STEPSTONE FUNDS [REGISTERRED MARK]
SEMI-ANNUAL FINANCIAL
REPORT
- --------------------------------------------------------------------------------
JULY 31, 1996
<PAGE>
STEPSTONE FUNDS [REGISTERED MARK]
SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
The first half of 1996 was a period of increased volatility in the financial
markets. During this period various economic reports came in stronger than
expected, prompting market participants to reassess the possibility that the
Federal Reserve Bank ("the Fed")may need to raise interest rates to keep
economic growth and potential inflation in check.
Against this backdrop the performance of stocks and bonds parted company during
the past two quarters. During the first quarter interest rates rose and bond
prices declined, the result being an overall negative impact on most bond fund
prices during the past six months. However, as of this writing, signs of an
economic slowdown are beginning to appear with production up only slightly,
housing starts down and signs of consumer spending finally slowing. This may
give the Fed the opportunity to avoid tightening interest rates. If this trend
holds, the rest of 1996 could prove fairly attractive for fixed income
investors.
Despite a setback in July, equity investors have recently been rewarded with
stock prices approaching record highs. Though market volatility is likely to
continue, as long as inflation remains subdued and interest rates relatively
stable, equities are likely to continue to provide attractive returns for
patient investors.
We continue to emphasize the importance of a well diversified portfolio in these
more volatile times. By allocating assets among several funds with different
investment objectives, you help to cushion your portfolio during periodic market
corrections and retain the potential for greater returns while lessening
investment risk. Our well diversified Stepstone family of mutual funds and our
overall philosophy of investing for opportunity but at reasonable risk, has
served our investors well over time.
As always, we thank you for the confidence you have placed in us as managers of
your assets and look forward to serving you in the future.
Sincerely,
/S/CLARK R. GATES
Clark R. Gates
President, MERUS-UCA Capital Management
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Statement of Net Assets 1
Statement of Operations 43
Statement of Changes in Net Assets 46
Financial Highlights 50
Notes to Financial Statements 56
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND (UNAUDITED)
FACE
AMOUNT VALUE
(000) (000)
-------------------
U.S. TREASURY OBLIGATIONS (21.4%)
U.S. Treasury Bills (A)
5.330%, 08/22/96 $ 5,000 $ 4,984
5.050%, 09/19/96 5,000 4,966
5.050%, 10/03/96 5,000 4,956
5.005%, 10/17/96 5,000 4,946
5.170%, 02/06/97 10,000 9,739
5.080%, 03/06/97 5,000 4,847
5.270%, 05/01/97 5,000 4,800
5.395%, 05/29/97 5,000 4,774
U.S. Treasury Notes
6.500%, 09/30/96 10,000 10,013
6.875%, 10/31/96 5,000 5,021
7.250%, 11/15/96 5,000 5,029
7.500%, 01/31/97 5,000 5,063
6.875%, 02/28/97 5,000 5,044
6.625%, 03/31/97 5,000 5,035
8.500%, 04/15/97 5,000 5,093
6.500%, 04/30/97 5,000 5,028
6.500%, 05/15/97 10,000 10,052
- -------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $99,390) 99,390
- -------------------------------------------------------
REPURCHASE AGREEMENTS (78.8%)
BZW Securities, Inc.
5.57%, dated 07/31/96, matures,
08/01/96, repurchase price
$21,020,834 (collateralized by
U.S. Treasury Note, par value
$21,051,000, matures 5/15/97:
market value $21,438,729) 21,018 21,018
Deutsche Morgan Grenfell/
C.J. Lawrence, Inc.
5.57%, dated 07/31/96, matures
08/01/96, repurchase price
$109,672,965 (collateralized by
various U.S. Treasury Notes,
total par value $56,736,000,
5.125% - 9.125%, 7/31/97 -
5/15/99: various U.S. Treasury
STRIPS, total par value $291,000,
11/15/00 - 2/15/02: U.S.
Treasury Bill, par value
$55,512,000, matures 11/14/96:
total market value $111,849,455) 109,656 109,656
FACE
AMOUNT VALUE
(000) (000)
-------------------
JP Morgan Securities, Inc.
5.57%, dated 07/31/96, matures
08/01/96, repurchase price
$21,699,282 (collateralized by
U.S. Treasury Note, par value
$22,085,000, matures 6/30/97:
market value $22,130,696) $21,696 $ 21,696
Merrill Lynch Government
Securities, Inc.
5.57%, dated 07/31/96, matures
08/01/96, repurchase price
$20,942,475 (collateralized by
various U.S. Treasury STRIPS,
total par value $25,845,000,
7.875%-11.625%, 2/15/99-11/15/04:
total market value $21,359,466) 20,939 20,939
Morgan Stanley & Company, Inc.
5.57%, dated 07/31/96, matures
08/01/96, repurchase price
$21,009,101 (collateralized by
U.S.Treasury Note, par value
$20,905,000, 6.25%, matures
08/31/96: market value $21,454,36 21,006 21,006
Nomura Securities International, Inc.
5.57%, dated 07/31/96, matures
08/01/96, repurchase price
$41,356,048 (collateralized by
various U.S. Treasury Notes, total
par value $33,386,000, 5.25%-8.75,
9/30/96-5/31/98: U.S. Treasury
Bonds, par value $6,685,000,
8.875%, matures 2/15/19:
total market value $42,177,205) 41,350 41,350
SBC Capital Markets, Inc.
5.57%, dated 07/31/96, matures
08/01/96, repurchase price
$21,470,650 (collateralized by
various U.S. Treasury Bills,
total par value $22,334,000,
10/10/96 - 1/23/97:
total market value $21,901,787) 21,467 21,467
1
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND (UNAUDITED) (CONT'D)
FACE
AMOUNT VALUE
(000) (000)
-----------------
REPURCHASE AGREEMENTS (CONTINUED)
UBS Securities, Inc.
5.57%, dated 07/31/96, matures
08/01/96, repurchase price
$109,958,945 (collateralized by
various U.S. Treasury STRIPS,
total par value $242,405,000,
5/15/05-5/15/09: total market
value $112,142,600) $109,942 $109,942
- --------------------------------------------------------
Total Repurchase Agreements
(Cost $367,074) 367,074
- --------------------------------------------------------
Total Investments (100.2%)
(Cost $466,464) 466,464
- --------------------------------------------------------
Other Assets and Liabilities,
Net (-0.2%) (956)
- --------------------------------------------------------
VALUE
(000)
---------
NET ASSETS:
Fund Shares of Institutional Class
(unlimited authorization -- no
par value) based on 178,701,408
outstanding shares of beneficial
interest $178,701
Fund Shares of Investment Class
(unlimited authorization --
no par value) based on
286,809,254 outstanding
shares of beneficial interest 286,809
Accumulated net realized loss
on investments (2)
- --------------------------------------------------------
Total Net Assets: (100.0%) $465,508
- --------------------------------------------------------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
-- INSTITUTIONAL CLASS $1.00
- --------------------------------------------------------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
-- INVESTMENT CLASS $1.00
- --------------------------------------------------------
- --------------------------------------------------------
STRIPS -- SEPARATE TRADING OF REGISTERED INTEREST AND
PRINCIPAL OF SECURITIES
(A) THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS REPRESENTS
THE SECURITY'S EFFECTIVE YIELD.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
MONEY MARKET FUND (UNAUDITED)
FACE
AMOUNT VALUE
(000) (000)
-----------------
CERTIFICATES OF DEPOSIT --
YANKEE (17.2%)
Bank of Nova Scotia, New York
5.000%, 08/06/96 $ 25,000 $ 25,000
Banque Nationale de Paris,
San Francisco
5.400%, 08/02/96 30,000 30,000
Bayerische Hypotheken-und Wenschel
Bank AG, New York
5.300%, 08/26/96 30,000 30,000
Deutsche Bank AG, New York
5.530%, 04/02/97 10,000 9,988
Dresdner Bank AG, New York
5.010%, 02/26/97 13,000 12,965
National Westminster Bank PLC,
New York
5.400%, 09/06/96 30,000 30,000
Societe Generale, New York
5.720%, 04/14/97 5,000 4,996
Swiss Bank Corporation, New York
5.960%, 06/03/97 10,000 10,006
- -------------------------------------------------------
Total Certificates of Deposit --
Yankee (Cost $152,955) 152,955
- -------------------------------------------------------
BANK NOTES (1.8%)
Bank of Hawaii, Honolulu
5.500%, 01/03/97 10,000 10,002
NBD Bank, N.A. (Detroit)
6.500%, 06/02/97 5,000 5,022
- -------------------------------------------------------
Total Bank Notes --
Domestic (Cost $15,024) 15,024
- -------------------------------------------------------
COMMERCIAL PAPER (18.7%) (B)
Eli Lilly & Company
4.840%, 08/16/96 21,000 20,958
Ford Motor Credit Company
5.380%, 08/08/96 30,000 29,969
Goldman Sachs Group, LP
5.330%, 08/12/96 30,000 29,951
Merrill Lynch & Company, Inc.
5.380%, 08/26/96 30,000 29,888
Morgan Stanley Group, Inc.
5.330%, 09/05/96 25,000 24,870
Motorola, Inc.
5.280%, 08/19/96 30,000 29,921
- -------------------------------------------------------
Total Commercial Paper
(Cost $165,557) 165,557
- -------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
-----------------
CORPORATE OBLIGATIONS (7.9%)
BankAmerica Corporation
7.550%, 11/29/96 $10,000 $10,064
Bear Stearns Companies, Inc. (A)
5.507%, 05/20/97 30,000 30,000
General Electric Capital Corporation
7.750%, 12/30/96 20,000 20,171
Norwest Financial, Inc.
6.500%, 05/15/97 10,000 10,055
- -------------------------------------------------------
Total Corporate Obligations
(Cost $70,290) 70,290
- -------------------------------------------------------
U.S. TREASURY OBLIGATIONS (7.9%)
U.S. Treasury Notes
4.375%, 08/15/96 15,000 14,992
6.500%, 09/30/96 10,000 10,013
6.875%, 10/31/96 30,000 30,127
6.500%, 05/15/97 10,000 10,056
5.625%, 06/30/97 5,000 4,986
- -------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $70,174) 70,174
- -------------------------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (5.0%)
FHLB
4.400%, 01/21/97 5,415 5,396
5.035%, 03/06/97 20,000 19,978
FNMA
5.680%, 10/07/96 9,200 9,202
5.390%, 12/04/96 10,000 9,998
- -------------------------------------------------------
Total U.S. Government
Agency Obligations
(Cost $44,574) 44,574
- -------------------------------------------------------
3
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
MONEY MARKET FUND (UNAUDITED) (CONT'D)
FACE
AMOUNT VALUE
(000) (000)
-----------------
REPURCHASE AGREEMENTS (41.5%)
Deutsche Morgan Grenfell/
C.J. Lawrence, Inc.
5.65%, dated 07/31/96, matures
08/01/96, repurchase price
$173,898,179 (collateralized by
various FHLMC obligations total
par value $148,221,200,
5.971%-6.225%,01/01/20-7/1/34:
various FNMA obligations total
par value $168,475,449,
6.124%-9.000%, 07/01/21-02/01/35:
U.S. Treasury Bond, par value
$2,101,000, 14.00%, matures
11/15/11: U.S. Treasury Note,
par value $9,227,000, 7.500%,
matures 10/31/99: U.S. Treasury
STRIPS, par value $40,000,000,
matures 02/15/03: total market
value $177,349,503) $173,871 $173,871
SBC Capital Markets, Inc.
5.65%, dated 07/31/96, matures
08/1/96, repurchase price
$13,594,630 (collateralized by
FNMA obligations, par value
$14,027,000, 6.554%, matures
08/01/25: U.S. Treasury Bill,
par value $3,073,000, matures
08/29/96: total market value
$14,320,404) 13,593 13,593
Nomura Securites International, Inc.
5.65%, dated 07/31/96, matures
08/01/96, repurchase price
$160,285,254 (collateralized by
various FHLMC obligations, total
par value $150,917,688, 5.50%-8.50%,
05/01/99-05/01/25: various FNMA
obligations, total par value
$44,937,640, 6.12%-9.00%,
03/01/03-05/01/34: various GNMA
obligations, total par value
$147,088,489, 6.00%-11.50%,
03/15/07-07/15/26: total market
value $163,465,304) 160,260 160,260
FACE
AMOUNT VALUE
(000) (000)
-----------------
Merrill Lynch Government
Securities, Inc.
5.65%, dated 07/31/96, matures
08/01/96, repurchase price
$20,472,932 (collateralized by
various FNMA obligations total
par value $27,675,051,
5.50%-7.50: market value
$20,881,617) $ 20,470 $ 20,470
- --------------------------------------------------------
Total Repurchase Agreements
(Cost $368,194) 368,194
- --------------------------------------------------------
Total Investments (100.0%)
(Cost $886,768) 886,768
- --------------------------------------------------------
Other Assets and Liabilities, Net (0.0%) 136
- --------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class
(unlimited authorization -- no
par value) based on 546,290,002
outstanding shares of beneficial
interest 546,290
Fund Shares of Investment Class
(unlimited authorization --
no par value) based on
341,782,814 outstanding shares
of beneficial interest 341,782
Accumulated net realized loss on
investments (1,168)
- --------------------------------------------------------
Total Net Assets: (100.0%) $886,904
- --------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $1.00
- --------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INVESTMENT CLASS $1.00
- --------------------------------------------------------
- --------------------------------------------------------
(A) FLOATING RATE SECURITY - THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1996.
(B) THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS REPRESENTS THE SECURITY'S
DISCOUNT YIELD.
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
STRIPS -- SEPARATE TRADING OF REGISTERED INTEREST AND PRINCIPAL OF SECURITIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE CALIFORNIA TAX-FREE MONEY MARKET FUND (UNAUDITED)
FACE
AMOUNT VALUE
(000) (000)
-----------------
CALIFORNIA MUNICIPAL BONDS (99.5%)
Alameda County, Multi-Family Housing,
VRDN, RB (A) (B) (C)
3.350%, 08/07/96 $ 900 $ 900
Anaheim Public Improvement Corporation,
1995 Police Facilities Refinancing
Project, COP, AMBAC Insured (A)
3.400%, 08/07/96 2,500 2,500
California Education Facilities Authority
California Institute of Technology, RB
5.700%, 01/01/97 760 766
California Education Facilities Authority
Carnegie Institute of Washington, TECP
3.600%, 08/23/96 1,000 1,000
3.450%, 09/06/96 2,000 2,000
California Education Facilities Authority
University of Southern California,
Ser B, RB
6.450%, 10/01/96 700 703
California Health Facilities Finance
Authority St. Francis Medical,
Ser F, RB, MBIA Insured (A)
3.350%, 08/07/96 3,000 3,000
California Health Facilities Financing
Authority, Adventist Health Systems,
VRDN, RB (A) (B) (C)
3.250%, 08/07/96 1,500 1,500
California Health Facilities Financing
Authority, Catholic Health Care, Ser A,
VRDN, RB, MBIA Insured (A) (B)
3.350%, 08/07/96 1,000 1,000
California Health Facilities Financing
Authority, Kaiser Permanente,
Ser A, 1989, RB (A) (B)
6.500%, 10/01/96 500 502
California Health Facilities Financing
Authority, Kaiser Permanente,
Ser A, 1993, VRDN, RB (A) (B)
3.250%, 08/07/96 5,000 5,000
California Health Facilities Financing
Authority, Memorial Health Services,
VRDN, RB (A) (B)
3.250%, 08/07/96 5,040 5,040
FACE
AMOUNT VALUE
(000) (000)
-----------------
California Health Facilities Financing
Authority, Santa Barbara Cottage
Hospital, VRDN, RB (A) (B) (C)
3.250%, 08/07/96 $2,900 $2,900
California Health Facilities Financing
Authority, Pooled Loan Program,
Ser B, VRDN, RB, FGIC Insured (A) (B)
3.400%, 08/07/96 500 500
California Health Facilities Financing
Authority, Sutter Health,
Ser A, VRDN, RB (A) (B)
3.550%, 08/07/96 1,300 1,300
California Pollution Control Finance
Authority Chevron U.S.A. Inc.
Project,
3.700%, 05/15/97 1,460 1,460
California Pollution Control Finance
Authority, Exxon Project,
VRDN, RB (A) (B) (C)
3.400%, 08/07/96 5,000 5,000
California Pollution Control Finance
Authority, Ser A, Shell Oil,
VRDN, RB (A) (B)
3.500%, 08/07/96 3,200 3,200
California Pollution Control Finance
Authority, Ser B, Shell Oil, VRDN,
RB (A) (B) (C)
3.500%, 08/07/96 300 300
California Pollution Control Finance, GO
Authority, Southern California Edison,
Ser C, VRDN, RB (A) (B)
3.400%, 08/07/96 1,600 1,600
California Pollution Control Financing
Authority TECP (C)
3.600%, 08/15/96 1,000 1,000
California State, GO
TECP (C)
3.300%, 08/22/96 2,000 2,000
California Statewide Communities
Development Authority, Ser A,
GO FSA Insured
4.750%, 06/30/97 1,000 1,007
5
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (UNAUDITED) (CONT'D)
FACE
AMOUNT VALUE
(000) (000)
-----------------
- ------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
- ------------------------------------------------------------
California Statewide Community
Development Authority, St. Joseph
Health System, COP, VRDN, RB (A) (B)
3.250%, 08/07/96 $1,600 $1,600
Del Mar Racetrack Authority TECP (C)
3.450%, 08/15/96 1,000 1,000
Downey Civic Center Project
COP, MBIA Insured
4.000%, 02/01/97 500 500
East Bay, Municipal Utility
District, Water System Revenue
AMBAC Insured, Escrowed To Maturity
8.875%, 06/01/97 500 521
Eastern Municipal Water District,
COP, Ser B, VRDN, RB,
FGIC Insured (A) (B)
3.250%, 08/07/96 100 100
Escondido Unified School District, Ser A,
GO, FGIC Insured
3.400%, 09/01/96 1,000 1,000
Healdsburg Community Redevelopment
Agency, VRDN, RB (A) (B) (C)
3.500%, 08/07/96 3,760 3,760
Huntington Park Redevelopment Agency,
Huntington Park Personal Storage I
Project, VRDN, RB (A) (B) (C)
3.900%, 08/07/96 1,085 1,085
Irvine Ranch Water District, Waterworks
Bond, Improvement District # 182,
Ser A, VRDN, RB (A) (B) (C)
3.550%, 08/07/96 300 300
Irvine Ranch Water District, Consolidated
Ser 1989, VRDN, GO (A) (B) (C)
3.550%, 08/07/96 700 700
Irvine Ranch Water District, Consolidated
Refunding Ser 1995 B,
VRDN, RB (A) (B) (C)
3.550%, 08/07/96 2,500 2,500
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
Los Angeles Department of Water &
Power, Electric Plant Revenue, TECP
3.000%, 08/13/96 $2,000 $2,000
3.450%, 08/16/96 3,000 3,000
Los Angeles County Pension Obligation,
Ser C, RB, AMBAC Insured (A)
3.400%, 08/07/96 2,000 2,000
Los Angeles County Pension Obligation,
Ser B, GO (A) (C)
3.400%, 08/07/96 2,000 2,000
Los Angeles Community Redevelopment
Agency, Multi-Family Housing Revenue,
Skyline at South Park Phase II
RB (A) (C)
3.550%, 08/07/96 800 800
Los Angeles Waste Water System, TECP (C)
3.500%, 08/29/96 3,000 3,000
Riverside County Sales Tax Revenue,
TECP (C)
3.350%, 08/06/96 1,000 1,000
3.650%, 08/08/96 500 500
Sacramento County Multi-Family
Housing, Riveroaks Apartments,
VRDN, RB (A) (B) (C)
3.550%, 08/07/96 5,000 5,000
San Bernadino County Housing Authority,
Victoria Terrace, Project A, VRDN,
RB (A) (B) (C)
3.350%, 08/07/96 2,450 2,450
San Bernadino Multi-Family Housing,
Western #3 Project, VRDN,
RB (A) (B) (C)
3.400%, 08/07/96 2,500 2,500
San Bernadino Multi-Family Housing,
Western #4 Project, VRDN,
RB (A) (B) (C)
3.400%, 08/07/96 2,500 2,500
San Bernadino Transportation Authority,
Sales Tax Revenue, VRDN,
RB (A) (B) (C)
3.300%, 08/07/96 3,455 3,455
6
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (UNAUDITED) (CONT'D)
FACE MARKET
AMOUNT VALUE
(000) (000)
----------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
San Diego County Transportation
Commission, Sales Tax Revenue,
TECP (C)
3.350%, 09/04/96 $4,100 $4,100
San Diego Multi-Family Housing,
University Town Center Apartments,
1993 Issued, VRDN, RB (A) (B)
3.300%, 08/07/96 1,500 1,500
San Diego MTDB Authority, RB
4.250%, 09/01/96 1,010 1,011
San Diego County Water Authority,
TECP (C)
3.250%, 08/02/96 1,000 1,000
San Jose Unified School District,
Santa Clara County, TRAN
4.500%, 08/05/97 2,000 2,011
San Jose Unified School District, County
of Santa Clara, TRAN
4.750%, 09/19/96 2,000 2,002
San Mateo County, TRAN
4.500%, 07/01/97 3,000 3,015
San Mateo Union High School District,
TRAN
4.250%, 07/10/97 1,000 1,002
Santa Clara Transport Authority, VRDN,
RB (A) (B) (C)
3.550%, 08/07/96 1,000 1,000
Solano County, TRAN
4.500%, 11/01/96 2,500 2,504
Southern California Metro Water District,
Water Revenue VRDN, Ser 1996-A,
RB, AMBAC Insured (A)
3.250%, 08/07/96 1,300 1,300
Southern California Metro Water,
TECP (C)
3.450%, 08/16/96 1,000 1,000
FACE MARKET
AMOUNT VALUE
(000) (000)
----------------
Tracy Multi-Family Housing Refunding,
Sycamore Village Apartments,
VRDN, RB (A) (B) (C)
3.150%, 08/07/96 $2,300 $ 2,300
Turlock Irrigation District Transmission
Projects, COP, Ser A (A) (C)
3.300%, 08/07/96 1,000 1,000
Vallejo Housing Authority, Multi-Family
Revenue, Crow Western Project Phase II,
VRDN, RB (A) (B) (C)
3.600%, 08/07/96 5,200 5,200
Vallejo Housing Authority, Multi-Family
Revenue, Fountain Plaza Hills
Apartments, 1992 A, VRDN, RB,
FNMA Insured (A) (B)
3.350%, 08/07/96 900 900
West Covina Redevelopment Agency,
Lakes Public Parking Project, VRDN,
RB (A) (B) (C)
4.250%, 08/07/96 2,025 2,025
- --------------------------------------------------------
Total California Municipal
Bonds (Cost $120,319) 120,319
- --------------------------------------------------------
CASH EQUIVALENT (2.0%)
SEI California Tax Free Money Market
Portfolio 2,441 2,441
- --------------------------------------------------------
Total Cash Equivalent
(Cost $2,441) 2,441
- --------------------------------------------------------
Total Investments (101.5%)
(Cost $122,760) 122,760
- --------------------------------------------------------
Other Assets and Liabilities,
Net (-1.5%) (1,773)
- --------------------------------------------------------
7
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (UNAUDITED) (CONT'D)
VALUE
(000)
-------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value)
based on 37,690,211 outstanding shares
of beneficial interest $ 37,690
Fund Shares of Investment Class (unlimited
authorization -- no par value) based
on 83,298,268 outstanding shares of
beneficial interest 83,298
Accumulated net realized loss on
investments (1)
- -------------------------------------------------------
Total Net Assets: (100.0%) $120,987
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $1.00
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INVESTMENT CLASS $1.00
- -------------------------------------------------------
- -------------------------------------------------------
(A) FLOATING RATE SECURITY - THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1996.
(B) PUT AND DEMAND FEATURE - THE DATE REPORTED IS THE LESSER OF THE MATURITY
OR THE PUT DATE.
(C) SECURITIES ARE HELD IN CONJUNCTION WITH A LETTER OF CREDIT BY A MAJOR
COMMERCIAL BANK OR FINANCIAL INSTITUTION.
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
COP -- CERTIFICATE OF PARTICIPATION
FGIC -- FINANCIAL GUARANTY INSURANCE COMPANY
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
FSA -- FINANCIAL SECURITY ASSURANCE
GO -- GENERAL OBLIGATION
MBIA -- MUNICIPAL BOND INVESTORS ASSURANCE
RB -- REVENUE BOND
SER -- SERIES
TECP -- TAX EXEMPT COMMERCIAL PAPER
TRAN -- TAX AND REVENUE ANTICIPATION NOTE
VRDN -- VARIABLE RATE DEMAND NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE INTERMEDIATE-TERM BOND FUND (UNAUDITED)
FACE MARKET
AMOUNT VALUE
(000) (000)
----------------
CORPORATE OBLIGATIONS (39.7%)
Arkansas Electric Cooperative
7.330%, 06/30/08 $ 2,492 $ 2,461
Avco Financial Services
7.375%, 08/15/01 3,500 3,539
Bankers Trust, NY
7.250%, 01/15/03 3,500 3,478
7.500%, 11/15/15 1,500 1,433
Banponce
6.750%, 12/15/05 2,000 1,870
British Petroleum
9.000%, 06/01/19 3,500 3,644
Ford Motor Credit
8.200%, 02/15/02 4,000 4,185
Hydro-Quebec
7.500%, 04/01/16 2,500 2,409
Lehman Brothers Holdings
8.800%, 03/01/15 3,000 3,293
Lockheed Martin
7.450%, 06/15/04 3,500 3,518
Pacific Gas & Electric
8.750%, 01/01/01 780 829
6.250%, 08/01/03 2,000 1,888
Panhandle Eastern
7.875%, 08/15/04 3,000 3,071
Pepsico
5.875%, 06/01/00 3,500 3,386
Province of British Columbia
6.500%, 01/15/26 5,000 4,450
Province of Manitoba
6.125%, 01/19/04 3,000 2,828
Province of Ontario
7.375%, 01/27/03 4,000 4,065
Salomon Brothers
7.750%, 05/15/00 2,000 2,033
6.750%, 02/15/03 2,000 1,905
Travellers/Aetna
6.750%, 04/15/01 2,000 1,976
- -------------------------------------------------------
Total Corporate Obligations
(Cost $57,146) 56,261
- -------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
U.S. TREASURY OBLIGATIONS (38.5%)
United States Treasury Notes
6.125%, 03/31/98 $ 7,000 $ 6,999
6.375%, 05/15/99 3,000 2,999
6.375%, 07/15/99 1,000 1,000
6.250%, 05/31/00 7,000 6,938
6.125%, 07/31/00 13,100 12,916
6.125%, 09/30/00 9,000 8,865
5.875%, 02/15/04 6,500 6,179
7.250%, 08/15/04 3,500 3,609
7.250%, 08/15/22 5,000 5,097
- -------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $55,295) 54,602
- -------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATION (8.8%)
FNMA
8.000%, 08/01/24 12,453 12,524
- -------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Obligation
(Cost $12,602) 12,524
- -------------------------------------------------------
ASSET BACKED SECURITIES (4.8%)
American Express Master Trust
7.150%, 08/15/99 4,000 4,054
J.C. Penney Master Credit Card Trust
9.625%, 06/15/00 2,500 2,741
- --------------------------------------------------------
Total Asset Backed Securities
(Cost $6,535) 6,795
- --------------------------------------------------------
REPURCHASE AGREEMENT (6.8%)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.,
5.65%, dated 07/31/96,
matures 08/01/96, repurchase price
$9,622,093 (collateralized by various
U.S. Treasury Notes, total par value
$1,118,000, 6.00%-7.875%, 12/31/97-
11/15/04: U.S. Treasury Bill, total
par value $8,879, 01/16/97:
total market value $9,813,115) 9,621 9,621
9
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
(000)
--------
REPURCHASE AGREEMENT (CONTINUED)
- --------------------------------------------------------
Total Repurchase Agreement
(Cost $9,621) $ 9,621
- --------------------------------------------------------
Total Investments (98.6%)
(Cost $141,199) 139,803
- --------------------------------------------------------
Other Assets and Liabilities, Net (1.4%) 1,996
- --------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value)
based on 13,581,994 outstanding shares
of beneficial interest 139,785
Fund Shares of Investment Class (unlimited
authorization -- no par value) based
on 553,621 outstanding shares of
beneficial interest 6,275
MARKET
VALUE
(000)
--------
Undistributed net investment income $ 171
Accumulated net realized loss on
investments (3,036)
Net unrealized depreciation
on investments (1,396)
- --------------------------------------------------------
Total Net Assets: (100.0%) $141,799
- --------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $10.03
- --------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- INVESTMENT CLASS $10.02
- --------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE --
INVESTMENT CLASS ($10.02/97%) $10.33
- --------------------------------------------------------
- --------------------------------------------------------
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE LIMITED MATURITY GOVERNMENT FUND (UNAUDITED)
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (21.5%)
FHLB
5.415%, 11/20/96 $ 600 $ 600
6.015%, 06/05/98 500 497
8.260%, 12/13/99 1,000 1,004
6.180%, 11/20/00 1,400 1,362
5.655%, 12/15/00 750 722
FHLMC
5.570%, 08/20/97 1,000 996
FNMA
5.370%, 12/18/96 2,000 1,998
- -------------------------------------------------------
Total U.S. Government Agency
Obligations (Cost $7,260) 7,179
- -------------------------------------------------------
U.S. TREASURY OBLIGATIONS (34.2%)
U.S. Treasury Notes
4.375%, 08/15/96 1,000 1,000
6.500%, 05/15/97 1,000 1,005
5.875%, 04/30/98 1,000 995
5.875%, 08/15/98 1,500 1,490
4.750%, 10/31/98 500 484
5.000%, 02/15/99 1,300 1,260
7.125%, 09/30/99 1,000 1,019
5.500%, 12/31/00 1,000 960
5.625%, 02/28/01 1,000 964
U.S. Treasury STRIPS
0.000%, 02/15/01 3,000 2,242
- -------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $11,492) 11,419
- -------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS (29.6%)
FHLMC, Gold 5 Year Balloon Program
6.000%, 03/01/98 1,191 1,161
FHLMC, Gold 7 Year Balloon
7.000%, 12/01/02 1,978 1,973
FNMA, 7 Year Balloon
6.000%, 01/01/01 847 813
GNMA Midget
8.500%, 12/15/01 34 36
7.500%, 06/15/07 87 88
7.500%, 05/15/08 180 181
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
7.500%, 06/15/08 $ 137 $ 138
7.500%, 08/15/08 371 374
7.500%, 09/15/08 336 339
7.500%, 02/15/09 157 158
7.500%, 03/15/09 545 549
7.500%, 06/15/09 642 648
8.500%, 07/15/09 110 114
7.500%, 08/15/09 86 87
7.500%, 10/15/09 219 221
8.000%, 11/15/09 325 332
7.500%, 01/15/10 627 632
8.500%, 03/15/10 669 693
8.000%, 04/15/10 566 579
7.500%, 07/15/10 747 754
- -------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Obligations
(Cost $10,020) 9,870
- -------------------------------------------------------
BANKERS ACCEPTANCE (3.0%)
NationsBank N.A.
5.270%, 08/21/96 1,000 997
- -------------------------------------------------------
Total Bankers Acceptance (Cost $997) 997
- -------------------------------------------------------
CERTIFICATE OF DEPOSIT (3.1%)
Northern Trust, Chicago
9.010%, 02/03/97 1,000 1,015
- -------------------------------------------------------
Total Certificate of Deposit
(Cost $1,017) 1,015
- -------------------------------------------------------
REPURCHASE AGREEMENT (7.9%)
Morgan Stanley & Company, Inc.
5.52% dated 07/31/96, matures
08/01/96, repurchase price $2,639,560
(collateralized by various FNMA
obligations, total par value $2,789,981,
8.000%, 07/01/11-12/01/24: total
market value $2,703,572) 2,639 2,639
REPURCHASE AGREEMENT (CONTINUED)
- -------------------------------------------------------
Total Repurchase Agreement
(Cost $2,639) $ 2,639
- -------------------------------------------------------
Total Investments (99.3%)
(Cost $33,425) 33,119
- -------------------------------------------------------
11
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
LIMITED MATURITY GOVERNMENT FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
(000)
--------
- --------------------------------------------------------
Other Assets and Liabilities, Net (0.7%) 227
- --------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value)
based on 3,463,068 outstanding shares of
beneficial interest 34,745
Fund Shares of Investment Class (unlimited
authorization -- no par value) based
on 57,938 outstanding shares of
beneficial interest 680
Accumulated net realized loss on
investments (1,773)
Net unrealized depreciation on
investments $ (306)
- --------------------------------------------------------
Total Net Assets: (100.0%) $33,346
- --------------------------------------------------------
MARKET
VALUE
(000)
-------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $9.47
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INVESTMENT CLASS $9.48
- -------------------------------------------------------
- -------------------------------------------------------
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
STRIPS -- SEPARATE TRADING OF REGISTERED INTEREST AND
PRINCIPAL OF SECURITIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (UNAUDITED)
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
CALIFORNIA MUNICIPAL BONDS (93.7%)
Alameda County, Santa Rita Jail Project,
COP, MBIA Insured
5.250%, 12/01/04 $500 $ 508
Anaheim Public Financing Authority,
Electric Utililty Projects, RB, Callable
04/01/05 @ 100, MBIA Insured
5.500%, 10/01/10 250 248
Antioch Public Finance Authority, Police
Facilities Project, Lease RB, MBIA
Insured
4.550%, 01/01/03 500 490
Berkeley Unified School District, GO,
Ser D, FGIC Insured
8.250%, 08/01/05 345 423
California Educational Facilities,
Pepperdine University, RB, Callable
01/15/97 @ 102
6.750%, 01/15/06 500 515
California Pollution Control Finance
Authority, Shell Oil, VRDN,
RB (A) (B) (C)
3.500%, 08/01/96 200 200
California State, GO
4.200%, 09/01/02 250 238
Contra Costa Transportation Authority,
Sales Tax RB, Ser A, Escrowed to Maturity
6.300%, 03/01/00 250 264
Cupertino, COP, Callable 01/01/03 @ 102
5.500%, 01/01/05 500 505
East Bay Municipal Utility District
Water System, RB, FGIC Insured
6.000%, 06/01/01 250 264
Gilroy Unified School District, COP,
Measure J Capital Projects, FSA Insured
5.750%, 09/01/05 235 243
Los Angeles Department of Airports, RB,
Ser B, FGIC Insured
6.500%, 05/15/04 500 549
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
Los Angeles, GO, FGIC Insured
Callable 09/01/03 @ 101
5.400%, 09/01/06 $300 $ 305
Los Angeles, Wastewater System RB,
Ser B, Callable 06/01/03 @ 102,
MBIA Insured
5.400%, 06/01/08 300 299
Midpeninsula Regional Open Space
District Finance Authority,
RB, AMBAC Insured
4.900%, 09/01/02 250 251
Moulton-Niguel Water District, COP,
Callable 09/01/03 @ 102,
AMBAC Insured
4.750%, 09/01/04 300 294
M-S-R Public Power Agency, San Juan
Project, RB, Ser F, AMBAC
Insured, Callable
07/01/03 @ 102, Callable
07/01/05 @ 100
6.000%, 07/01/08 230 240
Sacramento Municipal Utility District,
Electric Revenue, Ser C, FGIC Insured
5.750%, 11/15/08 550 562
San Diego County Water Authority,
COP, Ser A, Callable 05/01/03 @ 100,
Callable 05/01/01 @ 102
6.250%, 05/01/04 480 513
San Francisco Building Authority,
Department General Services,
Lease RB, Ser A
4.500%, 10/01/00 300 296
San Francisco City & County, GO, Utility
Public Safety Improvement Project,
Ser F, FGIC Insured
6.500%, 06/15/08 350 368
San Jose Redevelopment Agency, Tax
Allocation, Merged Area Redevelopment
Project, RB, MBIA Insured
4.800%, 08/01/04 150 148
Santa Clara, COP, AMBAC Insured
6.000%, 05/15/12 400 405
13
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (UNAUDITED) (CONT'D)
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
Santa Cruz County, Public Facilities
Financing Authority, Tax Allocation,
Callable 09/01/03 @ 102, MBIA Insured
5.100%, 09/01/05 $500 $ 501
Tulare County Capital Improvement
Program, COP, Ser A, MBIA Insured
4.700%, 02/15/00 200 201
United Water Conservation District,
Water Systems Project, RB, FSA Insured
4.300%, 03/01/03 200 192
- -------------------------------------------------------
Total California Municipal Bonds
(Cost $9,019) 9,022
- -------------------------------------------------------
CASH EQUIVALENTS (5.1%)
Provident California Tax Free Money
Market 244 244
SEI California Tax Free Money Market
Portfolio 249 249
- -------------------------------------------------------
Total Cash Equivalents
(Cost $493) 493
- -------------------------------------------------------
Total Investments (98.8%)
(Cost $9,512) 9,515
- -------------------------------------------------------
Other Assets and Liabilities, Net (1.2%) 118
- -------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value)
based on 536,384 outstanding shares
of beneficial interest 6,296
MARKET
VALUE
(000)
------
Fund Shares of Investment Class (unlimited
authorization -- no par value) based
on 465,908 outstanding shares of
beneficial interest $ 4,628
Undistributed net investment income 14
Accumulated net realized loss on
investments (1,308)
Net unrealized appreciation on
investments 3
- -------------------------------------------------------
Total Net Assets: (100.0%) $ 9,633
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $9.62
- -------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- INVESTMENT CLASS $9.60
- -------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE --
INVESTMENT CLASS ($9.60/97%) $9.90
- -------------------------------------------------------
- -------------------------------------------------------
(A) FLOATING RATE SECURITY-THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON JULY 31, 1996.
(B) PUT AND DEMAND FEATURE-THE DATA REPORTED IS THE LESSER OF MATURITY DATE OR
THE PUT DATE.
(C) SECURITIES ARE HELD IN CONJUCTION WITH A LETTER OF CREDIT BY A MAJOR
COMMERCIAL BANK OR FINANCIAL INSTITUTION.
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
COP -- CERTIFICATES OF PARTICIPATION
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
FSA -- FINANCIAL SECURITY ASSURANCE
GO -- GENERAL OBLIGATION
MBIA -- MUNICIPAL BOND INVESTORS ASSURANCE
RB -- REVENUE BOND
SER -- SERIES
VRDN -- VARIABLE RATE DEMAND NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE CONVERTIBLE SECURITIES FUND (UNAUDITED)
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
CONVERTIBLE BONDS (65.3%)
3Com
10.250%, 11/01/01 $ 200 $ 280
Airborne Freight
6.750%, 08/15/01 150 147
Alza
5.000%, 05/01/06 500 460
Bay Networks
5.250%, 05/15/03 350 310
Cetus
5.250%, 05/21/02 225 214
Chubb Capital
6.000%, 05/15/98 200 213
Columbia HCA Healthcare
6.750%, 10/01/06 150 155
Conner Peripherals
6.750%, 03/01/01 300 306
Consolidated Natural Gas
7.250%, 12/15/15 250 269
Cooper Industries
7.050%, 01/01/15 113 118
Federated Department Stores
5.000%, 10/01/03 400 419
First Data
5.000%, 12/15/99 225 413
General Instruments
5.000%, 06/15/00 111 128
Healthsource
5.000%, 03/01/03 400 297
Hexcel
7.000%, 08/01/03 350 408
HFS
4.750%, 03/01/03 375 419
Hilton Hotels
5.000%, 05/15/06 450 459
IMC Fertilizer Group
6.250%, 12/01/01 325 414
Inco Limited
7.750%, 03/15/16 150 156
Integrated Health Services
5.750%, 01/01/01 300 282
Liberty Property Trust
8.000%, 07/01/01 300 300
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
Magna International
5.000%, 10/15/02 $ 400 $ 415
Motorola
0.000%, 09/27/13 475 349
Nine West Group
5.500%, 07/15/03 450 435
Noble Affiliates
4.250%, 11/01/03 175 195
Pioneer Financial Services
6.500%, 04/01/03 375 372
Quantum Health
4.750%, 10/01/00 475 431
Softkey International
5.500%, 11/01/00 425 332
Solectron
6.000%, 03/01/06 375 319
Staples
4.500%, 10/01/00 425 423
Tele Communications International
4.500%, 02/15/06 400 325
Tenet Healthcare
6.000%, 12/01/05 325 316
Thermo Electron
4.250%, 01/01/03 375 421
Time Warner
0.000%, 06/22/13 500 209
U.S. Cellular
0.000%, 06/15/15 675 225
U.S. Filter
6.000%, 09/15/05 275 335
Veterinary Centers
5.250%, 05/01/06 450 365
WMX Technologies
2.000%, 01/24/05 300 258
Worldcom
5.000%, 08/15/03 200 273
- -------------------------------------------------------
Total Convertible Bonds
(Cost $12,253) 12,165
- -------------------------------------------------------
COMMON STOCKS (16.4%)
AIR TRANSPORTATION (1.6%)
AMR* 3,797 299
- -------------------------------------------------------
299
- -------------------------------------------------------
15
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
CONVERTIBLE SECURITIES FUND (UNAUDITED) (CONT'D)
MARKET
SHARES VALUE
(000) (000)
-----------------
AUTOMOTIVE (3.0%)
Chrysler 20,000 $ 564
- --------------------------------------------------------
564
- --------------------------------------------------------
BANKS (4.4%)
Barnett Banks of Florida 4,430 272
Citicorp 3,000 246
Fifth Third Bancorp 5,893 305
- --------------------------------------------------------
823
- --------------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.7%)
General Instrument* 4,799 121
- --------------------------------------------------------
121
- --------------------------------------------------------
COMPUTERS & SERVICES (0.9%)
Seagate Technology 3,529 171
- --------------------------------------------------------
171
- --------------------------------------------------------
FINANCIAL SERVICES (0.6%)
Legg Mason 3,875 110
- --------------------------------------------------------
110
- --------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (5.2%)
Electronic Data Systems 13,000 687
Olsten 10,775 286
- --------------------------------------------------------
973
- --------------------------------------------------------
Total Common Stocks
(Cost $2,676) 3,061
- --------------------------------------------------------
PREFERRED STOCKS (11.9%)
BANKS (1.7%)
Banc One $3.50 3,000 200
Union Planters 3,000 112
- --------------------------------------------------------
312
- --------------------------------------------------------
FINANCIAL SERVICES (4.1%)
Conseco * 7.00% 6,500 494
SCI Finance LLC 3,000 270
- -------------------------------------------------------
764
- -------------------------------------------------------
PAPER & PAPER PRODUCTS (1.6%)
International Paper* 6,500 291
- -------------------------------------------------------
291
- -------------------------------------------------------
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
REAL ESTATE (1.4%)
Merry Land & Investment $2.15, Ser C 10,000 $ 266
- -------------------------------------------------------
266
- -------------------------------------------------------
RETAIL (1.2%)
Ann Taylor 5,000 220
- -------------------------------------------------------
220
- -------------------------------------------------------
WHOLESALE (1.9%)
Alco Standard 4,250 353
- -------------------------------------------------------
353
- -------------------------------------------------------
Total Preferred Stocks (Cost $2,127) 2,206
- -------------------------------------------------------
TIME DEPOSIT (5.5%)
Sanwa Bank Limited
5.688%, 08/01/96 $1,015 1,015
- -------------------------------------------------------
Total Time Deposit (Cost $1,015) 1,015
- -------------------------------------------------------
Total Investments (99.1%)
(Cost $18,071) 18,447
- -------------------------------------------------------
Other Assets and Liabilities, Net (0.9%) 166
- -------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value)
based on 1,799,539 outstanding shares
of beneficial interest 17,788
Undistributed net investment income 20
Accumulated net realized gain on
investments 429
Net unrealized appreciation on
investments 376
- -------------------------------------------------------
Total Net Assets: (100.0%) $18,613
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $10.34
- -------------------------------------------------------
- -------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
SER -- SERIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE GOVERNMENT SECURITIES FUND (UNAUDITED)
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
U.S. TREASURY OBLIGATIONS (64.9%)
U.S. Treasury Notes
5.625%, 06/30/97 $1,750 $1,746
7.375%, 11/15/97 2,000 2,032
6.000%, 11/30/97 750 750
5.250%, 12/31/97 2,500 2,473
5.125%, 02/28/98 1,000 985
6.000%, 05/31/98 2,500 2,491
5.500%, 11/15/98 7,250 7,130
5.000%, 02/15/99 1,000 969
5.500%, 12/31/00 1,000 960
7.750%, 01/31/00 1,500 1,559
6.375%, 08/15/02 2,000 1,975
6.875%, 05/15/06 1,000 1,005
6.000%, 02/15/26 8,550 7,512
- -------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $32,432) 31,587
- -------------------------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (20.3%)
Aid-Israel
7.125%, 08/15/99 2,000 2,023
FHLB
7.060%, 08/14/01 1,000 1,002
FNMA
5.900%, 07/06/00 1,000 974
5.875%, 02/02/06 1,000 918
GNMA
7.500%, 08/15/25 1,854 1,830
7.000%, 01/15/24 2,262 2,173
Tennessee Valley Authority
6.375%, 06/15/05 1,000 951
- -------------------------------------------------------
Total U.S. Government Agency
Obligations (Cost $10,065) 9,871
- -------------------------------------------------------
CORPORATE OBLIGATIONS (11.7%)
Fletcher Challenge
7.750%, 06/20/06 1,000 1,008
GMAC
7.125%, 05/01/03 1,000 989
Lehman Brothers
7.125%, 09/15/03 1,500 1,462
FACE MARKET
AMOUNT VALUE
(000) (000)
------------------
Lockheed Martin
6.850%, 05/15/01 $1,000 $ 991
Meditrust
7.250%, 08/16/99 1,250 1,253
- --------------------------------------------------------
Total Corporate Obligations
(Cost $5,730) 5,703
- --------------------------------------------------------
TIME DEPOSIT (1.6%)
Sanwa Bank Limited
5.688%, 08/01/96 759 759
- --------------------------------------------------------
Total Time Deposit
(Cost $759) 759
- --------------------------------------------------------
Total Investments (98.5%)
(Cost $48,986) 47,920
- --------------------------------------------------------
Other Assets and Liabilities, Net (1.5%) 707
- --------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value)
based on 5,203,217 outstanding shares
of beneficial interest 50,635
Undistributed net investment income 89
Accumulated net realized loss on
investments (1,031)
Net unrealized depreciation on
investments (1,066)
- --------------------------------------------------------
Total Net Assets: (100.0%) $48,627
- --------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $9.35
- --------------------------------------------------------
- --------------------------------------------------------
FHLB -- FEDERAL HOME LOAN BANK
FNMA --- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
BALANCED FUND (UNAUDITED)
MARKET
VALUE
SHARES (000)
-----------------
COMMON STOCKS (58.7%)
AEROSPACE & DEFENSE (0.7%)
Litton Industries* 30,000 $ 1,290
Watkins Johnson 23,600 510
- -------------------------------------------------------
1,800
- -------------------------------------------------------
AIR TRANSPORTATION (0.4%)
- -------------------------------------------------------
KLM Royal Dutch Air* 35,000 1,103
- -------------------------------------------------------
1,103
- -------------------------------------------------------
AIRCRAFT (1.4%)
Lockheed Martin 25,000 2,072
Textron 20,000 1,600
- -------------------------------------------------------
3,672
- -------------------------------------------------------
APPAREL/TEXTILES (0.3%)
Springs Industries, Cl A 20,000 913
- -------------------------------------------------------
913
- -------------------------------------------------------
AUTOMOTIVE (0.5%)
Chrysler 45,610 1,294
- -------------------------------------------------------
1,294
- -------------------------------------------------------
BANKS (2.0%)
Bank of Boston* 25,000 1,325
Bank of New York 24,000 1,236
First Union 10,000 635
J.P. Morgan 13,000 1,118
Norwest 10,000 355
Wilmington Trust 19,000 589
- -------------------------------------------------------
5,258
- -------------------------------------------------------
BROADCASTING, NEWSPAPERS &
ADVERTISING (0.5%)
Viacom, Cl B* 40,000 1,400
- -------------------------------------------------------
1,400
- -------------------------------------------------------
CHEMICALS (4.0%)
Avery Dennison 20,000 1,035
Cabot 66,000 1,658
E.I. duPont De Nemours 17,500 1,413
First Mississippi 40,100 852
Georgia Gulf 33,400 1,027
Monsanto 50,000 1,563
MARKET
VALUE
SHARES (000)
-----------------
Morton International 25,000 $ 900
W.R. Grace 20,000 1,275
Wellman 33,400 651
- -------------------------------------------------------
10,374
- -------------------------------------------------------
COMMUNICATIONS EQUIPMENT (1.4%)
Harris 17,600 1,012
ITT* 15,000 851
Motorola 24,000 1,296
Sprint 13,100 480
- -------------------------------------------------------
3,639
- -------------------------------------------------------
COMPUTERS & SOFTWARE SERVICES (3.0%)
Compaq Computer * 32,500 1,779
Computer Associates International 46,125 2,347
Hewlett Packard 36,000 1,584
IBM 15,000 1,618
Network Equipment Technologies* 35,000 464
- -------------------------------------------------------
7,792
- -------------------------------------------------------
CONCRETE & MINERAL PRODUCTS (0.4%)
Hanson PLC, ADR 85,000 1,084
- -------------------------------------------------------
1,084
- -------------------------------------------------------
DRUGS (4.4%)
American Home Products 30,000 1,703
Astra, Cl A, ADR 30,000 1,268
Bristol-Myers Squibb 15,000 1,299
Mallinckrodt Group 35,000 1,308
Merck 20,000 1,285
Pharmacia & Upjohn 30,000 1,238
SmithKline Beecham 28,000 1,505
Warner Lambert 30,000 1,635
- -------------------------------------------------------
11,241
- -------------------------------------------------------
ELECTRICAL UTILITIES (0.6%)
Nipsco Industries 15,000 561
Ohio Edison 49,000 1,029
- -------------------------------------------------------
1,590
- -------------------------------------------------------
ENTERTAINMENT (0.5%)
Walt Disney 25,000 1,391
- -------------------------------------------------------
1,391
- -------------------------------------------------------
18
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE BALANCED FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
FINANCIAL SERVICES (4.1%)
American Express 30,000 $ 1,313
BRE Properties, Cl A 53,600 1,139
CBL and Associates Properties 48,900 1,057
Donaldson, Lufkin, & Jenrette 35,000 1,037
FNMA 60,000 1,905
ITT Hartford Group* 25,000 1,322
MBNA 20,000 558
Post Properties 21,900 758
Travelers 37,099 1,567
- -------------------------------------------------------
10,656
- -------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (2.5%)
Archer Daniels Midland 67,250 1,194
IBP 60,000 1,403
Pepsico 30,000 949
Philip Morris 14,400 1,507
Sara Lee 25,000 800
Universal Foods 26,000 777
- -------------------------------------------------------
6,630
- -------------------------------------------------------
FORESTRY (0.4%)
Rayonier 25,000 959
- -------------------------------------------------------
959
- -------------------------------------------------------
GAS/NATURAL GAS (1.3%)
Coastal 30,000 1,118
Westcoast Energy 31,100 482
Williams 38,800 1,780
- -------------------------------------------------------
3,380
- -------------------------------------------------------
HOTELS & LODGING (0.4%)
Hilton Hotels 10,000 1,020
- -------------------------------------------------------
1,020
- -------------------------------------------------------
HOUSEHOLD FURNITURE & FIXTURES (0.3%)
Leggett & Platt 31,200 811
- -------------------------------------------------------
811
- -------------------------------------------------------
HOUSEHOLD PRODUCTS (0.3%)
Whirlpool 14,100 694
- -------------------------------------------------------
694
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
INSURANCE (2.6%)
AFLAC 37,500 $ 1,200
Allstate* 25,759 1,153
Equifax 40,000 1,005
Equitable 50,000 1,150
Lincoln National 30,000 1,279
USF&G 60,000 953
- -------------------------------------------------------
6,740
- -------------------------------------------------------
LEASING & RENTING (0.6%)
Comdisco 42,250 1,003
Xtra 15,000 634
- -------------------------------------------------------
1,637
- -------------------------------------------------------
LUMBER & WOOD PRODUCTS (0.3%)
Louisiana-Pacific 32,800 668
- -------------------------------------------------------
668
- -------------------------------------------------------
MACHINERY (4.1%)
Applied Materials* 40,000 955
Briggs & Stratton 20,000 753
Commercial Intertech 50,000 1,275
Cummins Engine 25,000 934
Deere 37,500 1,341
Dresser Industries 50,000 1,350
General Electric 16,600 1,367
Global Industries Technologies* 50,000 850
Parker-Hannifin 35,000 1,221
Toro 25,000 759
- -------------------------------------------------------
10,805
- -------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (2.3%)
Bausch & Lomb 30,000 1,065
Baxter International 26,200 1,091
Columbia/HCA Healthcare 25,000 1,281
Tenet Healthcare* 60,000 1,163
Vencor* 50,000 1,369
- -------------------------------------------------------
5,969
- -------------------------------------------------------
PAPER & PAPER PRODUCTS (1.4%)
Kimberly-Clark 10,000 760
Mead 19,000 1,040
Weyerhaeuser 20,000 835
Willamette Industries 19,000 1,116
- -------------------------------------------------------
3,751
- -------------------------------------------------------
19
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
BALANCED FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
PETROLEUM & FUEL PRODUCTS (0.8%)
Occidental Petroleum 50,000 $ 1,119
Union Pacific Resources Group 38,400 1,013
- -------------------------------------------------------
2,132
- -------------------------------------------------------
PETROLEUM REFINING (4.0%)
Ashland 29,000 1,062
Chevron 28,000 1,621
Diamond Shamrock R&M 35,000 971
Imperial Oil 36,300 1,516
Mobil 15,000 1,656
Royal Dutch Petroleum, ADR 9,800 1,479
Unocal 30,000 979
USX-Marathon Group 62,000 1,271
- -------------------------------------------------------
10,555
- -------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES (0.9%)
Eastman Kodak 15,000 1,119
Xerox 24,000 1,209
- -------------------------------------------------------
2,328
- -------------------------------------------------------
PRECIOUS METALS (0.3%)
Barrick Gold 23,636 659
- -------------------------------------------------------
659
- -------------------------------------------------------
PRINTING & PUBLISHING (2.3%)
Belo, Cl A 28,400 1,143
Houghton Mifflin 25,000 1,175
Lafarge 45,000 821
Media General 50,000 1,431
Time Warner 40,000 1,395
- -------------------------------------------------------
5,965
- -------------------------------------------------------
RAILROADS (1.4%)
Burlington Northern Santa Fe 20,000 1,578
Conrail Holding 16,400 1,074
Union Pacific 15,000 1,028
- -------------------------------------------------------
3,680
- -------------------------------------------------------
REAL ESTATE (0.7%)
- -------------------------------------------------------
First Industrial Realty Trust 35,000 823
JP Realty 52,000 1,099
- -------------------------------------------------------
1,922
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
REPAIR SERVICES (0.8%)
PHH 21,000 $ 1,118
Rollins Truck Leasing 92,800 998
- -------------------------------------------------------
2,116
- -------------------------------------------------------
RETAIL (1.3%)
American Stores 33,000 1,229
Kroger* 15,000 566
Sears Roebuck 37,000 1,517
- -------------------------------------------------------
3,312
- -------------------------------------------------------
RUBBER & PLASTIC (0.7%)
Mark IV Industries 40,572 852
Tupperware 20,000 855
- -------------------------------------------------------
1,707
- -------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (1.5%)
AMP 20,000 773
Intel 30,000 2,254
National Semiconductor * 70,000 989
- -------------------------------------------------------
4,016
- -------------------------------------------------------
STEEL & STEEL WORKS (0.4%)
Engelhard 23,900 490
Texas Industries 9,600 643
- -------------------------------------------------------
1,133
- -------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (1.9%)
AT&T 17,271 900
Airtouch Communications* 40,000 1,100
Bell Atlantic 20,000 1,183
Frontier 33,400 939
NYNEX 20,000 898
- -------------------------------------------------------
5,020
- -------------------------------------------------------
TRANSPORTATION SERVICES (0.4%)
GATX 23,400 1,053
- -------------------------------------------------------
1,053
- -------------------------------------------------------
WHOLESALE (0.6%)
- -------------------------------------------------------
Arrow Electronics* 28,000 1,183
Hughes Supply 10,100 330
- -------------------------------------------------------
1,513
- -------------------------------------------------------
20
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
BALANCED FUND (UNAUDITED) (CONT'D)
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
- -------------------------------------------------------
Total Common Stocks
(Cost $119,124) $153,382
- -------------------------------------------------------
U.S. TREASURY OBLIGATIONS (20.4%)
U.S. Treasury Notes
6.125%, 03/31/98 $1,500 1,500
5.875%, 04/30/98 1,500 1,493
6.000%, 05/31/98 1,300 1,295
5.000%, 02/15/99 1,000 969
7.000%, 04/15/99 1,000 1,016
6.375%, 05/15/99 1,000 1,000
6.375%, 07/15/99 1,000 1,000
7.125%, 09/30/99 1,500 1,529
7.500%, 10/31/99 1,000 1,030
7.750%, 11/30/99 1,000 1,039
7.125%, 02/29/00 1,500 1,530
5.500%, 04/15/00 2,000 1,936
6.125%, 09/30/00 1,500 1,478
5.750%, 10/31/00 700 680
5.625%, 02/28/01 3,000 2,891
6.250%, 04/30/01 1,000 987
6.500%, 05/31/01 2,000 1,994
6.625%, 06/30/01 1,000 1,002
7.500%, 11/15/01 6,000 6,236
6.375%, 08/15/02 2,000 1,975
6.250%, 02/15/03 1,000 978
6.500%, 05/15/05 4,500 4,420
6.500%, 08/15/05 4,500 4,416
5.625%, 02/15/06 3,000 2,765
6.875%, 05/15/06 1,000 1,005
7.000%, 07/15/06 1,000 1,014
6.000%, 02/15/26 7,000 6,150
- -------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $54,204) 53,328
- -------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED BONDS (5.5%)
FNMA
7.500%, 08/01/01 3,020 3,045
8.000%, 08/01/24 991 997
8.000%, 05/01/25 4,428 4,454
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
GNMA
6.500%, 09/15/08 $3,786 $ 3,665
6.000%, 11/15/08 2,440 2,311
- -------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Bonds
(Cost $14,763) 14,472
- -------------------------------------------------------
CORPORATE OBLIGATIONS (11.1%)
American General
6.750%, 06/15/05 2,000 1,918
American Telephone & Telegraph
7.500%, 06/01/06 2,000 2,033
Associates of North America
7.875%, 09/30/01 2,000 2,070
Avco Financial Services
7.375%, 08/15/01 2,000 2,023
Bankers Trust NY
7.500%, 11/15/15 2,000 1,910
Chemical Banking
6.700%, 08/15/08 1,500 1,397
Chesapeake & Potomac Telephone of
Maryland
6.000%, 05/01/03 1,500 1,416
First National Bank of Boston
8.000%, 09/15/04 2,000 2,050
Joseph E. Seagram and Sons
7.000%, 04/15/08 1,500 1,451
Lehman Brothers Holding
8.500%, 05/01/07 2,000 2,098
Lockheed Martin
7.700%, 06/15/08 2,000 2,020
Mobil
7.250%, 03/15/99 1,000 1,014
Panhandle Eastern
7.875%, 08/15/04 1,000 1,024
Province of British Columbia
7.000%, 01/15/03 1,500 1,498
Ralston Purina
7.750%, 10/01/15 2,000 1,969
Royal Bank of Scotland
6.375%, 02/01/11 1,500 1,337
21
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
STEPSTONE BALANCED FUND (UNAUDITED) (CONT'D)
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
CORPORATE OBLIGATIONS (CONT'D)
Wal-Mart Stores
5.875%, 10/15/05 $ 2,000 $ 1,820
- -------------------------------------------------------
Total Corporate Obligations
(Cost $29,338) 29,048
- -------------------------------------------------------
ASSET BACKED SECURITIES (1.8%)
American Express 1994-1A
7.150%, 08/15/99 1,500 1,520
Banc One Credit Card Master Trust,
Ser 1994-A, Cl A
7.150%, 12/15/98 2,000 2,011
J.C. Penney's Master Credit Card Trust,
Ser C, Cl A
9.625%, 06/15/00 1,000 1,096
- -------------------------------------------------------
Total Asset Backed Securities
(Cost $4,487) 4,627
- -------------------------------------------------------
REPURCHASE AGREEMENT (1.8%)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
5.65%, dated 07/31/96, matures 08/01/96,
repurchase price $4,649,948
(collateralized by FHLB,
par value $4,750,000, 0.00%, matures
08/05/96: market value
$4,745,811) 4,649 4,649
- -------------------------------------------------------
Total Repurchase Agreement
(Cost $4,649) 4,649
- -------------------------------------------------------
Total Investments (99.3%)
(Cost $226,565) 259,506
- -------------------------------------------------------
Other Assets and Liabilities, Net (0.7%) 1,865
- -------------------------------------------------------
MARKET
VALUE
(000)
-------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value) based
on 18,308,270 outstanding shares of
beneficial interest $210,390
Fund Shares of Investment Class (unlimited
authorization -- no par value) based
on 562,684 outstanding shares of
beneficial interest 6,625
Undistributed net investment income 407
Accumulated net realized gain on
investments 11,008
Net unrealized appreciation on
investments 32,941
- -------------------------------------------------------
Total Net Assets: (100.0%) $261,371
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE -- INSTITUTIONAL CLASS $13.85
- -------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE -- INVESTMENT CLASS $13.85
- -------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE --
INVESTMENT CLASS ($13.85/95.5%) $14.50
- -------------------------------------------------------
- -------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
FHLB -- FEDERAL HOME LOAN BANK
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
PLC -- PUBLIC LIMITED COMPANY
SER -- SERIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<PAGE>
STATEMENT OF NET ASSETS JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE GROWTH EQUITY FUND (UNAUDITED)
MARKET
VALUE
SHARES (000)
-----------------
COMMON STOCK (93.1%)
AUTOMOTIVE (1.4%)
Chrysler 49,788 $ 1,413
Magna International, Cl A 27,000 1,202
- -------------------------------------------------------
2,615
- -------------------------------------------------------
BANKS (2.8%)
Banc One 36,300 1,257
Fleet Financial Group 16,000 648
U.S. Bancorp 90,780 3,109
- -------------------------------------------------------
5,014
- -------------------------------------------------------
CHEMICALS (4.5%)
Georgia Gulf 24,000 738
Great Lakes Chemical 37,800 2,178
IMC Fertilizer Group 60,500 2,390
Eli Lilly 8,000 448
Monsanto 35,000 1,094
W.R. Grace 20,000 1,275
- -------------------------------------------------------
8,123
- -------------------------------------------------------
COMMUNICATIONS EQUIPMENT (2.6%)
- -------------------------------------------------------
ADC Telecommunications* 49,000 2,070
DSC Communications* 55,000 1,650
Motorola 20,000 1,080
- -------------------------------------------------------
4,800
- -------------------------------------------------------
COMPUTERS & SOFTWARE SERVICES (17.7%)
Cisco Systems* 106,200 5,496
Compaq Computer* 32,000 1,752
Computer Associates International 54,000 2,747
Compuware* 48,700 2,051
CUC International* 161,655 5,618
Fiserv* 43,500 1,457
Hewlett Packard 75,600 3,326
Microsoft* 35,000 4,126
Netcom On Line Communication
Services* 32,000 600
Olsten 95,000 2,518
Silicon Graphics* 109,200 2,566
- -------------------------------------------------------
32,257
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
CONTAINERS & PACKAGING (0.2%)
Bway 18,400 $ 317
- -------------------------------------------------------
317
- -------------------------------------------------------
DRUGS (3.9%)
Alza * 53,000 1,312
Mallinckrodt Group 45,700 1,708
Merck 15,000 964
Schering Plough 58,200 3,208
- -------------------------------------------------------
7,192
- -------------------------------------------------------
ELECTRICAL UTILITIES (1.4%)
Illinova 25,000 644
Ohio Edison 16,000 336
Pinnacle West Capital 56,500 1,596
- -------------------------------------------------------
2,576
- -------------------------------------------------------
ENTERTAINMENT (1.6%)
Ambassador International* 56,000 686
Regal Cinemas* 16,000 680
Walt Disney 28,591 1,590
- -------------------------------------------------------
2,956
- -------------------------------------------------------
FINANCIAL SERVICES (4.9%)
FNMA 136,800 4,343
MBNA 162,450 4,528
- -------------------------------------------------------
8,871
- -------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (1.4%)
IBP 32,000 748
PepsiCo 59,600 1,885
- -------------------------------------------------------
2,633
- -------------------------------------------------------
GAS/NATURAL GAS (1.5%)
Coastal 32,000 1,192
Williams 32,000 1,468
- -------------------------------------------------------
2,660
- -------------------------------------------------------
HOUSEHOLD FURNITURE & FIXTURES (0.6%)
Leggett & Platt 40,000 1,040
- -------------------------------------------------------
1,040
- -------------------------------------------------------
23
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
HOUSEHOLD PRODUCTS (0.7%)
Danaher 31,200 $ 1,244
- -------------------------------------------------------
1,244
- -------------------------------------------------------
INSURANCE (7.4%)
Aetna 23,111 1,343
AFLAC 48,000 1,536
AMBAC 60,200 2,875
CRA Managed Care* 8,000 311
Healthcare Compare* 56,000 2,163
MBIA 26,600 2,012
Oxford Health Plan* 67,000 2,312
Progressive of Ohio 17,000 859
- -------------------------------------------------------
13,411
- -------------------------------------------------------
LEISURE PRODUCTS (1.1%)
Mattel 78,125 1,934
- -------------------------------------------------------
1,934
- -------------------------------------------------------
MACHINERY (2.7%)
Applied Materials* 32,000 764
General Electric 35,100 2,891
Varity* 28,000 1,316
- -------------------------------------------------------
4,971
- -------------------------------------------------------
MARINE TRANSPORTATION (1.8%)
Carnival, Cl A 121,000 3,252
- -------------------------------------------------------
3,252
- -------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (2.3%)
Nellcor* 99,600 2,353
Vivra* 63,225 1,841
- -------------------------------------------------------
4,194
- -------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (3.2%)
First Data 67,683 5,254
Parametric Technology* 16,000 666
- -------------------------------------------------------
5,920
- -------------------------------------------------------
PAPER & PAPER PRODUCTS (0.6%)
Willamette Industries 20,000 1,175
- -------------------------------------------------------
1,175
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
PETROLEUM & FUEL PRODUCTS (0.4%)
Schlumberger 8,000 $ 640
- -------------------------------------------------------
640
- -------------------------------------------------------
PETROLEUM REFINING (2.8%)
Amoco 16,000 1,070
Ashland 12,900 472
British Petroleum, ADR 18,561 2,039
Chevron 16,000 926
Exxon 8,400 691
- -------------------------------------------------------
5,198
- -------------------------------------------------------
PROFESSIONAL SERVICES (1.5%)
Medaphis* 71,800 2,666
- -------------------------------------------------------
2,666
- -------------------------------------------------------
RAILROADS (2.2%)
Burlington Northern Santa Fe 24,000 1,893
Kansas City Southern Industries 53,400 2,069
- -------------------------------------------------------
3,962
- -------------------------------------------------------
REAL ESTATE (0.5%)
Innkeepers USA Trust 93,000 977
- -------------------------------------------------------
977
- -------------------------------------------------------
RETAIL (10.9%)
Applebee's International 32,000 804
Corporate Express* 134,120 5,013
Kohls* 76,000 2,385
Landry's Seafood Restaurants* 51,800 1,153
McDonald's 51,600 2,393
Orchard Supply Hardware Stores* 49,000 1,390
Papa John's International* 61,500 2,644
Pep Boys-Manny, Moe & Jack 80,500 2,435
Toys "R" Us* 39,400 1,039
Wal-Mart Stores 21,800 523
- -------------------------------------------------------
19,779
- -------------------------------------------------------
RUBBER & PLASTIC (1.1%)
Goodyear Tire & Rubber 24,000 1,062
Mark IV Industries 46,305 972
- -------------------------------------------------------
2,034
- -------------------------------------------------------
24
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
SEMI-CONDUCTORS/INSTRUMENTS (4.8%)
Aavid Thermal Technologies* 24,000 $ 165
Integrated Device Technology* 127,400 1,099
Intel 70,200 5,274
National Semiconductor* 33,000 466
Recoton* 60,000 1,020
Xilinx 25,000 809
- -------------------------------------------------------
8,833
- -------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (3.7%)
Cincinnati Bell 57,000 2,772
MCI Communications 78,800 1,940
SBC Communications 43,200 2,111
- -------------------------------------------------------
6,823
- -------------------------------------------------------
TRUCKING (0.9%)
Wabash National 98,125 1,705
- -------------------------------------------------------
1,705
- -------------------------------------------------------
Total Common Stock
(Cost $106,554) 169,772
- -------------------------------------------------------
PREFERRED STOCKS (0.2%)
INSURANCE (0.2%)
Aetna* 7,707 483
- -------------------------------------------------------
Total Preferred Stocks
(Cost $377) 483
- -------------------------------------------------------
REPURCHASE AGREEMENT (6.5%)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
5.650%, dated 07/31/96, matures
08/01/96, repurchase price $11,847,914
(collateralized by U.S. Treasury Note,
total par value $190,000, 6.000%,
12/31/97: FNMA obligation total par
value $3,000,000, 6.000%, 12/31/97:
FHLMC obligation total par value
$9,129,000, 0.000%, 09/12/96: total
market value $12,083,953) 11,846 11,846
- -------------------------------------------------------
Total Repurchase Agreement
(Cost $11,846) 11,846
- -------------------------------------------------------
Total Investments (99.8%)
(Cost $118,777)) 182,101
- -------------------------------------------------------
Other Assets and Liabilities, Net (0.2%) 316
- -------------------------------------------------------
MARKET
VALUE
(000)
-------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value) based
on 9,777,113 outstanding shares of
beneficial interest $103,224
Fund Shares of Investment Class (unlimited
authorization -- no par value) based
on 182,009 outstanding shares of
beneficial interest 2,813
Undistributed net investment income 267
Accumulated net realized gain on
investments 12,789
Net unrealized appreciation on
investments 63,324
- -------------------------------------------------------
Total Net Assets: (100.0%) $182,417
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $18.32
- -------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- INVESTMENT CLASS $18.30
- -------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE --
INVESTMENT CLASS ($18.30/95.5%) $19.16
- -------------------------------------------------------
- -------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STEPSTONE VALUE MOMENTUM FUND (UNAUDITED)
MARKET
VALUE
SHARES (000)
-----------------
COMMON STOCKS (92.9%)
AEROSPACE & DEFENSE (0.6%)
Rockwell International 30,000 $ 1,575
- -------------------------------------------------------
1,575
- -------------------------------------------------------
AIRCRAFT (1.0%)
Textron 30,000 2,400
- -------------------------------------------------------
2,400
- -------------------------------------------------------
APPAREL/TEXTILES (0.4%)
Springs Industries, Cl A 20,000 913
- -------------------------------------------------------
913
- -------------------------------------------------------
AUTOMOTIVE (2.1%)
Arvin Industries 40,000 865
Fleetwood Enterprises 50,000 1,519
Ford Motor 45,000 1,463
TRW 14,000 1,265
- -------------------------------------------------------
5,112
- -------------------------------------------------------
BANKS (4.0%)
BankAmerica 30,000 2,393
Bankers Trust New York 15,000 1,078
First Union 45,000 2,858
J.P. Morgan 25,000 2,150
Wilmington Trust 50,000 1,550
- -------------------------------------------------------
10,029
- -------------------------------------------------------
CHEMICALS (6.1%)
Avery Dennison 52,000 2,691
Cabot 106,000 2,663
Du Pont (E.I.) de Nemours 33,000 2,665
Monsanto 60,000 1,875
W.R. Grace 64,000 4,080
Wellman 60,000 1,170
- -------------------------------------------------------
15,144
- -------------------------------------------------------
COMMUNICATIONS EQUIPMENT (1.8%)
CTS 60,000 2,580
Harris 35,000 2,013
- -------------------------------------------------------
4,593
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
COMPUTERS & SERVICES (4.1%)
Cisco Systems* 60,000 $ 3,105
Hewlett Packard 100,000 4,400
International Business Machines 24,000 2,589
- -------------------------------------------------------
10,094
- -------------------------------------------------------
DRUGS (5.3%)
American Home Products 30,000 1,703
Astra AB-A, ADR 40,000 1,690
Bristol Myers Squibb 13,000 1,126
Mallinckrodt Group 65,000 2,429
Merck 50,000 3,213
SmithKline Beecham, ADR 57,000 3,064
- -------------------------------------------------------
13,225
- -------------------------------------------------------
ELECTRICAL UTILITIES (1.0%)
- -------------------------------------------------------
General Public Utilities 75,000 2,438
- -------------------------------------------------------
2,438
- -------------------------------------------------------
FINANCIAL SERVICES (7.5%)
Bear Stearns 105,957 2,384
BRE Properties, Cl A 152,262 3,236
CBL Associates Properties 75,000 1,622
Dean Witter Discover 45,000 2,289
FNMA 120,000 3,810
Post Properties 65,000 2,251
Travelers 75,001 3,169
- -------------------------------------------------------
18,761
- -------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (5.2%)
American Brands 20,000 910
IBP 130,000 3,039
Philip Morris 35,000 3,662
Sara Lee 70,000 2,240
Unilever NV, ADR 6,000 854
Universal Foods 75,000 2,241
- -------------------------------------------------------
12,946
- -------------------------------------------------------
FOOTWEAR (0.1%)
Payless Shoesource* 8,800 285
- -------------------------------------------------------
285
- -------------------------------------------------------
26
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
GAS/NATURAL GAS (4.1%)
Coastal 45,000 $ 1,676
MCN 75,000 1,763
Questar 42,000 1,323
Sonat 40,000 1,705
Westcoast Energy 70,000 1,085
Williams 55,000 2,523
- -------------------------------------------------------
10,075
- -------------------------------------------------------
GLASS PRODUCTS (0.5%)
PPG Industries 27,000 1,330
- -------------------------------------------------------
1,330
- -------------------------------------------------------
HOTELS & LODGING (0.6%)
Hilton Hotels 15,000 1,530
- -------------------------------------------------------
1,530
- -------------------------------------------------------
HOUSEHOLD FURNITURE & FIXTURES (0.9%)
Leggett & Platt 85,000 2,210
- -------------------------------------------------------
2,210
- -------------------------------------------------------
HOUSEHOLD PRODUCTS (0.5%)
Whirlpool 27,000 1,330
- -------------------------------------------------------
1,330
- -------------------------------------------------------
INSURANCE (4.4%)
Allstate * 39,467 1,766
Chubb 40,000 1,670
Equifax 100,000 2,513
Lincoln National 40,000 1,705
Providian 50,000 1,981
Torchmark 30,000 1,279
- -------------------------------------------------------
10,914
- -------------------------------------------------------
LEASING & RENTING (2.1%)
Comdisco 135,000 3,206
Xtra 45,000 1,901
- -------------------------------------------------------
5,107
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
MACHINERY (4.2%)
Applied Materials* 15,000 $ 358
Deere 60,000 2,145
Dresser Industries 90,000 2,430
General Electric 45,000 3,707
Toro 60,000 1,823
- -------------------------------------------------------
10,463
- -------------------------------------------------------
MEASURING DEVICES (0.7%)
Perkin Elmer 35,000 1,829
- -------------------------------------------------------
1,829
- -------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (1.4%)
Becton, Dickinson 25,000 1,866
Novacare* 50,000 394
Tenet Healthcare* 66,000 1,279
- -------------------------------------------------------
3,539
- -------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (0.4%)
Electronic Data Systems 17,000 899
- -------------------------------------------------------
899
- -------------------------------------------------------
MISCELLANEOUS TRANSPORTATION (0.7%)
Harsco 30,000 1,778
- -------------------------------------------------------
1,778
- -------------------------------------------------------
OFFICE FURNITURE & FIXTURES (0.3%)
Hon Industries 27,500 825
- -------------------------------------------------------
825
- -------------------------------------------------------
PAPER & PAPER PRODUCTS (3.2%)
Kimberly-Clark 58,360 4,435
Weyerhaeuser 45,000 1,879
Willamette Industries 27,000 1,586
- -------------------------------------------------------
7,900
- -------------------------------------------------------
PETROLEUM & FUEL PRODUCTS (0.3%)
Union Pacific Resources 30,000 791
- -------------------------------------------------------
791
- -------------------------------------------------------
27
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
PETROLEUM REFINING (4.9%)
Ashland 30,000 $ 1,099
Chevron 25,000 1,447
Imperial Oil 50,000 2,088
Mobil 28,000 3,091
Royal Dutch Petroleum, ADR 13,000 1,961
Unocal 48,000 1,566
Valero Energy 40,000 825
- -------------------------------------------------------
12,077
- -------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES (1.8%)
Eastman Kodak 35,000 2,612
Xerox 39,000 1,965
- -------------------------------------------------------
4,577
- -------------------------------------------------------
PRINTING & PUBLISHING (2.8%)
Houghton Mifflin 40,000 1,880
Lafarge 100,000 1,825
Wallace Computer Services 110,000 3,218
- -------------------------------------------------------
6,923
- -------------------------------------------------------
RAILROADS (2.3%)
Burlington Northern Santa Fe 22,000 1,735
Florida East Coast Railway 25,000 1,953
Union Pacific 30,000 2,055
- -------------------------------------------------------
5,743
- -------------------------------------------------------
REAL ESTATE (2.1%)
First Industrial Realty Trust 110,000 2,585
JP Realty 120,000 2,535
- -------------------------------------------------------
5,120
- -------------------------------------------------------
REPAIR SERVICES (2.1%)
PHH 65,000 3,461
Rollins Truck Leasing 160,000 1,720
- -------------------------------------------------------
5,181
- -------------------------------------------------------
RETAIL (2.7%)
Dayton-Hudson 54,000 1,634
Kroger* 50,000 1,888
May Department Stores 55,000 2,468
Sears Roebuck 21,000 861
- -------------------------------------------------------
6,851
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
SEMI-CONDUCTORS/INSTRUMENTS (2.5%)
Intel 70,000 $ 5,259
National Semiconductor * 75,000 1,059
- -------------------------------------------------------
6,318
- -------------------------------------------------------
STEEL & STEEL WORKS (1.0%)
Aluminum Company of America 20,000 1,160
Engelhard 67,500 1,384
- -------------------------------------------------------
2,544
- -------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (4.7%)
AT&T 33,449 1,744
Airtouch Communications* 16,000 440
Century Telephone Enterprises 90,000 2,869
Comsat 60,000 1,155
Frontier 90,000 2,531
GTE 60,000 2,475
Lucent Technologies 12,000 446
- -------------------------------------------------------
11,660
- -------------------------------------------------------
TRANSPORTATION SERVICES (0.9%)
- -------------------------------------------------------
GATX 51,000 2,295
- -------------------------------------------------------
2,295
- -------------------------------------------------------
WHOLESALE (1.6%)
Avnet 50,000 2,181
Universal 70,000 1,931
- -------------------------------------------------------
4,112
- -------------------------------------------------------
Total Common Stocks (Cost $163,198) 231,436
- -------------------------------------------------------
REPURCHASE AGREEMENT (6.8%)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
5.650%, dated 07/31/96, matures
08/01/96, repurchase price $17,147,518
(collateralized by FHLMC obligations,
total par value $2,489,000, 0.00%,
08/19/96: U.S. Treasury Notes, total
par value $15,194,000, 05/15/98-
10/31/00: total market value
$17,488,658) 17,145 17,145
- -------------------------------------------------------
Total Repurchase Agreement
(Cost $17,145) 17,145
- -------------------------------------------------------
28
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
(000)
--------
- -------------------------------------------------------
Total Investments (99.7%)
(Cost $180,343) $248,581
- -------------------------------------------------------
Other Assets and Liabilities, Net (0.3%) 658
- -------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value) based on
12,876,857 outstanding shares of
beneficial interest 161,720
Fund Shares of Investment Class (unlimited
authorization -- no par value) based
on 683,648 outstanding shares of
beneficiaL interest 8,981
Undistributed net investment income 247
Accumulated net realized gain on
investments 10,053
MARKET
VALUE
(000)
-------
Net unrealized appreciation on
investments $ 68,238
- -------------------------------------------------------
Total Net Assets: (100.0%) $249,239
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $18.38
- -------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- INVESTMENT CLASS $18.38
- -------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE --
INVESTMENT CLASS ($18.38/95.5%) $19.25
- -------------------------------------------------------
- -------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL --- CLASS
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
29
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STEPSTONE BLUE CHIP GROWTH FUND (UNAUDITED)
MARKET
VALUE
SHARES (000)
-----------------
COMMON STOCKS (86.7%)
AIR TRANSPORTAION (2.4%)
AMR * 11,000 $ 868
Federal Express * 10,000 778
- -------------------------------------------------------
1,646
- -------------------------------------------------------
AIRCRAFT (0.8%)
Boeing 6,000 531
- -------------------------------------------------------
531
- -------------------------------------------------------
APPAREL/TEXTILES (0.4%)
- -------------------------------------------------------
Gucci Group ADR 4,500 255
- -------------------------------------------------------
255
- -------------------------------------------------------
AUTOMOTIVE (0.9%)
Ford Motor 20,000 650
- -------------------------------------------------------
650
- -------------------------------------------------------
BANKS (7.1%)
Bank of Boston * 14,400 763
Bankers Trust New York 5,000 359
Citicorp 10,500 860
CoreStates Finance 15,000 589
Fifth Third Bancorp 12,000 621
First Union 11,000 699
Merchantile Bancorp 15,000 688
Republic New York 5,000 317
- -------------------------------------------------------
4,896
- -------------------------------------------------------
BEAUTY PRODUCTS (0.9%)
Proctor & Gamble 7,000 626
- -------------------------------------------------------
626
- -------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING (0.8%)
US West Media Group* 17,000 293
Viacom, Cl B* 8,000 280
- -------------------------------------------------------
573
- -------------------------------------------------------
CHEMICALS (1.0%)
Eastman Chemical 3,500 183
Morton International 10,000 360
PPG Industries 3,000 148
- -------------------------------------------------------
691
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
COMPUTERS & SERVICES (2.3%)
Digital Equipment * 5,000 $ 177
Gateway 2000* 20,000 803
Hewlett Packard 14,000 616
- -------------------------------------------------------
1,596
- -------------------------------------------------------
DRUGS (5.5%)
Amgen* 13,000 710
Eli Lilly 9,426 528
Johnson & Johnson 30,000 1,424
Merck 9,000 578
Schering Plough 10,000 551
- -------------------------------------------------------
3,791
- -------------------------------------------------------
ELECTRICAL UTILITIES (4.9%)
American Electric Power 10,000 415
Baltimore Gas & Electric 20,000 515
Dominion Resources 20,000 753
Duke Power 13,200 632
Houston Industries 20,000 453
Texas Utilities 15,000 630
- -------------------------------------------------------
3,398
- -------------------------------------------------------
ENTERTAINMENT (1.4%)
MGM Grand* 9,000 336
Walt Disney 11,500 640
- -------------------------------------------------------
976
- -------------------------------------------------------
ENVIRONMENTAL SERVICES (0.2%)
WMX Technologies 3,500 104
- -------------------------------------------------------
104
- -------------------------------------------------------
FINANCIAL SERVICES (3.7%)
American Express 5,000 219
Bear Stearns 26,250 591
Franklin Resources 20,000 1,120
Green Tree Financial 5,000 168
Household International 2,500 186
Merrill Lynch 5,000 302
- -------------------------------------------------------
2,586
- -------------------------------------------------------
30
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
FOOD, BEVERAGE & TOBACCO (4.6%)
Coca Cola 22,000 $ 1,031
Philip Morris 11,500 1,203
Tootsie Roll Industries 15,450 545
Wm. Wrigley, Jr. 8,000 413
- -------------------------------------------------------
3,192
- -------------------------------------------------------
GAS/NATURAL GAS (0.2%)
Noram Energy 15,000 163
- -------------------------------------------------------
163
- -------------------------------------------------------
HOTELS & LODGING (1.1%)
- -------------------------------------------------------
HFS* 2,000 120
ITT* 5,000 284
Marriott International 7,000 360
- -------------------------------------------------------
764
- -------------------------------------------------------
HOUSEHOLD PRODUCTS (1.4%)
Clorox 3,750 341
Gillette 10,000 636
- -------------------------------------------------------
977
- -------------------------------------------------------
INSURANCE (3.4%)
American International Group 5,000 471
ITT Hartford Group* 15,000 793
Pacificare Health Systems, Cl A* 8,000 538
Pacificare Health Systems, Cl B* 4,000 271
Sunamerica 5,000 304
- -------------------------------------------------------
2,377
- -------------------------------------------------------
LEISURE PRODUCTS (0.5%)
Mattel 15,000 371
- -------------------------------------------------------
371
- -------------------------------------------------------
MACHINERY (5.8%)
Black & Decker 6,000 221
Case 12,000 531
Caterpillar 12,100 797
Deere 18,000 644
General Electric 22,000 1,812
- -------------------------------------------------------
4,005
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
MARINE TRANSPORTATION (0.4%)
Royal Caribbean Cruises 10,000 $ 245
- -------------------------------------------------------
245
- -------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (3.4%)
Boston Scientific* 5,000 239
Columbia HCA Healthcare 10,000 513
Guidant 8,330 423
Medtronic 13,000 616
St. Jude Medical 9,000 303
Varian Associates 6,000 269
- -------------------------------------------------------
2,363
- -------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (7.2%)
3Com* 10,000 394
Automatic Data Processing 10,000 396
Cisco Systems* 8,000 414
Computer Associates International 14,250 725
CUC International* 9,000 313
Electronic Data Systems 9,223 488
Informix * 17,500 382
Microsoft* 8,000 943
Oracle Systems 7,500 293
Sun Microsystems* 11,000 601
- -------------------------------------------------------
4,949
- -------------------------------------------------------
PAPER & PAPER PRODUCTS (0.3%)
International Paper 5,800 220
- -------------------------------------------------------
220
- -------------------------------------------------------
PETROLEUM & FUEL PRODUCTS (1.0%)
Burlington Resources 5,000 214
Schlumberger 3,000 240
Tidewater 7,000 236
- -------------------------------------------------------
690
- -------------------------------------------------------
PETROLEUM REFINING (6.9%)
Amoco 10,000 669
British Petroleum ADR 74 8
Exxon 15,400 1,267
Mobil 13,100 1,446
Royal Dutch Petroleum ADR 8,000 1,207
Texaco 2,000 170
- -------------------------------------------------------
4,767
- -------------------------------------------------------
31
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
PROFESSIONAL SERVICES (0.8%)
Halliburton 10,000 $ 521
- -------------------------------------------------------
521
- -------------------------------------------------------
RAILROADS (0.6%)
Burlington Northern Santa Fe 5,000 394
- -------------------------------------------------------
394
- -------------------------------------------------------
RETAIL (7.4%)
Alberto Culver, Cl A 20,000 733
Borders Group* 15,000 480
Federated Department Stores* 12,000 363
Gap 5,000 149
Home Depot 8,000 404
McDonald's 15,000 696
Pep Boys-Manny, Moe & Jack 13,000 393
PepsiCo 20,000 633
Safeway 10,000 360
Sears Roebuck 5,000 205
TJX 9,000 271
Wal-Mart Stores 17,500 420
- -------------------------------------------------------
5,107
- -------------------------------------------------------
RUBBER & PLASTIC (1.8%)
Agrium 24,000 303
Dow Chemical 7,500 558
Goodyear Tire & Rubber 8,000 354
- -------------------------------------------------------
1,215
- -------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (1.2%)
Intel 10,000 751
Xilinx 2,500 81
- -------------------------------------------------------
832
- -------------------------------------------------------
SPECIALTY MACHINERY (0.5%)
U.S. Filter * 15,000 324
- -------------------------------------------------------
324
- -------------------------------------------------------
STEEL & STEEL WORKS (0.7%)
Aluminum Company of America 8,400 487
- -------------------------------------------------------
487
- -------------------------------------------------------
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
TELEPHONES & TELECOMMUNICATION (4.7%)
AT&T 27,000 $ 1,407
Ameritech 15,200 844
BellSouth 10,000 410
Paging Network* 7,500 144
US West 15,000 456
- -------------------------------------------------------
3,261
- -------------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.5%)
Motorola 6,000 324
- -------------------------------------------------------
324
- -------------------------------------------------------
Total Common Stocks
(Cost $50,661) 59,867
- -------------------------------------------------------
CONVERTIBLE BOND (0.4%)
Tele Communications International
4.500%, 02/15/06 $300 244
- -------------------------------------------------------
Total Convertible Bond
(Cost $310) 244
- -------------------------------------------------------
EQUITY OPTIONS (0.0%)
Sun Microsystems August 65 Call* 8/17/96 --
Sun Microsystems August 55 Put* 8/17/96 14
- -------------------------------------------------------
Total Equity Options
(Cost $13) 14
- -------------------------------------------------------
FINANCIAL OPTION (2.1%)
S&P 500 Depositary Receipt 23,000 1,473
- -------------------------------------------------------
Total Financial Option
(Cost $1,476) 1,473
- -------------------------------------------------------
TIME DEPOSIT (10.4%)
Sanwa Bank Limited
5.688%, 08/01/96 7,207 7,207
- -------------------------------------------------------
Total Time Deposit
(Cost $7,207) 7,207
- -------------------------------------------------------
Total Investments (99.6%)
(Cost $59,667) 68,805
- -------------------------------------------------------
Other Assets and Liabilities, Net (0.4%) 266
- -------------------------------------------------------
32
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
(000)
-------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value) based on
5,505,000 outstanding shares of
beneficial interest $57,450
Undistributed net investment income 19
Accumulated net realized gain on
investments 2,464
MARKET
VALUE
(000)
-------
Net unrealized appreciation on
investments $ 9,138
- -------------------------------------------------------
Total Net Assets: (100.0%) $69,071
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $12.55
- -------------------------------------------------------
- -------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECIEPT
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
33
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STEPSTONE EMERGING GROWTH FUND (UNAUDITED)
MARKET
VALUE
SHARES (000)
-----------------
COMMON STOCKS (76.8%)
AIR TRANSPORTATION (0.5%)
Comair Holdings 2,250 $ 55
Mesaba Holdings 10,000 104
Vanguard Airlines* 15,000 94
- -------------------------------------------------------
253
- -------------------------------------------------------
APPAREL/TEXTILES (0.5%)
Mohawk Industries* 15,000 266
- -------------------------------------------------------
266
- -------------------------------------------------------
AUTOMOTIVE (0.5%)
Kaydon 5,000 226
- -------------------------------------------------------
226
- -------------------------------------------------------
BANKS (4.6%)
Astoria Financial* 10,000 268
Cal Fed Bancorp* 3,000 68
Carolina First 5,000 81
Crestar Financial 5,000 288
Cullen/Frost Bankers 7,400 202
Deposit Guaranty 3,500 160
First Security 3,750 96
Hibernia, Cl A 12,500 134
Imperial Bancorp* 5,000 115
Merchantile Bancorp 5,000 229
Old Kent Financial 3,858 143
Roosevelt Financial Group 10,000 160
Summit Bancorp 3,500 123
Union Planters 8,000 236
- -------------------------------------------------------
2,303
- -------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING (1.8%)
CKS Group* 4,000 107
Infinity Broadcasting* 6,250 172
HBO 6,000 368
TCA Cable Television 7,500 196
Young Broadcasting, Cl A* 1,000 31
- -------------------------------------------------------
874
- -------------------------------------------------------
BUILDING & CONSTRUCTION (0.2%)
Southern Energy Homes* 9,375 113
- -------------------------------------------------------
113
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
CHEMICALS (1.1%)
Cambrex 7,500 $ 231
Cytec Industries* 10,500 315
- -------------------------------------------------------
546
- -------------------------------------------------------
COMMERCIAL SERVICES (1.1%)
Aames Financial 6,000 236
Isocor* 7,500 59
New World Communications, Cl A* 12,500 269
- -------------------------------------------------------
564
- -------------------------------------------------------
COMMUNICATIONS EQUIPMENT (3.6%)
ADC Telecommunications* 2,800 118
Aseco 7,500 73
Dionex 5,000 174
DSP Communications* 9,000 420
Network Express* 9,000 70
Pairgain Technologies* 5,000 278
Tellabs* 7,500 448
Teltrend* 6,000 215
- -------------------------------------------------------
1,796
- -------------------------------------------------------
COMPUTERS & SERVICES (0.2%)
Atria Software* 2,500 96
- -------------------------------------------------------
96
- -------------------------------------------------------
COMPUTERS & SOFTWARE SERVICES (11.5%)
3Com* 23,415 922
America Online 3,500 107
Baan NV* 10,000 298
Brooktrout Tech* 3,000 54
Cadence Design Systems* 12,500 381
Ciber* 16,000 304
Cisco Systems* 20,000 1,035
CUC International* 32,437 1,127
Infonautics* 5,000 27
Mentor Graphics* 2,500 31
Norrell 10,000 278
Oracle Systems 5,000 196
Physician Computer Networks* 15,000 152
Proxim* 5,000 125
Sterling Software 5,000 344
Sun Microsystems* 5,000 273
34
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
COMPUTERS & SOFTWARE SERVICES (CONTINUED)
Symantec * 7,100 $ 69
Sync Research* 2,000 20
- -------------------------------------------------------
5,743
- -------------------------------------------------------
CONSUMER PRODUCTS (0.8%)
USA Detergents* 2,000 73
Wolverine World Wide 9,750 336
- -------------------------------------------------------
409
- -------------------------------------------------------
DRUGS (3.3%)
Agouron Pharmecutical* 4,000 124
Alpha Beta Tech* 2,500 22
Alpharma Cl A 3,750 68
Autoimmune* 5,000 41
Boston Scientific * 3,200 153
Cell Genesys* 15,000 98
Centocor* 2,500 62
Creative Biomolecules* 5,000 29
Cypros Pharmaceutical* 12,500 56
Depotech 7,500 139
IDEC Pharmaceuticals Corp* 10,000 155
Insite Vision* 5,000 24
Interneuron Pharmeceutical* 12,500 338
Liposome * 24,000 290
Royce Labs* 10,000 46
- -------------------------------------------------------
1,645
- -------------------------------------------------------
ELECTRICAL UTILITIES (0.3%)
Belden 5,000 138
- -------------------------------------------------------
138
- -------------------------------------------------------
ENTERTAINMENT (0.8%)
Carmike Cinemas, Cl A 5,000 128
Mirage Resorts* 11,000 248
- -------------------------------------------------------
376
- -------------------------------------------------------
ENVIRONMENTAL SERVICES (0.6%)
- -------------------------------------------------------
International Technology* 25,000 50
Sanifill* 4,000 170
United Waste Systems* 3,000 78
USA Waste Services* 1,000 25
- -------------------------------------------------------
323
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
FINANCIAL SERVICES (2.9%)
Arbatax International * 1,750 $ 8
Credit Acceptance * 12,000 224
CWM Mortgage Holdings 10,000 173
Finova Group 5,000 248
First American, Tennessee 5,000 208
Mercer International* 500 6
National Surgery Centers* 7,500 192
Waterhouse Investor Services 10,000 376
- -------------------------------------------------------
1,435
- -------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (0.2%)
Boston Beer* 5,000 111
- -------------------------------------------------------
111
- -------------------------------------------------------
GAS/NATURAL GAS (0.2%)
Atmos Energy 5,300 113
- -------------------------------------------------------
113
- -------------------------------------------------------
HOTELS & LODGING (1.3%)
HFS* 10,000 600
Interstate Hotels * 2,000 46
- -------------------------------------------------------
646
- -------------------------------------------------------
INSURANCE (1.7%)
Healthcare Compare* 2,500 97
Penncorp Financial Group 6,000 168
Provident* 7,500 274
TIG Holdings 7,500 208
Total Renal Care Holdings* 3,200 114
- -------------------------------------------------------
861
- -------------------------------------------------------
LUMBER & WOOD PRODUCTS (0.6%)
Cavalier Homes 15,000 255
Champion Enterprises 1,400 28
- -------------------------------------------------------
283
- -------------------------------------------------------
MACHINERY (0.8%)
Camco International 10,000 324
Central Sprinkler * 4,000 83
- -------------------------------------------------------
407
- -------------------------------------------------------
35
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
COMMON STOCKS (CONTINUED)
MEASURING DEVICES (1.3%)
Advanced Energy Industries* 5,000 $ 29
Epic Design Technology* 3,400 63
Input/Output 8,000 252
Laser Technology* 23,000 109
Thermoquest 12,500 184
- -------------------------------------------------------
637
- -------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (5.8%)
Biochem Pharma* 16,000 478
Biofield* 4,000 39
Cardiothoracic Systems * 7,500 83
Chad Therapeutics* 5,000 86
Concord EFS* 27,843 710
Endosonics* 5,000 63
Heartstream* 2,000 23
Nellcor* 7,000 165
Renal Treatment Centers* 24,000 672
Spectranetics* 15,000 66
St. Jude Medical 7,000 235
Staar Surgical* 8,000 103
Veterinary Centers of America* 10,000 176
- -------------------------------------------------------
2,899
- -------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (4.3%)
Computer Management Sciences* 3,000 58
Cybercash* 2,500 80
Dendrite International* 2,500 71
Digital Solutions* 17,000 70
Fiserv* 5,000 168
Fore Systems* 12,500 342
Geoworks* 2,500 51
Harris Computer Systems 5,000 76
Intuit 2,500 88
Logicon 3,500 98
Macromedia * 7,500 121
Netscape Communications* 2,000 79
Object Design* 3,750 25
Pixar * 2,000 27
Saville Systems Ireland ADR 15,000 388
Systemsoft Corp* 5,000 91
Vantive 7,000 303
- -------------------------------------------------------
2,136
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
MISCELLANEOUS CONSUMER SERVICES (1.8%)
Corestaff* 9,500 $382
Service International 9,000 496
- -------------------------------------------------------
878
- -------------------------------------------------------
PAPER & PAPER PRODUCTS (0.2%)
Gaylord Container 5,000 33
Repap Enterprises* 12,500 45
- -------------------------------------------------------
78
- -------------------------------------------------------
PETROLEUM & FUEL PRODUCTS (1.5%)
Apache 10,000 284
Benton Oil & Gas 5,000 99
Pride Petroleum Services* 10,000 124
Reading & Bates * 9,000 183
Seagull Energy 4,000 73
- -------------------------------------------------------
763
- -------------------------------------------------------
PETROLEUM REFINING (0.3%)
Valero Energy 7,500 155
- -------------------------------------------------------
155
- -------------------------------------------------------
PRINTING & PUBLISHING (1.2%)
Digital Generations Systems* 12,000 99
Gartner Group, Cl A* 12,000 392
Marvel Entertainment Group 7,500 60
Scientific Games Holdings * 3,000 61
- -------------------------------------------------------
612
- -------------------------------------------------------
PROFESSIONAL SERVICES (1.5%)
Corrections of America* 7,800 242
Medaphis* 5,000 186
Paychex 7,500 343
- -------------------------------------------------------
771
- -------------------------------------------------------
RAILROADS (0.2%)
Hub Group* 5,000 96
- -------------------------------------------------------
96
- -------------------------------------------------------
36
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] JULY 31, 1996
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
RETAIL (8.5%)
Alberto Culver, Cl A 4,000 $ 147
Boston Chicken* 10,500 278
Corporate Express* 5,000 187
Gadzooks* 9,000 218
Garden Ridge* 12,500 155
Home Shopping Network, * 10,000 101
Lone Star Steakhouse & Saloon* 17,000 531
Longhorn Steaks * 5,000 78
Omnicare 34,000 795
Orchard Supply Hardware Stores* 2,700 77
Ross Stores* 5,000 148
Sports Authority* 7,500 151
Staples 30,000 499
Starbucks 5,000 130
Sunglass Hut International* 6,300 75
Viking Office Products* 22,000 649
- --------------------------------------------------------
4,219
- --------------------------------------------------------
RUBBER & PLASTIC (0.3%)
Sealed Air * 5,000 174
- --------------------------------------------------------
174
- --------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (2.8%)
Applied Magnetics* 36,500 424
Atmel 7,500 207
BMC Industries* 13,500 370
Eltron International * 5,000 141
Lernout & Hauspie Speech* 6,500 124
Transwitch 5,000 40
Xilinx 2,500 81
- --------------------------------------------------------
1,387
- --------------------------------------------------------
SPECIALTY MACHINERY (0.6%)
U.S. Filter* 15,000 324
- --------------------------------------------------------
324
- --------------------------------------------------------
STEEL & STEEL WORKS (0.1%)
Align-Rite International* 7,500 73
- --------------------------------------------------------
73
- --------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
TELEPHONES & TELECOMMUNICATION (3.2%)
Cascade Communications* 8,000 $ 492
Spectralink Corp* 5,000 29
Worldcom* 40,780 1,055
- --------------------------------------------------------
1,576
- --------------------------------------------------------
TESTING LABORATORIES (0.5%)
Cellpro * 5,000 67
Martek Biosciences* 2,500 63
Primark * 4,500 122
- --------------------------------------------------------
252
- --------------------------------------------------------
WHOLESALE (3.6%)
Barrett Resources* 6,500 187
Cardinal Health 18,000 1,251
Central Garden and Pet* 2,000 42
Chronimed* 4,500 83
Ha Lo Industries* 7,500 169
Physician Sales and Services 5,000 70
Silicon Storage Technology* 1,500 11
- --------------------------------------------------------
1,813
- --------------------------------------------------------
Total Common Stocks
(Cost $33,351) 38,370
- --------------------------------------------------------
EQUITY OPTIONS (0.1%)
- --------------------------------------------------------
Atmel November 30 Puts* 11/16/96 37
Atmel November 37.50 Calls* 11/16/96 (9)
Fore Systems August 35 Calls* 8/17/96 (1)
Lone Star Steak August 35 Puts* 8/17/96 18
Lone Star Steak August 40 Calls 8/17/96* --
Paychex August 50 Calls* 8/17/96 (1)
Sun Microsystems August 65 Call* 8/17/96 --
Sun Microsystems August 55 Put* 8/17/96 5
- --------------------------------------------------------
Total Equity Options
(Cost $2) 49
- --------------------------------------------------------
37
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (UNAUDITED) (CONT'D)
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
COMMON STOCKS (CONTINUED)
TIME DEPOSIT (22.9%)
Sanwa Bank Limited
5.688%, 08/01/96 $11,446 $11,446
- -------------------------------------------------------
Total Time Deposit
(Cost $11,446) 11,446
- -------------------------------------------------------
Total Investments (99.8%)
(Cost $44,799) 49,865
- -------------------------------------------------------
Other Assets and Liabilities, Net (0.2%) 70
- -------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value) based on
3,995,423 outstanding shares of
beneficial interest 41,618
MARKET
VALUE
(000)
--------
Overdistributed net investment income $ (14)
Accumulated net realized gain on
investments 3,265
Net unrealized appreciation on
investments 5,066
- -------------------------------------------------------
Total Net Assets: (100.0%) $49,935
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $12.50
- -------------------------------------------------------
- -------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
38
<PAGE>
STATEMENT OF NET ASSETS July 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE INTERNATIONAL EQUITY FUND (UNAUDITED)
MARKET
VALUE
SHARES (000)
-----------------
FOREIGN COMMON STOCKS (96.8%)
FINLAND (0.2%)
Nokia, Cl A 3,000 $ 106
- -------------------------------------------------------
106
- -------------------------------------------------------
FRANCE (7.9%)
Accor 1,802 239
Alcatel Alsthom 2,636 216
Banque Nationale Paris 3,854 138
Carrefour 675 370
Castorama 2,118 414
Chargeurs International 770 31
Danone 2,000 299
Elf Aquitaine 2,385 170
Essilor International 750 206
GAN* 5,800 151
Lafarge 2,927 175
LVMH Moet Hennesey 1,800 399
Pathe* 770 184
Peugeot 1,400 169
Schneider 5,000 228
Societe Generale 1,809 200
Valeo 3,536 181
- -------------------------------------------------------
3,770
- -------------------------------------------------------
GERMANY (7.7%)
Allianz 214 393
Bankgesellschaft Berlin 650 137
BASF 8,000 214
Bayer 9,500 319
BMW 400 224
Daimler-Benz* 4,000 212
Degussa 500 166
Deutsche Bank 4,000 203
Gehe 625 387
Karstadt 550 198
Preussag 700 168
RWE 7,500 268
Siemens 7,000 368
Veba 8,000 408
- -------------------------------------------------------
3,665
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
-----------------
HONG KONG (6.0%)
Amoy Properties 200,000 $ 222
Cheung Kong Holdings 85,000 580
Hong Kong & China Gas 150,000 238
Hong Kong Telecommunications 170,000 280
HSBC Holdings 36,341 580
Hutchison Whampoa 75,000 448
New World Development 60,000 273
Swire Pacific, Ser A 30,000 257
- -------------------------------------------------------
2,878
- -------------------------------------------------------
JAPAN (39.4%)
Amada 42,000 401
Amada Metrecs 30,000 405
Asahi Breweries 39,000 435
Asahi Organic Chemical 51,000 377
Best Denki 33,000 482
CSK 16,000 459
Daiwa Securities 36,000 435
Fuji Bank 21,000 413
Fuji Photo Film 15,000 448
Fujisawa Pharmaceutical 48,000 459
Gun-ei Chemicals 90,000 412
Hitachi Cable 54,000 449
Industrial Bank of Japan 17,000 368
Japan Synthetic Rubber 70,000 485
Kamigumi 45,000 404
Kansai Electric Power 16,700 382
Katokichi 20,000 472
Long Term Credit Bank Japan 54,000 385
Maeda 46,000 435
Makita 30,000 464
Matsushita Electric Works 40,000 416
Mitsubishi Electric 63,000 413
Mitsui Marine & Fire 53,000 393
Mitsui Trust & Banking 38,000 413
NGK Insulators 41,000 453
Nomura Securities 21,000 368
Olympus Optical 44,000 429
Organo 44,000 466
Ryobi Limited 78,000 378
Sanden 61,000 455
39
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK]
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
FOREIGN COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
Sanyo Electric 79,000 $ 437
Shinmaywa Industries 48,000 448
Shizuoka Bank 37,000 440
Sumitomo Bank 23,000 422
Sumitomo Trust & Banking 34,000 446
Takara Standard 43,000 471
Tokio Marine & Fire 34,000 424
Tokyo Gas 112,000 399
Tokyo Style 25,000 422
Tomen 120,000 430
Toppan Printing 31,000 427
Toshiba 65,000 428
Toyo Ink 78,000 429
Yamato Transportation 39,000 457
- -------------------------------------------------------
18,834
- -------------------------------------------------------
MALAYSIA (3.3%)
AMMB Holdings 20,000 242
Edaran Otomobil 20,000 193
Malayan Banking 12,000 102
Petronas Gas 60,000 234
Rothmans of Pall Mall 20,000 196
Sime Darby 60,000 174
Telekom Malaysia 20,000 162
United Engineers 20,000 135
YTL 30,000 139
- -------------------------------------------------------
1,577
- -------------------------------------------------------
NETHERLANDS (5.9%)
- -------------------------------------------------------
Aegon 5,052 232
Ahold 5,254 267
Akzo 3,000 337
Elsevier NV 15,000 228
IHC Caland 10,000 490
Phillips Electronics 5,000 166
Royal Dutch Petroleum 1,500 226
Unilever 2,000 285
VNU 15,000 248
Wolters Kluwer 3,000 349
- -------------------------------------------------------
2,828
- -------------------------------------------------------
MARKET
VALUE
SHARES (000)
----------------
PHILIPPINES (0.9%)
Ayala, Ser B 25,000 $ 40
Ayala Land, Ser B 52,000 90
JG Summit Holdings 127,000 44
Manila Electric, Cl B 9,000 66
Metro Bank & Trust 3,750 80
Petron 112,000 45
SM Prime Holdings 185,000 46
- -------------------------------------------------------
411
- -------------------------------------------------------
SINGAPORE (5.7%)
Cerebos Pacific 20,000 160
DBS Land 150,000 474
Development Bank of Singapore 45,000 510
Keppel 30,000 227
Singapore Airlines 50,000 503
Singapore Tech Industrial 100,000 232
Singapore Telecommunications 100,000 245
United Overseas Bank 42,000 369
- -------------------------------------------------------
2,720
- -------------------------------------------------------
SWEDEN (0.6%)
- -------------------------------------------------------
Astra, Ser A 2,500 105
Ericsson, Ser B 5,000 100
Pharmacia 2,000 82
- -------------------------------------------------------
287
- -------------------------------------------------------
SWITZERLAND (5.7%)
ABB AG 300 355
Alusuisse Lonza 250 192
Ciba Geigy 300 356
CS Holdings 3,000 317
Nestle 300 343
Roche Holdings 50 369
SMH PC 400 260
Union Bank of Switzerland 250 242
Zurich Insurance 950 248
- -------------------------------------------------------
2,682
- -------------------------------------------------------
40
<PAGE>
STEPSTONE FUNDS[REGISTERED MARK] July 31, 1996
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND (UNAUDITED) (CONT'D)
MARKET
VALUE
SHARES (000)
-----------------
THAILAND (0.9%)
Advanced Info Service 4,700 $ 57
Bangkok Bank 8,700 103
Electric Generating 26,000 82
PTT Exploration 5,200 65
Siam Commercial Bank 8,200 103
- -------------------------------------------------------
410
- -------------------------------------------------------
UNITED KINGDOM (11.0%)
Assocociated British Ports 50,000 211
British Airport Authority 50,000 357
BTR 75,000 287
Cable & Wireless 60,000 380
General Accident 40,000 391
Glaxo Wellcome 35,000 487
Hanson 75,000 187
Hardy Oil & Gas 40,000 161
Hays PLC 50,000 334
Johnson Matthey 30,000 271
Marks & Spencer 60,000 451
National Grid Group 33,000 90
Prudential 51,212 345
Rexam 50,000 283
RTZ 20,000 289
Southern Electric 30,000 307
Zeneca Group 20,000 433
- -------------------------------------------------------
5,264
- -------------------------------------------------------
UNITED STATES (1.6%)
Latin America Equity Fund 55,000 770
- -------------------------------------------------------
770
- -------------------------------------------------------
Total Foreign Common Stocks
(Cost $43,545) 46,202
- -------------------------------------------------------
FOREIGN PREFERRED STOCK (0.2%)
GERMANY (0.2%)
Jungheinrich 700 93
- -------------------------------------------------------
Total Foreign Preferred Stock
(Cost $164) 93
- -------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
-----------------
REPURCHASE AGREEMENT (2.8%)
J.P. Morgan Securities, 5.50%, dated
07/31/96, matures 08/01/96,
repurchase price $1,345,006
(collateralized by U.S. Treasury Note,
par value 1,395,000, 5.00%, matures
2/15/99: market value $1,381,370) 1,345 $ 1,345
- -------------------------------------------------------
Total Repurchase Agreement
(Cost $1,345) 1,345
- -------------------------------------------------------
Total Investments (99.8%)
(Cost $45,054) 47,640
- -------------------------------------------------------
Other Assets and Liabilities, Net (0.2%) 116
- -------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class (unlimited
authorization -- no par value) based on
1,254,909 outstanding shares of beneficial
interest 42,488
Undistributed net investment
income 304
Accumulated net realized gain on investments 1,771
Accumulated net realized gain on foreign
currency transactions 606
Net unrealized appreciation on foreign
currency and translation of other assets
and liabilities in foreign currency 1
Net unrealized appreciation on
investments 2,586
- -------------------------------------------------------
Total Net Assets: (100.0%) $47,756
- -------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $38.06
- -------------------------------------------------------
- -------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES.
CL -- CLASS
SER -- SERIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
41
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
42
<PAGE>
STATEMENT OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE FUNDS (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------------------
TREASURY CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income $ 11,387 $ 21,568 $1,930
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Administrative Fee 276 514 76
Investment Adviser Fee 643 1,200 178
Investment Adviser Fee Waiver (107) -- (123)
Custodian/Wire Agent Fee 17 40 6
Professional Fees 35 67 7
Registration Fees 35 63 7
Distribution Fee (1) 511 595 160
Distribution Fee Waiver (192) (223) (28)
Insurance Expenses 2 3 1
Trustees Fees 5 7 --
Printing Expenses 25 43 6
Miscellaneous Expenses 30 64 6
Amortization of Deferred Organizational Costs 5 -- --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,285 2,373 296
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income 10,102 19,195 1,634
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments -- -- 1
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $10,102 $19,195 $1,635
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) ALL DISTRIBUTION FEES ARE INCURRED IN THE INVESTMENT CLASS
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
43
<PAGE>
STATEMENT OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE FUNDS (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------------------------
CALIFORNIA
LIMITED INTERMEDIATE
INTERMEDIATE- MATURITY TAX-FREE CONVERTIBLE
TERM BOND GOVERNMENT BOND SECURITIES
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 4,455 $ 1,068 $ 217 $ 292
Dividend Income -- -- -- 96
Less: Foreign Taxes withheld, net of reclaims -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Investment Income 4,455 1,068 217 388
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Administrative Fee 88 23 6 11
Investment Adviser Fee 342 52 22 54
Investment Adviser Fee Waiver -- -- (22) --
Custodian/Wire Agent Fee 3 1 1 2
Professional Fees 7 2 1 1
Registration Fees 13 1 (3) 1
Distribution Fee (1) 12 1 9 --
Distribution Fee Waiver (12) (1) (9) --
Insurance Expense 1 -- -- --
Trustees Fees 1 -- -- --
Printing Expense 5 5 2 1
Miscellaneous Expense 6 6 2 1
Amortization of Deferred Organizational Costs -- 1 -- 5
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 466 91 9 76
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 3,989 977 208 312
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments (1,624) (6) -- 486
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Option Contracts -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Foreign Currency Transactions -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Depreciation
on Investments (6,219) (861) (209) (733)
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Depreciation on Foreign Currency -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on
Investments (7,843) (867) (209) (247)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting from
Operations $ (3,854) $ 110 $ (1) $ 65
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) ALL DISTRIBUTION FEES ARE INCURRED IN THE INVESTMENT CLASS.
</FN>
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------
GOVERNMENT GROWTH VALUE BLUE CHIP
SECURITIES BALANCED EQUITY MOMENTUM GROWTH
FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 1,434 $3,288 $ 263 $ 419 $ 120
Dividend Income -- 1,724 999 2,941 614
Less: Foreign Taxes withheld, net of reclaims -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 1,434 5,012 1,262 3,360 734
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Administrative Fee 30 163 120 159 43
Investment Adviser Fee 115 760 562 744 202
Investment Adviser Fee Waiver -- -- -- -- --
Custodian/Wire Agent Fee 1 13 10 12 4
Professional Fees 5 23 19 20 8
Registration Fees 7 16 12 10 6
Distribution Fee (1) -- 16 6 25 --
Distribution Fee Waiver -- (6) (2) (9) --
Insurance Expense -- 1 1 1 --
Trustees Fees -- 2 2 2 1
Printing Expense 4 10 8 15 5
Miscellaneous Expense 6 26 15 29 12
Amortization of Deferred Organizational Costs 5 -- -- -- 5
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 173 1,024 753 1,008 286
Net Investment Income (Loss) 1,261 3,988 509 2,352 448
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments (648) 9,910 12,136 4,942 1,678
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Option Contracts -- 3 126 -- 294
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Foreign Currency Transactions -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Depreciation
on Investments (2,192) (11,471) (4,825) (559) (2,610)
- -------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Depreciation on Foreign Currency -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on
Investments (2,840) (1,558) 7,437 4,383 (638)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting from
Operations $ (1,579) $2,430 $7,946 $6,735 $ (190)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) ALL DISTRIBUTION FEES ARE INCURRED IN THE INVESTMENT CLASS.
</FN>
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------
EMERGING INTERNATIONAL
GROWTH EQUITY
FUND FUND
- ----------------------------------------------------------------------------------
<S> <C> <C>
Interest Income $ 180 $ 49
Dividend Income 72 594
Less: Foreign Taxes withheld, net of reclaims -- (55)
- ----------------------------------------------------------------------------------
Total Investment Income 252 588
- ----------------------------------------------------------------------------------
Expenses:
Administrative Fee 32 29
Investment Adviser Fee 198 225
Investment Adviser Fee Waiver -- (24)
Custodian/Wire Agent Fee 4 32
Professional Fees 5 3
Registration Fees 3 3
Distribution Fee (1) -- --
Distribution Fee Waiver -- --
Insurance Expense -- --
Trustees Fees 1 1
Printing Expense 4 2
Miscellaneous Expense 8 11
Amortization of Deferred Organizational Costs 5 4
- ----------------------------------------------------------------------------------
TOTAL EXPENSES 260 286
- ----------------------------------------------------------------------------------
Net Investment Income (Loss) (8) 302
- ----------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments 2,733 1,726
- ----------------------------------------------------------------------------------
Net Realized Gain on Option Contracts 58 --
- ----------------------------------------------------------------------------------
Net Realized Gain on Foreign Currency Transactions -- 427
- ----------------------------------------------------------------------------------
Change in Unrealized Depreciation
on Investments (966) (1,701)
- ----------------------------------------------------------------------------------
Change in Unrealized Depreciation on Foreign Currency -- (88)
- ----------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on
Investments 1,825 364
- ----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting from
Operations $ 1,817 $ 666
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) ALL DISTRIBUTION FEES ARE INCURRED IN THE INVESTMENT CLASS.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
44 & 45
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
STEPSTONE FUNDS
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------------------------------
TREASURY CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
------------------------ ------------------------ -------------------------
02/01/96 02/01/95 02/01/96 02/01/95 02/01/96 02/01/95
TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $10,102 $ 16,279 $ 19,195 $ 35,778 $ 1,634 $ 3,776
Net Realized Gain (Loss) on Investments -- 5 -- (13) 1 --
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 10,102 16,284 19,195 35,765 1,635 3,776
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class (4,214) (8,954) (12,296) (26,497) (577) (1,571)
Investment Class (5,888) (7,325) (6,900) (9,276) (1,057) (2,205)
Capital Gains:
Institutional Class -- -- -- -- -- --
Investment Class -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (10,102) (16,279) (19,196) (35,773) (1,634) (3,776)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Net Assets -- 5 (1) (8) 1 --
- ---------------------------------------------------------------------------------------------------------------------------------
Share Transactions (All at $1.00 Per Share):
Institutional Class:
Proceeds from Shares Issued 523,649 1,141,639 1,863,165 3,642,987 139,615 307,913
Reinvestment of Cash Distributions 87 2,164 2,775 12,994 -- 632
Cost of Shares Redeemed (527,302) (1,104,578) (1,823,723) (3,689,649) (144,845) (317,672)
---------- ---------- ---------- ---------- --------- --------
Total Institutional Share Transactions (3,566) 39,225 42,217 (33,668) (5,230) (9,127)
Investment Class:
Proceeds from Shares Issued 370,125 467,443 345,421 420,652 91,842 143,423
Reinvestment of Cash Distributions 5,747 6,283 6,617 8,172 1,051 1,956
Cost of Shares Redeemed (304,804) (387,009) (270,038) (280,481) (90,777) (113,696)
---------- ---------- ---------- ---------- --------- --------
Total Investment Share Transactions 71,068 86,717 82,000 148,343 2,116 31,683
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets From
Share Transactions 67,502 125,942 124,217 114,675 (3,114) 22,556
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 67,502 125,947 124,216 114,667 (3,113) 22,556
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 398,006 272,059 762,688 648,021 124,100 101,544
- ---------------------------------------------------------------------------------------------------------------------------------
End of Period $465,508 $ 398,006 $886,904 $ 762,688 $120,987 $ 124,100
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
46
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
STEPSTONE FUNDS
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------------------------------------------
CALIFORNIA
INTERMEDIATE- LIMITED MATURITY INTERMEDIATE
TERM BOND GOVERNMENT TAX-FREE BOND
FUND FUND FUND
---------------------- ----------------------- ------------------------
02/01/96 02/01/95 02/01/96 02/01/95 02/01/96 02/01/95
TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ 3,989 $ 7,738 $ 977 $ 2,045 $ 208 $ 640
Net Realized Gain (Loss) on Investments (1,624) 3,766 (6) (119) -- (598)
Change in Unrealized Appreciation (Depreciation)
on Investments (6,219) 8,187 (861) 905 (209) 2,004
- -------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting
From Operations (3,854) 19,691 110 2,831 (1) 2,046
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class (3,791) (7,330) (953) (2,021) (104) (429)
Investment Class (164) (383) (18) (42) (103) (224)
Capital Gains:
Institutional Class -- -- -- -- -- --
Investment Class -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (3,955) (7,713) (971) (2,063) (207) (653)
- -------------------------------------------------------------------------------------------------------------------------------
Change in Net Assets (7,809) 11,978 (861) 768 (208) 1,393
- -------------------------------------------------------------------------------------------------------------------------------
Share Transactions:
Institutional Class:
Proceeds from Shares Issued 18,952 42,987 6,314 4,715 2,738 1,685
Reinvestment of Cash Distributions 2,828 7,227 615 2,005 40 18
Cost of Shares Redeemed (11,012) (38,490) (8,809) (5,203) (1,717) (11,244)
-------- -------- -------- -------- -------- --------
Total Institutional Share Transactions 10,768 11,724 (1,880) 1,517 1,061 (9,541)
Investment Class:
Proceeds from Shares Issued 12 78 1,000 41 567 337
Reinvestment of Cash Distributions 164 383 18 42 103 224
Cost of Shares Redeemed (695) (1,297) (1,077) (222) (352) (1,626)
-------- -------- -------- -------- -------- --------
Total Investment Share Transactions (519) (836) (59) (139) 318 (1,065)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets From
Share Transactions 10,249 10,888 (1,939) 1,378 1,379 (10,606)
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 2,440 22,866 (2,800) 2,146 1,171 (9,213)
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 139,359 116,493 36,146 34,000 8,462 17,675
- -------------------------------------------------------------------------------------------------------------------------------
End of Period $141,799 $139,359 $33,346 $36,146 $9,633 $8,462
- -------------------------------------------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Institutional Shares:
Issued 1,869 4,225 661 491 283 178
Issued in Lieu of Cash Distributions 279 710 64 209 4 2
Redeemed (1,083) (3,773) (923) (542) (177) (1,183)
-------- -------- -------- -------- -------- --------
Total Institutional Share Transactions 1,065 1,162 (198) 158 110 (1,003)
INVESTMENT SHARES:
Issued 1 7 103 4 59 35
Issued in Lieu of Cash Distributions 16 38 2 4 11 24
Redeemed (68) (128) (112) (23) (37) (171)
-------- -------- -------- -------- -------- --------
Total Investment Share Transactions (51) (83) (7) (15) 33 (112)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Issued and Redeemed 1,014 1,079 (205) 143 143 (1,115)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
47
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
STEPSTONE FUNDS
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------------------------------------
CONVERTIBLE SECURITIES GOVERNMENT SECURITIES BALANCED
FUND FUND FUND
------------------------ ------------------------ -----------------------
02/01/96 02/01/95 02/01/96 02/01/95 02/01/96 02/01/95
TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ 312 $ 532 $ 1,261 $ 2,188 $ 3,988 $ 6,604
Net Realized Gain (Loss) on Investments 486 (14) (648) 1,661 9,910 6,254
Net Realized Gain (Loss) on Option Contracts -- 1 -- -- 3 104
Net Realized Gain on Foreign Currency Transactions -- -- -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments (733) 1,682 (2,192) 1,677 (11,471) 38,493
Change in Unrealized Appreciation (Depreciation)
on Foreign Currency -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting
From Operations 65 2,201 (1,579) 5,526 2,430 51,455
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class (314) (522) (1,250) (2,167) (3,813) (6,372)
Investment Class -- -- -- -- (119) (235)
Capital Gains:
Institutional Class -- -- -- -- -- (5,794)
Investment Class -- -- -- -- -- (213)
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (314) (522) (1,250) (2,167) (3,932) (12,614)
- -------------------------------------------------------------------------------------------------------------------------------
Change in Net Assets (249) 1,679 (2,829) 3,359 (1,502) 38,841
- -------------------------------------------------------------------------------------------------------------------------------
Share Transactions:
Institutional Class:
Proceeds from Shares Issued 3,620 7,325 10,160 26,500 43,657 66,771
Reinvestment of Cash Distributions 314 522 1,250 2,167 3,627 12,136
Cost of Shares Redeemed (1,740) (3,155) (6,679) (17,479) (26,114) (49,861)
------ ------ ------ ------- ------- -------
Total Institutional Share Transactions 2,194 4,692 4,731 11,188 21,170 29,046
Investment Class:
Proceeds from Shares Issued -- -- -- -- 653 495
Reinvestment of Cash Distributions -- -- -- -- 119 448
Cost of Shares Redeemed -- -- -- -- (1,369) (1,092)
------ ------ ------ ------- ------- -------
Total Investment Share Transactions -- -- -- -- (597) (149)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Share Transactions 2,194 4,692 4,731 11,188 20,573 28,897
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 1,945 6,371 1,902 14,547 19,071 67,738
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 16,668 10,297 46,725 32,178 242,300 174,562
- ------------------------------------------------------------------------------------------------------------------------------
End of Period $ 18,613 $16,668 $48,627 $46,725 $261,371 $242,300
- ------------------------------------------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Institutional Shares:
Issued 334 728 1,074 2,753 3,100 5,157
Issued in Lieu of Cash Distributions 29 53 132 228 257 921
Redeemed (161) (317) (704) (1,829) (1,854) (3,894)
------ ------ ------ ------- ------- -------
Total Institutional Shares Transactions 202 464 502 1,152 1,503 2,184
Investment Shares:
Issued -- -- -- -- 46 37
Issued in Lieu of Cash Distributions -- -- -- -- 9 34
Redeemed -- -- -- -- (97) (88)
------ ------ ------ ------- ------- -------
Total Investment Share Transactions -- -- -- -- (42) (17)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Issued
and Redeemed 202 464 502 1,152 1,461 2,167
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON FEBRUARY 1, 1995.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
48
<PAGE>
<TABLE>
<CAPTION>
(In Thousands)
---------------------------------------------------------------------------
GROWTH EQUITY VALUE MOMENTUM BLUE CHIP GROWTH
FUND FUND FUND
------------------------ ------------------------ ------------------------
02/01/96 02/01/95 02/01/96 02/01/95 02/01/96 02/01/95
TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ 509 $ 1,107 $ 2,352 $ 4,019 $ 448 $ 743
Net Realized Gain (Loss) on Investments 12,136 11,047 4,942 9,006 1,678 3,514
Net Realized Gain (Loss) on Option Contracts 126 182 -- -- 294 (379)
Net Realized Gain on Foreign Currency Transactions -- -- -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments (4,825) 32,685 (559) 52,751 (2,610) 10,866
Change in Unrealized Appreciation (Depreciation)
on Foreign Currency -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting
From Operations 7,946 45,021 6,735 65,776 (190) 14,744
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class (463) (1,121) (2,212) (3,872) (444) (762)
Investment Class (6) (11) (103) (209) -- --
Capital Gains:
Institutional Class -- (9,394) -- (4,808) -- (925)
Investment Class -- (102) -- (258) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (469) (10,628) (2,315) (9,147) (444) (1,687)
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Assets 7,477 34,393 4,420 56,629 (634) 13,057
- ------------------------------------------------------------------------------------------------------------------------------------
Share Transactions:
Institutional Class:
Proceeds from Shares Issued 22,045 33,917 37,547 44,290 11,699 20,422
Reinvestment of Cash Distributions 363 10,453 1,649 8,517 444 1,687
Cost of Shares Redeemed (29,284) (36,487) (28,798) (34,471) (5,848) (10,075)
------- ------- ------- ------- ------ -------
Total Institutional Share Transactions (6,876) 7,883 10,398 18,336 6,295 12,034
Investment Class:
Proceeds from Shares Issued 1,063 683 1,100 870 -- --
Reinvestment of Cash Distributions 4 113 103 467 -- --
Cost of Shares Redeemed (186) (227) (648) (2,351) -- --
------- ------- ------- ------- ------ -------
Total Investment Share Transactions 881 569 555 (1,014) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Share Transactions (5,995) 8,452 10,953 17,322 6,295 12,034
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 1,482 42,845 15,373 73,951 5,661 25,091
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 180,935 138,090 233,866 159,915 63,410 38,319
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period $182,417 $180,935 $249,239 $233,866 $69,071 $63,410
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Institutional Shares:
Issued 1,178 2,017 2,007 2,744 905 1,769
Issued in Lieu of Cash Distributions 19 617 88 515 34 145
Redeemed (1,557) (2,167) (1,521) (2,161) (454) (917)
------- ------- ------- ------- ------ -------
Total Institutional Share Transactions (360) 467 574 1,098 485 997
Investment Shares:
Issued 59 39 59 53 -- --
Issued in Lieu of Cash Distributions -- 7 6 28 -- --
Redeemed (10) (13) (35) (157) -- --
------- ------- ------- ------- ------ -------
Total Investment Share Transactions 49 33 30 (76) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Issued and Redeemed (311) 500 604 1,022 485 997
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON FEBRUARY 1, 1995.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
(In Thousands)
--------------------------------------------------
INTERNATIONAL
EMERGING GROWTH EQUITY
FUND FUND
------------------------ ------------------------
02/01/96 02/01/95 02/01/96 02/01/95(1)
TO 07/31/96 TO 01/31/96 TO 07/31/96 TO 01/31/96
(UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ (8) $ 70 $ 302 $ 519
Net Realized Gain (Loss) on Investments 2,733 1,020 1,726 167
Net Realized Gain (Loss) on Option Contracts 58 (107) -- --
Net Realized Gain on Foreign Currency Transactions -- -- -- 42
Change in Unrealized Appreciation (Depreciation)
on Investments (966) 7,122 (1,701) 4,287
Change in Unrealized Appreciation (Depreciation)
on Foreign Currency -- -- (88) 89
- -------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,817 8,105 666 5,241
- -------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class (4) (88) -- (517)
Investment Class -- -- -- --
Capital Gains:
Institutional Class -- (867) -- (122)
Investment Class -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (4) (955) -- (639)
- -------------------------------------------------------------------------------------------------------------
Change in Net Assets 1,813 7,150 666 4,602
- -------------------------------------------------------------------------------------------------------------
Share Transactions:
Institutional Class:
Proceeds from Shares Issued 13,330 17,160 5,425 44,605
Reinvestment of Cash Distributions 4 955 -- 639
Cost of Shares Redeemed (6,982) (7,423) (2,523) (5,658)
------ ------ ------ ------
Total Institutional Share Transactions 6,352 10,692 2,902 39,586
Investment Class:
Proceeds from Shares Issued -- -- -- --
Reinvestment of Cash Distributions -- -- -- --
Cost of Shares Redeemed -- -- -- --
------ ------ ------ ------
Total Investment Share Transactions -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Share Transactions 6,352 10,692 2,902 39,586
- -------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 8,165 17,842 3,568 44,188
- -------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 41,770 23,928 44,188 --
- -------------------------------------------------------------------------------------------------------------
End of Period $49,935 $41,770 $47,756 $44,188
- -------------------------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Institutional Shares:
Issued 1,023 1,579 141 1,320
Issued in Lieu of Cash Distributions -- 84 -- 18
Redeemed (525) (704) (65) (159)
------ ------ ------ ------
Total Institutional Share Transactions 498 959 76 1,179
Investment Shares:
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
------ ------ ------ ------
Total Investment Share Transactions -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Issued and Redeemed 498 959 76 1,179
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON FEBRUARY 1, 1995.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
49
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STEPSTONE FUNDS
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ------------------------- ---------------------- NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET CONTRIBUTION VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL OF END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL OF PERIOD RETURN (000)
- ------------------------------------------------------------------------------------------------------------------
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.00 0.024 -- (0.024) -- -- 1.00 4.88%* 178,720
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.054 -- (0.054) -- -- 1.00 5.52% 182,286
1995 1.00 0.039 -- (0.039) -- -- 1.00 3.97% 143,035
1994 1.00 0.027 -- (0.027) -- -- 1.00 2.75% 170,879
1993 (1) 1.00 0.005 -- (0.005) -- -- 1.00 2.90%* 125,673
INVESTMENT CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.00 0.023 -- (0.023) -- -- 1.00 4.62%* 286,788
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.051 -- (0.051) -- -- 1.00 5.26% 215,720
1995 1.00 0.036 -- (0.036) -- -- 1.00 3.71% 129,024
1994 (2) 1.00 0.022 -- (0.022) -- -- 1.00 2.51%* 29,188
- -----------------
MONEY MARKET FUND
- -----------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.00 0.024 -- (0.024) -- -- 1.00 4.90%* 545,296
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.054 -- (0.054) -- -- 1.00 5.57% 503,080
1995 1.00 0.039 (0.001) (0.039) -- 0.001 1.00 3.99% 536,754
1994 1.00 0.029 -- (0.029) -- -- 1.00 2.99% 498,795
1993 1.00 0.035 -- (0.035) -- -- 1.00 3.61% 521,664
1992 (3) 1.00 0.057 -- (0.057) -- -- 1.00 5.86% 240,341
INVESTMENT CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.00 0.023 -- (0.023) -- -- 1.00 4.66%* 341,608
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.052 -- (0.052) -- -- 1.00 5.31% 259,608
1995 1.00 0.037 -- (0.037) -- -- 1.00 3.78% 111,267
1994 1.00 0.027 -- (0.027) -- -- 1.00 2.77% 86,291
1993 1.00 0.033 -- (0.033) -- -- 1.00 3.36% 79,253
1992 (4) 1.00 0.036 -- (0.036) -- -- 1.00 4.74%* 144,086
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES RATIO OF INCOME TO
RATIO TO AVERAGE NET INVESTMENT AVERAGE
OF EXPENSES NET ASSETS INCOME NET ASSETS
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS
- ------------------------------------------------------------------
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
<S> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.45%* 0.50%* 4.86%* 4.81%*
FOR THE YEARS ENDED JANUARY 31,:
1996 0.45% 0.50% 5.37% 5.32%
1995 0.44% 0.51% 3.85% 3.78%
1994 0.45% 0.55% 2.72% 2.62%
1993 (1) 0.45%* 0.55%* 2.81%* 2.71%*
INVESTMENT CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.70%* 0.90%* 4.61%* 4.41%*
FOR THE YEARS ENDED JANUARY 31,:
1996 0.70% 0.90% 5.10% 4.90%
1995 0.69% 0.90% 4.04% 3.83%
1994 (2) 0.71%* 0.96%* 2.45%* 2.20%*
- -----------------
MONEY MARKET FUND
- -----------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.50%* 0.50%* 4.89%* 4.89%*
FOR THE YEARS ENDED JANUARY 31,:
1996 0.50% 0.50% 5.43% 5.43%
1995 0.50% 0.50% 3.93% 3.93%
1994 0.49% 0.49% 2.93% 2.93%
1993 0.46% 0.46% 3.47% 3.47%
1992 (3) 0.48% 0.51% 5.68% 5.65%
INVESTMENT CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.75%* 0.90%* 4.64%* 4.49%*
FOR THE YEARS ENDED JANUARY 31,:
1996 0.75% 0.90% 5.16% 5.01%
1995 0.70% 0.90% 3.79% 3.59%
1994 0.70% 0.89% 2.71% 2.52%
1993 0.69% 0.86% 3.41% 3.24%
1992 (4) 0.67%* 0.70%* 4.95%* 4.92%*
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
(1) COMMENCED OPERATIONS ON DECEMBER 1, 1992.
(2) COMMENCED OPERATIONS ON MARCH 5, 1993.
(3) COMMENCED OPERATIONS ON FEBRUARY 1, 1991.
(4) COMMENCED OPERATIONS ON MAY 28, 1991.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
50
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ------------------------- ------------------ NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.00 0.015 -- (0.015) -- 1.00 2.99%* 37,693
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.034 -- (0.034) -- 1.00 3.48% 42,923
1995 1.00 0.026 -- (0.026) -- 1.00 2.67% 52,050
1994 1.00 0.021 -- (0.021) -- 1.00 2.13% 52,982
1993 1.00 0.025 -- (0.025) -- 1.00 2.61% 45,521
1992 (5) 1.00 0.025 -- (0.025) -- 1.00 3.75%* 30,567
INVESTMENT CLASS(**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.00 0.013 -- (0.013) -- 1.00 2.66%* 83,294
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.031 -- (0.031) -- 1.00 3.14% 81,177
1995 1.00 0.023 -- (0.023) -- 1.00 2.33% 49,494
1994 1.00 0.018 -- (0.018) -- 1.00 1.80% 52,220
1993 1.00 0.022 -- (0.022) -- 1.00 2.27% 8,542
1992 (6) 1.00 0.021 -- (0.021) -- 1.00 3.24%* 8,246
- ---------------------------
INTERMEDIATE-TERM BOND FUND
- ---------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 10.62 0.292 (0.591) (0.291) -- 10.03 (2.81%) 136,250
FOR THE YEARS ENDED JANUARY 31,:
1996 9.67 0.609 0.951 (0.609) -- 10.62 16.58% 132,942
1995 10.72 0.589 (1.034) (0.590) (0.015) 9.67 (4.11%) 109,848
1994 10.57 0.598 0.352 (0.595) (0.205) 10.72 9.22% 130,308
1993 10.49 0.650 0.409 (0.636) (0.343) 10.57 10.47% 112,806
1992 (3) 10.00 0.750 0.603 (0.745) (0.118) 10.49 14.05% 76,779
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 10.61 0.295 (0.591) (0.291) -- 10.02 (2.81%) 5,549
FOR THE YEARS ENDED JANUARY 31,:
1996 9.67 0.609 0.940 (0.609) -- 10.61 16.48% 6,417
1995 10.72 0.589 (1.034) (0.590) (0.015) 9.67 (4.11%) 6,645
1994 10.57 0.615 0.335 (0.595) (0.205) 10.72 9.23% 9,308
1993 (11) 10.49 0.609 0.450 (0.636) (0.343) 10.57 10.59%* 2,897
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES RATIO OF INCOME TO
RATIO TO AVERAGE NET INVESTMENT AVERAGE
OF EXPENSES NET ASSETS INCOME NET ASSETS PORTFOLIO
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- ------------------------------------------------------------------------------
- --------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- --------------------------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.28%* 0.48%* 2.99%* 2.79%* --
FOR THE YEARS ENDED JANUARY 31,:
1996 0.28% 0.49% 3.43% 3.22% --
1995 0.29% 0.50% 2.66% 2.45% --
1994 0.30% 0.54% 2.09% 1.85% --
1993 0.30% 0.54% 2.53% 2.29% --
1992 (5) 0.30%* 0.57%* 3.82%* 3.55%* --
INVESTMENT CLASS(**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.61%* 0.88%* 2.64%* 2.37%* --
FOR THE YEARS ENDED JANUARY 31,:
1996 0.61% 0.88% 3.09% 2.82% --
1995 0.62% 0.90% 2.33% 2.05% --
1994 0.63% 0.94% 1.76% 1.45% --
1993 0.63% 0.94% 2.21% 1.90% --
1992 (6) 0.61%* 0.88%* 3.44%* 3.17%* --
- ---------------------------
INTERMEDIATE-TERM BOND FUND
- ---------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.68%* 0.68%* 5.83%* 5.83%* 69%
FOR THE YEARS ENDED JANUARY 31,:
1996 0.68% 0.68% 5.97% 5.97% 147%
1995 0.71% 0.71% 5.89% 5.89% 95%
1994 0.69% 0.69% 5.56% 5.56% 72%
1993 0.67% 0.67% 6.16% 6.16% 88%
1992 (3) 0.72% 0.75% 7.37% 7.34% 126%
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.68%* 1.08%* 5.81%* 5.41%* 69%
FOR THE YEARS ENDED JANUARY 31,:
1996 0.68% 1.09% 5.99% 5.58% 147%
1995 0.71% 1.11% 5.87% 5.47% 95%
1994 0.69% 1.09% 5.51% 5.11% 72%
1993 (11) 0.65%* 1.05%* 6.01%* 5.61%* 88%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(3) COMMENCED OPERATIONS ON FEBRUARY 1, 1991.
(5) COMMENCED OPERATIONS ON JUNE 10, 1991.
(6) COMMENCED OPERATIONS ON JUNE 25, 1991.
(11) COMMENCED OPERATIONS ON FEBRUARY 3, 1992.
</FN>
</TABLE>
51
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STEPSTONE FUNDS
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ------------------------- ------------------ NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- --------------------------------------------------------------------------------------------------------
- --------------------------------
LIMITED MATURITY GOVERNMENT FUND
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 9.70 0.265 (0.231) (0.264) -- 9.47 0.37% 32,797
FOR THE YEARS ENDED JANUARY 31,:
1996 9.49 0.556 0.216 (0.561) -- 9.70 8.34% 35,518
1995 10.00 0.441 (0.517) (0.434) -- 9.49 (0.73%) 33,249
1994 (12) 10.00 0.253 0.004 (0.257) -- 10.00 3.56%* 33,982
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 9.71 0.272 (0.238) (0.264) -- 9.48 0.37% 549
FOR THE YEARS ENDED JANUARY 31,:
1996 9.50 0.562 0.208 (0.561) -- 9.71 8.33% 628
1995 10.01 0.454 (0.530) (0.434) -- 9.50 (0.73%) 751
1994 (13) 9.98 0.163 0.018 (0.151) -- 10.01 4.04%* 3,148
- -------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- -------------------------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 9.85 0.214 (0.222) (0.222) -- 9.62 (0.06%) 5,159
FOR THE YEARS ENDED JANUARY 31,:
1996 8.95 0.518 0.873 (0.487) -- 9.85 15.83% 4,196
1995 10.04 0.460 (1.098) (0.452) -- 8.95 (6.33%) 12,793
1994 (14) 10.00 0.117 0.028 (0.105) -- 10.04 5.01%* 22,197
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 9.84 0.224 (0.242) (0.222) -- 9.60 (0.16%) 4,474
FOR THE YEARS ENDED JANUARY 31,:
1996 8.94 0.470 0.918 (0.487) -- 9.84 15.84% 4,266
1995 10.03 0.439 (1.077) (0.452) -- 8.94 (6.33%) 4,882
1994 (14) 10.00 0.115 0.020 (0.105) -- 10.03 4.67%* 2,830
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES RATIO OF INCOME TO
RATIO TO AVERAGE NET INVESTMENT AVERAGE
OF EXPENSES NET ASSETS INCOME NET ASSETS PORTFOLIO
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- -----------------------------------------------------------------------------
- --------------------------------
LIMITED MATURITY GOVERNMENT FUND
- --------------------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.52%* 0.52%* 5.60%* 5.60%* 56%
FOR THE YEARS ENDED JANUARY 31,:
1996 0.53% 0.53% 5.80% 5.80% 186%
1995 0.55% 0.55% 4.54% 4.54% 166%
1994 (12) 0.58%* 0.58%* 3.49%* 3.49%* 77%
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.52%* 0.92%* 5.60%* 5.20%* 56%
FOR THE YEARS ENDED JANUARY 31,:
1996 0.53% 0.93% 5.80% 5.40% 186%
1995 0.51% 0.91% 4.36% 3.96% 166%
1994 (13) 0.75%* 1.15%* 3.41%* 3.01%* 77%
- ------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.21%* 0.71%* 4.65%* 4.15%* 0%
FOR THE YEARS ENDED JANUARY 31,:
1996 0.24% 0.71% 4.97% 4.50% 30%
1995 0.50% 0.72% 4.84% 4.62% 22%
1994 (14) 0.50%* 0.73%* 4.31%* 4.08%* 19%
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.21%* 1.11%* 4.65%* 3.75%* 0%
FOR THE YEARS ENDED JANUARY 31,:
1996 0.23% 1.12% 4.93% 4.04% 30%
1995 0.50% 1.12% 4.92% 4.30% 22%
1994 (14) 0.50%* 1.13%* 4.26%* 3.63%* 19%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(12) COMMENCED OPERATIONS ON MAY 7, 1993.
(13) COMMENCED OPERATIONS ON AUGUST 18, 1993.
(14) COMMENCED OPERATIONS ON OCTOBER 15, 1993.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ------------------------- ------------------ NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- -----------------------------------------------------------------------------------------------------
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 10.43 0.184 (0.087) (0.187) -- 10.34 0.88% 18,613
FOR THE YEARS ENDED JANUARY 31,:
1996 9.08 0.407 1.350 (0.404) -- 10.43 19.67% 16,668
1995 (9) 10.00 0.354 (0.930) (0.343) -- 9.08 (5.83%) 10,297
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 9.94 0.256 (0.591) (0.255) -- 9.35 (3.37%) 48,627
FOR THE YEARS ENDED JANUARY 31,:
1996 9.07 0.556 0.870 (0.556) -- 9.94 16.16% 46,725
1995 (9) 10.00 0.491 (0.950) (0.475) -- 9.07 (4.49%) 32,178
- -------------
BALANCED FUND
- -------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 13.92 0.219 (0.072) (0.217) -- 13.85 1.04% 253,580
FOR THE YEARS ENDED JANUARY 31,:
1996 11.45 0.415 2.831 (0.417) (0.362) 13.92 28.93% 233,878
1995 12.21 0.390 (0.756) (0.391) (0.003) 11.45 (2.95%) 167,434
1994 11.50 0.394 0.928 (0.391) (0.221) 12.21 11.79% 152,189
1993 11.15 0.413 0.543 (0.408) (0.198) 11.50 8.86% 100,474
1992 (3) 10.00 0.471 1.250 (0.465) (0.106) 11.15 17.69% 67,098
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 13.91 0.205 (0.064) (0.201) -- 13.85 0.99% 7,791
FOR THE YEARS ENDED JANUARY 31,:
1996 11.45 0.406 2.825 (0.406) (0.362) 13.91 28.73% 8,422
1995 12.21 0.393 (0.758) (0.392) (0.003) 11.45 (2.95%) 7,128
1994 11.50 0.397 0.925 (0.391) (0.221) 12.21 11.79% 7,292
1993 (10) 11.30 0.092 0.404 (0.098) (0.198) 11.50 4.45%* 425
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES RATIO OF INCOME TO
RATIO TO AVERAGE NET INVESTMENT AVERAGE
OF EXPENSES NET ASSETS INCOME NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER COMMISSION
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE RATE (A)
- -------------------------------------------------------------------------------------
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.85%* 0.85%* 3.49%* 3.49%* 48% $0.0600
FOR THE YEARS ENDED JANUARY 31,:
1996 0.85% 0.85% 4.14% 4.14% 46% n/a
1995 (9) 0.85% 0.85% 3.87% 3.87% 36% n/a
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.75%* 0.75%* 5.47%* 5.47%* 99% $0.0600
FOR THE YEARS ENDED JANUARY 31,:
1996 0.75% 0.75% 5.89% 5.89% 239% n/a
1995 (9) 0.75% 0.75% 5.46% 5.46% 184% n/a
- -------------
BALANCED FUND
- -------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.80%* 0.80%* 3.16%* 3.16%* 16% $0.0589
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 0.80% 3.20% 3.20% 26% n/a
1995 0.80% 0.80% 3.41% 3.41% 48% n/a
1994 0.69% 0.79% 3.35% 3.25% 49% n/a
1993 0.69% 0.79% 3.72% 3.62% 68% n/a
1992 (3) 0.78% 0.91% 4.44% 4.31% 56% n/a
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.05%* 1.20%* 2.91%* 2.76%* 16% $0.0589
FOR THE YEARS ENDED JANUARY 31,:
1996 0.89% 1.20% 3.12% 2.81% 26% n/a
1995 0.79% 1.19% 3.41% 3.01% 48% n/a
1994 0.69% 1.19% 3.26% 2.76% 49% n/a
1993 (10) 0.60%* 1.10%* 3.20%* 2.70%* 68% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL YEARS
BEGINNING AFTER SEPTEMBER 1, 1995.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(3) COMMENCED OPERATIONS ON FEBRUARY 1, 1991.
(9) COMMENCED OPERATIONS ON FEBRUARY 1, 1994.
(10) COMMENCED OPERATIONS ON NOVEMBER 13, 1992.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
53
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
STEPSTONE FUNDS
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ------------------------- ------------------ NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- ----------------------------------------------------------------------------------------------------
- ------------------
GROWTH EQUITY FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional Class
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 17.62 0.051 0.696 (0.047) -- 18.32 4.23% 179,086
FOR THE YEARS ENDED JANUARY 31,:
1996 14.13 0.115 4.483 (0.118) (0.993) 17.62 32.93% 178,590
1995 15.16 0.097 (0.854) (0.092) (0.181) 14.13 (4.98%) 136,668
1994 13.79 0.066 1.370 (0.066) -- 15.16 10.48% 142,661
1993 12.69 0.091 1.101 (0.092) -- 13.79 9.48% 122,529
1992 (3) 10.00 0.103 2.703 (0.102) (0.014) 12.69 28.28% 93,260
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 17.61 0.028 0.694 (0.032) -- 18.30 4.10% 3,331
FOR THE YEARS ENDED JANUARY 31,:
1996 14.13 0.101 4.480 (0.109) (0.993) 17.61 32.79% 2,345
1995 15.19 0.097 (0.884) (0.092) (0.181) 14.13 (5.17%) 1,422
1994 13.80 0.064 1.392 (0.066) -- 15.19 10.61% 1,243
1993 12.69 0.099 1.103 (0.092) -- 13.80 9.56% 43
1992 (7) 11.76 0.019 0.948 (0.023) (0.014) 12.69 39.11%* 13
- -------------------
VALUE MOMENTUM FUND
- -------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 18.05 0.178 0.327 (0.175) -- 18.38 2.78% 236,674
FOR THE YEARS ENDED JANUARY 31,:
1996 13.40 0.331 5.063 (0.337) (0.408) 18.05 40.88% 222,065
1995 14.27 0.318 (0.817) (0.317) (0.054) 13.40 (3.48%) 150,138
1994 12.76 0.292 1.538 (0.290) (0.030) 14.27 14.56% 140,609
1993 11.68 0.310 1.103 (0.311) (0.022) 12.76 12.33% 92,636
1992 (3) 10.00 0.312 1.694 (0.302) (0.024) 11.68 20.27% 51,682
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 18.05 0.155 0.328 (0.153) -- 18.38 2.66% 12,565
FOR THE YEARS ENDED JANUARY 31,:
1996 13.40 0.320 5.060 (0.323) (0.408) 18.05 40.77% 11,801
1995 14.27 0.321 (0.820) (0.317) (0.054) 13.40 (3.48%) 9,777
1994 12.75 0.297 1.543 (0.290) (0.030) 14.27 14.65% 9,346
1993 (8) 11.52 0.246 1.257 (0.251) (0.022) 12.75 15.97%* 3,162
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES RATIO OF INCOME TO
RATIO TO AVERAGE NET INVESTMENT AVERAGE
OF EXPENSES NET ASSETS INCOME NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER COMMISSION
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE RATE (A)
- ------------------------------------------------------------------------------------
- ------------------
GROWTH EQUITY FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional Class
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.80%* 0.80%* 0.55%* 0.55%* 9% $0.0572
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 0.80% 0.68% 0.68% 24% n/a
1995 0.78% 0.78% 0.69% 0.69% 22% n/a
1994 0.77% 0.79% 0.48% 0.46% 45% n/a
1993 0.68% 0.78% 0.74% 0.64% 23% n/a
1992 (3) 0.72% 0.85% 0.90% 0.77% 26% n/a
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.05%* 1.20%* 0.30%* 0.15%* 9% $0.0572
FOR THE YEARS ENDED JANUARY 31,:
1996 0.89% 1.19% 0.60% 0.30% 24% n/a
1995 0.78% 1.17% 0.69% 0.30% 22% n/a
1994 0.77% 1.18% 0.48% 0.07% 45% n/a
1993 0.67% 1.17% 0.69% 0.19% 23% n/a
1992 (7) 0.83%* 0.96%* 0.79%* 0.66%* 26% n/a
- -------------------
VALUE MOMENTUM FUND
- -------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.80%* 0.80%* 1.91%* 1.91%* 4% $0.0569
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 0.80% 2.07% 2.07% 20% n/a
1995 0.81% 0.81% 2.36% 2.36% 6% n/a
1994 0.77% 0.79% 2.19% 2.17% 5% n/a
1993 0.68% 0.78% 2.59% 2.49% 3% n/a
1992 (3) 0.78% 0.91% 2.88% 2.75% 5% n/a
INVESTMENT CLASS (**)
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.05%* 1.20%* 1.66%* 1.51%* 4% $0.0569
FOR THE YEARS ENDED JANUARY 31,:
1996 0.89% 1.20% 2.00% 1.69% 20% n/a
1995 0.81% 1.21% 2.37% 1.97% 6% n/a
1994 0.77% 1.20% 2.12% 1.69% 5% n/a
1993 (8) 0.65%* 1.15%* 2.53%* 2.03%* 3% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL YEARS
BEGINNING AFTER SEPTEMBER 1, 1995.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(3) COMMENCED OPERATIONS ON FEBRUARY 1, 1991.
(7) COMMENCED OPERATIONS ON NOVEMBER 14, 1991.
(8) COMMENCED OPERATIONS ON APRIL 2, 1992.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
54
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ------------------------- ------------------ NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- ----------------------------------------------------------------------------------------------------
- ---------------------
BLUE CHIP GROWTH FUND
- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 12.63 0.081 (0.076) (0.085) -- 12.55 0.02% 69,071
FOR THE YEARS ENDED JANUARY 31,:
1996 9.53 0.174 3.311 (0.180) (0.203) 12.63 36.95% 63,410
1995 (9) 10.00 0.167 (0.479) (0.158) -- 9.53 (3.10%) 39,319
- -------------------------
EMERGING GROWTH FUND
- -------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 11.94 (0.002) 0.563 (0.001) -- 12.50 4.70% 49,935
FOR THE YEARS ENDED JANUARY 31,:
1996 9.42 0.026 2.807 (0.033) (0.277) 11.94 30.24% 41,770
1995 (9) 10.00 0.086 (0.535) (0.080) (0.051) 9.42 (4.48%) 23,928
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 37.49 0.223 0.347 -- -- 38.06 1.52% 47,756
FOR THE YEAR ENDED JANUARY 31,:
1996 (15) 33.51 0.447 4.084 (0.446) (0.105) 37.49 13.56% 44,188
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
INVESTMENT ACTIVITIES DISTRIB RATIO OF NET INVESTMENT
NET ------------------------- ---------- EXPENSES RATIO OF INCOME TO
ASSET NET REALIZED RATIO TO AVERAGE NET INVESTMENT AVERAGE
VALUE, NET AND UNREALIZED NET OF EXPENSES NET ASSETS INCOME NET ASSETS PORTFOLIO AVERAGE
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENTTO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER COMMISSION
OF PERIOD INCOME ON INVESTMENTS INCOME NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE RATE (A)
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------
BLUE CHIP GROWTH FUND
- ---------------------
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 0.85%* 0.85%* 1.33%* 1.33%* 29% $0.0574
FOR THE YEARS ENDED JANUARY 31,:
1996 0.83% 0.83% 1.54% 1.54% 69% n/a
1995 (9) 0.85% 0.85% 1.84% 1.84% 89% n/a
- --------------------
EMERGING GROWTH FUND
- --------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.05%* 1.05%* (0.03%)* (0.03%)* 71% $0.0511
FOR THE YEARS ENDED JANUARY 31,:
1996 1.05% 1.05% 0.22% 0.22% 131% n/a
1995 (9) 1.05% 1.05% 1.01% 1.01% 123% n/a
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
INSTITUTIONAL CLASS
FOR THE SIX MONTH PERIOD ENDED JULY 31, (UNAUDITED):
1996 1.20%* 1.30%* 1.28%* 1.18%* 21% $0.0232
FOR THE YEAR ENDED JANUARY 31,:
1996 (15) 1.16% 1.36% 1.31% 1.11% 21% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL YEARS
BEGINNING AFTER SEPTEMBER 1, 1995.
* ANNUALIZED
(9) COMMENCED OPERATIONS ON FEBRUARY 1, 1994.
(15) COMMENCED OPERATIONS ON FEBRUARY 1, 1995.
</FN>
</TABLE>
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
STEPSTONE FUNDS (UNAUDITED)
1. Organization
Stepstone Funds (the "Trust" or the "Fund") was organized as a Massachusetts
business trust under a Declaration of Trust dated October 16, 1990.
The Trust is registered under the Investment Company Act of 1940, as amended, as
a diversified open-end investment company with fourteen funds: the Treasury
Money Market Fund, the Money Market Fund and the California Tax-Free Money
Market Fund (the "Money Market Funds") and the Intermediate-Term Bond Fund, the
Limited Maturity Government Fund, the California Intermediate Tax-Free Bond
Fund, the Convertible Securities Fund, the Government Securities Fund, the
Balanced Fund, the Growth Equity Fund, the Value Momentum Fund, the Blue Chip
Growth Fund, the Emerging Growth Fund, and the International Equity Fund (the
"Non-Money Market Funds"). The Trust is registered to offer two classes of
shares, Institutional and Investment. The Funds' prospectus provides a
description of each Fund's investment objectives, policies and strategies.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Trust.
SECURITY VALUATION -- Investment securities held by the Money Market Funds
are stated at amortized cost, which approximates market value. Under this
valuation method, purchase discounts and premiums are accreted and
amortized ratably to maturity and are included in interest income.
Investments in equity securities held by the Non-Money Market Funds which
are traded on a national securities exchange (or reported on the NASDAQ
national market system) are stated at the last quoted sales price if
readily available for such equity securities on each business day; other
equity securities traded in the over-the-counter market and listed equity
securities for which no sale was reported on that date are stated at the
last quoted bid price. Option contracts are valued at the last quoted bid
price as quoted on the primary exchange or board of trade which such option
contracts are traded. Debt obligations exceeding sixty days to maturity for
which market quotations are readily available are valued at the most
recently quoted bid price. Debt obligations with sixty days or less
remaining until maturity may be valued at their amortized cost. Restricted
securities for which quotations are not readily available are valued at
fair value using methods determined in good faith under general Trustee
supervision.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International
Equity Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars on the following basis: (I) market value of
investment securities, other assets and liabilities at the current rate of
exchange; and (II) purchases and sales of investment securities, income and
expenses at the relevant rates of exchange prevailing on the respective
dates of such transactions.
The International Equity Fund does not isolate the portion of gains and
losses on investments in securities that is due to changes in the foreign
exchange rates from that which is due to changes in market prices of such
securities.
The International Equity Fund reports gains and losses on foreign currency
related transactions as realized and unrealized gains and losses for
financial reporting purposes, whereas such gains and losses are treated as
ordinary income or loss for U.S. Federal income tax purposes.
FEDERAL INCOME TAXES -- It is each Fund's intention to continue to qualify
as a regulated investment company for Federal income tax purposes and
distribute all of its taxable income and net capital gains. Accordingly, no
provision for Federal income taxes is required.
The International Equity Fund may be subject to taxes imposed by countries
in which it invests with respect to its investments in issuers existing or
operating in such countries. Such taxes are generally based on either
income earned or repatriated. The International Equity Fund accrues such
taxes when the related income is earned.
56
<PAGE>
JULY 31, 1996
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated
each business day for each Fund. In general, it is computed by dividing the
assets of the Fund, less its liabilities, by the number of outstanding
shares of the Fund.
DISCOUNTS AND PREMIUMS -- Discounts and premiums are accreted or amortized
over the life of each security and are recorded as interest income for each
of the Funds using a method which approximates the effective interest
method.
CLASSES -- Class specific expenses are borne by that class. Income,
non-class specific expenses and realized/unrealized gains and losses are
allocated to the respective classes on the basis of the relative daily net
assets.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for Repurchase
Agreements are held by the custodian bank until the respective agreements
mature. Provisions of repurchase agreements and procedures adopted by the
Adviser ensure that the market value of the collateral is sufficient in the
event of default by the counterparty. If the counterparty defaults and the
value of the collateral declines or if the counterparty enters an
insolvency proceeding, realization of the collateral by the fund may be
delayed or limited.
OPTIONS TRANSACTIONS -- In order to produce incremental earnings, protect
gains, and facilitate buying and selling of securities for investment
purposes, the Growth Equity Fund, the Value Momentum Fund, the Blue Chip
Growth Fund, the Emerging Growth Fund, the Balanced and International
Equity Fund may write covered call options. A risk in writing a call option
is that the fund gives up the opportunity of profit if the market price of
the underlying security increases.
The Fund realizes a gain upon the expiration of a written call option. When
a written call option is closed prior to expiration by being exercised, the
proceeds on the sale are increased by the amount of original premium
received.
The Blue Chip Growth Fund, Emerging Growth Fund, the Balanced Fund and
International Equity may purchase options with respect to securities that
are permitted investments. The risk in purchasing options is limited to the
premium paid.
The Fund recognizes a gain when the underlying securities' market price
rises (in case of a call) or falls (in case of a put) to the extent
sufficient to cover the option premium and transaction costs.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Costs used in determining realized gains and losses on the sale of
investment securities are those of the specific securities sold adjusted
for the accretion and amortization of purchase discounts and premiums
during the respective holding periods. Interest income is recorded on the
accrual basis; dividend income is recorded on the ex-dividend date.
DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income for
the money market funds and the Limited Maturity Government Fund are
declared daily and paid monthly. Each of the non-money market funds except
the Limited Maturity Government Fund and the International Equity Fund
declare and pay dividends from net investment income monthly. Any net
realized capital gains will be distributed at least annually for all Funds.
RECLASSIFICATION ON COMPONENTS OF NET ASSETS -- In accordance with
Statement of Position 93-2, "Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distribution by Investment Companies", $201,146, $134,711, $178,166 and
$111,110 relating to differences attributable to the classification of
short-term capital gains and net investment income for tax distribution
purposes of the Growth Equity, Value Momentum, Balanced and
Intermediate-Term Bond Funds, respectively, as of January 31, 1996 have
been reclassified between the Fund's accumulated net realized gains/losses
and undistributed net income accounts, as appropriate. These
reclassifications had no effect on net asset value.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STEPSTONE FUNDS (UNAUDITED)
3. Transactions with Affiliates and Organization Costs
SEI Fund Resources (the "Administrator"), a Delaware business trust, serves as
Administrator to the Company. SEI Financial Management Corporation, a
wholly-owned subsidiary of SEI Corporation, is the owner of all beneficial
interest in the Administrator. The Trust and the Administrator are parties to an
Administration Agreement (the "Agreement") dated January 30, 1991, under which
the Administrator provides the Trust with management, administrative and
shareholder services for an annual fee of .15% on the first $1 billion of
aggregate net assets, .12% on the aggregate net assets from $1 billion to $2
billion, and .10% on the aggregate net assets in excess of $2 billion. The
Administrator's fee is allocated to the funds based on the percentage of each
Fund's average net assets to the total average net assets of the Trust.
SEI Financial Services Company (the "Distributor") and the Trust are parties to
a distribution agreement dated January 30, 1991. No compensation is paid to the
Distributor for services rendered to the Institutional Class under this
agreement. The Trust has adopted a Distribution Plan (the "Plan") on behalf of
the Investment Class shares pursuant to Rule 12b-1 under the Investment Company
Act of 1940. This Plan provides that the Investment Class will bear the cost of
its distribution expenses. The Plan also provides for additional payments to the
Distributor of up to an annual rate of .40% of the Fund's Investment Class daily
net assets.
Certain officers and/or Trustees of the Trust are also officers and/or
Directors of the Administrator. The Trust pays each unaffiliated Trustee an
annual fee for attendance at quarterly, interim and committee meetings.
Compensation of officers and affiliated Trustees is paid by the Administrator.
The aggregate amount of fees paid to unaffiliated Trustees during the last six
months was approximately $36,000.
Organizational costs incurred by the Trust have been capitalized by the Trust
and are being amortized over sixty months commencing with operations. In the
event any of the initial shares of the Trust are redeemed during the period that
the Trust is amortizing its organizational costs, the redemption proceeds
payable by the Trust to the holder thereof will be reduced by the unamortized
organizational costs in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of
redemption. Such costs include legal fees for organizational work performed by a
law firm of which an officer of the Fund is a partner.
During the period ended January 31, 1995, Union Bank, an affiliate of the
Advisor, purchased securities from the Money Market Fund for $19,912,500 which
represented the amortized cost and carrying value of the securities. The
securities aggregate market value was $19,305,900 at the time of purchase. This
transaction has been recorded on the books as a realized capital loss of
$606,600 on investment in the statement of operations, and as a contribution of
capital on the books for $606,600. The transactions did not change the net asset
value of the Fund.
4. Investment Advisory Agreement
The Trust and MERUS-UCA Capital Management, a division of Union Bank of
California, N.A., (the "Advisor") are parties to an Advisory Agreement. For its
services, the Advisor is entitled to receive a fee, which is calculated daily
and paid monthly, at an annual rate of .30% of the average daily net assets of
the Treasury Money Market Fund, the Money Market Fund, the California Tax-Free
Money Market Fund and the Limited Maturity Government Fund, .60% of the Growth
Equity Fund, the Value Momentum Fund, the Blue Chip Growth Fund, the Balanced
Fund and the Convertible Securities Fund, .50% of the Intermediate-Term Bond
Fund, the Government Securities Fund and the California Intermediate Tax-Free
Bond Fund, .80% of the Emerging Growth Fund and .95% of the International Equity
Fund. The Advisor has voluntarily agreed, for an indefinite period of time to
waive all or a portion of its fee in the Treasury
58
<PAGE>
JULY 31, 1996
- --------------------------------------------------------------------------------
Money Market Fund, the California Tax-Free Money Market Fund, the International
Equity Fund, and the California Intermediate Tax-Free Bond Fund in order to
limit the operating expenses of the Funds.
The Advisor and Bank of Tokyo-Mitsubishi Trust Company are parties to a
Sub-Advisory Agreement the Blue Chip Growth Fund, the Emerging Growth Fund, the
Convertible Securities Fund and the Government Securities Fund.
Bank of Tokyo-Mitsubishi Trust Company is entitled to a fee which is calculated
daily and paid monthly by the Advisor.
The Advisor and Tokyo-Mitsubishi Asset Management (U.K.), Ltd. are parties
to a Sub-Advisory Agreement for the International Equity Fund.
Tokyo-Mitsubishi Asset Management (U.K.), Ltd. is entitled to a fee which
is calculated daily and paid monthly by the Advisor.
During the fiscal year ended January 31, 1996, Union Bank agreed to merge with
the Bank of California, N.A., effective on April 1, 1996. After the merger, the
resulting Bank changed its name to Union Bank of California, N.A. Union Capital
Advisors combined with MERUS Capital Management and was re-named MERUS-UCA
Capital Management. MERUS-UCA operates as a separate division of the Union Bank
of California, N.A. The subadvisors, the Bank of Tokyo Trust Company, and the
Bank of Tokyo Asset Management (U.K.), Ltd., each changed its name to Bank of
Tokyo-Mitsubishi Trust Company and Tokyo-Mitsubishi Asset Management (U.K.),
Ltd., respectively upon the merger of the Bank of Tokyo Trust Company and
Mitsubishi Bank Trust Company of New York on April 1, 1996. These transactions
resulted in the termination of the Stepstone Funds' investment advisory and
subadvisory agreements. The Funds called a shareholder meeting to approve new
investment advisory and subadvisory contracts with Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi Trust Company and Tokyo-Mitsubishi Asset
Management (U.K.), Ltd., respectively. The advisory fees will not be affected by
these changes.
5. Investment Transactions
The purchases and sales of investment securities and United States Government
Obligations (other than short-term securities) were as follows:
INVESTMENT U.S. GOVERNMENT
SECURITIES SECURITIES
------------------ ------------------
PURCHASES SALES PURCHASES SALES
(000'S) (000'S) (000'S) (000'S)
------- ------- ------- -------
Intermediate-Term Bond $16,850 $11,246 $87,664 $75,115
Limited Maturity Govt. -- -- 14,177 17,702
California Intermediate
Tax-Free Bond 1,065 -- -- --
Convertible Securities 10,103 7,844 -- --
Government Securities 7,034 5,904 40,430 38,201
Balanced 34,277 33,827 32,248 5,318
Growth Equity 15,761 22,783 -- --
Value Momentum 22,334 9,800 -- --
Blue Chip Growth 19,888 18,486 -- --
Emerging Growth 31,215 29,923 -- --
International Equity 14,283 9,392 -- --
At July 31, 1996 the total cost of securities and net realized gains or losses
on securities sold for Federal income tax purposes was not materially different
from amounts reported for financial reporting purposes. The aggregate gross
unrealized appreciation and depreciation at July 31, 1996 for each portfolio is
as follows:
APPRECIATION DEPRECIATION TOTAL
(000'S) (000'S) (000'S)
------------ ------------ ------
Intermediate-Term Bond $ 772 $ (2,168) $ (1,396)
Limited Maturity Govt. 57 (363) (306)
California Intermediate
Tax-Free Bond 60 (57) 3
Convertible Securities 1,166 (790) 376
Government Securities 103 (1,169) (1,066)
Balanced 38,204 (5,263) 32,941
Growth Equity 182,101 (118,777) 63,324
Value Momentum 71,034 (2,796) 68,238
Blue Chip Growth 10,655 (1,517) 9,138
Emerging Growth 8,090 (3,024) 5,066
International Equity 4,477 (1,891) 2,586
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
STEPSTONE FUNDS (UNAUDITED)
Subsequent to October 31, 1995, the Funds recognized net capital losses for tax
purposes that have been deferred to 1996 and can be used to offset future
capital gains at January 31, 1996. The Funds also had capital loss carryforwards
at January 31, 1996, to the extent provided in the regulations for federal
income tax as follows:
CAPITAL LOSS
CARRYOVER EXPIRES EXPIRES EXPIRES
1/31/96 2002 2003 2004
------------ ------- ------- -------
Treasury MM $ 2,187 $-- $ 2,187 $--
Money Market 1,163,215 -- 1,163,215 --
Cal T/F MM 1,863 -- 1,863 --
Int.-Term Bond 1,412,177 -- 1,412,177 --
Limited Maturity Govt. 1,766,916 3,154 873,702 890,060
Cal. Int. Tax-Free Bond 1,309,688 -- 588,397 721,291
Convertible Securities 57,122 -- 39,362 17,760
Government Securities 362,601 -- 362,601 --
The Growth Equity and Blue Chip Funds utilized their entire capital loss
carryforward balance of $1,206,611 and $617,659, respectively, which was carried
over from the previous year. The Intermediate-Term Bond and Government
Securities Funds used $2,740,091 and $1,465,927, respectively, of its capital
loss carryforward from the previous year.
6. Concentration of Credit Risk
The California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund invest in debt securities in the State of California. The
ability of the issuers of the securities held by the Funds to meet their
obligations may be affected by economic developments in that state.
The International Equity Fund invests in securities of foreign issuers
in various countries. These investments may involve certain considerations and
risks not typically associated with investments in the United States, as a
result of, among other factors, the possibility of future political and economic
developments and the level of governmental supervision and regulation of
securities markets in the respective countries.
60
<PAGE>
JULY 31, 1996
- --------------------------------------------------------------------------------
7. Option Contracts
Transactions in covered call options and purchased put options during the period
ended July 31, 1996 are summarized as follows:
GROWTH EQUITY
-------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- ----------------------------------- --------- --------
Option written and outstanding at
beginning of period -- $ --
Call option written during period 1,220 430,994
Call option exercised during period (100) (104,697)
Call option expired during period (700) (176,772)
Call option closed during period (420) (149,525)
--------- --------
Option written and outstanding at
end of period -- --
--------- --------
--------- --------
BLUE CHIP GROWTH
-------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- ----------------------------------- --------- --------
Option written and outstanding at
beginning of period 460 $ 136,248
Call option written during period 490 178,387
Call option exercised during period -- --
Call option expired during period (330) (87,588)
Call option closed during period (585) (222,777)
--------- --------
Option written and outstanding at
end of period 35 4,270
--------- --------
--------- --------
EMERGING GROWTH
-------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- ----------------------------------- --------- --------
Option written and outstanding at
beginning of period 150 $ 44,892
Call option written during period 2,121 569,043
Call option exercised during period (325) (68,235)
Call option expired during period (506) (111,392)
Call option closed during period (1,225) (389,560)
--------- --------
Option written and outstanding
at end of peri 215 44,748
--------- --------
--------- --------
BALANCED
-------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- ----------------------------------- --------- --------
Option written and outstanding at
beginning of period 200 $ 35,279
Call option written during period 15 3,049
Call option exercised during period (200) (35,279)
Call option expired during period -- --
Call option closed during period (15) (3,049)
--------- --------
Option written and outstanding
at end of period -- --
--------- --------
--------- --------
BLUE CHIP GROWTH
-------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- ----------------------------------- --------- --------
Purchased put option outstanding at
beginning of period -- $ --
Put option purchased during period 100 236,928
Put option sold during period -- --
Put option expired during period -- --
Put option exercised during period (40) 219,873
--------- --------
Purchased put option outstanding
at end of period 60 17,055
--------- --------
--------- --------
EMERGING GROWTH
-------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- ----------------------------------- --------- --------
Purchase put option outstanding at
beginning of period 100 $ 24,237
Put option purchased during period 625 207,731
Put option sold during period (165) (78,620)
Put option expired during period (95) (20,178)
Put option exercised during period (320) (85,910)
--------- --------
Purchased put option outstanding
at end of period 145 47,260
--------- --------
--------- --------
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STEPSTONE FUNDS (UNAUDITED)
8. Shareholder Voting Results
A special meeting of shareholders of the Trusts was held on March 7, 1996. At
the meeting shareholders voted on three proposals. Each proposal and the results
of the voting are set forth below:
PROPOSAL 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.
% OF % OF
QUORUM OUTSTANDING
--------- --------------
BALANCED FUND
For 12,847,156 99.71 74.40
Against 0 0.00 0.00
Abstain 37,120 0.29 0.21
BLUE CHIP GROWTH FUND
For 4,567,300 100.00 92.26
Against 0 0.00 0.00
Abstain 0 0.00 0.00
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
(FORMERLY CALIFORNIA TAX-FREE BOND FUND)
For 867,938 100.00 98.45
Against 0 0.00 0.00
Abstain 4 0.00 0.00
CALIFORNIA TAX-FREE MONEY MARKET FUND
For 105,223,318 98.59 90.41
Against 4,946 0.00 0.00
Abstain 1,503,898 1.41 1.29
CONVERTIBLES SECURITIES FUND
For 1,527,248 100.00 95.95
Against 0 0.00 0.00
Abstain 0 0.00 0.00
EMERGING GROWTH FUND
For 3,025,825 99.54 87.63
Against 14,039 0.46 0.41
Abstain 0 0.00 0.00
% OF % OF
QUORUM OUTSTANDING
--------- ---------------
GOVERNMENT SECURITIES FUND
For 4,345,629 100.00 93.17
Against 0 0.00 0.00
Abstain 0 0.00 0.00
GROWTH EQUITY FUND
For 7,657,397 99.93 76.16
Against 682 0.01 0.01
Abstain 4,735 0.06 0.05
INTERMEDIATE-TERM BOND FUND
For 9,477,905 99.76 72.13
Against 17,671 0.18 0.13
Abstain 6,166 0.06 0.05
INTERNATIONAL EQUITY FUND
For 1,151,910 100.00 97.33
Against 0 0.00 0.00
Abstain 0 0.00 0.00
LIMITED MATURITY GOVERNMENT FUND
For 3,442,688 97.59 93.90
Against 0 0.00 0.00
Abstain 84,921 2.41 2.32
MONEY MARKET FUND
For 508,915,213 98.80 67.34
Against 503,640 0.10 0.07
Abstain 5,652,325 1.10 0.75
TREASURY MONEY MARKET FUND
For 296,824,594 96.77 74.82
Against 437,523 0.14 0.11
Abstain 9,482,693 3.09 2.39
VALUE MOMENTUM FUND
For 12,314,899 99.73 95.94
Against 10,671 0.09 0.08
Abstain 22,880 0.19 0.16
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) JULY 31, 1996
- --------------------------------------------------------------------------------
STEPSTONE FUNDS (UNAUDITED)
PROPOSAL 2: To approve the selection of Bank of Tokyo-Mitsubishi Trust Company
or its successor as the sub-adviser to the Blue Chip Growth, Emerging Growth,
Government Securities and Convertible Securities Funds, to approve a new
sub-advisory agreement between Bank of Tokyo-Mitsubishi Trust Company (or its
successor) and UBOC relating to these Funds.
% OF % OF
QUORUM OUTSTANDING
--------- ------------
EMERGING GROWTH FUND
For 3,025,825 99.54 87.63
Against 14,039 0.46 0.41
Abstain 0 0.00 0.00
GOVERNMENT SECURITIES FUND
For 4,345,629 100.00 93.17
Against 0 0.00 0.00
Abstain 0 0.00 0.00
CONVERTIBLE SECURITIES FUND
For 1,527,248 100.00 95.95
Against 0 0.00 0.00
Abstain 0 0.00 0.00
BLUE CHIP GROWTH FUND
For 4,567,300 100.00 92.26
Against 0 0.00 0.00
Abstain 0 0.00 0.00
PROPOSAL 3: To approve the selection of Tokyo-Mitsubishi Asset Management
(U.K.), Ltd. or its successor as the sub-adviser to the International Equity
Fund, and to approve the sub-advisory agreement between Tokyo-Mitsubishi Asset
Management (U.K.), Ltd. (or its successor) and UBOC relating to the Fund.
% OF % OF
QUORUM OUTSTANDING
--------- -------------
INTERNATIONAL EQUITY FUND
For 1,151,910 100.00 97.33
Against 0 0.00 0.00
Abstain 0 0.00 0.00
63
<PAGE>
NOTES
- -------------------------------------------------------------------------------
<PAGE>
INVESTMENT ADVISOR:
MERUS-UCA Capital Management a division of Union Bank of California, N.A.
SUB ADVISORS:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
Government Securities Fund
Emerging Growth Fund
Convertible Securities Fund
Blue Chip Growth Fund
TOKYO-MITSUBISHI ASSET MANAGEMENT (U.K.), LTD.
International Equity Fund
DISTRIBUTOR:
SEI Financial Services Company
This information must be preceded or accompanied by a current prospectus for
each Fund described.
