
price or yield available in the market when the securities delivery takes
place. Each 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 those 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
26.
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for the Portfolio, and the income from these investments will generate income
for the Portfolio. If such income does not exceed the income, capital apprecia-
tion 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 performance would have been
without the use of dollar rolls. At the time 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 securities 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. A Portfo-
lio'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.
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. Successful use of mortgage dollar rolls may
depend upon the sub-adviser's ability to correctly predict interest rates and
prepayments. There is no assurance that dollar rolls can be successfully em-
ployed.
SHORT SALES. The Portfolios may only make short sales of securities "against-
the-box." A short sale is a transaction in which a Portfolio sells a security
it does not own in anticipation that the market price of that security will de-
cline. The Portfolios may make short sales both as a form of hedging to offset
potential declines in long positions in similar securities and in order to
maintain portfolio flexibility. In a short sale "against-the-box," at the time
of sale, the Portfolio owns or has the immediate and unconditional right to ac-
quire the identical security at no additional cost. When selling short
"against-the-box," a Portfolio forgoes an opportunity for capital appreciation
in the security.
PORTFOLIO TURNOVER RATES. The past portfolio turnover rates of the Portfolios
are set forth above under "What Are the Portfolios' Financial Highlights?" A
Portfolio's annual portfolio turnover rate will not be a factor preventing a
sale or purchase when the sub-adviser believes investment considerations war-
rant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates will
generally result in higher transaction costs to a Portfolio and may result in
the realization of short-term capital gains that are taxable to shareholders as
ordinary income.
INTEREST RATE AND EXTENSION RISKS. The value of fixed income securities in the
Portfolios can be expected to vary inversely with changes in prevailing inter-
est rates. Fixed income securities with longer maturities, which tend to pro-
duce 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 securities, 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. Although the Portfolios' sub-adviser will normally attempt to
structure each Portfolio to have a comparable duration to its benchmark as
stated in that section, there can be no assurance that it will be able to do so
at all times.
STATE-SPECIFIC TAX-FREE PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Tax-Free Portfolios in State-Spe-
cific Obligations raises special investment considerations. In particular,
changes in the economic condition and governmental policies of a state and its
political subdivisions could adversely affect the value of a Portfolio's
shares. Certain matters relating to the states in which the State-Specific Tax-
Free Portfolios invest are described below. For further information, see "Spe-
cial Considerations Regarding State-Specific Obligations" in the Statement of
Additional Information.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following four
years. As of June 30, 1995, the General Fund had a surplus of $688.3 million.
For the
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fiscal year ended June 30, 1996, the General Fund's expenditures exceeded
available revenues by approximately $253 million; this shortfall was funded by
the General Fund's unappropriated surplus. Rising 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 municipalities. The Commonwealth has
sold a substantial amount of bonds over the past several years, but the debt
burden remains moderate. Employment growth has shifted to the trade and service
sectors, with losses in more high-paid manufacturing positions. A new governor
took office in January 1995, but the Commonwealth has continued 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. This
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness. In past
years, the State's overall unemployment rate has been somewhat higher than the
national figure. For example, the reported 1990 average monthly State rate was
5.7%, compared to the 5.5% national figure. However, for the last five years
the State rates were below the national rates (4.8% versus 5.6% in 1995). The
unemployment rate and its effects vary among particular geographic areas of the
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government fi-
nances generally will not adversely affect the market value of Ohio State-Spe-
cific Obligations held in the Portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
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WHO MANAGES THE FUND?
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BOARD OF The business and affairs of the Fund are managed under the di-
TRUSTEES rection of its Board of Trustees. The following persons cur-
rently serve on the Board:
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.--Chairman, Gee, Wilmerding & Associ-
ates, Inc.
ADVISER AND The Adviser to the Compass Capital Funds is PNC Asset Manage-
SUB-ADVISER ment Group ("PAMG"). Each of the Portfolios within the Compass
Capital Fund family is managed by a specialized portfolio man-
ager who is a member of PAMG's fixed income portfolio manage-
ment subsidiary, BlackRock Financial Management, Inc. ("Black-
Rock"). BlackRock has its primary offices at 345 Park Avenue,
New York, New York 10154.
The ten Portfolios and their portfolio managers are as follows:
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PORTFOLIO MANAGER
------------------------- -----------------
<S> <C>
Low Duration Bond Robert S. Kapito; Vice Chairman of BlackRock since
1988; Portfolio co-manager since its inception.
Scott Amero; Managing Director of BlackRock since
1990; Portfolio co-manager since its inception.
Jody Kochansky; Vice President of BlackRock since
1992; Portfolio co-manager since 1995.
Intermediate Government Robert S. Kapito and Scott Amero (see above) and
Bond Michael P. Lustig; Mr. Lustig has been Vice
President of BlackRock since 1989; Messrs. Kapito,
Lustig and Amero have been Portfolio co-managers
since 1995.
Intermediate Bond Robert S. Kapito, Michael P. Lustig and Scott Amero
(see above); Messrs. Kapito, Lustig and Amero have
been Portfolio co-managers since 1995.
Core Bond Scott Amero (see above); Mr. Amero has been
Portfolio manager since its inception.
Managed Income 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 Andrew Gordon; portfolio manager at BlackRock since
1996; responsible for non-dollar research at Barclay
Investments from 1994 to 1996 and at CS First Boston
from 1986 to 1994; Portfolio manager since January
1997.
</TABLE>
29.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPASS CAPITAL PORTFOLIO PORTFOLIO MANAGER
------------------------- -----------------
<S> <C>
Tax-Free Income 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 Kevin Klingert (see above); Portfolio manager since
Income 1995.
New Jersey Tax-Free In- Kevin Klingert (see above); Portfolio manager since
come 1995.
Ohio Tax-Free Income Kevin Klingert (see above); Portfolio manager since
1995.
</TABLE>
30.
<PAGE>
- --------------------------------------------------------------------------------
PAMG was organized in 1994 to perform advisory services for in-
vestment companies, and has its principal offices at 1600 Mar-
ket Street, 29th Floor, Philadelphia, Pennsylvania 19103. PAMG
is an indirect wholly-owned subsidiary of PNC Bank Corp., a
multi-bank holding company.
For their investment advisory and sub-advisory services, PAMG
and the Portfolios' sub-adviser are entitled to fees, computed
daily on a Portfolio-by-Portfolio basis and payable monthly, at
the maximum annual rates set forth below. As stated under "What
Are The Expenses Of The Portfolios?" PAMG and the sub-adviser
intend to waive a portion of their fees during the current fis-
cal year. All sub-advisory fees are paid by PAMG, and do not
represent an extra charge to the Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)
<TABLE>
<CAPTION>
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL
BOND PORTFOLIO INTERNATIONAL BOND PORTFOLIO
------------------------- ----------------------------------
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE ADVISORY FEE FEE
- ----------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
first $1 billion .500% .350% .550% .400%
$1 billion--$2 billion .450 .300 .500 .350
$2 billion--$3 billion .425 .275 .475 .325
greater than $3 billion .400 .250 .450 .300
</TABLE>
For the twelve months ended September 30, 1996, the Portfolios
(other than the Low Duration Bond, Core Bond, International
Bond and New Jersey Tax-Free Income Portfolios) paid investment
advisory fees at the following annual rates (expressed as a
percentage of average daily net assets) after voluntary fee
waivers: Intermediate Government Bond Portfolio, .28%; Interme-
diate Bond Portfolio, .30%; Managed Income Portfolio, .35%;
Tax-Free Income Portfolio, .28%; Pennsylvania Tax-Free Income
Portfolio, .29%; and Ohio Tax-Free Income Portfolio, .06%. For
the period from April 1, 1996 through September 30, 1996, the
Low Duration Bond and Core Bond Portfolios paid investment ad-
visory fees, after voluntary fee waivers, at the annual rates
of .30% and .30% of their respective average daily net assets.
For the periods from February 1, 1996 and February 13, 1996,
respectively, through September 30, 1996, the New Jersey Tax-
Free Income and International Bond Portfolios paid investment
advisory fees, after voluntary fee waivers, at the annual rates
of .30% and .55% of their respective average daily net assets.
The Portfolios' sub-adviser strives to achieve best execution
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
Compass 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 subsidiary of Provident Distributors, Inc. ("PDI"). A ma-
jority of the outstanding stock of PDI is owned by its offi-
cers.
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
31.
<PAGE>
- -------------------------------------------------------------------------------
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, com-
puted 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 Portfo-
lio's average daily net assets, .16% of the next $1 billion
of each Portfolio's average daily net assets and .15% of
each Portfolio's average daily net assets in excess of $2
billion. From time to time the Administrators may waive some
or all of their administration fees from a Portfolio.
For information about the operating expenses the Portfolios
paid for the most recent fiscal period, see "What Are the
Expenses of the Portfolios?"
TRANSFER PNC Bank serves as the Portfolios' custodian and PFPC serves
AGENT, as their transfer agent and dividend disbursing agent.
DIVIDEND
DISBURSING
AGENT AND
CUSTODIAN
SHAREHOLDER The Fund intends to enter into service arrangements with in-
SERVICING stitutional investors ("Institutions") (including PNC Bank
and its affiliates) which provide that the Institutions will
render support services to their customers who are the bene-
ficial owners of Service Shares. These services are intended
to supplement the services provided by the Fund's Adminis-
trators and transfer agent to the Fund's shareholders of
record. In consideration for payment of a shareholder
processing fee of up to .15% (on an annualized basis) of the
average daily net asset value of Service Shares owned bene-
ficially by their customers, Institutions may provide one or
more of the following services: processing purchase and re-
demption requests from customers and placing orders with the
Fund's transfer agent or the distributor; processing divi-
dend payments from the Fund on behalf of customers; provid-
ing sub-accounting with respect to Service Shares benefi-
cially owned by customers or the information necessary for
sub-accounting; and providing other similar services. In
consideration for payment of a separate shareholder servic-
ing fee of up to .15% (on an annualized basis) of the aver-
age daily net asset value of Service Shares owned benefi-
cially by their customers, Institutions may provide one or
more of these additional services to such customers: re-
sponding to customer inquiries relating to the services per-
formed by the Institution and to customer inquiries concern-
ing their investments in Service Shares; assisting customers
in designating and changing dividend options, account desig-
nations and addresses; and providing other similar share-
holder liaison services. Customers who are beneficial owners
of Service Shares should read this Prospectus in light of
the terms and fees governing their accounts with Institu-
tions.
Conflict-of-interest restrictions may apply to the receipt
of compensation paid by the Fund in connection with the in-
vestment of fiduciary funds in Portfolio shares. Institu-
tions, including banks regulated by the Comptroller of the
Currency, Federal Reserve Board and state banking commis-
sions, and investment advisers and other money managers sub-
ject to the jurisdiction of the SEC, the Department of Labor
or state securities commissions, are urged to consult their
legal counsel before entering into agreements with the Fund.
The Glass-Steagall Act and other applicable laws, among
other things, prohibit banks from engaging in the business
of underwriting securities. It is intended that the services
provided by Institutions under their service agreements will
not be prohibited under these laws. Under state securities
laws, banks and financial institutions that receive payments
from the Fund may be required to register as dealers.
32.
<PAGE>
- --------------------------------------------------------------------------------
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses include,
but are not limited to, fees paid to PAMG and the Administra-
tors, transfer agency and custodian fees, trustee fees, taxes,
interest, professional fees, shareholder servicing and process-
ing fees, fees and expenses in registering and qualifying the
Portfolios and their shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and dis-
tributing prospectuses and statements of additional information
to existing shareholders, expenses relating to shareholder re-
ports, shareholder meetings and proxy solicitations, insurance
premiums, the expense of independent pricing services, and
other expenses which are not expressly assumed by PAMG or the
Fund's service providers under their agreements with the Fund.
Any general expenses of the Fund that do not belong to a par-
ticular investment portfolio will be allocated among all in-
vestment portfolios by or under the direction of the Board of
Trustees in a manner the Board determines to be fair and equi-
table.
33.
<PAGE>
- -------------------------------------------------------------------------------
HOW ARE SHARES PURCHASED AND REDEEMED?
- -------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at
Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Fund is not required or permitted under the Plan to
make distribution payments with respect to Service Shares. However, the Plan
permits CDI, PAMG, the Administrators and other companies that receive fees
from the Fund to make payments relating to distribution and sales support ac-
tivities out of their past profits or other sources available to them, which,
subject to applicable NASD regulations, may include contributions to various
non-cash and cash incentive arrangements to promote the sale of shares, as
well as sponsorship of various educational programs, sales contests and promo-
tions in which participants may receive reimbursement of expenses, entertain-
ment and prizes such as travel awards, merchandise and cash. For further in-
formation, see "Investment Advisory, Administration, Distribution and Servic-
ing Arrangements" in the Statement of Additional Information.
PURCHASE OF SHARES. Service Shares are offered without a sales load to Insti-
tutions acting on behalf of their customers, as well as certain persons who
were shareholders of Compass Capital Group of Funds at the time of its combi-
nation with the PNC(R) Fund during the first quarter of 1996. Service Shares
will normally be held of record by Institutions or in the names of nominees of
Institutions. Share purchases are normally effected through a customer's ac-
count at an Institution through procedures established in connection with the
requirements of the account. In these cases, confirmations of share purchases
and redemptions will be sent to the Institutions. Beneficial ownership of
shares will be recorded by the Institutions and reflected in the account
statements provided by such Institutions to their customers. Investors wishing
to purchase shares should contact their Institutions.
Service Shares are sold at their net asset value per share next computed after
an order is received by PFPC. Orders received by PFPC by 4:00 p.m. (Eastern
Time) on a Business Day are priced the same day. A "Business Day" is any week-
day that the New York Stock Exchange (the "NYSE") and the Federal Reserve Bank
of Philadelphia (the "FRB") are open for business. Purchase orders may be
placed by telephoning PFPC at (800) 441-7450. Orders received by PFPC after
4:00 p.m. (Eastern Time) are priced on the following Business Day.
Payment for Service Shares must normally be made in Federal funds or other
funds immediately available to the Fund's custodian. Payment may also, in the
discretion of the Fund, be made in the form of securities that are permissible
investments for the respective Portfolios. For further information, see the
Statement of Additional Information. The minimum initial investment is $5,000;
however, Institutions may set a higher minimum for their customers. There is
no minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may in its discretion reject any order for Service Shares.
REDEMPTION OF SHARES. Customers of Institutions may redeem Service Shares in
accordance with the procedures applicable to their accounts with the Institu-
tions. These procedures will vary according to the type of account and the In-
stitution involved, and customers should consult their account managers in
this regard. It is the responsibility of Institutions to transmit redemption
orders to PFPC and credit their customers' accounts with redemption proceeds
on a timely basis. In the case of shareholders holding share certificates, the
certificates must accompany the redemption request.
34.
<PAGE>
- --------------------------------------------------------------------------------
Institutions may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The Fund, the Administrators and the
Distributor will employ reasonable procedures to confirm that instructions com-
municated by telephone are genuine. The Fund and its service providers will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such
procedures.
Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the next Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received after 4:00 p.m. (Eastern Time) or on a day when the Fund's custo-
dian is closed is normally wired in Federal funds on the next Business Day fol-
lowing redemption on which the Fund's custodian is open for business. The Fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgment of PAMG, an earlier payment could
adversely affect a Portfolio. No charge for wiring redemption payments is im-
posed by the Fund, although Institutions may charge their customer accounts for
redemption services. Information relating to such redemption services and
charges, if any, should be obtained by customers from their Institutions.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
400 Bellevue Parkway, Wilmington, DE 19809.
The Fund may redeem Service Shares in any Portfolio account if the account bal-
ance drops below $5,000 as the result of redemption requests and the share-
holder does not increase the balance to at least $5,000 upon thirty days' writ-
ten notice. If a customer has agreed with an Institution to maintain a minimum
balance in his or her account with the Institution, and the balance in the ac-
count falls below that minimum, the customer may be obligated to redeem all or
part of his or her shares in the Portfolios to the extent necessary to maintain
the minimum balance required.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
35.
<PAGE>
- --------------------------------------------------------------------------------
WHAT SPECIAL PURCHASE AND REDEMPTION PROCEDURES MAY APPLY?
- --------------------------------------------------------------------------------
Persons who were shareholders of an investment portfolio of the Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC(R) Fund
may also purchase and redeem Service Shares of the same Portfolio and for the
same account in which they held shares on that date through the procedures de-
scribed in this section.
PURCHASES. Purchase orders may be placed through PFPC. The minimum investment
is $100. Purchases through the Automatic Investment Plan described below are
subject to a lower purchase minimum. The name of the Portfolio with respect to
which shares are purchased must appear on the check or Federal Reserve Draft.
Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, class of
the Portfolio, the name of the account registration, and the shareholder ac-
count number. Before wiring any funds, however, an investor must call PFPC at
(800) 441-7762 in order to confirm the wire instructions. Purchase orders which
are received by PFPC, together with payment, before the close of regular trad-
ing hours on the NYSE (currently 4:00 p.m. Eastern Time) on any Business Day
(as defined above) are priced according to the net asset value next determined
on that day.
The Portfolios offer an Automatic Investment Plan ("AIP") whereby an investor
in shares of a Portfolio may arrange for periodic investments in that Portfolio
through automatic deductions from a checking or savings account by completing
the AIP Application Form which may be obtained from PFPC. The minimum pre- au-
thorized investment amount is $50.
REDEMPTIONS. Shareholders may redeem for cash some or all of their shares of
the Portfolios at any time by sending a written redemption request in proper
form to Compass Capital Funds c/o PFPC Inc., P.O. Box 8907, Wilmington, Dela-
ware 19899-8907.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding share certificates must send
their certificates with the redemption request. Additional documentary evidence
of authority is required by PFPC in the event redemption is requested by a cor-
poration, partnership, trust, fiduciary, executor or administrator.
If a shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or
by Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone
at (800) 441-7762 or other means. The minimum amount that may be sent by check
is $500, while the minimum amount that may be wired is $10,000. Compass Capital
reserves the right to change these minimums or to terminate these redemption
privileges. If the proceeds of a redemption would exceed $25,000, the redemp-
tion request must be in writing and will be subject to the signature guarantee
requirement described above. This privilege may not be used to redeem shares in
certificated form.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
36.
<PAGE>
- --------------------------------------------------------------------------------
Compass Capital is not responsible for the efficiency of the Federal wire sys-
tem or the shareholder's firm or bank. Compass Capital does not currently
charge for wire transfers. The shareholder is responsible for any charges im-
posed by the shareholder's bank. To change the name of the single designated
bank account to receive wire redemption proceeds, it is necessary to send a
written request (with a guaranteed signature as described above, to Compass
Capital Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital reserves the right to refuse a telephone redemption if it be-
lieves it advisable to do so. The Fund, the Administrators and the Distributor
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Compass Capital, the Administrators and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions reasonably believed to be genuine in accordance with
such procedures.
Compass Capital offers a Systematic Withdrawal Plan ("SWP") which may be used
by investors who wish to receive regular distributions from their accounts.
Upon commencement of the SWP, the account must have a current value of $10,000
or more in a Portfolio. Shareholders may elect to receive automatic cash pay-
ments of $100 or more either monthly, every other month, quarterly, three times
a year, semi-annually, or annually. Automatic withdrawals are normally proc-
essed on the 25th day of the applicable month or, if such day is not a Business
Day, on the next Business Day and are paid promptly thereafter. An investor may
utilize the SWP by completing the SWP Application Form which may be obtained
from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC.
37.
<PAGE>
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HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Service Shares of each Portfolio
as of the close of regular trading hours on the NYSE (currently 4:00 p.m. East-
ern Time) on each Business Day by dividing the value of all securities and
other assets owned by a Portfolio that are allocated to its Service Shares,
less the liabilities charged to its Service Shares, by the number of its Serv-
ice Shares that are outstanding.
Most securities held by a Portfolio are priced based on their market value as
determined by reported sales prices, or the mean between bid and asked prices,
that are provided by securities dealers or pricing services. Portfolio securi-
ties which are primarily traded on foreign securities exchanges are normally
valued at the preceding closing values of such securities on their respective
exchanges. Securities for which market quotations are not readily available are
valued at fair market value as determined in good faith by or under the direc-
tion of the 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.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. All distributions are
reinvested at net asset value in the form of additional full and fractional
Service Shares of the relevant Portfolio unless a shareholder elects otherwise.
Such election, or any revocation thereof, must be made in writing to PFPC, and
will become effective with respect to dividends paid after its receipt by PFPC.
Each Portfolio declares a dividend each day on "settled" shares (i.e. shares
for which the particular Portfolio has received payment in Federal funds) on
the first Business Day after a purchase order is placed with the Fund. Payments
by check are normally converted to Federal funds within two Business Days of
receipt. Over the course of a year, substantially all of the Portfolios' net
investment income will be declared as dividends. The amount of the daily divi-
dend for each Portfolio will be based on periodic projections of its net in-
vestment 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 annually.
38.
<PAGE>
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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), 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 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. In addition,
investors should be aware of the possibility of state and local alternative
minimum or minimum income tax liability on interest from private activity
bonds. Shareholders who are recipients of Social Security Act or Railroad Re-
tirement Act benefits should note that "exempt interest dividends" will be
taken into account in determining 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.
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. Any loss upon the sale or ex-
change of shares held for six months or less will be disallowed for Federal in-
come tax purposes to the extent of any exempt interest dividends received by
the shareholder. For the Ohio Tax-Free Income Portfolio, the loss will be dis-
allowed for Ohio income tax purposes to the same extent, even though, for Ohio
income tax purposes, some portion of such dividends actually may have been sub-
ject to Ohio income tax.
It is expected that dividends and certain interest income earned by the Inter-
national Bond Portfolio from foreign securities will be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of a taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. Federal
income tax purposes, to treat certain foreign taxes paid by it, including gen-
erally any withholding taxes and other foreign income taxes, as paid by its
shareholders.
39.
<PAGE>
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The Portfolio intends to make this election. As a result, the amount of such
foreign taxes paid by the Portfolio will be included in its shareholders' in-
come pro rata (in addition to taxable distributions actually received by them),
and each shareholder generally will be entitled either (a) to credit a propor-
tionate 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, should the shareholder so choose.
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, shareholders who are non-resident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to differ-
ent Federal income tax treatment. Future legislative or administrative changes
or court decisions may materially affect the tax consequences of investing in a
Portfolio. For additional information concerning the tax treatment of dividends
and distributions by the states listed below including certain restrictions ap-
plicable to such treatment, see "Taxes" in the Statement of Additional Informa-
tion.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder attributable
to interest realized by the Pennsylvania Tax-Free Income Portfolio from Penn-
sylvania State-Specific Obligations or attributable to insurance proceeds on
account of such interest, is not taxable to individuals, estates or trusts un-
der 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 exempt for Federal income tax purposes); nor to individuals under the Phil-
adelphia 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 State-
Specific Obligations is taxable under the Personal Income Tax, the Corporate
Net Income Tax, and, unless these assets were held by the Pennsylvania Tax-Free
Income 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 State-Specific Obligations held by the Pennsylvania Tax-Free
Income Portfolio, such gain may be subject to the Personal Income Tax and Cor-
porate Net Income Tax. Such gain may also be subject to the School District
Tax, except that gain realized with respect to a share held for more than six
months is not subject to the School District Tax.
This discussion does not address the extent, if any, to which shares, or inter-
est and gain thereon, are subject to, or included in the measure of, the spe-
cial taxes imposed by the Commonwealth of Pennsylvania on banks and other fi-
nancial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed above (including the Cor-
porate Capital 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 State-Specific Obligations and Federal obligations
(if the interest on such obligations is exempt from state and local taxation
under the laws of the United States).
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. Shares of the Portfolio are not subject to property taxation by New
Jersey or its political subdivisions.
40.
<PAGE>
- --------------------------------------------------------------------------------
The New Jersey personal income tax is not applicable to corporations. For all
corporations subject to the New Jersey Corporation Business Tax, dividends and
distributions from a "qualified investment fund" are included in the net income
tax base for purposes of computing the Corporation Business Tax. Furthermore,
any gain upon the redemption or sale of shares by a corporate shareholder is
also included in the net income tax base for purposes of computing the Corpora-
tion Business Tax.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio per-
sonal income tax or municipal or school district income taxes in Ohio will not
be subject to such taxes on distributions from the Ohio Tax-Free Income Portfo-
lio to the extent that such distributions are properly attributable to interest
on Ohio State-Specific Obligations or obligations issued by the U.S. Govern-
ment, its agencies, instrumentalities or territories (if the interest on such
obligations is exempt from state income taxation under the laws of the United
States). Corporations that are subject to the Ohio corporation franchise tax
will not have to include distributions from the Ohio Tax-Free Income Portfolio
in their net income base for purposes of calculating their Ohio corporation
franchise tax liability to the extent that such distributions either constitute
exempt-interest dividends for Federal income tax purposes or are properly at-
tributable to interest on Ohio State-Specific Obligations or the U.S. obliga-
tions described above. However, Shares of the Ohio Tax-Free Income Portfolio
will be included in a corporation's net worth base for purposes of calculating
the Ohio corporation franchise tax. Distributions properly attributable to gain
on the sale, exchange or other disposition of Ohio State Specific Obligations
will not be subject to the Ohio personal income tax, or municipal or school
district income taxes in Ohio and will not be included in the net income base
of the Ohio corporation franchise tax. Distributions attributable to other
sources will be subject to the Ohio personal income tax and the Ohio corpora-
tion franchise tax.
41.
<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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Service Shares of the Portfolios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. In addition, each class of Investor
Shares is sold with different sales charges. Because of these "class expenses"
and sales charges, the performance of a Portfolio's Institutional Shares is ex-
pected to be higher than the performance of the Portfolio's Service Shares, and
the performance of both the Institutional Shares and Service Shares of a Port-
folio is expected to be higher than the performance of the Portfolio's classes
of Investor Shares. The performance of each class of Investor Shares may be
different. The Fund offers various services and privileges in connection with
its Investor Shares that are not generally offered in connection with its In-
stitutional and Service Shares, including an automatic investment plan and an
automatic withdrawal plan. For further information regarding the Fund's Insti-
tutional or Investor Share classes, contact PFPC at (800) 441-7764 (Institu-
tional Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets that 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 November 30, 1996, PNC Bank held of record approximately 70% 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.
42.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Performance information for Service Shares of the Portfolios may be quoted in
advertisements and communications to shareholders. Total return will be calcu-
lated on an average annual total return basis for various periods. Average an-
nual total return reflects the average annual percentage change in value of an
investment in Service Shares of a Portfolio over the measuring period. Total
return may also be calculated on an aggregate total return basis. Aggregate to-
tal return reflects the total percentage change in value over the measuring pe-
riod. Both methods of calculating total return assume that dividend and capital
gain distributions made by a Portfolio with respect to its Service Shares are
reinvested in Service Shares.
The yield of Service Shares is computed by dividing the Portfolio's net income
per share allocated to its Service Shares during a 30-day (or one month) period
by the net asset value per share on the last day of the period and annualizing
the result on a semi-annual basis. Each Tax-Free Portfolio's "tax-equivalent
yield" may also be quoted, which shows the level of taxable yield needed to
produce an after-tax equivalent to a Portfolio's tax-free yield. This is done
by increasing the Portfolio's yield (calculated above) by the amount necessary
to reflect the payment of Federal and/or state income tax at a stated tax rate.
The performance of a Portfolio's Service Shares may be compared to the perfor-
mance of other mutual funds with similar investment objectives and to relevant
indices, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of a Portfolio's Service Shares may be com-
pared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service, and with the
performance of the Lehman GMNA Index, the T-Bill Index, the "stocks, bonds and
inflation index" published annually by Ibbotson Associates and the Lehman Gov-
ernment Corporate Bond Index, as well as the benchmarks attached to this Pro-
spectus. Performance information may also include evaluations of the Portfolios
and their Service Shares published by nationally recognized ranking services,
and information as reported in financial publications such as Business Week,
Fortune, Institutional Investor, Money Magazine, Forbes, Barron's, The Wall
Street Journal and The New York Times, or in publications of a local or re-
gional nature.
In addition to providing performance information that demonstrates the actual
yield or return of Service Shares of a particular Portfolio, a Portfolio may
provide other information demonstrating hypothetical investment returns. This
information may include, but is not limited to, illustrating the compounding
effects of dividends in a dividend reinvestment plan or the impact of tax-de-
ferred investing.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered representative of future results. The investment re-
turn and principal value of an investment in a Portfolio will fluctuate so that
an investor's Service Shares, when redeemed, may be worth more or less than
their original cost. Since performance will fluctuate, performance data for
Service Shares of a Portfolio cannot necessarily be used to compare an invest-
ment in such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other institu-
tions directly to their customer accounts in connection with investments in
Service Shares will not be included in the Portfolio performance calculations.
43.
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of the Compass Capital Funds:
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of the Short Government Bond, Intermediate
Government Bond, Intermediate Bond, Core Bond, Government Income, Managed In-
come, International Bond, Tax-Free Income and New Jersey Tax-Free Income Port-
folios of the Compass Capital Fund, and the statements of net assets of the
Pennsylvania Tax-Free Income and Ohio Tax-Free Income Portfolios of the Compass
Capital Funds as of September 30, 1996, and the related statements of opera-
tions for the periods then ended, the statements of changes in net assets for
each of the two years (or periods) in the period then ended, and the financial
highlights for each of the periods presented (except for those statements which
have been audited by other auditors as discussed below). These financial state-
ments 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. The statements of changes in net as-
sets for the year ended June 30, 1995, and the financial highlights for the
year ended June 30, 1995 and each of the prior periods presented of the Short
Government Bond and Core Bond Portfolios, formerly the BFM Institutional Trust
Short Duration and Core Fixed Income Portfolios (the "BFM Funds"), respectively
were audited by other auditors, whose report dated August 7, 1995 expressed an
unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of materials misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian and brokers as of September 30, 1996. An audit also includes assess-
ing the accounting principles used and significant estimates made by manage-
ment, 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
Compass Capital Funds (Short Government Bond, Intermediate Government Bond, In-
termediate Bond, Core Bond, Government Income, Managed Income, International
Bond, Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free and
Ohio Tax-Free Income Portfolios), as of September 30, 1996, and the results of
their operations for the periods then ended, the changes in their net assets
for each of the two years (or periods) in the period then ended (except for the
year ended June 30, 1995 for the BFM Funds which have been audited by other au-
ditors), and the financial highlights for each of the periods presented (except
for the year ended June 30, 1995 and prior periods for the BFM Funds which have
been audited by other auditors), in conformity with generally accepted account-
ing principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 22, 1996
44.
<PAGE>
- --------------------------------------------------------------------------------
HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7764
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7764
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7450
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
45.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
<TABLE>
<CAPTION>
COMPASS CAPITAL PERFORMANCE
PORTFOLIO BENCHMARK DESCRIPTION
<S> <C> <C>
Low Duration Bond Merrill 1-3 Year Treasury Index Treasuries with maturities ranging from 1 to 2.99
years
Intermediate Government Lehman Brothers Intermediate Treasury and agency issues in the Lehman Aggregate,
Bond Government excluding maturities above 9.99 years
Intermediate Bond Lehman Brothers Intermediate Treasury, agency and corporate issues in the Lehman
Gov't/Corp 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 November 1996, the composition of the Lehman
Brothers Aggregate Index is:
52% allocation to Treasury and government securities
29% allocation to mortgage-backed securities
19% allocation to corporate and asset-backed
securities
Managed Income 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 November 1996, the composition of the Lehman
Brothers Aggregate Index is:
52% allocation to Treasury and government securities
29% allocation to mortgage-backed securities
19% allocation to corporate and asset-backed
securities
International Bond Salomon Non-U.S. Hedged World A market-capitalization weighted benchmark that
Government Bond Index tracks the performance of the 13 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 Index All of the bonds in the following Municipal Indices
possess the following characteristics:
.A minimum credit rating of Baa-3
.Outstanding par value of at least $3 million
.Must be issued as part of a deal of at least $50
million
.Individual bonds must have been issued within the
last 5 years
.Remaining maturity of not less than one year
Excludes bonds subject to the alternative minimum
tax (AMT), taxable municipal bonds, and floating-
rate or zero coupon municipal bonds
Pennsylvania Tax-Free Lehman Local GO Index Local general obligation bonds
Income
New Jersey Tax-Free Lehman Local GO Index Local general obligation bonds
Income
Ohio Tax-Free Income Lehman Local GO Index Local general obligation bonds
</TABLE>
46.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment style SM.
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity Small Cap Growth Equity
Large Cap Value Equity Small Cap Value Equity
Mid-Cap Growth Equity International Equity
Mid-Cap Value Equity International Emerging Markets
Index Equity
Select Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS INVESTOR SHARES
- --------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 7
What Are The Portfolios?..................................... 12
What Additional Investment Policies And Risks Apply?......... 15
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 19
Who Manages The Fund?........................................ 20
How Are Shares Purchased?.................................... 24
How Are Shares Redeemed?..................................... 26
What Are The Shareholder Features Of The Fund?............... 28
How Is Net Asset Value Calculated?........................... 30
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 30
How Are Fund Distributions Taxed?............................ 31
How Is The Fund Organized?................................... 34
How Is Performance Calculated?............................... 35
How Can I Get More Information?.............................. 36
</TABLE>
This Prospectus contains information about the Compass Capital
money market portfolios (the "Portfolios") that a prospective in-
vestor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information dated January 1,
1997 has been filed with the Securities and Exchange Commission
(the "SEC"). The Statement of Additional Information may be ob-
tained free of charge from the Fund by calling (800) 441-7762.
The Statement of Additional Information, 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The New Jersey, North Carolina, Ohio, Pennsylvania and Virginia
Municipal Money Market Portfolios may invest a significant per-
centage of their assets in a single issuer and, therefore, in-
vestments in these Portfolios may be riskier than an investment
in other types of money market funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC MUNICIPAL PORTFOLIOS LISTED
ABOVE ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
2.
<PAGE>
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS OF COMPASS CAPITAL FUNDS
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 30 portfolios and
has been structured to include many different investment styles
across the spectrum of money market investments so that invest-
ors may participate across multiple disciplines in order to
seek their long-term financial goals.
The Money Market Portfolios of COMPASS CAPITAL FUNDS consist of
eight short-term investment alternatives. Two of these Portfo-
lios invest solely in taxable instruments, and six of these
Portfolios invest in tax-exempt instruments. A detailed de-
scription of each Portfolio begins on page 12.
COMPASS CAPITAL LIPPER PEER GROUP
PORTFOLIO
MONEY MARKET Money Market Instrument Funds
U.S. TREASURY U.S. Treasury Money Market Funds
MONEY MARKET
MUNICIPAL MONEY Tax-Exempt Money Market Funds
MARKET
NJ MUNICIPAL NJ Tax-Exempt Money Market Funds
MONEY MARKET
NC MUNICIPAL Other States Tax-Exempt Money
MONEY MARKET Market Funds
OH MUNICIPAL Ohio Tax-Exempt Money Market
MONEY MARKET Funds
PA MUNICIPAL PA Tax-Exempt Money Market Funds
MONEY MARKET
VA MUNICIPAL Other States Tax-Exempt Money
MONEY MARKET Market Funds
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfo-
CAPITAL lios. We intend this document to be an effective tool as you
MONEY MARKET explore different directions in money market investing.
PORTFOLIOS
CONSIDERING
THE RISKS IN
MONEY MARKET There can be no assurance that any mutual fund will achieve its
INVESTING investment objective, or that any Portfolio will be able to
maintain a stable net asset value of $1.00 per share. Certain
Portfolios may invest in U.S. dollar-denominated instruments of
foreign issuers or municipal securities backed by the credit of
foreign banks, which may be subject to risks in addition to
those inherent in U.S. investments. Each state-specific munici-
pal Portfolio will concentrate in the securities of issuers lo-
cated in a particular state, and is non-diversified, which
means that its performance may be dependent upon the perfor-
mance of a smaller number of securities than the other Portfo-
lios, which are considered diversified. See "What Additional
Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased" and "How Are Shares
CAPITAL Redeemed?"
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Investor Shares
of the Portfolios after fee waivers for the fiscal year ended September 30,
1996 as a percentage of average daily net assets. The figures shown for each
Portfolio have been restated to reflect current expenses and fee waivers. Be-
cause no Investor A, B or C Shares of the Virginia Municipal Money Market Port-
folio, no Investor C Shares of the Money Market Portfolio and no Investor B or
C Shares of the other Portfolios were outstanding during the fiscal year ended
September 30, 1996, the figures shown for these share classes under "Other ex-
penses" are estimates for the current fiscal year. An example based on the sum-
mary is also shown.
<TABLE>
<CAPTION>
MONEY U.S. TREASURY
MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
<CAPTION>
MUNICIPAL
MONEY MARKET
PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING
EXPENSES
(AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory fees
(after fee
waivers)(/1/) .07% .07% .07% .07% .07% .07%
12b-1 fees(/2/) .10 .75 .75 .10 .75 .75
Other operating
expenses
(after fee
waivers)(/1/) .69 .54 .54 .69 .54 .54
----- ----- ----- ----- ----- -----
Shareholder
servicing fee .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .00 .00 .15 .00 .00
Other expenses .29 .29 .29 .29 .29 .29
----- ---- ---- ----- ---- ----
Total Portfolio
operating
expenses
(after fee
waivers)(/1/) .86% 1.36% 1.36% .86% 1.36% 1.36%
===== ===== ===== ===== ===== =====
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING
EXPENSES
(AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory fees
(after fee
waivers)(/1/) .06% .06% .06%
12b-1 fees(/2/) .10 .75 .75
Other operating
expenses
(after fee
waivers)(/1/) .70 .55 .55
------ ------ -------
Shareholder
servicing fee .25 .25 .25
Shareholder
processing fee .15 .00 .00
Other expenses .30 .30 .30
----- ---- ------
Total Portfolio
operating
expenses
(after fee
waivers)(/1/) .86% 1.36% 1.36%
====== ====== =======
</TABLE>
(1) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .42% for each class of the
Money Market Portfolio, .44% for each class of the U.S. Treasury Money Mar-
ket Portfolio and .45% for each class of the Municipal Money Market Portfo-
lio and administration fees would be .15% for each class of the Money Mar-
ket Portfolio, .16% for each class of the U.S. Treasury Money Market Port-
folio and .18% for each class of the Municipal Money Market Portfolio. PAMG
and the Portfolios' administrators are under no obligation to waive or con-
tinue waiving their fees, but have informed the Fund that they expect to
waive fees as necessary to maintain the Portfolios' total operating ex-
penses during the remainder of the current fiscal year at the levels set
forth in the table. Without waivers, "Other operating expenses" would be:
(i) .71%, .72% and .76%, respectively, for Investor A Shares; (ii) .56%,
.57% and .61%, respectively, for Investor B Shares; and (iii) .56%, .57%
and .61%, respectively, for Investor C Shares; and "Total Portfolio operat-
ing expenses" would be: (iv) 1.23%, 1.26% and 1.31%, respectively, for In-
vestor A Shares; (v) 1.73%, 1.76% and 1.80%, respectively, for Investor B
Shares; and (vi) 1.73%, 1.76% and 1.81%, respectively, for Investor C
Shares.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National As-
sociation of Securities Dealers, Inc. ("NASD").
4.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS? (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY NORTH CAROLINA OHIO
MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING
EXPENSES
(AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
Advisory Fees
(after fee
waivers)(/1/) .06% .06% .06% .06% .06% .06% .06% .06% .06%
12b-1 fees(/2/) .10 .75 .75 .10 .75 .75 .10 .75 .75
Other operating
expenses
(after fee
waivers)(/1/) .70 .55 .55 .70 .55 .55 .70 .55 .55
----- --- --- ----- --- --- ----- --- ---
Shareholder
servicing fee .25 .25 .25 .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .00 .00 .15 .00 .00 .15 .00 .00
Other expenses .30 .30 .30 .30 .30 .30 .30 .30 .30
----- ---- ---- ----- ---- ---- ----- ---- ----
Total Portfolio
operating
expenses
(after fee
waivers)(/1/) .86% 1.36% 1.36% .86% 1.36% 1.36% .86% 1.36% 1.36%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
(1) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .45% and administration fees
would be .18% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive or continue waiving their
fees, but have informed the Fund that they expect to waive fees as neces-
sary to maintain the Portfolios' total operating expenses during the re-
mainder of the current fiscal year at the levels set forth in the table.
Without waivers, "Other operating expenses" would be: (i) .80%, .81% and
.78%, respectively, for Investor A Shares; (ii) .65%, .66% and .63%, re-
spectively, for Investor B Shares; and (iii) .65%, .66% and .63%, respec-
tively, for Investor C Shares; and "Total Portfolio operating expenses"
would be: (iv) 1.35%, 1.36% and 1.33%, respectively, for Investor A Shares;
(v) 1.85%, 1.86% and 1.83%, respectively, for Investor B Shares; and (vi)
1.85%, 1.86% and 1.83%, respectively, for Investor C Shares.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the NASD.
<TABLE>
<CAPTION>
PENNSYLVANIA VIRGINIA
MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING
EXPENSES
(AS A PERCENTAGE
OF AVERAGE
NET ASSETS)
Advisory Fees
(after fee
waivers)(/1/) .06% .06% .06% .06% .06% .06%
12b-1 fees(/2/) .10 .75 .75 .10 .75 .75
Other operating
expenses
(after fee
waivers)(/1/) .70 .55 .55 .65 .50 .50
--- --- --- --- --- ---
Shareholder
servicing fee .25 .25 .25 .25 .25 .25
Shareholder
processing fee .15 .00 .00 .15 .00 .00
Other expenses .30 .30 .30 .25 .25 .25
----- ---- ---- ----- ---- ----
Total Portfolio
operating
expenses
(after fee
waivers)(/1/) .86% 1.36% 1.36% .81% 1.31% 1.31%
===== ===== ===== ===== ===== =====
</TABLE>
(1) "Other expenses" includes the administration fees payable by the Portfo-
lios. Without waivers, advisory fees would be .45% and administration fees
would be .18% for each class of each Portfolio. PAMG and the Portfolios'
administrators are under no obligation to waive or continue waiving their
fees, but have informed the Fund that they expect to waive fees as neces-
sary to maintain the Portfolios' total operating expenses during the re-
mainder of the current fiscal year at the levels set forth in the table.
Without waivers, "Other operating expenses" would be: (i) .76% and .79%,
respectively, for Investor A Shares; (ii) .61% and .64%, respectively, for
Investor B Shares; and (iii) .61 and .64%, respectively, for Investor C
Shares; and "Total Portfolio operating expenses" would be: (iv) 1.31% and
1.34%, respectively, for Investor A Shares; (v) 1.81% and 1.84%, respec-
tively, for Investor B Shares; and (vi) 1.81% and 1.84%, respectively, for
Investor C Shares.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the NASD.
5.
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Money Market
A Shares $ 9 $27 $48 $106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
U.S. Treasury Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Municipal Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
New Jersey Municipal Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
North Carolina Municipal Money
Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Ohio Municipal Money Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Pennsylvania Municipal Money
Market
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
Virginia Municipal Money
Portfolio
A Shares 9 27 48 106
B Shares* 14 43 74 150**/143***
C Shares* 14 43 74 164
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor C
Shares of a Portfolio received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Fund.
See "What Are The Shareholder Features Of The Fund?--Exchange Privilege."
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for In-
vestor B Shares of an equity portfolio of the Fund).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for In-
vestor B Shares of a fixed income portfolio of the Fund).
The foregoing Tables and Example are intended to assist investors in under-
standing the expenses the Portfolios pay. Investors bear these expenses either
directly or indirectly. They do not reflect any charges that may be imposed by
brokers or other institutions directly on their customer accounts in connection
with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
6.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information, and has been audited by the
Portfolios' independent accountants. This financial information
should be read together with those financial statements. For
the period shown, no Investor A, B or C Shares of the Virginia
Municipal Money Market Portfolio, Investor C Shares of the
Money Market Portfolio and Investor B or C Shares of the other
Portfolios were outstanding. Further information about the per-
formance of the Portfolios is available in the annual share-
holder reports. Both the Statement of Additional Information
and the annual shareholder reports may be obtained from the
Fund free of charge by calling (800) 441-7762.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A OR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 1/13/93/1/ YEAR 9/15/95/1/
ENDED ENDED ENDED THROUGH ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- --------
Income from investment
operations
Net investment income 0.0485 0.0511 0.0308 0.0188 0.0426 0.0020
Net realized gain (loss)
on investments - - - - - - - - - - - -
-------- -------- -------- -------- ------- --------
Total from investment
operations 0.0485 0.0511 0.0308 0.0188 0.0426 0.0020
-------- -------- -------- -------- ------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0485) (0.0511) (0.0308) (0.0188) (0.0426) (0.0020)
Distributions from net
realized capital gains - - - - - - - - - - - -
-------- -------- -------- -------- ------- --------
Total distributions (0.0485) (0.0511) (0.0308) (0.0188) (0.0426) (0.0020)
-------- -------- -------- -------- ------- --------
NET ASSET VALUE AT END
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======= ========
Total return 4.96% 5.23% 3.12% 1.89% 4.34% 0.20%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $162,099 $ 10,185 $ 4,342 $ 49 $ 138 $ 27
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.74% 0.81% 0.75% 0.67%/2/ 1.36% 1.34%/2/
Before
advisory/administration
fee waivers 1.10% 1.19% 1.16% 0.78%/2/ 1.73% 1.72%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.81% 5.15% 3.39% 2.62%/2/ 4.18% 4.58%/2/
Before
advisory/administration
fee waivers 4.45% 4.78% 2.98% 2.51%/2/ 3.82% 4.20%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
7.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR 11/2/92/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment
operations
Net investment income 0.0288 0.0311 0.0193 0.0181
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment
operations 0.0288 0.0311 0.0193 0.0181
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0288) (0.0311) (0.0193) (0.0181)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0288) (0.0311) (0.0193) (0.0181)
-------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 2.88% 3.15% 1.95% 1.83%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 1,851 $ 20 $ 41 $ 15
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.77% 0.79% 0.75% 0.72%/2/
Before advisory/administration
fee waivers 1.21% 1.23% 1.23% 0.83%/2/
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 2.80% 3.08% 2.05% 2.23%/2/
Before advisory/administration
fee waivers 2.36% 2.64% 1.58% 2.12%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
U.S. TREASURY MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR YEAR 1/14/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment
operations
Net investment income 0.0467 0.0501 0.0309 0.0183
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment
operations 0.0467 0.0501 0.0309 0.0183
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0467) (0.0501) (0.0309) (0.0183)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0467) (0.0501) (0.0309) (0.0183)
-------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 4.77% 5.13% 3.11% 1.85%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 10,630 $ 1,285 $ 1,656 $ 50
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.79% 0.80% 0.75% 0.65%/2/
Before advisory/administration
fee waivers 1.19% 1.21% 1.20% 0.78%/2/
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 4.60% 5.03% 3.60% 2.57%/2/
Before advisory/administration
fee waivers 4.20% 4.62% 3.14% 2.44%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
8.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR 10/5/93/1/
ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.0293 0.0310 0.0199
Net realized gain (loss) on investments - - - - - -
-------- -------- --------
Total from investment operations 0.0293 0.0310 0.0199
-------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0293) (0.0310) (0.0199)
Distributions from net realized capital
gains - - - - - -
-------- -------- --------
Total distributions (0.0293) (0.0310) (0.0199)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return 2.98% 3.15% 2.01%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 5,672 $ 75 $ 28
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.79% 0.80% 0.62%/2/
Before advisory/administration fee waivers 1.25% 1.26% 1.26%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 2.88% 3.02% 1.94%/2/
Before advisory/administration fee waivers 2.42% 2.56% 1.30%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR YEAR 12/28/93/1/
ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
------- -------- --------
Income from investment operations
Net investment income 0.0281 0.0302 0.0153
Net realized gain (loss) on investments - - - - - -
------- -------- --------
Total from investment operations 0.0281 0.0302 0.0153
------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0281) (0.0302) (0.0153)
Distributions from net realized capital
gains - - - - - -
------- -------- --------
Total distributions (0.0281) (0.0302) (0.0153)
------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======= ======== ========
Total return 2.90% 3.06% 1.58%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $63,424 $ 750 $ 139
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.81% .82% 0.65%/2/
Before advisory/administration fee waivers 1.23% 1.24% 1.22%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 2.81% 3.03% 2.11%/2/
Before advisory/administration fee waivers 2.39% 2.61% 1.54%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
INVESTOR A SHARES
FOR THE
PERIOD
YEAR 2/14/95/1/
ENDED THROUGH
9/30/96 9/30/95
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00
-------- --------
Income from investment operations
Net investment income 0.0286 0.0194
Net realized gain (loss) on investments - - - -
-------- --------
Total from investment operations 0.0286 0.0194
-------- --------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0286) (0.0194)
Distributions from net realized capital gains - - - -
-------- --------
Total distributions (0.0286) (0.0194)
-------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00
======== ========
Total return 2.90% 1.95%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 111 $ 53
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.76% 0.83%/2/
Before advisory/administration fee waivers 1.25% 1.36%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 2.83% 3.05%/2/
Before advisory/administration fee waivers 2.34% 2.52%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
2/1/96 1/16/96/1/
THROUGH THROUGH
9/30/96 1/31/96
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00
-------- -------
Income from investment operations
Net investment income 0.0175 0.00
Net realized gain (loss) on investments - - - -
-------- -------
Total from investment operations 0.0175 0.00
-------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.0175) 0.00
Distributions from net realized capital gains - - - -
-------- -------
Total distributions (0.0175) 0.00
-------- -------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00
======== =======
Total return 1.76% 2.66%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ 17,314 $21,662
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.78%/2/ 0.71%/2/
Before advisory/administration fee waivers 1.27%/2/ 1.20%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 2.63%/2/ 2.66%/2/
Before advisory/administration fee waivers 2.15%/2/ 2.17%/2/
</TABLE>
+ The Portfolio commenced operations on July 1, 1991 as the New Jersey
Municipal Money Market Fund, a separate investment portfolio (the
"Predecessor New Jersey Municipal Money Market Portfolio") of Compass Capital
Group, which was organized as a Massachusetts business trust. On January 13,
1996, the assets and liabilities of the Predecessor New Jersey Municipal
Money Market Portfolio were transferred to this Portfolio, and were combined
with the assets of a pre-existing portfolio of investments maintained by the
Fund.
/1/Commencement of operations of share class.
/2/Annualized.
11.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
MONEY MARKET The investment objective of the Money Market Portfolio is to
PORTFOLIO provide as high a level of current interest income as is con-
sistent with maintaining liquidity and stability of princi-
pal. The Portfolio may invest in a broad range of short-term,
high quality, U.S. dollar-denominated instruments, such as
government, bank, commercial and other obligations, that are
available in the money markets. In particular, the Portfolio
may invest in:
(A) U.S. dollar-denominated obligations issued or supported
by the credit of U.S. or foreign banks or savings insti-
tutions with total assets in excess of $1 billion (in-
cluding obligations of foreign branches of such banks);
(B) high quality commercial paper and other obligations is-
sued or guaranteed by U.S. and foreign corporations and
other issuers rated (at the time of purchase) A-2 or
higher by Standard & Poor's Ratings Group ("S&P"), Prime-
2 or higher by Moody's Investors Service, Inc.
("Moody's"), Duff 2 or higher by Duff & Phelps Credit Co.
("D&P"), F-2 or higher by Fitch Investors Service, Inc.
("Fitch") or TBW-2 or higher by Thomson BankWatch, Inc.
("TBW"), as well as high quality corporate bonds rated
(at the time of purchase) AA or higher by S&P, D&P, Fitch
or TBW or Aa or higher by Moody's;
(C) unrated notes, paper and other instruments that are of
comparable quality as determined by the Portfolio's sub-
adviser under guidelines established by the Fund's Board
of Trustees;
(D) asset-backed securities (including interests in pools of
assets such as mortgages, installment purchase obliga-
tions and credit card receivables);
(E) securities issued or guaranteed as to principal and in-
terest by the U.S. Government or by its agencies or in-
strumentalities and related custodial receipts;
(F) dollar-denominated securities issued or guaranteed by
foreign governments or their political subdivisions,
agencies or instrumentalities;
(G) guaranteed investment contracts issued by highly-rated
U.S. insurance companies;
(H) securities issued or guaranteed by state or local govern-
mental bodies; and
(I) repurchase agreements relating to the above instruments.
U.S. TREASURY The investment objective of the U.S. Treasury Money Market
MONEY MARKET Portfolio is to provide as high a level of current interest
PORTFOLIO income as is consistent with maintaining liquidity and sta-
bility of principal. It pursues this objective by investing
exclusively in short-term bills, notes and other obligations
issued or guaranteed by the U.S. Treasury and repurchase
agreements relating to such obligations.
MUNICIPAL The investment objective of the Municipal Money Market Port-
PORTFOLIOS folio is to provide as high a level of current interest in-
come exempt from Federal income taxes as is consistent with
maintaining liquidity and stability of principal. It pursues
this objective by investing substantially all of its assets
in short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the Dis-
trict of Columbia, and their political subdivisions, agen-
cies, instrumentalities and authorities ("Municipal Obliga-
tions").
12.
<PAGE>
- --------------------------------------------------------------------------------
The investment objective of the New Jersey Municipal Money Mar-
ket Portfolio, North Carolina Municipal Money Market Portfolio,
Ohio Municipal Money Market Portfolio, Pennsylvania Municipal
Money Market Portfolio and Virginia Municipal Money Market
Portfolio (the "State-Specific Municipal Portfolios") is, for
each Portfolio, to seek as high a level of current income ex-
empt from Federal, and to the extent possible, state income tax
of the specific state in which a Portfolio concentrates, as is
consistent with maintaining liquidity and stability of princi-
pal.
The Municipal Money Market Portfolio and the State-Specific Mu-
nicipal Portfolios (together, the "Municipal Portfolios") seek
to achieve their investment objectives by primarily investing
in:
(A) fixed and variable rate notes and similar debt instruments
rated MIG-2, VMIG-2 or Prime-2 or higher by Moody's, SP-2
or A-2 or higher by S&P, AA or higher by D&P or F-2 or
higher by Fitch;
(B) tax-exempt commercial paper and similar debt instruments
rated Prime-2 or higher by Moody's, A-2 or higher by S&P,
Duff 2 or higher by D&P or F-2 or higher by Fitch;
(C) municipal bonds rated Aa or higher by Moody's or AA or
higher by S&P, D&P or Fitch;
(D) unrated notes, paper or other instruments that are of com-
parable quality as determined by the Portfolios' sub-ad-
viser under guidelines established by the Fund's Board of
Trustees; and
(E) municipal bonds and notes which are guaranteed as to prin-
cipal and interest by the U.S. Government or an agency or
instrumentality thereof or which otherwise depend directly
or indirectly on the credit of the United States.
During normal market conditions, at least 80% of each Municipal
Portfolio's net assets will be invested in securities which are
Municipal Obligations. In addition, under normal conditions
each State-Specific Municipal Portfolio intends to invest at
least 65% of its net assets in Municipal Obligations of issuers
located in the particular state indicated by its name ("State-
Specific Obligations"). The Municipal Money Market Portfolio
intends, on the other hand, to invest less than 25% of its to-
tal assets in Municipal Obligations of issuers located in the
same state. During temporary defensive periods, each Municipal
Portfolio may invest without limitation in obligations that are
not Municipal Obligations and may hold without limitation
uninvested cash reserves.
Each State-Specific Portfolio may invest without limitation in
private activity bonds the interest on which is an item of tax
preference for purposes of the Federal alternative minimum tax
("AMT Paper"). The Municipal Money Market Portfolio may invest
up to 20% of its total assets in AMT Paper when added together
with any taxable investments held by the Portfolio. Interest on
AMT Paper that is received by taxpayers subject to the Federal
alternative minimum tax is taxable.
Each Municipal Portfolio may invest 25% or more of its assets
in Municipal Obligations the interest on which is paid solely
from revenues of similar projects. To the extent a Portfolio's
assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activ-
ity bonds, the Portfolio will be subject to the peculiar risks
presented by the laws and economic conditions relating to such
projects and bonds to a greater extent than it would be if its
assets were not so invested.
13.
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QUALITY, All securities acquired by the Portfolios will be determined
MATURITY AND at the time of purchase by the Portfolios' sub-adviser, un-
DIVERSIFICATION der guidelines established by the Fund's Board of Trustees,
to present minimal credit risks and will be "Eligible Secu-
rities" as defined by the SEC. Eligible Securities are (a)
securities that either (i) have short-term debt ratings at
the time of purchase in the two highest rating categories by
at least two unaffiliated nationally recognized statistical
rating organizations ("NRSROs") (or one NRSRO if the secu-
rity is rated by only one NRSRO), or (ii) are comparable in
priority and security with an instrument issued by an issuer
which has such ratings, and (b) securities that are unrated
(including securities of issuers that have long-term but not
short-term ratings) but are of comparable quality as deter-
mined in accordance with guidelines approved by the Board of
Trustees.
Each Portfolio is managed so that the average maturity of
all instruments held by it (on a dollar-weighted basis) will
not exceed 90 days. In no event will a Portfolio purchase
securities which mature more than 397 days from the date of
purchase (except for certain variable and floating rate in-
struments and securities collateralizing repurchase agree-
ments). Securities in which the Portfolios invest may not
earn as high a level of income as longer term or lower qual-
ity securities, which generally have greater market risk and
more fluctuation in market value.
The Money Market, U.S. Treasury Money Market and Municipal
Money Market Portfolios are classified as diversified port-
folios, and the State-Specific Municipal Portfolios are
classified as non-diversified portfolios, under the Invest-
ment Company Act of 1940 (the "1940 Act"). Investment re-
turns on a non-diversified portfolio typically are dependent
upon the performance of a smaller number of securities rela-
tive to the number held in a diversified portfolio. Conse-
quently, the change in value of any one security may affect
the overall value of a non-diversified portfolio more than
it would a diversified portfolio. In addition, because the
State-Specific Municipal Portfolios concentrate their in-
vestments in obligations of issuers located in particular
states, investments in these Portfolios may be riskier than
an investment in other money market funds.
14.
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WHAT ADDITIONAL INVESTMENT POLICIES AND RISKS APPLY?
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CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their investment
objectives, the Portfolios may invest 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 limited to the issuing branch or
subsidiary by the terms of the specific obligation or by government regulation.
The Money Market Portfolio may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its total
assets. The obligations of foreign issuers may involve certain risks in
addition to those of domestic issuers, including higher transaction costs, less
complete financial information, less stringent regulatory requirements and less
market liquidity.
Commercial paper issues include securities issued by corporations without reg-
istration under the Securities Act of 1933 (the "1933 Act") in reliance on the
exemption in Section 3(a)(3), and commercial paper issued in reliance on the
so-called "private placement" exemption in Section 4(2) ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws in that any resale must similarly be made in an exempt transaction. Sec-
tion 4(2) paper is normally resold to other institutional investors through or
with the assistance of investment dealers which make a market in Section 4(2)
paper, thus providing liquidity.
U.S. GOVERNMENT OBLIGATIONS. To the extent consistent with their investment ob-
jectives, the Portfolios may also purchase obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities. Obligations of cer-
tain agencies and instrumentalities of the U.S. Government are backed by the
full faith and credit of the United States. Others are backed by the right of
the issuer to borrow from the U.S. Treasury or are backed only by the credit of
the agency or instrumentality issuing the obligation.
MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General ob-
ligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue se-
curities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being fi-
nanced. Revenue securities include private activity bonds which are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved. Municipal Obligations may also in-
clude "moral obligation" bonds, which are normally issued by special purpose
public authorities. If the issuer of moral obligation bonds is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
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.
15.
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Each Municipal Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held by it. Under a stand-by commitment, a dealer agrees
to purchase at the Portfolio's option specific Municipal Obligations at a
specified price. The acquisition of a stand-by commitment may increase the
cost, and thereby reduce the yield, of the Municipal Obligation to which such
commitment relates.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may be less extensive than the information for public cor-
porations, and the secondary market for Municipal Obligations may be less liq-
uid than that for taxable obligations. Accordingly, the ability of a Portfolio
to buy and sell Municipal Obligations may, at any particular time and with re-
spect to any particular securities, be limited. In addition, Municipal Obliga-
tions purchased by the Portfolios include obligations backed by letters of
credit and other forms of credit enhancement issued by domestic and foreign
banks, as well as other financial institutions. Changes in the credit quality
of these institutions could cause loss to a Municipal Portfolio and affect its
share price.
The Municipal Portfolios may invest in tax-exempt derivative securities relat-
ing to Municipal Obligations, including tender option bonds, participations,
beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the exemp-
tion of interest thereon from Federal or state income tax are rendered by
counsel to the respective issuers or sponsors at the time of issuance. The
Fund and its service providers will rely on such opinions and will not review
independently the underlying proceedings relating to the issuance of Municipal
Obligations or the bases for such opinions.
MORTGAGE-RELATED SECURITIES. Although under normal market conditions they do
not expect to do so, each Portfolio may invest in mortgage-related securities
issued by the U.S. Government or its agencies or instrumentalities or issued
by private companies. Mortgage-related securities may include collateralized
mortgage obligations ("CMOs") issued by the Federal National Mortgage Associa-
tion, the Federal Home Loan Mortgage Corporation or other U.S. Government
agencies or instrumentalities or issued by private companies. In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of prepayment proceeds by the particu-
lar Portfolio will generally be at lower rates than the rates on the prepaid
obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated and
unrated variable and floating rate instruments, which may have a stated matu-
rity in excess of 13 months but will, in any event, permit a Portfolio to de-
mand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). These instru-
ments may include variable amount master demand notes that permit the indebt-
edness thereunder to vary in addition to providing for periodic adjustments in
the interest rate. Issuers of unrated variable and floating rate instruments
must satisfy the same criteria as set forth above for the particular Portfo-
lio.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase securities from
broker-dealers and financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements").
The securities held subject to a repurchase agreement may have stated maturi-
ties exceeding 13 months, so long as the repurchase agreement itself matures
in less than 13 months. Default by or bankruptcy of the seller would expose
the Portfolio to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Under these contracts, the Portfolio makes cash con-
tributions to a deposit fund of the insurance company's general account. The
insurance company then credits interest to the Portfolio on a monthly basis,
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The
16.
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Money Market Portfolio does not expect to invest more than 5% of its net assets
in GICs at any time during the current fiscal year.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security it owns or intends to pur-
chase, regardless of future changes in interest rates. When-issued and forward
commitment transactions involve the risk, however, that the price or yield ob-
tained in a transaction may be less favorable than the price or yield available
in the market when the delivery takes place.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans 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.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse repurchase
agreements for temporary purposes (such as to obtain cash to meet redemption
requests when the liquidation of portfolio securities is deemed disadvantageous
or inconvenient). A reverse repurchase agreement involves a sale by a Portfolio
of securities that it holds concurrently with an agreement by the Portfolio to
repurchase the same securities at an agreed-upon price and date. Reverse repur-
chase agreements involve the risk that the market value of the securities sold
by a Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation. Securities of other investment companies will be
acquired by a Portfolio within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's ex-
penses, including advisory fees. These expenses would be in addition to the ad-
visory fees and other expenses the Portfolio bears directly in connection with
its own operations.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods or if, in the opinion of
the Portfolios' sub-adviser, suitable obligations are unavailable. During nor-
mal market periods, no more than 20% of a Portfolio's assets will be held
uninvested. Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of the
value of its net assets in securities that are illiquid. Variable and floating
rate instruments that cannot be disposed of within seven days, GICs, and repur-
chase agreements and time deposits that do not provide for payment within seven
days after notice, without taking a reduced price, are subject to this 10% lim-
it. Each Portfolio may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accor-
dance with Rule 144A under the 1933 Act. These securities will not be consid-
ered illiquid so long as the sub-adviser determines that an adequate trading
market exists for the securities. This investment practice could have the ef-
fect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these re-
stricted securities.
17.
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STATE-SPECIFIC MUNICIPAL PORTFOLIOS-ADDITIONAL RISK CONSIDERATIONS. The concen-
tration of investments by the State-Specific Municipal Portfolios in State-Spe-
cific Obligations raises special investment considerations. Changes in the eco-
nomic condition and governmental policies of a state and its political subdivi-
sions could adversely affect the value of a Portfolio's shares. Certain matters
relating to some of the states in which the State-Specific Municipal Portfolios
invest are described below. For further information, see "Special Considera-
tions Regarding State-Specific Obligations" in the Statement of Additional In-
formation.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness. In past
years, the State's overall unemployment rate has been somewhat higher than the
national figure. For example, the reported 1990 average monthly State rate was
5.7%, compared to the 5.5% national figure. However, for the last five years
the State rates were below the national rates (4.8% versus 5.6% in 1995). The
unemployment rate and its effects vary among particular geographic areas of the
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government fi-
nances generally will not adversely affect the market value of Ohio State-Spe-
cific Obligations held in the Portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following four
years. As of June 30, 1995, the General Fund has a surplus of $688.3 million.
For the fiscal year ended June 30, 1996, the General Fund's expenditures ex-
ceeded available revenues by approximately $253 million; this shortfall was
funded by the General Fund's unappropriated surplus. Rising unemployment, a
relatively high proportion of persons 65 and older in the Commonwealth and
court ordered increases in healthcare reimbursement rates place increased pres-
sures on the tax resources of the Commonwealth and its municipalities. The Com-
monwealth has sold a substantial amount of bonds over the past several years,
but the debt burden remains moderate. Employment growth has shifted to the
trade and service sectors, with losses in more high-paid manufacturing posi-
tions. A new governor took office in January 1995, but the Commonwealth has
continued 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. This
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
18.
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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 change to a Portfolio's investment
objective. No assurance can be provided that a Portfolio will achieve its in-
vestment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry, except that the
Money Market Portfolio will invest at least 25% of its total assets in ob-
ligations of issuers in the banking industry or instruments secured by such
obligations except during temporary defensive periods;
(3) borrow money except for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not
make any additional investments; and
(4) in the case of the Municipal Money Market Portfolio, invest less than 80%
of its net assets in instruments the interest on which is exempt from regu-
lar Federal income tax and not subject to the Federal alternative minimum
tax ("AMT"), except during defensive periods or during periods of unusual
market conditions; and
(5) in the case of each State-Specific Municipal Portfolio, invest less than
80% of its net assets in instruments the interest on which is exempt from
regular Federal income tax (including instruments which are subject to
AMT), except during defensive periods or during periods of unusual market
conditions.
Restriction 1 does not apply to the State-Specific Municipal Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Munici-
pal Portfolio will not hold any securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter, more than 5% of its total assets to be invested in securities of any
one issuer, except that up to 50% of a Portfolio's total assets may be invested
without regard to this limitation so long as no more than 25% of the Portfo-
lio's total assets are invested in any one issuer (except U.S. Government secu-
rities and related repurchase agreements).
In accordance with current SEC regulations, the Money Market Portfolio intends,
as a non-fundamental policy, to limit its investments in the securities of any
single issuer (other than U.S. Government securities and related repurchase
agreements) to not more than 5% of the value of its total assets at the time of
purchase, except that 25% of the value of its total assets may be invested in
any one issuer for a period of up to three business days. The Money Market
Portfolio will also limit its investments in Eligible Securities that are not
in the highest rating category as determined by two NRSROs (or one NRSRO if the
security is rated by only one NRSRO) or, if unrated, are not of comparable
quality, to 5% of its total assets, with investments in any one such issuer be-
ing limited to no more than 1% of its total assets or $1 million, whichever is
greater, measured at the time of purchase.
The investment limitations stated above are applied at the time investment se-
curities are purchased.
19.
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WHO MANAGES THE FUND?
- -------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the
TRUSTEES direction of the Fund's Board of Trustees. The following
persons currently serve on the Board:
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.--Chairman, Gee, Wilmerding & Associ-
ates, Inc.
INVESTMENT The Adviser to Compass Capital Funds is PNC Asset Management
ADVISER AND Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform
SUB-ADVISER advisory services for investment companies, and has its
principal offices at 1600 Market Street, 29th Floor, Phila-
delphia, Pennsylvania 19103. PAMG is an indirect wholly-
owned subsidiary of PNC Bank Corp., a multi-bank holding
company. PNC Institutional Management Corporation ("PIMC"),
a wholly-owned subsidiary of PAMG, serves as each Portfo-
lio's sub-adviser. PIMC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
As adviser, PAMG is responsible for the overall investment
management of the Portfolios. As sub-adviser, PIMC is re-
sponsible for the day-to-day management of the Portfolios,
and generally makes all purchase and sale investment deci-
sions for the Portfolios. PIMC also provides research and
credit analysis. Portfolio transactions for a Portfolio may
be directed through broker/dealers who sell Fund shares,
subject to the requirements of best execution.
For their investment advisory and sub-advisory services,
PAMG and PIMC are entitled to fees, computed daily on a
Portfolio-by-Portfolio basis and payable monthly, at the an-
nual rates set forth below. All sub-advisory fees payable to
PIMC are paid by PAMG, and do not represent an extra charge
to the Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO
(BEFORE WAIVERS)
<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .450% .400%
$1 billion--$2 billion .400 .350
$2 billion--$3 billion .375 .325
greater than $3 billion .350 .300
</TABLE>
For the twelve months ended September 30, 1996, the Portfo-
lios (other than the New Jersey Municipal Money Market Port-
folio) paid investment advisory fees at the follow-
20.
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ing annual rates (expressed as a percentage of average daily
net assets) after voluntary fee waivers: Money Market Portfo-
lio, .07%; U.S. Treasury Money Market Portfolio, .07%; Munici-
pal Money Market Portfolio, .06%; Ohio Municipal Money Market
Portfolio, .06%; Pennsylvania Municipal Money Market Portfolio,
.06%; North Carolina Municipal Money Market Portfolio, .06%;
and Virginia Municipal Money Market Portfolio, 0%. For the pe-
riod from February 1, 1996 to September 30, 1996, the New Jer-
sey Municipal Money Market Portfolio paid investment advisory
fees, after voluntary fee waivers, at the annual rate of .06%
of its average daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC"), and
Compass Distributors, Inc. ("CDI") (the "Administrators") serve
as the Fund's co-administrators. CCG and PFPC are indirect
wholly-owned subsidiaries of PNC Bank Corp. CDI is a wholly-
owned subsidiary of Provident Distributors, Inc. ("PDI"). A ma-
jority of the outstanding stock of PDI is owned by its offi-
cers.
The Administrators generally assist the Fund in all aspects of
its administration and operation, including matters relating to
the maintenance of financial records and fund accounting. As
compensation for these services, CCG is entitled to receive a
fee, computed daily and payable monthly, at an annual rate of
.03% of each Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500
million of each Portfolio's average daily net assets, .13% of
the next $500 million of each Portfolio's average daily net as-
sets, .11% of the next $1 billion of each Portfolio's average
daily net assets and .10% of each Portfolio's average daily net
assets in excess of $2 billion. From time to time the Adminis-
trators may waive some or all of their administration fees from
a Portfolio.
For information about the operating expenses the Portfolios
paid for the most recent 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 Under the Fund's Distribution and Service Plan (the "Plan"),
AND SERVICE Investor Shares of the Portfolios bear the expense of payments
PLAN ("distribution fees") made to CDI, as the Fund's distributor
(the "Distributor"), or affiliates of PNC Bank for distribution
and sales support services. The distribution fees may be used
to compensate the Distributor for distribution services and to
compensate the Distributor and PNC Bank affiliates for sales
support services provided in connection with the offering and
sale of Investor Shares. The distribution fees may also be used
to reimburse the Distributor and PNC Bank affiliates for re-
lated expenses, including payments to brokers, dealers, finan-
cial institutions and industry professionals ("Service Organi-
zations") for sales support services and related expenses. Dis-
tribution fees payable under the Plan will not exceed .10%
(annualized) of the average daily net asset value of each Port-
folio's outstanding Investor A Shares and .75% (annualized) of
the average daily net asset value of each Portfolio's outstand-
ing Investor B and Investor C Shares. Payments under the Plan
are not tied directly to out-of-pocket expenses and therefore
may be used by the recipients as they choose (for example, to
defray their overhead expenses). The Plan also permits the Dis-
tributor, PAMG, the Administrators and
21.
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other companies that receive fees from the Fund to make pay-
ments relating to distribution and sales support activities
out of their past profits or other sources available to them
which, subject to applicable NASD regulations, may include
contributions to various non-cash and cash incentive arrange-
ments to promote the sale of shares, as well as sponsorship
of various educational programs, sales contests and promo-
tions in which participants may receive reimbursement of ex-
penses, entertainment and prizes such as travel awards, mer-
chandise and cash. For further information, see "Investment
Advisory, Administration, Distribution and Servicing Arrange-
ments" in the Statement of Additional Information.
Under the Plan, the Fund intends to enter into service ar-
rangements with Service Organizations (including PNC Bank and
its affiliates) with respect to each class of Investor Shares
pursuant to which Service Organizations will render certain
support services to their customers who are the beneficial
owners of Investor Shares. In consideration for a shareholder
servicing fee of up to .25% (annualized) of the average daily
net asset value of Investor Shares owned by their customers,
Service Organizations may provide one or more of the follow-
ing services: responding to customer inquiries relating to
the services performed by the Service Organization and to
customer inquiries concerning their investments in Investor
Shares; assisting customers in designating and changing divi-
dend options, account designations and addresses; and provid-
ing other similar shareholder liaison services. In considera-
tion for a separate shareholder processing fee of up to .15%
(annualized) of the average daily net asset value of Investor
Shares owned by their customers, Service Organizations may
provide one or more of these additional services to such cus-
tomers: processing purchase and redemption requests from
customers and placing orders with the Fund's transfer agent
or the Distributor; processing dividend payments from the
Fund on behalf of customers; providing sub-accounting with
respect to Investor Shares beneficially owned by customers or
the information necessary for sub-accounting; and providing
other similar services.
Service Organizations may charge their clients additional
fees for account services. Customers who are beneficial own-
ers of Investor Shares should read this Prospectus in light
of the terms and fees governing their accounts with Service
Organizations.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of un-
derwriting securities. It is intended that the services pro-
vided by Service Organizations under their service agreements
will not be prohibited under these laws. Under state securi-
ties laws, banks and financial institutions that receive pay-
ments from the Fund may be required to register as dealers.
EXPENSES Expenses are deducted from the total income of each Portfolio
before dividends and distributions are paid. Expenses in-
clude, but are not limited to, fees paid to PAMG and the Ad-
ministrators, transfer agency and custodian fees, trustee
fees, taxes, interest, professional fees, shareholder servic-
ing and processing fees, distribution fees, fees and expenses
in registering and qualifying the Portfolios and their shares
for distribution under Federal and state securities laws, ex-
penses of preparing prospectuses and statements of additional
information and of printing and distributing prospectuses and
statements of additional information to existing sharehold-
ers, expenses relating to shareholder reports, shareholder
meetings and proxy solicitations, insurance premiums, the ex-
pense of independent pricing services, and other ex-
22.
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penses 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 equitable.
23.
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HOW ARE SHARES PURCHASED?
- --------------------------------------------------------------------------------
GENERAL. Initial and subsequent purchase orders may be placed through securi-
ties brokers, dealers or financial institutions ("brokers"), or the transfer
agent. Generally, individual investors will purchase Investor Shares through a
broker who will then transmit the purchase order directly to the transfer
agent.
The minimum investment for the initial purchase of shares is $500; there is a
$100 minimum for subsequent investments. Purchases through the Automatic In-
vestment Plan described below are subject to a lower initial purchase minimum.
In addition, the minimum initial investment for employees of the Fund, the
Fund's investment adviser, sub-advisers, Distributor or transfer agent or em-
ployees of their affiliates is $100, unless payment is made through a payroll
deduction program in which case the minimum investment is $25.
PURCHASES THROUGH BROKERS. Shares may be purchased through brokers which have
entered into dealer agreements with the Distributor.
It is the responsibility of brokers to transmit purchase orders and payment on
a timely basis. If payment is not received within the period described below,
the order will be canceled, notice thereof will be given, and the broker and
its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the transfer agent.
PURCHASES THROUGH THE TRANSFER AGENT. Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial pur-
chase amount payable to Compass Capital Funds. An Account Application Form may
be obtained by calling (800) 441-7762. The name of the Portfolio with respect
to which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, 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.
OTHER PURCHASE INFORMATION. Purchase orders for Investor Shares of the Portfo-
lios that are in proper form are executed at their net asset value per share
next determined after receipt by the Fund; however, orders will not be executed
until payments not made in Federal funds are converted to Federal funds (which
normally occurs within two Business Days of receipt) unless a creditworthy fi-
nancial institution undertakes to pay for an order in Federal funds by 4:00
p.m. (Eastern Time) the same Business Day an order is placed.
Under certain circumstances, the Fund may reject large individual purchase or-
ders received after 12:00 noon. The Fund may in its discretion reject any order
for shares.
Investor B and C Shares have higher operating expenses than Investor A Shares
and may not be appropriate for investors that do not plan to exchange into In-
vestor B or Investor C Shares of the Fund's non-money market portfolios. In-
vestor B Shares of a Portfolio will automatically convert to Investor A Shares
at the time the Investor B Shares of the non-money market portfolio that were
previously purchased would have converted. The purpose of the conversion is to
relieve the holders of Investor B Shares of the higher operating expenses
charged to Investor B Shares. The conversion from Investor B Shares to Investor
A Shares will take place at the net asset value of each class of shares at the
time of the conversion. After such conversion, an investor would hold Investor
A Shares subject to the operating expenses for Investor A Shares. Upon each
conversion of Investor B Shares that were not acquired through reinvestment of
dividends or distributions, a proportionate amount of Investor B Shares that
were acquired through reinvestment of dividends or distributions will likewise
automatically convert to Investor A Shares.
24.
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Shares of each Portfolio are sold on a continuous basis by CDI as the Distribu-
tor. CDI maintains its principal offices at Four Falls Corporate Center, 6th
Floor, West Conshohocken, PA 19428-2961. Purchases may be effected on weekdays
on which both the New York Stock Exchange and the Federal Reserve Bank of Phil-
adelphia are open for business (a "Business Day"). Payment for orders which are
not received or accepted will bereturned after prompt inquiry. The issuance of
shares is recorded on the books of the Fund. No certificates will be issued for
shares. Payments for shares of a Portfolio may, in the discretion of the Fund's
investment adviser, be made in the form of securities that are permissible in-
vestments for that Portfolio. Compass Capital reserves the right to reject any
purchase order or to modify or waive the minimum initial or subsequent invest-
ment requirement.
25.
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HOW ARE SHARES REDEEMED?
- --------------------------------------------------------------------------------
REDEMPTION. Shareholders may redeem their shares for cash at any time. A writ-
ten redemption request in proper form must be sent directly to Compass Capital
Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. Except for the
contingent deferred sales charge that may be charged with respect to Investor B
and Investor C Shares, there is no charge for a redemption. Shareholders may
also place redemption requests through a broker or other institution, which may
charge a fee for this service. When redeeming Investor Shares in the Portfo-
lios, shareholders should indicate whether they are redeeming Investor A
Shares, Investor B Shares or Investor C Shares. If a redeeming shareholder owns
both Investor A Shares and Investor B or Investor C Shares in the same Portfo-
lio, the Investor A Shares will be redeemed first unless the shareholder indi-
cates otherwise. If a redeeming shareholder owns both Investor B Shares and In-
vestor C Shares in the same Portfolio, the redemption order will be processed
to minimize the amount of the contingent deferred sales charge that will be
charged 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 record address, or if the shareholder is
a corporation, partnership, trust or fiduciary, signature(s) must be guaranteed
by any eligible guarantor institution. Eligible guarantor institutions gener-
ally include banks, broker/dealers, credit unions, national securities ex-
changes, registered securities associations, clearing agencies and savings as-
sociations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding Investor A Share certificates
must send their certificates with the redemption request. Additional documen-
tary evidence of authority is required by PFPC in the event redemption is re-
quested by a corporation, partnership, trust, fiduciary, executor or adminis-
trator.
REDEMPTION BY CHECK. Upon request, the Fund will provide the holders of In-
vestor A Shares with checkwriting privileges. An investor wishing to use this
checkwriting redemption procedure must complete the checkwriting application
and signature card when completing the account application. Investors inter-
ested in obtaining the checkwriting option on existing accounts may contact
PFPC at (800) 441-7762 and application forms will be provided. The checkwriting
option is not available in connection with the redemption of Investor B or In-
vestor C Shares.
Upon receipt of the checkwriting application and signature card by PFPC, checks
will be forwarded to the investor. The minimum amount of a check is $100.
Checks may be made payable to anyone and are negotiated according to bank
clearing procedures. If more than one shareholder owns the account, each share-
holder must sign each check, unless an election has been made to permit
checkwriting by a limited number of signatures and such election is on file
with PFPC. Investor A Shares represented by a check redemption will continue to
earn daily income until the check is presented for payment. PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of Investor
A Shares owned to cover the check. When redeeming Investor A Shares by check,
an investor should make certain that there is an adequate number of Investor A
Shares in the account to cover the amount of the check. If an insufficient num-
ber of Investor A Shares is held or if checks are not properly endorsed, they
may not be honored and a service charge may be incurred. Checks may not be pre-
sented for cash payments at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by 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 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 termi-
nate these redemption privileges. If the proceeds of a redemption would exceed
26.
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$25,000, the redemption request must be in writing and will be subject to the
signature guarantee requirement described above. This privilege may not be used
to redeem Investor A Shares in certificated form. During periods of substantial
economic or market change, telephone redemptions may be difficult to complete.
Redemption requests may also be mailed to PFPC at P.O. Box 8907, Wilmington,
Delaware 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single designated bank account to re-
ceive wire redemption proceeds, it is necessary to send a written request (with
a guaranteed signature as described above) to Compass Capital Funds c/o PFPC,
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so. The Fund, the Administrators and the Distributor will em-
ploy reasonable procedures to confirm that instructions communicated by tele-
phone are genuine. The Fund, the Administrators and the Distributor will not be
liable for any loss, liability, cost or expense for acting upon telephone in-
structions reasonably believed to be genuine in accordance with such proce-
dures.
ACCOUNTS WITH LOW BALANCES. The Fund reserves the right to redeem a sharehold-
er's account in any Portfolio at any time the net asset value of the account in
such Portfolio falls below the minimum initial investment requirement amount as
the result of a redemption or an exchange request. A shareholder will be noti-
fied in writing that the value of the shareholder's account in a Portfolio is
less than the required amount and will be allowed 30 days to make additional
investments before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS. The redemption price for shares is their net
asset value per share next determined after the request for redemption is re-
ceived in proper form by Compass Capital Funds c/o PFPC, P.O. Box 8907, Wil-
mington, Delaware 19899-8907. While the Fund intends to use its best efforts to
maintain each Portfolio's net asset value per share at $1.00, the proceeds paid
on redemption may be more or less than the amount invested depending on a
share's net asset value at the time of redemption. Proceeds from the redemption
of Investor B and Investor C Shares will be reduced by the amount of any appli-
cable contingent deferred sales charge. Unless another payment option is used
as described above, payment for redeemed shares is normally made by check
mailed within seven days after acceptance by PFPC of the request and any other
necessary documents in proper order. Payment may, however, be postponed or the
right of redemption suspended as provided by the rules of the SEC. If the
shares to be redeemed have been recently purchased by check, the Fund's trans-
fer agent may delay the payment of redemption proceeds, which may be a period
of up to 15 days after the purchase date, pending a determination that the
check has cleared.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
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.
27.
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WHAT ARE THE SHAREHOLDER FEATURES OF THE FUND?
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE. Investor Shares of each Portfolio may be exchanged for
shares of the same class of other portfolios of the Fund which offer that class
of shares, based on their respective net asset values, subject to any applica-
ble sales charge.
Unless an exemption applies, a front-end sales charge will be charged in con-
nection with exchanges for Investor A Shares of the Fund's non-money market in-
vestment portfolios. Similarly, exchanges of Investor A Shares of a Portfolio
for Investor B or Investor C Shares of a non-money market portfolio of the Fund
will also be subject to a CDSC, unless an exemption applies. Investor B Shares
of the Portfolios are only exchangeable for Investor B Shares of the Fund's
other investment portfolios, and Investor C Shares of the Portfolios are only
exchangeable for Investor C Shares of the Fund's other investment portfolios.
Investor B and Investor C Shares are exchangeable without the payment of any
contingent deferred sales charge at the time the exchange is made. In determin-
ing the holding period for calculating the contingent deferred sales charge
payable on redemption of Investor B and Investor C Shares, the holding period
of the Investor B or Investor C Shares originally held will be added to the
holding period of the Investor B or Investor C Shares acquired through ex-
change. No exchange fee is imposed by the Fund.
Investor A Shares of money market portfolios of the Fund that were (1) acquired
through the use of the exchange privilege and (2) can be traced back to a pur-
chase of shares in one or more investment portfolios of the Fund for which a
sales charge was paid, can be exchanged for Investor A Shares of a non-money
market portfolio based on their respective net asset values. Such exchanges of
Investor A Shares may be subject to the difference between the sales charge
previously paid and the higher sales charge (if any) payable with respect to
the shares acquired in the exchange.
A shareholder wishing to make an exchange may do so by sending a written re-
quest to PFPC at the address given above. Shareholders are automatically pro-
vided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege. Share-
holders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange re-
quests. To add this feature to an existing account that previously did not pro-
vide this option, a Telephone Exchange Authorization Form must be filed with
PFPC. This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone at (800) 441-7762 to request
the exchange. During periods of substantial economic or market change, tele-
phone exchanges may be difficult to complete and shareholders may have to sub-
mit 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.
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.
28.
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The Fund reserves the right to reject any telephone exchange request. Telephone
exchanges may be subject to limitations as to amount or frequency, and to other
restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders. The
Fund, the Administrators and the Distributor will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The Fund,
the Administrators and the Distributor will not be liable for any loss, liabil-
ity, cost or expense for acting upon telephone instructions reasonably believed
to be genuine in accordance with such procedures. Exchange orders may also be
sent by mail to the shareholder's broker or to PFPC at P.O. Box 8907, Wilming-
ton, Delaware 19899-8907.
AUTOMATIC INVESTMENT PLAN ("AIP"). An investor in shares of any Portfolio may
arrange for periodic investments in that Portfolio through automatic deductions
from a checking or savings account by completing the AIP Application Form which
may be obtained from PFPC. The minimum pre-authorized investment amount is $50.
RETIREMENT PLANS. Portfolio shares may be purchased in conjunction with indi-
vidual retirement accounts ("IRAs") and rollover IRAs where PNC Bank or any of
its affiliates acts as custodian. For further information as to applications
and annual fees, contact the Distributor. To determine whether the benefits of
an IRA are available and/or appropriate, a shareholder should consult with a
tax adviser.
SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by investors who wish to receive regular distributions
from their accounts. Upon commencement of the SWP, the account must have a cur-
rent value of $10,000 or more in a Portfolio. Shareholders may elect to receive
automatic cash payments of $100 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC. No contingent deferred sales charge will be as-
sessed on redemptions of Investor B and Investor C Shares made through the SWP
that do not exceed 12% of an account's net asset value on an annualized basis.
For example, monthly, quarterly and semi-annual SWP redemptions of Investor B
and Investor C Shares will not be subject to the CDSC if they do not exceed 1%,
3% and 6%, respectively, of an account's net asset value on the redemption
date. SWP redemptions of Investor B and Investor C Shares in excess of this
limit are still subject to the applicable CDSC.
29.
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HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for each class of Investor Shares of
each Portfolio as of 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) on
each Business Day by dividing the value of all securities and other assets
owned by a Portfolio that are allocated to a particular class of shares, less
the liabilities charged to that class, by the number of shares of the class
that are outstanding.
Each Portfolio seeks to maintain a net asset value of $1.00 per share for pur-
poses of purchases and redemptions, and values its portfolio securities based
on the amortized cost method of valuation described in the Statement of Addi-
tional Information under "Valuation of Shares." A Portfolio may use a pricing
service, bank or broker/dealer to value its securities.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Shareholders are entitled to dividends and distributions arising from the net
income and capital gains, if any, earned on investments held by the Portfolio
in which they invest. Each Portfolio's net income is declared daily as a divi-
dend. Shareholders whose purchase orders are executed at 12:00 noon (Eastern
Time), 4:00 p.m. (Eastern Time) for the U.S. Treasury Money Market Portfolio,
receive dividends for that day. On the other hand, shareholders whose redemp-
tion orders have been received by 12:00 noon (Eastern Time) do not receive div-
idends for that day, while shareholders of each Portfolio whose redemption or-
ders are received after 12:00 noon (Eastern Time) do receive dividends for that
day.
Dividends are paid monthly by check, or by wire transfer if requested in writ-
ing by the shareholder, within five business days after the end of the month.
Net short-term capital gains, if any, will be distributed at least annually.
The period for which dividends are payable and the time for payment are subject
to change by the Fund's Board of Trustees. The Portfolios do not expect to re-
alize net long-term capital gains.
Dividends are reinvested in additional full and fractional Investor Shares of
the same class on which the dividends are paid, unless a shareholder elects to
receive dividends in cash. Such election, or any revocation thereof, must be
made in writing to PFPC, and will become effective with respect to dividends
paid after receipt by PFPC.
30.
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HOW ARE FUND DISTRIBUTIONS TAXED?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
a Portfolio qualifies, it generally will be relieved of Federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise exempt,
will pay income or capital gains taxes on distributions (except distributions
that are "exempt interest dividends" or are treated as a return of capital),
whether the distributions are paid in cash or reinvested in additional shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain regardless of the length of time a
shareholder holds the shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Municipal Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the
receipt of "exempt interest dividends" on their Federal income tax returns for
informational purposes and in two circumstances such amounts, while exempt from
regular Federal income tax, are taxable to persons subject to alternative
minimum and environmental taxes. First, "exempt interest dividends" derived
from certain private activity bonds generally will constitute an item of tax
preference for taxpayers in determining alternative minimum tax liability.
Second, all "exempt interest dividends" must be taken into account by corporate
taxpayers in determining certain adjustments for alternative minimum and
environmental tax purposes. In addition, investors should be aware of the
possibility of state and local alternative minimum or minimum income tax
liability on interest from private activity bonds. Shareholders who are
recipients of Social Security Act or Railroad Retirement Act benefits should
note that "exempt interest dividends" will be taken into account in determining
the taxability of their benefit payments.
Each Municipal Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax
purposes, and which are fully taxable. These percentages will apply uniformly
to all distributions from net investment income during that year and may differ
significantly from the actual percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a
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.
This is not an exhaustive discussion of applicable tax consequences, and
investors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of such dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In
addition, shareholders who are non-resident alien individuals, foreign trusts
or estates, foreign corporations or foreign partnerships may be subject to
different Federal income tax treatment. Future legislative or administrative
changes or court decisions may materially affect the tax consequences of
investing in the Portfolios. For additional information concerning the tax
treatment of dividends and distributions by the states listed below, including
certain restrictions applicable to such treatment, see "Taxes" in the Statement
of Additional Information.
OHIO TAXES. Individuals and estates that are subject to Ohio personal income
tax or municipal or school district income taxes in Ohio will not be subject to
such taxes on distributions from the Ohio Municipal Money Market Portfolio to
the extent that such distributions are properly attributable to interest on
Ohio State-Specific Obligations or obligations issued by the U.S. Government,
its agencies, instrumentalities or
31.
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territories (if the interest on such obligations is exempt from state income
taxation under the laws of the United States). Corporations that are subject to
the Ohio corporation franchise tax will not have to include distributions from
the Ohio Municipal Money Market Portfolio in their net income base for purposes
of calculating their Ohio corporation franchise tax liability to the extent
that such distributions either constitute exempt-interest dividends for Federal
income tax purposes or are properly attributable to interest on Ohio State-
Specific Obligations or the U.S. obligations described above. However, shares
of the Ohio Municipal Money Market Portfolio will be included in a
corporation's net worth base for purposes of calculating the Ohio corporation
franchise tax. Distributions properly attributable to gain on the sale,
exchange or other disposition of Ohio State-Specific Obligations will not be
subject to the Ohio personal income tax, or municipal or school district income
taxes in Ohio and will not be included in the net income base of the Ohio
corporation franchise tax. Distributions attributable to other sources will be
subject to the Ohio personal income tax and the Ohio corporation franchise tax.
PENNSYLVANIA TAXES. Income received by a shareholder attributable to interest
realized by the Pennsylvania Municipal Money Market Portfolio from Pennsylvania
State-Specific Obligations or attributable to insurance proceeds on account of
such interest is not taxable to individuals, estates or trusts under the
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
exempt for Federal income tax purposes); nor to individuals under the
Philadelphia School District Net Investment Income Tax ("School District Tax").
Income received by a shareholder attributable to gain on the sale or other
disposition by the Portfolio of Pennsylvania State-Specific Obligations is
taxable under the Personal Income Tax, the Corporate Net Income Tax, and,
unless these assets were held by the Portfolio for more than six months, the
School District Tax.
This discussion does not address the extent, if any, to which shares of the
Pennsylvania Municipal Money Market Portfolio, and interest and gain earned by
the Portfolio, are subject to, or included in the measure of, 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
Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not
subject to the Pennsylvania County Personal Property Tax to the extent that the
Portfolio is comprised of Pennsylvania State-Specific Obligations and Federal
obligations (if the interest on such obligations is exempt from state and local
taxation under the laws of the United States).
NORTH CAROLINA TAXES. Interest received in the form of dividends from the North
Carolina Municipal Money Market Portfolio is exempt from North Carolina state
income tax to the extent the distributions represent interest on direct
obligations of the U.S. Government or North Carolina State-Specific
Obligations. Distributions derived from interest earned on obligations of
political subdivisions of Puerto Rico, Guam and the U.S. Virgin Islands,
including the governments thereof and their agencies, instrumentalities and
authorities, are also exempt from North Carolina state income tax.
Distributions paid out of interest earned on obligations that are merely backed
or guaranteed by the U.S. Government (e.g., GNMAs, FNMAs), on repurchase
agreements collateralized by U.S. Government securities or on obligations of
other states (which the Portfolio may acquire and hold for temporary or
defensive purposes) are not exempt from North Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of certain obligations of the
State of North Carolina or its subdivisions that were issued before July 1,
1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
VIRGINIA TAXES. Dividends paid by the Virginia Municipal Money Market Portfolio
and derived from interest on obligations of the Commonwealth of Virginia or of
any political subdivision or instrumentality of the
32.
<PAGE>
- --------------------------------------------------------------------------------
Commonwealth or derived from interest or dividends on obligations of the United
States excludable from Virginia taxable income under the laws of the United
States, which obligations are issued in the exercise of the borrowing power of
the Commonwealth or the United States and are backed by the full faith and
credit of the Commonwealth or the United States, will generally be exempt from
the Virginia income tax. Dividends derived from interest on debt obligations of
certain territories and possessions of the United States (those issued by
Puerto Rico, the Virgin Islands and Guam) will also be exempt from the Virginia
income tax. Dividends derived from interest on debt obligations other than
those described above will be subject to the Virginia income tax even though it
may be excludable from gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and derived
from capital gains will be taxable to the shareholders. Capital gains
distributed to shareholders derived from Virginia obligations issued pursuant
to special Virginia enabling legislation which provides a specific exemption
for such gains will be exempt from Virginia income tax.
The Virginia Department of Taxation has adopted a policy of allowing
shareholders to exclude from their Virginia taxable income the exempt portion
of distributions from a regulated investment company even though the
shareholders receive distributions monthly but receive reports substantiating
the exempt portion of such distributions at less frequent intervals.
Accordingly, if the Portfolio receives taxable income, the Portfolio must
determine the portion of income that is exempt from Virginia income tax and
provide such information to the shareholders in accordance with the foregoing
so that the shareholders may exclude from Virginia taxable income the exempt
portion of the distribution from the Portfolio.
NEW JERSEY TAXES. It is anticipated that substantially all dividends paid by
the New Jersey Municipal Money Market Portfolio will not be subject to New
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. 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
Corporation Business Tax.
33.
<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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Investor Shares of the eight money market portfolios
described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. Because of these "class expenses", the
performance of a Portfolio's Institutional Shares is expected to be higher than
the performance of the Portfolio's Service Shares, and the performance of both
the Institutional Shares and Service Shares of a Portfolio is expected to be
higher than the performance of the Portfolio's three classes of Investor
Shares. The performance of each class of Investor Shares may be different. The
Fund offers various services and privileges in connection with its Investor
Shares that are not generally offered in connection with its Institutional and
Service Shares, including an automatic investment plan, automatic withdrawal
plan and checkwriting. For further information regarding the Fund's Service and
Institutional 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 November 30, 1996, PNC Bank held of record approximately 70% 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.
34.
<PAGE>
- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Each Portfolio may advertise its "yield", "effective yield" and total return
for each class of Investor Shares. These performance figures are based on his-
torical earnings and are not intended to indicate future performance. "Yield"
refers to the income generated by an investment in a particular class of a
Portfolio's Investor Shares over a seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. "Effective yield" is calculated simi-
larly but, when annualized, the income earned by an investment in a particular
class of a Portfolio's Investor Shares is assumed to be reinvested. The "effec-
tive yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. A Municipal Portfolio's "tax equivalent
yield" may also be quoted, which shows the level of taxable yield needed to
produce an after-tax equivalent to the Portfolio's tax-free yield for a partic-
ular class of Investor Shares.
The performance of each class of Investor Shares of a Portfolio may be compared
to the performance of mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the perfor-
mance of mutual funds. For example, the yield of a particular class of Investor
Shares of a Portfolio may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Performance information may also include evaluations of the
Portfolios published in nationally recognized ranking services, and information
as reported by financial publications such as Business Week, Fortune, Institu-
tional Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered as representative of future results. The yield of any
investment is generally a function of portfolio quality and maturity, type of
investment and operating expenses. Yields will fluctuate and are not necessar-
ily representative of future results. Any fees charged by affiliates of the
Portfolios' investment adviser or other institutions directly to their custom-
ers' accounts in connection with investments in the Portfolios will not be in-
cluded in the Portfolios' calculations of yield and performance.
35.
<PAGE>
- --------------------------------------------------------------------------------
HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7762
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7762
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7762
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
36.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment style SM.
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity International Equity
Large Cap Value Equity International Emerging Markets
Mid-Cap Growth Equity Index Equity
Mid-Cap Value Equity Select Equity
Small Cap Growth Equity
Small Cap Value Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- -------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS INSTITUTIONAL SHARES
- -------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 6
What Are The Portfolios?..................................... 13
What Additional Investment Policies And Risks Apply?......... 16
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 20
Who Manages The Fund?........................................ 21
How Are Shares Purchased And Redeemed?....................... 23
How Is Net Asset Value Calculated?........................... 25
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 25
How Are Fund Distributions Taxed?............................ 26
How Is The Fund Organized?................................... 29
How Is Performance Calculated?............................... 30
How Can I Get More Information?.............................. 31
</TABLE>
This Prospectus contains information about the Compass Capital
money market Portfolios that a prospective investor needs to
know before investing. Please keep it for future reference. A
Statement of Additional Information dated January 1, 1997 has
been filed with the Securities and Exchange Commission (the
"SEC"). The Statement of Additional Information may be obtained
free of charge from the Fund by calling (800) 441-7764. The
Statement of Additional Information, 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The New Jersey, North Carolina, Ohio, Pennsylvania and Virginia
Municipal Money Market Portfolios may invest a significant per-
centage of their assets in a single issuer and, therefore, in-
vestments in these Portfolios may be riskier than an investment
in other types of money market funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC MUNICIPAL PORTFOLIOS LISTED
ABOVE ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
2.
<PAGE>
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS OF COMPASS CAPITAL FUNDS
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 30 portfolios and
has been structured to include many different investment styles
across the spectrum of money market investments so that invest-
ors may participate across multiple disciplines in order to
seek their long-term financial goals.
The Money Market Portfolios of COMPASS CAPITAL FUNDS consist of
eight short-term investment alternatives. Two of these Portfo-
lios invest solely in taxable instruments, and six of these
Portfolios invest in tax-exempt instruments. A detailed de-
scription of each Portfolio begins on page 13.
COMPASS LIPPER PEER GROUP
CAPITAL
PORTFOLIO
MONEY MARKET Institutional Money Market
Instrument Funds
U.S. TREASURY MONEY Institutional U.S. Treasury Money
MARKET Market Funds
MUNICIPAL MONEY Institutional Tax-Exempt Money
MARKET Market Funds
NJ MUNICIPAL MONEY NJ Tax-Exempt Money Market Funds
MARKET
NC MUNICIPAL MONEY Other States Tax-Exempt Money Market
MARKET Funds
OH MUNICIPAL MONEY Ohio Tax-Exempt Money Market Funds
MARKET
PA MUNICIPAL MONEY PA Tax-Exempt Money Market Funds
MARKET
VA MUNICIPAL MONEY Other States Tax-Exempt Money Market
MARKET Funds
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfo-
CAPITAL lios. We intend this document to be an effective tool as you
MONEY MARKET explore different directions in money market investing.
PORTFOLIOS
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective, or that any Portfolio will be able to
MONEY MARKET maintain a stable net asset value of $1.00 per share. Certain
INVESTING Portfolios may invest in U.S. dollar-denominated instruments of
foreign issuers or municipal securities backed by the credit of
foreign banks, which may be subject to risks in addition to
those inherent in U.S. investments. Each state-specific munici-
pal Portfolio will concentrate in the securities of issuers lo-
cated in a particular state, and is non-diversified, which
means that its performance may be dependent upon the perfor-
mance of a smaller number of securities than the other Portfo-
lios, which are considered diversified. See "What Additional
Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?"
CAPITAL
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Institutional
Shares of the Portfolios after fee waivers for the fiscal year ended September
30, 1996 as a percentage of average daily net assets. The figures shown for the
New Jersey Municipal Money Market and Virginia Municipal Money Market Portfo-
lios have been restated to reflect current expenses and fee waivers. An example
based on the summary is also shown.
<TABLE>
<CAPTION>
NEW
JERSEY
U.S. TREASURY MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers) (/1/) .07% .07% .06% .06%
Other operating expenses .22 .22 .23 .23
---- ------ ------ ----
Administration fees (after
fee waivers)(/1/) .13 .13 .12 .08
Other expenses .09 .09 .11 .15
---- ------ ------ ----
Total Portfolio operating
expenses (after fee
waivers)(/1/) .29% .29% .29% .29%
==== ====== ====== ====
<CAPTION>
NORTH
CAROLINA OHIO PENNSYLVANIA VIRGINIA
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .06% .06% .06% .06%
Other operating expenses .23 .23 .23 .23
---- ------ ------ ----
Administration fees (after
fee waivers)(/1/) .07 .10 .12 .04
Other expenses .16 .13 .11 .19
---- ------ ------ ----
Total Portfolio operating
expenses (after fee
waivers)(/1/) .29% .29% .29% .29%
==== ====== ====== ====
</TABLE>
(1) Without waivers, advisory fees would be .42% for the Money Market Portfo-
lio, .44% for the U.S. Treasury Money Market Portfolio and .45% for each of
the other Portfolios and administration fees would be .15% for the Money
Market Portfolio, .16% for the U.S. Treasury Money Market Portfolio and
.18% for each of the other Portfolios. PAMG and the Portfolios' administra-
tors 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 main-
tain the Portfolios' total operating expenses during the remainder of the
current fiscal year at the levels set forth in the table. Without waivers,
"Other operating expenses" would be .24%, .25%, .29%, .33%, .34%, .31%,
.29% and .37%, respectively, and "Total Portfolio operating expenses" would
be .66%, .70%, .74%, .78%, .79%, .76%, .74%, and .82% respectively.
4.
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment assuming (1) a 5% annual return, and (2) redemption at the
end of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Money Market $ 3 $ 9 $16 $37
U.S. Treasury Money
Market 3 9 16 37
Municipal Money Market 3 9 16 37
New Jersey Municipal
Money Market 3 9 16 37
North Carolina Municipal
Money Market 3 9 16 37
Ohio Municipal Money
Market 3 9 16 37
Pennsylvania Municipal
Money Market 3 9 16 37
Virginia Municipal Money
Market 3 9 16 37
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the expenses the Portfolios pay. Investors bear these expenses either di-
rectly or indirectly. They do not reflect any charges that may be imposed by
affiliates of the Portfolios' investment adviser or other institutions directly
on their customer accounts in connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
5.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the
Statement of Additional Information, and has been audited by
the Portfolios' independent accountant. This financial infor-
mation should be read together with those financial state-
ments. Further information about the performance of the Port-
folios is available in the Fund's annual shareholder reports.
Both the Statement of Additional Information and the annual
shareholder reports may be obtained from the Fund free of
charge by calling (800) 441-7764.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 8/2/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0533 0.0564 0.0359 0.0054
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment operations 0.0533 0.0564 0.0359 0.0054
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.0533) (0.0564) (0.0359) (0.0054)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0533) (0.0564) (0.0359) (0.0054)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 5.46% 5.79% 3.64% 0.54%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $587,730 $654,157 $502,972 $435,586
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.29% 0.27% 0.25% 0.27%/2/
Before advisory/administration fee
waivers 0.65% 0.64% 0.66% 0.38%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 5.34% 5.66% 3.64% 3.01%/2/
Before advisory/administration fee
waivers 4.98% 5.28% 3.23% 2.90%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
6.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
U.S. TREASURY MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 8/2/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0519 0.0555 0.0357 0.0049
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment operations 0.0519 0.0555 0.0357 0.0049
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.0519) (0.0555) (0.0357) (0.0049)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0519) (0.0555) (0.0357) (0.0049)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 5.32% 5.69% 3.63% 0.49%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $167,193 $120,540 $ 37,519 $ 13,513
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.29% 0.27% 0.25% 0.25%/2/
Before advisory/administration fee
waivers 0.69% 0.69% 0.70% 0.38%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 5.18% 5.64% 3.69% 3.01%/2/
Before advisory/administration fee
waivers 4.78% 5.22% 3.24% 2.88%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
7.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 8/2/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0339 0.0364 0.0246 0.0040
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment operations 0.0339 0.0364 0.0246 0.0040
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.0339) (0.0364) (0.0246) (0.0040)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0339) (0.0364) (0.0246) (0.0040)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 3.41% 3.70% 2.48% 0.40%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 43,936 $ 53,778 $ 30,608 $ 39,148
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.29% 0.27% 0.25% 0.25%/2/
Before advisory/administration fee
waivers 0.73% 0.71% 0.73% 0.36%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.37% 3.64% 2.48% 2.45%/2/
Before advisory/administration fee
waivers 2.93% 3.20% 2.01% 2.34%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
8.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 6/10/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0346 0.0363 0.0252 0.0073
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment operations 0.0346 0.0363 0.0252 0.0073
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.0346) (0.0363) (0.0252) (0.0073)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0346) (0.0363) (0.0252) (0.0073)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 3.52% 3.69% 2.55% 0.73%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 32,944 $ 23,679 $ 10,521 $ 12,026
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.29% 0.27% 0.13% 0.10%/2/
Before advisory/administration fee
waivers 0.75% 0.73% 0.77% 0.83%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.47% 3.66% 2.56% 2.45%/2/
Before advisory/administration fee
waivers 3.01% 3.20% 1.93% 1.72%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 6/1/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0334 0.0355 0.0247 0.0078
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment operations 0.0334 0.0355 0.0247 0.0078
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.0334) (0.0355) (0.0247) (0.0078)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0334) (0.0355) (0.0247) (0.0078)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 3.40% 3.61% 2.49% 0.78%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $198,822 $233,414 $158,102 $ 2,242
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.29% 0.26% 0.16% 0.09%/2/
Before advisory/administration fee
waivers 0.71% 0.68% 0.73% 0.97%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.34% 3.54% 2.64% 2.15%/2/
Before advisory/administration fee
waivers 2.92% 3.12% 2.07% 1.27%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
10.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR 5/4/93/1/ YEAR YEAR 7/25/94/1/
ENDED ENDED ENDED THROUGH ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0338 0.0359 0.0249 0.0097 0.0348 0.0368 0.0053
Net realized gain (loss)
on investments - - - - - - - - - - - - - -
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.0338 0.0359 0.0249 0.0097 0.0348 0.0368 0.0053
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0338) (0.0359) (0.0249) (0.0097) (0.0348) (0.0368) (0.0053)
Distributions from net
realized capital gains - - - - - - - - - - - - - -
-------- -------- -------- -------- -------- -------- --------
Total distributions (0.0338) (0.0359) (0.0249) (0.0097) (0.0348) (0.0368) (0.0053)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return 3.43% 3.65% 2.52% 0.97% 3.54% 3.74% 0.53%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $112,097 $ 76,673 $ 69,673 $ 34,135 $ 38,553 $ 24,409 $ 13,831
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.25% 0.21% 0.10% 0.10%/2/ 0.14% 0.10% 0.10%/2/
Before
advisory/administration
fee waivers 0.74% 0.74% 0.76% 0.81%/2/ 0.82% 0.95% 1.02%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.33% 3.61% 2.53% 2.35%/2/ 3.47% 3.71% 2.89%/2/
Before
advisory/administration
fee waivers 2.84% 3.08% 1.87% 1.64%/2/ 2.79% 2.86% 1.97%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
11.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD
2/1/96 1/16/96/1/
THROUGH THROUGH
9/30/96 1/31/96
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00
-------- ------
Income from investment
operations
Net investment income 0.0207 0.00
Net realized gain (loss)
on investments - - - -
-------- ------
Total from investment
operations 0.0207 0.00
-------- ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0207) (0.00)
Distributions from net
realized capital gains - - - -
-------- ------
Total distributions (0.0207) (0.00)
-------- ------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00
======== ======
Total return 2.09% 3.07%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 614 $4,195
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.29%/2/ 0.29%/2/
Before
advisory/administration
fee waivers 0.78%/2/ 0.78%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.07%/2/ 3.07%/2/
Before
advisory/administration
fee waivers 2.58%/2/ 2.58%/2/
</TABLE>
+ The Portfolio commenced operations on July 1, 1991 as the New Jersey Munici-
pal Money Market Fund, a separate investment portfolio (the "Predecessor New
Jersey Municipal Money Market Portfolio") of Compass Capital Group, which was
organized as a Massachusetts business trust. On January 13, 1996, the assets
and liabilities of the Predecessor New Jersey Municipal Money Market Portfo-
lio were transferred to this Portfolio, and were combined with the assets of
a pre-existing portfolio of investments maintained by the Fund.
/1/Commencement of operations of share class.
/2/Annualized.
12.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
MONEY MARKET The investment objective of the Money Market Portfolio is to
PORTFOLIO provide as high a level of current interest income as is con-
sistent with maintaining liquidity and stability of principal.
The Portfolio may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as govern-
ment, bank, commercial and other obligations, that are avail-
able in the money markets. In particular, the Portfolio may in-
vest in:
(A) U.S. dollar-denominated obligations issued or supported by
the credit of U.S. or foreign banks or savings institutions
with total assets in excess of $1 billion (including obli-
gations of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued
or guaranteed by U.S. and foreign corporations and other
issuers rated (at the time of purchase) A-2 or higher by
Standard & Poor's Ratings Group ("S&P"), Prime-2 or higher
by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Co. ("D&P"), F-2 or higher
by Fitch Investors Service, Inc. ("Fitch") or TBW-2 or
higher by Thomson BankWatch, Inc. ("TBW"), as well as high
quality corporate bonds rated (at the time of purchase) AA
or higher by S&P, D&P, Fitch or TBW or Aa or higher by
Moody's;
(C) unrated notes, paper and other instruments that are of com-
parable quality as determined by the Portfolio's sub-ad-
viser under guidelines established by the Fund's Board of
Trustees;
(D) asset-backed securities (including interests in pools of
assets such as mortgages, installment purchase obligations
and credit card receivables);
(E) securities issued or guaranteed as to principal and inter-
est by the U.S. Government or by its agencies or instrumen-
talities and related custodial receipts;
(F) dollar-denominated securities issued or guaranteed by for-
eign governments or their political subdivisions, agencies
or instrumentalities;
(G) guaranteed investment contracts issued by highly-rated U.S.
insurance companies;
(H) securities issued or guaranteed by state or local govern-
mental bodies; and
(I) repurchase agreements relating to the above instruments.
U.S. The investment objective of the U.S. Treasury Money Market
TREASURY Portfolio is to provide as high a level of current interest in-
MONEY MARKET come as is consistent with maintaining liquidity and stability
PORTFOLIO of principal. It pursues this objective by investing exclu-
sively in short-term bills, notes and other obligations issued
or guaranteed by the U.S. Treasury and repurchase agreements
relating to such obligations.
MUNICIPAL The investment objective of the Municipal Money Market Portfo-
PORTFOLIOS lio is to provide as high a level of current interest income
exempt from Federal income taxes as is consistent with main-
taining liquidity and stability of principal. It pursues this
objective by investing substantially all of its assets in
short-term obligations issued by or on behalf of states, terri-
tories and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instru-
mentalities and authorities ("Municipal Obligations").
13.
<PAGE>
- -------------------------------------------------------------------------------
The investment objective of the New Jersey Municipal Money
Market Portfolio, North Carolina Municipal Money Market
Portfolio, Ohio Municipal Money Market Portfolio, Pennsylva-
nia Municipal Money Market Portfolio and Virginia Municipal
Money Market Portfolio (the "State-Specific Municipal Port-
folios") is, for each Portfolio, to seek as high a level of
current income exempt from Federal, and to the extent possi-
ble, state income tax of the specific state in which a Port-
folio concentrates, as is consistent with maintaining li-
quidity and stability of principal.
The Municipal Money Market Portfolio and the State-Specific
Municipal Portfolios (together, the "Municipal Portfolios")
seek to achieve their investment objectives by primarily in-
vesting in:
(A) fixed and variable rate notes and similar debt instru-
ments rated MIG-2, VMIG-2 or Prime-2 or higher by
Moody's, SP-2 or A-2 or higher by S&P, AA or higher by
D&P or F-2 or higher by Fitch;
(B) tax-exempt commercial paper and similar debt instruments
rated Prime-2 or higher by Moody's, A-2 or higher by
S&P, Duff 2 or higher by D&P or F-2 or higher by Fitch;
(C) municipal bonds rated Aa or higher by Moody's or AA or
higher by S&P, D&P or Fitch;
(D) unrated notes, paper or other instruments that are of
comparable quality as determined by the Portfolios' sub-
adviser under guidelines established by the Fund's Board
of Trustees; and
(E) municipal bonds and notes which are guaranteed as to
principal and interest by the U.S. Government or an
agency or instrumentality thereof or which otherwise de-
pend directly or indirectly on the credit of the United
States.
During normal market conditions, at least 80% of each Munic-
ipal Portfolio's net assets will be invested in securities
which are Municipal Obligations. In addition, under normal
conditions each State-Specific Municipal Portfolio intends
to invest at least 65% of its net assets in Municipal Obli-
gations of issuers located in the particular state indicated
by its name ("State-Specific Obligations"). The Municipal
Money Market Portfolio intends, on the other hand, to invest
less than 25% of its total assets in Municipal Obligations
of issuers located in the same state. During temporary de-
fensive periods, each Municipal Portfolio may invest without
limitation in obligations that are not Municipal Obligations
and may hold without limitation uninvested cash reserves.
Each State-Specific Portfolio may invest without limitation
in private activity bonds the interest on which is an item
of tax preference for purposes of the Federal alternative
minimum tax ("AMT Paper"). The Municipal Money Market Port-
folio may invest up to 20% of its total assets in AMT Paper
when added together with any taxable investments held by the
Portfolio. Interest on AMT Paper that is received by taxpay-
ers subject to the Federal alternative minimum tax is tax-
able.
Each Municipal Portfolio may invest 25% or more of its as-
sets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. To the extent a
Portfolio's assets are invested in Municipal Obligations
payable from the revenues of similar projects or are in-
vested in private activity bonds, the Portfolio will be sub-
ject to the peculiar risks presented by the laws and eco-
nomic conditions relating to such projects and bonds to a
greater extent than it would be if its assets were not so
invested.
14.
<PAGE>
- --------------------------------------------------------------------------------
QUALITY, MATURITY AND DIVERSIFICATION. All securities acquired
by the Portfolios will be determined at the time of purchase by
the Portfolios' sub-adviser, under guidelines established by
the Fund's Board of Trustees, to present minimal credit risks
and will be "Eligible Securities" as defined by the SEC. Eligi-
ble Securities are (a) securities that either (i) have short-
term debt ratings at the time of purchase in the two highest
rating categories by at least two unaffiliated nationally rec-
ognized statistical rating organizations ("NRSROs") (or one
NRSRO if the security is rated by only one NRSRO), or (ii) are
comparable in priority and security with an instrument issued
by an issuer which has such ratings, and (b) securities that
are unrated (including securities of issuers that have long-
term but not short-term ratings) but are of comparable quality
as determined in accordance with guidelines approved by the
Board of Trustees.
Each Portfolio is managed so that the average maturity of all
instruments held by it (on a dollar-weighted basis) will not
exceed 90 days. In no event will a Portfolio purchase securi-
ties which mature more than 397 days from the date of purchase
(except for certain variable and floating rate instruments and
securities collateralizing repurchase agreements). Securities
in which the Portfolios invest may not earn as high a level of
income as longer term or lower quality securities, which gener-
ally have greater market risk and more fluctuation in market
value.
The Money Market, U.S. Treasury Money Market and Municipal
Money Market Portfolios are classified as diversified portfo-
lios, and the State-Specific Municipal Portfolios are classi-
fied as non-diversified portfolios, under the Investment Com-
pany Act of 1940 (the "1940 Act"). Investment returns on a non-
diversified portfolio typically are dependent upon the perfor-
mance of a smaller number of securities relative to the number
held in a diversified portfolio. Consequently, the change in
value of any one security may affect the overall value of a
non-diversified portfolio more than it would a diversified
portfolio. In addition, because the State-Specific Municipal
Portfolios concentrate their investments in obligations of is-
suers located in particular states, investments in these Port-
folios may be riskier than an investment in other money market
funds.
15.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ADDITIONAL INVESTMENT POLICIES AND RISKS APPLY?
- -------------------------------------------------------------------------------
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their investment
objectives, the Portfolios may invest in debt obligations of domestic or for-
eign 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 obliga-
tions of the parent bank or may be limited to the issuing branch or subsidiary
by the terms of the specific obligation or by government regulation. The Money
Market Portfolio may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of its total assets. The ob-
ligations of foreign issuers may involve certain risks in addition to those of
domestic issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
Commercial paper issues include securities issued by corporations without reg-
istration under the Securities Act of 1933 (the "1933 Act") in reliance on the
exemption in Section 3(a)(3), and commercial paper issued in reliance on the
so-called "private placement" exemption in Section 4(2) ("Section 4(2) pa-
per"). Section 4(2) paper is restricted as to disposition under the Federal
securities laws in that any resale must similarly be made in an exempt trans-
action. Section 4(2) paper is normally resold to other institutional investors
through or with the assistance of investment dealers which make a market in
Section 4(2) paper, thus providing liquidity.
U.S. GOVERNMENT OBLIGATIONS. To the extent consistent with their investment
objectives, the Portfolios may also purchase obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities. Obligations of
certain agencies and instrumentalities of the U.S. Government are backed by
the full faith and credit of the United States. Others are backed by the right
of the issuer to borrow from the U.S. Treasury or are backed only by the
credit of the agency or instrumentality issuing the obligation.
MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General
obligation 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 ex-
cise tax or other specific revenue source such as the user of the facility be-
ing financed. 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 include "moral obligation" bonds, which are normally issued by spe-
cial 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 partic-
ipation 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 ob-
ligations, 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
16.
<PAGE>
- --------------------------------------------------------------------------------
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that is not yet as marketable as
more conventional securities.
Each Municipal Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase at the Portfolio's option specific Municipal Obligations at a speci-
fied price. The acquisition of a stand-by commitment may increase the cost, and
thereby reduce the yield, of the Municipal Obligation to which such commitment
relates.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may be less extensive than the information for public cor-
porations, and the secondary market for Municipal Obligations may be less liq-
uid than that for taxable obligations. Accordingly, the ability of a Portfolio
to buy and sell Municipal Obligations may, at any particular time and with re-
spect to any particular securities, be limited. In addition, Municipal Obliga-
tions purchased by the Portfolios include obligations backed by letters of
credit and other forms of credit enhancement issued by domestic and foreign
banks, as well as other financial institutions. Changes in the credit quality
of these institutions could cause loss to a Municipal Portfolio and affect its
share price.
The Municipal Portfolios may invest in tax-exempt derivative securities relat-
ing to Municipal Obligations, including tender option bonds, participations,
beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal or state income tax are rendered by counsel to
the respective issuers or sponsors at the time of issuance. The Fund and its
service providers will rely on such opinions and will not review independently
the underlying proceedings relating to the issuance of Municipal Obligations or
the bases for such opinions.
MORTGAGE-RELATED SECURITIES. Although under normal market conditions they do
not expect to do so, each Portfolio may invest in mortgage-related securities
issued by the U.S. Government or its agencies or instrumentalities or issued by
private companies. Mortgage-related securities may include collateralized mort-
gage obligations ("CMOs") issued by the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation or other U.S. Government agencies or
instrumentalities or issued by private companies. In periods of falling inter-
est rates, the rate of mortgage prepayments tends to increase. During these pe-
riods, the reinvestment of prepayment proceeds by the particular Portfolio will
generally be at lower rates than the rates on the prepaid obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated and
unrated variable and floating rate instruments, which may have a stated matu-
rity in excess of 13 months but will, in any event, permit a Portfolio to de-
mand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). These instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the in-
terest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the particular Portfolio.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase securities from
broker-dealers and financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, so long as the repurchase agreement itself matures in less
than 13 months. Default by or bankruptcy of the seller would expose the Portfo-
lio to possible loss because of adverse market action or delays in connection
with the disposition of the underlying obligations.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Under these contracts, the Portfolio makes cash con-
tributions to a deposit fund of the insurance company's general account. The
17.
<PAGE>
- --------------------------------------------------------------------------------
insurance company then credits interest to the Portfolio on a monthly basis,
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The Money Market Portfo-
lio does not expect to invest more than 5% of its net assets in GICs at any
time during the current fiscal year.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security it owns or intends to pur-
chase, regardless of future changes in interest rates. When-issued and forward
commitment transactions involve the risk, however, that the price or yield ob-
tained in a transaction may be less favorable than the price or yield available
in the market when the delivery takes place.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans 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.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse repurchase
agreements for temporary purposes (such as to obtain cash to meet redemption
requests when the liquidation of portfolio securities is deemed disadvantageous
or inconvenient). A reverse repurchase agreement involves a sale by a Portfolio
of securities that it holds concurrently with an agreement by the Portfolio to
repurchase the same securities at an agreed-upon price and date. Reverse repur-
chase agreements involve the risk that the market value of the securities sold
by a Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation. Securities of other investment companies will be
acquired by a Portfolio within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's ex-
penses, including advisory fees. These expenses would be in addition to the ad-
visory fees and other expenses the Portfolio bears directly in connection with
its own operations.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods or if, in the opinion of
the Portfolios' sub-adviser, suitable obligations are unavailable. During nor-
mal market periods, no more than 20% of a Portfolio's assets will be held
uninvested. Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of the
value of its net assets in securities that are illiquid. Variable and floating
rate instruments that cannot be disposed of within seven days, GICs, and repur-
chase agreements and time deposits that do not provide for payment within seven
days after notice, without taking a reduced price, are subject to this 10% lim-
it. Each Portfolio may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accor-
dance with Rule 144A under the 1933 Act. These securities will not be consid-
ered illiquid so long as the sub-adviser determines that an adequate trading
market exists for the securities. This investment practice could have the ef-
fect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these re-
stricted securities.
18.
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STATE-SPECIFIC MUNICIPAL PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The con-
centration of investments by the State-Specific Municipal Portfolios in State-
Specific Obligations raises special investment considerations. Changes in the
economic condition and governmental policies of a state and its political sub-
divisions could adversely affect the value of a Portfolio's shares. Certain
matters relating to some of the states in which the State-Specific Municipal
Portfolios invest are described below. For further information, see "Special
Consideration Regarding State-Specific Obligations" in the Statement of Addi-
tional Information.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness. In past
years, the State's overall unemployment rate has been somewhat higher than the
national figure. For example, the reported 1990 average monthly State rate was
5.7%, compared to the 5.5% national figure. However, for the last five years
the State rates were below the national rates (4.8% versus 5.6% in 1995). The
unemployment rate and its effects vary among particular geographic areas of the
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government fi-
nances generally will not adversely affect the market value of Ohio State-
Specific Obligations held in the Portfolio or the ability of particular obli-
gors to make timely payments of debt service on (or lease payments relating to)
those obligations.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following four
years. As of June 30, 1995, the General Fund has a surplus of $688.3 million.
For the fiscal year ended June 30, 1996, the General Fund's expenditures ex-
ceeded available revenues by approximately $253 million; this shortfall was
funded by the General Fund's unappropriated surplus. Rising unemployment, a
relatively high proportion of persons 65 and older in the Commonwealth and
court ordered increases in healthcare reimbursement rates place increased pres-
sures on the tax resources of the Commonwealth and its municipalities. The Com-
monwealth has sold a substantial amount of bonds over the past several years,
but the debt burden remains moderate. Employment growth has shifted to the
trade and service sectors, with losses in more high-paid manufacturing posi-
tions. A new governor took office in January 1995, but the Commonwealth has
continued 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. This
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
19.
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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 change to a Portfolio's investment
objective. No assurance can be provided that a Portfolio will achieve its in-
vestment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry, except that the
Money Market Portfolio will invest at least 25% of its total assets in ob-
ligations of issuers in the banking industry or instruments secured by such
obligations except during temporary defensive periods;
(3) borrow money except for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not
make any additional investments; and
(4) in the case of the Municipal Money Market Portfolio, invest less than 80%
of its net assets in instruments the interest on which is exempt from regu-
lar Federal income tax and not subject to the Federal alternative minimum
tax ("AMT"), except during defensive periods or during periods of unusual
market conditions; and
(5) in the case of each State-Specific Municipal Portfolio, invest less than
80% of its net assets in instruments the interest on which is exempt from
regular Federal income tax (including instruments which are subject to
AMT), except during defensive periods or during periods of unusual market
conditions.
Restriction 1 does not apply to the State-Specific Municipal Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Munici-
pal Portfolio will not hold any securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter, more than 5% of its total assets to be invested in securities of any
one issuer, except that up to 50% of a Portfolio's total assets may be invested
without regard to this limitation so long as no more than 25% of the Portfo-
lio's total assets are invested in any one issuer (except U.S. Government secu-
rities and related repurchase agreements).
In accordance with current SEC regulations, the Money Market Portfolio intends,
as a non-fundamental policy, to limit its investments in the securities of any
single issuer (other than U.S. Government securities and related repurchase
agreements) to not more than 5% of the value of its total assets at the time of
purchase, except that 25% of the value of its total assets may be invested in
any one issuer for a period of up to three business days. The Money Market
Portfolio will also limit its investments in Eligible Securities that are not
in the highest rating category as determined by two NRSROs (or one NRSRO if the
security is rated by only one NRSRO) or, if unrated, are not of comparable
quality, to 5% of its total assets, with investments in any one such issuer be-
ing limited to no more than 1% of its total assets or $1 million, whichever is
greater, measured at the time of purchase.
The investment limitations stated above are applied at the time investment se-
curities are purchased.
20.
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WHO MANAGES THE FUND?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the di-
TRUSTEES rection of the Fund's Board of Trustees. The following persons
currently serve on the Board:
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,
University of Pennsylvania.
David R. Wilmerding, Jr.--Chairman, Gee, Wilmerding & Associ-
ates, Inc.
INVESTMENT The Adviser to Compass Capital Funds is PNC Asset Management
ADVISER AND Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform ad-
SUB-ADVISER visory services for investment companies, and has its principal
offices at 1600 Market Street, 29th Floor, Philadelphia, Penn-
sylvania 19103. PAMG is an indirect wholly-owned subsidiary of
PNC Bank Corp., a multi-bank holding company. PNC Institutional
Management Corporation ("PIMC"), a wholly-owned subsidiary of
PAMG, serves as each Portfolio's sub-adviser. PIMC's principal
business address is 400 Bellevue Parkway, Wilmington, Delaware
19809.
As adviser, PAMG is responsible for the overall investment man-
agement of the Portfolios. As sub-adviser, PIMC is responsible
for the day-to-day management of the Portfolios, and generally
makes all purchase and sale investment decisions for the Port-
folios. PIMC also provides research and credit analysis. Port-
folio transactions for a Portfolio may be directed through
broker/dealers who sell Fund shares, subject to the require-
ments of best execution.
For their investment advisory and sub-advisory services, PAMG
and PIMC are entitled to fees, computed daily on a Portfolio-
by-Portfolio basis and payable monthly, at the annual rates set
forth below. All sub-advisory fees payable to PIMC are paid by
PAMG, and do not represent an extra charge to the Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH
PORTFOLIO (BEFORE WAIVERS)
<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .450% .400%
$1 billion--$2 billion .400 .350
$2 billion--$3 billion .375 .325
greater than $3 billion .350 .300
</TABLE>
For the twelve months ended September 30, 1996, the Portfolios
(other than the New Jersey Municipal Money Market Portfolio)
paid investment advisory fees at the following annual rates
(expressed as a percentage of average daily net assets) after
voluntary fee waivers: Money Market Portfolio, .07%; U.S. Trea-
sury Money Market
21.
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Portfolio, .07%; Municipal Money Market Portfolio, .06%;
Ohio Municipal Money Market Portfolio, .06%; Pennsylvania
Municipal Money Market Portfolio, .06%; North Carolina Mu-
nicipal Money Market Portfolio, .06%; and Virginia Municipal
Money Market Portfolio, .06%. For the period from February
1, 1996 to September 30, 1996, the New Jersey Municipal
Money Market Portfolio paid investment advisory fees, after
voluntary fee waivers, at the annual rate of .06% of its av-
erage daily net assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC"), and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the Fund's co-administrators. CCG and PFPC are in-
direct wholly-owned subsidiaries of PNC Bank Corp. CDI is a
wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). A majority of the outstanding stock of PDI is owned
by its officers.
The Administrators generally assist the Fund in all aspects
of its administration and operation, including matters re-
lating to the maintenance of financial records and fund ac-
counting. As compensation for these services, CCG is enti-
tled 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 com-
bined fee, computed daily and payable monthly, at an annual
rate of .15% of the first $500 million of each Portfolio's
average daily net assets, .13% of the next $500 million of
each Portfolio's average daily net assets, .11% of the next
$1 billion of each Portfolio's average daily net assets and
.10% of each Portfolio's average daily net assets in excess
of $2 billion. From time to time the Administrators may
waive some or all of their administration fees from a Port-
folio.
For information about the operating expenses the Portfolios
paid for the most recent fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank, National Association ("PNC Bank") serves as the
AGENT, Portfolios' custodian and PFPC serves as their transfer
DIVIDEND agent and dividend disbursing agent.
DISBURSING
AGENT AND
CUSTODIAN
EXPENSES Expenses are deducted from the total income of each Portfo-
lio before dividends and distributions are paid. Expenses
include, but are not limited to, fees paid to PAMG and the
Administrators, transfer agency and custodian fees, trustee
fees, taxes, interest, professional fees, fees and expenses
in registering and qualifying the Portfolios and their
shares for distribution under Federal and state securities
laws, expenses of preparing prospectuses and statements of
additional information and of printing and distributing pro-
spectuses and statements of additional information to exist-
ing shareholders, expenses relating to shareholder reports,
shareholder meetings and proxy solicitations, insurance pre-
miums, 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 equitable.
22.
<PAGE>
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HOW ARE SHARES PURCHASED AND REDEEMED?
- --------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at Four
Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Fund is not required or permitted under the Plan to
make distribution payments with respect to Institutional Shares. However, the
Plan permits CDI, PAMG, the Administrators and other companies that receive
fees from the Fund to make payments relating to distribution and sales support
activities out of their past profits or other sources available to them which,
subject to applicable NASD regulations, may include contributions to various
non-cash and cash incentive arrangements to promote the sale of shares, as well
as sponsorship of various educational programs, sales contests and promotions
in which participants may receive reimbursement of expenses, entertainment and
prizes such as travel awards, merchandise and cash. For further information,
see "Investment Advisory, Administration, Distribution and Servicing Arrange-
ments" in the Statement of Additional Information.
PURCHASE OF SHARES. Institutional Shares are offered to institutional
investors, including registered investment advisers with a minimum investment
of $500,000 and individuals with a minimum investment of $2,000,000.
Institutional Shares are sold at their net asset value per share next deter-
mined after an order is received by PFPC. Shares may be purchased on any Busi-
ness Day. A "Business Day" is any weekday that the New York Stock Exchange (the
"NYSE") and the Federal Reserve Bank of Philadelphia (the "FRB") are open for
business.
Purchase orders for each Portfolio except the U.S. Treasury Money Market Port-
folio may be placed by telephoning PFPC at (800) 441-7450 not later than 12:00
noon (Eastern Time) on a Business Day. Orders received before 12:00 noon (East-
ern Time) will be executed at 12:00 noon (Eastern Time). If payment for an or-
der is not received by 4:00 p.m. (Eastern Time), the order will be cancelled
and notice thereof will be given to the investor placing the order. Orders re-
ceived after 12:00 noon (Eastern Time) will not be accepted.
Purchase orders for the U.S. Treasury Money Market Portfolio may be placed by
telephoning PFPC at (800) 441-7450 no later than 4:00 p.m. (Eastern Time) on a
Business Day. Orders received before 12:00 noon (Eastern Time) will be executed
at 12:00 noon (Eastern Time); orders received after 12:00 noon (Eastern Time)
but before 4:00 p.m. (Eastern Time) will be executed at 4:00 p.m. (Eastern
Time). If payment for an order is not received by 4:00 p.m. (Eastern Time), the
order will be cancelled and notice thereof will be given to the investor plac-
ing the order. Orders will not be accepted after 4:00 p.m. (Eastern Time). Un-
der certain circumstances, the Fund may reject large individual purchase orders
received after 12:00 noon (Eastern Time).
Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Fund's custodian. Payment may also, in
the discretion of the Fund, be made in the form of securities that are permis-
sible investments for the respective Portfolios. For further information, see
the Statement of Additional Information. The minimum initial investment for in-
stitutions is $5,000. There is no minimum subsequent investment requirement.
Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Institutional Shares.
REDEMPTION OF SHARES. Redemption orders for Institutional Shares may be placed
by telephoning PFPC at (800) 441-7450. Institutional Shares are redeemed at
their net asset value per share next determined after PFPC's receipt of the re-
demption order. The Fund, the Administrators and the Distributor will employ
reason-
23.
<PAGE>
- --------------------------------------------------------------------------------
able procedures to confirm that instructions communicated by telephone are gen-
uine. The Fund and its service providers will not be liable for any loss, lia-
bility, cost or expense for acting upon telephone instructions that are reason-
ably believed to be genuine in accordance with such procedures. While the Fund
intends to use its best efforts to maintain each Portfolio's net asset value
per share at $1.00, the proceeds paid upon redemption may be more or less than
the amount invested depending upon the net asset value of an Institutional
Share at the time of redemption.
Payment for redeemed shares for which a redemption order is received by PFPC
before 12:00 noon (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming institution on the same Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received between 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) or
on a day when the Fund's custodian is closed is normally wired in Federal funds
on the next Business Day following redemption on which the Fund's custodian is
open for business. The Fund reserves the right to wire redemption proceeds
within seven days after receiving a redemption order if, in the judgment of
PAMG, an earlier payment could adversely affect a Portfolio. No charge for wir-
ing redemption payments is imposed by the Fund.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
The Fund may redeem Institutional Shares in any Portfolio account if the ac-
count balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 on thirty days'
written notice.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
24.
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HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Institutional Shares of each Port-
folio as of 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) on each
Business Day by dividing the value of all securities and other assets owned by
a Portfolio that are allocated to its Institutional Shares, less the liabili-
ties charged to its Institutional Shares, by the number of its Institutional
Shares that are outstanding.
Each Portfolio seeks to maintain a net asset value of $1.00 per share for pur-
poses of purchases and redemptions, and values its portfolio securities based
on the amortized cost method of valuation described in the Statement of Addi-
tional Information under "Valuation of Shares." A Portfolio may use a pricing
service, bank or broker/dealer to value its securities.
HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Shareholders are entitled to dividends and distributions arising from the net
income and capital gains, if any, earned on investments held by the Portfolio
in which they invest. Each Portfolio's net income is declared daily as a divi-
dend. Shareholders whose purchase orders are executed at 12:00 noon (Eastern
Time), 4:00 p.m. (Eastern Time) for the U.S. Treasury Money Market Portfolio,
receive dividends for that day. On the other hand, shareholders whose redemp-
tion orders have been received by 12:00 noon (Eastern Time) do not receive div-
idends for that day, while shareholders of each Portfolio whose redemption or-
ders are received after 12:00 noon (Eastern Time) do receive dividends for that
day.
Dividends are paid monthly by check, or by wire transfer if requested in writ-
ing by the shareholder, within five business days after the end of the month.
Net short-term capital gains, if any, will be distributed at least annually.
The period for which dividends are payable and the time for payment are subject
to change by the Fund's Board of Trustees. The Portfolios do not expect to re-
alize net long-term capital gains.
Dividends are reinvested in additional full and fractional Institutional Shares
of the same Portfolio which pays the dividends, unless a shareholder elects to
receive dividends in cash. Such election, or any revocation thereof, must be
made in writing to PFPC, and will become effective with respect to dividends
paid after receipt by PFPC.
25.
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HOW ARE FUND DISTRIBUTIONS TAXED?
- -------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
a Portfolio qualifies, it generally will be relieved of Federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise ex-
empt, will pay income or capital gains taxes on distributions (except distri-
butions that are "exempt interest dividends" or are treated as a return of
capital), whether the distributions are paid in cash or reinvested in addi-
tional shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be
taxed to shareholders as long-term capital gain regardless of the length of
time a shareholder holds the shares. All other distributions, to the extent
taxable, are taxed to shareholders as ordinary income.
Each Municipal Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns for
informational purposes and in two circumstances such amounts, while exempt
from regular Federal income tax, are taxable to persons subject to alternative
minimum and environmental taxes. First, "exempt interest dividends" derived
from certain private activity bonds generally will constitute an item of tax
preference for taxpayers in determining alternative minimum tax liability.
Second, all "exempt interest dividends" must be taken into account by corpo-
rate taxpayers in determining certain adjustments for alternative minimum and
environmental tax purposes. In addition, investors should be aware of the pos-
sibility of state and local alternative minimum or minimum income tax liabil-
ity on interest from private activity bonds. 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 determining the tax-
ability of their benefit payments.
Each Municipal Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions from net investment income during that year and may differ
significantly from the actual percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of such dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In addi-
tion, shareholders who are non-resident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to dif-
ferent Federal income tax treatment. Future legislative or administrative
changes or court decisions may materially affect the tax consequences of in-
vesting in the Portfolios. For additional information concerning the tax
treatment of dividends and distributions by the states listed below, including
certain restrictions applicable to such treatment, see "Taxes" in the State-
ment of Additional Information.
OHIO TAXES. Individuals and estates that are subject to Ohio personal income
tax or municipal or school district income taxes in Ohio will not be subject
to such taxes on distributions from the Ohio Municipal Money Market Portfolio
to the extent that such distributions are properly attributable to interest on
Ohio State-Specific Obligations or obligations issued by the U.S. Government,
its agencies, instrumentalities or
26.
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territories (if the interest on such obligations is exempt from state income
taxation under the laws of the United States). Corporations that are subject to
the Ohio corporation franchise tax will not have to include distributions from
the Ohio Municipal Money Market Portfolio in their net income base for purposes
of calculating their Ohio corporation franchise tax liability to the extent
that such distributions either constitute exempt-interest dividends for Federal
income tax purposes or are properly attributable to interest on Ohio State-Spe-
cific Obligations or the U.S. obligations described above. However, shares of
the Ohio Municipal Money Market Portfolio will be included in a corporation's
net worth base for purposes of calculating the Ohio corporation franchise tax.
Distributions properly attributable to gain on the sale, exchange or other dis-
position of Ohio State-Specific Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in Ohio and
will not be included in the net income base of the Ohio corporation franchise
tax. Distributions attributable to other sources will be subject to the Ohio
personal income tax and the Ohio corporation franchise tax.
PENNSYLVANIA TAXES. Income received by a shareholder attributable to interest
realized by the Pennsylvania Municipal Money Market Portfolio from Pennsylvania
State-Specific Obligations or attributable to insurance proceeds on account of
such interest is not taxable to individuals, estates or trusts under the Per-
sonal Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for Federal income tax purposes); to corporations under the Corporate Net
Income Tax (in the case of insurance proceeds, to the extent they are exempt
for Federal income tax purposes); nor to individuals under the Philadelphia
School District Net Investment Income Tax ("School District Tax").
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Portfolio of Pennsylvania State-Specific Obligations is taxable
under the Personal Income Tax, the Corporate Net Income Tax, and, unless these
assets were held by the Portfolio for more than six months, the School District
Tax.
This discussion does not address the extent, if any, to which shares of the
Pennsylvania Municipal Money Market Portfolio, and interest and gain earned by
the Portfolio, are subject to, or included in the measure of, special taxes im-
posed by the Commonwealth of Pennsylvania on banks and other financial institu-
tions or with respect to any privilege, excise, franchise or other tax imposed
on business entities not discussed above (including the Corporate Capital
Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not sub-
ject to the Pennsylvania County Personal Property Tax to the extent that the
Portfolio is comprised of Pennsylvania State-Specific Obligations and Federal
obligations (if the interest on such obligations is exempt from state and local
taxation under the laws of the United States).
NORTH CAROLINA TAXES. Interest received in the form of dividends from the North
Carolina Municipal Money Market Portfolio is exempt from North Carolina state
income tax to the extent the distributions represent interest on direct obliga-
tions of the U.S. Government or North Carolina State-Specific Obligations. Dis-
tributions derived from interest earned on obligations of political subdivi-
sions of Puerto Rico, Guam and the U.S. Virgin Islands, including the govern-
ments thereof and their agencies, instrumentalities and authorities, are also
exempt from North Carolina state income tax. Distributions paid out of interest
earned on obligations that are merely backed or guaranteed by the U.S. Govern-
ment (e.g., GNMAs, FNMAs), on repurchase agreements collateralized by U.S. Gov-
ernment securities or on obligations of other states (which the Portfolio may
acquire and hold for temporary or defensive purposes) are not exempt from North
Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of certain obligations of the
State of North Carolina or its subdivisions that were issued before July 1,
1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
27.
<PAGE>
- -------------------------------------------------------------------------------
VIRGINIA TAXES. Dividends paid by the Virginia Municipal Money Market Portfo-
lio and derived from interest on obligations of the Commonwealth of Virginia
or of any political subdivision or instrumentality of the Commonwealth or de-
rived from interest or dividends on obligations of the United States excluda-
ble from Virginia taxable income under the laws of the United States, which
obligations are issued in the exercise of the borrowing power of the Common-
wealth or the United States and are backed by the full faith and credit of the
Commonwealth or the United States, will generally be exempt from the Virginia
income tax. Dividends derived from interest on debt obligations of certain
territories and possessions of the United States (those issued by Puerto Rico,
the Virgin Islands and Guam) will also be exempt from the Virginia income tax.
Dividends are derived from interest on debt obligations other than those de-
scribed above will be subject to the Virginia income tax even though it may be
excludable from gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and derived
from capital gains will be taxable to the shareholders. Capital gains distrib-
uted to shareholders derived from Virginia obligations issued pursuant to spe-
cial Virginia enabling legislation which provides a specific exemption for
such gains will be exempt from Virginia income tax.
The Virginia Department of Taxation has adopted a policy of allowing share-
holders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution
from the Portfolio.
NEW JERSEY TAXES. It is anticipated that substantially all dividends paid by
the New Jersey Municipal Money Market Portfolio will not be subject to New
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. Shares of the Portfolio are not subject to property taxa-
tion 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 in-
come tax base for purposes of computing the Corporation Business Tax. Further-
more, any gain upon the redemption or sale of shares by a corporate share-
holder is also included in the net income tax base for purposes of computing
the Corporation Business Tax.
28.
<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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Institutional Shares of the eight money market portfo-
lios described herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. Because of these "class expenses", the
performance of a Portfolio's Institutional Shares is expected to be higher than
the performance of the Portfolio's Service Shares, and the performance of both
the Institutional Shares and Service Shares of a Portfolio is expected to be
higher than the performance of the Portfolio's three classes of Investor
Shares. The performance of each class of Investor Shares may be different. The
Fund offers various services and privileges in connection with its Investor
Shares that are not generally offered in connection with its Institutional and
Service Shares, including an automatic investment plan, automatic withdrawal
plan and checkwriting. For further information regarding the Fund's Service or
Investor Share classes, contact PFPC at (800) 441-7764 (Service Shares) or
(800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On November 30, 1996, PNC Bank held of record approximately 70% 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.
29.
<PAGE>
- -------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- -------------------------------------------------------------------------------
Each Portfolio may advertise its "yield", "effective yield" and total return
for Institutional Shares. These performance figures are based on historical
earnings and are not intended to indicate future performance. "Yield" refers
to the income generated by an investment in a Portfolio's Institutional Shares
over a seven-day period. This income is then "annualized." That is, the amount
of income generated by the investment during that week is assumed to be gener-
ated each week over a 52-week period and is shown as a percentage of the in-
vestment. "Effective yield" is calculated similarly but, when annualized, the
income earned by an investment in a Portfolio's Institutional Shares is as-
sumed to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment. A Mu-
nicipal Portfolio's "tax equivalent yield" may also be quoted, which shows the
level of taxable yield needed to produce an after-tax equivalent to the Port-
folio's tax-free yield for Institutional Shares.
The performance of Institutional Shares of a Portfolio may be compared to the
performance of mutual funds with similar investment objectives and to relevant
indices, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mu-
tual funds. For example, the yield of Institutional Shares of a Portfolio may
be compared to data prepared by Lipper Analytical Services, Inc., CDA Invest-
ment Technologies, Inc. and Weisenberger Investment Company Service. Perfor-
mance information may also include evaluations of the Portfolios published in
nationally recognized ranking services, and information as reported by finan-
cial publications such as Business Week, Fortune, Institutional Investor,
Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature.
Performance quotations for shares of a Portfolio represent past performance
and should not be considered as representative of future results. The yield of
any investment is generally a function of portfolio quality and maturity, type
of investment and operating expenses. Yields will fluctuate and are not neces-
sarily representative of future results. Any fees charged by affiliates of the
Portfolios' investment adviser or other institutions directly to their custom-
ers' accounts in connection with investments in the Portfolios will not be in-
cluded in the Portfolios' calculations of yield and performance.
30.
<PAGE>
- --------------------------------------------------------------------------------
HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
CONVENIENT WAYS TO ACCESS FUND INFORMATION
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7764
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7764
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5PM, E.S.T. toll-free 800-441-7450
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
31.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment style SM.
STOCK PORTFOLIOS
- --------------------------------------------------------------------------------
Large Cap Growth Equity Small Cap Growth Equity
Large Cap Value Equity Small Cap Value Equity
Mid-Cap Growth Equity International Equity
Mid-Cap Value Equity International Emerging Markets
Index Equity
Select Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
<PAGE>
January 1, 1997
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS SERVICE SHARES
- --------------------------------------------------------------------------------
ASKING THE KEY
QUESTIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
What Are The Expenses Of The Portfolios?..................... 4
What Are The Portfolios' Financial Highlights?............... 5
What Are The Portfolios?..................................... 11
What Additional Investment Policies And Risks Apply?......... 14
What Are The Portfolios' Fundamental Investment
Limitations?................................................ 18
Who Manages The Fund?........................................ 19
How Are Shares Purchased And Redeemed?....................... 22
What Special Purchase And Redemption Procedures May Apply?... 24
How Is Net Asset Value Calculated?........................... 25
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 26
How Are Fund Distributions Taxed?............................ 27
How Is The Fund Organized?................................... 30
How Is Performance Calculated?............................... 31
How Can I Get More Information?.............................. 32
</TABLE>
This Prospectus contains information about the Compass Capital
money market portfolios (the "Portfolios") that a prospective in-
vestor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information dated January 1,
1997 has been filed with the Securities and Exchange Commission
(the "SEC"). The Statement of Additional Information may be ob-
tained free of charge from the Fund by calling (800) 441-7764.
The Statement of Additional Information, 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, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN THE PORTFOLIOS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The New Jersey, North Carolina, Ohio, Pennsylvania and Virginia
Municipal Money Market Portfolios may invest a significant per-
centage of their assets in a single issuer and, therefore, in-
vestments in these Portfolios may be riskier than an investment
in other types of money market funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE STATE-SPECIFIC MUNICIPAL PORTFOLIOS LISTED
ABOVE ARE INTENDED ONLY FOR RESIDENTS OF THE RESPECTIVE STATES INDICATED.
2.
<PAGE>
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS OF COMPASS CAPITAL FUNDS
- --------------------------------------------------------------------------------
The COMPASS CAPITAL FUND Family consists of 30 portfolios and
has been structured to include many different investment styles
across the spectrum of money market investments so that invest-
ors may participate across multiple disciplines in order to
seek their long-term financial goals.
The Money Market Portfolios of COMPASS CAPITAL FUNDS consist of
eight short-term investment alternatives. Two of these Portfo-
lios invest solely in taxable instruments, and six of these
Portfolios invest in tax-exempt instruments. A detailed de-
scription of each Portfolio begins on page 11.
COMPASS CAPITAL LIPPER PEER GROUP
PORTFOLIO
MONEY MARKET Money Market Instrument
Funds
U.S. TREASURY U.S. Treasury Money
MONEY MARKET Market Funds
MUNICIPAL MONEY Tax-Exempt Money Market
MARKET Funds
NJ MUNICIPAL NJ Tax-Exempt Money
MONEY MARKET Market Funds
NC MUNICIPAL Other States Tax-Exempt
MONEY MARKET Money Market Funds
OH MUNICIPAL Ohio Tax-Exempt Money
MONEY MARKET Market Funds
PA MUNICIPAL PA Tax-Exempt Money
MONEY MARKET Market Funds
VA MUNICIPAL Other States Tax-Exempt
MONEY MARKET Money Market Funds
UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Portfo-
CAPITAL lios. We intend this document to be an effective tool as you
MONEY MARKET explore different directions in money market investing.
PORTFOLIOS
CONSIDERING There can be no assurance that any mutual fund will achieve its
THE RISKS IN investment objective, or that any Portfolio will be able to
MONEY MARKET maintain a stable net asset value of $1.00 per share. Certain
INVESTING Portfolios may invest in U.S. dollar-denominated instruments of
foreign issuers or municipal securities backed by the credit of
foreign banks, which may be subject to risks in addition to
those inherent in U.S. investments. Each state-specific munici-
pal Portfolio will concentrate in the securities of issuers lo-
cated in a particular state, and is non-diversified, which
means that its performance may be dependent upon the perfor-
mance of a smaller number of securities than the other Portfo-
lios, which are considered diversified. See "What Additional
Investment Policies And Risks Apply?"
INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolios, see "How Are Shares Purchased And Redeemed?" and
CAPITAL "What Special Purchase And Redemption Procedures May Apply?"
FUNDS
3.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE EXPENSES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Below is a summary of the annual operating expenses incurred by Service Shares
of the Portfolios after fee waivers for the fiscal year ended September 30,
1996 as a percentage of average daily net assets. The figures shown for the New
Jersey Municipal Money Market and Virginia Municipal Money Market Portfolios
have been restated to reflect current expenses and fee waivers. An example
based on the summary is also shown.
<TABLE>
<CAPTION>
NEW NORTH
U.S. JERSEY CAROLINA OHIO PENNSYLVANIA VIRGINIA
TREASURY MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory fees (after fee
waivers)(/1/) .07% .07% .06% .06% .06% .06% .06% .06%
Other operating expenses .52 .52 .53 .53 .53 .53 .53 .53
---- ---- ---- ---- ---- ---- ------ ----
Administration fees
(after fee
waivers)(/1/) .13 .13 .12 .08 .07 .10 .12 .04
Shareholder servicing
fee .15 .15 .15 .15 .15 .15 .15 .15
Other expenses .24 .24 .26 .30 .31 .28 .26 .34
--- ---- ---- ---- ---- ---- ------ ----
Total Portfolio
operating expenses
(after fee
waivers)(/1/) .59% .59% .59% .59% .59% .59% .59% .59%
==== ==== ==== ==== ==== ==== ====== ====
</TABLE>
(1) Without waivers, advisory fees would be .42% for the Money Market Portfo-
lio, .44% for the U.S. Treasury Money Market Portfolio and .45% for each of
the other Portfolios and administration fees would be .15% for the Money
Market Portfolio, .16% for the U.S. Treasury Money Market Portfolio and
.18% for each of the other Portfolios. PAMG and the Portfolios' administra-
tors 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 main-
tain the Portfolios' total operating expenses during the remainder of the
current fiscal year at the levels set forth in the table. Without waivers,
"Other operating expenses" would be .54%, .55%, .59%, .63%, .64%, .61%,
.59% and .67%, respectively, and "Total Portfolio operating expenses" would
be .96%, .99%, 1.04%, 1.08%, 1.09%, 1.06%, 1.04% and 1.12%, respectively.
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000 in-
vestment assuming (1) a 5% annual return, and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Money Market $ 6 $19 $33 $74
U.S. Treasury Money
Market 6 19 33 74
Municipal Money Market 6 19 33 74
New Jersey Municipal
Money Market 6 19 33 74
North Carolina Municipal
Money Market 6 19 33 74
Ohio Municipal Money
Market 6 19 33 74
Pennsylvania Municipal
Money Market 6 19 33 74
Virginia Municipal Money
Market 6 19 33 74
</TABLE>
The foregoing Table and Example are intended to assist investors in understand-
ing the expenses the Portfolios pay. Investors bear these expenses either di-
rectly or indirectly. They do not reflect any charges that may be imposed by
affiliates of the Portfolios' investment adviser or other institutions directly
on their customer accounts in connection with investments in the Portfolios.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE IN-
VESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
4.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' FINANCIAL HIGHLIGHTS?
- --------------------------------------------------------------------------------
The following financial information has been derived from the
financial statements incorporated by reference into the State-
ment of Additional Information, and has been audited by the
Portfolio's independent accountant. This financial information
should be read together with those financial statements. Fur-
ther information about the performance of the Portfolios is
available in the Fund's annual shareholder reports. Both the
Statement of Additional Information and the annual shareholder
reports may be obtained from the Fund free of charge by calling
(800) 441-7764.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR 10/4/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0503 0.0534 0.0333 0.0274 0.0391 0.0645 0.0778
Net realized gain (loss)
on investments - - - - - - - - - - - - - -
---------- ---------- -------- -------- -------- -------- --------
Total from investment
operations 0.0503 0.0534 0.0333 0.0274 0.0391 0.0645 0.0778
---------- ---------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0503) (0.0534) (0.0333) (0.0274) (0.0391) (0.0645) (0.0778)
Distributions from net
realized capital gains - - - - - - - - - - - - - -
---------- ---------- -------- -------- -------- -------- --------
Total distributions (0.0503) (0.0534) (0.0333) (0.0274) (0.0391) (0.0645) (0.0778)
---------- ---------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ======== ======== ========
Total return 5.15% 5.48% 3.37% 2.77% 4.05% 6.64% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $1,575,064 $1,194,017 $575,948 $415,328 $838,012 $637,076 $628,075
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.59% 0.57% 0.51% 0.59% 0.61% 0.62% 0.62%/2/
Before
advisory/administration
fee waivers 0.95% 0.94% 0.92% 0.70% 0.66% 0.67% 0.70%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.00% 5.35% 3.35% 2.73% 3.86% 6.45% 7.83%/2/
Before
advisory/administration
fee waivers 4.64% 4.98% 2.95% 2.62% 3.81% 6.40% 7.75%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
5.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
U.S. TREASURY MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0489 0.0525 0.0331 0.0269 0.0394 0.0627 0.0697
Net realized gain (loss)
on investments - - - - - - - - - - - - - -
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.0489 0.0525 0.0331 0.0269 0.0394 0.0627 0.0697
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0489) (0.0525) (0.0331) (0.0269) (0.0394) (0.0627) (0.0697)
Distributions from net
realized capital gains - - - - - - - - - - - - - -
-------- -------- -------- -------- -------- -------- --------
Total distributions (0.0489) (0.0525) (0.0331) (0.0269) (0.0394) (0.0627) (0.0697)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return 5.00% 5.38% 3.36% 2.72% 4.01% 6.46% 7.29%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $955,454 $550,959 $372,883 $185,400 $160,269 $180,776 $146,148
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.59% 0.57% 0.52% 0.60% 0.62% 0.65% 0.65%/2/
Before
advisory/administration
fee waivers 0.99% 0.98% 0.97% 0.73% 0.67% 0.70% 0.70%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.84% 5.27% 3.42% 2.68% 3.91% 6.27% 7.62%/2/
Before
advisory/administration
fee waivers 4.45% 4.85% 2.97% 2.55% 3.86% 6.22% 7.57%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
6.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR 11/1/89/1/
ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------- ------- --------
Income from investment
operations
Net investment income 0.0309 0.0334 0.0219 0.0205 0.0281 0.0438 0.0486
Net realized gain (loss)
on investments - - - - - - - - - - - - - -
-------- -------- -------- ------- -------- ------- --------
Total from investment
operations 0.0309 0.0334 0.0219 0.0205 0.0281 0.0438 0.0486
-------- -------- -------- ------- -------- ------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0309) (0.0334) (0.0219) (0.0205) (0.0281) (0.0438) (0.0486)
Distributions from net
realized capital gains - - - - - - - - - - - - - -
-------- -------- -------- ------- -------- ------- --------
Total distributions (0.0309) (0.0334) (0.0219) (0.0205) (0.0281) (0.0438) (0.0486)
-------- -------- -------- ------- -------- ------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======== ======= ========
Total return 3.10% 3.39% 2.20% 2.10% 2.85% 4.47% 4.97%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $261,617 $265,629 $133,358 $93,937 $125,152 $89,312 $112,108
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.59% 0.57% 0.51% 0.61% 0.63% 0.65% 0.65%/2/
Before
advisory/administration
fee waivers 1.03% 1.01% 0.99% 0.72% 0.68% 0.70% 0.70%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.08% 3.35% 2.18% 2.02% 2.78% 4.40% 5.31%/2/
Before
advisory/administration
fee waivers 2.64% 2.91% 1.71% 1.91% 2.73% 4.35% 5.26%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
7.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 6/1/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0316 0.0333 0.0225 0.0074
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment operations 0.0316 0.0333 0.0225 0.0074
-------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.0316) (0.0333) (0.0225) (0.0074)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0316) (0.0333) (0.0225) (0.0074)
-------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 3.21% 3.38% 2.27% 0.75%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 45,525 $ 49,857 $ 44,066 $ 15,239
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.59% 0.57% 0.40% 0.23%/2/
Before advisory/administration fee
waivers 1.05% 1.03% 1.04% 0.96%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.17% 3.35% 2.29% 2.23%/2/
Before advisory/administration fee
waivers 2.71% 2.89% 1.65% 1.50%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR YEAR YEAR 6/11/93/1/
ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- --------
Income from investment operations
Net investment income 0.0304 0.0325 0.0221 0.0074
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- ------- --------
Total from investment operations 0.0304 0.0325 0.0221 0.0074
-------- -------- ------- --------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.0304) (0.0325) (0.0221) (0.0074)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- ------- --------
Total distributions (0.0304) (0.0325) (0.0221) (0.0074)
-------- -------- ------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ========
Total return 3.04% 3.33% 2.24% 0.74%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $224,197 $147,739 $60,560 $ 8,919
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.59% 0.57% 0.42% 0.32%/2/
Before advisory/administration fee
waivers 1.01% 0.99% 0.99% 1.20%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.02% 3.29% 2.31% 2.42%/2/
Before advisory/administration fee
waivers 2.59% 2.87% 1.75% 1.54%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
8.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA VIRGINIA
MUNICIPAL MONEY MUNICIPAL MONEY
MARKET PORTFOLIO MARKET PORTFOLIO
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 11/01/94/4/ 4/29/94/1/ YEAR 10/11/94/1/
ENDED THROUGH THROUGH ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0308 0.0305 0.0099 0.0318 0.0330
Net realized gain (loss)
on investments - - - - - - - - - -
-------- -------- -------- -------- --------
Total from investment
operations 0.0308 0.0305 0.0099 0.0318 0.0330
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0308) (0.0305) (0.0099) (0.0318) (0.0330)
Distributions from net
realized capital gains - - - - - - - - - -
-------- -------- -------- -------- --------
Total distributions (0.0308) (0.0305) (0.0099) (0.0318) (0.0330)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 3.12% 3.11% 0.99% 3.25% 3.35%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 7,463 $ 1,841 $ - - /3/ $ 14,968 $ 821
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.55% 0.55%/2/ 0.36%/2/ 0.45% 0.40%/2/
Before
advisory/administration
fee waivers 1.04% 1.08%/2/ 1.02%/2/ 1.12% 1.25%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.06% 3.34%/2/ 2.54%/2/ 3.05% 3.50%/2/
Before
advisory/administration
fee waivers 2.56% 2.81%/2/ 1.87%/2/ 2.38% 2.65%/2/
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/There were no Service Shares outstanding as of September 30, 1994.
/4/Reissuance of shares.
9.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO+
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
2/1/96 3/1/95 FISCAL YEAR FISCAL YEAR FISCAL YEAR 7/1/91/1/
THROUGH THROUGH ENDED ENDED ENDED TO
9/30/96 1/31/96 02/28/95 02/28/94 02/28/93 02/28/92
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.0187 0.03 0.02 0.02 0.02 0.02
Net realized gain (loss)
on investments - - - - - - - - - - - -
------- ------- ------- ------- ------- -------
Total from investment
operations 0.0187 0.03 0.02 0.02 0.02 0.02
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.0187) (0.03) (0.02) (0.02) (0.02) (0.02)
Distributions from net
realized capital gains - - - - - - - - - - - -
------- ------- ------- ------- ------- -------
Total distributions (0.0187) (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 1.89% 3.23% 2.46% 1.79% 2.19% 3.53%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $68,139 $56,958 $43,610 $39,408 $38,836 $35,005
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.59%/2/ 0.70%/2/ 0.63% 0.65% 0.73% 0.47%/2/
Before
advisory/administration
fee waivers 1.08%/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 2.82%/2/ 3.17%/2/ 2.46% 1.77% 2.17% 3.44%/2/
Before
advisory/administration
fee waivers 2.33%/2/ 3.13%/2/ 2.39% 1.70% 2.14% 3.29%/2/
</TABLE>
+ The Portfolio commenced operations on July 1, 1991 as the New Jersey Munici-
pal Money Market Fund, a separate investment portfolio (the "Predecessor New
Jersey Municipal Money Market Portfolio") of Compass Capital Group, which was
organized as a Massachusetts business trust. On January 13, 1996, the assets
and liabilities of the Predecessor New Jersey Municipal Money Market Portfo-
lio were transferred to this Portfolio, and were combined with the assets of
a pre-existing portfolio of investments maintained by the Fund.
/1/Commencement of operations of share class.
/2/Annualized.
10.
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS?
- --------------------------------------------------------------------------------
MONEY MARKET The investment objective of the Money Market Portfolio is to
PORTFOLIO provide as high a level of current interest income as is con-
sistent with maintaining liquidity and stability of principal.
The Portfolio may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as govern-
ment, bank, commercial and other obligations, that are avail-
able in the money markets. In particular, the Portfolio may in-
vest in:
(A) U.S. dollar-denominated obligations issued or supported by
the credit of U.S. or foreign banks or savings institutions
with total assets in excess of $1 billion (including obli-
gations of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued
or guaranteed by U.S. and foreign corporations and other
issuers rated (at the time of purchase) A-2 or higher by
Standard & Poor's Ratings Group ("S&P"), Prime-2 or higher
by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Co. ("D&P"), F-2 or higher
by Fitch Investors Service, Inc. ("Fitch") or TBW-2 or
higher by Thomson BankWatch, Inc. ("TBW"), as well as high
quality corporate bonds rated (at the time of purchase) AA
or higher by S&P, D&P, Fitch or TBW or Aa or higher by
Moody's;
(C) unrated notes, paper and other instruments that are of com-
parable quality as determined by the Portfolio's sub-ad-
viser under guidelines established by the Fund's Board of
Trustees;
(D) asset-backed securities (including interests in pools of
assets such as mortgages, installment purchase obligations
and credit card receivables);
(E) securities issued or guaranteed as to principal and inter-
est by the U.S. Government or by its agencies or instrumen-
talities and related custodial receipts;
(F) dollar-denominated securities issued or guaranteed by for-
eign governments or their political subdivisions, agencies
or instrumentalities;
(G) guaranteed investment contracts issued by highly-rated U.S.
insurance companies;
(H) securities issued or guaranteed by state or local govern-
mental bodies; and
(I) repurchase agreements relating to the above instruments.
U.S. The investment objective of the U.S. Treasury Money Market
TREASURY Portfolio is to provide as high a level of current interest in-
MONEY MARKET come as is consistent with maintaining liquidity and stability
PORTFOLIO of principal. It pursues this objective by investing exclu-
sively in short-term bills, notes and other obligations issued
or guaranteed by the U.S. Treasury and repurchase agreements
relating to such obligations.
MUNICIPAL The investment objective of the Municipal Money Market Portfo-
PORTFOLIOS lio is to provide as high a level of current interest income
exempt from Federal income taxes as is consistent with main-
taining liquidity and stability of principal. It pursues this
objective by investing substantially all of its assets in
short-term obligations issued by or on behalf of states, terri-
tories and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instru-
mentalities and authorities ("Municipal Obligations").
11.
<PAGE>
- -------------------------------------------------------------------------------
The investment objective of the New Jersey Municipal Money
Market Portfolio, North Carolina Municipal Money Market
Portfolio, Ohio Municipal Money Market Portfolio, Pennsylva-
nia Municipal Money Market Portfolio and Virginia Municipal
Money Market Portfolio (the "State-Specific Municipal Port-
folios") is, for each Portfolio, to seek as high a level of
current income exempt from Federal, and to the extent possi-
ble, state income tax of the specific state in which a Port-
folio concentrates, as is consistent with maintaining li-
quidity and stability of principal.
The Municipal Money Market Portfolio and the State-Specific
Municipal Portfolios (together, the "Municipal Portfolios")
seek to achieve their investment objectives by primarily in-
vesting in:
(A) fixed and variable rate notes and similar debt instru-
ments rated MIG-2, VMIG-2 or Prime-2 or higher by
Moody's, SP-2 or A-2 or higher by S&P, AA or higher by
D&P or F-2 or higher by Fitch;
(B) tax-exempt commercial paper and similar debt instruments
rated Prime-2 or higher by Moody's, A-2 or higher by
S&P, Duff 2 or higher by D&P or F-2 or higher by Fitch;
(C) municipal bonds rated Aa or higher by Moody's or AA or
higher by S&P, D&P or Fitch;
(D) unrated notes, paper or other instruments that are of
comparable quality as determined by the Portfolios' sub-
adviser under guidelines established by the Fund's Board
of Trustees; and
(E) municipal bonds and notes which are guaranteed as to
principal and interest by the U.S. Government or an
agency or instrumentality thereof or which otherwise de-
pend directly or indirectly on the credit of the United
States.
During normal market conditions, at least 80% of each Munic-
ipal Portfolio's net assets will be invested in securities
which are Municipal Obligations. In addition, under normal
conditions each State-Specific Municipal Portfolio intends
to invest at least 65% of its net assets in Municipal Obli-
gations of issuers located in the particular state indicated
by its name ("State-Specific Obligations"). The Municipal
Money Market Portfolio intends, on the other hand, to invest
less than 25% of its total assets in Municipal Obligations
of issuers located in the same state. During temporary de-
fensive periods, each Municipal Portfolio may invest without
limitation in obligations that are not Municipal Obligations
and may hold without limitation uninvested cash reserves.
Each State-Specific Portfolio may invest without limitation
in private activity bonds the interest on which is an item
of tax preference for purposes of the Federal alternative
minimum tax ("AMT Paper"). The Municipal Money Market Port-
folio may invest up to 20% of its total assets in AMT Paper
when added together with any taxable investments held by the
Portfolio. Interest on AMT Paper that is received by taxpay-
ers subject to the Federal alternative minimum tax is tax-
able.
Each Municipal Portfolio may invest 25% or more of its as-
sets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. To the extent a
Portfolio's assets are invested in Municipal Obligations
payable from the revenues of similar projects or are in-
vested in private activity bonds, the Portfolio will be sub-
ject to the peculiar risks presented by the laws and eco-
nomic conditions relating to such projects and bonds to a
greater extent than it would be if its assets were not so
invested.
12.
<PAGE>
- --------------------------------------------------------------------------------
QUALITY, All securities acquired by the Portfolios will be determined at
MATURITY AND the time of purchase by the Portfolios' sub-adviser, under
DIVERSIFICATION guidelines established by the Fund's Board of Trustees, to
present minimal credit risks and will be "Eligible Securities"
as defined by the SEC. Eligible Securities are (a) securities
that either (i) have short-term debt ratings at the time of
purchase in the two highest rating categories by at least two
unaffiliated nationally recognized statistical rating organiza-
tions ("NRSROs") (or one NRSRO if the security is rated by only
one NRSRO), or (ii) are comparable in priority and security
with an instrument issued by an issuer which has such ratings,
and (b) securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are
of comparable quality as determined in accordance with guide-
lines approved by the Board of Trustees.
Each Portfolio is managed so that the average maturity of all
instruments held by it (on a dollar-weighted basis) will not
exceed 90 days. In no event will a Portfolio purchase securi-
ties which mature more than 397 days from the date of purchase
(except for certain variable and floating rate instruments and
securities collateralizing repurchase agreements). Securities
in which the Portfolios invest may not earn as high a level of
income as longer term or lower quality securities, which gener-
ally have greater market risk and more fluctuation in market
value.
The Money Market, U.S. Treasury Money Market and Municipal
Money Market Portfolios are classified as diversified portfo-
lios, and the State-Specific Municipal Portfolios are classi-
fied as non-diversified portfolios, under the Investment Com-
pany Act of 1940 (the "1940 Act"). Investment returns on a non-
diversified portfolio typically are dependent upon the perfor-
mance of a smaller number of securities relative to the number
held in a diversified portfolio. Consequently, the change in
value of any one security may affect the overall value of a
non-diversified portfolio more than it would a diversified
portfolio. In addition, because the State-Specific Municipal
Portfolios concentrate their investments in obligations of is-
suers located in particular states, investments in these Port-
folios may be riskier than an investment in other Money Market
funds.
13.
<PAGE>
- -------------------------------------------------------------------------------
WHAT ADDITIONAL INVESTMENT POLICIES AND RISKS APPLY?
- -------------------------------------------------------------------------------
CORPORATE AND BANK OBLIGATIONS. To the extent consistent with their investment
objectives, the Portfolios may invest in debt obligations of domestic or for-
eign 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 obliga-
tions of the parent bank or may be limited to the issuing branch or subsidiary
by the terms of the specific obligation or by government regulation. The Money
Market Portfolio may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of its total assets. The ob-
ligations of foreign issuers may involve certain risks in addition to those of
domestic issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
Commercial paper issues include securities issued by corporations without reg-
istration under the Securities Act of 1933 (the "1933 Act") in reliance on the
exemption in Section 3(a)(3), and commercial paper issued in reliance on the
so-called "private placement" exemption in Section 4(2) ("Section 4(2) pa-
per"). Section 4(2) paper is restricted as to disposition under the Federal
securities laws in that any resale must similarly be made in an exempt trans-
action. Section 4(2) paper is normally resold to other institutional investors
through or with the assistance of investment dealers which make a market in
Section 4(2) paper, thus providing liquidity.
U.S. GOVERNMENT OBLIGATIONS. To the extent consistent with their investment
objectives, the Portfolios may also purchase obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities. Obligations of
certain agencies and instrumentalities of the U.S. Government are backed by
the full faith and credit of the United States. Others are backed by the right
of the issuer to borrow from the U.S. Treasury or are backed only by the
credit of the agency or instrumentality issuing the obligation.
MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal Obliga-
tions are "general obligation" securities and "revenue" securities. General
obligation 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 ex-
cise tax or other specific revenue source such as the user of the facility be-
ing financed. 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 include "moral obligation" bonds, which are normally issued by spe-
cial 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 partic-
ipation 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 ob-
ligations, 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
14.
<PAGE>
- --------------------------------------------------------------------------------
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that is not yet as marketable as
more conventional securities.
Each Municipal Portfolio may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase at the Portfolio's option specific Municipal Obligations at a speci-
fied price. The acquisition of a stand-by commitment may increase the cost, and
thereby reduce the yield, of the Municipal Obligation to which such commitment
relates.
The amount of information regarding the financial condition of issuers of Mu-
nicipal Obligations may be less extensive than the information for public cor-
porations, and the secondary market for Municipal Obligations may be less liq-
uid than that for taxable obligations. Accordingly, the ability of a Portfolio
to buy and sell Municipal Obligations may, at any particular time with respect
to any particular securities, be limited. In addition, Municipal Obligations
purchased by the Portfolios include obligations backed by letters of credit and
other forms of credit enhancement issued by domestic and foreign banks, as well
as other financial institutions. Changes in the credit quality of these insti-
tutions could cause loss to a Municipal Portfolio and affect its share price.
The Municipal Portfolios may invest in tax-exempt derivative securities relat-
ing to Municipal Obligations, including tender option bonds, participations,
beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the exemption
of interest thereon from Federal or state income tax are rendered by counsel to
the respective issuers or sponsors at the time of issuance. The Fund and its
service providers will rely on such opinions and will not review independently
the underlying proceedings relating to the issuance of Municipal Obligations or
the bases for such opinions.
MORTGAGE-RELATED SECURITIES. Although under normal market conditions they do
not expect to do so, each Portfolio may invest in mortgage-related securities
issued by the U.S. Government or its agencies or instrumentalities or issued by
private companies. Mortgage-related securities may include collateralized mort-
gage obligations ("CMOs") issued by the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation or other U.S. Government agencies or
instrumentalities or issued by private companies. In periods of falling inter-
est rates, the rate of mortgage prepayments tends to increase. During these pe-
riods, the reinvestment of prepayment proceeds by the particular Portfolio will
generally be at lower rates than the rates on the prepaid obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated and
unrated variable and floating rate instruments, which may have a stated matu-
rity in excess of 13 months but will, in any event, permit a Portfolio to de-
mand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). These instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the in-
terest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the particular Portfolio.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase securities from
broker-dealers and financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, so long as the repurchase agreement itself matures in less
than 13 months. Default by or bankruptcy of the seller would expose the Portfo-
lio to possible loss because of adverse market action or delays in connection
with the disposition of the underlying obligations.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Under these contracts, the Portfolio makes cash con-
tributions to a deposit fund of the insurance company's general account. The
15.
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insurance company then credits interest to the Portfolio on a monthly basis,
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The Money Market Portfo-
lio does not expect to invest more than 5% of its net assets in GICs at any
time during the current fiscal year.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase se-
curities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a Port-
folio to purchase or sell particular securities with payment and delivery tak-
ing place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security it owns or intends to pur-
chase, regardless of future changes in interest rates. When-issued and forward
commitment transactions involve the risk, however, that the price or yield ob-
tained in a transaction may be less favorable than the price or yield available
in the market when the delivery takes place.
SECURITIES LENDING. A Portfolio may seek additional income by lending securi-
ties on a short-term basis. The securities lending agreements will require that
the loans be secured by collateral in cash, U.S. Government securities or ir-
revocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. A Portfolio may not make
such loans in excess of 33 1/3% of the value of its total assets. Securities
loans 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.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse repurchase
agreements for temporary purposes (such as to obtain cash to meet redemption
requests when the liquidation of portfolio securities is deemed disadvantageous
or inconvenient). A reverse repurchase agreement involves a sale by a Portfolio
of securities that it holds concurrently with an agreement by the Portfolio to
repurchase the same securities at an agreed-upon price and date. Reverse repur-
chase agreements involve the risk that the market value of the securities sold
by a Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase.
INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation. Securities of other investment companies will be
acquired by a Portfolio within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's ex-
penses, including advisory fees. These expenses would be in addition to the ad-
visory fees and other expenses the Portfolio bears directly in connection with
its own operations.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods or if, in the opinion of
the Portfolios' sub-adviser, suitable obligations are unavailable. During nor-
mal market periods, no more than 20% of a Portfolio's assets will be held
uninvested. Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of the
value of its net assets in securities that are illiquid. Variable and floating
rate instruments that cannot be disposed of within seven days, GICs, and repur-
chase agreements and time deposits that do not provide for payment within seven
days after notice, without taking a reduced price, are subject to this 10% lim-
it. Each Portfolio may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accor-
dance with Rule 144A under the 1933 Act. These securities will not be consid-
ered illiquid so long as the sub-adviser determines that an adequate trading
market exists for the securities. This investment practice could have the ef-
fect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these re-
stricted securities.
16.
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STATE-SPECIFIC MUNICIPAL PORTFOLIOS--ADDITIONAL RISK CONSIDERATIONS. The con-
centration of investments by the State-Specific Municipal Portfolios in State-
Specific Obligations raises special investment considerations. Changes in the
economic condition and governmental policies of a state and its political sub-
divisions could adversely affect the value of a Portfolio's shares. Certain
matters relating to some of the states in which the State-Specific Municipal
Portfolios invest are described below. For further information, see "Special
Consideration Regarding State-Specific Obligations" in the Statement of Addi-
tional Information.
Ohio. While diversifying more into the service and other non-manufacturing
areas, the economy of Ohio continues to rely in part on durable goods manufac-
turing largely concentrated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general economic activity in
Ohio, as in many other industrially developed states, tends to be more cyclical
than in some other states and in the nation as a whole. Agriculture is an im-
portant segment of the Ohio economy with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness. In past
years, the State's overall unemployment rate has been somewhat higher than the
national figure. For example, the reported 1990 average monthly State rate was
5.7%, compared to the 5.5% national figure. However, for the last five years
the State rates were below the national rates (4.8% versus 5.6% in 1995). The
unemployment rate and its effects vary among particular geographic areas of the
State. There can be no assurance that future national, regional or state-wide
economic difficulties and the resulting impact on State or local government fi-
nances generally will not adversely affect the market value of Ohio State-
Specific Obligations held in the Portfolio or the ability of particular obli-
gors to make timely payments of debt service on (or lease payments relating to)
those obligations.
Pennsylvania. Although the General Fund of the Commonwealth (the principal op-
erating fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases resulted in surpluses the following four
years. As of June 30, 1995, the General Fund has a surplus of $688.3 million.
For the fiscal year ended June 30, 1996, the General Fund's expenditures ex-
ceeded available revenues by approximately $253 million; this shortfall was
funded by the General Fund's unappropriated surplus. Rising unemployment, a
relatively high proportion of persons 65 and older in the Commonwealth and
court ordered increases in healthcare reimbursement rates place increased pres-
sures on the tax resources of the Commonwealth and its municipalities. The Com-
monwealth has sold a substantial amount of bonds over the past several years,
but the debt burden remains moderate. Employment growth has shifted to the
trade and service sectors, with losses in more high-paid manufacturing posi-
tions. A new governor took office in January 1995, but the Commonwealth has
continued 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. This
balanced budget plan may actually adversely affect a particular municipality's
or county's ability to repay its obligations.
17.
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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 change to a Portfolio's investment
objective. No assurance can be provided that a Portfolio will achieve its in-
vestment objective.
Each Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of a Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolios' fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.
No Portfolio may:
(1) purchase securities (except U.S. Government securities and related repur-
chase agreements) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 25% of a Portfolio's
total assets may be invested without regard to this 5% limitation;
(2) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry, except that the
Money Market Portfolio will invest at least 25% of its total assets in ob-
ligations of issuers in the banking industry or instruments secured by such
obligations except during temporary defensive periods;
(3) borrow money except for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not
make any additional investments; and
(4) in the case of the Municipal Money Market Portfolio, invest less than 80%
of its net assets in instruments the interest on which is exempt from regu-
lar Federal income tax and not subject to the Federal alternative minimum
tax ("AMT"), except during defensive periods or during periods of unusual
market conditions; and
(5) in the case of each State-Specific Municipal Portfolio, invest less than
80% of its net assets in instruments the interest on which is exempt from
regular Federal income tax (including instruments which are subject to
AMT), except during defensive periods or during periods of unusual market
conditions.
Restriction 1 does not apply to the State-Specific Municipal Portfolios. In-
stead, as a non-fundamental investment restriction, each State-Specific Munici-
pal Portfolio will not hold any securities (except U.S. Government securities
and related repurchase agreements) that would cause, at the end of any tax
quarter, more than 5% of its total assets to be invested in securities of any
one issuer, except that up to 50% of a Portfolio's total assets may be invested
without regard to this limitation so long as no more than 25% of the Portfo-
lio's total assets are invested in any one issuer (except U.S. Government secu-
rities and related repurchase agreements).
In accordance with current SEC regulations, the Money Market Portfolio intends,
as a non-fundamental policy, to limit its investments in the securities of any
single issuer (other than U.S. Government securities and related repurchase
agreements) to not more than 5% of the value of its total assets at the time of
purchase, except that 25% of the value of its total assets may be invested in
any one issuer for a period of up to three business days. The Money Market
Portfolio will also limit its investments in Eligible Securities that are not
in the highest rating category as determined by two NRSROs (or one NRSRO if the
security is rated by only one NRSRO) or, if unrated, are not of comparable
quality, to 5% of its total assets, with investments in any one such issuer be-
ing limited to no more than 1% of its total assets or $1 million, whichever is
greater, measured at the time of purchase.
The investment limitations stated above are applied at the time investment se-
curities are purchased.
18.
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WHO MANAGES THE FUND?
- --------------------------------------------------------------------------------
BOARD OF The business and affairs of the Fund are managed under the di-
TRUSTEES rection of the Fund's Board of Trustees. The following persons
currently serve on the Board:
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,
University of Pennsylvania.
David R. Wilmerding, Jr.--Chairman, Gee, Wilmerding & Associ-
ates, Inc.
INVESTMENT The Adviser to Compass Capital Funds is PNC Asset Management
ADVISER AND Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform ad-
SUB-ADVISER visory services for investment companies, and has its principal
offices at 1600 Market Street, 29th Floor, Philadelphia, Penn-
sylvania 19103. PAMG is an indirect wholly-owned subsidiary of
PNC Bank Corp., a multi-bank holding company. PNC Institutional
Management Corporation ("PIMC"), a wholly-owned subsidiary of
PAMG, serves as each Portfolio's sub-adviser. PIMC's principal
business address is 400 Bellevue Parkway, Wilmington, Delaware
19809.
As adviser, PAMG is responsible for the overall investment man-
agement of the Portfolios. As sub-adviser, PIMC is responsible
for the day-to-day management of the Portfolios, and generally
makes all purchase and sale investment decisions for the Port-
folios. PIMC also provides research and credit analysis. Port-
folio transactions for a Portfolio may be directed through
broker/dealers who sell Fund shares, subject to the require-
ments of best execution.
For their investment advisory and sub-advisory services, PAMG
and PIMC are entitled to fees, computed daily on a Portfolio-
by-Portfolio basis and payable monthly, at the annual rates set
forth below. All sub-advisory fees payable to PIMC are paid by
PAMG, and do not represent an extra charge to the Portfolios.
MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR EACH PORTFOLIO (BEFORE
WAIVERS)
<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT SUB-ADVISORY
ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion .450% .400%
$1 billion--$2 billion .400 .350
$2 billion--$3 billion .375 .325
greater than $3 billion .350 .300
</TABLE>
For the twelve months ended September 30, 1996, the Portfolios
(other than the New Jersey Municipal Money Market Portfolio)
paid investment advisory fees at the following annual rates
(expressed as a percentage of average daily net assets) after
voluntary fee waivers: Money Market Portfolio, .07%; U.S. Trea-
sury Money Market Portfo-
19.
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lio, .07%; Municipal Money Market Portfolio, .06%; Ohio Mu-
nicipal Money Market Portfolio, .06%; Pennsylvania Municipal
Money Market Portfolio, .06%; North Carolina Municipal Money
Market Portfolio, .06%; and Virginia Municipal Money Market
Portfolio, 0%. For the period from February 1, 1996 to Sep-
tember 30, 1996, the New Jersey Municipal Money Market Port-
folio paid investment advisory fees, after voluntary fee
waivers, at the annual rate of .06% of its average daily net
assets.
ADMINISTRATORS Compass Capital Group, Inc. ("CCG"), PFPC Inc. ("PFPC"), and
Compass Distributors, Inc. ("CDI") (the "Administrators")
serve as the Fund's co-administrators. CCG and PFPC are in-
direct wholly-owned subsidiaries of PNC Bank Corp. CDI is a
wholly-owned subsidiary of Provident Distributors, Inc.
("PDI"). A majority of the outstanding stock of PDI is owned
by its officers.
The Administrators generally assist the Fund in all aspects
of its administration and operation, including matters re-
lating to the maintenance of financial records and fund ac-
counting. As compensation for these services, CCG is enti-
tled 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 com-
bined fee, computed daily and payable monthly, at an annual
rate of .15% of the first $500 million of each Portfolio's
average daily net assets, .13% of the next $500 million of
each Portfolio's average daily net assets, .11% of the next
$1 billion of each Portfolio's average daily net assets and
.10% of each Portfolio's average daily net assets in excess
of $2 billion. From time to time the Administrators may
waive some or all of their administration fees from a Port-
folio.
For information about the operating expenses the Portfolios
paid for the most recent fiscal year, see "What Are The Ex-
penses Of The Portfolios?"
TRANSFER PNC Bank, National Association ("PNC Bank") serves as the
AGENT, Port- folios' custodian and PFPC serves as their transfer
DIVIDEND agent and dividend disbursing agent.
DISBURSING
AGENTAND
CUSTODIAN
SHAREHOLDER The Fund intends to enter into service arrangements with in-
SERVICING stitutional investors ("Institutions") (including PNC Bank
and its affiliates) which provide that the Institutions will
render support services to their customers who are the bene-
ficial owners of Service Shares. These services are intended
to supplement the services provided by the Fund's Adminis-
trators and transfer agent to the Fund's shareholders of
record. In consideration for payment of a shareholder
processing fee of up to .15% (on an annualized basis) of the
average daily net asset value of Service Shares owned bene-
ficially by their customers, Institutions may provide one or
more of the following services: processing purchase and re-
demption requests from customers and placing orders with the
Fund's transfer agent or the distributor; processing divi-
dend payments from the Fund on behalf of customers; provid-
ing sub-accounting with respect to Service Shares benefi-
cially owned by customers or the information necessary for
sub-accounting; and providing other similar services. In
consideration for payment of a separate shareholder servic-
ing fee of up to .15% (on an annualized basis) of the aver-
age daily net asset value of Service Shares owned benefi-
cially by their customers, Institutions may provide one or
more of these additional services to such customers: re-
sponding to customer inquiries relating to the services per-
formed by the Institution and to customer inquiries concern-
ing their investments in Service Shares;
20.
<PAGE>
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assisting customers in designating and changing dividend op-
tions, account designations and addresses; and providing other
similar shareholder liaison services. Customers who are benefi-
cial owners of Service Shares should read this Prospectus in
light of the terms and fees governing their accounts with In-
stitutions.
Conflict-of-interest restrictions may apply to the receipt of
compensation paid by the Fund in connection with the investment
of fiduciary funds in Portfolio shares. Institutions, including
banks regulated by the Comptroller of the Currency, Federal Re-
serve Board and state banking commissions, and investment ad-
visers and other money managers subject to the jurisdiction of
the SEC, the Department of Labor or state securities commis-
sions, are urged to consult their legal counsel before entering
into agreements with the Fund.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of under-
writing securities. It is intended that the services provided
by Institutions under their service agreements will not be pro-
hibited under these laws. Under state securities laws, banks
and financial institutions that receive payments from the Fund
may be required to register as dealers.
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 general expenses of the Fund that do not belong to a par-
ticular investment portfolio will be allocated among all in-
vestment portfolios by or under the direction of the Board of
Trustees in a manner the Board determines to be fair and equi-
table.
21.
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HOW ARE SHARES PURCHASED AND REDEEMED?
- -------------------------------------------------------------------------------
DISTRIBUTOR. Shares of the Portfolios are offered on a continuous basis by CDI
as distributor (the "Distributor"). CDI maintains its principal offices at
Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the "Plan")
under the 1940 Act. The Fund is not required or permitted under the Plan to
make distribution payments with respect to Service Shares. The Plan permits
CDI, PAMG, the Administrators and other companies that receive fees from the
Fund to make payments relating to distribution and sales support activities
out of their past profits or other sources available to them which, subject to
applicable NASD regulations, may include contributions to various non-cash and
cash incentive arrangements to promote the sale of shares, as well as sponsor-
ship of various educational programs, sales contests and promotions in which
participants may receive reimbursement of expenses, entertainment and prizes
such as travel awards, merchandise and cash. For further information, see "In-
vestment Advisory, Administration, Distribution and Servicing Arrangements" in
the Statement of Additional Information.
PURCHASE OF SHARES. Service Shares are offered without a sales load to Insti-
tutions acting on behalf of their customers, as well as to certain persons who
were shareholders of Compass Capital Group of Funds at the time of its combi-
nation with The PNC Fund during the first quarter of 1996. Service Shares will
normally be held of record by Institutions or in the names of nominees of In-
stitutions. Share purchases are normally effected through a customer's account
at an Institution through procedures established in connection with the re-
quirements of the account. In these cases, confirmations of share purchases
and redemptions will be sent to the Institutions. Beneficial ownership of
shares will be recorded by the Institutions and reflected in the account
statements provided by such Institutions to their customers. Investors wishing
to purchase shares should contact their Institutions.
Service Shares are sold at the net asset value per share next determined after
an order is received by PFPC Inc. ("PFPC"), the Fund's transfer agent. Shares
may be purchased by Institutions on any Business Day. A "Business Day" is any
weekday that the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open for business.
Purchase orders for each Portfolio except the U.S. Treasury Money Market Port-
folio may be placed by telephoning PFPC at (800) 441-7450 no later than 12:00
noon (Eastern Time) on a Business Day. Orders received before 12:00 noon
(Eastern Time) will be executed at 12:00 noon (Eastern Time). If payment for
such orders is not received by 4:00 p.m. (Eastern Time), the order will be
cancelled and notice thereof will be given to the Institution placing the or-
der. Orders received after 12:00 noon (Eastern Time) will not be accepted.
Purchase orders for the U.S. Treasury Money Market Portfolio may be placed by
telephoning PFPC at (800) 441-7450 no later than 4:00 p.m. (Eastern Time) on a
Business Day. Orders received before 12:00 noon (Eastern Time) will be exe-
cuted at 12:00 noon (Eastern Time); orders received after 12:00 noon (Eastern
Time) but before 4:00 p.m. (Eastern Time) will be executed at 4:00 p.m. (East-
ern Time). If payment for such orders is not received by 4:00 p.m. (Eastern
Time), the order will be cancelled and notice thereof will be given to the In-
stitution placing the order. Orders will not be accepted after 4:00 p.m.
(Eastern Time). Under certain circumstances, the Fund may reject large indi-
vidual purchase orders received after 12:00 noon (Eastern Time).
Payment for Service Shares must normally be made only in Federal funds or
other funds immediately available to the Fund's custodian. Payment may also,
in the discretion of the Fund, be made in the form of securities that are per-
missible investments for the respective Portfolios. For further information,
see the Statement of Additional Information. The minimum initial investment is
$5,000; however, Institutions may set a higher minimum for their customers.
There is no minimum subsequent investment requirement.
22.
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Compass Capital may in its discretion waive the minimum investment amount and
may reject any order for Service Shares.
REDEMPTION OF SHARES. Customers of Institutions may redeem Service Shares in
accordance with the procedures applicable to their accounts with the Institu-
tions. These procedures will vary according to the type of account and the In-
stitution involved, and customers should consult their account managers in this
regard. It is the responsibility of Institutions to transmit redemption orders
to PFPC and credit their customers' accounts with the redemption proceeds on a
timely basis. In the case of shareholders holding share certificates, the cer-
tificates must accompany the redemption request.
Institutions may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The Fund, the Administrators and the
Distributor will employ reasonable procedures to confirm that instructions com-
municated by telephone are genuine. The Fund and its service providers will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such
procedures. While the Fund intends to use its best efforts to maintain each
Portfolio's net asset value per share at $1.00, the proceeds paid upon redemp-
tion may be more or less than the amount invested depending upon the net asset
value of a Service Share at the time of redemption.
Payment for redeemed shares for which a redemption order is received by PFPC
before 12:00 noon (Eastern Time) on a Business Day is normally made in Federal
funds wired to the redeeming Institution on the same Business Day, provided
that the Fund's custodian is also open for business. Payment for redemption or-
ders received between 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) or
on a day when the Fund's custodian is closed is normally wired in Federal funds
on the next Business Day following redemption on which the Fund's custodian is
open for business. The Fund reserves the right to wire redemption proceeds
within seven days after receiving a redemption order if, in the judgment of
PAMG, an earlier payment could adversely affect a Portfolio. No charge for wir-
ing redemption payments is imposed by the Fund, although Institutions may
charge their customer accounts for redemption services. Information relating to
such redemption services and charges, if any, should be obtained by customers
from their Institution.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
400 Bellevue Parkway, Wilmington, DE 19809.
The Fund may redeem Service Shares in any Portfolio account if the account bal-
ance drops below $5,000 as the result of redemption requests and the share-
holder does not increase the balance to at least $5,000 upon thirty days' writ-
ten notice. If a customer has agreed with an Institution to maintain a minimum
balance in his or her account with the Institution, and the balance in the ac-
count falls below that minimum, the customer may be obligated to redeem all or
part of his or her shares in the Portfolios to the extent necessary to maintain
the minimum balance required.
The Fund may also suspend the right of redemption or postpone the date of pay-
ment upon redemption for such periods as are permitted under the 1940 Act, and
may redeem shares involuntarily or make payment for redemption in securities or
other property when determined appropriate in light of the Fund's responsibili-
ties under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.
23.
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WHAT SPECIAL PURCHASE AND REDEMPTION PROCEDURES MAY APPLY?
- --------------------------------------------------------------------------------
Persons who were shareholders of an investment portfolio of Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC Fund(R)
may also purchase and redeem Service Shares of the same Portfolio and for the
same account in which they held shares on that date through the procedures de-
scribed in this section.
PURCHASES. Purchase orders may be placed through PFPC. The minimum investment
is $100. Purchases through the Automatic Investment Plan described below are
subject to a lower purchase minimum. The name of the Portfolio with respect to
which shares are purchased must appear on the check or Federal Reserve Draft.
Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, class of
the Portfolio, the name of the account registration, and the shareholder ac-
count number. Before wiring any funds, however, an investor must call PFPC at
(800) 441-7762 in order to confirm the wire instructions. Purchase orders for
shares of the Portfolios that are in proper form are executed at their net as-
set value per share next determined after receipt by the Fund; however, orders
will not be executed until payments not made in Federal funds are converted to
Federal funds (which normally occurs within two Business Days of receipt) un-
less a creditworthy financial institution undertakes to pay for an order in
Federal funds by 4:00 p.m. (Eastern Time) the same Business Day an order is
placed. Under certain circumstances, the Fund may reject large individual pur-
chase orders received after 12:00 noon. The Fund may in its discretion reject
any order for shares.
The Portfolios offer an Automatic Investment Plan ("AIP") whereby an investor
in shares of a Portfolio may arrange for periodic investments in that Portfolio
through automatic deductions from a checking or savings account by completing
the AIP Application Form. The minimum pre-authorized investment amount is $50.
REDEMPTIONS. Shareholders may redeem for cash some or all of their shares of
the Portfolios at any time by sending a written redemption request in proper
form to Compass Capital Funds c/o PFPC Inc., P.O. Box 8907, Wilmington, Dela-
ware 19899-8907.
Except as noted below, a request for redemption must be signed by all persons
in whose names the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$25,000, or if the proceeds are not to be paid to the record owner at the rec-
ord address, or if the shareholder is a corporation, partnership, trust or fi-
duciary, signature(s) must be guaranteed by any eligible guarantor institution.
Eligible guarantor institutions generally include banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Generally, a properly signed written request with any required signature guar-
antee is all that is required for a redemption. In some cases, however, other
documents may be necessary. Shareholders holding share certificates must send
their certificates with the redemption request. Additional documentary evidence
of authority is required by PFPC in the event redemption is requested by a cor-
poration, partnership, trust, fiduciary, executor or administrator.
If a shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or
by Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone
at (800) 441-7762 or other means. The minimum amount that may be sent by check
is $500, while the minimum amount that may be wired is $10,000. Compass Capital
reserves the right to change these minimums or to terminate these redemption
privileges. If the proceeds of a redemption would exceed $25,000, the redemp-
tion request must be in writing and will be subject to the signature guarantee
requirement described above. This privilege may not be used to redeem shares in
certificated form.
24.
<PAGE>
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During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital is not responsible for the efficiency of the Federal wire sys-
tem or the shareholder's firm or bank. Compass Capital does not currently
charge for wire transfers. The shareholder is responsible for any charges im-
posed by the shareholder's bank. To change the name of the single designated
bank account to receive wire redemption proceeds, it is necessary to send a
written request (with a guaranteed signature as described above) to Compass
Capital Funds c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907.
Compass Capital reserves the right to refuse a telephone redemption if it be-
lieves it advisable to do so. The Fund, the Administrators and the Distributor
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Compass Capital, the Administrators and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions reasonably believed to be genuine in accordance with
such procedures.
Compass Capital offers a Systematic Withdrawal Plan ("SWP") which may be used
by investors who wish to receive regular distributions from their accounts.
Upon commencement of the SWP, the account must have a current value of $10,000
or more in a Portfolio. Shareholders may elect to receive automatic cash pay-
ments of $100 or more either monthly, every other month, quarterly, three times
a year, semi-annually, or annually. Automatic withdrawals are normally proc-
essed on the 25th day of the applicable month or, if such day is not a Business
Day, on the next Business Day and are paid promptly thereafter. An investor may
utilize the SWP by completing the SWP Application Form which may be obtained
from PFPC.
Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC.
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
Net asset value is calculated separately for Service Shares of each Portfolio
as of 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) on each Business
Day by dividing the value of all securities and other assets owned by a Portfo-
lio that are allocated to its Service Shares, less the liabilities charged to
its Service Shares, by the number of Service Shares outstanding.
Each Portfolio seeks to maintain a net asset value of $1.00 per share for pur-
poses of purchases and redemptions, and values its portfolio securities based
on the amortized cost method of valuation described in the Statement of Addi-
tional Information under "Valuation of Shares." A Portfolio may use a pricing
service, bank or broker/dealer to value its securities.
25.
<PAGE>
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HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------
Shareholders are entitled to dividends and distributions arising from the net
income and capital gains, if any, earned on investments held by the Portfolio
in which they invest. Each Portfolio's net income is declared daily as a divi-
dend. Shareholders whose purchase orders are executed at 12:00 noon (Eastern
Time), 4:00 p.m. (Eastern Time) for the U.S. Treasury Money Market Portfolio,
receive dividends for that day. On the other hand, shareholders whose redemp-
tion orders have been received by 12:00 noon (Eastern Time) do not receive div-
idends for that day, while shareholders of each Portfolio whose redemption or-
ders are received after 12:00 noon (Eastern Time) do receive dividends for that
day.
Dividends are paid monthly by check, or by wire transfer if requested in writ-
ing by the shareholder, within five business days after the end of the month.
Net short-term capital gains, if any, will be distributed at least annually.
The period for which dividends are payable and the time for payment are subject
to change by the Fund's Board of Trustees. The Portfolios do not expect to re-
alize net long-term capital gains.
Dividends are reinvested in additional full and fractional Service Shares of
the same Portfolio which pays the dividends, unless a shareholder elects to re-
ceive dividends in cash. Such election, or any revocation thereof, must be made
in writing to PFPC, and will become effective with respect to dividends paid
after receipt by PFPC.
26.
<PAGE>
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HOW ARE FUND DISTRIBUTIONS TAXED?
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
a Portfolio qualifies, it generally will be relieved of Federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise exempt,
will pay income or capital gains taxes on distributions (except distributions
that are "exempt interest dividends" or are treated as a return of capital),
whether the distributions are paid in cash or reinvested in additional shares.
Distributions paid out of a Portfolio's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be taxed
to shareholders as long-term capital gain regardless of the length of time a
shareholder holds the shares. All other distributions, to the extent taxable,
are taxed to shareholders as ordinary income.
Each Municipal Portfolio intends to pay substantially all of its dividends as
"exempt interest dividends." However, taxpayers are required to report the re-
ceipt of "exempt interest dividends" on their Federal income tax returns for
informational purposes and in two circumstances such amounts, while exempt from
regular Federal income tax, are taxable to persons subject to alternative mini-
mum and environmental taxes. First, "exempt interest dividends" derived from
certain private activity bonds generally will constitute an item of tax prefer-
ence for taxpayers in determining alternative minimum tax liability. Second,
all "exempt interest dividends" must be taken into account by corporate taxpay-
ers in determining certain adjustments for alternative minimum and environmen-
tal tax purposes. In addition, investors should be aware of the possibility of
state and local alternative minimum or minimum income tax liability on interest
from private activity bonds. Shareholders who are recipients of Social Security
Act or Railroad Retirement Act benefits should note that "exempt interest divi-
dends" will be taken into account in determining the taxability of their bene-
fit payments.
Each Municipal Portfolio will determine annually the percentages of its net in-
vestment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for Federal alternative minimum tax pur-
poses, and which are fully taxable. These percentages will apply uniformly to
all distributions from net investment income during that year and may differ
significantly from the actual percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a speci-
fied date in those months will be deemed to have been received by the share-
holders on December 31 of such year, if the dividends are paid during the fol-
lowing January.
This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolios. Except as discussed below, dividends paid by each Portfolio may be
taxable to investors under state or local law as dividend income even though
all or a portion of such dividends may be derived from interest on obligations
which, if realized directly, would be exempt from such income taxes. In addi-
tion, shareholders who are non-resident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to differ-
ent Federal income tax treatment. Future legislative or administrative changes
or court decisions may materially affect the tax consequences of investing in
the Portfolios. For additional information concerning the tax treatment of div-
idends and distributions by the states listed below, including certain restric-
tions applicable to such treatment, see "Taxes" in the Statement of Additional
Information.
OHIO TAXES. Individuals and estates that are subject to Ohio personal income
tax or municipal or school district income taxes in Ohio will not be subject to
such taxes on distributions from the Ohio Municipal Money Market Portfolio to
the extent that such distributions are properly attributable to interest on
Ohio State-Specific Obligations or obligations issued by the U.S. Government,
its agencies, instrumentalities or
27.
<PAGE>
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territories (if the interest on such obligations is exempt from state income
taxation under the laws of the United States). Corporations that are subject to
the Ohio corporation franchise tax will not have to include distributions from
the Ohio Municipal Money Market Portfolio in their net income base for purposes
of calculating their Ohio corporation franchise tax liability to the extent
that such distributions either constitute exempt-interest dividends for Federal
income tax purposes or are properly attributable to interest on Ohio State-Spe-
cific Obligations or the U.S. obligations described above. However, shares of
the Ohio Municipal Money Market Portfolio will be included in a corporation's
net worth base for purposes of calculating the Ohio corporation franchise tax.
Distributions properly attributable to gain on the sale, exchange or other dis-
position of Ohio State-Specific Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in Ohio and
will not be included in the net income base of the Ohio corporation franchise
tax. Distributions attributable to other sources will be subject to the Ohio
personal income tax and the Ohio corporation franchise tax.
PENNSYLVANIA TAXES. Income received by a shareholder attributable to interest
realized by the Pennsylvania Municipal Money Market Portfolio from Pennsylvania
State-Specific Obligations or attributable to insurance proceeds on account of
such interest is not taxable to individuals, estates or trusts under the Per-
sonal Income Tax (in the case of insurance proceeds, to the extent they are ex-
empt for Federal income tax purposes); to corporations under the Corporate Net
Income Tax (in the case of insurance proceeds, to the extent they are exempt
for Federal income tax purposes); nor to individuals under the Philadelphia
School District Net Investment Income Tax ("School District Tax").
Income received by a shareholder attributable to gain on the sale or other dis-
position by the Portfolio of Pennsylvania State-Specific Obligations is taxable
under the Personal Income Tax, the Corporate Net Income Tax, and, unless these
assets were held by the Portfolio for more than six months, the School District
Tax.
This discussion does not address the extent, if any, to which shares of the
Pennsylvania Municipal Money Market Portfolio, and interest and gain earned by
the Portfolio, are subject to, or included in the measure of, special taxes im-
posed by the Commonwealth of Pennsylvania on banks and other financial institu-
tions or with respect to any privilege, excise, franchise or other tax imposed
on business entities not discussed above (including the Corporate Capital
Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not sub-
ject to the Pennsylvania County Personal Property Tax to the extent that the
Portfolio is comprised of Pennsylvania State-Specific Obligations and Federal
obligations (if the interest on such obligations is exempt from state and local
taxation under the laws of the United States).
NORTH CAROLINA TAXES. Interest received in the form of dividends from the North
Carolina Municipal Money Market Portfolio is exempt from North Carolina state
income tax to the extent the distributions represent interest on direct obliga-
tions of the U.S. Government or North Carolina State-Specific Obligations. Dis-
tributions derived from interest earned on obligations of political subdivi-
sions of Puerto Rico, Guam and the U.S. Virgin Islands, including the govern-
ments thereof and their agencies, instrumentalities and authorities, are also
exempt from North Carolina state income tax. Distributions paid out of interest
earned on obligations that are merely backed or guaranteed by the U.S. Govern-
ment (e.g., GNMAs, FNMAs), on repurchase agreements collateralized by U.S. Gov-
ernment securities or on obligations of other states (which the Portfolio may
acquire and hold for temporary or defensive purposes) are not exempt from North
Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of certain obligations of the
State of North Carolina or its subdivisions that were issued before July 1,
1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
28.
<PAGE>
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VIRGINIA TAXES. Dividends paid by the Virginia Municipal Money Market Portfolio
and derived from interest on obligations of the Commonwealth of Virginia or of
any political subdivision or instrumentality of the Commonwealth or derived
from interest or dividends on obligations of the United States excludable from
Virginia taxable income under the laws of the United States, which obligations
are issued in the exercise of the borrowing power of the Commonwealth or the
United States and are backed by the full faith and credit of the Commonwealth
or the United States, will generally be exempt from the Virginia income tax.
Dividends derived from interest on debt obligations of certain territories and
possessions of the United States (those issued by Puerto Rico, the Virgin Is-
lands and Guam) will also be exempt from the Virginia income tax. Dividends de-
rived from interest on debt obligations other than those described above will
be subject to the Virginia income tax even though it may be excludable from
gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and derived
from capital gains will be taxable to the shareholders. Capital gains distrib-
uted to shareholders derived from Virginia obligations issued pursuant to spe-
cial Virginia enabling legislation which provides a specific exemption for such
gains will be exempt from Virginia income tax.
The Virginia Department of Taxation has adopted a policy of allowing sharehold-
ers to exclude from their Virginia taxable income the exempt portion of distri-
butions from a regulated investment company even though the shareholders re-
ceive distributions monthly but receive reports substantiating the exempt por-
tion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution
from the Portfolio.
NEW JERSEY TAXES. It is anticipated that substantially all dividends paid by
the New Jersey Municipal Money Market Portfolio will not be subject to New Jer-
sey personal income tax. In accordance with the provisions of New Jersey law as
currently in effect, distributions paid by a "qualified investment fund" will
not be subject to the New Jersey personal income tax to the extent that the
distributions are attributable to income received as interest or gain from New
Jersey State-Specific Obligations, or as interest or gain from direct U.S. Gov-
ernment obligations. Distributions by a "qualified investment fund" that are
attributable to most other sources will be subject to the New Jersey personal
income tax. 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.
29.
<PAGE>
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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 thirty investment portfolios. Each
Portfolio offers five separate classes of shares--Institutional Shares, Service
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This pro-
spectus relates only to Service Shares of the eight money market portfolios de-
scribed herein.
Shares of each class bear their pro rata portion of all operating expenses paid
by a Portfolio, except transfer agency fees and amounts payable under the
Fund's Distribution and Service Plan. Because of these "class expenses," the
performance of a Portfolio's Institutional Shares is expected to be higher than
the performance of the Portfolio's Service Shares, and the performance of both
the Institutional Shares and Service Shares of a Portfolio is expected to be
higher than the performance of the Portfolio's three classes of Investor
Shares. The performance of each class of Investor Shares may be different. The
Fund offers various services and privileges in connection with its Investor
Shares that are not generally offered in connection with its Institutional and
Service Shares, including an automatic investment plan, automatic withdrawal
plan and checkwriting. For further information regarding the Fund's Institu-
tional or Investor Share classes, contact PFPC at (800) 441-7764 (Institutional
Shares) or (800) 441-7762 (Investor Shares).
Each share of a Portfolio has a par value of $.001, represents an interest in
that Portfolio and is entitled to the dividends and distributions earned on
that Portfolio's assets as are declared in the discretion of the Board of
Trustees. The Fund's shareholders are entitled to one vote for each full share
held and proportionate fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except where otherwise required by law
or as determined by the Board of Trustees. The Fund does not currently intend
to hold annual meetings of shareholders for the election of trustees (except as
required under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement
of Additional Information.
On November 30, 1996, PNC Bank held of record approximately 70% 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.
30.
<PAGE>
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HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------
Each Portfolio may advertise its "yield", "effective yield" and total return
for Service Shares. These performance figures are based on historical earnings
and are not intended to indicate future performance. "Yield" refers to the in-
come generated by an investment in a Portfolio's Service Shares over a seven-
day period. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. "Ef-
fective yield" is calculated similarly but, when annualized, the income earned
by an investment in a Portfolio's Service Shares is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. A Municipal Portfolio's "tax
equivalent yield" may also be quoted, which shows the level of taxable yield
needed to produce an after-tax equivalent to the Portfolio's tax-free yield for
Service Shares.
The performance of Service Shares of a Portfolio may be compared to the perfor-
mance of mutual funds with similar investment objectives and to relevant indi-
ces, as well as to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the yield of Service Shares of a Portfolio may be compared
to data prepared by Lipper Analytical Services, Inc., CDA Investment Technolo-
gies, Inc. and Weisenberger Investment Company Service. Performance information
may also include evaluations of the Portfolios published in nationally recog-
nized ranking services, and information as reported by financial publications
such as Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature.
Performance quotations for shares of a Portfolio represent past performance and
should not be considered as representative of future results. The yield of any
investment is generally a function of portfolio quality and maturity, type of
investment and operating expenses. Yields will fluctuate and are not necessar-
ily representative of future results. Any fees charged by affiliates of the
Portfolios' investment adviser or other institutions directly to their custom-
ers' accounts in connection with investments in the Portfolios will not be in-
cluded in the Portfolios' calculations of yield and performance.
31.
<PAGE>
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HOW CAN I GET MORE INFORMATION?
- --------------------------------------------------------------------------------
Below is a brief description of how investors can easily access information
about the Compass Capital Funds.
<TABLE>
<CAPTION>
FUND INFORMATION HOURS AVAILABLE PHONE INFORMATION
<S> <C> <C>
MUTUAL FUND SPECIALISTS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
Available to provide Monday through Friday toll-free 888-426-6727
performance and market toll-free 800-388-8734
trends.
PORTFOLIO MANAGERS 9 AM to 6 PM, E.S.T. toll-free 888-4COMPASS
COMMENTARY Monday through Friday toll-free 888-426-6727
(Audio recording updated toll-free 800-388-8734
periodically)
SHAREHOLDER SERVICES
TELEPHONE ACCESS: 24 Hours, 7 days a week toll-free 800-441-7764
ACCOUNT SERVICE 8:30 to 5 PM, E.S.T. toll-free 800-441-7764
REPRESENTATIVES: Monday through Friday
Available to discuss
account balance
information, mutual fund
prospectus, literature
and discuss programs and
services available.
PURCHASES AND 8:30 to 5 PM, E.S.T. toll-free 800-441-7450
REDEMPTIONS Monday through Friday
WORLD WIDE WEB:
Access general fund 24 Hours, 7 days a week http://www.compassfunds.com
information and specific
fund performance.
Request mutual fund
prospectuses and
literature. Forward
mutual fund inquiries.
E-MAIL:
Request prospectuses and 24 Hours, 7 days a week [email protected]
literature. Forward
mutual fund inquiries.
WRITTEN CORRESPONDENCE: POST OFFICE BOX ADDRESS STREET ADDRESS
Compass Capital Funds Compass Capital Funds
c/o PFPC Inc. c/o PFPC Inc.
P.O. Box 8907 400 Bellevue Parkway
Wilmington, DE 19899-8907 Wilmington, DE 19809
</TABLE>
32.
<PAGE>
COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS
Compass Capital Funds is a leading mutual fund company currently managing in
excess of $11 billion in 30 portfolios designed to fit a broad range of
investment goals. Each portfolio is managed by recognized experts in equity,
fixed income, international, and tax-free investing who adhere to a pure
investment styleSM.
STOCK PORTFOLIOS
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Large Cap Growth Equity International Equity
Large Cap Value Equity International Emerging Markets
Mid-Cap Growth Equity Index Equity
Mid-Cap Value Equity Select Equity
Small Cap Growth Equity
Small Cap Value Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Balanced
BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Low Duration Bond Government Income
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond
TAX-FREE BOND PORTFOLIOS
- --------------------------------------------------------------------------------
Tax-Free Income New Jersey Tax-Free Income
Pennsylvania Tax-Free Income Ohio Tax-Free Income
MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey Municipal Money Market Virginia Municipal Money Market
