NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
Compass Capital FundsSM (the "Fund") (formerly The PNC(R) Fund) was organized on December 22, 1988 as
a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund currently has 31 investment portfolios. These financial
statements relate to the Fund's Multi-Sector Mortgage Securities Portfolio III (the "Portfolio"). The Portfolio is
authorized to issue an unlimited number of shares with a par value of $0.001.
As of March 31, 1997, 99.97% of the shares of capital stock of the Portfolio are owned by Ameritech
The following is a summary of significant accounting policies followed by the Fund.
SECURITIES VALUATION: The Fund values mortgage-backed, asset-backed and other debt securities on the
basis of current market quotations provided by dealers or pricing services approved by the Fund's Board of
Trustees. In determining the value of a particular security, pricing services may use certain information with
respect to transactions in such securities, quotations from dealers, market transactions in comparable securities,
various relationships observed in the market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded options are valued at their
last sales price as of the close of options trading on the applicable exchanges. In the absence of a last sale,
options are valued at the average of the quoted bid and asked prices as of the close of business. A futures
contract is valued at the last sale price as of the close of the commodities exchange on which it trades. Any
securities or other assets for which such current market quotations are not readily available are valued at fair
value as determined in good faith under procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees.