<PAGE> 1
IMPORTANT SHAREHOLDER INFORMATION
STEPSTONE FUNDS
The document you hold in your hands contains your Combined Proxy
Statement/Prospectus and proxy card. A proxy card is, in essence, a ballot.
When you vote your proxy, it tells us how to vote on your behalf on important
issues relating to Stepstone. If you simply sign the proxy without specifying
a vote, your shares will be voted in accordance with the recommendations of the
Board of Trustees.
We urge you to spend a few minutes with the Combined Proxy Statement/
Prospectus, fill out your proxy card, and return it to us. Voting your proxy,
and doing so promptly, enables Stepstone to avoid conducting additional
mailings. When Shareholders do not return their proxies in sufficient numbers,
the Funds may bear the expense of follow-up solicitations.
Please take a few moments to exercise your right to vote. Thank you.
The Combined Proxy Statement/Prospectus constitutes the Proxy Statement of
Stepstone Funds for the meeting of its shareholders. It also constitutes the
Prospectus of HighMark Funds for 13 of its portfolios which are to issue shares
in connection with the proposed reorganization - HighMark Diversified Money
Market Fund, HighMark 100% U.S. Treasury Money Market Fund, HighMark California
Tax-Free Money Market Fund, HighMark Balanced Fund, HighMark Growth Fund,
HighMark Value Momentum Fund, HighMark Blue Chip Growth Fund, HighMark Emerging
Growth Fund, HighMark International Equity Fund, HighMark Intermediate-Term
Bond Fund, HighMark Convertible Securities Fund, HighMark Government Securities
Fund and HighMark California Intermediate Tax-Free Bond Fund.
-3-
<PAGE> 2
IMPORTANT PROXY INFORMATION ENCLOSED
- IMMEDIATE ACTION REQUIRED -
(Insert Stepstone Logo)
To Stepstone Shareholders:
You may have recently received a letter announcing the merger of the Stepstone
and HighMark Funds. The merger of the two fund families is the result of the
merger of The Bank of California, N.A. and Union Bank. It was explained in the
letter that over the next several months you could expect to receive additional
information about the merger and that you may, in fact, be asked to vote on the
merger.
The purpose of this proxy package is to announce that a Shareholder Meeting
(the "Meeting") for the Stepstone Funds (collectively the "Funds") has been
scheduled for Friday, April 11, 1997. The purpose of the meeting is to submit
the Agreement & Plan of Reorganization (the "Reorganization") between the
Stepstone and HighMark Funds to the shareholders for a vote.
The Trustees of the Stepstone Funds approved the Reorganization at a meeting
held on October 17, 1996. In coming to this conclusion, the Trustees considered
a variety of factors including:
* the qualifications of the advisor;
* the expense ratios of the combined fund family;
* the potential economies of scale to be gained by the merger;
* the advantages of increased investment opportunities for
Stepstone shareholders; and
* the fact that the merger will be free from Federal income taxes.
The details of the proposed Reorganization are set forth in the combined
prospectus and proxy statement that accompanies this letter. We encourage you
to read them thoroughly. In addition, we have included a list of commonly asked
questions and answers on the next page.
Most shareholders cast their votes by filling out and signing the enclosed proxy
card. In order to conduct the Meeting a majority of shares must be represented.
YOUR VOTE IS VERY IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
We thank you for your confidence and support.
Stepstone Funds
IMPORTANT PROXY INFORMATION ENCLOSED
- IMMEDIATE ACTION REQUIRED -
<PAGE> 3
Q. WHY IS THE BOARD OF TRUSTEES PROPOSING TO REORGANIZE THE STEPSTONE AND
HIGHMARK FUNDS?
A. As you are aware, Union Bank and The Bank of California, N.A. merged on
April 1, 1996 to form Union Bank of California, N.A. In conjunction with the
merger, the Boards of Trustees of the two former banks' proprietary mutual fund
groups have approved the consolidation of fund groups into one mutual fund
family. Before approving the integration of the Stepstone and HighMark Funds,
the Stepstone Trustees evaluated the expanded range of investment alternatives
that would be available to shareholders, the opportunities for increased
economies of scale, and the potential for improved shareholder service. After
careful consideration, they determined that the Agreement & Plan of
Reorganization is in the best interest of the Stepstone shareholders. Through
this proxy, they are submitting the proposal for Reorganization to you - the
Stepstone shareholders - for a vote.
Q. WHAT WILL HAPPEN TO MY INVESTMENT IN THE STEPSTONE FUNDS IF THIS PROPOSAL
IS APPROVED?
A. The Reorganization provides for the transfer of all of the assets of each
Stepstone Fund into its corresponding HighMark Fund in exchange for shares of
the HighMark Fund. Every Stepstone shareholder will receive shares of HighMark
equal in value to their Stepstone shares. In certain cases, the NAV of your
fund may change. However, in these cases the number of shares that you own will
be adjusted so that there will be NO CHANGE in the market value of your account
as a result of the merger.
Q. WILL THE REORGANIZATION AFFECT THE OBJECTIVES AND POLICIES OF THE FUNDS?
A. Generally, the investment objectives and policies of the Stepstone Funds
will NOT undergo material changes as a result of the Reorganization. The only
Stepstone Fund that will experience a significant change in its investment
policy is the Treasury Money Market. The Reorganization provides for the merging
of the Stepstone Treasury Money Market and the HighMark 100% U.S. Treasury
Money Market. While the Stepstone Fund invests in both U.S. Treasuries and
repurchase agreements, the HighMark Fund invests exclusively in U.S. Treasuries.
The new HighMark 100% U.S. Treasury Money Market Fund will only invest in U.S.
Treasuries.
Q. HOW WILL FEES AND EXPENSE RATIOS CHANGE AS A RESULT OF THE MERGER?
A. Our goal throughout the merger planning process has been to minimize any
adverse impact of fee and expense ratio changes on the Stepstone shareholders.
For the most part, the expense ratios of the new HighMark Funds will be the same
as those that are currently in effect. While a few funds will carry a slightly
higher overall expense ratio after the merger, it is important to note that the
fees will continue to remain well below industry medians as tracked by Lipper
Analytical Services, Inc. Detailed information regarding current fund expenses
and estimated post-merger fund expenses are presented in the fee tables of the
accompanying combined prospectus and proxy statement.
Q. WHAT IF I DO NOT RETURN MY PROXY VOTING BALLOT?
A. In order to conduct the Shareholder Meeting a quorum must be present, in
person or by proxy. A quorum is defined as representation of over 50% of the
shares outstanding for each Fund as of February 12, 1997. In the event that
not enough shareholders return the enclosed proxy ballot card to achieve quorum,
we will be forced to incur additional expense associated with additional
solicitations. In order to avoid additional costs, please return the completed
proxy ballot as soon as possible.
<PAGE> 4
Q. HOW DO THE BOARD MEMBERS SUGGEST THAT I VOTE?
A. After careful consideration, the Board members of the Stepstone Funds,
including the independent members, recommend that you vote "FOR" the
Agreement & Plan of Reorganization. The Board also wishes to remind you
to vote and return all the proxy ballot cards you receive.
Q. WHO SHOULD I CALL WITH QUESTIONS ABOUT THIS PROXY?
A. If you have any questions regarding this proxy, please contact your
account administrator, investment sales representative, or the Stepstone
Funds directly at 1-800-734-2922.
PLEASE SIGN & RETURN THE ENCLOSED PROXY BALLOT CARD
YOUR VOTE IS VERY IMPORTANT
<PAGE> 5
THE STEPSTONE FUNDS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of :
Stepstone Money Market Fund
Stepstone Treasury Money Market Fund
Stepstone California Tax-Free Money Market Fund
Stepstone Balanced Fund
Stepstone Growth Equity Fund
Stepstone Value Momentum Fund
Stepstone Blue Chip Growth Fund
Stepstone Emerging Growth Fund
Stepstone International Equity Fund
Stepstone Intermediate-Term Bond Fund
Stepstone Convertible Securities Fund
Stepstone Government Securities Fund
Stepstone California Intermediate Tax-Free Bond Fund
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the
above-referenced funds (collectively the "Stepstone Funds"), separate series of
the Stepstone Funds ("Stepstone"), will be held at SEI Fund Resources, Oaks,
Pennsylvania on Friday, April 11, 1997 at 3:00 p.m., Eastern time, for the
following purposes:
1. To consider and act upon an Agreement and Plan of
Reorganization ("Agreement") between Stepstone and HighMark
Funds ("HighMark") providing for the transfer of all of the
assets of each Stepstone Fund to the corresponding HighMark
Fund as listed below in exchange for Fiduciary and Retail
shares (collectively, "Shares") of such HighMark Fund and the
assumption by such HighMark Fund of all of the liabilities of
such Stepstone Fund, followed by the dissolution and
liquidation of such Stepstone Fund, and the distribution of
Shares of such HighMark Fund to the shareholders of such
Stepstone Fund:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------
Stepstone Money Market Fund HighMark Diversified Money Market Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Treasury Money Market Fund HighMark 100% U.S. Treasury Money Market Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone California Tax-Free Money Market Fund HighMark California Tax-Free Money Market Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Balanced Fund HighMark Balanced Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Growth Equity Fund HighMark Growth Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Value Momentum Fund HighMark Value Momentum Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Blue Chip Growth Fund HighMark Blue Chip Growth Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Emerging Growth Fund HighMark Emerging Growth Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone International Equity Fund HighMark International Equity Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Intermediate-Term Bond Fund HighMark Intermediate-Term Bond Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone Convertible Securities Fund HighMark Convertible Securities Fund
- ------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE> 6
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------
Stepstone Government Securities Fund HighMark Government Securities Fund
- ------------------------------------------------------------------------------------------------------------
Stepstone California Intermediate Tax-Free Bond Fund HighMark California Intermediate Tax-Free Bond Fund
- ------------------------------------------------------------------------------------------------------------
</TABLE>
2. To transact such other business as may properly come before
the Meeting or any adjournment or adjournments thereof.
The proposed transaction is described in the attached Combined
Prospectus/Proxy Statement. A copy of the Agreement is attached as Appendix A
thereto.
Pursuant to instructions of the Board of Trustees of Stepstone, the
close of business on February 12, 1997, has been designated as the record date
for determination of shareholders entitled to notice of, and to vote at, the
Meeting.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY
STEPSTONE'S BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED
BY SUBMITTING TO STEPSTONE A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
By Order of the Trustees
[ ]
[ ]
STEPSTONE FUNDS
Oaks, Pennsylvania
March 14, 1997
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<PAGE> 7
PROSPECTUS/PROXY STATEMENT
March 1, 1997
HighMark Funds Stepstone Funds
Oaks, PA 19456 Oaks, PA 19456
Tel. No. 1-800-433-6884 Tel. No. 1-800-433-6884
COMBINED PROSPECTUS/PROXY STATEMENT
This Combined Prospectus/Proxy Statement is furnished in connection
with the solicitation of proxies from the holders of units of beneficial
interest ("shares") of the Stepstone Funds for use at a Special Meeting of
Shareholders of the Stepstone Funds to approve an Agreement and Plan of
Reorganization ("Agreement") between the Stepstone Funds ("Stepstone") and the
HighMark Funds ("HighMark") dated as of March 5, 1997, a copy of which is
attached hereto as Appendix A, and the consummation of the transactions
(collectively, the "Transaction") contemplated therein. The Agreement
contemplates the transfer of all of the assets and liabilities of each
Stepstone Fund to corresponding investment portfolios of HighMark in exchange
for Fiduciary and Retail shares of the corresponding HighMark Fund
(collectively "Shares"), followed by the dissolution and liquidation of the
respective Stepstone Fund and the distribution of Shares to the shareholders of
the Stepstone Fund. As a result of the proposed Transaction, each shareholder
of the above-referenced Stepstone Funds will receive on a tax-free basis, a
number of full and fractional Shares of the corresponding HighMark Fund equal
at the date of the exchange to the value of the net assets of each Stepstone
Fund transferred to the corresponding HighMark Fund attributable to the
shareholder (based on the proportion of the outstanding shares of the Stepstone
Fund owned at that time by the shareholder). If the Stepstone Fund shareholder
of record has Institutional Class shares, that shareholder will receive
HighMark Fiduciary shares. All other Stepstone shareholders will receive
HighMark Retail shares.
The respective Stepstone Funds correspond to the HighMark Funds as
follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
Stepstone Money Market Fund ("Stepstone Money HighMark Diversified Money Market Fund ("HighMark
Market") Diversified Money Market")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Treasury Money Market Fund ("Stepstone HighMark 100% U.S. Treasury Money Market Fund
Treasury Money Market") ("HighMark 100% U.S. Treasury Money Market")
- ---------------------------------------------------------------------------------------------------------------
Stepstone California Tax-Free Money Market Fund HighMark California Tax-Free Money Market Fund
("Stepstone California Tax-Free Money Market") ("HighMark California Tax-Free Money Market")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Balanced Fund ("Stepstone Balanced") HighMark Balanced Fund ("HighMark Balanced")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Growth Equity Fund ("Stepstone Growth HighMark Growth Fund ("HighMark Growth")
Equity")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Value Momentum Fund ("Stepstone Value HighMark Value Momentum Fund ("HighMark Value
Momentum") Momentum")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Blue Chip Growth Fund ("Stepstone Blue HighMark Blue Chip Growth Fund ("HighMark Blue Chip
Chip Growth") Growth")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Emerging Growth Fund ("Stepstone Emerging HighMark Emerging Growth Fund ("HighMark Emerging
Growth") Growth")
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 8
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
Stepstone International Equity Fund ("Stepstone HighMark International Equity Fund ("HighMark
International Equity") International Equity")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Intermediate-Term Bond Fund ("Stepstone HighMark Intermediate-Term Bond Fund ("HighMark
Intermediate-Term Bond") Intermediate-Term Bond")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Convertible Securities Fund ("Stepstone HighMark Convertible Securities Fund ("HighMark
Convertible Securities") Convertible Securities")
- ---------------------------------------------------------------------------------------------------------------
Stepstone Government Securities Fund ("Stepstone HighMark Government Securities Fund ("HighMark
Government Securities") Government Securities")
- ---------------------------------------------------------------------------------------------------------------
Stepstone California Intermediate Tax-Free Bond HighMark California Intermediate Tax-Free Bond Fund
Fund ("Stepstone California Intermediate Tax-Free ("HighMark California Intermediate Tax-Free Bond")
Bond")
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(such funds each are a "Stepstone Fund" or a "HighMark Fund" and are
collectively the "Stepstone Funds" or the "HighMark Funds").
This Combined Prospectus/Proxy Statement explains concisely what you
should know before investing in the HighMark Funds. Please read it and keep it
for future reference. This Combined Prospectus/Proxy Statement is accompanied
by the prospectuses relating to the HighMark Funds, each of which is dated
February 26, 1997 (the "HighMark Prospectuses"), which contain information
about the HighMark Funds, as well as the current prospectuses relating to the
Stepstone Funds dated May 28, 1996 (the "Stepstone Prospectuses"), which
contain information about the Stepstone Funds, all of which are incorporated
into this Combined Prospectus/Proxy Statement by reference. The current
Statement of Additional Information of the HighMark Funds, dated February 26,
1997, has been filed with the Securities and Exchange Commission and is
incorporated into this Combined Prospectus/Proxy Statement by reference. The
Statement of Additional Information of HighMark may be obtained, without
charge, by writing SEI Financial Services Company, Oaks, PA 19456 or by
calling 1-800- 433-6884. The Statement of Additional Information of the
Stepstone Funds, dated May 28, 1996, has been filed with the Securities and
Exchange Commission and is incorporated into this Combined Prospectus/Proxy
Statement by reference. The Statement of Additional Information of the
Stepstone Funds may be obtained, without charge, by writing SEI Financial
Services Company at the above-listed address or by calling 1-800- 433-6884. In
addition, a Statement of Additional Information dated March 1, 1997
relating to the Transaction described in this Combined Prospectus/Proxy
Statement has been filed with the Securities and Exchange Commission and is
also incorporated into this Combined Prospectus/Proxy Statement by reference.
Such Statement of Additional Information may be obtained, without charge, by
writing SEI Financial Services Company at the above-listed address or by
calling 1-800- 433-6884.
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
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------------------------------------------------------
THE SHARES OF HIGHMARK OFFERED HEREBY ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING UNION BANK OF
CALIFORNIA, N.A., BANK OF TOKYO-MITSUBISHI, LIMITED OR ANY OF THEIR
AFFILIATES OR CORRESPONDENTS. HIGHMARK'S SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK INVOLVES RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
------------------------------------------------------------------------
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<PAGE> 9
[BACK COVER PAGE]
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT IN
CONNECTION WITH THE OFFERING MADE BY THIS COMBINED PROSPECTUS/PROXY STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY STEPSTONE OR BY HIGHMARK. THIS COMBINED
PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-10-
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROPOSAL (1) APPROVAL OF AGREEMENT AND
PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . .
FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . .
SYNOPSIS OF PROSPECTUSES . . . . . . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . .
SPECIAL MEETING OF SHAREHOLDERS . . . . . . . . . . . . . .
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . .
BACKGROUND AND REASONS FOR THE PROPOSED
REORGANIZATION . . . . . . . . . . . . . . . . . . . . . .
INFORMATION ABOUT THE REORGANIZATION . . . . . . . . . .
HIGHMARK FUNDS . . . . . . . . . . . . . . . . . . . . . .
STEPSTONE FUNDS . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . .
INFORMATION FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION . . . . . . . . . . . . . . . . . . .
FORM OF AGREEMENT AND PLAN OF REORGANIZATION . . . . . .
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . .
FEE TABLES -- APPENDIX B . . . . . . . . . . . . . . . . .
HIGHMARK ANNUAL REPORT -- APPENDIX C . . . . . . . . . . .
</TABLE>
-11-
<PAGE> 11
PROPOSAL (1) -- APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
At a meeting held on October 17, 1996, all of the Trustees of
Stepstone unanimously approved an Agreement and Plan of Reorganization by and
between Stepstone and HighMark providing for the transfer of all of the assets
of each Stepstone Fund to its corresponding HighMark Fund in exchange for
Shares of beneficial interest of such HighMark Fund and the assumption by such
HighMark Fund of all of the liabilities of such Stepstone Fund.
Following the transfer, each of the Stepstone Funds will be dissolved
and the Shares received by each Stepstone Fund will be distributed to the
respective shareholders of such Stepstone Funds in liquidation of the Stepstone
Funds. As a result of the proposed Transaction, shareholders of each Stepstone
Fund will receive, on a tax-free basis, a number of full and fractional Shares
equal in value at the date of the exchange to the value of the net assets of
the Stepstone Fund transferred to the corresponding HighMark Fund attributable
to the shareholder (based on the proportion of the outstanding shares of the
Stepstone Fund owned at the time by the shareholder). If the Stepstone Fund
shareholder of record has Institutional Class shares, that shareholder will
receive HighMark Fiduciary shares. All other Stepstone shareholders will
receive HighMark Retail Class shares.
For the reasons set forth below under "Background and Reasons for the
Proposed Reorganization," the Board of Trustees of Stepstone and HighMark,
including Trustees of Stepstone and HighMark who are not "interested persons"
of either Stepstone or HighMark as defined in the Investment Company Act of
1940 (the "1940 Act") (the "Independent Trustees"), unanimously concluded that
participation in the proposed Transaction is in the best interests of the
respective registered investment companies and their respective existing
shareholders and that the economic interests of their respective existing
shareholders will not be diluted as a result of effecting the proposed
Transaction.
In reaching this conclusion, the Trustees considered, among other
things, the qualifications and experience of Union Bank of California, N.A.
(the "Advisor"); the projected expense ratios of each HighMark Fund compared to
the corresponding Stepstone Fund, and the potential economies of scale which
could be realized over time by former Stepstone Fund shareholders as each
HighMark Fund increases in size; the services to be provided to HighMark
Shareholders, including the availability of portfolios with objectives,
policies and services similar to those of the Stepstone Funds; the
recommendation of the Advisor in favor of the Transaction; and the fact that
the Transaction will be free from Federal income taxes to the Stepstone Funds
and the HighMark Funds and their shareholders.
FEE TABLES
Fee tables showing the current fees for the Stepstone and HighMark
Funds can be found in Appendix B at the end of this Combined Prospectus/Proxy
Statement. Because the fees for the HighMark Funds following the Transaction
will be identical to the current fees for the HighMark Funds as set forth in
the fee tables, no pro forma fees are provided. As shown in the fee tables, in
some instances, the HighMark fees and expenses following the merger are lower
than the current Stepstone fees, in some instances they are higher.
-12-
<PAGE> 12
SYNOPSIS OF PROSPECTUSES
Investment Objectives and Policies. Below is a brief comparison of
the investment objectives and policies of each Stepstone Fund and the
corresponding HighMark Fund. Following the Fund by Fund comparisons, there is
a brief comparison of investment policies and techniques that are common to all
of the Funds. The following discussion is qualified in its entirety by the
disclosure on such subjects contained in the HighMark Prospectuses and the
Stepstone Prospectuses accompanying this Combined Prospectus/Proxy Statement.
For a full and detailed description of permitted investments, see the
applicable HighMark and Stepstone Prospectuses. For a discussion of the risk
factors of these investments, see Risk Factors below, and the applicable
HighMark and Stepstone prospectuses.
Reflecting the fact that Union Bank of California, N.A. serves as
investment advisor to both Stepstone and HighMark, the corresponding
portfolios are similar in almost all respects. In addition, HighMark Value
Momentum, HighMark Blue Chip Growth, HighMark Emerging Growth, HighMark
International Equity, HighMark Intermediate-Term Bond, HighMark
Convertible Securities, HighMark Government Securities and HighMark
California Intermediate Tax-Free Bond are each new Funds created by HighMark to
receive the assets of the corresponding Stepstone Fund, and were therefore
designed to be virtually identical to such Stepstone Funds.
The securities currently held by each Stepstone Fund are substantially
similar to those securities which the corresponding HighMark Fund may hold.
Consequently, the proposed reorganizations of the Stepstone Funds should not
result in higher than normal portfolio turnover due to the corresponding
HighMark Fund's disposal of investment securities.
STEPSTONE MONEY MARKET AND HIGHMARK DIVERSIFIED MONEY MARKET As its
investment objective, Stepstone Money Market seeks to preserve principal value
and maintain a high degree of liquidity while providing current income.
Similarly, HighMark Diversified Money Market seeks current income with
liquidity and stability of principal. Both Stepstone Money Market and HighMark
Diversified Money Market invest in U.S. dollar denominated obligations
determined by the Advisor to present minimal credit risks under guidelines
adopted by each of HighMark's and Stepstone's Board of Trustees.
For both Stepstone Money Market and HighMark Diversified Money Market,
such obligations include:
(i) obligations issued by the U.S. Government, and backed by its
full faith and credit, and obligations issued or guaranteed as
to principal and interest by the agencies or instrumentalities
of the U.S. Government;
(ii) obligations such as bankers' acceptances, bank notes,
certificates of deposit and time deposits of thrift
institutions, savings and loans, U.S. commercial banks
(including foreign branches of such banks), and U.S. and
foreign branches of foreign banks;
(iii) short-term promissory notes issued by corporations, including
Canadian Commercial Paper ("CCP") and Europaper;
(iv) U.S. dollar denominated securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities, and obligations of supranational entities
such as the World Bank and the Asian Development Bank;
(v) loan participations;
(vi) readily-marketable, short-term debt securities including, but
not limited to, those backed by company receivables, truck and
auto loans, leases, and credit card loans;
(vii) Treasury receipts, including TRs, TIGRs and CATs; and
(viii) repurchase agreements involving such obligations.
Subject to the provisions of Rule 2a-7 under the 1940 Act, investments
of both Stepstone Money Market and HighMark Diversified Money Market consist of
those obligations that, at the time of purchase, possess the highest short-term
rating from at least one nationally recognized statistical rating organization
("NRSRO") (for example, commercial paper rated "A-1" by Standard & Poor's
Corporation ("S&P") or "P-1" by Moody's
-13-
<PAGE> 13
Investors Service, Inc. ("Moody's"))(1). Although HighMark Diversified Money
Market does not presently expect to do so, it may also invest up to 5% of its
net assets in obligations that, at the time of purchase, possess one of the two
highest short-term ratings from at least one NRSRO, and in obligations that do
not possess an equivalent short-term rating (i.e., are unrated) but are
determined by the Advisor to be of comparable quality to the rated instruments
eligible for purchase by the Fund under guidelines adopted by the HighMark
Board of Trustees. In the event that HighMark Diversified Money Market should
begin to invest in such obligations, it may lead to somewhat higher levels of
risk and return.
Both Stepstone Money Market and HighMark Diversified Money Market may
concentrate their investments in certain instruments issued by U.S. Banks, U.S.
branches of foreign banks, and foreign branches of U.S. banks, but only so long
as the investment risk associated with investing in foreign branches of U.S.
banks is the same as that associated with investing in instruments issued by
the U.S. parent.
STEPSTONE TREASURY MONEY MARKET AND HIGHMARK 100% U.S. TREASURY MONEY
MARKET. As its investment objective, Stepstone Treasury Money Market seeks to
preserve principal value and maintain a high degree of liquidity while
providing current income. Similarly, HighMark 100% U.S. Treasury Money Market
seeks current income with liquidity and stability of principal.
Both Stepstone Treasury Money Market and HighMark 100% U.S. Treasury
Money Market invest exclusively in direct U.S. Treasury obligations and
separately traded component parts of such obligations transferable through the
Federal Reserve book-entry system ("STRIPs"). Stepstone Treasury Money Market
additionally may invest in repurchase agreements involving such obligations;
HighMark 100% U.S. Treasury Money Market may not. Therefore, HighMark 100%
U.S. Treasury Money Market may have somewhat lower levels of risk and return.
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET AND HIGHMARK CALIFORNIA
TAX-FREE MONEY MARKET. As its investment objective, Stepstone California
Tax-Free Money Market seeks to preserve principal and maintain a high degree of
liquidity while providing current income exempt from federal and California
state personal income taxes. Similarly, as its investment objective, HighMark
California Tax-Free Money Market seeks as high a level of current interest
income free from federal income tax and California personal income tax as is
consistent with the preservation of capital and relative stability of
principal.
Both Stepstone California Tax-Free Money Market and HighMark
California Tax-Free Money Market invest in obligations issued by the State of
California and its political subdivisions or municipal authorities and
obligations issued by territories or possessions of the United States
("Municipal Securities").
Under normal market conditions and, as a matter of fundamental policy,
at least 80% of the value of the total assets of both Stepstone California
Tax-Free Money Market and HighMark California Tax-Free Money Market will be
invested in Municipal Securities, the interest on which, in the opinion of bond
counsel, is excluded from gross income both for federal income tax purposes and
for California personal income tax purposes, and does not constitute a
preference item for individuals for purposes of the federal alternative minimum
tax.
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(1) For information on ratings, see the Appendix to the Statement of
Additional Information of HighMark or Stepstone.
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<PAGE> 14
Under normal market conditions, up to 20% of the total assets of both
Stepstone California Tax-Free Money Market and HighMark California Tax-Free
Money Market may be invested in short-term obligations, the interest on which
is treated as a preference item for individuals for purposes of the federal
alternative minimum tax or subject to federal or California personal income tax
("Taxable Obligations"). These short-term obligations may include bonds from
other states and cash equivalents.
Investments of both Stepstone California Tax-Free Money Market and
HighMark California Tax-Free Money Market consist of those obligations that, at
the time of purchase, possess one of the two highest short-term ratings by a
NRSRO, and in obligations that do not possess a rating (i.e., are unrated) but
are determined by the Advisor to be of comparable quality to the rated
instruments eligible for purchase by the Fund under the guidelines adopted by
the Stepstone or HighMark Board of Trustees.
HighMark California Tax-Free Money Market may hold uninvested cash
reserves pending investment during temporary "defensive" periods or if, in the
opinion of the Advisor, desirable tax-exempt obligations are unavailable. In
accordance with the Fund's investment objective and subject to its fundamental
policies, investments may be made in Taxable Obligations if, for example,
suitable tax-exempt obligations are unavailable or if acquisition of U.S.
Government or other taxable securities is deemed appropriate for temporary
"defensive" purposes. For temporary defensive purposes, Stepstone California
Tax-Free Money Market may, when the Advisor determines that market conditions
warrant, invest up to 100% of its assets in municipal obligations of other
states or taxable money market instruments.
Both Stepstone California Tax-Free Money Market and HighMark
California Tax-Free Money Market may also acquire Municipal Securities that
have "put" features. Under a put feature, the Fund has the right to sell the
Municipal Security within a specified period of time at a specified price.
STEPSTONE BALANCED AND HIGHMARK BALANCED. As its investment
objective, Stepstone Balanced seeks to provide both capital appreciation and
income. HighMark Balanced seeks capital appreciation and income, with
conservation of capital a secondary consideration.
Both Stepstone Balanced and HighMark Balanced may invest in any type
or class of security. Under normal market conditions, both Stepstone Balanced
and HighMark Balanced will invest between 50% and 70% of their total assets in
equity securities. Senior fixed-income securities will normally constitute at
least 25% of the net assets of both Stepstone Balanced and HighMark Balanced.
Equity securities for both Stepstone Balanced and HighMark Balanced
include common stocks, warrants to purchase common stocks, American Depositary
Receipts ("ADRs"), preferred stocks and securities (including debt securities)
convertible into or exercisable for common stocks. HighMark Balanced may also
invest in Standard & Poor's Depositary Receipts ("SPDRs"). Fixed-income
investments for both Stepstone Balanced and HighMark Balanced consist of bonds,
debentures, notes, zero-coupon securities, all forms of mortgage-related
securities (including collateralized mortgage obligations), and obligations
issued or guaranteed by the U.S. or foreign Governments or their agencies or
instrumentalities. Privately issued mortgage-backed securities must be rated
in one of the top two categories by at least one NRSRO. In addition to
mortgage-backed securities, both Stepstone Balanced and HighMark Balanced may
invest in other asset-backed securities including, but not limited to, those
backed by company receivables, truck and auto loans, leases, and credit card or
other receivables.
Both Stepstone Balanced and HighMark Balanced may invest in bonds,
notes and debentures of any maturity issued by U.S. and foreign corporate and
governmental issuers. Both Stepstone Balanced and HighMark Balanced will invest
only in corporate fixed-income securities that are rated at the time of
purchase as investment grade by a NRSRO (e.g., at least Baa from Moody's or BBB
from S&P) or, if unrated, which the Advisor deems to be of comparable quality.
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<PAGE> 15
The portions of the assets of both Stepstone Balanced and HighMark
Balanced invested in equity securities and fixed-income securities vary from
time to time within the stated ranges, depending upon the Advisor's assessment
of business, economic and market conditions.
STEPSTONE GROWTH EQUITY AND HIGHMARK GROWTH. As its investment
objective, Stepstone Growth Equity seeks long-term capital growth. Similarly,
HighMark Growth seeks long-term capital appreciation through investments in
equity securities. The production of current income is an incidental
objective.
Under normal market conditions, both Stepstone Growth Equity and
HighMark Growth invest at least 65% of their total assets in equity securities,
including common stocks, warrants to purchase common stocks, ADRs, preferred
stocks and securities (including debt securities) convertible into or
exercisable for common stocks, of growth-oriented companies. HighMark Growth
emphasizes a well diversified portfolio of medium to large capitalization
growth companies (capitalization in excess of $500 million) with a record of
above average growth in earnings. HighMark Growth focuses on companies that
the Advisor believes to have enduring quality and above average earnings
growth.
STEPSTONE VALUE MOMENTUM AND HIGHMARK VALUE MOMENTUM. As their
investment objectives, both Stepstone Value Momentum and HighMark Value
Momentum seek long-term capital growth with a secondary objective of income.
Under normal market conditions, both Stepstone Value Momentum and
HighMark Value Momentum will invest at least 65% of their total assets in
equity securities, including common stocks, warrants to purchase common stocks,
ADRs, preferred stocks and securities (including debt securities) convertible
into or exercisable for common stocks. Both Stepstone Value Momentum and
HighMark Value Momentum will be invested primarily in securities which the
Advisor believes to be undervalued relative to the market and to the security's
historic valuation. Stocks are then screened for positive price or earnings
momentum. Securities purchased will generally have a medium to high market
capitalization. A majority of the securities in which both Stepstone Value
Momentum and HighMark Value Momentum invest will be dividend paying.
STEPSTONE BLUE CHIP GROWTH AND HIGHMARK BLUE CHIP GROWTH. As their
investment objectives, both Stepstone Blue Chip Growth and HighMark Blue Chip
Growth seek long-term capital growth by investing in a diversified portfolio of
common stocks and other equity securities of seasoned, large capitalization
companies.
Under normal market conditions, both Stepstone Blue Chip Growth and
HighMark Blue Chip Growth will invest at least 65% of their total assets in
equity securities, including common stocks, warrants to purchase common stocks,
ADRs, preferred stocks and securities (including debt securities) convertible
into or exercisable for common stocks. Both Stepstone Blue Chip Growth and
HighMark Blue Chip Growth primarily invest in equity securities of seasoned,
large capitalization companies. A seasoned company is generally a company with
an operating history of 3 years or more. A large capitalization company is
generally a company with capitalization in excess of $1.0 billion. A majority
of each Fund's equity investments ordinarily will consist of dividend-paying
securities. Stepstone Blue Chip Growth limits its investment in foreign
securities to 15% of its total assets; HighMark Blue Chip Growth does not.
Therefore, it is possible that investments in HighMark Blue Chip Growth may
entail exposure to a higher level of foreign securities holdings.
STEPSTONE EMERGING GROWTH AND HIGHMARK EMERGING GROWTH. As their
investment objectives, both Stepstone Emerging Growth and HighMark Emerging
Growth seek long-term growth of capital by investing in a diversified portfolio
of equity securities of small capitalization, emerging growth companies.
Under normal market conditions, both Stepstone Emerging Growth and
HighMark Emerging Growth will invest at least 65% of their total assets in
equity securities, including common stocks, warrants to purchase common stocks,
ADRs, preferred stocks and securities (including debt securities) convertible
into or exercisable for common stocks of small and medium capitalization
companies. Small and medium capitalization companies
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<PAGE> 16
are those with capitalization between $50 million and $1 billion and the
potential for growth or those which, in the Advisor's opinion, have potential
for above-average long-term capital appreciation. An emerging growth company
is one which, in the Advisor's judgment, is in the developing stages of its
life cycle and has demonstrated or is expected to achieve rapid growth in
earnings and/or revenues.
Both Stepstone Emerging Growth and HighMark Emerging Growth may also
invest in equity securities of companies in "special equity situations,"
meaning companies experiencing unusual and possibly non-repetitive
developments, such as mergers; acquisitions; spin-offs; liquidations;
reorganizations; and new products, technology or management.
STEPSTONE INTERNATIONAL EQUITY AND HIGHMARK INTERNATIONAL EQUITY. As
their investment objectives, both Stepstone International Equity and HighMark
International Equity seek to provide long-term capital appreciation by
investing primarily in a diversified portfolio of equity securities of non-U.S.
issuers.
Under normal market conditions, at least 65% of the assets of both
Stepstone International Equity and HighMark International Equity will be
invested in the following equity securities of non-U.S. issuers: common
stocks, securities convertible into common stocks, preferred stocks, warrants
and rights to purchase common stock. Under normal market conditions, at least
65% of the total assets of both Stepstone International Equity and HighMark
International Equity will be invested in securities of issuers organized under
the laws of at least five countries other than the United States that are
included in the Morgan Stanley Capital International Europe, Australia and Far
East Index (the "EAFE Index").(2) The Advisor and Tokyo-Mitsubishi Asset
Management (U.K.), Ltd., the sub-advisor to both Stepstone International Equity
and HighMark International Equity, select individual securities for both
Stepstone International Equity and HighMark International Equity on the basis
of their growth opportunities or undervaluation in relation to other
securities. Both Stepstone International Equity and HighMark International
Equity expect their investments to emphasize companies with market
capitalizations in excess of $100,000,000.
Both Stepstone International Equity and HighMark International Equity
will typically invest in equity securities listed on recognized foreign
exchanges, but may also invest up to 15% of their total assets in securities
traded in over-the-counter markets. Equity securities of non-U.S. issuers may
also be purchased in the form of sponsored or unsponsored ADRs and sponsored or
unsponsored European Depositary Receipts ("EDRs").
Both Stepstone International Equity and HighMark International Equity
may invest in futures and options on futures for the purpose of achieving their
objectives. Both Stepstone International Equity and HighMark International
Equity may invest in futures and related options based on any type of security
or index traded on U.S. or foreign exchanges or over the counter, as long as
the underlying security or securities represented by an index, are permitted
investments of the Fund. Such futures contracts may include index contracts
and contracts for foreign currencies. Both Stepstone International Equity and
HighMark International Equity may enter into futures contracts and options on
futures only to the extent that their obligations under such contracts or
transactions, together with options on securities or indices represent not more
than 25% of either Fund's assets.
Both Stepstone International Equity and HighMark International Equity
may enter into forward foreign currency contracts as a hedge against possible
variations in foreign exchange rates, and may also invest in options on
currencies.
The remaining assets of both Stepstone International Equity and
HighMark International Equity may be invested in investment grade bonds and
debentures issued by non-U.S. or U.S. companies, obligations of
- --------------------
(2) "MSCI-EAFE Index" is a registered service mark of Morgan Stanley
Capital International which does not sponsor and is in no way affiliated with
the International Equity Fund.
-17-
<PAGE> 17
supranational entities, securities issued or guaranteed by foreign and U.S.
governments, and foreign and U.S. commercial paper. Certain of these
instruments may have floating or variable interest rate provisions. In
addition, both Stepstone International Equity and HighMark International Equity
may invest in securities of issuers whose principal activities are in countries
with emerging markets. Both Stepstone International Equity and HighMark
International Equity may also purchase shares of closed-end investment
companies that invest in the securities of issuers in a single country or
region and shares of open-end management investment companies.
STEPSTONE INTERMEDIATE-TERM BOND AND HIGHMARK INTERMEDIATE-TERM Bond.
As its investment objective, Stepstone Intermediate-Term Bond seeks to provide
total return. Similarly, HighMark Intermediate-Term Bond seeks total return
through investments in fixed-income securities.
Under normal market conditions, at least 65% of the assets of both
Stepstone Intermediate-Term Bond and HighMark Intermediate-Term Bond will be
invested in bonds. For purposes of this policy "bonds" include (i) corporate
bonds and debentures rated at the time of purchase as "investment grade" (one
of the four highest bond rating categories by a NRSRO) or determined by the
Advisor to be of comparable quality; (ii) Yankee Bonds and Eurodollar
instruments; (iii) notes or bonds issued by the U.S. Government and its
agencies and instrumentalities (such as Government National Mortgage
Association ("GNMA") securities); (iv) mortgage-backed securities, including
privately issued mortgage-backed securities and readily-marketable asset-backed
securities, which must be rated at the time of purchase as investment grade, or
be determined by the Advisor to be of comparable quality; (v) securities issued
or guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities; (vi) obligations of supranational entities such as the World
Bank and the Asian Development Bank; and (vii) zero coupon obligations.
The dollar-weighted average portfolio maturity of both Stepstone
Intermediate-Term Bond and HighMark Intermediate-Term Bond will be from three
to ten years.
STEPSTONE CONVERTIBLE SECURITIES AND HIGHMARK CONVERTIBLE SECURITIES.
As their investment objectives, both Stepstone Convertible Securities and
HighMark Convertible Securities seek a high level of current income and capital
appreciation by investing in convertible securities.
Under normal market conditions, at least 65% of the assets of both
Stepstone Convertible Securities and HighMark Convertible Securities will be
invested in convertible securities consisting of bonds, debentures, notes and
preferred stocks each of which are convertible into common stock. In general,
a convertible security is a fixed-income security such as a bond (which
typically pays a fixed annual rate of interest) or preferred stock (which
typically pays a fixed dividend), that may be converted at a stated price
within a specified period of time into a specified number of shares of common
stock of the issuing company, or of a different company.
Both Stepstone Convertible Securities and HighMark Convertible
Securities may invest up to 35% of their assets in convertible bonds rated
lower than Baa by Moody's or BBB by S&P and as low as Caa by Moody's or CCC by
S&P, which are lower-quality, higher-yielding, high-risk debt securities
(commonly known as "junk bonds"). Both Stepstone Convertible Securities and
HighMark Convertible Securities may also invest in unrated convertible
securities which, in the opinion of Bank of Tokyo-Mitsubishi Trust Company, the
sub-advisor to both Stepstone Convertible Securities and HighMark Convertible
Securities, are of comparable quality to such rated securities.
Both Stepstone Convertible Securities and HighMark Convertible
Securities may invest any remaining assets in common stocks; securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities;
corporate bonds rated Baa or better by Moody's or BBB or better by S&P
(investment grade bonds); shares of other investment companies with similar
investment objectives; high grade commercial paper; money market funds; money
market instruments and cash; floating and variable rate notes; repurchase
agreements; dollar-denominated securities of foreign issuers; and SPDRs.
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<PAGE> 18
STEPSTONE GOVERNMENT SECURITIES AND HIGHMARK GOVERNMENT SECURITIES.
As their investment objectives, both Stepstone Government Securities and
HighMark Government Securities seek to achieve total return consistent with the
preservation of capital by investing in a diversified portfolio of obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
Under normal market conditions, both Stepstone Government Securities
and HighMark Government Securities will invest at least 80% of their assets in
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including mortgage-backed securities issued or guaranteed by
U.S. government agencies such as GNMA, the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC")
and repurchase agreements backed by such securities. Both Stepstone Government
Securities and HighMark Government Securities may invest any remaining assets
in corporate bonds that are rated at the time of purchase as investment grade
or determined by Bank of Tokyo-Mitsubishi Trust Company, the sub-advisor to
both Stepstone Government Securities and HighMark Government Securities, to be
of comparable quality; Yankee Bonds, including sovereign, supranational and
Canadian bonds; shares of other investment companies with similar investment
objectives; commercial paper; money market funds; privately issued
mortgage-backed and other readily-marketable asset-backed securities; and money
market instruments and cash.
The sub-advisor will seek to enhance the yield of both Stepstone
Government Securities and HighMark Government Securities by taking advantage of
yield disparities or other factors that occur in the government securities and
money markets. Both Stepstone Government Securities and HighMark Government
Securities may dispose of any security prior to its maturity if such
disposition and reinvestment of the proceeds are expected to enhance its yield
consistent with the sub-advisor's judgment as to a desirable maturity structure
or if such disposition is believed to be advisable due to other circumstances
or considerations. Both Stepstone Government Securities and HighMark
Government Securities will seek to achieve capital gains by taking advantage of
price appreciation caused by interest rate changes.
Under normal market conditions, both Stepstone Government Securities
and HighMark Government Securities may invest up to 20% of their total assets
in money market instruments. When market conditions indicate a temporary
"defensive" investment strategy as determined by the Advisor , HighMark
Government Securities may invest more than 20% of its total assets in money
market instruments. For temporary defensive purposes during periods when the
Advisor determines that market conditions warrant, Stepstone Government
Securities may invest up to 100% of its assets in money market instruments.
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND AND HIGHMARK
CALIFORNIA INTERMEDIATE TAX-FREE BOND. As their investment objectives, both
Stepstone California Intermediate Tax-Free Bond and HighMark California
Intermediate Tax-Free Bond seek to provide high current income that is exempt
from federal and State of California income taxes.
Under normal market conditions, both Stepstone California Intermediate
Tax-Free Bond and HighMark California Intermediate Tax-Free Bond will invest
primarily in bonds and notes issued by the State of California, its agencies,
instrumentalities, and political sub-divisions, the income on which is exempt
from regular federal and State of California personal income taxes ("California
Municipal Securities"). Both Stepstone California Intermediate Tax-Free Bond
and HighMark California Intermediate Tax-Free Bond may also invest in bonds and
notes of other states, territories, and possessions of the U.S. and their
agencies, authorities, instrumentalities and political sub-divisions which are
exempt from federal income taxes, and in shares of other investment companies,
specifically money market funds, which have similar investment objectives.
Under normal market conditions, at least 80% of the assets of both
Stepstone California Intermediate Tax-Free Bond and HighMark California
Intermediate Tax-Free Bond will be invested in bonds and notes rated as
investment grade by S&P, Moody's, Fitch Investors Service ("Fitch") or other
NRSROs and which pay interest
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<PAGE> 19
that is not treated minimum as a preference item for purposes of the federal
alternative minimum tax. Both Stepstone California Intermediate Tax-Free Bond
and HighMark California Intermediate Tax-Free Bond may purchase unrated
securities that are determined by the Advisor to be of comparable quality at
the time of purchase .
Both Stepstone California Intermediate Tax-Free Bond and HighMark
California Intermediate Tax-Free Bond intend to maintain at least 65% of their
assets in California Municipal Securities and may invest up to 100% of their
assets in such securities.
Neither Stepstone California Intermediate Tax-Free Bond nor HighMark
California Intermediate Tax-Free Bond has restrictions on the maturity of
municipal securities in which they may invest. The dollar-weighted average
portfolio maturity of each Fund will be from three to ten years.
When market conditions indicate a temporary "defensive" investment
strategy as determined by the Advisor, HighMark California Intermediate
Tax-Free Bond may invest more than 20% of its total assets in municipal
obligations of other states or taxable money market instruments including
repurchase agreements. For temporary defensive purposes during periods when
the Advisor determines that market conditions warrant, Stepstone California
Intermediate Tax-Free Bond may invest up to 25% of its assets in money market
instruments.
OTHER INVESTMENTS
Each Stepstone Fund and each HighMark Fund limits investments in
illiquid securities to 15% or less of their net assets (10% or less of net
assets for money market funds), and may additionally purchase restricted
securities which have not been registered under the Securities Act of 1933
(e.g., Rule 144A Securities and Section 4(2) commercial paper), subject to
policies approved by the HighMark and Stepstone Boards of Trustees.
Each Stepstone Fund and each HighMark Fund may lend portfolio
securities in an amount representing up to 33 1/3% of the value of its total
assets, with the exception of HighMark California Tax-Free Money Market and
Stepstone California Intermediate Tax-Free Bond, which may not engage in
securities lending.
Each Stepstone Fund and each HighMark Fund, with the exception of
HighMark 100% U.S. Treasury Money Market, may enter into repurchase agreements.
Each HighMark Fund, with the exception of HighMark 100% U.S. Treasury Money
Market, may also enter into reverse repurchase agreements. HighMark
Diversified Money Market and HighMark California Tax-Free Money Market intend
to limit their activity in reverse repurchase agreements to no more than 10% of
their respective total assets. Therefore, investment in the HighMark Funds may
entail exposure to the risks involved in reverse repurchase transactions,
whereas investment in the Stepstone Funds did not.
Each HighMark Fund may enter into forward commitments or purchase
securities on a "when-issued" basis. Each HighMark Fund expects that
commitments by it to enter into forward commitments or purchase when-issued
securities will not exceed 25% of the value of its total assets under normal
market conditions. Only the following Stepstone Funds may enter into forward
commitments or purchase securities on a when-issued basis: Stepstone Money
Market, Stepstone Treasury Money Market, Stepstone California Tax-Free Money
Market, Stepstone Balanced, Stepstone Intermediate-Term Bond, Stepstone
Convertible Securities, Stepstone Government Securities, and Stepstone
California Intermediate Tax-Free Bond. Such Stepstone Funds may not exceed 20%
of the value of their respective total assets subject to such commitments.
Shareholders of Stepstone Growth Equity, Stepstone Value Momentum, Stepstone
Blue Chip Growth, Stepstone Emerging Growth and Stepstone International Equity
will be exposed to these investment practices in the corresponding HighMark
Funds whereas they were not exposed to them in Stepstone.
Stepstone Money Market, Stepstone Treasury Money Market, Stepstone
California Tax-Free Money Market, HighMark Diversified Money Market, HighMark
100% U.S. Treasury Money Market, and HighMark California Tax-Free Money Market
each intend to comply with Rule 2a-7 under the 1940 Act. Shares of each Fund
are priced pursuant to the amortized cost method whereby Stepstone or HighMark
seeks to maintain each Fund's net asset value per Share at $1.00. Securities
or instruments in which each Fund invests have remaining maturities of 397 days
or less, although instruments subject to repurchase agreements and certain
adjustable rate
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<PAGE> 20
instruments may bear longer maturities. The dollar-weighted average portfolio
maturity of each Fund will not exceed 90 days.
Under normal market conditions, the following Funds may invest up to
35% of their total assets in money market instruments: Stepstone and HighMark
Balanced, Stepstone Growth Equity and HighMark Growth, Stepstone and HighMark
Value Momentum, Stepstone and HighMark Blue Chip Growth, Stepstone and HighMark
Emerging Growth, Stepstone and HighMark International Equity, Stepstone and
HighMark Intermediate-Term Bond, and Stepstone and HighMark Convertible
Securities. When market conditions indicate a temporary "defensive" investment
strategy as determined by the Advisor, each such HighMark Fund may invest more
than 35% of its total assets in money market instruments. For temporary
defensive purposes during periods when the Advisor determines that market
conditions warrant, each such Stepstone Fund may invest up to 100% of its
assets in money market instruments.
Each of the Stepstone and HighMark Funds, except the money market
funds, may purchase securities of money market funds of other investment
companies, and the HighMark Funds, except the money market funds, may purchase
securities of variable funds of other investment companies, subject to the
terms of the 1940 Act, and in the case of the HighMark Funds, to the terms of
the HighMark exemptive order.
HighMark California Tax-Free Money Market may invest up to 10% of its
total assets in shares of other investment companies with like objectives.
Stepstone California Tax-Free Money Market may also invest in shares of other
investment companies with like investment objectives. Although Stepstone
California Tax-Free Money Market is not subject to a stated percentage
limitation in the Stepstone Prospectus, both Stepstone and HighMark California
Tax-Free Money Market are subject to the terms of the 1940 Act.
Stepstone and HighMark Balanced, Stepstone Growth Equity and HighMark
Growth, Stepstone and HighMark Value Momentum, HighMark Blue Chip Growth,
HighMark Emerging Growth, and HighMark International Equity may write covered
calls on their equity securities and enter into closing transactions with
respect to covered call options. Whereas Stepstone Blue Chip Growth, Stepstone
Emerging Growth and Stepstone International Equity did not enter into such
transactions, their corresponding HighMark Funds do enter into them.
The assets of Stepstone and HighMark Balanced, HighMark Growth,
HighMark Value Momentum, Stepstone and HighMark Blue Chip Growth, and Stepstone
and HighMark Emerging Growth may be invested in options, futures contracts and
options on futures, SPDRs, and investment grade bonds. Stepstone Growth Equity
and Stepstone Value Momentum did not invest in such instruments. Therefore,
the shareholders of these two Stepstsone Funds will be exposed to the risks and
potential returns of these instruments for the first time in the corresponding
HighMark Fund. The aggregate value of options on securities (long puts and
calls) will not exceed 10% of a Fund's net assets at the time such options are
purchased by the Fund. Each such Fund may enter into futures and options on
futures only to the extent that obligations under such contracts or
transactions, together with options on securities, represent not more than 25%
of its assets.
Stepstone and HighMark Balanced, Stepstone Growth Equity and HighMark
Growth, Stepstone and HighMark Value Momentum, Stepstone and HighMark Blue Chip
Growth, Stepstone and HighMark Emerging Growth, and Stepstone and HighMark
International Equity may purchase options in stock indices to invest cash on an
interim basis. The aggregate premium paid on all options on stock indices
cannot exceed 20% of any such Fund's total assets.
HighMark Intermediate-Term Bond, Stepstone and HighMark Government
Securities, and HighMark California Intermediate Tax-Free Bond may invest in
futures and options on futures for the purpose of achieving their objectives
and for adjusting portfolio duration. Stepstone Intermediate-Term Bond and
Stepstone California Intermediate Tax-Free Bond did not invest in such
instruments. Therefore, the shareholders of these two Stepstone Funds will be
exposed to the risks and potential returns of these instruments for the first
time in the corresponding HighMark Fund. Such Funds may invest in futures and
related options based on any type of security or index traded on U.S. or
foreign exchanges or over the counter, as long as the underlying security or
securities represented by an index, are permitted investments of such Fund.
Each such Fund may enter into futures contracts and related options only to the
extent that obligations under such contracts or transactions represent not more
than 10% of its assets.
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<PAGE> 21
INVESTMENT RESTRICTIONS. As noted above, each Stepstone Fund's
investment objective and policies are similar, although not always identical,
to those of the corresponding HighMark Fund. In addition, for the most part,
the types of instruments and securities in which they may invest are similar.
Likewise, the fundamental investment restrictions adopted by each Stepstone
Fund and the corresponding HighMark Fund, which may be changed only with
shareholder approval, are also similar. However, as summarized below, there
are some differences between these investment restrictions. The following
discussion is qualified by the disclosure on such subjects contained in the
HighMark Prospectuses and the Stepstone Prospectuses accompanying and
incorporated by reference into this Combined Prospectus/Proxy Statement, as
well as by the disclosure on such subjects contained in the Statements of
Additional Information of HighMark and Stepstone which are incorporated by
reference into this Combined Prospectus/Proxy Statement.
The following three investment restrictions are contained in the
Stepstone Prospectuses and the HighMark Prospectuses, and although worded
slightly differently, provide in substance that none of the Funds may:
1) Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, if, immediately after the purchase, more than 5% of the
value of such Fund's total assets would be invested in the issuer or the Fund
would hold more than 10% of any class of securities of the issuer or more than
10% of the issuer's outstanding voting securities (except that up to 25% of the
value of the Fund's total assets may be invested without regard to these
limitations).
2) Purchase any securities that would cause more than 25% of such
Fund's total assets at the time of purchase to be invested in 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 obligations
issued or guaranteed by the U.S. or foreign governments or their agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities (and, in the case of the money
market funds, domestic bank certificates of deposit or bankers' acceptances,
and repurchase agreements secured by bank instruments); (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 their
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) Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase agreements in
accordance with its investment objective and policies.
The investment limitations listed above are fundamental policies the
substance of which may not be changed without a vote of a majority of the
outstanding Shares of the respective Fund.
In restriction (1) above, each Stepstone Fund, HighMark California
Intermediate Tax-Free Bond, HighMark Convertible Securities, and HighMark
International Equity specifically note that repurchase agreements involving
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities are excluded from the restriction. The remaining HighMark
Funds do not refer to repurchase agreements in the restriction itself, but
achieve the same result by noting in the description of repurchase agreements
contained in the HighMark Prospectuses under the heading "Description of
Permitted Investments" that repurchase agreements involving government
securities are not subject to a Fund's fundamental investment limitation on
purchasing securities of any one issuer.
Additional fundamental investment restrictions are contained in the
Stepstone and HighMark Statements of Additional Information. HighMark has
revised and simplified its fundamental investment restrictions for the
following Funds: HighMark Value Momentum, HighMark Blue Chip Growth, HighMark
Emerging Growth, HighMark International Equity, HighMark Intermediate-Term
Bond, HighMark Government Securities, HighMark Convertible Securities, and
HighMark California Intermediate Tax-Free Bond (hereinafter the "New
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<PAGE> 22
Model Funds"). It is HighMark's intent to conform the fundamental investment
restrictions of the remaining HighMark Funds to the simplified format of the
New Model Funds by means of a proxy vote within the next two years. The
fundamental investment restrictions for the New Model Funds provide that each
such Fund:
1. May purchase securities of any issuer only when consistent
with the maintenance of its status as a diversified company
under the 1940 Act, or the rules or regulations thereunder, as
such statute, rules or regulations may be amended from time to
time.
2. May not concentrate investments in a particular industry or
group of industries, or within any one state (except that the
limitation as to investments in any one state or its political
subdivision shall not apply to HighMark California Tax-Free
Money Market ), as concentration is defined under the 1940
Act, or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
3. May issue senior securities to the extent permitted by the
1940 Act, or the rules or regulations thereunder, as such
statute, rules or regulations may be amended from time to
time.
4. May lend or borrow money to the extent permitted by the 1940
Act, or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
5. May purchase or sell commodities, commodities contracts,
futures contracts, or real estate to the extent permitted by
the 1940 Act, or the rules or regulations thereunder, as such
statute, rules or regulations may be amended from time to
time.
6. May underwrite securities to the extent permitted by the 1940
Act, or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
7. May pledge, mortgage or hypothecate any of its assets to the
extent permitted by the 1940 Act, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
The fundamental limitations of the New Model Funds have been adopted
to avoid wherever possible the necessity of shareholder meetings otherwise
required by the 1940 Act. This recognizes the need to react quickly to changes
in the law or new investment opportunities in the securities markets and the
cost and time involved in obtaining shareholder approvals for diversely held
investment companies. However, the New Model Funds also have adopted
nonfundamental limitations are set forth below, which in some instances may be
more restrictive than their fundamental limitations. Any changes in a HighMark
Fund's nonfundamental limitations are communicated to the HighMark Fund's
shareholders prior to effectiveness.
1940 ACT RESTRICTIONS. Under the 1940 Act, and the rules, regulations
and interpretations thereunder, a "diversified company," as to 75% of its total
assets, may not purchase securities of any issuer (other than obligations of,
or guaranteed by, the U.S. Government, its agencies or its instrumentalities)
if, as a result, more than 5% of the value of its total assets would be
invested in the securities of such issuer or more than 10% of the issuer's
voting securities would be held by the fund. "Concentration" is generally
interpreted under the 1940 Act to be investing more than 25% of net assets in
an industry or group of industries. The 1940 Act limits the ability of
investment companies to borrow and lend money and to underwrite securities.
The 1940 Act currently prohibits an open-end fund from issuing senior
securities, as defined in the 1940 Act, except under very limited
circumstances.
The following investment limitations of the New Model Funds are nonfundamental
policies. Each such HighMark Fund may not:
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<PAGE> 23
1. Acquire more than 10% of the voting securities of any one issuer.
This limitation applies to only 75% of a Fund's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money, except for temporary or emergency purposes and then
only in an amount not exceeding one-third of the value of total assets and
except that a Fund may borrow from banks or enter into reverse repurchase
agreements for temporary emergency purposes in amounts up to 10% of the value
of its total assets at the time of such borrowing. To the extent that such
borrowing exceeds 5% of the value of the Fund's assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter or such
longer period as the Securities and Exchange Commission may prescribe by rules
and regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowing shall be at least 300%. This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate heavy redemption requests if they should occur and is
not for investment purposes. All borrowings will be repaid before making
additional investments and any interest paid on such borrowings will reduce
income.
4. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such loan,
except as permitted with respect to securities lending.
5. Purchase or sell real estate, real estate limited partnership
interest, commodities or commodities contracts (except that HighMark Government
Securities, HighMark Blue Chip Growth, HighMark Emerging Growth, HighMark
International Equity, HighMark Value Momentum, HighMark Intermediate-Term Bond
and HighMark California Intermediate Tax-Free Bond may invest in futures
contracts and options on futures contracts, as disclosed in the prospectuses)
and interest in a pool of securities that are secured by interests in real
estate. However, subject to their permitted investments, any Fund may invest
in companies which invest in real estate, commodities or commodities contracts.
6. Make short sales of securities, maintain a short position or
purchase securities on margin, except that HighMark may obtain short-term
credits as necessary for the clearance of security transactions.
7. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a Fund security.
8. Issue senior securities (as defined in the Investment Company Act
of 1940) except in connection with permitted borrowings as described above or
as permitted by rule, regulation or order of the Securities and Exchange
Commission.
9. Purchase or retain securities of an issuer if, to the knowledge of
HighMark, an officer, trustee, partner or director of HighMark or the Advisor
or sub-advisors of HighMark owns beneficially more than 1/2 of 1% of the shares
or securities of such issuer and all such officers, trustees, partners and
directors owning more than 1/2 of 1% of such shares or securities together own
more than 5% of such shares or securities.
10. Invest in interest in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The fundamental investment restrictions of the Stepstone Funds are in
a different format from those of the corresponding HighMark Funds, but
typically the substance of what is covered is essentially the same. The
substance of many of the fundamental restrictions of the Stepstone Funds have
been adopted by the above-listed HighMark Funds as non-fundamental policies,
which means that they may be changed without a Shareholder vote.
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<PAGE> 24
The following fundamental restrictions apply to all 13 Stepstone Funds covered
in the prospectus/proxy statement, and provide that no such Stepstone Fund may:
1. Acquire more than 10% of the voting securities of any one issuer.
For Stepstone Government Securities, this limitation applies to only 75% of the
Fund's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money, except for temporary or emergency purposes and then
only in an amount not exceeding one-third of the value of total assets. Any
borrowing will be done from a bank and to the extent that such borrowing
exceeds 5% of the value of the Fund's assets, asset coverage of at least 300%
is required. In the event that such asset coverage shall at any time fall
below 300%, the Fund shall, within three days thereafter or such longer period
as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate heavy redemption requests if they should occur and is
not for investment purposes. All borrowings will be repaid before making
additional investments and any interest paid on such borrowings will reduce
income.
4. Make loans, except that (a) a Fund may purchase or hold debt
instruments in accordance with its investment objective and policies; (b) a
Fund may enter into repurchase agreements, and (c) the Funds may engage in
securities lending as described in the Prospectus and in this Statement of
Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such loan,
except as permitted with respect to securities lending.
6. Purchase or sell real estate, real estate limited partnership
interests, commodities or commodities contracts (except that Stepstone
Government Securities, Stepstone Balanced, Stepstone Blue Chip Growth,
Stepstone Emerging Growth and Stepstone International Equity may invest in
futures contracts and options on futures contracts, as disclosed in the
prospectuses) and interests in a pool of securities that are secured by
interests in real estate. However, subject to their permitted investments, any
Fund may invest in companies which invest in real estate, commodities or
commodities contracts.
7. Make short sales of securities, maintain a short position or
purchase securities on margin, except that Stepstone may obtain short-term
credits as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a Fund security.
9. Purchase securities of other investment companies except for money
market funds and then only as permitted by the 1940 Act and the rules and
regulations thereunder. Stepstone Emerging Growth, Stepstone Blue Chip Growth,
Stepstone Convertible Securities, Stepstone International Equity and Stepstone
Government Securities may also purchase the securities of non-money market
funds as permitted by the 1940 Act. Under these rules and regulations, the
Funds are prohibited from acquiring the securities of other investment
companies if, as a result of such acquisition, the Funds own more than 3% of
the total voting stock of the company; securities issued by any one investment
company represent more than 5% of the total Funds' assets; or securities (other
than treasury stock) issued by all investment companies represent more than 10%
of the total assets of the Funds. These investment companies typically incur
fees that are separate from those fees incurred directly by the Fund. A Fund's
purchase of such investment company securities results in the layering of
expenses, such that Shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees.
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<PAGE> 25
10. Issue senior securities (as defined in the 1940 Act) except in
connection with permitted borrowings as described above or as permitted by
rule, regulation or order of the Securities and Exchange Commission.
11. Purchase or retain securities of an issuer if, to the knowledge
of Stepstone, an officer, trustee, partner or director of Stepstone or any
investment advisor of Stepstone owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees, partners
and directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
12. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
13. Write or purchase puts, calls, options or combinations thereof,
except that Stepstone Growth Equity, Stepstone Emerging Growth, Stepstone Blue
Chip Growth, Stepstone Balanced, Stepstone International Equity and Stepstone
Value Momentum may write covered call options with respect to any or all parts
of its Fund securities, and Stepstone Balanced, Stepstone Blue Chip Growth, and
Stepstone Emerging Growth may purchase call and purchase and sell put options
listed on national exchanges and Stepstone International Equity may purchase
call and purchase and sell put options listed on U.S. and foreign exchanges.
Stepstone California Tax-Free Money Market may purchase puts as described in
the prospectus. Stepstone Growth Equity, Stepstone Emerging Growth, Stepstone
Blue Chip Growth, Stepstone Balanced, Stepstone International Equity and
Stepstone Value Momentum may sell options previously purchased and enter into
closing transactions with respect to covered call options. In addition,
Stepstone Equity, Stepstone Emerging Growth, Stepstone Blue Chip Growth,
Stepstone Value Momentum, Stepstone International Equity and Stepstone Balanced
may purchase options on stock indices to invest cash on an interim basis.
In addition, the Stepstone Funds have adopted the following
non-fundamental policies:
No Fund may invest in warrants, except that Stepstone Growth Equity,
Stepstone Emerging Growth, Stepstone Blue Chip Growth, Stepstone Convertible
Securities, Stepstone Value Momentum, Stepstone International Equity, and
Stepstone Balanced may invest in warrants in an amount not exceeding 5% of the
Fund's net assets as valued at the lower of cost or market value. Included in
that amount, but not to exceed 2% of the Fund's net assets, may be warrants not
listed on the New York Stock Exchange or American Stock Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in
the aggregate, 15% of its net assets, except that Stepstone Money Market,
Stepstone Treasury Money Market and Stepstone California Tax-Free Money Market
may not invest more than 10% of net assets in illiquid securities. An illiquid
security is a security which cannot be disposed of within seven business days
at approximately the price at which they are being carried on the Fund's books,
and includes repurchase agreements maturing in excess of seven days, time
deposits with a withdrawal penalty, non-negotiable instruments and instruments
for which no market exists.
The current fundamental investment restrictions of HighMark
Diversified Money Market, HighMark 100% U.S. Treasury Money Market, HighMark
California Tax-Free Money Market, HighMark Balanced, and HighMark Growth are as
follows. These restrictions are substantially similar to the current Stepstone
restrictions, and differ from the revised HighMark restrictions in that they
are all fundamental, and are specifically worded rather than providing
generally that the requirements of the 1940 Act will be met.
HIGHMARK 100% U.S. TREASURY MONEY MARKET
HighMark 100% U.S. Treasury Money Market may not purchase securities
other than short-term obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Treasury.
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<PAGE> 26
EACH OF HIGHMARK GROWTH, HIGHMARK BALANCED, HIGHMARK DIVERSIFIED MONEY MARKET,
AND HIGHMARK 100% U.S. TREASURY MONEY MARKET MAY NOT:
1. Purchase securities on margin (except that, with respect to
HighMark Growth and HighMark Balanced, such Funds may make margin payments in
connection with transactions in options and financial and currency futures
contracts), sell securities short, participate on a joint or joint and several
basis in any securities trading account, or underwrite the securities of other
issuers, except to the extent that a Fund may be deemed to be an underwriter
under certain securities laws in the disposition of "restricted securities"
acquired in accordance with the investment objectives and policies of such
Fund;
2. Purchase or sell commodities, commodity contracts (excluding, with
respect to HighMark Growth and HighMark Balanced, options and financial and
currency futures contracts), oil, gas or mineral exploration leases or
development programs, or real estate (although investments by HighMark Growth,
HighMark Balanced and HighMark Diversified Money Market in marketable
securities of companies engaged in such activities and investments by HighMark
Growth and HighMark Balanced in securities secured by real estate or interests
therein, are not hereby precluded to the extent the investment is appropriate
to such Fund's investment objective and policies);
3. Invest in any issuer for purposes of exercising control or
management;
4. Purchase or retain securities of any issuer if the officers or
Trustees of HighMark or the officers or directors of its investment advisor
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities;
5. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with permissible borrowings and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of its borrowing. A Fund will not invest in additional
securities until all its borrowings (including reverse repurchase agreements)
have been repaid. For purposes of this restriction, the deposit of securities
and other collateral arrangements with respect to options and financial and
currency futures contracts, and payments of initial and variation margin in
connection therewith, are not considered a pledge of a Fund's assets; and
HIGHMARK DIVERSIFIED MONEY MARKET AND HIGHMARK 100% U.S. TREASURY MONEY MARKET
MAY NOT:
1. Buy common stocks or voting securities, or state, municipal or
private activity bonds;
2. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, reorganization, or
acquisition of assets;
3. Write or purchase put or call options; or
4. Invest more than 10% of total assets in the securities of issuers
that together with any predecessors have a record of less than three years'
continuous operation.
HIGHMARK GROWTH AND HIGHMARK BALANCED MAY NOT:
1. Invest in securities of other investment companies except as they
may be acquired as part of a merger, consolidation, reorganization, or
acquisition of assets, provided, however, that each of the Funds may purchase
securities of a money market fund, if, immediately after such purchase, the
acquiring Fund does not own in the
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<PAGE> 27
aggregate (i) more than 3% of the acquired company's outstanding voting
securities, (ii) securities issued by the acquired company having an aggregate
value in excess of 5% of the value of the total assets of the acquiring Fund,
or (iii) securities issued by the acquired company and all other investment
companies (other than treasury stock of the acquiring Fund) having an aggregate
value in excess of 10% of the value of the acquiring Fund's total assets; and
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET MAY NOT:
1. Purchase or sell real estate; provided, however, that the Fund
may, to the extent appropriate to its investment objective, purchase Municipal
Securities secured by real estate or interests therein or securities issued by
companies investing in real estate or interests therein;
2. Purchase securities on margin, make short sales of securities or
maintain a short position;
3. Underwrite the securities of other issuers;
4. Purchase securities of companies for the purpose of exercising
control or management;
5. Invest in private activity bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation;
6. Purchase or sell commodities or commodity contracts, or invest in
oil, gas or mineral exploration leases or development programs; provided,
however, the Fund may, to the extent appropriate to the Fund's investment
objective, purchase publicly traded obligations of companies engaging in whole
or in part in such activities;
7. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets;
8. Borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with permissible borrowings and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of its borrowing. The Fund will not invest in additional
securities until all its borrowings (including reverse repurchase agreements)
have been repaid;
9. Write or sell puts, calls, straddles, spreads, or combinations
thereof, except that the Fund may acquire puts with respect to Municipal
Securities in its portfolio and sell the puts in conjunction with a sale of the
underlying Municipal Securities;
10. Acquire a put, if, immediately after the acquisition, more than
5% of the total amortized cost value of the Fund's assets would be subject to
puts from the same institution (except that (i) up to 25% of the value of the
Fund's total assets may be subject to puts without regard to the 5% limitation
and (ii) the 5% limitation is inapplicable to puts that, by their terms, would
be readily exercisable in the event of a default in payment of principal or
interest on the underlying securities). In applying the above-described
limitation, the Fund will aggregate securities subject to puts from any one
institution with the Fund's investments, if any, in securities issued or
guaranteed by that institution. In addition, for the purpose of this
investment restriction and investment restriction No. 11 below, a put will be
considered to be from the party to whom the Fund will look for payment of the
exercise price;
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<PAGE> 28
11. Acquire a put that, by its terms, would be readily exercisable in
the event of a default in payment of principal and interest on the underlying
security or securities if, immediately after the acquisition, the amortized
cost value of the security or securities underlying the put, when aggregated
with the amortized cost value of any other securities issued or guaranteed by
the issuer of the put, would exceed 10% of the total amortized cost value of
the Fund's assets; and
12. Invest in securities of other investment companies except as they
may be acquired as part of a merger, consolidation, reorganization, or
acquisition of assets, provided, however, that the Fund may purchase securities
of a tax-exempt money market fund if, immediately after such purchase, the
acquiring Fund does not own in the aggregate (i) more than 3% of the acquired
company's outstanding voting securities, (ii) securities issued by the acquired
company having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or (iii) securities issued by the acquired
company and all other investment companies (other than treasury stock of the
acquiring Fund) having an aggregate value in excess of 10% of the value of the
acquiring Fund's total assets.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Management discussion of fund performance for HighMark Balanced and
HighMark Growth is incorporated by reference from the annual report of
HighMark, dated July 31, 1996, and attached hereto as Appendix C.
No management discussion of fund performance is included for HighMark
Value Momentum, HighMark Blue Chip Growth, HighMark Emerging Growth, HighMark
International Equity, HighMark Intermediate-Term Bond, HighMark Convertible
Securities, HighMark Government Securities or HighMark California Intermediate
Tax-Free Bond, which had not yet commenced operations as of July 31, 1996, the
end of HighMark's most recent fiscal year. No management discussion of fund
performance is required for money market funds, and therefore none is provided
for HighMark Diversified Money Market, HighMark 100% U.S. Treasury Money Market
and HighMark California Tax-Free Money Market.
Management discussion of fund performance for the Stepstone Funds is
incorporated by reference from the current prospectuses, the annual report dated
January 31, 1996 and the semi-annual report dated July 31, 1996 of Stepstone,
which are available upon request without charge by calling 1-800- 433-6884.
OPERATING PROCEDURES.
PURCHASE PROCEDURES. Because the distributor for both Stepstone and
HighMark is SEI Financial Services Company (the "Distributor"), purchase
procedures are identical for the two Fund groups. Purchase orders for Shares
are executed at a per Share price equal to the asset value next determined
after the purchase order is effective (plus any applicable sales charge). No
sales charges are imposed on Fiduciary shares and therefore no sales charges
will be imposed on the Fiduciary shares of the HighMark Funds distributed by
HighMark in the Transaction. A maximum sales charge of 4.5% of the offering
price is imposed on Retail shares of HighMark Value Momentum, HighMark Growth,
HighMark Emerging Growth and HighMark Balanced and a maximum sales charge of
4.5% of the offering price is imposed on Investment Class shares of Stepstone
Value Momentum, Stepstone Growth Equity, Stepstone Emerging Growth and
Stepstone Balanced. A maximum sales charge of 3.0% is imposed on Retail shares
of HighMark California Intermediate Tax-Free Bond and HighMark
Intermediate-Term Bond and a maximum sales charge of 3.0% is imposed on
Investment Class shares of Stepstone California Intermediate Tax-Free Bond and
Stepstone Intermediate-Term Bond. However, no sales charge will be imposed on
the Retail shares of the HighMark Funds distributed by HighMark in the
Transaction.
Shares of both the Stepstone Funds and the HighMark Funds are sold on
a continuous basis by the Distributor, either by mail, by wire, through an
Automatic Investment Plan or through financial institutions. The
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<PAGE> 29
Stepstone Funds have a minimum investment requirement of $2,000 ($1,000 for
IRAs), while the HighMark Funds have a minimum investment requirement of
$1,000. The Stepstone Funds have a subsequent minimum investment requirement
of $1,000 ($500 for IRAs) whereas the HighMark Funds generally have a
subsequent minimum investment requirement of $100.
Purchases and redemption of Shares of the Stepstone Funds and the
HighMark Funds may be made on days on which both The New York Stock Exchange
("NYSE") and the Federal Reserve wire system are open for business ("Business
Days").
EXCHANGE PRIVILEGE. Shareholders of Investment Class shares of
Stepstone Funds that have similar sales charge schedules may tender their
shares of those Funds for exchange into the number of shares (including
fractional shares) which have a value equal to the total net asset value of
shares tendered divided by the net asset value of Investment Class shares of
the Fund next determined after such order is received. Shares issued pursuant
to this offer are not subject to a sales charge or any other charge.
Each HighMark Fund's shares may be exchanged for shares of the class
of the various other Funds of HighMark which the shareholder qualifies to
purchase directly so long as the shareholder maintains the applicable minimum
account balance in each Fund in which he or she owns shares and satisfies the
minimum initial and subsequent purchase amounts of the Fund into which the
shares are exchanged. HighMark shareholders may exchange their Fiduciary shares
for Fiduciary shares of another Fund on the basis of the relative net asset
value of the Fiduciary shares exchanged. HighMark shareholders may also
exchange Fiduciary shares of a Fund for Retail shares of another Fund. Under
such circumstances, the cost of the acquired Retail shares will be the net
asset value per share plus the appropriate sales load.
HighMark shareholders may exchange their Retail shares for Retail
shares of a Fund with the same or lower sales charge on the basis of the
relative net asset value of the Retail shares exchanged. HighMark shareholders
may exchange their Retail shares for Retail shares of a Fund with a higher
sales charge by paying the difference between the two sales charges.
Shareholders may also exchange Retail shares of a money market fund for which
no sales load was paid for Retail shares of a HighMark Fund for which a sales
charge is imposed. Under such circumstances, the cost of the acquired Retail
shares will be the net asset value per share plus the appropriate sales load.
Exchange privileges for shareholders in both the Stepstone Funds and
the HighMark Funds are available only in any state where the shares of such
Fund may be legally sold. Exercise of the exchange privilege is generally
treated as a sale for Federal income tax purposes and, depending on the
circumstances, a short or long-term capital gain or loss may be realized.
Exchanges are made on the basis of the relative net asset values of
the shares exchanged plus any applicable sales charge. Neither Stepstone nor
HighMark imposes a charge for processing exchanges of shares.
REDEMPTION PROCEDURES. Because the Distributor for both Stepstone and
HighMark is SEI Financial Services Company, redemption procedures are generally
identical for the two Fund groups. Both Stepstone and HighMark redeem shares
at their net asset value next determined after receipt by the Distributor of
the redemption request. Redemptions will be made on any Business Day without
charge although there is presently a $15 charge for wiring redemption proceeds
to a shareholder's designated account. Shares may be redeemed by mail, by
telephone or through a pre-arranged systematic withdrawal plan.
HighMark reserves the right to make payment on redemptions in
securities rather than cash. Stepstone has filed a Rule 18f-1 election
commiting itself to pay in cash all requests for redemption limited in amount
with respect to each shareholder during any 90-day period to the lesser of (i)
$250,000 or (ii) one percent of the net asset value of the Stepstone Fund at
the beginning of such period.
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<PAGE> 30
Both Stepstone and HighMark reserve the right to redeem shares at net
asset value if a shareholder's account has a value of less than the minimum
initial purchase amount. Before a Fund exercises its right to redeem such
shares, a shareholder is given notice that the value of shares in his or her
account is less than the minimum amount and is allowed 60 days to make an
additional investment in the Fund.
DISTRIBUTIONS. For all of the Funds of both Stepstone and HighMark,
except those noted below, dividends are declared and paid monthly to all
shareholders of record at the close of business on the day of declaration. Net
realized capital gains, if any, are distributed at least annually to
shareholders of record. Shareholders automatically receive all income
dividends and capital gains distributions in additional full and fractional
shares of the Fund at net asset value as of the date of declaration unless the
shareholder elects to receive such dividends or distributions in cash.
For shareholders of Stepstone International Equity and HighMark
International Equity, substantially all of the net investment income (exclusive
of capital gains) of each Fund is periodically declared and paid as a dividend
to shareholders of record. Currently, capital gains of each Fund, if any, are
distributed at least annually.
For shareholders of Stepstone Money Market, HighMark Diversified Money
Market, Stepstone Treasury Money Market, HighMark 100% U.S. Treasury Money
Market, Stepstone California Tax-Free Money Market and HighMark California
Tax-Free Money Market, the net income of each Fund is declared daily as a
dividend to shareholders of record at the close of business on the day of
declaration.
Dividends paid in additional shares receive the same tax treatment as
dividends paid in cash.
The amount of dividends payable on Fiduciary shares of the HighMark
Funds and Institutional Class shares of the Stepstone Funds generally will be
more than dividends payable on Retail shares of the HighMark Funds and
Investment Class shares of the Stepstone Funds because of the distribution
expenses charged to Retail shares and Investment Class shares but not charged
to Fiduciary shares and Institutional Class shares.
NET ASSET VALUE. The net asset value of shares of the non-money
market Stepstone Funds and the non-money market HighMark Funds is determined
daily as of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on any Business
Day.
The net asset value of shares of Stepstone Money Market, Stepstone
Treasury Money Market, and Stepstone California Tax-Free Money Market is
calculated as of 9:00 a.m. Pacific time (12:00 noon, Eastern time), on each
Business Day, based on the amortized cost method. The net asset value of
Shares of HighMark Diversified Money Market, HighMark 100% U.S. Treasury Money
Market, and HighMark California Tax-Free Money Market is calculated as of 10:00
a.m., Pacific time (1:00 p.m. Eastern time), each Business Day, based on the
amortized cost method.
Both the Stepstone and the HighMark money market funds value their
securities using the amortized cost method, which involves valuing an
instrument at its cost initially, and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument.
The securities of the remaining Stepstone Funds are valued by SEI
Fund Resources pursuant to valuations provided by an independent pricing
service. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of
the pricing service and its valuations are reviewed by the officers of
Stepstone under the general supervision of the Stepstone Board of Trustees.
Although the methodology and procedures are identical, the net asset value per
share of Institutional
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<PAGE> 31
Class and Investment Class shares of Stepstone Funds other than the Money
Market Funds may differ because of the distribution expenses charged to
Investment Class shares.
The securities of the remaining HighMark Funds traded on a national
exchange (or exchanges) are valued based upon their last sale price on the
principal exchange on which such securities are traded. With regard to each
such HighMark Fund, securities the principal market for which is not a
securities exchange are valued based upon the latest bid price in such
principal market. Securities and other assets for which market quotations are
not readily available are valued at their fair value as determined in good
faith under consistently applied procedures established by and under the
general supervision of HighMark's Board of Trustees. With the exception of
short-term securities, the value of each Fund's investments may be based on
valuations provided by a pricing service. Short-term securities (i.e.,
securities with remaining maturities of 60 days or less) may be valued at
amortized cost, which approximates current value.
FEDERAL TAX CONSIDERATIONS. Consummation of the Transaction is
subject to the condition that Stepstone and HighMark receive an opinion of
Ropes & Gray to the effect that, based upon certain representations and
assumptions and subject to certain qualifications, the Transaction will not
result in the recognition of gain or loss for Federal income tax purposes for
any of the Stepstone Funds , their shareholders or the HighMark Funds .
RISK FACTORS
The investment objective and policies of each Stepstone Fund and its
corresponding HighMark Fund are substantially similar. However, in some
instances, a HighMark Fund may invest in certain securities in which the
corresponding Stepstone Fund may not invest. In some cases, although both the
HighMark Fund and the corresponding Stepstone Fund may invest in the same
securities, they may do so subject to varying limitations. This discussion is
qualified in its entirety by the disclosure set forth in the HighMark and
Stepstone Prospectuses accompanying this Combined Prospectus/Proxy Statement.
Both the Stepstone and HighMark money market funds intend to comply
with Rule 2a-7 under the 1940 Act. Shares of each Fund are priced pursuant to
the amortized cost method whereby HighMark and Stepstone seek to maintain each
Fund's net asset value per Share at $1.00. There can be, however, no assurance
that a stable net asset value of $1.00 per Share will be maintained.
Investments by both the Stepstone Funds and the HighMark Funds in
obligations of certain agencies and instrumentalities of the U.S. Government
may not be guaranteed by the full faith and credit of the U.S. Treasury, and
there can be no assurance that the U.S. Government would provide financial
support to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
As in the case of mortgage-related securities, loan participations and
certain asset-backed securities are subject to prepayments and there can be no
assurance that a Stepstone Fund or a HighMark Fund will be able to reinvest the
proceeds of any prepayment at the same interest rate or on the same terms as
the original investment.
With regard to loan participations, although a Stepstone or HighMark
Fund's ability to receive payments of principal and interest in connection with
a particular loan is primarily dependent on the financial condition of the
underlying borrower, the lending institution or bank may provide assistance in
collecting interest and principal from the borrower and in enforcing its rights
against the borrower in the event of a default. In selecting loan
participations on behalf of a Stepstone or HighMark Fund, the Advisor evaluates
the creditworthiness of both the borrower and the loan originator and will
treat both as an "issuer" of the loan participation for purposes of the Fund's
investment policies and restrictions.
Certain risks are inherent in both Stepstone and HighMark California
Tax-Free Money Market and Stepstone and HighMark California Intermediate
Tax-Free Bond's concentrated investment in California
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<PAGE> 32
Municipal Securities, which may make an investment in such Funds riskier than
an investment in other types of funds. Because of Stepstone and HighMark
California Tax-Free Money Market and Stepstone and HighMark California
Intermediate Tax-Free Bond's investment objectives, many of the securities in
their portfolios are likely to be obligations of California governmental
issuers that rely in whole or in part, directly or indirectly, on real property
taxes as a source of revenue. The ability of the State of California and its
political sub-divisions to generate revenue through real property and other
taxes and to increase spending has been significantly restricted by various
constitutional and statutory amendments and voter-passed initiatives. Such
limitations could affect the ability of California state and municipal issuers
to pay interest or repay principal on their obligations. In addition, during
the first half of the decade, California faced severe economic and fiscal
conditions and experienced recurring budget deficits that caused it to deplete
its available cash resources and to become increasingly dependent upon external
borrowings to meet its cash needs.
The financial difficulties experienced by the State of California and
other issuers of California Municipal Securities during the recession resulted
in the credit ratings of certain of their obligations being downgraded
significantly by the major rating agencies.
Investment in both Stepstone Balanced and HighMark Balanced entails
certain risks. As with the Stepstone and HighMark Funds investing primarily in
equity securities, Stepstone Balanced and HighMark Balanced are subject to the
risk that prices of equity securities, or certain types of equity securities in
which they invest, in general will decline over short or even extended periods.
Since the Funds' shares will fluctuate in value, the Funds may be more suitable
for long-term investors who can bear the risk of short-term fluctuations. In
addition, the market value of fixed-income securities bears an inverse
relationship to changes in market interest rates, which may affect the net
asset value of shares. The longer the remaining maturity of a security, the
greater is the effect of interest rate changes on its market value. Generally,
because of their fixed-income features, convertible securities will fluctuate
in value to a lesser degree than the common stocks into which they are
convertible. Changes in the value of a Fund's fixed-income securities will not
affect cash income received from ownership of such securities, but will affect
a Fund's net asset value.
Because Stepstone Balanced and HighMark Balanced also invest in debt
securities, investors in Stepstone Balanced and HighMark Balanced, like
investors in the HighMark and Stepstone Fixed Income Funds, are also exposed to
credit risk, which relates to the ability of an issuer to make payments of
principal and interest, and market risk, which relates to changes in a
security's value as a result of interest rate changes generally. An increase
in interest rates will generally reduce the value of the investments in
Stepstone Balanced and HighMark Balanced and a decline in interest rates will
generally increase the value of those investments. Accordingly, the net asset
value of the Funds' shares will vary as a result of changes in the value of the
securities in the Funds' portfolios. Therefore, an investment in the Funds may
decline in value, resulting in a loss of principal. Because interest rates
vary, it is impossible to predict the income or yield of the Funds for any
particular period. While debt securities normally fluctuate less in price than
equity securities, there have been extended periods of cyclical increases in
interest rates that have caused significant declines in debt securities prices.
Certain fixed-income securities which may be purchased by Stepstone Balanced
and HighMark Balanced such as zero-coupon obligations, mortgage-backed and
asset-backed securities, and collateralized mortgage obligations ("CMOs") will
have greater price volatility then other fixed-income obligations. Because
declining interest rates may lead to prepayment of underlying mortgages,
automobile sales contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise with a decline in
interest rates. Mortgage-backed and asset-backed securities and CMOs are
extremely sensitive to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment. During periods of falling
interest rates, securities that can be called or prepaid may decline in value
relative to similar securities that are not subject to call or prepayment.
Depending upon prevailing market conditions, Stepstone Balanced and
HighMark Balanced, like the HighMark and Stepstone Fixed Income Funds, may
purchase debt securities at a discount from face value, which
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<PAGE> 33
produces a yield greater than the coupon rate. Conversely, if debt securities
are purchased at premium over face value, the yield will be lower than the
coupon rate. In making investment decisions, the Advisor will consider many
factors other than current yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity, and yield to maturity.
From time to time, the equity and debt markets may fluctuate independently of
one another. In other words, a decline in equity markets may in certain
instances be offset by a rise in debt markets, or vice versa. As a result,
Stepstone Balanced and HighMark Balanced, with their balance of equity and debt
investments, may entail less investment risk (and a potentially smaller
investment return) than a mutual fund investing primarily in equity securities.
Securities rated BBB by S&P or Baa by Moody's are considered
investment grade, but are deemed by these rating services to have some
speculative characteristics, and adverse economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher-grade bonds. Should
subsequent events cause the rating of a debt security to fall below the fourth
highest rating category, the Advisor will consider such an event in determining
whether a Fund should continue to hold that security. In no event, however,
would a Fund be required to liquidate any such portfolio security where the
Fund would suffer a loss on the sale of such security.
Changes by recognized rating agencies in the rating of any fixed
income security and in the ability of an issuer to make payments of interest
and principal also affect the value of these investments. Changes in the value
of Fund securities will not affect cash income derived from these securities,
but will affect the Fund's net asset value.
High-yield, high-risk securities, which may be purchased by Stepstone
Convertible Securities and HighMark Convertible Securities, consist of
securities rated Ba or lower by Moody's or BB or lower by S&P. Lower-rated
debt securities are considered speculative and involve greater risk of loss
than investment grade debt securities, and are more sensitive to changes in the
issuer's capacity to pay.
Given the uncertainty of the future value of emerging growth companies
and companies in special equity situations, the risk of possible decline in
value of the net assets of Stepstone Emerging Growth and HighMark Emerging
Growth is significant. Companies in which Stepstone Emerging Growth and
HighMark Emerging Growth invest may offer greater opportunities for capital
appreciation than larger more established companies, but investment in such
companies may involve certain special risks. These risks may be due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and frequent lack of depth in management. The securities
of such companies are often traded in the over-the-counter market and may not
be traded in volumes typical on a national securities exchange. Thus, the
securities of emerging growth companies may be less liquid, and subject to more
abrupt or erratic market movements than securities of larger, more established
growth companies. Since a "special equity situation" may involve a significant
change from a company's past experiences, the uncertainties in the appraisal of
the future value of the company's equity securities and the risk of a possible
decline in the value of the Funds' investments are significant.
There may be certain risks connected with investing in foreign
securities, including risks of adverse political and economic developments
(including possible governmental seizure or nationalization of assets), the
possible imposition of exchange controls or other governmental restrictions,
including less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, which reduce
yield, and may be less marketable than comparable U.S. securities. The value
of a Stepstone or HighMark Fund's investments denominated in foreign currencies
will depend on the relative strengths of those currencies and the U.S. dollar,
and the Fund may be affected favorably or unfavorably by changes in the
exchange rates or exchange control regulations between foreign currencies and
the U.S. dollar.
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<PAGE> 34
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by the Fund.
Forward foreign currency contracts do not eliminate fluctuations in
the underlying prices of securities. Rather, they simply establish a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency at the same time, they tend to limit any
potential gain which might result, should the value of such currency increase.
Stepstone International Equity and HighMark International Equity's
investments in emerging markets can be considered speculative, and therefore,
may offer higher potential for gains and losses than developed markets of the
world. With respect to any emerging country, there is the greater potential
for nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or
investments in such countries. In addition, it may be difficult to obtain and
enforce a judgment in the courts of such countries. The economies of
developing countries generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values
and other protectionist measures imposed or negotiated by the countries with
which they trade.
There are also risks attached to particular types of investments into
which the Stepstone Funds and the HighMark Funds may enter. For a discussion
of the risks associated with a particular investment, see "Description of
Permitted Investments" at the back of any HighMark or Stepstone Prospectus
accompanying this Combined Prospectus/Proxy Statement.
The above discussion is qualified in its entirety by the disclosure in
the Stepstone and HighMark Prospectuses and Statements of Additional
Information.
SPECIAL MEETING OF SHAREHOLDERS
Proxies will be solicited by and on behalf of the Trustees of The Stepstone
Funds ("Stepstone") for use at a Special Meeting of Shareholders of the
Stepstone Funds (the "Meeting"). The Meeting is to be held on Friday, April
11, 1997 at 3:00 p.m., Eastern standard time, at SEI Fund Resources, Oaks,
PA 19456. This Combined Prospectus/Proxy Statement and the enclosed form
of proxy are being mailed to shareholders on or about March 7, 1997.
Any shareholder giving a proxy has the power to revoke it. The
shareholder revoking such proxy must either submit to Stepstone a subsequently
dated proxy, deliver to Stepstone a written notice of revocation, or otherwise
give notice of revocation in open meeting. All properly executed proxies
received in time for the meeting will be voted as specified in the proxy, or,
if no specification is made, FOR the proposal (set forth in item (1) of the
Notice of Special Meeting) to implement the reorganization of the Stepstone
Funds by the transfer of all of their assets to the corresponding HighMark
Funds, in exchange for HighMark Fiduciary or Retail shares of the corresponding
HighMark Fund (collectively, "Shares") and the assumption by the corresponding
HighMark Fund of all of the liabilities of the Stepstone Fund followed by the
dissolution and liquidation of each Stepstone Fund and the distribution of
Shares to the shareholders of the Stepstone Funds. If the Stepstone Fund
shareholder of record has Institutional Class shares, that shareholder will
receive HighMark Fiduciary shares. All other Stepstone shareholders will
receive HighMark Retail shares.
At February 12, 1997 there was outstanding the following amount of
shares of beneficial interest of the Institutional Class and the Investment
Class of each Stepstone Fund:
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<PAGE> 35
<TABLE>
<S> <C>
Stepstone Money Market 554,260,853 Investment Class shares of beneficial interest
693,689,820 Institutional Class shares of beneficial interest
Stepstone Treasury Money 467,313,134 Investment Class shares of beneficial interest
Market
181,910,003 Institutional Class shares of beneficial interest
Stepstone California Tax-Free 149,485,728 Investment Class shares of beneficial interest
Money Market
36,106,570 Institutional Class shares of beneficial interest
Stepstone Balanced 578,082 Investment Class shares of beneficial interest
20,329,241 Institutional Class shares of beneficial interest
Stepstone Growth Equity 187,234 Investment Class shares of beneficial interest
10,060,296 Institutional Class shares of beneficial interest
Stepstone Value Momentum 735,326 Investment Class shares of beneficial interest
15,074,683 Institutional Class shares of beneficial interest
Stepstone Blue Chip Growth 5,550,828 Institutional Class shares of beneficial interest
Stepstone Emerging Growth 4,290,509 Institutional Class shares of beneficial interest
Stepstone International Equity 1,340,948 Institutional Class shares of beneficial interest
Stepstone Intermediate-Term Bond 514,559 Investment Class shares of beneficial interest
14,845,971 Institutional Class shares of beneficial interest
Stepstone Convertible Securities 1,827,761 Institutional Class shares of beneficial interest
Stepstone Government Securities 5,529,871 Institutional Class shares of beneficial interest
Stepstone California Intermediate 598,247 Investment Class shares of beneficial interest
Tax-Free Bond
783,205 Institutional Class shares of beneficial interest
</TABLE>
Only shareholders of record on February 12, 1997 will be entitled to notice of
and to vote at the meeting. Each share is entitled to one vote as of the close
of business on February 12, 1997.
Stepstone's Trustees know of no matters other than those set forth
herein to be brought before the meeting. If, however, any other matters
properly come before the meeting, it is the Trustees' intention that proxies
will be voted on such matters in accordance with the judgment of the persons
named in the enclosed form of proxy.
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<PAGE> 36
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of each Stepstone Fund are being asked to approve or
disapprove the Agreement and Plan of Reorganization by and between Stepstone
and HighMark dated as of March 5, 1997 (the "Agreement"), a copy of which
is attached to this Combined Prospectus/Proxy Statement as Appendix A. The
Agreement provides, among other things, for the transfer of all of the assets
of each Stepstone Fund to the corresponding HighMark Fund in exchange for the
assumption by the corresponding HighMark Fund of all of the liabilities of the
Stepstone Fund and for a number of Shares calculated based on the value of the
net assets of the Stepstone Fund acquired by the HighMark Fund and the net
asset value per share of the HighMark Fund, all as more fully described below
under "Information about the Reorganization." After receipt of Shares each
Stepstone Fund will dissolve, distributing the Shares to its shareholders in
complete liquidation, and each Stepstone Fund will be terminated. Prior to the
date of such transfer (the "Exchange Date"), each Stepstone Fund will declare a
distribution to their respective shareholders which, together with all previous
distributions, will have the effect of distributing to their respective
shareholders all of their investment company taxable income (computed without
regard to the deduction for dividends paid) and net realized capital gains, if
any, through the Exchange Date.
At a meeting held on October 17, 1996, the Trustees of Stepstone in
attendance voted unanimously to approve the Transaction and to recommend that
shareholders of each Stepstone Fund also approve the Transaction. Approval of
each reorganization of a Stepstone Fund requires the affirmative vote of a
majority of all votes attributable to the voting securities of that Stepstone
Fund voting separately as a fund.
A shareholder of any Stepstone Fund objecting to the proposed
Transaction is not entitled under either Massachusetts law or Stepstone's
Declaration of Trust to demand payment for and an appraisal of his or her
particular Stepstone Fund shares if the Transaction is consummated over his or
her objection. However, shares of the HighMark Funds are redeemable for cash
at their net asset value on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days").
In the event that this proposal is not approved by the shareholders of
any Stepstone Fund, such Stepstone Fund will continue to be managed as a
separate fund in accordance with its current investment objectives and
policies, and the Stepstone Trustees may consider alternatives in the best
interests of the shareholders. However, the reorganization of the Stepstone
Funds for which approval of the Agreement is obtained will be consummated.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
A meeting was held on October 17, 1996 for the Stepstone Trustees, and
a meeting was held on October 18, 1996 for the HighMark Trustees, at which
meetings all of the Trustees of each of Stepstone and HighMark, including the
Independent Trustees, unanimously determined that the reorganization would be
in the best interests of their respective registered investment companies and
existing shareholders and that the economic interests of their respective
existing shareholders would not be diluted as a result of effecting the
reorganization. At these same meetings, all of the Trustees of each of
Stepstone and HighMark, including the Independent Trustees, unanimously
approved the proposed reorganization. Stepstone's Trustees have unanimously
recommended its approval by the Stepstone Funds' shareholders.
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<PAGE> 37
In electing to approve the Agreement and recommend it to shareholders
of Stepstone, the Stepstone Trustees acted upon information provided to them,
indicating that the proposed transaction would operate in the best interests of
Stepstone shareholders. In particular, the Trustees determined that the
proposed transaction offered the following benefits:
- Participation in the Larger Fund Complex: The Trustees were
informed that the proposed transaction would, if effected,
result in a mutual fund complex consisting of sixteen
portfolios and total anticipated assets in excess of $4
billion. Stepstone shareholders who would, as part of the
proposed transaction, become part of the HighMark complex,
would be able to exchange their shares for shares of a
significantly larger number of funds than is currently the
case within Stepstone. In addition, the Trustees received
information to the effect that a larger, more diverse complex
can appeal to a broader class of institutional and retail
investors, may be able to achieve economies of scale more
quickly or efficiently and may be able to reduce costs by
taking advantage of its relatively larger size.
- Continuity of Management: The Trustees were provided with
information detailing the consolidation efforts involving
Union Capital Advisers, the adviser to Stepstone from its
inception, and MERUS Capital Management, a division of the
Bank of California, N.A., stemming from the combination of
Union Bank and Bank of California, N.A. (as well as their
respective parent organizations). It was represented to the
Trustees that, in many instances the post-reorganization
portfolios of HighMark would be managed on a day-to-day basis
by the same persons who had previously been responsible for
managing various Stepstone portfolios.
- Tax-Free Nature of Transaction: Lack of Dilution: The
Trustees were informed that the proposed transaction involving
Stepstone and HighMark would be accomplished without the
imposition of federal income taxes on either Stepstone or its
shareholders. In addition, the Trustees received
representations from Union Bank of California and its
investment management division, Pacific Alliance Capital
Management, to the effect that the Bank would defray
Stepstone's costs directly associated with participation in
the proposed transaction. Finally, the Trustees were informed
that the interests of Stepstone shareholders would not be
materially diluted as a result of the proposed transaction,
and that the Stepstone shareholders would receive shares of
HighMark portfolios equal in value to the market value (or,
where relevant, amortized cost value) of the Stepstone
portfolios' assets.
- Performance of HighMark; Fees and Expenses: The Board
received information relating to the performance of various
HighMark portfolios into which the interests of shareholders
of Stepstone would be merged. The Trustees were given details
on the performance record for each such then-existing HighMark
portfolio, both on an absolute basis and in comparison to
relevant benchmarks and industry averages. The Trustees also
received information about the fees and expenses charged or to
be charged to HighMark shareholders, which information tended
to show that Stepstone shareholders who become HighMark
shareholders as a result of the proposed transaction would in
most instances be subject to fees and expenses that were lower
than, or equal to, the fees and expenses charged by Stepstone.
The Trustees were further informed that, where the projected
HighMark fees and expenses exceeded those of the corresponding
Stepstone portfolio, such increase was due not to higher
advisory fees, but instead to HighMark's newly-introduced
shareholder service fee.
The estimated total operating expenses, stated as a percentage of average daily
net assets of each Fund, for each Stepstone Fund and the corresponding HighMark
Fund are expected to be as follows:
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<PAGE> 38
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL INVESTMENT
CLASS CLASS FIDUCIARY RETAIL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stepstone Money Market .50% .75% HighMark Diversified .50% .75%
Money Market
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Treasury .45% .70% HighMark 100% U.S. Treasury .45% .70%
Money Market Money Market
- ------------------------------------------------------------------------------------------------------------------------
Stepstone California .30% .63% HighMark California Tax-Free .30% .55%
Tax-Free Money Market Money Market
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Balanced .80% 1.05% HighMark Balanced .90% 1.15%
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Growth Equity .80% 1.05% HighMark Growth .90% 1.15%
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Value Momentum .80% 1.05% HighMark Value Momentum .81% 1.06%
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Blue Chip Growth .85% HighMark Blue Chip Growth .82%
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Emerging Growth 1.05% 1.05% HighMark Emerging Growth 1.03% 1.28%
- ------------------------------------------------------------------------------------------------------------------------
Stepstone International 1.26% HighMark International 1.26%
Equity Equity
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Intermediate-Term .68% .68% HighMark Intermediate-Term .75% .75%
Bond Bond
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Convertible .85% HighMark Convertible .85%
Securities Securities
- ------------------------------------------------------------------------------------------------------------------------
Stepstone Government .75% .75% HighMark Government .75%
Securities Securities
- ------------------------------------------------------------------------------------------------------------------------
Stepstone California .22% .22% HighMark California .22% .22%
Intermediate Tax-Free Bond Intermediate Tax-Free Bond
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement provides
that each HighMark Fund will acquire all of the assets of the corresponding
Stepstone Fund in exchange for the assumption by the HighMark Fund of all of
the liabilities of the corresponding Stepstone Fund and for Shares all as of
the Exchange Date (defined in the Agreement to be April 21, 1997 for the
following Funds: Stepstone Money Market, Stepstone Treasury Money Market,
Stepstone California Tax-Free Money Market, Stepstone Balanced and Stepstone
Growth Equity, and April 28, 1997 for the following Funds: Stepstone Value
Momentum, Stepstone Blue Chip Growth, Stepstone Emerging Growth, Stepstone
International Equity, Stepstone Intermediate-Term Bond, Stepstone Convertible
Securities, Stepstone Government Securities and Stepstone California
Intermediate Tax-Free Bond, or such other dates as may be agreed upon by the
parties). The following discussion of the Agreement is qualified in its
entirety by the full text of the Agreement, which is attached as Appendix A to
this Combined Prospectus/Proxy Statement.
As a result of the Transaction, each shareholder of the Stepstone
Funds will receive that number of full and fractional Shares equal in value at
the Exchange Date to the value of the portion of the net assets of the
Stepstone Fund transferred to the corresponding HighMark Fund attributable to
the shareholder (based on the
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<PAGE> 39
proportion of the outstanding shares of the Stepstone Fund owned by the
shareholder as of the Valuation Time). The portfolio securities of the
Stepstone Funds will be valued in accordance with the generally employed
valuation procedures of Stepstone. Each reorganization is being accounted for
as a tax-free business combination. At separate meetings held on October 17,
1996 for Stepstone Trustees and October 18, 1996 for HighMark Trustees, all of
the Trustees of each of Stepstone and HighMark, including the Independent
Trustees, unanimously determined that the reorganization would be in the best
interests of their respective registered investment companies and existing
shareholders and that the economic interests of their respective existing
shareholders would not be diluted as a result of effecting the reorganization.
Immediately following the Exchange Date, each Stepstone Fund will
distribute pro rata to its respective shareholders of record as of the close of
business on the Exchange Date the full and fractional Shares received by it and
the Stepstone Funds will be liquidated and dissolved. Such liquidation and
distribution will be accomplished by the establishment of accounts on the share
records of the HighMark Funds in the name of such Stepstone Fund's
shareholders, each account representing the respective number of full and
fractional Shares due such shareholder. If the Stepstone Fund shareholder of
record has Institutional Class shares, that shareholder will receive HighMark
Fiduciary shares. All other Stepstone shareholders will receive HighMark
Retail shares.
The consummation of the reorganization is subject to the conditions
set forth in the Agreement. The Agreement may be terminated and the
reorganization abandoned at any time, before or after approval by the
shareholders, prior to the Exchange Date by mutual consent of Stepstone and
HighMark or, if any condition set forth in the Agreement has not been fulfilled
and has not been waived by the party entitled to its benefits, by such party.
All fees and expenses, including accounting expenses, portfolio
transfer taxes (if any) or other similar expenses incurred directly in
connection with the consummation of the Transaction contemplated by the
Agreement will be borne by Union Bank of California, N.A., including the costs
of proxy materials, proxy solicitation, and legal expenses. Fees and expenses
not incurred directly in connection with the consummation of the Transaction
will be borne by the party incurring such fees and expenses. The Boards of
Trustees of HighMark and Stepstone have determined that the interests of the
existing shareholders of HighMark and Stepstone will not be diluted as a result
of the Transaction. Full and fractional Shares will be issued to the Stepstone
Funds' shareholders in accordance with the procedure under the Agreement as
described above. Each HighMark Share will be fully paid and nonassessable when
issued, will be transferable without restriction, and will have no preemptive
or conversion rights. HighMark's Declaration of Trust permits HighMark to
divide its shares of any series, without shareholder approval, into one or more
classes of shares having such preferences and special or relative rights and
privileges as the Trustees may determine. Shares of certain of the HighMark
Funds are currently divided into two classes: Retail and Fiduciary Shares.
HighMark Blue Chip Growth, HighMark International Equity, HighMark Convertible
Securities and HighMark Government Securities are only offered in Fiduciary
shares. Retail and Fiduciary shares will be distributed as applicable by
HighMark in connection with the Transaction. Stepstone's Declaration of Trust
also permits multiple classes of shares, and shares of certain of the Stepstone
Funds are currently divided into two classes: Investment Class and
Institutional Class shares. Stepstone Blue Chip Growth, Stepstone
International Equity, and Stepstone Convertible Securities are only offered in
Institutional Class shares.
Under Massachusetts law, HighMark shareholders, could, under certain
circumstances, be held personally liable for the obligations of HighMark.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of HighMark. The Declaration of Trust provides for indemnification
out of HighMark property for all loss and expense of any shareholder held
personally liable for the obligations of HighMark. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which HighMark would be unable to meet its
obligations. The likelihood of such circumstances is remote.
-40-
<PAGE> 40
FEDERAL INCOME TAX CONSEQUENCES. The federal income tax consequences
of the Transaction should be as follows: (i) under Section 361 of the Code, no
gain or loss will be recognized by any Stepstone Fund as a result of the
reorganization; (ii) under Section 354 of the Code, no gain or loss will be
recognized by the shareholders of any Stepstone Fund on the distribution of
Shares to them in exchange for their shares of the Stepstone Fund; (iii) under
Section 358 of the Code, the basis of Shares that any Stepstone shareholder
receives in place of his or her Stepstone shares will be the same as the basis
of the Stepstone shares exchanged; and (iv) under Section 1223(1) of the Code,
a shareholder's holding period for the Shares received pursuant to the
Agreement will be determined by including the holding period for the Stepstone
shares exchanged for the Shares provided that the shareholder held the
Stepstone shares as a capital asset. As a condition to HighMark and
Stepstone's obligations to consummate the reorganization, Stepstone and
HighMark will receive an opinion from Ropes & Gray, counsel to HighMark, to the
effect that, on the basis of the existing provisions of the Code, current
administrative rules, court decisions, and certain representations by the
HighMark and Stepstone Funds, for federal income tax purposes the above stated
tax consequences will be applicable to the Transaction.
VOTING RIGHTS. Each shareholder of a HighMark Fund and a Stepstone
Fund is entitled to one vote per share and a proportionate fractional vote for
any fractional share. The former Stepstone Fund shareholders, as holders of
Fiduciary or Retail shares of the HighMark Funds, will vote separately as a
fund or a class on matters relating solely to that fund or class. On all other
matters, they will vote in the aggregate with shareholders of all of the
HighMark Funds. When the former shareholders of each Stepstone Fund vote in
the aggregate as shareholders of each corresponding HighMark Fund, the voting
power they will have will be less than the voting power they had when the
Stepstone Funds voted in the aggregate. For a more detailed discussion of
HighMark's voting procedures, see the HighMark Prospectuses "GENERAL
INFORMATION -- Miscellaneous."
CAPITALIZATION. The following tables set forth as of February 26,
1997, (i) the capitalization of each Stepstone Fund, (ii) the capitalization of
each HighMark Fund, and (iii) the pro forma capitalization of each HighMark
Fund as adjusted giving effect to the proposed acquisition of assets at net
asset value:
-41-
<PAGE> 41
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE TREASURY MONEY MARKET FUND AND HIGHMARK 100% U. S. TREASURY MONEY
MARKET FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 177,134 $ 459,376 $ 187,428 $ 83,769 $ 364,562 $ 543,145
SHARES (000S) 177,113 459,391 187,408 83,766 364,521 543,157
NET ASSET VALUE PER SHARE $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
</TABLE>
STEPSTONE MONEY MARKET FUND AND HIGHMARK DIVERSIFIED MONEY MARKET FUND
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 698,860 $ 556,562 $ 279,695 $ 144,368 $ 978,555 $ 700,930
SHARES (000S) 699,807 556,701 279,981 144,444 979,788 701,145
NET ASSET VALUE PER SHARE $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 18, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
-42-
<PAGE> 42
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND AND HIGHMARK CALIFORNIA
TAX-FREE MONEY MARKET FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 33,448 $ 119,895 $ 125,574 $62,910 $ 159,022 $ 182,805
SHARES (000S) 33,447 119,898 125,619 62,926 159,066 182,824
NET ASSET VALUE PER SHARE $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 18, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
-43-
<PAGE> 43
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE GROWTH EQUITY FUND AND HIGHMARK GROWTH FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 205,801 $ 3,822 $ 59,887 $ 3,715 $ 265,688 $ 7,537
SHARES (000S) 10,094 188 4,089 253 18,137 514(2)
NET ASSET VALUE PER SHARE $ 20.39 $ 20.37 $ 14.65 $ 14.67 $ 14.65 $ 14.67
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 18, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
(2) Assumes that the Stepstone Growth Equity Fund has executed a stock split on
February 26, 1997 immediately preceding the Reorganization, to allow the Net
Asset Values of the Stepstone Growth Equity Fund Institutional and Investment
Shares to match the Net Asset Values of the Highmark Growth Fund Fiduciary and
Retail shares, respectively. Accordingly, this resulted in an adjustment to
the number of shares outstanding in the Highmark Growth Fund of 3,954 in the
Fiduciary class and 73 in the Retail class.
If the Reorganization is consummated, the actual adjustments to the number of
shares outstanding in each respective class of the Highmark Fund may vary from
the numbers above due to changes in the Net Asset Values between February 26,
1997 and the Reorganization date.
-44-
<PAGE> 44
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE BALANCED FUND AND HIGHMARK BALANCED FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 309,018 $ 8,787 $ 46,657 $ 719 $ 355,675 $ 9,506
SHARES (000S) 20,406 580 3,607 56 23,487(2) 628(2)
NET ASSET VALUE PER SHARE $ 15.14 $ 15.14 $ 12.94 $ 12.84 $ 15.14 $ 15.14
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 18, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
(2) Assumes that the HighMark Balanced Fund has executed a stock split on
January 10, 1997 immediately preceding the Reorganization , to allow the Net
Asset Values of the HighMark Balanced Fund Fiduciary and Retail shares to match
the Net Asset Values of the Stepstone Balanced Fund Institutional and
Investment shares, respectively. Accordingly, this resulted in an adjustment
to the number of shares outstanding in the HighMark Balanced Fund of 526 in the
Fiduciary class and 8 in the Retail class.
If the Reorganization is consummated, the actual adjustments to the number of
shares outstanding in each respective class of the HighMark Fund may vary from
the numbers above due to changes in the Net Asset Values between February 26,
1997 and the Reorganization date.
-45-
<PAGE> 45
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE VALUE MOMENTUM FUND AND HIGHMARK VALUE MOMENTUM FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 337,344 $ 16,297 N/A N/A $ 337,344 $ 16,297
SHARES (000S) 15,329 741 N/A N/A 15,329 741
NET ASSET VALUE PER SHARE $ 22.01 $ 22.01 N/A N/A $ 22.01 $ 22.01
</TABLE>
STEPSTONE INTERMEDIATE-TERM BOND FUND AND HIGHMARK INTERMEDIATE-TERM BOND FUND
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 150,916 $ 5,199 N/A N/A $ 150,916 $ 5,199
SHARES (000S) 14,916 514 N/A N/A 14,916 514
NET ASSET VALUE PER SHARE $ 10.12 $ 10.11 N/A N/A $ 10.12 $ 10.11
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 25, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
-46-
<PAGE> 46
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND AND HIGHMARK CALIFORNIA
INTERMEDIATE TAX-FREE BOND FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 7,939 $ 5,852 N/A N/A $ 7,939 $ 5,852
SHARES (000S) 813 600 N/A N/A 813 600
NET ASSET VALUE PER SHARE $ 9.77 $ 9.75 N/A N/A $ 9.77 $ 9.75
</TABLE>
STEPSTONE CONVERTIBLE SECURITIES FUND AND HIGHMARK CONVERTIBLE SECURITIES FUND
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 21,098 N/A N/A N/A $ 21,098 N/A
SHARES (000S) 1,825 N/A N/A N/A 1,825 N/A
NET ASSET VALUE PER SHARE $ 11.56 N/A N/A N/A $ 11.56 N/A
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 25, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
-47-
<PAGE> 47
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE BLUE CHIP GROWTH FUND AND HIGHMARK BLUE CHIP GROWTH FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 82,557 N/A N/A N/A $ 82,557 N/A
SHARES (000S) 5,585 N/A N/A N/A 5,585 N/A
NET ASSET VALUE PER SHARE $ 14.78 N/A N/A N/A $ 14.78 N/A
</TABLE>
STEPSTONE EMERGING GROWTH FUND AND HIGHMARK EMERGING GROWTH FUND (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 56,513 N/A N/A N/A $ 56,513 N/A
SHARES (000S) 4,299 N/A N/A N/A 4,299 N/A
NET ASSET VALUE PER SHARE $ 13.15 N/A N/A N/A $ 13.15 N/A
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 25, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
-48-
<PAGE> 48
CAPITALIZATION TABLES AS OF 2/26/97
STEPSTONE GOVERNMENT SECURITIES FUND AND HIGHMARK GOVERNMENT SECURITIES FUND
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
Net Assets (000s) $ 52,002 N/A N/A N/A $ 55,002 N/A
Shares (000s) 5,532 N/A N/A N/A 5,532 N/A
Net Asset Value per share $ 9.40 N/A N/A N/A $ 9.40 N/A
</TABLE>
STEPSTONE INTERNATIONAL EQUITY FUND AND HIGHMARK INTERNATIONAL EQUITY FUND
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
COMBINED
--------
STEPSTONE HIGHMARK (1)
--------- -------- ---
INSTITUTIONAL INVESTMENT FIDUCIARY RETAIL FIDUCIARY RETAIL
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000S) $ 46,879 N/A N/A N/A $ 46,879 N/A
SHARES (000S) 1,338 N/A N/A N/A 1,338 N/A
NET ASSET VALUE PER SHARE $ 35.03 N/A N/A N/A $ 35.03 N/A
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were
effective as of February 26, 1997 for information purposes only. The actual
Effective Time of the Reorganization is expected to be April 25, 1997 at which
time the results would be reflective of the actual composition of the
shareholders' equity at that date.
-49-
<PAGE> 49
Unaudited pro forma combined financial statements of each Stepstone Fund
and each HighMark Fund as of and for the period ended July 31, 1996 are
included in the Statement of Additional Information. Because the Agreement
provides that the HighMark Funds will be the surviving funds following the
reorganization and because the HighMark Funds' investment objectives and
policies will remain unchanged, the pro forma combined financial statements
reflect the transfer of the assets and liabilities of each Stepstone Fund to
the corresponding HighMark Fund as contemplated by the Agreement.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
Union Bank of California, N.A. may be deemed to have an interest in the
Agreement and Plan of Reorganization and the Transaction because it provides
investment advisory services to both the Stepstone Funds and the HighMark Funds
pursuant to separate advisory agreements with each Fund group. Union Bank of
California, N.A. receives compensation from the Stepstone Funds and the
HighMark Funds for services it provides pursuant to these agreements. The
terms and provisions of these arrangements are described in the Stepstone and
HighMark Prospectuses. In addition, Union Bank of California, N.A. also serves
as custodian and sub-administrator to the HighMark Funds for which services it
receives a fee as described in the HighMark Prospectuses. Union Bank of
California, N.A. may also act as a service provider pursuant to the
Shareholder Service Plan adopted by HighMark for which services it would also
receive a fee as described in the HighMark Prospectuses.
THE HIGHMARK FUNDS
GENERAL
For a general discussion of the HighMark Funds, see the HighMark
Prospectuses. For the convenience of Stepstone shareholders, certain
cross-references to those prospectuses are set forth below.
FINANCIAL INFORMATION
For information on per-share income and capital changes of a HighMark Fund,
see "Financial Highlights" in the HighMark Prospectus pertaining to such Fund.
EXPENSES
For a discussion of a HighMark Fund's expenses, see "Fee Table" in the
HighMark Prospectus pertaining to such Fund.
INVESTMENT OBJECTIVES AND POLICIES
For a discussion of a HighMark Fund's investment objective and policies,
see "Investment Objective" and "Investment Policies" in the HighMark Prospectus
pertaining to such Fund.
TRUSTEES
Overall responsibility for management of HighMark rests with its Board of
Trustees who are elected by the shareholders of HighMark. There are currently
five Trustees, one of whom is considered to be an "interested person" of
HighMark as defined in the 1940 Act. The Trustees, in turn, elect the officers
of HighMark to supervise actively its day-to-day operations.
The Trustees of HighMark, their addresses and principal occupations during
the past five years are set forth as follows:
-50-
<PAGE> 50
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH HIGHMARK DURING PAST 5 YEARS
---------------- ------------- -------------------
<S> <C> <C>
Thomas L. Braje Trustee Retired October, 1996. Prior
1000 Alfred Nobel Drive to October 1996, Vice President
Hercules, CA 94547 and Chief Financial Officer of
Bio Rad Laboratories, Inc.
David A. Goldfarb Trustee Partner, Goldfarb & Simens,
111 Pine Street Certified Public Accountants.
18th Floor
San Francisco, CA 94111
Joseph C. Jaeger Trustee Senior Vice President and Chief
100 First Street Financial Officer, Delta Dental
San Francisco, CA 94105 Plan of California.
Frederick J. Long Trustee President and Chief Executive
520 Pike Street Officer, Pettit-Morry Co. and
20th Floor Acordia Northwest Inc. (each an
Seattle, WA 98101 insurance brokerage firm).
</TABLE>
INVESTMENT ADVISOR
For a discussion of Union Bank of California, N.A. and the services
performed by it and its fees with respect to a HighMark Fund, see "The Advisor"
in the HighMark Prospectus pertaining to such Fund. For a discussion of Bank
of Tokyo-Mitsubishi Trust Company, which serves as sub-advisor to HighMark
Emerging Growth, HighMark Government Securities, HighMark Blue Chip Growth, and
HighMark Convertible Securities, and Tokyo-Mitsubishi Asset Management (U.K.),
Ltd., which serves as sub-advisor to HighMark International Equity, see "The
Sub-Advisor" in the applicable HighMark Prospectuses.
ADMINISTRATOR
For a discussion of SEI Fund Resources' activities as the HighMark Funds'
administrator, the services performed by it and its fees with respect to a
HighMark Fund, see "The Administrator" in the HighMark Prospectus pertaining to
such Fund.
DISTRIBUTOR
For a discussion of SEI Financial Services Company's activities as
distributor, see "The Distributor" in any HighMark Prospectus.
SHARES
For a discussion of voting rights of the HighMark Funds, see
"Miscellaneous" in any HighMark Prospectus.
-51-
<PAGE> 51
REDEMPTION OR REPURCHASE OF SHARES
For a discussion concerning redemption or repurchase of shares of the
HighMark Funds, see "Redemption of Shares" in any HighMark Prospectus.
DIVIDENDS AND DISTRIBUTIONS
For a discussion of the HighMark Funds' policies with respect to dividends
and distributions of a HighMark Fund, see "Dividends" in the HighMark
Prospectus pertaining to such Fund.
EXCHANGE PRIVILEGES
For a discussion of a HighMark shareholder's right to exchange particular
Class shares of a HighMark Fund for other Class shares of the same HighMark
Fund, or the same Class shares or other Class shares of another HighMark Fund,
see "Exchange Privileges" in any HighMark Prospectus.
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which HighMark is a
party.
SHAREHOLDER INQUIRIES
Shareholder inquiries relating to the HighMark Funds may be addressed to
HighMark's administrator by writing to SEI Fund Resources, Oaks, PA 19456 or
by calling 1-800-734-2922.
STEPSTONE FUNDS
GENERAL
For a general discussion of the Stepstone Funds, see the Stepstone
Prospectuses. For the convenience of Stepstone shareholders, certain
cross-references to the Stepstone Prospectuses are set forth below.
FINANCIAL INFORMATION
For information on per share income and capital changes of a Stepstone
Fund, see "Financial Highlights" in the Stepstone Prospectus pertaining to such
Fund.
EXPENSES
For a discussion of a Stepstone Fund's expenses, see "Shareholder
Transaction Expenses" in the Stepstone Prospectus pertaining to such Fund.
INVESTMENT OBJECTIVES AND POLICIES
For a discussion of a Stepstone Fund's investment objective and policies,
see "Investment Objectives" and "Investment Policies" in the Stepstone
Prospectus.
-52-
<PAGE> 52
TRUSTEES
Overall responsibility for management of Stepstone rests with its Board of
Trustees, who are elected by the shareholders of Stepstone. There are
currently five Trustees, one of whom is considered to be an "interested person"
of Stepstone as defined in the 1940 Act. The Trustees, in turn, elect the
officers of Stepstone to supervise actively its day-to-day operations.
The Trustees of Stepstone their addresses and principal occupations during
the past five years are set forth as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH STEPSTONE DURING PAST 5 YEARS
---------------- -------------- -------------------
<S> <C> <C>
William R. Howell Chairman of the Director, Current Income Shares, Inc.;
445 South Figueroa Street Board of Trustees Vice Chairman, Union Bank from 1976
Los Angeles, CA 90071 until retirement in 1982; Director of
Unionbanc Investment Management Company
since 1977, until retirement in 1982.
Robert A. Nesher* Trustee Retired since 1994; Executive Vice
8 South Street President of SEI, 1986-1994; Director
Kennebunkport, ME 04046 and Executive Vice President of the
Administrator and the Distributor,
September, 1981-1994.
Michael L. Noel Trustee Retired since 1996; Senior Vice
445 South Figueroa Street President and Treasurer, Southern
Los Angeles, CA 90071 California Edison Company 1980- 1996;
Assistant Treasurer, Pacific Coast
Electrical Association; Director,
Hancock Savings & Loan Association,
since 1986; Director, Software
Toolworks, Inc., since July 1989.
Paul L. Smith Trustee Retired Director of Union Bank, Retired
445 South Figueroa Street Vice Chairman and member of the Office
Los Angeles, CA 90071 of the Chief Executive of Security
Pacific Corporation, Former Director and
officer of numerous subsidiaries of such
Corporation and Security Pacific
National Bank.
Steven K. Joiner Trustee President, NAFCU Services
3138 North Tenth Street Corporation, Inc. since 1993;
Arlington, VA 22201 Executive Vice President,
Credit Union Services, Inc.,
from 1979-1993.
</TABLE>
* Mr. Nesher is considered to be an "interested person" of Stepstone as
defined in the 1940 Act.
-53-
<PAGE> 53
INVESTMENT ADVISOR
For a discussion of Union Bank of California, N.A., and the services
performed by it and its fees with respect to a Stepstone Fund, see "The
Advisor," in the Stepstone Prospectus pertaining to such Fund. For a
discussion of Bank of Tokyo-Mitsubishi Trust Company, which serves as
sub-advisor to Stepstone Emerging Growth, Stepstone Government Securities,
Stepstone Blue Chip Growth, and Stepstone Convertible Securities and
Tokyo-Mitsubishi Asset Management (U.K.), Ltd., which serves as sub-advisor to
Stepstone International Equity, see "The Sub-Advisor" in the applicable
Stepstone Prospectus.
ADMINISTRATOR
For a discussion of SEI Fund Resources' activities as the Stepstone Funds'
administrator, the services performed by it and its fees with respect to a
Stepstone Fund, see "The Administrator," in the Stepstone Prospectus pertaining
to such Fund.
DISTRIBUTOR
For a discussion of SEI Financial Services Company's activities as
distributor, see "Distribution" in any Stepstone Prospectus.
SHARES
For a discussion of voting rights of the Stepstone Funds, see "Voting
Rights" in any Stepstone Prospectus.
REDEMPTION OR REPURCHASE OF SHARES
For a discussion concerning redemption or repurchase of shares of the
Stepstone Funds, see "Redemption of Shares" in any Stepstone Prospectus.
DIVIDENDS AND DISTRIBUTIONS
For a discussion of the Stepstone Funds' policies with respect to dividends
and distributions of a Stepstone Fund, see "Dividends" in the Stepstone
Prospectus pertaining to such Fund.
EXCHANGE PRIVILEGES
For a discussion of a Stepstone shareholder's right to exchange Investment
Class shares of a Stepstone Fund for Investment Class shares of another
Stepstone Fund, see "Purchases by Exchange" in the Stepstone Prospectuses.
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which Stepstone is a
party.
SHAREHOLDER INQUIRIES
Shareholder inquiries relating to the Stepstone Funds may be addressed to
Stepstone's administrator by writing to SEI Fund Resources, Oaks, PA 19456 or
by calling 1-800- 433-6884.
-54-
<PAGE> 54
FINANCIAL STATEMENTS
The financial statements and financial highlights for the Stepstone Funds
included in the Stepstone Prospectuses and the related statement of additional
information have been audited by Arthur Andersen LLP for the periods indicated
in their report thereon which is also included in the statements of additional
information. The financial statements and financial highlights audited by
Arthur Andersen LLP have been incorporated herein by reference in reliance on
their report given on their authority as experts in accounting and auditing.
Unaudited financial statements and financial highlights for the Stepstone Funds
for the period ended July 31, 1996 are filed herewith.
The financial statements and financial highlights for the HighMark Funds
for each of the periods indicated therein included in the HighMark Prospectuses
and related statement of additional information have been incorporated by
reference in this Combined Prospectus/Proxy Statement in reliance on the report
of Deloitte & Touche LLP, independent auditors, given on the authority of that
Firm as experts in accounting and auditing. In addition, Coopers & Lybrand
L.L.P., HighMark's independent accountants prior to the fiscal year ended July
31, 1996, audited the financial statements and financial highlights of each
HighMark Fund prior to the fiscal year ended July 31, 1996.
VOTING INFORMATION
Proxies are being solicited from shareholders of each Stepstone Fund by the
Trustees of Stepstone for the Special Meeting of Shareholders to be held on
Friday, April 11, 1997 at 3:00 p.m., Eastern time, at SEI Fund Resources,
Oaks, PA 19456, or at such later time made necessary by adjournment. A proxy
may be revoked at any time at or before the meeting by submitting to Stepstone
a subsequently dated proxy, delivering a written notice of revocation to
Stepstone at Oaks, PA 19456, or as otherwise described in the "Introduction"
above. Unless revoked, all valid proxies will be voted in accordance with the
instructions thereon or, in the absence of instructions, will be voted FOR
approval of the Agreement and Plan of Reorganization. The Transaction
contemplated by the Agreement and Plan of Reorganization will be consummated
only if approved by the affirmative vote of a majority of all votes
attributable to the voting securities of each Stepstone Fund voting separately
as a Fund, as described above. In the event the shareholders do not approve
the reorganization, the Trustees of Stepstone will consider possible
alternative arrangements in the best interests of Stepstone and its
shareholders.
Proxies are being solicited by mail. Shareholders of record of each
Stepstone Fund at the close of business on February 12, 1997, (the "Record
Date"), will be entitled to vote at the Special Meeting of Shareholders or any
adjournment thereof. The holders of a majority of votes attributable to the
outstanding voting shares of a Stepstone Fund represented in person or by proxy
at the meeting will constitute a quorum for such Fund for the meeting, and a
majority of the shares of a Stepstone Fund voted on the Transaction is
necessary to approve the Transaction. Shareholders are entitled to one vote
per share and a proportionate fractional vote for any fractional share.
Votes cast by proxy or in person at the meeting will be counted by the
inspector of election appointed by Stepstone. The inspector of election will
count the total number of votes cast "for" approval of the proposal for
purposes of determining whether sufficient affirmative votes have been cast.
The inspector of election will count shares represented by proxies that reflect
abstentions as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum; however, the inspector of
election will not count "broker non-votes" (i.e., shares held by brokers or
nominees as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the broker or
nominee does not have the discretionary voting power on a particular matter) as
shares that are present and entitled to
-55-
<PAGE> 55
vote on the matter for purposes of determining the presence of a quorum. For
purposes of determining whether an issue has been approved, abstentions have
the effect of a negative vote on the proposal, and broker non-votes are treated
as "against" votes in those instances where approval of an issue requires a
certain percentage of all votes outstanding, but are given no effect in those
instances where approval of an issue requires a certain percentage of the votes
constituting the quorum for such issue.
-56-
<PAGE> 56
As of February 28, 1997, the officers and Trustees of Stepstone as a group
beneficially owned less than 1% of the outstanding shares of Investment Class
and Institutional Class shares of the Stepstone Funds. As of February 28,
1997, to the best of the knowledge of Stepstone, the following owned
beneficially 5% or more of the outstanding shares of:
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
Stepstone Money Market
Investment Shares
<S> <C>
National Financial Services Corp. 100.00%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
<CAPTION>
Stepstone Money Market
Institutional Shares
<S> <C>
Union Bank 73.81%
Attn: Jeanne Chizek
P.O. Box 109
San Diego, CA 92112-4103
Lane & Company 20.24%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, Ca 92112-4103
Bott Pension 5.13%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropolious
100 Broadway
New York, New York 10005-1904
</TABLE>
-57-
<PAGE> 57
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
Stepstone Treasury Money Market
Investment Shares
<S> <C>
National Financial Services Corp. 100.00%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
<CAPTION>
Stepstone Treasury Money Market
Institutional Shares
<S> <C>
Union Bank 98.30%
Attn: Jeanne Chizek
P.O. Box 109
San Diego, CA 92112-4103
<CAPTION>
Stepstone California Tax-Free Money Market
Investment Shares
<S> <C>
National Financial Services Corp. 100.00%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
<CAPTION>
Stepstone California Tax-Free Money Market
Institutional Shares
<S> <C>
Union Bank 100.00%
Attn: Jeanne Chizek
P.O. Box 109
San Diego, CA 92112-4103
</TABLE>
-58-
<PAGE> 58
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
Stepstone Balanced
Investment Shares
<S> <C>
National Financial Services Corp. 100.00%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
<CAPTION>
Stepstone Balanced
Institutional Shares
<S> <C>
American Express Trust Company 10.83%
as Agent for NEC Savings and
Retirement Plan
Attn: Nancy Jendro Trust Operations
P.O. Box 534
Minneapolis, MN 55440-0534
PFTC. Trustee Nissan Employee Savings Plan 9.27%
Putnam Investments DCPA
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, RI 02940-9740
Lane & Company 7.45%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Lane & Company 69.10%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
</TABLE>
-59-
<PAGE> 59
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
Stepstone Growth Equity
Investment Shares
<S> <C>
National Financial Services Corp. 66.67%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
Post & Co. 33.33%
c/o The Bank of New York
Attn: Bill Sauer-Mutual FDS
Reorg Dept.
P.O. Box 1066
Wall Street Station
New York, New York 10288-1088
<CAPTION>
Stepstone Growth Equity
Institutional Shares
<S> <C>
Lane & Company 40.81%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Lane & Company 58.31%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
<CAPTION>
Stepstone Value Momentum
Investment Shares
<S> <C>
National Financial Services Corp. 99.92%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
</TABLE>
-60-
<PAGE> 60
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
Stepstone Value Momentum
Institutional Shares
<S> <C>
Lane & Company 31.14%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Mellon Bank NA Trustee for Dept. 9.41%
of Personnel Admin. of State of CA
Attn: Wally Adebayo
One Cabot Road
Mail Zone 028-003I
Medford, MA 02155-5141
Lane & Company 55.51%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
<CAPTION>
Stepstone Blue Chip Growth
Institutional Shares
<S> <C>
Lane & Company 22.17%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Bott Pension 77.64%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropolious
100 Broadway
New York, New York 10005-1904
</TABLE>
-61-
<PAGE> 61
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
Stepstone Emerging Growth
Institutional Shares
<S> <C>
Lane & Company 36.02%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Bott Pension 63.82%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropolious
100 Broadway
New York, New York 10005-1904
<CAPTION>
Stepstone International Equity
Institutional Shares
<S> <C>
Lane & Company 70.60%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Lane & Company 29.00%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
<CAPTION>
Stepstone Intermediate-Term Bond
Investment Shares
<S> <C>
National Financial Services Corp. 100.00%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
</TABLE>
-62-
<PAGE> 62
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
Stepstone Intermediate-Term Bond
Institutional Shares
<S> <C>
Lane & Company 32.20%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Lane & Company 67.66%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
<CAPTION>
Stepstone Convertible Securities
Institutional Shares
<S> <C>
Bott Pension 92.54%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropolious
100 Broadway
New York, New York 10005-1904
Lane & Company 7.75%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
<CAPTION>
Stepstone Government Securities
Institutional Shares
<S> <C>
Lane & Company 12.10%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
</TABLE>
-63-
<PAGE> 63
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
<S> <C>
Bott Pension 87.90%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropolious
100 Broadway
New York, New York 10005-1904
<CAPTION>
Stepstone California Intermediate Tax-Free Bond
Investment Shares
<S> <C>
National Financial Services Corp. 100.00%
for exclusive benefit of our customers
P.O. Box 3908
Church Street Station
New York, New York 10005-3908
<CAPTION>
Stepstone California Intermediate Tax-Free Bond
Institutional Shares
<S> <C>
Lane & Company 13.30%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Lane & Company 38.90%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
Lane & Company 47.80%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112-4103
</TABLE>
-64-
<PAGE> 64
The votes of the shareholders of HighMark are not being solicited, since their
approval or consent is not necessary for approval of the Agreement. As of
February 28, 1997, the officers and Trustees of HighMark as a group
beneficially owned less than 1% of the outstanding Retail and Fiduciary shares
of the HighMark Funds. At February 28, 1997, to the best of the knowledge of
Highmark, the following beneficially owned 5% or more of the outstanding shares
of:
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
HighMark Diversified Money Market
Retail Shares
<S> <C>
National Financial Services Corp. 97.30%
for the benefit of our customers
Church Street Station
P.O. Box 3908
New York, New York 10008-3908
<CAPTION>
HighMark Diversified Money Market
Fiduciary Shares
<S> <C>
Union Bank 92.87%
Lane & Company Cash
Attn: Fund Accounting
P.O. Box 85602
San Diego, CA 92185-5602
Union Bank 5.81%
Lane & Co. Reinvestments
Attn: Kathleen Heilman
P.O. Box 109
San Diego, CA 92112
<CAPTION>
HighMark 100% U.S. Treasury Money Market
Retail Shares
<S> <C>
National Financial Services Corp. 99.71%
for the benefit of our customers
Church Street Station
P.O. Box 3908
New York, New York 10008-3908
</TABLE>
-65-
<PAGE> 65
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
HighMark 100% U.S. Treasury Money Market
Fiduciary Shares
<S> <C>
Union Bank 83.85%
Lane & Co. Cash
Attn: Fund Accounting
P.O. Box 95602
San Diego, CA 92186-5602
Union Bank 15.35%
Lane & Co. Reinvest
Attn: Kathleen Heilman
P.O. Box 109
San Diego, CA 92112
<CAPTION>
HighMark California Tax-Free Money Market
Retail Shares
<S> <C>
National Financial Services Corp. 96.22%
for the benefit of our customers
Church Street Station
P.O. Box 3908
New York, New York 10008-3908
<CAPTION>
HighMark California Tax-Free Money Market
Fiduciary Shares
<S> <C>
Union Bank 99.31%
Lane & Co. Cash
Attn: Fund Accounting
P.O. Box 95602
San Diego, CA 92186-5602
</TABLE>
-66-
<PAGE> 66
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
HighMark Balanced
Retail Shares
<S> <C>
John F. Roach 36.04%
587 Perugia Way
Los Angeles, CA 90077
Rosalind Fahmy 8.24%
2691 Pocatello
Rolland Heights, CA 91745-4751
Yoko Fujii Ttee 5.88%
Tadashi Yoko Fujii 1992 T
U A 11 27 92
1405 Lamont Av
Thousand Oaks, CA 91362
<CAPTION>
HighMark Balanced
Fiduciary Shares
<S> <C>
Union Bank 97.90%
Lane & Co. Reinvest
Attn: Kathleen Heilman
P.O. Box 109
San Diego, CA 92112
<CAPTION>
HighMark Growth
Retail Shares
<S> <C>
FBO Douglas S. Querin 5.49%
4228 SW Selling Court
Portland, OR 97221
Bill S. Tsutagawa 7.11%
Yuriko Tstutagawa
2242 Valley Road
Oceanside, CA 92056
</TABLE>
-67-
<PAGE> 67
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership
<S> <C>
Union Bank of California Cust 6.78%
IRA of John A. Dito
555 South Hope Street, #200D
Los Angeles, CA 90071-2631
Union Bank of California Cust 5.15%
IRA of John A. Dito
555 S. Hope Street, 200D
Los Angeles, CA 90071
<CAPTION>
HighMark Growth
Fiduciary Shares
<S> <C>
Union Bank 88.80%
Lane & Co Reinvest
Attn: Kathleen Heilman
P.O. Box 109
San Diego, CA 92112
</TABLE>
-68-
<PAGE> 68
THE BOARD OF TRUSTEES OF STEPSTONE, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL OF THE PLAN.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
This Combined Prospectus/Proxy Statement and the related statement of
additional information do not contain all of the information set forth in the
registration statements and the exhibits relating thereto which HighMark and
Stepstone, respectively, have filed with the Securities and Exchange Commission
under the Securities Act of 1933 and the 1940 Act to which reference is hereby
made. The SEC file numbers for the Stepstone Prospectuses and the related
statement of additional information which are incorporated by reference herein
are Registration No. 33-37687 and 811-6192. The SEC file numbers for the
HighMark Prospectuses and related statement of additional information which are
incorporated by reference herein are Registration No. 33-12608 and 811-5059.
HighMark and Stepstone are subject to the informational requirements of
the Securities Exchange Act of 1934 and in accordance therewith file reports
and other information with the SEC. Reports, proxy and information statements,
registration statements and other information filed by HighMark and Stepstone
can be inspected and copied at the public reference facilities of the SEC at
450 Fifth Street, N.W. Washington, D.C. 20549. Copies of such filings may also
be available at the following SEC regional offices: 90 Devonshire Street,
Suite 700, Boston, MA 02109; 500 West Madison Street, Suite 1400, Chicago, IL
60611-2511; and 601 Walnut Street, Suite 1005E, Philadelphia, PA 19106.
Copies of such materials can also be obtained by mail from the Public Reference
Branch, Office of Consumer Affairs and Information Services, SEC, Washington,
D.C. 20549 at prescribed rates.
-75-
<PAGE> 69
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of March 5, 1997 by and between HighMark Funds, a Massachusetts business trust,
("HighMark") and the Stepstone Funds, a Massachusetts business trust
("Stepstone"). The capitalized terms used herein shall have the meaning ascribed
to them in this Agreement.
PLAN OF REORGANIZATION
(a) Stepstone will sell, assign, convey, transfer and deliver to
HighMark, and HighMark will acquire, on the Exchange Date, all of the properties
and assets existing at the Valuation Time in the following funds:
Stepstone Money Market Fund ("Stepstone Money Market")
Stepstone Treasury Money Market Fund ("Stepstone Treasury Money
Market")
Stepstone California Tax-Free Money Market Fund ("Stepstone California
Tax-Free Money Market")
Stepstone Balanced Fund ("Stepstone Balanced")
Stepstone Growth Equity Fund ("Stepstone Growth Equity")
Stepstone Value Momentum Fund ("Stepstone Value Momentum")
Stepstone Blue Chip Growth Fund ("Stepstone Blue Chip Growth")
Stepstone Emerging Growth Fund ("Stepstone Emerging Growth")
Stepstone International Equity Fund ("Stepstone International Equity")
Stepstone Intermediate-Term Bond Fund ("Stepstone Intermediate-Term
Bond")
Stepstone Convertible Securities Fund ("Stepstone Convertible
Securities")
Stepstone Government Securities Fund ("Stepstone Government
Securities")
Stepstone California Intermediate Tax-Free Bond Fund ("Stepstone
California Intermediate Tax-Free Bond")
(such funds each are a "Stepstone Fund" and are collectively the
"Stepstone Funds").
Such acquisition is to be made by the following funds:
HighMark Diversified Money Market Fund ("HighMark Diversified Money
Market")
HighMark 100% U.S. Treasury Money Market Fund ("HighMark 100% U.S.
Treasury Money Market")
A-1
<PAGE> 70
HighMark California Tax-Free Money Market Fund ("HighMark California
Tax-Free Money Market")
HighMark Balanced Fund ("HighMark Balanced")
HighMark Growth Fund ("HighMark Growth")
HighMark Value Momentum Fund ("HighMark Value Momentum")
HighMark Blue Chip Growth Fund ("HighMark Blue Chip Growth")
HighMark Emerging Growth Fund ("HighMark Emerging Growth")
HighMark International Equity Fund ("HighMark International Equity")
HighMark Intermediate-Term Bond Fund ("HighMark Intermediate-Term
Bond")
HighMark Convertible Securities Fund ("HighMark Convertible
Securities")
HighMark Government Securities Fund ("HighMark Government Securities")
HighMark California Intermediate Tax-Free Bond Fund ("HighMark
California Intermediate Tax-Free Bond")
(such funds each are a "HighMark Fund" and are collectively the
"HighMark Funds").
For purposes of this Agreement the respective Stepstone Funds correspond to the
HighMark Funds as follows:
<TABLE>
<S> <C>
Stepstone Money Market Fund HighMark Diversified Money Market Fund
Stepstone Treasury Money Market Fund HighMark 100% U.S. Treasury Money
Market Fund
Stepstone California Tax-Free Money HighMark California Tax-Free Money
Market Fund Market Fund
Stepstone Balanced Fund HighMark Balanced Fund
Stepstone Growth Equity Fund HighMark Growth Fund
Stepstone Value Momentum Fund HighMark Value Momentum Fund
Stepstone Blue Chip Growth Fund HighMark Blue Chip Growth Fund
Stepstone Emerging Growth Fund HighMark Emerging Growth Fund
Stepstone International Equity Fund HighMark International Equity Fund
Stepstone Intermediate-Term Bond Fund HighMark Intermediate-Term Bond Fund
Stepstone Convertible Securities Fund HighMark Convertible Securities Fund
Stepstone Government Securities Fund HighMark Government Securities Fund
Stepstone California Intermediate Tax-Free HighMark California Intermediate Tax-Free
Bond Fund Bond Fund
</TABLE>
A-2
<PAGE> 71
In consideration therefor, each HighMark Fund shall, on the Exchange Date,
assume all of the liabilities of the corresponding Stepstone Fund and transfer
to the corresponding Stepstone Fund a number of full and fractional HighMark
Retail or Fiduciary Class shares of the corresponding HighMark Fund
(collectively, "Shares") having an aggregate net asset value equal to the value
of all of the assets of each Stepstone Fund transferred to the corresponding
HighMark Fund on such date less the value of all of the liabilities of each
Stepstone Fund assumed by the corresponding HighMark Fund on that date. It is
intended that each reorganization described in this Agreement shall be a
tax-free reorganization under the Internal Revenue Code of 1986, as amended (the
"Code").
(b) Upon consummation of the transactions described in paragraph (a) of
this Agreement, each Stepstone Fund in complete liquidation shall distribute to
its respective shareholders of record as of the Exchange Date the Shares
received by it, each shareholder being entitled to receive that number of Shares
equal to the proportion which the number of shares of beneficial interest of the
Stepstone Fund held by such shareholder bears to the number of such shares of
the Stepstone Fund outstanding on such date. If the Stepstone Fund shareholder
of record has Institutional Class shares, that shareholder will receive HighMark
Fiduciary shares. All other Stepstone shareholders will receive HighMark Retail
shares.
AGREEMENT
HighMark and Stepstone represent, warrant and agree as follows:
1. Representations and Warranties of Stepstone. Each of Stepstone and each
Stepstone Fund represent and warrant to and agree with HighMark and each
HighMark Fund that:
(a) Stepstone is a business trust duly established and validly existing
under the laws of the Commonwealth of Massachusetts and has power to own all of
its properties and assets and to carry out its obligations under this Agreement.
Stepstone and each Stepstone Fund is not required to qualify as a foreign
association in any jurisdiction. Stepstone and each Stepstone Fund has all
necessary federal, state and local authorizations to carry on its business as
now being conducted and to fulfill the terms of this Agreement, except as set
forth in Section 1(l).
(b) Stepstone is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company, and such
registration has not been revoked or rescinded and is in full force and effect.
Each Stepstone Fund has elected to qualify and has qualified as a regulated
investment company under Part I of Subchapter M of the Code, as of and since its
first taxable year, and qualifies and intends to continue to qualify as a
regulated investment company for its taxable year ending upon its
A-3
<PAGE> 72
liquidation. Each Stepstone Fund has been a regulated investment company under
such sections of the Code at all times since its inception.
(c) The statements of assets and liabilities, statements of operations,
statements of changes in net assets and schedules of portfolio investments
(indicating their market values) for each Stepstone Fund at and for the year
ended January 31, 1997, such statements and schedules having been audited by
Arthur Andersen LLP, independent accountants to Stepstone, have been furnished
to HighMark. Such statements of assets and liabilities and schedule fairly
present the financial position of each Stepstone Fund as of their respective
dates and said statements of operations and changes in net assets fairly reflect
the results of operations and changes in net assets for the periods covered
thereby in conformity with generally accepted accounting principles.
(d) The prospectuses of the Stepstone Funds dated May 28, 1996 (the
"Stepstone Prospectuses") and the Statement of Additional Information for the
Stepstone Funds dated May 28, 1996 and on file with the Securities and Exchange
Commission, which have been previously furnished to HighMark, did not as of
their dates and do not as of the date hereof contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Stepstone or any Stepstone Fund, threatened
against Stepstone or any Stepstone Fund which assert liability on the part of
Stepstone or any Stepstone Fund.
(f) There are no material contracts outstanding to which Stepstone or any
Stepstone Fund is a party, other than as disclosed in the Stepstone Prospectuses
and the corresponding Statement of Additional Information or in the Registration
Statement and the Proxy Statement.
(g) Neither Stepstone nor any Stepstone Fund has any known liabilities of a
material nature, contingent or otherwise, other than those shown as belonging to
it on its statement of assets and liabilities as of January 31, 1997 and those
incurred in the ordinary course of Stepstone's business as an investment company
since that date. Prior to the Exchange Date, Stepstone will advise HighMark of
all known material liabilities, contingent or otherwise, incurred by it and each
Stepstone Fund subsequent to January 31, 1997, whether or not incurred in the
ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean each
Stepstone Fund's investments shown on the schedule of its portfolio investments
as of January 31, 1997 referred to in Section 1(c) hereof, as supplemented with
such changes as Stepstone or each Stepstone Fund shall make after January 31,
1997 which charges shall be disclosed to HighMark,
A-4
<PAGE> 73
and changes resulting from stock dividends, stock split-ups, mergers and similar
corporate actions.
(i) Each Stepstone Fund has filed or will file all federal and state tax
returns which, to the knowledge of Stepstone's officers, are required to be
filed by each Stepstone Fund and has paid or will pay all federal and state
taxes shown to be due on said returns or on any assessments received by each
Stepstone Fund. All tax liabilities of each Stepstone Fund have been adequately
provided for on its books, and no tax deficiency or liability of any Stepstone
Fund has been asserted, and no question with respect thereto has been raised, by
the Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 1(l), Stepstone on
behalf of each Stepstone Fund will have full right, power and authority to sell,
assign, transfer and deliver the Investments and any other assets and
liabilities of each Stepstone Fund to be transferred to the corresponding
HighMark Fund pursuant to this Agreement. At the Exchange Date, subject only to
the delivery of the Investments and any such other assets and liabilities as
contemplated by this Agreement, HighMark will, on behalf of each HighMark Fund,
acquire the Investments and any such other assets subject to no encumbrances,
liens or security interests in favor of any third party creditor of Stepstone or
a Stepstone Fund and, except as described in Section 1(k), without any
restrictions upon the transfer thereof.
(k) Except as to Investments otherwise disclosed as unregistered securities
pursuant to Section 1(h) hereof, no registration under the Securities Act of
1933, as amended (the "1933 Act"), of any of the Investments would be required
if they were, as of the time of such transfer, the subject of a public
distribution by either of Stepstone or HighMark.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Stepstone or any
Stepstone Fund of the transactions contemplated by this Agreement, except such
as may be required under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, state securities or blue sky laws (which
term as used herein shall include the laws of the District of Columbia and of
Puerto Rico) or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act").
(m) The registration statement (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") by HighMark on Form
N-14 relating to the Shares issuable hereunder, and the proxy statement of
Stepstone included therein (the "Proxy Statement"), on the effective date of the
Registration Statement and insofar as they relate to Stepstone and the Stepstone
Funds, (i) will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the statements
therein not misleading; and at the time of the shareholders' meeting referred to
in Section 8(a) below and on the Exchange Date, the prospectus contained in the
Registration Statement of which the Proxy Statement is a part (the "Prospectus")
,as amended or supplemented by any amendments or supplements filed with the
Commission by HighMark, insofar as it relates to Stepstone and the Stepstone
Funds, will not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the representations
and warranties in this subsection shall apply only to statements of fact
relating to Stepstone and any Stepstone Fund contained in the Registration
Statement, the Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to Stepstone or any Stepstone Fund, as such
Registration Statement, Prospectus and Proxy Statement shall be furnished to
Stepstone in definitive form as soon as practicable following effectiveness of
the Registration Statement and before any public distribution of the Prospectus
or Proxy Statement.
(n) All of the issued and outstanding shares of beneficial interest of each
Stepstone Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws.
(o) At the Exchange Date, each of the Stepstone Funds will have sold such
of its assets, if any, if informed by HighMark in writing that such sale is
necessary to assure that, after giving effect to the acquisition of the assets
pursuant to this Agreement, each of the HighMark Funds will remain a
"diversified company" within the meaning of Section 5(b)(1) of the 1940 Act and
in compliance with such other mandatory investment restrictions as are set forth
in the HighMark Prospectuses previously furnished to Stepstone.
2. REPRESENTATIONS AND WARRANTIES OF HIGHMARK. Each of HighMark and each
HighMark Fund jointly and severally represent and warrant to and agree with
Stepstone and each Stepstone Fund that:
(a) HighMark is a business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts and has power to carry on
its business as it is now being conducted and to carry out this Agreement.
HighMark and each HighMark Fund is not required to qualify as a foreign
association in any jurisdiction. HighMark and each HighMark Fund has all
necessary federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted and to fulfill
the terms of this Agreement, except as set forth in Section 2(i).
(b) HighMark is registered under the 1940 Act as an open-end management
investment company, and such registration has not been revoked or rescinded and
is in full
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force and effect. Each HighMark Fund that has had active operations prior to the
Exchange Date, has elected to qualify and has qualified as a regulated
investment company under Part I of Subchapter M of the Code, as of and since its
first taxable year, and qualifies and intends to continue to qualify as a
regulated investment company for its taxable year ending upon its liquidation.
Each HighMark Fund that has had actual operations prior to the Exchange Date has
been a regulated investment company under such sections of the Code at all times
since its inception. HighMark Value Momentum, HighMark Blue Chip Growth,
HighMark Emerging Growth, HighMark International Equity, HighMark
Intermediate-Term Bond, HighMark Convertible Securities, HighMark Government
Securities, and HighMark California Intermediate Tax-Free Bond, which have not
had active operations prior to the Exchange Date, intend to qualify as regulated
investment companies under Part I of Subchapter M of the Code.
(c) The statements of assets and liabilities, statements of operations,
statements of changes in net assets and schedules of investments (indicating
their market values) for each HighMark Fund for the year ended July 31, 1996,
such statements and schedules having been audited by Deloitte & Touche LLP,
independent accountants to HighMark, have been furnished to Stepstone. The
statements of assets and liabilities, statements of operations, statements of
changes in net assets and schedules of investments (indicating their market
values) for each HighMark Fund for the six-month period ended January 31, 1997,
which are unaudited, have also been furnished to Stepstone. Such statements of
assets and liabilities and schedules fairly present the financial position of
the HighMark Funds as of their respective dates, and said statements of
operations and changes in net assets fairly reflect the results of its
operations and changes in financial position for the periods covered thereby in
conformity with generally accepted accounting principles.
(d) The prospectuses of each HighMark Fund dated March 28, 1997,
(collectively, the "HighMark Prospectuses"), and the Statement of Additional
Information for the HighMark Funds, dated March 28, 1997 and on file with the
Securities and Exchange Commission, which have been previously furnished to
Stepstone, did not as of their dates and do not as of the date hereof contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of HighMark or any HighMark Fund, threatened
against HighMark or any HighMark Fund which assert liability on the part of
HighMark or any HighMark Fund.
(f) There are no material contracts outstanding to which HighMark or any
HighMark Fund is a party, other than as disclosed in the HighMark Prospectuses
and the corresponding Statement of Additional Information or in the Registration
Statement.
(g) Neither HighMark nor any HighMark Fund has any known liabilities of a
material nature, contingent or otherwise, other than those shown on its
statement of assets and liabilities as of January 31, 1997 referred to above and
those incurred in the ordinary course of the business of HighMark as an
investment company or any HighMark Fund since such date. Prior to the Exchange
Date, HighMark will advise Stepstone of all known material liabilities,
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contingent or otherwise, incurred by it and each HighMark Fund subsequent to
January 31, 1997, whether or not incurred in the ordinary course of business.
(h) Each HighMark Fund has filed or will file all federal and state tax
returns which, to the knowledge of HighMark's officers, are required to be filed
by each HighMark Fund and has paid or will pay all federal and state taxes shown
to be due on said returns or on any assessments received by each HighMark Fund.
All tax liabilities of each HighMark Fund have been adequately provided for on
its books, and no tax deficiency or liability of any HighMark Fund has been
asserted, and no question with respect thereto has been raised, by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid.
(i) No consent, approval, authorization or order of any governmental
authority is required for the consummation by HighMark or any HighMark Fund of
the transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, state securities or Blue Sky
laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and otherwise as
described in Section 2(i), HighMark on behalf of each HighMark Fund will have
full right, power and authority to purchase the Investments and any other assets
and assume the liabilities of each Stepstone Fund to be transferred to the
corresponding HighMark Fund pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy Statement, on
the effective date of the Registration Statement and insofar as they relate to
HighMark and the HighMark Funds: (i) will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 8(a) and at the Exchange Date, the
Prospectus, as amended or supplemented by any amendments or supplements filed
with the Commission by HighMark or any HighMark Fund, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement, the Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by Stepstone or any Stepstone Fund for use
in the Registration Statement, the Prospectus or the Proxy Statement.
(l) Shares to be issued to each Stepstone Fund have been duly authorized
and, when issued and delivered pursuant to this Agreement and the Prospectus,
will be legally and validly issued and will be fully paid and nonassessable by
HighMark and no shareholder of HighMark will have any preemptive right of
subscription or purchase in respect thereof.
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(m) The issuance of Shares pursuant to this Agreement will be in compliance
with all applicable federal and state securities laws.
(n) Each of HighMark Diversified Money Market, HighMark 100% U.S. Treasury
Money Market, HighMark California Tax-Free Money Market, HighMark Balanced, and
HighMark Growth is qualified and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections 851 and
852 of the Code. HighMark Value Momentum, HighMark Blue Chip Growth, HighMark
Emerging Growth, HighMark International Equity, HighMark Intermediate-Term Bond,
HighMark Convertible Securities, HighMark Government Securities, and HighMark
California Intermediate Tax- Free Bond, upon filing of their first income tax
returns at the completion of their first taxable year will elect to be regulated
investment companies and until such time will take all steps necessary to ensure
qualification as regulated investment companies under Sections 851 and 852 of
the Code.
(o) HighMark through its administrator, transfer agent, custodian or
otherwise, will cooperate fully and in a timely manner with Stepstone and each
Stepstone Fund in completing each of the actions required of it and its agents
and necessary for consummation of the transactions described in Sections 3 (a)
and (b) of this Agreement.
3. REORGANIZATION. (a) Subject to the requisite approval of the
shareholders of each Stepstone Fund and to the other terms and conditions
contained herein (including each Stepstone Fund's obligation to distribute to
its respective shareholders all of its investment company taxable income and net
capital gain as described in Section 9(k) hereof), Stepstone and each Stepstone
Fund agree to sell, assign, convey, transfer and deliver to the corresponding
HighMark Fund, and HighMark and each HighMark Fund agree to acquire from the
corresponding Stepstone Fund, on the Exchange Date all of the Investments and
all of the cash and other assets of each Stepstone Fund in exchange for that
number of Shares of the corresponding HighMark Fund provided for in Section 4
and the assumption by the corresponding HighMark Fund of all of the liabilities
of the Stepstone Fund. Pursuant to this Agreement, such Stepstone Fund will, as
soon as practicable after the Exchange Date, distribute in liquidation all of
the Shares received by it to its shareholders in exchange for their shares of
beneficial interest of such Stepstone Fund.
(b) Stepstone, on behalf of each Stepstone Fund, will pay or cause to be
paid to the corresponding HighMark Fund any interest and cash dividends received
by it on or after the Exchange Date with respect to the Investments transferred
to the HighMark Funds hereunder. Stepstone, on behalf of each Stepstone Fund,
will transfer to the corresponding HighMark
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Fund any rights, stock dividends or other securities received by Stepstone or
any Stepstone Fund after the Exchange Date as stock dividends or other
distributions on or with respect to the Investments transferred, which rights,
stock dividends and other securities shall be deemed included in the assets
transferred to each HighMark Fund at the Exchange Date and shall not be
separately valued, in which case any such distribution that remains unpaid as of
the Exchange Date shall be included in the determination of the value of the
assets of the Stepstone Fund acquired by the corresponding HighMark Fund.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, HighMark will
deliver to Stepstone a number of Shares having an aggregate net asset value
equal to the value of the assets of the corresponding Stepstone Fund acquired by
each HighMark Fund, less the value of the liabilities of such Stepstone Fund
assumed, determined as hereafter provided in this Section 4.
(a) Subject to Section 4(d) hereof, the value of each Stepstone Fund's net
assets will be computed as of the Valuation Time using the valuation procedures
for the particular Stepstone Fund set forth in the Stepstone Prospectus. In no
event shall the same security held by both Stepstone and HighMark be valued at
different prices.
(b) Subject to Section 4(d) hereof, the net asset value of a share of each
HighMark Fund will be determined to the nearest full cent as of the Valuation
Time, using the valuation procedures set forth in the HighMark Prospectus for
the particular HighMark Fund.
(c) Subject to Section 4(d), the Valuation Time shall be 4:00 p.m. Eastern
Standard time on April 18, 1997 for the following Funds: Stepstone Money Market,
Stepstone Treasury Money Market, Stepstone California Tax-Free Money Market,
Stepstone Balanced and Stepstone Growth Equity, and 4:00 p.m. Eastern time on
April 25, 1997 for the following Funds: Stepstone Value Momentum, Stepstone Blue
Chip Growth, Stepstone Emerging Growth, Stepstone International Equity,
Stepstone Intermediate-Term Bond, Stepstone Convertible Securities, Stepstone
Government Securities, and Stepstone California Intermediate Tax-Free Bond, or
such earlier or later days as may be mutually agreed upon in writing by the
parties hereto (the "Valuation Time").
(d) No formula will be used to adjust the net asset value of any Stepstone
Fund or HighMark Fund to take into account differences in realized and
unrealized gains and losses.
(e) Each HighMark Fund shall issue its Shares to the corresponding
Stepstone Fund on one share deposit receipt registered in the name of the
corresponding Stepstone Fund. Each Stepstone Fund shall distribute in
liquidation the Shares received by it hereunder pro rata to its shareholders by
redelivering such share deposit receipt to HighMark's transfer agent which will
as soon as practicable set up open accounts for each Stepstone Fund shareholder
in accordance with written instructions furnished by Stepstone.
(f) Each HighMark Fund shall assume all liabilities of the corresponding
Stepstone Fund, whether accrued or contingent, in connection with the
acquisition of assets and subsequent dissolution of the corresponding Stepstone
Fund or otherwise, except that recourse for assumed liabilities relating to a
particular Stepstone Fund will be limited to the corresponding HighMark Fund.
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5. EXPENSES, FEES, ETC. (a) Subject to subsections 5(b) through 5(e), all
fees and expenses, including accounting expenses, portfolio transfer taxes (if
any) or other similar expenses incurred directly in connection with the
consummation by HighMark and Stepstone of the transactions contemplated by this
Agreement will be borne by Union Bank of California, N.A., including the costs
of proxy materials, proxy solicitation, and legal expenses; provided, however,
that such expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by the other party of such
expenses would result in the disqualification of any HighMark Fund or any
Stepstone Fund, as the case may be, as a "regulated investment company" within
the meaning of Section 851 of the Code. Fees and expenses not incurred directly
in connection with the consummation of the Transaction will be borne by the
party incurring such fees and expenses.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of Stepstone being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any condition
to Stepstone's obligations referred to in Section 8(a) or Section 10), Stepstone
shall pay directly all reasonable fees and expenses incurred by HighMark in
connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of HighMark being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
HighMark's obligations referred to in Section 8(a) or Section 9), HighMark shall
pay directly all reasonable fees and expenses incurred by Stepstone in
connection with such transactions, including without limitation legal,
accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) HighMark or Stepstone being either
unwilling or unable to go forward or (ii) the nonfulfillment or failure of any
condition to Stepstone or HighMark's obligations referred to in Section 8(a),
Section 9 or Section 10 of this Agreement, then each of Stepstone and HighMark
shall bear the expenses it has actually incurred in connection with such
transactions.
(e) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated, no
party shall be liable to the other party for any damages resulting therefrom,
including without limitation consequential damages, except as specifically set
forth above.
6. PERMITTED ASSETS. HighMark and Stepstone agree to review the assets of
Stepstone to ensure that at any time prior to the Exchange Date the assets of
any Stepstone Fund do not include any assets that the corresponding HighMark
Fund is not permitted, or reasonably believes to be unsuitable for it, to
acquire, including without limitation any security that, prior to its
acquisition by any Stepstone Fund, HighMark has informed Stepstone is unsuitable
for the corresponding HighMark Fund to acquire.
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7. EXCHANGE DATE. Delivery of the assets of the Stepstone Funds to be
transferred, assumption of the liabilities of the Stepstone Funds to be assumed,
and the delivery of Shares to be issued shall be made at the offices of SEI Fund
Resources, Oaks, PA 19456 at 9:00 a.m. on April 21, 1997 for the following
Funds: Stepstone Money Market, Stepstone Treasury Money Market, Stepstone
California Tax-Free Money Market, Stepstone Balanced and Stepstone Growth Equity
and 9:00 a.m. on April 28, 1997 for the following Funds: Stepstone Value
Momentum, Stepstone Blue Chip Growth, Stepstone Emerging Growth, Stepstone
International Equity, Stepstone Intermediate-Term Bond, Stepstone Convertible
Securities, Stepstone Government Securities, and Stepstone California
Intermediate Tax-Free Bond or at such other times and dates agreed to by
Stepstone and HighMark, the date and time upon which such delivery is to take
place being referred to herein as the "Exchange Date."
8. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION. (a) Stepstone agrees to
call a special meeting of the shareholders of each Stepstone Fund as soon as is
practicable after the effective date of the Registration Statement for the
purpose of considering the sale of all of the assets of each Stepstone Fund to
and the assumption of all of the liabilities of each Stepstone Fund by the
corresponding HighMark Fund as herein provided, adopting this Agreement, and
authorizing the liquidation and dissolution of each Stepstone Fund, and, except
as set forth in Section 13, it shall be a condition to the obligations of each
of the parties hereto that the holders of the shares of beneficial interest of
each Stepstone Fund shall have approved this Agreement and the transactions
contemplated herein in the manner required by law and Stepstone's Declaration of
Trust at such a meeting on or before the Valuation Time.
(b) Stepstone and each Stepstone Fund agree that the liquidation and
dissolution of each Stepstone Fund will be effected in the manner provided in
Stepstone's Declaration of Trust in accordance with applicable law, that it will
not make any distributions of any Shares to the shareholders of a Stepstone Fund
without first paying or adequately providing for the payment of all of such
Stepstone Fund's known debts, obligations and liabilities.
(c) Each of HighMark and Stepstone will cooperate with the other, and each
will furnish to the other the information relating to itself required by the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
to be set forth in the Registration Statement, including the Prospectus and the
Proxy Statement.
9. CONDITIONS TO HIGHMARK'S OBLIGATIONS. The obligations of HighMark and
each HighMark Fund hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby, including the liquidation and dissolution of the Stepstone
Funds, shall have been approved by the shareholders of each Stepstone Fund in
the manner required by law.
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(b) Stepstone shall have furnished to HighMark a statement of each
Stepstone Fund's assets and liabilities, with values determined as provided in
Section 4 of this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on Stepstone's
behalf by its President (or any Vice President) and Treasurer, and a certificate
of both such officers, dated the Exchange Date, to the effect that as of the
Valuation Time and as of the Exchange Date there has been no material adverse
change in the financial position of any Stepstone Fund since January 31, 1997,
other than changes in the Investments since that date or changes in the market
value of the Investments, or changes due to net redemptions of shares of the
Stepstone Funds, dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of Stepstone and each Stepstone Fund made in this
Agreement are true and correct in all material respects as if made at and as of
such dates, Stepstone and each Stepstone Fund has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to each of such dates, and Stepstone shall have furnished
to HighMark a statement, dated the Exchange Date, signed by Stepstone's
President (or any Vice President) and Treasurer certifying those facts as of
such dates.
(d) Stepstone shall have delivered to HighMark a letter from Arthur
Andersen LLP dated the Exchange Date stating that such firm reviewed the federal
and state income tax returns of each Stepstone Fund for the year ended January
31, 1997 and that, in the course of such review, nothing came to their attention
which caused them to believe that such returns did not properly reflect, in all
material respects, the federal and state income taxes of each Stepstone Fund for
the periods covered thereby, or that each Stepstone Fund would not qualify as a
regulated investment company for federal income tax purposes.
(e) There shall not be any material litigation pending with respect to the
matters contemplated by this Agreement.
(f) HighMark shall have received an opinion of Morgan, Lewis & Bockius LLP,
in form reasonably satisfactory to HighMark and dated the Exchange Date, to the
effect that (i) Stepstone is a business trust duly established and validly
existing under the laws of the Commonwealth of Massachusetts, and neither
Stepstone nor any Stepstone Fund is, to the knowledge of such counsel, required
to qualify to do business as a foreign association in any jurisdiction, (ii)
this Agreement has been duly authorized, executed, and delivered by Stepstone
and, assuming that the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and assuming
due authorization, execution and delivery of this Agreement by HighMark, is a
valid and binding obligation of Stepstone, (iii) Stepstone and each Stepstone
Fund has power to sell, assign, convey, transfer and deliver the Investments and
other assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, Stepstone
and each Stepstone Fund will have duly sold, assigned, conveyed, transferred and
delivered such Investments and other assets to HighMark,(iv) the execution
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and delivery of this Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate Stepstone's Declaration of Trust, or
Bylaws, as amended, or any provision of any agreement known to such counsel to
which Stepstone or any Stepstone Fund is a party or by which it is bound, it
being understood that with respect to investment restrictions as contained in
Stepstone's Declaration of Trust, or Bylaws, such counsel may rely upon a
certificate of an officer of Stepstone whose responsibility it is to advise
Stepstone with respect to such matters and (v) no consent, approval,
authorization or order of any court or governmental authority is required for
the consummation by Stepstone or any Stepstone Fund of the transactions
contemplated hereby, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act and such as may be required under state securities or
blue sky laws and the H-S-R Act, and it being understood that such opinion shall
not be deemed to apply to HighMark's compliance obligations under the 1933 Act,
1934 Act, 1940 Act, state securities or blue sky laws and H-S-R Act. For
purposes of analysis regarding the 1940 Act, Morgan, Lewis & Bockius LLP may
assume, as fact solely for purposes of this plan that the Stepstone Funds and
the HighMark Funds may be considered affiliated persons or affiliated persons of
an affiliated person solely by reason of having a common investment adviser.
(g) HighMark shall have received an opinion of Ropes & Gray, counsel to
HighMark addressed to HighMark and each HighMark Fund, in form reasonably
satisfactory to HighMark and dated the Exchange Date (which opinion would be
based upon certain factual representations and subject to certain
qualifications), to the effect that, on the basis of the existing provisions of
the Code, current administrative rules and court decisions, for Federal income
tax purposes: (i) no gain or loss will be recognized by any Stepstone Fund or
its Shareholders upon the transfer of the assets to the corresponding HighMark
Fund in exchange for Shares and the assumption by such HighMark Fund of the
liabilities of the Stepstone Fund or upon the distribution of Shares by the
Stepstone Fund to its shareholders in liquidation pursuant to this Agreement;
(ii) the basis of the Shares a Stepstone shareholder receives in connection with
the transaction will be the same as the basis of his or her Stepstone Fund
shares exchanged therefor; (iii) a Stepstone shareholder's holding period with
respect to his or her Shares will be determined by including the period for
which he or she held the Stepstone Fund shares exchanged therefor, provided that
he or she held such Stepstone Fund shares as capital assets; (iv) no gain or
loss will be recognized by any HighMark Fund upon the receipt of the assets of
the corresponding Stepstone Fund in exchange for Shares and the assumption by
the HighMark Fund of the liabilities of the corresponding Stepstone Fund; (v)
the basis in the hands of the HighMark Fund of the assets of the corresponding
Stepstone Fund transferred to the HighMark Fund will be the same as the basis of
the assets in the hands of the corresponding Stepstone Fund immediately prior to
the transfer; and (vi) each HighMark Fund's holding periods with respect to the
assets of the corresponding Stepstone Fund will include the periods for which
such assets were held by the corresponding Stepstone Fund.
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(h) Subject to the parties' compliance with Section 6 hereof, the assets of
each Stepstone Fund to be acquired by the corresponding HighMark Fund will
include no assets which the corresponding HighMark Fund, by reason of
limitations contained in its Declaration of Trust or of investment restrictions
disclosed in the HighMark Prospectuses in effect on the Exchange Date, may not
properly acquire. HighMark shall not change the HighMark Declaration of Trust
and the HighMark Prospectuses so as to restrict permitted investments for each
HighMark Fund except as required by the Commission or any state regulatory
authority.
(i) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of HighMark
contemplated by the Commission and or any state regulatory authority.
(j) All proceedings taken by Stepstone in connection with the transactions
contemplated by this Agreement and all documents incidental thereto reasonably
shall be satisfactory in form and substance to HighMark.
(k) Prior to the Exchange Date, each Stepstone Fund (other than a Stepstone
Fund that will combine with a HighMark Fund in a manner qualifying for
treatment under Section 368(a)(1)(F) of the Code) shall have declared a dividend
or dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of the excess of (i) the
Stepstone Fund's investment income excludable from gross income under Section
103(a) of the Code (if any) over (ii) its deductions disallowed under Sections
265 and 171(a)(2) of the Code, all of the Stepstone Fund's investment company
taxable income (computed without regard to any deduction for dividends paid),
and all of the Stepstone Fund's net realized capital gain (after reduction for
any capital loss carryover) in each case for both the taxable year ended January
31, 1997 and the short taxable period beginning on February 1, 1997 and ending
on the Exchange Date.
(l) Stepstone shall have furnished to HighMark a certificate, signed by the
President (or any Vice President) and the Treasurer of Stepstone, as to the tax
cost to Stepstone of the securities delivered to HighMark pursuant to this
Agreement, together with any such other evidence as to such tax cost as HighMark
may reasonably request.
(m) Stepstone Funds' custodian shall have delivered to HighMark a
certificate identifying all of the assets of each Stepstone Fund held by such
custodian as of the Valuation Time.
(n) Stepstone Funds' transfer agent shall have provided to HighMark (i) the
originals or true copies of all of the records of each Stepstone Fund in the
possession of such transfer agent as of the Exchange Date, (ii) a certificate
setting forth the number of shares of each Stepstone Fund outstanding as of the
Valuation Time and (iii) the name and address of each holder of record of any
such shares of each Stepstone Fund and the number of shares held of record by
each such shareholder.
(o) All of the issued and outstanding shares of beneficial interest of each
Stepstone Fund shall have been offered for sale and sold in conformity with all
applicable federal or
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state securities or blue sky laws and, to the extent that any audit of the
records of Stepstone or any Stepstone Fund or its transfer agent by HighMark or
its agents shall have revealed otherwise, either (i) Stepstone and each
Stepstone Fund shall have taken all actions that in the reasonable opinion of
HighMark are necessary to remedy any prior failure on the part of Stepstone to
have offered for sale and sold such shares in conformity with such laws or (ii)
Stepstone shall have furnished (or caused to be furnished) surety, or deposited
(or caused to be deposited) assets in escrow, for the benefit of HighMark in
amounts sufficient and upon terms satisfactory, in the opinion of HighMark or
its counsel, to indemnify HighMark against any expense, loss, claim, damage or
liability whatsoever that may be asserted or threatened by reason of such
failure on the part of Stepstone to have offered and sold such shares in
conformity with such laws.
(p) HighMark shall have received from Deloitte & Touche LLP a letter
addressed to HighMark dated as of the Exchange Date reasonably satisfactory in
form and substance to HighMark and Stepstone to the effect that, on the basis of
limited procedures agreed upon by HighMark and Stepstone and described in such
letter (but not an examination in accordance with generally accepted auditing
standards), as of the Valuation Time the value of the assets of each Stepstone
Fund to be exchanged for the Shares have been determined in accordance with the
provisions of Stepstone's Declaration of Trust, pursuant to the procedures
customarily utilized by each Stepstone Fund in valuing its assets and issuing
its shares.
(q) Stepstone shall have duly executed and delivered to HighMark bills of
sale, assignments, certificates and other instruments of transfer ("Transfer
Documents") as HighMark may deem necessary or desirable to transfer all of
Stepstone's and each Stepstone Fund's entire right, title and interest in and to
the Investments and all other assets of each Stepstone Fund.
10. CONDITIONS TO STEPSTONE'S OBLIGATIONS. The obligations of Stepstone and
each Stepstone Fund hereunder shall be subject to the following conditions:
(a) This Agreement shall have been adopted and the transactions
contemplated hereby, including the liquidation and dissolution of the Stepstone
Funds, shall have been approved by the shareholders of each Stepstone Fund in
the manner required by law.
(b) HighMark shall have furnished to Stepstone a statement of each HighMark
Fund's net assets, together with a list of portfolio holdings with values
determined as provided in Section 4, all as of the Valuation Time, certified on
HighMark's behalf by its President (or any Vice President) and Treasurer (or
any Assistant Treasurer), and a certificate of both such officers, dated the
Exchange Date, to the effect that as of the Valuation Time and as of the
Exchange Date there has been no material adverse change in the financial
position of any HighMark Fund since January 31, 1997, other than changes in its
portfolio securities since that date, changes in the market value of its
portfolio securities, changes due to net redemptions, dividends paid or losses
from operations.
A-16
<PAGE> 85
(c) HighMark shall have executed and delivered to Stepstone an Assumption
of Liabilities dated as of the Exchange Date pursuant to which each HighMark
Fund will assume all of the liabilities of the corresponding Stepstone Fund
existing at the Valuation Time in connection with the transactions contemplated
by this Agreement.
(d) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of HighMark and each HighMark Fund made in this
Agreement are true and correct in all material respects as if made at and as of
such dates, HighMark and each HighMark Fund has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to each of such dates, and HighMark shall have furnished
to Stepstone a statement, dated the Exchange Date, signed by HighMark's
President (or any Vice President) and Treasurer certifying those facts as of
such dates.
(e) There shall not be any material litigation pending with respect to the
matters contemplated by this Agreement.
(f) Stepstone shall have received an opinion of Ropes & Gray, in form
reasonably satisfactory to Stepstone and dated the Exchange Date, to the effect
that (i) HighMark is a business trust and validly existing in conformity with
the laws of The Commonwealth of Massachusetts, and, to the knowledge of such
counsel, neither HighMark nor any HighMark Fund is required to qualify to do
business as a foreign association in any jurisdiction, (ii) the Shares to be
delivered to Stepstone as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be fully paid and
nonassessable by HighMark and no shareholder of HighMark has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement has
been duly authorized, executed and delivered by HighMark and, assuming that the
Prospectus, the Registration Statement and the Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by Stepstone, is a valid and binding
obligation of HighMark, (iv) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will not,
violate HighMark's Declaration of Trust, as amended, or Code of Regulations, or
any provision of any agreement known to such counsel to which HighMark or any
HighMark Fund is a party or by which it is bound, it being understood that with
respect to investment restrictions as contained in HighMark's Declaration of
Trust, as amended, Code of Regulations or then-current prospectus or statement
of additional information of each HighMark Fund, such counsel may rely upon a
certificate of an officer of HighMark whose responsibility it is to advise
HighMark with respect to such matters, (v) no consent, approval, authorization
or order of any court or governmental authority is required for the consummation
by HighMark or any HighMark Fund of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required under state securities or blue sky laws and the H-S-R
Act and it being understood that such opinion shall not be deemed to apply to
Stepstone's compliance obligations under the 1933 Act, 1934 Act, 1940 Act, state
securities or blue sky laws and the H-S-R Act; and (vi) the Registration
Statement has become effective under the 1933 Act, and to the best of the
A-17
<PAGE> 86
knowledge of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the 1933 Act.
(g) Stepstone shall have received an opinion of Ropes & Gray addressed to
Stepstone and each Stepstone Fund in a form reasonably satisfactory to Stepstone
and dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), with respect to the
matters specified in Section 9(g) of this Agreement.
(h) All proceedings taken by HighMark in connection with the transactions
contemplated by this Agreement and all documents incidental thereto reasonably
shall be satisfactory in form and substance to Stepstone.
(i) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of Stepstone,
contemplated by the Commission or any state regulatory authority.
11. INDEMNIFICATION. (a) The Stepstone Funds will indemnify and hold
harmless HighMark, its trustees and its officers (for purposes of this
subsection, the "Indemnified Parties") against any and all expenses, losses,
claims, damages and liabilities at any time imposed upon or reasonably incurred
by any one or more of the Indemnified Parties in connection with, arising out
of, or resulting from any claim, action, suit or proceeding in which any one or
more of the Indemnified Parties may be involved or with which any one or more of
the Indemnified Parties may be threatened by reason of any untrue statement or
alleged untrue statement of a material fact relating to Stepstone or any
Stepstone Fund contained in the Registration Statement, the Prospectus or the
Proxy Statement or any amendment or supplement to any of the foregoing, or
arising out of or based upon the omission or alleged omission to state in any of
the foregoing a material fact relating to Stepstone or any Stepstone Fund
required to be stated therein or necessary to make the statements relating to
Stepstone or any Stepstone Fund therein not misleading, including, without
limitation, any amounts paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action, suit or
proceeding, or threatened claim, action, suit or proceeding made with the prior
consent of Stepstone. The Indemnified Parties will notify Stepstone in writing
within ten days after the receipt by any one or more of the Indemnified Parties
of any notice of legal process or any suit brought against or claim made against
such Indemnified Party as to any matters covered by this Section 11(a).
Stepstone shall be entitled to participate at its own expense in the defense of
any claim, action, suit or proceeding covered by this Section 11(a), or, if it
so elects, to assume at its expense by counsel satisfactory to the Indemnified
Parties the defense of any such claim, action, suit or proceeding, and if
Stepstone elects to assume such defense, the Indemnified Parties shall be
entitled to participate in the defense of any such claim, action, suit or
proceeding at their expense. The Stepstone Funds' obligation under this Section
11(a)
A-18
<PAGE> 87
to indemnify and hold harmless the Indemnified Parties shall constitute a
guarantee of payment so that the Stepstone Funds will pay in the first instance
any expenses, losses, claims, damages and liabilities required to be paid by
them under this Section 11(a) without the necessity of the Indemnified Parties'
first paying the same.
(b) The HighMark Funds will indemnify and hold harmless Stepstone, its
trustees and its officers (for purposes of this subparagraph, the "Indemnified
Parties") against any and all expenses, losses, claims, damages and liabilities
at any time imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or resulting from any
claim, action, suit or proceeding in which any one or more of the Indemnified
Parties may be involved or with which any one or more of the Indemnified Parties
may be threatened by reason of any untrue statement or alleged untrue statement
of a material fact relating to HighMark or any HighMark Fund contained in the
Registration Statement, the Prospectus or the Proxy Statement, or any amendment
or supplement to any of the foregoing, or arising out of or based upon the
omission or alleged omission to state in any of the foregoing a material fact
relating to HighMark or any HighMark Fund required to be stated therein or
necessary to make the statements relating to HighMark or any HighMark Fund
therein not misleading, including, without limitation, any amounts paid by any
one or more of the Indemnified Parties in a reasonable compromise or settlement
of any such claim, action, suit or proceeding, or threatened claim, action, suit
or proceeding made with the prior consent of HighMark. The Indemnified Parties
will notify HighMark in writing within ten days after the receipt by any one or
more of the Indemnified Parties of any notice of legal process or any suit
brought against or claim made against such Indemnified Party as to any matters
covered by this Section 11(b). HighMark shall be entitled to participate at its
own expense in the defense of any claim, action, suit or proceeding covered by
this Section 11(b), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim, action,
suit or proceeding, and, if HighMark elects to assume such defense, the
Indemnified Parties shall be entitled to participate in the defense of any such
claim, action, suit or proceeding at their own expense. The HighMark Funds'
obligation under this Section 11(b) to indemnify and hold harmless the
Indemnified Parties shall constitute a guarantee of payment so that the HighMark
Funds will pay in the first instance any expenses, losses, claims, damages and
liabilities required to be paid by them under this Section 11(b) without the
necessity of the Indemnified Parties' first paying the same.
12. NO BROKER, ETC. Each of HighMark and Stepstone represents that there is
no person who has dealt with it who by reason of such dealings is entitled to
any broker's or finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
13. TERMINATION. HighMark and Stepstone may, by mutual consent of their
respective trustees, terminate this Agreement, and HighMark or Stepstone, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees, may waive any condition to their respective
obligations hereunder. If the
A-19
<PAGE> 88
transactions contemplated by this Agreement have not been substantially
completed by June 30, 1997, this Agreement shall automatically terminate on that
date unless a later date is agreed to by HighMark and Stepstone.
Notwithstanding any other provision in this Agreement, in the event
shareholder approval of this Agreement and the transactions contemplated by this
Agreement is obtained with respect to only one or more Stepstone Funds but not
all of the Stepstone Funds, HighMark and Stepstone agree to consummate those
transactions with respect to those Stepstone Funds that have approved this
Agreement and those transactions.
14. COVENANTS, ETC. DEEMED MATERIAL. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
15. SOLE AGREEMENT; AMENDMENTS. This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
The Commonwealth of Massachusetts.
16. AGREEMENT AND DECLARATION OF TRUST. The Stepstone Funds is a business
trust organized under Massachusetts law and under a Declaration of Trust, to
which reference is hereby made and a copy of which is on file at the office of
the Secretary of The
A-20
<PAGE> 89
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of the
"Stepstone Funds" entered into in the name or on behalf thereof by any of the
Trustees, officers, employees or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, officers, employees,
agents or shareholders of Stepstone personally, but bind only the assets of
Stepstone, and all persons dealing with any of the series or funds of Stepstone,
such as the Stepstone Funds, must look solely to the assets of Stepstone
belonging to such series or funds for the enforcement of any claims against
Stepstone.
HighMark Funds is a business trust organized under Massachusetts law
and under a Declaration of Trust, to which reference is hereby made and a copy
of which is on file at the office of the Secretary of The Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "HighMark Funds" entered
into in the name or on behalf thereof by any of the Trustees, officer, employees
or agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of
HighMark personally, but bind only the assets of HighMark and all persons
dealing with any of the series or funds of HighMark, such as the HighMark Funds,
must look solely to the assets of HighMark belonging to such series or funds for
the enforcement of any claims against HighMark.
A-21
<PAGE> 90
This Agreement may be executed in any number of counter-parts, each of
which, when executed and delivered, shall be deemed to be an original.
STEPSTONE FUNDS
By: /s/ Marc H. Cahn
---------------------------
HIGHMARK FUNDS
By: /s/ Kevin P. Robins
----------------------------
A-22
<PAGE> 91
APPENDIX B
FEE TABLES
Below are fee tables showing the current fees for the Stepstone and HighMark
Funds.
HIGHMARK DIVERSIFIED MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
Diversified
Money Market
Fund
------------------
Retail Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as
applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if
applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction) 0.30%
12b-1 Fees 0.25%
Other Expenses (after voluntary reduction)(c) 0.20%
-----
Total Fund Operating 0.75%
=====
Expenses(d)
</TABLE>
Example: You 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.
<PAGE> 92
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Money Market Fund
Retail Shares $8 $24 $42 $93
</TABLE>
The purpose of the tables above is to assist an investor in the
Diversified Money Market Fund in understanding the various costs and expenses
that a Shareholder will bear directly or indirectly. For a more complete
discussion of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Diversified Money Market Fund on
behalf of their customers may charge customers fees for services
provided in connection with the investment in, redemption of, and
exchange of Shares. (See HOW TO PURCHASE SHARES, EXCHANGE PRIVILEGES,
REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(c) Absent voluntary fee waivers, OTHER EXPENSES would be 0.47% for the
Retail Shares of the Diversified Money Market Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.02% for the Retail Shares of the Diversified Money Market Fund.
-2-
<PAGE> 93
STEPSTONE MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INVESTMENT CLASS
(As a percentage of average net assets)
Money
Market
Fund
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30%
12b-1 Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- ---------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . .75%
=========================================================================================================
</TABLE>
(1) Absent voluntary fee waivers, 12b-1 Fees would be .40% of the Money
Market Fund. The Distributor reserves the right to terminate its waiver
at any time in its sole discretion.
(2) Absent fee waivers, "Total Operating Expenses" would be .90% for the
Money Market Fund.
Example:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . $8 $24 $42 $93
==================================================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class shares of the Funds which are
subject to the same expenses, except there are no distribution expenses.
Additional information may be found under "The Administrator" and "The
Advisor."
-3-
<PAGE> 94
HIGHMARK DIVERSIFIED MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
Diversified
Money Market
Fund
------------------
Fiduciary Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction) 0.30%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(d) 0.20%
-----
Total Fund Operating 0.50%
====
Expenses(e)
</TABLE>
EXAMPLE: You 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
-4-
<PAGE> 95
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Money Market Fund
Fiduciary Shares $5 $16 $28 $63
</TABLE>
The purpose of the tables above is to assist an investor in the
Diversified Money Market Fund in understanding the various costs and expenses
that a Shareholder will bear directly or indirectly. For a more complete
discussion of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Diversified Money Market Fund on
behalf of their customers may charge customers fees for services
provided in connection with the investment in, redemption of, and
exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE
PRIVILEGES and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
PURCHASE AND REDEMPTION OF SHARES below.)
(c) Absent voluntary fee waivers, OTHER EXPENSES would be 0.47% for the
Fiduciary Shares of the Diversified Money Market Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
0.77% for the Fiduciary Shares of the Diversified Money Market Fund.
-5-
<PAGE> 96
STEPSTONE MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of average net assets)
Money
Market
Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- ----------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . .50%
==========================================================================================================
</TABLE>
Example:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . $5 $16 $28 $63
==================================================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds
which are subject to the same expenses, except that Investment Class shares are
subject to certain distribution expenses. Additional information may be found
under "The Administrator" and "The Advisor."
-6-
<PAGE> 97
HIGHMARK 100% U.S. TREASURY MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
100% U.S. Treasury
Money
Market Fund
-----------------------
Retail Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction)(c) 0.24%
12b-1 Fees 0.25%
Other Expenses (after voluntary reduction)(d) 0.21%
-----
Total Fund Operating 0.70%
=====
Expenses(e)
</TABLE>
Example: You 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.
-7-
<PAGE> 98
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund
Retail Shares $7 $22 $39 $87
</TABLE>
The purpose of the tables above is to assist an investor in the 100%
U.S. Treasury Money Market Fund in understanding the various costs and expenses
that a Shareholder will bear directly or indirectly. For a more complete
discussion of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the 100% U.S. Treasury Money Market
Fund on behalf of their customers may charge customers fees for
services provided in connection with the investment in, redemption of,
and exchange of Shares. (See HOW TO PURCHASE SHARES, EXCHANGE
PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the
Retail Shares of the 100% U.S. Treasury Money Market Fund.
(d) Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Retail Shares of the 100% U.S. Treasury Money Market Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.03% for the Retail Shares of the 100% U.S. Treasury Money Market
Fund.
-8-
<PAGE> 99
STEPSTONE TREASURY MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INVESTMENT CLASS
(As a percentage of average net assets)
Treasury
Money Market
Fund
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%(1)
12b-1 Fees (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- -------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (3) . . . . . . . . . . . . . . . . . . . . . .70%
=============================================================================================================
</TABLE>
(1) The Advisor has voluntarily agreed to waive fees to the extent necessary
in order to limit Total Operating Expenses of the Treasury Money Market
Fund. The Advisor reserves the right to terminate its waiver at any time
in its sole discretion. Absent this fee waiver, the Advisory Fees would
be .30% for the Treasury Money Market Fund.
(2) Absent voluntary fee waivers, 12b-1 Fees would be .40% of the Treasury
Money Market Fund. The Distributor reserves the right to terminate its
waiver at any time in its sole discretion.
(3) Absent fee waivers, "Total Operating Expenses" would be .90% for the
Treasury Money Market Fund.
Example:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Treasury Money Market Fund . . . . . . . . . . . . . . . . . $7 $22 $39 $87
==================================================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class shares of the Funds which are
subject to the same expenses, except there are no distribution expenses.
Additional information may be found under "The Administrator" and "The
Advisor."
-9-
<PAGE> 100
HIGHMARK 100% U.S. TREASURY MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
100% U.S. Treasury
Money Market
Fund
--------------------------
Fiduciary Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction)(c) 0.24%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(d) 0.21%
-----
Total Fund Operating 0.45%
====
Expenses(e)
</TABLE>
EXAMPLE: You 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
-10-
<PAGE> 101
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund
Fiduciary Shares $5 $14 $25 $57
</TABLE>
The purpose of the tables above is to assist an investor in the 100%
U.S. Treasury Money Market Fund in understanding the various costs and expenses
that a Shareholder will bear directly or indirectly. For a more complete
discussion of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the 100% U.S. Treasury Money Market
Fund on behalf of their customers may charge customers fees for
services provided in connection with the investment in, redemption of,
and exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES,
EXCHANGE PRIVILEGES and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
PURCHASE AND REDEMPTION OF SHARES below.)
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the
Fiduciary Shares of the 100% U.S. Treasury Money Market Fund.
(d) Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Fiduciary Shares of the 100% U.S. Treasury Money Market Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
0.78% for the Fiduciary Shares of the 100% U.S. Treasury Money Market
Fund.
-11-
<PAGE> 102
STEPSTONE TREASURY MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of average net assets)
Treasury
Money Market
Fund
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%(1)
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- -------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . .45%(1)
=============================================================================================================
</TABLE>
(1) The Advisor has voluntarily agreed to waive fees to the extent necessary
in order to limit "Total Operating Expenses" to not more than .45% for
the Treasury Money Market Fund. The Advisor reserves the right to
terminate its waiver at any time in its sole discretion. Absent fee
waivers, the "Advisory Fees" and "Total Operating Expenses" would be .30%
for the Treasury Money Market Fund.
Example:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Treasury Money Market Fund . . . . . . . . . . . . . . . $5 $14 $25 $57
=============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds
which are subject to the same expenses, except that Investment Class shares are
subject to certain distribution expenses. Additional information may be found
under "The Administrator" and "The Advisor."
-12-
<PAGE> 103
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
California Tax-Free
Money Market Fund
-----------------
Retail Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction)(c) 0.09%
12b-1 Fees 0.25%
Other Expenses (after voluntary reduction)(d) 0.21%
-----
Total Fund Operating 0.55%
=====
Expenses(e)
</TABLE>
Example: You 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.
-13-
<PAGE> 104
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
California Tax-Free Money Market Fund
Retail Shares $6 $18 $31 $69
</TABLE>
The purpose of the tables above is to assist an investor in the
California Tax-Free Money Market Fund in understanding the various costs and
expenses that a Shareholder will bear directly or indirectly. For a more
complete discussion of the Fund's annual operating expenses, see SERVICE
ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the California Tax-Free Money Market
Fund on behalf of their customers may charge customers fees for
services provided in connection with the investment in, redemption of,
and exchange of Shares. (See HOW TO PURCHASE SHARES, EXCHANGE
PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the
Retail Shares of the California Tax-Free Money Market Fund.
(d) Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Retail Shares of the California Tax-Free Money Market Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.03% for the Retail Shares of the California Tax-Free Money Market
Fund.
-14-
<PAGE> 105
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INVESTMENT CLASS
(As a percentage of average net assets)
California
Tax-Free
Money Market
Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10%(1)
12b-1 Fees (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- -----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (3) . . . . . . . . . . . . . . . . . . . . . .63%
=================================================================================================================
</TABLE>
(1) The Advisor has voluntarily agreed to waive fees to the extent necessary
in order to limit Total Operating Expenses of the California Tax-Free
Money Market Fund. The Advisor reserves the right to terminate its
waiver at any time in its sole discretion. Absent this fee waiver, the
Advisory Fees would be .30% for the California Tax-Free Money Market
Fund.
(2) Absent voluntary fee waivers, 12b-1 Fees would be .40% of the California
Tax-Free Money Market Fund. The Distributor reserves the right to
terminate its waiver at any time in its sole discretion.
(3) Absent fee waivers, "Total Operating Expenses" would be .90% for the
California Tax-Free Money Market Fund. "Total Operating Expenses" of the
California Tax-Free Money market Fund have been restated to reflect
current fees and fee waivers.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
California Tax-Free Money Market Fund . . . . . . . . . . $6 $20 $35 $79
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class shares of the Funds which are
subject to the same expenses, except there are no distribution expenses.
Additional information may be found under "The Administrator" and "The
Advisor."
-15-
<PAGE> 106
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
California Tax-Free
Money Market Fund
-----------------
Fiduciary Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction)(c) 0.09%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(d) 0.21%
-----
Total Fund Operating 0.30%
====
Expenses(e)
</TABLE>
EXAMPLE: You 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
-16-
<PAGE> 107
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
California Tax-Free Money Market Fund
Fiduciary Shares $3 $10 $17 $38
</TABLE>
The purpose of the tables above is to assist an investor in the
California Tax-Free Money Market Fund in understanding the various costs and
expenses that a Shareholder will bear directly or indirectly. For a more
complete discussion of the Fund's annual operating expenses, see SERVICE
ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the California Tax-Free Money Market
Fund on behalf of their customers may charge customers fees for
services provided in connection with the investment in, redemption of,
and exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES,
EXCHANGE PRIVILEGES and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
PURCHASE AND REDEMPTION OF SHARES below.)
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the
California Tax-Free Money Market Fund.
(d) Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Fiduciary Shares of the California Tax-Free Money Market Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
0.78% for the Fiduciary Shares of the California Tax-Free Money Market
Fund.
-17-
<PAGE> 108
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of average net assets)
California
Tax-Free
Money
Market
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10%(1)
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) . . . . . . . . . . . . . . . . . . . . . . . .30%(1)
==============================================================================================================
</TABLE>
(1) The Advisor has voluntarily agreed to waive fees to the extent necessary
in order to limit "Total Operating Expenses" to not more than .30% for
the California Tax-Free Money Market Fund. The Advisor reserves the
right to terminate its waiver at any time in its sole discretion. Absent
fee waivers, the "Advisory Fees" and "Total Operating Expenses" would be
.50%, for the California Tax Free Money Market Fund. "Total Operating
Expenses" of the California Tax-Free Money Market Fund have been restated
to reflect current fees and fee waivers.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
California Tax-Free Money Market Fund . . . . . . . . . . $3 $10 $17 $38
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds
which are subject to the same expenses, except that Investment Class shares are
subject to certain distribution expenses. Additional information may be found
under "The Administrator" and "The Advisor."
-18-
<PAGE> 109
HIGHMARK BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
Balanced Fund
Retail Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 4.50%
Purchases (as a percentage of offering price)
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)(b)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(c)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0.25%
Other Expenses (after voluntary reduction)(d) 0.30%
Total Fund Operating 1.15%
====
Expenses(e)
</TABLE>
EXAMPLE: You 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.
-19-
<PAGE> 110
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Retail Shares $56 $80 $105 $178
</TABLE>
The purpose of the table above is to assist an investor in the
Balanced Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Balanced Fund on behalf of their
customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See HOW TO PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION
OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against
the proceeds of any redemption request relating to Retail Shares of
the Fund that were purchased without a sales charge in reliance upon
the waiver accorded to purchases in the amount of $1 million or more,
but only where such redemption request is made within one year of the
date the Shares were purchased.
(c) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(d) Absent voluntary fee waivers, OTHER EXPENSES would be .48% for the
Retail Shares of the Balanced Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be
1.33% for the Retail Shares of the Balanced Fund.
-20-
<PAGE> 111
STEPSTONE BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50%
Maximum Contingent Deferred Sales Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Wire Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
</TABLE>
* A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Investment Class shares of
the Fund that were purchased without a sales charge in reliance upon the
waiver accorded to purchases in the amount of $1 million or more, but only
where such redemption request is made within 1 year of the date the shares
were purchased.
ANNUAL OPERATING EXPENSES
(As a percentage of offering price)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Balanced
Fund
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
12b-1 Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . 1.05%
==============================================================================================================
</TABLE>
(1) Absent voluntary fee waivers, 12b-1 Fees would be .40 for the Balanced
Fund. The Distributor reserves the right to terminate its waiver at any
time in its sole discretion.
(2) Absent fee waivers, "Total Operating Expenses" would be 1.20% for the
Balanced Fund.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) imposition of the
maximum sales charge; (2) 5% return and
(3) redemption at the end of each time period.
Balanced Fund . . . . . . . . . . . . . . . . . . . . $55 $77 $100 $167
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER
-21-
<PAGE> 112
OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor
in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Investment Class shares of the Funds. The
Trust also offers Institutional Class shares of the Funds, which are subject to
the same expenses except there are no sales charges or distribution costs.
Additional information may be found under "The Administrator," "The Advisor"
and "The SubAdvisor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
-22-
<PAGE> 113
HIGHMARK BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
Balanced Fund
Fiduciary Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of offering price)
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(c) 0.30%
Total Fund Operating 0.90%
====
Expenses(d)
</TABLE>
EXAMPLE: You 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.
-23-
<PAGE> 114
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Fiduciary Shares $9 $29 $50 $111
</TABLE>
The purpose of the table above is to assist an investor in the
Balanced Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Balanced Fund on behalf of their
customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE PRIVILEGES,
and SERVICE ARRANGEMENTS--below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
PURCHASE AND REDEMPTION OF SHARES below.)
(c) Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Fiduciary Shares of the Balanced Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be
1.08% for the Fiduciary Shares of the Balanced Fund.
-24-
<PAGE> 115
STEPSTONE BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Balanced
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80%
==============================================================================================================
</TABLE>
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Balanced Fund . . . . . . . . . . . . . . . . . . . . . . $ 8 $26 $44 $ 99
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except that Investment Class shares are
subject to sales charges and distribution expenses. Additional information may
be found under "The Administrator," "The Advisor" and "The SubAdvisor."
-25-
<PAGE> 116
HIGHMARK GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
Growth
Fund
----
Retail
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 4.50%
Purchases (as a percentage of offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as
applicable)(b)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(c)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0.25%
Other Expenses (after voluntary 0.30%
reduction)(d)
Total Fund Operating 1.15 %
======
Expenses(e)
</TABLE>
EXAMPLE: You 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.
-26-
<PAGE> 117
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund
Retail Shares $56 $80 $105 $178
</TABLE>
The purpose of the tables above is to assist an investor in the Growth
Fund in understanding the various costs and expenses that a Shareholder will
bear directly or indirectly. For a more complete discussion of the Fund's
annual operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Growth Fund on behalf of their
customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See HOW TO PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION
OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against
the proceeds of any redemption request relating to Retail Shares of
the Fund that were purchased without a sales charge in reliance upon
the waiver accorded to purchases in the amount of $1 million or more,
but only where such redemption request is made within one year of the
date the Shares were purchased.
(c) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(d) Absent voluntary fee waivers, OTHER EXPENSES would be: 0.48% for the
Retail Shares of the Growth Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.33% for the Retail Shares of the Growth Fund.
-27-
<PAGE> 118
STEPSTONE GROWTH EQUITY FUND FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50%
Maximum Contingent Deferred Sales Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Wire Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
</TABLE>
* A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Investment Class shares of
the Fund that were purchased without a sales charge in reliance upon the
waiver accorded to purchases in the amount of $1 million or more, but only
where such redemption request is made within 1 year of the date the shares
were purchased.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of offering price)
- --------------------------------------------------------------------------------------------------------------
Growth
Equity
Fund
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
12b-1 Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . 1.05%
==============================================================================================================
</TABLE>
(1) Absent voluntary fee waivers, 12b-1 Fees would be .40 for the Growth
Equity Fund. The Distributor reserves the right to terminate its waiver
at any time in its sole discretion.
(2) Absent fee waivers, "Total Operating Expenses" would be 1.20% for the
Growth Equity Fund.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) imposition of the
maximum sales charge; (2) 5% return and
(3) redemption at the end of each time period.
Growth Equity Fund . . . . . . . . . . . . . . . . . $55 $77 $100 $167
==============================================================================================================
</TABLE>
-28-
<PAGE> 119
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class shares of the Funds, which
are subject to the same expenses except there are no sales charges or
distribution costs. Additional information may be found under "The
Administrator," "The Advisor" and "The SubAdvisor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
-29-
<PAGE> 120
HIGHMARK GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
Growth Fund
-----------
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0%
Other Expenses (after voluntary 0.30%
reduction)(c)
Total Fund Operating 0.90%
=====
Expenses(d)
</TABLE>
EXAMPLE: You 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.
-30-
<PAGE> 121
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund
Fiduciary Shares $9 $29 $50 $111
</TABLE>
The purpose of the tables above is to assist an investor in the Growth
Fund in understanding the various costs and expenses that a Shareholder will
bear directly or indirectly. For a more complete discussion of the Fund's
annual operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Growth Fund on behalf of their
customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE PRIVILEGES,
and SERVICE ARRANGEMENTS--below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
Redemption of Shares below.)
(c) Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Fiduciary Shares of the Growth Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.08% for the Fiduciary Shares of the Growth Fund.
-31-
<PAGE> 122
STEPSTONE GROWTH EQUITY FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Growth
Equity
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80%
==============================================================================================================
</TABLE>
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Growth Equity Fund . . . . . . . . . . . . . . . . . . . $ 8 $26 $44 $ 99
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except that Investment Class shares are
subject to sales charges and distribution expenses. Additional information may
be found under "The Administrator," "The Advisor" and "The SubAdvisor."
-32-
<PAGE> 123
HIGHMARK VALUE MOMENTUM FUND FEE TABLE
<TABLE>
<CAPTION>
Value Momentum
Fund
----
Retail
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 4.50%
Purchases (as a percentage of offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as
applicable)(b)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(c)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0.25%
Other Expenses (after voluntary 0.21%
reduction)(d)
Total Fund Operating 1.06%
=====
Expenses(e)
</TABLE>
EXAMPLE: You 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.
-33-
<PAGE> 124
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Value Momentum Fund
Retail Shares $55 $77 $101 $169
</TABLE>
The purpose of the tables above is to assist an investor in the Value
Momentum Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Value Momentum Fund on behalf of
their customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See HOW TO PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION
OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against
the proceeds of any redemption request relating to Retail Shares of
the Fund that were purchased without a sales charge in reliance upon
the waiver accorded to purchases in the amount of $1 million or more,
but only where such redemption request is made within one year of the
date the Shares were purchased.
(c) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(d) OTHER EXPENSES for the Value Momentum Fund are based on the Fund's
estimated expenses for the current fiscal year. Absent voluntary fee
waivers, OTHER EXPENSES would be: 0.48% for the Retail Shares of the
Value Momentum Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.33% for the Retail Shares of the Value Momentum Fund.
-34-
<PAGE> 125
STEPSTONE VALUE MOMENTUM FUND FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50%
Maximum Contingent Deferred Sales Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Wire Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
</TABLE>
* A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Investment Class shares of
the Fund that were purchased without a sales charge in reliance upon the
waiver accorded to purchases in the amount of $1 million or more, but only
where such redemption request is made within 1 year of the date the shares
were purchased.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of offering price)
- --------------------------------------------------------------------------------------------------------------
Value
Momentum
Fund
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
12b-1 Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . 1.05%
==============================================================================================================
</TABLE>
(1) Absent voluntary fee waivers, 12b-1 Fees would be .40 for the Value
Momentum Fund. The Distributor reserves the right to terminate its
waiver at any time in its sole discretion.
(2) Absent fee waivers, "Total Operating Expenses" would be 1.20% for the
Value Momentum Fund.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) imposition of the
maximum sales charge; (2) 5% return and
(3) redemption at the end of each time period.
Value Momentum Fund . . . . . . . . . . . . . . . . . $55 $77 $100 $167
==============================================================================================================
</TABLE>
-35-
<PAGE> 126
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class shares of the Funds, which
are subject to the same expenses except there are no sales charges or
distribution costs. Additional information may be found under "The
Administrator," "The Advisor" and "The SubAdvisor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
-36-
<PAGE> 127
HIGHMARK VALUE MOMENTUM FUND FEE TABLE
<TABLE>
<CAPTION>
Value
Momentum
Fund
----
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0%
Other Expenses (after voluntary 0.21%
reduction)(c)
Total Fund Operating 0.81%
=====
Expenses(d)
</TABLE>
EXAMPLE: You 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.
-37-
<PAGE> 128
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Value Momentum Fund
Fiduciary Shares $8 $26 $45 $100
</TABLE>
The purpose of the tables above is to assist an investor in the Value
Momentum Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Value Momentum Fund on behalf of
their customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE PRIVILEGES,
and SERVICE ARRANGEMENTS--below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
Redemption of Shares below.)
(c) OTHER EXPENSES for the Value Momentum Fund are based on the Fund's
estimated expenses for the current fiscal year. Absent voluntary fee
waivers, OTHER EXPENSES would be 0.48% for the Fiduciary Shares of the
Value Momentum Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.08% for the Fiduciary Shares of the Value Momentum Fund.
-38-
<PAGE> 129
STEPSTONE VALUE MOMENTUM FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Value
Momentum
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80%
==============================================================================================================
</TABLE>
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Value Momentum Fund . . . . . . . . . . . . . . . . . . . $ 8 $26 $44 $ 99
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except that Investment Class shares are
subject to sales charges and distribution expenses. Additional information may
be found under "The Administrator," "The Advisor" and "The SubAdvisor."
-39-
<PAGE> 130
HIGHMARK BLUE CHIP GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
Blue Chip
Growth
Fund
------------
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0%
Other Expenses (after voluntary reduction)(c) 0.22%
Total Fund Operating 0.82%
=====
Expenses(d)
</TABLE>
EXAMPLE: You 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.
-40-
<PAGE> 131
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund
Fiduciary Shares $8 $26 $46 $101
</TABLE>
The purpose of the tables above is to assist an investor in the Blue
Chip Growth Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Blue Chip Growth Fund on behalf
of their customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE PRIVILEGES,
and SERVICE ARRANGEMENTS--below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
Redemption of Shares below.)
(c) OTHER EXPENSES for the Blue Chip Growth Fund are based on the Fund's
estimated expenses for the current fiscal year. Absent voluntary fee
waivers, OTHER EXPENSES would be 0.49% for the Fiduciary Shares of the
Blue Chip Growth Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.09% for the Fiduciary Shares of the Blue Chip Growth Fund.
-41-
<PAGE> 132
STEPSTONE BLUE CHIP GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Blue Chip
Growth
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85%(1)
==============================================================================================================
</TABLE>
(1) "Total Operating Expenses" of the Blue Chip Growth Fund have been restated
to reflect current fees.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Blue Chip Growth Fund . . . . . . . . . . . . . . . . . . $ 9 $27 $47 $105
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except that Investment Class shares are
subject to sales charges and distribution expenses. Additional information may
be found under "The Administrator," "The Advisor" and "The SubAdvisor."
-42-
<PAGE> 133
HIGHMARK EMERGING GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
Emerging
Growth Fund
-----------
Retail
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 4.50%
Purchases (as a percentage of offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)(b)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(c)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.80%
12b-1 Fees 0.25%
Other Expenses (after voluntary reduction)(d) 0.23%
Total Fund Operating 1.28%
=====
Expenses(e)
</TABLE>
EXAMPLE: You 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.
-43-
<PAGE> 134
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Growth Fund
Retail Shares $57 $84 $112 $193
</TABLE>
The purpose of the tables above is to assist an investor in the
Emerging Growth Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Emerging Growth Fund on behalf
of their customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See HOW TO PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION
OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against
the proceeds of any redemption request relating to Retail Shares of
the Fund that were purchased without a sales charge in reliance upon
the waiver accorded to purchases in the amount of $1 million or more,
but only where such redemption request is made within one year of the
date the Shares were purchased.
(c) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(d) OTHER EXPENSES for the Emerging Growth Fund are based on the Fund's
estimated expenses for the current fiscal year. Absent voluntary fee
waivers, OTHER EXPENSES would be: 0.50% for the Retail Shares of the
Emerging Growth Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.55% for the Retail Shares of the Emerging Growth Fund.
-44-
<PAGE> 135
STEPSTONE EMERGING GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50%
Maximum Contingent Deferred Sales Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Wire Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
</TABLE>
* A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Investment Class shares of
the Fund that were purchased without a sales charge in reliance upon the
waiver accorded to purchases in the amount of $1 million or more, but only
where such redemption request is made within 1 year of the date the shares
were purchased.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of offering price)
- --------------------------------------------------------------------------------------------------------------
Emerging
Growth
Fund
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80%
12b-1 Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . 1.05%
==============================================================================================================
</TABLE>
(1) Absent voluntary fee waivers, 12b-1 Fees would be .40 for the Emerging
Growth Fund. The Distributor reserves the right to terminate its waiver
at any time in its sole discretion.
(2) Absent fee waivers, "Total Operating Expenses" would be 1.45% for the
Emerging Growth Fund.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) imposition of the
maximum sales charge; (2) 5% return and
(3) redemption at the end of each time period.
Emerging Growth Fund . . . . . . . . . . . . . . . . $55 $77 $100 $167
==============================================================================================================
</TABLE>
-45-
<PAGE> 136
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class shares of the Funds, which
are subject to the same expenses except there are no sales charges or
distribution costs. Additional information may be found under "The
Administrator," "The Advisor" and "The SubAdvisor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
-46-
<PAGE> 137
HIGHMARK EMERGING GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
Emerging
Growth
Fund
-----------
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.80%
12b-1 Fees 0%
Other Expenses (after voluntary 0.23%
reduction)(c)
Total Fund Operating 1.03%
=====
Expenses(d)
</TABLE>
EXAMPLE: You 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.
-47-
<PAGE> 138
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Growth Fund
Fiduciary Shares $11 $33 $57 $126
</TABLE>
The purpose of the tables above is to assist an investor in the
Emerging Growth Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion
of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Emerging Growth Fund on behalf
of their customers may charge customers fees for services provided in
connection with the investment in, redemption of, and exchange of
Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE PRIVILEGES,
and SERVICE ARRANGEMENTS--below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
Redemption of Shares below.)
(c) OTHER EXPENSES for the Emerging Growth Fund are based on the Fund's
estimated expenses for the current fiscal year. Absent voluntary fee
waivers, OTHER EXPENSES would be 0.50% for the Fiduciary Shares of the
Emerging Growth Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.29% for the Fiduciary Shares of the Emerging Growth Fund.
-48-
<PAGE> 139
STEPSTONE EMERGING GROWTH FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Emerging
Growth
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05%
==============================================================================================================
</TABLE>
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Emerging Growth Fund . . . . . . . . . . . . . . . . . . $11 $33 $58 $128
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except that Investment Class shares are
subject to sales charges and distribution expenses. Additional information may
be found under "The Administrator," "The Advisor" and "The SubAdvisor."
-49-
<PAGE> 140
HIGHMARK INTERNATIONAL EQUITY FUND FEE TABLE
<TABLE>
<CAPTION>
International Equity Fund
Fiduciary Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of offering price)
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as
applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.95%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(c) 0.31%
Total Fund Operating 1.26%
====
Expenses(d)
</TABLE>
EXAMPLE: You 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.
-50-
<PAGE> 141
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
International Equity Fund
Fiduciary Shares $13 $40 $69 $152
</TABLE>
The purpose of the table above is to assist an investor in the
International Equity Fund in understanding the various costs and expenses that
a Shareholder will bear directly or indirectly. For a more complete discussion
of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the International Equity Fund on
behalf of their customers may charge customers fees for services
provided in connection with the investment in, redemption of, and
exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE
PRIVILEGES, and SERVICE ARRANGEMENTS--below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
PURCHASE AND REDEMPTION OF SHARES below.)
(c) OTHER EXPENSES are based on the Fund's estimated expenses for the
current fiscal year. Absent voluntary fee waivers, OTHER EXPENSES
would be 0.58% for the Fiduciary Shares of the International Equity
Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be
1.53% for the Fiduciary Shares of the International Equity Fund.
-51-
<PAGE> 142
STEPSTONE INTERNATIONAL EQUITY FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
International
Equity
Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . .85%
Other Expenses (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41%
- ----------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (3) . . . . . . . . . . . . . . . . . . . 1.26%
==========================================================================================================
</TABLE>
(1) The Advisor has agreed to waive a portion of its fee. Fee waivers are
voluntary and may be terminated at anytime in the Advisor's sole
discretion. Absent this voluntary fee waiver, the Advisor's fee would be
.95%.
(2) "Other Expenses" reflects estimates for the current fiscal year.
(3) "Total Operating Expenses" have been restated to reflect current fees and
fee waivers. Absent fee waivers, "Total Operating Expenses" would have
been 1.36% for the Fund.
Example:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5% return and
(2) redemption at the end of each time period.
Investment Equity Fund . . . . . . . . . . . . . . . $13 $40 $69 $152
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Fund
which are subject to the same expenses, except that Investment Class shares are
subject to sales charges and distribution expenses. Additional information may
be found under "The Administrator," "The Advisor" and "The SubAdvisor."
-52-
<PAGE> 143
HIGHMARK INTERMEDIATE-TERM BOND FUND FEE TABLE
<TABLE>
<CAPTION>
Intermediate-Term
Bond Fund
-------------------
Retail
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 3.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as applicable)(b) 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(c) 0%
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.50%
12b-1 Fees (after voluntary reduction)(d) 0.00%
Other Expenses (after voluntary reduction)(e) 0.25%
Total Fund Operating Expenses (after voluntary
reduction)(f) 0.75%
====
</TABLE>
EXAMPLE: You 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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate-Term Bond Fund
Retail Shares $37 $53 $70 $120
</TABLE>
-53-
<PAGE> 144
The purpose of the tables above is to assist an investor in the
Intermediate-Term Bond Fund in understanding the various costs and expenses
that a Shareholder will bear directly or indirectly. For a more complete
discussion of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Intermediate-Term Bond Fund on
behalf of their customers may charge customers fees for services
provided in connection with the investment in, redemption of, and
exchange of Shares. (See HOW TO PURCHASE SHARES, EXCHANGE PRIVILEGES,
REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against
the proceeds of any redemption request relating to Retail Shares of
the Intermediate-Term Bond Fund that were purchased without a sales
charge in reliance upon the waiver accorded to purchases in the amount
of $1 million or more, but only where such redemption request is made
within one year of the date the Shares were purchased.
(c) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below.)
(d) As indicated under SERVICE ARRANGEMENTS--The Distribution Plan below,
the Distributor may voluntarily reduce the 12b-1 fee. Absent
voluntary fee waivers, 12b-1 fees would be 0.25% for the
Intermediate-Term Bond Fund. The Distributor reserves the right to
terminate its waiver at any time in its sole discretion.
(e) OTHER EXPENSES for the Intermediate-Term Bond Fund are based on the
Fund's estimated expenses for the current fiscal year. Absent
voluntary fee waivers, OTHER EXPENSES would be 0.49% for the Retail
Shares of the Intermediate-Term Bond Fund.
(f) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.24% for the Retail Shares of the Intermediate-Term Bond Fund.
-54-
<PAGE> 145
STEPSTONE INTERMEDIATE-TERM BOND FUND FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00%
Maximum Contingent Deferred Sales Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Wire Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
</TABLE>
* A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Investment Class shares of
the Fund that were purchased without a sales charge in reliance upon the
waiver accorded to purchases in the amount of $1 million or more, but only
where such redemption request is made within 1 year of the date the shares
were purchased.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
- --------------------------------------------------------------------------------------------------------------
Intermediate-
Term Bond
Fund
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50%
12b-1 Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . .68%
==============================================================================================================
</TABLE>
(1) Absent voluntary fee waivers, 12b-1 Fees would be .40 for the
Intermediate-Term Bond Fund. The Distributor reserves the right to
terminate its waiver at any time in its sole discretion.
(2) Absent fee waivers, "Total Operating Expenses" would be 1.08% for the
Intermediate-Term Bond Fund.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) imposition of the
maximum sales charge; (2) 5% return and
(3) redemption at the end of each time period.
Intermediate-Term Bond Fund . . . . . . . . . . . . . $37 $51 $67 $112
==============================================================================================================
</TABLE>
-55-
<PAGE> 146
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class Shares of the Funds which are
subject to the same expenses, except there are no sales charges or distribution
costs. Additional information may be found under "The Administrator," "The
Advisor" and "The SubAdvisor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
-56-
<PAGE> 147
HIGHMARK INTERMEDIATE-TERM BOND FUND FEE TABLE
<TABLE>
<CAPTION>
Intermediate-Term
Bond Fund
-------------------
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as applicable) 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(b) 0%
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.50%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(c) 0.25%
----
Total Fund Operating Expenses (after voluntary reduction)(d) 0.75%
====
</TABLE>
EXAMPLE: You 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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate-Term Bond Fund
Fiduciary Shares $8 $24 $42 $93
</TABLE>
The purpose of the tables above is to assist an investor in the
Intermediate-Term Bond Fund in understanding the various costs and expenses
that a Shareholder will bear directly or indirectly. For a more complete
discussion of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
-57-
<PAGE> 148
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Intermediate-Term Bond Fund on
behalf of their customers may charge customers fees for services
provided in connection with the investment in, redemption of, and
exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE
PRIVILEGES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder.
(c) OTHER EXPENSES for the Intermediate-Term Bond Fund are based on the
Fund's estimated expenses for the current fiscal year. Absent
voluntary fee waivers, OTHER EXPENSES would be 0.49% for the Fiduciary
Shares of the Intermediate-Term Bond Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
0.99% for the Fiduciary Shares of the Intermediate-Term Bond Fund.
-58-
<PAGE> 149
STEPSTONE INTERMEDIATE-TERM BOND FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Intermediate
Term
Bond Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68%
==============================================================================================================
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Intermediate-Term Bond Fund . . . . . . . . . . . . . . . $7 $22 $38 $ 85
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except there are distribution and sales
charges.
Additional information may be found under "The Administrator," "The Advisor"
and "The SubAdvisor."
-59-
<PAGE> 150
HIGHMARK CONVERTIBLE SECURITIES FUND FEE TABLE
<TABLE>
<CAPTION>
Convertible Securities Fund
---------------------------
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as applicable) 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(b) 0%
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction)(c) 0.59%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(d) 0.26%
----
Total Fund Operating Expenses (after voluntary reduction)(e) 0.85%
====
</TABLE>
EXAMPLE: You 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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Convertible Securities Fund
Fiduciary Shares $9 $27 $47 $105
</TABLE>
-60-
<PAGE> 151
The purpose of the tables above is to assist an investor in the
Convertible Securities Fund in understanding the various costs and expenses
that a Shareholder will bear directly or indirectly. For a more complete
discussion of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Convertible Securities Fund on
behalf of their customers may charge customers fees for services
provided in connection with the investment in, redemption of, and
exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE
PRIVILEGES, and SERVICE ARRANGEMENTS below)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder.
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be .60% for the
Fiduciary Shares of the Convertible Securities Fund.
(d) OTHER EXPENSES for the Convertible Securities Fund are based on the
Fund's estimated expenses for the current fiscal year. Absent
voluntary fee waivers, OTHER EXPENSES would be .53% for the Fiduciary
Shares of the Convertible Securities Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.13% for the Fiduciary Shares of the Convertible Securities Fund.
-61-
<PAGE> 152
STEPSTONE CONVERTIBLE SECURITIES FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Convertible
Securities
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85%
==============================================================================================================
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Convertible Securities Fund . . . . . . . . . . . . . . . $9 $27 $47 $105
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except there are distribution and sales
charges.
Additional information may be found under "The Administrator," "The Advisor"
and "The SubAdvisor."
-62-
<PAGE> 153
STEPSTONE GOVERNMENT SECURITIES FUND FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00%
Maximum Contingent Deferred Sales Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Wire Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
</TABLE>
* A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Investment Class shares of
the Fund that were purchased without a sales charge in reliance upon the
waiver accorded to purchases in the amount of $1 million or more, but only
where such redemption request is made within 1 year of the date the shares
were purchased.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
- --------------------------------------------------------------------------------------------------------------
Government
Securities
Fund
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50%
12b-1 Fees (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . .75%
==============================================================================================================
</TABLE>
(1) Absent voluntary fee waivers, 12b-1 Fees would be .40 for the Government
Securities Fund. The Distributor reserves the right to terminate its
waiver at any time in its sole discretion.
(2) Absent fee waivers, "Total Operating Expenses" would be 1.15% for the
Government Securities Fund.
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) imposition of the
maximum sales charge; (2) 5% return and
(3) redemption at the end of each time period.
Government Securities Fund . . . . . . . . . . . . . $37 $53 $70 $120
==============================================================================================================
</TABLE>
-63-
<PAGE> 154
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Funds. The Trust also offers Institutional Class Shares of the Funds which are
subject to the same expenses, except there are no sales charges or distribution
costs. Additional information may be found under "The Administrator," "The
Advisor" and "The SubAdvisor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
-64-
<PAGE> 155
HIGHMARK GOVERNMENT SECURITIES FUND FEE TABLE
<TABLE>
<CAPTION>
Government
Securities Fund
----------------
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as applicable) 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(b) 0%
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.50%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(c) 0.25%
----
Total Fund Operating Expenses (after voluntary reduction)(d) 0.75%
====
</TABLE>
EXAMPLE: You 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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Securities Fund
Fiduciary Shares $8 $24 $42 $93
</TABLE>
The purpose of the tables above is to assist an investor in the
Government Securities Fund in understanding the various costs and expenses that
a Shareholder will bear directly or indirectly. For a more complete discussion
of the Fund's annual operating expenses, see SERVICE ARRANGEMENTS
-65-
<PAGE> 156
below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Government Securities Fund on
behalf of their customers may charge customers fees for services
provided in connection with the investment in, redemption of, and
exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES, EXCHANGE
PRIVILEGES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder.
(c) OTHER EXPENSES for the Government Securities Fund are based on the
Fund's estimated expenses for the current fiscal year. Absent
voluntary fee waivers, OTHER EXPENSES would be 0.52% for the Fiduciary
Shares of the Government Securities Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.02% for the Fiduciary Shares of the Government Securities Fund.
-66-
<PAGE> 157
STEPSTONE GOVERNMENT SECURITIES FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)
Government
Securities
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75%
==============================================================================================================
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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.
Government Securities Fund . . . . . . . . . . . . . . . $8 $24 $42 $ 93
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Funds. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Funds,
which are subject to the same expenses, except there are distribution and sales
charges.
Additional information may be found under "The Administrator," "The Advisor"
and "The SubAdvisor."
-67-
<PAGE> 158
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND FEE TABLE
<TABLE>
<CAPTION>
California Intermediate
Tax-Free Bond Fund
------------------
Retail
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 3.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as applicable)(b) 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(c) 0%
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction)(d) 0.00%
12b-1 Fees (after voluntary reductions)(e) 0.00%
Other Expenses (after voluntary reduction)(f) 0.22%
----
Total Fund Operating Expenses (after voluntary reduction)(g) 0.22%
====
</TABLE>
EXAMPLE: You 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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
California Intermediate
Tax-Free Bond Fund
Retail Shares $32 $37 $42 $57
</TABLE>
The purpose of the tables above is to assist an investor in the
California Intermediate Tax-Free Bond Fund in understanding the various costs
and expenses that a Shareholder will bear directly or indirectly. For a more
complete discussion of the Fund's annual operating expenses, see SERVICE
-68-
<PAGE> 159
ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the California Intermediate Tax-Free
Bond Fund on behalf of their customers may charge customers fees for
services provided in connection with the investment in, redemption of,
and exchange of Shares. (See HOW TO PURCHASE SHARES, EXCHANGE
PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against
the proceeds of any redemption request relating to Retail Shares of
the Fund that were purchased without a sales charge in reliance upon
the waiver accorded to purchases in the amount of $1 million or more,
but only where such redemption request is made within one year of the
date the Shares were purchased.
(c) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
REDEMPTION OF SHARES below)
(d) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.50% for the
Retail Shares of the California Intermediate Tax-Free Bond Fund.
(e) As indicated under SERVICE ARRANGEMENTS -- the Distribution Plan
below, the Distributor may voluntarily reduce the 12b-1 fee. Absent
voluntary fee waivers, 12b-1 fees would 0.25% for the Fund. The
Distributor reserves the right to terminate its waiver at any time in
its sole discretion.
(f) OTHER EXPENSES for the California Intermediate Tax-Free Bond Fund are
based on that Fund's estimated expenses for the current fiscal year.
Absent voluntary fee waivers, OTHER EXPENSES would be 0.74% for the
Retail Shares of the California Intermediate Tax-Free Bond Fund.
(g) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.49% for the Retail Shares of the California Intermediate Tax-Free
Bond Fund.
-69-
<PAGE> 160
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
California Intermediate
Tax-Free Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00%
Maximum Contingent Deferred Sales Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Wire Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
</TABLE>
* A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Investment Class shares of
the Funds that were purchased without a sales charge in reliance upon the
waiver accorded to purchases in the amount of $1 million or more, but only
where such redemption request is made within 1 year of the date the shares
were purchased.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of offering price)
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fee (After Fee Waivers) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01%
12b-1 Fees (After Fee Waivers) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (1) (2) (3) . . . . . . . . . . . . . . . . . . . . .22%
==============================================================================================================
</TABLE>
(1) The Advisor has agreed to waive its fee to the extent necessary to limit
Total Operating Expenses to 0.22%. Absent such waiver, the advisory fee
would have been .50%. The Advisor may terminate its waiver at any time
in its sole discretion.
(2) Absent voluntary fee waivers, 12b-1 Fees would be .40% for the Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.
(3) "Total Operating Expenses" have been restated to reflect current expenses
and fee waivers. Absent fee waivers, "Total Operating Expenses" would
have been 1.11%
Example:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) imposition of the
maximum sales charge; (2) 5% return and
(3) redemption at the end of each time period . . . . . . $32 $37 $42 $57
==============================================================================================================
</TABLE>
-70-
<PAGE> 161
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Fund. The Trust also offers Institutional Class shares of the Fund, which are
subject to the same expenses except there are no sales charges or distribution
costs. Additional information may be found under "The Administrator" and "The
Advisor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
-71-
<PAGE> 162
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND FEE TABLE
<TABLE>
<CAPTION>
California Intermediate
Tax-Free Bond Fund
------------------
Fiduciary
Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as applicable) 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(b) 0%
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction) (c) 0.00%
12b-1 Fees 0.00%
Other Expenses (after voluntary reduction)(d) 0.22%
----
Total Fund Operating Expenses (after voluntary reduction)(e) 0.22%
====
</TABLE>
EXAMPLE: You 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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
California Intermediate
Tax-Free Bond Fund
Fiduciary Shares $2 $7 $12 $28
</TABLE>
The purpose of the tables above is to assist an investor in the
California Intermediate Tax-Free Bond Fund in understanding the various costs
and expenses that a Shareholder will bear directly or indirectly. For a more
complete discussion of the Fund's annual operating expenses, see SERVICE
ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
-72-
<PAGE> 163
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the California Intermediate Tax-Free
Bond Fund on behalf of their customers may charge customers fees for
services provided in connection with the investment in, redemption of,
and exchange of Shares. (See PURCHASE AND REDEMPTION OF SHARES,
EXCHANGE PRIVILEGES, and SERVICE ARRANGEMENTS below)
(b) A wire redemption charge is deducted from the amount of a wire
redemption payment made at the request of a Shareholder.
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.50% for the
Fiduciary Shares of the California Intermediate Tax-Free Bond Fund.
(d) OTHER EXPENSES for the California Intermediate Tax-Free Bond Fund are
based on that Fund's estimated expenses for the current fiscal year.
Absent voluntary fee waivers, OTHER EXPENSES would be 0.74% for the
Fiduciary Shares of the California Intermediate Tax-Free Bond Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.24% for the Fiduciary Shares of the California Intermediate Tax-Free
Bond Fund.
-73-
<PAGE> 164
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND FEE TABLE
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of average net assets)
California Intermediate
Tax-Free Bond Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers)(1) . . . . . . . . . . . . . . . . . . . .01%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (1) . . . . . . . . . . . . . .22%
==============================================================================================================
</TABLE>
(1) The Advisor has agreed to waive its fees to the extent necessary to limit
"Total Operating Expenses" to .22%. "Total Operating Expenses" have been
restated to reflect current expenses and fee waivers. Absent fee
waivers, "Advisory Fees" would have been .50% and "Total Operating
Expenses" would have been .71%. The Advisor may terminate its waiver at
any time in its sole discretion.
EXAMPLE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor 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. . . . . $2 $7 $12 $28
==============================================================================================================
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Institutional Class shares of the Funds.
Financial institutions that are the record owner of shares for the account of
their customers may impose separate fees for account services to their
customers. The Trust also offers Investment Class shares of the Fund which are
subject to the same expenses, except that Investment Class shares are subject to
a sales load and distribution expenses. Additional information may be found
under "The Administrator" and "The Advisor."
-74-
<PAGE> 165
ADMINISTRATION FEES
SEI Fund Resources (the "Stepstone Administrator"), a subsidiary of SEI
Corporation ("SEI"), and Stepstone are parties to an administration agreement
(the "Stepstone Administration Agreement"). Under the terms of the Stepstone
Administration Agreement, the Stepstone Administrator provides Stepstone with
certain management services, including all necessary office space, equipment,
personnel, and facilities.
The Stepstone Administrator is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of .15% of the average daily net assets of
Stepstone up to $1 billion, .12% of the average daily net assets between $1
billion and $2 billion, and .10% of the average daily net assets over $2
billion. The Stepstone Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total operating expenses of a
Fund's Investment Class shares. Any such waiver is voluntary and may be
terminated at any time in the Administrator's sole discretion.
SEI Fund Resources (the "HighMark Administrator") and HighMark are parties to
an administration agreement (the "HighMark Administration Agreement"). Under
the terms of the HighMark Administration Agreement, the HighMark Administrator
provides HighMark with certain management services, including all necessary
office space, equipment, personnel and facilities.
The HighMark Administrator is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of .20% of the HighMark Funds' average daily
net assets. The HighMark Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total operating expenses of a
HighMark Fund's Shares. Any such waiver is voluntary and may be terminated at
any time in the HighMark Administrator's sole discretion. Currently, the
HighMark Administrator has agreed to waive its fee to the rate of .18% of the
average daily net assets of the HighMark Funds for each HighMark Fund except
HighMark California Intermediate Tax-Free Bond, for which the HighMark
Administrator has agreed to waive its fee to the rate of .15% of the average
daily net assets of the HighMark Funds.
Pursuant to a separate agreement with the HighMark Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of the HighMark
Funds, for which it receives a fee paid by the HighMark Administrator at the
annual rate of up to 0.05% of the HighMark Funds' average daily net assets.
Union Bank of California has voluntarily agreed to reduce this fee to 0.03%,
but reserves the right to terminate its waiver at any time in its sole
discretion.
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<PAGE> 166
SHAREHOLDER SERVICE PLAN
To support the provision of Shareholder services to both classes of Shares,
HighMark has adopted a Shareholder Service Plan. In consideration of services
provided by any service provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective affiliates, each
HighMark Fund may pay a fee at the rate of up to 0.25% of its average daily net
assets to such service provider. The service provider may waive such fees at
any time. Any such waiver is voluntary and may be terminated at any time.
Currently, such fees are being waived to the rate of 0.00% of average daily net
assets.
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<PAGE> 167
APPENDIX C
[HIGHMARK LOGO]
ANNUAL REPORT
JULY 31, 1996
----------------
NOT FDIC INSURED
<PAGE> 168
Message from the Chairman and the Investment Adviser
Page 1
Report of Independent Auditors'
Page 24
Statements of Assets and Liabilities
Page 25
Statements of Operations
Page 28
Statements of Changes in Net Assets
Page 31
Schedules of Portfolio Investments
Page 35
Notes to Financial Statements
Page 67
Financial Highlights
Page 83
Results of Special Shareholder Meeting
Page 94
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<PAGE> 169
MESSAGE FROM THE CHAIRMAN
DEAR SHAREHOLDER:
We are pleased to report strong results for The HighMark Mutual Fund Group for
the fiscal year ended July 31, 1996, despite volatility in the stock and bond
markets during this period.
INCOME EQUITY FUND RECEIVES INDUSTRY RECOGNITION
In particular, we would like to highlight the performance of the Income Equity
Fund, which was once again ranked among the top funds in its category as
reported by The Wall Street Journal. The fund (Fiduciary Shares) was ranked 13th
out of the top 15 equity income funds by Lipper Analytical Services based on
total return for the one-year period ending August 1, 1996. For the five years
ending on that date it ranked 26 out of 58 similar funds.(1)
In addition, the fund's Fiduciary Shares received a 5-star rating from
Morningstar out of 2,917 equity funds for the one-year period ending July 31,
1996. For the three, five- and 10-year periods ending on that date, the fund was
awarded four stars.(2)
WEATHERPROOFING YOUR PORTFOLIO
The past fiscal year serves as a vivid illustration of the power of
diversification. At various times during the year, large-company stocks
outperformed small-company stocks and vice versa. At times, the growth style of
investing outperformed value and vice versa. And stocks as a whole outperformed
bonds for much of the year, except for two months early in 1996. By staying
diversified across different types of investments, investors are able to
capitalize on those sectors that are outperforming at any given time.
The HighMark fund family contains a variety of different stock and bond funds
that can give most investors the tools they need to diversify a portfolio both
by security and asset class. Your investment professional will be happy to
review your current investments and suggest changes in your asset mix if needed.
A COMMITMENT TO MAINTAINING YOUR TRUST
At HighMark, we are committed to providing you with conservatively managed funds
designed to balance the pursuit of higher returns with a rigorous approach to
managing risk. We know how important it is to you to preserve your principal
while aiming to achieve the kind of returns you seek.
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In this report, we've changed the format for the fund discussions that follow
this letter and the Investment Adviser's commentary. The fund managers are now
directly answering some basic questions about their investment strategies and
their funds' performance. We hope you'll find it more helpful to read what they
have to say in their own words.
As always, we urge you to read the entire report closely to help you monitor the
progress of your investment in the HighMark funds. If you have any questions
about your investment in The HighMark Group, or would like a prospectus or other
information about any of our funds, please call your investment representative
or HighMark at 1-800-433-6884.
Sincerely,
/s/ Stephen G. Mintos
Stephen G. Mintos
Chairman
The HighMark Group
August 22, 1996
- ---------------
(1) Past performance is no guarantee of future results.
(2) The Income Equity Fund's Fiduciary Shares received a 4-star rating based on
performance (649 out of 1,606 equity funds) for the 3-year period, (396 out
of 1,007 equity funds) for the five-year period and (208 out of 541 funds)
for the 10-year period ending on July 31, 1996. Morningstar proprietary
ratings reflect historical risk-adjusted performance and are calculated from
a fund's 3- and 5-year average annual returns, with fee adjustments, in
excess of 90-day Treasury bill returns and a risk factor that reflects fund
performance below 90-day Treasury bill returns. The one-year rating is
calculated using the same methodology but is not a component of the overall
rating. Ten percent of the funds in an investment category receive 5 stars,
and 22.5% receive 4 stars.
For more complete information on any HighMark fund, including fees, expenses and
sales charges, please call 1-800-433-6884 for a prospectus. Please read the
prospectus carefully before you invest or send money.
Mutual funds:
- are not FDIC insured
- have no bank guarantee
- may lose value
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MESSAGE FROM THE INVESTMENT ADVISER
DEAR SHAREHOLDER:
The fiscal year ended July 31, 1996, started out strong. Between August 1, 1995,
and January 31, 1996, the stock and bond markets continued their upward march.
During the first half of our fiscal year, the Standard & Poor's 500 Stock Index
rose 14.54%, while the Lehman Brothers Aggregate Bond Index returned 7.24%.
But the second half of the year was quite different, with the S&P 500 advancing
just 2% and bonds actually falling about 2%. It was in this half that investors
began to become concerned about a fast-growing economy and the return of
inflation. The equity markets were also surprised when some high-visibility
growth companies reported disappointing earnings.
LONG-TERM INTEREST RATES CROSS THE 7% MARK
Although its moves were closely followed, the Federal Reserve Board was
relatively inactive during the fiscal year, lowering short-term interest rates
on just two occasions last winter to 5.25%. Long-term interest rates weren't
much higher; indeed, the benchmark 30-year U.S. Treasury bond yielded about 6%
at December 31, 1995.
However, by late February, investors were surprised by extremely strong
employment data from the federal government. Anticipating that the Fed might
have to raise short-term interest rates, long-term interest rates surged beyond
7%. Although there was a concern about inflation, there was very little
supporting evidence. By early summer, the economy appeared to be moderating, and
inflation fears cooled. At the end of the fiscal year on July 31, the bond
market rallied sharply, as the yield on the long bond fell to 6.8%.
STOCKS SUFFER MINI-CORRECTION
While the bond market was volatile during the spring, the stock market remained
steady. On May 22, the Dow Jones Industrial Average set a record--5780. However,
for the next two months, the stock market would come as close to a normal
"correction" as it had in six years. Rising interest rates, weaker corporate
profit comparisons (with the prior year) and historically high valuations
combined to send the market down anywhere from 5% to 20%, depending upon the
sector. Small-capitalization stocks--which had run up sharply during early
1996--were hit the worst. During June and July, the bond market outperformed the
stock market. But by July 31, 1996, the stock market recovered, coming within
range of its all-time high once again.
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LOOKING AHEAD
Upward pressure on the U.S. economy may come from our trading partners in Europe
and Japan, which are beginning to show signs of economic recovery after several
years of sluggishness. Their recovery could generate stronger U.S. exports,
which, in turn, would stimulate our economy and create more new jobs. This is
both good and bad news. If consumer spending, employment, inventory building,
fiscal policy and continued job growth are strong, then we could be confronted
with higher inflation. This, in turn, could cause the Federal Reserve Board to
raise interest rates for the first time in nearly two years.
Between now and the presidential election, any Federal Reserve Board action
could be interpreted in a political context and is, therefore, unlikely. Once
the election is over, however, the outlook on the economy and inflation will
once again largely determine the direction of the stock and bond markets. While
we remain optimistic, we will continue to monitor events, and asset allocation
and security selection will remain critically important.
Sincerely,
/s/ Luke Mazur
Chief Investment Officer
MERUS-UCA Capital Management
August 22, 1996
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HIGHMARK INCOME EQUITY FUND
For the year ended July 31, 1996, the HighMark Income Equity Fund produced a
total return of 18.21% (Investor Shares at NAV), outperforming the 16.59% return
of the Standard & Poor's 500 Stock Index during the same period. The average
equity income fund as measured by Lipper Analytical Services rose 14.17% during
the year.
Thomas M. Arrington, CFA, is the team leader for the HighMark Income Equity
Fund. Mr. Arrington, who holds an MBA from San Francisco State University and a
bachelor's degree in economics from UCLA, has a decade of investment management
experience.
HOW WOULD YOU ASSESS YOUR PERFORMANCE FOR THE YEAR?
We are pleased with the performance of the income equity strategy for the latest
year. Our strategy outperformed the S&P 500 and the average equity income fund.
Our goal is to outperform the market over the long term with less risk. As
reported in The Wall Street Journal (August 8, 1996), the fund was ranked 13th
out of 136 comparable funds by Lipper Analytical Services based on its total
return for the one-year period ending August 1, 1996.(1)
WHAT IS YOUR STRATEGY FOR SELECTING STOCKS?
Following our income equity strategy, we invest in dividend-paying stocks of
established companies. Such an emphasis offers three important advantages:
reduced volatility, a relatively steady source of investment return potential
and enhanced total return through the reinvesting and compounding of dividends.
Our discipline compares the dividend yield of the stock with the yield of the
market as a whole, tracking that relationship over a 20-to-30-year time frame.
We can see how a stock's relative yield has moved over time to determine when to
buy or sell it.
WHAT AREAS OF THE MARKET PERFORMED WELL, AND WHERE DO YOU CURRENTLY SEE VALUE?
A very strong area of the market has been the pharmaceutical group. We bought
stocks such as American Home Products, Bristol-Myers Squibb, Eli Lilly and Merck
very cheaply in 1993 when there were concerns about a government takeover of
health care. These stocks have performed very well, showing that they can
increase their earnings and develop new products. We have since scaled back on
drug companies because they have reached our predetermined sell targets. In the
natural gas area, Consolidated Natural Gas is a relatively large holding (2.37%
of the portfolio). The company has benefited from the strong demand for natural
gas, which burns cleanly and is relatively inexpensive to use.
Every one of our bank holdings outperformed the market during the past year.
Banks continue to generate 10% earnings gains, despite concerns about rising
consumer delinquencies. The banks have shown that they are well reserved and
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continue to maintain control over their loans. In other areas, B.F. Goodrich's
stock rose 38% during the year, as management continues to generate increased
profitability in the chemical and aerospace divisions. Energy was a strong
sector, with big oil companies such as Texaco up 33%. Tobacco stocks posted
strong returns for the year, and we sold them in August. Although the retail
industry lagged for the year, we continue to think that it's an attractive area.
For instance, J.C. Penney has a good balance sheet and strong private brands.
The company should benefit from demographic trends--baby boomers are pressed for
time and will increasingly go to department stores for their one-stop shopping
convenience.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We continue to find good value using our discipline. If the market continues to
rise, these stocks, in our opinion, should turn in a strong performance. If the
market goes down, then these stocks may help preserve principal. Even with the
downdraft in the market earlier this summer, we still haven't seen a real
correction--in which stocks fall 10%--since 1990. Typically, the market goes
down 10% every two years. When the market truly becomes volatile, we believe
that our strategy will likely outperform the market.
As of July 31, 1996, the fund's top five holdings were Philip Morris (3.28%),
J.C. Penney (3.16%), Atlantic Richfield (3.11%), Bank One Corp. (2.71%) and J.P.
Morgan & Co. (2.46%).+
- ---------------
(1) Performance rankings are based on total returns for the period. Past
performance is no guarantee of future results. For the 5-year period, the
fund was ranked 26th out of 58 comparable funds.
+ The composition of the fund's holdings is subject to change.
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<PAGE> 175
<TABLE>
HIGHMARK INCOME EQUITY FUND
<CAPTION>
GROWTH OF A $10,000 INVESTMENT
MORNINGSTAR
MEASUREMENT PERIOD INVESTOR FIDUCIARY EQUITY
(FISCAL YEAR COVERED) SHARES SHARES S&P 500 INCOME INDEX
<S> <C> <C> <C> <C>
2/84 9543 10000 10000 10000
7/84 9026 9458 9774 9774
7/85 12350 12941 12953 12761
7/86 15764 16518 16637 15787
7/87 20003 20960 23181 18946
7/88 19714 20657 20497 18193
7/89 25265 26474 27035 22478
7/90 25053 26252 28792 22601
7/91 28210 29561 32463 25153
7/92 32734 34301 36615 28911
7/93 35926 37646 39812 32469
7/94 37445 39238 41866 33766
7/95 44004 46011 52786 39274
7/96 52017 54409 61542 44839
</TABLE>
<TABLE>
<CAPTION>
HighMark Income Equity Fund
Performance Average Annual
Total Return as of 7/31/96
----------------------------------------
1 Year 5 Years 10 Years Since
Inception
(2/9/84)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Investor* 12.93% 11.99% 12.17% 14.12%
Fiduciary 18.25% 12.98% 12.66% 14.53%
</TABLE>
The performance of the HighMark Income Equity Fund is measured against the S&P
500 Stock Index, an unmanaged index generally considered to be representative of
the U.S. stock market, and the Morningstar Equity Income Average, a composite of
managed equity income funds. The index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. However, the fund's performance and the Morningstar Equity
Income Average reflect these value-added services. Past performance is not
predictive of future results. The investment return and NAV will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than the
original cost.
- ---------------
* Reflects 4.50% sales charge.
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<PAGE> 176
HIGHMARK GROWTH FUND
For the year ended July 31, 1996, the HighMark Growth Fund produced a total
return of 12.88% (Investor Shares at NAV). In comparison, the Standard & Poor's
500 Stock Index rose 16.59% during the same period.
The HighMark Growth Fund is managed by Scott A. Chapman, CFA. Mr. Chapman, who
holds an MBA from Golden Gate University and a bachelor's degree in accounting
from Santa Clara University, has 16 years' experience in the investment
business.
HOW WOULD YOU ASSESS YOUR PERFORMANCE FOR THE YEAR?
Although we underperformed the S&P 500, we outperformed our peer universe of
other growth funds as measured by Lipper Analytical Services, Inc. For the one
year ended July 31, 1996, the HighMark Growth Fund was ranked 217 out of 622
such funds based on total return, which gives it a 35th percentile rank.(1) So
we outperformed almost two-thirds of the growth funds in the country over that
one-year period. We underperformed the S&P 500 because we were underweighted in
certain industries that did well, such as chemical and international oil
companies. We were also overweighted in semiconductors, which underperformed.
WHAT INDUSTRIES IN THE PORTFOLIO DID PARTICULARLY WELL?
Industries where we outperformed were defense/electronics, soft drinks and
pharmaceuticals. In defense, two companies in the portfolio were taken over. One
was E-Systems, acquired by Raytheon. The other was Loral, acquired by Lockheed
Martin Marietta. Even if they hadn't been acquired, both E-Systems and Loral
would have remained in the portfolio due to their strong growth prospects.
Although defense spending is falling, there are selective opportunities in such
areas as surveillance and satellite technology.
Coca-Cola is our biggest position in the soft-drink industry. Over 80% of its
earnings come from overseas. One can argue that Coca-Cola is the best-known
brand name in the world, especially after the Olympics. Investors are willing to
pay for the visibility of their earnings stream, and that's why the stock keeps
doing well. We believe that the stock, currently selling at about 35 times 1996
estimated earnings, has become more expensive relative to the market, so we've
scaled back our holding from 3% to 2% of the portfolio. With a return on equity
of 57%, there is no other large-capitalization growth company that can match
their profitability.
In the drug area, we own Pfizer, Merck and Pharmacia-Upjohn. Pfizer has the best
new product pipeline of any company in the industry. Between now and the year
2000 a lot of drugs are going off patent, and there is a need to replace them
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<PAGE> 177
with drugs that add value. In the past, the strategy of many drug companies was
to produce many "me-too" drugs in the hope that they would simply outsell the
competition. The reality in the industry today is that the drugs have to have
added value because HMOs have very narrow approved lists of drugs.
WHAT IS YOUR STRATEGY FOR MANAGING THE FUND?
We have ten commandments that we use when selecting a company: 1) a seasoned,
blue-chip growth company; 2) demonstrated consistent earnings growth; 3) strong
cash flow; 4) a recurring revenue base; 5) a unique product or service,
preferably with an increasing barrier to entry; 6) an attractive or improving
return on capital; 7) a leading company rather than a number three or number
four that's trying to catch up; 8) a management team that is owner-oriented,
seasoned, communicative and respected; 9) a willingness to buy back shares; and
10) a company that's attractively priced.
WHAT IS YOUR OUTLOOK FOR THE FUND?
I can't tell you what the markets will do next year, but I can say that we will
try to capitalize on any volatility. For example, during July, when the NASDAQ
was down 8.8%, double the S&P's decline, we took the opportunity to increase our
holdings in technology. If the economy weakens, we believe that investors would
want to pay more for our types of companies that continue to grow even though
the economy is slowing.
As of July 31, 1996, the fund's top five holdings were Chase Manhattan (2.51%),
McDonald's (2.48%), Intel (2.25%), Gillette (2.20%) and General Electric
(2.20%).+
- ---------------
(1) Past performance is no guarantee of future results.
+ The composition of the fund's holdings is subject to change.
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<TABLE>
HIGHMARK GROWTH FUND
<CAPTION>
GROWTH OF A $10,000 INVESTMENT
MEASUREMENT PERIOD INVESTOR FIDUCIARY MORNINGSTAR GROWTH
(FISCAL YEAR COVERED) SHARES SHARES S&P 500 AVERAGE INDEX
<S> <C> <C> <C> <C>
11/18/93 9551 10000 10000 10000
7/31/94 9382 9813 10003 9952
7/31/95 11737 12289 12613 12453
7/31/96 13250 13852 14706 13464
</TABLE>
<TABLE>
<CAPTION>
HighMark Growth Fund
Performance Average Annual
Total Return as of 7/31/96
----------------------------
1 Year Since
Inception
(11/18/93)
<S> <C> <C>
- -----------------------------------------------------
Investor* 7.80% 10.97%
Fiduciary 12.72% 12.81%
</TABLE>
The performance of the HighMark Growth Fund is measured against the S&P 500
Stock Index, an unmanaged index generally considered to be representative of the
U.S. stock market, and the Morningstar Growth Average, a composite of managed
growth funds. The index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees.
However, the fund's performance and the Morningstar Growth Average reflect these
value-added services. Past performance is not predictive of future results. The
investment return and NAV will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
- ---------------
* Reflects 4.50% sales charge.
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HIGHMARK INCOME & GROWTH FUND
For the year ended July 31, 1996, the HighMark Income & Growth Fund produced a
total return of 15.02% (Investor Shares at NAV). In comparison, the Standard &
Poor's 500 Stock Index rose 16.59% during the same period.
The HighMark Income & Growth Fund is managed by David L. Freeman, CFA. Mr.
Freeman, who holds a bachelor's degree in economics and psychology from Western
Michigan University and performed graduate work at UCLA, has 14 years'
experience in the investment business.
WHAT FACTORS AFFECTED YOUR PERFORMANCE?
We saw a very large increase in long-term interest rates, especially since early
1996. This exerted downward pressure on the interest-rate-sensitive segments of
the stock market. The other factor affecting the fund was the roller-coaster
ride in technology stocks. About a year ago, they were hitting new highs. Then
they came down very sharply through the middle of January, rallied again to new
highs and came down sharply again in July. We increased the weighting in
high-quality technology stocks this past year when the stocks sold off.
WHAT STOCKS IN THE PORTFOLIO HAVE BEEN THE STRONGEST PERFORMERS?
Examples: Intel has outperformed its counterparts, thanks to a diversified
product line that allows it to weather downturns much better than a smaller
company with a single product. General Electric is a very good stock for our
style of income and growth investing, which seeks to provide above-average
dividend yield, as well as above-average potential for earnings growth. GE
manufactures aircraft engines, appliances, power generators--and owns NBC,
currently number one in the television ratings. Anheuser-Busch, the number-one
beer company in the U.S., has the potential for growth overseas as it expands
further into Europe, Latin America and the Far East. Over the past few months, a
developing theme has been a focus on interest-rate sensitive stocks. We've added
a significant weighting in bank, insurance, electric and telephone companies, as
well as construction companies. We believe that these stocks offer better-
than-average value going forward. We have also added to our technology holdings,
taking advantage of the sharp sell-off in technology that took place in late
1995 and in July of 1996.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We see slow growth in the economy in the second half of this year, with the
economy continuing to grow at a subdued rate of 2% to 3% in 1997. We expect that
the higher interest rates of earlier this year will cause housing, auto sales
and other interest-rate-sensitive segments of the economy to slow. However, we
expect long-term interest rates to decline
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<PAGE> 180
to a range of 6.25% to 6.50% over the next 12 months. Inflation that was feared
in the first half of the year never materialized and should remain at low
levels. Over the next few years, we are optimistic on stocks and the U.S.
economy as we expect our trading partners in Europe and Japan to continue to
show improvement. We believe this should be bullish for U.S. exports and the
industrial side of the economy at a time when the U.S. consumer may be slowed by
a fairly heavy debt burden.
As of July 31, 1996, the fund's top five holdings were General Electric (2.70%),
Anheuser-Busch (2.33%), Intel (1.88%), Motorola (1.69%) and Minnesota Mining &
Manufacturing (1.57%)+
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+ The portfolio's composition is subject to change.
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<TABLE>
HIGHMARK INCOME & GROWTH FUND
<CAPTION>
GROWTH OF A $10,000 INVESTMENT
MEASUREMENT PERIOD INVESTOR FIDUCIARY
(FISCAL YEAR COVERED) SHARES SHARES S&P 500
<S> <C> <C> <C>
11/14/93 9551 10000 10000
7/31/94 9716 10163 10003
7/31/95 11724 12265 12613
7/31/96 13485 14109 14706
</TABLE>
<TABLE>
<CAPTION>
HighMark Income & Growth Fund
Performance Average Annual
Total Return as of 7/31/96
------------------------------
1 Year Since
Inception
(11/14/93)
<S> <C> <C>
- ---------------------------------------------------------
Investor* 9.88% 11.64%
Fiduciary 15.04% 13.52%
</TABLE>
The performance of the HighMark Income & Growth Fund is measured against the S&P
500 Stock Index, an unmanaged index generally considered to be representative of
the U.S. stock market. The index does not reflect the deduction of expenses
associated with a mutual fund, such as investment management and fund accounting
fees. However, the fund's performance reflects these value-added services. Past
performance is not predictive of future results. The investment return and NAV
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than the original cost.
- ---------------
* Reflects 4.50% sales charge.
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HIGHMARK BALANCED FUND
For the year ended July 31, 1996, the HighMark Balanced Fund produced a total
return of 10.94% (Investor Shares at NAV). In comparison, the fund's benchmarks,
the Standard & Poor's 500 Stock Index and the Lehman Brothers Aggregate Bond
Index, were up 16.59% and 5.52%, respectively.
The HighMark Balanced Fund is managed by David L. Freeman, CFA, who also manages
the Income & Growth Fund, and E. Jack Montgomery, CFA, who also manages the Bond
Fund. Mr. Freeman, who holds a bachelor's degree in economics and psychology
from Western Michigan University and performed graduate work at UCLA, has 14
years' experience in the investment business. Mr. Montgomery, who holds an MBA
from the University of Oregon and a bachelor's degree from the University of
Oklahoma, has 15 years' experience in financial analysis and portfolio
management.
HOW DID THE MIXTURE OF STOCKS, BONDS AND CASH CHANGE DURING THE PERIOD?
In late May, the portfolio shifted from 60% stocks, 35% bonds and 5% cash to 55%
stocks, 40% bonds and 5% cash. As of fiscal year end, the portfolio was
comprised of 53% stocks, 38% bonds and 9% cash. With stock prices continuing to
rise, our asset allocation model--which analyzes risk and return for various
assets--began to favor bonds. Although it has been a difficult year for bonds,
they outperformed stocks in June and July of 1996.
HOW WOULD YOU ASSESS THE PERFORMANCE OF THE BOND PORTION OF THE BALANCED FUND?
The fiscal year ended July 31, 1996, can be divided into two discrete periods.
In the first half, interest rates fell, and we outperformed our benchmark.
Because of our longer-than-average duration (the degree to which the portfolio
is affected by changing interest rates), we tend to do better in a falling
interest-rate environment. But during the second half of the fiscal year,
interest rates rose. We underperformed during the second half of the fiscal year
for the same reasons that we outperformed earlier. In a period such as the one
between February and July 1996, when interest rates were rising, a longer
duration was a disadvantage. We continue to maintain a longer duration because
we believe that inflation is not going to be a problem in the immediate future.
Even if inflation is 3%, long-term bonds at 7% are a pretty good value.
WHAT STOCKS HAVE BEEN THE STRONGEST?
Intel has performed better than its counterparts in technology. It's one of the
largest technology companies with a diversified product line that allows it to
weather downturns much better than a smaller company with a single product.
General Electric is a good stock for our style of equity investing, which seeks
both above-average dividend yield as well
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as above-average potential for earnings growth. The company is diversified and
owns NBC, which is currently the number-one-rated television network.
Anheuser-Busch, another excellent performer, is expanding further into Europe,
Latin America and the Far East. Our overall approach is to own a
well-diversified portfolio of companies with above-average growth prospects,
with better-than-average value than the stock market as a whole.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect the economy to grow slowly in the second half of 1996, followed by
continued growth at a subdued rate of 2% to 3% in 1997. Housing, auto sales and
other interest-rate-sensitive segments of the economy will probably slow due to
the effects of higher interest rates earlier in the year. We also expect
longer-term interest rates to decline to a range of 6.25% to 6.5%. Inflation
fears so far have proved unwarranted. Over the next few years, we are optimistic
about stocks and the U.S. economy since we expect the economies of our trading
partners in Europe and Japan to continue to strengthen. We believe that this
will be bullish for U.S. exports at a time when the U.S. consumer seems pretty
heavily burdened with debt.
As of July 31, 1996, the fund's top five equity holdings were General Electric
(1.58%), Anheuser-Busch (1.15%), Intel (1.05%), Corning Glass (.99%), and
BankAmerica (.95%).+
- ---------------
+ The composition of the fund's holdings is subject to change.
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<PAGE> 184
<TABLE>
HIGHMARK BALANCED FUND
<CAPTION>
GROWTH OF A $10,000 INVESTMENT LEHMAN
BROTHERS MORNINGSTAR
MEASUREMENT PERIOD INVESTOR FIDUCIARY AGGREGATE BALANCED
(FISCAL YEAR COVERED) SHARES SHARES S&P 500 BOND INDEX
<S> <C> <C> <C> <C> <C>
11/14/93 9551 10000 10000 10000 10000
7/31/94 9527 10026 10003 9773 9929
7/31/95 11013 11592 12613 10767 11468
7/31/96 12218 12874 14706 11361 12560
</TABLE>
<TABLE>
<CAPTION>
HighMark Balanced Fund
Performance Average Annual
Total Return as of 7/31/96
----------------------------
1 Year Since
Inception
(11/14/93)
<S> <C> <C>
- ------------------------------------------------------
Investor* 5.93% 7.66%
Fiduciary 11.06% 9.75%
</TABLE>
The performance of the HighMark Balanced Fund is measured against the S&P 500
Stock Index, an unmanaged index generally considered to be representative of the
U.S. stock market, the Lehman Brothers Aggregate Bond Index, an unmanaged
broad-based index generally considered to be representative of the bond market
as a whole, and the Morningstar Balanced Average, a composite of managed
balanced funds. These indices do not reflect the deduction of expenses
associated with a mutual fund, such as investment management and fund accounting
fees. However, the fund's performance and the Morningstar Balanced Average
reflect these value-added services. Past performance is not predictive of future
results. The investment return and NAV will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
- ---------------
* Reflects 4.50% sales charge.
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<PAGE> 185
HIGHMARK BOND FUND
For the year ended July 31, 1996, the HighMark Bond Fund produced a total return
of 4.95% (Investor Shares at NAV). In comparison, the Lehman Brothers Aggregate
Bond Index was up 5.52%.
The HighMark Bond Fund is managed by E. Jack Montgomery, CFA. Mr. Montgomery,
who holds an MBA from the University of Oregon and a bachelor's degree from the
University of Oklahoma, has 15 years' experience in financial analysis and
portfolio management.
HOW WOULD YOU ASSESS THE PERFORMANCE OF THE HIGHMARK BOND FUND?
The fiscal year ended July 31, 1996, can be divided into two discrete periods.
In the first half, interest rates fell, and we outperformed our benchmark.
Because of our longer-than-average duration, we tend to do better in a falling
interest-rate environment. (Duration measures the sensitivity of a portfolio to
changes in interest rates. The value of a share in a longer-duration portfolio
will go up more than a share in a short-duration fund when interest rates fall;
it will fall more steeply when interest rates rise.) During the second half of
the fiscal year, interest rates rose, and we underperformed for the same reasons
that we outperformed earlier. When interest rates are rising, as they did
between February and July 1996, a longer duration is a disadvantage.
WHY HAVE YOU CONTINUED TO MAINTAIN A LONG DURATION?
It is our continuing belief that inflation is not going to be a problem in the
immediate future. Last year, the economy surprised us on the downside. It was
slower than expected, but this year the opposite has happened. The job numbers
have been particularly strong. With low unemployment and job growth healthy,
investors started paying attention to wages. But the latest wage numbers are
still very benign. The year-over-year growth in average hourly earnings is just
2.9%. Even if inflation is 3%, long-term bonds at 7% are a pretty good value.
Our duration at 5.2 years is about 10% beyond the index, so it's not a huge bet.
We're watching these things very carefully, and our strategy is subject to
change. But so far, we're not convinced that we have a problem on our hands.
HOW HAS THE PORTFOLIO SHIFTED IN TERMS OF SECTORS?
In the last six months, corporate bonds have been reduced by about 5%. Some of
that cash has been redeployed into mortgage-backed securities, which offer more
yield and currently represent more value than corporate bonds. Mortgages have
been the best-performing sector this year, primarily due to their shorter
duration and higher yield. Right now, the yield spread between corporates and
U.S. Treasuries is very narrow. A 30-year AAA-rated corporate bond offers only
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<PAGE> 186
half a percentage point more than a comparable U.S. Treasury bond. And within
the corporate market, there's very little difference in yield between a AAA and
a AA credit. As a result, we've opted for higher quality. Treasuries and
mortgage-backed and asset-backed securities, all rated AAA, represent about 75%
of the portfolio. The portfolio currently does not contain any bonds rated BBB.
If the economy weakens, we believe that the corporate bond market will likely
suffer. As a result, the corporate bonds that we own have short maturities. We
are focusing our exposure on longer maturities in the U.S. Treasury market.
WHAT IS YOUR OUTLOOK FOR THE REST OF 1996?
A rally in the bond market started July 31, when bond yields fell from 7.2% to
about 6.7% in a period of three days. That was the result of
weaker-than-expected employment data. In addition, average hourly wage inflation
for July was revised downward to 2.8%. We don't think inflation is going to be a
problem, nor do we see the economy running away on the upside, so interest rates
should remain well behaved. One engine of the economy, government spending, is
down sharply. Excluding interest payments, the federal budget is actually in a
surplus by $100 billion. We're no longer creating new federal spending programs
with money we don't have. The environment has changed on spending and that's
good.
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<PAGE> 187
<TABLE>
HIGHMARK BOND FUND
<CAPTION>
GROWTH OF A $10,000 INVESTMENT
MORNINGSTAR
CORPORATE LEHMAN
BOND HIGH BROTHERS
MEASUREMENT PERIOD INVESTOR FIDUCIARY QUALITY AGGREGATE
(FISCAL YEAR COVERED) SHARES SHARES INDEX BOND INDEX
<S> <C> <C> <C> <C>
2/84 9695 10000 10000 10000
7/84 9479 9778 10077 10275
7/85 11804 12175 12225 12733
7/86 14947 15417 14436 15470
7/87 15186 15664 15140 16180
7/88 16073 16579 16119 17394
7/89 18450 19030 18127 200039
7/90 19468 20081 19231 21452
7/91 21218 21886 20994 23749
7/92 24280 25044 23768 27262
7/93 26725 27566 25693 30037
7/94 25707 26699 25832 30061
7/95 28096 29217 27820 33098
7/96 29488 30622 29203 34925
</TABLE>
<TABLE>
<CAPTION>
HighMark Bond Fund
Performance Average Annual
Total Return as of 7/31/96
----------------------------------------
1 Year 5 Years 10 Years Since
Inception
(2/15/84)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Investor* 1.79% 6.15% 6.71% 9.06%
Fiduciary 4.81% 6.95% 7.10% 9.39%
</TABLE>
The performance of the HighMark Bond Fund is measured against the Lehman
Brothers Aggregate Bond Index, an unmanaged broad-based index generally
considered to be representative of the bond market as a whole, and the
Morningstar Corporate Bond High Quality Average, a composite of managed
corporate bond funds. The index does not reflect the deduction of expenses
associated with a mutual fund, such as investment management and fund accounting
fees. However, the fund's performance and the Morningstar Corporate Bond
High Quality Average reflect these value-added services. Past performance is not
predictive of future results. The investment return and NAV will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than the
original cost.
- ---------------
* Reflects 3.00% sales charge.
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<PAGE> 188
HIGHMARK GOVERNMENT BOND FUND
For the year ended July 31, 1996, the HighMark Government Bond Fund, which
invests primarily in U.S. Government securities maturing in one to five years,
produced a total return of 4.79% (Investor Shares at NAV). In comparison, the
Lehman Brothers Mutual Fund Short Government Index returned 5.34%.
The HighMark Government Bond Fund is managed by Bill Howard, who has 15 years'
experience in the investment business and holds an MBA from Golden Gate
University and a bachelor's degree from Seattle University.
HOW WOULD YOU ASSESS THE FUND'S PERFORMANCE?
Interest rates rose sharply beginning in February, and that had a negative
impact on the bond market as a whole, including the Government Bond Fund. To
offset rising interest rates, we shortened the maturity of the bond portfolio.
However, the fund still underperformed because the portfolio has a longer
average maturity than the benchmark. On the plus side, we hope the fund will be
able to take advantage of the recent rally and outperform the market during the
early part of the new fiscal year.
WHAT WAS YOUR STRATEGY DURING THE PAST 12 MONTHS?
The rationale for the sell-off in the market was a perception that the economy
was far more robust than had been expected and was going to remain so for an
extended period of time. However, our outlook on the economy was basically
unchanged, and trying to time the market by picking its peaks and valleys is a
loser's game. So we didn't take any significant action other than let the
portfolio naturally become shorter through the passage of time. If you try to
time the market by trying to shorten the portfolio through trading activity,
then you've got to lengthen it once you're into a rally. That process of
shortening and lengthening is extremely difficult to do effectively, and it's
very costly from a trading standpoint.
WHAT IS YOUR OUTLOOK FOR THE REST OF THE YEAR?
We think the interest-rate increases earlier in the year will keep the economy
from overheating and getting too far ahead of itself. Indeed, recent employment
and inflation data have taken a lot of fear out of the market.
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<PAGE> 189
<TABLE>
HIGHMARK GOVERNMENT BOND FUND
GROWTH OF A $10,000 INVESTMENT
<CAPTION>
MEASUREMENT PERIOD INVESTOR FIDUCIARY LEHMAN BROTHERS
(FISCAL YEAR COVERED) SHARES SHARES MUTUAL FUND
SHORT GOVT.
INDEX
<S> <C> <C> <C>
11/14/93 9699 10000 10000
7/31/94 9465 9841 9868
7/31/95 10172 10560 10633
7/31/96 10659 11061 11203
</TABLE>
<TABLE>
<CAPTION>
HighMark Government Bond Fund
Performance Average Annual
Total Return as of 7/31/96
--------------------------------
1 Year Since
Inception
(11/14/93)
<S> <C> <C>
- --------------------------------------------------------
Investor* 1.66% 2.38%
Fiduciary 4.75% 3.78%
</TABLE>
The performance of the HighMark Government Bond Fund is measured against the
Lehman Brothers Mutual Fund Short Government Index, an unmanaged broad-based
index generally considered to be representative of U.S. Government securities
with maturities of one to five years. The index does not reflect the deduction
of expenses associated with a mutual fund, such as investment management and
fund accounting fees. However, the fund's performance reflects these value-added
services. Past performance is not predictive of future results. The investment
return and NAV will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than the original cost.
- ---------------
* Reflects 3.00% sales charge.
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<PAGE> 190
HIGHMARK MONEY MARKET FUNDS
<TABLE>
<CAPTION>
7 DAYS ENDING 7/31/96
EFFECTIVE*
YIELD YIELD*
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
HIGHMARK FUND CLASS CLASS CLASS CLASS
<S> <C> <C> <C> <C>
Diversified Obligations Fund 4.87 4.87 4.76 4.76
U.S. Government Obligations Fund 4.71 4.72 4.60 4.61
100% U.S. Treasury Obligations Fund 4.56 4.56 4.46 4.46
California Tax-Free Fund 2.75 2.75 2.71 2.71
Tax-Free Fund 2.74 2.74 2.70 2.70
</TABLE>
* Effective yield assumes reinvestment of dividends. Yields shown are annualized
7-day effective and 7-day yields for the period ending July 31, 1996. Past
performance is not predictive of future performance as yields on money market
funds fluctuate daily. An investment in any of the HighMark money market funds
is neither insured nor guaranteed by the U.S. Government. Although such funds
are managed to maintain a stable net asset value of $1.00 per share, there can
be no assurance that they will be able to do so.
Some of the fees of the California Tax-Free Fund and the Tax-Free Fund are
currently being waived, resulting in higher yields in the funds than would
occur if full fees were charged. If full fees had been charged, the 7-day
effective and 7-day yields for the Investor Shares of the California Tax-Free
Fund would have been 2.54% and 2.51% and 2.52% and 2.49% for the Fiduciary
Shares, respectively, for the period ending July 31, 1996. If full fees had
been charged, the 7-day effective and 7-day yields for the Investor Shares of
the Tax-Free Fund would have been 2.58% and 2.55% and 2.45% and 2.42% for the
Fiduciary Shares, respectively, for the period ending July 31, 1996.
THE TAXABLE MONEY MARKET FUNDS
For the year ended July 31, 1996, the Diversified Obligations Fund, which holds
primarily certificates of deposit, commercial paper and repurchase agreements,
produced a total return of 5.01%. The U.S. Government Obligations Fund,
comprised mostly of U.S. Government agency issues, produced a total return of
4.86% for Investor Shares and 4.88% for Fiduciary Shares. The 100% U.S. Treasury
Obligations Fund produced a total return of 4.74%.
In December and January, the Federal Reserve Board reduced short-term interest
rates by a total of half a percentage point to stimulate the economy. By early
spring, it became apparent that the economy was indeed robust. When interest
rates on longer-term securities began to rise, the money market funds took on a
number of longer positions, extending average maturities, which added
significantly to each portfolio's yield.
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<PAGE> 191
Since recent economic data suggest that the economy is moderating, it currently
appears that the Federal Reserve Board will not have to raise short-term rates.
THE TAX-FREE MONEY MARKET FUNDS+
For the year ended July 31, 1996, the California Tax-Free Money Market Fund
produced a total return of 2.91%. The Tax-Free Money Market Fund, which includes
municipal bonds issued throughout the country, produced a total return of 2.87%.
Both funds currently maintain maturities in the 20-25-day range to enhance
liquidity. Most of the bonds held in these funds are credit-enhanced, meaning
they are insured or backed by irrevocable bank letters of credit.
- ---------------
+ Some or all of the income may be subject to certain state and local taxes,
and, depending on a shareholder's tax bracket, to the federal alternative
minimum tax.
The HighMark Group is a family of mutual funds distributed by BISYS Fund
Services, independent of Union Bank of California, N.A., and its affiliates.
Certain fees of some funds are currently being waived, which may result in
higher fund total returns than would occur if full fees were charged. Past
performance is not predictive of future results. The composition of the funds'
holdings is subject to change.
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<PAGE> 192
REPORT OF INDEPENDENT AUDITORS'
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
THE HIGHMARK GROUP
We have audited the accompanying statements of assets and liabilities including
the schedules of portfolio investments of The HighMark Group (the "Funds"),
including Diversified Obligations Fund, U.S. Government Obligations Fund, 100%
U.S. Treasury Obligations Fund, California Tax-Free Fund, Tax-Free Fund, Bond
Fund, Government Bond Fund, Income Equity Fund, Balanced Fund, Growth Fund, and
Income & Growth Fund, as of July 31, 1996, the related statements of operations,
statements of changes in net assets and the financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
highlights for the other years presented and the statement of changes in net
assets for the year ended July 31, 1995 were audited by other auditors whose
report, dated September 22, 1995, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1996 by correspondence with the Funds' custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Funds at July 31, 1996, the results of
their operations, the changes in their net assets, and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
September 13, 1996
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<PAGE> 193
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
100% U.S.
DIVERSIFIED U.S. GOVERNMENT TREASURY CALIFORNIA
OBLIGATIONS OBLIGATIONS OBLIGATIONS TAX-FREE TAX-FREE
FUND FUND FUND FUND FUND
----------- --------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at amortized cost............ $ 413,900 $ 188,438 $ 274,306 $ 148,504 $43,994
Repurchase agreements, at cost.......................... 21,502 39,183 -- -- --
-------- -------- -------- -------- -------
Total Investments..................................... 435,402 227,621 274,306 148,504 43,994
Cash.................................................... 3 16 -- 897 215
Interest receivable..................................... 2,256 557 910 432 158
Receivable from brokers for investments sold............ -- -- -- 2,500 --
Prepaid expenses and other assets....................... 14 17 12 10 1
-------- -------- -------- -------- -------
Total Assets........................................ 437,675 228,211 275,228 152,343 44,368
-------- -------- -------- -------- -------
LIABILITIES:
Distributions payable................................... 1,690 863 1,088 287 78
Payable to brokers for investments purchased............ 5,000 -- -- -- --
Accrued expenses and other payables:
Investment advisory fees.............................. 143 76 98 31 12
Administration fees................................... 19 10 12 5 1
Shareholder services fees............................. 1 1 1 1 --
Custodian, accounting and transfer agent fees......... 26 26 13 14 13
Other................................................. 69 38 53 26 7
-------- -------- -------- -------- -------
Total Liabilities................................... 6,948 1,014 1,265 364 111
-------- -------- -------- -------- -------
NET ASSETS:
Capital................................................. 431,097 227,373 273,958 152,028 44,273
Accumulated undistributed net realized gains (losses) on
investment transactions............................... (370) (176) 5 (49) (16)
-------- -------- -------- -------- -------
Net Assets.......................................... $ 430,727 $ 227,197 $ 273,963 $ 151,979 $44,257
======== ======== ======== ======== =======
Net Assets
Investor.............................................. $ 185,952 $ 75,714 $ 100,623 $ 53,627 $16,148
Fiduciary............................................. 244,775 151,483 173,340 98,352 28,109
-------- -------- -------- -------- -------
Total............................................... $ 430,727 $ 227,197 $ 273,963 $ 151,979 $44,257
======== ======== ======== ======== =======
Outstanding units of beneficial interest (shares)
Investor.............................................. 186,031 75,727 100,626 53,639 16,153
Fiduciary............................................. 245,066 151,646 173,332 98,389 28,120
-------- -------- -------- -------- -------
Total............................................... 431,097 227,373 273,958 152,028 44,273
======== ======== ======== ======== =======
Net asset value -- offering and redemption price per
share
Investor.............................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Fiduciary............................................. 1.00 1.00 1.00 1.00 1.00
======== ======== ======== ======== =======
</TABLE>
See notes to financial statements.
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<PAGE> 194
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME
BOND GOVERNMENT EQUITY
FUND BOND FUND FUND
-------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost $59,354; $4,334; and $232,422,
respectively)............................................................... $ 58,799 $4,295 $ 266,771
Repurchase agreements, at cost................................................ 2,237 121 4,858
------- ------ --------
Total Investments......................................................... 61,036 4,416 271,629
Interest and dividends receivable............................................. 912 94 796
Receivable from brokers for investments sold.................................. -- -- 2,930
Prepaid expenses and other assets............................................. 2 12 6
------- ------ --------
Total Assets.............................................................. 61,950 4,522 275,361
------- ------ --------
LIABILITIES:
Distributions payable......................................................... 319 24 586
Payable for capital shares redeemed........................................... 42 -- --
Payable to brokers for investments purchased.................................. -- -- 1,726
Accrued expenses and other payables:
Investment advisory fees.................................................... 23 -- 154
Administration fees......................................................... 2 -- 12
Custodian, accounting and transfer agent fees............................... 15 5 21
Other....................................................................... 18 3 59
------- ------ --------
Total Liabilities......................................................... 419 32 2,558
------- ------ --------
NET ASSETS:
Capital....................................................................... 65,254 4,837 223,480
Net unrealized appreciation (depreciation) on investments..................... (555) (39) 34,349
Undistributed net investment income........................................... 32 2 --
Accumulated undistributed net realized gains (losses) on investment
transactions................................................................ (3,200) (310) 14,974
------- ------ --------
Net Assets................................................................ $ 61,531 $4,490 $ 272,803
======= ====== ========
Net Assets
Investor.................................................................... $ 1,157 $1,104 $ 10,143
Fiduciary................................................................... 60,374 3,386 262,660
------- ------ --------
Total..................................................................... $ 61,531 $4,490 $ 272,803
======= ====== ========
Outstanding units of beneficial interest (shares)
Investor.................................................................... 114 119 710
Fiduciary................................................................... 5,900 362 18,413
------- ------ --------
Total..................................................................... 6,014 481 19,123
======= ====== ========
Net asset value
Investor -- redemption price per share...................................... $ 10.15 $ 9.28 $ 14.29
Fiduciary -- offering and redemption price per share........................ 10.23 9.35 14.27
======= ====== ========
Maximum Sales Charge (Investor Shares)........................................ 3.00% 3.00% 4.50%
======= ====== ========
Maximum Offering Price (100%/(100%-Maximum Sales Charge) of net asset value
adjusted to nearest cent) per share (Investor Shares)....................... $ 10.46 $ 9.57 $ 14.96
======= ====== ========
</TABLE>
See notes to financial statements.
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<PAGE> 195
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME &
BALANCED GROWTH GROWTH
FUND FUND FUND
-------- ------- --------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost $32,159; $39,610; and $4,969,
respectively).................................................................. $36,273 $43,527 $6,022
Repurchase agreements, at cost................................................... 3,787 900 386
--------- --------- -------
Total Investments............................................................ 40,060 44,427 6,408
Interest and dividends receivable................................................ 278 55 12
Receivable from brokers for investments sold..................................... -- 216 --
Prepaid expenses................................................................. 9 5 5
--------- --------- -------
Total Assets................................................................. 40,347 44,703 6,425
--------- --------- -------
LIABILITIES:
Distributions payable............................................................ 118 28 9
Payable to brokers for investments purchased..................................... -- 301 --
Accrued expenses and other payables:
Investment advisory fees....................................................... 20 21 --
Administration fees............................................................ 2 2 --
Custodian, accounting and transfer agent fees.................................. 5 5 6
Other.......................................................................... 6 8 3
--------- --------- -------
Total Liabilities............................................................ 151 365 18
--------- --------- -------
NET ASSETS:
Capital.......................................................................... 35,830 38,047 5,100
Net unrealized appreciation on investments....................................... 4,114 3,917 1,053
Undistributed net investment income.............................................. 1 -- --
Accumulated undistributed net realized gains on investment transactions.......... 251 2,374 254
--------- --------- -------
Net Assets................................................................... $40,196 $44,338 $6,407
========= ========= =======
Net Assets
Investor....................................................................... $ 694 $ 2,843 $ 394
Fiduciary...................................................................... 39,502 41,495 6,013
--------- --------- -------
Total........................................................................ $40,196 $44,338 $6,407
========= ========= =======
Outstanding units of beneficial interest (shares)
Investor....................................................................... 60 226 31
Fiduciary...................................................................... 3,392 3,300 480
--------- --------- -------
Total........................................................................ 3,452 3,526 511
========= ========= =======
Net asset value
Investor -- redemption price per share......................................... $ 11.56 $ 12.60 $12.52
Fiduciary -- offering and redemption price per share........................... 11.64 12.58 12.51
========= ========= =======
Maximum Sales Charge (Investor Shares)........................................... 4.50% 4.50% 4.50%
========= ========= =======
Maximum Offering Price (100%/(100%-Maximum Sales Charge) of net asset value
adjusted to nearest cent) per share (Investor Shares).......................... $ 12.10 $ 13.19 $13.11
========= ========= =======
</TABLE>
See notes to financial statements.
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<PAGE> 196
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
U.S. 100% U.S.
DIVERSIFIED GOVERNMENT TREASURY CALIFORNIA
OBLIGATIONS OBLIGATIONS OBLIGATIONS TAX-FREE TAX-FREE
FUND FUND FUND FUND FUND
----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................................. $22,468 $ 13,070 $16,193 $5,301 $1,554
------- ------- ------- ------ ------
Total Income................................. 22,468 13,070 16,193 5,301 1,554
------- ------- ------- ------ ------
EXPENSES:
Investment advisory fees......................... 1,591 944 1,203 618 172
Administration fees.............................. 795 472 602 309 86
Distribution fees (Investor shares).............. 396 194 267 122 36
Shareholder services fees........................ 994 590 752 386 108
Custodian and accounting fees.................... 264 181 177 121 83
Legal and audit fees............................. 63 37 52 29 5
Trustees' fees and expenses...................... 11 7 9 5 1
Transfer agent fees.............................. 89 44 50 47 34
Registration and filing fees..................... 47 16 28 5 4
Printing costs................................... 51 69 42 23 6
Other............................................ 13 7 9 4 2
------- ------- ------- ------ ------
Total Expenses............................... 4,314 2,561 3,191 1,669 537
Expenses voluntarily reduced..................... (1,327) (739) (978) (824) (207)
------- ------- ------- ------ ------
Net Expenses................................. 2,987 1,822 2,213 845 330
------- ------- ------- ------ ------
Net Investment Income............................ 19,481 11,248 13,980 4,456 1,224
------- ------- ------- ------ ------
REALIZED GAINS ON INVESTMENTS:
Net realized gains (losses) on investments....... 16 15 (51) -- --
------- ------- ------- ------ ------
Change in net assets resulting from operations... $19,497 $ 11,263 $13,929 $4,456 $1,224
======= ======= ======= ====== ======
</TABLE>
See notes to financial statements.
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<PAGE> 197
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
GOVERNMENT INCOME
BOND BOND EQUITY
FUND FUND FUND
------ ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income...................................................... $4,316 $304 $ 425
Dividend income...................................................... -- -- 9,943
------ ---- -------
Total Income....................................................... 4,316 304 10,368
------ ---- -------
EXPENSES:
Investment advisory fees............................................. 534 43 1,755
Administration fees.................................................. 123 9 521
Distribution fees (Investor shares).................................. 2 2 20
Shareholder services fees............................................ 154 11 651
Custodian and accounting fees........................................ 85 64 174
Legal and audit fees................................................. 10 3 44
Trustees' fees and expenses.......................................... 2 -- 7
Transfer agent fees.................................................. 54 32 106
Registration and filing fees......................................... 6 1 19
Printing costs....................................................... 22 2 47
Other................................................................ 3 -- 8
------ ---- -------
Total Expenses................................................... 995 167 3,352
Expenses voluntarily reduced......................................... (445) (87) (666)
------ ---- -------
Total expenses before expense reimbursements..................... 550 80 2,686
Expense reimbursements........................................... -- (43) --
------ ---- -------
Net Expenses..................................................... 550 37 2,686
------ ---- -------
Net Investment Income................................................ 3,766 267 7,682
------ ---- -------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment transactions............... (369) (8) 19,384
Net change in unrealized appreciation (depreciation) on
investments........................................................ (465) (67) 13,911
------ ---- -------
Net realized/unrealized gains (losses) on investments................ (834) (75) 33,295
------ ---- -------
Change in net assets resulting from operations....................... $2,932 $192 $ 40,977
====== ==== =======
</TABLE>
See notes to financial statements.
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29
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<PAGE> 198
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME &
BALANCED GROWTH GROWTH
FUND FUND FUND
-------- ------ --------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................................................ $ 996 $ 82 $ 21
Dividend income........................................................ 549 607 163
------ ------ ------
Total Income......................................................... 1,545 689 184
------ ------ ------
EXPENSES:
Investment advisory fees............................................... 348 362 62
Administration fees.................................................... 70 72 12
Distribution fees (Investor shares).................................... 2 5 1
Shareholder services fees.............................................. 87 90 16
Custodian and accounting fees.......................................... 64 78 74
Legal and audit fees................................................... 6 6 3
Trustees' fees and expenses............................................ 1 1 --
Transfer agent fees.................................................... 33 42 33
Registration and filing fees........................................... 3 4 1
Printing costs......................................................... 6 6 --
Other.................................................................. 1 2 --
------ ------ ------
Total Expenses..................................................... 621 668 202
Expenses voluntarily reduced........................................... (293) (333 ) (119)
------ ------ ------
Total expenses before expense reimbursements....................... 328 335 83
Expense reimbursements............................................. -- -- (23)
------ ------ ------
Net Expenses....................................................... 328 335 60
------ ------ ------
Net Investment Income.................................................. 1,217 354 124
------ ------ ------
REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions.......................... 446 3,272 628
Net change in unrealized appreciation on investments................... 1,716 155 56
------ ------ ------
Net realized/unrealized gains on investments........................... 2,162 3,427 684
------ ------ ------
Change in net assets resulting from operations......................... $3,379 $3,781 $808
====== ====== ======
</TABLE>
See notes to financial statements.
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<PAGE> 199
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT
OBLIGATIONS FUND OBLIGATIONS FUND
-------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.......................... $ 19,481 $ 17,476 $ 11,248 $ 8,697
Net realized gains (losses) on investment
transactions................................. 16 (29) 15 34
----------- ----------- ----------- -----------
Change in net assets resulting from operations... 19,497 17,447 11,263 8,731
----------- ----------- ----------- -----------
DISTRIBUTIONS TO INVESTOR SHAREHOLDERS:
From net investment income..................... (7,738) (5,516) (3,707) (2,084)
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income..................... (11,743) (11,960) (7,541) (6,613)
----------- ----------- ----------- -----------
Change in net assets from shareholder
distributions.................................. (19,481) (17,476) (11,248) (8,697)
----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.................... 1,943,043 1,562,243 1,933,728 1,760,626
Dividends reinvested........................... 7,326 4,915 3,487 1,950
Cost of shares redeemed........................ (1,918,325) (1,473,121) (1,918,254) (1,740,538)
----------- ----------- ----------- -----------
Change in net assets from share transactions..... 32,044 94,037 18,961 22,038
----------- ----------- ----------- -----------
Change in net assets............................. 32,060 94,008 18,976 22,072
NET ASSETS:
Beginning of period............................ 398,667 304,659 208,221 186,149
----------- ----------- ----------- -----------
End of period.................................. $ 430,727 $ 398,667 $ 227,197 $ 208,221
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
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31
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<PAGE> 200
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
100% U.S. TREASURY CALIFORNIA
OBLIGATIONS FUND TAX-FREE FUND TAX-FREE FUND
----------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995 1996 1995
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 13,980 $ 10,640 $ 4,456 $ 4,619 $ 1,224 $ 1,405
Net realized gains (losses) on
investment transactions....... (51) 57 -- (23) -- (13)
---------- --------- --------- --------- --------- ---------
Change in net assets resulting
from operations................. 13,929 10,697 4,456 4,596 1,224 1,392
---------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income...... (4,948) (2,706) (1,404) (1,089) (400) (422)
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income...... (9,032) (7,934) (3,052) (3,530) (824) (983)
---------- --------- --------- --------- --------- ---------
Change in net assets from
shareholder distributions....... (13,980) (10,640) (4,456) (4,619) (1,224) (1,405)
---------- --------- --------- --------- --------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 1,004,680 736,668 343,893 354,814 132,220 156,974
Dividends reinvested............ 4,571 2,106 1,425 1,035 419 429
Cost of shares redeemed......... (1,014,501) (659,445) (339,625) (356,054) (131,897) (164,192)
---------- --------- --------- --------- --------- ---------
Change in net assets from share
transactions.................... (5,250) 79,329 5,693 (205) 742 (6,789)
---------- --------- --------- --------- --------- ---------
Change in net assets.............. (5,301) 79,386 5,693 (228) 742 (6,802)
NET ASSETS:
Beginning of period............. 279,264 199,878 146,286 146,514 43,515 50,317
---------- --------- --------- --------- --------- ---------
End of period................... $ 273,963 $ 279,264 $ 151,979 $ 146,286 $ 44,257 $ 43,515
========== ========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
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32
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<PAGE> 201
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
BOND FUND GOVERNMENT BOND FUND INCOME EQUITY FUND
---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............ $ 3,766 $ 3,824 $ 267 $ 294 $ 7,682 $ 7,595
Net realized gains (losses) on
investment transactions........ (369) (1,512) (8) (55) 19,384 8,944
Net change in unrealized
appreciation (depreciation) on
investments.................... (465) 3,052 (67) 79 13,911 17,456
-------- -------- ------- -------- -------- --------
Change in net assets resulting from
operations....................... 2,932 5,364 192 318 40,977 33,995
-------- -------- ------- -------- -------- --------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income....... (63) (18) (53) (3) (239) (43)
From net realized gains on
investments.................... (1) -- -- -- (277) (16)
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income....... (3,703) (3,806) (214) (291) (7,443) (7,552)
From net realized gains on
investments.................... (32) -- (2) -- (11,279) (7,309)
-------- -------- ------- -------- -------- --------
Change in net assets from
shareholder distributions........ (3,799) (3,824) (269) (294) (19,238) (14,920)
-------- -------- ------- -------- -------- --------
CAPITAL TRANSACTIONS:
Proceeds from shares issued...... 15,630 11,393 1,352 1,376 63,282 36,043
Dividends reinvested............. 3,043 3,125 266 297 17,495 13,535
Cost of shares redeemed.......... (16,591) (19,934) (1,035) (2,884) (54,919) (56,799)
-------- -------- ------- -------- -------- --------
Change in net assets from share
transactions..................... 2,082 (5,416) 583 (1,211) 25,858 (7,221)
-------- -------- ------- -------- -------- --------
Change in net assets............... 1,215 (3,876) 506 (1,187) 47,597 11,854
NET ASSETS:
Beginning of period.............. 60,316 64,192 3,984 5,171 225,206 213,352
-------- -------- ------- -------- -------- --------
End of period.................... $ 61,531 $ 60,316 $4,490 $ 3,984 $272,803 $225,206
======== ======== ======= ======== ======== ========
</TABLE>
See notes to financial statements.
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33
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<PAGE> 202
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND INCOME & GROWTH FUND
---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............ $ 1,217 $ 992 $ 354 $ 272 $ 124 $ 133
Net realized gains on investment
transactions................... 446 21 3,272 915 628 42
Net change in unrealized
appreciation on investments.... 1,716 2,804 155 3,752 56 961
------- ------- ------- ------- ------ -------
Change in net assets resulting from
operations....................... 3,379 3,817 3,781 4,939 808 1,136
------- ------- ------- ------- ------ -------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income....... (23) (3) (21) (5) (6) (1)
From net realized gains on
investments.................... -- -- (94) (3) (14) --
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income....... (1,194) (989) (333) (267) (118) (132)
From net realized gains on
investments.................... (2) -- (1,566) (240) (314) --
------- ------- ------- ------- ------ -------
Change in net assets from
shareholder distributions........ (1,219) (992) (2,014) (515) (452) (133)
------- ------- ------- ------- ------ -------
CAPITAL TRANSACTIONS:
Proceeds from shares issued...... 15,840 10,356 19,239 9,727 2,923 1,771
Dividends reinvested............. 1,172 986 1,965 503 434 127
Cost of shares redeemed.......... (9,404) (9,590) (4,947) (3,594) (4,190) (788)
------- ------- ------- ------- ------ -------
Change in net assets from share
transactions..................... 7,608 1,752 16,257 6,636 (833) 1,110
------- ------- ------- ------- ------ -------
Change in net assets............... 9,768 4,577 18,024 11,060 (477) 2,113
NET ASSETS:
Beginning of period.............. 30,428 25,851 26,314 15,254 6,884 4,771
------- ------- ------- ------- ------ -------
End of period.................... $ 40,196 $ 30,428 $ 44,338 $ 26,314 $6,407 $6,884
======= ======= ======= ======= ====== =======
</TABLE>
See notes to financial statements.
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34
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<PAGE> 203
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT (23.4%):
Euro Certificates of Deposit (3.7%):
$ 5,000 Abbey National Treasury
Services, 5.72%, 9/11/96... $ 5,000
6,000 Abbey National Treasury
Services, 5.22%, 3/4/97 5,983
5,000 Bayerische Vereinsbank,
5.49%, 11/13/96 5,001
--------
15,984
--------
Yankee Certificates of Deposit (19.7%):
10,000 ABN-AMRO Bank N.V., 5.53%,
3/18/97.................... 9,996
5,000 Commerzbank, 5.66%, 4/24/97.. 4,997
10,000 Dresdner Bank, 5.05%,
2/26/97.................... 9,999
10,000 Deutsche Bank, 5.57%,
3/31/97.................... 10,001
5,000 Rabobank Nederland N.V.,
5.82% 8/14/96.............. 5,000
10,000 Sanwa Bank Ltd., 5.62%,
10/16/96................... 10,002
10,000 Society Generale, 5.65%,
4/1/97..................... 9,993
5,000 Society Generale, 5.80%,
4/15/97.................... 5,002
10,000 Sumitomo Bank Ltd., 5.48%,
8/26/96.................... 10,000
5,000 Sumitomo Bank Ltd., 5.46%,
9/3/96..................... 5,000
5,000 Sumitomo Bank Ltd., 6.01%,
10/30/96................... 5,000
--------
84,990
--------
Total Certificates of Deposit 100,974
--------
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------
<S> <C> <C> <C>
COMMERCIAL PAPER/MASTER DEMAND NOTES (67.5%):
Automotive (6.9%):
$ 5,000 Daimler-Benz North America
Corp., 5.35%, 1/6/97....... $ 4,876
5,000 Daimler-Benz North America
Corp., 5.53%, 1/13/97...... 4,873
5,000 Ford Motor Credit Corp.,
5.27%, 8/13/96............. 4,991
10,000 Ford Motor Credit Corp.,
5.34%, 8/15/96............. 9,979
5,000 Ford Motor Credit Corp.,
5.42%, 9/6/96.............. 4,973
--------
29,692
--------
Banking (9.2%):
5,000 ANZ (De) Inc., 5.38%,
9/10/96.................... 4,970
5,000 ANZ (De) Inc., 5.40%,
9/9/96..................... 4,971
5,000 ANZ (De) Inc., 5.47%,
10/9/96.................... 4,948
5,000 Abbey National North America
Inc., 5.54%, 9/25/96....... 4,958
5,000 Abbey National North America
Inc., 5.40%, 12/4/96....... 4,906
5,000 Commerzbank U.S. Finance
Inc., 5.35%, 8/8/96........ 4,995
5,000 Den Danske Corporation Inc.,
5.38%, 8/6/96.............. 4,996
5,000 Den Danske Corporation Inc.,
5.42%, 10/1/96............. 4,954
--------
39,698
--------
</TABLE>
Continued
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35
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<PAGE> 204
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMERCIAL PAPER/MASTER DEMAND NOTES,
CONTINUED:
Business Credit Institutions (21.9%):
$10,000 Alpha Finance Corp., 5.48%,
10/11/96................... $ 9,892
10,000 Assets Securitization
Cooperative Corp., 5.37%,
8/5/96..................... 9,994
5,000 Assets Securitization
Cooperative Corp., 5.40%,
9/17/96.................... 4,965
5,000 Beta Finance Inc., 5.53%,
1/3/97..................... 4,881
10,000 Ciesco, L.P., 5.26%,
8/16/96.................... 9,978
5,000 Ciesco, L.P., 5.32%,
9/9/96..................... 4,971
5,200 Corporate Receivables Corp.,
5.35%, 8/22/96............. 5,184
10,000 Corporate Receivables Corp.,
5.40%, 9/12/96............. 9,937
5,000 Corporate Receivables Corp.,
5.42%, 10/8/96............. 4,949
5,000 CXC, Inc., 5.38%, 8/1/96..... 5,000
10,000 CXC, Inc., 5.40%, 9/3/96..... 9,950
5,000 Falcon Asset Securitization
Corp., 5.40%, 8/19/96...... 4,986
5,000 Falcon Asset Securitization
Corp., 5.55%, 1/21/97...... 4,867
5,000 Jet Funding Corp., 5.50%,
9/30/96.................... 4,954
---------
94,508
---------
Electronic & Electrical--General (4.6%):
10,000 Panasonic Finance Inc.,
5.38%, 9/9/96.............. 9,942
10,000 Panasonic Finance Inc.,
5.34%, 9/17/96............. 9,930
---------
19,872
---------
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
COMMERCIAL PAPER/MASTER DEMAND NOTES,
CONTINUED:
Insurance (1.2%):
$ 5,000 TransAmerica Corp., 5.36%,
8/9/96..................... $ 4,994
---------
Mining (1.1%):
5,000 RTZ America Inc., 5.30%,
8/22/96.................... 4,985
---------
Multiple Industry (6.9%):
10,000 BTR Dunlop Finance Inc.,
5.37%, 8/7/96.............. 9,991
5,000 BTR Dunlop Finance Inc.,
5.27%, 8/26/96............. 4,982
5,000 BTR Dunlop Finance Inc.,
5.40%, 9/16/96............. 4,965
10,000 General Electric Capital
Corp., 5.29%, 9/5/96....... 9,949
---------
29,887
---------
Retail (3.5%):
5,000 J.C. Penney Funding Corp.,
5.38%, 8/7/96.............. 4,996
10,000 J.C. Penney Funding Corp.,
5.34%, 8/29/96............. 9,958
---------
14,954
---------
Technology (1.7%):
7,200 Hewlett Packard Co., 5.29%,
8/27/96.................... 7,172
---------
Tobacco & Tobacco Products (1.2%):
5,000 B.A.T. Capital Corp., 5.33%,
8/16/96.................... 4,989
---------
</TABLE>
Continued
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36
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<PAGE> 205
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMERCIAL PAPER/MASTER DEMAND NOTES,
CONTINUED:
Trading Company (3.5%):
$10,000 Cargill Financial Services
Corp. 5.33%, 8/16/96....... $ 9,978
5,000 Cargill Inc., 5.35%,
8/2/96..................... 4,999
---------
14,977
---------
Telecommunications (3.5%):
10,000 AT&T Corp., 5.30%, 8/8/96.... 9,990
5,000 AT&T Corp., 5.42%, 9/18/96... 4,964
---------
14,954
---------
Utility (2.3%):
10,000 National Rural Utilities
Co-op. Finance Corp.,
5.37%, 8/9/96.............. 9,988
---------
Total Commercial Paper / Master Demand
Notes 290,670
---------
MEDIUM TERM NOTES/CORPORATE BONDS (2.9%):
Banking (2.3%):
10,000 Sanwa Business Credit Corp.,
5.56%, 12/4/96 *........... 10,000
---------
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
Manufacturing--Consumer Goods (0.6%):
$ 2,500 Gillette Co., 4.75%,
8/15/96.................... $ 2,499
---------
Total Medium Term Notes/Corporate Bonds
12,499
---------
U.S. TREASURY BILLS (2.3%):
10,000 4.62%, 2/6/97................ 9,757
---------
Total U.S. Treasury Bills 9,757
---------
Total Investments, at value 413,900
---------
REPURCHASE AGREEMENTS (5.0%);
21,502 C.S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 18,006
U.S. Treasury Bonds, 8.75%,
8/15/20, market value
$21,970)................... 21,502
---------
Total Repurchase Agreements 21,502
---------
Total $435,402 (a)
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $430,727.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity arrangements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of market
interest rates. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect on July 31, 1996.
See notes to financial statements.
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<PAGE> 206
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ------------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. TREASURY BILLS (4.3%):
$10,000 4.62%, 2/6/97................ $ 9,757
--------
Total U.S. Treasury Bills 9,757
--------
U.S. GOVERNMENT AGENCIES (78.6%):
Federal Home Loan Bank:
7,500 Discount note, 5.32%,
8/14/96.................... 7,486
5,000 Discount note, 5.22%,
8/20/96.................... 4,986
5,000 Discount note, 5.31%,
9/25/96.................... 4,959
5,000 Discount note, 5.19%,
10/15/96................... 4,946
5,000 Discount note, 5.37%,
11/1/96.................... 4,931
5,000 Discount note, 5.25%,
11/4/96.................... 4,931
5,000 Discount note, 5.19%,
1/14/97.................... 4,881
5,000 Discount note, 5.21%,
1/21/97.................... 4,875
4,610 5.26%, 1/29/97............... 4,610
Federal Home Loan Mortgage Corp.:
5,000 Discount note, 5.34%,
9/16/96.................... 4,966
Federal National Mortgage Assoc.:
5,000 Discount note, 5.30%,
8/1/96..................... 5,000
5,000 Discount note, 5.25%,
8/15/96.................... 4,990
5,000 Discount note, 5.24%,
8/21/96.................... 4,985
5,000 Discount note, 5.33%,
9/9/96..................... 4,971
5,000 Discount note, 5.35%,
9/10/96.................... 4,970
5,000 Discount note, 5.34%,
9/11/96.................... 4,970
10,000 Discount note, 5.27%,
9/17/96.................... 9,931
5,000 Discount note, 5.26%,
9/23/96.................... 4,961
5,540 Discount note, 5.30%,
9/24/96.................... 5,496
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ------------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc., continued:
$ 5,000 Discount note, 5.38%,
10/15/96................... $ 4,944
5,000 Discount note, 5.29%,
12/6/96.................... 4,907
6,940 7.60%, 1/10/97............... 6,999
20,000 5.30%, 5/5/97 *.............. 19,987
Overseas Private Investment Corp.:
20,000 5.40%, 1/15/09 *............. 20,000
Student Loan Marketing Assoc.:
10,000 5.57%, 9/23/96 *............. 9,999
10,000 5.49%, 7/18/97 *............. 10,000
--------
Total U.S. Government Agencies 178,681
--------
Total Investments, at value 188,438
--------
REPURCHASE AGREEMENTS (17.2%):
39,183 C. S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 32,811
U.S. Treasury Bonds,
8.75%, 8/15/20, market
value--$40,034).............. 39,183
--------
Total Repurchase Agreements 39,183
--------
Total $227,621 (a)
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $227,197.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of market
interest rates. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect at July 31, 1996.
See notes to financial statements.
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38
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<PAGE> 207
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. TREASURY BILLS (85.5%):
$ 1,355 4.99%, 8/1/96*............... $ 1,355
15,000 5.00%, 8/8/96*............... 14,985
2,303 5.01%, 8/8/96*............... 2,301
2,226 5.02%, 8/8/96*............... 2,224
5,000 5.03%, 8/8/96*............... 4,995
5,000 5.04%, 8/8/96*............... 4,995
10,192 4.96%, 8/15/96*.............. 10,172
7,425 5.01%, 8/15/96*.............. 7,411
5,000 5.03%, 8/15/96*.............. 4,990
2,777 5.04%, 8/15/96*.............. 2,772
1,067 4.95%, 8/22/96*.............. 1,064
10,000 4.98%, 8/22/96*.............. 9,971
10,000 5.02%, 8/22/96*.............. 9,971
2,000 5.48%, 8/22/96*.............. 1,993
2,500 5.50%, 8/22/96*.............. 2,492
4,744 4.98%, 8/29/96*.............. 4,725
10,000 5.05%, 8/29/96*.............. 9,961
2,023 5.04%, 9/5/96*............... 2,013
312 5.06%, 9/5/96*............... 310
4,572 5.07%, 9/5/96*............... 4,550
865 5.08%, 9/5/96*............... 861
15,000 5.10%, 9/5/96*............... 14,925
3,640 5.04%, 9/12/96*.............. 3,618
892 5.07%, 9/12/96*.............. 887
5,000 5.10%, 9/12/96*.............. 4,970
7,703 5.11%, 9/12/96*.............. 7,657
5,225 5.12%, 9/12/96*.............. 5,193
385 5.07%, 9/19/96*.............. 382
6,651 5.09%, 9/19/96*.............. 6,605
5,410 5.11%, 9/19/96*.............. 5,373
4,828 5.13%, 9/19/96*.............. $ 4,794
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. TREASURY BILLS, CONTINUED:
$ 5,936 5.14%, 9/19/96*.............. 5,895
5,000 5.04%, 10/3/96*.............. 4,956
1,227 5.09%, 10/3/96*.............. 1,216
3,162 5.11%, 10/3/96*.............. 3,134
3,077 5.11%, 10/10/96*............. 3,046
5,000 5.15%, 10/10/96*............. 4,950
5,000 5.05%, 10/17/96*............. 4,946
2,034 5.09%, 10/17/96*............. 2,012
7,639 5.11%, 10/17/96*............. 7,556
4,000 5.07%, 10/24/96*............. 3,953
5,000 5.12%, 10/24/96*............. 4,940
5,000 5.34%, 1/9/97*............... 4,881
5,000 5.24%, 1/23/97*.............. 4,873
5,000 4.91%, 2/6/97*............... 4,871
5,000 5.11%, 2/6/97*............... 4,866
5,000 5.16%, 4/3/97*............... 4,825
5,000 5.32%, 4/3/97*............... 4,819
--------
Total U.S. Treasury Bills 234,254
--------
U.S. TREASURY NOTES (12.8%):
10,000 7.25%, 8/31/96............... 10,013
10,000 7.25%, 8/31/96............... 10,011
10,000 6.63%, 3/31/97............... 10,072
5,000 6.50%, 4/30/97............... 5,031
--------
Total U.S. Treasury Notes 35,127
--------
U.S. TREASURY STRIPS (1.8%):
5,000 5.12%, 11/15/96*............. 4,925
--------
Total U.S. Treasury Strips 4,925
--------
Total $274,306 (a)
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $273,963.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Discount yield at date of purchase.
See notes to financial statements.
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39
LOGO 100% U.S. TREASURY OBLIGATIONS FUND
<PAGE> 208
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ----------------------------------------------------------------------------------- ---------
<C> <S> <C>
MUNICIPAL SECURITIES $(90.1%):
California (90.1%)
$ 5,025 Contra Costa County, Park Regency, Series 1992, 3.70%, 8/1/32, AMT*................ $ 5,025
2,500 Department of Water Resources, 3.35%, 11/29/96..................................... 2,500
3,300 Health Facilities Authority, Enloe Memorial Hospital, 3.00%, 1/1/16*............... 3,300
6,800 Health Facilities Authority, Memorial Health Services, 3.25%, 10/1/24*............. 6,800
6,600 Health Finance Authority, Catholic Healthcare West, 3.25%, 7/1/05*................. 6,600
900 Health Finance Authority, Catholic Healthcare West, 3.25%, 7/1/09*................. 900
6,900 Health Finance Authority, Kaiser Permanente Series, 3.25%, 5/1/28*................. 6,900
1,700 Health Finance Authority, Pooled Program, Series 1990 A, 3.40%, 9/1/20*............ 1,700
2,400 Health Finance Authority, Pooled Program, Series B, 3.40%, 10/1/10*................ 2,400
1,200 Health Finance Authority, Santa Barbara Cottage, 3.25%, 9/1/15*.................... 1,200
1,000 Health Finance Authority, Santa Barbara Cottage, Series B, 3.25%, 9/1/05*.......... 1,000
1,200 Kern County Public Facilities, Project Series B, 3.35%, 8/1/06*.................... 1,200
1,700 Lancaster Multi-Family Housing, Westwood Park Apartments, 3.40%, 12/1/07*.......... 1,700
6,800 Los Angeles County Metro Transportation Authority, Union Station Gateway Project, 6,800
3.25%, 7/2/25*...................................................................
4,700 Los Angeles County Transportation, 3.40%, 7/1/12*.................................. 4,700
700 Los Angeles Multi-Family Housing, Crescent Gardens, 3.40%, 7/1/14*................. 700
3,700 Los Angeles Multi-Family Housing, Series K, 3.25%, 7/1/10*......................... 3,700
7,500 Los Angeles Multi-Family Housing, Southpark Apartment Project, 3.55%, 12/1/05*..... 7,500
3,700 Metropolitan Water District of Southern California, 3.25%, 6/1/23.................. 3,700
2,800 Oxnard Housing Authority, Seawood Apartments Project, 3.65%, 12/1/20, AMT*......... 2,800
7,200 Pollution Control Finance Authority, Burney Forest 1988, 3.70%, 9/1/20, AMT*....... 7,200
1,900 Pollution Control Finance Authority, Delano Project 1989, 3.65%, 8/1/19, AMT*...... 1,900
2,310 Pollution Control Finance Authority, Delano Project 1990, 3.65%, 8/1/19, AMT*...... 2,310
3,000 Pollution Control Finance Authority, Delano Project 1991, 3.65%, 8/1/19, AMT*...... 3,000
2,600 Pollution Control Finance Authority, Honey Lake Power Project, Series 88, 3.65%,
9/1/18, AMT...................................................................... 2,600
1,700 Pollution Control Finance Authority, North County Recycling Center, Series B,
3.40%, 7/1/17*................................................................... 1,700
500 Pollution Control Finance Authority, Pacific Gas & Electric, Series 88C, 3.35%,
8/15/96.......................................................................... 500
</TABLE>
Continued
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40
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<PAGE> 209
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------
<C> <S> <C>
MUNICIPAL SECURITIES, CONTINUED:
California, continued:
$ 3,200 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.55%, $ 3,200
9/24/96..........................................................................
1,000 Pollution Control Finance Authority, Southern California Edison, Series 85D, 3.35%, 1,000
9/10/96..........................................................................
2,600 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.55%, 2,600
9/6/96...........................................................................
500 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.60%, 500
1/15/97..........................................................................
1,550 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.15%, 1,550
8/1/96...........................................................................
500 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.20%, 500
9/10/96..........................................................................
4,000 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.35%, 4,000
10/1/96..........................................................................
1,200 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.45%, 1,200
11/14/96.........................................................................
1,100 Pollution Control Finance Authority, Southern California Edison, Series 86A, 3.40%, 1,100
2/28/08*.........................................................................
1,400 Pollution Control Finance Authority, Southern California Edison, Series 86B, 3.40%, 1,400
2/28/08*.........................................................................
2,000 Pollution Control Finance Authority, Southern California Edison, Series 86C, 3.40%, 2,000
2/28/08..........................................................................
2,200 Pollution Control Finance Authority, Southern California Edison, Series 86D, 3.40%, 2,200
2/28/08..........................................................................
2,200 Sacramento County Multi-Family Housing Authority, River Oaks Apartments, 3.55%, 2,200
9/15/07*.........................................................................
5,000 San Bernardino County, TRANs, 4.50%, 6/30/97....................................... 5,027
500 San Jose, Multi-Family Housing, Somerset Park, 3.55%, 11/1/17, AMT*................ 500
2,900 SCAPPA, Revenue, 91 Refunding Series, 3.40%, 7/1/19*............................... 2,900
3,000 State of California, Tax Exempt Commercial Paper, 3.10%, 8/7/96.................... 3,000
1,000 State of California, Tax Exempt Commercial Paper, 3.35%, 11/14/96.................. 1,000
2,000 State of California, Tax Exempt Commercial Paper, 3.55%, 9/13/96................... 2,000
6,865 Statewide Community Development Authority, Series 95A, 3.45%, 5/15/25*............. 6,866
900 Vacaville Multi-Family Housing, The Sycamores Apartments, 3.40%, 4/1/05*........... 900
1,000 Walnut Creek Multi-Family Housing, Creekside Drive Apartments, 3.40%, 4/1/07*...... 1,000
--------
Total Municipal Securities 136,978
--------
</TABLE>
Continued
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41
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<PAGE> 210
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ----------------------------------------------------------------------------------- ---------
INVESTMENT COMPANIES $(7.6%):
<C> <S> <C>
5,214 Goldman Sachs California Tax-Exempt Money Market Fund.............................. $ 5,214
6,312 Provident California Money Market Fund............................................. 6,312
--------
Total Investment Companies 11,526
--------
Total $148,504 (a)
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $151,979.
<TABLE>
<C> <S>
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of credit or other credit and/or
liquidity agreements. The interest rate, which will change periodically, is based upon bank prime rates or an
index of market interest rates. The rate reflected on the Schedule of Portfolio Investments is the rate in
effect at July 31, 1996.
AMT Alternative Minimum Tax Paper
TRANs Tax Revenue Anticipation Notes
</TABLE>
See notes to financial statements.
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42
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<PAGE> 211
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- --------------------------------------------------------------------------------- ---------
<S> <C> <C> <C>
MUNICIPAL SECURITIES (90.4%):
Arizona (4.8%):
$1,200 Maricopa County, PCR, Southern California Edison,
Series D, 3.25%, 12/1/09....................................................... $ 1,200
500 Maricopa County, PCR, Southern California Edison,
Series D, 3.35%, 12/1/09....................................................... 500
400 Maricopa County, PCR, Southern California Edison,
Series 85F, 3.50%, 2/1/09...................................................... 400
-------
2,100
-------
California (22.7%):
700 Health Facilities Finance Authority Revenue,
Kaiser Permanente Series B, 3.24%, 5/1/28...................................... 700
1,000 Health Facilities Finance Authority Revenue,
Memorial Health Services, 3.24%, 10/1/24....................................... 1,000
100 Los Angeles County Metro Transportation Authority,
Union Station Gateway Project, 3.24%, 7/1/25................................... 100
200 Los Angeles MFH Crescent Gardens Apartments, 3.40%, 7/1/14....................... 200
1,700 Los Angeles MFH, Series K, 3.49%, 7/1/10......................................... 1,700
400 Los Angeles MFH, Southpark Apartment Project, 3.54%,
12/1/05........................................................................ 400
100 Pollution Control Finance Authority,
Burney Forest 1988, 3.70%, 9/1/20, AMT......................................... 100
1,390 Pollution Control Finance Authority,
Delano Project 1990, 3.65%, 8/1/19............................................. 1,390
200 Pollution Control Finance Authority Revenue,
Southern California Edison, Series 85C, 3.15%, 3/1/08.......................... 200
500 Pollution Control Finance Authority Revenue,
Southern California Edison, Series 85C, 3.20%, 3/1/08.......................... 500
1,200 Pollution Control Finance Authority Revenue,
Southern California Edison, Series 85D, 3.20%, 3/1/08.......................... 1,200
250 Pollution Control Finance Authority Revenue,
Southern California Edison, Series 88C, 3.40%, 10/1/20......................... 250
</TABLE>
Continued
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43
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<PAGE> 212
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- --------------------------------------------------------------------------------- -------
<S> <C> <C> <C>
MUNICIPAL SECURITIES, CONTINUED:
California, continued:
$1,000 San Bernardino County, TRANS, 4.50%, 6/30/97..................................... $ 1,005
1,000 State of California, Tax Exempt Commercial Paper, 3.50%, 10/24/96................ 1,000
300 Statewide Community Development Authority,
Series 95A, 3.45%, 5/15/25..................................................... 300
-------
10,045
-------
Florida (6.1%):
800 Broward County Housing Authority, Welleby Apartments
Project, 3.70%, 12/1/06........................................................ 800
1,900 Indian Trace Community Development, Water
Management Special Benefit, 3.54%, 11/1/99..................................... 1,900
-------
2,700
-------
Hawaii (4.1%):
1,800 Hawaii State Housing Finance, Affordable Rental
Housing, Series A, 3.54%, 7/1/27............................................... 1,800
-------
Illinois (4.0%):
300 Illinois Health Facilities Finance Authority, Methodist
Medical Center, Series 1985B, 3.65%, 10/1/14................................... 300
1,485 Illinois Housing Development Authority, MFH,
Revenue, 4.15%, 2/1/24......................................................... 1,485
-------
1,785
-------
Indiana (4.7%):
600 City of Sullivan, PCR, Hoosier 85, 3.65%, 9/24/96................................ 600
1,000 Jasper County, PCR Indiana Public Services, 3.65%, 11/1/16....................... 1,000
500 Jasper County, PCR, Indiana Public Services,
Series 1988C, 3.25%, 11/1/16................................................... 500
-------
2,100
-------
Kentucky (2.0%):
885 Clark County, PCR, East Kentucky Power Co-Op,
3.40%, 10/15/96................................................................ 885
-------
</TABLE>
Continued
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44
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<PAGE> 213
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- --------------------------------------------------------------------------------- -------
<S> <C> <C> <C>
MUNICIPAL SECURITIES, CONTINUED:
Louisiana (3.8%):
$1,700 Public Facilities
Authority for Kenner Hotel, Ltd., 3.65%, 12/1/15............................... $ 1,700
-------
Minnesota (0.2%):
100 Hubbard County Solid Waste Disposal Revenue,
Potlatch Corp. Project, Series 1, 3.70%, 8/1/14................................ 100
-------
Missouri (2.7%):
1,200 St. Charles, Sun River Village Apartments, 3.65%, 12/1/07........................ 1,200
-------
Nevada (4.3%):
1,900 Clark County Airport, Sub Lien Revenue, Series
1995A-1, 3.54%, 7/1/25......................................................... 1,900
-------
New Mexico (4.3%):
1,900 Albuquerque Airport Revenue, Sub Lien Revenue,
Series 1995, 3.54%, 7/1/14..................................................... 1,900
-------
New York (4.5%):
200 GO, Series 1993, 3.70%, 10/1/20.................................................. 200
200 GO, Series 1993, 3.70%, 10/1/22.................................................. 200
1,600 Triborough Bridge Authority, 3.40%, 1/1/24....................................... 1,600
-------
2,000
-------
Oregon (4.0%):
1,760 Port Morrow Revenue, Portland General Electric
Co., Series A, 3.70%, 10/1/13.................................................. 1,760
-------
Pennsylvania (0.5%):
200 Lehigh County Industrial Development Authority, PCR,
Allegheny Electric Co-Op, Inc., Series A, 3.40%, 12/1/15....................... 200
-------
Rhode Island (0.9%):
400 State Student Loan Authority, Student Loan Revenue,
Series 1995, 3.70%, 7/1/19..................................................... 400
-------
Texas (4.6%):
2,040 Amoco Gulf Coast Waste Disposal, 3.65%, 10/1/17.................................. 2,040
-------
</TABLE>
Continued
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45
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<PAGE> 214
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- --------------------------------------------------------------------------------- ---------
<S> <C> <C> <C>
MUNICIPAL SECURITIES, CONTINUED:
Utah (2.3%):
$1,000 Emery County, PCR, Pacific Corp. Project, 3.60%, 7/1/15.......................... $ 1,000
-------
Virginia (8.8%):
2,100 Alexandria Redevelopment & Housing Authority,
MFH Revenue, Crystal City Apartments
Project, 3.65%, 12/15/18....................................................... 2,100
100 Amelia County Industrial Development Authority,
Chambers Waste Power Project, Series 1991, 3.85%,
7/1/07......................................................................... 100
1,700 Charles County Industrial Development Authority,
Chamber Development of Virginia Inc. Project, 3.85%,
10/1/04........................................................................ 1,700
-------
3,900
-------
Wyoming (1.1%):
500 Sweetwater County, PCR, Pacific Corp. Project,
Series 1990A, 3.49%, 7/1/15.................................................... 500
-------
Total Municipal Securities 40,015
-------
INVESTMENT COMPANIES (9.0%):
1,851 Goldman Sachs Tax Exempt National Fund........................................... 1,851
2,128 SEI Institutional Tax Exempt Money Market Fund................................... 2,128
-------
Total Investment Companies 3,979
-------
Total $43,994(a)
=======
</TABLE>
- ------------
Percentages indicated are based on total net assets of $44,257.
(a) Cost for federal income tax and financial reporting purposes are the same.
<TABLE>
<S> <C>
AMT Alternative Minimum Tax Paper
GO General Obligation
MFH Multi-Family Housing
PCR Pollution Control Revenue
TRANs Tax Revenue Anticipation Notes
</TABLE>
See notes to financial statements.
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46
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<PAGE> 215
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
ASSET BACKED SECURITIES (17.4%):
$ 374 Advanta Mortgage Loan Trust,
7.90%, 3/25/07............... $ 375
1,000 Carco Auto Loan Master Trust,
Series 1994-2, 7.88%,
8/15/97...................... 1,018
860 Carco Auto Loan Master Trust,
Series 1991-3,
7.88%,3/15/98................ 869
1,125 Contimortgage Home Equity Loan
Trust, 8.09%, 9/15/09........ 1,144
1,000 Contimortgage Home Equity Loan
Trust, 8.05%, 7/15/12........ 1,016
1,200 EQCC Home Equity Loan Trust,
7.80%, 12/15/10.............. 1,196
1,250 Green Tree Financial Corp.,
6.80%, 1/15/26............... 1,221
500 MBNA Credit Card, 7.25%,
6/15/99...................... 502
738 Mid State Trust 4, 8.33%,
4/1/30....................... 765
531 Premier Auto Receivable Trust,
4.90%, 10/15/98.............. 525
1,000 Standard Credit Card Master
Trust, 4.65%, 3/7/99......... 987
600 UCFC Home Equity Loan, 7.78%,
12/10/06..................... 608
496 UFSB Grantor Trust, 5.08%,
5/15/00...................... 489
-------
Total Asset Backed Securities 10,715
-------
COLLATERALIZED MORTGAGE OBLIGATIONS (14.4%):
Bear Stearns Secured Investors:
500 7.50%, 1/20/99................. 504
Country Wide Mortgage:
1,021 6.75%, 3/25/08................. 995
Federal Home Loan Mortgage Corp.:
1,500 6.25%, 1/15/24................. 1,347
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS, CONTINUED:
Federal National Mortgage Assoc.:
$ 2,000 6.20%, 9/25/02................. $ 1,928
1,500 6.50%, 3/25/13................. 1,421
GE Capital Mortgage Service, Inc.:
1,850 6.50%, 1/25/24................. 1,740
Residential Funding Mortgage:
950 6.75%, 11/25/07................ 910
-------
Total Collateralized Mortgage Obligations 8,845
-------
CORPORATE BONDS (24.7%):
Automotive (3.9%):
2,290 General Motors Acceptance
Corp., 8.00%, 10/1/99........ 2,364
-------
Banking (5.2%):
1,785 Bank of America, 6.00%,
7/15/97...................... 1,779
600 Citicorp, 6.75%, 8/15/05....... 572
900 U.S. Bancorp, 6.75%,
10/15/05..................... 858
-------
3,209
-------
Computer Hardware (1.4%):
800 IBM Corp., 8.38%, 11/1/19...... 861
-------
Financial Services (1.0%):
650 Golden West Financial, 6.70%,
7/1/02....................... 634
-------
Governments (Foreign) (2.7%):
825 Hydro-Quebec, 8.05, 7/7/24..... 869
785 Norske Hydro, 7.75, 6/15/23.... 786
-------
1,655
-------
Industrial Goods & Services (1.3%):
860 Caterpillar Tractor Co., 6.00%,
5/1/07....................... 772
-------
Retail Stores (5.8%):
980 J.C. Penney Inc., 6.00%,
5/1/06....................... 883
900 Sears Roebuck Co., 9.25%,
8/1/97....................... 925
</TABLE>
Continued
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47
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<PAGE> 216
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
CORPORATE BONDS, CONTINUED:
Retail Stores, continued:
$ 1,850 Wal-Mart Stores, 6.38,
3/1/03....................... $ 1,785
-------
3,593
-------
Telecommunications (3.4%):
1,500 Bell Atlantic-Maryland, 8.00%,
10/15/29..................... 1,581
500 New England Telephone &
Telegraph, 7.88%, 11/15/29... 524
-------
2,105
-------
Total Corporate Bonds 15,193
-------
U.S. GOVERNMENT AGENCIES (19.6%):
Federal Home Loan Bank:
300 8.38%, 10/25/99................ 315
Federal National Mortgage Assoc.:
1,000 9.05%, 4/10/00................. 1,074
1,750 5.45%, 10/10/03................ 1,610
1,625 6.50%, 3/1/24, Pool # 276510... 1,526
1,659 8.50%, 5/1/25, Pool # 303300... 1,696
1,018 6.50%, 5/1/26, Pool # 342718... 950
Government National Mortgage Association:
1,836 6.50%, 6/15/23, Pool #
354601....................... 1,717
616 6.50%, 12/15/23, Pool #
369270....................... 574
823 7.50%, 1/15/24, Pool #
352844....................... 811
157 7.50%, 1/15/24, Pool #
360285....................... 154
34 7.50%, 1/15/24, Pool #
362734....................... 34
299 7.50%, 1/15/24, Pool #
368677....................... 294
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Government National Mortgage Assoc., continued:
$ 371 7.50%, 2/15/24, Pool #
353297....................... $ 366
70 7.50%, 2/15/24, Pool #
336245....................... 69
906 7.00%, 4/15/24, Pool #
392055....................... 869
-------
Total U.S. Government Agencies 12,059
-------
U.S. TREASURY BONDS (16.4%):
1,500 10.38%, 11/15/12............... 1,894
2,500 7.25%, 5/15/16................. 2,546
2,360 8.75%, 8/15/20................. 2,804
2,800 7.13%, 2/15/23................. 2,813
-------
Total U.S. Treasury Bonds 10,057
-------
U.S. TREASURY NOTES (3.1%):
1,000 8.13%, 2/15/98................. 1,029
430 9.00%, 5/15/98................. 450
420 8.50%, 11/15/00................ 451
-------
Total U.S. Treasury Notes 1,930
-------
Total Investments, at value 58,799
-------
REPURCHASE AGREEMENTS (3.6%):
2,237 C.S. First Boston Corp., 5.62%,
8/1/96 (Collateralized by
2,046 U.S. Treasury Bonds,
8.75%, 11/15/08, market
value--$2,287)............... 2,237
-------
Total Repurchase Agreements 2,237
-------
Total (Cost--$61,591)(a) $61,036
=======
</TABLE>
- ------------
Percentages indicated are based on net assets of $61,531.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................................ $ 816
Unrealized depreciation............................................ (1,371)
------
Net unrealized depreciation........................................ $ (555)
======
</TABLE>
See notes to financial statements.
LOGO
48
LOGO BOND FUND
<PAGE> 217
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (95.7%):
Federal Home Loan Bank:
$ 240 9.25%, 11/25/98................ $ 254
200 9.30%, 1/25/99................. 212
50 5.43%, 2/25/99................. 49
660 6.31%, 4/6/99.................. 656
330 7.91%, 11/7/01................. 346
Federal Home Loan Mortgage Corp.:
315 5.88%, 3/22/00................. 307
240 6.22%, 3/24/03................. 231
Federal National Mortgage Assoc.:
370 8.20%, 3/10/98................. 380
255 4.88%, 10/15/98................ 247
215 9.55%, 3/10/99................. 230
500 8.55%, 8/30/99................. 527
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc., continued:
$ 320 9.05%, 4/10/00................. $ 344
300 8.25%, 12/18/00................ 317
200 6.16%, 4/3/01.................. 195
-------
Total U.S. Government Agencies 4,295
-------
Total Investments, at value 4,295
-------
REPURCHASE AGREEMENTS (2.7%):
121 C.S. First Boston Corp., 5.62%,
8/1/96, (Collateralized by 99
U.S. Treasury Bonds, 10.38%
11/15/12, market
value--$126)................. 121
-------
Total Repurchase Agreements 121
-------
Total (Cost--$4,455)(a) $ 4,416
=======
</TABLE>
- ------------
Percentages indicated are based on net assets of $4,490.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................................. $ 47
Unrealized depreciation............................................. (86)
-----
Net unrealized depreciation......................................... $ (39)
=====
</TABLE>
See notes to financial statements
LOGO
49
LOGO GOVERNMENT BOND FUND
<PAGE> 218
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS (97.8%):
Aerospace (2.0%):
153,100 B.F. Goodrich Co........... $ 5,550
--------
Banks (12.7%):
213,650 Banc One Corp.............. 7,398
82,200 BankAmerica Corp........... 6,555
122,800 Fleet Financial Group,
Inc...................... 4,973
77,900 J. P. Morgan & Co.......... 6,699
82,700 National City Corp......... 2,864
95,050 U.S. Bancorp............... 3,256
64,700 Wachovia Corp.............. 2,863
--------
34,608
--------
Beverages (2.0%):
72,000 Anheuser-Busch Co.......... 5,382
--------
Business Equipment & Services (0.6%):
34,600 Pitney Bowes, Inc.......... 1,678
--------
Chemicals-Petroleum & Inorganic (2.1%):
77,200 Dow Chemical Co............ 5,742
--------
Chemicals-Specialty (1.8%):
55,200 Betz Labs, Inc............. 2,505
83,500 Witco Corp................. 2,421
--------
4,926
--------
Commercial Goods & Services (1.2%):
87,000 National Services
Industries, Inc.......... 3,317
--------
Consumer Goods & Services (1.2%):
36,600 Clorox Co.................. 3,326
--------
Cosmetics & Toiletries (0.9%):
56,300 International Flavors &
Fragrances, Inc.......... 2,407
--------
Electrical Equipment (1.0%):
70,800 Thomas & Betts Corp........ 2,584
--------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Environmental Services (0.3%):
37,700 Browning-Ferris Industries,
Inc...................... $ 844
--------
Financial Services (3.2%):
105,100 American General Corp...... 3,652
33,800 Beneficial Corp............ 1,825
106,700 Federal National Mortgage
Assoc.................... 3,388
--------
8,865
--------
Food & Related (2.6%):
94,300 General Mills, Inc......... 5,116
63,150 H.J. Heinz Co.............. 2,092
--------
7,208
--------
Forest & Paper Products (4.8%):
43,700 Georgia-Pacific Corp....... 3,267
92,470 International Paper Co..... 3,502
154,700 Weyerhaeuser Co............ 6,459
--------
13,228
--------
Health Care (5.9%):
77,000 Bristol-Myers Squibb Co.... 6,670
102,000 Pharmacia & Upjohn Co...... 4,208
48,800 SmithKline Beecham PLC
ADR...................... 2,623
44,100 Warner-Lambert Co.......... 2,403
--------
15,904
--------
Insurance-Life (0.8%):
45,125 Jefferson Pilot Corp....... 2,369
--------
Insurance-Multiline (1.8%):
53,600 Marsh & McLennan Cos.,
Inc...................... 4,857
--------
</TABLE>
Continued
LOGO
50
LOGO INCOME EQUITY FUND
<PAGE> 219
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Insurance-Property & Casualty (3.1%):
42,500 Lincoln National Corp...... $ 1,812
78,300 SAFECO Corp................ 2,696
70,800 St. Paul Cos., Inc......... 3,664
--------
8,172
--------
Machinery & Equipment (1.2%):
80,900 Cooper Industries, Inc..... 3,185
--------
Medical Equipment & Supplies (0.6%):
39,000 Baxter International,
Inc...................... 1,623
--------
Motor Vehicle Parts (0.9%):
58,500 Genuine Parts Co........... 2,479
--------
Motor Vehicles (0.9%):
86,600 Chrysler Corp.............. 2,457
--------
Multiple Industry (3.1%):
43,300 General Electric Co........ 3,567
76,000 Minnesota Mining &
Manufacturing Co......... 4,940
--------
8,507
Petroleum-Domestic (4.5%):
73,200 Atlantic Richfield Co...... 8,491
83,400 Dresser Industries Inc..... 2,252
41,700 Phillips Petroleum Co...... 1,647
--------
12,390
--------
Petroleum-Internationals (7.3%):
95,300 Amoco Corp................. 6,373
58,300 Chevron Corp............... 3,374
52,300 Exxon Corp................. 4,302
68,500 Texaco, Inc................ 5,822
--------
19,871
--------
Publishing (0.9%):
61,400 McGraw-Hill, Inc........... 2,395
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
COMMON STOCKS, CONTINUED:
Railroad (0.5%):
20,500 Union Pacific Corp......... $ 1,404
--------
Retail-General Merchandise (4.1%):
173,100 J.C. Penney, Inc........... 8,612
59,000 May Department Stores
Co....................... 2,647
--------
11,259
--------
Telecommunications (7.2%):
25,600 Ameritech Corp............. 1,421
67,300 Bell Atlantic Corp......... 3,979
63,400 BellSouth Corp............. 2,599
118,500 GTE Corp................... 4,888
91,300 Nynex Corp................. 4,097
86,170 U.S. West, Inc............. 2,618
--------
19,602
--------
Tobacco (6.5%):
94,500 American Brands, Inc....... 4,300
85,400 Phillip Morris Cos.,
Inc...................... 8,935
139,400 UST, Inc................... 4,635
--------
17,870
--------
Utilities-Electric (8.3%):
123,400 Baltimore Gas & Electric
Co....................... 3,178
115,400 Central & South West
Corp..................... 3,087
36,600 Dominion Resources......... 1,377
72,500 Florida Progress Corp...... 2,429
70,000 PacifiCorp................. 1,461
118,900 Teco Energy, Inc........... 2,764
102,400 Texas Utilities Co......... 4,301
147,200 Wisconsin Energy Corp...... 3,919
--------
22,516
--------
</TABLE>
Continued
LOGO
51
LOGO INCOME EQUITY FUND
<PAGE> 220
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Gas & Pipeline (3.8%):
128,200 Consolidated Natural Gas
Co....................... $ 6,458
44,100 Nicor, Inc................. 1,251
51,500 Tenneco, Inc............... 2,537
--------
10,246
--------
Total Common Stocks 266,771
--------
Total Investments, at value 266,771
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
REPURCHASE AGREEMENTS (1.8%):
$4,857,527 C. S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 3,888
U.S. Treasury Bonds,
10.38%, 11/15/12, market
value--$4,961)........... $ 4,858
--------
Total Repurchase Agreements 4,858
--------
Total (Cost--$237,280)(a) $271,629
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $272,803.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $64 (amount in thousands). Cost for federal income tax
purposes differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $ 38,217
Unrealized depreciation.......................................... (3,932)
--------
Net unrealized appreciation...................................... $ 34,285
=======
</TABLE>
ADR -- American Depository Receipt
PLC -- Public Limited Company
See notes to financial statements.
LOGO
52
LOGO INCOME EQUITY FUND
<PAGE> 221
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
ASSET BACKED SECURITIES (4.0%)
$ 205,000 Carco Auto Loan Master
Trust, Series 1994-2,
7.88%, 3/15/98........... $ 207
190,000 Carco Auto Loan Master
Trust, Series 1991-3,
7.88%, 8/15/97........... 194
200,000 Contimortgage Home Equity
Loan Trust, 8.09%,
9/15/09.................. 203
200,000 Contimortgage Home Equity
Loan Trust, 7.44%,
9/15/12.................. 197
250,000 Green Tree Financial Corp.,
6.80%, 1/15/26........... 244
400,000 Standard Credit Card
MasterTrust, 4.65%,
3/7/99................... 395
165,324 UFSB Grantor Trust, 5.08%,
5/15/00.................. 163
--------
Total Asset Backed Securities 1,603
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.3%):
86,516 Country Wide Mortgage,
6.75%, 3/25/08........... 84
500,000 Federal Home Loan Mortgage
Corp., 6.25%, 1/15/24.... 449
250,000 GE Capital Mortgage
Service, Inc., 1994-1,
6.50%, 1/25/24........... 235
175,000 Residential Funding
Mortgage, 6.75%,
11/25/07................. 168
--------
Total Collateralized Mortgage Obligations
936
--------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS (52.6%):
Aerospace (0.5%):
5,800 B.F. Goodrich Co........... $ 210
--------
Air Transportation (0.4%):
1,300 Federal Express Corp.
(b)...................... 101
2,200 Southwest Airlines Co...... 55
--------
156
--------
Banks (3.9%):
2,970 Banc One Corp.............. 103
4,800 BankAmerica Corp........... 383
3,300 Chase Manhattan Corp....... 229
8,000 Fleet Financial Group,
Inc...................... 324
1,300 J.P. Morgan & Co........... 112
3,300 National City Corp......... 114
6,000 Norwest Corp............... 213
2,400 Wachovia Corp.............. 106
--------
1,584
--------
Beverages (2.5%):
6,200 Anheuser-Busch Co.......... 463
5,600 Coca-Cola Co............... 263
8,200 PepsiCo, Inc............... 259
--------
985
--------
Building Materials (0.4%):
5,600 Masco Corp................. 156
--------
Business Equipment & Services (0.6%):
1,900 Dun & Bradstreet Corp...... 109
2,800 Pitney Bowes, Inc.......... 136
--------
245
--------
</TABLE>
Continued
LOGO
53
LOGO BALANCED FUND
<PAGE> 222
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Chemicals--Petroleum & Inorganic (0.9%):
1,400 Dow Chemical Co............ $ 104
1,400 duPont, (E.I.) de Nemours
Co....................... 113
5,000 Monsanto Corp.............. 156
--------
373
--------
Chemicals--Specialty (0.3%):
3,000 Betz Labs, Inc............. 136
--------
Commercial Goods & Services (0.3%):
3,000 National Services
Industries, Inc.......... 114
--------
Computers--Main & Mini (0.5%):
2,000 International Business
Machines Corp............ 216
--------
Computers (0.3%):
2,800 Seagate Technology, Inc.
(b)...................... 136
--------
Computer Software (1.0%):
1,900 Electronic Data Systems
Corp. (b)................ 101
1,300 Microsoft Corp. (b)........ 153
2,400 Shared Medical Systems
Corp..................... 132
--------
386
--------
Construction Materials (0.3%):
3,700 Fleetwood Enterprises,
Inc...................... 112
--------
Cosmetics & Toiletries (0.8%):
2,900 Colgate-Palmolive Co....... 228
2,600 International Flavors &
Fragrances, Inc.......... 111
--------
339
--------
Defense (0.7%):
5,400 Raytheon Co................ 262
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
COMMON STOCKS, CONTINUED:
Electrical Equipment (4.5%):
7,600 AMP, Inc................... $ 294
2,600 Duracell International,
Inc...................... 117
2,500 Emerson Electric Co........ 211
7,700 General Electric Co........ 634
5,600 Intel Corp................. 421
3,300 Thomas & Betts Corp........ 120
--------
1,797
--------
Electronics (0.6%):
4,800 Motorola, Inc.............. 259
--------
Electronic Instruments (0.4%):
4,100 Texas Instruments, Inc..... 177
--------
Environmental Services (0.3%):
6,000 Browning-Ferris Industries,
Inc...................... 134
--------
Financial Services (1.2%):
6,600 American General Corp...... 230
7,600 Federal National Mortgage
Assoc.................... 241
--------
471
--------
Food & Related (1.6%):
3,700 General Mills, Inc......... 201
6,450 H. J. Heinz Co............. 213
1,500 Hershey Foods Corp......... 123
1,700 Ralston-Purina Co.......... 107
--------
644
--------
Forest & Paper Products (1.4%):
2,700 Georgia Pacific Corp....... 202
2,200 International Paper Co..... 83
</TABLE>
Continued
LOGO
54
LOGO BALANCED FUND
<PAGE> 223
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Forest & Paper Products, continued:
1,500 Kimberly Clark Corp........ $ 114
4,000 Weyerhaeuser Co............ 167
--------
566
--------
Health Care--General (1.1%):
2,500 Bristol-Myers Squibb Co.... 217
5,000 Johnson & Johnson.......... 239
--------
456
--------
Hospital Supply & Management (0.5%):
4,100 Columbia/HCA Healthcare
Corp..................... 210
--------
Household--General Products (0.4%):
6,100 Rubbermaid, Inc............ 175
--------
Insurance--Life (0.3%):
2,250 Jefferson Pilot Corp....... 118
--------
Insurance--Multiline (0.9%):
1,761 Allstate Corp.............. 79
3,300 Marsh & McLennan
Cos., Inc................ 299
--------
378
--------
Insurance--Property & Casualty (1.0%):
1,500 General Re Corp............ 220
2,100 Hartford Steam Boiler
Inspection & Insurance
Co....................... 92
1,900 St. Paul Cos., Inc......... 98
--------
410
--------
Machinery & Equipment (0.5%):
4,300 Snap-On, Inc............... 191
--------
Manufacturing (0.7%):
500 Imation Corp. (b).......... 11
2,700 Ingersoll-Rand Co.......... 115
2,500 Service Corp.
International............ 138
--------
264
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
COMMON STOCKS, CONTINUED:
Medical Equipment & Supplies (0.5%):
5,000 Baxter International,
Inc...................... $ 208
--------
Motor Vehicle Parts (0.3%):
2,400 Genuine Parts Co........... 102
--------
Motor Vehicles (0.5%):
5,900 Ford Motor Co.............. 192
--------
Multiple Industry (1.8%):
10,800 Corning, Inc............... 398
5,000 Minnesota Mining &
Manufacturing Co......... 325
--------
723
--------
Petroleum--Domestic (1.2%):
1,900 Atlantic Richfield Co...... 220
6,700 Phillips Petroleum Co...... 265
--------
485
--------
Petroleum--Internationals (3.2%):
4,600 Amoco Corp................. 308
5,600 Chevron Corp............... 324
2,700 Exxon Corp................. 222
2,000 Mobil Corp................. 221
2,400 Texaco, Inc................ 204
--------
1,279
--------
Petroleum--Services (0.9%):
9,300 Baker Hughes, Inc.......... 273
2,000 Halliburton Co............. 104
--------
377
--------
</TABLE>
Continued
LOGO
55
LOGO BALANCED FUND
<PAGE> 224
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals (2.3%):
2,600 Abbott Laboratories........ $ 114
3,800 Merck & Co., Inc........... 244
3,300 Pfizer, Inc................ 231
1,800 Schering-Plough Corp....... 99
4,600 Warner Lambert Co.......... 251
--------
939
--------
Photographic Equipment (0.3%):
1,600 Eastman Kodak Co........... 120
--------
Publishing (0.6%):
3,500 Gannett Co., Inc........... 230
--------
Railroad (1.0%):
3,100 Burlington Northern Santa
Fe....................... 245
2,100 Union Pacific Corp......... 144
--------
389
--------
Restaurants (0.2%):
6,800 Brinker International,
Inc. (b)................. 89
--------
Retail--General Merchandise (1.3%):
4,400 J.C. Penney, Inc........... 219
2,800 Sears Roebuck & Co......... 115
6,900 Wal-Mart Stores, Inc....... 165
--------
499
--------
Retail--Specialty Stores (0.5%):
5,500 Albany International, Class
A........................ 102
2,200 Home Depot, Inc............ 111
--------
213
--------
Tobacco (1.2%):
2,500 Phillip Morris Cos.,
Inc...................... 262
6,200 UST, Inc................... 206
--------
468
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
COMMON STOCKS, CONTINUED:
Tools (0.3%):
3,800 Stanley Works.............. $ 108
--------
Toys (0.3%):
4,250 Mattel, Inc................ 105
--------
Utilities--Electric (2.5%):
4,600 FPL Group, Inc............. 209
9,500 PacifiCorp................. 198
9,000 Potomac Electric Power
Co. (b).................. 217
6,500 Public Service Enterprise
Group, Inc............... 170
5,100 Texas Utilities Co......... 214
--------
1,008
--------
Utilities--Gas & Pipeline (0.9%):
2,600 Consolidated Natural Gas
Co....................... 131
4,100 Pacific Enterprises........ 121
1,900 Tenneco, Inc............... 94
--------
346
--------
Utilities--Telephone (4.0%):
11,400 AirTouch Communications,
Inc. (b)................. 313
3,800 Ameritech Corp............. 211
4,500 AT&T Corp.................. 235
5,000 BellSouth Corp............. 205
2,100 DSC Communications
Corp. (b)................ 63
5,700 GTE Corp................... 235
400 Lucent Technologies,
Inc...................... 15
3,500 MCI Telecommunications
Corp..................... 86
</TABLE>
Continued
LOGO
56
LOGO BALANCED FUND
<PAGE> 225
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Telephone, continued:
4,000 Network Equipment
Technologies, Inc. (b)... $ 53
6,100 U.S. West, Inc............. 185
--------
1,601
--------
Total Common Stocks 21,141
--------
CORPORATE BONDS (6.8%):
Automotive (1.6%):
$ 300,000 Ford Capital, 9.38%,
1/1/98................... 312
305,000 General Motors Acceptance
Corp., 8.00%, 10/1/99.... 315
--------
627
--------
Banking (1.1%):
215,000 Bank of America, 6.00%,
7/15/97.................. 214
100,000 Citicorp, 6.75%, 8/15/05... 96
150,000 U.S. Bancorp, 6.75%,
10/15/05................. 143
--------
453
--------
Beverages (0.2%):
95,000 Bass America, Inc., 6.75%,
8/1/99................... 95
--------
Computer Hardware (0.5%):
200,000 IBM Corp., 8.38%,11/1/19... 215
--------
Financial Services (0.2%):
100,000 Golden West Financial
Corp., 6.70%, 7/1/02..... 97
--------
Governments (Foreign) (0.8%):
$ 100,000 Hydro-Quebec, 8.05%,
7/7/24................... 106
215,000 Norske Hydro, 7.75%,
6/15/23.................. 215
--------
321
--------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
CORPORATE BONDS, CONTINUED:
Industrial Goods & Services (0.5%):
205,000 Caterpillar Tractor Co.,
6.00%, 5/1/07............ $ 184
--------
Retail Stores (1.1%):
100,000 J.C. Penney, Inc., 6.00%,
5/1/06................... 90
150,000 Sears Roebuck Co., 9.25%,
8/1/97................... 154
200,000 Wal-Mart Stores, Inc.,
6.38%, 3/1/03............ 193
--------
437
--------
Telecommunications (0.8%):
175,000 Bell Atlantic Maryland,
8.00%,10/15/29........... 184
125,000 New England Telephone &
Telegraph Co., 7.88%,
11/15/29................. 131
--------
315
--------
Total Corporate Bonds 2,744
--------
U.S. GOVERNMENT AGENCIES (10.2%):
Federal National Mortgage Assoc.:
1,350,000 5.45%, 10/10/03............ 1,242
316,003 6.50%, 3/1/24, Pool
#276510.................. 297
999,999 8.00%, 7/1/26.............. 1,006
</TABLE>
Continued
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57
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<PAGE> 226
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Government National Mortgage Assoc.
$ 95,076 6.50%, 2/15/24, Pool
#388599.................. $ 88
484,019 7.50%, 5/15/24, Pool
#386494.................. 476
1,016,375 7.00%, 2/15/26............. 972
--------
Total U.S. Government Agencies 4,081
--------
U.S. TREASURY BONDS (6.3%):
1,150,000 7.25%, 5/15/16............. 1,171
205,000 8.75%, 8/15/20............. 244
1,125,000 7.13%, 2/15/23............. 1,130
--------
Total U.S. Treasury Bonds 2,545
--------
U.S. TREASURY NOTES (8.0%):
200,000 8.13%, 2/15/98............. 206
1,000,000 8.25%, 7/15/98............. 1,037
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
U.S. TREASURY NOTES, CONTINUED:
$1,000,000 5.50%, 4/15/00............. $ 969
500,000 8.50%, 11/15/00............ 536
500,000 5.88%, 2/15/04............. 475
--------
Total U.S. Treasury Notes 3,223
--------
Total Investments, at value 36,273
--------
REPURCHASE AGREEMENTS (9.4%):
3,786,776 C.S. First Boston Corp.,
Repurchase Agreement,
5.62%, 8/1/96
(Collateralized by 3,033
U.S. Treasury Bonds,
10.38%, 11/15/12 , market
value $3,870)............ 3,787
--------
Total Repurchase Agreements 3,787
--------
Total (Cost--$35,946)(a) $ 40,060
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $40,196.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $14 (amount in thousands). Cost for federal income tax
purposes differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $ 4,702
Unrealized depreciation.......................................... (602)
--------
Net unrealized appreciation...................................... $ 4,100
=======
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
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58
LOGO BALANCED FUND
<PAGE> 227
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS (98.2%):
Aerospace (2.0%):
24,565 B.F. Goodrich................ $ 890
--------
Banks (8.4%):
10,365 BankAmerica Corp............. 827
3,280 Barnett Banks, Inc........... 201
16,030 Chase Manhattan.............. 1,114
16,830 Fleet Financial Group,
Inc........................ 681
3,825 Wells Fargo & Co............. 891
--------
3,714
--------
Beverages (5.4%):
8,985 Anheuser-Busch Co............ 672
19,215 Coca-Cola Co................. 901
26,390 PepsiCo, Inc................. 834
--------
2,407
--------
Business Equipment & Services (0.3%):
9,080 OfficeMax, Inc. (b).......... 120
--------
Capital Equipment (0.5%):
3,240 Illinois Tool Works.......... 209
--------
Chemicals--Petroleum & Inorganic (0.4%):
3,750 Hercules, Inc................ 188
--------
Computers--Main & Mini (4.0%):
9,610 Ceridan Corp. (b)............ 418
14,660 Hewlett Packard Co........... 645
4,375 International Business
Machines................... 472
4,685 Silicon Graphics, Inc. (b)... 110
2,140 Sun Microsystems, Inc. (b)... 117
--------
1,762
--------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Computer Software (10.6%):
2,885 Automatic Data Processing,
Inc........................ $ 114
17,005 Cisco Systems (b)............ 880
11,888 Computer Associates
International, Inc......... 605
3,355 Computer Sciences (b)........ 228
17,770 Electronic Data Systems
Corp. (b).................. 940
11,588 First Data Corp.............. 899
3,705 Microsoft Corp. (b).......... 437
10,045 Oracle Systems Corp. (b)..... 393
5,350 Parametric Technology Corp.
(b)........................ 223
--------
4,719
--------
Computers (2.0%):
5,840 Digital Equipment (b)........ 207
14,390 Seagate Technology (b)....... 696
--------
903
--------
Consumer Goods & Services (1.6%):
21,715 Xilinx, Inc. (b)............. 703
--------
Cosmetics & Toiletries (4.1%):
4,720 Avon Products................ 208
5,485 Colgate-Palmolive Co......... 430
15,360 Gillette Co.................. 977
5,110 Ingersoll-Rand Co............ 218
--------
1,833
--------
Durable Goods (0.6%):
15,870 Coleman, Inc. (b)............ 282
--------
Electronics (0.6%):
5,170 Motorola, Inc................ 279
--------
</TABLE>
Continued
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59
LOGO GROWTH FUND
<PAGE> 228
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Electrical Equipment (6.5%):
5,480 AMP, Inc..................... $ 212
10,640 Duracell International,
Inc........................ 480
11,860 General Electric Co.......... 977
13,275 Intel Corp................... 997
14,810 National Semiconductor
Corp. (b).................. 209
--------
2,875
--------
Electronic Components (0.2%):
3,245 Applied Materials, Inc.
(b)........................ 77
--------
Electronic Instruments (0.4%):
4,220 Texas Instruments, Inc....... 183
--------
Entertainment (0.8%):
7,080 Circus Circus Enterprises,
Inc. (b)................... 217
6,715 Harrah's Entertainment (b)... 148
--------
365
--------
Financial Services (7.2%):
14,835 American Express Co.......... 649
5,745 Federal Home Loan Mortgage
Corp....................... 484
30,635 Federal National Mortgage
Assoc...................... 973
1,405 Household International,
Inc........................ 105
10,926 Mutual Risk Management
Ltd........................ 307
15,935 Travelers Corp. (b).......... 673
--------
3,191
--------
Food & Related (1.6%):
2,550 General Mills, Inc........... 138
2,950 Hershey Foods................ 242
5,397 Ralston-Purina Co............ 339
--------
719
--------
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
COMMON STOCKS, CONTINUED:
Forest & Paper Products (1.1%):
5,605 Albany International Corp.,
Class A.................... $ 104
1,220 Georgia Pacific Corp......... 91
2,340 International Paper Co....... 89
5,280 Weyerhaeuser Co.............. 220
--------
504
--------
Healthcare--Drugs (8.1%):
4,962 Abbott Laboratories.......... 218
3,820 American Home Products
Corp....................... 217
8,501 Amgen, Inc. (b).............. 464
7,240 Merck & Co................... 465
9,090 Pfizer, Inc.................. 635
15,850 Pharmacia & Upjohn Co........ 654
11,240 Schering Plough Corp......... 620
6,270 Warner-Lambert Co............ 342
--------
3,615
--------
Healthcare--General (2.0%):
18,230 Johnson & Johnson............ 870
--------
Hospital Supply & Management (0.5%):
4,081 Columbia/HCA Healthcare
Corp....................... 209
--------
Hotel Management & Related Services (0.4%):
7,392 Promus Hotel Corp. (b)....... 202
--------
Household-General Products (0.5%):
2,270 Proctor & Gamble Co.......... 203
--------
Insurance--Multiline (0.5%):
2,547 Allstate Corp................ 114
1,400 Marsh & McLennan Cos.,
Inc........................ 127
--------
241
--------
</TABLE>
Continued
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60
LOGO GROWTH FUND
<PAGE> 229
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Insurance--Property & Casualty (2.3%):
5,955 American International Group,
Inc........................ $ 560
1,560 General Re Corp.............. 229
2,985 MBIA, Inc.................... 226
--------
1,015
--------
Leisure Time Industry (2.2%):
17,405 The Walt Disney Co........... 968
--------
Machinery & Equipment (0.4%):
5,275 Deere & Co................... 189
--------
Manufacturing (1.1%):
8,480 Service Corp.
International.............. 468
--------
Medical Equipment & Supplies (1.3%):
6,469 Chiron Corp. (b)............. 569
--------
Petroleum--Internationals (2.1%):
7,515 Amoco Corp................... 503
5,305 Exxon Corp................... 436
--------
939
--------
Petroleum--Services (1.3%):
4,835 Baker Hughes, Inc............ 142
3,655 Dresser Industries Inc....... 99
4,520 Halliburton Co............... 236
1,215 Schlumberger Ltd............. 97
--------
574
--------
Pharmaceuticals (2.0%):
17,370 ALZA Corp., Class A (b)...... 430
4,900 Astra AB, Class A (b)........ 207
4,500 SmithKline Beecham
PLC-ADR.................... 242
--------
879
--------
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
COMMON STOCKS, CONTINUED:
Publishing (2.0%):
13,535 Gannett Co., Inc............. $ 888
--------
Restaurants (2.5%):
23,720 McDonald's Corp.............. 1,100
--------
Retail--Food Stores (0.8%):
9,425 Safeway, Inc. (b)............ 339
--------
Retail--General Merchandise (1.5%):
11,480 Price/Costco, Inc. (b)....... 235
10,625 Sears Roebuck & Co........... 436
--------
671
--------
Retail--Speciality Stores (1.4%):
8,190 Home Depot, Inc.............. 414
7,215 Toys R Us (b)................ 190
--------
604
--------
Telecommunications (1.3%):
12,585 Airtouch (b)................. 346
6,555 Lucent Technologies, Inc..... 243
--------
589
--------
Telecommunications--Equipment (0.2%):
5,115 Network Equipment
Technologies (b)........... 68
--------
Tobacco (2.3%):
8,700 Phillip Morris Cos., Inc..... 910
3,105 UST.......................... 103
--------
1,013
--------
Toys (1.4%):
25,040 Mattel, Inc.................. 620
--------
Utilities--Gas & Pipeline (0.3%):
2,305 Tenneco, Inc................. 114
--------
</TABLE>
Continued
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61
LOGO GROWTH FUND
<PAGE> 230
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Telephone (1.5%):
3,550 Ameritech Corp............... $ 197
5,260 AT&T Corp.................... 274
4,500 GTE Corp..................... 186
--------
657
--------
Total Common Stocks 43,527
--------
Total Investments, at value 43,527
--------
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
REPURCHASE AGREEMENTS (2.0%):
$ 899,983 C. S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 825 U.S.
Treasury Bonds, 8.75%,
11/15/08, market
value--$922)............... $ 900
--------
Total Repurchase Agreements 900
--------
Total (Cost -- $40,510)(a) $ 44,427
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $44,338.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $208 (amount in thousands). Cost for federal income tax
purposes differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $ 5,175
Unrealized depreciation.......................................... (1,466)
--------
Net unrealized appreciation...................................... $ 3,709
=======
</TABLE>
(b) Represents non-income producing securities.
ADR -- American Depository Receipt
PLC -- Public Limited Company
See notes to financial statements.
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62
LOGO GROWTH FUND
<PAGE> 231
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amounts)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMON STOCKS (94.0%):
Aerospace (0.9%):
1,600 B.F. Goodrich Co............. $ 58
--------
Air Transportation (0.9%):
500 Federal Express Corp. (b).... 39
800 Southwest Airlines Co........ 20
--------
59
--------
Banks (6.5%):
870 Banc One Corp................ 30
900 BankAmerica Corp............. 72
1,000 Chase Manhattan Corp......... 69
2,200 Fleet Financial Group,
Inc........................ 89
500 J. P. Morgan & Co............ 43
900 National City Corp........... 31
1,500 Norwest Corp................. 53
600 Wachovia Corp................ 27
--------
414
--------
Beverages (4.6%):
2,000 Anheuser-Busch Co............ 149
1,600 Coca-Cola Co................. 75
2,200 PepsiCo, Inc................. 70
--------
294
--------
Building Materials (0.9%):
2,000 Masco Corp................... 56
--------
Business Equipment & Services (0.9%):
500 Dun & Bradstreet Corp........ 29
600 Pitney Bowes, Inc............ 29
--------
58
--------
Chemicals--Petroleum & Inorganic (1.2%):
400 Dow Chemical Co.............. 30
400 du Pont (E.I.) de Nemours
Co......................... 32
500 Monsanto Corp................ 16
--------
78
--------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Chemicals--Specialty (0.5%):
700 Betz Labs, Inc............... $ 32
--------
Commercial Goods & Services (0.5%):
900 National Services Industries,
Inc........................ 34
--------
Computer (0.7%):
900 Seagate Technology, Inc.
(b)........................ 44
--------
Computer--Main & Mini (1.0%):
600 International Business
Machines Corp.............. 65
--------
Computer Software (1.9%):
600 Electronic Data Systems Corp.
(b)........................ 32
600 Microsoft Corp. (b).......... 70
400 Shared Medical Systems
Corp....................... 22
--------
124
--------
Construction Materials (0.5%):
1,100 Fleetwood Enterprises,
Inc........................ 33
--------
Cosmetics & Toiletries (1.5%):
800 Colgate-Palmolive Co......... 63
800 International Flavors &
Fragrances, Inc............ 34
--------
97
--------
Defense (1.0%):
1,300 Raytheon Co.................. 63
--------
</TABLE>
Continued
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63
LOGO INCOME & GROWTH FUND
<PAGE> 232
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amounts)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Electrical Equipment (7.7%):
1,600 AMP, Inc..................... $ 62
800 Duracell International,
Inc........................ 36
800 Emerson Electric Co.......... 67
2,100 General Electric Co.......... 173
1,600 Intel Corp................... 120
900 Thomas & Betts Corp.......... 33
--------
491
--------
Electronics (1.7%):
2,000 Motorola, Inc................ 108
--------
Electronic Instruments (0.8%):
1,200 Texas Instruments, Inc....... 52
--------
Environment Services (0.7%):
1,900 Browning-Ferris Industries,
Inc........................ 43
--------
Financial Services (2.0%):
1,900 American General Corp........ 66
2,000 Federal National Mortgage
Assoc...................... 64
--------
130
--------
Food & Related (2.7%):
1,000 General Mills, Inc........... 54
1,900 H. J. Heinz Co............... 63
300 Hershey Foods Corp........... 25
500 Ralston-Purina Co............ 31
--------
173
--------
Forest & Paper Products (3.0%):
1,000 Georgia-Pacific Corp......... 75
800 International Paper Co....... 30
400 Kimberly Clark Corp.......... 31
1,300 Weyerhaeuser Co.............. 54
--------
190
--------
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
COMMON STOCKS, CONTINUED:
Health Care--General (1.9%):
600 Bristol-Myers Squibb Co...... $ 52
1,400 Johnson & Johnson............ 67
--------
119
--------
Hospital Supply & Management (0.8%):
1,000 Columbia/HCA Healthcare
Corp....................... 51
--------
Household--General Products (1.0%):
2,300 Rubbermaid, Inc.............. 66
--------
Insurance--Life (0.5%):
575 Jefferson Pilot Corp......... 30
--------
Insurance--Multiline (1.8%):
756 Allstate Corp................ 34
900 Marsh & McLennan Cos.,
Inc........................ 81
--------
115
--------
Insurance--Property & Casualty (1.6%):
300 General Re Corp.............. 44
600 Hartford Steam Boiler
Inspection & Insurance
Co......................... 26
600 St. Paul Cos., Inc........... 31
--------
101
--------
Machinery & Equipment (1.5%):
800 Ingersoll-Rand Co............ 34
1,400 Snap-On, Inc................. 62
--------
96
--------
Manufacturing (0.7%):
155 Imation Corp. (b)............ 3
700 Service Corp.
International.............. 39
--------
42
--------
Medical Equipment & Supplies (0.8%):
1,300 Baxter International, Inc.... 54
--------
</TABLE>
Continued
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64
<PAGE> 233
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amounts)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Motor Vehicle Parts (1.6%):
850 Genuine Parts Co............. $ 36
1,900 Ford Motor Co................ 62
--------
98
--------
Multiple Industry (3.1%):
2,700 Corning, Inc................. 99
1,550 Minnesota Mining &
Manufacturing Co........... 101
--------
200
--------
Petroleum--Domestic (1.5%):
300 Atlantic Richfield Co........ 35
1,600 Phillips Petroleum Co........ 63
--------
98
--------
Petroleum--Internationals (5.8%):
1,400 Amoco Corp................... 94
1,600 Chevron Corp................. 92
800 Exxon Corp................... 66
600 Mobil Corp................... 66
600 Texaco, Inc.................. 51
--------
369
--------
Petroleum--Services (1.5%):
2,300 Baker Hughes, Inc............ 68
500 Halliburton Co............... 26
--------
94
--------
Pharmaceuticals (4.6%):
700 Abbott Laboratories.......... 31
900 Merck & Co................... 58
1,200 Pacific Enterprises.......... 35
1,000 Pfizer, Inc.................. 70
600 Schering-Plough Corp......... 33
1,200 Warner-Lambert Co............ 65
--------
292
--------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Photographic Equipment (0.3%):
300 Eastman Kodak Co............. $ 22
--------
Publishing (1.1%):
1,100 Gannett Co., Inc............. 72
--------
Railroad (1.8%):
700 Burlington Northern Santa
Fe......................... 55
900 Union Pacific Corp........... 62
--------
117
--------
Restaurants (0.4%):
1,900 Brinker International, Inc.
(b)........................ 25
--------
Retail--General Merchandise (2.2%):
1,300 J.C. Penney, Inc............. 65
600 Sears Roebuck & Co........... 24
2,200 Wal-Mart Stores, Inc......... 53
--------
142
--------
Retail--Specialty Stores (1.0%):
1,600 Albany International, Class
A.......................... 30
700 Home Depot, Inc.............. 35
--------
65
--------
Telecommunications (7.1%):
1,800 AT&T Corp.................... 94
3,200 AirTouch Telecommunications
(b)........................ 88
1,100 Ameritech Corp............... 61
1,600 BellSouth Corp............... 66
1,500 General Telephone Electric
Corp. (b).................. 62
</TABLE>
Continued
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65
<PAGE> 234
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amounts)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Telecommunications, continued:
100 Lucent Technologies, Inc..... $ 4
1,000 MCI Telecommunications
Corp....................... 25
1,800 U.S. West, Inc............... 55
--------
455
--------
Telecommunications--Equipment (0.6%):
700 DSC Communications Corp.
(b)........................ 21
1,200 Network Equipment
Technologies (b)........... 16
--------
37
--------
Tobacco (2.1%):
700 Phillip Morris Co., Inc...... 73
1,900 UST, Inc..................... 63
--------
136
--------
Tools (0.5%):
1,200 Stanley Works................ 34
--------
Toys (0.4%):
1,125 Mattel, Inc.................. 28
--------
Utilities--Electric (4.7%):
1,400 FPL Group, Inc............... 64
2,600 PacifiCorp................... 54
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Electric, continued:
2,600 Potomac Electric Power Co.
(b)........................ $ 63
2,100 Public Service Enterprise
Group, Inc................. 55
1,600 Texas Utilities Co........... 67
--------
303
--------
Utilities--Gas & Pipeline (1.0%):
800 Consolidated Natural Gas
Co......................... 40
500 Tenneco, Inc................. 25
--------
65
--------
Total Common Stocks 6,022
--------
Total Investments, at value 6,022
--------
REPURCHASE AGREEMENTS (6.0%):
$ 386,342 First Boston, 5.62%, 8/1/96
(Collateralized by 303 U.S.
Treasury Bonds, 9.88%,
11/15/15, market
value--$396)............... 386
--------
Total Repurchase Agreements 386
--------
Total (Cost--$5,355)(a) $ 6,408
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $6,407.
<TABLE>
<S> <C>
(a) Represents cost for financial reporting purposes and differs from cost basis for federal income tax purposes
by the amount of losses recognized for financial reporting in excess of federal income tax reporting of
approximately $5 (amount in thousands). Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows (amounts in thousands):
Unrealized appreciation................................................... 1,162
Unrealized depreciation................................................... (114)
------
Net unrealized appreciation............................................... 1,048
======
(b) Represents non-income producing securities.
</TABLE>
See notes to financial statements.
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1. ORGANIZATION:
The HighMark Group (the "Group") was organized on March 10, 1987 and is
registered under the Investment Company Act of 1940 as amended (the "1940
Act"), as a diversified, open-end investment company established as a
Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest without par value. The Group presently offers
shares in the Diversified Obligations Fund, the U.S. Government Obligations
Fund, the 100% U.S. Treasury Obligations Fund, the California Tax-Free Fund,
the Tax-Free Fund, the Bond Fund, the Government Bond Fund, the Income
Equity Fund, the Balanced Fund, the Growth Fund and the Income & Growth Fund
(collectively, "the Funds" and individually, "a Fund"). Sales of shares may
be made to customers of Union Bank of California, NA ("Union Bank of
California") and to its affiliates, to all accounts of its correspondent
banks, to institutional investors, and to the general public. MERUS-UCA
Capital Management, ("MERUS-UCA"), a division of Union Bank of California,
serves as investment adviser to the Group.
The investment objective of the Diversified Obligations Fund, the U.S.
Government Obligations Fund, and the 100% U.S. Treasury Obligations Fund is
to seek current income with liquidity and stability of principal. The
Diversified Obligations Fund invests in obligations issued or guaranteed by
the U.S. Government, its agencies, or instrumentalities, and additionally
invests in other high-quality money market instruments and other unrated
instruments deemed to be of comparable high quality by the investment
adviser pursuant to guidelines established by the Group's Board of Trustees.
Some of the obligations and money market instruments in which the
Diversified Obligations Fund invests may be subject to repurchase
agreements. The U.S. Government Obligations Fund invests in obligations
issued or guaranteed by the U.S. Treasury, and additionally invests in
obligations issued or guaranteed by agencies or instrumentalities of the
U.S. Government. Some of the obligations in which the U.S. Government
Obligations Fund invests may be subject to repurchase agreements. The 100%
U.S. Treasury Obligations Fund invests exclusively in direct U.S. Treasury
obligations guaranteed as to timely payment of principal and interest by the
full faith and credit of the U.S. Treasury. The California Tax-Free Fund's
investment objective is to seek as high a level of current interest income
free from federal income tax and California personal income tax as is
consistent with the preservation of capital and relative stability of
principal. The Tax-Free Fund's investment objective is to seek as high a
level of current interest income free from federal income taxes as is
consistent with the preservation of capital and relative stability of
principal. The California Tax-Free Fund and the Tax-Free Fund invest
primarily in bonds and notes issued by or on behalf of states (primarily, in
the case of the California Tax-Free Fund, the State of California),
territories and possessions of the United States, and the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions ("Municipal Securities"). The investment objective
of the Bond Fund is to seek current income through investments in long-term,
fixed-income securities. The
Continued
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JULY 31, 1996
investment objective of the Government Bond Fund is to seek current income
and relative stability of principal through investments in short- to
intermediate-term U.S. Government Securities. The investment objective of
the Income Equity Fund is to seek investments in equity securities that
provide current income through the regular payment of dividends, with the
goal that the Fund will have a high current yield and a low level of price
volatility. Opportunities for long-term growth of asset value is a secondary
consideration. The primary investment objective of the Balanced Fund is to
seek total return. Conservation of capital is a secondary objective. The
investment objective of the Growth Fund is to seek investments in equity
securities that provide opportunity for long-term capital appreciation. The
production of current income is an incidental objective. The investment
objective of the Income and Growth Fund is to seek current income above the
average current income of companies included in the Standard & Poor's 500
Stock Index (the "S&P 500") and to seek total return (dividends plus price
appreciation) at least equal to that of the S&P 500 while maintaining lower
price volatility than the S&P 500. There can, however, be no assurance that
any of the funds' investment objectives will be achieved.
On December 1, 1990, the Diversified Obligations Fund, the U.S. Government
Obligations Fund, the 100% U.S. Treasury Obligations Fund, the California
Tax-Free Fund, and the Tax-Free Fund (collectively, "the money market
funds") commenced offering Class A Shares and designated existing shares as
Class B Shares. As of June 20, 1994, Class A and Class B Shares were
designated as "Investor" and "Fiduciary" Shares, respectively. On June 20,
1994, the Bond Fund, the Government Bond Fund, the Income Equity Fund, the
Balanced Fund, the Growth Fund and the Income & Growth Fund (collectively,
"the variable net asset value funds") commenced offering Investor Shares and
designated existing shares as Fiduciary Shares. Investor and Fiduciary
Shares represent interests in the same portfolio investments of a Fund and
are identical in all respects except that Investor Shares bear the expense,
if any, of the distribution fee under the Group's Distribution Plan (the
"Distribution Plan"), which will cause the Investor Shares to have a higher
expense ratio and to pay lower dividends than Fiduciary Shares. Investor
Shares have certain exclusive voting rights with respect to the Distribution
Plan.
In addition, Investor Shares of the variable net asset value funds are
subject to initial sales charges imposed at the time of purchase, in
accordance with the Funds' prospectuses.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Continued
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JULY 31, 1996
SECURITIES VALUATION:
Investments in the money market funds are valued at either amortized cost,
which approximates market value, or at original cost, which when combined
with accrued interest, approximates market value. Under the amortized cost
valuation method, discount or premium is amortized on a constant basis to
the maturity of the security. In addition, the money market funds may not a)
purchase any instrument with a remaining maturity greater than thirteen
months unless such investment is subject to a demand feature, or b) maintain
a dollar weighted average portfolio maturity which exceeds 90 days.
Investments in common stocks and preferred stocks, corporate notes,
commercial paper, and U.S. Government securities of the variable net asset
value funds are valued at their market values determined on the basis of the
mean of the latest available bid prices in the principal market (closing
sales prices if the principal market is an exchange) in which such
securities are normally traded. Investments in investment companies are
valued at their net asset values as reported by such companies. Securities,
including restricted securities, for which market quotations are not readily
available, are valued at fair market value under the supervision of the
Fund's Board of Trustees. The differences between cost and market values of
investments held by the variable net asset value funds are reflected as
either unrealized appreciation or depreciation.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable for the money market funds, the pro
rata amortization of premium. The Funds accrete discounts of securities on
the same basis for both financial reporting and federal income tax purposes,
with the applicable portion of market discount recognized as ordinary income
upon disposition or maturity. Dividend income is recorded on the ex-dividend
date. Gains or losses realized on sales of securities are determined by
comparing the identified cost of the security lot sold with the net sales
proceeds.
REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements with financial institutions,
such as banks and broker-dealers, which MERUS-UCA deems creditworthy under
guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by a
Fund plus interest negotiated on the basis of current short-term rates,
which may be more or less than the rate on the underlying portfolio
securities. The seller, under a repurchase agreement, is required to pledge
securities as collateral pursuant to the agreement at not less than 102% of
the repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Funds' custodian in
Continued
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JULY 31, 1996
the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income are declared daily and paid monthly
for the money market funds. Distributions from net investment income are
declared and paid monthly for the variable net asset value funds.
Distributable net realized capital gains, if any, are declared and
distributed at least annually for each of the Funds.
Distributions from net investment income and from net realized capital gains
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards and deferrals of certain losses for income tax purposes.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or substantially
all, federal income taxes. Accordingly, no provision for federal income tax
is required.
OTHER:
Expenses that are directly related to one of the Funds are charged directly
to that Fund and are allocated to each class of shares based on the relative
net assets of each class. Other operating expenses of the Group are prorated
to the Funds on the basis of relative net assets.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended July 31, 1996 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Bond Fund..................................................... $ 12,838,463 $ 12,390,087
Government Bond Fund.......................................... $ 2,334,192 $ 1,857,187
Income Equity Fund............................................ $120,339,920 $104,047,894
Balanced Fund................................................. $ 11,733,334 $ 4,060,963
Growth Fund................................................... $ 42,228,828 $ 27,423,180
Income & Growth Fund.......................................... $ 2,120,488 $ 3,323,657
</TABLE>
Continued
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JULY 31, 1996
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Group for the years ended July 31,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS
DIVERSIFIED OBLIGATIONS FUND FUND
------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- -------------
Amounts in Thousands
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares issued............................... $ 1,099,638 $ 646,263 $ 712,337 $ 394,176
Dividends reinvested...................................... 7,260 4,895 3,476 1,948
Shares redeemed........................................... (1,049,143) (598,685) (688,578) (371,715)
------------- ------------- ------------- -------------
Change in net assets from Investor Share transactions..... $ 57,755 $ 52,473 $ 27,235 $ 24,409
============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares issued............................... $ 843,405 $ 915,980 $ 1,221,391 $ 1,366,450
Dividends reinvested...................................... 66 20 11 2
Shares redeemed........................................... (869,182) (874,436) (1,229,676) (1,368,823)
------------- ------------- ------------- -------------
Change in net assets from Fiduciary Share transactions.... $ (25,711) $ 41,564 $ (8,274) $ (2,371)
============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued.................................................... 1,099,638 646,263 712,337 394,176
Reinvested................................................ 7,260 4,895 3,476 1,948
Redeemed.................................................. (1,049,143) (598,685) (688,578) (371,715)
------------- ------------- ------------- -------------
Change in Investor Shares................................. 57,755 52,473 27,235 24,409
============ ============ ============ ============
FIDUCIARY SHARES:
Issued.................................................... 843,405 915,980 1,221,391 1,366,450
Reinvested................................................ 66 20 11 2
Redeemed.................................................. (869,182) (874,436) (1,229,676) (1,368,823)
------------- ------------- ------------- -------------
Change in Fiduciary Shares................................ (25,711) 41,564 (8,274) (2,371)
============ ============ ============ ============
</TABLE>
Continued
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JULY 31, 1996
<TABLE>
<CAPTION>
100% U.S. TREASURY CALIFORNIA
OBLIGATIONS FUND TAX-FREE FUND TAX-FREE FUND
------------------------------ ------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- ------------- ------------- -------------
Amounts in Thousands
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares
issued..................... $ 463,343 $ 310,873 $ 120,369 $ 99,160 $ 36,847 $ 44,420
Dividends reinvested......... 4,526 2,090 1,419 1,027 402 412
Shares redeemed.............. (455,887) (263,475) (108,705) (91,159) (33,803) (52,158)
------------- ------------- ------------- ------------- ------------- -------------
Change in net assets from
Investor Share
transactions............... $ 11,982 $ 49,488 $ 13,083 $ 9,028 $ 3,446 $ (7,326)
============ ============ ============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares
issued..................... $ 541,337 $ 425,795 $ 223,524 $ 255,654 $ 95,373 $ 112,554
Dividends reinvested......... 45 16 6 8 17 17
Shares redeemed.............. (558,614) (395,970) (230,920) (264,895) (98,094) (112,034)
------------- ------------- ------------- ------------- ------------- -------------
Change in net assets from
Fiduciary Share
transactions............... $ (17,232) $ 29,841 $ (7,390) $ (9,233) $ (2,704) $ 537
============ ============ ============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued....................... 463,343 310,873 120,369 99,160 36,847 44,420
Reinvested................... 4,526 2,090 1,419 1,027 402 412
Redeemed..................... (455,887) (263,475) (108,705) (91,159) (33,803) (52,158)
------------- ------------- ------------- ------------- ------------- -------------
Change in Investor Shares.... 11,982 49,488 13,083 9,028 3,446 (7,326)
============ ============ ============ ============ ============ ============
FIDUCIARY SHARES:
Issued....................... 541,337 425,795 223,524 255,654 95,373 112,554
Reinvested................... 45 16 6 8 17 17
Redeemed..................... (558,614) (395,970) (230,920) (264,895) (98,094) (112,034)
------------- ------------- ------------- ------------- ------------- -------------
Change in Fiduciary Shares... (17,232) 29,841 (7,390) (9,233) (2,704) 537
============ ============ ============ ============ ============ ============
</TABLE>
Continued
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JULY 31, 1996
<TABLE>
<CAPTION>
BOND FUND GOVERNMENT BOND FUND INCOME EQUITY FUND
------------------------------ ------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- ------------- ------------- -------------
Amounts in Thousands
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares
issued..................... $ 754 $ 626 $ 1,055 $ 97 $ 10,342 $ 4,131
Dividends reinvested......... 60 14 47 2 501 52
Shares redeemed.............. (177) (113) (33) (32) (5,008) (506)
------------- ------------- ------------- ------------- ------------- -------------
Change in net assets from
Investor Share
transactions............... $ 637 $ 527 $ 1,069 $ 67 $ 5,835 $ 3,677
============ ============ ============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares
issued..................... $ 14,876 $ 10,767 $ 297 $ 1,279 $ 52,940 $ 31,913
Dividends reinvested......... 2,983 3,111 219 295 16,994 13,482
Shares redeemed.............. (16,414) (19,821) (1,002) (2,852) (49,911) (56,293)
------------- ------------- ------------- ------------- ------------- -------------
Change in net assets from
Fiduciary Share
transactions............... $ 1,445 $ (5,943) $ (486) $ (1,278) $ 20,023 $ (10,898)
============ ============ ============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued....................... 71 63 110 11 721 331
Reinvested................... 6 1 5 -- 35 5
Redeemed..................... (17) (11) (3) (4) (344) (40)
------------- ------------- ------------- ------------- ------------- -------------
Change in Investor Shares.... 60 53 112 7 412 296
============ ============ ============ ============ ============ ============
FIDUCIARY SHARES:
Issued....................... 1,421 1,074 32 137 3,719 2,625
Reinvested................... 284 311 22 32 1,200 1,154
Redeemed..................... (1,563) (1,974) (104) (305) (3,529) (4,658)
------------- ------------- ------------- ------------- ------------- -------------
Change in Fiduciary Shares... 142 (589) (50) (136) 1,390 (879)
============ ============ ============ ============ ============ ============
</TABLE>
Continued
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<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND INCOME & GROWTH FUND
------------------------------ ------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- ------------- ------------- -------------
Amounts in Thousands
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares
issued..................... $ 526 $ 480 $ 1,796 $ 1,230 $ 213 $ 205
Dividends reinvested......... 22 2 107 5 17 1
Shares redeemed.............. (358) (20) (370) (144) (66) --
------------- ------------- ------------- ------------- ------------- -------------
Change in net assets from
Investor Share
transactions............... $ 190 $ 462 $ 1,533 $ 1,091 $ 164 $ 206
============ ============ ============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares
issued..................... $ 15,314 $ 9,876 $ 17,443 $ 8,497 $ 2,710 $ 1,566
Dividends reinvested......... 1,150 984 1,858 498 417 126
Shares redeemed.............. (9,046) (9,570) (4,577) (3,450) (4,124) (788)
------------- ------------- ------------- ------------- ------------- -------------
Change in net assets from
Fiduciary Share
transactions............... $ 7,418 $ 1,290 $ 14,724 $ 5,545 $ (997) $ 904
============ ============ ============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued....................... 46 45 143 115 17 18
Reinvested................... 2 -- 9 1 1 --
Redeemed..................... (31) (2) (29) (13) (5) --
------------- ------------- ------------- ------------- ------------- -------------
Change in Investor Shares.... 17 43 123 103 13 18
============ ============ ============ ============ ============ ============
FIDUCIARY SHARES:
Issued....................... 1,321 976 1,397 836 220 150
Reinvested................... 100 99 154 50 35 12
Redeemed..................... (789) (964) (365) (334) (343) (73)
------------- ------------- ------------- ------------- ------------- -------------
Change in Fiduciary Shares... 632 111 1,186 552 (88) 89
============ ============ ============ ============ ============ ============
</TABLE>
Continued
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5. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Group by MERUS-UCA. Under
the terms of the investment advisory agreement, Union Bank of California, of
which MERUS-UCA is a division, is entitled to receive fees based on a
percentage of the average net assets of each of the Funds. Union Bank of
California also serves as custodian, sub-transfer agent and
sub-administrator for the Group.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Group as administrator. Such officers and trustees are paid no
fees directly by the Funds for serving as officers and trustees of the
Group. Under the terms of the administration agreement, BISYS' fees are
computed daily as a percentage of the average net assets of the Funds. BISYS
also serves as the Group's distributor. As distributor, BISYS is entitled to
receive fees from the Funds for providing distribution services. For the
year ended July 31, 1996, BISYS received $212,765 for commissions earned on
sales of shares of the Group's variable net asset value funds, of which
$23,664 was reallowed to affiliated parties. BISYS Ohio, serves the Group as
transfer agent and mutual fund accountant. Transfer agent fees are computed
on a sliding scale, based upon the number of shareholders.
The Group has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act pursuant to which each Fund may pay the Distributor as compensation
for its services in connection with the Distribution Plan a distribution
fee, computed daily and paid monthly, at a maximum annual rate of
twenty-five one-hundredths of one percent (0.25%) of the average daily net
assets attributable to the Funds' Investor Shares. A Fund's Fiduciary Shares
are not subject to the Distribution Plan or a distribution fee. The
Distributor has agreed to voluntarily reduce payments to be received
pursuant to the Distribution Plan with respect to a money market fund to the
extent necessary to ensure that such payments do not exceed the income
attributable to such Fund's shares on any day.
The Group has also adopted a Shareholder Services Plan permitting payment of
compensation to financial institutions that agree to provide certain
administrative support services for their customers who are Fund
shareholders. Each Fund has entered into a specific arrangement with BISYS
for the provision of such services and reimburses BISYS for its cost of
providing these services, subject to a maximum annual rate of twenty-five
one-hundredths of one percent (0.25%) of each Fund's average daily net
assets.
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios. Such fees are permanently waived.
Continued
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Information regarding these transactions is as follows for the year ended
July 31, 1996: (amounts in thousands)
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT 100% U.S. TREASURY
OBLIGATIONS FUND OBLIGATIONS FUND OBLIGATIONS FUND
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee (percentage of
average net assets)................ 0.40% 1st $500 million 0.40% 1st $500 million 0.40% 1st $500 million
0.35% next $500 million 0.35% next $500 million 0.35% next $500 million
0.30% remaining 0.30% remaining 0.30% remaining
ADMINISTRATION FEES:
Annual fee (percentage of
average net assets)................ 0.20% 0.20% 0.20%
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary
fee reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 395 $ 179 $ 267
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary
fee reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 932 $ 560 $ 711
CUSTODIAN FEES: (percentage of
average net assets) 0.02% (minimum $2,500) 0.02% (minimum $2,500) 0.02% (minimum $2,500)
ACCOUNTING FEES: (percentage of
average net assets) 0.03% (minimum $40,000) 0.03% (minimum $40,000) 0.03% (minimum $40,000)
</TABLE>
Continued
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JULY 31, 1996
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE FUND TAX-FREE FUND
----------------------- -----------------------
<S> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........................... 0.40% 1st $500 million 0.40% 1st $500 million
0.35% next $500 million 0.35% next $500 million
0.30% remaining 0.30% remaining
Voluntary fee reductions....................................... $ 266 $ 24
ADMINISTRATION FEES:
Annual fee (percentage of average net assets).................. 0.20% 0.20%
Voluntary fee reductions....................................... $ 77 $ 46
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee reductions
(percentage of average net assets)........................... 0.25% 0.25%
Voluntary fee reductions....................................... $ 122 $ 36
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........................... 0.25% 0.25%
Voluntary fee reductions....................................... $ 359 $ 101
CUSTODIAN FEES: (percentage of average net assets) 0.02% (minimum $2,500) 0.02% (minimum $2,500)
ACCOUNTING FEES: (percentage of average net assets) 0.03% (minimum $40,000) 0.03% (minimum $40,000)
</TABLE>
Continued
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<TABLE>
<CAPTION>
BOND FUND GOVERNMENT BOND FUND INCOME EQUITY FUND
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 1.00% 1st $40 million 1.00% 1st $40 million 1.00% 1st $40 million
0.60% remaining 0.60% remaining 0.60% remaining
Voluntary fee reductions............. $ 257 $ 43 $ 33
ADMINISTRATION FEES:
Annual fee (percentage of
average net assets)................ 0.20% 0.20% 0.20%
Voluntary fee reductions............. $ 43 $ 9 --
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 2 $ 2 $ 20
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 143 $ 10 $ 613
CUSTODIAN FEES: (percentage of
average net assets) 0.02% (minimum $2,500) 0.02% (minimum $2,500) 0.02% (minimum $2,500)
Voluntary fee reductions $ 23
ACCOUNTING FEES: (percentage of
average net assets) 0.03% (minimum $40,000) 0.03% (minimum $40,000) 0.03% (minimum $40,000)
</TABLE>
Continued
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78
LOGO NOTES TO FINANCIAL STATEMENTS, CONTINUED
<PAGE> 247
JULY 31, 1996
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND INCOME & GROWTH FUND
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 1.00% 1st $40 million 1.00% 1st $40 million 1.00% 1st $40 million
0.60% remaining 0.60% remaining 0.60% remaining
Voluntary fee reductions............. $ 161 $ 182 $ 62
ADMINISTRATION FEES:
Annual fee (percentage of
average net assets)................ 0.20% 0.20% 0.20%
Voluntary fee reductions............. -- -- $ 12
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 2 $ 5 $ 1
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 82 $ 87 $ 14
CUSTODIAN FEES: (percentage of
average net assets) 0.02% (minimum $2,500) 0.02% (minimum $2,500) 0.02% (minimum $2,500)
Voluntary fee reductions............. $ 29 $ 40 $ 30
ACCOUNTING FEES: (percentage of
average net assets) 0.03% (minimum $40,000) 0.03% (minimum $40,000) 0.03% (minimum $40,000)
Voluntary fee reductions............. $ 19 $ 19 --
</TABLE>
Continued
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79
LOGO NOTES TO FINANCIAL STATEMENTS, CONTINUED
<PAGE> 248
JULY 31, 1996
6. CONCENTRATION OF CREDIT RISK:
The California Tax-Free Fund invests substantially all of its assets in a
diversified portfolio of tax-exempt debt obligations primarily consisting of
securities issued by the State of California, its municipalities, counties,
and other taxing districts. The issuers' abilities to meet their obligations
may be affected by domestic and foreign or California economic, regional and
political developments.
At July 31, 1996, The California Tax-Free Fund had the following
concentrations by industry sector (as a percentage of total investments):
<TABLE>
<CAPTION>
TAX-EXEMPT CALIFORNIA
INDUSTRY CLASS TAX-FREE FUND
--------------------------------------------------------------------- -------------
<S> <C>
Utilities -- Electric................................................ 23.2%
Housing.............................................................. 22.1%
Hospitals............................................................ 20.7%
Pollution Control.................................................... 10.6%
Governments.......................................................... 8.2%
Money Markets........................................................ 7.8%
Utilities -- Water & Sewer........................................... 4.2%
Transportation & Shipping............................................ 3.2%
------
100.0%
</TABLE>
7. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Group designates the following eligible distributions for the dividends
received deduction for corporations for the Fund's taxable year ended July
31, 1996:
<TABLE>
<CAPTION>
INCOME BALANCED GROWTH INCOME &
EQUITY FUND FUND FUND GROWTH FUND
----------- -------- ------ -----------
<S> <C> <C> <C> <C>
Dividend Income (in thousands)...... $ 9.943 $ 549 $ 607 $ 163
Dividend Income Per Share........... $ 0.402 $0.142 $0.107 $ 0.221
</TABLE>
Continued
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80
LOGO NOTES TO FINANCIAL STATEMENTS, CONTINUED
<PAGE> 249
JULY 31, 1996
8. EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED):
The Group designates the following exempt-interest dividends for the Fund's
taxable year ended July 31, 1996.
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE FUND TAX-FREE FUND
------------- -------------
<S> <C> <C>
Exempt-interest dividends........................... $ 5.255 $ 1.537
Exempt-interest dividends per share................. 0.028 0.028
</TABLE>
The following information indicates by state the percentage of income earned
by the California Tax-Free Fund and the Tax-Free Fund for the year ended
July 31, 1996:
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE FUND TAX-FREE FUND
------------- -------------
<S> <C> <C>
Alaska.............................................. 2.6%
Arizona............................................. 3.4
California.......................................... 100.0% 21.0
Colorado............................................ 2.6
Florida............................................. 6.5
Hawaii.............................................. 3.0
Illinois............................................ 4.6
Indiana............................................. 4.9
Kentucky............................................ 3.1
Louisiana........................................... 4.1
Michigan............................................ 3.8
Minnesota........................................... 0.2
Missouri............................................ 2.8
Nevada.............................................. 4.7
New Mexico.......................................... 4.2
New York............................................ 4.4
Oregon.............................................. 1.9
Pennsylvania........................................ 0.5
Rhode Island........................................ 1.3
Texas............................................... 1.2
Utah................................................ 2.3
Virginia............................................ 10.3
Wyoming............................................. 1.3
Other Territories................................... 5.3
------ ------
100.0% 100.0%
============== ==============
</TABLE>
Continued
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81
LOGO NOTES TO FINANCIAL STATEMENTS, CONTINUED
<PAGE> 250
JULY 31, 1996
For the year ended July 31, 1996, 18.9% of the income earned by the Tax-Free
Fund and 16.9% of the income earned by the California Tax-Free Fund may be
subject to the alternative minimum tax.
For California residents, 100.0% of the income earned by the California
Tax-Free Fund for the year ended July 31, 1996 is designated as tax-exempt
income.
The following information indicates by type the percentage of income earned
by the 100% U.S. Treasury Obligations Fund for the year ended July 31, 1996:
<TABLE>
<CAPTION>
100% U.S. TREASURY
TYPE OBLIGATIONS FUND
---------------------------------------------------------------- ------------------
<S> <C>
Federal obligations (such as U.S. Treasury bills, notes,
bonds)........................................................ 100.0%
===================
</TABLE>
For California residents, the 100% U.S. Treasury Obligations Fund met the
quarterly diversification tests for each fiscal quarter ended during the
year ended July 31, 1996. In addition, for California residents, 100% of the
income earned by the 100% U.S. Treasury Obligations Fund for the year ended
July 31, 1996 is designated as tax-exempt income.
Please consult your tax advisor for the proper treatment of the information
reflected in Notes 7 and 8.
9. FEDERAL INCOME TAXES:
For federal income tax purposes, the following funds have capital loss
carryforwards as of July 31, 1996, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
---------- -------
<S> <C> <C>
Diversified Obligations Fund................................. $ 341,422 2001
29,246 2002
U.S. Government Obligations Fund............................. 174,662 2001
100% U.S. Treasury Obligations Fund.......................... 6,637 2004
California Tax-Free Fund..................................... 24,741 2002
22,777 2003
Tax-Free Fund................................................ 9,016 2002
13,234 2003
Bond Fund.................................................... 2,766,351 2003
54,397 2004
Government Bond Fund......................................... 243,536 2002
55,189 2003
10,219 2004
</TABLE>
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82
LOGO NOTES TO FINANCIAL STATEMENTS, CONTINUED
<PAGE> 251
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.049 0.049 0.049 0.049 0.028 0.028 0.027 0.027 0.043 0.043
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.049) (0.049 ) (0.049) (0.049 ) (0.028) (0.028 ) (0.027) (0.027 ) (0.043) (0.043 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 5.01% 5.01% 4.99% 4.99% 2.88% 2.88% 2.75% 2.75% 4.41% 4.41%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at
end of
period
(000)...... $185,952 $244,775 $128,191 $270,476 $ 75,725 $228,934 $ 77,589 $254,034 $ 17,600 $337,485
Ratio of
expenses to
average net
assets..... 0.75% 0.75% 0.74% 0.74% 0.74% 0.74% 0.72% 0.72% 0.72% 0.72%
Ratio of net
investment
income to
average net
assets..... 4.89% 4.91% 4.92% 4.88% 2.83% 2.83% 2.72% 2.72% 4.34% 4.34%
Ratio of
expenses to
average net
assets*.... 1.23% 0.99% 1.23% 0.98% 1.14% 0.89% 0.79% 0.73% 0.97% 0.72%
Ratio of net
investment
income to
average net
assets*.... 4.41% 4.67% 4.43% 4.64% 2.42% 2.67% 2.65% 2.71% 4.09% 4.34%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
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83
LOGO DIVERSIFIED OBLIGATIONS FUND
<PAGE> 252
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.048 0.048 0.048 0.048 0.027 0.027 0.027 0.027 0.042 0.042
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.048) (0.048 ) (0.048) (0.048 ) (0.027) (0.027 ) (0.027) (0.027 ) (0.042) (0.042 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 4.86% 4.88% 4.86% 4.87% 2.74% 2.74% 2.72% 2.72% 4.25% 4.25%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at
end of
period
(000)...... $ 75,714 $151,483 $ 48,474 $159,747 $ 24,055 $162,094 $ 37,332 $166,182 $ 12,527 $ 94,252
Ratio of
expenses to
average net
assets..... 0.79% 0.77% 0.78% 0.78% 0.77% 0.78% 0.71% 0.71% 0.73% 0.73%
Ratio of net
investment
income to
average net
assets..... 4.77% 4.76% 4.82% 4.76% 2.63% 2.70% 2.67% 2.67% 4.15% 4.15%
Ratio of
expenses to
average net
assets*.... 1.26% 1.00% 1.27% 1.02% 1.17% 0.94% 0.79% 0.74% 0.99% 0.74%
Ratio of net
investment
income to
average net
assets*.... 4.30% 4.53% 4.33% 4.52% 2.23% 2.54% 2.59% 2.65% 3.89% 4.14%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
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84
LOGO U.S. GOVERNMENT OBLIGATIONS FUND
<PAGE> 253
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.046 0.046 0.046 0.046 0.026 0.026 0.026 0.026 0.040 0.040
Net realized
and
unrealized
gains on
investments... -- -- -- -- -- -- -- -- 0.001 0.001
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
Total from
Investment
Activities.. 0.046 0.046 0.046 0.046 0.026 0.026 0.026 0.026 0.041 0.041
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.046) (0.046 ) (0.046) (0.046 ) (0.026) (0.026 ) (0.026) (0.026 ) (0.040) (0.040 )
From net
investment
income..... -- -- -- -- -- -- -- -- (0.001) (0.001 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
Total
Distributions... (0.046) (0.046 ) (0.046) (0.046 ) (0.026) (0.026 ) (0.026) (0.026 ) (0.041) (0.041 )
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 4.74% 4.74% 4.69% 4.69% 2.68% 2.68% 2.64% 2.64% 4.18% 4.18%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at
end of
period
(000)...... $100,623 $173,340 $ 88,660 $190,604 $ 39,157 $160,721 $ 32,629 $191,946 $ 11,551 $219,451
Ratio of
expenses to
average net
assets..... 0.74% 0.74% 0.73% 0.73% 0.74% 0.74% 0.67% 0.67% 0.65% 0.65%
Ratio of net
investment
income to
average net
assets..... 4.64% 4.64% 4.68% 4.60% 2.68% 2.63% 2.60% 2.60% 3.99% 3.99%
Ratio of
expenses to
average net
assets*.... 1.23% 0.97% 1.22% 0.97% 1.15% 0.90% 0.75% 0.72% 0.97% 0.72%
Ratio of net
investment
income to
average net
assets*.... 4.15% 4.41% 4.19% 4.36% 2.27% 2.48% 2.52% 2.55% 3.67% 3.92%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
LOGO
85
LOGO 100% U.S. TREASURY OBLIGATIONS FUND
<PAGE> 254
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.029 0.029 0.031 0.031 0.020 0.020 0.021 0.021 0.032 0.032
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.029) (0.029 ) (0.031) (0.031 ) (0.020) (0.020 ) (0.021) (0.021 ) (0.032) (0.032 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 2.91% 2.91% 3.16% 3.16% 1.99% 1.99% 2.13% 2.13% 3.20% 3.20%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at
end of
period
(000)...... $ 53,627 $ 98,352 $ 40,544 $105,742 $ 31,521 $114,993 $ 44,410 $142,939 $ 4,609 $116,062
Ratio of
expenses to
average net
assets..... 0.55% 0.55% 0.50% 0.50% 0.50% 0.50% 0.44% 0.44% 0.54% 0.54%
Ratio of net
investment
income to
average net
assets..... 2.89% 2.88% 3.14% 3.11% 1.96% 1.96% 2.08% 2.08% 3.15% 3.15%
Ratio of
expenses to
average net
assets*.... 1.25% 1.00% 1.26% 1.01% 1.18% 0.93% 0.79% 0.73% 0.99% 0.74%
Ratio of net
investment
income to
average net
assets*.... 2.19% 2.43% 2.38% 2.60% 1.28% 1.53% 1.73% 1.78% 2.70% 2.95%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
LOGO
86
LOGO CALIFORNIA TAX-FREE FUND
<PAGE> 255
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.028 0.028 0.030 0.030 0.019 0.019 0.021 0.021 0.033 0.033
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.028) (0.028 ) (0.030) (0.030 ) (0.019) (0.019 ) (0.021) (0.021 ) (0.033) (0.033 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 2.87% 2.87% 3.00% 3.00% 1.96% 1.96% 2.16% 2.16% 3.35% 3.35%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at
end of
period
(000)...... $ 16,148 $ 28,109 $ 12,702 $ 30,813 $ 20,032 $ 30,285 $ 40,010 $ 29,799 $ 23,780 $ 27,136
Ratio of
expenses to
average net
assets..... 0.77% 0.76% 0.73% 0.73% 0.69% 0.69% 0.53% 0.53% 0.57% 0.57%
Ratio of net
investment
income to
average net
assets..... 2.81% 2.86% 2.90% 2.95% 1.93% 1.95% 2.12% 2.12% 3.31% 3.31%
Ratio of
expenses to
average net
assets*.... 1.42% 1.16% 1.39% 1.14% 1.27% 1.02% 0.96% 0.84% 1.09% 0.84%
Ratio of net
investment
income to
average net
assets*.... 2.16% 2.46% 2.24% 2.54% 1.36% 1.62% 1.69% 1.82% 2.79% 3.05%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
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87
LOGO TAX-FREE FUND
<PAGE> 256
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, YEAR
1994 TO ENDED
YEAR ENDED YEAR ENDED JULY 31, JULY 31, YEAR ENDED JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A)(B) 1994(B)
---------------------- ---------------------- ---------- --------- -------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY 1993 1992
-------- --------- -------- --------- ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.29 $ 10.38 $10.04 $ 10.11 $10.12 $ 11.13 $ 11.02 $ 10.29
-------- --------- -------- --------- ---------- --------- ------- -------
INVESTMENT ACTIVITIES
Net investment
income............... 0.69 0.66 0.66 0.64 0.07 0.63 0.70 0.67
Net realized and
unrealized gains
(losses) on
investments.......... (0.18) (0.16) 0.23 0.27 (0.05) (0.97) 0.35 0.77
-------- --------- -------- --------- ---------- --------- ------- -------
Total from Investment
Activities......... 0.51 0.50 0.89 0.91 0.02 (0.34) 1.05 1.44
-------- --------- -------- --------- ---------- --------- ------- -------
DISTRIBUTIONS
From net investment
income............... (0.65) (0.65) (0.64) (0.64) (0.10) (0.63) (0.70) (0.67)
From net realized
gains................ -- -- -- -- -- (0.01) (0.24) (0.04)
In excess of net
realized gains....... -- -- -- -- -- (0.04) -- --
-------- --------- -------- --------- ---------- --------- ------- -------
Total
Distributions...... (0.65) (0.65) (0.64) (0.64) (0.10) (0.68) (0.94) (0.71)
-------- --------- -------- --------- ---------- --------- ------- -------
NET ASSET VALUE, END OF
PERIOD................. $10.15 $ 10.23 $10.29 $ 10.38 $10.04 $ 10.11 $ 11.13 $ 11.02
========= =========== ========= =========== =============== =========== ======== ========
Total Return (excludes
sales charges)......... 4.95% 4.81% 9.29% 9.43% (3.81)%(c) (3.14)% 10.07% 14.43%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)......... $1,157 $60,374 $ 558 $59,758 $ 7 $64,185 $33,279 $21,651
Ratio of expenses to
average net assets... 0.89% 0.89% 0.92% 0.92% 0.99%(d) 0.86% 0.93% 0.91%
Ratio of net investment
income to average net
assets............... 6.10% 6.10% 6.29% 6.35% 5.77%(d) 6.11% 6.41% 6.23%
Ratio of expenses to
average net
assets*.............. 1.85% 1.61% 1.89% 1.64% 2.96%(d) 1.37% 1.55% 1.55%
Ratio of net investment
income to average net
assets*.............. 5.14% 5.38% 5.32% 5.62% 3.80%(d) 5.60% 5.79% 5.59%
Portfolio turnover..... 20.65%(e) 20.88%(e) 36.20%(e) 36.20%(e) 44.33%(e) 44.33%(e) 58.81% 79.56%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Period from commencement of operations.
(b) On June 20, 1994, the Bond Fund commenced offering Investor Shares and designated existing shares as Fiduciary Shares.
(c) Represents total return for the Fiduciary shares for the period from August 1, 1993 to June 19, 1994 plus the total return
for the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
*During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
</TABLE>
See notes to financial statements.
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88
LOGO BOND FUND
<PAGE> 257
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, NOVEMBER 14,
1994 TO 1993 TO
YEAR ENDED YEAR ENDED JULY 31, JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A) 1994(A)
---------------------- ---------------------- --------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 9.43 $ 9.50 $ 9.36 $ 9.44 $ 9.47 $10.00
-------- --------- -------- --------- --------- ------
INVESTMENT ACTIVITIES
Net investment income....................... 0.62 0.60 0.66 0.60 0.01 0.40
Net realized and unrealized gains (losses)
on investments............................ (0.18) (0.16) 0.01 0.06 (0.02) (0.56)
-------- --------- -------- --------- --------- ------
-------- --------- -------- --------- --------- ------
DISTRIBUTIONS
From net investment income.................. (0.59) (0.59) (0.60) (0.60) (0.10) (0.40)
-------- --------- -------- --------- --------- ------
NET ASSET VALUE, END OF PERIOD............... $ 9.28 $ 9.35 $ 9.43 $ 9.50 $ 9.36 $ 9.44
========= =========== ========= =========== ========== ==============
Total Return (excludes sales charges)........ 4.79% 4.75% 7.47% 7.30% (2.42)%(b)(e) (1.59)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........... $1,104 $ 3,386 $ 68 $ 3,916 $ -- $5,171
Ratio of expenses to average net assets..... 0.85% 0.85% 0.85% 0.85% 0.87%(c) 0.85%(c)
Ratio of net investment income to average
net assets................................ 6.22% 6.12% 6.25% 6.32% 4.37%(c) 5.84%(c)
Ratio of expenses to average net assets*.... 4.05% 3.80% 2.54% 2.29% 0.87%(c) 3.09%(c)
Ratio of net investment income to average
net assets*............................... 3.02% 3.17% 4.56% 4.88% 4.37%(c) 3.60%(c)
Portfolio turnover (d)...................... 44.72% 44.72% 67.49% 67.49% 176.26% 176.26%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Period from commencement of operations. On June 20, 1994, the Government Bond Fund commenced offering Investor Shares and
designated existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of operations to June 19, 1994, plus the total return for
the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
(e) Not annualized.
*During the period, certain fees were voluntarily reduced. In addition, certain expenses were reimbursed. If such voluntary
fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated.
</TABLE>
See notes to financial statements.
LOGO
89
LOGO GOVERNMENT BOND FUND
<PAGE> 258
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, YEAR
1994 TO ENDED
YEAR ENDED YEAR ENDED JULY 31, JULY 31, YEAR ENDED JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A)(B) 1994(B)
----------------------- ---------------------- ---------- --------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY 1993 1992
-------- --------- -------- --------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 13.03 $ 13.00 $11.92 $ 11.92 $11.85 $ 12.13 $ 11.42 $ 10.22
-------- --------- -------- --------- ---------- --------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.42 0.42 0.42 0.44 0.04 0.39 0.38 0.40
Net realized and
unrealized gains on
investments........ 1.92 1.93 1.55 1.50 0.08 0.12 0.71 1.20
-------- --------- -------- --------- ---------- --------- -------- -------
Total from
Investment
Activities....... 2.34 2.35 1.97 1.94 0.12 0.51 1.09 1.60
-------- --------- -------- --------- ---------- --------- -------- -------
DISTRIBUTIONS
From net investment
income............. (0.42 ) (0.42 ) (0.44) (0.44 ) (0.05) (0.39 ) (0.38) (0.40)
From net realized
gains.............. (0.66 ) (0.66 ) (0.42) (0.42 ) -- (0.33 ) -- --
-------- --------- -------- --------- ---------- --------- -------- -------
Total
Distributions.... (1.08 ) (1.08 ) (0.86) (0.86 ) (0.05) (0.72 ) (0.38) (0.40)
-------- --------- -------- --------- ---------- --------- -------- -------
NET ASSET VALUE, END
OF PERIOD............ $ 14.29 $ 14.27 $13.03 $ 13.00 $11.92 $ 11.92 $ 12.13 $ 11.42
========= =========== ========= =========== =============== =========== ========== ========
Total Return (excludes
sales charges)....... 18.21 % 18.25 % 17.52% 17.26 % 4.23%(c) 4.23 % 9.75% 16.04%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)....... $10,143 $262,660 $3,881 $221,325 $ 24 $213,328 $104,840 $74,478
Ratio of expenses to
average net
assets............. 1.03 % 1.03 % 1.06% 1.06 % 1.10%(d) 1.06 % 1.15% 1.16%
Ratio of net
investment income
to average net
assets............. 2.89 % 2.95 % 3.06% 3.59 % 0.93%(d) 3.29 % 3.27% 3.76%
Ratio of expenses to
average net
assets*............ 1.51 % 1.27 % 1.55% 1.30 % 1.33%(d) 1.10 % 1.21% 1.29%
Ratio of net
investment income
to average net
assets*............ 2.41 % 2.71 % 2.57% 3.34 % 0.71%(d) 3.24 % 3.22% 3.64%
Portfolio turnover... 41.51 %(e) 41.51 %(e) 36.64%(e) 36.64 %(e) 33.82%(e) 33.82 %(e) 29.58% 23.05%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Period from commencement of operations.
(b) On June 20, 1994, the Income Equity Fund commenced offering Investor Shares and designated existing shares as Fiduciary
Shares.
(c) Represents total return for the Fiduciary Shares for the period from August 1, 1993 to June 19, 1994 plus the total return
for the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
*During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
</TABLE>
See notes to financial statements.
LOGO
90
LOGO INCOME EQUITY FUND
<PAGE> 259
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, NOVEMBER 14,
1994 TO 1993 TO
YEAR ENDED YEAR ENDED JULY 31, JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A) 1994(A)
---------------------- ---------------------- --------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $10.79 $ 10.85 $ 9.71 $ 9.76 $ 9.71 $ 10.00
-------- --------- -------- --------- --------- ------------
INVESTMENT ACTIVITIES
Net investment income....................... 0.40 0.40 0.43 0.39 -- 0.26
Net realized and unrealized gains (losses)
on investments............................ 0.77 0.79 1.04 1.09 0.06 (0.24)
-------- --------- -------- --------- --------- ------------
Total from Investment Activities.......... 1.17 1.19 1.47 1.48 0.06 0.02
-------- --------- -------- --------- --------- ------------
DISTRIBUTIONS
From net investment income.................. (0.40) (0.40) (0.39) (0.39) (0.06) (0.26)
-------- --------- -------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD............... $11.56 $ 11.64 $10.79 $ 10.85 $ 9.71 $ 9.76(e)
========= =========== ========= =========== ========== ============
Total Return (excludes sales charges)........ 10.94% 11.06% 15.60% 15.62% (0.25)%(b) (0.26)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........... $ 694 $39,502 $ 467 $29,961 -- $ 25,851
Ratio of expenses to average net assets..... 0.94% 0.94% 0.90% 0.89% -- 0.87%(c)
Ratio of net investment income to average
net assets................................ 3.48% 3.49% 3.78% 3.93% -- 3.77%(c)
Ratio of expenses to average net assets*.... 2.03% 1.78% 2.05% 1.80% -- 1.79%(c)
Ratio of net investment income to average
net assets*............................... 2.39% 2.85% 2.63% 3.02% -- 2.85%(c)
Portfolio turnover (d)...................... 12.84% 12.84% 20.70% 20.70% 44.14% 44.14%
- ---------------
(a) Period from commencement of operations. On June 20, 1994, the Balanced Fund commenced offering Investor Shares and designated
existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of operations to June 19, 1994 plus the total return for
the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
(e) Not annualized.
*During the period, certain fees were voluntarily reduced. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
</TABLE>
See notes to financial statements.
LOGO
91
LOGO BALANCED FUND
<PAGE> 260
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, NOVEMBER 18,
1994 TO 1993 TO
YEAR ENDED YEAR ENDED JULY 31, JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A) 1994(A)
---------------------- ---------------------- --------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $11.87 $ 11.87 $ 9.77 $ 9.76 $ 9.74 $ 10.00
-------- --------- -------- --------- --------- ------------
INVESTMENT ACTIVITIES
Net investment income....................... 0.11 0.12 0.15 0.15 -- 0.05
Net realized and unrealized gains (losses)
on investments............................ 1.38 1.35 2.25 2.26 0.04 (0.24)
-------- --------- -------- --------- --------- ------------
Total from Investment Activities.......... 1.49 1.47 2.40 2.41 0.04 (0.19)
-------- --------- -------- --------- --------- ------------
DISTRIBUTIONS
From net investment income.................. (0.12) (0.12) (0.15) (0.15) (0.01) (0.05)
From net realized gains..................... (0.64) (0.64) (0.15) (0.15) -- --
-------- --------- -------- --------- --------- ------------
Total Distributions....................... (0.76) (0.76) (0.30) (0.30) (0.01) (0.05)
-------- --------- -------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD............... $12.60 $ 12.58 11.87 $ 11.87 $ 9.77 $ 9.76
========= =========== ========= =========== ========== ============
Total Return (excludes sales charges)........ 12.88% 12.72% 25.10% 25.23% (1.77)%(b) (1.87)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........... $2,843 $41,495 $1,218 $25,096 -- $ 15,254
Ratio of expenses to average net assets..... 0.93% 0.93% 0.84% 0.79% -- 0.77%(c)
Ratio of net investment income to average
net assets................................ 0.96% 0.98% 1.17% 1.40% -- 0.86%(c)
Ratio of expenses to average net assets*.... 1.91% 1.67% 2.11% 1.92% -- 2.61%(c)
Ratio of net investment income (loss) to
average net assets*....................... (0.02)% 0.23% (0.10)% 0.26% -- (0.98)%(c)
Portfolio turnover (d)...................... 78.58% 78.58% 67.91% 67.91% 123.26% 123.26%
- ---------------
<FN>
(a) Period from commencement of operations. On June 20, 1994, the Growth Fund commenced offering Investor Shares and designated
existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of operations to June 19, 1994 plus the total return for
the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
(e) Not annualized.
*During the period, certain fees were voluntarily reduced. In addition, certain expenses were reimbursed. If such voluntary
fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated.
</TABLE>
See notes to financial statements.
LOGO
92
LOGO GROWTH FUND
<PAGE> 261
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, NOVEMBER 14,
1994 TO 1993 TO
YEAR ENDED YEAR ENDED JULY 31, JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A) 1994(A)
---------------------- ---------------------- --------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $11.75 $ 11.74 $ 9.97 $ 9.96 $ 9.86 $10.00
-------- --------- -------- --------- --------- ------
INVESTMENT ACTIVITIES
Net investment income....................... 0.22 0.25 0.27 0.25 -- 0.20
Net realized and unrealized gains (losses)
on investments............................ 1.49 1.46 1.76 1.78 0.14 (0.04)
-------- --------- -------- --------- --------- ------
Total from Investment Activities.......... 1.71 1.71 2.03 2.03 0.14 0.16
-------- --------- -------- --------- --------- ------
DISTRIBUTIONS
From net investment income.................. (0.25) (0.25) (0.25) (0.25) (0.03) (0.20)
From net realized gains..................... (0.69) (0.69) -- -- -- --
-------- --------- -------- --------- --------- ------
Total Distributions....................... (0.94) (0.94) (0.25) (0.25) (0.03) (0.20)
-------- --------- -------- --------- --------- ------
NET ASSET VALUE, END OF PERIOD............... $12.52 $ 12.51 $11.75 $ 11.74 $ 9.97 $ 9.96
========= =========== ========= =========== ========== =========
Total Return (excludes sales charges)........ 15.02% 15.04% 20.67% 20.68% 1.73%(b) 1.63%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........... $ 394 $ 6,013 $ 215 $ 6,669 -- $4,771
Ratio of expenses to average net assets..... 0.98% 0.98% 0.97% 0.97% 0.88%(c) 0.95%(c)
Ratio of net investment income to average
net assets................................ 1.96% 2.00% 2.23% 2.37% 0.88%(c) 2.86%(c)
Ratio of expenses to average net assets*.... 3.52% 3.27% 2.66% 2.41% 0.88%(c) 3.27%(c)
Ratio of net investment income (loss) to
average net assets*....................... (0.58)% (0.29)% 0.54% 0.93% 0.88%(c) 0.54%(c)
Portfolio turnover (d)...................... 36.64% 36.64% 15.01% 15.01% 97.24% 97.24%
- ---------------
<FN>
(a) Period from commencement of operations. On June 20, 1994, the Income & Growth Fund commenced offering Investor Shares and
designated existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of operations to June 19, 1994 plus the total return for
the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
(e) Not annualized.
*During the period, certain fees were voluntarily reduced. In addition, certain expenses were reimbursed. If such voluntary
fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated.
</TABLE>
See notes to financial statements.
LOGO
93
LOGO INCOME & GROWTH FUND
<PAGE> 262
On March 11, 1996, a special meeting of the shareholders of the Group was
held to consider Proposal 1 -- the approval of a new investment advisory
agreement, ratification of the continuation of the sub-administration
agreement, ratification of the continuation of the sub-transfer agency
agreement, and ratification of the continuation of the custodian agreement,
Proposal 2 -- the election of five Trustees, and Proposal 3 -- the
ratification of the selection of Deloitte & Touche LLP as the Group's
independent certified public accountants.
Proposal 1 -- The shareholders of the Group were requested to approve a new
investment advisory agreement between Union Bank of California and the
Group, ratify the continuation of the sub-administration agreement between
BISYS and Union Bank of California, ratify the sub-transfer agency agreement
between BISYS Ohio and Union Bank of California and ratification of the
continuation of the custodian agreement between the Group and Union Bank of
California. The Shareholders approved the proposal. The results of the vote
were as follows:
<TABLE>
<CAPTION>
VOTES FOR THE VOTES AGAINST THE
PROPOSAL PROPOSAL ABSTAIN
- -------------- ----------------- ----------
<S> <C> <C>
731,393,746 5,804,523 5,354,321
</TABLE>
Proposal 2 -- The shareholders were requested to vote for the election of
the group to act as the Board of Trustees of the Group: Thomas L. Braje,
David A. Goldfarb, Joseph C. Jaegar, Frederick J. Long and Stephen G.
Mintos. The shareholders approved the proposal. The results were as follows:
<TABLE>
<CAPTION>
VOTES FOR THE VOTES AGAINST THE
PROPOSAL PROPOSAL ABSTAIN
- -------------- ----------------- ----------
<S> <C> <C>
688,829,237 -- 4,879,329
</TABLE>
Proposal 3 -- The shareholders of the Group ratified the appointment of
Deloitte & Touche LLP as the Group's independent certified public
accountants for the fiscal year ended July 31, 1996 as follows:
<TABLE>
<CAPTION>
VOTES FOR THE VOTES AGAINST THE
PROPOSAL PROPOSAL ABSTAIN
- -------------- ----------------- ----------
<S> <C> <C>
680,104,384 5,566,071 6,882,134
</TABLE>
LOGO
94
LOGO RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED)
<PAGE> 263
[HIGHMARK LOGO]
Annual Report
July 31, 1996
Investment Adviser
MERUS-UCA Capital Management,
A division of Union Bank of California, N.A.
400 California Street
P.O. Box 45000
San Francisco, CA 94104
Custodian
Union Bank of California, N.A.
400 California Street
P.O. Box 45000
San Francisco, CA 94104
Administrator & Distributor
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
Not FDIC Insured
<PAGE> 264
THE STEPSTONE FUNDS
STEPSTONE BALANCED FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Balanced Fund ("Stepstone Balanced") to
HighMark Balanced Fund ("HighMark Balanced") in exchange for Shares of
HighMark Balanced and the assumption by HighMark Balanced of all of
the liabilities of Stepstone Balanced, followed by the dissolution and
liquidation of Stepstone Balanced and the distribution of Shares of
HighMark Balanced to the shareholders of Stepstone Balanced.
X-1
<PAGE> 265
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 266
THE STEPSTONE FUNDS
STEPSTONE MONEY MARKET FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Money Market Fund ("Stepstone Money
Market") to HighMark Diversified Money Market Fund ("HighMark
Diversified Money Market") in exchange for Shares of HighMark
Diversified Money Market and the assumption by HighMark Diversified
Money Market of all of the liabilities of Stepstone Money Market,
followed by the dissolution and liquidation of Stepstone Money Market
and the distribution of Shares of HighMark Diversified Money Market to
the shareholders of Stepstone Money Market.
X-1
<PAGE> 267
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 268
THE STEPSTONE FUNDS
STEPSTONE TREASURY MONEY MARKET FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Treasury Money Market Fund ("Stepstone
Treasury Money Market") to HighMark 100% U.S. Treasury Money Market
Fund ("HighMark 100% U.S. Treasury Money Market") in exchange for
Shares of HighMark 100% U.S. Treasury Money Market and the assumption
by HighMark 100% U.S. Treasury Money Market of all of the liabilities
of Stepstone Treasury Money Market, followed by the dissolution and
liquidation of Stepstone Treasury Money Market and the distribution of
Shares of
X-1
<PAGE> 269
HighMark 100% U.S. Treasury Money Market to the shareholders of
Stepstone Treasury Money Market.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 270
THE STEPSTONE FUNDS
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone California Tax-Free Money Market Fund
("Stepstone California Tax-Free Money Market") to HighMark California
Tax-Free Money Market Fund ("HighMark California Tax-Free Money
Market") in exchange for Shares of HighMark California Tax-Free Money
Market and the assumption by HighMark California Tax-Free Money Market
of all of the liabilities of Stepstone California Tax-Free Money
Market, followed by the dissolution and liquidation of Stepstone
California Tax-Free Money
X-1
<PAGE> 271
Market and the distribution of Shares of HighMark California Tax-Free
Money Market to the shareholders of Stepstone California Tax-Free
Money Market.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
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<PAGE> 272
THE STEPSTONE FUNDS
STEPSTONE GROWTH EQUITY FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Growth Equity Fund ("Stepstone Growth
Equity") to HighMark Growth Fund("HighMark Growth") in exchange for
Shares of HighMark Growth and the assumption by HighMark Growth of all
of the liabilities of Stepstone Growth Equity, followed by the
dissolution and liquidation of Stepstone Growth Equity and the
distribution of Shares of HighMark Growth to the shareholders of
Stepstone Growth Equity.
X-1
<PAGE> 273
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
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<PAGE> 274
THE STEPSTONE FUNDS
STEPSTONE VALUE MOMENTUM FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Value Momentum Fund ("Stepstone Value
Momentum") to HighMark Value Momentum Fund ("HighMark Value Momentum")
in exchange for Shares of HighMark Value Momentum and the assumption
by HighMark Value Momentum of all of the liabilities of Stepstone
Value Momentum, followed by the dissolution and liquidation of
Stepstone Value Momentum and the distribution of Shares of HighMark
Value Momentum to the shareholders of Stepstone Value Momentum.
X-1
<PAGE> 275
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 276
THE STEPSTONE FUNDS
STEPSTONE BLUE CHIP GROWTH FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Blue Chip Growth Fund ("Stepstone Blue
Chip Growth") to HighMark Blue Chip Growth Fund ("HighMark Blue Chip
Growth") in exchange for Shares of HighMark Blue Chip Growth and the
assumption by HighMark Blue Chip Growth of all of the liabilities of
Stepstone Blue Chip Growth, followed by the dissolution and
liquidation of Stepstone Blue Chip Growth and the distribution of
Shares of HighMark Blue Chip Growth to the shareholders of Stepstone
Blue Chip Growth.
X-1
<PAGE> 277
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 278
THE STEPSTONE FUNDS
STEPSTONE EMERGING GROWTH FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Emerging Growth Fund ("Stepstone
Emerging Growth") to HighMark Emerging Growth Fund ("HighMark Emerging
Growth") in exchange for Shares of HighMark Emerging Growth and the
assumption by HighMark Emerging Growth of all of the liabilities of
Stepstone Emerging Growth, followed by the dissolution and liquidation
of Stepstone Emerging Growth and the distribution of Shares of
HighMark Emerging Growth to the shareholders of Stepstone Emerging
Growth.
X-1
<PAGE> 279
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 280
THE STEPSTONE FUNDS
STEPSTONE INTERNATIONAL EQUITY FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone International Equity Fund ("Stepstone
International Equity") to HighMark International Equity Fund
("HighMark International Equity") in exchange for Shares of HighMark
International Equity and the assumption by HighMark International
Equity of all of the liabilities of Stepstone International Equity,
followed by the dissolution and liquidation of Stepstone International
Equity and the distribution of Shares of HighMark International Equity
to the shareholders of Stepstone International Equity.
X-1
<PAGE> 281
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 282
THE STEPSTONE FUNDS
STEPSTONE INTERMEDIATE-TERM BOND FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Intermediate-Term Bond Fund ("Stepstone
Intermediate-Term Bond") to HighMark Intermediate-Term Bond Fund
("HighMark Intermediate-Term Bond") in exchange for Shares of HighMark
Intermediate-Term Bond and the assumption by HighMark
Intermediate-Term Bond of all of the liabilities of Stepstone
Intermediate-Term Bond, followed by the dissolution and liquidation of
Stepstone Intermediate-Term Bond and the distribution of Shares of
HighMark Intermediate-Term Bond to the shareholders of Stepstone
Intermediate-Term Bond.
X-1
<PAGE> 283
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 284
THE STEPSTONE FUNDS
STEPSTONE CONVERTIBLE SECURITIES FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Convertible Securities Fund ("Stepstone
Convertible Securities") to HighMark Convertible Securities Fund
("HighMark Convertible Securities") in exchange for Shares of HighMark
Convertible Securities and the assumption by HighMark Convertible
Securities of all of the liabilities of Stepstone Convertible
Securities, followed by the dissolution and liquidation of Stepstone
Convertible Securities and the distribution of Shares of HighMark
Convertible Securities to the shareholders of Stepstone Convertible
Securities.
X-1
<PAGE> 285
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 286
THE STEPSTONE FUNDS
STEPSTONE GOVERNMENT SECURITIES FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone Government Securities Fund ("Stepstone
Government Securities") to HighMark Government Securities Fund
("HighMark Government Securities") in exchange for Shares of HighMark
Government Securities and the assumption by HighMark Government
Securities of all of the liabilities of Stepstone Government
Securities, followed by the dissolution and liquidation of Stepstone
Government Securities and the distribution of Shares of HighMark
Government Securities to the shareholders of Stepstone Government
Securities.
X-1
<PAGE> 287
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 288
THE STEPSTONE FUNDS
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
PROXY FOR A SPECIAL MEETING OF
SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE STEPSTONE FUNDS.
The undersigned hereby appoints Kevin B. Robins and Cassandra Arnold, and each
of them separately, proxies, with power of substitution, and hereby authorizes
them to represent and to vote, as designated below, at the Special Meeting of
Shareholders of the Stepstone Funds on Friday, April 11, 1997, at 3:00 p.m.,
Eastern Time, and at any adjournments thereof, all of the shares of the Fund
which the undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such, if a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Has your address changed? Please use this
form to inform us of any change in address or telephone number. Detach this
form from the Proxy Ballot and return it with your executed proxy in the
enclosed envelope.
1. Approval of the Agreement and Plan of Reorganization by and between
The Stepstone Funds and HighMark Funds providing for the transfer of
all of the assets of Stepstone California Intermediate Tax-Free Bond
Fund ("Stepstone California Intermediate Tax-Free Bond") to HighMark
California Intermediate Tax-Free Bond Fund ("HighMark California
Intermediate Tax-Free Bond") in exchange for Shares of HighMark
California Intermediate Tax-Free Bond and the assumption by HighMark
California Intermediate Tax-Free Bond of all of the liabilities of
Stepstone California Intermediate Tax-Free Bond, followed by the
dissolution and liquidation of Stepstone California Intermediate
Tax-Free Bond and the distribution of Shares of HighMark California
X-1
<PAGE> 289
Intermediate Tax-Free Bond to the shareholders of Stepstone California
Intermediate Tax-Free Bond.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
[ ] [ ] [ ]
</TABLE>
Please be sure to sign and date this Proxy.
----------------------------------------
Shareholder sign here
----------------------------------------
Co-owner sign here
Dated: , 1997
--------------
X-2
<PAGE> 290
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information contains information which may be
of interest to investors but which is not included in the Combined
Prospectus/Proxy Statement (the "Prospectus") of HighMark Funds dated
March 1, 1997 relating to the transfer of assets from the Stepstone Funds
to the corresponding HighMark Funds as follows:
<TABLE>
<S> <C>
Stepstone Money Market Fund HighMark Diversified Money Market Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Treasury Money Market Fund HighMark 100% U.S. Treasury Money Market Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone California Tax-Free Money Market HighMark California Tax-Free Money Market Fund
Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Balanced Fund HighMark Balanced Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Growth Equity Fund HighMark Growth Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Value Momentum Fund HighMark Value Momentum Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Blue Chip Growth Fund HighMark Blue Chip Growth Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Emerging Growth Fund HighMark Emerging Growth Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone International Equity Fund HighMark International Equity Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Intermediate-Term Bond Fund HighMark Intermediate-Term Bond Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Convertible Securities Fund HighMark Convertible Securities Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone Government Securities Fund HighMark Government Securities Fund
- -----------------------------------------------------------------------------------------------------------
Stepstone California Intermediate Tax-Free HighMark California Intermediate Tax-Free Bond
Bond Fund Fund
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Statement of Additional Information for the Stepstone Funds dated May 28
1996, and the Statement of Additional Information for the HighMark Funds dated
March 28, 1997 have been filed with the Securities and Exchange Commission
and are incorporated herein by reference. This Statement is not a Prospectus and
is authorized for distribution only when it accompanies or follows delivery of
the Prospectus. This Statement of Additional Information should be read in
conjunction with the Prospectus. A copy of the March 1, 1997
B-1
<PAGE> 291
Prospectus may be obtained, without charge, by writing SEI Financial Services
Company, Oaks, PA 19456 or by calling 1-800-734-2922.
The date of this Statement of Additional Information is March 1, 1997.
B-2
<PAGE> 292
TABLE OF CONTENTS
Financial Statements of the
combined Funds on a pro-forma
basis for the year ended
July 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . B-4
B-3
<PAGE> 293
HIGHMARK DIVERSIFIED MONEY MARKET FUND
STEPSTONE MONEY MARKET FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Statement of Operations reflect the accounts of the HighMark Diversified
Money Market Fund and the Stepstone Money Market Fund as of and for the year
ended July 31, 1996. These statements have been derived from the Funds' books
and records utilized in calculating daily net asset value at July 31, 1996. The
accompanying Pro Forma Combining Statement of Operations reflects the accounts
of HighMark Diversified Money Market Fund and Stepstone Money Market Fund for
the year ended July 31, 1996, the most recent fiscal year end of the
Registrant.
HIGHMARK DIVERSIFIED MONEY MARKET FUND
STEPSTONE MONEY MARKET FUND
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
DIVERSIFIED MONEY DIVERSIFIED MONEY
MONEY MARKET PRO FORMA MONEY MARKET PRO FORMA
MARKET FUND COMBINED MARKET FUND COMBINED
FUND FUND
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
(000'S)
(000'S)
<S> <C> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- EURO (1.2%)
5,000 5,000 Abbey National Treasury Services, 5.72%, $ 5,000 $ 5,000
9/11/96 5,983 5,983
6,000 6,000 Abbey National Treasury Services, 5.22%,
3/4/97 5,001 5,001
5,000 5,000 Bayerische Vereinsbank, 5.49%, 11/13/96
15,984 15,984
Total Certificates of Deposit -- Euro
CERTIFICATES OF DEPOSIT -- YANKEE
(18.0%) Bank of Nova Scotia, New York
25,000 25,000 5.000%, 08/06/96 $ 25,000 25,000
10,000 10,000 ABN-AMRO Bank N.V., 5.53%, 3/18/97 9,996 9,996
Banque Nationale de Paris, San Francisco
30,000 30,000 5.400%, 08/02/96 30,000 30,000
Bayer.Hypotheken-und Wenschel Bk AG, NY
30,000 30,000 5.300%, 08/26/96 30,000 30,000
5,000 5,000 Commerzbank, 5.66%, 4/24/97 4,997 4,997
10,000 10,000 Deutsche Bank AG, New York 5.530%, 04/02/97 9,988 9,988
10,000 10,000 Deutsche Bank, 5.57%, 3/31/97 10,001 10,001
13,000 13,000 Dresdner Bank AG, New York 5.010%, 02/26/97 12,965 12,965
</TABLE>
B-4
<PAGE> 294
<TABLE>
<CAPTION>
<C> <C> <C> <S> <C> <C> <C>
10,000 10,000 Dresdner Bank, 5.05%, 2/26/97 9,999 9,999
National Westminster Bank PLC, New York
30,000 30,000 5.400%, 09/06/96 30,000 30,000
5,000 5,000 Rabobank Nederland N.V., 5.82% 8/14/96 5,000 5,000
10,000 10,000 Sanwa Bank Ltd., 5.62%, 10/16/96 10,002 10,002
5,000 5,000 Societe Generale, New York 5.720%, 04/14/97 4,996 4,996
10,000 10,000 Society Generale, 5.65%, 4/1/97 9,993 9,993
5,000 5,000 Society Generale, 5.80%, 4/15/97 5,002 5,002
5,000 5,000 Sumitomo Bank Ltd., 5.46%, 9/3/96 5,000 5,000
10,000 10,000 Sumitomo Bank Ltd., 5.48%, 8/26/96 10,000 10,000
5,000 5,000 Sumitomo Bank Ltd., 6.01%, 10/30/96 5,000 5,000
Swiss Bank Corporation, New York 5.960%,
10,000 10,000 06/03/97 10,006 10,006
Total Certificates of Deposit -- Yankee 84,990 152,955 237,945
BANK NOTES (1.1%)
10,000 10,000 Bank of Hawaii, Honolulu, 5.500%. 1/3/97 10,002 10,002
5,000 5,000 NBD Bank, N.A. (Detroit) 6.500%, 06/02/97 5,022 5,022
Total Bank Notes -- Domestic 15,024 15,024
COMMERCIAL PAPER (34.5%) (B)
5,000 5,000 Abbey National North America Inc., 5.54%, 4,958 4,958
9/25/96
5,000 5,000 Abbey National North America Inc., 5.40%, 4,906 4,906
12/4/96
10,000 10,000 Alpha Finance Corp., 5.48%, 10/11/96 9,892 9,892
5,000 5,000 ANZ (De) Inc., 5.38%, 9/10/96 4,970 4,970
5,000 5,000 ANZ (De) Inc., 5.40%, 9/9/96 4,971 4,971
5,000 5,000 ANZ (De) Inc., 5.47%, 10/9/96 4,948 4,948
10,000 10,000 Assets Securitization Cooperative Corp., 9,994 9,994
5.37%, 8/5/96
5,000 5,000 Assets Securitization Cooperative Corp., 4,965 4,965
5.40%, 9/17/96
10,000 10,000 AT&T Corp., 5.30%, 8/8/96 9,990 9,990
5,000 5,000 AT&T Corp., 5.42%, 9/18/96 4,964 4,964
5,000 5,000 B.A.T. Capital Corp., 5.33%, 8/16/96 4,989 4,989
5,000 5,000 Beta Finance Inc., 5.53%, 1/3/97 4,881 4,881
10,000 10,000 BTR Dunlop Finance Inc., 5.37%, 8/7/96 9,991 9,991
5,000 5,000 BTR Dunlop Finance Inc., 5.27%, 8/26/96 4,982 4,982
5,000 5,000 BTR Dunlop Finance Inc., 5.40%, 9/16/96 4,965 4,965
10,000 10,000 Cargill Financial Services Corp. 5.33%, 8/16/96 9,978 9,978
5,000 5,000 Cargill Inc., 5.35%, 8/2/96 4,999 4,999
10,000 10,000 Ciesco, L.P., 5.26%, 8/16/96 9,978 9,978
5,000 5,000 Ciesco, L.P., 5.32%, 9/9/96 4,971 4,971
5,000 5,000 Commerzbank U.S. Finance Inc., 5.35%, 8/8/96 4,995 4,995
5,200 5,200 Corporate Receivables Corp., 5.35%, 8/22/96 5,184 5,184
10,000 10,000 Corporate Receivables Corp., 5.40%, 9/12/96 9,937 9,937
5,000 5,000 Corporate Receivables Corp., 5.42%, 10/8/96 4,949 4,949
5,000 5,000 CXC, Inc., 5.38%, 8/1/96 5,000 5,000
</TABLE>
B-5
<PAGE> 295
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10,000 10,000 CXC, Inc., 5.40% 9/3/96 9,950 9,950
5,000 5,000 Daimler-Benz North America Corp., 5.35%,
1/6/97 4,876 4,876
5,000 5,000 Daimler-Benz North America Corp., 5.53%,
1/13/97 4,873 4,873
5,000 5,000 Den Danske Corporation Inc., 5.38%, 8/6/96 4,996 4,996
5,000 5,000 Den Danske Corporation Inc., 5.42%, 10/1/96 4,954 4,954
21,000 21,000 Eli Lilly & Co., 4.840%, 08/16/96 (c) 20,958 20,958
5,000 5,000 Falcon Asset Securitization Corp., 5.40%,
8/19/96 4,986 4,986
5,000 5,000 Falcon Asset Securitization Corp., 5.55%,
1/21/97 4,867 4,867
30,000 30,000 Ford Motor Credit Company, 5.380%, 29,969 29,969
08/08/96(c)
5,000 5,000 Ford Motor Credit Corp., 5.27%, 8/13/96 4,991 4,991
10,000 10,000 Ford Motor Credit Corp., 5.34%, 8/15/96 9,979 9,979
5,000 5,000 Ford Motor Credit Corp., 5.42%, 9/6/96 4,973 4,973
10,000 10,000 General Electric Capital Corp., 5.29%, 9/5/96 9,949 9,949
30,000 30,000 Goldman Sachs Group, LP, 5.330%, 08/12/96 (c) 29,951 29,951
7,200 7,200 Hewlett Packard Co., 5.29%, 8/27/96 7,172 7,172
5,000 5,000 J.C. Penney Funding Corp., 5.38%, 8/7/96 4,996 4,996
10,000 10,000 J.C. Penney Funding Corp., 5.34%, 8/29/96 9,958 9,958
5,000 5,000 Jet Funding Corp., 5.50%, 9/30/96 4,954 4,954
Merrill Lynch & Company, Inc., 5.380%,
30,000 30,000 08/26/96 (c) 29,888 29,888
25,000 25,000 Morgan Stanley Group, Inc., 5.330%, 24,870 24,870
09/05/96(c)
30,000 30,000 Motorola, Inc. 5.280%, 08/19/96(c) 29,921 29,921
National Rural Utilities Co-op. Finance Corp.,
10,000 10,000 5.37%, 8/9/96 9,988 9,988
10,000 10,000 Panasonic Finance Inc., 5.38%, 9/9/96 9,943 9,943
10,000 10,000 Panasonic Finance Inc., 5.34%, 9/17/96 9,930 9,930
5,000 5,000 RTZ America Inc., 5.30%, 8/22/96 4,985 4,985
5,000 5,000 TransAmerica Corp., 5.36%, 8/9/96 4,994 4,994
Total Commercial Paper 290,670 165,557 456,227
CORPORATE OBLIGATIONS (6.3%)
10,000 10,000 BankAmerica Corp., 7.550%, 11/29/96 10,064 10,064
30,000 30,000 Bear Stearns Companies, Inc., 5.507%,
05/20/97(b) 30,000 30,000
20,000 20,000 General Electric Capital Corporation, 7.750%,
12/30/96
2,500 2,500 Gillette Co., 4.75%, 8/15/96 2,499 2,499
10,000 10,000 Norwest Financial, Inc., 6.500%, 05/15/97 10,055 10,055
10,000 10,000 Sanwa Business Credit Corp., 5.56%, 12/4/96 (a) 10,000 10,000
Total Corporate Obligations 12,499 70,290 82,789
U.S. TREASURY OBLIGATIONS (6.0%)
U.S. Treasury Notes
15,000 15,000 4.375%, 08/15/96 14,992 14,992
10,000 10,000 6.500%, 09/30/96 10,013 10,013
</TABLE>
B-6
<PAGE> 296
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
30,000 30,000 6.875%, 10/31/96 30,127 30,127
10,000 10,000 4.62%, 2/6/97 9,757 9,757
10,000 10,000 6.500%, 05/15/97 10,056 10,056
5,000 5,000 5.625%, 06/30/97 4,986 4,986
Total U.S. Treasury Obligations 9,757 70,174 79,931
U.S. GOVERNMENT AGENCY OBLIGATIONS (3.4%)
FHLB
5,415 5,415 4.400%, 01/21/97 5,396 5,396
20,000 20,000 5.035%, 03/06/97 19,978 19,978
FNMA
9,200 9,200 5.680%, 10/07/96 9,202 9,202
10,000 10,000 5.390%, 12/04/96 9,998 9,998
Total U.S. Government Agency Obligations 44,574 44,574
REPURCHASE AGREEMENTS (29.5%)
Deutsche Morgan Grenfell/C.J. Lawrence,
Inc. 5.65%, dated 07/31/96, matures
08/01/96, repurchase price $173,898,179
(collateralized by various FHLMC
obligations total par value $148,221,200,
5.971%-6.225%, 01/01/20-7/1/34: various
FNMA obligations total various FNMA
obligations total par value $168,475,449,
6.124%-9000%, 07/01/21-02/01/35: U.S.
Treasury Note, 01/01/20-7/1/34: various
FNMA obligations total various FNMA
obligations total par value $168,475,449,
6.124%-9000%, 07/01/21-02/01/35: U.S.
Treasury Note, 01/01/20-7/1/34: various
FNMA obligations total various FNMA
obligations total par value $168,475,449,
6.124%-9000%, 07/01/21-02/01/35: U.S.
Treasury Note, par value $9,227,000,
7.500%, matures 10/31/99: U.S. Treasury
STRIPS, par value $40,000,000, matures
173,871 173,871 02/15/03: total value 173,871 173,871
SBC Capital Markets, Inc. 5.65%, dated
07/31/96, matures 08/1/96, repurchase price
$13,594,630 (collateralized by FNMA
obligations, par value $14,027,000, 6.554%,
matures 08/01/25: U.S. Treasury Bill, par
value $3,073,000, matures 08/29/96: total
13,593 13,593 market value $14,320,404) 13,593 13,593
</TABLE>
B-7
<PAGE> 297
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nomura Securites International, Inc. 5.65%,
dated 07/31/96, matures 08/01/96,
repurchase price $160,285,254
(collateralized by various FHLMC
obligations, total par value $150,917,688,
5.50%-8.50%, 05/01/99- 05/01/25: various
FNMA obligations, total par value
$44,937,640, 6.12%-9.00%, 03/01/03-
05/01/34: various GNMA obligations, total
par value $147,088,489, 6.00%-11.50%,
03/15/07-07/15/26: total market value
160,260 160,260 $163,465,304) 160,260 160,260
C. S. First Boston Corp., 5.62%, 8/1/96
(Collaterized by 18,006 U.S. Treasury
Bonds, 8.75%, 8/15/20, market value,
21,502 21,502 $21,970) 21,502 21,502
Merrill Lynch Government Securities, Inc.
5.65%, dated 07/31/96, matures 08/01/96,
repurchase price $20,472,932
(collateralized by various FNMA obligations
total par value $27,675,051, 5.50%-7.50:
20,470 20,470 market value $20,881,617) 20,470 20,470
Total Repurchase Agreements 21,502 368,194 389,696
Total Investments (100.0%) (Cost
1,322,170) 435,402 886,768 1,322,170
</TABLE>
(a) Variable rate securities having liquidity sources through bank letters of
credit of other credit and/or liquidity arrangements. The interest rate,
which will change periodically, is based upon bank prime rated or an index
of market interest rates. The rate reflected on the Schedule of Portfolio
Investments is the rate in effect on July 31, 1996.
(b) Floating Rate Security -- The rate reflected on the Statement of Net
Assets is the rate in effect on July 31, 1996.
(c) The rate reflected on the Statement of Net Assets represents the security's
discount yield.
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
STRIPS Separate Trading of Registered Interest and Principal of
Securities
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-8
<PAGE> 298
HIGHMARK DIVERSIFIED MONEY MARKET FUND
STEPSTONE MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands)
HIGHMARK
DIVERSIFIED STEPSTONE
MONEY MONEY PRO FORMA PRO FORMA
MARKET FUND MARKET FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $ 413,900 $ 518,574 $ 932,474
Repurchase Agreements 21,502 368,194 389,696
------------------------------ ----------------
Total Investments 435,402 886,768 1,322,170
Cash 3 (1,647) $ 597 (A) (1,047)
Interest & Dividends Receivable 2,256 6,007 8,263
Prepaid Expenses and Other Assets 14 17 31
Capital Shares Sold Receivable - - -
----------------------------------------------------------------------
Total Assets 437,675 891,145 597 1,329,417
LIABILITIES:
Distributions Payable 1,690 3,496 5,186
Payable to Brokers 5,000 - 5,000
Accrued Expenses and Other Payables: 258 745 1,003
----------------------------------------------------------------------
Total Liabilities 6,948 4,241 - 11,189
NET ASSETS:
Capital 431,097 888,072 1,319,169
Undistributed net investment income - - 597 (A) 597
Accumulated undistributed net realized gain (loss) on (370) (1,168) (1,538)
investment transactions
----------------------------------------------------------------------
NET ASSETS $ 430,727 $ 886,904 $ 597 $ 1,318,228
======================================================================
Net Assets:
Fiduciary $ 244,775 $ 545,654 (A)(B) $ 790,429
Retail 185,952 341,847 (A)(B) 527,799
Institutional $ 545,296 (545,296) (B) -
Investment 341,608 (341,608) (B) -
----------------------------------------------------------------------
TOTAL $ 430,727 $ 886,904 $ 597 $1,318,228
======================================================================
</TABLE>
B-9
<PAGE> 299
<TABLE>
<S> <C> <C> <C> <C>
Shares Outstanding:
Fiduciary 245,066 546,290 (B) 791,356
Retail 186,031 341,783 (B) 527,814
Institutional 546,290 (546,290) (B) -
Investment 341,783 (341,783) (B) -
---------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 431,097 888,073 0 1,319,170
=====================================================================
Net Asset Value and Redemption Price Per Share:
Fiduciary $ 1.00 - $ 1.00
Retail 1.00 - $ 1.00
Institutional - $ 1.00 -
Investment - 1.00 -
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments on
the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization (differences are due to rounding).
(See Notes to Pro Forma Financial Statements)
B-10
<PAGE> 300
HIGHMARK DIVERSIFIED MONEY MARKET FUND
STEPSTONE MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK
DIVERSIFIED STEPSTONE
MONEY MONEY PRO FORMA PRO FORMA
MARKET FUND MARKET FUND ADJUSTMENTS COMBINED
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest Income $ 22,468 $ 42,926 $ 65,394
----------------------------- ---------------
Total Income 22,468 42,926 65,394
EXPENSES:
Investment Adviser Fee 1,591 2,301 $ (402) (A) 3,490
Shareholder Services Fees 994 - - 994
Administration Fees 795 1,000 531 (B) 2,326
Custodian/Wire Agent Fee 221 76 (146) (C) 151
Professional Fees 63 113 (61) (C) 115
Registration Fees 47 108 (57) (C) 98
Distribution Fee 396 1,045 1,441
Trustees Fees 11 21 (10) (C) 22
Printing Costs 51 85 (74) (C) 62
Other 145 118 (210) (C) 53
---------------------------------------------------------------------
Total Expenses 4,314 4,867 (429) 8,752
Distribution Fee Waiver (392) (392)
Expenses Voluntarily Reduced (1,327) (168) (D) (1,495)
---------------------------------------------------------------------
Total Net Expenses 2,987 4,475 (597) 6,865
Net Investment Income 19,481 38,451 597 58,529
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments 16 - 16
---------------------------------------------------------------------
Change in net assets resulting from operations $ 19,497 $ 38,451 $ 597 $ 58,545
=====================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .30% of the Diversified
Money Market Fund (the "Fund") average daily net assets.
(B) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average aggregate
net assets of the Fund for the period.
(C) The adjustment is made to reflect the expense reductions due to the
combining of two portfolios into one.
(D) The Adviser has voluntarily agreed to waive fees to the extent necessary in
order to limit total operating expenses to not more than 75% for the Retail
Class of Shares and 50% for the Fiduciary Class of Shares for the Diversified
Money Market Fund.
(See Notes to Pro Forma Financial Statements)
B-11
<PAGE> 301
HIGHMARK DIVERSIFIED MONEY MARKET FUND
STEPSTONE MONEY MARKET FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Diversified Money Market Fund and Stepstone Money
Market Fund, collectively (the "Funds") as of July 31, 1996. These statements
have been derived from the books and records utilized in calculating daily net
assets values at July 31, 1996. The Pro Forma Combining Statement of Operations
reflects the accounts of HighMark Diversified Money Market Fund and Stepstone
Money Market Fund for the twelve months ended July 31, 1996, the most recent
fiscal year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Money Market Fund in exchange for Retail and Fiduciary
Class of Shares of the HighMark Diversified Money Market Fund. Under generally
accepted accounting principles, the Stepstone Money Market Fund will be the
surviving entity for accounting purposes with its historical cost of investment
securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 546,290
Fiduciary Class and 341,783 Retail Class shares of HighMark Diversified Money
Market Fund in exchange for 546,290 Institutional Class shares and 341,783
Investment Class shares, respectively.
B-12
<PAGE> 302
HIGHMARK 100% U.S. TREASURY MONEY MARKET FUND
STEPSTONE TREASURY MONEY MARKET FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the HighMark
100% U.S. Treasury Money Market Fund and the Stepstone Treasury Money Market
Fund as of and for the year ended July 31, 1996. These statements have been
derived from the Funds' books and records utilized in calculating daily net
asset value at July 31, 1996. The accompanying Pro Forma Combining Statement of
Operations reflects the accounts of HighMark 100% U.S. Treasury Money Market
Fund and Stepstone Treasury Money Market Fund for the year ended July 31, 1996,
the most recent fiscal year end of the Registrant.
HIGHMARK 100% U.S. TREASURY MONEY MARKET FUND
STEPSTONE TREASURY MONEY MARKET FUND
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
July 31, 1996
<TABLE>
<CAPTION>
HIGHMARK HIGHMARK
100% STEPSTONE 100% STEPSTONE
U.S. TREASURY U.S. TREASURY
TREASURY MONEY PRO FORMA TREASURY MONEY PRO FORMA
OBLIGATIONS MARKET COMBINED OBLIGATIONS MARKET COMBINED
FUNDS FUND FUNDS FUND
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
(000's) (000'S)
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS
U.S. TREASURY BILLS (37.6%)
1,355 1,355 4.99%, 8/1/96(a) $ 1,355 $ 1,355
15,000 15,000 5.00%, 8/8/96(a) 14,985 14,985
2,303 2,303 5.01%, 8/8/96(a) 2,301 2,301
2,226 2,226 5.02%, 8/8/96(a) 2,224 2,224
5,000 5,000 5.03%, 8/8/96(a) 4,995 4,995
5,000 5,000 5.04%, 8/8/96(a) 4,995 4,995
10,192 10,192 4.96%, 8/15/96(a) 10,172 10,172
7,425 7,425 5.01%, 8/15/96(a) 7,411 7,411
5,000 5,000 5.03%, 8/15/96(a) 4,990 4,990
2,777 2,777 5.04%, 8/15/96(a) 2,772 2,772
1,067 1,067 4.95%, 8/22/96(a) 1,064 1,064
10,000 10,000 4.98%, 8/22/96(a) 9,971 9,971
10,000 10,000 5.02%, 8/22/96(a) 9,971 9,971
5,000 5,000 5.330%, 8/22/96(b) 4,984 4,984
2,000 2,000 5.48%, 8/22/96(a) 1,993 1,993
2,500 2,500 5.50%, 8/22/96(a) 2,492 2,492
4,744 4,744 4.98%, 8/29/96(a) 4,725 4,725
10,000 10,000 5.05%, 8/29/96(a) 9,961 9,961
</TABLE>
B-13
<PAGE> 303
<TABLE>
<S> <C> <C> <C> <C> <C>
2,023 2,023 5.04%, 9/5/96(a) 2,013 2,013
312 312 5.06%, 9/5/96(a) 310 310
4,572 4,572 5.07%, 9/5/96(a) 4,550 4,550
865 865 5.08%, 9/5/96(a) 861 861
15,000 15,000 5.10%, 9/5/96(a) 14,925 14,925
3,640 3,640 5.04%, 9/12/96(a) 3,618 3,618
892 892 5.07%, 9/12/96(a) 887 887
5,000 5,000 5.10%, 9/12/96(a) 4,970 4,970
7,703 7,703 5.11%, 9/12/96(a) 7,657 7,657
5,225 5,225 5.12%, 9/12/96(a) 5,193 5,193
5,000 5,000 5.050%, 9/19/96(b) 4,966 4,966
385 385 5.07%, 9/19/96(a) 382 382
6,651 6,651 5.09%, 9/19/96(a) 6,605 6,605
5,410 5,410 5.11%, 9/19/96(a) 5,373 5,373
4,828 4,828 5.13%, 9/19/96(a) 4,794 4,794
5,936 5,936 5.14%, 9/19/96(a) 5,895 5,895
5,000 5,000 5.04%, 10/3/96(a) 4,956 4,956
5,000 5,000 5.050%, 10/03/96(b) 4,965 4,956
1,227 1,227 5.09%, 10/3/96(a) 1,216 1,216
3,162 3,162 5.11%, 10/3/96(a) 3,134 3,134
3,077 3,077 5.11%, 10/10/96(a) 3,046 3,046
5,000 5,000 5.15%, 10/10/96(a) 4,950 4,950
5,000 5,000 5.005%, 10/17/96(b) 4,946 4,946
5,000 5,000 5.05%, 10/17/96(a) 4,946 4,946
2,034 2,034 5.09%, 10/17/96(a) 2,012 2,012
7,639 7,639 5.11%, 10/17/96(a) 7,556 7,556
4,000 4,000 5.07%, 10/24/96(a) 3,953 3,953
5,000 5,000 5.12%, 10/24/96(a) 4,940 4,940
5,000 5,000 5.34%, 1/9/97(a) 4,881 4,881
5,000 5,000 5.24%, 1/23/97(a) 4,873 4,873
5,000 5,000 4.91%, 2/6/97(a) 4,871 4,871
5,000 5,000 5.11%, 2/6/97(a) 4,866 4,866
10,000 10,000 5.170%, 2/06/97(b) 9,739 9,739
5,000 5,000 5.080%, 3/06/97(b) 4,847 4,847
5,000 5,000 5.16%, 4/3/97(a) 4,825 4,825
5,000 5,000 5.32%, 4/3/97(a) 4,819 4,819
5,000 5,000 5.270%, 5/01/97(b) 4,800 4,800
5,000 5,000 5.395%, 5/29/97(b) 4,774 4,774
Total U.S. Treasury Bills 234,254 44,012 278,266
U.S. TREASURY NOTES (12.2%)
10,000 10,000 7.25%, 8/31/96 10,013 10,013
10,000 10,000 7.25%, 8/31/96 10,011 10,011
10,000 10,000 6.500%, 09/30/96 10,013 10,013
5,000 5,000 6.875%, 10/31/96 5,021 5,021
5,000 5,000 7.250%, 11/15/96 5,029 5,029
5,000 5,000 7.500%, 01/31/97 5,063 5,063
5,000 5,000 6.875%, 02/28/97 5,044 5,044
10,000 5,000 15,000 6.625%, 03/31/97 10,072 5,035 15,107
5,000 5,000 8.500%, 04/15/97 5,093 5,093
5,000 5,000 10,000 6.500%, 04/30/97 5,031 5,028 10,059
</TABLE>
B-14
<PAGE> 304
<TABLE>
<S> <C> <C> <C> <C> <C>
10,000 10,000 6.500%, 05/15/97 10,052 10,052
Total U.S. Treasury Notes 35,127 55,378 90,505
U.S. TREASURY STRIPS (0.7%)
$5,000 $5,000 5.12%, 11/15/96(a) 4,925 4,925
Total U.S. Treasury strips 4,925 4,925
REPURCHASE AGREEMENTS (49.6%)
BZW Securities, Inc. 5.57%, dated
07/31/96, matures, 8/01/96, repurchase
price $21,020,834 (collateralized by
U.S. Treasury Note, par value
$21,051,000, matures 5/15/97: market
21,018 21,018 value $21,438,729) 21,018 21,018
Deutsche Morgan Grenfell/C.J. Lawrence,
Inc. 5.57%, dated 07/31/96, matures
08/01/96, repurchase price $109,672,965
(collateralized by various U.S. Treasury
Notes, total par value $56,736,000,
5.125% - 9.125%, 7/31/97 - 5/15/99:
various U.S. Treasury STRIPS, total par
value $291,000, 11/15/00 - 2/15/02:
U.S. Treasury Bill, par value
$55,512,000, matures 11/14/96: total
109,656 109,656 market value $111,849,455) 109,656 109,656
JP Morgan Securities, Inc. 5.57%, dated
07/31/96, matures 08/01/96, repurchase
price $21,699,282 (collateralized by
U.S. Treasury Note, par value
$22,085,000, matures 6/30/97: market
21,696 21,696 value $22,130,696) 21,696 21,696
Merrill Lynch Government Securities,
Inc. 5.57%, dated 07/31/96, matures
08/01/96, repurchase price $20,942,475
(collateralized by various U.S. Treasury
STRIPS, total par value $25,845,000,
7.875%-11.625%, 2/15/99-11/15/04: total
20,939 20,939 market value $21,359,466) 20,939 20,939
Morgan Stanley & Company, Inc. 5.57%,
dated 07/31/96, matures 08/01/96,
repurchase price $21,009,101
(collateralized by U.S.Treasury Note,
par value $20,905,000, 6.25%, matures
21,006 21,006 08/31/96: market value $21,454,36 21,006 21,006
Nomura Securities International, Inc.
5.57%, dated 07/31/96, matures 08/01/96,
repurchase price $41,356,048
(collateralized by various U.S. Treasury
Notes, total par value $33,386,000,
5.25%-8.75, 9/30/96-5/31/98: U.S.
Treasury Bonds, par value $6,685,000,
8.875%, matures 2/15/19: total market
41,350 41,350 value $42,177,205) 41,350 41,350
</TABLE>
B-15
<PAGE> 305
<TABLE>
<S> <C> <C> <C> <C> <C>
SBC Capital Markets, Inc. 5.57%, dated
07/31/96, matures 08/01/96, repurchase
price $21,470,650 (collateralized by
various U.S. Treasury Bills, total par
value $22,334,000,10/10/96 - 1/23/97:
21,467 21,467 total market value $21,901,787) 21,467 21,467
UBS Securities, Inc. 5.57%, dated
07/31/96, matures 08/01/96, repurchase
price $109,958,945 (collateralized by
various U.S. Treasury STRIPS, total par
value $242,405,000, 5/15/05-5/15/09:
109,942 109,942 total market value $112,142,600) 109,942 109,942
Total Repurchase Agreements (Cost $367,074) 367,074 367,074
Total Investments (100.0%)(Cost $740,770) $274,306 $466,464 $740,770
</TABLE>
(a) Discount yield at date of purchase.
(b) The rate reflected on the Statement of Net Assets represents the security's
effective yield.
STRIPS -- Separate Trading of Registered Interest and Principal of Securities
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-16
<PAGE> 306
HIGHMARK 100% U.S. TREASURY MONEY MARKET FUND
STEPSTONE TREASURY MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK
100% U.S. STEPSTONE
TREASURY TREASURY
MONEY MONEY PRO FORMA PRO FORMA
MARKET FUND MARKET FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $ 274,306 $ 99,390 $ 373,696
Repurchase Agreements - 367,074 367,074
----------------------------- ---------------
Total Investments 274,306 466,464 740,770
Cash - (1,390) $ 597 (A) (793)
Interest & Dividends Receivable 910 2,416 3,326
Prepaid Expenses and Other Assets 12 36 48
---------------------------------------------------------------------
Total Assets 275,228 467,526 597 743,351
LIABILITIES:
Distributions Payable 1,088 1,732 2,820
Payable for Capital Shares Redeemed - - -
Payable to Brokers - - -
Accrued Expenses and Other Payables 177 286 463
---------------------------------------------------------------------
Total Liabilities 1,265 2,018 - 3,283
NET ASSETS:
Capital 273,958 465,510 739,468
Undistributed net investment income - - 597 (A) 597
Accumulated undistributed net realized gain (loss) on
investment transactions 5 (2) 3
---------------------------------------------------------------------
NET ASSETS $ 273,963 $ 465,508 $ 597 $ 740,068
=====================================================================
Net Assets:
Fiduciary $ 173,340 $ 179,004 (A)(B) $ 352,344
Retail 100,623 287,101 (A)(B) 387,724
Institutional $ 178,720 (178,720) (B) -
Investment 286,788 (286,788) (B) -
---------------------------------------------------------------------
TOTAL $ 273,963 $ 465,508 $ 597 $ 740,068
=====================================================================
Shares Outstanding:
Fiduciary 173,332 178,701 (B) 352,033
Retail 100,626 286,809 (B) 387,435
Institutional 178,701 (178,701) (B) -
Investment 286,809 (286,809) (B) -
---------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 273,958 465,510 0 739,466
=====================================================================
Net Asset Value and Redemption Price Per Share:
Fiduciary $ 1.00 - $ 1.00
Retail 1.00 - $ 1.00
</TABLE>
B-17
<PAGE> 307
<TABLE>
<S> <C> <C> <C> <C>
Institutional - $ 1.00 -
Investment - 1.00 -
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments on
the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization (differences are due to rounding).
(See Notes to Pro Forma Financial Statements)
B-18
<PAGE> 308
HIGHMARK 100% U.S. TREASURY MONEY MARKET FUND
STEPSTONE TREASURY MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK
100% U.S. STEPSTONE
TREASURY TREASURY
MONEY MONEY PRO FORMA PRO FORMA
MARKET FUND MARKET FUND ADJUSTMENTS COMBINING
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 16,193 $ 21,447 $ 37,640
Dividend Income - - -
----------------------------- --------------
Total Income 16,193 21,447 37,640
EXPENSES:
Investment Adviser Fee 1,203 1,170 (302) (A) 2,071
Shareholder Services Fees 752 - (B) 752
Administration Fees 602 508 271 (C) 1,381
Custodian/Wire Agent Fee 127 29 (66) (D) 90
Professional Fees 52 60 (44) (D) 68
Registration Fees 28 78 (48) (D) 58
Distribution Fee 267 847 1,114
Trustees Fees 9 8 (4) (D) 13
Printing Costs 42 33 (38) (D) 37
Other 109 66 (85) (D) 90
--------------------------------------------------------------------
Total Expenses 3,191 2,799 (317) 5,673
Investment Adviser Fee Waiver (195) (219) (A) (414)
Distribution Fee Waiver (318) (318)
Expenses Voluntarily Reduced (978) (61) (E) (1,039)
--------------------------------------------------------------------
Total Net Expenses 2,213 2,286 (597) 3,902
Net Investment Income 13,980 19,161 597 33,738
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments (51) 5 (46)
--------------------------------------------------------------------
Change in net assets resulting from operations $ 13,929 $ 19,166 $ 597 $ 33,692
====================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .30% of the 100% U.S.
Treasury Money Market Fund (the "Fund") average daily net assets. The Adviser
has voluntarily agreed to waive fees to the extent necessary in order to limit
total operating expenses. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion.
(B) To support the provision of Shareholder Services to both classes of Shares,
HighMark has adopted a Shareholder Service Plan. In consideration of services
provided by any service provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective affiliates, the Fund
may pay a fee at the rate of up to .25% of its average daily net assets for the
period to such service provider. The service provider may voluntarily choose to
waive such fees at any time at its sole discretion. Currently such fees are
being waived to the rate of 0.00% of average daily net assets.
B-19
<PAGE> 309
(C) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average aggregate
net assets of the Fund for the period.
(D) The adjustment is made to reflect the expense reductions due to the
combining of two portfolios into one.
(E) The Adviser has voluntarily agreed to waive fees to the extent necessary in
order to limit total operating expenses to not more than .70% for the Retail
Class of Shares and .45% for the Fiduciary Class of Shares for the 100% U.S.
Treasury Money Market Fund.
(See Notes to Pro Forma Financial Statements)
B-20
<PAGE> 310
HIGHMARK 100% U.S. TREASURY MONEY MARKET FUND
STEPSTONE TREASURY MONEY MARKET FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark 100% U.S. Treasury Money Market Fund and Stepstone
Treasury Money Market Fund, collectively (the "Funds") as of July 31, 1996.
These statements have been derived from the books and records utilized in
calculating daily net assets values at July 31, 1996. The Pro Forma Combining
Statement of Operations reflects the accounts of HighMark 100% U.S. Treasury
Money Market Fund and Stepstone Treasury Money Market Fund for the twelve months
ended July 31, 1996, the most recent fiscal year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Treasury Money Market Fund in exchange for Retail and
Fiduciary Class of Shares of the HighMark 100% U.S. Treasury Money Market Fund.
Under generally accepted accounting principles, the HighMark 100% U.S. Treasury
Money Market Fund will be the surviving entity for accounting purposes with its
historical cost of investment securities and results of operations being
carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 178,701
Fiduciary Class and 287,809 Retail Class shares of HighMark 100% U.S. Treasury
Money Market Fund in exchange for 178,701 Institutional Class shares and 286,809
Investment Class shares, respectively.
B-21
<PAGE> 311
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the HighMark
California Tax-Free Money Market Fund and the Stepstone California Tax-Free
Money Market Fund as of and for the year ended July 31, 1996. These statements
have been derived from the Funds' books and records utilized in calculating
daily net asset value at July 31, 1996. The accompanying Pro Forma Combining
Statement of Operations reflects the accounts of HighMark California Tax-Free
Money Market Fund and Stepstone California Tax-Free Money Market Fund for the
year ended July 31, 1996, the most recent fiscal year end of the Registrant.
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA
TAX- TAX- TAX- TAX-
FREE FREE FREE FREE
MONEY MONEY MONEY MONEY
MARKET MARKET PRO FORMA MARKET MARKET PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL VALUE VALUE VALUE
AMOUNT AMOUNT AMOUNT (000'S)
(000'S)
<S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (95.7%)
Alameda County, Multi-Family Housing, VRDN,
900 900 RB (A) (B) (C) 3.350%, 08/07/96 $ 900 $ 900
Anaheim Public Improvement Corporation, 1995
Police Facilities Refinancing Project, COP,
2,500 2,500 AMBAC Insured (A) 3.400%, 08/07/96 2,500 2,500
California Education Facilities Authority
California Institute of Technology, RB
760 760 5.700%, 01/01/97 766 766
California Education Facilities Authority
Carnegie Institute of Washington, TECP
2,000 2,000 3.450%, 09/06/96 2,000 2,000
California Education Facilities Authority
Carnegie Institute of Washington, TECP
1,000 1,000 3.600%, 08/23/96 1,000 1,000
California Education Facilities Authority
University of Southern California, Ser B, RB
700 700 6.450%, 10/01/96 703 703
California Health Facilities Finance
Authority St. Francis Medical, Ser F, RB,
3,000 3,000 MBIA Insured (A) 3.350%, 08/07/96 3,000 3,000
California Health Facilities Financing
Authority, Adventist Health Systems, VRDN,
1,500 1,500 RB (A) (B) (C) 3.250%, 08/07/96 1,500 1,500
</TABLE>
B-22
<PAGE> 312
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
California Health Facilities Financing
Authority, Catholic Health Care, Ser A,
1,000 1,000 VRDN, RB, MBIA Insured (A) (B) 3.350%, 08/07/96 1,000 1,000
California Health Facilities Financing
Authority, Kaiser Permanente, Ser A, 1989,
500 500 RB (A) (B) 6.500%, 10/01/96 502 502
California Health Facilities Financing
Authority, Kaiser Permanente, Ser A, 1993,
5,000 5,000 VRDN, RB (A) (B) 3.250%, 08/07/96 5,000 5,000
California Health Facilities Financing
Authority, Memorial Health Services, VRDN,
5,040 5,040 RB (A) (B) 3.250%, 08/07/96 5,040 5,040
California Health Facilities Financing
Authority, Pooled Loan Program, Ser B, VRDN,
500 500 RB, FGIC Insured (A) (B) 3.400%, 08/07/96 500 500
California Health Facilities Financing
Authority, Santa Barbara Cottage Hospital,
2,900 2,900 VRDN, RB (A) (B) (C) 3.250%, 08/07/96 2,900 2,900
California Health Facilities Financing
Authority, Sutter Health, Ser A, VRDN, RB
1,300 1,300 (A) (B) 3.550%, 08/07/96 1,300 1,300
California Pollution Control Finance
Authority Chevron U.S.A. Inc. Project,
1,460 1,460 3.700%, 05/15/97 1,460 1,460
California Pollution Control Finance
Authority, Exxon Project, VRDN, RB (A) (B)
5,000 5,000 (C) 3.400%, 08/07/96 5,000 5,000
California Pollution Control Finance
Authority, Ser A, Shell Oil, VRDN, RB (A)
3,200 3,200 (B) 3.500%, 08/07/96 3,200 3,200
California Pollution Control Finance
Authority, Ser B, Shell Oil, VRDN, RB (A)
300 300 (B) (C) 3.500%, 08/07/96 300 300
California Pollution Control Finance, GO
Authority, Southern California Edison, Ser
1,600 1,600 C, VRDN, RB (A) (B) 3.400%, 08/07/96 1,600 1,600
California Pollution Control Financing
1,000 1,000 Authority TECP (C) 3.600%, 08/15/96 1,000 1,000
California State, GO TECP (C) 3.300%,
2,000 2,000 08/22/96 2,000 2,000
California Statewide Communities Development
1,007 1,007 Authority, Ser A, GO FSA Insured 4.750%, 06/30/97 1,007 1,007
California Statewide Community Development
Authority, St. Joseph Health System, COP,
1,600 1,600 VRDN, RB (A) (B) 3.250%, 08/07/96 1,600 1,600
Contra Costa County, Park Regency Apartment,
5,025 5,025 Series 1992, 3.70%, 8/1/32, AMT (A) 5,025 5,025
Del Mar Racetrack Authority TECP (C) 3.450%,
1,000 1,000 08/15/96 1,000 1,000
Department of Water Resources, 3.35%,
2,500 2,500 11/29/96 2,500 2,500
Downey Civic Center Project COP, MBIA
500 500 Insured 4.000%, 02/01/97 500 500
East Bay, Municipal Utility District, Water
System Revenue AMBAC Insured, Escrowed To
500 500 Maturity 8.875%, 06/01/97 521 521
Eastern Municipal Water District, COP, Ser B
100 100 VRDN, RB, FGIC Insured (A) (B) 3.250%, 08/07/96 100 100
Escondido Unified School District, Ser A,
1,000 1,000 GO, FGIC Insured 3.400%, 09/01/96 1,000 1,000
Healdsburg Community Redevelopment Agency,
3,760 3,760 VRDN, RB (A) (B) (C) 3.500%, 08/07/96 3,760 3,760
Health Facilities Authority, Enloe Memorial
3,300 3,300 Hospital, 3.00%, 1/1/16 (A) 3,300 3,300
</TABLE>
B-23
<PAGE> 313
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Health Facilities Authority, Memorial Health
6,800 6,800 Services, 3.25%, 10/1/24 (A) 6,800 6,800
Health Finance Authority, Catholic
900 900 Healthcare West, 3.25%, 7/01/09 900 900
Health Finance Authority, Catholic
6,600 6,600 Healthcare West, 3.25%, 7/1/05 (A) 6,600 6,600
Health Finance Authority, Kaiser Permanente
6,900 6,900 Series, 3.25%, 5/1/28 (A) 6,900 6,900
Health Finance Authority, Pooled Program,
1,700 1,700 Series 1990 A, 3.40%, 9/1/20 (A) 1,700 1,700
Health Finance Authority, Pooled Program,
2,400 2,400 Series B, 3.40%, 10/1/10 (A) 2,400 2,400
Health Finance Authority, Santa Barbara
1,200 1,200 Cottage, 3.25%, 9/1/15 (A) 1,200 1,200
Health Finance Authority, Santa Barbara
1,000 1,000 Cottage, Series B, 3.25%, 9/1/05 (A) 1,000 1,000
Huntington Park Redevelopment Agency,
Huntington Park Personal Storage I Project,
1,085 1,085 VRDN, RB (A) (B) (C) 3.900%, 08/07/96 1,085 1,085
Irvine Ranch Water District, Consolidated
Refunding Ser 1995 B, VRDN, RB (A) (B) (C)
2,500 2,500 3.550%, 08/07/96 2,500 2,500
Irvine Ranch Water District, Consolidated
Ser 1989, VRDN, GO (A) (B) (C) 3.550%,
700 700 08/07/96 700 700
Irvine Ranch Water District, Waterworks
Bond, Improvement District # 182, Ser A,
300 300 VRDN, RB (A) (B) (C) 3.550%, 08/07/96 300 300
Kern County Public Facilities, Project
1,200 1,200 Series B, 3.35%, 8/1/06 (A) 1,200 1,200
Lancaster Multi-Family Housing, Westwood
1,700 1,700 Park Apartments, 3.40%, 12/1/07 (A) 1,700 1,700
Los Angeles Community Redevelopment Agency,
Multi-Family Housing Revenue, Skyline at
South Park Phase II RB (A) (C) 3.550%,
800 800 08/07/96 800 800
Los Angeles County Metro Transportation
Authority, Union Station Gateway Project,
6,800 6,800 3.25%, 7/2/25 (A) 6,800 6,800
Los Angeles County Pension Obligation, Ser
2,000 2,000 B, GO (A) (C) 3.400%, 08/07/96 2,000 2,000
Los Angeles County Pension Obligation, Ser
2,000 2,000 C, RB, AMBAC Insured (A) 3.400%, 08/07/96 2,000 2,000
Los Angeles County Transportation
4,700 4,700 Commission, 3.40%, 7/1/12 (A) 4,700 4,700
Los Angeles Department of Water & Power,
2,000 2,000 Electric Plant Revenue, TECP 3.000%, 8/13/96 2,000 2,000
Los Angeles Department of Water & Power,
3,000 3,000 Electric Plant Revenue, TECP 3.450%, 8/16/96 3,000 3,000
Los Angeles Multi-Family Housing, Crescent
700 700 Gardens, 3.40%, 7/1/14 (A) 700 700
Los Angeles Multi-Family Housing, Series K,
3,700 3,700 3.25%, 7/1/10 (A) 3,700 3,700
Los Angeles Multi-Family Housing, Southpark
7,500 7,500 Apartment Project, 3.55%, 12/1/05 (A) 7,500 7,500
Los Angeles Waste Water System, TECP (C)
3,000 3,000 3.500%, 08/29/96 3,000 3,000
Metropolitan Water District of Southern
3,700 3,700 California, 3.25%, 6/1/23 3,700 3,700
Oxnard Housing Authority, Seawood Apartments
2,800 2,800 Project, 3.65%, 12/1/20, AMT (A) 2,800 2,800
</TABLE>
B-24
<PAGE> 314
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pollution Control Finance Authority, Burney
7,200 7,200 Forest 1988, 3.70%, 9/1/20, AMT (A) 7,200 7,200
Pollution Control Finance Authority, Delano
1,900 1,900 Project 1989, 3.65%, 8/1/19, AMT (A) 1,900 1,900
Pollution Control Finance Authority, Delano
2,310 2,310 Project 1990, 3.65%, 8/1/19, AMT (A) 2,310 2,310
Pollution Control Finance Authority, Delano
3,000 3,000 Project 1991, 3.65%, 8/1/19, AMT (A) 3,000 3,000
Pollution Control Finance Authority, Honey
Lake Power Project, Series 88, 3.65%,
2,600 2,600 9/1/18, AMT 2,600 2,600
Pollution Control Finance Authority, North
County Recycling Center, Series B, 3.40%,
1,700 1,700 7/1/17 (A) 1,700 1,700
Pollution Control Finance Authority, Pacific
500 500 Gas & Electric, Series 88C, 3.35%, 8/15/96 500 500
Pollution Control Finance Authority,
Southern California Edison, Series 85C,
1,550 1,550 3.15%, 8/1/96 1,550 1,550
Pollution Control Finance Authority,
Southern California Edison, Series 85C,
500 500 3.20%, 9/10/96 500 500
Pollution Control Finance Authority,
Southern California Edison, Series 85C,
4,000 4,000 3.35%, 10/1/96 4,000 4,000
Pollution Control Finance Authority,
Southern California Edison, Series 85C,
1,200 1,200 3.45%, 11/14/96 1,200 1,200
Pollution Control Finance Authority,
Southern California Edison, Series 85C,
3,200 3,200 3.55%, 9/24/96 3,200 3,200
Pollution Control Finance Authority,
Southern California Edison, Series 85C,
2,600 2,600 3.55%, 9/6/96 2,600 2,600
Pollution Control Finance Authority,
Southern California Edison, Series 85C,
500 500 3.60%, 1/15/97 500 500
Pollution Control Finance Authority,
Southern California Edison, Series 85D,
1,000 1,000 3.35%, 9/10/96 1,000 1,000
Pollution Control Finance Authority,
Southern California Edison, Series 86A,
1,100 1,100 3.40%, 2/28/08 (A) 1,100 1,100
Pollution Control Finance Authority,
Southern California Edison, Series 86B,
1,400 1,400 3.40%, 2/28/08 (A) 1,400 1,400
Pollution Control Finance Authority,
Southern California Edison, Series 86C,
2,000 2,000 3.40%, 2/28/08 2,000 2,000
Pollution Control Finance Authority,
Southern California Edison, Series 86D,
2,200 2,200 3.40%, 2/28/08 (A) 2,200 2,200
Riverside County Sales Tax Revenue, TECP (C)
1,000 1,000 3.350%, 8/6/96 1,000 1,000
Riverside County Sales Tax Revenue, TECP (C)
500 500 3.650%, 8/8/96 500 500
Sacramento County Multi-Family Housing
Authority, River Oaks Apartments, 3.55%,
2,200 2,200 9/15/07 2,200 2,200
Sacramento County Multi-Family Housing,
Riveroaks Apartments, VRDN, RB (A) (B) (C)
5,000 5,000 3.550%, 08/07/96 5,000 5,000
5,000 5,000 San Benardino County, TRAN, 4.50%, 6/30/97 5,027 5,027
San Bernadino County Housing Authority,
Victoria Terrace, Project A, VRDN, RB (A)
2,450 2,450 (B) (C) 3.350%, 08/07/96 2,450 2,450
San Bernadino Multi-Family Housing, Western
#3 Project, VRDN, RB (A) (B) (C) 3.400%,
2,500 2,500 08/07/96 2,500 2,500
San Bernadino Multi-Family Housing, Western
#4 Project, VRDN, RB (A) (B) (C) 3.400%,
2,500 2,500 08/07/96 2,500 2,500
San Bernadino Transportation Authority,
Sales Tax Revenue, VRDN, RB (A) (B) (C)
3,455 3,455 3.300%, 08/07/96 3,455 3,455
</TABLE>
B-25
<PAGE> 315
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
San Diego County Transportation Commission,
4,100 4,100 Sales Tax Revenue, TECP (C) 3.350%, 09/04/96 4,100 4,100
San Diego County Water Authority, TECP (C)
1,000 1,000 3.250%, 08/02/96 1,000 1,000
San Diego MTDB Authority, RB 4.250%,
1,010 1,010 09/01/96 1,011 1,011
San Diego Multi-Family Housing, University
Town Center Apartments, 1993 Issued, VRDN,
1,500 1,500 RB (A) (B) 3.300%, 08/07/96 1,500 1,500
San Jose Unified School District, County of
2,000 2,000 Santa Clara, TRAN 4.750%, 09/19/96 2,002 2,002
San Jose Unified School District, Santa
2,000 2,000 Clara County, TRAN 4.500%, 08/05/97 2,011 2,011
San Jose, Multi-Family Housing, Somerset
500 500 Park, 3.55%, 11/1/17, AMT (A) 500 500
3,000 3,000 San Mateo County, TRAN 4.500%, 07/01/97 3,015 3,015
San Mateo Union High School District, TRAN
1,000 1,000 4.250%, 07/10/97 1,002 1,002
Santa Clara Transport Authority, VRDN, RB
1,000 1,000 (A) (B) (C) 3.550%, 08/07/96 1,000 1,000
SCAPPA, Revenue, 91 Refunding Series, 3.40%,
2,900 2,900 7/1/19 (A) 2,900 2,900
2,500 2,500 Solano County, TRAN 4.500%, 11/01/96 2,504 2,504
Southern California Metro Water District,
Water Revenue VRDN, Ser 1996-A, RB, AMBAC
1,300 1,300 Insured (A) 3.250%, 08/07/96 1,300 1,300
Southern California Metro Water, TECP (C)
1,000 1,000 3.450%, 08/16/96 1,000 1,000
State of California, Tax Exempt Commercail
3,000 3,000 Paper, 3.10%, 8/7/96 3,000 3,000
State of California, Tax Exempt Commercial
1,000 1,000 Paper, 3.35%, 11/14/96 1,000 1,000
State of California, Tax Exempt Commercial
2,000 2,000 Paper, 3.55%, 9/13/96 2,000 2,000
Statewide Community Development Authority,
6,865 6,865 Series 95A, 3.45%, 5/15/25 (A) 6,866 6,866
Tracy Multi-Family Housing Refunding,
Sycamore Village Apartments, VRDN, RB (A)
2,300 2,300 (B) (C) 3.150%, 08/07/96 2,300 2,300
Turlock Irrigation District Transmission
1,000 1,000 Projects, COP, Ser A (A) (C) 3.300%,
08/07/96 1,000 1,000
Vacaville Mutli-Family Housing, The
900 900 Sycamores Apartments, 3.40%, 4/1/05 (A) 900 900
Vallejo Housing Authority, Multi-Family
Revenue, Crow Western Project Phase II,
5,200 5,200 VRDN, RB (A) (B) (C) 3.600%, 08/07/96 5,200 5,200
Vallejo Housing Authority, Multi-Family
Revenue, Fountain Plaza Hills Apartments,
1992 A, VRDN, RB, FNMA Insured (A) (B)
900 900 3.350%, 08/07/96 900 900
Walnut Creek Multi-Family Housing, Creekside
1,000 1,000 Drive Apartments, 3.40%, 4/1/07 (A) 1,000 1,000
West Covina Redevelopment Agency, Lakes
Public Parking Project, VRDN, RB (A) (B) (C)
2,025 2,025 4.250%, 08/07/96 2,025 2,025
Total California Municipal Bonds 136,978 120,319 257,297
</TABLE>
B-26
<PAGE> 316
<TABLE>
<CAPTION>
Shares Shares Shares
<S> <C> <C> <C> <C> <C>
INVESTMENT COMPANIES (4.3%)
Goldman Sachs California Tax-Exempt Money
5,214 5,214 Market Fund 5,214 5,214
6,312 6,312 Provident California Money Market Fund 6,312 6,312
Total Investment Companies 11,526 - 11,526
Total Investments (Cost $268,823) 148,504 120,319 268,823
</TABLE>
(A) Floating Rate Security - The rate reflected on the Statement of Net
Assets is the rate effective on July 31, 1996.
(B) Put and Demand Feature - The date reported is the lesser of the
maturity or the put date.
(C) Securities are held in conjunction with a letter of credit by
a major commercial bank or financial institution.
AMBAC - American Municipal Bond Assurance Corporation
AMT - Alternative Minimum Tax Paper
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Company
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance
GO - General Obligation
MBIA - Municipal Bond Investors Assurance
RB - Revenue Bond
Ser - Series
TECP - Tax Exempt Commercial Paper
TRAN - Tax and Revenue Anticipation Note
VRDN - Variable Rate Demand Note
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-27
<PAGE> 317
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
CALIFORNIA CALIFORNIA
TAX-FREE TAX-FREE
MONEY MONEY PRO FORMA PRO FORMA
MARKET FUND MARKET FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $148,504 $120,319 $268,823
Repurchase Agreements
----------------------------- --------------
Total Investments 148,504 120,319 268,823
Cash 897 2,437 $ 232 (A) 3,566
Interest & Dividends Receivable 432 613 1,045
Receivable from Brokers 2,500 2,500
Prepaid Expenses and Other Assets 10 11 21
Capital Shares Sold Receivable
----------------------------------------------------------------------
Total Assets 152,343 123,380 232 275,955
LIABILITIES:
Distributions Payable 287 270 557
Payable to Brokers 2,011 2,011
Accrued Expenses and Other Payables 77 112 189
----------------------------------------------------------------------
Total Liabilities 364 2,393 2,757
NET ASSETS:
Capital 152,028 120,988 273,016
Undistributed net investment income 232 (A) 232
Accumulated undistributed net realized gain (loss) on
investment transactions (49) (1) (50)
----------------------------------------------------------------------
NET ASSETS $ 151,979 $ 120,987 $ 232 $ 273,198
======================================================================
</TABLE>
B-28
<PAGE> 318
<TABLE>
<S> <C> <C> <C> <C>
Net Assets:
Fiduciary $ 98,352 $ 37,808 (A)(B) $136,160
Retail 53,627 83,411 137,038
Institutional $37,693 (37,693) (B)
Investment 83,294 (83,294) (B)
---------------------------------------------------------------------
TOTAL $151,979 $120,987 $ 232 $ 273,198
=====================================================================
Shares Outstanding:
Fiduciary 98,389 37,690(B) 136,079
Retail 53,639 83,298(B) 136,937
Institutional 37,690 (37,690)(B)
Investment 83,298 (83,298)(B)
---------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 152,028 120,988 (0) 273,016
=====================================================================
Net Asset Value and Redemption Price Per Share:
Fiduciary $ 1.00 $ 1.00
Retail 1.00 $ 1.00
Institutional $ 1.00
Investment $ 1.00
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments on
the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the reorganization
(differences are due to rounding).
(See Notes to Pro Forma Financial Statements)
B-29
<PAGE> 319
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
CALIFORNIA CALIFORNIA
TAX-FREE TAX-FREE
MONEY MONEY PRO FORMA PRO FORMA
MARKET FUND MARKET FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 5,301 $ 4,028 $ 9,329
Dividend Income
-------------------------------------------------------------------
Total Income 5,301 4,028 - 9,329
EXPENSES:
Investment Adviser Fee 618 350 $(155) (A) 813
Shareholder Services Fees 386 386
Administration Fees 309 152 (81) (C) 42
Custodian/Wire Agent Fee 111 17 (93) (D) 35
Professional Fees 29 21 (23) (D) 27
Registration Fees 5 12 6 (D) 23
Distribution Fee 122 314 436
Trustees Fees 5 2 (2) (D) 5
Printing Costs 23 11 (20) (D) 14
Other 61 (1) (30) (D) 30
-------------------------------------------------------------------
Total Expenses 1,669 878 (235) 2,312
Investment Adviser Fee Waiver (242) (327) (A) (569)
Distribution Fee Waiver (54) (54)
Expenses Voluntarily Reduced (824) 330 (E) (494)
Expense Reimbursements
-------------------------------------------------------------------
Total Net Expenses 845 582 (232) 1,195
Net Investment Income 4,456 3,446 232 8,134
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments
1 1
-------------------------------------------------------------------
Change in net assets resulting from operations $ 4,456 $ 3,447 $ 232 $ 8,135
===================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .30% of the California
Tax-Free Money Market Fund (the "Fund") average daily net assets. The Adviser
has voluntarily agreed to waive fees to the extent necessary in order to limit
total operating expenses. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion.
B-30
<PAGE> 320
(B) To support the provision of Shareholder Services to both classes of Shares,
HighMark has adopted a Shareholder Service Plan. In consideration of services
provided by any service provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective affiliates, the Fund
may pay a fee at the rate of up to .25% of its average daily net assets for the
period to such service provider. The service provider may voluntarily choose to
waive such fees at any time at its sole discretion. Currently such fees are
being waived to the rate of 0.00% of average daily net assets.
(C) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average aggregate
net assets of the Fund for the period.
(D) The adjustment is made to reflect the expense reductions due to the
combining of two portfolios into one.
(E) The Adviser has voluntarily agreed to waive fees to the extent necessary in
order to limit total operating expenses to not more than .55% for the Retail
Class of Shares and .30% for the Fiduciary Class of Shares for the California
Tax-Free Money Market Fund.
(See Notes to Pro Forma Financial Statements)
B-31
<PAGE> 321
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark California Tax-Free Money Market Fund and Stepstone
California Tax-Free Money Market Fund, collectively (the "Funds") as of July 31,
1996. These statements have been derived from the books and records utilized in
calculating daily net assets values at July 31, 1996. The Pro Forma Combining
Statement of Operations reflects the accounts of HighMark California Tax-Free
Money Market Fund and Stepstone California Tax-Free Money Market Fund for the
twelve months ended July 31, 1996, the most recent fiscal year of the
Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone California Tax-Free Money Market Fund in exchange for Retail
and Fiduciary Class of Shares of the HighMark California Tax-Free Money Market
Fund. Under generally accepted accounting principles, the Stepstone California
Tax-Free Money Market Fund will be the surviving entity for accounting purposes
with its historical cost of investment securities and results of operations
being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 37,690
Fiduciary Class and 83,298 Retail Class shares of HighMark California Tax-Free
Money Market Fund in exchange for 37,690 Institutional Class shares and 83,298
Investment Class shares, respectively.
B-32
<PAGE> 322
HIGHMARK BALANCED FUND
STEPSTONE BALANCED FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the Stepstone
Balanced Fund and the HighMark Balanced Fund as of and for the year ended July
31, 1996. These statements have been derived from the Funds' books and records
utilized in calculating daily net asset value at July 31, 1996. The accompanying
Pro Forma Combining Statement of Operations reflects the accounts of Stepstone
Balanced Fund and HighMark Balanced Fund for the year ended July 31, 1996, the
most recent fiscal year end of the Registrant.
HIGHMARK BALANCED FUND
STEPSTONE BALANCED FUND
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
BALANCED BALANCED PRO FORMA BALANCED BALANCED PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
(000'S)
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS (58.3%)
AEROSPACE & DEFENSE (0.8%)
30,000 30,000 Litton Industries(a) $1,290 $1,290
23,600 23,600 Watkins Johnson 510 510
5,800 5,800 B.F. Goodrich Co. $ 210 210
5,400 5,400 Raytheon Co. 262 262
472 1,800 2,272
AIR TRANSPORTATION (0.4%)
35,000 35,000 KLM Royal Dutch Air(a) 1,103 1,103
1,300 1,300 Federal Express Corp. (a) 101 101
2,200 2,200 Southwest Airlines Co. 55 55
156 1,103 1,259
AIRCRAFT (1.2%)
25,000 25,000 Lockheed Martin 2,072 2,072
20,000 20,000 Textron 1,600 1,600
3,672 3,672
APPAREL/TEXTILES (0.3%)
20,000 20,000 Springs Industries, Cl A 913 913
913 913
AUTOMOTIVE (0.5%)
45,610 45,610 Chrysler 1,294 1,294
5,900 5,900 Ford Motor Co. 192 192
192 1,294 1,486
BANKS (2.3%)
2,970 2,970 Banc One Corp. 103 103
25,000 25,000 Bank of Boston(a) 1,325 1,325
24,000 24,000 Bank of New York 1,236 1,236
</TABLE>
B-33
<PAGE> 323
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
4,800 4,800 BankAmerica Corp. 383 383
3,300 3,300 Chase Manhattan Corp. 229 229
10,000 10,000 First Union 635 635
8,000 8,000 Fleet Financial Group, Inc. 324 324
1,300 13,000 14,300 J.P. Morgan 112 1,118 1,230
3,300 3,300 National City Corp. 114 114
6,000 10,000 16,000 Norwest 213 355 568
2,400 2,400 Wachovia Corp. 106 106
19,000 19,000 Wilmington Trust 589 589
1,584 5,258 6,842
BROADCASTING, NEWSPAPERS &
ADVERTISING (0.5%)
40,000 40,000 Viacom, Cl B(a) 1,400 1,400
1,400 1,400
BUILDING MATERIALS (0.1%)
5,600 5,600 Masco Corp. 156 156
156 156
BUSINESS EQUIPMENT & SERVICES (0.1%)
1,900 1,900 Dun & Bradstreet Corp. 109 109
2,800 2,800 Pitney Bowes, Inc. 136 136
245 245
CHEMICALS (3.6%)
20,000 20,000 Avery Dennison 1,035 1,035
3,000 3,000 Betz Labs, Inc. 136 136
66,000 66,000 Cabot 1,658 1,658
1,400 1,400 Dow Chemical Co. 104 104
1,400 17,500 18,900 E.I. duPont De Nemours 113 1,413 1,526
40,100 40,100 First Mississippi 852 852
33,400 33,400 Georgia Gulf 1,027 1,027
5,000 50,000 55,000 Monsanto 156 1,563 1,719
25,000 25,000 Morton International 900 900
20,000 20,000 W.R. Grace 1,275 1,275
33,400 33,400 Wellman 651 651
509 10,374 10,883
COMMERCIAL GOODS & SERVICES (0.0%)
3,000 3,000 National Services Industries, Inc. 114 114
114 114
COMMUNICATIONS/ELECTRONIC
EQUIPMENT (2.0%)
7,600 7,600 AMP, Inc. 294 294
2,600 2,600 Duracell International, Inc. 117 117
2,500 2,500 Emerson Electric Co. 211 211
7,700 7,700 General Electric Co. 634 634
17,600 17,600 Harris 1,012 1,012
5,600 5,600 Intel Corp. 421 421
15,000 15,000 ITT(a) 851 851
4,800 24,000 28,800 Motorola 259 1,296 1,555
13,100 13,100 Sprint 480 480
4,100 4,100 Texas Instruments, Inc. 177 177
3,300 3,300 Thomas & Betts Corp. 120 120
2,233 3,639 5,872
</TABLE>
B-34
<PAGE> 324
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ENVIRONMENTAL SERVICES (0.0%)
6,000 6,000 Browning-Ferris Industries, Inc. 134 134
134 134
COMPUTERS & SOFTWARE SERVICES (2.8%)
32,500 32,500 Compaq Computer (a) 1,779 1,779
46,125 46,125 Computer Associates International 2,347 2,347
1,900 1,900 Electronic Data Systems Corp. (a) 101 101
36,000 36,000 Hewlett Packard 1,584 1,584
2,000 15,000 17,000 IBM 216 1,618 1,834
1,300 1,300 Microsoft Corp. (a) 153 153
35,000 35,000 Network Equipment Technologies(a) 464 464
2,800 2,800 Seagate Technology, Inc. (a) 136 136
2,400 2,400 Shared Medical Systems Corp. 132 132
738 7,792 8,530
CONCRETE & MINERAL PRODUCTS (0.4%)
85,000 85,000 Hanson PLC, ADR 1,084 1,084
3,700 3,700 Fleetwood Enterprises, Inc. 112 112
112 1,084 1,196
COSMETICS & TOILETRIES (0.1%)
2,900 2,900 Colgate-Palmolive Co. 228 228
International Flavors & Fragrances,
2,600 2,600 Inc. 111 111
339 339
DRUGS (4.1%)
2,600 2,600 Abbott Laboratories 114 114
30,000 30,000 American Home Products 1,703 1,703
30,000 30,000 Astra, Cl A, ADR 1,268 1,268
15,000 15,000 Bristol-Myers Squibb 1,299 1,299
35,000 35,000 Mallinckrodt Group 1,308 1,308
3,800 20,000 23,800 Merck 244 1,285 1,529
3,300 3,300 Pfizer, Inc. 231 231
30,000 30,000 Pharmacia & Upjohn 1,238 1,238
1,800 1,800 Schering-Plough Corp. 99 99
28,000 28,000 SmithKline Beecham 1,505 1,505
4,600 30,000 34,600 Warner Lambert 251 1,635 1,886
939 11,241 12,180
ELECTRICAL UTILITIES (0.9%)
4,600 4,600 FPL Group, Inc. 209 209
15,000 15,000 Nipsco Industries 561 561
49,000 49,000 Ohio Edison 1,029 1,029
9,500 9,500 PacifiCorp 198 198
9,000 9,000 Potomac Electric Power Co. (a) 217 217
6,500 6,500 Public Service Enterprise Group, Inc. 170 170
5,100 5,100 Texas Utilities Co. 214 214
1,008 1,590 2,598
ENTERTAINMENT (0.5%)
25,000 25,000 Walt Disney 1,391 1,391
1,391 1,391
FINANCIAL SERVICES (3.7%)
30,000 30,000 American Express 1,313 1,313
6,600 6,600 American General Corp. 230 230
</TABLE>
B-35
<PAGE> 325
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
53,600 53,600 BRE Properties, Cl A 1,139 1,139
48,900 48,900 CBL and Associates Properties 1,057 1,057
35,000 35,000 Donaldson, Lufkin, & Jenrette 1,037 1,037
7,600 60,000 67,600 FNMA 241 1,905 2,146
25,000 25,000 ITT Hartford Group(a) 1,322 1,322
20,000 20,000 MBNA 558 558
21,900 21,900 Post Properties 758 758
37,099 37,099 Travelers 1,567 1,567
471 10,656 11,127
FOOD, BEVERAGE & TOBACCO (2.9%)
6,200 6,200 Anheuser-Busch Co. 463 463
67,250 67,250 Archer Daniels Midland 1,194 1,194
5,600 5,600 Coca-Cola Co. 263 263
3,700 3,700 General Mills, Inc. 201 201
6,450 6,450 H. J. Heinz Co. 213 213
1,500 1,500 Hershey Foods Corp. 123 123
60,000 60,000 IBP 1,403 1,403
8,200 30,000 38,200 Pepsico 259 949 1,208
2,500 14,400 16,900 Philip Morris 262 1,507 1,769
1,700 1,700 Ralston-Purina Co. 107 107
25,000 25,000 Sara Lee 800 800
26,000 26,000 Universal Foods 777 777
6,200 6,200 UST, Inc. 206 206
2,097 6,630 8,727
FORESTRY & PAPER PRODUCTS (1.8%)
2,700 2,700 Georgia Pacific Corp. 202 202
2,200 2,200 International Paper Co. 83 83
1,500 1,500 Kimberly Clark Corp. 114 114
10,000 Kimberly-Clark 760 760
19,000 Mead 1,040 1,040
25,000 25,000 Rayonier 959 959
20,000 Weyerhaeuser 835 835
4,000 4,000 Weyerhaeuser Co. 167 167
19,000 Willamette Industries 1,116 1,116
566 4,710 5,276
GAS/NATURAL GAS (1.2%)
30,000 30,000 Coastal 1,118 1,118
31,100 31,100 Westcoast Energy 482 482
38,800 38,800 Williams 1,780 1,780
2,600 2,600 Consolidated Natural Gas Co. 131 131
4,100 4,100 Pacific Enterprises 121 121
1,900 1,900 Tenneco, Inc. 94 94
346 3,380 3,726
HEALTH CARE - GENERAL (0.2%)
2,500 2,500 Bristol-Myers Squibb Co. 217 217
5,000 5,000 Johnson & Johnson 239 239
456 456
HOSPITAL SUPPLY & MANAGEMENT (0.1%)
4,100 4,100 Columbia/HCA Healthcare Corp. 210 210
210 210
HOTELS & LODGING (0.3%)
</TABLE>
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<PAGE> 326
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10,000 10,000 Hilton Hotels 1,020 1,020
1,020 1,020
HOUSEHOLD FURNITURE & FIXTURES (0.3%)
31,200 31,200 Leggett & Platt 811 811
811 811
HOUSEHOLD PRODUCTS (0.3%)
14,100 14,100 Whirlpool 694 694
6,100 6,100 Rubbermaid, Inc. 175 175
175 694 869
INSURANCE (2.6%)
37,500 37,500 AFLAC 1,200 1,200
1,761 25,759 27,520 Allstate(a) 79 1,153 1,232
40,000 40,000 Equifax 1,005 1,005
50,000 50,000 Equitable 1,150 1,150
1,500 1,500 General Re Corp. 220 220
Hartford Steam Boiler Inspection &
2,100 2,100 Insurance Co. 92 92
2,250 2,250 Jefferson Pilot Corp. 118 118
30,000 30,000 Lincoln National 1,279 1,279
3,300 3,300 Marsh & McLennan Cos., Inc. 299 299
1,900 1,900 St. Paul Cos., Inc. 98 98
60,000 60,000 USF&G 953 953
906 6,740 7,646
LEASING & RENTING (0.5%)
42,250 42,250 Comdisco 1,003 1,003
15,000 15,000 Xtra 634 634
1,637 1,637
LUMBER & WOOD PRODUCTS (0.2%)
32,800 32,800 Louisiana-Pacific 668 668
668 668
MACHINERY (3.7%)
40,000 40,000 Applied Materials(a) 955 955
20,000 20,000 Briggs & Stratton 753 753
50,000 50,000 Commercial Intertech 1,275 1,275
25,000 25,000 Cummins Engine 934 934
37,500 37,500 Deere 1,341 1,341
50,000 50,000 Dresser Industries 1,350 1,350
16,600 16,600 General Electric 1,367 1,367
50,000 50,000 Global Industries Technologies(a) 850 850
35,000 35,000 Parker-Hannifin 1,221 1,221
4,300 4,300 Snap-On, Inc. 191 191
25,000 25,000 Toro 759 759
191 10,805 10,996
MANUFACTURING (0.1%)
500 500 Imation Corp. (a) 11 11
2,700 2,700 Ingersoll-Rand Co. 115 115
2,500 2,500 Service Corp. International 138 138
264 264
MEDICAL PRODUCTS & SERVICES (2.1%)
30,000 30,000 Bausch & Lomb 1,065 1,065
5,000 26,200 31,200 Baxter International 208 1,091 1,299
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
25,000 25,000 Columbia/HCA Healthcare(a) 1,281 1,281
60,000 60,000 Tenet Healthcare(a) 1,163 1,163
50,000 50,000 Vencor(a) 1,369 1,369
208 5,969 6,177
MOTOR VEHICLE PARTS (0.0%)
2,400 2,400 Genuine Parts Co. 102 102
102 102
MULTIPLE INDUSTRY (0.2%)
10,800 10,800 Corning, Inc. 398 398
5,000 5,000 Minnesota Mining & Manufacturing Co. 325 325
723 723
PETROLEUM & FUEL PRODUCTS (0.7%)
50,000 50,000 Occidental Petroleum 1,119 1,119
38,400 38,400 Union Pacific Resources Group 1,013 1,013
2,132 2,132
PETROLEUM REFINING (4.1%)
4,600 4,600 Amoco Corp. 308 308
29,000 29,000 Ashland 1,062 1,062
1,900 1,900 Atlantic Richfield Co. 220 220
5,600 28,000 33,600 Chevron 324 1,621 1,945
35,000 35,000 Diamond Shamrock R&M 971 971
2,700 2,700 Exxon Corp. 222 222
36,300 36,300 Imperial Oil 1,516 1,516
2,000 15,000 17,000 Mobil 221 1,656 1,877
6,700 6,700 Phillips Petroleum Co. 265 265
9,800 9,800 Royal Dutch Petroleum, ADR 1,479 1,479
2,400 2,400 Texaco, Inc. 204 204
30,000 30,000 Unocal 979 979
62,000 62,000 USX-Marathon Group 1,271 1,271
1,764 10,555 12,319
PETROLEUM SERVICES (0.1%)
9,300 9,300 Baker Hughes, Inc. 273 273
2,000 2,000 Halliburton Co. 104 104
377 377
PHOTOGRAPHIC EQUIPMENT & SUPPLIES
(0.8%)
1,600 15,000 16,600 Eastman Kodak 120 1,119 1,239
24,000 24,000 Xerox 1,209 1,209
120 2,328 2,448
PRECIOUS METALS (0.2%)
23,636 23,636 Barrick Gold 659 659
659 659
PRINTING & PUBLISHING (2.1%)
28,400 28,400 Belo, Cl A 1,143 1,143
3,500 3,500 Gannett Co., Inc. 230 230
25,000 25,000 Houghton Mifflin 1,175 1,175
45,000 45,000 Lafarge 821 821
50,000 50,000 Media General 1,431 1,431
40,000 40,000 Time Warner 1,395 1,395
230 5,965 6,195
RAILROADS (1.4%)
3,100 20,000 23,100 Burlington Northern Santa Fe 245 1,578 1,823
</TABLE>
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<PAGE> 328
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
16,400 16,400 Conrail Holding 1,074 1,074
2,100 15,000 17,100 Union Pacific 144 1,028 1,172
389 3,680 4,069
REAL ESTATE (0.6%)
35,000 35,000 First Industrial Realty Trust 823 823
52,000 52,000 JP Realty 1,099 1,099
1,922 1,922
REPAIR SERVICES (0.7%)
21,000 21,000 PHH 1,118 1,118
92,800 92,800 Rollins Truck Leasing 998 998
2,116 2,116
RESTAURANTS (0.0%)
6,800 6,800 Brinker International, Inc. 89 89
89 89
RETAIL (1.3%)
5,500 5,500 Albany International, Class A 102 102
33,000 33,000 American Stores 1,229 1,229
2,200 2,200 Home Depot, Inc. 111 111
4,400 4,400 J.C. Penney, Inc. 219 219
15,000 15,000 Kroger(a) 566 566
2,800 37,000 39,800 Sears Roebuck 115 1,517 1,632
6,900 6,900 Wal-Mart Stores, Inc. 165 165
712 3,312 4,024
RUBBER & PLASTIC (0.6%)
40,572 40,572 Mark IV Industries 852 852
20,000 20,000 Tupperware 855 855
1,707 1,707
SEMI-CONDUCTORS/INSTRUMENTS (1.3%)
20,000 20,000 AMP 773 773
30,000 30,000 Intel 2,254 2,254
70,000 70,000 National Semiconductor 989 989
4,016 4,016
STEEL & STEEL WORKS (0.4%)
23,900 23,900 Engelhard 490 490
9,600 9,600 Texas Industries 643 643
1,133 1,133
TELEPHONES & TELECOMMUNICATION (2.2%)
11,400 40,000 51,400 Airtouch Communications(a) 313 1,100 1,413
3,800 3,800 Ameritech Corp. 211 211
4,500 17,271 21,771 AT&T 235 900 1,135
20,000 20,000 Bell Atlantic 1,183 1,183
5,000 5,000 BellSouth Corp. 205 205
2,100 2,100 DSC Communications Corp.(a) 63 63
33,400 33,400 Frontier 939 939
5,700 5,700 GTE Corp. 235 235
400 400 Lucent Technologies, Inc. 15 15
3,500 3,500 MCI Telecommunications Corp. 86 86
4,000 4,000 Network Equipment Technologies, Inc. (a) 53 53
20,000 20,000 NYNEX 898 898
6,100 6,100 U.S. West, Inc. 185 185
1,601 5,020 6,621
</TABLE>
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<PAGE> 329
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
TOOLS (0.0%)
3,800 3,800 Stanley Works 108 108
108 108
TOYS (0.0%)
4,250 4,250 Mattel, Inc. 105 105
105 105
TRANSPORTATION SERVICES (0.4%)
23,400 23,400 GATX 1,053 1,053
1,053 1,053
WHOLESALE (0.5%)
28,000 28,000 Arrow Electronics(a) 1,183 1,183
10,100 10,100 Hughes Supply 330 330
1,513 1,513
Total Common Stocks 21,141 153,382 174,523
U.S. TREASURY OBLIGATIONS (19.7%)
U.S. TREASURY NOTES (18.9%)
Principal Principal Principal
Amount Amount Amount
206 206
200,000 200,000 8.130%, 02/15/98
1,500,000 1,500,000 6.125%, 03/31/98 1,500 1,500
1,500,000 1,500,000 5.875%, 04/30/98 1,493 1,493
1,300,000 1,300,000 6.000%, 05/31/98 1,295 1,295
1,000,000 1,000,000 8.250%, 07/15/98 1,037 1,037
1,000,000 1,000,000 5.000%, 02/15/99 969 969
1,000,000 1,000,000 7.000%, 04/15/99 1,016 1,016
1,000,000 1,000,000 6.375%, 05/15/99 1,000 1,000
1,000,000 1,000,000 6.375%, 07/15/99 1,000 1,000
1,500,000 1,500,000 7.125%, 09/30/99 1,529 1,529
1,000,000 1,000,000 7.500%, 10/31/99 1,030 1,030
1,000,000 1,000,000 7.750%, 11/30/99 1,039 1,039
1,500,000 1,500,000 7.125%, 02/29/00 1,530 1,530
1,000,000 2,000,000 3,000,000 5.500%, 04/15/00 969 1,936 2,905
1,500,000 1,500,000 6.125%, 09/30/00 1,478 1,478
700,000 700,000 5.750%, 10/31/00 680 680
500,000 500,000 8.500%, 11/15/00 536 536
3,000,000 3,000,000 5.625%, 02/28/01 2,891 2,891
1,000,000 1,000,000 6.250%, 04/30/01 987 987
2,000,000 2,000,000 6.500%, 05/31/01 1,994 1,994
1,000,000 1,000,000 6.625%, 06/30/01 1,002 1,002
6,000,000 6,000,000 7.500%, 11/15/01 6,236 6,236
2,000,000 2,000,000 6.375%, 08/15/02 1,975 1,975
1,000,000 1,000,000 6.250%, 02/15/03 978 978
500,000 500,000 5.880%, 02/15/04 475 475
4,500,000 4,500,000 6.500%, 05/15/05 4,420 4,420
4,500,000 4,500,000 6.500%, 08/15/05 4,416 4,416
3,000,000 3,000,000 5.625%, 02/15/06 2,765 2,765
1,000,000 1,000,000 6.875%, 05/15/06 1,005 1,005
1,000,000 1,000,000 7.000%, 07/15/06 1,014 1,014
7,000,000 7,000,000 6.000%, 02/15/26 6,150 6,150
</TABLE>
B-40
<PAGE> 330
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY BONDS (0.8%)
1,150,000 1,150,000 7.25%, 05/15/16 1,171 1,171
205,000 205,000 8.75%, 08/15/20 244 244
1,125,000 1,125,000 7.13%, 02/15/23 1,130 1,130
2,545 2,545
Total U.S. Treasury Obligations 5,768 53,328 59,096
U.S. GOVERNMENT AGENCY (6.2%)
FNMA
3,020,000 3,020,000 7.500%, 08/01/01 3,045 3,045
991,000 991,000 8.000%, 08/01/24 997 997
4,428,000 4,428,000 8.000%, 05/01/25 4,454 4,454
1,350,000 1,350,000 5.45%, 10/10/03 1,242 1,242
316,003 316,003 6.50%, 3/1/24, Pool #276510 297 297
999,999 999,999 8.00%, 7/1/26 1,006 1,006
GNMA
3,786,000 3,786,000 6.500%, 09/15/08 3,665 3,665
2,440,000 2,440,000 6.000%, 11/15/08 2,311 2,311
95,076 95,076 6.50%, 2/15/24, Pool #388599 88 88
484,019 484,019 7.50%, 5/15/24, Pool #386494 476 476
1,016,375 1,016,375 7.00%, 2/15/26 972 972
Total U.S. Government Agency
Mortgage-Backed Bonds 4,081 14,472 18,553
CORPORATE OBLIGATIONS (10.6%)
2,000,000 2,000,000 American General, 6.75%, 06/15/05 1,918 1,918
2,000,000 2,000,000 American Telephone & Telegraph, 7.50%, 2,033 2,033
06/01/06
2,000,000 2,000.000 Associates of North America, 7.875%, 2,070 2,070
09/30/01
2,000,000 2,000,000 Avco Financial Services, 7.375%, 2,023 2,023
0815/01
215,000 215,000 Bank of America, 6.00%, 7/15/97 214 214
2,000,000 2,000,000 Bankers Trust NY, 7.50%, 11/15/15 1,910 1,910
95,000 95,000 Bass America, Inc., 6.75%, 8/1/99 95 95
175,000 175,000 Bell Atlantic Maryland, 8.00%,10/15/29 184 184
205,000 205,000 Caterpillar Tractor Co., 6.00%, 5/1/07 184 184
1,500,000 1,500,000 Chemical Banking, 6.70%, 08/15/08 1,397 1,397
Chesapeake & Potomac Telephone of
1,500,000 1,500,000 Maryland, 6.00%, 05/01/03 1,416 1,416
100,000 100,000 Citicorp, 6.75%, 8/15/05 96 96
First National Bank of Boston, 8.0%,
2,000,000 2,000,000 09/15/04 2,050 2,050
300,000 300,000 Ford Capital, 9.38%, 1/1/98 312 312
General Motors Acceptance Corp., 8.00%,
305,000 305,000 10/1/99 315 315
Golden West Financial Corp., 6.70%,
100,000 100,000 7/1/02 97 97
100,000 100,000 Hydro-Quebec, 8.05%, 7/7/24 106 106
200,000 200,000 IBM Corp., 8.38%,11/1/19 215 215
100,000 100,000 J.C. Penney, Inc., 6.00%, 5/1/06 90 90
</TABLE>
B-41
<PAGE> 331
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1,500,000 1,500,000 Joseph E. Seagram and Sons, 7.00%, 04/15/08 1,451 1,451
2,000,000 2,000,000 Lehman Brothers Holding, 8.5%, 05/01/07 2,098 2,098
2,000,000 2,000,000 Lockheed Martin, 7.70%, 06/15/08 2,020 2,020
1,000,000 1,000,000 Mobil, 7.25%, 03/15/99 1,014 1,014
New England Telephone & Telegraph Co.,
125,000 125,000 7.88%, 11/15/29 131 131
215,000 215,000 Norske Hydro, 7.75%, 6/15/23 215 215
1,000,000 1,000,000 Panhandle Eastern, 7.875%, 08/15/04 1,024 1,024
Province of British Columbia, 7.00%,
1,500,000 1,500,000 01/15/03 1,498 1,498
2,000,000 2,000,000 Ralston Purina, 7.750%, 10/01/15 1,969 1,969
Royal Bank of Scotland, 6.375%,
1,500,000 1,500.000 02/01/11 1,337 1,337
150,000 150,000 Sears Roebuck Co., 9.25%, 8/1/97 154 154
150,000 150,000 U.S. Bancorp, 6.75%, 10/15/05 143 143
2,000,000 2,000,000 Wal-Mart Stores, 5.875%, 10/15/05 1,820 1,820
200,000 200,000 Wal-Mart Stores, Inc., 6.38%, 3/1/03 193 193
Total Corporate Bonds 2,744 29,048 31,792
ASSET BACKED SECURITIES (2.1%)
American Express 1994-1A
1,500,000 1,500,000 7.150%, 08/15/99 1,520 1,520
Banc One Credit Card Master Trust,
2,000,000 2,000,000 Ser 1994-A, Cl A 7.150%, 12/15/98 2,011 2,011
J.C. Penney's Master Credit Card Trust,
1,000,000 1,000,000 Ser C, C1 A 9,625%, 06/1500 1,096 1,096
Carco Auto Loan Master Trust, Series
205,000 205,000 1994-2, 7.88%, 3/15/98 207 207
Carco Auto Loan Master Trust, Series
190,000 190,000 1991-3, 7.88%, 8/15/97 194 194
Contimortgage Home Equity Loan Trust,
200,000 200,000 8.09%, 9/15/09 203 203
Contimortgage Home EquityLoan Trust,
200,000 200,000 7.44%, 9/15/12 197 197
250,000 250,000 Green Tree Financial Corp., 6.80%, 1/15/26 244 244
400,000 400,000 Standard Credit Card MasterTrust, 4.65%, 3/7/99 395 395
165,324 165,324 UFSB Grantor Trust, 5.08%, 5/15/00 163 163
Total Asset Backed Securities 1,603 4,627 6,230
</TABLE>
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<PAGE> 332
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS
(0.3%)
86,516 86,516 Country Wide Mortgage, 6.75%, 3/25/08 84 84
500,000 500,000 Federal Home Loan Mortgage Corp., 6.25%, 1/15/24 449 449
GE Capital Mortgage Service, Inc., 1994-
250,000 250,000 1, 6.50%, 1/25/24 235 235
Residential Funding Mortgage, 6.75%,
175,000 175,000 11/25/07 168 168
Total Collateralized Mortgage Obligations 936 936
REPURCHASE AGREEMENT (2.8%)
Deutsche Morgan Grenfell/C.J. Lawrence,
Inc. 5.65%, dated 07/31/96, matures
08/01/96, repurchase price $4,649,948
(collateralized by FHLB, par value
$4,750,000, 0.00%, matures 08/05/96:
4,649,000 4,649,000 market value $4,745,811) 4,649 4,649
C.S. First Boston Corp.
5.62%, 8/1/96 (Collateralized by 3,033
U.S. Treasury Bonds, 10.38%, 11/15/12 ,
3,786,776 3,786,776 market value-$3,870 ) 3,787 3,787
Total Repurchase Agreements 3,787 4,649 8,436
Total Investments (99.34%) (Cost $262,511) 40,060 259,506 299,566
</TABLE>
(a) Non-income producing security
ADR -- American Depository Receipt
CL -- Class
FHLB -- Federal Home Loan Bank
GNMA -- Government National Mortgage Association
PLC -- Public Limited Company
SER -- Series
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-43
<PAGE> 333
HIGHMARK BALANCED FUND
STEPSTONE BALANCED FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
BALANCED BALANCED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $ 36,273 $ 254,857 $ 291,130
Repurchase Agreements 3,787 4,649 8,436
----------------------------------- ---------------
Total Investments 40,060 259,506 299,566
Cash - (36) $ (204)(A) (240)
Interest & Dividends Receivable 278 2,051 2,329
Prepaid Expenses and Other Assets 9 5 14
Capital Shares Sold Receivable 202 202
--------------------------------------------------------------------------------
Total Assets 40,347 261,728 (204) 302,000
LIABILITIES:
Distributions Payable 118 - 118
Payable for Capital Shares Redeemed - 86 86
Accrued Expenses and Other Payables 33 271 304
--------------------------------------------------------------------------------
Total Liabilities 151 357 508
NET ASSETS:
Capital 35,830 217,015 252,845
Net unrealized appreciation
(depreciation) on investments 4,114 32,941 37,055
Undistributed net investment
income 1 407 (204) (A) 333
Accumulated undistributed net
realized gain (loss) on investment
transactions 251 11,008 11,259
--------------------------------------------------------------------------------
NET ASSETS $ 40,196 $ 261,371 $ (204) $ 301,363
================================================================================
Net Assets:
Fiduciary $ 39,502 $ 253,381 (A)(B) $ 292,883
Retail 694 7,785 (A)(B) 8,479
Institutional $ 253,580 (253,580) (B) -
Investment 7,791 (7,791) (B) -
--------------------------------------------------------------------------------
TOTAL $ 40,196 $ 261,371 $ (204) $ 301,363
================================================================================
Shares Outstanding:
Fiduciary 3,392 17,754 (B) 21,146
Retail 60 552 (B) 612
Institutional 18,308 (18,308) (B) -
Investment 563 (563) (B) -
--------------------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 3,452 18,871 565 21,758
================================================================================
Net Asset Value and Redemption Price
Per Share:
Fiduciary $ 11.64 $ 13.85
Retail 11.56 13.85
</TABLE>
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<PAGE> 334
<TABLE>
<S> <C> <C>
Institutional $ 13.85 -
Investment 13.85 -
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments
on the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-45
<PAGE> 335
HIGHMARK BALANCED FUND
STEPSTONE BALANCED FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
BALANCED BALANCED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 996 $ 6,018 $ 7,014
Dividend Income 549 3,305 3,854
------------------------------- -------------
Total Income 1,545 9,323 10,868
EXPENSES:
Investment Adviser Fee 348 1,431 $ (141) (A) 1,638
Shareholder Services Fees 87 159 (B) 246
Administration Fees 70 311 165 (C) 546
Custodian/Wire Agent Fee 81 25 (71) (D) 35
Professional Fees 6 39 (18) (D) 27
Registration Fees 3 34 (14) (D) 23
Distribution Fee 2 32 34
Trustees Fees 1 7 (3) (D) 5
Printing Costs 6 23 (14) (D) 15
Other 17 38 (23) (D) 32
--------------------------------------------------------------------
Total Expenses 621 1,940 40 2,601
Distribution Fee Waiver (15) (15)
Expenses Voluntarily Reduced (293) 164 (E) (129)
--------------------------------------------------------------------
Total Net Expenses 328 1,925 $ 204 2,457
Net Investment Income 1,217 7,398 (204) 8,411
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on 446 13,467 13,913
Investments
Net Realized Gain/(Loss) on
Option Contracts 51 51
Net change in unrealized
appreciation (depreciation)
on investments 1,716 2,517 4,233
--------------------------------------------------------------------
Net realized/unrealized
gains/(losses) on
investments 2,162 16,035 18,197
--------------------------------------------------------------------
Change in net assets resulting
from operations $ 3,379 $ 23,433 $ (204) $ 26,608
====================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .60% of the Balanced Fund
(the "Fund") average daily net assets.
(B) To support the provision of Shareholder Services to both classes of
Shares, HighMark has adopted a Shareholder Service Plan. In consideration of
services provided by any service provider, which may include Union Bank of
California, N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, the Fund may pay a fee at the rate of up to .25% of its average
daily net assets for the period to such service provider. The service provider
may voluntarily choose to waive such fees at any time at its sole discretion.
Currently such fees are being waived to the rate of 0.00% of average daily net
assets.
B-46
<PAGE> 336
(C) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(D) The adjustment is made to reflect the expense reductions due to the
combining of two portfolios into one.
(E) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than 1.15% for the
Retail Class of Shares and .90% for the Fiduciary Class of Shares for the
Balanced Fund.
(See Notes to Pro Forma Financial Statements)
B-47
<PAGE> 337
HIGHMARK BALANCED FUND
STEPSTONE BALANCED FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Balanced Fund and Stepstone Balanced Fund,
collectively (the "Funds") as of July 31, 1996. These statements have been
derived from the books and records utilized in calculating daily net assets
values at July 31, 1996. The Pro Forma Combining Statement of Operations
reflects the accounts of HighMark Balanced Fund and Stepstone Balanced Fund for
the twelve months ended July 31, 1996, the most recent fiscal year of the
Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Balanced Fund in exchange for Retail and Fiduciary Class of
Shares of the HighMark Balanced Fund. Under generally accepted accounting
principles, the Stepstone Balanced Fund will be the surviving entity for
accounting purposes with its historical cost of investment securities and
results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes that the HighMark Balanced Fund
has executed a stock split on July 31, 1996 immediately preceding the
Reorganization, to allow the Net Asset Values of the HighMark Balanced Fund
Fiduciary and Retail shares to match the Net Asset Values of the Stepstone
Balanced Fund Institutional and Investment Class shares, respectively.
Accordingly, this resulted in an adjustment to the number of shares outstanding
in the HighMark Balanced Fund of 554 in the Fiduciary Class and 11 in the
Retail Class shares. If the Reorganization is consummated, the actual
adjustments to the number of shares outstanding in each respective class of the
HighMark Fund may vary from the numbers provided due to changes in the Net
Asset Values between July 31, 1996 and the Reorganization Date.
B-48
<PAGE> 338
HIGHMARK GROWTH FUND
STEPSTONE GROWTH EQUITY FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the HighMark
Growth Fund and the Stepstone Growth Equity Fund as of and for the year ended
July 31, 1996. These statements have been derived from the Funds' books and
records utilized in calculating daily net asset value at July 31, 1996. The
accompanying Pro Forma Combining Statement of Operations reflects the accounts
of HighMark Growth Fund and Stepstone Growth Equity Fund for the year ended
July 31, 1996, the most recent fiscal year end of the Registrant.
HIGHMARK GROWTH FUND
STEPSTONE GROWTH EQUITY FUND
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
STEPSTONE STEPSTONE
HIGHMARK GROWTH HIGHMARK GROWTH
GROWTH EQUITY PRO FORMA GROWTH EQUITY PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
(000'S)
<S> <C> <C> <C> <C> <C>
COMMON STOCK (94.2%)
AEROSPACE (0.4%)
24,565 24,565 B.F. Goodrich $890 $890
890 890
AUTOMOTIVE ( 1.2%)
49,788 49,788 Chrysler $1,413 1,413
27,000 27,000 Magna International, Cl A 1,202 1,202
2,615 2,615
BANKS (3.9%)
10,365 10,365 BankAmerica Corp. 827 827
36,300 36,300 Banc One 1,257 1,257
3,280 3,280 Barnett Banks, Inc. 201 201
16,030 16,030 Chase Manhattan 1,114 1,114
16,830 16,000 32,830 Fleet Financial Group 681 648 1,329
90,780 90,780 U.S. Bancorp 3,109 3,109
3,825 3,825 Wells Fargo & Co. 891 891
3,714 5,014 8,728
BUSINESS EQUIPMENT & SERVCES (0.1%)
9,080 9,080 Office Max, Inc.(a) 120 120
120 120
</TABLE>
B-49
<PAGE> 339
<TABLE>
<S> <C> <C> <C> <C> <C>
CAPITAL EQUIPMENT (0.1%)
3,240 3,240 Illinois Tool Works 209 209
209 209
CHEMICALS (3.7%)
8,000 8,000 Eli Lilly 448 448
24,000 24,000 Georgia Gulf 738 738
37,800 37,800 Great Lakes Chemical 2,178 2,178
3,750 3,750 Hercules, Inc. 188 188
60,500 60,500 IMC Fertilizer Group 2,390 2,390
35,000 35,000 Monsanto 1,094 1,094
20,000 20,000 W.R. Grace 1,275 1,275
188 8,123 8,311
COMMUNICATIONS EQUIPMENT (2.2%)
49,000 49,000 ADC Telecommunications(a) 2,070 2,070
55,000 55,000 DSC Communications(a) 1,650 1,650
5,170 20,000 25,170 Motorola, Inc. 279 1,080 1,359
279 4,800 5,079
COMPUTERS & SOFTWARE SERVICES (20.1%)
2,885 2,885 Automatic Dataprocessing, Inc. 114 114
9,610 9,610 Ceridan Corp.(a) 418 418
17,005 106,200 123,205 Cisco Systems(a) 880 5,496 6,376
32,000 32,000 Compaq Computer(a) 1,752 1,752
11,888 54,000 65,888 Computer Associates International, Inc. 605 2,747 3,352
3,355 3,355 Computer Sciences (a) 228 228
48,700 48,700 Compuware(a) 2,051 2,051
161,655 161,655 CUC International(a) 5,618 5,618
5,840 5,840 Digital Equipment (a) 207 207
17,770 17,770 Electronic Data Systems Corp. (a) 940 940
11,588 67,683 79,271 First Data Corp. 899 5,254 6,153
43,500 43,500 Fiserv(a) 1,457 1,457
14,660 75,600 90,260 Hewlett Packard 645 3,326 3,971
4,375 4,375 International Business Machines 472 472
3,705 35,000 38,705 Microsoft Corp. (a) 437 4,126 4,563
32,000 32,000 Netcom On Line Communication Services(a) 600 600
95,000 95,000 Olsten 2,518 2,518
10,045 10,045 Oracle Systems Corp.(b) 393 393
5,350 16,000 21,350 Parametric Technology Corp.(b) 223 666 889
14,390 14,390 Seagate Technology(b) 696 696
4,685 109,200 113,885 Silicon Graphics(a) 110 2,566 2,676
2,140 2,140 Sun Microsystems, Inc.(a) 117 117
7,384 38,177 45,561
CONTAINERS & PACKAGING (0.1%)
18,400 18,400 Bway 317 317
317 317
CONSUMER GOODS & SERVICES (0.3%)
21,715 21,715 Xilinx, Inc. (a) 703 703
703 703
</TABLE>
B-50
<PAGE> 340
<TABLE>
<S> <C> <C> <C> <C> <C>
COSMETICS & TOILETRIES (0.8%)
81%)
4,720 4,720 Avon Products 208 208
5,485 5,485 Colgate-Palmolive Co. 430 430
15,360 15,360 Gillette Co. 977 977
5,110 5,110 Ingersoll-Rand Co. 218 218
1,833 1,833
DRUGS (4.1%)
17,370 53,000 70,370 ALZA Corp. C1A(a) 430 1,312 1,742
4,900 4,900 Astra AB, C1A (a) 207 207
45,700 45,700 Mallinckrodt Group 1,708 1,708
7,240 15,000 22,240 Merck 465 964 1,429
11,240 58,200 113,920 Schering Plough 620 3,208 3,828
4,500 4,500 SmithKline Beecham PLC-ADR (a) 242 242
1,964 7,192 9,156
DURABLE GOODS (0.1%)
15,870 15,870 Coleman, Inc. (a) 282 282
282 282
ELECTRICAL UTILITIES (1.1%)
25,000 25,000 Illinova 644 644
16,000 16,000 Ohio Edison 336 336
56,500 56,500 Pinnacle West Capital 1,596 1,596
2,576 2,576
ELECTRICAL EQUIPMENT (1.3%)
5,480 5,480 AMP, Inc. 212 212
10,640 10,640 Duracell International, Inc. 480 480
11,860 11,860 General Electric Co. 977 977
13,275 13,275 Intel Corp. 997 997
14,810 14,810 National Semiconductor Corp. (a) 209 209
2,875 2,875
ELECTRONIC COMPONENTS (0.0%)
3,245 3,245 Applied Materials, Inc.(a) 77 77
77 77
ELECTRONIC INSTRUMENTS (0.1%)
4,220 4,220 Texas Instruments, Inc. 183 183
183 183
ENTERTAINMENT (1.5%)
56,000 56,000 Ambassador International (a) 686 686
7,080 7,080 Circus Circus Enterprises, Inc. (a) 217 217
6,715 6,715 Harrah's Entertainment (a) 148 148
16,000 16,000 Regal Cinemas (a) 680 680
28,591 28,591 Walt Disney 1,590 1,590
365 2,956 3,321
</TABLE>
B-51
<PAGE> 341
<TABLE>
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES (5.3%)
14,835 14,835 American Express Co. 649 649
5,745 5,745 Federal Home Loan Mortgage Corp. 484 484
30,635 136,800 167,435 FNMA 973 4,343 5,316
1,405 1,405 Household International, Inc. 105 105
162,450 162,450 MBNA 4,528 4,528
10,926 10,926 Mutual Risk Management Ltd. 307 307
15,935 15,935 Travelers Corp. (a) 673 673
3,191 8,871 12,062
FOOD, BEVERAGE & TOBACCO (3.0%)
8,985 8,985 Anheuser-Busch Co. 672 672
19,215 19,215 Coca-Cola Co. 901 901
2,550 2,550 General Mills, Inc. 138 138
2,950 2,950 Hershey Foods 242 242
32,000 32,000 IBP 748 748
26,390 59,600 85,990 PepsiCo 834 1,885 2,719
8,700 8,700 Phillip Morris Cos., Inc. 910 910
5,397 5,397 Ralston-Purina Co. 339 339
3,105 3,105 UST 103 103
4,139 2,633 6,772
FOREST & PAPER PRODUCTS (0.2%)
5,605 5,605 Albany International Corp., C1A 104 104
1,220 1,220 Georgia Pacific Corp. 91 91
2,340 2,340 International Paper Co. 89 89
5,280 5,280 Weyerhaeuser Co. 220 220
504 504
GAS/NATURAL GAS (1.2%)
32,000 32,000 Coastal 1,192 1,192
2,305 2,305 Tenneco, Inc. 114 114
32,000 32,000 Williams 1,468 1,468
114 2,660 2,774
HEALTHCARE-DRUGS (1.1%)
4,962 4,962 Abbott Laboratories 218 218
3,820 3,820 American Home Products Corp. 217 217
8,501 8,501 Amgen, Inc. (a) 464 464
9,090 9,090 Pfizer, Inc. 635 635
15,850 15,850 Pharmacia & Upjohn Co. 654 654
6,270 6,270 Warner-Lambert Co. 342 342
2,530 2,530
HEALTHCARE-GENERAL (0.4%)
18,230 18,230 Johnson & Johnson 870 870
870 870
</TABLE>
B-52
<PAGE> 342
<TABLE>
<S> <C> <C> <C> <C> <C>
HOSPITAL SUPPLY & MANAGEMENT (0.1%)
4,081 4,081 Columbia/HCA Healthcare Corp. 209 209
209 209
HOTEL MANAGEMENT & RELATED SERVICES (0.1%)
7,392 7,392 Promus Hotel Corp. (a) 202 202
202 202
HOUSEHOLD FURNITURE & FIXTURES (0.5%)
40,000 40,000 Leggett & Platt 1,040 1,040
1,040 1,040
HOUSEHOLD PRODUCTS (0.6%)
31,200 31,200 Danaher 1,244 1,244
2,270 2,270 Proctor & Gamble Co. 203 203
203 1,244 1,447
INSURANCE (6.5%)
23,111 23,111 Aetna 1,343 1,343
48,000 48,000 AFLAC 1,536 1,536
2,547 2,547 Allstate Corp. 114 114
5,955 5,955 American International Group, Inc. 560 560
60,200 60,200 AMBAC 2,875 2,875
8,000 8,000 CRA Managed Care (a) 311 311
1,560 1,560 General Re Corp. 229 229
56,000 56,000 Healthcare Compare (a) 2,163 2,163
1,400 1,400 Marsh & McLennan Cos., Inc. 127 127
2,985 26,600 29,585 MBIA, Inc. 226 2,012 2,238
67,000 67,000 Oxford Health Plan (a) 2,312 2,312
17,000 17,000 Progressive of Ohio 859 859
1,256 13,411 14,667
LEISURE PRODUCTS (1.3%)
17,405 17,405 The Walt Disney Co. 968 968
78,125 78,125 Mattel 1,934 1,934
968 1,934 2,902
MACHINERY (2.3%)
32,000 32,000 Applied Materials (a) 764 764
5,275 5,275 Deere & Co. 189 189
35,100 35,100 General Electric 2,891 2,891
28,000 28,000 Varity (a) 1,316 1,316
189 4,971 5,160
MANUFACTURING (0.2%)
8,480 8,480 Service Corp. International 468 468
468 468
</TABLE>
B-53
<PAGE> 343
<TABLE>
<S> <C> <C> <C> <C> <C>
MARINE TRANSPORTATION (1.4%)
121,000 121,000 Carnival, Cl A 3,252 3,252
3,252 3,252
MEDICAL PRODUCTS & SERVICES (2.1%)
6,469 6,469 Chiron Corp. (a) 569 569
99,600 99,600 Nellcor (a) 2,353 2,353
63,225 63,225 Vivra (a) 1,841 1,841
569 4,194 4,763
PAPER & PAPER PRODUCTS (0.5%)
20,000 20,000 Willamette Industries 1,175 1,175
1,175 1,175
PETROLEUM & FUEL PRODUCTS (0.5%)
4,835 4,835 Baker Hughes, Inc. 142 142
3,655 3,655 Dresser Industries Inc. 99 99
4,520 4,520 Halliburton Co. 236 236
1,215 8,000 9,215 Schlumberger Ltd. 97 640 737
574 640 1,214
PETROLEUM REFINING (2.7%)
7,515 16,000 23,515 Amoco Corp. 503 1,070 1,573
12,900 12,900 Ashland 472 472
18,561 18,561 British Petroleum, ADR 2,039 2,039
16,000 16,000 Chevron 926 926
5,305 8,400 13,705 Exxon Corp. 436 691 1,127
939 5,198 6,137
PROFESSIONAL SERVICES (1.2%)
71,800 71,800 Medaphis (a) 2,666 2,666
2,666 2,666
PUBLISHING (0.4%)
13,535 13,535 Gannett Co., Inc. 888 888
888 888
RAILROADS (1.7%)
24,000 24,000 Burlington Northern Santa Fe 1,893 1,893
53,400 53,400 Kansas City Southern Industries 2,069 2,069
3,962 3,962
REAL ESTATE (0.4%)
93,000 93,000 Innkeepers USA Trust 977 977
977 977
</TABLE>
B-54
<PAGE> 344
<TABLE>
<S> <C> <C> <C> <C> <C>
RETAIL (9.9%)
32,000 32,000 Applebee's International 804 804
134,120 134,120 Corporate Express (a) 5,013 5,013
8,190 8,190 Home Depot, Inc. 414 414
76,000 76,000 Kohls (a) 2,385 2,385
51,800 51,800 Landry's Seafood Restaurants (a) 1,153 1,153
23,720 51,600 75,320 McDonald's 1,100 2,393 3,493
49,000 49,000 Orchard Supply Hardware Stores (a) 1,390 1,390
61,500 61,500 Papa John's International (a) 2,644 2,644
80,500 80,500 Pep Boys-Manny, Moe & Jack 2,435 2,435
11,480 11,480 Price/Costco, Inc. (a) 235 235
9,425 9,425 Safeway, Inc. (a) 339 339
10,625 10,625 Sears Roebuck & Co. 436 436
7,215 39,400 46,615 Toys "R" Us (a) 190 1,039 1,229
21,800 21,800 Wal-Mart Stores 523 523
2,714 19,779 22,493
RUBBER & PLASTIC (0.9%)
24,000 24,000 Goodyear Tire & Rubber 1,062 1,062
46,305 46,305 Mark IV Industries 972 972
2,034 2,034
SEMI-CONDUCTORS/INSTRUMENTS (3.9%)
24,000 24,000 Aavid Thermal Technologies (a) 165 165
127,400 127,400 Integrated Device Technology (a) 1,099 1,099
70,200 70,200 Intel 5,274 5,274
33,000 33,000 National Semiconductor (a) 466 466
60,000 60,000 Recoton (a) 1,020 1,020
25,000 25,000 Xilinx 809 809
8,833 8,833
TELEPHONES & TELECOMMUNICATION (3.6%)
12,585 12,585 Airtouch (a) 346 346
3,550 3,550 Ameritech Corp. 197 197
5,260 5,260 AT&T Corp. 274 274
57,000 57,000 Cincinnati Bell 2,772 2,772
4,500 4,500 GTE Corp. 186 186
6,555 6,555 Lucent Technologies, Inc. 243 243
78,800 78,800 MCI Communications 1,940 1,940
5,115 5,115 Network Equipment Technologies (a) 68 68
43,200 43,200 SBC Communications 2,111 2,111
1,314 6,823 8,137
TOYS (0.3%)
25,040 25,040 Mattel, Inc. 620 620
620 620
TRUCKING (0.8%)
98,125 98,125 Wabash National 1,705 1,705
1,705 1,705
Total Common Stock 43,527 169,772 213,299
</TABLE>
B-55
<PAGE> 345
<TABLE>
<S> <C> <C> <C>
PREFERRED STOCKS (0.2%)
INSURANCE (0.2%)
7,707 7,707 Aetna (a) 483 483
Total Preferred Stocks 483 483
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS (5.6%)
Deutsche Morgan Grenfell/C.J. Lawrence,
Inc. 5.650%, dated 07/31/96, matures
08/01/96, repurchase price $11,847,914
(collateralized by U.S. Treasury Note,
total par value $190,000, 6.000%,
12/31/97: FNMA obligation total par value
$3,000,000, 6.000%, 12/31/97: FHLMC
obligation total par value $9,129,000,
11,846,000 11,846,000 0.000%, 09/12/96: total market value 11,846 11,846
$12,083,953)
C.S. First Boston Corp., 5.62%, 8/1/96
(Collateralized by 825,000 U.S. treasury
899,983 899,983 Bonds, 8.75%, 11/15/08, market value 900 900
$922)
Total Repurchase Agreements 900 11,846 12,746
Total Investments (100.0%) (COST 159,287) $44,427 $182,101 $226,528
</TABLE>
(a) Non-income producing security
ADR American Depositary Receipt
C1 Class
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
PLC Public Limited Company
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-56
<PAGE> 346
HIGHMARK GROWTH FUND
STEPSTONE GROWTH EQUITY FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in Thousands) HIGHMARK STEPSTONE
GROWTH FUND GROWTH EQUITY PRO FORMA PRO FORMA
FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $ 43,527 $ 170,255 $ 213,782
Repurchase Agreements 900 11,846 12,746
----------------------------- --------------
Total Investments 44,427 182,101 226,528
Cash (41) $ (163) (A) (204)
Interest & Dividends Receivable 55 176 231
Receivable from Brokers 216 350 566
Prepaid Expenses and Other Assets 5 4 9
Capital Shares Sold Receivable 125 125
---------------------------------------------------------------------
Total Assets 44,703 182,715 (163) 227,255
LIABILITIES:
Distributions Payable 28 28
Payable for Capital Shares Redeemed 100 100
Payable to Brokers 301 301
Accrued Expenses and Other Payables 36 198 234
---------------------------------------------------------------------
Total Liabilities 365 298 663
NET ASSETS:
Capital 38,047 106,037 144,084
Net unrealized appreciation (depreciation) on
investments 3,917 63,324 67,241
Undistributed net investment income 267 (163) (A) 194
Accumulated undistributed net realized gain (loss) 2,374 12,789 15,163
on investment transactions
---------------------------------------------------------------------
NET ASSETS $ 44,338 $ 182,417 $ (163) $ 226,592
=====================================================================
Net Assets:
Fiduciary $ 41,495 $ 178,927 (A)(B) $ 220,422
Retail 2,843 3,327 (A)(B) 6,170
Institutional $ 179,086 (179,086) (B)
Investment 3,331 (3,331) (B)
---------------------------------------------------------------------
TOTAL $ 44,338 $ 182,417 $ (163) $ 226,592
=====================================================================
Shares Outstanding:
Fiduciary 3,300 14,221 (B) 17,521
Retail 226 264 (B) 490
Institutional 9,777 (9,777) (B)
Investment (B)
182 (182)
---------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 3,526 9,959 4,526 18,011
=====================================================================
</TABLE>
B-57
<PAGE> 347
<TABLE>
<S> <C> <C> <C>
Net Asset Value and Redemption Price Per Share:
Fiduciary $ 12.58 $ 12.58
Retail $ 12.60 $ 12.60
Institutional $ 18.32
Investment $ 18.30
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments
on the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-58
<PAGE> 348
HIGHMARK GROWTH FUND
STEPSTONE GROWTH EQUITY FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE
GROWTH FUND GROWTH EQUITY PRO FORMA PRO FORMA
FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 82 $ 584 $ 666
Dividend Income 607 1,966 2,573
----------------------------- -------------
Total Income 689 2,550 3,239
EXPENSES:
Investment Adviser Fee 362 1,079 $ (146) (A) 1,295
Shareholder Services Fees 90 104 (B) 194
Administration Fees 72 234 126 (C) 432
Custodian/Wire Agent Fee 101 20 (93) (D) 28
Professional Fees 6 31 (25) (D) 12
Registration Fees 4 25 (11) (D) 18
Distribution Fee 5 7 12
Trustees Fees 1 6 (3) (D) 4
Printing Costs 6 19 (14) (D) 11
Other 21 25 (15) (D) 31
---------------------------------------------------------------------
Total Expenses 668 1,446 (77) 2,037
Distribution Fee Waiver (2) (2)
Expenses Voluntarily Reduced (333) 240 (E) (93)
---------------------------------------------------------------------
Total Net Expenses 335 1,444 163 1942
Net Investment Income 354 1,106 (163) 1,297
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments $ 14,655 14,655
Net Realized Gain/(Loss) on
Investment Transactions 3,272 3,272
Net Realized Gain/(Loss) on Option Contracts 308 308
Net change in unrealized
appreciation/(depreciation) on investments 155 3,186 3,341
---------------------------------------------------------------------
Net realized/unrealized gains/(losses)
on investments 3,427 18,149 21,576
---------------------------------------------------------------------
Change in net assets resulting from operations $ 3,781 $ 19,255 $ (163) $ 22,873
=====================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .60% of the Growth Fund
(the "Fund") average daily net assets.
(B) To support the provision of Shareholder Services to both classes of
Shares, HighMark has adopted a Shareholder Service Plan. In consideration of
services provided by any service provider, which may include Union Bank of
California, N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, Fund may pay a fee at the rate of up to .25% of its average daily
net assets
B-59
<PAGE> 349
for the period to such service provider. The service provider may voluntarily
choose to waive such fees at any time at its sole discretion. Currently such
fees are being waived to the rate of 0.00% of average daily net assets.
(C) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(D) The adjustment is made to reflect the expense reductions due to the
combining of two portfolios into one.
(E) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than 1.15% for the
Retail Class of Shares and .90% for the Fiduciary Class of Shares for the
Growth Fund.
(See Notes to Pro Forma Financial Statements)
B-60
<PAGE> 350
HIGHMARK GROWTH FUND
STEPSTONE GROWTH EQUITY FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Growth Fund and Stepstone Growth Equity Fund,
collectively (the "Funds") as of July 31, 1996. These statements have been
derived from the books and records utilized in calculating daily net assets
values at July 31, 1996. The Pro Forma Combining Statement of Operations
reflects the accounts of HighMark Growth Fund and Stepstone Growth Equity Fund
for the twelve months ended July 31, 1996, the most recent fiscal year of the
Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Growth Equity Fund in exchange for Retail and Fiduciary
Class of Shares of the HighMark Growth Fund. Under generally accepted
accounting principles, the HighMark Growth Fund will be the surviving entity for
accounting purposes with its historical cost of investment securities and
results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 14,222 Fiduciary
Class and 264 Retail Class shares of HighMark Growth Fund in exchange for 9,777
Institutional Class shares and 182 Investment Class shares, respectively. These
numbers are based on the net assets of each class of the Stepstone Growth Equity
Fund, and the net asset values of each respective class of HighMark Growth Fund,
as of July 31, 1996. If the Reorganization is consummated, the actual
adjustments to the number of shares outstanding in each respective class of the
HighMark Fund may vary from the numbers provided due to changes in the Net Asset
Values between July 31, 1996 and the Reorganization date.
B-61
<PAGE> 351
HIGHMARK VALUE MOMENTUM FUND
STEPSTONE VALUE MOMENTUM FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the HighMark
Value Momentum Fund and the Stepstone Value Momentum Fund as of and for the
year ended July 31, 1996. These statements have been derived from the Funds'
books and records utilized in calculating daily net asset value at July 31,
1996. The accompanying Pro Forma Combining Statement of Operations reflects the
accounts of HighMark Value Momentum Fund and Stepstone Value Momentum Fund for
the year ended July 31, 1996, the most recent fiscal year end of the
Registrant.
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
VALUE MOMENTUM VALUE MOMENTUM PRO FORMA VALUE MOMENTUM VALUE MOMENTUM PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
(000'S)
<C> <C> <S> <C> <C>
COMMON STOCKS (92.9%)
AEROSPACE & DEFENSE (0.6%)
30,000 30,000 Rockwell International 1,575 1,575
1,575 1,575
AIRCRAFT (1.0%)
30,000 30,000 Textron 2,400 2,400
2,400 2,400
APPAREL/TEXTILES (0.4%)
20,000 20,000 Springs Industries, Cl A 913 913
913 913
AUTOMOTIVE (2.1%)
40,000 40,000 Arvin Industries 865 865
50,000 50,000 Fleetwood Enterprises 1,519 1,519
45,000 45,000 Ford Motor 1,463 1,463
14,000 14,000 TRW 1,265 1,265
5,112 5,112
BANKS (4.0%)
30,000 30,000 BankAmerica 2,393 2,393
15,000 15,000 Bankers Trust New York 1,078 1,078
45,000 45,000 First Union 2,858 2,858
25,000 25,000 J.P. Morgan 2,150 2,150
50,000 50,000 Wilmington Trust 1,550 1,550
10,029 10,029
CHEMICALS (6.1%)
52,000 52,000 Avery Dennison 2,691 2,691
</TABLE>
B-62
<PAGE> 352
<TABLE>
<C> <C> <S> <C> <C>
106,000 106,000 Cabot 2,663 2,663
33,000 33,000 Du Pont (E.I.) de Nemours 2,665 2,665
60,000 60,000 Monsanto 1,875 1,875
64,000 64,000 W.R. Grace 4,080 4,080
60,000 60,000 Wellman 1,170 1,170
15,144 15,144
COMMUNICATIONS EQUIPMENT (1.8%)
60,000 60,000 CTS 2,580 2,580
35,000 35,000 Harris 2,013 2,013
COMPUTERS & SERVICES (4.1%)
60,000 60,000 Cisco Systems (a) 3,105 3,105
100,000 100,000 Hewlett Packard 4,400 4,400
24,000 24,000 International Business Machines 2,589 2,589
10,094 10,094
DRUGS (5.3%)
30,000 30,000 American Home Products 1,703 1,703
40,000 40,000 Astra AB-A, ADR 1,690 1,690
13,000 13,000 Bristol Myers Squibb 1,126 1,126
65,000 65,000 Mallinckrodt Group 2,429 2,429
50,000 50,000 Merck 3,213 3,213
57,000 57,000 SmithKline Beecham, ADR 3,064 3,064
13,225 13,225
ELECTRICAL UTILITIES (1.0%)
75,000 75,000 General Public Utilities 2,438 2,438
2,438 2,438
FINANCIAL SERVICES (7.5%)
105,957 105,957 Bear Stearns 2,384 2,384
152,262 152,262 BRE Properties, Cl A 3,236 3,236
75,000 75,000 CBL Associates Properties 1,622 1,622
45,000 45,000 Dean Witter Discover 2,289 2,289
120,000 120,000 FNMA 3,810 3,810
65,000 65,000 Post Properties 2,251 2,251
75,001 75,001 Travelers 3,169 3,169
18,761 18,761
FOOD, BEVERAGE & TOBACCO (5.2%)
20,000 20,000 American Brands 910 910
130,000 130,000 IBP 3,039 3,039
35,000 35,000 Philip Morris 3,662 3,662
70,000 70,000 Sara Lee 2,240 2,240
6,000 6,000 Unilever NV, ADR 854 854
75,000 75,000 Universal Foods 2,241 2,241
</TABLE>
B-63
<PAGE> 353
<TABLE>
<C> <C> <S> <C> <C>
FOOTWEAR (0.1%)
8,800 8,800 Payless Shoesource (a) 285 285
285 285
GAS/NATURAL GAS (4.1%)
45,000 45,000 Coastal 1,676 1,676
75,000 75,000 MCN 1,763 1,763
42,000 42,000 Questar 1,323 1,323
40,000 40,000 Sonat 1,705 1,705
70,000 70,000 Westcoast Energy 1,085 1,085
55,000 55,000 Williams 2,523 2,523
10,075 10,075
GLASS PRODUCTS (0.5%)
27,000 27,000 PPG Industries 1,330 1,330
1,330 1,330
HOTELS & LODGING (0.6%)
15,000 15,000 Hilton Hotels 1,530 1,530
1,530 1,530
HOUSEHOLD FURNITURE & FIXTURES (0.9%)
85,000 85,000 Leggett & Platt 2,210 2,210
2,210 2,210
HOUSEHOLD PRODUCTS (0.5%)
27,000 27,000 Whirlpool 1,330 1,330
INSURANCE (4.4%)
39,467 39,467 Allstate (a) 1,766 1,766
40,000 40,000 Chubb 1,670 1,670
100,000 100,000 Equifax 2,513 2,513
40,000 40,000 Lincoln National 1,705 1,705
50,000 50,000 Providian 1,981 1,981
30,000 30,000 Torchmark 1,279 1,279
10,914 10,914
LEASING & RENTING (2.1%)
135,000 135,000 Comdisco 3,206 3,206
45,000 45,000 Xtra 1,901 1,901
5,107 5,107
MACHINERY (4.2%)
15,000 15,000 Applied Materials (a) 358 358
60,000 60,000 Deere 2,145 2,145
90,000 90,000 Dresser Industries 2,430 2,430
45,000 45,000 General Electric 3,707 3,707
60,000 60,000 Toro 1,823 1,823
10,463 10,463
</TABLE>
B-64
<PAGE> 354
<TABLE>
<C> <C> <S> <C> <C>
MEASURING DEVICES (0.7%)
35,000 35,000 Perkin Elmer 1,829 1,829
1,829 1,829
MEDICAL PRODUCTS & SERVICES (1.4%)
25,000 25,000 Becton, Dickinson 1,866 1,866
50,000 50,000 Novacare (a) 394 394
66,000 66,000 Tenet Healthcare (a) 1,279 1,279
3,539 3,539
MISCELLANEOUS BUSINESS SERVICES (0.4%)
17,000 17,000 Electronic Data Systems 899 899
899 899
MISCELLANEOUS TRANSPORTATION (0.7%)
30,000 30,000 Harsco 1,778 1,778
1,778 1,778
OFFICE FURNITURE & FIXTURES (0.3%)
27,500 27,500 Hon Industries 825 825
825 825
PAPER & PAPER PRODUCTS (3.2%)
58,360 58,360 Kimberly-Clark 4,435 4,435
45,000 45,000 Weyerhaeuser 1,879 1,879
27,000 27,000 Willamette Industries 1,586 1,586
7,900 7,900
PETROLEUM & FUEL PRODUCTS (0.3%)
30,000 30,000 Union Pacific Resources 791 791
791 791
PETROLEUM REFINING (4.9%)
30,000 30,000 Ashland 1,099 1,099
25,000 25,000 Chevron 1,447 1,447
50,000 50,000 Imperial Oil 2,088 2,088
28,000 28,000 Mobil 3,091 3,091
13,000 13,000 Royal Dutch Petroleum, ADR 1,961 1,961
48,000 48,000 Unocal 1,566 1,566
40,000 40,000 Valero Energy 825 825
12,077 12,077
PHOTOGRAPHIC EQUIPMENT & SUPPLIES (1.8%)
35,000 35,000 Eastman Kodak 2,612 2,612
39,000 39,000 Xerox 1,965 1,965
</TABLE>
B-65
<PAGE> 355
<TABLE>
<C> <C> <S> <C> <C>
PRINTING & PUBLISHING (2.8%)
40,000 40,000 Houghton Mifflin 1,880 1,880
100,000 100,000 Lafarge 1,825 1,825
110,000 110,000 Wallace Computer Services 3,218 3,218
6,923 6,923
RAILROADS (2.3%)
22,000 22,000 Burlington Northern Santa Fe 1,735 1,735
25,000 25,000 Florida East Coast Railway 1,953 1,953
30,000 30,000 Union Pacific 2,055 2,055
5,743 5,743
REAL ESTATE (2.1%)
110,000 110,000 First Industrial Realty Trust 2,585 2,585
120,000 120,000 JP Realty 2,535 2,535
5,120 5,120
REPAIR SERVICES (2.1%)
65,000 65,000 PHH 3,461 3,461
160,000 160,000 Rollins Truck Leasing 1,720 1,720
5,181 5,181
RETAIL (2.8%)
54,000 54,000 Dayton-Hudson 1,634 1,634
50,000 50,000 Kroger (a) 1,888 1,888
55,000 55,000 May Department Stores 2,468 2,468
21,000 21,000 Sears Roebuck 861 861
6,851 6,851
SEMI-CONDUCTORS/INSTRUMENTS (2.5%)
70,000 70,000 Intel 5,259 5,259
75,000 75,000 National Semiconductor (a) 1,059 1,059
6,318 6,318
STEEL & STEEL WORKS (1.0%)
20,000 20,000 Aluminum Company of America 1,160 1,160
67,500 67,500 Engelhard 1,384 1,384
2,544 2,544
TELEPHONES & TELECOMMUNICATION (4.7%)
33,449 33,449 AT&T 1,744 1,744
16,000 16,000 Airtouch Communications (a) 440 440
90,000 90,000 Century Telephone Enterprises 2,869 2,869
60,000 60,000 Comsat 1,155 1,155
90,000 90,000 Frontier 2,531 2,531
60,000 60,000 GTE 2,475 2,475
12,000 12,000 Lucent Technologies 446 446
11,660 11,660
</TABLE>
B-66
<PAGE> 356
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
<C> <C> <S> <C> <C>
TRANSPORTATION SERVICES (0.9%)
51,000 51,000 GATX 2,295 2,295
2,295 2,295
WHOLESALE (1.7%)
50,000 50,000 Avnet 2,181 2,181
70,000 70,000 Universal 1,931 1,931
4,112 4,112
Total Common Stocks 231,436 231,436
REPURCHASE AGREEMENT (6.9%)
17,145,000 17,145,000 Deutsche Morgan Grenfell/C.J. Lawrence, Inc. 17,145 17,145
5.650%, dated 07/31/96, matures 08/01/96,
repurchase price $17,147,518 (collateralized
by FHLMC obligations, total par value
$2,489,000, 0.00%, 08/19/96: U.S. Treasury Notes,
total par value $15,194,000, 05/15/98-10/31/00:
total market value $17,488,658
Total Repurchase Agreement 17,145 17,145
Total Investments (100.0%) (Cost $180,343) 248,581 248,581
</TABLE>
(a) Non-income producing security
ADR -- American Depository Receipt
CL -- Class
FHLMC - Federal Home Loan Mortgage
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-67
<PAGE> 357
HIGHMARK VALUE MOMENTUM FUND
STEPSTONE VALUE MOMENTUM FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK VALUE STEPSTONE VALUE
MOMENTUM FUND MOMENTUM FUND PRO FORMA ADJUSTMENTS PRO FORMA COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $ 231,436 $ 231,436
Repurchase Agreements 17,145 17,145
--------------------------------- -------------
Total Investments 248,581 248,581
Cash (64) 25(A) (89)
Interest & Dividends Receivables 353 353
Receivable from Brokers - -
Prepaid Expenses and Other Assets - 4 4
Capital Shares Sold Receivable 643 643
---------------------------------------------------------------------------
Total Assets - 249,517 (25) 249,492
LIABILITIES:
Payable for Capital Shares Redeemed - 20 20
Accrued Expenses and Other Payables - 258 258
---------------------------------------------------------------------------
Total Liabilities - 275 - 278
NET ASSETS:
Capital - 170,701 170,701
Net unrealized appreciation on investments - 68,238 68,238
Undistributed net investment income - 247 (25) (A) 320
Accumulated undistributed net realized gain
(loss) on investment transactions - 10,053 10,053
---------------------------------------------------------------------------
NET ASSETS $ - $ 249,239 (25) $ 249,214
===========================================================================
Net Assets:
Fiduciary $ - 236,651 (A)(B) $ 236,651
Retail - 12,564 (A)(B) 12,566
Institutional 236,674 (236,674)(B) -
Investment 12,565 (12,565)(B) -
---------------------------------------------------------------------------
TOTAL $ - $ 249,239 $ (25) $ 249,214
===========================================================================
Shares Outstanding:
Fiduciary - - 12,877 (B) 12,877
Retail - - 684 (B) 684
Institutional - 12,877 (12,877)(B) -
Investment - 684 (684)(B) -
---------------------------------------------------------------------------
TOTAL SHARES OUTSTANDING - 13,561 0 13,561
===========================================================================
</TABLE>
B-68
<PAGE> 358
Net Asset Value and Redemption Price Per Share:
<TABLE>
<S> <C> <C> <C>
Fiduciary - - $ 18.38
Retail - - 18.38
Institutional - $ 18.38 -
Investment - 18.38
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments on
the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-69
<PAGE> 359
HIGHMARK VALUE MOMENTUM FUND
STEPSTONE VALUE MOMENTUM FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK VALUE STEPSTONE VALUE
MOMENTUM FUND MOMENTUM FUND PRO FORMA ADJUSTMENTS PRO FORMA COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ - $ 766 $ 766
Dividend Income - 5,505 5,505
--------------------------------- ------------
Total Income - 6,271 6,271
Expenses:
Investment Adviser Fee - 1,382 (1)(A) 1,381
Administration Fees - 299 161 (B) 460
Custodian/Wire Agent Fee - 24 6 (C) 30
Professional Fees - 35 (12)(C) 23
Registration Fees - 25 (6)(C) 19
Distribution Fee - 48 - 48
Trustees Fees - 7 (3)(C) 4
Printing Costs - 28 (16)(C) 2
Other 43 (12)(C) 31
-----------------------------------------------------------------------
Total Expenses 1,891 118 2,009
Investment Adviser Fee Waiver - -
Distribution Fee Waiver (22) (93) (22)
Expenses Voluntarily Reduced (93)
-----------------------------------------------------------------------
Total Net Expenses 1,869 25 1,894
Net Investment Income 4,402 (25) 4,377
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments - 12,498 12,498
Net change in unrealized appreciation
(depreciation)on foreign currency transactions 17,418 17,418
------------------------------------------------------------------------
Net realized/unrealized gains/(losses) on 29,916 (25) 29,916
investments
------------------------------------------------------------------------
Change in net assets resulting from operations $ - $ 34,318 $ (25) $ 34,293
=======================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .60 % of the Value
Momentum Fund (the "Fund") average daily net assets.
(B) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
B-70
<PAGE> 360
(C) The adjustment is made to reflect the expense reductions resulting from the
lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
(D) The Adviser has voluntarily agreed to waive fees to the extent necessary in
order to limit total operating expenses to not more than 1.06% for the
Retail Class of Shares and .81% for the Fiduciary Class of Shares for the
Value Momentum Fund.
(See Notes to Pro Forma Financial Statements)
B-71
<PAGE> 361
HIGHMARK VALUE MOMENTUM FUND
STEPSTONE VALUE MOMENTUM FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Value Momentum Fund and Stepstone Value Momentum Fund,
collectively (the "Funds") as of July 31, 1996. These statements have been
derived from the books and records utilized in calculating daily net assets
values at July 31, 1996. The Pro Forma Combining Statement of Operations
reflects the accounts of HighMark Value Momentum Fund and Stepstone Value
Momentum Fund for the twelve months ended July 31, 1996, the most recent fiscal
year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Value Momentum Fund in exchange for Retail and Fiduciary
Class of Shares of the HighMark Value Momentum Fund. Under generally accepted
accounting principles, the Stepstone Value Momentum Fund will be the surviving
entity for accounting purposes with its historical cost of investment securities
and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the anticipated
advisory and administration fee arrangements for the surviving entity. Certain
other operating costs have also been adjusted to reflect the anticipated
expenses of the combined entity. Other costs which may change as a result of the
reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 12,877 Fiduciary
Class and 684 Retail Class shares of HighMark Value Momentum Fund in exchange
for 12,877 Institutional Class shares and 684 Investment Class shares Stepstone
Value Momentum Fund, respectively, in the reorganization as of July 31, 1996.
B-72
<PAGE> 362
HIGHMARK BLUE CHIP GROWTH FUND
STEPSTONE BLUE CHIP GROWTH FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the HighMark
Blue Chip Growth Fund and the Stepstone Blue Chip Growth Fund as of and for the
year ended July 31, 1996. These statements have been derived from the Funds'
books and records utilized in calculating daily net asset value at July 31,
1996. The accompanying Pro Forma Combining Statement of Operations reflects the
accounts of HighMark Blue Chip Growth Fund and Stepstone Blue Chip Growth Fund
for the year ended July 31, 1996, the most recent fiscal year end of the
Registrant.
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK BLUE CHIP STEPSTONE BLUE CHIP HIGHMARK STEPSTONE
GROWTH FUND GROWTH FUND PRO FORMA BLUE CHIP BLUE CHIP PRO FORMA
COMBINED GROWTH FUND GROWTH FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
(000's)
<C> <C> <S> <C> <C> <C>
COMMON STOCKS (97.2%)
AIR TRANSPORTAION (2.7%)
11,000 11,000 AMR (a) $ - $ 868 $ 868
10,000 10,000 Federal Express (a) 778 778
1,646 1,646
AIRCRAFT (0.9%)
6,000 6,000 Boeing 531 531
531 531
APPAREL/TEXTILES (0.4%)
4,500 4,500 Gucci Group ADR 255 255
255 255
AUTOMOTIVE (1.1%)
20,000 20,000 Ford Motor 650 650
650 650
BANKS (7.9%)
14,400 14,400 Bank of Boston (a) 763 763
5,000 5,000 Bankers Trust New York 359 359
10,500 10,500 Citicorp 860 860
15,000 15,000 CoreStates Finance 589 589
12,000 12,000 Fifth Third Bancorp 621 621
11,000 11,000 First Union 699 699
15,000 15,000 Merchantile Bancorp 688 688
5,000 5,000 Republic New York 317 317
4,896 4,896
BEAUTY PRODUCTS (1.0%)
7,000 7,000 Proctor & Gamble 686 686
686 686
</TABLE>
B-73
<PAGE> 363
<TABLE>
<C> <C> <S> <C> <C>
BROADCASTING, NEWSPAPERS & ADVERTISING (0.9%)
17,000 17,000 US West Media Group (a) 293 293
8,000 8,000 Viacom, Cl B (a) 280 280
573 573
CHEMICALS (1.1%)
3,500 3,500 Eastman Chemical 183 183
10,000 10,000 Morton International 360 360
3,000 3,000 PPG Industries 148 148
691 691
COMPUTERS & SERVICES (2.6%)
5,000 5,000 Digital Equipment (a) 177 177
20,000 20,000 Gateway 2000 (a) 803 803
14,000 14,000 Hewlett Packard 616 616
1,596 1,596
DRUGS (6.2%)
13,000 13,000 Amgen (a) 710 710
9,426 9,426 Eli Lilly 528 528
30,000 30,000 Johnson & Johnson 1,424 1,424
9,000 9,000 Merck 578 578
10,000 10,000 Schering Plough 551 551
3,791 3,791
ELECTRICAL UTILITIES (5.5%)
10,000 10,000 American Electric Power 415 415
20,000 20,000 Baltimore Gas & Electric 515 515
20,000 20,000 Dominion Resources 753 753
13,200 13,200 Duke Power 632 632
20,000 20,000 Houston Industries 453 453
15,000 15,000 Texas Utilities 630 630
3,398 3,398
ENTERTAINMENT (1.6%)
9,000 9,000 MGM Grand 336 336
11,500 11,500 Walt Disney 640 640
976 976
ENVIRONMENTAL SERVICES (0.2%)
3,500 3,500 WMX Technologies 104 104
104 104
FINANCIAL SERVICES (4.2%)
5,000 5,000 American Express 219 219
26,250 26,250 Bear Stearns 591 591
20,000 20,000 Franklin Resources 1,120 1,120
5,000 5,000 Green Tree Financial 168 168
2,500 2,500 Household International 186 186
5,000 5,000 Merrill Lynch 302 302
2,586 2,586
FOOD, BEVERAGE & TOBACCO (5.2%)
22,000 22,000 Coca Cola 1,031 1,031
11,500 11,500 Philip Morris 1,203 1,203
15,450 15,450 Tootsie Roll Industries 645 645
8,000 8,000 Wm. Wrigley, Jr. 413 413
3,192 3,192
</TABLE>
B-74
<PAGE> 364
<TABLE>
<C> <C> <S> <C> <C>
GAS/NATURAL GAS (0.3%)
15,000 15,000 Noram Energy 163 163
163 163
HOTELS & LODGING (1.2%)
2,000 2,000 HFS (a) 120 120
5,000 5,000 ITT (a) 284 284
7,000 7,000 Marriott International 360 360
764 764
HOUSEHOLD PRODUCTS (1.6%)
3,750 3,750 Clorox 341 341
10,000 10,000 Gillette 636 636
977 977
INSURANCE (3.9%)
5,000 5,000 American International Group 471 471
15,000 15,000 ITT Hartford Group (a) 793 793
8,000 8,000 Pacificare Health Systems, Cl A (a) 538 538
4,000 4,000 Pacificare Health Systems, Cl B (a) 271 271
5,000 5,000 Sunamerica 304 304
2,377 2,377
LEISURE PRODUCTS (0.6%)
15,000 15,000 Mattel 371 371
371 371
MACHINERY (6.5%)
6,000 6,000 Black & Decker 221 221
12,000 12,000 Case 531 531
12,100 12,100 Caterpillar 797 797
18,000 18,000 Deere 644 644
22,000 22,000 General Electric 1,812 1,812
4,005 4,005
MARINE TRANSPORTATION (0.4%)
10,000 10,000 Royal Caribbean Cruises 245 245
245 245
MEDICAL PRODUCTS & SERVICES (3.8%)
5,000 5,000 Boston Scientific (a) 239 239
10,000 10,000 Columbia HCA Healthcare 513 513
8,330 8,330 Guidant 423 423
13,000 13,000 Medtronic 616 616
9,000 9,000 St. Jude Medical 303 303
6,000 6,000 Varian Associates 269 269
2,363 2,363
MISCELLANEOUS BUSINESS SERVICES (8.0%)
10,000 10,000 3Com (a) 394 394
10,000 10,000 Automatic Data Processing 396 396
8,000 8,000 Cisco Systems (a) 414 414
14,250 14,250 Computer Associates International 725 725
9,000 9,000 CUC International (a) 313 313
9,223 9,223 Electronic Data Systems 488 488
17,500 17,500 Informix (a) 382 382
8,000 8,000 Microsoft (a) 943 943
7,500 7,500 Oracle Systems 293 293
</TABLE>
B-75
<PAGE> 365
<TABLE>
<C> <C> <S> <C> <C>
11,000 11,000 Sun Microsystems (a) 601 601
4,949 4,949
PAPER & PAPER PRODUCTS (0.4%)
5,800 5,800 International Paper 220 220
220 220
PETROLEUM & FUEL PRODUCTS (1.1%)
5,000 5,000 Burlington Resources 214 214
3,000 3,000 Schlumberger 240 240
7,000 7,000 Tidewater 236 236
690 690
PETROLEUM REFINING (7.7%)
10,000 10,000 Amoco 669 669
74 74 British Petroleum ADR 8 8
15,400 15,400 Exxon 1,267 1,267
13,100 13,100 Mobil 1,446 1,446
8,000 8,000 Royal Dutch Petroleum ADR 1,207 1,207
2,000 2,000 Texaco 170 170
4,767 4,767
PROFESSIONAL SERVICES (0.8%)
10,000 10,000 Halliburton 521 521
521 521
RAILROADS (0.6%)
5,000 5,000 Burlington Northern Santa Fe 394 394
394 394
RETAIL (8.3%)
20,000 20,000 Alberto Culver, Cl A 733 733
15,000 15,000 Borders Group (a) 480 480
12,000 12,000 Federated Department Stores (a) 363 363
5,000 5,000 Gap 149 149
8,000 8,000 Home Depot 404 404
15,000 15,000 McDonald's 696 696
13,000 13,000 Pep Boys-Manny, Moe & Jack 393 393
20,000 20,000 PepsiCo 633 633
10,000 10,000 Safeway 360 360
5,000 5,000 Sears Roebuck 205 205
9,000 9,000 TJX 271 271
17,500 17,500 Wal-Mart Stores 420 420
5,107 5,107
RUBBER & PLASTIC (2.0%)
24,000 24,000 Agrium 303 303
7,500 7,500 Dow Chemical 558 558
8,000 8,000 Goodyear Tire & Rubber 354 354
1,215 1,215
SEMI-CONDUCTORS/INSTRUMENTS (1.4%)
10,000 10,000 Intel 751 751
2,500 2,500 Xilinx
832 832
SPECIALTY MACHINERY (0.5%)
15,000 15,000 U.S. Filter (a) 324 324
324 324
</TABLE>
B-76
<PAGE> 366
<TABLE>
<C> <C> <S> <C> <C>
STEEL & STEEL WORKS (0.8%)
8,400 8,400 Aluminum Company of America 487 487
487 487
TELEPHONES & TELECOMMUNICATION (5.3%)
27,000 27,000 AT&T 1,407 1,407
15,200 15,200 Ameritech 844 844
10,000 10,000 BellSouth 410 410
7,500 7,500 Paging Network (a) 144 144
15,000 15,000 US West 456 456
3,261 3,261
COMMUNICATIONS EQUIPMENT (0.5%)
6,000 6,000 Motorola 324 324
324 324
Total Common Stocks 59,867 59,867
CONVERTIBLE BOND (0.4%)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
<S> <C> <C> <C> <C> <C>
Tele Communications International
300,000 300,000 4.500%, 02/15/06 244 244
Total Convertible Bond 244 244
EQUITY OPTIONS (0.0%)
Sun Microsystems August 65 Call* 8/17/96 -- --
Sun Microsystems August 55 Put* 8/17/96 14 14
Total Equity Options 14 14
FINANCIAL OPTION (2.4%)
23,000,000 23,000,000 S&P 500 Depositary Receipt 1,473 1,473
Total Financial Option 1,473 1,473
Total Investments (100.0%) (Cost $59,667) $61,598 $ 61,598
</TABLE>
(a) Non-income producing security
ADR - American Depository Receipt
Cl - Class
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-77
<PAGE> 367
HIGHMARK BLUE CHIP GROWTH FUND
STEPSTONE BLUE CHIP GROWTH FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) HIGHMARK BLUE STEPSTONE BLUE
CHIP GROWTH CHIP
FUND GROWTH FUND PRO FORMA ADJUSTMENTS PRO FORMA COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $ 61,598 $ 61,598
Repurchase Agreements - -
----------------------------- ----------
Total Investments 61,598 61,598
Cash 7,206 $ 9 (A) 7,215
Interest & Dividends Receivable 79 79
Receivable from Brokers 212 212
Prepaid Expenses and Other Assets 9 9
Capital Shares Sold Receivable 70 70
---------------------------------------------------------------------
Total Assets 69,174 9 69,183
LIABILITIES:
Accrued Expenses and Other Payables 103 103
---------------------------------------------------------------------
Total Liabilities 103 - 103
NET ASSETS:
Capital 57,450 57,450
Net unrealized appreciation on investments 9,138 9,138
Undistributed net investment income 19 9 (A) 28
Accumulated undistributed net realized gain (loss) 2,464
on investment transactions 2,464
---------------------------------------------------------------------
NET ASSETS $ 69,071 $ 9 $ 69,080
=====================================================================
Net Assets:
Fiduciary $ 69,080 (A)(B) $ 69,080
Retail
Institutional $ 69,071 (69,071)(B)
Investment
---------------------------------------------------------------------
TOTAL $ 69,071 $ 9 $ 69,080
=====================================================================
Shares Outstanding:
Fiduciary 5,505 (B) 5,505
Retail
Institutional 5,505 (5,505)(B)
Investment
---------------------------------------------------------------------
TOTAL SHARES OUTSTANDING - 5,505 - 5,505
=====================================================================
</TABLE>
B-78
<PAGE> 368
<TABLE>
<CAPTION>
Net Asset Value and Redemption Price Per Share:
<S> <C> <C>
Fiduciary $ 12.55
Retail
Institutional $ 12.55
Investment
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments on
the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-79
<PAGE> 369
HIGHMARK BLUE CHIP GROWTH FUND
STEPSTONE BLUE CHIP GROWTH FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) STEPSTONE BLUE
HIGHMARK BLUE CHIP CHIP
GROWTH FUND GROWTH FUND PRO FORMA ADJUSTMENTS PRO FORMA COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 228 $ 228
Dividend Income 1,145 1,145
Less: Foreign taxes witheld, net of reclaims
---------------------------------- ------------
Total Income 1,373 1,373
EXPENSES:
Investment Adviser Fee 366 $ (1)(A) 365
Administration Fees 80 42 (B) 122
Custodian/Wire Agent Fee 8 8
Professional Fees 15 (9)(C) 6
Registration Fees 14 (9)(C) 5
Trustees Fees 1 0 1
Printing Costs 10 (7)(C) 3
Other 14 (9)(C) 5
--------------------------------------------------------------------------
Total Expenses 508 (7) 515
Investment Adviser Fee Waiver (16)(D) (16)
Expenses Voluntarily Reduced
--------------------------------------------------------------------------
Total Net Expenses 508 (9) 499
Net Investment Income 865 9 880
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments 4,816 4,816
Net Realized Gain/(Loss) on Option Contracts 591 591
Net change in unrealized appreciation (303) (303)
(depreciation) on investments
Net realized/unrealized gains/(losses) on 5,104 5,104
investments
--------------------------------------------------------------------------
Change in net assets resulting from operations $ 5,969 $ 9 $ 5,978
==========================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .60 % of the Blue Chip
Growth Fund (the "Fund") average daily net assets.
(B) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(C) The adjustment is made to reflect the expense reductions resulting from the
lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
B-80
<PAGE> 370
(D) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than .82% for the
Fiduciary Class of Shares for the Blue Chip Growth Fund.
(See Notes to Pro Forma Financial Statements)
B-81
<PAGE> 371
HIGHMARK BLUE CHIP GROWTH FUND
STEPSTONE BLUE CHIP GROWTH FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Blue Chip Growth Fund and Stepstone Blue Chip Growth
Fund, collectively (the "Funds") as of July 31, 1996. These statements have
been derived from the books and records utilized in calculating daily net
assets values at July 31, 1996. The Pro Forma Combining Statement of
Operations reflects the accounts of HighMark Blue Chip Growth Fund and
Stepstone Blue Chip Growth Fund for the twelve months ended July 31, 1996, the
most recent fiscal year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Blue Chip Growth Fund in exchange for Retail and Fiduciary
Class of Shares of the HighMark Blue Chip Growth Fund. Under generally
accepted accounting principles, the Stepstone Blue Chip Growth Fund will be the
surviving entity for accounting purposes with its historical cost of investment
securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 5,505 Fiduciary
Class shares of HighMark Blue Chip Growth Fund in exchange for 5,505
Institutional Class shares of Stepstone Blue Chip Growth Fund in the
reorganization as of July 31, 1996.
B-82
<PAGE> 372
HIGHMARK EMERGING GROWTH FUND
STEPSTONE EMERGING GROWTH FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Statement of Assets and Liabilities and Pro Forma
Statement of Operations reflect the accounts of the HighMark Emerging Growth
Fund and the Stepstone Emerging Growth Fund as of and for the year ended July
31, 1996. These statements have been derived from the Funds' books and records
utilized in calculating daily net asset value at July 31, 1996. The
accompanying Pro Forma Combining Statement of Operations reflects the accounts
of HighMark Emerging Growth Fund and Stepstone Emerging Growth Fund for the
year ended July 31, 1996, the most recent fiscal year end of the Registrant.
HIGHMARK EMERGING GROWTH FUND
STEPSTONE EMERGING GROWTH FUND
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
EMERGING EMERGING EMERGING EMERGING
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
(000's)
<S> <C> <C> <C> <C> <C>
COMMON STOCKS (76.8%)
AIR TRANSPORTATION (0.6%)
2,250 2,250 Comair Holdings $ 55 $ 55
10,000 10,000 Mesaba Holdings 104 104
15,000 15,000 Vanguard Airlines (a) 94 94
253 253
APPAREL/TEXTILES (0.7%)
15,000 15,000 Mohawk Industries (a) 266 266
266 266
AUTOMOTIVE (1.3%)
Kaydon 5,000 5,000
BANKS (6.0%)
10,000 10,000 Astoria Financial (a) 268 268
3,000 3,000 Cal Fed Bancorp (a) 68 68
5,000 5,000 Carolina First 81 81
5,000 5,000 Crestar Financial 288 288
7,400 7,400 Cullen/Frost Bankers 202 202
3,500 3,500 Deposit Guaranty 160 160
3,750 3,750 First Security 96 96
12,500 12,500 Hibernia, Cl A 134 134
5,000 5,000 Imperial Bancorp (a) 115 115
5,000 5,000 Merchantile Bancorp 229 229
</TABLE>
B-83
<PAGE> 373
<TABLE>
<S> <C> <C> <C> <C>
3,858 3,858 Old Kent Financial 143 143
10,000 10,000 Roosevelt Financial Group 160 160
3,500 3,500 Summit Bancorp 123 123
8,000 8,000 Union Planters 236 236
2,303 2,303
BROADCASTING, NEWSPAPERS & ADVERTISING (2.3%)
4,000 4,000 CKS Group (a) 107 107
6,250 6,250 Infinity Broadcasting (a) 172 172
6,000 6,000 HBO 368 368
7,500 7,500 TCA Cable Television 196 196
1,000 1,000 Young Broadcasting, Cl A (a) 31 31
874 874
BUILDING & CONSTRUCTION (0.3%)
9,375 9,375 Southern Energy Homes (a) 113 113
113 113
CHEMICALS (1.4%)
7,500 7,500 Cambrex 231 231
10,500 10,500 Cytec Industries (a) 315 315
546 546
COMMERCIAL SERVICES (1.4%)
6,000 6,000 Aames Financial 236 236
7,500 7,500 Isocor (a) 59 59
12,500 12,500 New World Communications, Cl A (a) 269 269
564 564
COMMUNICATIONS EQUIPMENT (4.7%)
2,800 2,800 ADC Telecommunications (a) 118 118
7,500 7,500 Aseco 73 73
5,000 5,000 Dionex 174 174
9,000 9,000 DSP Communications (a) 420 420
9,000 9,000 Network Express (a) 70 70
5,000 5,000 Pairgain Technologies (a) 278 278
7,500 7,500 Tellabs (a) 448 448
6,000 6,000 Teltrend (a) 215 215
1,796 1,796
COMPUTERS & SERVICES (0.3%)
2,500 2,500 Atria Software(a) 96 96
96 96
COMPUTERS & SOFTWARE SERVICES (15.0%)
23,415 23,415 3Com (a) 922 922
3,500 3,500 America Online 107 107
</TABLE>
B-84
<PAGE> 374
<TABLE>
<S> <C> <C> <C> <C>
10,000 10,000 Baan NV (a) 298 298
3,000 3,000 Brooktrout Tech (a) 54 54
12,500 12,500 Cadence Design Systems (a) 381 381
16,000 16,000 Ciber (a) 304 304
20,000 20,000 Cisco Systems (a) 1,035 1,035
32,437 32,437 CUC International (a) 1,127 1,127
5,000 5,000 Infonautics (a)
2,500 2,500 Mentor Graphics (a) 31 31
10,000 10,000 Norrell 278 278
5,000 5,000 Oracle Systems 196 196
15,000 15,000 Physician Computer Networks (a) 152 152
5,000 5,000 Proxim (a) 125 125
5,000 5,000 Sterling Software 344 344
5,000 5,000 Sun Microsystems (a) 273 273
7,100 7,100 Symantec (a) 69 69
2,000 2,000 Sync Research (a) 20 20
5,743 5,743
CONSUMER PRODUCTS (1.1%)
2,000 2,000 USA Detergents (a) 73 73
9,750 9,750 Wolverine World Wide 336 336
409 409
DRUGS (4.3%)
4,000 4,000 Agouron Pharmecutical (a) 124 124
2,500 2,500 Alpha Beta Tech (a) 22 22
3,750 3,750 Alpharma Cl A 68 68
5,000 5,000 Autoimmune (a) 41 41
3,200 3,200 Boston Scientific (a) 153 153
15,000 15,000 Cell Genesys (a) 98 98
2,500 2,500 Centocor (a) 62 62
5,000 5,000 Creative Biomolecules (a) 29 29
12,500 12,500 Cypros Pharmaceutical (a) 56 56
7,500 7,500 Depotech 139 139
10,000 10,000 IDEC Pharmaceuticals Corp (a) 155 155
5,000 5,000 Insite Vision (a) 24 24
12,500 12,500 Interneuron Pharmeceutical (a) 338 338
24,000 24,000 Liposome (a) 290 290
10,000 10,000 Royce Labs (a) 46 46
1,645 1,645
ELECTRICAL UTILITIES (0.4%)
5,000 5,000 Belden 138 138
138 138
</TABLE>
B-85
<PAGE> 375
<TABLE>
<S> <C> <C> <C> <C>
ENTERTAINMENT (1.0%)
5,000 5,000 Carmike Cinemas, Cl A 128 128
11,000 11,000 Mirage Resorts (a) 248 248
376 376
ENVIRONMENTAL SERVICES (0.8%)
25,000 25,000 International Technology (a) 50 50
4,000 4,000 Sanifill (a) 170 170
3,000 3,000 United Waste Systems (a) 78 78
1,000 1,000 USA Waste Services (a) 25 25
323 323
FINANCIAL SERVICES (3.7%)
1,750 1,750 Arbatax International (a) 8 8
12,000 12,000 Credit Acceptance (a) 224 224
10,000 10,000 CWM Mortgage Holdings 173 173
5,000 5,000 Finova Group 248 248
5,000 5,000 First American, Tennessee 208 208
500 500 Mercer International (a) 6 6
7,500 7,500 National Surgery Centers (a) 192 192
10,000 10,000 Waterhouse Investor Services 376 376
1,435 1,435
FOOD, BEVERAGE & TOBACCO (0.3%)
5,000 5,000 Boston Beer (a) 111 111
111 111
GAS/NATURAL GAS (0.3%)
5,300 5,300 Atmos Energy 113 113
113 113
HOTELS & LODGING (1.7%)
10,000 10,000 HFS (a) 600 600
2,000 2,000 Interstate Hotels (a) 46 46
646 646
INSURANCE (2.2%)
2,500 2,500 Healthcare Compare (a) 97 97
6,000 6,000 Penncorp Financial Group 168 168
7,500 7,500 Provident (a) 274 274
7,500 7,500 TIG Holdings 208 208
3,200 3,200 Total Renal Care Holdings (a) 114 114
861 861
</TABLE>
B-86
<PAGE> 376
<TABLE>
<S> <C> <C> <C> <C>
LUMBER & WOOD PRODUCTS (0.7%)
15,000 15,000 Cavalier Homes 255 255
Champion Enterprises 1,400 1,400
283 283
MACHINERY (1.1%)
10,000 10,000 Camco International 324 324
4,000 4,000 Central Sprinkler (a) 83 83
407 407
MEASURING DEVICES (1.7%)
5,000 5,000 Advanced Energy Industries (a) 29 29
3,400 3,400 Epic Design Technology (a) 63 63
8,000 8,000 Input/Output 252 252
23,000 23,000 Laser Technology (a) 109 109
12,500 12,500 Thermoquest 184 184
637 637
MEDICAL PRODUCTS & SERVICES (7.6%)
16,000 16,000 Biochem Pharma (a) 478 478
4,000 4,000 Biofield (a) 39 39
7,500 7,500 Cardiothoracic Systems (a) 83 83
5,000 5,000 Chad Therapeutics (a) 86 86
27,843 27,843 Concord EFS (a) 710 710
5,000 5,000 Endosonics (a) 63 63
2,000 2,000 Heartstream (a) 23 23
7,000 7,000 Nellcor (a) 165 165
24,000 24,000 Renal Treatment Centers (a) 672 672
15,000 15,000 Spectranetics (a) 66 66
7,000 7,000 St. Jude Medical 235 235
8,000 8,000 Staar Surgical (a) 103 103
10,000 10,000 Veterinary Centers of America (a) 176 176
2,899 2,899
MISCELLANEOUS BUSINESS SERVICES (5.6%)
3,000 3,000 Computer Management Sciences (a) 58 58
2,500 2,500 Cybercash (a) 80 80
2,500 2,500 Dendrite International (a) 71 71
17,000 17,000 Digital Solutions (a) 70 70
5,000 5,000 Fiserv (a) 168 168
12,500 12,500 Fore Systems (a) 342 342
2,500 2,500 Geoworks (a) 51 51
5,000 5,000 Harris Computer Systems 76 76
2,500 2,500 Intuit 88 88
3,500 3,500 Logicon 98 98
7,500 7,500 Macromedia (a) 121 121
2,000 2,000 Netscape Communications (a) 79 79
</TABLE>
B-87
<PAGE> 377
<TABLE>
<S> <C> <C> <C> <C>
3,750 3,750 Object Design (a) 25 25
2,000 2,000 Pixar (a) 27 27
15,000 15,000 Saville Systems Ireland ADR 388 388
5,000 5,000 Systemsoft Corp (a) 91 91
7,000 7,000 Vantive 303 303
2,136 2,136
MISCELLANEOUS CONSUMER SERVICES (2.3%)
9,500 9,500 Corestaff (a) 382 382
9,000 9,000 Service International 496 496
878 878
PAPER & PAPER PRODUCTS (0.2%)
5,000 5,000 Gaylord Container 33 33
12,500 12,500 Repap Enterprises (a) 45 45
78 78
PETROLEUM & FUEL PRODUCTS (2.0%)
10,000 10,000 Apache 284 284
5,000 5,000 Benton Oil & Gas 99 99
10,000 10,000 Pride Petroleum Services (a) 124 124
9,000 9,000 Reading & Bates (a) 183 183
4,000 4,000 Seagull Energy 73 73
763 763
PETROLEUM REFINING (0.4%)
7,500 7,500 Valero Energy 155 155
155 155
PRINTING & PUBLISHING (1.6%)
12,000 12,000 Digital Generations Systems (a) 99 99
12,000 12,000 Gartner Group, Cl A (a) 392 392
7,500 7,500 Marvel Entertainment Group 60 60
3,000 3,000 Scientific Games Holdings (a) 61 61
612 612
PROFESSIONAL SERVICES (2.0%)
7,800 7,800 Corrections of America (a) 242 242
5,000 5,000 Medaphis (a) 186 186
7,500 7,500 Paychex 343 343
771 771
</TABLE>
B-88
<PAGE> 378
<TABLE>
<S> <C> <C> <C> <C>
RAILROADS (0.3%)
5,000 5,000 Hub Group (a) 96 96
96 96
RETAIL (11.0%)
4,000 4,000 Alberto Culver, Cl A 147 147
10,500 10,500 Boston Chicken (a) 278 278
5,000 5,000 Corporate Express (a) 187 187
9,000 9,000 Gadzooks (a) 218 218
12,500 12,500 Garden Ridge (a) 155 155
10,000 10,000 Home Shopping Network, (a) 101 101
17,000 17,000 Lone Star Steakhouse & Saloon (a) 531 531
5,000 5,000 Longhorn Steaks (a) 78 78
34,000 34,000 Omnicare 795 795
2,700 2,700 Orchard Supply Hardware Stores (a) 77 77
5,000 5,000 Ross Stores (a) 148 148
7,500 7,500 Sports Authority (a) 151 151
30,000 30,000 Staples 499 499
5,000 5,000 Starbucks 130 130
6,300 6,300 Sunglass Hut International (a) 75 75
22,000 22,000 Viking Office Products (a) 649 649
4,219 4,219
RUBBER & PLASTIC (0.5%)
5,000 5,000 Sealed Air (a) 174 174
174 174
SEMI-CONDUCTORS/INSTRUMENTS (3.6%)
36,500 36,500 Applied Magnetics (a) 424 424
7,500 7,500 Atmel 207 207
13,500 13,500 BMC Industries (a) 370 370
5,000 5,000 Eltron International (a) 141 141
6,500 6,500 Lernout & Hauspie Speech (a) 124 124
5,000 5,000 Transwitch 40 40
2,500 2,500 Xilinx 81 81
1,387 1,387
SPECIALTY MACHINERY (0.8%)
15,000 15,000 U.S. Filter (a) 324 324
324 324
STEEL & STEEL WORKS (0.2%)
7,500 7,500 Align-Rite International (a) 73 73
73 73
</TABLE>
B-89
<PAGE> 379
<TABLE>
<S> <C> <C> <C> <C>
TELEPHONES & TELECOMMUNICATION (4.1%)
8,000 8,000 Cascade Communications (a) 492 492
5,000 5,000 Spectralink Corp (a) 29 29
40,780 40,780 Worldcom (a) 1,055 1,055
1,576 1,576
TESTING LABORATORIES (0.7%)
5,000 5,000 Cellpro (a) 67 67
2,500 2,500 Martek Biosciences (a) 63 63
4,500 4,500 Primark (a) 122 122
252 252
WHOLESALE (4.7%)
6,500 6,500 Barrett Resources (a) 187 187
18,000 18,000 Cardinal Health 1,251 1,251
2,000 2,000 Central Garden and Pet (a) 42 42
4,500 4,500 Chronimed (a) 83 83
7,500 7,500 Ha Lo Industries (a) 169 169
5,000 5,000 Physician Sales and Services 70 70
1,500 1,500 Silicon Storage Technology (a) 11 11
1,813 1,813
Total Common Stocks 38,370 38,370
EQUITY OPTIONS (0.1%)
Atmel November 30 Puts 11/16/96 (a) 37 37
Atmel November 37.50 Calls 11/16/96 (a) (9) (9)
Fore Systems August 35 Calls 8/17/96 (a) (1) (1)
Lone Star Steak August 35 Puts 8/17/96 (a) 18 18
Lone Star Steak August 40 Calls 8/17/96 (a) -- --
Paychex August 50 Calls 8/17/96 (a) (1) (1)
Sun Microsystems August 65 Call 8/17/96 (a) -- --
Sun Microsystems August 55 Put 8/17/96 (a) 5 5
Total Equity Options 49 49
Total Investments (100.0%) (Cost $33,353) $ 38,419 $38,419
</TABLE>
B-90
<PAGE> 380
(a) Non-income producing security
ADR -- American Depository Receipt
CL -- Class
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-91
<PAGE> 381
HIGHMARK EMERGING GROWTH FUND
STEPSTONE EMERGING GROWTH FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
EMERGING GROWTH EMERGING GROWTH PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities - $38,419 $ 38,419
Repurchase Agreements -
-------------------------------- -----------------
Total Investments - 38,419 - 38,419
Cash - 11,446 9 (A) 11,455
Interest & Dividend Receivable - 15 15
Receivable from Brokers - 282 282
Prepaid Expenses and Other Assets - 9 9
Capital Shares Sold Receivable 66 66
-----------------------------------------------------------------------------
Total Assets - 50,237 9 50,246
LIABILITIES:
Payable for Capital Shares Redeemed - 22 22
Payable to Brokers - 212 212
Accrued Expenses and Other Payables: - 68 68
-----------------------------------------------------------------------------
Total Liabilities - 302 - 302
NET ASSETS:
Capital - 41,618 41,618
Net unrealized appreciation
(depreciation) on investments - 5,066 5,066
Undistributed net investment income - (14) 9 (B) (5)
Accumulated undistributed net realized
gain (loss) on investment transactions - 3,265 3,265
-----------------------------------------------------------------------------
Net Assets - $49,935 $ 9 $ 49,944
==============================================================================
Net Assets:
Fiduciary - $ 49,944 (A)(B) $ 49,944
Retail - - -
Institutional $49,935 (49,935) (B) -
Investment - - -
</TABLE>
B-92
<PAGE> 382
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
Total - $ 49,935 $ 9 $ 49,944
=====================================================================
Shares Outstanding:
Fiduciary - 3,995 (B) 3,995
Retail - -
Institutional 3,995 (3,995) (B) -
Investment - - -
---------------------------------------------------------------------
Total Shares Outstanding - 3,995 - 3,995
=====================================================================
Net Asset Value and Redemption Price Per
Share:
Fiduciary $ 12.50
Retail
Institutional $ 12.50 -
Investment
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments
on the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-93
<PAGE> 383
HIGHMARK EMERGING GROWTH FUND
STEPSTONE EMERGING GROWTH FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
EMERGING GROWTH EMERGING GROWTH PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income - $ 311 $ 311
Dividend Income - 130 130
-------------------------------- ---------------
Total Income - 441 441
EXPENSES:
Investment Adviser Fee - 345 (A) 345
Administration Fees - 57 29 (B) 86
Custodian/Wire Agent Fee - 7 (1) (C) 6
Professional Fees - 10 (6) (C) 4
Registration Fees - 8 (4) (C) 4
Trustees Fees - 2 (1) (C) 1
Printing Costs - 8 (6) (C) 2
Other - 17 (4) (C) 13
---------------------------------------------------------------------------
Total Expenses - 454 6 460
Investment Adviser Fee Waiver - -
Expenses Voluntarily Reduced - (15) (D) (15)
---------------------------------------------------------------------------
Total Net Expenses - 454 (9) 445
Net Investment Income - (13) 9 (4)
Realized Gains on Investments:
Net Realized Gain/(Loss) on Investments - 4,024 4,024
Net Realized Gain/(Loss) on Option Contracts 190 190
Net change in unrealized
appreciation/(depreciation)
on investments - (26) (26)
---------------------------------------------------------------------------
Net realized/unrealized gains/(losses) on
investments - 4,188 - 4,188
---------------------------------------------------------------------------
Change in net assets resulting from
operations - $ 4,175 $ 9 $ 4,184
===========================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .80% of the Emerging Growth
Fund (the "Fund") average daily net assets.
(B) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(C) The adjustment is made to reflect the expense reductions resulting from
the lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
(D) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than 1.28% for the
Retail Class of Shares and 1.03% for the Fiduciary Class of Shares for the
Emerging Growth Fund.
(See Notes to Pro Forma Financial Statements)
B-94
<PAGE> 384
HIGHMARK EMERGING GROWTH FUND
STEPSTONE EMERGING GROWTH FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Emerging Growth Fund and Stepstone Emerging Growth
Fund, collectively (the "Funds") as of July 31, 1996. These statements have
been derived from the books and records utilized in calculating daily net
assets values at July 31, 1996. The Pro Forma Combining Statement of
Operations reflects the accounts of HighMark Emerging Growth Fund and Stepstone
Emerging Growth Fund for the twelve months ended July 31, 1996, the most recent
fiscal year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Emerging Growth Fund in exchange for Retail and Fiduciary
Class of Shares of the HighMark Emerging Growth Fund. Under generally accepted
accounting principles, the Stepstone Emerging Growth Fund will be the surviving
entity for accounting purposes with its historical cost of investment
securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 3,995 Fiduciary
Class shares of HighMark Emerging Growth Fund in exchange for 3,995
Institutional Class shares of Stepstone Emerging Growth Fund.
B-95
<PAGE> 385
HIGHMARK INTERNATIONAL EQUITY FUND
STEPSTONE INTERNATIONAL EQUITY FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Statement of Assets and Liabilities and Pro Forma
Statement of Operations reflect the accounts of the HighMark International
Equity Fund and the Stepstone International Equity Fund as of and for the year
ended July 31, 1996. These statements have been derived from the Funds' books
and records utilized in calculating daily net asset value at July 31, 1996.
The accompanying Pro Forma Combining Statement of Operations reflects the
accounts of HighMark International Equity Fund and Stepstone International
Equity Fund for the year ended July 31, 1996, the most recent fiscal year end
of the Registrant.
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
(000'S)
<S> <C> <C> <C> <C>
FOREIGN COMMON STOCKS (97.0)
FINLAND (0.2%)
3,000 3,000 Nokia, Cl A 106 106
106 106
FRANCE (7.9%)
1,802 1,802 Accor 239 239
2,636 2,636 Alcatel Alsthom 216 216
3,854 3,854 Banque Nationale Paris 138 138
675 675 Carrefour 370 370
2,118 2,118 Castorama 414 414
770 770 Chargeurs International 31 31
2,000 2,000 Danone 299 299
2,385 2,385 Elf Aquitaine 170 170
750 750 Essilor International 206 206
5,800 5,800 GAN (a) 151 151
2,927 2,927 Lafarge 175 175
1,800 1,800 LVMH Moet Hennesey 399 399
770 770 Pathe (a) 184 184
1,400 1,400 Peugeot 169 169
5,000 5,000 Schneider 228 228
1,809 1,809 Societe Generale 200 200
3,536 3,536 Valeo 181 181
3,770 3,770
</TABLE>
B-96
<PAGE> 386
<TABLE>
<S> <C> <C> <C> <C>
GERMANY (7.7%)
214 214 Allianz 393 393
650 650 Bankgesellschaft Berlin 137 137
8,000 8,000 BASF 214 214
9,500 9,500 Bayer 319 319
400 400 BMW 224 224
4,000 4,000 Daimler-Benz (a) 212 212
500 500 Degussa 166 166
4,000 4,000 Deutsche Bank 203 203
625 625 Gehe 387 387
550 550 Karstadt 198 198
700 700 Preussag 168 168
7,500 7,500 RWE 268 268
7,000 7,000 Siemens 368 368
8,000 8,000 Veba 408 408
3,665 3,665
HONG KONG (6.0%)
200,000 200,000 Amoy Properties 222 222
85,000 85,000 Cheung Kong Holdings 580 580
150,000 150,000 Hong Kong & China Gas 238 238
170,000 170,000 Hong Kong Telecommunications 280 280
36,341 36,341 HSBC Holdings 580 580
75,000 75,000 Hutchison Whampoa 448 448
60,000 60,000 New World Development 273 273
30,000 30,000 Swire Pacific, Ser A 257 257
2,878 2,878
JAPAN (39.5%)
42,000 42,000 Amada 401 401
30,000 30,000 Amada Metrecs 405 405
39,000 39,000 Asahi Breweries 435 435
51,000 51,000 Asahi Organic Chemical 377 377
33,000 33,000 Best Denki 482 482
16,000 16,000 CSK 459 459
36,000 36,000 Daiwa Securities 435 435
21,000 21,000 Fuji Bank 413 413
15,000 15,000 Fuji Photo Film 448 448
48,000 48,000 Fujisawa Pharmaceutical 459 459
90,000 90,000 Gun-ei Chemicals 412 412
54,000 54,000 Hitachi Cable 449 449
17,000 17,000 Industrial Bank of Japan 368 368
70,000 70,000 Japan Synthetic Rubber 485 485
45,000 45,000 Kamigumi 404 404
16,700 16,700 Kansai Electric Power 382 382
20,000 20,000 Katokichi 472 472
54,000 54,000 Long Term Credit Bank Japan 385 385
46,000 46,000 Maeda 435 435
</TABLE>
B-97
<PAGE> 387
<TABLE>
<S> <C> <C> <C> <C>
30,000 30,000 Makita 464 464
40,000 40,000 Matsushita Electric Works 416 416
63,000 63,000 Mitsubishi Electric 413 413
53,000 53,000 Mitsui Marine & Fire 393 393
38,000 38,000 Mitsui Trust & Banking 413 413
41,000 41,000 NGK Insulators 453 453
21,000 21,000 Nomura Securities 368 368
44,000 44,000 Olympus Optical 429 429
44,000 44,000 Organo 466 466
78,000 78,000 Ryobi Limited 378 378
61,000 61,000 Sanden 455 455
79,000 79,000 Sanyo Electric 437 437
48,000 48,000 Shinmaywa Industries 448 448
37,000 37,000 Shizuoka Bank 440 440
23,000 23,000 Sumitomo Bank 422 422
34,000 34,000 Sumitomo Trust & Banking 446 446
43,000 43,000 Takara Standard 471 471
34,000 34,000 Tokio Marine & Fire 424 424
112,000 112,000 Tokyo Gas 399 399
25,000 25,000 Tokyo Style 422 422
120,000 120,000 Tomen 430 430
31,000 31,000 Toppan Printing 427 427
65,000 65,000 Toshiba 428 428
78,000 78,000 Toyo Ink 429 429
39,000 39,000 Yamato Transportation 457 457
18,834 18,834
MALAYSIA (3.3%)
20,000 20,000 AMMB Holdings 242 242
20,000 20,000 Edaran Otomobil 193 193
12,000 12,000 Malayan Banking 102 102
60,000 60,000 Petronas Gas 234 234
20,000 20,000 Rothmans of Pall Mall 196 196
60,000 60,000 Sime Darby 174 174
20,000 20,000 Telekom Malaysia 162 162
20,000 20,000 United Engineers 135 135
30,000 30,000 YTL 139 139
1,577 1,577
NETHERLANDS (5.9%)
5,052 5,052 Aegon 232 232
5,254 5,254 Ahold 267 267
3,000 3,000 Akzo 337 337
15,000 15,000 Elsevier NV 228 228
10,000 10,000 IHC Caland 490 490
5,000 5,000 Phillips Electronics 166 166
1,500 1,500 Royal Dutch Petroleum 226 226
2,000 2,000 Unilever 285 285
</TABLE>
B-98
<PAGE> 388
<TABLE>
<S> <C> <C> <C> <C>
15,000 15,000 VNU 248 248
3,000 3,000 Wolters Kluwer 349 349
2,828 2,828
PHILIPPINES (0.9%)
25,000 25,000 Ayala, Ser B 40 40
52,000 52,000 Ayala Land, Ser B 90 90
127,000 127,000 JG Summit Holdings 44 44
9,000 9,000 Manila Electric, Cl B 66 66
3,750 3,750 Metro Bank & Trust 80 80
112,000 112,000 Petron 45 45
185,000 185,000 SM Prime Holdings 46 46
411 411
SINGAPORE (5.7%)
20,000 20,000 Cerebos Pacific 160 160
150,000 150,000 DBS Land 474 474
45,000 45,000 Development Bank of Singapore 510 510
30,000 30,000 Keppel 227 227
50,000 50,000 Singapore Airlines 503 503
100,000 100,000 Singapore Tech Industrial 232 232
100,000 100,000 Singapore Telecommunications 245 245
42,000 42,000 United Overseas Bank 369 369
2,720 2,720
SWEDEN (0.6%)
2,500 2,500 Astra, Ser A 105 105
5,000 5,000 Ericsson, Ser B 100 100
2,000 2,000 Pharmacia 82 82
287 287
SWITZERLAND (5.6%)
300 300 ABB AG 355 355
250 250 Alusuisse Lonza 192 192
300 300 Ciba Geigy 356 356
3,000 3,000 CS Holdings 317 317
300 300 Nestle 343 343
50 50 Roche Holdings 369 369
400 400 SMH PC 260 260
250 250 Union Bank of Switzerland 242 242
950 950 Zurich Insurance 248 248
2,682 2,682
</TABLE>
B-99
<PAGE> 389
<TABLE>
<S> <C> <C> <C> <C>
THAILAND (0.9%)
4,700 4,700 Advanced Info Service 57 57
8,700 8,700 Bangkok Bank 103 103
26,000 26,000 Electric Generating 82 82
5,200 5,200 PTT Exploration 65 65
8,200 8,200 Siam Commercial Bank 103 103
410 410
UNITED KINGDOM (11.0%)
50,000 50,000 Assocociated British Ports 211 211
50,000 50,000 British Airport Authority 357 357
75,000 75,000 BTR 287 287
60,000 60,000 Cable & Wireless 380 380
40,000 40,000 General Accident 391 391
35,000 35,000 Glaxo Wellcome 487 487
75,000 75,000 Hanson 187 187
40,000 40,000 Hardy Oil & Gas 161 161
50,000 50,000 Hays PLC 334 334
30,000 30,000 Johnson Matthey 271 271
60,000 60,000 Marks & Spencer 451 451
33,000 33,000 National Grid Group 90 90
51,212 51,212 Prudential 345 345
50,000 50,000 Rexam 283 283
20,000 20,000 RTZ 289 289
30,000 30,000 Southern Electric 307 307
20,000 20,000 Zeneca Group 433 433
5,264 5,264
UNITED STATES (1.6%)
55,000 55,000 Latin America Equity Fund 770 770
770 770
Total Foreign Common Stocks 46,202 46,202
FOREIGN PREFERRED STOCK (0.2%)
GERMANY (0.2%)
700 700 Jungheinrich 93 93
Total Foreign Preferred Stock 93 93
</TABLE>
B-100
<PAGE> 390
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT (2.8%)
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
<S> <C> <C> <C> <C>
1,345,000 1,345,000 J.P. Morgan Securities, 5.50%, dated 1,345 1,345
07/31/96, matures 08/01/96, repurchase
price $1,345,006 (collateralized by U.S.
Treasury Note, par value 1,395,000,
5.00%, matures 2/15/99: market value
$1,381,370)
Total Repurchase Agreement 1,345 1,345
Total Investments (100.0%) (Cost $45,054) $47,640 $47,640
</TABLE>
(a) Non-income producing security
Cl -- Class
Ser -- Series
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-101
<PAGE> 391
HIGHMARK INTERNATIONAL EQUITY FUND
STEPSTONE INTERNATIONAL EQUITY FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FUND PRO FORMA PRO FORMA
FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C>
ASSETS:
Investments in securities $ 46,295 $ 46,295
Repurchase Agreements $ 1,345 $ 1,345
-----------------------------------------------------------------------
Total Investments 47,640 - 47,640
Cash (11) $ (56) (A) (67)
Interest & Dividends Receivable 47 47
Income/Reclaim Receivable 121 121
Prepaid Expenses and Other Assets 16 16
Capital Shares Sold Receivable 7 7
-----------------------------------------------------------------------
Total Assets 47,820 (56) (A) 47,764
LIABILITIES:
Accrued Expenses and Other Payables 64 64
-----------------------------------------------------------------------
Total Liabilities 64 64
NET ASSETS:
Capital 42,488 42,488
Net unrealized appreciation
on investments 2,586 2,586
Undistributed net investment income
304 (56) (A) 248
Accumulated undistributed net
realized gain (loss) on
investment transactions 1,771 1,771
Accumulated net realized gain
(loss) on foreign currency
transactions 606 606
Net unrealized appreciation on
foreign currency and translation
of other assets and liabilities
in foreign currency 1 1
-----------------------------------------------------------------------
NET ASSETS $ 47,756 $ (56) $ 47,700
=======================================================================
Net Assets:
Fiduciary $ 47,700 (A)(B) $ 47,700
Retail
Institutional $ 47,756 (47,756) (B)
Investment
-----------------------------------------------------------------------
TOTAL $ 47,756 (56) $ 47,700
=======================================================================
Shares Outstanding:
Fiduciary 1,255 1,255 (B)
Retail
Institutional 1,255 (1,255) (B)
Investment
-----------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 1,255 1,255
=======================================================================
</TABLE>
B-102
<PAGE> 392
<TABLE>
<S> <C> <C>
Net Asset Value and Redemption Price Per Share:
Fiduciary $ 38.06
Retail
Institutional $ 38.06
Investment
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments on
the Statements of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
B-103
<PAGE> 393
HIGHMARK INTERNATIONAL EQUITY FUND
STEPSTONE INTERNATIONAL EQUITY FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in Thousands) HIGHMARK STEPSTONE
INTERNATIONAL INTERNATIONAL PRO FORMA PRO FORMA
EQUITY FUND EQUITY FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 138 $ 138
Dividend Income 873 873
Less: Foreign taxes witheld, net of
reclaims (85) (85)
-----------------------------------------------------------------------------------
Total Income 926 926
EXPENSES:
Shareholder Services Fees $ 33 (B) 33
Administration Fees 58 32 (C) 90
Investment Adviser Fee 425 1 (A) 426
Custodian/Wire Agent Fee 44 6 (C) 50
Professional Fees 8 (4) (C) 4
Registration Fees 12 (8) (C) 4
Distribution Fee
Trustees Fees 2 (1) (C) 1
Printing Costs 4 (2) (C) 2
Other 22 (6) (C) 16
-----------------------------------------------------------------------------------
Total Expenses 575 51 626
Investment Adviser Fee Waiver (66) 66 (E)
Expenses Voluntarily Reduced (61) (D) (61)
-----------------------------------------------------------------------------------
Total Net Expenses 509 56 565
Net Investment Income 417 (56) 361
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments 1,859 1,859
Net Realized Gain/(Loss) on Foreign 659 659
Currency Transactions
Net change in unrealized
appreciation/(depreciation)
on investments (968) (968)
Net change in unrealized
appreciation/(depreciation)
on foreign currency transactions (2) (2)
-----------------------------------------------------------------------------------
Net realized/unrealized gains/(losses)
on investments 1,548 1,548
-----------------------------------------------------------------------------------
Change in net assets resulting from
operations $1,965 (56) $ 1,909
===================================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .95% of the International
Equity Fund (the "Fund") average daily net assets.
(B) To support the provision of Shareholder Services to both classes of
Shares, HighMark has adopted a Shareholder Service Plan. In consideration of
services provided by any service provider, which may include Union Bank of
California, N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, each Fund may pay a fee at the rate of up to .25% of its average
daily net
B-104
<PAGE> 394
assets for the period to such service provider. The service provider may
voluntarily choose to waive such fees at any time at its sole discretion.
Currently such fees are being waived to the rate of 0.00% of average daily net
assets.
(C) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(D) The adjustment is made to reflect the expense reductions resulting from
the lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
(E) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than 1.26% for the
Fiduciary Class of Shares for the International Equity Fund.
B-105
<PAGE> 395
HIGHMARK INTERNATIONAL EQUITY FUND
STEPSTONE INTERNATIONAL EQUITY FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of HighMark
International Equity Fund and Stepstone International Equity Fund, collectively
(the "Funds") as of July 31, 1996. These statements have been derived from the
books and records utilized in calculating daily net assets values at July 31,
1996. The Pro Forma Combining Statement of Operations reflects the accounts of
HighMark International Equity Fund and Stepstone International Equity Fund for
the twelve months ended July 31, 1996, the most recent fiscal year of the
Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone International Equity Fund in exchange for Retail and
Fiduciary Class of Shares of the HighMark International Equity Fund. Under
generally accepted accounting principles, the Stepstone International Equity
Fund will be the surviving entity for accounting purposes with its historical
cost of investment securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 1,255 Fiduciary
Class of HighMark International Equity Fund in exchange for 1,255 Institutional
Class shares, as of July 31, 1996.
B-106
<PAGE> 396
HIGHMARK INTERMEDIATE-TERM BOND FUND
STEPSTONE INTERMEDIATE-TERM BOND FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Statement of Assets and Liabilities and Pro Forma
Statement of Operations reflect the accounts of the HighMark Intermediate-Term
Bond Fund and the Stepstone Intermediate-Term Bond Fund as of and for the year
ended July 31, 1996. These statements have been derived from the Funds' books
and records utilized in calculating daily net asset value at July 31, 1996.
The accompanying Pro Forma Combining Statement of Operations reflects the
accounts of HighMark Intermediate-Term Bond Fund and Stepstone
Intermediate-Term Bond Fund for the year ended July 31, 1996, the most recent
fiscal year end of the Registrant.
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
INTERMEDIATE- INTERMEDIATE INTERMEDIATE- INTERMEDIATE-
TERM BOND TERM BOND PRO FORMA TERM BOND TERM BOND PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
(000'S) (000'S)
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS (40.2%)
Arkansas Electric Cooperative
$ 2,492 $ 2,492 7.330%, 06/30/08 $ 2,461 $ 2,461
Avco Financial Services
3,500 3,500 7.375%, 08/15/01 3,539 3,539
Bankers Trust, NY
3,500 3,500 7.250%, 01/15/03 3,478 3,478
1,500 1,500 7.500%, 11/15/15 1,433 1,433
Banponce
2,000 2,000 6.750%, 12/15/05 1,870 1,870
British Petroleum
3,500 3,500 9.000%, 06/01/19 3,644 3,644
Ford Motor Credit
4,000 4,000 8.200%, 02/15/02 4,185 4,185
Hydro-Quebec
2,500 2,500 7.500%, 04/01/16 2,409 2,409
Lehman Brothers Holdings
3,000 3,000 8.800%, 03/01/15 3,293 3,293
</TABLE>
B-107
<PAGE> 397
<TABLE>
<S> <C> <C> <C> <C>
Lockheed Martin
3,500 3,500 7.450%, 06/15/04 3,518 3,518
Pacific Gas & Electric
780 780 8.750%, 01/01/01 829 829
2,000 2,000 6.250%, 08/01/03 1,888 1,888
Panhandle Eastern
3,000 3,000 7.875%, 08/15/04 3,071 3,071
Pepsico
3,500 3,500 5.875%, 06/01/00 3,386 3,386
Province of British Columbia
5,000 5,000 6.500%, 01/15/26 4,450 4,450
Province of Manitoba
3,000 3,000 6.125%, 01/19/04 2,828 2,828
Province of Ontario
4,000 4,000 7.375%, 01/27/03 4,065 4,065
Salomon Brothers
2,000 2,000 7.750%, 05/15/00 2,033 2,033
2,000 2,000 6.750%, 02/15/03 1,905 1,905
Travellers/Aetna
2,000 2,000 6.750%, 04/15/01 1,976 1,976
Total Corporate Obligations 56,261 56,261
U.S. TREASURY OBLIGATIONS (39.1%)
United States Treasury Notes
7,000 7,000 6.125%, 03/31/98 6,999 6,999
3,000 3,000 6.375%, 05/15/99 2,999 2,999
1,000 1,000 6.375%, 07/15/99 1,000 1,000
7,000 7,000 6.250%, 05/31/00 6,938 6,938
13,100 13,100 6.125%, 07/31/00 12,916 12,916
9,000 9,000 6.125%, 09/30/00 8,865 8,865
6,500 6,500 5.875%, 02/15/04 6,179 6,179
3,500 3,500 7.250%, 08/15/04 3,609 3,609
5,000 5,000 7.250%, 08/15/22 5,097 5,097
Total U.S. Treasury Obligations 54,602 54,602
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATION (9.0%)
FNMA
12,453 12,453 8.000%, 08/01/24 12,524 12,524
</TABLE>
B-108
<PAGE> 398
<TABLE>
<S> <C> <C> <C> <C>
Total U.S. Government Agency
Mortgage-Backed Obligation 12,524 12,524
ASSET BACKED SECURITIES (4.8%)
American Express Master Trust
4,000 4,000 7.150%, 08/15/99 4,054 4,054
J.C. Penney Master Credit Card Trust
2,500 2,500 9.625%, 06/15/00 2,741 2,741
Total Asset Backed Securities 6,795 6,795
REPURCHASE AGREEMENT (6.9%)
Deutsche Morgan Grenfell/C.J. Lawrence,
Inc., 5.65%, dated 07/31/96, matures
08/01/96, repurchase price $9,622,093
(collateralized by various U.S. Treasury
Notes, total par value $1,118,000,
6.00%-7.875%, 12/31/97- 11/15/04: U.S.
9,621 9,621 Treasury Bill, total par value$8,8879, 9,621 9,621
01/16/97: total market value $9,813,115)
Total Repurchase Agreement 9,621 9,621
Total Investments (100.0%) (Cost
$141,199) $ 139,803 $ 139,803
</TABLE>
FNMA - Federal National Mortgage Association
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-109
<PAGE> 399
<TABLE>
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (4.8%)
American Express Master Trust
4,000 4,000 7.150%, 08/15/99 4,054 4,054
J.C. Penney Master Credit Card Trust
2,500 2,500 9.625%, 06/15/00 2,741 2,741
Total Asset Backed Securities 6,795 6,795
REPURCHASE AGREEMENT (6.9%)
Deutsche Morgan Grenfell/C.J. Lawrence,
Inc., 5.65%, dated 07/31/96, matures
08/01/96, repurchase price $9,622,093
(collateralized by various U.S. Treasury
Notes, total par value $1,118,000,
6.00%-7.875%, 12/31/97- 11/15/04: U.S.
9,621 9,621 Treasury Bill, total par value$8,8879, 9,621 9,621
01/16/97: total market value $9,813,115)
Total Repurchase Agreement 9,621 9,621
Total Investments (100.0%) (Cost
$141,199) $ 139,803 $ 139,803
</TABLE>
FNMA - Federal National Mortgage Association
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-110
<PAGE> 400
HIGHMARK INTERMEDIATE-TERM BOND FUND
STEPSTONE INTERMEDIATE-TERM BOND FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
INTERMEDIATE- INTERMEDIATE-
TERM BOND TERM BOND PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C>
ASSETS:
Investments in securities $ 130,182 $ 130,182
Repurchase Agreements 9,621 9,621
--------------------------------- --------------
Total Investments 139,803 139,803
Cash (37) $ (95) (A) (132)
Interest & Dividend Receivable 2,090 2,090
Prepaid Expenses and Other Assets 3 3
Capital Shares Sold Receivable 73 73
--------------------------------------------------------------------------
Total Assets 141,932 (95) 141,837
LIABILITIES:
Payable for Capital Shares Redeemed 9 9
Accrued Expenses and Other Payables: 124 124
--------------------------------------------------------------------------
Total Liabilities 133 133
NET ASSETS:
Capital 146,060 146,060
Net unrealized appreciation
(depreciation) on investments (1,396) (1,396)
Undistributed net investment income 171 (95) (A) 76
Accumulated undistributed net realized
gain (loss) on investment transactions (3,036) (3,036)
--------------------------------------------------------------------------
Net Assets $ 141,799 $ (95) $ 141,704
==========================================================================
Net Assets:
Fiduciary $ 136,159 (A)(B) $ 136,159
Retail 5,545 (A)(B) 5,545
Institutional 136,250 (136,250) (B)
Investment 5,549 (5,549) (B)
--------------------------------------------------------------------------
Total $ 141,799 $ (95) $ 141,704
==========================================================================
Shares Outstanding:
Fiduciary 13,582 (B) 13,582
Retail 554 (B) 554
Institutional 13,582 (13,582) (B)
Investment 554 (554) (B)
--------------------------------------------------------------------------
Total Shares Outstanding 14,136 14,136
==========================================================================
Net Asset Value and Redemption Price Per
Share:
Fiduciary $ 10.03
Retail 10.02
</TABLE>
B-111
<PAGE> 401
<TABLE>
<S> <C>
Institutional $ 10.03
Investment 10.02
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments
on the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-112
<PAGE> 402
HIGHMARK INTERMEDIATE-TERM BOND FUND
STEPSTONE INTERMEDIATE-TERM BOND FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
INTERMEDIATE- INTERMEDIATE- PRO FORMA PRO FORMA
TERM BOND FUND TERM BOND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 8,887 $ 8,887
Dividend Income
--------------------------- ------------
Total Income 8,887 8,887
EXPENSES:
Investment Adviser Fee 687 (1) (A) 686
Shareholder Services Fees 41 (B) 41
Administration Fees 179 96 (C) 275
Custodian/Wire Agent Fee 13 5 (D) 18
Professional Fees 23 (9) (D) 14
Registration Fees 11 1 (D) 12
Distribution Fee 25 25
Trustees Fees 3 3
Printing Costs 9 (2) (D) 7
Other 10 19 (D) 29
---------------------------------------------------------------------
Total Expenses 960 149 1,109
Investment Adviser Fee Waiver
Distribution Fee Waiver (25) (25)
Expenses Voluntarily Reduced (54) (E) (54)
---------------------------------------------------------------------
Total Net Expenses 935 95 1,030
Net Investment Income 7,952 (95) 7,857
REALIZED GAINS ON INVESTMENTS:
Net Realized Gain/(Loss) on Investments (128) (128)
Net change in unrealized appreciation
(depreciation) on investments (1,710) (1,710)
---------------------------------------------------------------------
Net realized/unrealized gains/(losses) on
investments (1,838) - (1,838)
---------------------------------------------------------------------
Change in net assets resulting from operations $ 6,114 $ (95) $ 6,019
=====================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .50% of the Bond Fund (the
"Fund") average daily net assets.
(B) To support the provision of Shareholder Services to both classes of
Shares, HighMark has adopted a Shareholder Service Plan. In consideration of
services provided by any service provider, which may include Union Bank of
California, N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, each Fund may pay a fee at the rate of up to .25% of its average
daily net assets for the period to such service provider. The service provider
may voluntarily choose to waive such fees at any time at its sole discretion.
Currently such fees are being waived to the rate of 0.00% of average daily net
assets.
B-113
<PAGE> 403
(C) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(D) The adjustment is made to reflect the expense reductions resulting from
the lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
(E) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than .75% for both the
Retail Class of Shares and the Fiduciary Class of Shares for the Bond Fund.
(See Notes to Pro Forma Financial Statements)
B-114
<PAGE> 404
HIGHMARK INTERMEDIATE-TERM BOND FUND
STEPSTONE INTERMEDIATE-TERM BOND FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Intermediate-Term Bond Fund and Stepstone
Intermediate-Term Bond Fund, collectively (the "Funds") as of July 31, 1996.
These statements have been derived from the books and records utilized in
calculating daily net assets values at July 31, 1996. The Pro Forma Combining
Statement of Operations reflects the accounts of HighMark Intermediate-Term
Bond Fund and Stepstone Intermediate-Term Bond Fund for the twelve months ended
July 31, 1996, the most recent fiscal year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Intermediate-Term Bond Fund in exchange for Retail and
Fiduciary Class of Shares of the HighMark Intermediate-Term Bond Fund. Under
generally accepted accounting principles, the Stepstone Intermediate-Term Bond
Fund will be the surviving entity for accounting purposes with its historical
cost of investment securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 13,582
Fiduciary Class and 554 Retail Class shares of HighMark Intermediate-Term Bond
Fund in exchange for 13,582 Institutional Class shares and 554 Investment Class
shares, respectively, of the Stepstone Intermediate-Term Bond Fund. These
numbers are based on the net assets of each class of the Stepstone
Intermediate-Term Bond Fund, and the net asset values of each respective class
of HighMark Intermediate-Term Bond Fund, as of July 31, 1996. If the
Reorganization is consummated, the actual exchange ratio may vary from this
ratio due to changes in the market value of the portfolio securities of both
the Acquiring Fund and the Acquired Fund between July 31, 1996 and the Closing
Date, and changes in the amounts of undistributed net investment income and
accrued liabilities of the Acquiring Fund and the Acquired Fund during that
period.
B-115
<PAGE> 405
HIGHMARK CONVERTIBLE SECURITIES FUND
STEPSTONE CONVERTIBLE SECURITIES FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the HighMark
Convertible Securities Fund and the Stepstone Convertible Securities Fund as of
and for the year ended July 31, 1996. These statements have been derived from
the Funds' books and records utilized in calculating daily net asset value at
July 31, 1996. The accompanying Pro Forma Combining Statement of Operations
reflects the accounts of HighMark Convertible Securities Fund and Stepstone
Convertible Securities Fund for the year ended July 31, 1996, the most recent
fiscal year end of the Registrant.
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
CONVERTIBLE CONVERTIBLE PRO CONVERTIBLE CONVERTIBLE
SECURITIES SECURITIES FORMA SECURITIES SECURITIES PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
(000'S)
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS (69.8%)
3Com
200 200 10.250%, 11/01/01 $ 280 $ 280
Airborne Freight
150 150 6.750%, 08/15/01 147 147
Alza
500 500 5.000%, 05/01/06 460 460
Bay Networks
350 350 5.250%, 05/15/03 310 310
Cetus
225 225 5.250%, 05/21/02 214 214
Chubb Capital
200 200 6.000%, 05/15/98 213 213
Columbia HCA Healthcare
150 150 6.750%, 10/01/06 155 155
Conner Peripherals
300 300 6.750%, 03/01/01 306 306
Consolidated Natural Gas
250 250 7.250%, 12/15/15 269 269
Cooper Industries
113 113 7.050%, 01/01/15 118 118
Federated Department Stores
400 400 5.000%, 10/01/03 419 419
First Data
225 225 5.000%, 12/15/99 413 413
General Instruments
111 111 5.000%, 06/15/00 128 128
</TABLE>
B-116
<PAGE> 406
<TABLE>
<S> <C> <C> <C> <C>
Healthsource
400 400 5.000%, 03/01/03 297 297
Hexcel
350 350 7.000%, 08/01/03 408 408
HFS
375 375 4.750%, 03/01/03 419 419
Hilton Hotels
450 450 5.000%, 05/15/06 459 459
IMC Fertilizer Group
325 325 6.250%, 12/01/01 414 414
Inco Limited
150 150 7.750%, 03/15/16 156 156
Integrated Health Services
300 300 5.750%, 01/01/01 282 282
Liberty Property Trust
300 300 8.000%, 07/01/01 300 300
Magna International
400 400 5.000%, 10/15/02 415 415
Motorola
475 475 0.000%, 09/27/13 349 349
Nine West Group
450 450 5.500%, 07/15/03 435 435
Noble Affiliates
175 175 4.250%, 11/01/03 195 195
Pioneer Financial Services
375 375 6.500%, 04/01/03 372 372
Quantum Health
475 475 4.750%, 10/01/00 431 431
Softkey International
425 425 5.500%, 11/01/00 332 332
Solectron
375 375 6.000%, 03/01/06 319 319
Staples
425 425 4.500%, 10/01/00 423 423
Tele Communications International
400 400 4.500%, 02/15/06 325 325
Tenet Healthcare
325 325 6.000%, 12/01/05 316 316
Thermo Electron
375 375 4.250%, 01/01/03 421 421
Time Warner
500 500 0.000%, 06/22/13 209 209
U.S. Cellular
675 675 0.000%, 06/15/15 225 225
U.S. Filter
275 275 6.000%, 09/15/05 335 335
Veterinary Centers
450 450 5.250%, 05/01/06 365 365
WMX Technologies
300 300 2.000%, 01/24/05 258 258
</TABLE>
B-117
<PAGE> 407
<TABLE>
<S> <C> <C> <C> <C>
Worldcom
200 200 5.000%, 08/15/03 273 273
Total Convertible Bonds (Cost $12,253) 12,165 12,165
COMMON STOCKS (17.6%)
AIR TRANSPORTATION (1.7%)
3,797 3,797 AMR (a) 299 299
299 299
AUTOMOTIVE (3.2%)
20,000 20,000 Chrysler 564 564
564 564
BANKS (4.7%)
4,430 4,430 Barnett Banks of Florida 272 272
3,000 3,000 Citicorp 246 246
5,893 5,893 Fifth Third Bancorp 305 305
823 823
COMMUNICATIONS EQUIPMENT (0.7%)
4,799 4,799 General Instrument (a) 121 121
121 121
COMPUTERS & SERVICES (1.0%)
3,529 3,529 Seagate Technology 171 171
171 171
FINANCIAL SERVICES (0.6%)
3,875 3,875 Legg Mason 110 110
110 110
MISCELLANEOUS BUSINESS SERVICES (5.6%)
13,000 13,000 Electronic Data Systems 687 687
10,775 10,775 Olsten 286 286
973 973
Total Common Stocks (Cost $2,676) 3,061 3,061
PREFERRED STOCKS (12.7%)
BANKS (1.8%)
3,000 3,000 Banc One $3.50 200 200
3,000 3,000 Union Planters 112 112
312 312
FINANCIAL SERVICES (4.4%)
6,500 6,500 Conseco * 7.00% 494 494
3,000 3,000 SCI Finance LLC 270 270
764 764
</TABLE>
B-118
<PAGE> 408
<TABLE>
<S> <C> <C> <C> <C>
PAPER & PAPER PRODUCTS (1.7%)
6,500 6,500 International Paper (a) 291 291
291 291
REAL ESTATE (1.5%)
10,000 10,000 Merry Land & Investment $2.15, Ser C 266 266
266 266
RETAIL (1.3%)
5,000 5,000 Ann Taylor 220 220
220 220
WHOLESALE (2.0%)
4,250 4,250 Alco Standard 353 353
353 353
Total Preferred Stocks (Cost $2,127) 2,206 2,206
Total Investments (100.0%) (Cost $17,432) $ 17,432 $ 17,432
</TABLE>
(a) - Non-income producing security
Ser - Series
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-119
<PAGE> 409
HIGHMARK CONVERTIBLE SECURITIES FUND
STEPSTONE CONVERTIBLE SECURITIES FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK
CONVERTIBLE STEPSTONE
SECURITIES CONVERTIBLE PRO FORMA PRO FORMA
FUND SECURITIES ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities $ 17,432 $ 17,432
Repurchase Agreements
----------------------------------------------------------------------
Total Investments - 17,432 - 17,432
Cash - 1,015 1,015
Interest & Dividend Receivable - 170 170
Receivable from Brokers - - -
Prepaid Expenses and Other Assets - 11 11
Capital Shares Sold Receivable - - -
----------------------------------------------------------------------
Total Assets - 18,628 - 18,628
LIABILITIES:
Accrued Expenses and Other Payables: - 15 15
Total Liabilities - 15 - 15
NET ASSETS:
Capital - 17,788 17,788
Net unrealized appreciation
(depreciation) on investments - 376 376
Undistributed net investment income - 20 20
Accumulated undistributed net realized
gain (loss) on investment transactions - 429 429
----------------------------------------------------------------------
NET ASSETS - 18,613 - 18,613
======================================================================
Net Assets:
Fiduciary - - 18,613 (A)(B) 18,613
Retail - - - -
Institutional 18,613 (18,613) (A)(B) -
</TABLE>
B-120
<PAGE> 410
<TABLE>
<S> <C> <C> <C> <C>
Investment - - -
---------------------------------------------------------------------
TOTAL - $ 18,613 - $ 18,613
=====================================================================
Shares Outstanding:
Fiduciary - 1,800 (B) 1,800
Retail - - -
Institutional 1,800 (1,800) (B) -
Investment - - -
---------------------------------------------------------------------
TOTAL SHARES OUSTANDING - 1,800 - 1,800
=====================================================================
Net Asset Value and Redemption Price Per
Share:
Fiduciary 10.34
Retail
Institutional 10.34
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments on
the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
B-121
<PAGE> 411
HIGHMARK CONVERTIBLE SECURITIES FUND
STEPSTONE CONVERTIBLE SECURITIES FUND
PRO FORMA COMBINING STATEMENT OF
OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
CONVERTIBLE CONVERTIBLE PRO FORMA PRO FORMA
SECURITIES SECURITIES ADJUSTMENTS COMBINED
FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $545 $545
Dividend Income - 193 193
Less: Foreign taxes witheld, net of
reclaims - -
-----------------------------------------------------------------------
Total Income - 738 - 738
EXPENSES:
Administration Fees - 21 11 (B) 32
Investment Adviser Fee - 98 (A) 98
Custodian/Wire Agent Fee - 3 (1) (C) 2
Professional Fees - 2 (C) 2
Registration Fees - 3 (2) (C) 1
Distribution Fee - - - (C) -
Trustees Fees - 1 (1) (C) 0
Printing Costs - 2 (1) (C) 1
Other - 9 3 (C) 12
-----------------------------------------------------------------------
Total Expenses - 139 10 149
Investment Adviser Fee Waiver - -
Distribution Fee Waiver - -
Expenses Voluntarily Reduced - (10) (D) (10)
Expense Reimbursements - -
-----------------------------------------------------------------------
Total Net Expenses - 139 0 139
Net Investment Income - 599 (0) 599
REALIZED GAINS ON INVESTMENTS:
</TABLE>
B-122
<PAGE> 412
<TABLE>
<S> <C> <C> <C> <C>
Net Realized Gain/(Loss) on Investments - 357 357
Net Realized Gain/(Loss) on Investment
Transactions - -
Net Realized Gain/(Loss) on Option
Contracts 1 1
Net change in unrealized
appreciation/(depreciation)
on investments - (187) (187)
-----------------------------------------------------------------------
Net realized/unrealized gains/(losses) on
investments - 171 - 171
-----------------------------------------------------------------------
Change in net assets resulting from
operations - $770 - $770
=======================================================================
</TABLE>
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .60% of the Convertible
Securities Fund (the "Fund") average daily net assets.
(B) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(C) The adjustment is made to reflect the expense reductions resulting from
the lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
(D) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than.85% for the
Fiduciary Class of Shares for the Convertible Securities Fund.
B-123
<PAGE> 413
HIGHMARK CONVERTIBLE SECURITIES FUND
STEPSTONE CONVERTIBLE SECURITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Convertible Securities Fund and Stepstone Convertible
Securities Fund, collectively (the "Funds") as of July 31, 1996. These
statements have been derived from the books and records utilized in calculating
daily net assets values at July 31, 1996. The Pro Forma Combining Statement of
Operations reflects the accounts of HighMark Convertible Securities Fund and
Stepstone Convertible Securities Fund for the twelve months ended July 31,
1996, the most recent fiscal year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Convertible Securities Fund in exchange for Retail and
Fiduciary Class of Shares of the HighMark Convertible Securities Fund. Under
generally accepted accounting principles, the Stepstone Convertible Securities
Fund will be the surviving entity for accounting purposes with its historical
cost of investment securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 1,800 Fiduciary
Class in exchange for 1,800 Institutional Class shares, in the reorganization
as of July 31, 1996.
B-124
<PAGE> 414
HIGHMARK GOVERNMENT SECURITIES FUND
STEPSTONE GOVERNMENT SECURITIES FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Combining Statement of Assets and Liabilities and Pro
Forma Combining Statement of Operations reflect the accounts of the HighMark
Government Securities Fund and the Stepstone Government Securities Fund as of
and for the year ended July 31, 1996. These statements have been derived from
the Funds' books and records utilized in calculating daily net asset value at
July 31, 1996. The accompanying Pro Forma Combining Statement of Operations
reflects the accounts of HighMark Government Securities Fund and Stepstone
Government Securities Fund for the year ended July 31, 1996, the most recent
fiscal year end of the Registrant.
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK STEPSTONE HIGHMARK STEPSTONE
GOVERNMENT GOVERNMENT PRO FORMA GOVERNMENT GOVERNMENT PRO FORMA
SECURITIES SECURITIES COMBINED SECURITIES SECURITIES COMBINED
FUND FUND FUND FUND
PRINCIPAL PRINCIPAL PRINCIPAL VALUE VALUE VALUE
(000'S) (000'S)
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (67.0%)
U.S. Treasury Notes
$ 1,750 $ 1,750 5.625%, 06/30/97 $ 1,746 $ 1,746
2,000 2,000 7.375%, 11/15/97 2,032 2,032
750 750 6.000%, 11/30/97 750 750
2,500 2,500 5.250%, 12/31/97 2,473 2,473
1,000 1,000 5.125%, 02/28/98 985 985
2,500 2,500 6.000%, 05/31/98 2,491 2,491
7,250 7,250 5.500%, 11/15/98 7,130 7,130
1,000 1,000 5.000%, 02/15/99 969 969
1,000 1,000 5.500%, 12/31/00 960 960
1,500 1,500 7.750%, 01/31/00 1,559 1,559
2,000 2,000 6.375%, 08/15/02 1,975 1,975
1,000 1,000 6.875%, 05/15/06 1,005 1,005
8,550 8,550 6.000%, 02/15/26 7,512 7,512
Total U.S. Treasury Obligations 31,587 31,587
U.S. GOVERNMENT AGENCY
OBLIGATIONS (20.9%)
Aid-Israel
2,000 2,000 7.125%, 08/15/99 2,023 2,023
FHLB
1,000 1,000 7.060%, 08/14/01 1,002 1,002
</TABLE>
B-125
<PAGE> 415
<TABLE>
<S> <C> <C> <C>
FNMA
1,000 1,000 5.900%, 07/06/00 974 974
1,000 1,000 5.875%, 02/02/06 918 918
GNMA
1,854 1,854 7.500%, 08/15/25 1,830 1,830
2,262 2,262 7.000%, 01/15/24 2,173 2,173
Tennessee Valley Authority
1,000 1,000 6.375%, 06/15/05 951 951
Total U.S. Government Agency Obligations 9,871 9,871
CORPORATE OBLIGATIONS (12.1%)
Fletcher Challenge
1,000 1,000 7.750%, 06/20/06 1,008 1,008
GMAC
1,000 1,000 7.125%, 05/01/03 989 989
Lehman Brothers
1,500 1,500 7.125%, 09/15/03 1,462 1,462
Lockheed Martin
1,000 1,000 6.850%, 05/15/01 991 991
Meditrust
1,250 1,250 7.250%, 08/16/99 1,253 1,253
Total Corporate Obligations 5,703 5,703
Total Investments (100.0%) (Cost $48,986) $47,161 $47,161
</TABLE>
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-126
<PAGE> 416
HIGHMARK GOVERNMENT SECURITIES FUND
STEPSTONE GOVERNMENT SECURITIES FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
GOVERNMENT GOVERNMENT PRO FORMA PRO FORMA
SECURITIES SECURITIES ADJUSTMENTS COMBINED
FUND FUND
<S> <C> <C> <C>
ASSETS:
Investments in securities $ 47,161 $ 47,161
Repurchase Agreements -
--------------------------- --------------
Total Investments 47,161 47,161
Cash 759 $ 1 (A) 760
Interest & Dividends Receivable 806 806
Receivable from Brokers 949 949
Prepaid Expenses and Other Assets 37 37
Capital Shares Sold Receivable 11 11
-----------------------------------------------------------------
Total Assets 49,723 1 49,724
LIABILITIES:
Payable for Capital Shares Redeemed 14 14
Payable to Brokers 1,000 1,000
Accrued Expenses and Other Payables 82 82
-----------------------------------------------------------------
Total Liabilities 1,096 1,096
NET ASSETS:
Capital 50,635 50,635
Net unrealized appreciation on
investments (1,066) (1,066)
Undistributed net investment income 89 1 90
Accumulated undistributed net realized
gain (loss) on investment transactions (1,031) (1,031)
-----------------------------------------------------------------
Net Assets $ 48,627 $ 1 $ 48,628
=================================================================
Net Assets:
Fiduciary $ 48,628 (A)(B) $ 48,628
Retail
Institutional $ 48,627 (48,627) (B)
Investment
-----------------------------------------------------------------
Total $ 48,627 $ 1 $ 48,628
=================================================================
Shares Outstanding:
Fiduciary 5,203 (B) 5,203
</TABLE>
B-127
<PAGE> 417
<TABLE>
<S> <C> <C> <C>
Retail
Institutional 5,203 (5,203) (B)
Investment
----------------------------------------------------------------
Total Shares Outstanding 5,203 5,203
================================================================
Net Asset Value and Redemption Price Per
Share:
Fiduciary $ 9.35
Retail
Institutional $ 9.35
Investment
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments
on the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-128
<PAGE> 418
HIGHMARK GOVERNMENT SECURITIES FUND
STEPSTONE GOVERNMENT SECURITIES FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
GOVERNMENT GOVERNMENT PRO FORMA PRO FORMA
SECURITIES SECURITIES ADJUSTMENTS COMBINED
FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 2,723 $ 2,723
Dividend Income
------------------------------ ---------------
Total Income 2,723 2,723
EXPENSES:
Investment Adviser Fee 216 $ (1) (A) 215
Administration Fees 57 29 (B) 86
Custodian/Wire Agent Fee 4 2 (C) 6
Professional Fees 10 (6) (C) 4
Registration Fees 12 (8) (C) 4
Distribution Fee 12 (C) 12
Trustees Fees 1 1
Printing Costs 9 (7) (C) 2
Other 15 (2) (C) 13
--------------------------------------------------------------------
Total Expenses 324 7 331
Investment Adviser Fee Waiver
Expenses Voluntarily Reduced (8) (D) (8)
--------------------------------------------------------------------
Total Net Expenses 324 (1) 323
Net Investment Income 2,399 1 2,400
Realized Gains on Investments:
Net Realized Gain/(Loss) on Investments 845 845
Net change in unrealized
appreciation/(depreciation)
on investments (1,995) (1,995)
--------------------------------------------------------------------
Net realized/unrealized gains/(losses)
on investments (1,150) (1,150)
--------------------------------------------------------------------
Change in net assets resulting from
operations $ 1,249 $ 1 $ 1,250
=====================================================================
</TABLE>
(See Legend on following page)
(See Notes to Pro Forma Financial Statements)
B-129
<PAGE> 419
HIGHMARK GOVERNMENT SECURITIES FUND
STEPSTONE GOVERNMENT SECURITIES FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .50% of the Government
Securities Fund (the "Fund") average daily net assets.
(B) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(C) The adjustment is made to reflect the expense reductions resulting from
the lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
(D) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than .75% for the
Fiduciary Class of Shares for the Government Securities Fund.
B-130
<PAGE> 420
HIGHMARK GOVERNMENT SECURITIES FUND
STEPSTONE GOVERNMENT SECURITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Schedule of Portfolio of
Investments and Pro Forma Combining Statement of Assets and Liabilities reflect
the accounts of HighMark Government Securities Fund and Stepstone Government
Securities Fund, collectively (the "Funds") as of July 31, 1996. These
statements have been derived from the books and records utilized in calculating
daily net assets values at July 31, 1996. The Pro Forma Combining Statement of
Operations reflects the accounts of HighMark Government Securities Fund and
Stepstone Government Securities Fund for the twelve months ended July 31, 1996,
the most recent fiscal year of the Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone Government Securities Fund in exchange for Retail and
Fiduciary Class of Shares of the HighMark Government Securities Fund. Under
generally accepted accounting principles, the Stepstone Government Securities
Fund will be the surviving entity for accounting purposes with its historical
cost of investment securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 5,203 Fiduciary
Class shares of HighMark Government Securities Fund in exchange for 5,203
Institutional Class shares in the reorganization as of July 31, 1996.
B-131
<PAGE> 421
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
PRO FORMA FINANCIAL STATEMENTS
JULY 31, 1996
The accompanying unaudited Pro Forma Combining Schedule of Portfolio
Investments, Pro Forma Statement of Assets and Liabilities and Pro Forma
Statement of Operations reflect the accounts of the HighMark California
Intermediate Tax-Free Bond Fund and the Stepstone California Intermediate
Tax-Free Bond Fund as of and for the year ended July 31, 1996. These
statements have been derived from the Funds' books and records utilized in
calculating daily net asset value at July 31, 1996. The accompanying Pro Forma
Combining Statement of Operations reflects the accounts of HighMark California
Intermediate Tax-Free Bond Fund and Stepstone California Intermediate Tax-Free
Bond Fund for the year ended July 31, 1996, the most recent fiscal year end of
the Registrant.
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
HIGHMARK HIGHMARK
CALIFORNIA STEPSTONE CALIFORNIA STEPSTONE
INTERMEDIATE CALIFORNIA PRO FORMA INTERMEDIATE CALIFORNIA PRO FORMA
TAX-FREE INTERMEDIATE COMBINED TAX-FREE INTERMEDIATE COMBINED
BOND FUND TAX-FREE BOND FUND TAX-FREE
BOND FUND BOND FUND
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
(000'S) (000'S)
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (93.7%)
$ 500 $ 500 Alameda County, Santa Rita Jail Project, $ 508 $ 508
COP, MBIA Insured 5.250%, 12/01/04
250 250 Anaheim Public Financing Authority, 248 248
Electric Utililty Projects, RB, Callable
04/01/05 @ 100, MBIA Insured 5.500%,
10/01/10
500 500 Antioch Public Finance Authority, Police 490 490
Facilities Project, Lease RB, MBIA Insured
4.550%, 01/01/03
345 345 Berkeley Unified School District, GO, Ser 423 423
D, FGIC Insured 8.250%, 08/01/05
500 400 California Educational Facilities, 515 515
Pepperdine University, RB, Callable
01/15/97 @ 102 6.750%, 01/15/06
200 200 California Pollution Control Finance 200 200
Authority, Shell Oil, VRDN, RB (A) (B) (C)
3.500%, 08/01/96
</TABLE>
B-132
<PAGE> 422
<TABLE>
<S> <C> <C> <C> <C>
250 250 California State, GO 4.200%, 09/01/02 238 238
250 250 Contra Costa Transportation Authority, 264 264
Sales Tax RB, Ser A, Escrowed to Maturity
6.300%, 03/01/00
500 500 Cupertino, COP, Callable 01/01/03 @ 102 505 505
5.500%, 01/01/05
250 250 East Bay Municipal Utility District Water 264 264
System, RB, FGIC Insured 6.000%, 06/01/01
235 235 Gilroy Unified School District, COP, 243 243
Measure J Capital Projects, FSA Insured
5.750%, 09/01/05
500 500 Los Angeles Department of Airports, RB, 549 549
Ser B, FGIC Insured 6.500%, 05/15/04
300 300 Los Angeles, GO, FGIC Insured Callable 305 305
09/01/03 @ 101 5.400%, 09/01/06
300 300 Los Angeles, Wastewater System RB, Ser B, 299 299
Callable 06/01/03 @ 102, MBIA Insured
5.400%, 06/01/08
250 250 Midpeninsula Regional Open Space District 251 251
Finance Authority, RB, AMBAC Insured
4.900%, 09/01/02
300 300 Moulton-Niguel Water District, COP, 294 294
Callable 09/01/03 @ 102, AMBAC Insured
4.750%, 09/01/04
230 230 M-S-R Public Power Agency, San Juan 240 240
Project, RB, Ser F, AMBAC Insured,
Callable 07/01/03 @ 102, Callable 07/01/05
@ 100 6.000%, 07/01/08
550 550 Sacramento Municipal Utility District, 562 562
Electric Revenue, Ser C, FGIC Insured
5.750%, 11/15/08
480 480 San Diego County Water Authority, COP, Ser 513 513
A, Callable 05/01/03 @ 100, Callable
05/01/01 @ 102 6.250%, 05/01/04
300 300 San Francisco Building Authority, 296 296
Department General Services, Lease RB, Ser
A 4.500%, 10/01/00
350 350 San Francisco City & County, GO, Utility 368 368
Public Safety Improvement Project, Ser F,
FGIC Insured 6.500%, 06/15/08
</TABLE>
B-133
<PAGE> 423
<TABLE>
<S> <C> <C> <C> <C>
150 150 San Jose Redevelopment Agency, Tax 148 148
Allocation, Merged Area Redevelopment
Project, RB, MBIA Insured 4.800%, 08/01/04
400 400 Santa Clara, COP, AMBAC Insured 6.000%, 405 405
05/15/12
500 500 Santa Cruz County, Public Facilities 501 501
Financing Authority, Tax Allocation,
Callable 09/01/03 @ 102, MBIA Insured
5.100%, 09/01/05
200 200 Tulare County Capital Improvement Program, 201 201
COP, Ser A, MBIA Insured 4.700%, 02/15/00
200 200 United Water Conservation District, Water 192 192
Systems Project, RB, FSA Insured 4.300%,
03/01/03
Total California Municipal Bonds (Cost 9,022 9,022
$9,019)
Total Investments (98.8%) (Cost $9,512) $ 9,022 9,022
</TABLE>
(A) Floating Rate security -- The rate reflected on the Statement of
Net Assets is the rate in effect on July 31, 1996.
(B) Put and Demand Feature -- The data reported is the lesser of
maturity date or the put date.
(C) Securities are held in conjunction with a letter of credit by a
major commercial bank or financial institution.
AMBAC -- American Municipal Bond Insurance Corporation
COP -- Certificates of Participation
FGIC -- Financial Guaranty Insurance Corporation
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
RB -- Revenue Bonds
Ser -- Series
VRON -- Variable Rate Demand Note
(See Notes to Pro Forma Financial Statements which are an integral part of the
Financial Statements)
B-134
<PAGE> 424
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK CALIFORNIA STEPSTONE CALIFORNIA
INTERMEDIATE TAX INTERMEDIATE TAX PRO FORMA PRO FORMA
FREE BOND FUND FREE BOND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C>
ASSETS:
Investments in securities $ 9,022 $ 9,022
Repurchase Agreements
---------------------------------------------------------------------------------
Total Investments 9,022 9,022
Cash 493 (2) (A) 491
Interest & Dividends Receivable 120 120
Receivable from Brokers
Prepaid Expenses and Other Assets 4 4
Capital Shares Sold Receivable
---------------------------------------------------------------------------------
Total Assets 9,639 (2) 9,637
LIABILITIES:
Distributions Payable
Payable for Capital Shares Redeemed
Payable to Brokers
Accrued Expenses and Other Payables 6 6
---------------------------------------------------------------------------------
Total Liabilities 6 6
NET ASSETS:
Capital 10,924 10,924
Net unrealized appreciation on
investments 3 3
Undistributed net investment income 14 (2) (A) 12
Accumulated undistributed net realized
gain (loss) on investment transactions (1,308) (1,308)
Accumulated net realized gain (loss) on
foreign currency transactions
Net unrealized appreciation on foreign
currency and translation of other
assets and liabilities in foreign currency
---------------------------------------------------------------------------------
NET ASSETS $ 9,633 $ (2) $ 9,631
=================================================================================
Net Assets:
Fiduciary $ 5,158 (A)(B) $ 5,158
Retail 4,473 (A)(B) 4,473
Institutional $ 5,159 (5,159) (B)
Investment 4,474 (4,474) (B)
---------------------------------------------------------------------------------
TOTAL $ 9,633 $ (2) $ 9,631
=================================================================================
</TABLE>
B-135
<PAGE> 425
<TABLE>
<S> <C> <C> <C> <C>
Shares Outstanding:
Fiduciary 536 (B) 536
Retail 466 (B) 466
Institutional 536 (536) (B)
Investment 466 (466) (B)
-----------------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 1,002 1,002
=============================================================================
Net Asset Value and Redemption Price Per
Share:
Fiduciary $9.63
Retail 9.60
Institutional $9.63
Investment 9.60
</TABLE>
(A) Adjustment to reflect the cumulative effect of the pro forma adjustments
on the Statement of Operations.
(B) Adjustment to reflect class share balances as a result of the
reorganization.
(See Notes to Pro Forma Financial Statements)
B-136
<PAGE> 426
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) HIGHMARK STEPSTONE
CALIFORNIA CALIFORNIA
INTERMEDIATE TAX INTERMEDIATE TAX PRO FORMA PRO FORMA
FREE BOND FUND FREE BOND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $472 $ 472
Dividend Income
-----------------------------------------------------------------------
Total Income 472 472
EXPENSES:
Administration Fees 12 $ 1 (B) 13
Investment Adviser Fee 47 (A) 47
Custodian/Wire Agent Fee 2 (1) (C) 1
Professional Fees 1 (C) 1
Registration Fees (1) 2 (C) 1
Distribution Fee 18 (C) 18
Trustees Fees 1 (1) (C) 0
Printing Costs 1 (C) 1
Other 3 23 (C) 26
-----------------------------------------------------------------------
Total Expenses 84 24 108
Investment Adviser Fee Waiver (47) 47 (A) -
Distribution Fee Waiver (18) (18)
Expenses Voluntarily Reduced (69) (D) (69)
Expense Reimbursements
-----------------------------------------------------------------------
Total Net Expenses 19 2 21
Net Investment Income 453 (2) 451
REALIZED GAINS ON INVESTMENTS: (39) (39)
Net change in unrealized
appreciation/(depreciation)
on investments 248 248
Net change in unrealized
appreciation/(depreciation)
on foreign currency transactions
Net realized/unrealized gains/(losses) on
investments 209 209
-----------------------------------------------------------------------
Change in net assets resulting from operations $ 662 $ (2) $ 660
=======================================================================
</TABLE>
(See Legend on following page)
(See Notes to Pro Forma Financial Statements)
B-137
<PAGE> 427
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1996
(A) Pacific Alliance Capital Management (the "Adviser") receives for its
services an annual investment advisory fee equal to .50% of the California
Intermediate Tax-Free Bond Fund (the "Fund") average daily net assets. The
Adviser has voluntarily agreed to waive fees to the extent necessary in order
to limit total operating expenses. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
(B) SEI Financial Services Company provides the Fund with certain
administrative services. The SEI fee is based on the level of average
aggregate net assets of the Fund for the period.
(C) The adjustment is made to reflect the expense reductions resulting from
the lower expected costs allocated to the fund due to combining of the HighMark
and Stepstone portfolios.
(D) The Adviser has voluntarily agreed to waive fees to the extent necessary
in order to limit total operating expenses to not more than .22% for the Retail
Class of Shares and the Fiduciary Class of Shares for the California
Intermediate Tax-Free Bond Fund.
B-138
<PAGE> 428
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of HighMark California
Intermediate Tax-Free Bond Fund and Stepstone California Intermediate Tax-Free
Bond Fund, collectively (the "Funds") as of July 31, 1996. These statements
have been derived from the books and records utilized in calculating daily net
assets values at July 31, 1996. The Pro Forma Combining Statement of
Operations reflects the accounts of HighMark California Intermediate Tax-Free
Bond Fund and Stepstone California Intermediate Tax-Free Bond Fund for the
twelve months ended July 31, 1996, the most recent fiscal year of the
Registrant.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds. The Funds follow generally
accepted accounting principles applicable to management investment companies
which are disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Stepstone California Intermediate Tax-Free Bond Fund in exchange for
Retail and Fiduciary Class of Shares of the HighMark California Intermediate
Tax-Free Bond Fund. Under generally accepted accounting principles, the
Stepstone California Intermediate Tax-Free Bond Fund will be the surviving
entity for accounting purposes with its historical cost of investment
securities and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect the
anticipated expenses of the combined entity. Other costs which may change as a
result of the reorganization are currently indeterminable.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 536 Fiduciary
Class and 466 Retail Class shares of HighMark California Intermediate Tax-Free
Bond Fund in exchange for 536 Institutional Class shares and 466 Investment
Class shares, respectively. These numbers are based on the net assets of each
class of the Stepstone California Intermediate Tax-Free Bond Fund, and the net
asset values of each respective class of HighMark California Intermediate
Tax-Free Bond Fund, as of July 31, 1996. If the Reorganization is consummated,
the actual exchange ratio may vary from this ratio due to changes in the market
value of the portfolio securities of both the Acquiring Fund and the Acquired
Fund between July 31, 1996 and the Closing Date, and changes in the amounts of
undistributed net investment income and accrued liabilities of the Acquiring
Fund and the Acquired Fund during that period.
B-139
