COMPASS CAPITAL FUNDS\, 497, 1997-09-03

COMPASS CAPITAL FUNDS\
497, 1997-09-03

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<PAGE>

Filed pursuant to Rule 497(c)
Registration Statement File Nos. 33-26305 and 811-05742

August 20, 1997
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INTERNATIONAL SMALL CAP EQUITY PORTFOLIO INSTITUTIONAL SHARES
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<TABLE>
<CAPTION>
ASKING THE KEY
QUESTIONS
PAGE
<S> <C>
What Are The Expenses Of The Portfolio?...................... 4
What Is The Portfolio?....................................... 5
What Additional Investment Policies And Risks Apply?......... 6
What Are The Portfolio's Fundamental Investment
Limitations?................................................ 11
Who Manages The Fund?........................................ 12
How Are Shares Purchased And Redeemed?....................... 15
How Is Net Asset Value Calculated?........................... 17
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 17
How Are Fund Distributions Taxed?............................ 18
How Is The Fund Organized?................................... 19
How Is Performance Calculated?............................... 20
How Can I Get More Information?.............................. 21
</TABLE>

This Prospectus contains information about the Compass Capital
International Small Cap Equity Portfolio (the "Portfolio") that a
prospective investor needs to know before investing. Please keep
it for future reference. A Statement of Additional Information
dated August 20, 1997 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional Infor-
mation may be obtained free of charge from Compass Capital Funds
(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. The SEC maintains an
Internet Web site at http://www.sec.gov that contains the State-
ment of Additional Information, material incorporated by refer-
ence and other information regarding the Portfolio that has been
filed with the SEC.

SHARES OF THE PORTFOLIO 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 PORTFOLIO 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.

2.
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INTERNATIONAL SMALL CAP EQUITY PORTFOLIO OF COMPASS CAPITAL FUNDS
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The COMPASS CAPITAL FUND Family consists of 31 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 International Small Cap Equity Portfolio of COMPASS CAPITAL
FUNDS is one of twelve diversified investment portfolios that
provide investors with a broad spectrum of investment alterna-
tives within the equity sector. Eight of these portfolios in-
vest in U.S. stocks, three 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 the Interna-
tional Small Cap Equity Portfolio begins on page 5. To obtain a
prospectus describing the Fund's other equity portfolios, call
(800) 441-7762.

The Portfolio's performance benchmark is the Salomon Brothers
Extended Markets World Ex-US Index (the "Salomon Index") and
its Lipper Peer Group is the International Small Cap Funds. The
Salomon Index is a small stock index which represents the bot-
tom 20% of the Salomon Brothers Broad Market Index ("BMI"). The
BMI is an available equity capital weighted index representa-
tive of the market structure of 20 international developed
countries. It contains companies with an available market capi-
talization greater than $100 million.

PNC Asset Management Group, Inc. ("PAMG") serves as the Portfo-
lio's investment adviser. CastleInternational Asset Management
Limited, an affiliate of PAMG ("CastleInternational"), serves
as sub-adviser to the Portfolio.

UNDERSTANDING This Prospectus has been crafted to provide detailed, accurate
THE COMPASS and comprehensive information on the Compass Capital Interna-
CAPITAL tional Small Cap Equity Portfolio. We intend this document to
INTERNATIONAL be an effective tool as you explore one approach to interna-
SMALL CAP tional equity investing.
EQUITY
PORTFOLIO

CONSIDERING There can be no assurance that the Portfolio will achieve its
THE RISKS IN investment objective. The Portfolio will hold equity securities
INTERNATIONAL of smaller-capitalized foreign issuers and may acquire warrants
EQUITY and illiquid securities; enter into repurchase and reverse re-
INVESTING purchase agreements; lend portfolio securities to third par-
ties; and enter into futures contracts and options and forward
currency exchange contracts. Certain risks associated with in-
ternational investments are heightened because of currency
fluctuations and investments in emerging markets. These and the
other investment practices set forth below, and their associ-
ated risks, deserve careful consideration. See "What Additional
Investment Policies And Risks Apply?"

INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolio, see "How Are Shares Purchased And Redeemed?"
CAPITAL
FUNDS

3.
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WHAT ARE THE EXPENSES OF THE PORTFOLIO?
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Below is a summary of the annual operating expenses expected to be incurred by
Institutional Shares of the Portfolio for the current fiscal year as a percent-
age of average daily net assets. An example based on the summary is also shown.

<TABLE>
<CAPTION>
INTERNATIONAL
SMALL CAP
EQUITY
PORTFOLIO
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/1/) .80%
Other operating expenses .53
---
Administration fees .23
Other expenses .30
---
Total Portfolio operating expenses (after fee waivers)(/1/) 1.33%
====
</TABLE>

(1) Without waivers, advisory fees would be 1.00%. PAMG and the Portfolio's ad-
ministrators 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 Portfolio's total operating expenses through the fis-
cal year ending September 30, 1998 at the levels set forth in the table.
Without waivers, "Total Portfolio operating expenses" would be 1.53%.

EXAMPLE

An investor in Institutional Shares of the Portfolio would pay the following
expenses on a $1,000 investment assuming (1) 5% annual return, and (2) redemp-
tion at the end of each time period:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$14 $42
</TABLE>

The foregoing Table and Example are intended to assist investors in understand-
ing the costs and expenses an investor will bear either directly or indirectly.
They do not reflect any charges that may be imposed by affiliates of the Port-
folio's investment adviser or other institutions directly on their customer ac-
counts in connection with investments in the Portfolio. For a detailed descrip-
tion of the expenses, see "Who Manages The Fund?"

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.
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WHAT IS THE PORTFOLIO?
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The International Small Cap Equity Portfolio of COMPASS CAPITAL
FUNDS is one of twelve Compass Capital investment portfolios
that provide investors with a broad spectrum of investment al-
ternatives within the equity sector. Eight of these portfolios
invest primarily in U.S. stocks, three 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 The International Small Cap Equity Portfolio seeks to provide
OBJECTIVE long-term capital appreciation.

INVESTMENT The Portfolio pursues non-dollar denominated stocks of small
STYLE cap issuers in countries included in the Salomon Brothers Ex-
tended Markets World Ex-US Index (the "Salomon Index") which
the sub-adviser expects to appreciate. In addition, there may
also be up to 20% exposure to stocks of issuers in emerging
market countries. Within this universe, a value style of in-
vesting is employed to select stocks which the sub-adviser be-
lieves are undervalued, taking into account the company's earn-
ings trend and its price momentum. The sub-adviser will also
consider macroeconomic factors such as the prospects for rela-
tive economic growth among certain foreign countries, expected
levels of inflation, governmental policies influencing business
conditions and the outlook for currency relationships.

PORTFOLIO Portfolio assets are invested primarily in international stocks
EMPHASIS with a capitalization below $1 billion. This broad universe of-
fers investment opportunities in a number of growing companies
which often exhibit product or market strength, management
strength and financial strength and often exist in growth,
niche markets. A number of companies in this universe are dedi-
cated to providing quality, service, creativity and productivi-
ty. Although international small companies have certain risks
associated with them, as discussed under "What Additional In-
vestment Policies and Risks Apply?" below, they nonetheless can
offer significant growth potential.

The Portfolio emphasizes primarily stocks with price/earnings
ratios below average for such security's home market or stock
exchange.

The Portfolio seeks diversification across countries, industry
groups and companies with investment at all times in at least
three foreign developed countries.

5.
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WHAT ADDITIONAL INVESTMENT POLICIES AND RISKS APPLY?
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During normal market conditions, the International Small Cap Equity Portfolio
will invest at least 90% (and in any event at least 65%) of its total assets in
equity securities of smaller-capitalized foreign issuers. The Portfolio defines
smaller-capitalized issuers as those with less than $1 billion ($1.5 billion
for Japanese issuers) in market capitalization (the total market value of a
company's outstanding equity securities) at the time of purchase. Equity secu-
rities include common stock and preferred stock (including convertible pre-
ferred stock); bonds, notes and debentures convertible into common or preferred
stock; stock purchase warrants and rights; equity interests in trusts and part-
nerships; and depository receipts.

The Portfolio invests primarily in equity securities of issuers located in
countries included in the Salomon Brothers Extended Markets World Ex-US Index.
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Singapore, Ma-
laysia, Spain, Sweden, Switzerland and the United Kingdom currently comprise
the Salomon Index. From time to time the Portfolio may invest more than 25% of
its total assets in the securities of issuers located in Japan or the United
Kingdom.

The Portfolio may also invest up to 20% of its assets in countries with emerg-
ing economies or securities markets. These countries may include Argentina,
Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, Egypt,
Greece, Hungary, India, Indonesia, Israel, Lebanon, Malaysia, Mexico, Morocco,
Peru, The Philippines, Poland, Romania, Russia, South Africa, South Korea, Tai-
wan, Thailand, Tunisia, Turkey, Venezuela, Vietnam and Zimbabwe.

INTERNATIONAL INVESTING. Investing in foreign securities involves considera-
tions not typically associated with investing in securities of companies orga-
nized 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.

The Portfolio's investments in foreign securities may also be adversely af-
fected by changes in foreign political or social conditions, diplomatic rela-
tions, confiscatory taxation, expropriation, limitation on the removal of funds
or assets, or imposition of (or change in) exchange control regulations. In ad-
dition, 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 the 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, the
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.

Investments of 25% or more of the Portfolio's total assets in Japan, the United
Kingdom or any other country would make the Portfolio's performance more depen-
dent upon the political and economic circumstances of a particular country than
a mutual fund that is more widely diversified among issuers in different coun-
tries. For example, past events in the Japanese economy as well as social de-
velopments and natural disasters have affected Japanese securities and currency
markets, and have periodically disrupted the relationship of the Japanese yen
with other currencies.

6.
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Political and economic structures in countries with emerging economies or secu-
rities markets may be undergoing significant evolution and rapid development,
and these countries may lack the social, political and economic stability char-
acteristic of more developed countries. Some of these countries may have in the
past failed to recognize private property rights and have at times nationalized
or expropriated the assets of private companies. As a result, the risks de-
scribed above, including the risks of nationalization or expropriation of as-
sets, may be heightened. In addition, unanticipated political or social devel-
opments may affect the value of investments in these countries and the avail-
ability to the Portfolio of additional investments in emerging market coun-
tries. The small size and inexperience of the securities markets in certain of
these countries and the limited volume of trading in securities in these coun-
tries may make investments in the countries illiquid and more volatile than in-
vestments in Japan or most Western European countries. There may be little fi-
nancial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult to assess the value
or prospects of an investment in such issuers.

The Portfolio may (but is not required to) use forward foreign currency ex-
change contracts to hedge against movements in the value of foreign currencies
(including the European Currency Unit) relative to the U.S. dollar in connec-
tion with specific portfolio transactions or with respect to portfolio posi-
tions. A forward foreign currency 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 the Portfo-
lio to establish a rate of exchange for a future point in time.

The expense ratios of the International Small Cap Equity Portfolio can be ex-
pected 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 transac-
tions on foreign markets and additional costs arising from delays in settle-
ments of transactions involving foreign securities.

SMALLER-CAPITALIZED ISSUERS. Smaller-capitalized issuers 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.

ADRS, EDRS AND GDRS. The 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 owner-
ship of underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts, are receipts issued
in Europe, typically by foreign banks and trust companies, that evidence owner-
ship of either foreign or domestic underlying securities. GDRs are depository
receipts structured like global debt issues to facilitate trading on an inter-
national basis. Unsponsored ADR, EDR and GDR programs are organized indepen-
dently 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 sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs
and GDRs may be more volatile than if such instruments were sponsored by the
issuer. Investments in ADRs, EDRs and GDRs present additional investment con-
siderations as described above.

OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment ob-
jective, the Portfolio may write (i.e. sell) covered call options, buy put op-
tions, buy call options and write secured put options for the purpose of hedg-
ing or earning additional income, which may be deemed speculative or cross-
hedging. For the payment of a premium, the purchaser of an option obtains the
right to buy (in the case of a call option) or to sell (in the case of a put
option) a security at a stated exercise price for a specific period of time.
These options may relate to particular securities, securities indices, or the
yield differential between two securities or foreign currencies, and may or may
not be listed on a securities exchange and may or may not be issued by the Op-
tions Clearing Corporation. The Portfolio will not purchase put and call op-
tions when the aggregate

7.
<PAGE>

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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, the Portfolio may also
invest in futures contracts and options on futures contracts to commit funds
awaiting investment in stocks or maintain cash liquidity or for other hedging
purposes. The value of the Portfolio's contracts may equal or exceed 100% of
its total assets, although the 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 the Portfolio, at maturity, to take or make deliv-
ery of securities, the cash value of a securities index or a stated quantity
of a foreign currency. The 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. The
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, the Portfolio may uti-
lize futures contracts in anticipation of changes in the composition of its
holdings or in currency exchange rates.

The Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When the Portfolio purchases an op-
tion on a futures contract, it has the right to assume a position as a pur-
chaser or a seller of a futures contract at a specified exercise price during
the option period. When the Portfolio sells an option on a futures contract,
it becomes obligated to sell or buy a futures contract if the option is exer-
cised. In connection with the 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 require-
ments.

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 in-
struments held by the Portfolio and the price of the futures contract or op-
tion; (b) possible lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures contract when desired; (c)
losses caused by unanticipated market movements, which are potentially unlim-
ited; and (d) the sub-adviser's inability to predict correctly the direction
of securities prices, interest rates, currency exchange rates and other eco-
nomic factors. For further discussion of risks involved with domestic and for-
eign 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 Portfolio from registration as a "commodity pool
operator."

LIQUIDITY MANAGEMENT. As a temporary defensive measure if its sub-adviser de-
termines that market conditions warrant, the Portfolio may invest without lim-
itation in high quality money market instruments. The Portfolio may also in-
vest in high quality money market instruments pending investment or to meet
anticipated redemption requests.

High quality money market instruments include U.S. government obligations,
U.S. government agency obligations, dollar denominated obligations of foreign
issuers, bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and ob-
ligations of supranational organizations. Generally, such obligations will ma-
ture within one year from the date of settlement, but may mature within two
years from the date of settlement. Under a repurchase agreement, the Portfolio
agrees to purchase securities from financial institutions subject to the sell-
er'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 the Portfolio to possible loss because of adverse market action,
expenses and/or delays in connection with the disposition of the underlying
securities.

8.
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WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase secu-
rities on a "when-issued" basis and may purchase or sell securities on a "for-
ward commitment" basis. These transactions involve a commitment by the Portfo-
lio to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), and permit the Port-
folio to lock in a price or yield on a security 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. The
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.

REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS. The Portfolio is authorized
to borrow money. If the securities held by the 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 the 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. The
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. Reverse repurchase agreements involve the risks that the interest income
earned in the investment of the proceeds will be less than the interest ex-
pense, that the market value of the securities sold by the Portfolio may de-
cline below the price of the securities the Portfolio is obligated to repur-
chase and that the securities may not be returned to the Portfolio. During the
time a reverse repurchase agreement is outstanding, the 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 re-
purchase price. The 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. Whenever borrowings exceed 5% of the Portfolio's total as-
sets, the Portfolio will not make any investments.

INVESTMENT COMPANIES. In connection with the management of their daily cash po-
sitions, the Portfolio may invest in securities issued by other investment com-
panies which invest in short-term debt securities and which seek to maintain a
$1.00 net asset value per share. The Portfolio may also invest in securities
issued by other investment companies with similar investment objectives. The
Portfolio may purchase shares of investment companies investing primarily in
foreign securities, including so-called "country funds." Country funds have
portfolios consisting exclusively of securities of issuers located in one for-
eign country. 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, the 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 ex-
penses each bears directly in connection with its own operations.

SECURITIES LENDING. The 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. The Portfolio may not
make such loans in excess of 33 1/3% of the value of its total assets. Securi-
ties loans involve risks of delay in receiving additional collateral or in re-
covering the loaned securities, or possibly loss of rights in the collateral if
the borrower of the securities becomes insolvent.

ILLIQUID SECURITIES. The Portfolio will not invest more than 15% 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, and repurchase agree-
ments and time deposits that do not provide for payment within seven days after
notice, without taking a reduced price, are subject to these limits. The Port-
folio may purchase securities which are not registered under the Securities Act
of 1933 (the "1933 Act") but which can be sold to "qualified institu-

9.
<PAGE>

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tional buyers" in accordance with Rule 144A under the 1933 Act. These securi-
ties will not be considered illiquid so long as it is determined 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 illiquid-
ity in the Portfolio during any period that qualified institutional buyers be-
come uninterested in purchasing these restricted securities.

PORTFOLIO TURNOVER RATE. Under normal market conditions, it is expected that
the annual portfolio turnover rate for the Portfolio will not exceed 100%. The
Portfolio's annual portfolio turnover rate will not be a factor preventing a
sale or purchase when the adviser or sub-adviser believes investment considera-
tions warrant such sale or purchase. Portfolio turnover may vary greatly from
year to year as well as within a particular year. High portfolio turnover rates
(i.e. 100% or more) will generally result in higher transaction costs to the
Portfolio and may result in the realization of short-term capital gains that
are taxable to shareholders as ordinary income.

10.
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WHAT ARE THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS?
- --------------------------------------------------------------------------------

The 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 the Portfolio's investment
objective. No assurance can be provided that the Portfolio will achieve its in-
vestment objective.

The Portfolio has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of the Portfolio" (as defined in the Statement of Additional Information). Sev-
eral of the Portfolio's fundamental investment policies, which are set forth in
full in the Statement of Additional Information, are summarized below.

The Portfolio may not:

(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 the Portfolio's total assets may be invested without re-
gard to this 5% limitation;

(2) subject to the foregoing 25% exception, purchase more than 10% of the out-
standing voting securities of any issuer;

(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and

(4) borrow money in amounts over one-third of the value of its total assets at
the time of such borrowing.

These investment limitations are applied at the time investment securities are
purchased.

11.
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WHO MANAGES THE FUND?
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BOARD OF The business and affairs of Compass Capital Funds are managed
TRUSTEES under the direction of the Board 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--Professor of Finance and Director of
the Financial Institutions Center, The Wharton School,
University 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 the Fund.

ADVISER AND The Adviser to Compass Capital Funds is PNC Asset Management
SUB-ADVISER Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform
advisory services for investment companies, and has its prin-
cipal offices at 1600 Market Street, 29th Floor, Philadel-
phia, Pennsylvania 19103. PAMG is an indirect wholly-owned
subsidiary of PNC Bank Corp., a multi-bank holding company.

The sub-adviser to the Portfolio is CastleInternational Asset
Management Limited ("CastleInternational"), an affiliate of
PAMG, with primary offices at 7 Castle Street, Edinburgh,
Scotland EH2 3AH. CastleInternational manages nearly $2 bil-
lion in assets, approximately half of which currently are al-
located to international small cap investments.
CastleInternational's investment philosophy is based on a
value approach where a universe of approximately 2,000 compa-
nies is screened to find those companies that are undervalued
with respect to earnings growth prospects.
CastleInternational also employs a focused subjective analy-
sis that is important for investments in small companies.
This includes comprehensive financial analysis, the review of
published research materials and meetings with company man-
agement. CastleInternational believes that company meetings
are fundamental to the investment process and
CastleInternational currently visits more than 500 companies
per year in order to assist it in assessing management qual-
ity and company strategy. It is generally
CastleInternational's policy not to invest in a company with-
out first meeting management. Peter J. Tait, a founding Di-
rector and Global Strategist of CastleInternational, serves
as portfolio manager of the Portfolio. As Global Strategist,
Mr. Tait is responsible for CastleInternational's asset allo-
cation process. From 1990 to 1996, Mr. Tait was a Director
and head of the Continental European desk at Dunedin Fund
Managers Ltd. Mr. Tait has over 15 years experience managing
international equity securities.

For their investment advisory and sub-advisory services, PAMG
and CastleInternational are entitled to fees, computed daily
on a portfolio-by-portfolio

12.
<PAGE>

- --------------------------------------------------------------------------------
basis and payable monthly, at the maximum annual rates set
forth below. As stated under "What Are the Expenses of the
Portfolio?" PAMG and CastleInternational intend to waive a por-
tion of their fees during the current fiscal year. All sub-ad-
visory fees are paid by PAMG and do not represent an extra
charge to the Portfolio.

MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)

<TABLE>
<CAPTION>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
first $1 billion 1.00% .85%
$1 billion -- $2 billion .95 .80
$2 billion -- $3 billion .90 .75
greater than $3 billion .85 .70
</TABLE>

Although the advisory fee rate payable by the Portfolio is
higher than the rate payable by mutual funds investing in do-
mestic securities, the Fund believes it is comparable to the
rates paid by many other funds with similar investment objec-
tives and policies and is appropriate for the Portfolio in
light of its investment objective and policies.

CastleInternational strives to achieve best execution on all
transactions. Infrequently, brokerage transactions for the
Portfolio may be directed to registered broker/dealers who have
entered into dealer agreements with Compass Capital's distribu-
tor.

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 the Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at the maximum aggregate annual rate of .20%
of the first $500 million of average daily net assets allocated
to the Institutional Shares of the Portfolio, .18% of the next
$500 million of average daily net assets allocated to the In-
stitutional Shares of the Portfolio, and .16% of the average
daily net assets allocated to the Institutional Shares of the
Portfolio in excess of $1 billion. From time to time the Admin-
istrators may waive some or all of their administration fees
from the Portfolio.

For information about the operating expenses the Portfolio ex-
pects to incur in the current fiscal year, see "What Are The
Expenses Of The Portfolio?"

TRANSFER PNC Bank serves as the Portfolio's custodian and PFPC serves as
AGENT, its transfer agent and dividend disbursing agent. PFPC has its
DIVIDEND principal offices at Bellevue Corporate Center, 400 Bellevue
DISBURSING Parkway, Wilmington, Delaware 19809.
AGENT AND
CUSTODIAN

13.
<PAGE>

- --------------------------------------------------------------------------------

EXPENSES Expenses are deducted from the total income of the 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 Portfolio and
its 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.

14.
<PAGE>

- --------------------------------------------------------------------------------
HOW ARE SHARES PURCHASED AND REDEEMED?
- --------------------------------------------------------------------------------

DISTRIBUTOR. Shares of the Portfolio 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 Portfolio. For further information, see the Statement
of Additional Information. The minimum initial investment for institutions is
$5,000. There is no minimum subsequent investment requirement.

The Fund may in its discretion waive the minimum investment amount and may re-
ject any order for Institutional Shares, and may suspend and resume the sale of
any share class of the Portfolio at any time.

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 the Portfolio. No charge for wiring redemption payments is im-
posed by the Fund.

15.
<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 reserves the right to redeem Institutional Shares in any shareholder's
account if the account 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.

16.
<PAGE>

- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------

Share price is based on net asset value. Net asset value is calculated sepa-
rately for Institutional Shares of the Portfolio as of the close of regular
trading hours on the NYSE (currently 4:00 p.m. Eastern Time) on each Business
Day by dividing the value of all securities and other assets owned by the Port-
folio 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 the 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 the 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?
- --------------------------------------------------------------------------------

The Portfolio will distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. The net investment in-
come of the Portfolio is declared quarterly as a dividend to investors who are
shareholders of the Portfolio at the close of business on the day of declara-
tion. All dividends are paid 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 the Portfolio at least annually. The period for
which dividends are payable and the time for payment are subject to change by
the Fund's Board of Trustees.

Distributions are reinvested at net asset value in additional full and frac-
tional Institutional Shares, unless a shareholder elects to receive distribu-
tions in cash. This election, or any revocation thereof, must be made in writ-
ing to PFPC, and will become effective with respect to distributions paid after
its receipt by PFPC.

17.
<PAGE>

- --------------------------------------------------------------------------------
HOW ARE FUND DISTRIBUTIONS TAXED?
- --------------------------------------------------------------------------------

The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If the 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 the 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 Portfolio will be eligible for the dividends received de-
duction allowed to certain corporations only to the extent of the total quali-
fying dividends received by the 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 the 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.

Dividends and certain interest income earned by the Portfolio from foreign se-
curities may 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 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 Portfolio
will, subject to applicable limitations, make this election in certain years.
If the Portfolio makes the election, the amount of such foreign taxes paid by
the Portfolio will be included in its shareholders' income pro rata (in addi-
tion to taxable distributions actually received by them), and each shareholder
will be entitled either (a) to credit a proportionate amount of such taxes
against a shareholder's U.S. Federal income tax liabilities, or (b) if a share-
holder itemizes deductions, to deduct such proportionate amounts from U.S. Fed-
eral taxable income. Under recently enacted legislation, a shareholder that (i)
has held shares of the Portfolio for less than a specified minimum period dur-
ing which it is not protected from risk of loss or (ii) is obligated to make
payments related to the dividends, will not be allowed a foreign tax credit for
foreign taxes deemed imposed on dividends paid on such shares. The Portfolio
must also meet this holding period requirement with respect to its foreign se-
curities in order to flow through "creditable" taxes.

This is not an exhaustive discussion of applicable tax consequences, and in-
vestors may wish to contact their tax advisers concerning investments in the
Portfolio. The application of state and local income taxes to investments in
the Portfolio 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 Portfolio.

18.
<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-one investment portfolios.
The Portfolio currently offers five separate classes of shares--Institutional
Shares, Service Shares, Investor A Shares, Investor B Shares and Investor C
Shares. This Prospectus relates only to Institutional Shares of the Portfolio.

Shares of each class bear their pro rata portion of all operating expenses paid
by the Portfolio, except transfer agency fees, certain administration 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 the Portfolio's
Institutional Shares is expected to be higher than the performance of the Port-
folio's Service Shares, and the performance of each of the Institutional Shares
and Service Shares of the Portfolio is expected to be higher than the perfor-
mance of the Portfolio's three classes of Investor Shares. The performance of
each class of Investor Shares may be different. The Portfolio offers various
services and privileges in connection with its Investor Shares that are not
generally offered in connection with its Institutional and Service Shares, in-
cluding an automatic investment plan and an automatic withdrawal plan. For fur-
ther information regarding the Portfolio's Service or Investor Share classes,
contact PFPC at (800) 441-7764 (Service Shares) or (800) 441-7762 (Investor
Shares).

Each share of the Portfolio has a par value of $.001, represents an interest in
the Portfolio and is entitled to the dividends and distributions earned on the
Portfolio's assets that are declared in the discretion of the Board of Trust-
ees. 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 re-
quired 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 August 12, 1997, PNC Bank held of record approximately 78% 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.

19.
<PAGE>

- -------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- -------------------------------------------------------------------------------

Performance information for Institutional Shares of the Portfolio 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 the Portfolio over the mea-
suring period. Total return may also be calculated on an aggregate total re-
turn basis. Aggregate total return reflects the total percentage change in
value over the measuring period. Both methods of calculating total return as-
sume that dividend and capital gain distributions made by the Portfolio with
respect to its Institutional Shares are reinvested in Institutional Shares.

The performance of the 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 the Portfolio's Insti-
tutional Shares may be compared to data prepared by Lipper Analytical Servic-
es, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Com-
pany Service, and to the performance of the Dow Jones Industrial Average, the
"stocks, bonds and inflation Index" published annually by Ibbotson Associates,
the Lipper Small Cap International Fund Index and the Financial Times World
Stock Index, as well as the Salomon Index. Performance information may also
include evaluations of the Portfolio and its Institutional Shares published by
nationally recognized ranking services, and information as reported in 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.

In addition to providing performance information that demonstrates the actual
yield or return of Institutional Shares of the Portfolio, the 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 the Portfolio represent past performance
and should not be considered representative of future results. The investment
return and principal value of an investment in the 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 the Portfolio cannot necessarily be used to
compare an investment in such shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Performance is generally a function
of the kind and quality of the instruments held in a portfolio, portfolio ma-
turity, operating expenses and market conditions. Any fees charged by brokers
or other institutions directly to their customer accounts in connection with
investments in Institutional Shares will not be included in the Portfolio per-
formance calculations.

20.
<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 24 Hours, 7 days a week toll-free 888-4COMPASS
COMMENTARY: 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>

21.
<PAGE>

COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS

Compass Capital Funds is a leading mutual fund company currently managing in
excess of $13 billion in 31 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 Index Equity
Large Cap Value Equity Select Equity
Mid-Cap Growth Equity International Equity
Mid-Cap Value Equity International Emerging Markets
Small Cap Growth Equity International Small Cap 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>

Filed pursuant to Rule 497(c)
Registration Statement File Nos. 33-26305 and 811-05742

August 20, 1997
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP EQUITY PORTFOLIO INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASKING THE KEY PAGE
QUESTIONS
<S> <C>
What Are The Expenses Of The Portfolio?...................... 4
What Is The Portfolio?....................................... 6
What Additional Investment Policies And Risks Apply?......... 7
What Are The Portfolio's Fundamental Investment
Limitations?................................................ 12
Who Manages The Fund?........................................ 13
What Pricing Options Are Available To Investors?............. 17
What Are The Key Considerations In Selecting A Pricing
Option?..................................................... 18
How Are Shares Purchased?.................................... 19
How Are Shares Redeemed?..................................... 20
What Are The Shareholder Features Of The Fund?............... 22
What Is The Schedule Of Sales Charges And Exemptions?........ 24
How Is Net Asset Value Calculated?........................... 28
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 28
How Are Fund Distributions Taxed?............................ 29
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
International Small Cap Equity Portfolio (the "Portfolio") that a
prospective investor needs to know before investing. Please keep
it for future reference. A Statement of Additional Information
dated August 20, 1997 has been filed with the Securities and Ex-
change Commission (the "SEC"). The Statement of Additional Infor-
mation may be obtained free of charge from Compass Capital Funds
(the "Fund") by calling (800) 441-7762. The Statement of Addi-
tional Information, as supplemented from time to time, is incor-
porated by reference into this Prospectus. The SEC maintains an
Internet Web site at http://www.sec.gov that contains the State-
ment of Additional Information, material incorporated by refer-
ence and other information regarding the Portfolio that has been
filed with the SEC.

SHARES OF THE PORTFOLIO 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. INVESTMENT IN THE PORTFOLIO INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT IN-
VESTED.

2.
<PAGE>

The International Small Cap Equity Portfolio of COMPASS CAPITAL
FUNDS is one of twelve diversified investment portfolios that
provide investors with a broad spectrum of investment alterna-
tives within the equity sector. Eight of these portfolios in-
vest in U.S. stocks, three 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 the Interna-
tional Small Cap Equity Portfolio begins on page 6. To obtain a
prospectus describing the Fund's other equity portfolios, call
(800) 441-7762.

PNC Asset Management Group, Inc. ("PAMG") serves as the Portfo-
lio's investment adviser. CastleInternational Asset Management
Limited ("CastleInternational"), an affiliate of PAMG, serves
as sub-adviser to the Portfolio.

INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolio, see "How Are Shares Purchased?" and "How Are Shares
CAPITAL Redeemed?"
FUNDS

3.
<PAGE>

Below is a summary of the annual operating expenses expected to be incurred by
Investor Shares of the Portfolio for the current fiscal year as a percentage of
average daily net assets. An example based on the summary is also shown.

<TABLE>
<CAPTION>
INTERNATIONAL
SMALL CAP EQUITY
PORTFOLIO
INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Front-End Sales Charge(/1/)
(as a percentage of offering price) 5.0% None None
Maximum Deferred Sales Charge(/1/)(/2/)
(as a percentage of offering price) None 4.5% 1.0%
Sales Charge on Reinvested Dividends None None None
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/3/) .80% .80% .80%
12b-1 fees(/3/)(/4/) .00 .75 .75
Other operating expenses 1.00 1.00 1.00
---- ---- ----
Shareholder servicing fee .25 .25 .25
Shareholder processing fee .15 .15 .15
Other expenses .60 .60 .60
--- --- ---
Total Portfolio operating expenses (after fee
waivers)(/3/) 1.80% 2.55% 2.55%
==== ==== ====
</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 Portfolio.
Without waivers, advisory fees would be 1.00% for each class of the Portfo-
lio. PAMG and the Portfolio's 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 Portfolio's total operat-
ing expenses through the fiscal year ending September 30, 1998 at the lev-
els set forth in the table. Without waivers, "Total Portfolio operating ex-
penses" would be: (i) 2.00% for Investor A Shares; and (ii) 2.75% for In-
vestor B Shares and Investor C Shares. The Portfolio does 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%) through the fiscal year ending
September 30, 1998.
(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.

4.
<PAGE>

- --------------------------------------------------------------------------------
EXAMPLE

An investor in Investor Shares of the Portfolio would pay the following ex-
penses on a $1,000 investment 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
<S> <C> <C>
A Shares* $67 $104
B Shares (Redemption)** 71 116
B Shares (No Redemption) 26 79
C Shares 26 79
</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.

The foregoing Table and Example are intended to assist investors in understand-
ing the costs and expenses an investor will bear either directly or indirectly.
They do not reflect any charges that may be imposed by brokers or other insti-
tutions directly on their customer accounts in connection with investments in
the Portfolio. For a detailed description of the expenses, see "Who Manages The
Fund?"

THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.

5.
<PAGE>

- -------------------------------------------------------------------------------
WHAT IS THE PORTFOLIO?
- -------------------------------------------------------------------------------

The International Small Cap Equity Portfolio of COMPASS CAP-
ITAL FUNDS is one of twelve Compass Capital investment port-
folios that provide investors with a broad spectrum of in-
vestment alternatives within the equity sector. Eight of
these portfolios invest primarily in U.S. stocks, three
portfolios invest in non-U.S. international stocks and one
portfolio invests in a combination of U.S. stocks and bonds.

In certain investment cycles and over certain holding peri-
ods, an equity fund that invests according to a "value"
style or a "growth" style may perform above or below the
market. An investment program that combines these multiple
disciplines allows investors to select from among these var-
ious product options in the way that most closely fits the
investor's investment goals and sentiments.

INVESTMENT The International Small Cap Equity Portfolio seeks to pro-
OBJECTIVE vide long-term capital appreciation.

INVESTMENT The Portfolio pursues non-dollar denominated stocks of small
STYLE cap issuers in countries included in the Salomon Brothers
Extended Markets World Ex-US Index (the "Salomon Index")
which the sub-adviser expects to appreciate. In addition,
there may also be up to 20% exposure to stocks of issuers in
emerging market countries. Within this universe, a value
style of investing is employed to select stocks which the
sub-adviser believes are undervalued, taking into account
the company's earnings trend and its price momentum. The
sub-adviser will also consider macroeconomic factors such as
the prospects for relative economic growth among certain
foreign countries, expected levels of inflation, governmen-
tal policies influencing business conditions and the outlook
for currency relationships.

PORTFOLIO Portfolio assets are invested primarily in international
EMPHASIS stocks with a capitalization below $1 billion. This broad
universe offers investment opportunities in a number of
growing companies which often exhibit product or market
strength, management strength and financial strength and of-
ten exist in growth, niche markets. A number of companies in
this universe are dedicated to providing quality, service,
creativity and productivity. Although international small
companies have certain risks associated with them, as dis-
cussed under "What Additional Investment Policies and Risks
Apply?" below, they nonetheless can offer significant growth
potential.

The Portfolio emphasizes primarily stocks with price-
/earnings ratios below average for such security's home mar-
ket or stock exchange.

The Portfolio seeks diversification across countries, indus-
try groups and companies with investment at all times in at
least three foreign developed countries.

6.
<PAGE>

7.
<PAGE>

- -------------------------------------------------------------------------------

Political and economic structures in countries with emerging economies or se-
curities markets may be undergoing significant evolution and rapid develop-
ment, and these countries may lack the social, political and economic stabil-
ity characteristic of more developed countries. Some of these countries may
have in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks described above, including the risks of 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 the Portfolio of additional investments in emerging market
countries. The small size and inexperience of the securities markets in cer-
tain of these countries and the limited volume of trading in securities in
these countries may make investments in the countries illiquid and more vola-
tile than investments in Japan or most Western European countries. There may
be little financial or accounting information available with respect to is-
suers located in certain emerging market countries, and it may be difficult to
assess the value or prospects of an investment in such issuers.

The Portfolio may (but is not required to) use forward foreign currency ex-
change contracts to hedge against movements in the value of foreign currencies
(including the European Currency Unit) relative to the U.S. dollar in connec-
tion with specific portfolio transactions or with respect to portfolio posi-
tions. A forward foreign currency 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 the Port-
folio to establish a rate of exchange for a future point in time.

The expense ratios of the International Small Cap Equity Portfolio can be ex-
pected 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 trans-
actions on foreign markets and additional costs arising from delays in settle-
ments of transactions involving foreign securities.

ADRS, EDRS AND GDRS. The Portfolio may invest in both sponsored and
unsponsored American Depository Receipts ("ADRs"), European Depository Re-
ceipts ("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 corpora-
tion. EDRs, which are sometimes referred to as Continental Depository Re-
ceipts, are receipts issued in Europe, typically by foreign 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 sponsored ADRs, EDRs and GDRs, and the
prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if such
instruments were sponsored by the issuer. Investments in ADRs, EDRs and GDRs
present additional investment considerations as described above.

OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its investment
objective, the Portfolio may write (i.e. sell) 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
cross-hedging. For the payment of a premium, the purchaser of an option ob-
tains the right to buy (in the case of a call option) or to sell (in the case
of a put option) a security at a stated exercise price for a specific period
of time. These options may relate to particular securities, securities indi-
ces, or the yield differential between two securities or 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. The Portfolio will not purchase
put and call options when the aggregate

8.
<PAGE>

- --------------------------------------------------------------------------------
premiums on outstanding options exceed 5% of its net assets at the time of pur-
chase, and will not write options on more than 25% of the value of its net as-
sets (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 purchas-
ers of listed options issued by the Options Clearing Corporation, which per-
forms the obligations of its members if they default.

Futures contracts obligate the 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. The Portfolio may sell a futures contract in order to offset
an expected decrease in the value of its portfolio positions that might other-
wise result from a market decline or currency exchange fluctuation. The Portfo-
lio 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, the Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.

The Portfolio may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When the 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 the Portfolio sells an option on a futures contract, it becomes
obligated to sell or buy a futures contract if the option is exercised. In con-
nection with the 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 the Portfolio and the price of the futures contract or option;
(b) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; and (d) the
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 Portfolio from registration as a "commodity pool
operator."

LIQUIDITY MANAGEMENT. As a temporary defensive measure if its sub-adviser de-
termines that market conditions warrant, the Portfolio may invest without limi-
tation in high quality money market instruments. The Portfolio may also invest
in high quality money market instruments pending investment or to meet antici-
pated redemption requests.

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, the Portfolio agrees
to purchase securities from financial institutions subject to the seller's
agreement to repur-

9.
<PAGE>

- --------------------------------------------------------------------------------
chase them at an agreed upon time and price. Repurchase agreements are, in sub-
stance, loans. Default by or bankruptcy of a seller would expose the Portfolio
to possible loss because of adverse market action, expenses and/or delays in
connection with the disposition of the underlying securities.

10.
<PAGE>

- --------------------------------------------------------------------------------
repurchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to these
limits. The Portfolio may purchase securities which are not registered under
the Securities Act of 1933 (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act. These
securities will not be considered illiquid so long as it is determined by the
adviser or sub-adviser that an adequate trading market exists for the securi-
ties. This investment practice could have the effect of increasing the level of
illiquidity in the Portfolio during any period that qualified institutional
buyers become uninterested in purchasing these restricted securities.

11.
<PAGE>

The Portfolio may not:

(2) subject to the foregoing 25% exception, purchase more than 10% of the out-
standing voting securities of any issuer;

(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and

(4) borrow money in amounts over one-third of the value of its total assets at
the time of such borrowing.

These investment limitations are applied at the time investment securities are
purchased.

12.
<PAGE>

- --------------------------------------------------------------------------------
WHO MANAGES THE FUND?
- --------------------------------------------------------------------------------

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--Professor of Finance and Director of the
Financial Institutions Center, The Wharton School, University
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 the Fund.

ADVISER AND The Adviser to Compass Capital Funds is PNC Asset Management
SUB-ADVISER Group, Inc. ("PAMG"). PAMG was organized in 1994 to perform ad-
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.

The sub-adviser to the Portfolio is CastleInternational Asset
Management Limited ("CastleInternational"), an affiliate of
PAMG, with primary offices at 7 Castle Street, Edinburgh, Scot-
land EH2 3AH. CastleInternational manages nearly $2 billion in
assets, approximately half of which currently are allocated to
international small cap investments. CastleInternational's in-
vestment philosophy is based on a value approach where a uni-
verse of approximately 2,000 companies is screened to find
those companies that are undervalued with respect to earnings
growth prospects. CastleInternational also employs a focused
subjective analysis that is important for investments in small
companies. This includes comprehensive financial analysis, the
review of published research materials and meetings with com-
pany management. CastleInternational believes that company
meetings are fundamental to the investment process and
CastleInternational currently visits more than 500 companies
per year in order to assist it in assessing management quality
and company strategy. It is generally CastleInternational's
policy not to invest in a company without first meeting manage-
ment. Peter J. Tait, a founding Director and Global Strategist
of CastleInternational, serves as portfolio manager of the
Portfolio. As Global Strategist, Mr. Tait is responsible for
CastleInternational's asset allocation process. From 1990 to
1996, Mr. Tait was a Director and head of the Continental Euro-
pean desk at Dunedin Fund Managers Ltd. Mr. Tait has over 15
years experience managing international equity securities.

For their investment advisory and sub-advisory services, PAMG
and CastleInternational are entitled to fees, computed daily on
a portfolio-by-portfolio

13.
<PAGE>

- -------------------------------------------------------------------------------
basis and payable monthly, at the maximum annual rates set
forth below. As stated under "What Are the Expenses of the
Portfolio?" PAMG and CastleInternational 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 Portfolio.

MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)

Although the advisory fee rate payable by the Portfolio is
higher than the rate payable by mutual funds investing in
domestic securities, the Fund believes it is comparable to
the rates paid by many other funds with similar investment
objectives and policies and is appropriate for the Portfolio
in light of its investment objective and policies.

CastleInternational strives to achieve best execution on all
transactions. Infrequently, brokerage transactions for the
Portfolio may be directed to registered broker/dealers who
have entered into dealer agreements with Compass Capital's
distributor.

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 the Portfolio's average daily
net assets, and PFPC and CDI are entitled to receive a com-
bined fee, computed daily and payable monthly, at the maxi-
mum aggregate annual rate of .20% of the first $500 million
of average daily net assets allocated to the Investor Shares
of the Portfolio, .18% of the next $500 million of average
daily net assets allocated to the Investor Shares of the
Portfolio, and .16% of the average daily net assets allo-
cated to the Investor Shares of the Portfolio in excess of
$1 billion. From time to time the Administrators may waive
some or all of their administration fees from the Portfolio.

For information about the operating expenses the Portfolio
expects to incur in the current fiscal year, see "What Are
The Expenses Of The Portfolio?"

TRANSFER PNC Bank serves as the Portfolio's custodian and PFPC serves
AGENT, as its transfer agent and dividend disbursing agent. PFPC
DIVIDEND has its principal offices at Bellevue Corporate Center, 400
DISBURSING Bellevue Parkway, Wilmington, Delaware 19809.
AGENT AND
CUSTODIAN

14.
<PAGE>

- --------------------------------------------------------------------------------
DISTRIBUTION Under the Fund's Distribution and Service Plan (the "Plan"),
AND SERVICE Investor Shares of the Portfolio bear the expense of payments
PLAN ("distribution fees") made to CDI, as the Fund's distributor
(the "Distributor"), or affiliates of PNC Bank, for distribu-
tion 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
related expenses, including payments to brokers, dealers, fi-
nancial institutions and industry professionals ("Service Orga-
nizations") for sales support services and related expenses.
Distribution fees payable under the Plan will not exceed .10%
(annualized) of the average daily net asset value of the Port-
folio's outstanding Investor A Shares and .75% (annualized) of
the average daily net asset value of the 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 other companies that re-
ceive fees from the Fund to make payments relating to distribu-
tion 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 arrange-
ments with Service Organizations (including PNC Bank and its
affiliates) with respect to each class of Investor Shares pur-
suant to which Service Organizations will render certain sup-
port services to their customers who are the beneficial owners
of Investor Shares. In consideration for a shareholder servic-
ing fee of up to .25% (annualized) of the average daily net as-
set value of Investor Shares owned by their customers, Service
Organizations may provide one or more of the following servic-
es: responding to customer inquiries relating to the services
performed by the Service Organization and to customer inquiries
concerning their investments in Investor Shares; assisting cus-
tomers in designating and changing dividend options, account
designations and addresses; and providing other similar share-
holder liaison services. In consideration for a separate share-
holder processing fee of up to .15% (annualized) of the average
daily net asset value of Investor Shares owned by their custom-
ers, Service Organizations may provide one or more of these ad-
ditional 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 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 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.

15.
<PAGE>

- --------------------------------------------------------------------------------

EXPENSES Expenses are deducted from the total income of the 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,
shareholder servicing and processing fees, distribution fees,
fees and expenses in registering and qualifying the Portfolio
and its shares for distribution under Federal and state secu-
rities laws, expenses of preparing prospectuses and state-
ments of additional information and of printing and distrib-
uting prospectuses and statements of additional information
to existing shareholders, expenses relating to shareholder
reports, 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.

16.
<PAGE>

- --------------------------------------------------------------------------------
WHAT PRICING OPTIONS ARE AVAILABLE TO INVESTORS?
- --------------------------------------------------------------------------------

The Portfolio offers different pricing options to investors in
the form of different share classes. These options are de-
scribed below:

A SHARES (FRONT-END LOAD)
One time, front-end sales charge at time of purchase
No charges or fees at any time for redeeming shares
Lower ongoing expenses
Free exchanges with other A Shares in the Compass Capital
Funds family
A Shares may make sense for investors with a long-term invest-
ment horizon who prefer to pay a one-time front-end sales
charge and have reduced ongoing fees.

B SHARES (BACK-END LOAD)
No front-end sales charge at time of purchase
Contingent deferred sales charge (CDSC) if shares are re-
deemed, declining over 6 years from a high of 4.50%
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 in-
vestment advice on an ongoing basis (asset-based sales charge)
rather than with a traditional, one-time front-end sales
charge. Such investors may plan to make substantial redemptions
within 6 years of purchase.

THE PRICING OPTIONS FOR THE PORTFOLIO ARE DESCRIBED IN THE TABLE BELOW:

<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 12
shares are redeemed) months of purchase)
</TABLE>

* The Portfolio does not expect to incur 12b-1 fees in excess of .005% with
respect to Investor A Shares through the fiscal year ending September 30, 1998.

Investors wishing to purchase shares of the Portfolio may do so either by mail-
ing the investment application attached to this Prospectus along with a check
or by wiring money as specified below under "How Are Shares Purchased?"

17.
<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 the
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 approximately 6 years after purchase. Thereafter, In-
vestor B Shares and Investor C Shares would bear higher aggregate expenses.
Investor B and Investor C shareholders, however, enjoy the benefit of permit-
ting all their dollars to work from the time the investments are made. Any
positive investment return on the additional invested amount would partially
or wholly offset the higher annual expenses borne by Investor B Shares and In-
vestor C Shares.

Because the Portfolio's 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.

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 the Portfolio may be waived for certain eligible purchasers allowing their
entire purchase price to be immediately invested in the Portfolio. The contin-
gent deferred sales charge may be waived upon redemption of certain Investor B
Shares and Investor C Shares.

18.
<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
$50 minimum for subsequent investments. Purchases through the Automatic Invest-
ment 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 employees 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 the Portfolio. All share pur-
chase orders that fail to specify a class will automatically be invested in In-
vestor 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 Portfolio's 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 must also ap-
pear on the check or Federal Reserve Draft. Investors may also wire Federal
funds in connection with the purchase of shares. The wire instructions must in-
clude the name of the Portfolio, specify the class of Investor Shares and in-
clude 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. Eastern time) on any Business Day (as
defined below) are priced at the applicable net asset value next determined on
that day, plus any applicable sales charge.

OTHER PURCHASE INFORMATION. Shares of the 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 the Portfolio
may, in the discretion of the Fund's investment adviser, be made in the form of
securities that are permissible investments for the Portfolio. The Fund re-
serves the right to reject any purchase order, to modify or waive the minimum
initial or subsequent investment requirement and to suspend and resume the sale
of any share class of the Portfolio at any time.

19.
<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 PORTFOLIO, 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 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 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. Additional documentary evidence of authority is
required by PFPC in the event redemption is requested by a corporation, part-
nership, trust, fiduciary, executor or administrator.

EXPEDITED REDEMPTIONS. If a shareholder has given authorization for expedited
redemption, shares can be redeemed by telephone and the proceeds sent by check
to the shareholder or by Federal wire transfer to a single previously desig-
nated bank account. Once authorization is on file, PFPC will honor requests by
any person by telephone at (800) 441-7762 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. 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
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

20.
<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 the Portfolio at any time the net asset value of the account in
the Portfolio falls below the required minimum initial investment as the result
of a redemption or an exchange request. A shareholder will be notified in writ-
ing that the value of the shareholder's account in the 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.

21.
<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 the Portfo-
lio 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. To add
this feature to an existing account that previously did not provide this op-
tion, a Telephone Exchange Authorization Form must be filed with PFPC. This
form is available from PFPC. Once this election has been made, the shareholder
may simply contact PFPC by telephone at (800) 441-7762 to request the exchange.
During periods of substantial economic or market change, telephone exchanges
may be difficult to complete and shareholders may have to submit exchange re-
quests to PFPC in writing.

If the exchanging shareholder does not currently own shares of the investment
portfolio whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and broker of
record as the account from which shares are exchanged, unless otherwise speci-
fied in writing by the shareholder with all signatures guaranteed by an eligi-
ble guarantor institution as defined above. In order to participate in the Au-
tomatic Investment Program or establish a Systematic Withdrawal Plan for the
new account, however, an exchanging shareholder must file a specific written
request.

Any share exchange must satisfy the requirements relating to the minimum ini-
tial investment requirement, and must be legally available for sale in the
state of the investor's residence. For Federal income tax purposes, a share ex-
change is a taxable event and, accordingly, a capital gain or loss may be real-
ized. Before making an exchange request, shareholders should consult a tax or
other financial adviser and should consider the investment objective, policies
and restrictions of the investment portfolio into which the shareholder is mak-
ing an exchange, as set forth in the applicable Prospectus. Brokers may charge
a fee for handling exchanges.

The Fund reserves the right to modify or terminate the exchange privilege at
any time. Notice will be given to shareholders of any material modification or
termination except where notice is not required.

22.
<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 the Portfolio may
arrange for periodic investments in the 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 the Portfolio. Shareholders may elect to re-
ceive automatic cash payments of $50 or more either monthly, every other month,
quarterly, three times a year, semi-annually, or annually. Automatic withdraw-
als are normally processed on the 25th day of the applicable month or, if such
day is not a Business Day, on the next Business Day and are paid promptly
thereafter. An investor may utilize the SWP by completing the SWP Application
Form which may be obtained from PFPC.

Shareholders should realize that if withdrawals exceed income dividends their
invested principal in the account will be depleted. To participate in the SWP,
shareholders must have their dividends automatically reinvested. Shareholders
may change or cancel the SWP at any time, upon written notice to PFPC. Pur-
chases of additional Investor A Shares of the Fund concurrently with withdraw-
als 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 asset 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.

23.
<PAGE>

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WHAT IS THE SCHEDULE OF SALES CHARGES AND EXEMPTIONS?
- -------------------------------------------------------------------------------

INVESTOR A Investor A Shares of the Portfolio are subject to a front-
SHARES end sales charge determined in accordance with the following
schedules:

<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 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 but less than
$2,000,000 0.00* 0.00* 1.00**
$2,000,000 but less than
$3,000,000 0.00* 0.00* 0.95**
$3,000,000 but less than
$5,000,000 0.00* 0.00* 0.87**
$5,000,000 but less than
$10,000,000 0.00* 0.00* 0.69**
$10,000,000 but less than
$15,000,000 0.00* 0.00* 0.62**
$15,000,000 but less than
$20,000,000 0.00* 0.00* 0.53**
$20,000,000 but less than
$40,000,000 0.00* 0.00* 0.39**
</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
purchase.
** The Distributor may pay placement fees to dealers on purchases of Investor
A Shares of $1,000,000 or more.

During special promotions, the entire sales charge may be reallowed to deal-
ers. Dealers who receive 90% or more of the sales charge may be deemed to be
"underwriters" under the 1933 Act. The amount of the sales charge not
reallowed to dealers may be paid to broker-dealer affiliates of PNC Bank Corp.
who provide sales support services. The Distributor, CCG and/or their affili-
ates may also pay additional compensation, out of their assets and not as an
additional charge to the Portfolio, to dealers in connection with the sale and
distribution of shares (such as additional payments based on new sales), and
may, subject to applicable NASD regulations, contribute to various non-cash
and cash incentive arrangements to promote the sale of shares, as well as
sponsor 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.

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 retir-
ees (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-shar-
ing 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

24.
<PAGE>

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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 the Portfolio, provided
that the aggregate amount invested pursuant to this exemption in Investor A
Shares that would otherwise be subject to front-end sales charges 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. In general, the sales charge (as a percentage of the offering
price) payable by qualified employee benefit plans ("Qualified Plans") having
at least 20 employees eligible to participate in purchases of Investor A Shares
of the Portfolio 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 Portfolio aggregating less than $500,000 will be 2.50%. The above schedule
will apply to purchases by such Qualified Plans of Investor A Shares aggregat-
ing $500,000 and above.

The Fund has established different waiver arrangements with respect to the
sales charge on Investor A Shares of the Portfolio for purchases through cer-
tain Qualified Plans participating in programs whose sponsors or administrators
have entered into arrangements with the Fund. For further information, see
"Purchase and Redemption Information" in the Statement of Additional Informa-
tion.

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.

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 the Portfolio or the total amount of
an investor's initial 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 reduction, previous purchases of Investor A Shares must be called to
the attention of PFPC by the investor at the time of the current purchase.

REINVESTMENT PRIVILEGE. Upon redemption of Investor A Shares of the 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 con-
sult a tax adviser concerning the tax consequences of use of the reinvestment
privilege.

INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Investor A Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of any other investment company
which were sold with a sales charge or commission. This does not include shares
of an affiliated mutual fund which were or would be subject to a contingent de-
ferred sales charge upon redemption. Such purchases must be made within 60 days
of the redemption, and the Fund must be notified by the investor in writing, or
by his or her financial institution, at the time the purchase of Investor A
Shares is made.

25.
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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 the Portfolio that are invested in additional Investor A Shares
of the 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 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, place-
ment 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 pur-
chase date and the date the Investor B Shares are redeemed as set forth in the
following 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>

26.
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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. The Fund also waives the contingent deferred sales charge on re-
demptions of Investor B Shares of the Portfolio purchased through certain Qual-
ified Plans participating in programs whose sponsors or administrators have en-
tered into arrangements with the Fund. For further information, see "Purchase
and Redemption Information" in the Statement of Additional Information.

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.

27.
<PAGE>

Share price is based on net asset value. Net asset value is calculated sepa-
rately for each class of Investor Shares of the Portfolio as of the close of
regular trading hours on the NYSE (currently 4:00 p.m. Eastern Time) on each
Business Day by dividing the value of all securities and other assets owned by
the Portfolio that are allocated to a particular class of shares, less the lia-
bilities charged to that class, by the number of shares of the class that are
outstanding.

HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------

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.

28.
<PAGE>

- --------------------------------------------------------------------------------
HOW ARE FUND DISTRIBUTIONS TAXED?
- --------------------------------------------------------------------------------

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.

29.
<PAGE>

- --------------------------------------------------------------------------------
HOW IS THE FUND ORGANIZED?
- --------------------------------------------------------------------------------

Shares of each class bear their pro rata portion of all operating expenses paid
by the Portfolio, except transfer agency fees, certain administration 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 the Portfolio's
Institutional Shares is expected to be higher than the performance of the Port-
folio's Service Shares, and the performance of each of the Institutional Shares
and Service Shares of the Portfolio is expected to be higher than the perfor-
mance of the Portfolio's three classes of Investor Shares. The performance of
each class of Investor Shares may be different. The Portfolio offers various
services and privileges in connection with its Investor Shares that are not
generally offered in connection with its Institutional and Service Shares, in-
cluding an automatic investment plan and an automatic withdrawal plan. For fur-
ther information regarding the Portfolio's Institutional and Service Share
Classes, contact PFPC at (800) 441-7764.

On August 12, 1997, PNC Bank held of record approximately 78% 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.

30.
<PAGE>

- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------

Performance information for each class of Investor Shares of the Portfolio 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 the Portfolio over the measuring
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 the 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, the 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. Excluding the sales load may have the effect of en-
hancing total return.

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 Small Cap International Fund Index and the
Financial Times World Stock Index, as well as the Salomon Index. Performance
information may also include evaluations of the Portfolio and its share classes
published by nationally recognized ranking services, and information as re-
ported 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 the Portfolio, the Portfolio may pro-
vide other information demonstrating hypothetical investment returns. This in-
formation may include, but is not limited to, illustrating the compounding ef-
fects of dividends in a dividend reinvestment plan or the impact of tax-de-
ferred investing.

Performance quotations for shares of the Portfolio represent past performance
and should not be considered representative of future results. The investment
return and principal value of an investment in the 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 Investor Shares of the Portfolio cannot necessarily be used to compare an
investment in such shares with bank deposits, savings accounts and similar in-
vestment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Performance is generally a function of the kind
and quality of the instruments held in a portfolio, portfolio maturity, operat-
ing expenses and market conditions. Any fees charged by brokers or other insti-
tutions directly to their customer accounts in connection with investments in
Investor Shares will not be included in the Portfolio performance calculations.

31.
<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 24 Hours, 7 days a week toll-free 888-4COMPASS
COMMENTARY: 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>

32.
<PAGE>

COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS

Compass Capital Funds is a leading mutual fund company currently managing in
excess of $13 billion in 31 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
- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------

Filed pursuant to Rule 497(c)
Registration Statement File Nos. 33-26305 and 811-05742

August 20, 1997
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP EQUITY PORTFOLIO SERVICE SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASKING THE KEY PAGE
QUESTIONS
<S> <C>
What Are The Expenses Of The Portfolio?...................... 4
What Is The Portfolio?....................................... 5
What Additional Investment Policies And Risks Apply?......... 6
What Are The Portfolio's Fundamental Investment
Limitations?................................................ 11
Who Manages The Fund?........................................ 12
How Are Shares Purchased And Redeemed?....................... 15
How Is Net Asset Value Calculated?........................... 17
How Frequently Are Dividends And Distributions Made To
Investors?.................................................. 17
How Are Fund Distributions Taxed?............................ 18
How Is the Fund Organized?................................... 19
How Is Performance Calculated?............................... 20
How Can I Get More Information?.............................. 21
</TABLE>

2.
<PAGE>

INVESTING IN For information on how to purchase and redeem shares of the
THE COMPASS Portfolio, see "How Are Shares Purchased And Redeemed?"
CAPITAL
FUNDS

3.
<PAGE>

Below is a summary of the annual operating expenses expected to be incurred by
Service Shares of the Portfolio for the current fiscal year as a percentage of
average daily net assets. An example based on the summary is also shown.
<TABLE>
<CAPTION>
INTERNATIONAL
SMALL CAP EQUITY
PORTFOLIO
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory fees (after fee waivers)(/1/) .80%
Other operating expenses .83
--------
Administration fees .23
Shareholder servicing fees .15
Other expenses .45
-------
Total Portfolio operating expenses
(after fee waivers)(/1/) 1.63%
========
</TABLE>

EXAMPLE

An investor in Service Shares of the Portfolio 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
<S> <C>
$17 $51
</TABLE>

4.
<PAGE>

- --------------------------------------------------------------------------------
WHAT IS THE PORTFOLIO?
- --------------------------------------------------------------------------------

INVESTMENT The International Small Cap Equity Portfolio seeks to provide
OBJECTIVE long-term capital appreciation.

INVESTMENT The Portfolio pursues non-dollar denominated stocks of small
STYLE cap issuers in countries included in the Salomon Brothers Ex-
tended Markets World Ex-US Index (the "Salomon Index") which
the sub-adviser expects to appreciate. In addition, there may
also be up to 20% exposure to stocks of issuers in emerging
market countries. Within this universe, a value style of in-
vesting is employed to select stocks which the sub- adviser be-
lieves are undervalued, taking into account the company's earn-
ings trend and its price momentum. The sub-adviser will also
consider macroeconomic factors such as the prospects for rela-
tive economic growth among certain foreign countries, expected
levels of inflation, governmental policies influencing business
conditions and the outlook for currency relationships.

The Portfolio emphasizes primarily stocks with price/earnings
ratios below average for such security's home market or stock
exchange.

The Portfolio seeks diversification across countries, industry
groups and companies with investment at all times in at least
three foreign developed countries.

5.
<PAGE>

6.
<PAGE>

- --------------------------------------------------------------------------------

7.
<PAGE>

- -------------------------------------------------------------------------------
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.

The Fund intends to comply with the regulations of the Commodity Futures Trad-
ing Commission exempting the Portfolio from registration as a "commodity pool
operator."

8.
<PAGE>

- --------------------------------------------------------------------------------

9.
<PAGE>

10.
<PAGE>

The Portfolio may not:

(2) subject to the foregoing 25% exception, purchase more than 10% of the out-
standing voting securities of any issuer;

(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and

(4) borrow money in amounts over one-third of the value of its total assets at
the time of such borrowing.

These investment limitations are applied at the time investment securities are
purchased.

11.
<PAGE>

- --------------------------------------------------------------------------------
WHO MANAGES THE FUND?
- --------------------------------------------------------------------------------

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--Professor of Finance and Director of
the Financial Institutions Center, The Wharton School,
University 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 the Fund.

For their investment advisory and sub-advisory services, PAMG
and CastleInternational are entitled to fees, computed daily
on a portfolio-by-portfolio

12.
<PAGE>

MAXIMUM ANNUAL CONTRACTUAL FEE RATE (BEFORE WAIVERS)

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 the Portfolio's average daily net assets, and PFPC and
CDI are entitled to receive a combined fee, computed daily and
payable monthly, at the maximum aggregate annual rate of .20%
of the first $500 million of average daily net assets allocated
to the Service Shares of the Portfolio, .18% of the next $500
million of average daily net assets allocated to the Service
Shares of the Portfolio, and .16% of the average daily net as-
sets allocated to the Service Shares of the Portfolio in excess
of $1 billion. From time to time the Administrators may waive
some or all of their administration fees from the Portfolio.

For information about the operating expenses the Portfolio ex-
pects to incur in the current fiscal year, see "What Are The
Expenses Of The Portfolio?"

13.
<PAGE>

- -------------------------------------------------------------------------------

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.

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.

EXPENSES Expenses are deducted from the total income of the 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 custo-
dian fees, trustee fees, taxes, interest, professional fees,
shareholder servicing and processing fees, fees and expenses
in registering and qualifying the Portfolio and its shares
for distribution under Federal and state securities laws,
expenses of preparing prospectuses and statements of addi-
tional information and of printing and distributing prospec-
tuses and statements of additional information to existing
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.

14.
<PAGE>

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 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. Service Shares are offered without a sales load to Institu-
tions acting on behalf of their customers, as well as to certain persons who
were shareholders of Compass Capital Group of Funds at the time of its combina-
tion with The PNC(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 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 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 Portfolio. For further information, see the Statement of
Additional Information. The minimum initial investment is $5,000; however, In-
stitutions may set a higher minimum for their customers. There is no minimum
subsequent investment requirement.

The Fund may in its discretion waive the minimum investment amount and may re-
ject any order for Service Shares, and may suspend and resume the sale of any
share class of the Portfolio at any time.

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 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

15.
<PAGE>

- -------------------------------------------------------------------------------
Administrators and the Distributor will employ reasonable procedures to con-
firm 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 redemption order if, in the judgment of PAMG, an earlier pay-
ment could adversely affect the Portfolio. No charge for wiring redemption
payments is imposed by the Fund, although Institutions may charge their cus-
tomer accounts for redemption services. Information relating to such redemp-
tion 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 reserves the right to redeem Service Shares in any shareholder's ac-
count if the account balance drops below $5,000 as the result of redemption
requests and the shareholder does not increase the balance to at least $5,000
upon thirty days' written 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 account falls below that minimum, the customer may be obli-
gated to redeem all or part of his or her shares in the Portfolio to the ex-
tent 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 responsi-
bilities under the 1940 Act. See "Purchase and Redemption Information" in the
Statement of Additional Information for examples of when such redemption might
be appropriate.

SYSTEMATIC WITHDRAWAL PLAN ("SWP"). The Fund offers a Systematic Withdrawal
Plan ("SWP") which may be used by investors who wish to receive regular dis-
tributions from their accounts. Upon commencement of the SWP, the account must
have a current value of $10,000 or more in the Portfolio. Shareholders may
elect to receive automatic cash payments of $50 or more either monthly, every
other month, quarterly, three times a year, semi-annually, or annually. Auto-
matic withdrawals are normally processed on the 25th day of the applicable
month or, if such day is not a Business Day, on the next Business Day and are
paid promptly thereafter. An investor may utilize the SWP by completing the
SWP Application Form which may be obtained from PFPC.

16.
<PAGE>

- --------------------------------------------------------------------------------

HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------

Share price is based on net asset value. Net asset value is calculated sepa-
rately for Service Shares of the Portfolio as of the close of regular trading
hours on the NYSE (currently 4:00 p.m. Eastern Time) on each Business Day by
dividing the value of all securities and other assets owned by the Portfolio
that are allocated to its Service Shares, less the liabilities charged to its
Service Shares, by the number of its Service Shares that are outstanding.

HOW FREQUENTLY ARE DIVIDENDS AND DISTRIBUTIONS MADE TO INVESTORS?
- --------------------------------------------------------------------------------

Distributions are reinvested at net asset value in additional full and frac-
tional Service Shares, 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 distributions paid after its
receipt by PFPC.

17.
<PAGE>

- --------------------------------------------------------------------------------

HOW ARE FUND DISTRIBUTIONS TAXED?
- --------------------------------------------------------------------------------

18.
<PAGE>

- --------------------------------------------------------------------------------

HOW IS THE FUND ORGANIZED?
- --------------------------------------------------------------------------------

Shares of each class bear their pro rata portion of all operating expenses paid
by the Portfolio, except transfer agency fees, certain administration 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 the Portfolio's
Institutional Shares is expected to be higher than the performance of the Port-
folio's Service Shares, and the performance of each of the Institutional Shares
and Service Shares of the Portfolio is expected to be higher than the perfor-
mance of the Portfolio's three classes of Investor Shares. The performance of
each class of Investor Shares may be different. The Portfolio offers various
services and privileges in connection with its Investor Shares that are not
generally offered in connection with its Institutional and Service Shares, in-
cluding an automatic investment plan and an automatic withdrawal plan. For fur-
ther information regarding the Portfolio's Institutional or Investor Share
classes, contact PFPC at (800) 441-7764 (Institutional Shares) or (800) 441-
7762 (Investor Shares).

19.
<PAGE>

- -------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- -------------------------------------------------------------------------------

Performance information for Service Shares of the Portfolio 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 the Portfolio over the measuring 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 cap-
ital gain distributions made by the Portfolio with respect to its Service
Shares are reinvested in shares of the same class.

The performance of the Portfolio's Service Shares may be compared to the per-
formance of other mutual funds with similar investment objectives and to rele-
vant indices, as well as to ratings or rankings prepared by independent serv-
ices or other financial or industry publications that monitor the performance
of mutual funds. For example, the performance of the Portfolio's Service
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
Small Cap International Fund Index and the Financial Times World Stock Index,
as well as the Salomon Index. Performance information may also include evalua-
tions of the Portfolio and its Service Shares published by nationally recog-
nized ranking services, and information as reported in financial publications
such as Business Week, Fortune, Institutional Investor, Money Magazine,
Forbes, Barron's, The Wall Street Journal and The New York Times, or in publi-
cations of a local or regional nature.

In addition to providing performance information that demonstrates the actual
yield or return of Service Shares of the Portfolio, the Portfolio may provide
other information demonstrating hypothetical investment returns. This informa-
tion may include, but is not limited to, illustrating the compounding effects
of dividends in a dividend reinvestment plan or the impact of tax-deferred in-
vesting.

Performance quotations for shares of the Portfolio represent past performance
and should not be considered representative of future results. The investment
return and principal value of an investment in the 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 the Portfolio cannot necessarily be used to compare an
investment in such shares with bank deposits, savings accounts and similar in-
vestment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Performance is generally a function of the kind
and quality of the instruments held in a portfolio, portfolio maturity, oper-
ating expenses and market conditions. Any fees charged by brokers or other in-
stitutions directly to their customer accounts in connection with investments
in Service Shares will not be included in the Portfolio performance calcula-
tions.

20.
<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 24 Hours, 7 days a week toll-free 888-4COMPASS
COMMENTARY: 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>

21.
<PAGE>

COMPASS CAPITAL FUNDS
THE COMPASS CAPITAL FUNDS

STOCK PORTFOLIOS
- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------

COMPASS CAPITAL FUNDS/SM/
(FORMERLY, THE PNC(R) FUND)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information provides supplementary
information pertaining to shares representing interests in the International
Small Cap Equity Portfolio (the "Portfolio") of Compass Capital Funds (the
"Fund"). This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Prospectuses of the Fund relating to
the Portfolio dated August 20, 1997, as amended from time to time (the
"Prospectuses"). The Prospectuses may be obtained from the Fund's distributor
by calling toll-free (800) 441-7379. This Statement of Additional Information
is dated August 20, 1997. Capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Prospectuses.

<PAGE>

CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies............................. 3
Trustees and Officers........................... 13
Shareholder and Trustee Liability of the Fund... 19
Investment Advisory, Administration,
Distribution and Servicing Arrangements........ 19
Expenses........................................ 25
Portfolio Transactions.......................... 26
Purchase and Redemption Information............. 28
Valuation of Portfolio Securities............... 32
Performance Information......................... 33
Taxes........................................... 38
Additional Information Concerning Shares........ 44
Miscellaneous................................... 46
Appendix A (Description of Securities Ratings).. A-1
Appendix B (Description of Futures)............. B-1

</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION OR THE
PROSPECTUSES IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUSES AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUSES DO NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE FUND'S DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

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<PAGE>

INVESTMENT POLICIES

The following supplements information contained in the Prospectuses
concerning the Portfolio's investment policies.

ADDITIONAL INFORMATION ON INVESTMENT STRATEGY

The Portfolio will invest primarily in securities of smaller-capitalized
foreign issuers. For this purpose, smaller-capitalized foreign issuers are
foreign issuers with market capitalizations of less than $1 billion ($1.5
billion for Japanese issuers).

ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.

REVERSE REPURCHASE AGREEMENTS. The Portfolio may invest in reverse
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Portfolio pursuant to the Portfolio's agreement to
repurchase the securities at an agreed upon price, date and interest rate. Such
agreements are considered to be borrowings under the Investment Company Act of
1940 (the "1940 Act"). While reverse repurchase transactions are outstanding,
the Portfolio will maintain in a segregated account liquid assets in an amount
at least equal to the market value of the securities, plus accrued interest,
subject to the agreement.

VARIABLE AND FLOATING RATE INSTRUMENTS. With respect to purchasable
variable and floating rate instruments, the adviser or sub-adviser will consider
the earning power, cash flows and liquidity ratios of the issuers and guarantors
of such instruments and, if the instruments are subject to a demand feature,
will monitor their financial status to meet payment on demand. Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for
the Portfolio to dispose of a variable or floating rate note if the issuer
defaulted on its payment obligation or during periods that the Portfolio is not
entitled to exercise its demand rights, and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments. In determining
average-weighted portfolio maturity, an instrument will be deemed to have a
maturity equal to either the period remaining until the next interest rate
adjustment or the time the Portfolio involved can recover payment of principal
as specified in the instrument, depending on the type of instrument involved.
The Portfolio does not intend to invest more than 5% of its net assets in
variable and floating rate instruments.

MONEY MARKET OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. The Portfolio may purchase bank obligations, such as
certificates of deposit, bankers' acceptances and time deposits, including
instruments issued or

-3-
<PAGE>

supported by the credit of U.S. or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion. The assets of a
bank or savings institution will be deemed to include the assets of its domestic
and foreign branches for purposes of each Portfolio's investment policies.
Investments in short-term bank obligations may include obligations of foreign
banks and domestic branches of foreign banks, and also foreign branches of
domestic banks. The Portfolio does not intend to invest more than 5% of its net
assets in bank obligations.

U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations which the Portfolio may hold include U.S. Treasury bills, Treasury
instruments and Treasury bonds and the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, the Farmers Home Administration, the Export-Import Bank of the
United States, the Small Business Administration, FNMA, GNMA, the General
Services Administration, the Student Loan Marketing Association, the Central
Bank for Cooperatives, FHLMC, the Federal Intermediate Credit Banks, the
Maritime Administration, the International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank. The Portfolio does not intend to invest more
than 5% of its net assets in U.S. Government obligations.

SUPRANATIONAL ORGANIZATION OBLIGATIONS. The Portfolio may purchase debt
securities of supranational organizations such as the European Coal and Steel
Community, the European Economic Community and the World Bank, which are
chartered to promote economic development. The Portfolio does not intend to
invest more than 5% of its net assets in supranational organization obligations.

COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (at
the time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed
advisable by the Portfolio's adviser or sub-adviser, "high quality" issues rated
"A-2" or "Prime-2" by S&P or Moody's, respectively. These ratings symbols are
described in Appendix A. The Portfolio does not intend to investm more than 5%
of its net assets in commercial paper.

Commercial paper purchasable by the Portfolio includes "Section 4(2)
paper," a term that includes debt obligations issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as to disposition
under the Federal securities laws, and is frequently sold (and resold) to
institutional investors such as the Fund through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. Certain transactions in Section 4(2) paper may qualify for
the registration exemption provided in Rule 144A under the Securities Act of
1933. The Portfolio does not intend to invest more than 5% of its net assets in
commercial paper.

REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase agreements.
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the

-4-
<PAGE>

price paid by the Portfolio involved plus interest negotiated on the basis of
current short-term rates (which may be more or less than the rate on securities
underlying the repurchase agreement). The financial institutions with which the
Portfolio may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the Portfolio's adviser or sub-adviser. The
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price (including accrued premium) provided in the repurchase
agreement. The accrued premium is the amount specified in the repurchase
agreement or the daily amortization of the difference between the purchase price
and the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark-to-market daily the value of the securities.
Securities subject to repurchase agreements will be held by the Fund's custodian
(or sub-custodian) in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by the Portfolio under the 1940 Act.

WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may enter
into "when-issued" and "forward" commitments, including "TBA" (to be announced)
purchase commitments, to purchase or sell securities at a fixed price at a
future date. When the Portfolio agrees to purchase securities on this basis,
the custodian will set aside liquid assets equal to the amount of the commitment
in a separate account. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case the Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
the Portfolio's commitments. It may be expected that the market value of the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Portfolio expects that its forward commitments and
commitments to purchase when-issued or TBA securities will not exceed 25% of the
value of its total assets absent unusual market conditions.

-5-
<PAGE>

If deemed advisable as a matter of investment strategy, the Portfolio may
dispose of or renegotiate a commitment after it has been entered into, and may
sell securities it has committed to purchase before those securities are
delivered to the Portfolio on the settlement date. In these cases the Portfolio
may realize a taxable capital gain or loss.

When the Portfolio engages in when-issued, TBA or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

The market value of the securities underlying a commitment to purchase
securities, and any subsequent fluctuations in their market value, is taken into
account when determining the market value of the Portfolio starting on the day
the Portfolio agrees to purchase the securities. The Portfolio does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date.

RIGHTS OFFERINGS AND WARRANTS TO PURCHASE. The Portfolio may participate
in rights offerings and may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. Subscription rights normally have a short life span to expiration. The
purchase of rights or warrants involves the risk that the Portfolio could lose
the purchase value of a right or warrant if the right to subscribe to additional
shares is not exercised prior to the rights' and warrants' expiration. Also,
the purchase of rights and/or warrants involves the risk that the effective
price paid for the right and/or warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security. The
Portfolio will not invest more than 5% of its net assets, taken at market value,
in warrants, or more than 2% of its net assets, taken at market value, in
warrants not listed on the New York or American Stock Exchanges. Warrants
acquired by the Portfolio in units or attached to other securities are not
subject to this restriction.

FOREIGN CURRENCY TRANSACTIONS. Forward foreign currency exchange contracts
involve an obligation to purchase or sell a specified currency at a future date
at a price set at the time of the contract. Forward currency contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Portfolio to establish a rate of exchange for a future point in time. The
Portfolio may use forward foreign currency exchange contracts to hedge against
movements in the value of foreign currencies (including the "ECU" used in the
European

-6-
<PAGE>

Community) relative to the U.S. dollar in connection with specific portfolio
transactions or with respect to portfolio positions. The Portfolio may enter
into forward foreign currency exchange contracts when deemed advisable by its
adviser or sub-adviser under two circumstances. First, when entering into a
contract for the purchase or sale of a security, the Portfolio may enter into a
forward foreign currency exchange contract for the amount of the purchase or
sale price to protect against variations, between the date the security is
purchased or sold and the date on which payment is made or received, in the
value of the foreign currency relative to the U.S. dollar or other foreign
currency.

Second, when the Portfolio's adviser or sub-adviser anticipates that a
particular foreign currency may decline relative to the U.S. dollar or other
leading currencies, in order to reduce risk, the Portfolio may enter into a
forward contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. With respect to any forward foreign currency
contract, it will not generally be possible to match precisely the amount
covered by that contract and the value of the securities involved due to the
changes in the values of such securities resulting from market movements between
the date the forward contract is entered into and the date it matures. In
addition, while forward contracts may offer protection from losses resulting
from declines in the value of a particular foreign currency, they also limit
potential gains which might result from increases in the value of such currency.
The Portfolio will also incur costs in connection with forward foreign currency
exchange contracts and conversions of foreign currencies and U.S. dollars.

The Portfolio may also engage in proxy hedging transactions to reduce the
effect of currency fluctuations on the value of existing or anticipated holdings
of portfolio securities. Proxy hedging is often used when the currency to which
the Portfolio is exposed is difficult to hedge or to hedge against the dollar.
Proxy hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Portfolio's securities are, or are
expected to be, denominated, and to buy U.S. dollars. Proxy hedging involves
some of the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to the Portfolio if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. In addition, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Portfolio is engaging in proxy hedging. The Portfolio
may also cross-hedge currencies by entering into forward contracts to sell one
or more currencies that are

-7-
<PAGE>

expected to decline in value relative to other currencies to which the Portfolio
has or in which the Portfolio expects to have portfolio exposure. For example,
the Portfolio may hold both French securities and German securities, and the
Adviser or Sub-Adviser may believe that French francs will deteriorate against
German marks. The Portfolio would sell French francs to reduce its exposure to
that currency and buy German marks. This strategy would be a hedge against a
decline in the value of French francs, although it would expose the Portfolio to
declines in the value of the German mark relative to the U.S. dollar.

In general, currency transactions are subject to risks different from those
of other portfolio transactions, and can result in greater losses to the
Portfolio than would otherwise be incurred, even when the currency transactions
are used for hedging purposes.

A separate account of the Portfolio consisting of liquid assets equal to
the amount of the Portfolio's assets that could be required to consummate
forward contracts entered into under the second circumstance, as set forth
above, will be established with the Fund's custodian. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Portfolio.

OPTIONS. Options trading is a highly specialized activity which entails
greater than ordinary investment risks. Options on particular securities may be
more volatile than the underlying securities, and therefore, on a percentage
basis, an investment in the underlying securities themselves. The Portfolio
will write call options only if they are "covered." In the case of a call
option on a security, the option is "covered" if the Portfolio owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, liquid assets in such amount as are held in a
segregated account by its custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if
the Portfolio maintains with its custodian liquid assets equal to the contract
value. A call option is also covered if the Portfolio holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Portfolio in liquid assets in a segregated account with its
custodian.

-8-
<PAGE>

When the Portfolio purchases a put option, the premium paid by it is
recorded as an asset of the Portfolio. When the Portfolio writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written. The current value of the traded
option is the last sale price or, in the absence of a sale, the mean between the
last bid and asked prices. If an option purchased by the Portfolio expires
unexercised the Portfolio realizes a loss equal to the premium paid. If the
Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by the Portfolio on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. If an option written by the Portfolio expires on the
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by the Portfolio is exercised, the proceeds of the sale will be increased by the
net premium originally received and the Portfolio will realize a gain or loss.

There are several risks associated with transactions in options on
securities and indexes. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a national securities exchange
("Exchange") may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be imposed
by an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.

-9-
<PAGE>

FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolio may invest in futures
contracts, options thereon and index futures contracts. These instruments are
described in Appendix B to this Statement of Additional Information.

SECURITIES LENDING. The Portfolio would continue to accrue interest on
loaned securities and would also earn income on investment collateral for such
loans. Any cash collateral received by the Portfolio in connection with such
loans may be invested in any of the following instruments: (a) obligations
issued or guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities and related custodial receipts; (b) commercial
paper and other obligations of U.S. and foreign issuers; (c) certificates of
deposit; (d) banker's acceptances; (e) bank time deposits and other bank
obligations; (f) bilateral and triparty repurchase agreements with respect to
the securities listed in (a) through (e); (g) shares issued by unaffiliated
money market funds; and (h) other short-term investments which the adviser or
subadviser believes give liquidity to pay back the borrower when the loaned
securities are returned. In any event, cash collateral shall only be invested
in instruments, including repurchase agreements, that mature on or before the
maturity date of the applicable lending transaction.

INVESTMENT COMPANIES. The Portfolio currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (i) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole.

ADDITIONAL INVESTMENT LIMITATIONS.

The Portfolio is subject to the investment limitations enumerated in this
subsection which may be changed with respect to the Portfolio only by a vote of
the holders of a majority of the Portfolio's outstanding shares (as defined
below under "Miscellaneous").

The Portfolio may not:

1) Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value of
the Portfolio's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10% of the issuer's

-10-
<PAGE>

outstanding voting securities would be owned by the Portfolio or the Fund,
except that up to 25% of the value of the Portfolio's total assets may (taken at
current value) be invested without regard to these limitations. For purposes of
this limitation, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantors when the
value of all securities issued and guaranteed by the guarantor, and owned by the
Portfolio, does not exceed 10% of the value of the Portfolio's total assets.

2) Purchase any securities which would cause 25% or more of the value of
the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
(i) instruments issued (as defined in Investment Limitation No. 1 above) or
guaranteed by the United States, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase agreements
secured by the instruments described in clause (i); (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry.

3) Borrow money or issue senior securities, except that the Portfolio may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of one-
third of the value of the Portfolio's total assets at the time of such
borrowing. The Portfolio will not purchase securities while its aggregate
borrowings (including reverse repurchase agreements and borrowings from banks)
in excess of 5% of its total assets are outstanding. Securities held in escrow
or separate accounts in connection with the Portfolio's investment practices are
not deemed to be pledged for purposes of this limitation.

4) Purchase or sell real estate, except that the Portfolio may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.

5) Acquire any other investment company or investment company security
except in connection with a merger,

-11-
<PAGE>

consolidation, reorganization or acquisition of assets or where otherwise
permitted by the 1940 Act.

6) Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof, or the disposition of securities, in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be underwriting.

7) Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities,
securities indices, futures contracts.

8) Purchase securities of companies for the purpose of exercising
control.

9) Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to the Portfolio's transactions in futures contracts and related options
or the Portfolio's sale of securities short against the box, and (b) the
Portfolio may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.

10) Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Portfolio may, to the
extent appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities and may enter into futures
contracts and related options.

11) Make loans, except that the Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities.

12) Purchase or sell commodities except that the Portfolio may, to the
extent appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities, may engage in currency
transactions and may enter into futures contracts and related options.

-12-
<PAGE>

TRUSTEES AND OFFICERS
THE FUND

The trustees and executive officers of the Fund, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------------------- ------------------ ----------------------------------------------
<S> <C> <C>

William O. Albertini Trustee Executive Vice President,
Bell Atlantic Corporation Chief Financial Officer
1717 Arch Street and Director since
47th Floor West February 1995, Vice
Philadelphia, PA 19103 President and Chief
Age: 54 Financial Officer from
January 1991 - February
1995, Bell Atlantic
Corporation (a
diversified telecommuni-
cations company);
Chairman, President and
Chief Executive Officer
from August 1989 -
January 1991, Bell
Atlantic Enterprises
International, Inc.;
Director, Groupo
Iusacell, S.A. de C.V.
(cellular communications
company) since June 1994;
Director, American
Waterworks, Inc. (water
utility) since May 1990;
Trustee, The Carl E. &
Emily I. Weller
Foundation since October
1991.
</TABLE>

-13-
<PAGE>

Raymond J. Clark/1/ Trustee, Treasurer of Princeton
Office of the Treasurer President and University since 1987;
Princeton University Treasurer Trustee, The Compass
3 New South Building Capital Group of Funds
P.O. Box 35 from 1987 to 1996;
Princeton, New Jersey 08540 Trustee, United-Way
Age: 62 Princeton Area

Communities from 1992-94; Trustee,
Chemical Bank, New Jersey Advisory
Board from 1994 until 1995; Trustee,
American Red Cross - Mercer County
Chapter since 1995; Trustee, Medical
Center of Princeton; and Trustee,
United Way-Greater Mercer County since
1995.

Robert M. Hernandez Trustee Director since 1991, Vice
USX Corporation Chairman and Chief
600 Grant Street Financial Officer
6105 USX Tower since 1994, Executive
Pittsburgh, PA 15219 Vice President -
Age: 52 Accounting and Finance

and Chief Financial Officer from 1991
to 1994, Senior Vice President -
Finance and Treasurer from 1990 to
1991, USX Corporation (a diversified
company principally engaged in energy
and steel businesses); Director and
Chairman of the Executive Committee,
ACE Limited (insurance company);
Trustee, Allegheny General Hospital and
Allegheny Health, Education and
Research Foundation; Director,
</TABLE>

/1/ This trustee may be deemed an "interested person" of the Fund as defined in
the 1940 Act.

-14-
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------------------- ------------------ ----------------------------------------------
<S> <C> <C>
Marinette Marine Corporation;
Director, Pittsburgh
Baseball, Inc. from 1994-96;
Director, Transtar, Inc.
(transportation company)
since 1996; and Director and
Chairman of the Board, RMI
Titanium Company.

Anthony M. Santomero Vice Chairman Deputy Dean from
The Wharton School of the Board 1990 to 1994, Richard
University of Pennsylvania K. Mellon Professor
Room 2344 of Finance since April
Steinberg Hall-Dietrich Hall 1984, Director, Wharton
Philadelphia, PA 19104-6367 Financial Institutions

Age: 50 Center, since July 1995, and
Dean's Advisory Council
Member since July 1984, The
Wharton School, University of
Pennsylvania; Associate
Editor, Journal of Banking
and Finance since June 1978;
Associate Editor, Journal of
Economics and Business since
October 1979; Associate
Editor, Journal of Money,
Credit and Banking since
January 1980; Editorial
Advisory Board, Open
Economics Review since
November 1990; Director, The
Zweig Fund and The Zweig
Total Return Fund; Director
of Municipal Fund for
California Investors, Inc.
and Municipal Fund for New
York Investors, Inc.

David R. Wilmerding, Jr. Chairman of Chairman, Gee,
One Aldwyn Center the Board Wilmerding & Associates, Inc.
Villanova, PA 19085 (investment advisers)
Age: 61
</TABLE>
-15-
<PAGE>

since February 1989;
Director, Beaver Management
Corporation; Director, Independence
Square Income Securities, Inc.;
Director, The Mutual Fire, Marine and
Inland Insurance Company; Director,
U.S. Retirement Communities, Inc.;
Director, Trustee or Managing General
Partner of a number of investment
companies advised by PIMC and its
affiliates.

Karen H. Sabath Assistant President, Compass
Compass Capital Group Secretary Capital Group, Inc. since
Inc. 1995; Managing Director
345 Park Avenue of BlackRock Financial
New York, NY 10154 Management, Inc. since
Age: 31 1993; prior to 1993, Vice
President of BlackRock
Financial Management,
Inc.

Linda Kaufmann Assistant Vice President and
PFPC Inc. Treasurer Director of Mutual
400 Bellevue Parkway Fund Accounting for
Wilmington, DE 19809 Compass Capital Funds
Age: 35 with PFPC Inc. since
1996; Assistant Vice
President, PFPC, Inc.
from 1994-96; Senior
Accounting Officer, PFPC,
Inc. from 1990-94.

Brian Kindelan Secretary Senior Counsel, PNC Bank
PNC Bank Corp. Corp. since May 1995;
1600 Market Street Associate, Stradley,
28th Floor Ronon, Stevens & Young
Philadelphia, PA 19103 from March 1990 to May
Age: 38 1995.
</TABLE>

The Fund pays trustees who are not affiliated with PNC Asset Management
Group, Inc. ("PAMG") or Compass Distributors, Inc. ("CDI" or "Distributor")
$10,000 annually and $275 per portfolio

-16-
<PAGE>

for each full meeting of the Board that they attend. The Fund pays the Chairman
and Vice Chairman of the Board an additional $10,000 and $5,000 per year,
respectively, for their service in such capacities. Trustees who are not
affiliated with PAMG or the Distributor are reimbursed for any expenses incurred
in attending meetings of the Board of Trustees or any committee thereof. No
officer, director or employee of PAMG, CastleInternational Asset Management
Limited ("CastleInternational"), PFPC Inc. ("PFPC"), Compass Capital Group, Inc.
("CCG"), CDI (collectively with PFPC and CCG, the "Administrators"), or PNC
Bank, National Association ("PNC Bank" or the "Custodian") currently receives
any compensation from the Fund. As of the date of this Statement of Additional
Information, the trustees and officers of the Fund, as a group, owned less than
1% of the outstanding shares of the Portfolio.

-17-
<PAGE>

The table below sets forth the compensation actually received from the Fund
and the Fund Complex of which the Fund is a part by the trustees for the fiscal
year ended September 30, 1996:

<TABLE>
<CAPTION>
==========================================================================================================
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANT
AGGREGATE BENEFITS ESTIMATED AND FUND
COMPENSATION ACCRUED AS ANNUAL COMPLEX/1/
NAME OF PERSON, FROM PART OF FUND BENEFITS UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT TRUSTEES
________ ------------- -------- ---------- --------
<S> <C> <C> <C> <C>

Philip E. Coldwell,/*/ $ 1,875 N/A N/A (4)/2/ $41,325
Trustee
- ----------------------------------------------------------------------------------------------------------
Robert R. Fortune,/*/ $ 1,875 N/A N/A (6)/2/ $61,325
Trustee
- ----------------------------------------------------------------------------------------------------------
Rodney D. Johnson,/*/ $ 1,875 N/A N/A (6)/2/ $53,325
Trustee
- ----------------------------------------------------------------------------------------------------------
G. Willing Pepper,/*/ $ 3,125 N/A N/A (7)/2/ $92,575
Former Chairman of
the Board
- ----------------------------------------------------------------------------------------------------------
Anthony M. $38,025 N/A N/A (6)/2/ $58,500
Santomero, Vice
Chairman of the
Board
- ----------------------------------------------------------------------------------------------------------
David R. Wilmerding, $43,025 N/A N/A (7)/2/ $64,750
Jr., Chairman of the
Board
- ----------------------------------------------------------------------------------------------------------
William O. $31,150 N/A N/A (1)/2/ $31,150
Albertini, Trustee**
- ----------------------------------------------------------------------------------------------------------
Raymond J. Clark, $31,150 N/A N/A (1)/2/ $31,150
Trustee**
- ----------------------------------------------------------------------------------------------------------
Robert M. Hernandez, $31,150 N/A N/A (1)/2/ $31,150
Trustee**
==========================================================================================================
</TABLE>

/*/ Messrs. Coldwell, Fortune, Johnson and Pepper resigned as trustees of the
Fund on January 4, 1996.

/**/ Messrs. Albertini, Clark and Hernandez were elected as trustees by the
shareholders of the Fund on January 4, 1996.

- -------------------
1. A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser or
have an investment adviser that is an affiliated person of the investment
adviser of any of the other investment companies.

2. Total number of investment company boards trustees served on within the
Fund Complex.

-18-
<PAGE>

SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND

Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Fund's Declaration of Trust provides that shareholders
shall not be subject to any personal liability in connection with the assets of
the Fund for the acts or obligations of the Fund, and that every note, bond,
contract, order or other undertaking made by the Fund shall contain a provision
to the effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his being or having
been a shareholder and not because of his acts or omissions or some other
reason. The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Fund, and shall satisfy any judgment thereon.

The Declaration of Trust further provides that all persons having any claim
against the trustees or Fund shall look solely to the trust property for
payment; that no trustee of the Fund shall be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the trust
property or the conduct of any business of the Fund; and that no trustee shall
be personally liable to any person for any action or failure to act except by
reason of his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a trustee. With the exception stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against all liabilities and expenses reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may be involved or
with which he may be threatened by reason of his being or having been a trustee,
and that the Fund will indemnify officers, representatives and employees of the
Fund to the same extent that trustees are entitled to indemnification.

INVESTMENT ADVISORY, ADMINISTRATION,
DISTRIBUTION AND SERVICING ARRANGEMENTS

ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PAMG and CastleInternational and the fees received by each
of them for such services are described in the Prospectuses. As stated in the
Prospectuses, PAMG may from time to time voluntarily waive its advisory fees
with respect to the Portfolio and may voluntarily reimburse the Portfolio for
expenses.

-19-
<PAGE>

PAMG renders advisory services to the Portfolio pursuant to an Investment
Advisory Agreement. CastleInternational renders sub-advisory services to the
Portfolio pursuant to a Sub-Advisory Agreement. The Investment Advisory
Agreement with PAMG and the Sub-Advisory Agreement with CastleInternational are
collectively referred to as the "Advisory Contracts."

Under the Advisory Contracts, PAMG and CastleInternational are not liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
or the Portfolio in connection with the performance of the Advisory Contracts.
Under the Advisory Contracts, PAMG and CastleInternational are liable for a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of their respective duties or from reckless disregard of their
respective duties and obligations thereunder. Each of the Advisory Contracts is
terminable as to the Portfolio by vote of the Fund's Board of Trustees or by the
holders of a majority of the outstanding voting securities of the Portfolio, at
any time without penalty, on 60 days' written notice to PAMG or
CastleInternational, as the case may be. PAMG and CastleInternational may also
terminate their advisory relationship with respect to the Portfolio on 60 days'
written notice to the Fund. Each of the Advisory Contracts terminates
automatically in the event of its assignment.

ADMINISTRATION AGREEMENTS. CCG, PFPC and CDI serve as the Fund's co-
administrators pursuant to administration agreements (collectively, the
"Administration Agreement"). PFPC and CDI have agreed to maintain office
facilities for the Fund, furnish the Fund with statistical and research data,
clerical, accounting, and bookkeeping services, and certain other services
required by the Fund. As stated in the Prospectuses, the Administrators may
from time to time voluntarily waive administration fees with respect to the
Portfolio and may voluntarily reimburse the Portfolio for expenses.

CCG serves as an Administrator to the Fund pursuant to a Co-Administration
Agreement. Under the Co-Administration Agreement, CCG is responsible for: (i)
the supervision and coordination of the performance of the Fund's service
providers; (ii) the negotiation of service contracts and arrangements between
the Fund and its service providers; (iii) acting as liaison between the trustees
of the Fund and the Fund's service providers; and (iv) providing ongoing
business management and support services in connection with the Fund's
operations.

The Administration Agreement provides that CCG, PFPC and CDI will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or the Portfolio in connection with the performance of the
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of their respective duties or from

-20-
<PAGE>

reckless disregard of their respective duties and obligations thereunder.

The Fund and its service providers may engage third party plan
administrators who provide trustee, administrative and recordkeeping services
for certain employee benefit, profit-sharing and retirement plans as agent for
the Fund with respect to such plans, for the purpose of accepting orders for the
purchase and redemption of shares of the Fund.

CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank, whose principal
offices are located at Broad and Chestnut Streets, Philadelphia, Pennsylvania
19102, is custodian of the Fund's assets pursuant to a custodian agreement (the
"Custodian Agreement"). Under the Custodian Agreement, PNC Bank or a sub-
custodian (i) maintains a separate account or accounts in the name of the
Portfolio, (ii) holds and transfers portfolio securities on account of the
Portfolio, (iii) accepts receipts and makes disbursements of money on behalf of
the Portfolio, (iv) collects and receives all income and other payments and
distributions on account of the Portfolio's securities and (v) makes periodic
reports to the Board of Trustees concerning the Portfolio's operations. PNC
Bank is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that, with respect to sub-
custodians other than sub-custodians for foreign securities, PNC Bank remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Fund harmless from the acts and omissions of any sub-custodian.
The Chase Manhattan Bank, N.A., State Street Bank and Trust Company, Barclays
Bank PLC and Citibank, N.A. serve as the international sub-custodians for the
Portfolio.

For its services to the Fund under the Custodian Agreement, PNC Bank
receives a fee which is calculated based upon each investment portfolio's
average gross assets, with a minimum monthly fee of $1,000 per investment
portfolio. PNC Bank is also entitled to out-of-pocket expenses and certain
transaction charges.

PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement (the
"Transfer Agency Agreement"), under which PFPC (i) issues and redeems Service,
Investor, and Institutional classes of shares in the Portfolio, (ii) addresses
and mails all communications by the Portfolio to record owners of its shares,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (iii) maintains shareholder accounts
and, if requested, sub-accounts and (iv) makes periodic reports to the Board of
Trustees concerning the operations of the Portfolio. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and

-21-
<PAGE>

dividend disbursing agent to any other affiliate of PNC Bank Corp. For its
services with respect to the Portfolio's Institutional and Service Shares under
the Transfer Agency Agreement, PFPC receives fees at the annual rate of .03% of
the average net asset value of outstanding Institutional and Service Shares in
the Portfolio, plus per account fees and disbursements. For its services under
the Transfer Agency Agreement with respect to Investor Shares, PFPC receives per
account fees, with minimum annual fees of $24,000 for each series of Investor
Shares in the Portfolio, plus disbursements. Until further notice, the transfer
agency fees for each series of Investor Shares in the Portfolio will not exceed
the annual rate of .10% of the series' average daily net assets.

DISTRIBUTOR AND DISTRIBUTION AND SERVICE PLAN. The Fund has entered into a
distribution agreement with Compass Distributors, Inc. (the "Distributor") under
which the Distributor, as agent, offers shares of the Portfolio on a continuous
basis. The Distributor has agreed to use appropriate efforts to effect sales of
the shares, but it is not obligated to sell any particular amount of shares.

Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Fund may pay the Distributor and/or CCG or any other affiliate
of PNC Bank fees for distribution and sales support services. Currently, as
described further below, only Investor A Shares, Investor B Shares and Investor
C Shares bear the expense of distribution fees under the Plan. In addition, the
Fund may pay CCG fees for the provision of personal services to shareholders and
the processing and administration of shareholder accounts. CCG, in turn,
determines the amount of the service fee and shareholder processing fee to be
paid to brokers, dealers, financial institutions and industry professionals
(collectively, "Service Organizations"). The Plan provides, among other things,
that: (i) the Board of Trustees shall receive quarterly reports regarding the
amounts expended under the Plan and the purposes for which such expenditures
were made; (ii) the Plan will continue in effect for so long as its continuance
is approved at least annually by the Board of Trustees in accordance with Rule
12b-1 under the 1940 Act; (iii) any material amendment thereto must be approved
by the Board of Trustees, including the trustees who are not "interested
persons" of the Fund (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
entered into in connection with the Plan (the "12b-1 Trustees"), acting in
person at a meeting called for said purpose; (iv) any amendment to increase
materially the costs which any class of shares may bear for distribution
services pursuant to the Plan shall be effective only upon approval by a vote of
a majority of the outstanding shares of such class and by a majority of the 12b-
1 Trustees; and (v) while the Plan remains in effect, the selection and
nomination of the Fund's trustees

-22-
<PAGE>

who are not "interested persons" of the Fund shall be committed to the
discretion of the Fund's non-interested trustees.

The Plan is terminable as to any class of shares without penalty at any
time by a vote of a majority of the 12b-1 Trustees, or by vote of the holders of
a majority of the shares of such class.

With respect to Investor A Shares, the front-end sales charge and the
distribution fee payable under the Plan (at a maximum annual rate of .10% of the
average daily net asset value of the Portfolio's outstanding Investor A Shares)
are used to pay commissions and other fees payable to Service Organizations and
other broker/dealers who sell Investor A Shares.

With respect to Investor B Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor B
Shares, which are paid at the time of the sale. The distribution fees payable
under the Plan (at a maximum annual rate of .75% of the average daily net asset
value of the Portfolio's outstanding Investor B Shares) are intended to cover
the expense to the Distributor of paying such up-front commissions, as well as
to cover ongoing commission payments to broker/dealers. The contingent deferred
sales charge is calculated to charge the investor with any shortfall that would
occur if Investor B Shares are redeemed prior to the expiration of the
conversion period, after which Investor B Shares automatically convert to
Investor A Shares.

With respect to Investor C Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor C
Shares, which are paid at the time of the sale. The distribution fees payable
under the Plan (at a maximum annual rate of .75% of the average daily net asset
value of the Portfolio's outstanding Investor C Shares) are intended to cover
the expense to the Distributor of paying such up-front commissions, as well as
to cover ongoing commission payments to the broker/dealers. The contingent
deferred sales charge is calculated to charge the investor with any shortfall
that would occur if Investor C Shares are redeemed within 12 months of purchase.

The Fund is not required or permitted under the Plan to make distribution
payments with respect to Service or 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. The Distributor,
CCG and their affiliates may pay financial institutions, broker/dealers and/or
their salespersons certain compensation for the sale and distribution of shares
of the Fund or for services to the Fund. These payments ("Additional

-23-
<PAGE>

Payments") would be in addition to the payments by the Fund described in the
Prospectuses and this Statement of Additional Information for distribution and
shareholder servicing and processing, and would also be in addition to the sales
commissions payable to dealers as set forth in the Prospectuses for Investor
Shares of the Portfolio. These Additional Payments may take the form of "due
diligence" payments for a dealer's examination of the Portfolio and payments for
providing extra employee training and information relating to the Portfolio;
"listing" fees for the placement of the Portfolio on a dealer's list of mutual
funds available for purchase by its customers; "finders" or "referral" fees for
directing investors to the Fund; "marketing support" fees for providing
assistance in promoting the sale of the Funds' shares; and payments for the sale
of shares and/or the maintenance of share balances. In addition, the
Distributor, CCG and their affiliates may make Additional Payments for
subaccounting, administrative and/or shareholder processing services that are in
addition to the shareholder servicing and processing fees paid by the Fund. The
Additional Payments made by the Distributor, CCG and their affiliates may be a
fixed dollar amount, may be based on the number of customer accounts maintained
by a financial institution or broker/dealer, or may be based on a percentage of
the value of shares sold to, or held by, customers of the financial institutions
or dealers involved, and may be different for different institutions and
dealers. Furthermore, the Distributor, CCG and their affiliates may contribute
to various non-cash and cash incentive arrangements to promote the sale of
shares, and may sponsor various contests and promotions subject to applicable
NASD regulations in which participants may receive prizes such as travel awards,
merchandise and cash. The Distributor, CCG and their affiliates may also pay
for the travel expenses, meals, lodging and entertainment of broker/dealers,
financial institutions and their salespersons in connection with educational and
sales promotional programs subject to applicable NASD regulations.

Service Organizations may charge their clients additional fees for account-
related services.

The Fund intends to enter into service arrangements with Service
Organizations pursuant to which Service Organizations will render certain
support services to their customers ("Customers") who are the beneficial owners
of Service, Investor A, Investor B and Investor C Shares. Such services will be
provided to Customers who are the beneficial owners of Shares of such classes
and are intended to supplement the services provided by the Fund's
Administrators and transfer agent to the Fund's shareholders of record. In
consideration for payment of a service fee of up to .25% (on an annualized
basis) of the average daily net asset value of the Investor A, Investor B and
Investor C Shares owned beneficially by their Customers and .15% (on an

-24-
<PAGE>

annualized basis) of the average daily net asset value of the Service Shares
beneficially owned by their Customers, Service Organizations may provide general
shareholder liaison services, including, but not limited to (i) answering
customer inquiries regarding account status and history, the manner in which
purchases, exchanges and redemptions of shares may be effected and certain other
matters pertaining to the Customers' investments; and (ii) assisting Customers
in designating and changing dividend options, account designations and
addresses. In consideration for payment of a shareholder processing fee of up
to a separate .15% (on an annualized basis) of the average daily net asset value
of Service, Investor A, Investor B and Investor C Shares owned beneficially by
their Customers, Service Organizations may provide one or more of these
additional services to such Customers: (i) providing necessary personnel and
facilities to establish and maintain Customer accounts and records; (ii)
assistance in aggregating and processing purchase, exchange and redemption
transactions; (iii) placement of net purchase and redemption orders with the
Distributor; (iv) arranging for wiring of funds; (v) transmitting and receiving
funds in connection with Customer orders to purchase or redeem shares; (vi)
processing dividend payments; (vii) verifying and guaranteeing Customer
signatures in connection with redemption orders and transfers and changes in
Customer-designated accounts, as necessary; (viii) providing periodic statements
showing Customers' account balances and, to the extent practicable, integrating
such information with other Customer transactions otherwise effected through or
with a Service Organization; (ix) furnishing (either separately or on an
integrated basis with other reports sent to a shareholder by a Service
Organization) monthly and year-end statements and confirmations of purchases,
exchanges and redemptions; (x) transmitting on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other communications from
the Fund to Customers; (xi) receiving, tabulating and transmitting to the Fund
proxies executed by Customers with respect to shareholder meetings; (xii)
providing subaccounting with respect to shares beneficially owned by Customers
or the information to the Fund necessary for subaccounting; (xiii) providing
sub-transfer agency services; and (xiv) providing such other similar services as
the Fund or a Customer may request.

EXPENSES

Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PAMG and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PAMG, the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, distribution fees,

-25-
<PAGE>

shareholder processing fees, shareholder servicing fees, fees and expenses in
registering and qualifying the Portfolio and its shares for distribution under
federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
expenses relating to shareholder reports, shareholder meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of independent pricing services and other expenses which
are not expressly assumed by PAMG or the Fund's service providers under their
agreements with the Fund. Any general expenses of the Fund that do not belong
to a particular investment portfolio will be allocated among all investment
portfolios by or under the direction of the Board of Trustees in a manner the
Board determines to be fair and equitable.

PAMG, the sub-adviser and the Administrators expect to waive voluntarily a
portion of their respective advisory, sub-advisory and administration fees
during the Portfolio's current fiscal year.

PORTFOLIO TRANSACTIONS

In executing portfolio transactions, the adviser and sub-adviser seek to
obtain the best price and most favorable execution for the Portfolio, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of the order, difficulty of execution and
operational facilities of the firm involved. While the adviser and sub-adviser
generally seek reasonably competitive commission rates, payment of the lowest
commission or spread is not necessarily consistent with obtaining the best price
and execution in particular transactions. Payments of commissions to brokers
who are affiliated persons of the Fund (or affiliated persons of such persons)
will be made in accordance with Rule 17e-1 under the 1940 Act.

The Portfolio does not have any obligation to deal with any broker or group
of brokers in the execution of portfolio transactions. The adviser and sub-
adviser may, consistent with the interests of the Portfolio, select brokers on
the basis of the research, statistical and pricing services they provide to the
Portfolio and the adviser's or sub-adviser's other clients. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services required to be performed by the adviser and sub-adviser under their
respective contracts. A commission paid to such brokers may be higher than that
which another qualified broker would have charged for effecting the same
transaction, provided that the adviser or sub-adviser determines in good faith
that such commission is

-26-
<PAGE>

reasonable in terms either of the transaction or the overall responsibility of
the adviser or sub-adviser to the Portfolio and its other clients and that the
total commissions paid by the Portfolio will be reasonable in relation to the
benefits to the Portfolio over the long-term.

Commission rates for brokerage transactions on foreign stock exchanges are
generally fixed. In addition, the adviser or sub-adviser may take into account
the sale of shares of the Fund in allocating purchase and sale orders for
portfolio securities to brokers (including brokers that are affiliated with them
or Distributor).

Over-the-counter issues, including corporate debt and U.S. Government
securities, are normally traded on a "net" basis without a stated commission,
through dealers acting for their own account and not as brokers. The Portfolio
will primarily engage in transactions with these dealers or deal directly with
the issuer unless a better price or execution could be obtained by using a
broker. Prices paid to a dealer with respect to both foreign and domestic
securities will generally include a "spread," which is the difference between
the prices at which the dealer is willing to purchase and sell the specific
security at the time, and includes the dealer's normal profit.

Purchases of money market instruments by the Portfolio are made from
dealers, underwriters and issuers. The Portfolio does not currently expect to
incur any brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer.

Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid.

The adviser or sub-adviser may seek to obtain an undertaking from issuers
of commercial paper or dealers selling commercial paper to consider the
repurchase of such securities from the Portfolio prior to maturity at their
original cost plus interest (sometimes adjusted to reflect the actual maturity
of the securities), if it believes that the Portfolio's anticipated need for
liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that the Portfolio would incur a capital loss in
liquidating commercial paper, especially if interest rates have risen since
acquisition of such commercial paper.

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<PAGE>

Investment decisions for the Portfolio and for other investment accounts
managed by the adviser or sub-adviser are made independently of each other in
light of differing conditions. However, the same investment decision may be
made for two or more such accounts. In such cases, simultaneous transactions
are inevitable. Purchases or sales are then averaged as to price and allocated
as to amount in a manner deemed equitable to each such account. While in some
cases this practice could have a detrimental effect upon the price or value of
the security as far as the Portfolio is concerned, in other cases it could be
beneficial to the Portfolio. The Portfolio will not purchase securities during
the existence of any underwriting or selling group relating to such securities
of which PAMG, PNC Bank, CastleInternational, the Administrators, the
Distributor or any affiliated person (as defined in the 1940 Act) thereof is a
member except pursuant to procedures adopted by the Board of Trustees in
accordance with Rule 10f-3 under the 1940 Act. In no instance will portfolio
securities be purchased from or sold to PAMG, PNC Bank, CastleInternational, the
Administrators, the Distributor or any affiliated person of the foregoing
entities except as permitted by SEC exemptive order or by applicable law.

The portfolio turnover rate of the Portfolio is calculated by dividing the
lesser of the Portfolio's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Portfolio during the year.

PURCHASE AND REDEMPTION INFORMATION

COMPUTATION OF PUBLIC OFFERING PRICES FOR INVESTOR A SHARES OF THE
PORTFOLIO. An illustration of the computation of the public offering price per
Investor A Share of the Portfolio, based on a hypothetical value of the
Portfolio's net assets follows:

TABLE
-----
<TABLE>
<CAPTION>

<S> <C>
Assumed Net Asset Value Per Share.............. $15.00

Maximum Sales Charge, 5.00% of offering price

(5.26% of net asset value per share)........... .79
------
Offering to Public............................. $15.79
======
</TABLE>

THE EXAMPLE SHOWN ABOVE IS MEANT AS AN ILLUSTRATION AND SHOULD NOT BE CONSIDERED
A REPRESENTATION OF FUTURE INVESTMENT RETURN OR NET ASSET VALUE. ACTUAL
INVESTMENT RETURN AND NET ASSET VALUE MAY BE MORE OR LESS THAN THOSE SHOWN.

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<PAGE>

There is no initial sales charge on purchases of $1,000,000 or more of
Investor A Shares of the Portfolio. However, a contingent deferred sales charge
of 1.00% will be imposed on the lesser of the net offering price or the asset
value of the shares on the redemption date for Investor A Shares purchased on a
no-load basis and subsequently redeemed within 18 months after purchase.

Investor A Shares of the Portfolio will be made available to plan
participants at net asset value with the waiver of the initial sales charge on
purchases through an eligible 401(k) plan participating in a Merrill Lynch
401(k) Program (an "ML 401(k) Plan") if:

(i) the ML 401(k) Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the ML 401(k) Plan sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the ML 401(k) Plan has $3 million or more
in assets invested in broker/dealer funds not advised or managed by Merrill
Lynch Asset Management, L.P. ("MLAM") that are made available pursuant to a
Services Agreement between Merrill Lynch and the fund's principal
underwriter or distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments"); or

(ii) the ML 401(k) Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch, and on the date the ML 401(k) Plan
sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the ML
401(k) Plan has $3 million or more in assets, excluding money market
funds, invested in Applicable Investments; or

(iii) the ML 401(k) Plan has 500 or more eligible employees, as determined
by the Merrill Lynch plan conversion manager, on the date the ML 401(k)
Plan sponsor signs the Merrill Lynch Recordkeeping Service Agreement.

Investor B Shares of the Portfolio are sold at the net asset value per
share next determined after a purchase order is received. Investor B Shares are
subject to a contingent deferred sales charge which is payable on redemption of
such Investor B Shares.

Investor B Shares of the Portfolio will be made available to plan
participants at net asset value with the waiver of the contingent deferred sales
charge if the shares were purchased through an ML 401(k) Plan if:

(ii) the ML 401(k) Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch, and on the date the ML 401(k) Plan
sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the ML
401(k) Plan has less than $3 million in assets, excluding money market
funds, invested in Applicable Investments; or

(iii) the ML 401(k) Plan has less than 500 eligible employees, as determined
by the Merrill Lynch plan conversion manager, on the date the ML 401(k) Plan
sponsor signs the Merrill Lynch Recordkeeping Service Agreement.

ML 401(k) Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that are currently
investing in Investor B shares of the Portfolio convert to Investor A shares
once the ML 401(k) Plan has reached $5 million invested in Applicable
Investments. The ML 401(k) Plan will receive a plan-level share conversion.

Investor C Shares of the Portfolio are sold at the net asset value per
share next determined after a purchase order is received. In addition, Investor
C Shares are subject to a contingent deferred sales charge which is payable on
redemptions of such Investor C Shares within 12 months of purchase.

Service and Institutional Shares of the Portfolio are sold at the net asset
value per share next determined after a purchase order is received without a
sales charge.

EXCHANGE PRIVILEGE. By use of the exchange privilege, the investor
authorizes the Fund's transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the investor and
believed by the Fund's transfer agent to be genuine. The records of the Fund's
transfer agent pertaining to such instructions are binding. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
affected shareholders. The exchange privilege is only available in states where
the exchange may legally be made.

INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Investor A Shares of the Portfolio at net asset value,
without a sales charge, with the proceeds from the redemption of shares of any
other investment company which were sold with a sales charge or commission in
accordance with the terms set forth in any prospectus relating to shares of the
Fund's other portfolios. This does not include shares of an affiliated mutual
fund which were or would be subject to a contingent deferred sales charge upon
redemption. For purposes of this restriction, the term "affiliated mutual fund"
means:

i) any portfolio of the Fund; and

ii) any other investment company, if such company and the Fund hold
themselves out to investors as related companies for purposes of
investment and investor services, and if:

-29-
<PAGE>

a) that company and the Fund have a common investment adviser or
distributor; or

b) the investment adviser or distributor of such company or the Fund
is an "affiliated person" (as defined in Section 2(a)(3) of the
1940 Act) of the investment adviser or distributor of the Fund or
the company, respectively.

MISCELLANEOUS. The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
the Portfolio's shares by making payment in whole or in part in securities
chosen by the Fund and valued in the same way as they would be valued for
purposes of computing the Portfolio's net asset value. If payment is made in
securities, a shareholder may incur transaction costs in converting these
securities into cash. The Fund has elected, however, to be governed by Rule
18f-1 under the 1940 Act so that the Portfolio is obligated to redeem its shares
solely in cash up to the lesser of $250,000 or 1% of its net asset value during
any 90-day period for any one shareholder of the Portfolio.

The Fund will accept and process purchase and redemption orders with
respect to the Portfolio on days on which the Federal Reserve Bank of
Philadelphia is closed if the New York Stock Exchange (the "NYSE") is open for
business.

Under the 1940 Act, the Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings), or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC by rule or regulation) an emergency exists as a result of which disposal or
valuation of portfolio securities is not reasonably practicable, or for such
other periods as the SEC may permit. (The Portfolio may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)

In addition to the situations described in the Prospectuses, the Fund may
redeem shares involuntarily to reimburse the Portfolio for any loss sustained by
reason of the failure of a shareholder to make full payment for shares purchased
by the shareholder or to collect any charge relating to a transaction effected
for the benefit of a shareholder as provided in the Prospectus from time to
time.

VALUATION OF PORTFOLIO SECURITIES

In determining the market value of portfolio investments, the Fund may
employ outside organizations, which may use, without limitation, a matrix or
formula method that takes into

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<PAGE>

consideration market indexes, matrices, yield curves and other specific
adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith under the supervision of the
Board of Trustees.

Net asset value is calculated separately for each class of shares of the
Portfolio as of the close of regular trading hours on the NYSE (currently 4:00
p.m. Eastern Time) on each Business Day by dividing the value of all securities,
cash and other assets owned by the Portfolio that are allocated to a particular
class of shares, less the liabilities charged to that class, by the total number
of outstanding shares of the class.

Valuation of securities held by the Portfolio is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; an option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, the mean between the last bid and asked prices prior to 4:00
p.m. (Eastern Time); and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Fund's Board of Trustees. The amortized cost method
of valuation will also be used with respect to debt obligations with sixty days
or less remaining to maturity unless the investment adviser and/or sub-adviser
under the supervision of the Board of Trustees determines such method does not
represent fair value. Under this method the market value of an instrument is
approximated by amortizing the difference between the acquisition cost and value
at maturity of the instrument on a straight-line basis over the remaining life
of the instrument. The effect of changes in the market value of a security as a
result of fluctuating interest rates is not taken into account. The market
value of debt securities usually reflects yields generally available on
securities of similar quality. When such yields decline, market values can be
expected to increase, and when yields increase, market values can be expected to
decline.

Valuation of securities of foreign issuers is as follows: to the extent
sale prices are available, securities which are traded on a recognized stock
exchange, whether U.S. or foreign,

-31-
<PAGE>

are valued at the latest sale price on that exchange prior to the time when
assets are valued or prior to the close of regular trading hours on the NYSE.
In the event that there are no sales, the mean between the last available bid
and asked prices will be used. If a security is traded on more than one
exchange, the latest sale price on the exchange where the stock is primarily
traded is used. An option or futures contract is valued at the last sales price
prior to 4:00 p.m. (Eastern Time), as quoted on the principal exchange or board
of trade on which such option or contract is traded, or in the absence of a
sale, the mean between the last bid and asked prices prior to 4:00 p.m. (Eastern
Time). In the event that application of these methods of valuation results in a
price for a security which is deemed not to be representative of the market
value of such security, the security will be valued by, under the direction of
or in accordance with a method specified by the Board of Trustees as reflecting
fair value. The amortized cost method of valuation will be used with respect to
debt obligations with sixty days or less remaining to maturity unless the
investment adviser and/or sub-adviser under the supervision of the Board of
Trustees determines such method does not represent fair value. All other assets
and securities held by the Portfolio (including restricted securities) are
valued at fair value as determined in good faith by the Board of Trustees or by
someone under its direction. Any assets which are denominated in a foreign
currency are translated into U.S. dollars at the prevailing market rates.

Certain of the securities acquired by the Portfolio may be traded on
foreign exchanges or over-the-counter markets on days on which the Portfolio's
net asset value is not calculated. In such cases, the net asset value of the
Portfolio's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Portfolio.

The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities.

PERFORMANCE INFORMATION

The Portfolio may quote performance in various ways. All performance
information supplied by the Portfolio in advertising is historical and is not
intended to indicate future returns.

TOTAL RETURN. For purposes of quoting and comparing the performance of
shares of the Portfolio to the performance of other mutual funds and to stock or
other relevant indexes in advertisements, sales literature, communications to
shareholders and other materials, performance may be stated in terms of total
return. The total return for each class of the Portfolio will be calculated
independently of the other classes within the Portfolio. Under the rules of the
SEC, funds advertising

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<PAGE>

performance must include total return quotes calculated according to the
following formula:

ERV /1/n/
T = [(-----) - 1]
P
Where: T = average annual total return.

ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.

P = hypothetical initial payment of $1,000.

n = period covered by the computation, expressed in terms
of years.

In calculating the ending redeemable value for Investor A Shares of the
Portfolio, the maximum front-end sales charge is deducted from the initial
$1,000 payment and all dividends and distributions by the Portfolio are assumed
to have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. In calculating the ending redeemable
value for Investor B Shares of the Portfolio, the maximum contingent deferred
sales charge is deducted at the end of the period and all dividends and
distributions by the Portfolio are assumed to have been reinvested at net asset
value as described in the Prospectus on the reinvestment dates during the
period. In calculating the ending redeemable value for Investor C Shares of the
Portfolio, the maximum contingent deferred sales charge is deducted at the end
of the period, and all dividends and distributions by the Portfolio are assumed
to have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. Total return, or "T" in the formula
above, is computed by finding the average annual compounded rates of return over
the specified periods that would equate the initial amount invested to the
ending redeemable value.

Each class of the Portfolio may also from time to time include in
advertisements, sales literature, communications to shareholders and other
materials a total return figure that is not calculated according to the formula
set forth above in order to compare more accurately the performance of each
class of the Portfolio's shares with other performance measures. For example,
in comparing the total return of the Portfolio's shares with data published by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. or
Weisenberger Investment Company Service, or with the performance of the Salomon
Brothers Extended Markets World Ex-US Index, the Portfolio may calculate the
aggregate total return for its shares of a certain class for the period of time
specified in the advertisement or communication by assuming

-33-
<PAGE>

the investment of $10,000 in such shares and assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. The Portfolio may not, for these purposes, deduct from the initial value
invested or the ending value any amount representing front-end and deferred
sales charges charged to purchasers of Investor A, Investor B or Investor C
Shares. The Investor A, Investor B and Investor C classes of the Portfolio
will, however, disclose, if appropriate, the maximum applicable sales charges
and will also disclose that the performance data does not reflect sales charges
and that inclusion of sales charges would reduce the performance quoted.

In addition to average annual total returns, the Portfolio may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis and may
be quoted with or without taking sales charges into account. Excluding the
sales charge from a total return calculation produces a higher total return
figure. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph or similar illustration.

OTHER INFORMATION REGARDING INVESTMENT RETURNS. In addition to providing
performance information that demonstrates the total return or yield of shares of
a particular class of the Portfolio over a specified period of time, the Fund
may provide certain other information demonstrating hypothetical investment
returns. Such information may include, but is not limited to, illustrating the
compounding effects of dividends in a dividend reinvestment plan or the impact
of tax-free investing. As illustrated below, the Fund may demonstrate, using
certain specified hypothetical data, the compounding effect of dividend
reinvestment on investments in the Portfolio.

MISCELLANEOUS. When comparing the Portfolio's performance to stock, bond,
and money market mutual fund performance indices prepared by Lipper or other
organizations, it is important to remember the risk and return characteristics
of each type of investment. For example, while stock mutual funds may offer
higher potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns from stock
mutual funds.

-34-
<PAGE>

From time to time, the Portfolio's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example the Portfolio may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating service that
rates mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of the Portfolio to another Fund portfolio in
appropriate categories over specific periods of time may also be quoted in
advertising.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets. Other organizations provide similar return data for foreign
capital markets. The performance of these capital markets is based on the
returns of different indices. The Portfolio may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Portfolio. The Portfolio may also compare performance to that of other
compilations or indices that may be developed and made available in the future.

The Fund may also from time to time include discussions or illustrations of
the effects of compounding in advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the Portfolio investment are
reinvested by being paid in additional Portfolio shares, any future income or
capital appreciation of the Portfolio would increase the value, not only of the
original investment in the Portfolio, but also of the additional Portfolio
shares received through reinvestment. The Fund may also include discussions or
illustrations of the potential investment goals of a prospective investor,
(including materials that describe general principles of investing, such as
asset allocation, diversification, risk tolerance, and goal setting,
questionnaires designed to help create a personal financial profile, worksheets
used to project savings needs based on assumed rates of inflation and
hypothetical rates of return and action plans offering investment alternatives)
investment management techniques, policies or investment suitability of the
Portfolio (such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic and political conditions and the relationship between
sectors of the economy and the economy as a whole, the effects of inflation and
historical performance of various asset classes, including but

-35-
<PAGE>

not limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in shareholder
reports (including the investment composition of the Portfolio), as well as the
views of the Portfolio's adviser and/or sub-adviser as to current market,
economy, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Portfolio. In addition, selected indices may be used to
illustrate historic performance of select asset classes. The Fund may also
include in advertisements, sales literature, communications to shareholders or
other materials, charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, Treasury bills and shares of the Portfolio. In
addition, advertisements, sales literature, shareholder communications or other
materials may include a discussion of certain attributes or benefits to be
derived by an investment in the Portfolio and/or other mutual funds, benefits,
characteristics or services associated with a particular class of shares,
shareholder profiles and hypothetical investor scenarios, timely information on
financial management, tax and retirement planning and investment alternative to
certificates of deposit and other financial instruments. Such advertisements or
communicators may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein. Materials may
include lists of representative clients of the Portfolio's investment adviser
and sub-adviser. Materials may refer to the CUSIP numbers of the various classes
of the Portfolio and may illustrate how to find the listings of the Portfolio in
newspapers and periodicals. Materials may also include discussions of other Fund
portfolios, products, and services.

Charts and graphs using net asset values, adjusted net asset values, and
benchmark indices may be used to exhibit performance. An adjusted NAV includes
any distributions paid and reflects all elements of return. Unless otherwise
indicated, the adjusted NAVs are not adjusted for sales charges, if any.

The Portfolio may illustrate performance using moving averages. A long-
term moving average is the average of each week's adjusted closing NAV for a
specified period. A short-term moving average is the average of each day's
adjusted closing NAV for a specified period. Moving Average Activity Indicators
combine adjusted closing NAVs from the last business day of each week with
moving averages for a specified period to produce indicators showing when an NAV
has crossed, stayed above, or stayed below its moving average.

The Portfolio may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Portfolio may compare these
measures to those of other funds. Measures of volatility seek to compare the
historical share price

-36-
<PAGE>

fluctuations or total returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical data.

Momentum indicators indicate the Portfolio's price movements over specific
periods of time. Each point on the momentum indicator represents the
Portfolio's percentage change in price movements over that period.

The Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. The Portfolio may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.

The Portfolio may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.

Advertisements and sales materials relating to the Portfolio may include
information regarding the background, experience and expertise of the investment
adviser and/or portfolio manager for the Portfolio.

TAXES

The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Portfolio or their shareholders, and the discussion here
and in the Prospectus is not intended as a substitute for careful tax planning.
Investors are urged to consult their tax advisers with specific reference to
their own tax situation.

The Portfolio has elected and intends to qualify for taxation as a
regulated investment company under Part I of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated investment
company, the Portfolio generally is exempt from Federal income tax on its net
investment income and net capital gains that it distributes to shareholders,
provided that it distributes an amount equal to at least the sum

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<PAGE>

of (a) 90% of its net investment income (i.e., its investment Company taxable
----
income as that term is defined in the Code without regard to the deduction for
dividends paid) and (b) 90% of its net tax-exempt interest income, if any, for
the year (the "Distribution Requirement") and satisfies certain other
requirements of the Code that are described below. Distributions of net
investment income and net tax-exempt interest income made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year will satisfy the Distribution Requirement.

In addition to satisfaction of the Distribution Requirement, the Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies (including, but not
limited to, gains from forward foreign currency exchange contacts), or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and, for taxable years
beginning before August 5, 1997, derive less than 30% of its gross income from
the sale or other disposition of stock, securities and certain other investments
(including foreign currencies or options, futures or forward contracts on
foreign currencies but only to the extent that such currencies or options,
futures or forward contracts are not directly related to the Portfolio's
principal business of investing in stock or securities) held for less than three
months (the "Short-Short Gain Test"). Future Treasury regulations may provide
that foreign currency gains that are not "directly related" to the Portfolio's
principal business of investing in stock or securities will not satisfy the
Income Requirement.

In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Portfolio's assets must
consist of cash and cash items, U.S. government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Portfolio has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Portfolio does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of the Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more

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<PAGE>

issuers which the Portfolio controls and which are engaged in the same or
similar trades or businesses.

Distributions of net investment income will be taxable (other than the
possible allowance of the dividends received deduction described below) to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares. Shareholders receiving any
distribution from the Portfolio in the form of additional shares will be treated
as receiving a taxable distribution in an amount equal to the fair market value
of the shares received, determined as of the reinvestment date.

The Portfolio intends to distribute to shareholders any of its excess of
net long-term capital gain over net short-term capital loss ("net capital gain")
for each taxable year. Such gain is distributed as a capital gain dividend and
is taxable to shareholders as long-term capital gain, regardless of the length
of time the shareholder has held his shares, whether such gain was recognized by
the Portfolio prior to the date on which a shareholder acquired shares of the
Portfolio and whether the distribution was paid in cash or reinvested in shares.

In the case of corporate shareholders, distributions (other than capital
gain dividends) of the Portfolio for any taxable year generally qualify for the
dividends received deduction to the extent of the gross amount of "qualifying
dividends" received by the Portfolio for the year. Generally, a dividend will
be treated as a "qualifying dividend" if it has been received from a domestic
corporation. Distributions of net investment income from debt securities will
be taxable to shareholders as ordinary income and will not be treated as
"qualifying dividends" for purposes of the dividends received deduction.

Ordinary income of individuals are currently taxable at a maximum marginal
rate of 39.6%, but because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-
term capital gains are currently taxable at a maximum rate of 28%. Capital
gains and ordinary income of corporate taxpayers are both taxed at a current
maximum nominal rate of 35%.

Under recently enacted legislation, the rate of tax on long-term
capital gains of individuals will generally be reduced to 20% (10% for gains
otherwise taxed at 15%) for capital gains realized after July 28, 1997 with
respect to capital assets held for more than 18 months. Additionally, beginning
after December 31, 2000, the maximum tax rate for assets with a holding period
beginning after that date and held for more than five years will be 18%. Under a
literal reading of the legislation, capital gain dividends paid by a registered
investment company would not be eligible for the reduced capital gain rates.
However, the legislation authorizes the Treasury Department to promulgate
regulations that would apply the new rates to registered investment company
capital gain dividends.

Investors should be aware that any loss realized upon the sale, exchange or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent any capital gain dividends have been paid with
respect to such shares. Any loss incurred on the sale or exchange of the
Portfolio's shares, held six months or less, will be disallowed to the extent of
exempt-interest dividends paid with respect to such shares, and any loss not so
disallowed will be treated as a long-term capital loss to the extent of capital
gain dividends received with respect to such shares.

-39-
<PAGE>

Generally, futures contracts held by the Portfolio at the close of the
Portfolio's taxable year will be treated for Federal income tax purposes as sold
for their fair market value on the last business day of such year, a process
known as "marking-to-market." Forty percent of any gain or loss resulting from
such constructive sale will be treated as short-term capital gain or loss and
60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time the Portfolio holds the futures contract
("the 40-60 rule"). The amount of any capital gain or loss actually realized by
the Portfolio in a subsequent sale or other disposition of those futures
contracts will be adjusted to reflect any capital gain or loss taken into
account by the Portfolio in a prior year as a result of the constructive sale of
the contracts. With respect to futures contracts to sell, which will be
regarded as parts of a "mixed straddle" because their values fluctuate inversely
to the values of specific securities held by the Portfolio, losses as to such
contracts to sell will be subject to certain loss deferral rules which limit the
amount of loss currently deductible on either part of the straddle to the amount
thereof which exceeds the unrecognized gain (if any) with respect to the other
part of the straddle, and to certain wash sales regulations. Under short sales
rules, which also will be applicable, the holding period of the securities
forming part of the straddle will (if they have not been held for the long-term
holding period) be deemed not to begin prior to termination of the straddle.
With respect to certain futures contracts, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such, the
Portfolio may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for Federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales, loss deferral rules and
the requirement to capitalize interest and carrying charges. Under temporary
regulations, the Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, the 40-60 rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term
and no more than 40% of any net loss may be treated as short-term. Options on
futures contracts generally receive Federal tax treatment similar to that
described above.

-40-
<PAGE>

Special rules govern the Federal income tax treatment of the Portfolio's
transactions that are denominated in terms of a currency other than the U.S.
dollar or determined by reference to the value of one or more currencies other
than the U.S. dollar. The types of transactions covered by the special rules
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
regulations, certain preferred stock); (ii) the accruing of certain trade
receivables and payables; (iii) the entering into or acquisition of any forward
contract or similar financial instruments; and (iv) the entering into or
acquisition of any futures contract, option or similar financial instrument, if
such instrument is not marked-to-market. The disposition of a currency other
than the U.S. dollar by a U.S. taxpayer also is treated as a transaction subject
to the special currency rules. With respect to such transactions, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts that are capital assets
in the hands of the taxpayer and which are not part of a straddle ("Capital
Asset Election"). In accordance with Treasury regulations, certain transactions
with respect to which the taxpayer has not made the Capital Asset Election and
that are part of a "Section 988 hedging transaction" (as defined in the Code and
the Treasury regulations) are integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" (as identified by such

-41-
<PAGE>

Treasury regulations) are not subject to the mark-to-market or loss deferral
rules under the Code. Some of the non-U.S. dollar-denominated investments that
the Portfolio may make (such as non-U.S. dollar-denominated debt securities and
obligations and preferred stock) and some of the foreign currency contracts, the
Portfolio may enter into will be subject to the special currency rules described
above. Gain or loss attributable to the foreign currency component of
transactions engaged in by the Portfolio which is not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks) will be treated as capital gain or loss and will not be segregated from
the gain or loss on the underlying transaction.

In addition, certain forward foreign currency contracts held by the
Portfolio at the close of the Fund's taxable year will be subject to "mark-to-
market" treatment. If the Fund makes the Capital Asset Election with respect to
such contracts, the contract will be subject to the 40-60 rule described above.
Otherwise, such gain or loss will be ordinary in nature. To receive such
Federal income tax treatment, a foreign currency contract must meet the
following conditions: (1) the contract must require delivery of a foreign
currency of a type in which regulated futures contracts are traded or upon which
the settlement value of the contract depends; (2) the contract must be entered
into at arm's length at a price determined by reference to the price in the
interbank market; and (3) the contract must be traded in the interbank market.
The Treasury Department has broad authority to issue regulations under these
provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information the Treasury has not issued any such
regulations. Forward foreign currency contracts entered into by the Portfolio
also may result in the creation of one or more straddles for Federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales rules
and requirements to capitalize interest and carrying charges may apply.

If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends to the extent of the
Portfolio's current and accumulated earnings and profits. Such distributions
will be eligible for the dividends received deduction in the case of corporate
shareholders.

A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain

-42-
<PAGE>

net income prior to the end of each calendar year to avoid liability for this
excise tax.

The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend income
properly, or (iii) who has failed to certify to the Fund when required to do so
that he is not subject to backup withholding or that he is an "exempt
recipient."

Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolio each year.

The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

Although the Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities.
Shareholders should consult their tax advisors about state and local tax
consequences, which may differ from the Federal income tax consequences
described above.

ADDITIONAL INFORMATION CONCERNING SHARES

Shares of the Fund have noncumulative voting rights and, accordingly, the
holders of more than 50% of the Fund's outstanding shares (irrespective of
class) may elect all of the trustees. Shares have no preemptive rights and only
such conversion and exchange rights as the Board may grant in its discretion.
When issued for payment as described in the Prospectus, shares will be fully
paid and non-assessable by the Fund.

There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as required by law. At that time,
the trustees then in office will call a shareholders meeting to elect trustees.
Except as set

-43-
<PAGE>

forth above, the trustees shall continue to hold office and may appoint
successor trustees. The Fund's Declaration of Trust provides that meetings of
the shareholders of the Fund shall be called by the trustees upon the written
request of shareholders owning at least 10% of the outstanding shares entitled
to vote.

Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Fund shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
investment portfolio affected by such matter. Rule 18f-2 further provides that
an investment portfolio shall be deemed to be affected by a matter unless the
interests of each investment portfolio in the matter are substantially identical
or the matter does not affect any interest of the investment portfolio. Under
the Rule, the approval of an investment advisory agreement, a distribution plan
subject to Rule 12b-1 under the 1940 Act or any change in a fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of the outstanding shares of such
investment portfolio. However, the Rule also provides that the ratification of
the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by shareholders of the Fund voting together in the aggregate without regard
to a particular investment portfolio.

The proceeds received by the Portfolio for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of the Portfolio. The underlying assets
of the Portfolio will be segregated on the books of account, and will be charged
with the liabilities in respect to the Portfolio and with a share of the general
liabilities of the Fund. As stated in the Prospectus, certain expenses of the
Portfolio may be charged to a specific class of shares representing interests in
the Portfolio.

The Fund's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to: (i)
sell and convey the assets belonging to a class of shares to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of such
class to be redeemed at a price which is equal to their net asset value and
which may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (ii) sell and convert the
assets belonging to one or more classes of shares into money and, in connection
therewith, to cause all outstanding shares of such

-44-
<PAGE>

class to be redeemed at their net asset value; or (iii) combine the assets
belonging to a class of shares with the assets belonging to one or more other
classes of shares if the Board of Trustees reasonably determines that such
combination will not have a material adverse effect on the shareholders of any
class participating in such combination and, in connection therewith, to cause
all outstanding shares of any such class to be redeemed or converted into shares
of another class of shares at their net asset value. The Board of Trustees may
authorize the liquidation and termination of any Portfolio or class of shares.
Upon any liquidation of the Portfolio, Shareholders of each class of the
Portfolio are entitled to share pro rata in the net assets belonging to that
class available for distribution.

MISCELLANEOUS

COUNSEL. The law firm of Simpson Thacher & Bartlett (a partnership which
includes professional corporations), 425 Lexington Avenue, New York, New York
10017, serves as the Fund's counsel.

INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., with offices located at
2400 Eleven Penn Center, Philadelphia, PA, serves as the Fund's independent
accountants.

On August 12, 1997, PNC Bank held of record approximately 78% of the
Fund's outstanding shares, and may be deemed a controlling person of the Fund
under the 1940 Act. PNC Bank is a national bank organized under the laws of the
United States. All of the capital stock of PNC Bank is owned by PNC Bancorp,
Inc. All of the capital stock of PNC Bancorp, Inc. is owned by PNC Bank Corp.,
a publicly-held bank holding company.

BANKING LAWS. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956 or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, administrator, transfer agent or custodian to such an
investment company, or from purchasing shares of such a company as agent for and
upon the order of customers. PAMG, CastleInternational, PNC Bank and other
institutions that are banks or bank affiliates are subject to such banking laws
and regulations.

PAMG, CastleInternational and PNC Bank believe they may perform the
services for the Fund contemplated by their respective agreements with the Fund
without violation of applicable banking laws or regulations. It should be
noted,

-45-
<PAGE>

however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either Federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Trustees would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.

SHAREHOLDER APPROVALS. As used in this Statement of Additional Information
and in the Prospectus, a "majority of the outstanding shares" of a class, series
or the Portfolio means, with respect to the approval of an investment advisory
agreement, a distribution plan or a change in a fundamental investment policy,
the lesser of (1) 67% of the shares of the particular class, series or the
Portfolio represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or the Portfolio are present in person
or by proxy, or (2) more than 50% of the outstanding shares of such class,
series or the Portfolio.

-46-
<PAGE>

APPENDIX A
----------

COMMERCIAL PAPER RATINGS
- ------------------------

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:

"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."

"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.

"B" - Issue has only a speculative capacity for timely payment.

"C" - Issue has a doubtful capacity for payment.

"D" - Issue is in payment default.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:

"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.

"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-

A-1
<PAGE>

term promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.

"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

"Not Prime" - Issuer does not fall within any of the Prime rating
categories.

The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:

"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.

"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

A-2
<PAGE>

"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:

"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."

"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.

"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.

"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.

"D" - Securities are in actual or imminent payment default.

Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.

Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:

A-3
<PAGE>

"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.

"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.

"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.

IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:

"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.

"A1" - Obligations are supported by the highest capacity for timely
repayment.

"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.

"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.

"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.

"C" - Obligations for which there is a high risk of default or which
are currently in default.

A-4
<PAGE>

APPENDIX B
----------

As stated in the Prospectus, the Portfolio may enter into certain
futures transactions. Such transactions are described in this Appendix.

I. Index Futures Contracts
-----------------------

General. With regard to the Portfolio, the Adviser anticipates
-------
engaging in transactions, from time to time, in foreign stock index futures such
as the ALL-ORDS (Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100
(United Kingdom). A stock or bond index assigns relative values to the stocks or
bonds included in the index, which fluctuates with changes in the market values
of the stocks or bonds included. Some stock index futures contracts are based
on broad market indexes, such as Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indexes, such as the Standard & Poor's 100 or
indexes based on an industry or market indexes, such as Standard & Poor's 100 or
indexes based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through
a clearing corporation, which guarantees the performance of the parties to each
contract. With regard to the Portfolio, to the extent consistent with its
investment objective, the Adviser anticipates engaging in transactions, from
time to time, in foreign stock index futures such as the ALL-ORDS (Australia),
CAC-40 (France), TOPIX (Japan) and the FTSE-100 (United Kingdom).

The Portfolio may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Portfolio may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the
Portfolio may purchase index futures contracts in anticipation of purchases of
securities. A long futures position may be terminated without a corresponding
purchase of securities.

In addition, the Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Portfolio may also sell futures contracts in connection with this strategy,
in order to protect against the possibility that the value of the securities to
be

B-1
<PAGE>

sold as part of the restructuring of the portfolio will decline prior to the
time of sale.

II. Futures Contracts on Foreign Currencies
---------------------------------------

A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency, for an amount fixed in U.S.
dollars (or another currency). Foreign currency futures may be used by the
Portfolio to hedge against exposure to fluctuations in exchange rates between
different currencies arising from multinational transactions.

III. Margin Payments
---------------

Unlike purchase or sales of portfolio securities, no price is paid or
received by the Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with a custodian an amount of liquid assets known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when the Portfolio has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the
Portfolio will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Portfolio has purchased
a futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Portfolio would be required to make a variation margin payment to the
broker. Prior to expiration of the futures contract, the Adviser may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Portfolio's position
in the futures contract. A final determination of variation margin is then
made, additional cash is required to be paid by or released to the Portfolio,
and the Portfolio realizes a loss or gain.

B-2
<PAGE>

V. Risks of Transactions in Futures Contracts
------------------------------------------

There are several risks in connection with the use of futures by the
Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of a hedge. The price of the
future may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the instruments being hedged has moved
in a favorable direction, this advantage will be partially offset by the loss on
the futures. If the price of the futures moves more than the price of the
hedged instruments, the Portfolio involved will experience either a loss or gain
on the futures which will not be completely offset by movements in the price of
the instruments which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of instruments being hedged and
movements in the price of futures contracts, the Portfolio may buy or sell
futures contracts in a greater dollar amount than the dollar amount of
instruments being hedged if the volatility over a particular time period of the
prices of such instruments has been greater than the volatility over such time
period of the futures, or if otherwise deemed to be appropriate by the Adviser.
Conversely, the Portfolio may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the instruments being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the Adviser. It is also
possible that, where the Portfolio has sold futures to hedge its portfolio
against a decline in the market, the market may advance and the value of
instruments held in the Portfolio may decline. If this occurred, the Portfolio
would lose money on the futures and also experience a decline in value in its
portfolio securities.

When futures are purchased to hedge against a possible increase in the
price of securities or a currency before the Portfolio is able to invest its
cash (or cash equivalents) in an orderly fashion, it is possible that the market
may decline instead; if the Portfolio then concludes not to invest its cash at
that time because of concern as to possible further market decline or for other
reasons, the Portfolio will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be purchased.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the

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<PAGE>

cash market due to certain market distortions. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through off-
setting transactions which could distort the normal relationship between the
cash and futures markets. Second, with respect to financial futures contracts,
the liquidity of the futures market depends on participants entering into off-
setting transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced thus producing distortions. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.

Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of fluctuation
in a futures contract price during a single trading day. Once the daily limit
has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open futures positions.
The trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it

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<PAGE>

difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Successful use of futures by the Portfolio is also subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if the Portfolio has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Portfolio will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. The
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.

The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.

VI. Options on Futures Contracts
----------------------------

The Portfolio may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Portfolio will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net

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<PAGE>

option premiums received will be included as initial margin deposits. As an
example, in anticipation of a decline in interest rates, the Portfolio may
purchase call options on futures contracts as a substitute for the purchase of
futures contracts to hedge against a possible increase in the price of
securities which the Portfolio intends to purchase. Similarly, if the value of
the securities held by the Portfolio is expected to decline as a result of an
increase in interest rates, the Portfolio might purchase put options or sell
call options on futures contracts rather than sell futures contracts.

Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities or
currencies being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities or currencies. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Portfolio because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar
to those risks relating to the sale of futures contracts.

VII. Other Matters
-------------

Accounting for futures contracts will be in accordance with generally
accepted accounting principles.

B-6