<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
STEPSTONE FUNDS
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
same
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
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2) Aggregate number of securities to which transaction applies:
N/A
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
N/A
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4) Proposed maximum aggregate value of transaction:
N/A
-----------------------------------------------------------------------
/x/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$125
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2) Form, Schedule or Registration Statement No.:
Schedule 14a
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3) Filing Party:
Stepstone Funds
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4) Date Filed:
January 19, 1996
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<PAGE> 2
IMPORTANT SHAREHOLDER INFORMATION
The document you hold in your hands contains your proxy statement and proxy
card. A proxy card is, in essence, a ballot. When you vote your proxy card, it
tells us how to vote on your behalf on important issues relating to your Fund.
Each proxy card may be completed by checking a single box and voting for or
against all of the proposals relating to your Fund, or you may vote on each
proposal separately. If you simply sign the proxy card without specifying a
vote, your shares will be voted in accordance with the recommendations of the
Board of Trustees. You will receive one proxy card for each Fund in which you
own shares.
We urge you to spend a few minutes with the proxy statement, fill out your proxy
card, and return it to us. Voting your proxy, and doing so promptly, ensures
that your Fund will not need to conduct additional mailings. When shareholders
do not return their proxies in sufficient numbers, we have to make follow-up
solicitations, which may cost your Fund money.
Please take a few moments to exercise your right to vote. Thank you.
[STEPSTONE FUNDS LOGO]
<PAGE> 3
[STEPSTONE FUNDS LOGO]
January 31, 1996
Dear Stepstone Funds Shareholder:
I am writing to let you know that A SPECIAL MEETING OF THE STEPSTONE FUNDS
SHAREHOLDERS WILL BE HELD ON MARCH 7, 1996 TO VOTE ON SEVERAL IMPORTANT
PROPOSALS that affect The Stepstone Funds(R). As a shareholder, you have the
opportunity to voice your opinion on these matters. This package contains
information about the proposals and the materials to use to vote by mail.
Please take a few minutes to read the enclosed materials and cast your vote
on the proxy ballot(s) enclosed. It is extremely important to vote promptly.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. IF WE DO NOT RECEIVE
ENOUGH VOTES, WE MUST RESOLICIT SHAREHOLDERS AT AN ADDITIONAL COST. WE ENCOURAGE
YOU TO SUPPORT THE TRUSTEES RECOMMENDATIONS.
Union Bank has announced effective April 1, 1996 that The Bank of
California, N.A., BanCal Tri-State Corporation and Union Bank will combine. As a
result of the combination, Union Bank's assets and liabilities will be assumed
by The Bank of California, N.A., which will be renamed Union Bank of California,
N.A. In addition, it is anticipated that The Bank of Tokyo Ltd., Union Bank's
corporate parent, will merge with Mitsubishi Bank Limited on that date. Since
Union Capital Advisors, a division of Union Bank, serves as the investment
adviser to the Stepstone Funds, the combination of the banks requires approval
of a new investment advisory agreement between the Stepstone Funds and the Union
Bank of California. Similarly, the combination of the Bank of Tokyo and
Mitsubishi Bank requires that Shareholders of certain Stepstone Funds approve
new sub-advisory agreements with BOT Asset Management (U.K.) Limited and Bank of
Tokyo Trust Company, each of which is an affiliate of the Bank of Tokyo. The
terms of the new agreements will be substantially the same as the present
investment advisory agreement with Union Bank and sub-advisory agreements with
Bank of Tokyo Trust Company and BOT Asset Management (U.K.) Limited. This
special meeting of shareholders is being called to obtain your approval of these
new investment advisory and sub-advisory agreements in order to avoid any
interruption in the investment advisory services provided to the Stepstone
Funds.
IMPORTANT FACTORS REGARDING THE NEW INVESTMENT ADVISORY AND SUB-ADVISORY
AGREEMENTS INCLUDE:
-- The Stepstone Funds' Board of Trustees has unanimously approved the new
advisory and sub-advisory agreements;
<PAGE> 4
-- There will be no change in the Stepstone Funds' investment objectives or
investment policies or in the responsibilities of the investment adviser
and sub-advisers;
-- There will be no change in the fees payable to the adviser or
sub-advisers as a result of the approval of the new investment advisory
and sub-advisory agreements;
-- No significant changes in the personnel of the investment adviser or
sub-advisers who manage the funds are currently planned.
THE FOLLOWING IS A BRIEF SUMMARY OF THE PROPOSALS THAT ARE INCLUDED IN THIS
PROXY:
PROPOSAL 1: AGREEMENT WITH THE INVESTMENT ADVISER
1. TO APPROVE THE SELECTION OF UNION BANK OF CALIFORNIA, N.A. ("UBOC") AS
INVESTMENT ADVISER TO EACH FUND, AND TO APPROVE A NEW INVESTMENT ADVISORY
AGREEMENT BETWEEN THE STEPSTONE FUNDS AND UBOC.
PROPOSALS 2 AND 3: AGREEMENTS WITH THE SUB-ADVISERS
2. TO APPROVE THE SELECTION OF THE BANK OF TOKYO TRUST COMPANY ("BOTT") OR ITS
SUCCESSOR AS THE SUB-ADVISER TO THE BLUE CHIP GROWTH, EMERGING GROWTH,
GOVERNMENT SECURITIES AND CONVERTIBLE SECURITIES FUNDS, AND TO APPROVE A NEW
SUB-ADVISORY AGREEMENT BETWEEN BOTT (OR ITS SUCCESSOR) AND UBOC RELATING TO
THE FUNDS.
3. TO APPROVE THE SELECTION OF BOT ASSET MANAGEMENT (U.K.), LIMITED ("BTAM") OR
ITS SUCCESSOR AS THE SUB-ADVISER TO THE INTERNATIONAL EQUITY FUND, AND TO
APPROVE THE SUB-ADVISORY AGREEMENT BETWEEN BTAM (OR ITS SUCCESSOR) AND UBOC
RELATING TO THE FUND.
YOUR VOTE IS IMPORTANT TO US. PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT AS SOON AS POSSIBLE. For your convenience, we have enclosed a
self-addressed stamped envelope. Please call (213) 236-6676 if you have any
questions about the proposals. Thank you for taking the time to consider these
important proposals and for your investment in the Stepstone Funds.
Sincerely,
David G. Lee
President
<PAGE> 5
STEPSTONE FUNDS
2 OLIVER STREET
BOSTON, MA 02109
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MARCH 7, 1996
To the Shareholders of Stepstone Funds:
Notice is hereby given that a special meeting of shareholders (the
"Meeting") of the Balanced, Blue Chip Growth, California Tax-Free Bond,
California Tax-Free Money Market, Convertible Securities, Emerging Growth,
Government Securities, Growth Equity, Intermediate-Term Bond, International
Equity, Limited Maturity Government, Money Market Fund, Treasury Money Market
and Value Momentum Funds (each a "Fund" and, together, the "Funds") of Stepstone
Funds (the "Trust"), will be held at the offices of SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658, on
Thursday, March 7, 1996, at 10:00 a.m., Eastern time.
At the Meeting, Shareholders of the Trust will be asked to consider and act
upon proposed advisory and sub-advisory agreements with the successor entities
to the Trust's current adviser and sub-advisers, and on other matters detailed
below (the "Proposals"). The specifics of these Proposals, which are more fully
described in the attached Proxy Statement, are as follows:
1. To approve the selection of Union Bank of California, N.A. ("UBOC") as
investment adviser to each Fund, and to approve a new investment
advisory agreement between the Trust, on behalf of each Fund, and UBOC.
2. To approve the selection of The Bank of Tokyo Trust Company ("BOTT") or
its successor as the sub-adviser to the Blue Chip Growth, Emerging
Growth, Government Securities and Convertible Securities Funds, and to
approve a new sub-advisory agreement between BOTT (or its successor) and
UBOC relating to these Funds.
3. To approve the selection of BOT Asset Management (U.K.), Limited
("BTAM") or its successor as the sub-advisor to the International Equity
Fund, and to approve the a sub-advisory agreement between BTAM (or its
successor) and UBOC relating to the Fund.
<PAGE> 6
The proxies are authorized to vote on such other business as may properly
come before the Meeting in accordance with their own discretion.
BY ORDER OF THE BOARD OF TRUSTEES
RICHARD W. GRANT, SECRETARY
All Shareholders are cordially invited to attend the Meeting. However, if
you are unable to attend the Meeting, you are requested to mark, sign and date
the enclosed Proxy Card(s) and return them promptly in the enclosed,
postage-paid envelope so that the Meeting may be held and the maximum number of
shares may be voted.
Shareholders of record at the close of business on January 16, 1996, are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
February 1, 1996
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 7
STEPSTONE FUNDS
2 OLIVER STREET
BOSTON, MA 02109
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF SHAREHOLDERS
MARCH 7, 1996
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of Stepstone Funds (the "Trust") on behalf of
the Balanced, Blue Chip Growth, California Tax-Free Bond, California Tax-Free
Money Market, Convertible Securities, Emerging Growth, Government Securities,
Growth Equity, Intermediate-Term Bond, International Equity, Limited Maturity
Government, Money Market Fund, Treasury Money Market and Value Momentum Funds
(each a "Fund" and, together, the "Funds") for use at the Special Meeting of
Shareholders to be held at the offices of SEI Financial Management Corporation,
680 East Swedesford Road, Wayne, Pennsylvania 19087-1658, on Thursday, March 7,
1996, at 10:00 a.m. Eastern time, and at any adjourned session thereof (such
meeting and any adjournments thereof are hereinafter referred to as the
"Meeting"). Shareholders of the Funds of record at the close of business on
January 16, 1996 ("Shareholders"), are entitled to vote at the Meeting. The
table below sets forth the approximate number of units of beneficial interest
("shares") issued and outstanding for each Fund:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
FUND AS OF JANUARY 16, 1996
--------------------------------------------- ----------------------
<S> <C>
Balanced 17,268,805.226
Blue Chip Growth 4,950,508.326
California Tax-Free Bond 881,804.947
California Tax-Free Money Market 116,379,923.540
Convertible Securities 1,591,675.911
Emerging Growth 3,453,019.960
Government Securities 4,664,440.971
Growth Equity 10,189,828.049
Intermediate-Term Bond 13,139,478.294
International Equity 1,183,514.241
Limited Maturity Government 3,666,378.727
Money Market 755,731,116.360
Treasury Money Market 396,696,618.040
Value Momentum 12,835,447.816
</TABLE>
1
<PAGE> 8
Each share is entitled to one vote and each fractional share is entitled to
a proportionate fractional vote on each matter as to which such shares are to be
voted at the Meeting. Shareholders of each class of each Fund will vote together
on each Proposal relating to their Fund.
In addition to the solicitation of proxies by mail, Trustees and officers
of the Trust and officers and employees of SEI Financial Management Corporation,
680 East Swedesford Road, Wayne, Pennsylvania 19087-1658, the Administrator for
the Trust (the "Administrator"), may solicit proxies in person or by telephone.
Persons holding shares as nominees will, upon request, be reimbursed for their
reasonable expenses incurred in sending soliciting materials to their
principals. The cost of solicitation will be borne by Union Bank. The proxy and
this Proxy Statement are being mailed to Shareholders on or about February 1,
1996.
Shares represented by duly executed proxies will be voted in accordance
with the instructions given. Proxies may be revoked at any time before they are
exercised by a written revocation received by the President of the Trust at 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658, by properly executing a
later-dated proxy, or by attending the Meeting and voting in person.
INTRODUCTION
The Trust is organized as a Massachusetts business trust and is not
required to hold annual meetings of Shareholders. The Meeting is being called in
order to permit the Shareholders of the Trust to vote on the approval of new
investment advisory and sub-advisory agreements with the successor entities to
the Trust's current adviser and sub-advisers. These new agreements are required
by law to replace those that will terminate upon the mergers of both the Trust's
adviser and one of its sub-advisers, as well as the merger of the parent company
of the Trust's current adviser and sub-advisers (the "Mergers").
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<PAGE> 9
This Proxy Statement solicits votes on proposals affecting more than one
Fund as set forth below. Shareholders may vote only on those proposals affecting
the Fund(s) of which they are Shareholders. The table below sets forth the
specifics of each Proposal, and indicates the Fund(s) affected by each:
<TABLE>
<CAPTION>
PROPOSAL FUND
- ------------------------------------------------------------- ---------------------------
<S> <C>
1. To approve the selection of Union Bank of California, N.A. All Funds
("UBOC") as investment adviser to each Fund, and to approve
the new investment advisory agreement between the Trust, on
behalf of each Fund, and UBOC.
2. To approve the selection of The Bank of Tokyo Trust Blue Chip Growth Fund
Company ("BOTT") or its successor as the sub-adviser to the Emerging Growth Fund
Blue Chip Growth, Emerging Growth, Government Securities and Government Securities Fund
Convertible Securities Funds, and to approve a new Convertible Securities Fund
sub-advisory agreement between BOTT (or its successor) and
UBOC relating to the Funds.
3. To approve the selection of BOT Asset Management (U.K.), International Equity Fund
Limited ("BTAM") or its successor as the sub-adviser to the
International Equity Fund, and to approve a new sub-advisory
agreement between BTAM (or its successor) and UBOC relating
to the Fund.
</TABLE>
Here are some factors you should consider in determining whether to approve
the new advisory and sub-advisory agreements:
-- The Stepstone Funds' Board of Trustees has unanimously approved the new
advisory and sub-advisory agreements;
-- There will be no change in the Stepstone Funds' investment objectives or
investment policies or in the responsibilities of the investment adviser
and sub-advisers;
-- There will be no change in the fees payable to the adviser or
sub-advisers as a result of the approval of the new investment advisory
and sub-advisory agreements;
-- No significant changes in the personnel of the investment adviser or
sub-advisers who manage the funds are currently planned.
THE PROPOSED TRANSACTION
The Trust's current investment adviser is Union Bank ("Union"), an
indirect, majority-owned subsidiary of The Bank of Tokyo, Ltd. (the "Bank of
Tokyo"). The Bank of Tokyo directly or indirectly owns 72% of the outstanding
shares of Union, and directly or indirectly owns all of the outstanding shares
of (i) The Bank of Tokyo Trust Company ("BOTT"), the current sub-adviser to the
Trust's Blue Chip Growth, Emerging Growth, Government Securities and Convertible
Securities Funds, and (ii) BOT Asset Management (U.K.) Limited ("BTAM"), the
current sub-adviser to the Trust's International Equity Fund.
3
<PAGE> 10
The Bank of Tokyo and The Mitsubishi Bank, Limited ("Mitsubishi") have
announced their intention to merge. The terms of the proposed transaction
provide that (i) Mitsubishi and the Bank of Tokyo will engage in a merger
transaction in which Mitsubishi will be the surviving entity and will change its
name to The Bank of Tokyo-Mitsubishi, Ltd. ("BOT-Mitsubishi"), and (ii) as soon
as practicable thereafter, the California bank subsidiaries of the Bank of Tokyo
and Mitsubishi, Union and The Bank of California, N.A. (the "Bank of
California"), respectively, will combine to become Union Bank of California,
N.A.
The combination of the California banking subsidiaries of the Bank of Tokyo
and Mitsubishi will be accomplished pursuant to an Agreement and Plan of
Reorganization (the "Reorganization Agreement") among Union, the Bank of
California and Tri-State, a related Plan of Merger (the "Merger Agreement"), and
a Purchase and Assumption Agreement (the Purchase Agreement") between Union and
the Bank of California, each dated as of September 27, 1995, pursuant to which
Union will transfer substantially all of its banking business and other assets
to the Bank of California in exchange for the Bank of California's assumption of
substantially all of the liabilities of Union and the issuance by the Bank of
California to Union of 26,117,714 shares of common stock, $15.00 par value. In a
practical sense, the transactions under the Reorganization Agreement, the Merger
Agreement and the Purchase Agreement will be effected as a single, integrated
transaction. The consummation of the Mergers is currently expected to occur on
or about April 1, 1996 (the "Closing Date").
Following the transactions described above, the combined bank will be
renamed Union Bank of California, N.A., referred to herein as UBOC. UBOC will
succeed by operation of law to all rights, obligations, properties, assets,
investments, deposits, demands, and agreements covered by the Purchase
Agreement, and to all properties, assets, investments, agreements, rights, and
obligations of Union under all fiduciary or representative capacities (e.g.,
trusts and executorships). After this transfer to UBOC of substantially all its
banking business, Union will voluntarily relinquish its California banking
license and its federal deposit insurance and will be strictly a bank holding
company for UBOC and its non-bank subsidiaries and will be renamed Union BanCal
Corporation ("UBCC"). As a result of the Mergers, Union will become part of
UBOC.
Immediately following the combination of the California subsidiaries, UBCC
will own approximately 94% of the outstanding shares of Common Stock of UBOC.
BOT-Mitsubishi will own approximately 81% of the issued and outstanding UBCC
Common Stock. In addition to its indirect ownership of UBOC through its
ownership of 81% of UBCC Common Stock, BOT-Mitsubishi will also own directly
approximately 6% of the common stock of UBOC. As a consequence, both UBCC and
BOT-Mitsubishi will be deemed to control UBOC for purposes of the Investment
Company Act of 1940, as amended (the "1940 Act").
One or more of the foregoing transactions will constitute an "assignment"
of the existing investment advisory agreements between the Trust and Union and
the sub-advisory agreements between Union and BOTT and BTAM under the 1940 Act.
Under the 1940 Act, an "assignment" will result in the automatic termination of
the Trust's investment advisory (the "Existing Advisory Agreement") and
sub-advisory agreements (each an "Existing Sub-Advisory Agreement" and,
together, the "Existing Sub-Advisory Agreements"), effective at the time of the
Mergers. Accordingly, Shareholders of each
4
<PAGE> 11
Fund are being asked to approve a new investment advisory agreement (the "New
Advisory Agreement") and new sub-advisory agreements (each a "New Sub-Advisory
Agreement" and, together, the "New Sub-Advisory Agreements") to take effect at
the time of the Mergers and avoid any interruption in the provision of advisory
services to the Funds. The New Advisory Agreement and New Sub-Advisory
Agreements will be dated the later of (i) the date of approval of the New
Advisory Agreement and New Sub-Advisory Agreements by Shareholders of the Funds
or (ii) the date of the consummation of the Mergers.
The Proposals set forth in this Proxy Statement relate to the New Advisory
Agreement and the New Sub-Advisory Agreements. THE TERMS OF THE NEW ADVISORY
AGREEMENT AND NEW SUB-ADVISORY AGREEMENTS ARE IDENTICAL TO THOSE OF THE EXISTING
ADVISORY AGREEMENT AND EXISTING SUB-ADVISORY AGREEMENTS WITH RESPECT TO DUTIES,
FEES AND THE STANDARD OF CARE.
TRUSTEES' CONSIDERATIONS REGARDING THE PROPOSED TRANSACTION AND THE NEW
AGREEMENTS
Consummation of the Mergers is subject to the satisfaction of certain
conditions, including the receipt of all necessary regulatory approvals.
Approval of the Merger by the Shareholders of Union and the Bank of California
is being solicited. Shareholders of the Trust are not being asked to vote on the
Mergers. The Merger Agreements may be terminated and the Mergers abandoned at
any time prior to the Closing Date by the mutual consent of the parties or upon
the occurrence of other events specified in the Merger Agreements. Completion of
the Mergers will occur as soon as practicable after satisfaction (or waiver) of
the applicable conditions, which the parties anticipate will occur by April 1,
1996.
If the conditions are not met and the Mergers are not completed, the
Existing Advisory Agreement and Existing Sub-Advisory Agreements will remain in
effect. If the New Advisory Agreement and New Sub-Advisory Agreements are
approved by Shareholders and the Mergers are thereafter consummated, the New
Advisory Agreement and New Sub-Advisory Agreements will be executed and become
effective on the Closing Date. In the event the Mergers are not consummated, the
Existing Advisory Agreement and each Existing Sub-Advisory Agreement will
continue in accordance with its terms. In the event the Mergers are consummated
and the New Advisory Agreement and New Sub-Advisory Agreements are not approved,
the Board of Trustees will consider what further actions should be taken.
The Mergers will result in a change of control of Union for purposes of the
1940 Act, and Union will receive a "benefit" from the Mergers since it will
receive shares of Bank of California stock (which will become UBOC stock after
the Mergers) in the transaction. Section 15(f) of the 1940 Act provides that
when a change in the control of an investment adviser occurs, the investment
adviser or any of its affiliated persons may receive any amount or benefit in
connection therewith as long as two conditions are satisfied. First, no "unfair
burden" may be imposed on the investment company as a result of the transaction
relating to the change of control, or any express or implied terms, conditions
or understandings applicable thereto. The term "unfair burden," as defined in
the 1940 Act, includes any arrangement during the two-year period after the
change in control whereby the investment adviser (or predecessor or successor
adviser), or any interested person of any such adviser, receives or is entitled
to receive any compensation, directly or indirectly, from the investment company
or its security holders (other than fees for bona fide investment advisory or
other services) or from any person in connection with the
5
<PAGE> 12
purchase or sale of securities or other property to, from, or on behalf of the
investment company (other than fees for bona fide principal underwriting
services). No such compensation arrangements are contemplated in connection with
the Mergers. The second condition is that, during the three-year period
immediately following consummation of the transaction, at least 75% of the
investment company's board of directors must not be "interested persons" of UBOC
or Union within the meaning of the 1940 Act.
The majority of the members of the Board of Trustees of the Trust is not
and will not be comprised of interested persons of Union or UBOC. Additionally,
the Board of Trustees of the Funds has received assurance from Union that no
"unfair burden" will be imposed on the Funds as a result of the Mergers. After
careful review and consideration, the Trust's Board of Trustees has concluded
that the Mergers will provide significant value to the Trust's Shareholders and
will enable them to participate in the expanded opportunities for growth that
the Mergers will make possible.
The Trustees of the Trust, including the Trustees who are non-interested
persons (i.e., those Trustees who are not parties to the New Advisory Agreement
or the New Sub-Advisory Agreements, or interested persons of such parties), as
defined in the 1940 Act, reviewed and unanimously approved the New Advisory
Agreement and New Sub-Advisory Agreements, subject to Shareholder approval, in
person at a meeting held on November 9, 1995, and have directed that they be
submitted to the Shareholders of the Funds for their approval. The Board of
Trustees believes that the terms of the New Advisory Agreement and New
Sub-Advisory Agreements are fair to, and in the best interest of, the Trust, the
Funds, and the Shareholders. The Board of Trustees, including all of the
non-interested Trustees, recommends approval by Shareholders of the New Advisory
Agreement between UBOC and the Trust, and the New Sub-Advisory Agreements
between UBOC and BOTT and BTAM (or their respective successors).
In making this recommendation, the Trustees carefully evaluated the
experience of Union's, BOTT's and BTAM's key personnel, the quality of services
UBOC, BOTT and BTAM (or their respective successors) are expected to provide to
the Funds, and a number of related factors, including: (1) the fee and expense
ratios of comparable mutual funds; (2) the performance of the Funds since
commencement of operations; (3) the nature and quality of the services expected
to be rendered to the Funds by UBOC, BOTT and BTAM (or their respective
successors); (4) the distinct investment objectives and policies of the Funds;
(5) the compensation payable to UBOC by the Funds under the New Advisory
Agreement and payable by UBOC to BOTT and BTAM (or their respective successors)
under the New Sub-Advisory Agreements; (6) the terms of the Existing Advisory
Agreement and the Existing Sub-Advisory Agreements; (7) the history, reputation,
qualification and background of Union, BOTT and BTAM, as well as the
qualifications of their personnel and their respective financial conditions; (8)
the commitment of the parties to the Merger Agreement to pay or reimburse the
Trust for the expenses of the Trust incurred in connection with this
solicitation; (9) the benefits expected to be realized as a result of the
combination of Union and the Bank of California; and (10) other factors deemed
relevant.
In connection with their recommendation to Shareholders to vote for the
Agreements, the Trustees were advised by Union that while it is unable to
predict whether changes ultimately will be recommended which would materially
impact the Trust's operations or when such changes, if
6
<PAGE> 13
recommended, would be proposed, no significant changes in the persons currently
responsible for providing investment advice to the Trust currently are planned
to be made by UBOC following consummation of the Mergers. It is expected that,
following the Mergers, there will be no dilution in the scope and quality of
advisory and sub-advisory services provided to the Funds, many of the same
persons who are presently responsible for the Funds' investment policies will
continue to direct the Funds' investment policies at UBOC, BOTT and BTAM (or
their respective successors) and there will be no disruption of advisory
services provided to the Funds. Union also advised the Trustees that it intends
to examine all mutual fund activities of UBOC subsequent to consummation of the
Mergers, and that the Trust will be informed of any conclusions or
recommendations for action involving the Trust. The Trustees, including all
members of the Board of Trustees who are not interested persons of the Trust,
Union, or UBOC have concluded that UBOC will be fully capable of performing the
services contemplated by the New Advisory Agreement and New Sub-Advisory
Agreements, and have recommended that the New Advisory Agreement and New
Sub-Advisory Agreements be approved by the Shareholders of the Funds.
PROPOSAL I.
APPROVAL OF A NEW ADVISORY AGREEMENT FOR THE FUNDS
The Board of Trustees is recommending that Shareholders of the Funds
approve the selection of UBOC to serve as investment adviser to the Funds after
the Mergers, and approve the New Advisory Agreement between the Trust, on behalf
of the Funds, and UBOC. Other than the change in the identity of the adviser
from Union to UBOC and the effective and termination dates, there are no
material differences between the Existing and New Advisory Agreements. The
Trustees believe that approval of the New Advisory Agreement will provide the
Funds with continuity of investment management services, and is in the best
interest of Shareholders.
DESCRIPTION OF THE EXISTING ADVISORY AGREEMENT AND THE NEW ADVISORY AGREEMENT
Union currently serves as the Trust's investment adviser pursuant to the
Existing Advisory Agreement. The Existing Advisory Agreement is dated January
30, 1991, and was approved by the sole initial Shareholder of the Balanced,
California Tax-Free Money Market, Growth Equity, Intermediate-Term, Money
Market, Treasury Money Market and Value Momentum Funds on January 30, 1991, of
the Limited Maturity Fund on May 6, 1993, of the California Tax-Free Bond Fund
on October 14, 1993, of the Blue Chip Growth, Convertible Securities, Emerging
Growth and Government Securities Funds on January 31, 1994, and of the
International Equity Fund on January 31, 1995. As required by the 1940 Act, such
Shareholder approval was obtained prior to the commencement of operations of
each Fund. The form of the New Advisory Agreement is attached to this Proxy
Statement as Exhibit A, and the description of the New Advisory Agreement set
forth in this Proxy Statement is qualified in its entirety by reference to
Exhibit A.
Under the Existing Advisory Agreement, Union makes investment decisions for
the assets of the Funds and continuously reviews, supervises and administers
each Fund's investment program. Union
7
<PAGE> 14
discharges its responsibilities subject to the supervision of, and policies
established by, the Trustees of the Trust. UBOC's responsibilities under the New
Advisory Agreement are identical.
The Existing Advisory Agreement provides that, if, for any fiscal year, the
ratio of expenses of any Fund (including amounts payable to Union but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by the State of California, Union will bear the
amount of such excess. Union will not be required to bear expenses of the Trust
to an extent which would result in a Fund's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code of 1986, as
amended. UBOC will bear any such amounts under the New Advisory Agreement.
The continuance of the Existing Advisory Agreement must be specifically
approved at least annually (i) by the vote of a majority of the Trustees who are
not parties to the Agreement or "interested persons" of any party thereto, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the vote of the Trustees or a majority of outstanding shares of the
Funds, as defined in the 1940 Act. The Existing Advisory Agreement terminates
automatically in the event of its assignment, and is terminable at any time
without penalty by the Trustees of the Trust or, with respect to the Funds by a
majority of the outstanding shares of the Funds, on not less than 30 days' nor
more than 60 days' written notice to Union, or by Union on 90 days' written
notice to the Trust. The approval and termination provisions of the New Advisory
Agreement are identical.
The Existing Advisory Agreement provides that Union shall not be protected
against any liability to the Trust or its shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder. UBOC
will be subject to the same standard of care under the New Advisory Agreement.
Under the Existing Advisory Agreement, Union is entitled to a fee which is
calculated daily and paid monthly at an annual rate of .80% of the daily average
net assets of the Emerging Growth Fund, .60% of the daily average net assets of
each of the Value Momentum, Growth Equity, Blue Chip Growth, Convertible
Securities and Balanced Funds, .50% of the average daily net assets of the
Intermediate-Bond, California Tax-Free Bond and Government Securities Funds,
.30% of the average daily net assets of each of the Money Market, Treasury Money
Market, California Tax-Free Money Market, and Limited Maturity Government Funds,
and .95% of the average daily net assets of the International Equity Fund. Union
may, from time to time, waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary and may be terminated
at any time in Union's sole discretion. These fees are identical in amount to
the fees to which each of the Funds will be contractually subject under the New
Advisory Agreement.
8
<PAGE> 15
For the Trust's fiscal year ended January 31, 1995, the following advisory
fees were paid to (or waived by) Union:
<TABLE>
<CAPTION>
ADVISORY FEES PAID ADVISORY FEES WAIVED
FUND 1995 1995
- ----------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Balanced $1,015,559 $ 0
Blue Chip Growth $ 183,178 $ 0
California Tax-Free Bond $ 60,306 $ 48,888
California Tax-Free Money Market $ 99,901 $264,000
Convertible Securities $ 44,430 $ 0
Emerging Growth $ 130,134 $ 0
Government Securities $ 145,821 $ 0
Growth Equity $ 835,080 $ 0
Intermediate-Term Bond $ 617,704 $ 0
International Equity * *
Limited Maturity Government $ 111,587 $ 0
Money Market $1,820,479 $ 0
Treasury Money Market $ 461,318 $129,255
Value Momentum $ 923,288 $ 0
</TABLE>
- ---------------
* Fund had not commenced operations as of January 31, 1995.
INFORMATION REGARDING UNION AND ITS AFFILIATES
The Bank of Tokyo is one of Japan's premier international financial
institutions. Founded in 1946 as successor to the Yokohama Specie Bank, which
was established in 1880, the Bank of Tokyo has been the most prominent force in
Japan's foreign exchange market. In addition to foreign exchange, the Bank of
Tokyo offers an array of services to its internationally-oriented clients in
such fields as corporate finance, global service banking, investment advisory
services and project finance. These services are carried out through a network
of approximately 400 international offices, subsidiaries, sub-branches and
associated institutions. The Bank of Tokyo has Y26.78 trillion in assets.
Union is a California banking corporation formed in 1952. Union is the
fourth largest commercial bank in California, with $19 billion in assets at
September 30, 1995, and the thirtieth largest commercial bank nationally, based
on deposits at such date. The Bank of Tokyo owned approximately 71.54 percent of
the issued and outstanding Union common stock at September 30, 1995.
Union has offices throughout California, primarily centered in the San
Diego, Los Angeles, Orange County and San Francisco metropolitan areas. It also
has licensed loan production offices for either commercial, consumer or
residential loans in five California cities and Dallas, Texas. It has overseas
banking offices located in Guam, Saipan and Grand Cayman, a representative
office in Tokyo and international banking facilities in San Francisco and Los
Angeles.
9
<PAGE> 16
Union provides a wide range of financial services to California consumers,
small businesses, middle market companies and major corporations, and has a
strong position in providing financial services for growing Pacific Rim
companies in California through its affiliation with the Bank of Tokyo's Pacific
Rim network. Union maintains relationships with a significant number of the
Japanese-owned businesses in California, and assists U.S. companies in
establishing businesses in Japan and other Pacific Rim countries.
Union serves consumers, smaller businesses, and government and nonprofit
institutions through its 209 offices in California. It has seven commercial
banking offices in the state through which extensive services are provided to
California's corporate middle market, such as lines of credit, accounts
receivable and inventory financing, foreign trade financing and an array of
cash-management services. Union lends statewide to the California real estate
market primarily through the three geographic regions of its real estate
industries area. Union also provides specialized lending services to corporate
customers, a variety of banking services in the institutional and deposit
markets, and asset management services for individuals and businesses. Union has
twelve subsidiaries that provide services to Union and it customers. Union's
principal executive offices are located at 350 California Street, San Francisco,
California 94104.
As of December 31, 1995, Union managed over $5 billion in individual
portfolios and collective funds. Union's clients range from pension funds,
national labor union plans and foundations to personal investments and trust
portfolios.
Union currently serves as investment adviser to the following investment
company with investment objectives similar to those of the Funds. The
approximate net assets of such investment company and the fee payable by it are
set forth below:
<TABLE>
<CAPTION>
NET ASSETS FEE
FUND (AS OF 12/31/95) PAYABLE
----------------------------------------------- ---------------- -------
<S> <C> <C>
Current Income Shares, Inc. $ 50,120,223 .50%
</TABLE>
10
<PAGE> 17
Listed below are the names and principal occupations of the directors and
the principal executive officer of Union. The principal business address of each
of these directors and the principal executive officer, as it relates to his or
her duties at Union, is 350 California Street, San Francisco, California 94104.
<TABLE>
<CAPTION>
NAME TITLE PRINCIPAL OCCUPATION
- ----------------------- --------- -------------------------------------------------
<S> <C> <C>
Tamotsu Yamaguchi Chairman Chairman of the Board, Union
Alexander D. Calhoun Director Of Counsel, Graham & James
Richard D. Farman Director Director, President & CEO, Pacific Enterprises
Herman E. Gallegos Director Independent Management Consultant
Jack L. Hancock Director Former Executive Vice President, Pacific Bell
Richard C. Hartnack Director Vice Chairman of the Board, Union
Hon. Harry W. Low Director Judicial Arbitration and Mediation Services, Inc.
Dr. Mary S. Metz Director Dean, University Extension, University of
California-Berkeley
Takahiro Moriguchi Director Vice Chairman of the Board & CFO, Union
Shin Nakahara Director Resident Managing Director for the Americas, Bank
of Tokyo
Sidney R. Petersen Director Former Chairman & CEO, Getty Oil Company
Yuji Taniguchi Director Executive Vice President, Union
Robert M. Walker Director Vice Chairman of the Board, Union
Dr. Blenda J. Wilson Director President, California State University-Northridge
Kanetaka Yoshida Director President and CEO, Union
Kenji Yoshizawa Director Deputy President, Bank of Tokyo
</TABLE>
Union Bank of California, which will serve as investment adviser to the
Funds once the Mergers have occurred, will be created by the combination of
Union and the Bank of California. Under the New Advisory Agreement, the
day-to-day management of the Funds will be provided by personnel from the Funds'
existing adviser, Union Capital Advisers, Union's asset management division. The
newly-created UBOC will also advise mutual funds currently advised by MERUS
Capital Management, the asset management division of the Bank of California.
UBOC will be headquartered at 350 California Street, San Francisco, California
94104.
11
<PAGE> 18
Listed below are the names and principal occupations of each of the persons
expected to be named as directors and the anticipated principal executive
officer of UBOC. The principal business address of each of these directors and
the principal executive officer, as it relates to his or her duties at UBOC,
will be 350 California Street, San Francisco, California 94104.
<TABLE>
<CAPTION>
NAME TITLE PRINCIPAL OCCUPATION
- ----------------------- ------------------------------ --------------------------------
<S> <C> <C>
Alexander D. Calhoun Director. A director of Union Of Counsel, Graham & James,
since 1968. Attorneys at Law, since 1992.
General Partner, 3638 Washington
Associates.
Richard D. Farman Director. A director of Union President, Chief Operating
since 1988. Officer and Director of Pacific
Enterprises since 1993. Former
Chief Executive Officer,
Southern California Gas Company,
a subsidiary of Pacific
Enterprises.
Stanley F. Farrar Director. A director of the Partner, Sullivan & Cromwell
Bank of California since 1984. since 1984.
Herman E. Gallegos Director. A director of Union Independent management
since 1988. consultant since 1982. Former
U.S. Public Delegate to the 49th
United Nations General Assembly,
Chairman of the Board, Gallegos
Institutional Investors
Corporation (retired). Director
of Pacific Telesis Group and
Pacific Bell.
Jack L. Hancock Director. A director of Union Executive Vice President of
since 1994. Pacific Bell (retired). Director
of Whittaker Corporation.
Richard C. Hartnack Vice Chairman of the Board of Former Executive Vice President
UBOC. Vice Chairman of the of The First National Bank of
Union Board since 1991. Chicago.
Roy A. Henderson Vice Chairman of the Board of Chairman of LoPresti Flight
UBOC. A director of the Bank Concepts. Former President and
of California since 1993. Chief Operating Officer of Puget
Sound Bank.
Harry W. Low Director. A director of Union Mediator/Arbitrator Judicial
since 1993. Arbitration & Mediation
Services, Inc. since 1992.
Presiding Justice, State of
California Court of Appeals, 1st
District (retired).
Mary S. Metz Director. A director of Union Dean of University Extension,
since 1988. University of California,
Berkeley since 1991. President
Emerita of Mills College.
Director of Pacific Telesis
Group, Pacific Gas & Electric
Co. and Longs Drug Stores.
</TABLE>
12
<PAGE> 19
<TABLE>
<CAPTION>
NAME TITLE PRINCIPAL OCCUPATION
- ----------------------- ------------------------------ --------------------------------
<S> <C> <C>
Raymond E. Miles Director. A director of the Professor, Haas School of
Bank of California since 1987. Business, University of
California, Berkeley since 1963.
J. Fernando Niebla Director. A director of the Chairman and Chief Executive
Bank of California since 1994. Officer of Infotec Development,
Inc. since 1979.
Hiroo Nozawa Deputy Chairman of the Board Deputy Chairman of the Board and
and Chief Operating Officer of Chief Operating Officer of UBOC.
UBOC. Chairman, President and Chairman, President and Chief
Chief Executive Officer of the Executive Officer of the Bank of
Bank of California since 1994. California since 1994. A
A director of MBL since 1992 director of MBL since 1992 and
and of the Bank of California of the Bank of California since
since 1994. Former Senior 1994. Former Senior Officer of
Officer of Mitsubishi. Mitsubishi.
Sidney R. Peterson Director. A director of Union Consultant and private investor
since 1988. since 1984. Chairman and Chief
Executive Officer of Getty Oil
Company (retired). Director of
Avery Dennison Corporation,
NICOR, Inc., Global Natural
Resources, Inc. and Group
Technologies Corporation.
Carl W. Robertson Director. A director of the Managing Director of Warland
Bank of California since 1975. Investments Company since 1985.
Charles R. Scott Director. A director of the Chairman and Chief Executive
Bank of California since 1990. Officer of Leadership Centers
USA since 1995. Former President
and Chief Executive Officer of
The Actava Group and Intermark
Inc. Vice Chairman and Director
of Pier I Imports, Inc.
Paul W. Steere Director. A director of the Member, Bogle & Gates, P.L.L.C.
Bank of California since 1981. since 1966. Director of Accordia
Northwest, Inc., a subsidiary of
Accordia, Inc.
Henry T. Swigert Director. A director of the Chairman of ESCO Corporation
Bank of California since 1989. since 1979.
Robert M. Walker Vice Chairman and Director of Former Vice Chairman of the
UBOC. Vice Chairman of the Board and Chief Credit Officer
Union Board since 1992. of Valley National Bank of
Arizona.
</TABLE>
13
<PAGE> 20
<TABLE>
<CAPTION>
NAME TITLE PRINCIPAL OCCUPATION
- ----------------------- ------------------------------ --------------------------------
<S> <C> <C>
Blenda J. Wilson Director. A director of Union President of California State
since 1993. University, Northridge since
1992. Former Chancellor of the
University of
Michigan--Dearborn.
Kanetaka Yoshida President and Chief Executive President and Chief Executive
Officer and Director of UBOC. Officer and Director of UBOC.
President and Chief Executive President and Chief Executive
Officer of Union since 1993. A Officer of Union since 1993. A
director of both Union and the director of both Union and the
Bank of Tokyo since 1990. Bank of Tokyo since 1990. Former
Former Vice Chairman of the Vice Chairman of the Union Board
Union Board and Chief and Chief Financial Officer of
Financial Officer of Union. Union. Former Senior Officer of
Former Senior Officer of the the Bank of Tokyo.
Bank of Tokyo.
</TABLE>
THE TRUSTEES, INCLUDING ALL OF THE NON-INTERESTED TRUSTEES, RECOMMEND THAT
SHAREHOLDERS OF THE FUNDS VOTE FOR THE NEW ADVISORY AGREEMENT.
PROPOSAL II.
APPROVAL OF THE SELECTION OF THE BANK OF TOKYO TRUST COMPANY OR ITS SUCCESSOR AS
THE
SUB-ADVISER TO THE BLUE CHIP GROWTH FUND, EMERGING GROWTH FUND, GOVERNMENT
SECURITIES FUND
AND CONVERTIBLE SECURITIES FUND, AND OF A NEW SUB-ADVISORY AGREEMENT FOR THOSE
FUNDS
The Board of Trustees is recommending that Shareholders of the Blue Chip
Growth, Emerging Growth, Government Securities and Convertible Securities Funds
approve the selection of BOTT (or its successor) as sub-adviser to the Funds
after the Mergers, and approve the New Sub-Advisory Agreement between UBOC and
BOTT (or its successor) relating to the Funds. Other than the change in adviser
from Union Capital to Union and the effective and termination dates, there are
no material differences between the Existing and New Sub-Advisory Agreements.
The Trustees believe that approval of the New Sub-Advisory Agreement with BOTT
(or its successor) will provide the Funds with continuity of investment
management services, and is in the best interest of Shareholders.
DESCRIPTION OF THE EXISTING SUB-ADVISORY AGREEMENT BETWEEN UNION AND BOTT AND
THE
NEW SUB-ADVISORY AGREEMENT BETWEEN UBOC AND BOTT (OR ITS SUCCESSOR)
BOTT currently serves as the sub-adviser to each of the Blue Chip Growth,
Emerging Growth, Government Securities and Convertible Securities Funds pursuant
to the Existing Sub-Advisory Agreement between Union and BOTT dated February 1,
1994. Under the Existing Sub-Advisory Agreement, BOTT makes the day-to-day
investment decisions for the assets of the Funds, subject to the supervision of,
and policies established by, Union and the Trustees of the Trust. The Existing
Sub-Advisory Agreement was approved by the sole initial Shareholder of the Blue
Chip Growth, Convertible Securities, Emerging Growth and Government Securities
Funds on January 31, 1994. As required by the 1940 Act, such Shareholder
approval was obtained prior to the commencement of operations of each
14
<PAGE> 21
Fund. The form of the New Sub-Advisory Agreement between UBOC and BOTT (or its
successor) is attached to this Proxy Statement as Exhibit B, and the description
of the New Sub-Advisory Agreement set forth in this Proxy Statement is qualified
in its entirety by reference to Exhibit B.
Under the Existing Sub-Advisory Agreement with BOTT, BOTT shall not be
liable for any error of judgment or for any loss suffered by the Funds or any
adviser in connection with the performance of its obligations under the
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to compensation, or for a loss resulting from BOTT's wilful misfeasance, bad
faith or gross negligence in the performance of its duties, or from reckless
disregard of its obligations and duties under the Agreement. BOTT (or its
successor) will be subject to the same standard of care under the New Sub-
Advisory Agreement.
The continuance of the Existing Sub-Advisory Agreement, after the first
year, must be specifically approved at least annually (i) by the vote of a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by the vote of the Trustees or a
majority of outstanding shares of the Funds, as defined in the 1940 Act. The
Existing Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Funds on 60
days' written notice, or by BOTT or Union on 60 days' written notice to the
Trust. The New Sub-Advisory Agreement's approval and termination provisions are
identical to those of the Existing Sub-Advisory Agreement.
BOTT is entitled to a fee, which is calculated daily and paid monthly out
of Union's fee at an annual rate of .30% of the average daily net assets of the
Blue Chip Growth Fund, .50% of the average daily net assets of the Emerging
Growth Fund, .20% of the average daily net assets of the Government Securities
Fund, and .30% of the average daily net assets of the Convertible Securities
Fund. BOTT (or its successor) will receive the same fees under the New
Sub-Advisory Agreement.
For the Trust's fiscal year ended January 31, 1995, BOTT received the
following fees from Union:
<TABLE>
<CAPTION>
FUND SUB-ADVISORY FEES PAID
-------------------------------------------- ----------------------
<S> <C>
Emerging Growth $ 81,334
Blue Chip Growth $ 91,589
Convertible Securities $ 22,216
Government Securities $ 58,328
</TABLE>
INFORMATION CONCERNING BOTT
BOTT, 100 Broadway, New York, New York 10005, is a wholly-owned subsidiary
of the Bank of Tokyo. The Bank of Tokyo was established in 1946, and BOTT was
established as a New York state-chartered bank in 1955. BOTT has provided trust
services since 1955 and asset management services since 1965.
15
<PAGE> 22
BOTT manages bank common funds, employee benefit funds and personal trust
accounts in money market, equity and fixed income portfolios.
Listed below are the names and principal occupations of each director and
the principal executive officer of BOTT. The principal business address of each
director and the principal executive officer, as it relates to his or her duties
at BOTT, is 100 Broadway, New York, New York 10005.
<TABLE>
<CAPTION>
NAME TITLE PRINCIPAL OCCUPATION
- ------------------------ --------- ---------------------------------------------------
<S> <C> <C>
Shin Nakahara Chairman Chief Executive Officer & President, BOTT
Michael Bradfield, Esq. Director Partner, Jones Day, Reavis & Pogue
Gerald L. Curtis Director Professor, Columbia University
Evan F. Greenberg Director President and CEO, American International
Underwriters, Senior Vice President,
American International Group, Inc.
James L. Hindenach Director Former Senior Assistant Treasurer, General
Electric Corp.
Eugene F. McCulloch Director President and CEO, BOT Financial Corporation
Akira Okuhata Director Executive Vice President, BOTT
Donald B. Riefler Director Consultant to J.P. Morgan & Co., Incorporated
Isaac Shapiro, Esq. Director Partner, Skadden, Arps, Slate, Meagher & Flom
</TABLE>
At the same time that the Mergers will take place, Mitsubishi Bank Trust
Company of New York ("MBTC"), a New York trust company affiliate of Mitsubishi,
will merge with and into BOTT, a New York trust company affiliate of the Bank of
Tokyo. In this merger transaction, all of the outstanding shares of MBTC common
stock will be exchanged for shares of BOTT common stock. BOTT will be the
surviving entity and will carry on the combined businesses of BOTT and MBTC. In
due course, it is expected that the board of directors of BOTT (the surviving
entity) will be reconstituted and BOTT will be renamed Bank of Tokyo-Mitsubishi
Trust Company. After the merger, BOTT will continue to provide services to its
existing clients, and will provide services to clients currently serviced by
MBTC. In connection with this proposed combination, it is not expected that
there will be any material change in the personnel responsible for BOTT's
sub-advisory services to the Funds. Bank of Tokyo-Mitsubishi Trust Company will
be headquartered at 1251 Avenue of the Americas, New York, New York 10020.
THE TRUSTEES, INCLUDING ALL OF THE NON-INTERESTED TRUSTEES, RECOMMEND THAT
SHAREHOLDERS OF THE BLUE CHIP GROWTH, EMERGING GROWTH, GOVERNMENT SECURITIES AND
CONVERTIBLE SECURITIES FUNDS VOTE FOR THE NEW SUB-ADVISORY AGREEMENT BETWEEN
UBOC AND BOTT (OR ITS SUCCESSOR).
16
<PAGE> 23
PROPOSAL III.
APPROVAL OF THE SELECTION OF BTAM OR ITS SUCCESSOR AS THE SUB-ADVISER TO THE
INTERNATIONAL EQUITY FUND, AND OF A NEW SUB-ADVISORY AGREEMENT FOR THE FUND
The Board of Trustees is recommending that Shareholders of the
International Equity Fund approve the selection of BTAM (or its successor) to
serve as sub-adviser to the Fund after the Mergers, and approve the New
Sub-Advisory Agreement between the UBOC and BTAM (or its successor), on behalf
of the Fund. Other than the change in adviser from Union to UBOC, the effective
and termination dates, and the fact that under the New Sub-Advisory Agreement
UBOC may direct all or a portion of the assets of the Fund to BTAM (or its
successor), there are no material differences between the Existing and New
Sub-Advisory Agreements. The Trustees believe that approval of the New Sub-
Advisory Agreement with BTAM will provide the Fund with continuity of investment
management services, and is in the best interest of Shareholders.
DESCRIPTION OF THE EXISTING SUB-ADVISORY AGREEMENT BETWEEN UNION AND BTAM AND
THE NEW SUB-ADVISORY AGREEMENT BETWEEN UBOC AND BTAM (OR ITS SUCCESSOR)
BTAM currently serves as the International Equity Fund's sub-adviser
pursuant to the Existing Sub-Advisory Agreement between Union and BTAM dated
November 15, 1994. Under the Existing Sub-Advisory Agreement, BTAM makes the
day-to-day investment decisions for the assets of the Fund, subject to the
supervision of, and policies established by, Union and the Trustees of the
Trust. The Existing Sub-Advisory Agreement was approved by the sole initial
Shareholder of the Fund on January 31, 1995. As required by the 1940 Act, such
Shareholder approval was obtained prior to the commencement of operations of
each Fund. The form of the New Sub-Advisory Agreement between Union and BTAM (or
its successor) is attached to this Proxy Statement as Exhibit C, and the
description of the New Sub-Advisory Agreement set forth in this Proxy Statement
is qualified in its entirety by reference to Exhibit C.
Under the Existing Sub-Advisory Agreement with BTAM, BTAM shall not be
liable for any error of judgment or for any loss suffered by the Funds or any
adviser in connection with the performance of its obligations under the
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to compensation, or for a loss resulting from BTAM's wilful misfeasance, bad
faith or gross negligence in the performance of its duties, or from reckless
disregard of its obligations and duties under the Agreement. BTAM (or its
successor) will be subject to the same standard of care under the New Sub-
Advisory Agreement.
The continuance of the Existing Sub-Advisory Agreement, after the first two
years, must be specifically approved at least annually (i) by the vote of a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by the vote of the Trustees or a
majority of outstanding shares of the Funds, as defined in the 1940 Act. The
Existing Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Funds on 60
days' written notice, or by BTAM or Union on 60 days' written notice to the
Trust. The approval
17
<PAGE> 24
and termination provisions of the New Sub-Advisory Agreement and the Existing
Sub-Advisory Agreement are identical.
Under the Existing Sub-Advisory Agreement, BTAM is entitled to a fee, which
is calculated daily and paid monthly out of the Union's fee, at an annual rate
of .30% of the average daily net assets of the International Equity Fund. The
fees payable to BTAM (or its successor) under the New Sub-Advisory Agreement are
the same as those payable under the Existing Sub-Advisory Agreement. The
International Equity Fund had not commenced operations as of January 31, 1995.
INFORMATION CONCERNING BTAM
BTAM, 12-15 Finsbury Circus, London EC2M 7BT, England, is a subsidiary of
Bank of Tokyo and a registered investment adviser. Established in 1984, BTAM
provides active global investment services for segregated funds and specialist
fund management. As of December 31, 1995, BTAM managed assets of $2.1 billion in
individual portfolios and collective funds.
Listed below are the names and principal occupations of each director and
the principal executive officer of BTAM. The principal business address of each
director and the principal executive officer, as it relates to his or her duties
at BTAM, is 12-15 Finsbury Circus, London EC2M 7BT, England.
<TABLE>
<CAPTION>
NAME TITLE AND PRINCIPAL OCCUPATION
- ------------------- ------------------------------------------------------------------
<S> <C>
Tetsuo Shimura
Director and Chairman
Tadashi Kurachi
Director
Tadashi Yanagisawa
Managing Director and Chief Executive Officer
Takashi Uno
Director
Fumio Hashimoto
Director
James Wignall
Secretary and Senior Executive Officer
</TABLE>
At the same time that the Mergers will take place, BTAM will change its
name to Tokyo-Mitsubishi Asset Management (U.K.) Limited. Other than this name
change, no other changes are contemplated by BTAM, and the same personnel will
continue to provide sub-advisory services to the Fund.
THE TRUSTEES, INCLUDING ALL OF THE NON-INTERESTED TRUSTEES, RECOMMEND THAT
SHAREHOLDERS OF THE INTERNATIONAL EQUITY FUND VOTE FOR THE NEW SUB-ADVISORY
AGREEMENT BETWEEN UBOC AND BTAM.
GENERAL INFORMATION ABOUT THE TRUST AND OTHER MATTERS
Distribution. SEI Financial Services Company ("SFS"), a wholly-owned
subsidiary of SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658 ("SEI"), acts as the Distributor of the Trust's shares pursuant to a
Distribution Agreement dated January 30, 1991, between the Trust and SFS. Alfred
P. West, Jr. serves as Chairman of the Board and Chief Executive Officer of SFS
and SEI, and Henry H. Greer serves as Director, President and Chief Operating
Officer of SFS and SEI.
18
<PAGE> 25
Portfolio Transactions. For the Trust's fiscal year ended January 31,
1995, the Funds paid the following amounts in brokerage commissions to
affiliates of the Funds.
<TABLE>
<CAPTION>
TOTAL BROKERAGE AMOUNT PAID TO PERCENT PAID TO
FUND COMMISSIONS AFFILIATED BROKERS AFFILIATED BROKERS
- ----------------------------------------- --------------- ------------------ ------------------
<S> <C> <C> <C>
Balanced $ 174,509 $ 5,139 3%
Blue Chip Growth 104,499 3,085 3
California Tax-Free Bond 0 0 0
California Tax-Free Money Market 0 0 0
Convertible Securities 1,461 661 45
Emerging Growth 65,305 2,542 4
Government Securities 1,092 1,092 100
Growth Equity 68,328 4,728 7
Intermediate-Term Bond 3,256 3,256 100
International Equity * * *
Limited Maturity Government 1,500 1,500 100
Money Market 129,053 129,033 100
Treasury Money Market 71,721 71,721 100
Value Momentum 76,712 7,304 10
</TABLE>
- ---------------
* Fund had not commenced operations as of January 31, 1995.
5% Shareholders. As of January 16, 1996, the following persons were the
only persons who were, to the knowledge of the Trust, beneficial owners of 5% or
more of shares of the Funds:
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF FUND'S
FUND OF BENEFICIAL OWNER OF SHARES SHARES
- ------------------------- ------------------------------ --------------- ----------
<S> <C> <C> <C>
Balanced Lane & Company 16,074,871.763 93%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Blue Chip Growth BOTT Pension 4,279,710.197 86%
c/o Bank of Tokyo Trust
Company
Attn: Dennis Demetropolis
100 Broadway
New York, NY 10005
Blue Chip Growth Lane & Company 670,093.176 13%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>
19
<PAGE> 26
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF FUND'S
FUND OF BENEFICIAL OWNER OF SHARES SHARES
- ------------------------- ------------------------------ ------- ---
<S> <C> <C> <C>
California Tax-Free Bond Lane & Company 449,103.400 51%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
California Tax-Free Bond Nat'l Financial Services Corp. 432,478.838 49%
for exclusive benefit of our
customers
P.O. Box 3908
Church Street Station
New York, NY 10008
California Tax-Free Union Bank 43,480,270.000 37%
Money Market c/o Jessica Hickman
P.O. Box 109
San Diego, CA 92112
California Tax-Free Nat'l Financial Services Corp. 71,440,314.990 61%
Money Market for exclusive benefit of our
customers
Attn: Sal Macca
1 World Financial Center
200 Liberty St.
New York, NY 10281
Convertible Securities BOTT Pension 1,526,597.309 96%
c/o Bank of Tokyo Trust
Company
Attn: Dennis Demetropolis
100 Broadway
New York, NY 10005
Emerging Growth BOTT Pension 2,932,237.209 85%
c/o Bank of Tokyo Trust
Company
Attn: Dennis Demetropolis
100 Broadway
New York, NY 10005
Emerging Growth Lane & Company 521,610.293 15%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Government Securities BOTT Pension 4,295,948.335 92%
c/o Bank of Tokyo Trust
Company
Attn: Dennis Demetropolis
100 Broadway
New York, NY 10005
</TABLE>
20
<PAGE> 27
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF FUND'S
FUND OF BENEFICIAL OWNER OF SHARES SHARES
- ------------------------- ------------------------------ ------- ---
<S> <C> <C> <C>
Government Securities Lane & Company 368,540.939 8%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Growth Equity Lane & Company 9,906,067.580 98%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Intermediate-Term Bond Lane & Company 12,314,027.787 94%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Intermediate-Term Bond Nat'l Financial Services Corp. 604,783.596 5%
for exclusive benefit of our
customers
P.O. Box 3908
Church Street Station
New York, NY 10008
International Equity Lane & Company 1,180,174.940 99%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Limited Maturity Lane & Company 3,577,961.834 98%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Money Market Union Bank 350,160,307.000 46%
c/o Jessica Hickman
P.O. Box 109
San Diego, CA 92112
Money Market Lane & Company 116,290,737.630 15%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>
21
<PAGE> 28
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF FUND'S
FUND OF BENEFICIAL OWNER OF SHARES SHARES
- ------------------------- ------------------------------ ------- ---
<S> <C> <C> <C>
Money Market Nat'l Financial Services Corp. 247,306,118.790 33%
for exclusive benefit of our
customers
Attn: Sal Macca
1 World Financial Center
200 Liberty Street
New York, NY 10081
Treasury Money Market Union Bank 172,196,200.000 43%
Attn: Jessica Hickman
P.O. Box 109
San Diego, CA 92112
Treasury Money Market Nat'l Financial Services Corp. 235,857,468.760 59%
for exclusive benefit of our
customers
Attn: Sal Macca
1 World Financial Center
200 Liberty Street
New York, NY 10081
Value Momentum Lane & Company 11,784,269.733 92%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Value Momentum Nat'l Financial Services Corp. 653,330.140 5%
P.O. Box 3908
Church Street Station
New York, NY 10008
</TABLE>
The Trust's Trustees and officers beneficially own less than 1% of the
shares of the Trust.
Adjournment. In the event that sufficient votes in favor of a Proposal set
forth in the Notice of the Special Meeting are not received by the time
scheduled for the meeting, the persons named as proxies may propose one or more
adjournments of the meeting for a period or periods of not more than 60 days in
the aggregate to permit further solicitation of proxies with respect to any of
such Proposal. Any such adjournment will require the affirmative vote of a
majority of the votes cast on the question in person or by proxy at the session
of the meeting to be adjourned. The persons named as proxies will vote in favor
of such adjournment those proxies which they are entitled to vote in favor of
such Proposals. They will vote against any such adjournment those proxies
required to be voted against any such Proposals. The costs of any such
additional solicitation and of any adjourned session will be borne by the Trust.
Required Vote. Approval of each Proposal with respect to a Fund requires
the affirmative vote of a majority of the outstanding shares of a Fund. As
defined in the 1940 Act, "majority of the outstanding shares" means the vote of
(i) 67% or more of a Fund's outstanding shares present at a meeting, if the
22
<PAGE> 29
holders of more than 50% of the outstanding shares of a Fund are present or
represented by proxy, or (ii) more than 50% of a Fund's outstanding shares,
whichever is less.
Abstentions and "broker non-votes" will not be counted for or against any
Proposal to which it relates, but will be counted for purposes of determining
whether a quorum is present. Abstentions will be counted as votes present for
purposes of determining a "majority of the outstanding voting securities"
present at the Meeting, and will therefore have the effect of counting against
the Proposal to which it relates.
Shareholder Proposals. The Trust does not hold annual Shareholder
Meetings. Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent meeting should send their written proposals to the
Secretary of the Trust c/o SEI Corporation, Legal Department, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658.
Reports to Shareholders. The Trust will furnish, without charge, a copy of
the most recent Annual Report to Shareholders of the Trust and the most recent
Semi-Annual Report succeeding such Annual Report, if any, on request. Requests
should be directed to the Trust at 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658, or by calling 1-800-738-2922.
Other Matters. The Trustees know of no other business to be brought before
the meeting. However, if any other matters properly come before the meeting, it
is their intention that proxies which do not contain specific restrictions to
the contrary will be voted on such matters in accordance with the judgment of
the persons named in the enclosed form of proxy.
------------------------
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY.
23
<PAGE> 30
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 30th day of , 199 , by and between
Stepstone Funds, a Massachusetts business trust (the "Trust"), and Union Bank of
California, N.A. (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its Treasury Money Market, Money Market,
California Tax Free Money Market, Intermediate Term Bond, Value Momentum, Growth
Equity, and Balanced Portfolios and such other portfolios as the Trust and the
Adviser may agree upon (the "Portfolios"), and the Adviser is willing to render
such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain, and to render
regular reports to the Administrator and to the Trust's Officers and
Trustees concerning the Adviser's discharge of the foregoing
responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance with
such policies as the Trustees may from time to time establish, and in
compliance with the objectives, policies, and limitations for each such
Portfolio set forth in the Trust's prospectus and statement of additional
information as amended from time to time, and applicable laws and
regulations.
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and
equipment and the personnel required by it to perform the services on the
terms and for the compensation provided herein.
2. Portfolio Transactions. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Portfolios and is directed to use its best efforts to
obtain the best net results as described in the Trust's prospectus and
statement of additional information from time to time. The Adviser will
promptly communicate to the Administrator and to the officers and the
Trustees of the Trust such information relating to portfolio transactions
as they may reasonably request.
A-1
<PAGE> 31
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having directed a securities transaction
on behalf of the Trust to a broker-dealer in compliance with the provisions
of Section 28(e) of the Securities Exchange Act of 1934.
3. Compensation of the Adviser. For the services to be rendered by
the Adviser as provided in Sections 1 and 2 of this Agreement, the Trust
shall pay to the Adviser compensation at the rate specified in the
Schedule(s) which are attached hereto and made a part of this Agreement.
Such compensation shall be paid to the Adviser at the end of each month,
and calculated by applying a daily rate, based on the annual percentage
rates as specified in the attached Schedule(s), to the assets. The fee
shall be based on the average daily net assets for the month involved (less
any assets of such Portfolios held in non-interest bearing special deposits
with a Federal Reserve Bank).
All rights of compensation under this Agreement for services performed
as of the termination date shall survive the termination of this Agreement.
4. Other Expenses. The Adviser shall pay all expenses of preparing
(including typesetting), printing and mailing reports, prospectuses,
statements of additional information, and sales literature to prospective
clients to the extent these expenses are not borne by the Trust under a
distribution plan adopted pursuant to Rule 12b-1.
5. Excess Expenses. If the expenses for any Portfolio for any fiscal
year (including fees and other amounts payable to the Adviser, but
excluding interest, taxes, brokerage costs, litigation, and other
extraordinary costs) as calculated every business day would exceed the
expense limitations imposed on investment companies by any applicable
statute or regulatory authority of any jurisdiction in which Shares are
qualified for offer and sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of the Trust or any
Portfolio which would result in the Trust's inability to qualify as a
regulated investment company under provisions of the Internal Revenue Code.
Payment of expenses by the Adviser pursuant to this Section 5 shall be
settled on a monthly basis (subject to fiscal year end reconciliation) by a
reduction in the fee payable to the Adviser for such month pursuant to
Section 3 and, if such reduction shall be insufficient to offset such
expenses, by reimbursing the Trust.
6. Reports. The Trust and the Adviser agree to furnish to each other,
if applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. Status of Adviser. The services of the Adviser to the Trust are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Trust are not impaired
thereby. The Adviser shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
A-2
<PAGE> 32
8. Certain Records. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
promulgated under the Investment Company Act of 1940 which are prepared or
maintained by the Adviser on behalf of the Trust are the property of the
Trust and will be surrendered promptly to the Trust on request.
9. Limitation of Liability of Adviser. The duties of the Adviser
shall be confined to those expressly set forth herein, and no implied
duties are assumed by or may be asserted against the Adviser hereunder. The
Adviser shall not be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in
carrying out its duties hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of
applicable state law which cannot be waived or modified hereby. (As used in
this Paragraph 9, the term "Adviser" shall include directors, officers,
employees and other corporate agents of the Adviser as well as that
corporation itself).
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects
to assume the defense of any such claim, the defense shall be conducted by
counsel chosen by the Trust and satisfactory to the indemnified defendants
in the suit whose approval shall not be unreasonably withheld. In the event
that the Trust elects to assume the defense of any suit and retain counsel,
the indemnified defendants shall bear the fees and expenses of any
additional counsel retained by them. If the Trust does not elect to assume
the defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants.
So long as the Adviser acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Adviser and hold it harmless from and against any and all
actions, demands, suits and claims (including claimed breaches of fiduciary
duty), whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation
expenses) arising directly or indirectly out of said advisory services to
the Trust. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
The rights herein shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In
order that the indemnification provision contained herein shall apply,
however, it is understood that if in any case the Trust may be asked to
indemnify or hold the Adviser harmless, the Trust shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Adviser will use all
reasonable care to identify and notify the Trust promptly concerning any
situation which presents or appears likely to present the probability of
such a claim for indemnification against the Trust, but failure to do so in
good faith shall not effect the rights hereunder.
A-3
<PAGE> 33
The Adviser may apply to the Trust at any time for instructions and
may consult counsel for the Trust or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Adviser's duties, and the Adviser shall not be liable or accountable for
any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other
experts.
Also, the Adviser shall be protected in acting upon any document which
it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Adviser be held to have
notice of any change of authority of any officers, employee, or agent of
the Trust until receipt of written notice thereof from the Trust.
10. Permissible Interests. Trustees, agents, and shareholders of the
Trust are or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the
Adviser (or any successor) is or may be interested in the Trust as a
shareholder or otherwise. In addition, brokerage transactions for the Trust
may be effected through affiliates of the Adviser if approved by the Board
of Trustees, subject to the rules and regulations of the Securities and
Exchange Commission.
11. Duration and Termination. This Agreement, unless sooner
terminated as provided herein, shall remain in effect until [two years from
date of execution], and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a) by
the vote of a majority of those Trustees of the Trust who are not parties
to this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by
the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of each Portfolio; provided, however, that if the
shareholders of any Portfolio fail to approve the Agreement as provided
herein, the Adviser may continue to serve hereunder in the manner and to
the extent permitted by the Investment Company Act of 1940 and rules and
regulations thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act of 1940 and the
rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time,
without the payment of any penalty by vote of a majority of the Trustees of
the Trust or by vote of a majority of the outstanding voting securities of
the Portfolio on not less than 30 days' nor more than 60 days' written
notice to the Adviser, or by the Adviser at any time without the payment of
any penalty, on 90 days' written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its assignment. Any
notice under this Agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the other party at any office of such
party. As used in this Section 11, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting securities"
shall have the respective meanings set forth in the Investment Company Act
of 1940 and the rules and regulations thereunder; subject to such
exemptions as may be granted by the Securities and Exchange Commission
under said Act.
A-4
<PAGE> 34
12. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to
the other party at the last address furnished by the other party to the
party giving notice: if to the Trust, at 680 East Swedesford Road, Wayne,
PA and if to the Adviser at 445 South Figueroa Street, Los Angeles, CA.
13. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees,
and are not binding upon any of the Trustees, officers, or shareholders of the
Trust individually but binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Union Bank of California, N.A.
By:
--------------------------------
Attest:
----------------------------
Stepstone Funds
By:
--------------------------------
Attest:
----------------------------
A-5
<PAGE> 35
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
STEPSTONE FUNDS
AND
UNION BANK OF CALIFORNIA, N.A.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an
annual rate as follows:
<TABLE>
<CAPTION>
FEE
(IN BASIS
PORTFOLIO POINTS)
---------------------------------------------------------- ----------------
<S> <C>
Money Market 30
Treasury Money Market 30
California Tax Free Money Market 30
Intermediate Term Bond 50
Value Momentum 60
Growth Equity 60
Balanced 60
California Tax Free Bond Fund 50
Limited Maturity Government 30
Government Securities 50
Convertible Securities 60
Blue Chip Growth 60
Emerging Growth 80
International Equity 95
</TABLE>
A-6
<PAGE> 36
EXHIBIT B
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT executed as of , 1996 by and between UNION BANK of
CALIFORNIA, N.A. (the "Advisor"), and THE BANK OF TOKYO TRUST COMPANY, or it
successor, (the "SubAdvisor"), a subsidiary of The Bank of Tokyo, Ltd., a New
York state chartered bank.
WHEREAS, Advisor is the investment manager for the Stepstone Funds (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, Advisor desires to retain SubAdvisor as its agent to furnish
investment advisory services for certain of the Trust's diversified investment
portfolios which are listed on Schedule A attached hereto and made a part hereof
(the "Funds").
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. Advisor hereby appoints SubAdvisor to provide certain
sub-investment advisory services to the Funds for the period and on the terms
set forth in this Agreement. SubAdvisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Delivery of Documents. Advisor has furnished or will furnish SubAdvisor
with copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts on October 16,
1990, and all amendments thereto or restatements thereof (such Declaration,
as presently in effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of SubAdvisor and approving this Agreement;
(d) the Trust's Notification of Registration of Form N-8A under the
Investment Company Act of 1940 (the "1940 Act") as filed with the
Securities and Exchange Commission (the "SEC") on October 16, 1990 and all
amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act") (File No. 33-37687) and
under the 1940 Act as filed with the SEC and all amendments thereto insofar
as such Registration Statement and such amendments relate to the Funds;
B-1
<PAGE> 37
(f) the Trust's most recent prospectuses and Statement of Additional
Information for the Funds (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements
thereto are herein collectively called the "Prospectus"); and
(g) such other materials and documents as SubAdvisor shall reasonably
request.
Advisor will furnish SubAdvisor from time to time with copies of all
amendments of or supplements to the foregoing.
3. Management. Subject always to the supervision of the Trust's Board of
Trustees and Advisor, SubAdvisor will furnish an investment program in respect
of, and make investment decisions for, all assets of the Funds and place all
orders for the purchase and sale of securities, all on behalf of the Funds. In
the performance of its duties, SubAdvisor will satisfy its fiduciary duties to
the Funds (as set forth in Section 8 below), and will monitor the Funds
investments, and will comply with the provisions of the Trust's Declaration of
Trust and By-Laws, as amended from time to time, and the stated investment
objectives, policies and restrictions of the Funds. SubAdvisor and Advisor will
each make its officers and employees available to the other from time to time at
reasonable times to review investment policies of the Funds and to consult with
each other regarding the investment affairs of the Funds. SubAdvisor shall also
make itself reasonably available to the Board of Trustees at such times as the
Board of Trustees shall request.
SubAdvisor represents and warrants that it is in compliance with all
applicable Rules and Regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the SEC
pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for
the Funds either directly with the issuer or with any broker or dealer. In
providing the Funds with investment supervision, the SubAdvisor will give
primary consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the SubAdvisor may consider
the financial responsibility research and investment information and other
services provided by brokers or dealers who may effect or be a party to any
such transaction or other transactions to which the SubAdvisor's other
clients may be a party. It is understood that it is desirable for the Funds
that the SubAdvisor have access to supplemental investment and market
research and security and economic analysis provided by brokers who may
execute brokerage transactions at a higher cost to the Funds than may
result when allocating brokerage to other brokers on the basis of seeking
the most favorable price and efficient execution. Therefore, the SubAdvisor
is authorized to place orders for the purchase and sale of securities for
the Funds with such brokers, subject to such guidelines as shall be
established by the Advisor and reviewed by the Trust's Board of Trustees
from time to time with respect to the extent and continuation of this
practice. It is understood that
B-2
<PAGE> 38
the services provided by such brokers may be useful to the SubAdvisor in
connection with the SubAdvisor's services to other clients.
On occasions when the SubAdvisor deems the purchase or sale of a
security to be in the best interest of the Funds as well as other clients
of the SubAdvisor, the SubAdvisor, to the extent permitted by applicable
laws and regulations, may, but shall be under no obligation to, aggregate
the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient execution. In
such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the SubAdvisor in
the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Funds and to such other clients. In no
instance will portfolio securities be purchased from or sold to Advisor,
SubAdvisor, SEI Financial Services Company or any affiliated person of
either the Trust, Advisor, SEI Financial services Company or SubAdvisor
that Advisor has identified to the SubAdvisor in writing, except as may be
permitted under the 1940 Act;
(d) will report regularly to Advisor and will make appropriate persons
available for the purpose of reviewing at reasonable times with
representatives of Advisor and the Board of Trustees the management of the
Funds, including, without limitation, review of the general investment
strategy of the Funds, the performance of the Funds in relation to standard
industry indices and general conditions affecting the marketplace and will
provide various other reports from time to time as reasonably requested by
Advisor;
(e) will maintain books and records with respect to the Trust's
securities transactions required by subparagraphs (b)(5), (6), (7), (9),
(10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act and will
furnish Advisor and the Trust's Board of Trustees such periodic and special
reports as the Board of Trustees may request;
(f) will act upon instructions form Advisor not inconsistent with the
fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the Trust
maintained by the SubAdvisor, and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by
the Trust, which approval shall not be unreasonably withheld and may not be
withheld where SubAdvisor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Trust.
SubAdvisor shall have the right to execute and deliver, or cause its
nominee to execute and deliver, all proxies and notices of meetings and other
notices affecting or relating to the securities of the Funds.
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, SubAdvisor hereby agrees that all records which it maintains
for the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trust's request. SubAdvisor
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the
B-3
<PAGE> 39
records required to be maintained by subparagraphs (b)(5), (6), (7), (9), (10)
and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. SubAdvisor may
delegate its responsibilities under this Section to affiliates that perform
custody and/or fund accounting services for the Funds, which delegation shall
not, however, relieve the SubAdvisor of its responsibilities under this
paragraph 4.
5. Expenses. During the terms of this Agreement, SubAdvisor will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Trust.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Advisor will pay the SubAdvisor, and the SubAdvisor
agrees to accept as full compensation therefor, a sub-advisory fee, accrued
daily and payable monthly, in accordance with Schedule B hereto. From time to
time, SubAdvisor may agree to waive or reduce some or all of the compensation to
which it is entitled under this Agreement.
7. Services to Others. Advisor understands, and has advised the Trust's
Board of Trustees, that SubAdvisor now acts, and may in the future act, as an
investment adviser to fiduciary and other managed accounts, and as investment
advisor, sub-investment adviser, and/or administrator to other investment
companies. Advisor has no objection to SubAdvisor's acts in such capacities, as
long as such services do not impair the services rendered to Advisor or the
Trust. Advisor recognizes, and has advised the Trust's Board of Trustees, that
in some cases this procedure may adversely affect the size of the position that
the Funds may obtain in a particular security. In addition, Advisor understands,
and has advised the Trust's Board of Trustees, that the persons employed by
SubAdvisor to assist in SubAdvisor's duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement will be
deemed to limit or restrict the right of SubAdvisor or any of its affiliates to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
8. Limitation of Liability. The SubAdvisor shall not be liable for any
error or judgment or for any loss suffered by the Funds or Advisor in connection
with performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act), or
a loss resulting from willful misfeasance, bad faith or gross negligence on the
SubAdvisor's part in the performance of its duties or from reckless disregard of
its obligations and duties under this Agreement, except as may otherwise be
provided under provisions or applicable state law which cannot be waived or
modified hereby.
9. Indemnification. Advisor and SubAdvisor each agree to indemnify the
other against any claim against, loss or liability to such other party
(including reasonable attorneys' fees) arising out of any action on the part of
the indemnifying party which constitutes willful misfeasance, bad faith or gross
negligence.
10. Duration and Termination. This Agreement will become effective as of
the date hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Funds
B-4
<PAGE> 40
in accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, will continue in effect for one year.
Thereafter, if not terminated, this Agreement will continue in effect for
the Funds for successive periods of 12 months, each ending on the day preceding
the anniversary of the Agreement's effective date of each year, provided that
such continuation is specifically approved at least annually (a) by the vote of
a majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, SubAdvisor, or Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of all
votes attributable to the outstanding Shares of the Funds. Notwithstanding the
foregoing, this Agreement may be terminated as to the Funds at any time, without
the payment of any penalty, on sixty (60) day's written notice by Advisor or by
SubAdvisor. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities", "interested persons" and "assignment" have the same meaning
of such terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. SubAdvisor Information. During the terms of this Agreement, Advisor
agrees to furnish the SubAdvisor at SubAdvisor's principal office all
prospectuses, proxy statements, reports to stockholders, sales literature or
other materials prepared for distribution to stockholders of the Funds, the
Trust or the public that refer to the SubAdvisor or its clients in any way prior
to use thereof and not to use material if the SubAdvisor reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. The SubAdvisor's right to object to such
materials is limited to the portions of such materials that expressly relate to
the SubAdvisor, its services and its clients. The Advisor agrees to use its
reasonable best efforts to ensure that materials prepared by its employees or
agents or its affiliates that refer to the SubAdvisor or its clients in any way
are consistent with those materials previously approved by the SubAdvisor as
referenced in the first sentence of this paragraph. Sales literature may be
furnished to the SubAdvisor by first-class or overnight mail, facsimile
transmission equipment or hand delivery.
13. Severability. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
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<PAGE> 41
14. Notices. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:
To Advisor at:
Union Bank of California, N.A.
530 "B" Street
San Diego, CA 92101
Attention: Clark Gates, Senior Vice President
To the SubAdvisor at:
The Bank of Tokyo Trust Company
100 Broadway
New York, NY 10005
Attention: Harold C. Elliot, CIO
To the Trust or the Funds at:
Stepstone Funds
680 East Swedesford Road
Wayne, Pennsylvania 19087
Attention: Legal Department
15. Change of Law. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is altered by a rule, regulation or
order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and will be governed by the
laws of the Commonwealth of Massachusetts.
The name "Stepstone Funds" and "Trustees of the Stepstone Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of which is on file at the
office of the Secretary of State 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 "Stepstone Funds" entered in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually but only in such capacities and are not binding upon any of the
Trustees, Shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and persons dealing with the Funds must look solely to
the assets of the Trust belonging to such Funds for the enforcement of any
claims against the Trust.
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
THE BANK OF TOKYO TRUST COMPANY
By:
---------------------------
Name:
-------------------------
Title:
------------------------
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<PAGE> 43
SCHEDULE A
STEPSTONE FUNDS
Blue Chip Growth Fund
Convertible Securities Fund
Emerging Growth Fund
Government Securities Fund
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<PAGE> 44
SCHEDULE B
SUB ADVISOR COMPENSATION
1. GOVERNMENT SECURITIES FUND
Advisory Fee: 50 b.p.
Subadvisory Fee: 20 b.p.
2. CONVERTIBLE SECURITIES FUND
Advisory Fee: 60 b.p.
Subadvisory Fee: 30 b.p.
3. BLUE CHIP GROWTH FUND
Advisory Fee: 60 b.p.
Subadvisory Fee: 30 b.p.
4. EMERGING GROWTH FUND
Advisory Fee: 80 b.p.
Subadvisory Fee: 50 b.p.
B-9
<PAGE> 45
EXHIBIT C
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT executed as of , 1996 by and between UNION BANK OF
CALIFORNIA, N.A. (the "Advisor"), and BOT ASSET MANAGEMENT (UK), LIMITED, or its
successor (the "SubAdvisor"), an affiliate of The Bank of Tokyo, Ltd., ("BTAM").
WHEREAS, Advisor is the investment manager for the Stepstone Funds (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, Advisor desires to retain SubAdvisor as its agent to furnish
investment advisory services for the Trust's International Equity investment
portfolio (the "Fund").
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. Advisor hereby appoints SubAdvisor to provide certain
sub-investment advisory services to the Fund for the period and on the terms set
forth in this Agreement. SubAdvisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Delivery of Documents. Advisor has furnished or will furnish SubAdvisor
with copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts on October 16,
1990, and all amendments thereto or restatements thereof (such Declaration,
as presently in effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of SubAdvisor and approving this Agreement;
(d) the Trust's Notification of Registration of Form N-8A under the
Investment Company Act of 1940 (the "1940 Act") as filed with the
Securities and Exchange Commission (the "SEC") on October 16, 1990 and all
amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act") (File No. 33-37687) and
under the 1940 Act as filed with the SEC and all amendments thereto insofar
as such Registration Statement and such amendments relate to the Funds;
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<PAGE> 46
(f) the Trust's most recent prospectuses and Statement of Additional
Information for the Funds (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements
thereto are herein collectively called the "Prospectus"); and
(g) such other materials and documents as SubAdvisor shall reasonably
request.
Advisor will furnish SubAdvisor from time to time with copies of all
amendments of or supplements to the foregoing.
3. Management. Subject always to the supervision of the Trust's Board of
Trustees and Advisor, SubAdvisor will furnish an investment program in respect
of, and make investment decisions for the assets of the Fund entrusted to it
hereunder and place all orders for the purchase and sale of securities, all on
behalf of the Fund. In the performance of its duties, SubAdvisor will satisfy
its fiduciary duties to the Fund (as set forth in Section 8 below), and will
monitor the Fund investments, and will comply with the provisions of the Trust's
Declaration of Trust and By-Laws, as amended from time to time, and the stated
investment objectives, policies and restrictions of the Fund. SubAdvisor and
Advisor will each make its officers and employees available to the other from
time to time at reasonable times to review investment policies of the Fund and
to consult with each other regarding the investment affairs of the Fund.
SubAdvisor shall also make itself reasonably available to the Board of Trustees
at such times as the Board of Trustees shall request.
SubAdvisor represents and warrants that it is in compliance with all
applicable Rules and Regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will maintain registration with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and will conform with all
applicable Rules and Regulations of the SEC pertaining to its investment
advisory activities;
(c) will place orders pursuant to its investment determinations for
the Fund either directly with the issuer or with any broker or dealer. In
providing the Funds with investment supervision, the SubAdvisor will give
primary consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the SubAdvisor may consider
the financial responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a party to any
such transaction or other transactions to which the SubAdvisor's other
clients may be a party. It is understood that it is desirable for the Fund
that the SubAdvisor have access to supplemental investment and market
research and security and economic analysis provided by brokers who may
execute brokerage transactions at a higher cost to the Fund than may result
when allocating brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the SubAdvisor is
authorized to place orders for the purchase and sale of securities for the
Fund with such brokers, subject to such guidelines as shall be established
by the Advisor and reviewed by the Trust's Board of Trustees from time to
time with respect to the extent and continuation of this practice. It is
understood that
C-2
<PAGE> 47
the services provided by such brokers may be useful to the SubAdvisor in
connection with the SubAdvisor's services to other clients.
On occasions when the SubAdvisor deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients of
the SubAdvisor, the SubAdvisor, to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate the
securities to be so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the SubAdvisor in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients. In no instance
will portfolio securities be purchased from or sold to Advisor, SubAdvisor,
SEI Financial Services Company or any affiliated person of either the
Trust, Advisor, SEI Financial Services Company or SubAdvisor that Advisor
has identified to the SubAdvisor in writing, except as may be permitted
under the 1940 Act;
(d) will report regularly to Advisor and will make appropriate persons
available for the purpose of reviewing at reasonable times with
representatives of Advisor and the Board of Trustees the management of the
Fund, including, without limitation, review of the general investment
strategy of the Fund, the performance of the Fund in relation to standard
industry indices and general conditions affecting the marketplace and will
provide various other reports from time to time as reasonably requested by
Advisor;
(e) will maintain books and records with respect to the Trust's
securities transactions required by subparagraphs (b)(5), (6), (7), (9),
(10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act and will
furnish Advisor and the Trust's Board of Trustees such periodic and special
reports as the Board of Trustees may request;
(f) will act upon instructions from Advisor not inconsistent with the
fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the Trust
maintained by the SubAdvisor, and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by
the Trust, which approval shall not be unreasonably withheld and may not be
withheld where SubAdvisor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Trust.
SubAdvisor shall have the right to execute and deliver, or cause its
nominee to execute and deliver, all proxies and notices of meetings and other
notices affecting or relating to the securities of the Fund.
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, SubAdvisor hereby agrees that all records which it maintains
for the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trust's request. SubAdvisor
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the
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<PAGE> 48
records required to be maintained by subparagraphs (b)(5), (6), (7), (9), (10)
and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. SubAdvisor may
delegate its responsibilities under this Section to affiliates that perform
custody and/or fund accounting services for the Fund, which delegation shall
not, however, relieve the SubAdvisor of its responsibilities under this
paragraph 4.
5. Expenses. During the terms of this Agreement, SubAdvisor will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Trust.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Advisor will pay the SubAdvisor, and the SubAdvisor
agrees to accept as full compensation therefor, a sub-advisory fee, accrued
daily and payable monthly, in accordance with Schedule A hereto. The fee will be
calculated based on the average monthly market value of the assets under the
Sub-Advisor's management and will be paid to the Sub-Advisor monthly. From time
to time, SubAdvisor may agree to waive or reduce some or all of the compensation
to which it is entitled under this Agreement.
7. Services to Others. Advisor understands, and has advised the Trust's
Board of Trustees, that SubAdvisor now acts, and may in the future act, as an
investment adviser to fiduciary and other managed accounts, and as investment
advisor, sub-investment adviser, and/or administrator to other investment
companies. Advisor has no objection to SubAdvisor's acts in such capacities, as
long as such services do not impair the services rendered to Advisor or the
Trust. Advisor recognizes, and has advised the Trust's Board of Trustees, that
in some cases this procedure may adversely affect the size of the position that
the Fund may obtain in a particular security. In addition, Advisor understands,
and has advised the Trust's Board of Trustees, that the persons employed by
SubAdvisor to assist in SubAdvisor's duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement will be
deemed to limit or restrict the right of SubAdvisor or any of its affiliates to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
8. Limitation of Liability. The SubAdvisor shall not be liable for any
error or judgment or for any loss suffered by the Fund or Advisor in connection
with performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b) (3) of the 1940 Act), or
a loss resulting from willful misfeasance, bad faith or gross negligence on the
SubAdvisor's part in the performance of its duties or from reckless disregard of
its obligations and duties under this Agreement, except as may otherwise be
provided under provisions or applicable state law which cannot be waived or
modified hereby.
9. Indemnification. Advisor and SubAdvisor each agree to indemnify the
other against any claim against, loss or liability to such other party
(including reasonable attorneys' fees) arising out of any action on the part of
the indemnifying party which constitutes willful misfeasance, bad faith or gross
negligence.
C-4
<PAGE> 49
10. Duration of Termination. This Agreement will become effective as of
the date hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Fund in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for one year.
Thereafter, if not terminated, this Agreement will continue in effect for
the Funds for successive periods of 12 months, each ending on the day preceding
the anniversary of the Agreement's effective date of each year, provided that
such continuation is specifically approved at least annually (a) by the vote of
a majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, SubAdvisor, or Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of all
votes attributable to the outstanding Shares of the Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to the Funds at any time, without
the payment of any penalty, on sixty (60) days' written notice by Advisor or by
SubAdvisor. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities", "interested persons" and "assignment" have the same meaning
of such terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. SubAdvisor Information. During the terms of this Agreement, Advisor
agrees to furnish the SubAdvisor at SubAdvisor's principal office all
prospectuses, proxy statements, reports to stockholders, sales literature or
other materials prepared for distribution to stockholders of the Fund, the Trust
or the public that refer to the SubAdvisor or its clients in any way prior to
use thereof and not to use material if the SubAdvisor reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. The SubAdvisor's right to object to such
materials is limited to the portions of such materials that expressly relate to
the SubAdvisor, its services and its clients. The Advisor agrees to use its
reasonable best efforts to ensure that materials prepared by its employees or
agents or its affiliates that refer to the SubAdvisor or its clients in any way
are consistent with those materials previously approved by the SubAdvisor as
referenced in the first sentence of this paragraph. Sales literature may be
furnished to the SubAdvisor by first-class or overnight mail, facsimile
transmission equipment or hand delivery.
13. Severability. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
C-5
<PAGE> 50
14. Notices. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:
To Advisor at:
Union Bank of California, N.A.
530 "B" Street
San Diego, CA 92101
Attention: Clark Gates, Senior Vice President
To the SubAdvisor at:
BOT Asset Management (UK), Ltd.
12-15 Finsbury Circus
London, EC2M 7BT
England
Attention: James Wignall, Company Secretary
To the Trust or the Fund at:
Stepstone Funds
680 East Swedesford Road
Wayne, Pennsylvania 19087
Attention: Legal Department
15. Change of Law. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is altered by a rule, regulation or
order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and will be governed by the
laws of the Commonwealth of Massachusetts.
The name "Stepstone Funds" and "Trustees of the Stepstone Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of which is on file at the
office of the Secretary of State 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 "Stepstone Funds" entered in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually but only in such capacities and are not binding upon any of the
Trustees, Shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and persons
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<PAGE> 51
dealing with the Funds must look solely to the assets of the Trust belonging to
such Funds for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.
UNION BANK OF CALIFORNIA, N.A.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
BOT ASSET MANAGEMENT (UK), LIMITED
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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<PAGE> 52
SCHEDULE A
STEPSTONE INTERNATIONAL EQUITY FUND
Advisory Fee: 95 b.p. (will waive 20 b.p.)
Subadvisory Fee: 30 b.p.
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<PAGE> 53
SCHEDULE B
SUBADVISOR PERFORMANCE STANDARDS
1. Outperform the Morgan Stanley Capital International (MSCI) Index.
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