STEPSTONE FUNDS, 485APOS, 1996-03-29

STEPSTONE FUNDS
485APOS, 1996-03-29

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1996

File No. 33-37687
File No. 811-6192

________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

POST-EFFECTIVE AMENDMENT NO. 14 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

AMENDMENT NO. 16 [X]

STEPSTONE FUNDS
(formerly Union Investors Funds)
(Exact Name of Registrant as Specified in Charter)

2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (800) 342-5734

Mr. David G. Lee
C/O SEI Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
(Name and Address of Agent for Service)

Copies to:

<TABLE>
<S> <C> <C>
Jonathan A. Wright Richard W. Grant, Esquire John H. Grady, Jr., Esquire
Senior Counsel Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
Union Bank 2000 One Logan Square 1800 M Street, N.W.
445 South Figueroa Street Philadelphia, PA 19103 Washington, D.C. 20036
Los Angeles, CA 90017
</TABLE>

________________________________________________________________________________
It is proposed that this filing will become effective (check appropriate box)

_____ Immediately upon filing pursuant to paragraph (b), or
_____ On [date] pursuant to paragraph (b), or
X 60 days after filing pursuant to paragraph (a), or
- -----
_____ On [date] pursuant to paragraph (a) of Rule 485, or
_____ 75 days after filing pursuant to paragraph (a) of Rule 485.

________________________________________________________________________________

DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940 the Registrant has elected to register an
indefinite amount of securities. Registrant filed a Rule 24f-2 Notice on March
25, 1996 for the Registrant's fiscal year ending January 31, 1996.

<PAGE> 2
STEPSTONE FUNDS

POST-EFFECTIVE AMENDMENT NO. 14

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION

===================================================================================================
<S> <C> <C>
PART A

Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant The Trust; Investment Objective(s);
Investment Policies; General Investment
Policies; Risk Factors;
Investment Limitations; Fundamental Policies;
Description of Permitted Investments
Item 5. Management of the Fund The Advisor; The Sub-Advisor; The
Administrator; The Shareholder
Servicing Agent; The Distributor;
General Information - Trustees of
the Trust
Item 6. Capital Stock and Other Securities Voting Rights; The Advisor; Taxes;
General Information - Information -
Dividends; Shareholder Inquiries
Item 7. Purchase of Securities Being Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings *

PART B

Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Trust
Item 13. Investment Objectives and Policies Investment Objective and Policies;
Investment Limitations; Securities
Lending
</TABLE>

-i-
<PAGE> 3

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION

==================================================================================================
<S> <C> <C>
Item 14. Management of the Registrant Trustees and Officers of the Trust
(Prospectus); The Administrator;
The Shareholder Servicing Agent
Item 15. Control Persons and Principal Trustees and Officers of the Trust
Holders of Securities (Prospectus)
Item 16. Investment Advisory and Other The Advisor; The Administrator; The
Services Shareholder Servicing Agent; The
Distributor; Counsel and
Independent Public Accountants
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Description of Shares
Item 19. Purchase, Redemption, and Pricing Purchase and Redemption of
of Securities Being Offered Shares (Prospectus); Determination
of Net Asset Value
Item 20. Tax Status Tax (Prospectus); Tax
Item 21. Underwriters The Distributor
Item 22. Calculation of Yield Quotations Computation of Yield and Calculation of
Total Return
Item 23. Financial Statements Financial Statements
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.

* Not Applicable

-ii-
<PAGE> 4

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in one or more professionally managed portfolios of securities. This
Prospectus relates to the Trust's:

-- MONEY MARKET FUND
-- TREASURY MONEY MARKET FUND
-- CALIFORNIA TAX-FREE MONEY MARKET FUND

INSTITUTIONAL CLASS SHARES

The Trust's Institutional Class Shares are offered to institutional investors,
including UNION BANK OF CALIFORNIA, N.A. and BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, their affiliates and correspondents for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF TOKYO-MITSUBISHI
TRUST COMPANY OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS. THE TRUST'S SHARES
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE TRUST
INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

MAY 28, 1996

INSTITUTIONAL CLASS
<PAGE> 5

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Institutional Class shares of the MONEY MARKET, TREASURY MONEY MARKET and
CALIFORNIA TAX-FREE MONEY MARKET FUNDS (each a "Fund"). This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in this Prospectus and in the Statement of Additional Information.

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE MONEY MARKET FUND seeks to
preserve principal value and maintain a high degree of liquidity while providing
current income. THE TREASURY MONEY MARKET FUND seeks to preserve principal value
and maintain a high degree of liquidity while providing current income. THE
CALIFORNIA TAX-FREE MONEY MARKET FUND seeks to preserve principal and maintain a
high degree of liquidity while providing current income exempt from federal and
California state personal income taxes. See "Investment Objectives."

WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE MONEY MARKET FUND invests in
obligations denominated in U.S. dollars including commercial paper, bank
obligations, thrift and savings and loan obligations, short-term corporate
obligations, general U.S. Government obligations and repurchase agreements
involving such obligations, receipts evidencing ownership of component parts of
U.S. Treasury obligations and securities issued or guaranteed by foreign
branches of foreign banks and foreign commercial paper. THE TREASURY MONEY
MARKET FUND invests exclusively in direct obligations issued by the U.S.
Treasury, separately traded component parts of such obligations transferrable
through the Federal book-entry system, and repurchase agreements involving such
obligations. THE CALIFORNIA TAX-FREE MONEY MARKET FUND invests in municipal
obligations of the State of California and its political subdivisions and
municipal obligations issued by territories or possessions of the United States.
See "Investment Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? Each Fund seeks to
maintain a net asset value of $1.00 per share. There can be no assurance that a
Fund will be able to maintain a net asset value of $1.00 per share on a
continuous basis. The California Tax-Free Money Market Fund invests primarily in
California municipal securities, which may entail certain risks involved in
investing in municipal securities. See "Risk Factors."

ARE MY INVESTMENTS INSURED? Any guarantee by the U.S. Government, its agencies
or any instrumentalities of the securities in which any Fund invests guarantees
only the payment of principal and interest on the guaranteed security, and does
not guarantee the yield or value of the security or yield or value of shares of
that Fund. The Trust's shares are not federally insured by the FDIC or any other
government agency.

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE SHAREHOLDER SERVICING AGENT? SEI Financial Management Corporation
serves as transfer agent, dividend disbursing agent, and shareholder servicing
agent for the Trust. See "Shareholder Servicing Agent."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve Wire System are open for business ("Business Days"). The
minimum initial investment in the Trust is $2,000. Shareholders must place
orders to purchase prior to 9:00 a.m. Pacific time or orders to redeem prior to
8:00 a.m. Pacific time for the California Tax-Free Money Market Fund, and prior
to 9:00 a.m. Pacific time for the Money Market and Treasury Money Market Funds
on any Business Day. Otherwise the order will be effective the next Business
Day. In addition, effectiveness of a purchase is contingent on the Custodian's
receipt of Federal funds before 11:00 a.m. Pacific time. See "Purchase and
Redemption of Shares."

HOW ARE DIVIDENDS PAID? The net investment income (exclusive of short-term
capital gains) of the Funds is determined and declared on each Business Day as a
dividend for Shareholders of record as of the close of business on that day.
Dividends are paid monthly in additional shares unless the Shareholder elects to
take the payment in cash. See "Dividends."
<PAGE> 6

ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of average net assets)

<TABLE>
<CAPTION>
CALIFORNIA
MONEY TREASURY TAX-FREE
MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (After Fee Waivers)........................... .30% .25% (1) .10% (1)
Other Expenses.............................................. .20% .20% .20%
- ------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)................ .50% .45% (1) .30% (1)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Advisor has voluntarily agreed to waive fees to the extent necessary in
order to limit "Total Operating Expenses" to not more than .45% for the
Treasury Money Market Fund and .30% for the California Tax-Free Money Market
Fund. The Advisor reserves the right to terminate its waiver at any time in
its sole discretion. Absent fee waivers, the "Advisory Fees" and "Total
Operating Expenses" would be .30% and .50%, for the Treasury Money Market
Fund and California Tax Free Money Market Fund, respectively. "Total
Operating Expenses" of the California Tax-Free Money Market Fund have been
restated to reflect current fees and fee waivers.

EXAMPLE:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period.
Money Market Fund.................................................... $5 $16 $28 $63
Treasury Money Market Fund........................................... $5 $14 $25 $57
California Tax-Free Money Market Fund................................ $3 $10 $17 $38
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Institutional Class shares of the Funds.
Financial institutions that are the record owner of shares for the account of
their customers may impose separate fees for account services to their
customers. The Trust also offers Investment Class shares of the Funds which are
subject to the same expenses, except that Investment Class shares are subject to
certain distribution expenses. Additional information may be found under "The
Administrator" and "The Advisor."

<PAGE> 7

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996 on
the Trust's financial statements as of January 31, 1996, included in the Trust's
Statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional information is set forth in the Trust's 1996 Annual Report
to Shareholders, and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES
NET -------------------------- DISTRIBUTIONS NET NET
ASSET NET REALIZED ------------------- ASSET ASSETS,
VALUE, NET AND UNREALIZED NET VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL CONTRIBUTION END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF CAPITAL OF PERIOD RETURN (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- -------------------------------
TREASURY MONEY MARKET FUND
- -------------------------------
INSTITUTIONAL CLASS
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
- ---------------------
MONEY MARKET FUND
- ---------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.054 -- (0.054) -- -- 1.00 5.57% 503,080
1995 1.00 0.039 (.001) (0.039) -- .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 (2) 1.00 0.057 -- (0.057) -- -- 1.00 5.86% 240,341
- ------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- ------------------------------------------
INSTITUTIONAL CLASS
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 (3) 1.00 0.025 -- (0.025) -- -- 1.00 3.75%* 30,567

<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES RATIO OF INCOME TO
RATIO OF TO AVERAGE NET INVESTMENT AVERAGE
EXPENSES NET ASSETS INCOME NET ASSETS
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- -------------------------------
TREASURY MONEY MARKET FUND
- -------------------------------
INSTITUTIONAL CLASS
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%*
- ---------------------
MONEY MARKET FUND
- ---------------------
INSTITUTIONAL CLASS
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 (2) 0.48% 0.51% 5.68% 5.65%
- ------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- ------------------------------------------
INSTITUTIONAL CLASS
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 (3) 0.30%* 0.57%* 3.82%* 3.55%*
</TABLE>

<TABLE>

<CAPTION>
* Annualized.

<C> <S>

(1) Commenced operations on December 1, 1992.

(2) Commenced operations on February 1, 1991.

(3) Commenced operations on June 10, 1991.

</TABLE>
<PAGE> 8

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes), and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Institutional Class shares
of the Trust's Money Market, Treasury Money Market and California Tax-Free Money
Market Funds (each a "Fund"). Information regarding the Trust's other funds is
contained in separate prospectuses that may be obtained from the Trust's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.

INVESTMENT OBJECTIVES

THE MONEY MARKET FUND seeks to preserve principal value and maintain a high
degree of liquidity while providing current income.

THE TREASURY MONEY MARKET FUND seeks to preserve principal value and maintain a
high degree of liquidity while providing current income.

THE CALIFORNIA TAX-FREE MONEY MARKET FUND seeks to preserve principal and
maintain a high degree of liquidity while providing current income exempt from
federal and California state personal income taxes.

There can be no assurance that a Fund's investment objective will be met.

INVESTMENT POLICIES

MONEY MARKET FUND

The Money Market Fund will invest in obligations denominated in U.S. dollars
consisting of: (i) commercial paper issued by domestic and foreign issuers rated
at least A-1 by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's
Investors Service ("Moody's") at the time of investment or, if not rated,
determined by the Advisor to be of comparable quality; (ii) obligations
(certificates of deposit, bank notes, time deposits, and bankers' acceptances)
of thrift institutions, savings and loans, U.S. commercial banks (including
foreign branches of such banks), and U.S. and foreign branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations with a remaining term of not more than 397 days of issuers
with commercial paper of comparable priority and security meeting the above
ratings criteria or determined by the Advisor to be of comparable quality; (iv)
obligations issued by the U.S. Government and backed by its full faith and
credit, and obligations issued or guaranteed as to principal and interest by the
agencies or instrumentalities of the U.S. Government (e.g. obligations issued by
Farmers Home Administration, Government National Mortgage Association, Federal
Farm Credit Bank and Federal Housing Administration); (v) receipts, including
TR's, TIGR's and CATS; (vi) repurchase agreements involving such obligations
(vii) restricted securities which have not been registered under the Securities
Act of 1933 (Rule 144A Securities and Section 4(2) Commercial Paper) and (viii)
loan participations. The Advisor will determine that the permitted investments
present minimal credit risks in accordance with guidelines established by the
Trust's Board of Trustees.

long as the investment risk associated with investing in such instruments is the
same as that associated with investing in instruments issued by the U.S. parent,
in that the U.S. parent would be unconditionally liable in the event that the
foreign branch failed to pay on its instruments.

The Fund may invest up to 5% of its total assets in loan participations issued
by a bank in the United States with assets exceeding $1 billion where the
underlying loan is made to a borrower in whose obligations the Fund may invest
and the underlying loan has a remaining maturity of one year or less.

The Fund may invest in readily marketable securities backed by company
receivables, truck and auto loans, leases, and credit card loans provided that
such instruments satisfy the rating requirements described above or are
determined by the Advisor to be of comparable quality.

The Fund may invest in U.S. dollar denominated securities issued or guaranteed
by foreign governments, their political subdivisions, agencies or
instrumentalities, and obligations of supranational entities such as the World
Bank and the Asian Development Bank; provided that the Fund invests no more than
5% of its assets in any such instrument and invests no more than 25% of its
assets in such instruments in the aggregate.

TREASURY MONEY MARKET FUND

The Treasury Money Market Fund will invest exclusively in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system ("STRIPS"), and
repurchase agreements involving such obligations.

The Fund is limited to making investments and engaging in investment
transactions that are permissible for federal credit unions.

Guarantees of the Fund's portfolio securities by the U.S. Government or its
agencies or instrumentalities guarantee only the principal and interest on the
guaranteed securities, and do not guarantee the securities' yield or value or
the yield or value of the Fund's shares.

CALIFORNIA TAX-FREE MONEY MARKET FUND

As a matter of fundamental policy, at least 80% of the California Tax-Free Money
Market Fund's assets will be invested in obligations which produce interest
that, in the opinion of bond counsel, is exempt from Federal income tax and
California state personal income tax. These include obligations issued by the
state of California and its political subdivisions or municipal authorities and
obligations issued by territories or possessions of the United States.
Qualifying obligations consist of municipal notes; municipal bonds; floating or
variable rate municipal obligations; tax-exempt commercial paper; and shares of
open-end investment companies with similar investment objectives and policies.

The Advisor will invest in short-term securities, and reserves the right to
engage in "put" transactions. The Advisor has discretion to invest up to 20% of
the Fund's assets in taxable money market instruments (including repurchase
agreements), restricted securities which have not been registered under the
Securities Act of 1933 (Rule 144A Securities and Section 4(2) Commercial Paper),
receipts including TR's, TIGR's and CATS, and securities subject to the
alternative minimum tax. The Advisor may leave a portion of cash uninvested.
However, the Fund generally intends to be fully invested in tax-exempt
securities.

For temporary defensive purposes when the Advisor determines that market
conditions warrant, the Fund may invest up to 100% of its assets in municipal
obligations of other states or taxable money market instruments (including
repurchase agreements, U.S. Treasury securities and instruments of certain U.S.
commercial banks or savings and loan institutions). The Fund will not be
pursuing its investment objective to the extent that more than 20% of its assets
are so invested in taxable money market securities.

<PAGE> 10

The Fund will invest in obligations which are rated or are issued by entities
with debt obligations rated, at the time of investment, in one of the two
highest rating categories by S&P, Moody's or Fitch Investors Service, Inc.
("Fitch"), or, if not rated, determined by the Advisor to be of comparable
quality.

Opinions relating to the validity of municipal securities and to the exemption
of interest thereon from Federal income tax (and, with respect to California
municipal securities, to the exemption of interest thereon from California state
personal income tax) are rendered by bond counsel to the respective issuers at
the time of issuance. Neither the Fund nor its Adviser will review the
proceedings relating to the issuance of municipal securities or the basis for
such opinions.

GENERAL INVESTMENT POLICIES

Each Fund intends to comply with regulations of the Securities and Exchange
Commission ("SEC") applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on investments by a Fund. Under
these regulations, a Fund will invest only in U.S. dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only "eligible securities" that present minimal
credit risks and have a maturity of 397 days or less. For a further discussion
of these rules, see the "Description of Permitted Investments."

Each Fund may enter into forward commitments, or purchase securities on a
when-issued basis. A Fund is permitted to invest in when-issued securities where
such purchases are for investment and not for leveraging purposes; however, a
Fund may sell these securities before the settlement date if it is deemed
advisable. No additional forward commitments will be made if more than 20% of a
Fund's net assets would be so committed.

Each Fund may also engage in securities lending and a Fund will limit such
practice to 33 1/3% of its total assets.

Each Fund will limit its investments in illiquid securities to 10% of its net
assets.

For further information, see "Description of Permitted Investments."

ELIGIBILITY UNDER FEDERAL CREDIT
UNION ACT

Shares of the Treasury Money Market Fund (the Fund) are designed to qualify as
eligible investments for federally chartered credit unions pursuant to Section
107(7), 107(8) and 107(15) of the Federal Credit Union Act and Part 703 of the
National Credit Union Administration Rules and Regulations. The Fund will
continually monitor changes in the applicable laws, rules and regulations
governing eligible investments, including new investments, for federally
chartered credit unions and will take such action as may be necessary to assure
that the Fund's investments, and, therefore, shares of the Fund, continue to
qualify as eligible investments under the Federal Credit Union Act.

Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act set forth
those securities, deposits and other obligations in which federally chartered
credit unions may invest. The Fund's investments consist exclusively of assets
designed to qualify as eligible investments if owned directly by a federally
chartered credit union. Shares of the Fund may or may not qualify as eligible
investments for particular state chartered credit unions. Accordingly, the Fund
encourages, but does not require, each state chartered credit union to consult
qualified legal counsel concerning whether the Fund's shares are permissible
investments for that credit union. While the Advisor will assure that the Fund
follows investment policies set forth herein, the Fund cannot be responsible for
compliance by participating state chartered credit unions with limitations on
permissible investments to which they may be subject.
<PAGE> 11

RISK FACTORS

It is a fundamental policy of each Fund to use its best efforts to maintain a
constant net asset value of $1.00 per share. There can be no assurance that a
Fund will be able to maintain a stable net asset value of $1.00 per share.

Foreign investments in which the Money Market Fund may invest involve risks that
are different from investments in securities of U.S. issuers. These risks may
include future unfavorable political and economic developments, possible
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations or other government restrictions which might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign issuers. Foreign branches of foreign banks are not
regulated by U.S. banking authorities, and foreign issuers generally are not
bound by accounting, auditing and financial reporting standards comparable to
U.S. issuers. The Money Market Fund does not limit, except as indicated above,
the amount of its assets which can be invested in any one type of instrument or
in any foreign country.

Certain risks are inherent in the California Tax-Free Money Market Fund's
investment in California municipal securities. These risks result from (1)
amendments to the California Constitution and other statutes that limit the
taxing and spending authority of California government entities, (2) the general
financial condition of the State of California, and (3) a variety of California
laws and regulations that may affect directly or indirectly, California
municipal securities. The ability of issuers of municipal securities to pay
interest on, or repay principal of, municipal securities may be impaired as a
result. A more complete description of these risks is contained in the Statement
of Additional Information.

INVESTMENT LIMITATIONS

1. The Money Market Fund and the Treasury Money Market Fund may not purchase
securities of any issuer (except securities issued or guaranteed by the United
States its agencies or instrumentalities) and repurchase agreements involving
such securities if as a result more than 5% of the total assets of the Fund
would be invested in the securities of such issuer. While this restriction
applies to 75% of each Fund's assets, the Money Market Fund and the Treasury
Money Market Fund have each adopted, in accordance with Rule 2a-7, a policy
providing that the 5% limitation shall apply to 100% of the Fund's assets,
provided however, that each Fund may invest up to 25% of its assets in the First
Tier quality securities of a single issuer for up to three days. In addition,
for purposes of this limitation, as it relates to the Money Market Fund, loan
participations are considered to be issued by both the issuing bank and the
underlying corporate borrower.

2. The California Tax-Free Money Market Fund may not purchase securities of any
issuer (except securities issued or guaranteed by the United States, its
agencies or instrumentalities) and repurchase agreements involving such
securities if as a result more than 5% of the total assets of the Fund would be
invested in the securities of such issuer. This restriction applies to 75% of
the California Tax-Free Money Market Fund's assets.

3. Each Fund may not purchase any securities which would cause more than 25% of
the total assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in the obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities, and
provided further, that utilities as a group will not be considered to be one
industry, and wholly-owned subsidiaries organized to finance the operations of
their parent companies will be considered to be in the same industries as their
parent companies. For purposes of this limitation as it relates to the Money
Market Fund, loan participations are considered to be issued by both the issuing
bank and the underlying corporate borrower, supranational entities are
considered to be a separate industry, and this limitation does not apply to
investments in the banking industry. In
<PAGE> 12

addition, as it relates to the California Tax-Free Money Market Fund, this
limitation applies only to the Fund's investments in taxable securities and
securities issued or backed by the revenues of non-governmental users.

4. Each Fund may not make loans, except that a Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and policies; (b)
enter into repurchase agreements; and (c) engage in securities lending as
described in this Prospectus and in the Statement of Additional Information.

The foregoing percentages will apply at the time of the purchase of a security.
Additional fundamental and non-fundamental investment limitations are set forth
in the Statement of Additional Information.

FUNDAMENTAL POLICIES

The investment objective and certain of the investment limitations are
fundamental policies of the Funds. It is also a fundamental policy of each Fund
to use its best effort to maintain a constant net asset value of $1.00 per
share. Fundamental policies cannot be changed with respect to a Fund without the
consent of a majority of the Fund's outstanding shares. The term "majority of
the outstanding shares" means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
Fund's outstanding shares, whichever is less.

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor"), have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of each Fund and
continuously reviews, supervises and administers the Funds' investment programs.
The Advisor discharges its responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. The Trust's shares are not
sponsored, endorsed or guaranteed by, and do not constitute obligations or
deposits of, the Advisor and are not guaranteed by the FDIC or any other
governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .30% of the average daily net assets of each Fund. The Advisor
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary, and may be
terminated at any time in the Advisor's sole discretion.

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, was paid an advisory fee of .30%, .25% and .10% of the average daily
net assets of the Money Market, Treasury Money Market and California Tax-Free
Money Market Funds, respectively.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of each Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

As of April 1, 1996, Merus managed $ billion in individual portfolios and
collective funds. Merus' clients range from pension funds, national labor union
plans and foundations to personal investments and trust portfolios.

THE ADMINISTRATOR

SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement (the
<PAGE> 13

"Administration Agreement"). Under the terms of the Administration Agreement,
the Administrator provides the Trust with certain management services including
all necessary office space, equipment, personnel, and facilities.

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of a Fund's Institutional Class
shares. Any such waiver is voluntary, and may be terminated at any time in the
Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

SEI Financial Management Corporation serves as the transfer agent, dividend
disbursing agent, and shareholder servicing agent for the Trust. Compensation
for these services is paid under the Administration Agreement.

DISTRIBUTION

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). The Distribution Agreement is renewable annually and may be
terminated by the Distributor, by a majority vote of the Disinterested Trustees
or by a majority vote of the outstanding securities of the Trust upon not more
than 60 days written notice by either party, or upon assignment by the
Distributor. Investment Class shares of the Funds may bear the costs of their
distribution expenses. It is possible that an institution may offer different
classes of shares to its customers, and thus receive different compensation with
respect to different classes of shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Funds may be made on days on which
both the New York Stock Exchange and Federal Reserve wire system are open for
business ("Business Days"). The minimum initial investment in a Fund is $2,000;
however, the minimum investment may be waived in the Distributor's discretion.
Shareholders may place orders by telephone.

Purchase orders will be effective on the Business Day made if the Distributor
receives an order before 9:00 a.m., Pacific time on such Business Day.
Otherwise, the purchase order will be effective the next Business Day.
Effectiveness of a purchase order on any Business Day is contingent on the
Custodian's receipt of Federal funds before 11:00 a.m. Pacific time on such
Business Day. The purchase price is the net asset value per share, which is
expected to remain constant at $1.00. The net asset value per share is
calculated as of 9:00 a.m., Pacific time, each Business Day based on the
amortized cost method. The Trust reserves the right to reject a purchase order
when the Distributor determines that it is not in the best interest of the Trust
and/or Shareholder(s).

Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase.

The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of a Fund (normally
$1.00 per share).

Redemption orders may be made any time before 8:00 a.m. Pacific time for the
California Tax-Free Money Market Fund and 9:00 a.m. Pacific time for the Money
Market and Treasury Money Market Funds in order to receive that day's redemption
price (i.e. the next determined net asset value per share). For redemption
orders received before 9:00 a.m. Pacific time, payment will be made the same day
by transfer of Federal funds. Otherwise, payment will be made on the next
Business Day. Redeemed shares are entitled to dividends declared the day the
redemption order is effective.

are genuine. The Trust and its transfer agent will each employ reasonable
procedures to confirm that telephone instructions are genuine. Such procedures
may include taping of telephone conversations. If market conditions are
extraordinarily active or extraordinary circumstances exist, and you experience
difficulties placing redemption orders by telephone, you may wish to consider
placing your order by other means.

COMPUTATION OF YIELD

From time to time a Fund advertises its "current yield" and "effective compound
yield." Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "current yield" of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will typically be slightly higher than the
"current yield" because of the compounding effect of this assumed reinvestment.
The California Tax Free Money Fund may also advertise tax-equivalent yields. The
California Tax-Free Money Market Fund may also advertise tax-equivalent yields.

The performance of Institutional Class shares will normally be higher than for
Investment Class shares because the Institutional Class is not subject to
distribution expenses generally charged to the Investment Class shares.

The yield of each Fund will fluctuate, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in the
Fund will actually yield in the future.

Each Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Funds may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Funds may use long term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios,
and could include the value of a hypothetical investment in any of the capital
markets. The Funds may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark, while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

TAXES

<PAGE> 15

Accordingly, Shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUNDS:

Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment income and net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

Each Fund will distribute all of its net investment income (including net
short-term capital gain) and net capital gain to Shareholders. Dividends from
net investment company taxable income are taxable to Shareholders as ordinary
income (whether received in cash or in additional shares) to the extent of the
Fund's earnings and profits. Distributions of net capital gain will be taxable
to Shareholders as long-term capital gain regardless of how long Shareholders
have held their shares and regardless of whether the distributions are received
in cash or in additional shares. Dividends and distributions of capital gain
paid by a Fund do not qualify for the dividends received deduction for corporate
shareholders. Each Fund will provide annual reports to Shareholders of the
federal income tax status of all distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments, a
Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because each Fund distributes
all of its net investment income to its shareholders, a Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Advisor would not have chosen to sell such securities and which
may result in a taxable gain or loss.

Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared, if paid by the Fund any time during the following January.

The Funds intend to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Income received on direct U.S. obligations is exempt from tax at the state level
when received directly by a Fund, and may be exempt, depending on the state,
when received by a Shareholder as income dividends from a Fund provided certain
state-specific conditions are satisfied. Interest received on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. Each Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from a Fund is considered tax exempt in their
particular state.

Income derived by the Money Market Fund from obligations of foreign issuers may
be subject to foreign withholding taxes. The Money Market Fund will not be able
to elect to treat Shareholders as having paid their proportionate share of such
foreign taxes.

Each sale, exchange, or redemption of Fund shares is a taxable event to the
Shareholder.

SPECIAL CONSIDERATIONS FOR THE CALIFORNIA TAX-FREE MONEY MARKET FUND

The California Tax-Free Money Market Fund will distribute all of its net
investment income (including
<PAGE> 16

net short-term capital gain) to Shareholders. If, at the close of each quarter
of its taxable year, at least 50% of the value of the Fund's assets consists of
obligations the interest on which is excludable from gross income, the Fund may
pay "exempt-interest dividends" to its Shareholders. Those dividends constitute
the portion of the aggregate dividends as designated by the Fund, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's gross income for
federal income tax purposes, but may have certain collateral federal income tax
consequences, as described in the Statement of Additional Information.

Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities to
satisfy the Code's requirements for the payment of "exempt-interest" dividends.

Any dividends attributable to the Fund's taxable income will be taxable to
Shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. None of the Fund's
distributions will qualify for the corporate dividends-received deduction.

Furthermore, entities or persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by "private activity bonds" or
"industrial development bonds" should consult their tax advisors before
purchasing shares. (See the Statement of Additional Information.)

CALIFORNIA TAXES:

The Fund intends to qualify to pay dividends to Shareholders that are exempt
from California personal income tax ("California exempt-interest dividends").
The Fund will qualify to pay California exempt-interest dividends if (1) at the
close of each quarter of the Fund's taxable year, at least 50 percent of the
value of the Fund's total assets consists of obligations the interest on which
would be exempt from California personal income tax if the obligations were held
by an individual ("California Tax Exempt Obligations") and (2) the Fund
continues to qualify as a regulated investment company.

If the Fund qualifies to pay California exempt-interest dividends, dividends
distributed to Shareholders will be considered California exempt-interest
dividends (1) if they are designated as exempt-interest dividends by the Fund in
a written notice to Shareholders mailed within 60 days of the close of the
Fund's taxable year and (2) to the extent the interest received by the Fund
during the year on California Tax Exempt Obligations exceeds expenses of the
Fund that would be disallowed under California personal income tax law as
allocable to tax-exempt interest if the Fund were an individual. If the
aggregate dividends so designated exceed the amount that may be treated as
California exempt-interest dividends, only that percentage of each dividend
distribution equal to the ratio of aggregate California exempt-interest
dividends to aggregate dividends so designated will be treated as a California
exempt-interest dividend. The California Tax-Free Money Market Fund will notify
Shareholders of the amount of California exempt-interest dividends each year.

Corporations subject to California franchise tax that invest in the Fund may not
be entitled to exclude California exempt-interest dividends from income.

Dividend distributions that do not qualify for treatment as California
exempt-interest dividends will be taxable to Shareholders at ordinary income tax
rates for California personal income tax purposes to the extent of the Fund's
earnings and profits.

Interest on indebtedness incurred or continued by a Shareholder in connection
with the purchase of shares of the Fund will not be deductible for California
personal income tax purposes if the Fund distributes California exempt-interest
dividends.
<PAGE> 17

The foregoing is a general, abbreviated summary of certain provisions of the
California Revenue and Taxation Code presently in effect as they directly govern
the taxation of Shareholders subject to California personal income tax. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning California tax matters.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each fund. In
addition to these Funds, the Trust consists of the following funds: California
Intermediate Tax-Free Bond Fund, Growth Equity Fund, Value Momentum Fund,
Intermediate-Term Bond Fund, Limited Maturity Government Fund, Balanced Fund,
Blue Chip Growth Fund, Emerging Growth Fund, Convertible Securities Fund,
Government Securities Fund and International Equity Fund. All consideration
received by the Trust for shares of any fund and all assets of such fund belong
to that fund, and would be subject to liabilities related thereto. The Trust
reserves the right to create and issue shares of additional funds.

The Trust pays its expenses, including audit and legal expenses, expenses of
preparing and printing prospectuses, proxy solicitation material and reports to
Shareholders, costs of custodial services and registering the shares under
federal and state securities laws, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses. Please refer to "Financial Highlights" in this prospectus
for more information regarding the Trust's expenses.

TRUSTEES OF THE TRUST

The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described above, certain
companies provide essential management, administrative and shareholder services
to the Trust.

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each Fund or class will vote separately on matters relating solely to such Fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings, but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon the written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance to the Shareholders requesting the meeting.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

The net investment income (exclusive of net short-term capital gain) of the Fund
is determined and declared on each business day as a dividend for Shareholders
of record as of the close of business
<PAGE> 18

on that day. Dividends are paid by the Fund in additional shares, unless the
Shareholder has elected to take such payment in cash, on the first business day
of each month. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the change.

The amount of dividends payable on Institutional Class shares will typically be
higher than the dividends payable on Investment Class shares because of the
distribution expenses charged to Investment Class shares.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

CoreStates Bank N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as Custodian of the assets of the
Fund. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940, as amended.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Funds:

ASSET-BACKED SECURITIES (NON-MORTGAGE)--The Money Market Fund may invest in
Asset-Backed Securities, which are instruments secured by company receivables,
truck and auto loans, leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust organized solely for purpose of owning such assets and issuing
such debt. The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities.

The development of non-mortgage asset-backed securities is at an early stage
compared to mortgage backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for non-mortgage
asset-backed securities is not as well developed as that for mortgage backed
securities guaranteed by government agencies or instrumentalities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset.

BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and accepted by
commercial banks. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.

CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a specific
maturity. Certificates of deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be traded in
the secondary market prior to maturity.

COMMERCIAL PAPER--Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues vary from a few days to nine
months. Purchase of such instruments involves a risk of default by the issuer.

DERIVATIVES--Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof, including
futures, options (e.g., puts and calls), options on futures, swap agreements,
and some mortgage-backed securities (CMOs, REMICs, IOs and POs). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.

LOAN PARTICIPATIONS--The Money Market Fund may invest in Loan Participations,
which are interests in loans to U.S. corporations (i.e.,
<PAGE> 19

borrowers) administered by the lending bank or agent for a syndicate of lending
banks, and sold by the lending bank or syndicate member ("intermediary bank").
In a loan participation, the borrower of the underlying loan will be deemed to
be the issuer of the participation interest, except to the extent a purchasing
Fund derives its rights from the intermediary bank. Because the intermediary
bank does not guarantee a loan participation in any way, a loan participation is
subject to the credit risks generally associated with the underlying corporate
borrower. In addition, in the event the underlying corporate borrower fails to
pay principal and interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation (such as commercial paper) of such borrower
because it may be necessary under the terms of the loan participation for the
Fund to assert its rights against the borrower through the intermediary bank.
Moreover, under the terms of a loan participation the purchasing Fund may be
regarded as a creditor of the intermediary bank (rather than of the underlying
corporate borrower), making it subject to the risk that the issuing bank may
become insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, a loan participation may be subject to certain defenses that
can be asserted by such borrower as a result of improper conduct by the issuing
bank. The secondary market, if any, for these loan participations is limited,
and any such participation purchased by the Fund may be regarded as illiquid.

MUNICIPAL BONDS--The California Tax-Free Money Market Fund invests in municipal
bonds, which are obligations issued by or on behalf of governments and political
sub-divisions thereof, including private activity bonds. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.

MUNICIPAL NOTES--The California Tax-Free Money Market Fund may invest in
municipal notes, which are instruments issued by or on behalf of governments and
political sub-divisions thereof, and consist of general obligation notes, tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
certificates of indebtedness, demand notes and construction loan notes.

RULE 144A SECURITIES--The Money Market Fund and California Tax-Free Money Market
Fund may purchase Rule 144A Securities. Rule 144A Securities are restricted
securities that have not been registered under the Securities Act of 1933, but
which may be traded between certain qualified institutional investors, including
investment companies. The absence of a secondary market may affect the value of
Rule 144A Securities. The Board of Trustees of the Trust has established
guidelines and procedures to be utilized to determine the liquidity of such
securities.

REPURCHASE AGREEMENTS--Agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. A Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement. A
Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities or if a Fund realizes a loss on the sale of
the collateral. A Fund will enter into repurchase agreements only with financial
institutions deemed to present minimal risk of bankruptcy during the term of the
agreement based on established guidelines. Repurchase agreements are considered
loans under the 1940 Act.

<PAGE> 20

interest accrues to a Fund before settlement. These securities are subject to
market fluctuation due to changes, real or anticipated, in market interest rates
and the public's perception of the creditworthiness of the issuer, and will have
the effect of leveraging the Fund's assets. Purchasing securities on a forward
commitment or when-issued basis when a Fund is fully or almost fully invested
may result in greater potential fluctuation in the value of a Fund's net asset
value per share. The purchasing Fund will establish one or more segregated
accounts with the Custodian, and will maintain liquid, high-grade assets in an
amount at least equal in value to the Fund's commitments to purchase when-issued
securities.

SECURITIES LENDING--In order to generate additional income, each Fund may lend
the securities in which it is invested, pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
to 100% of the market value at all times of the loaned securities. A Fund will
continue to receive interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. Collateral is marked to market daily to provide a level of
collateral at least equal to the value of the loaned securities. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially.

TAX-EXEMPT COMMERCIAL PAPER--The California Tax-Free Money Market Fund may
purchase tax-exempt commercial paper, which is commercial paper issued by
governments and political sub-divisions.

SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature permits a Fund to sell a
security at a fixed price prior to maturity. The underlying municipal securities
subject to a put may be sold at any time at the market rates. However, unless
the put was an integral part of the security as originally issued, it may not be
marketable or assignable. Generally, a premium is paid for a put feature or a
put feature is purchased separately which results in a lower yield than would
otherwise be available for the same securities.

TIME DEPOSITS--Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.

U.S. GOVERNMENT AGENCY SECURITIES-- Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., FNMA securities).

U.S. TREASURY OBLIGATIONS--Bills, notes and bonds issued by the U.S. Treasury,
as well as separately traded interest and principal component parts of such
obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
systems.

RECEIPTS--The Money Market and California Tax-Free Money Fund may invest in
Receipts which are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks and
brokerage firms and are created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuances of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury
<PAGE> 21

Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's") and
"Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR's, TIGR's
and CATS are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations purchased by a
Fund may carry variable or floating rates of interest, may involve conditional
or unconditional demand features and may include variable amount master demand
notes. The interest rates on these securities may be reset daily, weekly,
quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest
rates. A demand instrument with a demand notice period exceeding seven days may
be considered illiquid if there is no secondary market for such security.

RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS

Investments by the Funds are subject to limitations imposed under regulations
adopted by the SEC.

These regulations generally require money market funds to acquire only U.S.
dollar denominated obligations maturing in 397 days or less and to maintain a
dollar-weighted average portfolio maturity of 90 days or less. In addition, the
Funds may acquire only obligations that present minimal credit risks and that
are "eligible securities," which means they are (i) rated, at the time of
investment, by at least two nationally recognized security rating organizations
(one if it is the only organization rating such obligation) in the highest
short-term rating category or, if unrated, determined to be of comparable
quality (a "first tier security"), or (ii) rated according to the foregoing
criteria in the second highest short-term rating category or, if unrated,
determined to be of comparable quality ("second tier security"). A security is
not considered to be unrated if its issuer has outstanding obligations of
comparable priority and security that have a short-term-rating. In determining
whether obligations are eligible securities, the rating of the issuer's
commercial paper, if any, is used for the above tests. Investments by the Money
Market Fund in second tier securities are subject to the further constraints
that (i) no more than 5% of the Fund's assets may be invested in such securities
in the aggregate, and (ii) any investment in such securities of one issuer is
limited to the greater of 1% of the Fund's total assets or $1 million. In
addition, the Fund may invest up to 25% of its total assets in first tier
securities of a single issuer for three business days.

<PAGE> 22

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Annual Operating Expenses....................... 3
Financial Highlights............................ 4
The Trust....................................... 5
Investment Objectives........................... 5
Investment Policies............................. 5
General Investment Policies..................... 7
Eligibility Under Federal Credit Union Act...... 7
Risk Factors.................................... 8
Investment Limitations.......................... 8
Fundamental Policies............................ 9
The Advisor..................................... 9
The Administrator............................... 9
The Shareholder Servicing Agent................. 10
Distribution.................................... 10
Purchase and Redemption of Shares............... 10
Computation of Yield............................ 11
Taxes........................................... 11
General Information............................. 14
Description of Permitted Investments............ 15
Restraints on Investments by Money Market
Funds......................................... 18
</TABLE>

<PAGE> 23

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 24

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus relates to the Trust's:

-- INTERMEDIATE-TERM BOND FUND
- -- GOVERNMENT SECURITIES FUND
- -- CONVERTIBLE SECURITIES FUND

INSTITUTIONAL CLASS SHARES

MAY 28, 1996

INSTITUTIONAL CLASS
<PAGE> 25

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Institutional Class shares of the GOVERNMENT SECURITIES FUND, INTERMEDIATE-TERM
BOND FUND and CONVERTIBLE SECURITIES FUND (each a "Fund"). This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in the Prospectus and in the Statement of Additional Information.

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE INTERMEDIATE-TERM BOND FUND
seeks to provide total return. THE GOVERNMENT SECURITIES FUND seeks to achieve
total return consistent with the preservation of capital by investing in a
diversified portfolio of obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities. THE CONVERTIBLE SECURITIES FUND seeks a
high level of current income and capital appreciation by investing in
convertible securities. See "Investment Objectives."

WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE INTERMEDIATE-TERM BOND FUND will
invest primarily in debt instruments. THE GOVERNMENT SECURITIES FUND will invest
primarily in debt obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities, including mortgage-backed securities issued or
guaranteed by U.S. government agencies. THE CONVERTIBLE SECURITIES FUND will
invest primarily in convertible securities, including bonds, debentures, notes,
and preferred stocks convertible into common stock. See "Investment Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. The market value of a Fund's fixed income investments
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the value of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. The Convertible Securities Fund
may invest up to 35% of its assets in convertible bonds rated lower than Baa by
Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Corporation ("S&P") and as low as Caa by Moody's or CCC by S&P, which are
lower-quality, higher-yielding, high-risk debt securities. See "Risk Factors."

ARE MY INVESTMENTS INSURED? Any guarantee by U.S. Government, its agencies or
instrumentalities of the securities in which any Fund invests guarantees only
the payment of principal and interest on the guaranteed security and does not
guarantee the yield or value of the security or yield or value of shares of that
Fund. The Trust's shares are not federally insured by the FDIC or any other
government agency.

WHO IS THE ADVISOR? Union Bank of California, N.A. serves as the Advisor to the
Trust. See "The Advisor."

WHO IS THE SUBADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
SubAdvisor to the Government Securities and Convertible Securities Funds. See
"The SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
Administrator of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment in the Fund's Institutional Class is $2,000. A
purchase order will be effective if the Distributor receives an order prior to
1:00 p.m. Pacific time and the Custodian receives Federal funds before the close
of business on the next Business Day. The purchase price is the net asset value
next determined after a purchase order is received and accepted by the Trust.
Redemption orders must be placed prior to 1:00 p.m. Pacific time on any Business
Day for the order to be accepted that day. See "Purchase and Redemption of
Shares."

HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of each Fund is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional shares unless the Shareholder
elects to take the payment in cash. See "Dividends."
<PAGE> 26

ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)

<TABLE>
<CAPTION>
INTERMEDIATE- GOVERNMENT CONVERTIBLE
TERM SECURITIES SECURITIES
BOND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees.................................... .50% .50% .60%
Other Expenses................................... .18% .25% .25%
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses......................... .68% .75% .85%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period
Intermediate-Term Bond Fund........................... $ 7 $ 22 $ 38 $ 85
Government Securities Fund............................ $ 8 $ 24 $ 42 $ 93
Convertible Securities Fund........................... $ 9 $ 27 $ 47 $ 105
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Institutional Class shares of the Funds.
Financial institutions that are the record owner of shares for the account of
their customers may impose separate fees for account services to their
customers. The Trust also offers Investment Class shares of the Funds, which are
subject to the same expenses, except there are distribution and sales charges.

Additional information may be found under "The Administrator," "The Advisor" and
"The SubAdvisor."

<PAGE> 27

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996 on
the Trust's financial statements as of January 31, 1996, included in the Trust's
statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional Information is set forth in the Trust's 1996 Annual Report
to Shareholders, and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES
NET -------------------------- DISTRIBUTIONS NET NET
ASSET NET REALIZED ------------------- ASSET ASSETS, RATIO OF
VALUE, NET AND UNREALIZED NET VALUE, END EXPENSES
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- --------------------------------
INTERMEDIATE-TERM BOND FUND
- --------------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 9.67 0.609 0.951 (0.609) -- 10.62 16.58 % 132,942 0.68%
1995 10.72 0.589 (1.034) (0.590) (0.015) 9.67 (4.11 )% 109,848 0.71%
1994 10.57 0.598 0.352 (0.595) (0.205) 10.72 9.22 % 130,308 0.69%
1993 10.49 0.650 0.409 (0.636) (0.343) 10.57 10.47 % 112,806 0.67%
1992 (1) 10.00 0.750 0.603 (0.745) (0.118) 10.49 14.05 % 76,779 0.72%
- -----------------------------
CONVERTIBLE SECURITIES FUND
- -----------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 9.08 0.407 1.35 (0.404) -- 10.43 19.67 % 16,668 0.85%
1995 (2) 10.00 0.354 (0.931) (0.343) -- 9.08 (5.83 )% 10,297 0.85%
- ------------------------------
GOVERNMENT SECURITIES FUND
- ------------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 9.07 0.556 0.87 (0.556) -- 9.94 16.16 % 46,725 0.75%
1995 (2) 10.00 0.491 (0.946) (0.475) -- 9.07 (4.49 )% 32,178 0.75%

<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES RATIO OF INCOME TO
TO AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
- ---------------------------
INTERMEDIATE-TERM BOND FUND
- ---------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.68% 5.97% 5.97% 147%
1995 0.71% 5.89% 5.89% 95%
1994 0.69% 5.56% 5.56% 72%
1993 0.67% 6.16% 6.16% 88%
1992 (1) 0.75% 7.37% 7.34% 126%
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.85% 4.14% 4.14% 46%
1995 (2) 0.85% 3.87% 3.87% 36%
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.75% 5.89% 5.89% 239%
1995 (2) 0.75% 5.46% 5.46% 184%
</TABLE>

<TABLE>
<C> <S>
(1) Commenced operations on February 1, 1991.

(2) Commenced operations on February 1, 1994.

</TABLE>
<PAGE> 28

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the Funds
(Institutional, Investment and Cash Sweep Classes) which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Institutional Class shares
of the Trust's Government Securities, Intermediate-Term Bond and Convertible
Securities Funds (each a "Fund"). Information regarding the Trust's other funds
is contained in separate prospectuses that may be obtained from the Trust's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.

INVESTMENT OBJECTIVES

THE INTERMEDIATE-TERM BOND FUND seeks to provide total return.

THE GOVERNMENT SECURITIES FUND seeks to achieve total return consistent with the
preservation of capital by investing in a diversified portfolio of obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.

THE CONVERTIBLE SECURITIES FUND seeks a high level of current income and capital
appreciation by investing in convertible securities.

There can be no assurance that a Fund will meet its investment objective.

INVESTMENT POLICIES

INTERMEDIATE-TERM BOND FUND

Under normal market conditions, at least 65% of the Intermediate-Term Bond
Fund's assets will be invested in debt instruments. Such debt instruments shall
include corporate bonds and debentures rated AAA, AA, A or BBB by Standard &
Poor's Corporation ("S&P") or Aaa, Aa, A or Baa by Moody's Investors Service
("Moody's") or determined by the Advisor to be of comparable quality at the time
of purchase; Yankee Bonds and EuroDollar instruments; obligations issued by the
U.S. Government and its agencies and instrumentalities (such as GNMA
securities); mortgage-backed securities including privately issued
mortgage-backed securities; readily-marketable asset-backed securities;
securities issued or guaranteed by foreign governments, their political
subdivisions, agencies or instrumentalities; and obligations of supranational
entities such as the World Bank and the Asian Development Bank. The remainder of
the Fund's assets may be invested in money market instruments and in cash. The
dollar-weighted average portfolio maturity of the Fund will be from three to ten
years.

The portfolio turnover rate for the Intermediate-Term Bond Fund for the fiscal
year ended January 31, 1996 was 147%. This rate of portfolio turnover may result
in higher brokerage execution costs and higher levels of capital gains.

GOVERNMENT SECURITIES FUND

Under normal market conditions, the Government Securities Fund will invest at
least 80% of its assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, including mortgage-backed
securities issued or guaranteed by U.S. government agencies such as the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"),
and repurchase agreements backed by such securities. With respect to the
remaining 20% of its assets, the Fund may also invest in corporate bonds that
carry a rating of Baa or better by Moody's or BBB or better by S&P, or that are
deemed by the SubAdvisor to be of comparable quality; Yankee Bonds, including
sovereign, supranational and Canadian bonds; shares of other investment
companies with similar investment objectives; commercial paper; money

<PAGE> 29

market funds; privately issued mortgage-backed and other readily-marketable
asset-backed securities; and money market instruments and cash.

The Fund may invest in futures and options on futures for the purpose of
achieving the Fund's objectives and for adjusting portfolio duration. The Fund
may invest in futures and related options based on any type of security or index
traded on U.S. or foreign exchanges or over the counter, as long as the
underlying security, or securities represented by an index, are permitted
investments of the Fund. The Fund may enter into futures contracts and options
on futures only to the extent that obligations under such contracts or
transactions represent not more than 10% of the Fund's assets.

The SubAdvisor will seek to enhance the yield of the Fund by taking advantage of
yield disparities or other factors that occur in the government securities and
money markets. The Fund may dispose of any security prior to its maturity if
such disposition and reinvestment of the proceeds are expected to enhance its
yield consistent with the SubAdvisor's judgment as to a desirable maturity
structure or if such disposition is believed to be advisable due to other
circumstances or considerations. The Fund will seek to achieve capital gains by
taking advantage of price appreciation caused by interest rate and credit
quality changes.

The portfolio turnover rate for the Government Securities Fund for the fiscal
year ended January 31, 1996 was 239%. This rate of portfolio turnover may result
in higher brokerage execution costs and higher levels of capital gains.

CONVERTIBLE SECURITIES FUND

Under normal market conditions, at least 65% of the Convertible Securities
Fund's assets will be invested in convertible securities consisting of bonds,
debentures, notes and preferred stocks convertible into common stock. In
general, a convertible security is a fixed-income security, such as a bond
(which typically pays a fixed annual rate of interest) or preferred stock (which
typically pays a fixed dividend), that may be converted at a stated price within
a specified period of time into a specified number of shares of common stock of
the issuing company or of a different company. A convertible security may be
subject to redemption by the issuer, but only after a particular date and under
certain circumstances (including a specified price) established upon issue. If a
convertible security held by the Fund is called for redemption, the Fund could
be required to tender it for redemption, convert it into the underlying common
stock, or sell it to a third party. Common stock received upon conversion will
be sold when, in the opinion of the SubAdvisor, it is advisable to do so.

Because of the conversion feature, the market value of convertible preferred
stock tends to move together with the market value of the underlying common
stock. As a result, the Fund's selection of convertible securities is based, to
a great extent, on the potential for capital appreciation that may exist in the
underlying common stocks. The value of convertible securities are also affected
by prevailing interest rates, the credit quality of the issuer, and any call
provisions. Investments in convertible securities generally entail less
volatility than investments in the common stocks of the same issuers.
Nevertheless, it is the fixed income component of these securities that is
deemed by the ratings agencies to be high risk or speculative. The Fund may
invest less than 35% of its assets in convertible bonds rated lower than Baa by
Moody's or BBB by S&P and as low as Caa by Moody's or CCC by S&P, which are
lower-quality, higher-yielding, high-risk debt securities (commonly known as
"junk bonds"). The Fund may also invest in unrated convertible securities which,
in the SubAdvisor's opinion, are of comparable quality to such rated securities.
See "Risk Factors."

The Fund may also invest in common stocks; securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities; corporate bonds rated
Baa or better by Moody's or BBB by S&P or better (investment grade bonds);

<PAGE> 30

shares of other investment companies with similar investment objectives; high
grade commercial paper; money market funds; money market instruments and cash;
floating and variable rate notes; repurchase agreements; dollar-denominated
securities of foreign issuers; and Standard and Poor's Depository Receipts
("SPDRs").

GENERAL INVESTMENT POLICIES

Mortgage-backed securities consisting of collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") purchased by
the Funds will be issued or guaranteed as to payment of principal and interest
by the U.S. government or its agencies or instrumentalities or, if issued by
private issuers, rated in one of the two highest rating categories by a
nationally recognized rating agency. The principal governmental issuers or
guarantors of mortgage-backed securities are GNMA, FNMA, and FHLMC. Obligations
of GNMA are backed by the full faith and credit of the United States Government,
while obligations of FNMA and FHLMC are supported by the credit of the
respective agency only. The Funds may purchase mortgage-backed securities that
are backed or collateralized by fixed, adjustable or floating rate mortgages.

Mortgage-backed securities that are not issued or guaranteed by the U.S.
government or its agencies or instrumentalities, including securities nominally
issued by a government entity (such as the Resolution Trust Corporation), are
not obligations of a governmental entity, and thus may bear a greater risk of
nonpayment. The timely payment of principal and interest normally is supported,
at least partially, by various forms of insurance or guarantees. There can be no
assurance, however, that such credit enhancements will support fully the payment
of principal and interest on such obligations.

Certain of the obligations in which the Funds may invest may be variable or
floating rate instruments, may involve conditional or unconditional demand
features, and may include variable amount master demand notes.

For temporary defensive purposes during periods when the Advisor or SubAdvisor
determines that market conditions warrant, each Fund may invest up to 100% of
its assets in money market instruments consisting of securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, repurchase
agreements, receipts, including TR's, TIGR's and CATS, money market funds,
certificates of deposit, time deposits, bank master notes and bankers'
acceptances issued by banks having net assets of at least $1 billion as of the
end of their most recent fiscal year, commercial paper rated at least A-1 by S&P
or P-1 by Moody's, and in cash. A Fund will not be pursuing its investment
objective to the extent that a substantial portion of its assets are invested in
money market securities.

In the event that a security owned by a Fund is downgraded below the stated
ratings categories, the Advisor or SubAdvisor will take appropriate action with
regard to the security.

Each Fund will restrict its investment in illiquid securities to 15% of its net
assets.

Each Fund may engage in securities lending and will limit such practice to
33 1/3% of total assets.

Each Fund may purchase restricted securities which have not been registered
under the Securities Act of 1933 (Rule 144a Securities and Section 4(2)
Commercial Paper).

Each Fund may purchase securities on a forward commitment or when-issued basis
where such purchases are for investment and not for leveraging purposes;
however, the Fund may sell these securities before the settlement date if it is
deemed advisable. No additional forward commitments will be made if more than
20% of a Fund's net assets would be so committed.

For further information see "Description of Permitted Investments."

RISK FACTORS

Each Fund's shares will fluctuate in value with the value of the underlying
securities in its portfolio.

<PAGE> 31

Because of their fixed income features, however, convertible securities are
expected to fluctuate in value to a lesser degree than the common stock into
which they are convertible. Changes in the value of a Fund's portfolio
securities will not affect cash income received from ownership of such
securities, but will affect the Fund's net asset value.

Securities rated BBB by S&P or Baa by Moody's are deemed by these rating
services to have some speculative characteristics and adverse economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds.

Investments in lower-rated debt securities (i.e., securities rated lower than
BBB by S&P or Baa by Moody's), in which the Convertible Securities Fund may
invest, bear certain risks, including the risk that such securities may be
thinly traded, which can adversely affect the price at which these securities
can be sold and can result in high transaction costs. Market quotations may not
be available, and therefore, judgment plays a greater role in valuing
lower-rated debt securities than securities for which more extensive quotations
and last sale information are available. Adverse publicity and changing investor
perceptions may affect the ability of outside pricing services to value
lower-rated debt securities, and the Convertible Securities Fund's ability to
dispose of these securities.

The market price of lower-rated debt securities may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates. During an economic downturn or a prolonged period of rising
interest rates, the ability of issuers of lower-rated debt to meet their payment
obligations on these securities may be impaired.

The Convertible Securities Fund may invest in securities which are rated as low
as 'Caa' by Moody's or 'CCC' by S&P. Securities rated 'Caa' by Moody's are of
poor standing and may be in default or may present elements of danger with
respect to principal or interest. Debt rated 'CCC' by S&P is regarded as having
speculative characteristics with respect to capacity to pay interest and repay
principal. In the event of adverse business, financial, and economic conditions,
debt rated 'CCC' is not likely to have the capacity to repay principal.

Each Fund may hold dollar-denominated securities of foreign issuers which may
bear greater investment risks than those of U.S. domestic issuers. Such risks
include political and economic instability, expropriation of foreign deposits
and other restrictions which may adversely affect the payment of principal, and
interest on such securities. See "Description of Permitted Investments."

INVESTMENT LIMITATIONS

Each Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of a Fund would be invested in the securities of such issuer. This
restriction applies to 75% of a Fund's assets.

2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and repurchase
agreements involving such securities, and provided further, that utilities as a
group will not be considered to be one industry, and wholly-owned subsidiaries
organized to finance the operations of their parent companies will be considered
to be in the same industries as their parent companies.

3. Make loans except that the Fund may (a) purchase or hold debt instruments in
<PAGE> 32

accordance with its investment objectives and policies, (b) enter into
repurchase agreements, and (c) engage in securities lending as described in this
Prospectus and in the Statement of Additional Information.

FUNDAMENTAL POLICIES

The investment objective and certain of the investment limitations are
fundamental policies of the Funds. Fundamental policies cannot be changed with
respect to a Fund without the consent of the holders of a majority of the Fund's
outstanding shares. The term "majority of the outstanding shares" means the vote
of (i) 67% or more of the Fund's shares present at a meeting, if more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares, whichever is less.

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor") have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of the
Intermediate-Term Bond Fund and continuously reviews, supervises and administers
each Fund's investment program. The Advisor discharges its responsibilities
subject to the supervision of, and policies established by, the Trustees of the
Trust. The Trust's shares are not sponsored, endorsed or guaranteed by, and do
not constitute obligations or deposits of, the Advisor and are not guaranteed by
the FDIC or any other governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .50% of the average daily net assets of the Government
Securities and Intermediate-Term Bond Funds and .60% of the average daily net
assets of the Convertible Securities Fund. The Advisor may from time to time
waive all or a portion of its fee in order to limit the operating expenses of a
Fund. Any such waiver is voluntary and may be terminated at any time in the
Advisor's sole discretion.

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, was paid an advisory fee of .50%, .50% and .60% of the average daily
net assets of the Intermediate-Term Bond Fund, Government Securities Fund and
Convertible Securities Fund, respectively.

James V. Atkinson has served as team leader of the Intermediate-Term Bond Fund
since 1991. Mr. Atkinson is a Vice President of the Advisor and has been with
the Advisor and its predecessor since 1991. Mr. Atkinson was a portfolio manager
at The Boston Company from 1988 to 1990.

THE SUBADVISOR

The Advisor and Bank of Tokyo-Mitsubishi Trust Company (the "SubAdvisor") have
entered into an investment subadvisory agreement relating to the Government
Securities and Convertible

<PAGE> 33

Securities Funds (the "Investment SubAdvisory Agreement"). Under the Investment
SubAdvisory Agreement, the SubAdvisor makes the day-to-day investment decisions
for the assets of the Government Securities and Convertible Securities Funds,
subject to the supervision of, and policies established by, the Advisor and the
Trustees of the Trust. The Trust's shares are not sponsored, endorsed or
guaranteed by and do not constitute obligations or deposits of the SubAdvisor
and are not guaranteed by the FDIC or any other governmental agency.

The SubAdvisor is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .20% of the average daily net
assets of the Government Securities Fund and .30% of the average daily net
assets of the Convertible Securities Fund. For the fiscal year ended January 31,
1996, The Bank of Tokyo Trust Company, as predecessor to the SubAdvisor,
received .20% and .30% of the average daily net assets of the Government
Securities Fund and the Convertible Securities Fund, respectively.

Bank of Tokyo-Mitsubishi Trust Company ("BOT-MTC"), headquartered at 1251 Avenue
of the Americas, New York, New York 10116 and with offices at 100 Broadway, New
York, New York 10005, operates as a wholly-owned subsidiary of The Bank of
Tokyo-Mitsubishi, Ltd. BOT-MTC was formed by the merger on April 1, 1996 between
The Bank of Tokyo Trust Company, a wholly-owned subsidiary of The Bank of Tokyo,
Ltd., and Mitsubishi Bank Trust Company of New York, a wholly-owned subsidiary
of The Mitsubishi Bank, Limited. The Bank of Tokyo Trust Company was the
surviving entity, and changed its name to Bank of Tokyo-Mitsubishi Trust
Company. The parent companies merged on the same date. Prior to the merger, the
subadvisory services were provided by The Bank of Tokyo Trust Company. The Bank
of Tokyo Trust Company was established in 1955 and has provided trust services
since that time and management services since 1965.

The SubAdvisor serves as manager to bank common funds, employee benefit funds
and personal trust accounts, managing assets in money market, equity and fixed
income portfolios. As of April 1, 1996, Bank of Tokyo-Mitsubishi Trust Company
managed $750 billion in individual portfolios and collective funds. In addition,
Bank of Tokyo-Mitsubishi Trust Company also serves as SubAdvisor to the Trust's
Emerging Growth and Blue Chip Growth Funds.

Stephen W. Blocklin has served as portfolio manager of the Government Securities
Fund since its inception. Mr. Blocklin has been a Vice President with the
SubAdvisor and its predecessor since December, 1993. From September, 1988 to
December, 1993, he served as a senior fixed income fund manager in the
institutional investment management group at First Fidelity Bancorporation.

The day-to-day management of the Convertible Securities Fund's investments is
the responsibility of a team of investment professionals. Decisions are made by
committee and no person has primary responsibility for making recommendations to
the committee.

THE ADMINISTRATOR

SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement (the "Administration Agreement"). Under the terms of
the Administration Agreement, the Administrator provides the Trust with certain
management services including all necessary office space, equipment, personnel,
and facilities.

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of the average daily net assets of the Trust
up to $1 billion, .12% of the average daily net assets between $1 billion and $2
billion and .10% of the average daily net assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of a Fund's Institutional Class
shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion.

<PAGE> 34

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). The Distribution Agreement is renewable annually and may be
terminated by the Distributor, by a majority vote of the outstanding shares of
the Trust upon not more than 60 days' written notice by either party, or upon
assignment by the Distributor. Investment Class shares of a Fund, which are
offered by a separate prospectus, may bear the costs of their distribution
expenses and, a sales charge is imposed on the sale of Investment Class shares
of the Funds. It is possible that an institution may offer different classes of
shares to its customers and thus receive different compensation with respect to
different classes of shares.

PURCHASE AND REDEMPTION OF SHARES

Purchase orders will be effective as of the day they are received by the
Distributor if the Distributor receives the order before 1:00 p.m. Pacific time
and the Custodian receives Federal funds before the close of business on the
next Business Day.

The purchase price of shares of a Fund is the net asset value
next determined after a purchase order is received and accepted by the Trust.
The net asset value per share of a Fund is determined by dividing the total
market value of a Fund's investments and other assets, less any liabilities, by
the total number of outstanding shares of a Fund. Net asset value per share is
determined daily as of 1:00 p.m. Pacific time, on any Business Day. Purchases
will be made in full and fractional shares of a Fund calculated to three decimal
places. The Trust reserves the right to reject a purchase order when the
Distributor determines that it is not in the best interest of the Trust and/or
its Shareholders to accept such order.

Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase.

Shareholders who desire to redeem shares of a Fund must place their redemption
orders prior to 1:00 p.m. Pacific time, on any Business Day for the order to be
accepted on that Business Day. The redemption price is the net asset value of a
Fund next determined after receipt by the Distributor of the redemption order.
Payment on redemption will be made as promptly as possible and, in any event,
within seven calendar days after the redemption order is received.

Neither the Trust's Transfer Agent nor the Trust will be responsible for any
loss, liability, cost, or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes are genuine. The Trust and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
other extraordinary circumstances exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means.

PERFORMANCE

yield is calculated by assuming that the same amount of income generated by the
investment during the period is generated in each 30-day period over one year
and is shown as a percentage of the investment.

The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment, for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The total return of a Fund may also be quoted as a dollar amount or on an
aggregate basis, an actual basis, without inclusion of any sales charge, or with
a reduced sales charge in advertisements distributed to investors entitled to a
reduced sales charge.

A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

The Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of a Fund or
its Shareholders. In addition, state and local income tax consequences of an
investment in a Fund may differ from the federal income tax consequences
described below. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state, and local income
taxes. Additional information concerning taxes is set forth in the Statement of
Additional Information.

TAX STATUS OF THE FUNDS:

Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies by
the Internal Revenue Code of 1986, as amended (the "Code"), so as to be relieved
of federal income tax on that part of its net investment company taxable income
and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

A Fund will distribute all of its net investment income (including net
short-term capital gain) to Shareholders. Dividends from the Fund's net

<PAGE> 36

investment company taxable income are taxable to Shareholders as ordinary income
(whether received in cash or in additional shares) to the extent of the Fund's
earnings and profits. Any net capital gains will be distributed at least
annually and will be taxed to Shareholders as long-term capital gains,
regardless of how long the Shareholder has held shares and regardless of whether
the distributions are received in cash or in additional shares. Dividends paid
by a Fund to corporate Shareholders will qualify for the dividends-received
deduction to the extent derived from dividends received by the Fund from
domestic corporations. A portion of such dividends may be subject to the
alternative minimum tax. Each Fund will provide annual reports to Shareholders
of the federal income tax status of all distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments, a
Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because each Fund distributes
all of its net investment income to Shareholders, a Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Advisor or SubAdvisor would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level when received directly by a Fund, and may be
exempt, depending on the state, when received by a Shareholder as income
dividends from a Fund provided certain state-specific conditions are satisfied.
Interest realized on repurchase agreements collateralized by U.S. government
obligations normally is not exempt from state tax. Each Fund will inform
Shareholders annually of the percentage of income and distributions derived from
direct U.S. Treasury obligations. Shareholders should consult their tax advisors
to determine whether any portion of the income dividends received from a Fund is
considered tax exempt in their particular state.

Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. A Fund will not be able to elect to treat
Shareholders as having paid their proportionate share of such taxes.

Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared if paid by the Fund any time during the following January.

The Funds intend to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Each sale, exchange, or redemption of Fund shares is a taxable event to the
Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each fund. In
addition to the Funds, the Trust consists of the following funds: Treasury Money
Market Fund, Money Market Fund, California Tax-Free Money Market Fund, Growth
Equity Fund, Value Momentum Fund, Balanced Fund, California Intermediate
Tax-Free Bond Fund, Blue Chip Growth Fund, Limited Maturity Government Fund,
Emerging Growth Fund and International Equity Fund. All consideration received
by the Trust for shares of any fund and all assets of such fund belong to that
fund and would be subject to liabilities related thereto. The Trust reserves the
right to create and issue shares of additional funds.

The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy
<PAGE> 37

solicitation material and reports to shareholders, costs of custodial services
and registering the shares under Federal and State securities laws, pricing,
insurance expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organization expenses. Please refer to
"Financial Highlights" in this prospectus for more information regarding the
Trust's expenses.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to that fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders, but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania,
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of
the Fund is distributed in the form of monthly dividends to Shareholders of
record. Currently, capital gains of a Fund, if any, will be distributed at least
annually.

Shareholders automatically receive all income dividends and capital gain
distributions in additional shares unless the Shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Administrator at least 15 days prior to the distribution.

Dividends and distributions of the Fund are paid on a per-share basis. The value
of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a Shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.

The amount of dividends payable on Institutional Class shares will typically be
higher than the dividends payable on the Investment Class shares because of the
distribution expenses charged to Investment Class shares.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as Custodian of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended.

<PAGE> 38

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Funds:

ASSET-BACKED SECURITIES (NON-MORTGAGE)--The Intermediate-Term Bond Fund and
Government Securities Fund may invest in asset-backed securities, which are
instruments secured by company receivables, truck and auto loans, leases, and
credit card receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be debt instruments, which
are also known as collateralized obligations and are generally issued as the
debt of a special purpose entity, such as a trust, organized solely for purpose
of owning such assets and issuing such debt. The purchase of non-mortgage
asset-backed securities raises risk considerations peculiar to the financing of
the instruments underlying such securities.

The development of non-mortgage asset-backed securities is at an early stage
compared to mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for non-mortgage
asset-backed securities is not as well developed as that for mortgage-backed
securities guaranteed by government agencies or instrumentalities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associated with
mortgage-backed securities.

CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--The Convertible Securities
Fund may invest in convertible bonds which are bonds convertible into a set
number of shares of another form of security (usually common stock) at a
prestated price. Convertible bonds have characteristics similar to both fixed
income and equity securities. Convertible preferred stock is a class of capital
stock that pays dividends at a specified rate and that has preference over
common stock in the payment of dividends and the liquidation of assets.
Convertible preferred stock is preferred stock exchangeable for a given number
of common stock shares, and has characteristics similar to both fixed-income and
equity securities. Because of the conversion feature, the market value of
convertible bonds and convertible preferred stock tends to move together with
the market value of the underlying stock. As a result, the Fund's selection of
convertible bonds and convertible preferred stock is based, to a great extent,
on the potential for capital appreciation that may exist in the underlying
stock. The value of convertible bonds and convertible preferred stock is also
affected by prevailing interest rates, the credit quality of the issuer and any
call provisions.

CORPORATE OR GOVERNMENT BONDS-- Interest-bearing or discounted corporate or
government securities that obligates the issuer to pay the bondholder a
specified sum of money, usually at specific intervals, and to repay the
principal amount of the loan at maturity. Bonds rated Baa or better by Moody's
or BBB or better by S&P, are considered investment grade quality.

DERIVATIVES--Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof, including
futures, options (e.g., puts and calls), options on futures, swap agreements,
and some mortgage-backed securities, (CMOs, REMICs, IOs and POs). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.

FUTURES AND OPTIONS ON FUTURES--The Government Securities Fund may invest in
futures and options on futures. Some futures strategies, including selling
futures, buying puts and writing calls, reduce a Fund's exposure to price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures and options may be
combined with each other in order to adjust the risk and return characteristics
of the overall portfolio.
<PAGE> 39

Options and futures can be volatile instruments, and involve certain risks that
if applied at an inappropriate time, could negatively impact the Fund's return.

LOWER-RATED, HIGHER-YIELDING, HIGH-RISK DEBT SECURITIES--The Convertible
Securities Fund may purchase high-yield, high-risk securities, which consist of
securities rated Ba or lower by Moody's or BB or lower by S&P. Lower-rated debt
securities are considered speculative and involve greater risk of loss than
investment grade debt securities, and are more sensitive to changes in the
issuer's capacity to pay. For a description of the debt securities ratings, see
the "Appendix."

MONEY MARKET INSTRUMENTS--Money market securities are high-quality,
dollar-denominated, short-term, debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury Obligations
and Instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding
high-quality commercial papers; and (v) repurchase agreements involving any of
the foregoing obligations entered into with highly-rated banks and
broker-dealers.

MORTGAGE-BACKED SECURITIES--The Government Securities Fund and Intermediate-Term
Bond Fund may purchase mortgage-backed securities, which securities are
generally issued or guaranteed by U.S. government agencies such as GNMA, FNMA,
or FHLMC. GNMA mortgage-backed certificates are mortgage-backed securities of
the modified pass-through type, which means that both interest and principal
payments (including prepayments) are passed through monthly to the holder of the
certificate. Each GNMA certificate evidences an interest in a specific pool of
mortgage loans insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. FNMA, a federally-
chartered and stockholder-owned corporation, issues pass-through certificates
which are guaranteed as to payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States, issues participation
certificates which represent an interest in mortgages held in FHLMC's portfolio.
FHLMC guarantees the timely payment of interest and the ultimate collection of
principal. Securities issued or guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States. There can be no assurance that
the U.S. government would provide financial support to FNMA or FHLMC if
necessary in the future.

Adjustable rate mortgage securities ("ARMs") are pass-through certificates
representing ownership interests in a pool of adjustable rate mortgages and the
resulting cash flow from those mortgages. Unlike conventional debt securities,
which provide for periodic (usually semi-annually) payments of interest and
payments of principal at maturity or on specified call dates, ARMs provide for
monthly payments based on a pro rata share of both periodic interest and
principal payments and prepayments of principal on the underlying mortgage pool
(less GNMA's, FNMA's, or FHLMC's fees and any applicable loan servicing fees).

Collateralized mortgage obligations ("CMOs") are bonds generally issued by
single purpose, stand-alone finance subsidiaries or trusts established by
financial institutions, government agencies, investment banks, or other similar
institutions, and collateralized by pools of mortgage loans. Payments of
principal and interest on the collateral mortgages are used to pay debt service
on the CMO. In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date. The
principal and interest payment on the underlying mortgages may be allocated
among the classes of CMOs in several ways. Typically, payments of principal,
including any prepayments, on the underlying mortgages would be applied to the
classes in the order of

<PAGE> 40

their respective stated maturities or final distribution dates, so that no
payment of principal will be made on CMOs of a class until all CMOs of other
classes having earlier stated maturities or final distribution dates have been
paid in full.

One or more classes of CMOs may have coupon rates that reset periodically based
on an index, such as the London Interbank Offered Rate ("LIBOR"). The Government
Securities Fund and Intermediate-Term Bond Fund may purchase fixed, adjustable,
or "floating" rate CMOs that are collateralized by fixed rate or adjustable rate
mortgages that are guaranteed as to payment of principal and interest by an
agency or instrumentality of the U.S. government or are directly guaranteed as
to payment of principal and interest by the issuer, which guarantee is
collateralized by U.S. government securities; or are collateralized by privately
issued fixed rate or adjustable rate mortgages.

Real Estate Mortgage Investment Conduits ("REMICs") are private entities formed
for the purpose of holding a fixed pool of mortgages secured by an interest in
real property. REMICs are similar to CMOs in that they issue multiple classes of
securities.

[Risks associated with mortgage-backed securities:] While the U.S. government or
the issuing agency or entity guarantees the timely payment of interest on and
principal of the securities referred to in the preceding section, the guarantees
do not extend to the securities' yield or value, which are likely to vary
inversely with fluctuations in interest rates. Changes in interest rates can
lead to material changes in prepayment rates, which in turn can materially
affect an instruments value. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the average
life or realized yield of a particular issue of pass-through certificates.

REPURCHASE AGREEMENTS--Agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement. A
Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities or if the Fund realizes a loss on the sale
of the collateral. A Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.

RULE 144A SECURITIES--Each Fund may purchase Rule 144A Securities. Rule 144A
Securities are restricted securities that have not been registered under the
Securities Act of 1933, but which may be traded between certain qualified
institutional investors, including investment companies. The absence of a
secondary market may affect the value of Rule 144A Securities. The Board of
Trustees of the Trust has established guidelines and procedures to be utilized
to determine the liquidity of such securities.

SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR WHEN-ISSUED
SECURITIES--Securities subject to settlement on a future date. The interest rate
realized on these securities is fixed as of the purchase date, and no interest
accrues to a Fund before settlement. These securities are subject to market
fluctuation due to changes, real or anticipated, in market interest rates and
the public's perception of the creditworthiness of the issuer and will have the
effect of leveraging the Fund's assets. Purchasing securities on a forward
commitment or when-issued basis when a Fund is fully or almost fully invested
may result in greater potential fluctuation in the value of a Fund's net asset
value per share. The purchasing Fund will establish one or more segregated
accounts with the Custodian, and will maintain liquid, high-grade assets in an
amount at

<PAGE> 41

least equal in value to the Fund's commitments to purchase when-issued
securities.

U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S. Treasury,
as well as separately traded interest and principal component parts of such
obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"), that are transferable through the Federal book-entry
system.

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS-- Certain obligations purchased by a Fund
may carry variable or floating rates of interest, may involve conditional or
unconditional demand features and may include variable amount master demand
notes. The interest rates on these securities may be reset daily, weekly,
quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

YANKEE BONDS--Dollar-denominated securities issued by foreign-domiciled issuers
that obligate the issuer to pay the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the loan at maturity. Most
Yankee bond issues enjoy relatively high credit ratings. Sovereign bonds are
bonds issued by the governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as the World Bank and the European

<PAGE> 42

Investment Bank. Canadian bonds are bonds issued by Canadian provinces.

SECURITIES OF FOREIGN ISSUERS--Each Fund may purchase U.S. dollar denominated
securities of foreign issuers. There may be certain risks connected with
investing in foreign securities, including risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be less information on
such securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
U.S. securities. A Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates may also affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to distributed
to shareholders by a Fund.

<PAGE> 43

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Annual Operating Expenses....................... 3
Financial Highlights............................ 4
The Trust....................................... 5
Investment Objectives........................... 5
Investment Policies............................. 5
General Investment Policies..................... 7
Risk Factors.................................... 7
Investment Limitations.......................... 8
Fundamental Policies............................ 9
The Advisor..................................... 9
The SubAdvisor.................................. 9
The Administrator............................... 10
The Shareholder Servicing Agent................. 11
Distribution.................................... 11
Purchase and Redemption of Shares............... 11
Performance..................................... 11
Taxes........................................... 12
General Information............................. 13
Description of Permitted Investments............ 15
</TABLE>

<PAGE> 44

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 45

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in professionally managed portfolios of securities. This Prospectus
relates to the Trust's:

-- BALANCED FUND
-- VALUE MOMENTUM FUND
-- BLUE CHIP GROWTH FUND
-- GROWTH EQUITY FUND
-- EMERGING GROWTH FUND

INSTITUTIONAL CLASS SHARES

MAY 28, 1996

INSTITUTIONAL CLASS
<PAGE> 46

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Institutional Class shares of the GROWTH EQUITY, VALUE MOMENTUM, BLUE CHIP
GROWTH, EMERGING GROWTH and BALANCED FUNDS, (each a "Fund"). This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in the Prospectus and in the Statement of Additional Information.

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE BALANCED FUND seeks to provide
both capital appreciation and income. THE VALUE MOMENTUM FUND seeks long-term
capital growth with a secondary objective of income. THE BLUE CHIP GROWTH FUND
seeks long-term capital growth by investing in a diversified portfolio of common
stocks and other equity securities of seasoned, large capitalization companies.
THE GROWTH EQUITY FUND seeks long-term capital growth. THE EMERGING GROWTH FUND
seeks long-term growth of capital by investing in a diversified portfolio of
equity securities of small capitalization, emerging growth companies. See
"Investment Objectives."

WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? Each of the Funds may invest,
consistent with its investment objectives, in equity securities, including
common stocks and securities convertible into common stocks. Each Fund, except
the Emerging Growth Fund, may also invest, consistent with its investment
objective and investment policies, in debt securities. See "Investment
Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. Each of the Funds may purchase common stocks and other
equity securities that are volatile and which may fluctuate in value more than
other types of investments. Values of fixed income securities and,
correspondingly, share prices of Funds invested in such securities, tend to vary
inversely with interest rates, and may be affected by other market and economic
factors as well. In addition, the securities of the emerging growth companies in
which the Emerging Growth Fund may invest may be less liquid, and subject to
more abrupt or erratic market movements, than securities of larger, more
established growth companies.

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE SUBADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
SubAdvisor to the Emerging Growth and Blue Chip Growth Funds. See "The
SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment in the Trust is $2,000. A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time
and the Custodian receives Federal funds before the close of business on the
next Business Day. The purchase price is the net asset value next determined
after a purchase order is received and accepted by the Trust. Redemption orders
must be placed prior to 1:00 p.m. Pacific time on any Business Day for the order
to be accepted that day. See "Purchase and Redemption of Shares."

HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Funds is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional shares unless the Shareholder
elects to take the payment in cash. See "Dividends."
<PAGE> 47

ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)

<TABLE>
<CAPTION>
VALUE BLUE CHIP GROWTH EMERGING
BALANCED MOMENTUM GROWTH EQUITY GROWTH
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees............................. .60% .60% .60% .60% .80%
Other Expenses............................ .20% .20% .23% .20% .25%
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses.................. .80% .80% .83% .80% 1.05%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% return and (2) redemption at the
end of each time period.
Balanced Fund.................................................... $ 8 $ 26 $ 44 $ 99
Value Momentum Fund.............................................. $ 8 $ 26 $ 44 $ 99
Blue Chip Growth Fund............................................ $ 8 $ 26 $ 46 $ 103
Growth Equity Fund............................................... $ 8 $ 26 $ 44 $ 99
Emerging Growth Fund............................................. $11 $ 33 $ 58 $ 128
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Institutional Class shares of the Funds.
Financial institutions that are the record owner of shares for the account of
their customers may impose separate fees for account services to their
customers. The Trust also offers Investment Class shares of the Funds, which are
subject to the same expenses, except that Investment Class shares are subject to
sales charges and distribution expenses. Additional information may be found
under "The Administrator," "The Advisor" and "The SubAdvisor."

<PAGE> 48

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996 on
the Trust's financial statements as of January 31, 1996, included in the Trust's
Statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional Information is set forth in the Trust's 1996 Annual Report
to Shareholders, and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES
NET -------------------------- DISTRIBUTIONS NET NET
ASSET NET REALIZED ------------------- ASSET ASSETS, RATIO
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ---------------------
GROWTH EQUITY FUND
- ---------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 14.13 0.115 4.483 (0.118) (0.993) 17.62 32.93 % 178,590 0.80%
1995 15.16 0.097 (0.854) (0.092) (0.181) 14.13 (4.98 )% 136,668 0.78%
1994 13.79 0.066 1.370 (0.066) -- 15.16 10.48 % 142,661 0.77%
1993 12.69 0.091 1.101 (0.092) -- 13.79 9.48 % 122,529 0.68%
1992 (1) 10.00 0.103 2.703 (0.102) (0.014) 12.69 28.28 % 93,260 0.72%
- ------------------------
VALUE MOMENTUM FUND
- ------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 13.40 0.331 5.063 (0.337) (0.408) 18.05 40.88 % 222,065 0.80%
1995 14.27 0.318 (0.817) (0.317) (0.054) 13.40 (3.48 )% 150,138 0.81%
1994 12.76 0.292 1.538 (0.290) (0.030) 14.27 14.56 % 140,609 0.77%
1993 11.68 0.310 1.103 (0.311) (0.022) 12.76 12.33 % 92,636 0.68%
1992 (1) 10.00 0.312 1.694 (0.302) (0.024) 11.68 20.27 % 51,682 0.78%
- ----------------
BALANCED FUND
- ----------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 11.45 0.415 2.831 (0.417) (0.362) 13.92 28.93 % 233,878 0.80%
1995 12.21 0.390 (0.756) (0.391) (0.003) 11.45 (2.95 )% 167,434 0.80%
1994 11.50 0.394 0.928 (0.391) (0.221) 12.21 11.79 % 152,189 0.69%
1993 11.15 0.413 0.543 (0.408) (0.198) 11.50 8.86 % 100,474 0.69%
1992 (1) 10.00 0.471 1.250 (0.465) (0.106) 11.15 17.69 % 67,098 0.78%
- ------------------------
BLUE CHIP GROWTH FUND
- ------------------------
INSTITUTIONAL CLASS
FOR THE YEAR ENDED JANUARY 31,:
1996 9.53 0.174 3.311 (0.180) (0.203) 12.63 36.95 % 63,410 0.83%
1995 (2) 10.00 0.167 (0.479) (0.158) -- 9.53 (3.10 )% 39,319 0.85%
- ------------------------
EMERGING GROWTH FUND
- ------------------------
INSTITUTIONAL CLASS
FOR THE YEAR ENDED JANUARY 31,:
1996 9.42 0.026 2.807 (0.033) (0.277) 11.94 30.24 % 41,770 1.05%
1995 (2) 10.00 0.086 (0.535) (0.080) (0.051) 9.42 (4.48 )% 23,928 1.05%

<CAPTION>
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
TO AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- ---------------------
GROWTH EQUITY FUND
- ---------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 0.68% 0.68% 24%
1995 0.78% 0.69% 0.69% 22%
1994 0.79% 0.48% 0.46% 45%
1993 0.78% 0.74% 0.64% 23%
1992 (1) 0.85% 0.90% 0.77% 26%
- -----------------------
VALUE MOMENTUM FUND
- -----------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 2.07% 2.07% 20%
1995 0.81% 2.36% 2.36% 6%
1994 0.79% 2.19% 2.17% 5%
1993 0.78% 2.59% 2.49% 3%
1992 (1) 0.91% 2.88% 2.75% 5%
- ----------------
BALANCED FUND
- ----------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 3.20% 3.20% 26%
1995 0.80% 3.41% 3.41% 48%
1994 0.79% 3.35% 3.25% 49%
1993 0.79% 3.72% 3.62% 68%
1992 (1) 0.91% 4.44% 4.31% 56%
- -----------------------
BLUE CHIP GROWTH FUND
- -----------------------
INSTITUTIONAL CLASS
FOR THE YEAR ENDED JANUARY 31,:
1996 0.83% 1.54% 1.54% 69%
1995 (2) 0.85% 1.84% 1.84% 89%
- -----------------------
EMERGING GROWTH FUND
- -----------------------
INSTITUTIONAL CLASS
FOR THE YEAR ENDED JANUARY 31,:
1996 1.05% 0.22% 0.22% 131%
1995 (2) 1.05% 1.01% 1.01% 123%
</TABLE>

<TABLE>
<C> <S>
(1) Commenced operations on February 1, 1991.
(2) Commenced operations on February 1, 1994.
</TABLE>
<PAGE> 49

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Institutional Class shares
of the Trust's Growth Equity, Value Momentum, Blue Chip Growth, Emerging Growth
and Balanced Funds (each a "Fund"). Information regarding the Trust's other
funds is contained in separate prospectuses that may be obtained from the
Trust's Distributor, SEI Financial Services Company, 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVES

THE BALANCED FUND seeks to provide both capital appreciation and income.

THE VALUE MOMENTUM FUND seeks long-term capital growth with a secondary
objective of income.

THE BLUE CHIP GROWTH FUND seeks long-term capital growth by investing in a
diversified portfolio of common stocks and other equity securities of seasoned,
large capitalization companies.

THE GROWTH EQUITY FUND seeks long-term capital growth.

THE EMERGING GROWTH FUND seeks long-term growth of capital by investing in a
diversified portfolio of equity securities of small capitalization, emerging
growth companies.

There can be no assurance that a Fund's investment objective will be met.

INVESTMENT POLICIES

BALANCED FUND

The Balanced Fund will invest in a combination of equity, fixed-income, and
money market securities. Under normal market conditions, the Fund will invest
between 50% and 70% of its total assets in equity securities, including common
stocks, warrants, and U.S. dollar denominated securities of foreign issuers, and
both preferred stock and debt securities convertible into common stocks. The
Fund may invest in a broad spectrum of common stocks with varying
characteristics. All of the common stocks in which the Fund invests (including
foreign securities) are traded on registered exchanges or the over the counter
market or in the form of American Depositary Receipts ("ADRs") traded on
registered exchanges or NASDAQ. The Fund may also buy and sell options, futures
contracts and options on futures. The Fund may enter into futures contracts and
options on futures only to the extent that obligations under such contracts or
transactions, together with options on securities represent not more than 25% of
the Fund's assets. The aggregate value of options on securities (long puts and
calls) will not exceed 10% of the Fund's net assets at the time such options are
purchased by the Fund.

Under normal market conditions, a minimum of 25% of the Fund's total assets will
be invested in senior fixed income securities. Such securities consist of bonds,
debentures, and similar obligations or instruments which constitute a security
and evidence indebtedness. Corporate bonds and debentures will be rated AAA, AA,
A, or BBB by Standard & Poor's Corporation ("S&P") or Aaa, Aa, A, or Baa by
Moody's Investors Service ("Moody's") or as determined by the Advisor to be of
comparable quality at the time of purchase.

The Fund may also invest in mortgage-backed securities consisting of
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated
<PAGE> 50

in one of the top two rating categories by Moody's or S&P.

In addition to mortgage-backed securities, the Fund may invest in other
asset-backed securities backed by company receivables, truck and auto loans,
leases, and credit card receivables. These issues are traded over the counter
and typically have a short-intermediate maturity structure depending on the
paydown characteristics of the underlying financial assets which are passed
through to the security holder.

The Fund may invest in securities issued or guaranteed by foreign governments,
their political subdivisions, agencies or instrumentalities and obligations of
supranational entities such as the World Bank and the Asian Development Bank.

Money market instruments the Fund may invest in consist of: (i) commercial paper
rated at least A-1 by S&P or P-1 by Moody's at the time of investment, or, if
not rated, are determined by the Advisor to be of comparable quality; (ii)
obligations (certificates of deposit, time deposits, bank master notes, and
bankers' acceptances) of thrift institutions, savings and loans, U.S. commercial
banks (including foreign branches of such banks), and U.S. and foreign branches
of foreign banks, provided that such institutions (or, in the case of a branch,
the parent institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of investment; (iii)
short-term corporate obligations rated at least A by S&P or A by Moody's at the
time of investment, or, if not rated, determined by the Advisor to be of
comparable quality; (iv) general obligations issued by the U.S. Government and
backed by its full faith and credit, and obligations issued or guaranteed as to
principal and interest by agencies or instrumentalities of the U.S. Government
(e.g., obligations issued by Farmers Home Administration, Government National
Mortgage Association, Federal Farm Credit Bank and Federal Housing
Administration); (v) receipts, including TR's, TIGR's and CATS; (vi) repurchase
agreement involving such obligations; (vii) loan participations; (viii) money
market funds; and (ix) foreign commercial paper. The Fund may only purchase
interests in loan participations issued by a bank in the United States with
assets exceeding $1 billion and for which the underlying loan is issued by
borrowers in whose obligations the Fund may invest.

Certain of the obligations in which the Fund may invest may be variable or
floating rate instruments, may involve conditional or unconditional demand
features and may include variable amount master demand note.

The Fund may enter into forward commitments, or purchase securities on a
when-issued basis. The Fund is permitted to invest in when-issued securities
where such purchases are for investment and not for leveraging purposes;
however, the Fund may sell those securities before the settlement date if it is
deemed advisable. No additional forward commitments will be made if more than
20% of the Fund's net assets would be so committed.

VALUE MOMENTUM FUND

Under normal market conditions, at least 65% of the Value Momentum Fund's assets
will be invested in equity securities, including common stocks, warrants to
purchase common stock, debt securities and preferred stocks convertible into
common stocks, and ADRs.

<PAGE> 51

instrumentalities, receipts including TR's, TIGR's and CATS, money market funds,
repurchase agreements, certificates of deposit, time deposits, bank master notes
and bankers' acceptances issued by banks having net assets of at least $1
billion as of the end of their most recent fiscal year, commercial paper rated
at least A-1 by S&P or P-1 by Moody's and in cash.

BLUE CHIP GROWTH FUND

Under normal market conditions, at least 65% of the Blue Chip Growth Fund's
assets will be invested in equity securities, including common stocks, warrants
to purchase common stocks, U.S. dollar denominated equity securities of foreign
issuers traded as ADRs, preferred stocks convertible into common stocks, and
units representing combinations of the foregoing. The Fund will primarily invest
in equity securities of seasoned, large capitalization companies. A seasoned
company is a company with a operating history of 3 years or more. A large
capitalization company is a company with capitalization in excess of $1.0
billion. The Fund will limit its investment in foreign securities to 15% of its
total assets. A majority of the Fund's equity investments ordinarily will
consist of dividend-paying securities. The balance of the Fund's assets (up to
35%) may be invested in money market instruments (for temporary and defensive
purposes as described below), options, futures contracts and options on futures,
shares of other investment companies with similar investment objectives,
Standard & Poor's Depositary Receipts ("SPDRs"), investment grade bonds and
bonds convertible into common stocks. The Fund may enter into futures and
options on futures only to the extent that obligations under such contracts or
transactions, together with options on securities, represent not more than 25%
of the Fund's assets. The aggregate value of options on securities (long puts
and calls) will not exceed 10% of a Fund's net assets at the time such options
are purchased by the Fund. Because the Fund invests primarily in equity
securities, the Fund's shares will fluctuate in value with the value of the
underlying securities in its portfolio. All of the common stocks in which the
Fund invests (including foreign securities but not including Rule 144A
Securities) are traded on registered exchanges or in the over the counter market
or in the form of ADRs traded on registered exchanges or NASDAQ.

GROWTH EQUITY FUND

Under normal market conditions, at least 65% of the Growth Equity Fund will be
invested in equity securities consisting of common stocks, warrants to purchase
common stocks, U.S. dollar denominated equity securities of foreign issuers, and
debt securities and preferred stock convertible into common stocks.

The Fund may also be invested in covered call options on equity securities and
money market instruments consisting of securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities, receipts, including TR's,
TIGR's and CATS, money market funds, repurchase agreements, certificates of
deposit, time deposits, bank master notes and bankers' acceptances issued by
banks having net assets of at least $1 billion as of the end of their most
recent fiscal year, commercial paper rated at least A-1 by S&P or P-1 by Moody's
and in cash. All of the common stocks in which the Fund invests (including
foreign securities) are traded on registered exchanges or the over the counter
market or in the form of ADRs traded on registered exchanges or NASDAQ.

EMERGING GROWTH FUND

<PAGE> 52

revenues. Emerging growth companies are characterized by opportunities for rapid
growth rates and/or dynamic business changes. Emerging growth companies,
regardless of size, tend to offer the potential for accelerated earnings or
revenue growth because of new products or technologies, new channels of
distribution, revitalized management or industry conditions, or similar
opportunities. A company may or may not yet be profitable at the time the Fund
invests in its securities. Current income will not be a criterion of investment
selection, and any such income should be considered incidental.

The Fund may also invest in equity securities of companies in "special equity
situations," meaning companies experiencing unusual and possibly non-repetitive
developments, such as mergers; acquisitions; spin-offs; liquidations;
reorganizations; and new products, technology or management. Since a special
equity situation may involve a significant change from a company's past
experiences, the uncertainties in the appraisal of the future value of the
company's equity securities and the risk of a possible decline in the value of
the Fund's investments are significant.

The Fund's assets may be invested in U.S. dollar denominated equity securities
of foreign issuers traded as ADRs. All of the common stocks in which the Fund
invests (with the exception of Rule 144A Securities) are traded on registered
exchanges or in the over the counter market or in the form of ADRs on registered
exchanges or NASDAQ. Many of the securities in which the Fund invests will not
pay dividends.

The balance of the Fund's assets may be invested in money market instruments.
The Fund may also invest in options, futures and options on futures, shares of
other investment companies with similar investment objectives, SPDRs and
convertible bonds. The Fund may enter into futures contracts and options on
futures only to the extent that obligations under such contracts or
transactions, together with options on securities, represent not more than 25%
of the Fund's assets. The aggregate value of options on securities (long puts
and calls) will not exceed 10% of the Fund's net assets at the time such options
are purchased by the Fund.

The portfolio turnover rate for the Emerging Growth Fund for the fiscal year
ended January 31, 1996 was 131%. This rate of portfolio turnover may result in
higher brokerage execution costs and higher levels of capital gains.

GENERAL INVESTMENT POLICIES

For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, each Fund may invest up to 100% of its assets in
money market instruments consisting of securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities, receipts, including TR's,
TIGR's and CATS, money market funds, repurchase agreements, certificates of
deposit, time deposits, bank master notes and bankers' acceptances issued by
banks having net assets of at least $1 billion as of the end of their most
recent fiscal year, commercial paper rated at least A-1 by S&P or P-1 by
Moody's, and in cash. A Fund will not be pursuing its investment objective to
the extent that a substantial portion of its assets are invested in money market
securities.

Each Fund will restrict its investments in illiquid securities to 15% of its net
assets.

Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its assets.

Each Fund may purchase restricted securities which have not been registered
under the Securities Act of 1933 (Rule 144A Securities and Section 4(2)
Commercial Paper).

Each Fund may purchase in options on stock indices to invest cash on an interim
basis. The aggregate premium paid on all options on stock indices cannot exceed
20% of the Fund's total assets.

In the event that a security owned by a Fund is downgraded below the stated
rating categories,
<PAGE> 53

the Advisor or SubAdvisor will take appropriate action with regard to the
security.

For further information see "Description of Permitted Investments."

RISK FACTORS

Since the Funds invest in equity securities, each Fund's shares will fluctuate
in value, and thus may be more suitable for long-term investors who can bear the
risk of short-term fluctuations.

Securities rated BBB by S&P or Baa by Moody's are deemed by these rating
services to have some speculative characteristics, and adverse economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher-grade
bonds.

In addition, the market value of fixed income securities bears an inverse
relationship to changes in market interest rates, which may affect the net asset
value of shares. The longer the remaining maturity of security, the greater is
the effect of interest rate changes on its market value.

Investments in securities of foreign issuers may subject a Fund to different
risks than those attendant to investments in securities of U.S. issuers,
including differences in accounting, auditing and financial reporting standards,
the possibility of expropriation or confiscatory taxation, and political
instability. See "Description of Permitted investments."

Given the uncertainty of the future value of emerging growth companies and
companies in special equity situations, the risk of possible decline in the
value of the Emerging Growth Fund's net assets are significant. Companies in
which the Emerging Growth Fund invests may offer greater opportunities for
capital appreciation than larger, more established companies, but investment in
such companies may involve certain special risks. These risks may be due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and frequent lack of depth in management. The securities of
such companies are often traded in the over-the-counter market and may not be
traded in volumes typical on a national securities exchange. Thus, the
securities of emerging growth companies may be less liquid, and subject to more
abrupt or erratic market movements than securities of larger, more established
growth companies. Since a "special equity situation" may involve a significant
change from a company's past experiences, the uncertainties in the appraisal of
the future value of the company's equity securities and the risk of a possible
decline in the value of the Fund's investments are significant.

INVESTMENT LIMITATIONS

Each Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of a Fund's assets.

2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and repurchase
agreements involving such securities, and provided further, that utilities as a
group will not be considered to be one industry, and wholly-owned subsidiaries
organized to finance the operations of their parent companies are considered to
be in the same industries as their parent companies.

3. Make loans, except that the Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as described
<PAGE> 54

in this Prospectus and in the Statement of Additional Information.

FUNDAMENTAL POLICIES

The investment objective and certain of the investment limitations are
fundamental policies of the Funds. Fundamental policies cannot be changed with
respect to a Fund without the consent of a majority of the Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of the Fund's shares present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor") have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of the Balanced, Value
Momentum and Growth Equity Funds and continuously reviews, supervises and
administers each Fund's investment program. The Advisor discharges its
responsibilities subject to the supervision of, and policies established by, the
Trustees of the Trust. The Trust's shares are not sponsored, endorsed or
guaranteed by, and do not constitute obligations or deposits of, the Advisor and
are not guaranteed by the FDIC, or any other governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .60% of the average daily net assets of the Growth Equity,
Value Momentum, Balanced and Blue Chip Funds, and .80% of the average daily net
assets of the Emerging Growth Fund. Although the advisory fee paid by the
Emerging Growth Fund is higher than advisory fees paid by other mutual funds,
the Trust believes that the fee is comparable to the advisory fee paid by many
other mutual funds with similar investment objectives and policies. The Advisor
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary and may be terminated
at any time in the Advisor's sole discretion.

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, was paid an advisory fee of .60%, of the average daily net assets of
the Growth Equity, Value Momentum, Balanced, and Blue Chip Growth Funds, and
.80% of the average daily net assets of the Emerging Growth Fund.

Richard Earnest, a Vice President and Chief Investment Officer of the Advisor,
has served as team leader of the Value Momentum Fund since its inception, and
has been with the Advisor and its predecessor since 1964. Carl J. Colombo, a
Vice President of the Advisor, has served as team leader of the Balanced Fund
since its inception, and as team leader of the Growth Equity Fund since May,
1995, and has been with the Advisor and its predecessor since 1985.

As of April 1, 1996, Merus managed $ billion in individual portfolios and
collective funds. Merus' clients range from pension funds, national labor

<PAGE> 55

union plans and foundations to personal investments and trust portfolios.

THE SUBADVISOR

The Advisor and Bank of Tokyo-Mitsubishi Trust Company (the "SubAdvisor") have
entered into an investment subadvisory agreement relating to the Emerging Growth
and Blue Chip Growth Funds (the "Investment SubAdvisory Agreement"). Under the
Investment SubAdvisory Agreement, the SubAdvisor makes the day-to-day investment
decisions for the assets of the Emerging Growth and Blue Chip Growth Funds,
subject to the supervision of, and policies established by, the Advisor and the
Trustees of the Trust. The Trust's shares are not sponsored, endorsed or
guaranteed by and do not constitute obligations or deposits of the SubAdvisor
and are not guaranteed by the FDIC or any other governmental agency.

The SubAdvisor is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .30% of the average daily net
assets of the Blue Chip Growth Fund and .50% of the average daily net assets of
the Emerging Growth Fund. For the fiscal year ended January 31, 1996, The Bank
of Tokyo Trust Company, as predecessor to the SubAdvisor, received .30% and .50%
of the average daily net assets of the Blue Chip Growth and Emerging Growth
Funds, respectively.

The day-to-day management of the Blue Chip Growth Fund's investments is the
responsibility of a team of investment professionals. Decisions are made by
committee and no person has primary responsibility for making recommendations to
the committee.

Seth E. Shalov has served as the portfolio manager to the Emerging Growth Fund
since its inception. Mr. Shalov has served as the SubAdvisor's Senior Portfolio
Manager since October, 1988.

THE ADMINISTRATOR

<PAGE> 56

Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). The Distribution Agreement is renewable annually and may be
terminated by the Distributor, by a majority vote of the Disinterested Trustees
or by a majority vote of the outstanding securities of the Trust upon not more
than 60 days' written notice by either party, or upon assignment by the
Distributor. Investment Class shares of a Fund, which are offered by a separate
prospectus, may bear the costs of their distribution expenses and, a sales
charge is imposed on the sale of Investment Class shares of the Funds. It is
possible that an institution may offer different classes of shares to its
customers and thus receive different compensation with respect to different
classes of shares.

PURCHASE AND REDEMPTION OF SHARES

Purchase orders will be effective if the Distributor receives an order before
1:00 p.m., Pacific time, and the Custodian receives Federal funds before the
close of business on the next Business Day. The purchase price of shares of a
Fund is the net asset value next determined after a purchase order is received
and accepted by the Trust. The net asset value per share of a Fund is determined
by dividing the total market value of a Fund's investments and other assets,
less any liabilities, by the total number of outstanding shares of a Fund. Net
asset value per share is determined daily as of 1:00 p.m., Pacific time, on any
Business Day. Purchases will be made in full and fractional shares of the Trust
calculated to three decimal places. The Trust reserves the right to reject a
purchase order when the Distributor determines that it is not in the best
interest of the Trust and/or its Shareholders to accept such order.

Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase.

Shareholders who desire to redeem shares of the Trust must place their
redemption orders prior to 1:00 p.m., Pacific time, on any Business Day for the
order to be accepted on that Business Day. The redemption price is the net asset
value of the Fund next determined after receipt by the Distributor of the
redemption order. Payment on redemption will be made as promptly as possible
and, in any event, within seven calendar days after the redemption order is
received.

Neither the Trust's transfer agent nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes to be genuine. The Trust and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
other extraordinary circumstances exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means.

<PAGE> 57

PERFORMANCE

From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings, and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the same amount of income generated by the investment during
that period is generated in each 30-day period over one year and is shown as a
percentage of the investment.

The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The total return of a Fund may also be quoted as a dollar amount or on an
aggregate basis, an actual basis, without inclusion of any sales charge, or with
a reduced sales charge in advertisements distributed to investors entitled to a
reduced sales charge.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of a Fund or
its Shareholders. In addition, state and local tax consequences of investing in
a Fund may differ from the federal income tax consequences discussed below.
Accordingly, Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUNDS:

Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so as to be relieved of federal
income tax on net investment company taxable income and net capital gain (the
excess of net long-term

<PAGE> 58

capital gain over net short-term capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

A Fund will distribute substantially all of its net investment income (including
net short-term capital gain) and net capital gain to Shareholders. Dividends
from a Fund's net investment company taxable income are taxable to Shareholders
as ordinary income (whether received in cash or in additional shares) to the
extent of the Fund's earnings and profits. Dividends paid by a Fund to corporate
Shareholders will qualify for the dividends received deduction to the extent
derived from dividends received by the Fund from domestic corporations. A
portion of such dividends may be subject to the alternative minimum tax.
Distributions of net capital gain do not qualify for the dividends-received
deduction and are taxable to Shareholders as long-term capital gain, regardless
of how long Shareholders have held their shares and regardless of whether the
distributions are received in cash or in additional shares. Each Fund will make
annual reports to Shareholders of the federal income tax status of all
distributions, including the amount of dividends eligible for the
dividends-received deduction.

Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Investment income received directly by a Fund on direct U.S. obligations is
exempt from tax at the state level and may be exempt, depending on the state,
when received by a Shareholder as income dividends from a Fund provided certain
state-specific conditions are satisfied. Interest received on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. Each Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from a Fund is considered tax exempt in their
particular state.

Each sale, exchange, or redemption of Fund Shares is a taxable transaction to
the Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different Classes of each fund. In
addition to the Funds, the Trust consists of the following funds: Treasury Money
Market Fund, Money Market Fund, California Tax-Free Money Market Fund,
Intermediate-Term Bond Fund, Limited Maturity Government Fund, California
Intermediate Tax-Free Bond Fund, Convertible Securities Fund, Government
Securities Fund and International Equity Fund. All consideration received by the
Trust for shares of any fund and all assets of

<PAGE> 59

such fund belong to that fund and would be subject to liabilities related
thereto. The Trust reserves the right to create and issue shares of additional
funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders, but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon the written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of a
Fund is distributed in the form of monthly dividends to Shareholders of record.
Currently, capital gains of a Fund, if any, will be distributed at least
annually.

Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the change.

Dividends and distributions of a Fund are paid on a per-share basis. The value
of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a Shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.

The dividends payable on Institutional Class shares will typically be higher
than the dividends payable on the Investment Class shares because of the
distribution expenses charged to Investment Class shares.

<PAGE> 60

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as Custodian of the assets of the
Fund. The Custodian holds cash, securities and other assets of the Trust as
required by the 1940 Act.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Funds:

AMERICAN DEPOSITARY RECEIPTS (ADRs)-- ADRs are receipts typically issued by a
U.S. financial institution (a "depositary"), that evidence ownership interest in
a security or a pool of securities issued by a foreign issuer.

CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--Each Fund may purchase
convertible bonds which are convertible into a set number of shares of another
form of security (usually common stock) at a prestated price. Convertible bonds
have characteristics similar to both fixed income and equity securities.
Convertible preferred stock is a class of capital stock that pays dividends at a
specified rate and that has preference over common stock in the payment of
dividends and the liquidation of assets. Convertible preferred stock is
preferred stock exchangeable for a given number of common stock shares, and has
characteristics similar to both fixed-income and equity securities. Because of
the conversion feature, the market value of convertible bonds and convertible
preferred stock tend to move together with the market value of the underlying
stock. As a result, a Fund's selection of convertible bonds and convertible
preferred stock is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
bonds and convertible preferred stock is also affected by prevailing interest
rates, the credit quality of the issuer and any call provisions.

FUTURES AND OPTIONS ON FUTURES--The Blue Chip Growth Fund, Balanced Fund, and
Emerging Growth Fund may invest in futures and options on futures. Some futures
strategies, including selling futures, buying puts and writing calls, reduce a
Fund's exposure to price fluctuations. Other strategies, including buying
futures, writing puts and buying calls, tend to increase market exposure.
Futures and options may be combined with each other in order to adjust the risk
and return characteristics of the overall portfolio.

Options and futures can be volatile instruments, and involve certain risks that
if applied at an inappropriate time, could negatively impact a Fund's return.

INVESTMENT GRADE BONDS--Interest-bearing or discounted government or corporate
securities that obligate the issuer to pay the bondholder a specified sum of
money, usually at specific intervals, and to repay the principal amount of the
loan at maturity. Investment grade bonds are those rated BBB or better by S&P or
Baa or better by Moody's.

LOAN PARTICIPATIONS--The Balanced Fund may invest in loan participations, which
are interests in loans to U.S. corporations (i.e., borrowers) which are
administered by the lending bank or agent for a syndicate of lending banks, and
sold by the lending bank or syndicate member ("intermediary

<PAGE> 61

bank"). In a loan participation, the borrower of the underlying loan will be
deemed to be the issuer of the participation interest (except to the extent a
purchasing Fund derives its rights from the intermediary bank). Because the
intermediary bank does not guarantee a loan participation in any way, a loan
participation is subject to the credit risks associated with the underlying
corporate borrower. In addition, in the event the underlying corporate borrower
fails to pay principal and interest when due, the Fund may encounter delays,
expenses and risks that are greater than those that would have been involved if
the Fund had purchased a direct obligation (such as commercial paper) of such
borrower because it may be necessary under the terms of the loan participation,
for the Fund to assert its rights against the borrower through the intermediary
bank. Moreover, under the terms of a loan participation, the purchasing Fund may
be regarded as a creditor of the intermediary bank (rather than of the
underlying corporate borrower), making it subject to the risk that the issuing
bank may become insolvent. Further, in the event of the bankruptcy or insolvency
of the corporate borrower, a loan participation may be subject to certain
defenses that can be asserted by such borrower as a result of improper conduct
by the issuing bank. The secondary market, if any, for these loan participations
is limited, and any such participation purchased by the Fund may be regarded as
illiquid.

MONEY MARKET INSTRUMENTS--Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury Obligations
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding high-
quality commercial papers; and (v) repurchase agreements involving any of the
foregoing obligations entered into with highly-rated banks and broker-dealers.

OPTIONS--Each Fund, except the Value Momentum and Growth Equity Funds, may
purchase options with respect to securities that are permitted investments, and
each Fund, including the Value Momentum and Growth Equity Funds, may write
covered call options. Under a call option, the purchaser of the option has the
right to purchase, and the writer (the Fund) the obligation to sell, the
underlying security at the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the obligation to
purchase, the underlying securities at the exercise price during the option
period.

In addition, each Fund may buy options on stock indices to invest cash on an
interim basis. Such options will be listed on a national securities exchange. In
order to close out an option position, a Fund may enter into a "closing purchase
transaction"--the purchase of an option on the same security with the same
exercise price and expiration date as the option previously written on any
particular security. When the security is sold, a Fund effects a closing
purchase transaction so as to close out any existing option on that security.

There are risks associated with such investments, including the following: (1)
the success of a hedging strategy may depend on the ability of the Advisor or
SubAdvisor to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of securities held by the
Fund and the price of options; (3) there may not be a liquid secondary market
for options; and (4) while a Fund will receive a premium when it writes covered
call options, it may not participate fully in a rise in the market value of the
underlying security.

<PAGE> 62

purchase. A Fund will have actual or constructive possession of the securities
held as collateral for the repurchase agreement. A Fund bears a risk of loss in
the event the other party defaults on its obligations and the Fund is delayed or
prevented from exercising its rights to dispose of the collateral securities or
if a Fund realizes a loss in the sale of the collateral. A Fund will enter into
repurchase agreements only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on established
guidelines. Repurchase agreements are considered loans under the 1940 Act.

SECURITIES LENDING--In order to generate additional income, each Fund may lend
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or securities as collateral equal to 100% of the market value at all
times of the loaned securities. A Fund will continue to receive interest on the
loaned securities while simultaneously earning interest on the investment of
cash collateral in U.S. Government securities. Collateral is marked to market
daily to provide a level of collateral at least equal to the market value of the
loaned securities. There may be risks of delay in receiving additional
collateral should the borrower of the securities fail financially.

SECURITIES OF FOREIGN ISSUERS--Each Fund may purchase U.S. dollar denominated
securities of foreign issuers. There may be certain risks connected with
investing in foreign securities, including risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be less information on
such securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
U.S. securities. The Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates may also affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to distributed
to shareholders by a Fund.

STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRs")--The Blue Chip Growth Fund and
Emerging Growth Fund may acquire SPDRs, which are interests in a unit investment
trust holding a portfolio of securities linked to the S&P 500 Index. SPDRs
closely track the underlying portfolio of securities, trade like a share of
common stock and pay periodic dividends proportionate to those paid by the
portfolio of stocks that constitutes the S&P 500 Index. For further information
regarding a Fund's investment in SPDRs, see the Statement of Additional
Information.

<PAGE> 63

from the Treasury. The issues of other agencies are supported only by the credit
of the instrumentality (e.g., FNMA securities).

U.S. TREASURY OBLIGATIONS--Bills, notes and bonds issued by the U.S. Treasury,
as well as separately traded interest and principal component parts of such
obligations that known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") are transferable through the Federal book-entry system.

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations purchased by the
Balanced Fund may carry variable or floating rates of interest, may involve
conditional or unconditional demand features and may include variable amount
master demand notes. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest
rate on such obligations may not accurately reflect existing market interest
rates. A demand instrument with a demand notice period exceeding seven days
may be considered illiquid if there is no secondary market for such security.

SECURITIES ISSUED ON A FORWARD BASIS OR WHEN-ISSUED SECURITIES--The Balanced
Fund may purchase securities subject to settlement on a future date. The
interest rate realized on these securities is fixed as of the purchase date, and
no interest accrued to the Fund before settlement. These securities are subject
to market fluctuations due to changes, real or anticipated, in market interest
rates and the public's perception of the creditworthiness of the issuers and
will have the effect of leveraging the Fund's assets. A Fund will establish one
or more segregated accounts with the Custodian, and the Fund will maintain
liquid, high-grade assets in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities.

WARRANTS--The Growth Equity Fund, Value Momentum Fund, Balanced Fund, and Blue
Chip Growth Fund may purchase warrants, which are securities that entitle the
holder to buy a proportionate amount of common stock at a specified price for a
limited or unlimited period of time. Warrants are often freely transferable and
are traded on major stock exchanges.

<PAGE> 64

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Annual Operating Expenses....................... 3
Financial Highlights............................ 4
The Trust....................................... 5
Investment Objectives........................... 5
Investment Policies............................. 5
General Investment Policies..................... 8
Risk Factors.................................... 9
Investment Limitations.......................... 9
Fundamental Policies............................ 10
The Advisor..................................... 10
The SubAdvisor.................................. 11
The Administrator............................... 11
The Shareholder Servicing Agent................. 12
Distribution.................................... 12
Purchase and Redemption of Shares............... 12
Performance..................................... 13
Taxes........................................... 13
General Information............................. 14
Description of Permitted Investments............ 16
</TABLE>

<PAGE> 65

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<PAGE> 66

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in professionally managed portfolios of securities. This Prospectus
relates to the Trust's:

CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND

INSTITUTIONAL CLASS SHARES

The Trust's Institutional Class Shares are offered to institutional investors,
including UNION BANK OF CALIFORNIA, N.A., its affiliates and correspondents for
the investment of their own funds or funds for which they act in a fiduciary,
agency or custodial capacity.

This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus, has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, OR ANY OF ITS AFFILIATES OR
CORRESPONDENTS. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.

MAY 28, 1996

INSTITUTIONAL CLASS
<PAGE> 67

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Institutional Class shares of the CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
(the "Fund"). This summary is qualified in its entirety by reference to the more
detailed information provided elsewhere in this Prospectus and in the Statement
of Additional Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide high current
income that is exempt from federal and State of California income taxes. See
"Investment Objective."

WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund invests primarily in
investment grade bonds and notes issued by the State of California, its
agencies, instrumentalities and political sub-divisions, the income on which is
exempt from regular federal and State of California personal income taxes
("California Municipal Securities"). See "Investment Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. Shares of the Fund will fluctuate in value with the
value of the Fund's underlying portfolio securities. Values of fixed income
securities in which the Fund invests tend to vary inversely with interest rates,
and may be affected by other market and economic factors affecting the State of
California as well. See "Risk Factors."

ARE MY INVESTMENTS INSURED? Any guarantee by the U.S. Government, its agencies
or any instrumentalities of the securities in which the Fund invests guarantees
only the payment of principal and interest on the guaranteed security, and does
not guarantee the yield or value of the security or yield or value of shares of
that Fund. The Trust's shares are not federally insured by the FDIC or any other
government agency.

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Fund. See "The Advisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment in the Trust is $2,000. A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time
and the Custodian receives federal funds before the close of business on the
next Business Day. Redemption orders must be placed prior to 1:00 p.m. Pacific
time on any Business Day for the order to be accepted that day. See "Purchase
and Redemption of Shares."

HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional shares unless the Shareholder
elects to take the payment in cash. See "Dividends."
<PAGE> 68

ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of average net assets)

<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE
TAX-FREE BOND FUND
<S> <C>
- --------------------------------------------------------------------------------------------------------
Advisory Fees (After Fee Waivers)(1).......................................... .01%
Other Expenses................................................................ .21%
- --------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(1)............................... .22%
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Advisor has agreed to waive its fee to the extent necessary to limit
"Total Operating Expenses" to .22%. "Total Operating Expenses" have been
restated to reflect current expenses and fee waivers. Absent fee waivers,
"Advisory Fees" would have been .50% and "Total Operating Expenses" would
have been .71%. The Advisor may terminate its waiver at any time in its sole
discretion.

EXAMPLE:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period.............. $ 2 $7 $ 12 $28
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Fund. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Fund which
are subject the same expenses, except that Investment Class shares are subject
to a sales load and distribution expenses. Additional information may be found
under "The Administrator" and "The Advisor."

<PAGE> 69

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996 on
the Trust's financial statements as of January 31, 1996, included in the Trust's
Statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional Information is set forth in the Trust's 1996 Annual Report
to Shareholders, and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>

<CAPTION>
* Annualized.

<C> <S>

(1) Commenced operations on October 15, 1993.

</TABLE>
<PAGE> 70

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in sales charges, distribution costs, voting rights and dividends. Except for
these differences among the classes, each share of each fund represents an equal
proportionate interest in that fund. This Prospectus relates to the
Institutional Class shares of the Trust's California Intermediate Tax-Free Bond
Fund (the "Fund"). Information regarding the Trust's other funds is contained in
separate prospectuses that may be obtained from the Trust's Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

INVESTMENT OBJECTIVE

The California Intermediate Tax-Free Bond Fund seeks to provide high current
income that is exempt from federal and State of California income taxes.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

Under normal market conditions, the Fund will invest primarily in bonds and
notes issued by the State of California, its agencies, instrumentalities, and
political sub-divisions, the income on which is exempt from regular federal and
State of California personal income taxes ("California Municipal Securities").
The Fund may also invest in bonds and notes of other states, territories, and
possessions of the U.S. and their agencies, authorities, instrumentalities and
political sub-divisions which are exempt from Federal income taxes and in shares
of other investment companies, specifically money market funds, which have
similar investment objectives. Under normal market conditions, at least 80% of
the Fund's assets will be invested in bonds and notes rated AAA, AA, A or BBB by
Standard & Poor's Corporation ("S&P"), Aaa, Aa, A or Baa by Moody's Investors
Service ("Moody's"), or AAA, AA, A or BBB by Fitch Investors Service ("Fitch")
and which pay interest that is not treated as a preference item for purposes of
the federal alternative minimum tax. The Fund may purchase unrated securities
that are determined by the Advisor to be of comparable quality at the time of
purchase pursuant to quality standards set by the Board of Trustees. In the
event that a security owned by the Fund is downgraded below the stated ratings
categories, the Advisor will take appropriate action with regard to the
security.

Under California law, a mutual fund must have at least 50% of its total assets
invested in California Municipal Securities at the end of each quarter of its
taxable year in order to be eligible to pay California residents dividends that
are wholly or partially exempt from California personal income taxes.
Accordingly, the Fund intends to maintain at least 65% of its assets in
California Municipal Securities, and may invest up to 100% of its assets in such
securities. The Fund has no restrictions on the maturity of municipal securities
in which it may invest. The dollar weighted average portfolio maturity of the
Fund will be from three to ten years. Accordingly, the Fund seeks to invest in
municipal securities of such maturities which, in the judgment of the Advisor,
will provide a high level of current income consistent with prudent investment,
with consideration given to market conditions.

The Fund may purchase securities on a forward commitment or a when-issued basis
where such purchases are for investment and not for leveraging purposes;
however, the Fund may sell these securities before the settlement date if it is
deemed advisable. No additional forward commitments will be made if more than
30% of the Fund's net assets would be so committed.

<PAGE> 71

The Fund may also invest in restricted securities which have not been registered
under the Securities Act of 1933 (Rule 144A Securities and Section 4(2)
Commercial Paper). The Fund will restrict its investment in illiquid securities
to 15% of its net assets.

CALIFORNIA MUNICIPAL SECURITIES

The two principal classifications of California Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit, and taxing power for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Private activity bonds (formerly known as industrial revenue bonds) are
generally revenue bonds.

Certain California Municipal Securities are municipal lease revenue obligations
(or certificates of participation or "COPs"), which typically provide that the
municipality has no obligation to make lease or installment payments in future
years unless money is appropriated for such purpose. While the risk of
non-appropriation is inherent to COP financing, this risk is mitigated by the
Fund's policy to invest in COPs that are rated in one of the four highest rating
categories used by Moody's, S&P, or Fitch.

California Municipal Securities also include so-called Mello-Roos and assessment
district bonds, which are usually unrated instruments issued to finance the
building of roads and other public works and projects that are primarily secured
by real estate taxes levied on property located in the local community. Most of
these bonds do not seek agency ratings because the issues are too small, and in
most cases, the purchase of these bonds are based upon the Advisor's
determination that it is suitable for the Fund.

The Fund may also purchase, subject to a limit of 15% of its assets, California
Municipal Securities that are variable rate demand notes (or VRDNs).

For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, the Fund may invest up to 25% of its assets in
taxable money market instruments consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, receipts, including
TR's, TIGR's and CATS, money market funds, repurchase agreements, and commercial
paper rated at least A-1 by S&P or P-1 by Moody's or Fitch 1 by Fitch. The Fund
also may hold a portion of its assets in cash. The Fund will not be pursuing its
investment objective to the extent that a substantial portion of its assets is
invested in money market securities, and as a result it may pay taxable
dividends to shareholders.

For further information see "Description of Permitted Investments."

RISK FACTORS

The ability of the State of California and its political sub-divisions to raise
money through property taxes and to increase spending has been the subject of
considerable debate and various constitutional initiatives and other
limitations. This process, and associated legal challenges, remains on-going. It
is not possible to predict the ultimate effect of these constitutional and other
initiatives, nor can there be any assurance that additional initiatives will not
be introduced in the coming years.

The market value of the Fund's fixed income investments will change in response
to interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating agencies in the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal also affect the value of these investments.
Changes in the value of fund securities will not affect cash income derived from
these securities, but will affect the Fund's net asset value.
<PAGE> 72

Securities rated BBB by S&P or Fitch or Baa by Moody's are deemed by these
rating services to have some speculative characteristics, and adverse economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than with higher grade bonds.

INVESTMENT LIMITATIONS

The Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States or its agencies and instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer provided,
however, that the Fund may invest up to 25% of its total assets without regard
to this restriction as permitted by applicable law.

2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities, and provided further, that utilities as a
group will not be considered to be one industry, and wholly-owned subsidiaries
organized to finance the operations of their parent companies will be considered
to be in the same industries as their parent company.

3. Make loans, except that the Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; and (b) enter into
repurchase agreements.

FUNDAMENTAL POLICIES

The investment objective and certain of the investment limitations are
fundamental policies of the Fund. Fundamental policies cannot be changed with
respect to the Fund without the consent of a majority of the Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of the Fund's shares present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor"), have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Fund's investment program.
The Advisor discharges its responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. The Trust's shares are not
sponsored, endorsed or guaranteed by, and do not constitute obligations or
deposits of, the Advisor and are not guaranteed by the FDIC or any other
governmental agency.

Under the Advisory Agreement, the Advisor is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of .50% of the average
daily net assets of the Fund. The Advisor may from time to time waive all or a
portion of its fee in order to limit the operating expenses of the Fund. Any
such waiver is voluntary and may be terminated at any time in the Advisor's sole
discretion.

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, was paid an advisory fee of .03% of the average daily net assets of the
Fund.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union

<PAGE> 73

Bank of California, N.A., manages the day-to-day operations of the Fund. On
April 1, 1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

Robert Bigelow has served as team leader of the Fund since October, 1994. Prior
to joining the Advisor in June, 1994, Mr. Bigelow served as a portfolio manager
at City National Bank from January, 1986 to June, 1994.

As of April 1, 1996, Merus managed $ billion in individual portfolios and
collective funds. The Merus' clients range from pension funds, national labor
union plans and foundations to personal investments and trust portfolios.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Institutional
Class shares. Any such waiver is voluntary, and may be terminated at any time in
the Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). The Distribution Agreement is renewable annually and may be
terminated by the Distributor, by a majority vote of the Disinterested Trustees
or by a majority vote of the outstanding securities of the Trust upon not more
than 60 days written notice by either party, or upon assignment by the
Distributor. Investment Class shares of the Fund may bear the costs of their
distribution expenses, and a sales charge is imposed on the sale of Investment
Class shares of the Fund. It is possible that an institution may offer different
classes of shares to its customers and thus receive different compensation with
respect to different classes of shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Fund may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business ("Business Days"). The minimum initial investment in the Trust is
$2,000; however, the minimum investment may be waived in the Distributor's
discretion. Shareholders may place orders by telephone.

Purchase orders will be effective if the Distributor receives an order before
1:00 p.m., Pacific time, and the Custodian receives federal funds before the
close of business on the next Business Day. The purchase price of shares of the
Fund is the net asset value next determined after a purchase order is received
and accepted by the Trust. The net asset value per share of the Fund is
determined by dividing the total market value of the Fund's investments and
other assets, less any

<PAGE> 74

liabilities, by the total number of outstanding shares of the Fund. Net asset
value per share is determined daily as of 1:00 p.m., Pacific time, on any
Business Day. Purchases will be made in full and fractional shares of the Trust
calculated to three decimal places. The Trust reserves the right to reject a
purchase order when the Distributor determines that it is not in the best
interest of the Trust and/or its Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

Neither the Trust's transfer agent nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes are genuine. The Trust and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinary active or other
extraordinary circumstances exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means.

PERFORMANCE

From time to time, the Fund may advertise yield and total return. These figures
will be based on historical earnings, and are not intended to indicate future
performance. The yield of the Fund refers to the annualized income generated by
an investment in the Fund over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.

The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment, for designated time periods (including, but not
limited to, the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gains
distributions. The total return of the Fund may also be quoted as a dollar
amount or on an aggregate basis, an actual basis, without inclusion of any sales
charge, or with a reduced sales charge in advertisements distributed to
investors entitled to a reduced sales charge.

The Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

<PAGE> 75

benchmark while measures of benchmark correlation indicate how valid a
comparative benchmark might be. Measures of volatility and correlation are
calculated using averages of historical data and cannot be calculated precisely.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. In addition, state and local tax consequences of an investment
in the Fund may differ from the federal income tax consequences described below.
Accordingly, Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies of the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment company taxable income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

The Fund will distribute all of its net investment income (including net
short-term capital gain) to Shareholders. If, at the close of each quarter of
its taxable year, at least 50% of the value of the Fund's assets consists of
obligations the interest on which is excludable from gross income, the Fund may
pay "exempt-interest dividends" to its Shareholders. Those dividends constitute
the portion of the aggregate dividends as designated by the Fund, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's gross income for
federal income tax purposes, but may have certain collateral federal income tax
consequences, including alternative minimum tax. Additional information
concerning taxes is set forth in the Statement of Additional Information.

Any dividends paid out of income realized by the Fund on taxable securities will
be taxable to Shareholders as ordinary income, whether received in cash or in
additional shares, to the extent of the Fund's earnings and profits and will not
qualify for the dividends received deductions for corporate shareholders.
Distributions of net capital gain also do not qualify for the dividends received
deduction and are taxable to Shareholders as long-term capital gain, regardless
of how long the Shareholder has held Fund Shares, and regardless of whether the
distributions are received in cash or additional shares. The Fund will make
annual reports to Shareholders of the federal income tax status of all
distributions.

Shareholders, the Fund may have to sell Fund securities to distribute such
imputed income, which may occur at a time when the Advisor would not have chosen
to sell such securities and which may result in a taxable gain or loss.

Dividends declared by the Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared, if paid by the Fund any time during the following January.

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level, and may be exempt, depending on the state,
when received by a Shareholder as income dividends from the Fund, provided
certain state-specific conditions are satisfied. Interest realized on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. The Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from the Fund is considered tax exempt in their
particular state.

Each sale, exchange, or redemption of Fund shares is a taxable transaction to
the Shareholder.

CALIFORNIA TAXES:

If the Fund qualifies to pay California exempt-interest dividends, dividends
distributed to Shareholders will be considered California exempt-interest
dividends (1) if they are designated as exempt-interest dividends by the Fund in
a written notice to Shareholders mailed within 60 days of the close of the
Fund's taxable year and (2) to the extent the interest received by the Fund
during the year on California Tax Exempt Obligations exceeds expenses of the
Fund that would be disallowed under California personal income tax law as
allocable to tax exempt interest if the Fund were an individual. If the
aggregate dividends so designated exceed the amount that may be treated as
California exempt-interest dividends, only that percentage of each dividend
distribution equal to the ratio of aggregate California exempt-interest
dividends to aggregate dividends so designated will be treated as a California
exempt-interest dividend. The Fund will notify Shareholders of the amount of
California exempt-interest dividends each year.

Corporations subject to California franchise tax that invest in the Fund may not
be entitled to exclude California exempt-interest dividends from income.

Interest on indebtedness incurred or continued by a Shareholder in connection
with the purchase of
<PAGE> 77

shares of the Fund will not be deductible for California personal income tax
purposes if the Fund distributes California exempt-interest dividends.

The foregoing is a general, abbreviated summary of certain of the provisions of
the California Revenue and Taxation Code presently in effect as they directly
govern the taxation of Shareholders subject to California personal income tax.
These provisions are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning California tax matters.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate series of shares and different classes of each fund. In addition
to the Fund, the Trust consists of the following funds: Treasury Money Market
Fund, Money Market Fund, California Tax-Free Money Market Fund, Growth Equity
Fund, Value Momentum Fund, Limited Maturity Government Fund, Balanced Fund,
Intermediate-Term Bond Fund, Blue Chip Growth Fund, Emerging Growth Fund,
Convertible Securities Fund, Government Securities Fund and International Equity
Fund. All consideration received by the Trust for shares of any fund and all
assets of such fund belong to that fund, and would be subject to liabilities
related thereto. The Trust reserves the right to create and issue shares of
additional funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings but approval will be sought for certain changes in the operation
of the Trust and for the election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining Trustees or by Shareholders
at a special meeting called upon the written request of Shareholders owning at
least 10% of the outstanding shares of the Trust. In the event that such a
meeting is requested the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of
the Fund is
<PAGE> 78

distributed in the form of monthly dividends to Shareholders of record.
Currently, capital gains of the Fund, if any, will be distributed at least
annually.

The dividends payable on the Institutional Class shares will typically be higher
than the dividends payable on the Investment Class shares because of the
distribution expenses charged to Investment Class shares.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Fund:

MUNICIPAL FORWARDS--Municipal Forwards are forward commitments for the purchase
of tax-exempt bonds with a specified coupon to be delivered by an issuer at a
future date, typically exceeding 45 days but normally less than one year after
the commitment date. Municipal forwards are normally used as a refunding
mechanism for bonds that may only be redeemed on a designated future date. As
with forward commitments, and when-issued securities, municipal forwards are
subject to market fluctuations due to changes, real or anticipated, in market
interest rates between the commitment date and the settlement date and will have
the effect of leveraging the Fund's assets. Municipal forwards may be considered
to be illiquid investments. The Fund will maintain liquid, high-grade securities
in a segregated account in an amount at least equal to the purchase price of the
municipal forward.

<PAGE> 79

MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. Municipal bonds include
general obligation bonds, revenue or special obligation bonds, private activity
and industrial development bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility, tolls from a toll bridge, for example. The
payment of principal and interest on private activity and industrial development
bonds generally is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.

PARTICIPATION INTERESTS--Participation interests are interests in municipal
securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal income tax. The Fund
invests in these participation interests in order to obtain credit enhancement
or demand features that would not be available through direct ownership of the
underlying Municipal Securities.

RULE 144A SECURITIES--The Fund may purchase Rule 144A Securities. Rule 144A
Securities are restricted securities that have not been registered under the
Securities Act of 1933, but which may be traded between certain qualified
institutional investors, including investment companies. The absence of a
secondary market may affect the value of Rule 144A Securities. The Board of
Trustees of the Trust has established guidelines and procedures to be utilized
to determine the liquidity of such securities.

REPURCHASE AGREEMENTS--Agreements by which the Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its right to
dispose of the collateral securities or if the Fund realizes a loss on the sale
of the collateral. The Fund will enter into a repurchase agreement only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based upon established guidelines. Repurchase agreements
are considered loans under the 1940 Act.

U.S. GOVERNMENT AGENCY SECURITIES-- Certain federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., FNMA securities).

<PAGE> 80

("STRIPS") that are transferable through the Federal book-entry system.

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased by
the Fund may carry variable or floating rates of interest, may involve
conditional or unconditional demand features and may include variable amount
master demand notes. California Municipal Securities may also be acquired
through the purchase of municipal forwards. The interest rates on these
securities may be reset daily, weekly, quarterly or some other reset period and
may have a floor or ceiling on interest rate changes. There is a risk that the
current interest rate on such obligations may not accurately reflect existing
market interest rates. A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no secondary market for such
security.

<PAGE> 81

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Annual Operating Expenses....................... 3
Financial Highlights............................ 4
The Trust....................................... 5
Investment Objective............................ 5
Investment Policies............................. 5
California Municipal Securities................. 6
Risk Factors.................................... 6
Investment Limitations.......................... 7
Fundamental Policies............................ 7
The Advisor..................................... 7
The Administrator............................... 8
The Shareholder Servicing Agent................. 8
Distribution.................................... 8
Purchase and Redemption of Shares............... 8
Performance..................................... 9
Taxes........................................... 10
General Information............................. 12
Description of Permitted Investments............ 13
</TABLE>

<PAGE> 82

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 83

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in professionally managed portfolios of securities. This Prospectus
relates to the Trust's:

LIMITED MATURITY GOVERNMENT FUND

INSTITUTIONAL CLASS SHARES

The Trust's Institutional Class Shares are offered to institutional investors,
including UNION BANK OF CALIFORNIA N.A., its affiliates and correspondents for
the investment of their own funds or funds for which they act in a fiduciary,
agency or custodial capacity.

This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date of this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A. OR ANY OF ITS AFFILIATES
OR CORRESPONDENTS. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.

MAY 28, 1996

INSTITUTIONAL CLASS
<PAGE> 84

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Institutional Class shares of the LIMITED MATURITY GOVERNMENT FUND (the "Fund").
This summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks a high level of income
and relative price stability consistent with safety of capital. See "Investment
Objective."

WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund will invest at least 65% of
its assets in U.S. Treasury notes and other direct obligations of the U.S.
Treasury, and obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, including mortgage-backed securities issued or guaranteed by
U.S. Government agencies such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), or the Federal
Home Loan Mortgage Corporation ("FHLMC"). See "Investment Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. There can be no assurance that the Fund will achieve
its investment objective. The Fund's investments are subject to market and
interest rate fluctuations which may affect the value of the Fund's shares.
During periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. See "Risk Factors."

ARE MY INVESTMENTS INSURED? Any guarantee by the U.S. Government, its agencies
or instrumentalities of the securities in which any Fund invests guarantees only
the payment of principal and interest on the guaranteed security, and does not
guarantee the yield or value of the security or yield or value of shares of that
Fund. The Trust's shares are not federally insured by the FDIC or any other
government agency.

WHO IS THE ADVISOR? Union Bank of California, N.A. serves as the Advisor to the
Trust. See "The Advisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
to the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment in the Fund's Institutional Class is $2,000. A
purchase order will be effective if the Distributor receives an order prior to
1:00 p.m. Pacific time and the Custodian receives Federal funds before the close
of business on the next Business Day. Redemption orders must be placed prior to
1:00 p.m. Pacific time on any Business Day for the order to be accepted that
day. See "Purchase and Redemption of Shares."

HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is determined and declared on each
Business Day as a dividend for Shareholders of record as of the close of
business on that day. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See "Dividends."
<PAGE> 85

ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of average net assets)

<TABLE>
<CAPTION>
LIMITED MATURITY
GOVERNMENT FUND
<S> <C>
- ----------------------------------------------------------------------------------------------------
Advisory Fees....................................................................... .30%
Other Expenses...................................................................... .23%
- ----------------------------------------------------------------------------------------------------
Total Operating Expenses............................................................ .53%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period................... $ 5 $ 17 $ 30 $66
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class Shares of
the Fund. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Fund,
which are subject to the same expenses, except that Investment Class shares are
subject to a sales charge and distribution expenses. Additional information may
be found under "The Advisor" and "The Administrator."

<PAGE> 86

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<C> <S>
* Annualized.
(1) Commenced operations on May 7, 1993.
</TABLE>
<PAGE> 87

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in sales charges, distribution costs, voting rights and dividends. Except for
these differences among the classes, each share of each fund represents an equal
proportionate interest in that fund. This Prospectus relates to the
Institutional Class shares of the Trust's Limited Maturity Government Fund (the
"Fund"). Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's Distributor, SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVE

The Limited Maturity Government Fund seeks a high level of income, relative to
funds with like investment objectives, and relative price stability consistent
with safety of capital.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

The Fund will invest at least 65% of its assets in U.S. Treasury notes, other
direct obligations of the U.S. Treasury, and obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, including mortgage-backed
securities issued or guaranteed by U.S. Government agencies such as GNMA, FNMA
or FHLMC. With respect to the remaining 35% of its assets, the Fund may also
invest in the following instruments: restricted securities which have not been
registered under the Securities Act of 1933 (Rule 144A Securities and Section
4(2) Commercial Paper); receipts, including TR's, TIGR's and CATS; high quality
certificates of deposit, time deposits and bankers' acceptances issued or
guaranteed by United States banks with assets of at least $1 billion, including
comparable U.S. dollar denominated obligations of foreign branches of such
banks; privately issued mortgage-backed securities; money market funds;
repurchase agreements involving securities that constitute permissible
investments for the Fund; and Federal funds. The Trust considers Federal funds
investments maturing in more than 7 days to be illiquid. The Fund will not
invest more than 15% of its assets in illiquid securities. In addition, the Fund
may engage in securities lending. The Fund will limit such practice to 33 1/3%
of its total assets.

The Fund is limited to making investments and engaging in investment
transactions that are permissible for federal credit unions. Therefore, the Fund
will not invest in zero coupon securities with maturities greater than 10 years.
All collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs") purchased by the Fund will comport with the
average life, average life sensitivity and price sensitivity tests of Section
703.5(g) of the National Credit Union Association's ("NCUA") Rules and
Regulations. The Fund may purchase stripped mortgage-backed securities ("SMBS"),
residual interests in CMOs or REMICs, or non-floating/adjustable rate CMOs or
REMICs that do not comport with Section 703.5(g) of the NCUA Rules and
Regulations only if the instrument is purchased to reduce the Fund's interest
rate risk and is subjected to the monitoring, reporting, evaluation and pricing
requirements of Section 703.5(i) of the NCUA Rules and Regulations. Floating or
adjustable rate CMOs or REMICs that do not comply with Section 703.5(g) may be
purchased by the Fund if they comport with the provisions of Section 703.5(j) of
the NCUA Rules and Regulations.

The Fund may purchase securities on a forward commitment or when-issued basis
where such purchases are for investment and not for leveraging purposes;
however, the Fund may sell
<PAGE> 88

these securities before the settlement date if it is deemed advisable. No
additional forward commitments will be made if more than 20% of the Fund's net
assets would be so committed.

Guarantees of the Fund's securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
guaranteed securities, and do not guarantee the securities' yield or value or
the yield or value of the Fund's Institutional Class shares.

Under normal circumstances, the Fund will maintain an average weighted maturity
of three years or less. The measure of average maturity will use the expected
life of securities held by the Fund.

The Advisor will seek to enhance the yield of the Fund by taking advantage of
yield disparities or other factors that occur in the government securities and
money markets. The Fund may dispose of any security prior to its maturity if
such disposition and reinvestment of the proceeds are expected to enhance yield
consistent with the Advisor's judgment as to a desirable maturity structure or
if such disposition is believed to be advisable due to other circumstances or
considerations.

Mortgage-backed securities purchased by the Fund will be issued or guaranteed as
to payment of principal and interest by the United States government or its
agencies or instrumentalities or, if issued by private issuers, rated in one of
the two highest rating categories by a nationally recognized rating agency. The
principal governmental issuers or guarantors of mortgage-backed securities are
the GNMA, FNMA, and FHLMC. Obligations of GNMA are backed by the full faith and
credit of the United States Government, while obligations of FNMA and FHLMC are
supported by the respective agency only. The Fund may purchase mortgage-backed
securities that are backed or collateralized by fixed, adjustable or floating
rate mortgages.

Mortgage-backed securities that are not issued or guaranteed by the United
States Government or its agencies or instrumentalities, including securities
nominally issued by a governmental entity (such as the Resolution Trust
Corporation), are not obligations of a governmental entity, and thus may bear a
risk of nonpayment. The timely payment of principal and interest normally is
supported, at least partially, by various forms of insurance or guarantees.
There can be no assurance, however, that such credit enhancements will support
full payment of the principal and interest on such obligations.

The portfolio turnover rate for the Fund for the fiscal year ended January 31,
1996 was 186%. This rate of portfolio turnover may result in higher brokerage
execution costs and higher levels of capital gains.

For temporary defensive purposes when the Advisor determines that market
conditions warrant, the Fund may invest up to 100% of its assets in money market
instruments consisting of securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, repurchase agreements, receipts,
including TR's, TIGR's and CATS, certificates of deposit, time deposits, bank
master notes and bankers' acceptances issued by banks having net assets of at
least $1 billion as of the end of their most recent fiscal year or rated at
least A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investor
Services ("Moody's") and in cash. To the extent that the Fund is engaged in
temporary defensive investing, it will not be pursuing its investment objective.

For additional information, see "Description of Permitted Investments."

ELIGIBILITY UNDER FEDERAL CREDIT
UNION ACT

<PAGE> 89

applicable laws, rules and regulations governing eligible investments, including
new investments, for federally chartered credit unions and will take such action
as may be necessary to assure that the Fund's investments, and, therefore,
shares of the Fund, continue to qualify as eligible investments under the
Federal Credit Union Act.

Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act set forth
those securities, deposits and other obligations in which federally chartered
credit unions may invest. The Fund's investments consist exclusively of assets
designed to qualify as eligible investments if owned directly by a federally
chartered credit union. Shares of the Fund may or may not qualify as eligible
investments for particular state chartered credit unions. Accordingly, the Fund
encourages, but does not require, each state chartered credit union to consult
qualified legal counsel concerning whether the Fund's shares are permissible
investments for that credit union. While the Advisor will ensure that the Fund
follows investment policies set forth herein, the Fund cannot be responsible for
compliance by participating state chartered credit unions with limitations on
permissible investments to which they may be subject.

RISK FACTORS

The market value of the Fund's fixed income investments will change in response
to interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Securities with longer maturities are subject to
greater fluctuations in value than securities with shorter maturities. Changes
by recognized agencies in the rating of any fixed income security, and in the
ability of an issuer to make payments of interest and principal, also affect the
value of these investments. Changes in the value of Fund securities will not
affect cash income derived from these securities, but will affect the Fund's net
asset value.

Mortgage-backed securities are subject to prepayment of the underlying
mortgages. During periods of declining interest rates, prepayment of mortgages
underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yields of which reflect prevailing interest
rates, which may be lower than those of the prepaid security.

Some of the permitted investments for the Fund may not be permitted investments
for particular state chartered credit unions. See "The Trust."

INVESTMENT LIMITATIONS

The Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Fund would be invested in the securities of such issuer. This restriction
applies to 75% of the Fund's assets.

2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities, and provided further, that utilities as a
group will not be considered to be one industry, and wholly-owned subsidiaries
organized to finance the operations of the parent companies will be considered
to be in the same industries as their parent companies.

3. Make loans, except that the Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies, and (b) enter into
repurchase agreements.

<PAGE> 90

FUNDAMENTAL POLICIES

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor"), have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Fund's investment program.
The Advisor discharges its responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. The Trust's shares are not
sponsored, endorsed or guaranteed by, and do not constitute obligations or
deposits of, the Advisor and are not guaranteed by the FDIC or any other
governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .30% of the average daily net assets of the Fund. The Advisor
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of the Fund. Any such waiver is voluntary, and may be
terminated at any time in the Advisor's sole discretion.

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, was paid an advisory fee of .30% of the average daily net assets of the
Fund.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of the Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

Martin Standish has served as team leader of the Fund since its inception. Mr.
Standish is a Vice President of the Advisor and has been with the Advisor since
June, 1992. Prior to his employment with the Advisor, he served as a portfolio
manager at Patterson Capital from November, 1991 to June, 1992 and at Pacific
Century Advisors from February, 1990 to November, 1991. He earned his M.B.A. at
the University of Texas at Dallas from 1989 to 1991 and has a B.S. in Finance
from Colorado State University.

THE ADMINISTRATOR

SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
Administration Agreement (the "Administration Agreement"). Under the terms of
the Administration Agreement, the Administrator provides the Trust with certain
management
<PAGE> 91

services including all necessary office space, equipment, personnel, and
facilities.

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Institutional
Class shares. Any such waiver is voluntary, and may be terminated at any time in
the Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI and the Trust are parties to a distribution agreement ("Distribution
Agreement"). The Distribution is renewable annually and may be terminated by the
Distributor, by a majority vote of the outstanding shares of the Trust upon not
more than 60 days written notice by either party, or upon assignment by the
Distributor. Investment Class shares of the Fund may bear costs of their
distribution expenses, and a sales charge is imposed on the sale of Investment
Class shares of the Fund. It is possible that an institution may offer different
classes of shares to its customers, and thus receive different compensation with
respect to different classes of shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Fund may be made on days on which
both the New York Stock Exchange and Federal Reserve wire system are open for
business ("Business Days"). The minimum initial investment in the Trust is
$2,000; however, the minimum investment may be waived at the Distributor's
discretion.

Purchase orders will be effective as of the day received by the Distributor if
the Distributor receives the order before 1:00 p.m. Pacific time and the
Custodian receives Federal funds before the close of business on the next
Business Day. The purchase price of shares of the Fund is the net asset value
next determined after a purchase order is received and accepted by the Trust.
The net asset value per share of the Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total number of outstanding shares of the Fund. Net asset value per share
is determined daily as of 1:00 p.m. Pacific time, on any Business Day. Purchases
will be made in full and fractional shares of the Fund calculated to three
decimal places. The Trust reserves the right to reject a purchase order when the
Distributor determines that it is not in the best interest of the Trust and/or
its Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

Shareholders who desire to redeem shares of the Fund must place their redemption
orders prior to 1:00 p.m. Pacific time, on any Business Day for the order to be
accepted on that Business Day. The redemption price is the net asset value of
the Fund next determined after receipt by the Distributor of the redemption
order. Payment on redemption will be made as promptly as possible and, in any
event, within seven calendar days after the redemption order is received.

<PAGE> 92

placing redemption orders by telephone, you may wish to consider placing your
order by other means.

PERFORMANCE

The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment, for designated time periods (including, but not
limited to, the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions. The total return of the Fund may also be quoted as a dollar
amount or on an aggregate basis, an actual basis, without inclusion of any sales
charge, or with a reduced sales charge in advertisements distributed to
investors entitled to a reduced sales charge.

The Fund may quote various measures of volatility and benchmark correlation in
advertising, and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark, while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. In addition, state and local tax consequences of an investment
in the Fund may differ from the federal income tax consequences described below.
Accordingly, Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state, and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for Federal income tax purposes, and is
not combined with the Trust's other Funds. The Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies by
the

<PAGE> 93

Internal Revenue Code of 1986, as amended (the "Code"), so that it will be
relieved of federal income tax on that part of its net investment company
taxable income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

The Fund will distribute all of its net investment income (including, net
short-term capital gain) to Shareholders. Dividends from the Fund's net
investment company taxable income are taxable to Shareholders as ordinary income
(whether received in cash or in additional shares) to the extent of the Fund's
earnings and profits. Any net capital gains will be distributed at least
annually, and will be taxed to Shareholders as long-term capital gains,
regardless of how long the Shareholder has held shares and regardless of whether
the distributions are received in cash or in additional shares. Dividends and
distributions of net investment capital gain do not qualify for the
dividends-received deduction for corporate shareholders. The Fund will provide
annual reports to Shareholders of the federal income tax status of all
distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments,
the Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because the Fund distributes
all of its net investment income to Shareholders, the Fund may have to sell Fund
securities to distribute such imputed income which may occur at a time when the
Advisor would not have chosen to sell such securities, and which may result in a
taxable gain or loss.

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level when received directly by the Fund, and may
be exempt, depending on the state, when received by a Shareholder as income
dividends from the Fund, provided certain state-specific conditions are
satisfied. Interest realized on repurchase agreements collateralized by U.S.
government obligations normally is not exempt from state tax. The Fund will
inform Shareholders annually of the percentage of income and distributions
derived from direct U.S. Treasury obligations. Shareholders should consult their
tax advisors to determine whether any portion of the income dividends received
from the Fund is considered tax exempt in their particular state.

Each sale, exchange, or redemption of Fund shares is a taxable event to the
Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate series of shares and different classes of each fund. In addition
to the Fund, the Trust consists of the following funds: Treasury Money Market
Fund, Money Market Fund, California Tax-Free Money Market Fund, Growth Equity
Fund, Value Momentum Fund, Balanced Fund, Intermediate-Term Bond Fund,
California Intermediate Tax-Free Bond Fund, Blue Chip Growth Fund, Emerging
Growth Fund, Convertible Securities Fund, Government Securities Fund and
International Equity Fund. All consideration received by the Trust for shares of
any fund and all assets of such fund belong to that fund, and would be subject
to liabilities related

<PAGE> 94

thereto. The Trust reserves the right to create and issue shares of additional
funds.

The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under Federal and State securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses. Please refer to "Financial Highlights" in this
prospectus for more information regarding the Trust's expenses.

TRUSTEES OF THE TRUST

VOTING RIGHTS

REPORTING

The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania,
19087-1658.

DIVIDENDS

On each Business Day, the Fund declares a dividend from net investment income
(not including capital gain) as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) to shareholders of record at the
previous net asset value calculation. Dividends are normally paid (and, where
applicable, reinvested) on the first Business Day of the following month.
Currently, capital gains of the Fund, if any, will be distributed at least
annually.

<PAGE> 95

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

CoreStates Bank, NA., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as Custodian of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Fund:

FEDERAL FUNDS--Federal funds are funds held by a regional Federal Reserve Bank
for the account of a bank ("Fed Bank") that is a member of such Federal Reserve
Bank. A loan of Federal funds is an unsecured loan at a negotiated interest rate
for a negotiated time period, generally overnight, of Federal funds by one Fed
Bank to another. Since, pursuant to an exemption from the reserve requirements
imposed upon depository institutions by the Board of Governors of the Federal
Reserve System (the "FRB"), the borrowing Fed Bank is not required to maintain
reserves on the borrowed Federal funds, the interest rate it pays on such
borrowings is generally higher than the rate it pays on other deposits of
comparable size and maturity that are subject to reserve requirements. In
addition, a "depository institution" or other exempt institution such as the
Trust may, under Regulation D of the FRB, in effect, make loans of Federal funds
by instructing a correspondent or other willing Fed Bank at which it maintains
an account to loan Federal funds on its behalf. Loans of Federal funds are not
federally insured.

The Fund may make unsecured loans of Federal funds to United States banks
provided that: 1) the accounts of such banks are federally insured; 2) the
interest received is at the market rate for Federal funds transactions; and 3)
the transaction has a specified maturity of one or more business days or the
Fund is able to require repayment at any time.

In the event the borrower of Federal funds enters into a bankruptcy or other
insolvency proceeding, the Fund could experience delays and incur expenses in
recovering cash. Further, the possibility exists that in such an instance, the
borrowing institution may not be able to repay the borrowed funds.

MONEY MARKET INSTRUMENTS--Money market securities are high-quality, dollar
denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury Obligations
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding high-
quality commercial papers; and (v) repurchase agreements involving any of the
foregoing obligations entered into with highly-rated banks and broker dealers.

MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are generally issued or
guaranteed by U.S. Government agencies, such as GNMA, FNMA, or FHLMC. GNMA
mortgage-backed certificates are mortgage-backed securities of the modified
pass-through type, which means that both interest and principal payments

<PAGE> 96

(including prepayments) are passed through monthly to the holder of the
certificate. Each GNMA certificate evidences an interest in a specific pool of
mortgage loans insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. FNMA, a federally
chartered and stockholder-owned corporation, issues pass-through certificates
which are guaranteed as to payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States, issues participation
certificates which represent an interest in mortgages held in FHLMC's portfolio.
FHLMC guarantees the timely payment of interest and the ultimate collection of
principal. Securities issued or guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States.

There can be no assurance that the United States Government would provide
financial support to FNMA or FHLMC if necessary in the future.

One or more classes of CMOs may have coupon rates that reset periodically based
on an index, such as the London Interbank Offered Rate ("LIBOR"). The Fund may
purchase fixed, adjustable, or "floating" rate CMOs that are collateralized by
fixed rate or adjustable rate mortgages that are guaranteed as to payment of
principal and interest by an agency or instrumentality of the United States
Government, are directly guaranteed as to payment of principal and interest by
the issuer, which guarantee is collateralized by United States Government
securities, or are collateralized by privately issued fixed rate or adjustable
rate mortgages.

Risks associated with mortgage-backed securities: While the United States
Government or the issuing agency or entity guarantees the timely payment of
interest on and principal of the securities referred to in the preceding
section, the guarantees do not extend to the securities' yield or value, which
are likely to vary inversely with fluctuations in interest rates. Changes in
interest rates can lead to material changes in prepayment rates, which in turn
can materially affect an instrument's value. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to
<PAGE> 97

predict accurately the average life or realized yield of a particular issue of
pass-through certificates.

REPURCHASE AGREEMENTS--Agreements by which the Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its right to
dispose of the collateral securities or if the Fund realizes a loss on the sale
of the collateral. The Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.

RULE 144A SECURITIES--The Fund may purchase Rule 144A Securities. Rule 144A
securities are restricted securities that have not been registered under the
Securities Act of 1933, but which may be traded between certain qualified
institutional investors, including investment companies. The absence of a
secondary market may affect the value of Rule 144A Securities. The Board of
Trustees of the Trust has established guidelines and procedures to be utilized
to determine the liquidity of securities.

SECURITIES LENDING--In order to generate additional income, the Fund may lend
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or any combination of cash and such securities as collateral equal to
100% of the market value at all times of the loaned securities. The Fund will
continue to receive interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. Collateral is marked to market daily to provide a level of
collateral at least equal to the value of the loaned securities. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially.

U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., FNMA securities).

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will

<PAGE> 98

constitute the income earned on the security for both accounting and tax
purposes. Because of these features, such securities may be subject to greater
interest rate volatility than interest paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased by
the Fund may carry variable or floating rates of interest, may involve
conditional or unconditional demand features and may include variable amount
master demand notes. The interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

SECURITIES ISSUED ON A FORWARD BASIS OR WHEN-ISSUED SECURITIES--The Fund may
purchase securities subject to settlement on a future date. The interest rate
realized on these securities is fixed as of the purchase date, and no interest
accrued to the Fund before settlement. These securities are subject to market
fluctuation due to changes, real or anticipated, in market interest rates and
the public's perception of the creditworthiness of the issuer, and will have the
effect of leveraging the Fund's assets. The Fund will establish one or more
segregated accounts with the Custodian, and the Fund will maintain liquid,
high-grade assets in an amount at least equal in value to the Fund's commitments
to purchase when-issued securities.

<PAGE> 99

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Annual Operating Expenses....................... 3
Financial Highlights............................ 4
The Trust....................................... 5
Investment Objective............................ 5
Investment Policies............................. 5
Eligibility Under Federal Credit Union Act...... 6
Risk Factors.................................... 7
Investment Limitations.......................... 7
Fundamental Policies............................ 8
The Advisor..................................... 8
The Administrator............................... 8
The Shareholder Servicing Agent................. 9
Distribution.................................... 9
Purchase and Redemption of Shares............... 9
Performance..................................... 10
Taxes........................................... 10
General Information............................. 11
Description of Permitted Investments............ 13
</TABLE>

<PAGE> 100

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 101

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in professionally managed portfolios of securities. This Prospectus
relates to the Trust's:

INTERNATIONAL EQUITY FUND

INSTITUTIONAL CLASS SHARES

This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

MAY 28, 1996

INSTITUTIONAL CLASS
<PAGE> 102

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Institutional Class shares of the INTERNATIONAL EQUITY FUND (the "Fund"). This
summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in the Prospectus and in the Statement of
Additional Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? THE INTERNATIONAL EQUITY FUND seeks to
provide long-term capital appreciation. See "Investment Objective."

WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund invests primarily in equity
securities (common stocks, securities convertible into common stocks, preferred
stocks, warrants and rights to purchase common stock) of non-U.S. issuers. See
"Investment Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. The Fund may purchase common stocks and other equity
securities that are volatile and may fluctuate in value more than other types of
investments. In addition, the Fund will invest in securities of foreign
companies that involve special risks and considerations not typically associated
with investing in U.S. companies. See "Risk Factors."

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE SUBADVISOR? BOT - Mitsubishi Asset Management (U.K.) Limited serves
as the SubAdvisor to the Fund. See "The SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust . See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment in the Trust is $2,000. A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time
and the Custodian receives Federal funds before the close of business on the
next Business Day. The purchase price is the net asset value next determined
after a purchase order is received and accepted by the Trust. Redemption orders
must be placed prior to 1:00 p.m. Pacific time on any Business Day for the order
to be accepted that day. See "Purchase and Redemption of Shares."

HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is periodically declared and paid as a
dividend to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional shares unless the Shareholder
elects to take the payment in cash. See "Dividends."
<PAGE> 103

ANNUAL OPERATING EXPENSES INSTITUTIONAL CLASS
(As a percentage of offering price)

<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
FUND
- --------------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers)(1)................................................... .85%
Other Expenses(2)...................................................................... .41%
- --------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(3)........................................ 1.26%
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Advisor has agreed to waive a portion of its fee. Fee waivers are
voluntary and may be terminated at anytime in the Advisor's sole discretion.
Absent this voluntary fee waiver, the Advisor's fee would be .95%.

(2) "Other Expenses" reflects estimates for the current fiscal year.

(3) "Total Operating Expenses" have been restated to reflect current fees and
fee waivers. Absent fee waivers, "Total Operating Expenses" would have been
1.36% for the Fund.

EXAMPLE:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% return and (2) redemption at the end
of each time period.
International Equity Fund......................................... $13 $40 $ 69 $ 152
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Institutional Class shares of
the Fund. Financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers. The Trust also offers Investment Class shares of the Fund which
are subject to the same expenses, except that Investment Class shares are
subject to sales charges and distribution expenses. Additional information may
be found under "The Administrator", "The Advisor" and "The SubAdvisor."

<PAGE> 104

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996 on
the Trust's financial statements as of January 31, 1996, included in the Trust's
Statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional Information is set forth in the Trust's 1996 Annual Report
to Shareholders and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES
-------------------------
NET REALIZED
NET AND DISTRIBUTIONS NET
ASSET UNREALIZED ---------------------- NET ASSET ASSETS, RATIO
VALUE, NET GAIN (LOSS) NET VALUE, END OF OF EXPENSES
BEGINNING INVESTMENT ON INVESTMENT CAPITAL END TOTAL PERIOD TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- --------------------------
INTERNATIONAL EQUITY FUND
- --------------------------
FOR THE YEARS ENDED JANUARY 31,:
1996(1) 33.51 0.447 4.084 (0.446) (0.105) 37.49 13.56% 44,188 1.16%

RATIO OF RATIO OF NET
EXPENSES RATIO OF NET INVESTMENT INCOME
TO AVERAGE INVESTMENT TO AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------
INTERNATIONAL EQUITY FUND
- --------------------------
FOR THE YEARS ENDED JANUARY 31,:
1996(1) 1.36% 1.31% 1.11% 21%
(1)

<CAPTION>
(1) Commenced operations on 2/1/95
<C> <S>
</TABLE>

<PAGE> 105

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Institutional Class shares
of the Trust's International Equity Fund (the "Fund") Information regarding the
Trust's other funds is contained in separate prospectuses that may be obtained
from the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVE

THE INTERNATIONAL EQUITY FUND seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of equity securities of non-U.S.
issuers.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

Under normal market circumstances, at least 65% of the Fund's assets will be
invested in the following equity securities of non-U.S. issuers: common stocks,
securities convertible into common stocks, preferred stocks, warrants and rights
to purchase common stock. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in securities of issuers organized under
the laws of countries included in the Morgan Stanley Capital International
Europe, Australia and Far East Index (the "EAFE Index")(1). At least 65% of the
Fund's total assets will be invested in securities of issuers in at least five
countries other than the United States.

Countries may be over- or under-weighted in comparison to the EAFE Index based
upon the Advisor's and SubAdvisor's view of forecasted rates of returns.
Regional and individual country weightings, therefore, may vary from the EAFE
Index benchmark. The Advisors and SubAdvisors will select individual securities
for the Fund on the basis of their undervaluation in relation to other
securities. The Fund expects its investments to emphasize companies with market
capitalizations in excess of $100,000,000.

The Fund will typically invest in equity securities listed on recognized foreign
exchanges, but may also invest up to 15% of its total assets in securities
traded in over-the-counter markets. Equity securities of non-U.S. issuers may
also be purchased in the form of sponsored or unsponsored American Depositary
Receipts ("ADRs") and sponsored or unsponsored European Depositary Receipts
("EDRs").

The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency at a specified
date, at a specified price. The Fund may enter into forward foreign currency
contracts to hedge a specific security transaction or to hedge a portfolio
position. These contracts may be bought and sold to protect the Fund, to some
degree, against a possible loss resulting from an adverse change in the
relationship between foreign currencies. The Fund may also invest in options on
currencies.

The Fund may invest in futures and options on futures for the purpose of
achieving the Fund's objectives. The Fund may invest in futures and related
options based on any type of security or index traded on U.S. or foreign
exchanges or over the counter, as long as the underlying security or

- ------------
(1) "MSCI-EAFE Index" is a registered service mark of Morgan Stanley Capital
International which does not sponsor and is in no way affiliated with the
International Equity Fund.
<PAGE> 106

securities represented by an index, are permitted investments of the Fund. Such
futures contracts may include index contracts and contracts for foreign
currencies. The Fund may enter into futures contracts and options on futures
only to the extent that its obligations under such contracts or transactions,
together with options on securities or indices represent not more than 25% of
the Fund's assets.

The premium paid on options on securities positions will not exceed 10% of the
Fund's net assets at the time such options are entered into by the Fund. The
aggregate premium paid on all options on stock indices will not exceed 20% of a
Fund's total assets.

The Fund's remaining assets may be invested in investment grade bonds and
debentures issued by non-U.S. or U.S. companies, obligations of supranational
entities, securities issued or guaranteed by foreign and U.S. governments, and
foreign and U.S. commercial paper. Certain of these instruments may have
floating or variable interest rate provisions. In addition, the Fund may invest
in securities of issuers whose principal activities are in countries with
emerging markets. The Fund defines an emerging market country as any country
whose economy and market the World Bank or the United Nations considers to be
emerging or developing. The Fund may also purchase shares of closed-end
investment companies that invest in the securities of issuers in a single
country or region and shares of open-end management investment companies. For
temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, the Fund may invest up to 100% of its assets in money
market instruments consisting of securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, receipts, including TR's,
TIGR's and CATS, debt securities issued by foreign governments or supranational
entities, money market funds, repurchase agreements, certificates of deposit,
time deposits, bank master notes and bankers' acceptances issued by banks having
net assets of at least $1 billion as of the end of their most recent fiscal
year, commercial paper rated at least A-1 by Standard & Poor's Corporation
("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's"), and in cash. The
Fund will not be pursuing its investment objective to the extent that a
substantial portion of its assets are invested in money market securities.

The Fund will restrict its investment in illiquid securities to 15% of its net
assets.

The Fund may engage in securities lending and will limit such practice to
33 1/3% of its assets.

The Fund may purchase restricted securities, which have not been registered
under the Securities Act of 1933 (Rule 144A Securities and Section 4(2)
Commercial Paper).

For further information see "Description of Permitted Investments."

RISK FACTORS

Since the Fund invests in equity securities, the Fund's shares will fluctuate in
value, and thus may be more suitable for long-term investors who can bear the
risk of short-term fluctuations.

There may be certain risks connected with investing in foreign securities,
including risks of adverse political and economic developments (including
possible governmental seizure or nationalization of assets), the possible
imposition of exchange controls or other governmental restrictions, including
less uniformity in accounting and reporting requirements, the possibility that
there will be less information on such securities and their issuers available to
the public, the difficulty of obtaining or enforcing court judgments abroad,
restrictions on foreign investments in other jurisdictions, difficulties in
effecting repatriation of capital invested abroad, and difficulties in
transaction settlements and the effect of delay on shareholder equity. Foreign
securities may be subject to foreign taxes, which reduce yield, and may be less
marketable than comparable U.S. securities. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may

<PAGE> 107

be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to distributed to
shareholders by the Fund.

Forward foreign currency contracts do not eliminate fluctuations in the
underlying prices of securities. Rather, they simply establish a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.

The Fund's investments in emerging markets can be considered speculative, and
therefore, may offer higher potential for gains and losses than developed
markets of the world. With respect to any emerging country, there is the greater
potential for nationalization, expropriation or confiscatory taxation, political
changes, government regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
investments in such countries. In addition, it may be difficult to obtain and
enforce a judgment in the courts of such countries. The economies of developing
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.

Securities rated BBB by S&P or Baa by Moody's are deemed by these ratings
services to have some speculative characteristics and adverse economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds.

INVESTMENT LIMITATIONS

The Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of a Fund's assets. For purposes of this investment
limitation, each foreign governmental issuer is deemed a separate issuer.

<PAGE> 108

FUNDAMENTAL POLICIES

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor") have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor continuously reviews, supervises and administers the Fund's
investment program. The Advisor discharges its responsibilities subject to the
supervision of, and policies established by, the Trustees of the Trust. The
Trust's shares are not sponsored, endorsed or guaranteed by, and do not
constitute obligations or deposits of, the Advisor and are not guaranteed by the
FDIC or any other governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .95% of the average daily net assets of the Fund. Although the
advisory fee paid by the Fund is higher than advisory fees paid by other mutual
funds, the Trust believes that the fee is comparable to the advisory fee paid by
many other mutual funds with similar investment objectives and policies. The
Advisor may from time to time waive all or a portion of its fee in order to
limit the operating expenses of the Fund. Any such waiver is voluntary and may
be terminated at any time in the Advisor's sole discretion. For the fiscal year
ended January 31, 1996, Union Bank, as predecessor to the Advisor, was paid an
advisory fee of .85% of the average daily net assets of the Fund.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of the Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

THE SUBADVISOR

The Advisor and Tokyo-Mitsubishi Asset Management (U.K.) Limited (the
"SubAdvisor") have entered into an investment subadvisory agreement relating to
the Fund (the "Investment SubAdvisory Agreement"). Under the Investment
SubAdvisory Agreement, the SubAdvisor makes the day-to-day investment decisions
for the assets of the Fund, subject to the supervision of, and policies
established by, the Advisor and the Trustees of the Trust. The Trust's shares
are not sponsored, endorsed or guaranteed by and do not constitute obligations
or deposits of the SubAdvisor and are not guaranteed by the FDIC or any other
governmental agency.

The SubAdvisor is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .30% of the average daily net
assets of the Fund.

Tokyo-Mitsubishi Asset Management (U.K.) Limited, 12-15 Finsbury Circus, London
EC2 M7BT operates as a subsidiary of Bank of Tokyo, Ltd., Tokyo. Established in
1989, the SubAdvisor provides active global investment services for segregated
funds and specialist fund management.

<PAGE> 109

Prior to February, 1995, the SubAdvisor had not previously served as the
investment advisor to mutual funds. As of April 1, 1996, Tokyo-Mitsubishi Asset
Management (U.K.) Limited managed assets of $ billion in individual
portfolios and collective funds.

Andrew Richmond has served as portfolio manager of the Fund since its inception.
Mr. Richmond has been with the SubAdvisor and its predecessor since 1990 and has
served as senior equity investment manager since June, 1992.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Institutional
Class shares. Any such waiver is voluntary, and may be terminated at any time in
the Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). The Distribution Agreement is renewable annually and may be
terminated by the Distributor, by a majority vote of the Disinterested Trustees
or by a majority vote of the outstanding securities of the Trust upon not more
than 60 days written notice by either party, or upon assignment by the
Distributor. Investment Class shares of the Fund may bear the costs of their
distribution expenses and, a sales charge is imposed on the sale of Investment
Class shares of the Fund. It is possible that an institution may offer different
classes of shares to its customers and thus receive different compensation with
respect to different classes of shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Fund may be made on days on which
both the New York Stock Exchange and Federal Reserve wire system are open for
business ("Business Days"). The minimum initial investment in the Fund is
$2,000; however, the minimum investment may be waived in the Distributor's
discretion. Shareholders may place orders by telephone.

Purchase orders will be effective if the Distributor receives an order before
1:00 p.m., Pacific time, and the Custodian receives Federal funds before the
close of business on the next Business Day. The purchase price of shares of the
Fund is the net asset value next determined after a purchase order is received
and accepted by the Trust. The net asset value per share of the Fund is
determined by dividing the total market value of the Fund's investments and
other assets, less any liabilities, by the total number of outstanding shares of
a Fund. Net asset value per share is determined daily as of 1:00 p.m., Pacific
time, on any Business Day. Purchases will be made in full and fractional shares
of the Fund calculated to three decimal places. The Trust reserves the right to
reject a purchase order when the Distributor determines that it is not in the
best interest of the Trust and/or its Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.
<PAGE> 110

PERFORMANCE

From time to time, the Fund may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of the Fund refers to the annualized income generated by
an investment in the Fund over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.

The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment for designated time periods (including, but not
limited to, the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions. The total return of the Fund may also be quoted as a dollar
amount or on an aggregate basis, an actual basis, without inclusion of any sales
charge, or with a reduced sales charge in advertisements distributed to
investors entitled to a reduced sales charge.

The Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios,
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

<PAGE> 111

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. In addition, state and local tax consequences of an investment
in the Fund may differ from the federal income tax consequences discussed below.
Accordingly, Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on net investment company taxable income and net capital gain
(the excess of net long-term capital gain over net short-term capital loss)
distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

The Fund will distribute substantially all of its net investment income
(including net short-term capital gain) and net capital gain to Shareholders.
Dividends from the Fund's net investment company taxable income will be taxable
to Shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. Dividends paid by the
Fund to corporate Shareholders will qualify for the deduction for dividends
received by corporations to the extent derived from dividends received by the
Fund from domestic corporations. Distributions of net capital gain are taxable
to Shareholders as long-term capital gain, regardless of how long Shareholders
have held their shares and regardless of whether the distributions are received
in cash or in additional shares. Dividends and distributions of capital gain
paid by the Fund do not qualify for the dividends received deduction for
corporate Shareholders. The Fund will provide annual reports to Shareholders of
the federal income tax status of all distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments,
the Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because the Fund distributes
all of its net investment income to its shareholders, the Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Advisor or SubAdvisor would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Income derived by the Fund from securities of foreign issuers may be subject to
foreign withholding taxes. The Fund expects to elect to treat Shareholders as
having paid their proportionate share of such taxes.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level and may be exempt, depending on the state,
when received by a Shareholder as income dividends from the Fund, provided
certain state-specific conditions are satisfied. Interest realized on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. The Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from the Fund is considered tax exempt in their
particular state.

Dividends declared by the Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and

<PAGE> 112

received by the Shareholders on the last day of December 31 of the year
declared, if paid by the Fund any time during the following January.

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Each sale, exchange, or redemption of Fund Shares is a taxable transaction to
the Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different Classes of each fund. In
addition to the Fund, the Trust consists of the following funds: Treasury Money
Market Fund, Money Market Fund, California Tax-Free Money Market Fund,
Intermediate-Term Bond Fund, Limited Maturity Government Fund, California
Intermediate Tax-Free Bond Fund, Convertible Securities Fund, Government
Securities Fund, Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund,
Growth Equity Fund and Emerging Growth Fund. All consideration received by the
Trust for shares of any fund and all assets of such fund belong to that fund and
would be subject to liabilities related thereto. The Trust reserves the right to
create and issue shares of additional funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings but approval will be sought for certain changes in the operation
of the Trust and for the election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining Trustees or by Shareholders
at a special meeting called upon the written request of Shareholders owning at
least 10% of the outstanding shares of the Trust. In the event that such a
meeting is requested the Trust will provide appropriate assistance and
information to the Shareholders requesting the information.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of
the Fund is periodically declared and paid as a dividend to Shareholders of
record. Currently, capital gains of the Fund, if any, will be distributed at
least annually.
<PAGE> 113

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110 (the "Custodian"), acts as Custodian of the assets of the Fund. The
Custodian holds cash, securities and other assets of the Fund as required by the
Investment Company Act of 1940, as amended.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Fund:

AMERICAN DEPOSITARY RECEIPTS ("ADRs") and EUROPEAN DEPOSITARY RECEIPTS
("EDRs")--ADRs are receipts, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts,
typically issued by a non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs and CDRs may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is established
jointly by the issuer of the security underlying the receipt and a depositary,
whereas an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security.

Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.

CONVERTIBLE PREFERRED STOCK--The Fund may invest in convertible preferred stock,
a class of capital stock that pays dividends at a specified rate and has
preference over common stock in the payment of dividends and the liquidation of
assets. Convertible preferred stock is preferred stock exchangeable for a given
number of common stock shares and has characteristics similar to both
fixed-income and equity securities. Because of the conversion feature, the
market value of convertible preferred stock tends to move together with the
market value of the underlying common stock. As a result, the Fund's selection
of convertible preferred stock is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying common stock. The value of
convertible preferred stock is also affected by prevailing interest rates, the
credit quality of the issuer and any call provisions.

DERIVATIVES--Derivatives are securities whose value is derived from an
underlying contract, index
<PAGE> 114

or security, or any combination thereof, including futures, options (e.g., puts
and calls), options on futures, swap agreements, and some mortgage-backed
securities (CMOs, REMICs, IOs and POs). See elsewhere in this "Description of
Permitted Investments" for discussions of these various instruments, and see
"Investment Objectives and Policies" for more information about any investment
policies and limitations applicable to their use.

FORWARD FOREIGN CURRENCY CONTRACTS-- The Fund may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into forward
currency contracts to protect against uncertainty in the level of future
exchange rates between particular currencies or between foreign currencies in
which the Fund's securities are or may be denominated. A forward contract
involves an obligation to purchase or sell a specific currency amount at a
future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Under normal circumstances, consideration of the prospect for changes
in currency exchanges rates will be incorporated into the Fund's long-term
investment strategies. However, the Advisor and SubAdvisor believe that it is
important to have the flexibility to enter into forward currency contracts when
it determines that the best interests of the Fund will be served.

When the Advisor and SubAdvisor believe that the currency of a particular
country may suffer a significant decline against another currency, the Fund may
enter into a currency contract to sell, for the appropriate currency, the amount
of foreign currency approximating the value of some or all of the Fund's
securities denominated in such foreign currency.

At the maturity of a forward contract, the Fund may either sell a fund security
and make delivery of the foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader, obligating it
to purchase on the same maturity date, the same amount of the foreign currency.
The Fund may realize a gain or loss from currency transactions.

FUTURES AND OPTIONS ON FUTURES--The Fund may invest in futures and options on
futures. Some futures strategies, including selling futures, buying puts and
writing calls, reduce the Fund's exposure to price fluctuations. Other
strategies, including buying futures, writing puts and buying calls, tend to
increase market exposure. Futures and options may be combined with each other in
order to adjust the risk and return characteristics of the overall portfolio.

Options and futures can be volatile instruments, and involve certain risks that
if applied at an inappropriate time, could negatively impact a Fund's return.

MONEY MARKET INSTRUMENTS--Money Market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury Obligations
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding high-
quality commercial papers; and (v) repurchase agreements involving any of the
foregoing obligations entered into with highly-rated banks and broker-dealers.

OBLIGATIONS OF SUPRANATIONAL ENTITIES-- Obligations of supranational entities
are established through the joint participation of several governments, and
include the Asian Development Bank, the Inter-American Development Bank,
International Bank for Reconstruction and Development (World Bank), African
Development Bank, European Economic Community, European Investment Bank and the
Nordic Investment Bank.

<PAGE> 115

OPTIONS--The Fund may purchase options with respect to securities that are
permitted investments, and each Fund may write covered call options. Under a
call option, the purchaser of the option has the right to purchase, and the
writer (the Fund) the obligation to sell, the underlying security at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to purchase, the underlying
securities at the exercise price during the option period.

In addition, the Fund may buy options on stock indices to invest cash on an
interim basis. Such options will be listed on a U.S. or foreign securities
exchange. In order to close out an option position, the Fund may enter into a
"closing purchase transaction"--the purchase of an option on the same security
with the same exercise price and expiration date as the option previously
written on any particular security. When the security is sold, the Fund effects
a closing purchase transaction so as to close out any existing option on that
security.

There are risks associated with such investments, including the following: (1)
the success of a hedging strategy may depend on the ability of the Advisor and
SubAdvisor to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of securities held by the
Fund and the price of options; (3) there may not be a liquid secondary market
for options; and (4) while the Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market value
of the underlying security.

OPTIONS ON CURRENCIES--The Fund may purchase options and write covered call
options on foreign currencies (traded on U.S. and foreign exchanges or
over-the-counter markets) to manage the Fund's exposure to changes in dollar
exchange rates. Call options on foreign currency written by the Fund will be
"covered," which means that the Fund will own an equal amount of the underlying
foreign currency. With respect to put options on foreign currency written by the
Fund, the Fund will establish a segregated account with its Custodian consisting
of cash, U.S. government securities or other liquid high grade debt securities
in an amount equal to the amount the Fund would be required to pay upon exercise
of the put.

REPURCHASE AGREEMENTS--Agreements by which the Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities or if the Fund realizes a loss in the sale
of the collateral. The Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.

<PAGE> 116

Fund will continue to receive interest on the loaned securities while
simultaneously earning interest on the investment of cash collateral in U.S.
Government securities. Collateral is marked to market daily to provide a level
of collateral at least equal to the market value of the loaned securities. There
may be risks of delay in receiving additional collateral should the borrower of
the securities fail financially.

U.S. GOVERNMENT AGENCY SECURITIES-- Certain Federal agencies have been
established as instrumentalities of the U.S. government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. government, are either backed by the full faith and
credit of the United States or supported by the issuing agencies' right to
borrow from the Treasury.

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of
receipts. The custodian arranges for the issuances of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations purchased by the
Fund may carry variable or floating rates of interest, may involve conditional
or unconditional demand features and may include variable amount master demand
notes. The interest rates on these securities may be reset daily, weekly,
quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is not secondary market for such security.

WARRANTS--The Fund may purchase warrants, which are securities that entitle the
holder to buy a proportionate amount of common stock at a specified price for a
limited or unlimited period of time. Warrants are often freely transferable and
are traded on major stock exchanges.

<PAGE> 117

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Annual Operating Expenses....................... 3
The Trust....................................... 5
Investment Objective............................ 5
Investment Policies............................. 5
Risk Factors.................................... 6
Investment Limitations.......................... 7
Fundamental Policies............................ 8
The Advisor..................................... 8
The SubAdvisor.................................. 8
The Administrator............................... 9
The Shareholder Servicing Agent................. 9
Distribution.................................... 9
Purchase and Redemption of Shares............... 9
Performance..................................... 10
Taxes........................................... 11
General Information............................. 12
Description of Permitted Investments............ 13
</TABLE>

<PAGE> 118

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<PAGE> 119

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in one or more professionally managed portfolios of securities. This
Prospectus relates to the Trust's:

-- MONEY MARKET FUND
-- TREASURY MONEY MARKET FUND
-- CALIFORNIA TAX-FREE MONEY MARKET FUND

INVESTMENT CLASS SHARES

The Trust's Investment Class Shares are offered to individuals and institutional
investors, including accounts for which UNION BANK OF CALIFORNIA, N.A. and BANK
OF TOKYO-MITSUBISHI TRUST COMPANY, their affiliates and correspondents act in an
agency or custodial capacity.

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 120

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company which provides a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about
Investment Class shares of the MONEY MARKET, TREASURY MONEY MARKET and
CALIFORNIA TAX FREE MONEY MARKET FUNDS (each a "Fund"). This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in this Prospectus and in the Statement of Additional Information.

WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE MONEY MARKET FUND invests in
obligations denominated in U.S. dollars, including commercial paper, bank
obligations, thrift and savings and loan obligations, short-term corporate
obligations, general U.S. Government obligations and repurchase agreements
involving such obligations, receipts evidencing ownership of component parts of
U.S. Treasury obligations and securities issued or guaranteed by foreign
branches of foreign banks and foreign commercial paper. THE TREASURY MONEY
MARKET FUND invests exclusively in direct obligations issued by the U.S.
Treasury, separately traded component parts of such obligations transferable
through the Federal book-entry system, and repurchase agreements involving such
obligations. THE CALIFORNIA TAX-FREE MONEY MARKET FUND invests in municipal
obligations of the State of California and its political subdivisions and
municipal obligations issued by territories or possessions of the United States.
See "Investment Policies."

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is $2,000 ($1,000 for IRAs). Shareholders must place
orders to purchase prior to 9:00 a.m. Pacific time or orders to redeem prior to
8:00 a.m. Pacific time for the California Tax-Free Money Market Fund, and prior
to 9:00 a.m. Pacific time for the Money Market and Treasury Money Market Funds
on any Business Day. Otherwise the order will be effective the next Business
Day. In addition, effectiveness of a purchase is contingent on the Custodian's
receipt of Federal funds before 11:00 a.m. Pacific time. See "Purchase and
Redemption of Shares."

ANNUAL OPERATING EXPENSES INVESTMENT CLASS
(As a percentage of average net assets)

<TABLE>
<CAPTION>
CALIFORNIA
MONEY TREASURY TAX-FREE
MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (After Fee Waivers)........................... .30% .25%(1) .10%(1)
12b-1 Fees (After Fee Waivers)(2)........................... .25% .25% .33%
Other Expenses.............................................. .20% .20% .20%
- ------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(3)............. .75% .70% .63%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Advisor has voluntarily agreed to waive fees to the extent necessary in
order to limit Total Operating Expenses of the Treasury Money Market and
California Tax-Free Money Market Funds. The Advisor reserves the right to
terminate its waiver at any time in its sole discretion. Absent this fee
waiver, the Advisory Fees would be .30% for each Fund.

(2) Absent voluntary fee waivers, 12b-1 Fees would be .40% of each Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.

(3) Absent fee waivers, "Total Operating Expenses" would be .90% for each of the
Money Market Fund, Treasury Money Market Fund and California Tax-Free Money
Market Fund. "Total Operating Expenses" of the California Tax-Free Money
Market Fund have been restated to reflect current fees and fee waivers.

EXAMPLE:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period.
Money Market Fund................................................... $ 8 $ 24 $ 42 $93
Treasury Money Market Fund.......................................... $ 7 $ 22 $ 39 $87
California Tax-Free Money Market Fund............................... $ 6 $ 20 $ 35 $79
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Investment Class shares of the Funds. The
Trust also offers Institutional Class shares of the Funds which are subject to
the same expenses, except there are no distribution expenses. Additional
information may be found under "The Administrator" and "The Advisor."

<PAGE> 122

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES
NET ------------------------------ DISTRIBUTIONS NET
ASSET NET REALIZED ---------------------- ASSET
VALUE, NET AND UNREALIZED NET VALUE,
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- -------------------------------
TREASURY MONEY MARKET FUND
- -------------------------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.051 -- (0.051) -- 1.00 5.26%
1995 1.00 0.036 -- (0.036) -- 1.00 3.71%
1994 (1) 1.00 0.022 -- (0.022) -- 1.00 2.51%*
- ---------------------
MONEY MARKET FUND
- ---------------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.052 -- (0.052) -- 1.00 5.31%
1995 1.00 0.037 -- (0.037) -- 1.00 3.78%
1994 1.00 0.027 -- (0.027) -- 1.00 2.77%
1993 1.00 0.033 -- (0.033) -- 1.00 3.36%
1992 (2) 1.00 0.036 -- (0.036) -- 1.00 4.74%*
- ------------------------------------------
CALIFORNIA TAX FREE MONEY MARKET FUND
- ------------------------------------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 1.00 0.031 -- (0.031) -- 1.00 3.14%
1995 1.00 0.023 -- (0.023) -- 1.00 2.33%
1994 1.00 0.018 -- (0.018) -- 1.00 1.80%
1993 1.00 0.022 -- (0.022) -- 1.00 2.27%
1992 (3) 1.00 0.021 -- (0.021) -- 1.00 3.24%*

<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
NET EXPENSES RATIO OF INCOME TO
ASSETS, RATIO OF TO AVERAGE NET INVESTMENT AVERAGE
END EXPENSES NET ASSETS INCOME NET ASSETS
OF PERIOD TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING
(000) NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 215,720 0.70% 0.90% 5.10% 4.90%
1995 129,024 0.69% 0.90% 4.04% 3.83%
1994 (1) 29,188 0.71%* 0.96%* 2.45%* 2.20%*
- ---------------------
MONEY MARKET FUND
- ---------------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 259,608 0.75% 0.90% 5.16% 5.01%
1995 111,267 0.70% 0.90% 3.79% 3.59%
1994 86,291 0.70% 0.89% 2.71% 2.52%
1993 79,253 0.69% 0.86% 3.41% 3.24%
1992 (2) 144,086 0.67%* 0.70%* 4.95%* 4.92%*
- -------------------------------------
CALIFORNIA TAX FREE MONEY MARKET FUND
- -------------------------------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 81,177 0.61% 0.88% 3.09% 2.82%
1995 49,494 0.62% 0.90% 2.33% 2.05%
1994 52,220 0.63% 0.94% 1.76% 1.45%
1993 8,542 0.63% 0.94% 2.21% 1.90%
1992 (3) 8,246 0.61%* 0.88%* 3.44%* 3.17%*
</TABLE>

<TABLE>
<C> <S>
* Annualized.
(1) Commenced operations on March 5, 1993.
(2) Commenced operations on May 28, 1991.
(3) Commenced operations on June 25, 1991.
</TABLE>
<PAGE> 123

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Investment Class shares of
the Trust's Money Market, Treasury Money Market and California Tax-Free Money
Market Funds (each a "Fund"). Information regarding the Trust's other funds is
contained in separate prospectuses that may be obtained from the Trust's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.

INVESTMENT OBJECTIVES

THE MONEY MARKET FUND seeks to preserve principal value and maintain a high
degree of liquidity while providing current income.

THE TREASURY MONEY MARKET FUND seeks to preserve principal value and maintain a
high degree of liquidity while providing current income.

There can be no assurance that a Fund's investment objective will be met.

INVESTMENT POLICIES

MONEY MARKET FUND

The Money Market Fund will invest in obligations denominated in U.S. dollars
consisting of:

(i) commercial paper issued by domestic and foreign issuers rated at least A-1
by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's Investors Service
("Moody's") at the time of investment or, if not rated, determined by the
Advisor to be of comparable quality; (ii) obligations (certificates of deposit,
bank notes, time deposits, and bankers' acceptances) of thrift institutions,
savings and loans, U.S. commercial banks (including foreign branches of such
banks), and U.S. and foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent institution) have total
assets of $1 billion or more as shown on their last published financial
statements at the time of investment; (iii) short-term corporate obligations
with a remaining term of not more than 397 days of issuers with commercial paper
of comparable priority and security meeting the above ratings criteria or
determined by the Advisor to be of comparable quality; (iv) obligations issued
by the U.S. Government and backed by its full faith and credit, and obligations
issued or guaranteed as to principal and interest by the agencies or
instrumentalities of the U.S. Government (e.g. obligations issued by Farmers
Home Administration, Government National Mortgage Association, Federal Farm
Credit Bank and Federal Housing Administration); (v) receipts, including TR's,
TIGR's and CATS; (vi) repurchase agreements involving such obligations; (vii)
restricted securities which have not been registered under the Securities Act of
1933 (Rule 144A Securities and Section 4(2) Commercial Paper) and (viii) loan
participations. The Advisor will determine that the permitted investments
present minimal credit risks in accordance with guidelines established by the
Trust's Board of Trustees.

the investment risk associated with investing in such instruments is the same as
that associated with investing in instruments issued by the U.S. parent, in that
the U.S. parent would be unconditionally liable in the event that the foreign
branch failed to pay on instruments.

The Fund may invest up to 5% of its total assets in such loan participations
issued by a bank in the United States with assets exceeding $1 billion where the
underlying loan is made to a borrower in whose obligations the Fund may invest
and the underlying loan has a remaining maturity of one year or less.

The Fund may invest in readily-marketable securities backed by company
receivables, truck and auto loans, leases, and credit card loans provided that
such instruments satisfy the rating requirements described above or are
determined by the Advisor to be of comparable quality.

TREASURY MONEY MARKET FUND

The Fund is limited to making investments and engaging in investment
transactions that are permissible for federal credit unions.

CALIFORNIA TAX-FREE MONEY MARKET FUND

The Advisor will invest in short-term securities, and reserves the right to
engage in "put" transactions. The Advisor has discretion to invest up to 20% of
the Fund's assets in taxable money market instruments (including repurchase
agreements), restricted securities which have not been registered under the
Securities Act of 1933 (Rule 144A Securities and Section 4(2) Commercial Paper),
receipts, including TR's, TIGR's, and CATS, and securities subject to the
alternative minimum tax. The Advisor may leave a portion of cash uninvested.
However, the Fund generally intends to be fully invested in tax-exempt
securities.

<PAGE> 125

GENERAL INVESTMENT POLICIES

Each Fund may also engage in securities lending and a Fund will limit such
practice to 33 1/3% of its total assets.

Each Fund will limit its investment in illiquid securities to 10% of its net
assets.

For further information, see "Description of Permitted Investments."

ELIGIBILITY UNDER FEDERAL CREDIT
UNION ACT

permissible investments to which they may be subject.

RISK FACTORS

INVESTMENT LIMITATIONS

1. The Money Market Fund and the Treasury Money Market Fund may not purchase
securities of any issuer (except securities issued or guaranteed by the United
States its agencies or instrumentalities) and repurchase agreements involving
such securities if as a result more than 5% of the total assets of the Fund
would be invested in the securities of such issuer. While this restriction
applies to 75% of each Fund's assets, the Money Market Fund and the Treasury
Money Market Fund have each adopted, in accordance with Rule 2a-7, a policy
providing that the 5% limitation shall apply to 100% of the Fund's assets,
provided, however, that each Fund may invest up to 25% of its assets in the
First Tier quality securities of a single issuer for up to three days. In
addition, for purposes of this limitation, as it relates to the Money Market
Fund, loan participations are considered to be issued by both the issuing bank
and the underlying corporate borrower.

3. Each Fund may not purchase any securities which would cause more than 25% of
the total assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in the obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities, and
provided further, that utilities as a group will not be considered to be one
industry, and wholly-owned subsidiaries organized to finance the operations of
their parent companies will be considered to be in the same industry as their
parent companies. For purposes of this
<PAGE> 127

limitation as it relates to the Money Market Fund, loan participations are
considered to be issued by both the issuing bank and the underlying corporate
borrower, supranational entities are considered to be a separate industry, and
this limitation does not apply to investments in the banking industry. In
addition, as it relates to the California Tax-Free Money Market Fund, this
limitation applies only to the Fund's investments in taxable securities and
securities issued or backed by the revenues of non-governmental users.

FUNDAMENTAL POLICIES

The investment objective and certain of the investment limitations are
fundamental policies of the Funds. It is also a fundamental policy of each Fund
to use its best efforts to maintain a constant net asset value of $1.00 per
share. Fundamental policies cannot be changed with respect to a Fund without the
consent of a majority of the Fund's outstanding shares. The term "majority of
the outstanding shares" means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
Fund's outstanding shares, whichever is less.

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor") have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of each Fund and
continuously reviews, supervises and administers the Fund's investment program.
The Advisor discharges its responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. The Trust's shares are not
sponsored, endorsed or guaranteed by, and do not constitute obligations or
deposits of, the Advisor and are not guaranteed by the FDIC or any other
government agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .30% of the average daily net assets of each Fund. The Advisor
may from time to time voluntarily waive all or a portion of its fees in order to
limit the operating expenses of a Fund. Any such waiver is voluntary, and may be
terminated at any time in the Advisor's sole discretion.

For the fiscal year ended January 31, 1996, the Money Market, Treasury Money
Market and California Tax-Free Money Market Funds paid Union Bank, as
predecessor to the Advisor, a fee of .30%, .25% and .10% of their average daily
net assets, respectively.

<PAGE> 128

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses applicable to a Fund's
Investment Class shares. Any such waiver is voluntary, and may be terminated at
any time.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shares have a distribution plan ("Investment Class Plan").
The Distribution Agreement and the Investment Class Plan provide that the
Investment Class shares of a Fund may bear the following distribution expenses:
(1) the cost of prospectuses, reports to Shareholders, sales literature and
other materials for potential investors; (2) advertising; and (3) expenses
incurred in connection with the promotion and sale of the Trust's shares
including the Distributor's expenses for travel, communication, and compensation
and benefits for sales personnel. In addition, the Trust pays the Distributor a
fee of up to .40% of a Fund's Investment Class shares average daily net assets,
of which a maximum of .25% may be used to compensate broker/dealers and service
providers which provide administrative and/or distribution services to
Investment Class Shareholders or to their other customers who beneficially own
Investment Class shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Funds may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business ("Business Days"). The minimum initial investment in a Fund is
$2,000 ($1,000 for IRAs); however, the minimum investment may be waived in the
Distributor's discretion. Subsequent purchases must be at least $1,000 ($500 for
IRAs).

Purchase orders will be effective on the Business Day made if the Distributor
receives an order before 9:00 a.m., Pacific time on such Business Day.
Otherwise, the purchase order will be effective the next Business Day.
Effectiveness of a purchase order on any Business Day is contingent on the
Custodian's receipt of Federal funds before 11:00 a.m. Pacific time on such day.
The purchase price is the net asset value per share, which is expected to remain
constant at $1.00. The net asset value per share is calculated as of 9:00 a.m.,
Pacific time, each Business Day based on the amortized cost method. The Trust
reserves the right to reject a purchase order when the Distributor determines
that it is not in the best interest of the Trust and/or Shareholder(s).

Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase.
<PAGE> 129

The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of a Fund (normally
$1.00 per share).

Redemption orders may be made any time before 8:00 a.m. Pacific time for the
California Tax-Free Money Market Fund and 9:00 a.m. Pacific time for the Money
Market and Treasury Money Market Fund in order to receive that day's redemption
price (i.e. the next determined net asset value per share). For redemption
orders received before 9:00 a.m. Pacific time, payment will be made the same day
by transfer of federal funds. Otherwise, payment will be made on the next
Business Day. Redeemed shares are entitled to dividends declared the day the
redemption order is effective.

Neither the Trust's transfer agent nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes are genuine. The Trust and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
extraordinary circumstances exist, and you experience difficulties placing
redemption order by telephone, you may wish to consider placing your order by
other means.

COMPUTATION OF YIELD

From time to time a Fund advertises its "current yield" and "effective compound
yield." Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "current yield" of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will typically be slightly higher than the
"current yield" because of the compounding effect of this assumed reinvestment.
The California Tax-Free Money Market Fund may also advertise tax equivalent
yields.

The yield of each Fund will fluctuate, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in the
Fund will actually yield in the future.

returns to a benchmark, while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

TAXES

The following summary of federal and California income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state, or local income tax treatment of a
Fund or its Shareholders. In addition, state and local income tax consequences
of an investment in a Fund may differ from federal tax consequences described
below. Accordingly, Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state and local income taxes.
Additional information concerning taxes is set forth in the Statement of
Additional Information.

TAX STATUS OF THE FUNDS:

Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment company taxable income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

Each Fund will distribute all of its net investment income (including net
short-term capital gain) and net capital gain to Shareholders. Dividends from
net investment company taxable income are taxable to Shareholders as ordinary
income (whether received in cash or in additional shares) to the extent of the
Fund's earnings and profits. Distributions of net capital gain also will not
qualify for the dividends-received deduction and will be taxable to Shareholders
as long-term capital gain regardless of how long the Shareholders have held
their shares and regardless of whether the distributions are received in cash or
in additional shares. Dividends and distributions of capital gain paid by a Fund
do not qualify for the dividends received deduction for corporate Shareholders.
Each Fund will provide annual reports to Shareholders of the federal income tax
status of all distributions.

The Funds intend to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

<PAGE> 131

exempt from state tax. Each Fund will inform Shareholders annually of the
percentage of income and distributions derived from direct U.S. Treasury
obligations. Shareholders should consult their tax advisors to determine whether
any portion of the income dividends received from a Fund is considered tax
exempt in their particular state.

Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Money Market Fund will not be able to elect to
treat Shareholders as having paid their proportionate share of such foreign
taxes.

Each sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.

SPECIAL CONSIDERATIONS FOR THE CALIFORNIA TAX-FREE MONEY MARKET FUND

The California Tax-Free Money Market Fund will distribute all of its net
investment income (including net short-term capital gain) to Shareholders. If,
at the close of each quarter of its taxable year, at least 50% of the value of
the Fund's assets consists of obligations the interest on which is excludable
from gross income, the Fund may pay "exempt-interest dividends" to its
Shareholders. Those dividends constitute the portion of the aggregate dividends
as designated by the Fund, equal to the excess of the excludable interest over
certain amounts disallowed as deductions. Exempt-interest dividends are
excludable from a Shareholder's gross income for federal income tax purposes,
but may have certain collateral federal income tax consequences, as described in
the Statement of Additional Information.

CALIFORNIA TAXES:

<PAGE> 132

will be treated as a California exempt-interest dividend. The California
Tax-Free Money Market Fund will notify Shareholders of the amount of California
exempt-interest dividends each year.

Corporations subject to California franchise tax that invest in the Fund may not
be entitled to exclude California exempt-interest dividends from income.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each fund. In
addition to the Fund, the Trust consists of the following funds: Growth Equity
Fund, Value Momentum Fund, Intermediate-Term Bond Fund, Limited Maturity
Government Fund, Balanced Fund, Blue Chip Growth Fund, Emerging Growth Fund,
Convertible Securities Fund, Government Securities Fund, California Intermediate
Tax-Free Bond Fund, and International Equity Fund. All consideration received by
the Trust for shares of any fund and all assets of such fund belong to that fund
and would be subject to liabilities related thereto. The Trust reserves the
right to create and issue shares of additional funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings, but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon the written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide

<PAGE> 133

appropriate assistance and information to the Shareholders requesting the
meeting.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. This Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

The net investment income (exclusive of net short-term capital gain) of each
Fund is determined and declared on each business day as a dividend for
Shareholders of record as of the close of business on that day. Dividends are
paid by the Fund in additional shares, unless the Shareholder has elected to
take such payment in cash, on the first business day of each month. Shareholders
may change their election by providing written notice to the Administrator at
least 15 days prior to the change.

The dividends payable on the Investment Class shares will typically be lower
than the dividends payable on the Institutional Class shares because of the
distribution expenses charged to Investment Class shares.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

CoreStates Bank NA., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as Custodian of the assets of the
Fund. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940, as amended.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Funds:

ASSET-BACKED SECURITIES (NON-MORTGAGE)--The Money Market Fund may invest in
Asset-Backed Securities, which are instruments secured by company receivables,
truck and auto loans, leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for purpose of owning such assets and issuing
such debt. The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities.

CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a specific
maturity. Certificates of deposit are issued by banks and savings and loan
institutions in exchange for the

<PAGE> 134

deposit of funds and normally can be traded in the secondary market, prior to
maturity.

LOAN PARTICIPATIONS--The Money Market Fund may invest in loan participations,
which are interests in loans to U.S. corporations (i.e., borrowers) administered
by the lending bank or agent for a syndicate of lending banks, and sold by the
lending bank or syndicate member ("intermediary bank"). In a loan participation,
the borrower of the underlying loan will be deemed to be the issuer of the
participation interest, except to the extent a purchasing Fund derives its
rights from the intermediary bank. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risks generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation (such as commercial paper) of such borrower
because it may be necessary under the terms of the loan participation for the
Fund to assert its rights against the borrower through the intermediary bank.
Moreover, under the terms of a loan participation the purchasing Fund may be
regarded as a creditor of the intermediary bank (rather than of the underlying
corporate borrower), making it subject to the risk that the issuing bank may
become insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, a loan participation may be subject to certain defenses that
can be asserted by such borrower as a result of improper conduct by the issuing
bank. The secondary market, if any, for these loan participations is limited,
and any such participation purchased by the Fund may be regarded as illiquid.

REPURCHASE AGREEMENTS--Agreements by which a Fund obtains a security and
simultaneously commits to return the security to

<PAGE> 135

the seller at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days from the date of purchase. A Fund will
have actual or constructive possession of the securities held as collateral for
the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities or if a Fund
realizes a loss on the sale of the collateral. A Fund will enter into repurchase
agreements only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on established guidelines.
Repurchase agreements are considered loans under the 1940 Act.

SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR WHEN-ISSUED
SECURITIES--Securities subject to settlement on a future date. The interest rate
realized on these securities is fixed as of the purchase date, and no interest
accrues to a Fund before settlement. These securities are subject to market
fluctuation due to changes, real or anticipated, in market interest rates and
the public's perception of the creditworthiness of the issuer, and will have the
effect of leveraging the Fund's assets. Purchasing securities on a forward
commitment or when-issued basis when a Fund is fully or almost fully invested
may result in greater potential fluctuation in the value of a Fund's net asset
value per share. The purchasing Fund will establish one or more segregated
accounts with the Custodian, and will maintain liquid, high grade assets in an
amount at least equal in value to the Fund's commitments to purchase when-issued
securities.

SECURITIES LENDING--In order to generate additional income, each Fund may lend
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or any combination of cash and such securities as collateral equal to
100% of the market value at all times of the loaned securities. The Fund will
continue to receive interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. Collateral is marked to market daily to provide a level of
collateral at least equal to the value of the loaned securities. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially.

TAX-EXEMPT COMMERCIAL PAPER--The California Tax-Free Money Market Fund may
purchase tax-exempt commercial paper, which is commercial paper issued by
governments and political sub-divisions.

<PAGE> 136

supported only by the credit of the instrumentality (e.g., FNMA securities).

RECEIPTS--The Money Market Fund and California Tax-Free Money Market Fund may
invest in Receipts, which are interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing Treasury notes and Treasury
bonds into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TR's"), "Treasury Investment Growth
Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). STRIPS, TR'S, TIGR'S and CATS are sold as zero coupon securities,
which means that they are sold at a substantial discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the security, and such
accretion will constitute the income earned on the security for both accounting
and tax purposes. Because of these features, such securities may be subject to
greater interest rate volatility than interest paying securities. See also
"Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations purchased by the
Funds may carry variable or floating rates of interest, may involve conditional
or unconditional demand features and may include variable amount master demand
notes. The interest rates on these securities may be reset daily, weekly,
quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS

Investments by the Funds are subject to limitations imposed under regulations
adopted by the SEC. These regulations generally require money market funds to
acquire only U.S. dollar denominated obligations maturing in 397 days or less
and to maintain a dollar-weighted average portfolio maturity of 90 days or less.
In addition, the Funds may acquire only obligations that present minimal credit
risks and that are "eligible securities," which means they are (i) rated, at the
time of investment, by at least two nationally recognized security rating
organizations (one if it is the only organization rating such obligation) in the
highest short-term rating category or, if unrated, determined to be of
comparable quality (a "first tier security"), or (ii) rated according to the
foregoing criteria in the second highest short-term rating category or, if
unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term-rating.
In determining whether obligations are eligible securities, the rating of the
issuer's commercial paper, if any, is used for the above tests. Investments by
the Money Market Fund in second tier securities are subject to the further
constraints that (i) no more than 5% of the Fund's assets may be invested in
such securities in the aggregate, and (ii) any investment in such securities of
one issuer is limited to the greater of 1% of the Fund's total assets or $1
million. In addition, the Fund may invest up to 25% of its total assets in the
first tier securities of a single issuer for three business days.

<PAGE> 137

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary.......................................... 2
Annual Operating Expenses........................ 3
Financial Highlights............................. 4
The Trust........................................ 5
Investment Objectives............................ 5
Investment Policies.............................. 5
General Investment Policies...................... 7
Risk Factors..................................... 8
Investment Limitations........................... 8
Fundamental Policies............................. 9
The Advisor...................................... 9
The Administrator................................ 10
The Shareholder Servicing Agent.................. 10
Distribution..................................... 10
Purchase and Redemption of Shares................ 10
Computation of Yield............................. 11
Taxes............................................ 12
General Information.............................. 14
Description of Permitted Investments............. 15
Restraints on Investments by Money Market
Funds.......................................... 18
</TABLE>

<PAGE> 138

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 139

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus relates to the Trust's:

-- INTERMEDIATE-TERM BOND FUND
- -- GOVERNMENT SECURITIES FUND

INVESTMENT CLASS SHARES

The Trust's Investment Class Shares are offered to individual and institutional
investors, including accounts for which UNION BANK OF CALIFORNIA, N.A. and BANK
OF TOKYO -- MITSUBISHI TRUST COMPANY, their affiliates and correspondents act in
an agency or custodial capacity.

This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus, has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243.
The Statement of Additional Information is incorporated into this Prospectus by
reference.

THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF
TOKYO -- MITSUBISHI TRUST COMPANY OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS.
THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 140

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Investment Class shares of the GOVERNMENT SECURITIES FUND, INTERMEDIATE-TERM
BOND FUND (each a "Fund"). This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in this Prospectus
and in the Statement of Additional Information.

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. The market value of a Fund's fixed income investments
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the value of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. See "Risk Factors."

WHO IS THE ADVISOR? Union Bank of California, N.A. serves as the Advisor to the
Trust. See "The Advisor."

WHO IS THE SUBADVISOR? Bank of Tokyo -- Mitsubishi Trust Company serves as the
SubAdvisor to the Government Securities Fund. See "The SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
Administrator of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment in the Fund's Investment Class is $2,000 ($1,000 for
IRAs). A purchase order will be effective if the Distributor receives an order
prior to 1:00 p.m. Pacific time. Purchase orders for shares will be executed at
a per share price equal to the asset value next determined after the purchase
order is effective (plus any applicable sales charge). Redemption orders must be
placed prior to 1:00 p.m. Pacific time on any Business Day for the order to be
effective that day. See "Purchase and Redemption of Shares."

SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases............................................... 3.00%
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GOVERNMENT
INTERMEDIATE-TERM SECURITIES
BOND FUND FUND
<S> <C> <C>
Advisory Fees.................................................... .50% .50%
12b-1 Fees (After Fee Waivers)(1)................................ .00% .00%
Other Expenses................................................... .18% .25%
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(2).................. .68% .75%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) Absent voluntary fee waivers, 12b-1 Fees would be .40% of each Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.

(2) Absent fee waivers, "Total Operating Expenses" would be 1.15% for the
Government Securities Fund and 1.08% for the Intermediate-Term Bond Fund.

EXAMPLE:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) imposition of the maximum sales charge;
(2) 5% annual return and (3) redemption at the end of each time
period
Intermediate-Term Bond Fund...................................... $37 $ 51 $ 67 $ 112
Government Securities Fund....................................... $37 $ 53 $ 70 $ 120
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Investment Class shares of the Funds. The
Trust also offers Institutional Class Shares of the Funds which are subject to
the same expenses, except there are no sales charges or distribution costs.
Additional information may be found under "The Administrator," "The Advisor" and
"The SubAdvisor."

The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."

Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").

<PAGE> 142

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<C> <S>
* Annualized.

** Total Return does not reflect the sales charge.

(1) Commenced operations on February 3, 1992.

</TABLE>
<PAGE> 143

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Investment Class shares of
the Trust's Government Securities and Intermediate-Term Bond Funds (each a
"Fund"). Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's Distributor, SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVES

THE INTERMEDIATE-TERM BOND FUND seeks to provide total return.

There can be no assurance that a Fund will meet its investment objective.

INVESTMENT POLICIES

INTERMEDIATE-TERM BOND FUND

Under normal market conditions, at least 65% of the Intermediate-Term Bond
Fund's assets will be invested in debt instruments. Such debt instruments shall
include corporate bonds and debentures rated AAA, AA, A, or BBB by Standard &
Poor's Corporation ("S&P") or Aaa, Aa, A, or Baa by Moody's Investors Service
("Moody's") or determined by the Advisor to be of comparable quality at the time
of purchase; Yankee Bonds and Eurodollar instruments, obligations issued by the
U.S. Government and its agencies and instrumentalities (such as GNMA
securities); mortgage-backed securities, including privately issued
mortgage-backed securities; readily-marketable asset-backed securities;
securities issued or guaranteed by foreign governments, their political
subdivisions, agencies or instrumentalities; and obligations of supranational
entities such as the World Bank and the Asian Development Bank. The remainder of
the Fund's assets may be invested in money market instruments and in cash. The
dollar-weighted average portfolio maturity of the Fund will be from three to ten
years.

GOVERNMENT SECURITIES FUND

<PAGE> 144

long as the underlying security, or securities represented by an index, are
permitted investments of the Fund. The Fund may enter into futures contracts and
options on futures only to the extent that obligations under such contracts or
transactions represent not more than 10% of the Fund's assets.

GENERAL INVESTMENT POLICIES

For temporary defensive purposes during periods when the Advisor or SubAdvisor
determines that market conditions warrant, each Fund may invest up to 100% of
its assets in money market instruments consisting of securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, repurchase
agreements, receipts including TR's, TIGR's and CATS, money market funds,
certificates of deposit, time deposits, bank master notes and bankers'
acceptances issued by banks having net assets of at least $1 billion as of the
end of their most recent fiscal year, commercial paper rated at least A-1 by S&P
or P-1 by Moody's, and in cash. A Fund will not be pursuing its investment
objective to the extent that more than a substantial portion of its assets are
invested in money market securities.

In the event that a security owned by a Fund is downgraded below the stated
ratings categories, the Advisor or SubAdvisor will take appropriate action with
regard to the security.

Each Fund will restrict its investment in illiquid securities to 15% of its net
assets.

Each Fund may engage in securities lending and will limit such practice to
33 1/3% of total assets.

Each Fund may purchase restricted securities which have not been registered
under the Securities Act of 1933 (Rule 144A Securities and Section 4(2)
Commercial Paper).

<PAGE> 145

For further information see "Description of Permitted Investments."

RISK FACTORS

Each Fund's shares will fluctuate in value with the value of the underlying
securities in its portfolio. Changes in the value of a Fund's portfolio
securities will not affect cash received from ownership of such securities, but
will affect the Fund's net asset value.

Each Fund may hold dollar denominated securities of foreign issuers which may
bear greater investment risks than those of U.S. domestic issuers. Such risks
include political and economic instability, expropriation of foreign deposits
and other restrictions which may adversely affect the payment of principal and
interest on such securities. See "Description of Permitted Investments."

INVESTMENT LIMITATIONS

Each Fund may not:

3. Make loans except that the Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies, (b) enter into
repurchase agreements, and (c) engage in securities lending as described in this
Prospectus and in the Statement of Additional Income.

FUNDAMENTAL POLICIES

THE ADVISOR

<PAGE> 146

responsibilities subject to the supervision of, and policies established by, the
Trustees of the Trust. The Trust's shares are not sponsored, endorsed or
guaranteed by, and do not constitute obligations or deposits of, the Advisor and
are not guaranteed by the FDIC or any other governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .50% of the average daily net assets of the Government
Securities and Intermediate-Term Bond Funds. The Advisor may from time to time
waive all or a portion of its fee in order to limit the operating expenses of a
Fund. Any such waiver is voluntary and may be terminated at any time in the
Advisor's sole discretion.

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, was paid an advisory fee of .50% of the average daily net assets of the
Intermediate-Term Bond and the Government Securities Funds.

THE SUBADVISOR

The Advisor and Bank of Tokyo-Mitsubishi Trust Company (the "SubAdvisor") have
entered into an investment subadvisory agreement relating to the Government
Securities Fund (the "Investment SubAdvisory Agreement"). Under the Investment
SubAdvisory Agreement, the SubAdvisor makes the day-to-day investment decisions
for the assets of the Fund, subject to the supervision of, and policies
established by, the Trustees of the Trust. The Trust's shares are not sponsored,
endorsed or guaranteed by and do not constitute obligations or deposits of the
SubAdvisor and are not guaranteed by the FDIC or any other governmental agency.

The SubAdvisor is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .20% of the average daily net
assets of the Government Securities Fund. For the fiscal year ended January 31,
1996, The Bank of Tokyo Trust Company, as predecessor to the SubAdvisor,
received .20% of the average daily net assets of the Government Securities Fund.

<PAGE> 147

Company managed $750 billion in individual portfolios and collective funds. In
addition, Bank of Tokyo-Mitsubishi Trust Company also serves as SubAdvisor to
the Trust's Convertible Securities, Emerging Growth and Blue Chip Growth Funds.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of the average daily net assets of the Trust
up to $1 billion, .12% of the average daily net assets between $1 billion and $2
billion, and .10% of the average daily net assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of a Fund's Investment Class
shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shares have a distribution plan (the "Investment Class
Plan"). The Distribution Agreement and the Investment Class Plan provide that
the Investment Class shares of a Fund may bear the following distribution
expenses: (1) the cost of prospectuses, reports to Shareholders, sales
literature and other materials for potential investors; (2) advertising; and (3)
expenses incurred in connection with the promotion and sale of the Trust's
shares, including the Distributor's expenses for travel, communication, and
compensation and benefits for sales personnel. In addition, the Trust pays the
Distributor a fee of up to .40% of a Fund's Investment Class shares average
daily net assets, of which a maximum of .25% may be used to compensate
broker/dealers and service providers that provide administrative and/or
distribution services to Investment Class Shareholders or to their other
customers who beneficially own Investment Class shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Funds may be made on days on which
both the New York Stock Exchange and Federal Reserve wire system are open for
business ("Business Days"). The minimum initial investment in a Fund is $2,000
($1,000 for IRAs); however, the minimum investment may be waived at the
Distributor's discretion. All subsequent purchases must be in amounts of at
least $1,000 ($500 for IRAs).

<PAGE> 148

other assets, less any liabilities, by the number of total outstanding shares of
a Fund. Net asset value per share is determined daily as of 1:00 p.m. Pacific
time, on any Business Day. Purchases will be made in full and fractional shares
of the Trust calculated to three decimal places. The Trust reserves the right to
reject a purchase order when the Distributor determines that it is not in the
best interest of the Trust and/or its Shareholders to accept such order.

Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase.

The following table shows the regular sales charge on Investment Class shares to
a "single purchaser" (described below) together with the dealer discount paid to
dealers and the agency commission paid to brokers (collectively the
"commission"):

<TABLE>
<CAPTION>
SALES SALES
CHARGE CHARGE AS COMMISSION
AS A APPROPRIATE AS
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<S> <C> <C> <C>
- ------------------------------------------------------
0- $ 24,999... 3.00% 3.09% 2.70%
$ 25,000- $ 49,999... 2.50% 2.56% 2.25%
$ 50,000- $ 99,999... 2.00% 2.04% 1.80%
$ 100,000- $249,999... 1.50% 1.52% 1.35%
$ 250,000- $999,999... 1.00% 1.01% 0.90%
$1,000,000- and Over... 0.00%* 0.00% 0.00%
</TABLE>

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

* A contingent deferred sales charge of 1.00% will be charged if such Investment
Class shares are redeemed prior to one year from date of purchase.

The commissions shown in the table apply to sales through authorized dealers and
brokers. Under certain circumstances, the Distributor may use its own funds to
compensate financial institutions and intermediaries in amounts that are
additional to the commissions shown above. In addition, the Distributor may,
from time to time and at its own expense, provide promotional incentives in the
form of cash or other compensation to certain financial institutions and
intermediaries whose registered representatives have sold or are expected to
sell significant amounts of the Investment Class shares of the Fund. Such other
compensation may take the form of payments for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives to places within or without the United States. Under certain
circumstances, commissions up to the amount of the entire sales charge may be
reallowed to dealers or brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may vary among the Funds.

In calculating the sales charge rates applicable to current purchases of a
Fund's shares, a "single purchaser" is entitled to cumulate current purchases
with the net purchases of previously purchased shares of the Fund and other of
the Trust's funds (the "Eligible Funds") which are sold subject to a comparable
sales charge.

The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Fund for their own account or for trust or
custodial accounts for their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), including related plans of the same employer. To be
entitled to a reduced sales charge based upon shares already owned, the investor
must ask the Distributor for such entitlement at the time of purchase and
provide the account number(s) of the investor, the investor and spouse, and
their minor children, and give the age of such children. The Fund may amend or
terminate this right of accumulation at any time as to subsequent purchases.

LETTER OF INTENT. By submitting a Letter of Intent (the "Letter") to the
Distributor, a "single purchaser" may purchase shares of the Fund and the other
Eligible Funds during a 13-month period at the reduced sales charge rates
applying to the aggregate amount of the intended purchases stated in the Letter.
The Letter may apply to purchases made up to 90 days before the date of the
Letter. To receive credit for such prior purchases and later purchases
benefitting from the Letter, the Shareholder must notify the Transfer Agent at
the time the Letter is submitted that there are prior purchases that may apply,
and, at the time of later purchases, notify the Transfer Agent that such
purchases are applicable under the Letter.

<PAGE> 149

OTHER CIRCUMSTANCES. No sales charge is imposed on Investment Class shares of
the Fund: (i) issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Trust is a party; (ii) sold to
dealers or brokers that have a sales agreement with the Distributor, for their
own account or for retirement plans for their employees or sold to employees
(and their spouses) of dealers or brokers that certify to the Distributor at the
time of purchase that such purchase is for their own account (or for the benefit
of such employees' minor children); (iii) in aggregate purchases of $1 million
or more by tax-exempt organizations enumerated in Section 501(c) of the Code, or
employee benefit plans created under Sections 401, 403(b) or 457 of the Code;
(iv) sold to employees and families of the Advisor and its affiliates; (v) sold
to fiduciary accounts of the Advisor and its affiliates; or (vi) purchased with
proceeds from the recent redemption of shares of a mutual fund with similar
investment objectives and policies for which a sales charge was paid.

The waiver of the sales changes under clause (vi) applies only if the following
conditions are met: the purchase must be made within 60 days of the redemption;
the Distributor must be notified in writing by the investors, or his or her
agent, at the time a purchase is made; and a copy of the investor's account
statement showing such redemption must accompany such notice. The waiver policy
with respect to the purchase of shares through the use of proceeds from a recent
redemption above will not continue indefinitely and may be discontinued at any
time without notice. Investors should contact the Distributor to confirm
continued availability prior to initiating the procedures described in clause
(vi).

PURCHASES BY EXCHANGE

As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, shareholders of Investment Class shares of
other Funds of the Trust that have similar sales charges may tender their shares
for those Funds for exchange into the number of shares (including fractional
shares) which have a value equal to the total net asset value of shares tendered
divided by the net asset value of Investment Class shares of the Fund next
determined after such order is received. Shares issued pursuant to this offer
will not be subject to this sales charge described above or any other charge.
The Fund may modify or terminate this exchange offer at any time upon 60 days'
notice.

PERFORMANCE

From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the same amount of income generated by the investment during
that period is generated in each 30-day period over one year and is shown as a
percentage of the investment.

The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including,
<PAGE> 150

but not limited to, the period from which the Fund commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions. The total return of a Fund may also be quoted as a dollar amount
or on an aggregate basis, an actual basis, without inclusion of any sales
charge, or with a reduced sales charge in advertisements distributed to
investors entitled to a reduced sales charge.

A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long-term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of a Fund or
its Shareholders. In addition, state and local tax consequences of an investment
in the Fund may differ from the federal income tax consequences described below.
Accordingly, Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state, and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUNDS:

Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies by the Internal
Revenue Code of 1986, as amended (the "Code"), so as to be relieved of federal
income tax on that part of its net investment company taxable income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

A Fund will distribute substantially all of its net investment income (including
net short-term capital gain) to Shareholders. Dividends from a Fund's net
investment company taxable income are taxable to Shareholders as ordinary income
(whether received in cash or in additional shares) to the extent of the Fund's
earnings and profits. Any net capital gains will be distributed at least
annually and will be taxed to Shareholders as long-term capital gains,
regardless of how long the Shareholder has held shares and regardless of whether
the distributions are received in cash or in additional shares. Dividends and
distributions of capital gain do not qualify for the dividends-received
deduction for corporate shareholders. Each Fund will provide annual reports to
Shareholders of the federal income tax status of all distributions.

<PAGE> 151

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments, a
Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because each Fund distributes
all of its net investment income to Shareholders, a Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Advisor or SubAdvisor would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Investment income received directly by a Fund on direct U.S. obligations is
exempt from tax at the state level, and may be exempt, depending on the state,
when received by a Shareholder as income dividends from a Fund, provided certain
state-specific conditions are satisfied. Interest realized on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. Each Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from a Fund is considered tax exempt in their
particular state.

Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared if paid by the Fund any time during the following January.

The Funds intend to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Each sale, exchange, or redemption of Fund shares is a taxable event to the
Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each fund. In
addition to the Funds, the Trust consists of the following funds: Treasury Money
Market Fund, Money Market Fund, California Tax-Free Money Market Fund, Growth
Equity Fund, Value Momentum Fund, Balanced Fund, California Intermediate
Tax-Free Bond Fund, Blue Chip Growth Fund, Emerging Growth Fund, Limited
Maturity Government Fund, Convertible Securities Fund and International Equity
Fund. All consideration received by the Trust for shares of any fund and all
assets of such fund belong to that fund and would be subject to liabilities
related thereto. The Trust reserves the right to create and issue shares of
additional funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

<PAGE> 152

circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.

REPORTING

The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania,
19087-1658.

DIVIDENDS

Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the Shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Administrator at least 15 days prior to the distribution.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Funds:

ASSET-BACKED SECURITIES (NON-MORTGAGE)--Each Fund may invest in asset-backed
securities, which are instruments secured by company receivables, truck and auto
loans, leases, and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for purpose of owning such assets and issuing such debt. The
purchase of non-mortgage asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities.

CORPORATE OR GOVERNMENT BONDS-- Interest-bearing or discounted corporate or

<PAGE> 153

government securities that obligates the issuer to pay the bondholder a
specified sum of money, usually at specific intervals, and to repay the
principal amount of the loan at maturity. Bonds rated Baa or better by Moody's
or BBB or better by S&P are considered investment grade quality.

FUTURES AND OPTIONS ON FUTURES--The Government Securities Fund may invest in
futures and options on futures. Some futures strategies, including selling
futures, buying puts and writing calls, reduce the Fund's exposure to price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures and options may be
combined with each other in order to adjust the risk and return characteristics
of the overall portfolio.

Options and futures can be volatile instruments, and involve certain risks that,
if applied at an inappropriate time, could negatively impact the Fund's return.

MORTGAGE-BACKED SECURITIES--Each Fund may purchase mortgage-backed securities,
which are securities generally issued or guaranteed by U.S. government agencies
such as GNMA, FNMA, or FHLMC. GNMA mortgaged-backed certificates are
mortgage-backed securities of the modified pass-through type, which means that
both interest and principal payments (including prepayments) are passed through
monthly to the holder of the certificate. Each GNMA certificate evidences an
interest in a specific pool of mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the Veterans
Administration. FNMA, a federally-chartered and stockholder-owned corporation,
issues pass-through certificates which are guaranteed as to payment of principal
and interest by FNMA. FHLMC, a corporate instrumentality of the United States,
issues participation certificates which represent an interest in mortgages held
in FHLMC's portfolio. FHLMC guarantees the timely payment of interest and the
ultimate collection of principal. Securities issued or guaranteed by FNMA and
FHLMC are not backed by the full faith and credit of the United States. There
can be no assurance that the U.S. government would provide financial support to
FNMA or FHLMC if necessary in the future.

Payments of principal and interest on the collateral mortgages are used to pay
debt service on the CMO. In a CMO, a series of bonds or certificates is issued
in multiple classes. Each class of CMOs, often referred to as a "tranche," is
issued at a specific coupon rate and has a stated maturity or final distribution
date. The principal and interest payment on the underlying mortgages may be
allocated among the classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages would be
applied to the classes in the order of their respective stated maturities or
final distribution dates, so that no payment of principal will be made on CMOs
of a class until all CMOs of other classes having earlier stated maturities or
final distribution dates have been paid in full.

One or more classes of CMOs may have coupon rates that reset periodically based
on an index, such as the London Interbank Offered Rate ("LIBOR"). Each Fund may
purchase fixed, adjustable, or "floating" rate CMOs that are collateralized by
fixed rate or adjustable rate mortgages that are guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government or
are directly guaranteed as to payment of principal and interest by the issuer,
which guarantee is collateralized by U.S. government securities or are
collateralized by privately issued fixed rate or adjustable rate mortgages.

[Risks associated with mortgage-backed securities:] While the U.S. government or
the issuing agency or entity guarantees the timely payment of interest on and
principal of the securities referred to in the preceding section, the guarantees
do not extend to the securities' yield or value, which are likely to vary
inversely with fluctuations in interest rates. Changes in interest rates can
lead to material changes in prepayment rates, which in turn can materially
affect an instrument's value. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the average
life or realized yield of a particular issue of pass-through certificates.

REPURCHASE AGREEMENTS--Agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. A Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement. A
Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities or if the Fund realizes a loss on the sale
of the collateral. A Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.

RULE 144A SECURITIES -- Each Fund may purchase Rule 144A Securities. Rule 144A
Securities are restricted securities that have not been registered under the
Securities Act of 1933, but which may be traded between certain qualified
institutional investors, including investment companies. The absence of a
secondary market may affect the value of the Rule 144A Securities. The Board of
Trustees of the Trust has established guidelines and procedures to be utilized
to determine the liquidity of such securities.

<PAGE> 155

equal in value to the Fund's commitments to purchase when-issued securities.

SECURITIES LENDING--In order to generate additional income, each Fund may lend
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or any combination of cash and such securities as collateral equal to
100% of the market value at all times of the loaned securities. A Fund will
continue to receive interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. Collateral is marked to market daily to provide a level of
collateral at least equal to the value of the loaned securities. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially.

U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S. Treasury,
as well as separately traded interest and principal component parts of such
obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
system.

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts includes
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased by
a Fund may carry variable or floating rates of interest, may involve conditional
or unconditional demand features and may include variable amount master demand
notes. The interest rates on these securities may be reset daily, weekly,
quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

YANKEE BONDS--Dollar denominated securities issued by foreign-domiciled issuers
that obligate the issuer to pay the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the loan at maturity. Most
Yankee bond issues enjoy relatively high credit ratings. Sovereign bonds are
bonds issued by the governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as the World Bank and the European
Investment Bank. Canadian bonds are bonds issued by Canadian provinces.

SECURITIES OF FOREIGN ISSUERS--Each Fund may purchase U.S. dollar denominated
securities of foreign issuers. There may be certain risks
<PAGE> 156

connected with investing in foreign securities, including risks of adverse
political and economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be less information on
such securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
U.S. securities. A Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates may also affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to distributed
to shareholders by a Fund.

<PAGE> 157

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Shareholder Transaction Expenses................ 3
Financial Highlights............................ 4
The Trust....................................... 5
Investment Objectives........................... 5
Investment Policies............................. 5
General Investment Policies..................... 6
Risk Factors.................................... 7
Investment Limitations.......................... 7
Fundamental Policies............................ 7
The Advisor..................................... 7
The SubAdvisor.................................. 8
The Administrator............................... 9
The Shareholder Servicing Agent................. 9
Distribution.................................... 9
Purchase and Redemption of Shares............... 9
Purchases by Exchange........................... 11
Performance..................................... 11
Taxes........................................... 12
General Information............................. 13
Description of Permitted Investments............ 14
</TABLE>

<PAGE> 158

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 159

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in professionally managed portfolios of securities. This Prospectus
relates to the Trust's:

CONVERTIBLE SECURITIES FUND

INVESTMENT CLASS SHARES

This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus, has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243.
The Statement of Additional Information is incorporated into this Prospectus by
reference.

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 160

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Investment Class shares of the CONVERTIBLE SECURITIES FUND (the "Fund"). This
summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks a high level of
current income and capital appreciation by investing in convertible securities.
See "Investment Objective."

WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund will invest primarily in
convertible securities, including bonds, debentures, notes, and preferred stocks
convertible into common stock. See "Investment Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. The Fund may invest up to 35% of its assets in
convertible bonds rated lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("S&P") and as low as Caa by
Moody's or CCC by S&P, which are lower-quality, higher-yielding, high-risk debt
securities. The Fund's shares will fluctuate in value with the value of the
underlying securities in its portfolio. See "Risk Factors."

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE SUBADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
SubAdvisor to the Fund. See "The SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is $2,000 ($1,000 for IRAs). A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time.
Purchase orders for shares will be executed at a per share price equal to the
asset value next determined after the purchase order is effective (plus any
applicable sales charge). Redemption orders must be placed prior to 1:00 p.m.
Pacific time on any Business Day for the order to be accepted that day. See
"Purchase and Redemption of Shares."

SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)

<TABLE>
<CAPTION>
CONVERTIBLE
SECURITIES
FUND
<S> <C>
- -------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases................................................ 3.00%
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
- -------------------------------------------------------------------------------------------------------
Advisory Fees............................................................................ .60%
12b-1 Fees (After Fee Waivers)(1)........................................................ .00%
Other Expenses........................................................................... .25%
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(2).......................................... .85%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) Absent voluntary fee waivers, 12b-1 Fees would be .40% for the Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.

(2) Absent fee waivers, "Total Operating Expenses" would have been 1.25%.

EXAMPLE:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) imposition of the maximum sales
charge; (2) 5% annual return and (3) redemption
at the end of each time period........................... $38 $56 $76 $132
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Fund. The Trust also offers Institutional Class shares of the Fund, which are
subject to the same expenses, except there are no sales charges or distribution
costs. Additional information may be found under "The Administrator", "The
Advisor" and "The SubAdvisor."

Long-term investors may pay more than the equivalent of the maximum front-end
sales charge otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").

<PAGE> 162

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Investment Class shares of
the Trust's Convertible Securities Fund (the "Fund"). Information regarding the
Trust's other funds is contained in separate prospectuses that may be obtained
from the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVE

The Convertible Securities Fund seeks a high level of current income and capital
appreciation by investing in convertible securities.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

Under normal market conditions, at least 65% of the Fund's assets will be
invested in convertible securities consisting of bonds, debentures, notes, and
preferred stocks convertible into common stock. In general, a convertible
security is a fixed-income security, such as a bond (which typically pays a
fixed annual rate of interest) or preferred stock (which typically pays a fixed
dividend), that may be converted at a stated price within a specified period of
time into a specified number of common stock of the issuing company or a
different company. A convertible security may be subject to redemption by the
issuer, but only after a particular date and under certain circumstances
(including a specified price) established upon issue. If a convertible security
held by the Fund is called for redemption, the Fund could be required to tender
it for redemption, convert it into the underlying common stock, or sell it to a
third party. Common stock received upon conversion will be sold when, in the
opinion of the SubAdvisor, it is advisable to do so.

Because of the conversion feature, the market value of convertible preferred
stock tends to move together with the market value of the underlying common
stock. As a result, the Fund's selection of convertible securities is based, to
a great extent, on the potential for capital appreciation that may exist in the
underlying common stocks. The value of convertible securities are also affected
by prevailing interest rates, the credit quality of the issuer, and any call
provisions. Investments in convertible securities generally entail less
volatility than investments in the common stocks of the same issuers.
Nevertheless, it is the fixed income component of these securities that is
deemed by the ratings agencies to be high risk or speculative. The Fund may
invest less than 35% of its assets in convertible bonds rated lower than Baa by
Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Corporation ("S&P") and as low as Caa by Moody's or CCC by S&P, which are
lower-quality, higher-yielding, high-risk debt securities (commonly known as
"junk bonds"). The Fund may also invest in unrated convertible securities which,
in the SubAdvisor's opinion, are of comparable quality to such rated securities.
See "Investment Risks."

The Fund may also invest in common stocks; restricted securities which have not
been registered under the Securities Act of 1933 (Rule 144A Securities and
Section 4(2) Commercial Paper); securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities; corporate bonds rated Baa or
better by Moody's or BBB or better by S&P (investment grade bonds); shares of
other investment companies with similar investment objectives; high grade
commercial paper; certificates of deposit, time deposits and bankers'

<PAGE> 163

acceptances issued by banks having net assets of at least $1 billion as of the
end of their most recent fiscal year, and other money market instruments;
floating and variable rate notes; repurchase agreements; money market funds;
receipts, including TR's, TIGR's and CATS, dollar-denominated securities of
foreign issuers; Standard and Poor's Depository Receipts ("SPDRs"); and cash.
The Fund may purchase securities on a forward commitment or when-issued basis,
where such purchases are for investment and not for leveraging purposes;
however, the Fund may sell these securities before the settlement date if it is
deemed advisable. No additional forward commitments will be made if more than
20% of the Fund's net assets would be so committed. The Fund is permitted to
lend securities in which it invests. The Fund will limit its securities lending
practice to 33 1/3% of its total assets. The Fund will restrict its investments
in illiquid securities to 15% of its net assets.

For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, the Fund may invest up to 100% of its assets in money
market instruments described above and it also may hold a portion of its assets
in cash. The Fund will not be pursuing its investment objective to the extent
that a substantial portion of its assets are invested in money market
securities.

In the event that a security owned by the Fund is downgraded below the stated
ratings categories, the Advisor or SubAdvisor will take appropriate action with
regard to the security.

For further information see "Description of Permitted Investments."

RISK FACTORS

The Fund's shares will fluctuate in value with the value of the underlying
securities in its portfolio. Because of their fixed income features, however,
convertible securities are expected to fluctuate in value to a lesser degree
than the common stock into which they are convertible. Changes in the value of
the Fund's portfolio securities will not affect cash income received from
ownership of such securities, but will affect the Fund's net asset value.

Securities rated BBB by S&P or Baa by Moody's are deemed by these rating
services to have some speculative characteristics and adverse economic
conditions or other circumstances which are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.

Investments in lower-rated debt securities (i.e. securities rated below BBB by
S&P or Baa by Moody's) bear certain risks, including the risk that such
securities may be thinly traded, which can adversely affect the price at which
these securities can be sold and can result in high transaction costs. Market
quotations may not be available, and therefore, judgment plays a greater role in
valuing lower-rated debt securities than securities for which more extensive
quotations and last sale information are available. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
to value lower-rated debt securities, and the Fund's ability to dispose of these
securities.

The Fund may invest in securities which are rated as low as 'Caa' by Moody's or
'CCC' by S&P. Securities rated 'Caa' by Moody's are of poor standing and may be
in default or may present elements of danger with respect to principal or
interest. Debt rated 'CCC' by S&P is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal. In
the event of adverse business, financial, and economic conditions, debt rated
'CCC' is not likely to have the capacity to repay principal.

<PAGE> 164

Up to 15% of the Fund's portfolio may consist of dollar-denominated securities
of foreign issuers, which may bear greater investment risks than those of U.S.
domestic issuers, including political and economic instability, expropriation of
foreign deposits and other restrictions which may adversely affect the payment
of principal and interest on such securities. See "Description of Permitted
Investments."

INVESTMENT LIMITATIONS

The Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of the Fund's assets.

FUNDAMENTAL POLICIES

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor"), have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor continuously reviews, supervises and administers the Fund's
investment program. The Advisor discharges its responsibilities subject to the
supervision of, and policies established by, the Trustees of the Trust. The
Trust's shares are not sponsored, endorsed or guaranteed by, and do not
constitute obligations or deposits of, the Advisor and are not guaranteed by the
FDIC or any other governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .60% of the average daily net assets of the Fund. The Advisor
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of the Fund. Any such waiver is voluntary and may be
terminated at any time in the Advisor's sole discretion.

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, received .60% of the average daily net assets of the Fund.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day

<PAGE> 165

operations of the Fund. On April 1, 1996, the former Union Bank merged with the
Bank of California, and the resulting bank changed its name to Union Bank of
California, N.A. Each of the former banks or its predecessor bank had been in
banking since the early 1900's, and each historically has had significant
Investment functions within their Trust and Investment Divisions. At the same
time, the banks' asset management divisions combined to form Merus. Union Bank
of California, N.A. is a subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

THE SUBADVISOR

The Advisor and Bank of Tokyo-Mitsubishi Trust Company (the "SubAdvisor") have
entered into an investment subadvisory agreement (the "Investment SubAdvisory
Agreement"). Under the Investment SubAdvisory Agreement, the SubAdvisor makes
the investment decisions for the assets of the Fund, subject to the supervision
of, and policies established by, the Advisor and the Trustees of the Trust. The
Trust's shares are not sponsored, endorsed or guaranteed by and do not
constitute obligations or deposits of the SubAdvisor and are not guaranteed by
the FDIC or any other governmental agency.

The SubAdvisor is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .30% of the average daily net
assets of the Fund. For the fiscal year ended January 31, 1996, The Bank of
Tokyo Trust Company, as predecessor to the SubAdvisor, received .30% of the
average net assets of the Fund.

The SubAdvisor serves as manager to bank common funds, employee benefit funds
and personal trust accounts, managing assets in money market, equity and fixed
income portfolios. As of April 1, 1996 Bank of Tokyo-Mitsubishi Trust Company
managed assets of $750 billion in individual portfolios and collective funds. In
addition, Bank of Tokyo-Mitsubishi Trust Company also serves as SubAdvisor to
the Trust's Government Securities, Emerging Growth and Blue Chip Growth Funds.

The day-to-day management of the Convertible Security Fund's investments is the
responsibility of a team of investment professionals. Decisions are made by
committee and no person has primary responsibility for making recommendations to
the committee.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate

<PAGE> 166

of .15% of Trust assets up to $1 billion, .12% of assets between $1 billion and
$2 billion and .10% of assets over $2 billion. The Administrator may waive its
fee or reimburse various expenses to the extent necessary to limit the total
operating expenses of the Fund's Investment Class shares. Any such waiver is
voluntary and may be terminated at any time in the Administrator's sole
discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shares have a distribution plan ("Investment Class Plan").
The Distribution Agreement and the Investment Class Plan provide that the
Investment Class shares of the Fund may bear the following distribution
expenses: (1) the cost of prospectuses, reports to Shareholders, sales
literature and other materials for potential investors; (2) advertising; and (3)
expenses incurred in connection with the promotion and sale of the Trust's
shares including the Distributor's expenses for travel, communication, and
compensation and benefits for sales personnel. In addition, the Trust pays the
Distributor a fee of up to .40% of the Fund's Investment Class shares average
daily net assets, of which a maximum of .25% may be used to compensate
broker/dealers and service providers which provide administrative and/or
distribution services to Investment Class Shareholders or to their other
customers who beneficially own Investment Class shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Fund may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business ("Business Days"). The minimum initial investment is $2,000 ($1,000
for IRAs); however, the minimum investment may be waived in the Distributors'
discretion. All subsequent purchases must be in amounts of at least $1,000 ($500
for IRAs).

Purchase orders for shares will be executed at a per share price equal to the
net asset value next determined after the receipt of the purchase order by the
Distributor (plus any applicable sales charge). The purchase price of shares of
the Fund is the net asset value next determined after a purchase order is
received and accepted by the Trust (plus a sales charge). The net asset value
per share of the Fund is determined by dividing the total market value of the
Fund's investments and other assets, less any liabilities, by the total number
of outstanding shares of the Fund. Net asset value per share is determined daily
as of 1:00 p.m., Pacific time, on any Business Day. Purchases will be made in
full and fractional shares of the Trust calculated to three decimal places. The
Trust reserves the right to reject a purchase order when the Distributor
determines that is not in the best interest of the Trust and/or its Shareholders
to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

The following table shows the regular sales charge on Investment Class shares to
a "single purchaser" (defined below) together with the dealer discount paid to
dealers and the agency
<PAGE> 167

commission paid to brokers (collectively the "commission"):

<TABLE>
<CAPTION>
SALES SALES
CHARGE CHARGE AS COMMISSION
AS A APPROPRIATE AS
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<C> <S> <C> <C> <C>
- ------------------------------------------------------
0- $ 24,999.... 3.00% 3.09% 2.70%
$ 25,000- $ 49,999.... 2.50% 2.56% 2.25%
$ 50,000- $ 99,999.... 2.00% 2.04% 1.80%
$100,000- $249,999.... 1.50% 1.52% 1.35%
$ 250,000 and Over.... 0.00%* 0.00% 0.00%
</TABLE>

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

* A contingent deferred sales charge of 1.00% will be charged if such Investment
Class shares are redeemed prior to one year from date of purchase.

LETTER OF INTENT. By initially investing at least $2,000 and submitting a
Letter of Intent to the Distributor, a "single purchaser" may purchase shares of
the Fund and the other Eligible Funds during a 13-month period at the reduced
sales charge rates applying to the aggregate amount of the intended purchases
stated in the Letter. The Letter may apply to purchases made up to 90 days
before the date of the Letter. To receive credit for such prior purchases and
later purchases benefitting from the Letter, the Shareholder must notify the
Transfer Agent at the time the Letter is submitted that there are prior
purchases that may apply, and, at the time of later purchases, notify the
Transfer Agent that such purchases are applicable under the Letter.

(iii) in aggregate purchases of $1 million or more by tax-exempt organizations
enumerated in Section 501(c) of the Code, or employee benefit plans created
under Sections 401, 403(b) or 457 of the Code; (iv) sold to employees and
families of the Advisor and its affiliates; (v) sold to fiduciary accounts of
the Advisor and its affiliates; or (vi) purchased with proceeds from the recent
redemption of shares of a mutual fund with similar investment objectives and
policies for which a sales charge was paid.

The waiver of the sales charge under clause (vi) applies only if the following
conditions are met: the purchase must be made within 60 days of the redemption;
the Distributor must be notified in writing by the investor, or his or her
agent, at the time a purchase is made; and a copy of the investor's account
statement showing such redemption must accompany such notice. The waiver policy
with respect to the purchase of shares through the use of proceeds from a recent
redemption above will not continue indefinitely and may be discontinued at any
time without notice. Investors should contact the Distributor to confirm
continued availability prior to initiating the procedures described in clause
(vi).

PURCHASES BY EXCHANGE

As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, shareholders of Investment Class Shares of
other funds of the Trust that have similar sales charges may tender their shares
of those Funds for exchange into the number of shares (including fractional
shares) which have a value equal to the total net asset value of shares tendered
divided by the net asset value of Investment Class shares of the Fund next
determined after such order is received. Shares issued pursuant to this offer
will not be subject to the sales charge described above or any other charge. The
Fund may modify or terminate this exchange offer at any time upon 60 days'
notice.

PERFORMANCE

The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The total return of the Fund may also be quoted as a dollar amount or on an
aggregate basis, an actual basis, without inclusion of any
<PAGE> 169

sales charge, or with a reduced sales charge in advertisements distributed to
investors entitled to a reduced sales charge.

The Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long-term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. In addition, state and local income tax consequences of an
investment in the Fund may differ from the federal income tax consequences
discussed below. Accordingly, Shareholders are urged to consult their tax
advisors regarding specific questions as to federal, state and local income
taxes. Additional information concerning taxes is set forth in the Statement of
Additional Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment company taxable income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

The Fund will distribute substantially all of its net investment income
(including net short-term capital gain) and net capital gain to Shareholders.
Dividends from the Fund's net investment company taxable income are taxable to
Shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. Any net capital gains
will be distributed at least annually and will be taxed to Shareholders as
long-term capital gains. Dividends paid by the Fund to corporate Shareholders
will qualify for the dividends received deduction to the extent derived from
dividends received by the Fund from domestic corporations. A portion of such
dividends may be subject to the alternative minimum tax. Distributions of net
capital gain do not qualify for the dividends-received deduction and are taxable
to Shareholders as long-term capital gain, regardless of how long Shareholders

<PAGE> 170

have held shares and regardless of whether the distributions are received in
cash or in additional shares. The Fund will provide annual reports to
Shareholders of the federal income tax status of all distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments,
the Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because the Fund distributes
all of its net investment income to its shareholders, the Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Advisor or SubAdvisor would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level, and may be exempt, depending on the state,
when received by a Shareholder as income dividends from the Fund provided
certain state-specific conditions are satisfied. Interest realized on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. The Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from the Fund is considered tax exempt in their
particular state.

Income derived by the Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Fund will not be able to elect to treat
Shareholders as having paid their proportionate share of such taxes.

Dividends declared by the Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared if paid by the Fund any time during the following January.

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Each sale, exchange, or redemption of Fund Shares is a taxable transaction to
the Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate series of shares and different classes of each fund. In addition
to the Fund, the Trust consists of the following funds: Treasury Money Market
Fund, Money Market Fund, California Tax-Free Money Market Fund, Value Momentum
Fund, Intermediate-Term Bond Fund, Limited Maturity Government Fund, California
Intermediate Tax-Free Bond Fund, Balanced Fund, Growth Equity Fund, Blue Chip
Growth Fund, Government Securities Fund, Emerging Growth Fund and International
Equity Fund. All consideration received by the Trust for shares of any fund and
all assets of such fund belong to that fund and would be subject to liabilities
related thereto. The Trust reserves the right to create and issue shares of
additional funds.

TRUSTEES OF THE TRUST

The management and affairs of the Trust are supervised by the Trustees under the
laws
<PAGE> 171

governing business trusts in the Commonwealth of Massachusetts. The Trustees
have approved contracts under which, as described above, certain companies
provide essential management, administrative and shareholder services to the
Trust.

VOTING RIGHTS

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of
the Fund is distributed in the form of monthly dividends to Shareholders of
record. Currently, capital gains of the Fund, if any, will be distributed at
least annually.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of permitted investments for the Fund:

<PAGE> 172

class of capital stock that pays dividends at a specified rate and that has
preference over common stock in the payment of dividends and the liquidation of
assets. Convertible preferred stock is preferred stock exchangeable for a given
number of common stock shares, and has characteristics similar to both
fixed-income and equity securities. Because of the conversion feature, the
market value of convertible bonds and convertible preferred stock tend to move
together with the market value of the underlying stock. As a result, the Fund's
selection of convertible bonds and convertible preferred stock is based, to a
great extent, on the potential for capital appreciation that may exist in the
underlying stock. The value of convertible bonds and convertible preferred stock
is also affected by prevailing interest rates, the credit quality of the issuer
and any call provisions.

CORPORATE BONDS--Interest-bearing or discounted corporate securities that
obligates the issuer to pay the bondholder a specified sum of money, usually at
specific intervals, and to repay the principal amount of the loan at maturity.

DERIVATIVES--Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof, including:
futures, options (e.g., puts and calls), options on futures, swap agreements,
and some mortgage-backed securities (CMOs, REMICs, IOs and POs). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.

SECURITIES ISSUED ON A FORWARD BASIS OR WHEN-ISSUED SECURITIES--Securities
subject to settlement on a future date. The interest rate realized on these
securities is fixed as of the purchase date, and no interest accrues to the Fund
before settlement. These securities are subject to market fluctuation due to
changes, real or anticipated, in market interest rates and the public's
perception of the creditworthiness of the issuer and will have the effect of
leveraging the Fund's assets. The Fund will establish one or more segregated
accounts with the Custodian, and the Fund will maintain liquid, high-grade
assets in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities.

LOWER-RATED, HIGHER-YIELDING, HIGH-RISK DEBT SECURITIES--Securities rated Ba or
lower by Moody's or BB or lower by S&P. Lower-rated debt securities are
considered speculative and involve greater risk of loss than investment grade
debt securities, and are more sensitive to changes in the issuer's capacity to
pay. For a description of the debt securities ratings, see the "Appendix".

MONEY MARKET INSTRUMENTS--Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury Obligations
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding
high-quality commercial papers; and (v) repurchase agreements involving any of
the foregoing obligations entered into with highly-rated banks and
broker-dealers.

REPURCHASE AGREEMENTS--Agreements by which the Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities or if the Fund realizes a loss in the sale
of the collateral. The Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the

<PAGE> 173

agreement based on established guidelines. Repurchase agreements are considered
loans under the 1940 Act.

RULE 144A SECURITIES--Rule 144A Securities are restricted securities that have
not been registered under the Securities Act of 1933, but which may be traded
between certain qualified institutional investors, including investment
companies. The absence of a secondary market may affect the value of Rule 144A
Securities. The Board of Trustees of the Trust has established guidelines and
procedures to be utilized to determine the liquidity of such securities.

SECURITIES LENDING--In order to generate additional income, the Fund may lend
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or instrumentalities or any combination of cash and such securities as
collateral equal to 100% of the market value at all times of the loaned
securities. The Fund will continue to receive interest on the loaned securities
while simultaneously earning interest on the investment of cash collateral in
U.S. Government securities. Collateral is marked to market daily to provide a
level of at least equal to the market value of the loaned securities. There may
be risks of delay in receiving additional collateral or risks of delay in
recovery of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially.

SECURITIES OF FOREIGN ISSUERS--The Fund may purchase U.S. dollar denominated
securities of foreign issuers. There may be certain risks connected with
investing in foreign securities, including risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be less information on
such securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
U.S. securities. The Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates may also affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to distributed
to shareholders by the Fund. See "Investment Risks."

U.S. GOVERNMENT AGENCY SECURITIES-- Certain Federal agencies have been
established as instrumentalities of the U.S. government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., FNMA securities).

<PAGE> 174

of the certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TR's"), "Treasury Investment Growth
Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). STRIPS, TR'S, TIGR'S and CATS are sold as zero coupon securities,
which means that they are sold at a substantial discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the security, and such
accretion will constitute the income earned on the security for both accounting
and tax purposes. Because of these features, such securities may be subject to
greater interest rate volatility than interest-paying securities. See also
"Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased by
the Fund may carry variable or floating rates of interest, may involve
conditional or unconditional demand features and may include variable amount
master demand notes. The interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

<PAGE> 175

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Shareholder Transaction Expenses................ 3
The Trust....................................... 4
Investment Objective............................ 4
Investment Policies............................. 4
Risk Factors.................................... 5
Investment Limitations.......................... 6
Fundamental Policies............................ 6
The Advisor..................................... 6
The SubAdvisor.................................. 7
The Administrator............................... 7
The Shareholder Servicing Agent................. 8
Distribution.................................... 8
Purchase and Redemption of Shares............... 8
Purchases by Exchange........................... 10
Performance..................................... 10
Taxes........................................... 11
General Information............................. 12
Description of Permitted Investments............ 13
</TABLE>

<PAGE> 176

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<PAGE> 177

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in one or more professionally managed portfolios of securities. This
Prospectus relates to the Trust's:

- -- BALANCED FUND
- -- VALUE MOMENTUM FUND
- -- GROWTH EQUITY FUND
- -- EMERGING GROWTH FUND

INVESTMENT CLASS SHARES

This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 178

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed funds of
securities. The following provides basic information about the Investment Class
shares of the GROWTH EQUITY, VALUE MOMENTUM, BALANCED and EMERGING GROWTH FUNDS
(each a "Fund"). This summary is qualified in its entirety by reference to the
more detailed information provided elsewhere in the Prospectus and in the
Statement of Additional Information.

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE BALANCED FUND seeks to provide
both capital appreciation and income. THE VALUE MOMENTUM FUND seeks long-term
capital growth with a secondary objective of income. THE GROWTH EQUITY FUND
seeks long-term capital growth. THE EMERGING GROWTH FUND seeks long-term growth
of capital by investing in a diversified portfolio of equity securities of small
capitalization, emerging growth companies. See "Investment Objectives."

WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? Each of the Funds may invest,
consistent with its investment objectives, in equity securities including common
stocks and securities convertible into common stocks. Each Fund, except the
Emerging Growth Fund, may also invest, consistent with its investment objective
and investment policies in debt securities. See "Investment Policies."

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE SUBADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
SubAdvisor to the Emerging Growth Fund. See "The SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business. ("Business Days"). The
minimum initial investment is $2,000 ($1,000 for IRAs). A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time.
Purchase orders for shares will be executed at a per share price equal to the
asset value next determined after the purchase order is effective (plus any
applicable sales charge). Redemption orders must be placed prior to 1:00 p.m.
Pacific time on any Business Day for the order to be effective that day. See
"Purchase and Redemption of Shares."

SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)

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

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases................................................... 4.50%
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of offering price)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
GROWTH EMERGING
BALANCED EQUITY GROWTH
FUND VALUE FUND FUND
MOMENTUM
FUND
<S> <C> <C> <C> <C>
Advisory Fees....................................... .60% .60% .60% .80%
12b-1 Fees (After Fee Waivers)(1)................... .09% .09% .09% .00%
Other Expenses...................................... .20% .20% .20% .25%
- -----------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(2)..... .89% .89% .89% 1.05%
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>

(1) Absent voluntary fee waivers, 12b-1 Fees would be .40 for each Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.

(2) Absent fee waivers, "Total Operating Expenses" would be 1.20%, 1.20%, 1.20%
and 1.45% for the Balanced Fund, Value Momentum Fund, Growth Equity Fund and
Emerging Growth Fund, respectively.

EXAMPLE:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS. 10 YRS.
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000
investment assuming (1) imposition of the maximum sales charge;
(2) 5% return and (3) redemption at the end of each time period.
Balanced Fund..................................................... $54 $ 72 $ 92 $ 150
Value Momentum Fund............................................... $54 $ 72 $ 92 $ 150
Growth Equity Fund................................................ $54 $ 72 $ 92 $ 150
Emerging Growth Fund.............................................. $55 $ 77 $100 $ 167
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Investment Class shares of the Funds. The
Trust also offers Institutional Class shares of the Funds, which are subject to
the same expenses except there are no sales charges or distribution costs.
Additional information may be found under "The Administrator," "The Advisor" and
"The SubAdvisor."

Long-term investors may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").

<PAGE> 180

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996 on
the Trust's financial statements as of January 31, 1996, included in the Trust's
Statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional Information is set forth in the Trust's 1996 Annual Report
to Shareholders, and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES
NET -------------------------- DISTRIBUTIONS NET NET
ASSET NET REALIZED ------------------- ASSET ASSETS, RATIO OF
VALUE, NET AND UNREALIZED NET VALUE, END EXPENSES
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ----------------
BALANCED FUND
- ----------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 11.45 0.406 2.825 (0.406) (0.362) 13.91 28.73 % 8,422 0.89%
1995 12.21 0.393 (0.758) (0.392) (0.003) 11.45 (2.95 )% 7,128 0.79%
1994 11.50 0.397 0.925 (0.391) (0.221) 12.21 11.79 % 7,292 0.69%
1993 (1) 11.30 0.092 0.404 (0.098) (0.198) 11.50 4.45 %* 425 0.60%*
- ------------------------
VALUE MOMENTUM FUND
- ------------------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 13.40 0.320 5.060 (0.323) (0.408) 18.05 40.77 % 11,801 0.89%
1995 14.27 0.321 (0.820) (0.317) (0.054) 13.40 (3.48 )% 9,777 0.81%
1994 12.75 0.297 1.543 (0.290) (0.030) 14.27 14.65 % 9,346 0.77%
1993 (2) 11.52 0.246 1.257 (0.251) (0.022) 12.75 15.97 %* 3,162 0.65%*
- ---------------------
GROWTH EQUITY FUND
- ---------------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 14.13 0.101 4.480 (0.109) (0.993) 17.61 32.79 % 2,345 0.89%
1995 15.19 0.097 (0.884) (0.092) (0.181) 14.13 (5.17 )% 1,422 0.78%
1994 13.80 0.064 1.392 (0.066) -- 15.19 10.61 % 1,243 0.77%
1993 12.69 0.099 1.103 (0.092) -- 13.80 9.56 % 43 0.67%
1992 (3) 11.76 0.019 0.948 (0.023) (0.014) 12.69 39.11 %* 13 0.83%*

- -------------------------------------------------------------------------------
BALANCED FUND
- ----------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 1.20% 3.12% 2.81% 26%
1995 1.19% 3.41% 3.01% 48%
1994 1.19% 3.26% 2.76% 49%
1993 (1) 1.10%* 3.20%* 2.70%* 68%
- -----------------------
VALUE MOMENTUM FUND
- -----------------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 1.20% 2.00% 1.69% 20%
1995 1.21% 2.37% 1.97% 6%
1994 1.20% 2.12% 1.69% 5%
1993 (2) 1.15%* 2.53%* 2.03%* 3%
- ---------------------
GROWTH EQUITY FUND
- ---------------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 1.19% 0.60% 0.30% 24%
1995 1.17% 0.69% 0.30% 22%
1994 1.18% 0.48% 0.07% 45%
1993 1.17% 0.69% 0.19% 23%
1992 (3) 0.96%* 0.79%* 0.66%* 26%
</TABLE>

<TABLE>
<C> <S>
* Annualized.
** Total return does not reflect the sales charge.
(1) Commenced operations on November 13, 1992.
(2) Commenced operations on April 2, 1992.
(3) Commenced operations on November 14, 1991.
</TABLE>
<PAGE> 181

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Investment Class shares of
the Trust's Growth Equity, Value Momentum, Balanced and Emerging Growth Funds
(each a "Fund"). Information regarding the Trust's other funds is contained in
separate prospectuses that may be obtained from the Trust's Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

INVESTMENT OBJECTIVES

THE BALANCED FUND seeks to provide both capital appreciation and income.

THE VALUE MOMENTUM FUND seeks long-term capital growth with a secondary
objective of income.

THE GROWTH EQUITY FUND seeks long-term capital growth.

THE EMERGING GROWTH FUND seeks long-term growth of capital by investing in a
diversified portfolio of equity securities of small capitalization, emerging
growth companies.

There can be no assurance that a Fund's investment objective will be met.

INVESTMENT POLICIES

BALANCED FUND

The Balanced Fund will invest in a combination of equity, fixed-income, and
money market securities. Under normal market conditions, the Fund will invest
between 50% and 70% of its total assets in equity securities, including common
stocks, warrants, and U.S. dollar denominated securities of foreign issuers and
both preferred stock and debt securities convertible into common stocks. The
Fund may invest in a broad spectrum of common stocks with varying
characteristics. All of the common stocks in which the Fund invests (including
foreign securities) are traded on registered exchanges or the over-the-counter
market or in the form of American Depositary Receipts ("ADRs") traded on
registered exchanges or NASDAQ. The Fund may also buy and sell options, futures
contracts and options on futures. The Fund may enter into futures contracts and
options on futures only to the extent that obligations under such contracts or
transactions, together with options on securities represent not more than 25% of
the Fund's assets. The aggregate value of options on securities (long puts and
calls) will not exceed 10% of the Fund's net assets at the time such options are
purchased by the Fund.

Under normal market conditions a minimum of 25% of the Fund's total assets will
be invested in senior fixed income securities. Such securities consist of bonds,
debentures, and similar obligations or instruments which constitute a security
and evidence indebtedness. Corporate bonds and debentures will be rated AAA, AA,
A, or BBB by Standard & Poor's Corporation ("S&P") or Aaa, Aa, A, or Baa by
Moody's Investors Service ("Moody's") or determined by the Advisor to be of
comparable quality at the time of purchase.

The Fund may also invest in mortgage-backed securities consisting of
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories by
Moody's or S&P.

<PAGE> 182

have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder.

Money market instruments the Fund may invest in consist of: (i) commercial paper
rated at least A-1 by S&P or P-1 by Moody's at the time of investment, or, if
not rated, determined by the Advisor to be of comparable quality; (ii)
obligations (certificates of deposit, time deposits, bank master notes, and
bankers' acceptances) of thrift institutions, savings and loans, U.S. commercial
banks (including foreign branches of such banks), and U.S. and foreign branches
of foreign banks, provided that such institutions (or, in the case of a branch,
the parent institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of investment; (iii)
short-term corporate obligations rated at least A by S&P or A by Moody's at the
time of investment, or, if not rated, determined by the Advisor to be of
comparable quality; (iv) general obligations issued by the U.S. Government and
backed by its full faith and credit, and obligations issued or guaranteed as to
principal and interest by agencies or instrumentalities of the U.S. Government
(e.g., obligations issued by Farmers Home Administration, Government National
Mortgage Association, Federal Farm Credit Bank and Federal Housing
Administration); (v) receipts, including TR's, TIGR's and CATS; (vi) repurchase
agreements involving such obligations; (vii) loan participations; (viii) money
market funds and (ix) foreign commercial paper. The Fund may only purchase
interests in loan participations issued by a bank in the United States with
assets exceeding $1 billion and for which the underlying loan is issued by
borrowers in whose obligations the Fund may invest.

The Fund may enter into forward commitments, or purchase securities on a
when-issued basis. The Fund is permitted to invest in when-issued securities
where such purchases are for investment and not for leveraging purposes;
however, the Fund may sell these securities before the settlement date if it is
deemed advisable. No additional forward commitments will be made if more than
20% of the Fund's net assets would be so committed.

VALUE MOMENTUM FUND

The Fund will be invested primarily in securities which the Advisor believes to
be undervalued relative to the market and to the security's historic valuation.
Stocks are then screened for positive price or earnings momentum. Securities
purchased will generally have a medium to high market capitalization. A majority
of the securities in which the Fund invests will be dividend paying. All of the
common stocks in which the fund invests are traded on registered exchanges or
the over-the-counter market. The remainder of the Fund's assets may be invested
in covered call options on equity securities, money market instruments
consisting of securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities, receipts, including TR's, TIGR's and CATS, money
market funds, repurchase agreements, certificates of deposit, time deposits,
bank master notes and bankers' acceptances issued by banks having net assets of
at least $1 billion as of the end of their most recent fiscal year, commercial
paper rated at least A-1 by S&P or P-1 by Moody's and in cash.

<PAGE> 183

GROWTH EQUITY FUND

The Fund may also be invested in covered call options on equity securities and
money market instruments consisting of securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities, receipts, including TR's,
TIGR's and CATS, money market funds, repurchase agreements, certificates of
deposit, time deposits, bank master notes and bankers' acceptances issued by
banks having net assets of at least $1 billion as of the end of their most
recent fiscal year, commercial paper rated at least A-1 by S&P or P-1 by Moody's
and in cash. All of the common stocks in which the Fund invests (including
foreign securities) are traded on registered exchanges or in the over the
counter market or in the form of ADRs traded on registered exchanges or NASDAQ.

EMERGING GROWTH FUND

Under normal market conditions, the Emerging Growth Fund will invest at least
65% of its assets in equity securities (i.e., common stocks and convertible
preferred stocks) of small capitalization (i.e., companies with capitalization
between $50 million and $1 billion) with the potential for growth or which, in
the Advisor's opinion, have potential for above-average long-term capital
appreciation. An emerging growth company is one which, in the Advisor's
judgment, is in the developing stages of its life cycle and has demonstrated or
is expected to achieve rapid growth in earnings and/or revenues. Emerging growth
companies are characterized by opportunities for rapid growth rates and/or
dynamic business changes. Emerging growth companies, regardless of size, tend to
offer the potential for accelerated earnings or revenue growth because of new
products or technologies, new channels of distribution, revitalized management
or industry conditions, or similar opportunities. A company may or may not yet
be profitable at the time the Fund invests in its securities. Current income
will not be a criterion of investment selection, and any such income should be
considered incidental.

The Fund may also invest in equity securities of companies in "special equity
situations," meaning companies experiencing unusual and possibly
non-repetitive developments, such as mergers; acquisitions; spin-offs;
liquidations; reorganizations; and new products, technology or management.
Since a special equity situation may involve a significant change from a
company's past experiences, the uncertainties in the appraisal of the future
value of the company's equity securities and the risk of a possible decline
in the value of the Fund's investments are significant.

The Fund's assets may be invested in U.S. dollar denominated equity securities
of foreign issuers traded as ADRs. All of the common stocks in which the Fund
invests (with the exception of Rule 144A Securities or Section 4(2) Commercial
Paper) are traded on registered exchanges or in the over the counter market or
in the form of ADRs on registered exchanges or NASDAQ. Many of the securities in
which the Fund invests will not pay dividends.

The balance of the Fund's assets may be invested in money market instruments,
options, futures and options on futures, Standard & Poor's Depositary Receipts
("SPDRs") shares of other investment companies with similar investment
objectives; and convertible bonds. The Fund may enter into futures contracts and
options on futures only to the extent that obligations under such contracts or
transactions, together with options on securities, represent not more than 25%
of the Fund's assets. The aggregate value options on securities (long puts and
calls) will not exceed 10% of the Fund's net asset at the time such options are
purchased by the Fund.

The portfolio turnover rate for the Emerging Growth Fund for the fiscal year
ended January 31,
<PAGE> 184

1996 was 131%. This rate of portfolio turnover may result in higher brokerage
execution costs and higher levels of capital gains.

GENERAL INVESTMENT POLICIES

Each Fund will restrict its investments in illiquid securities to 15% of its net
assets.

Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its assets.

Each Fund may purchase restricted securities which have not been registered
under the Securities Act of 1933 (Rule 144A Securities or Section 4(2)
Commercial Paper).

Each Fund may purchase options on stock indices to invest cash on an interim
basis. The aggregate premium paid on all options on stock indices cannot exceed
20% of the Fund's total assets.

In the event that a security owned by a Fund is downgraded below the stated
rating categories, the Advisor or SubAdvisor will take appropriate action with
regard to the security.

For further information see "Description of Permitted Investments."

RISK FACTORS

Since the Funds invest in equity securities, each Fund's shares will fluctuate
in value, and thus may be more suitable for long-term investors who can bear the
risk of short-term fluctuations.

Investments in securities of foreign issuers may subject the Fund to different
risks than those attendant to investments in securities of U.S. issuers,
including differences in accounting, auditing and financial reporting standards,
the possibility of expropriation or confiscatory taxation, and political
instability. See "Description of Permitted Investments."

established growth companies. Since a "special equity situation" may involve a
significant change from a company's past experiences, the uncertainties in the
appraisal of the future value of the company's equity securities and the risk of
a possible decline in the value of the Fund's investments are significant.

INVESTMENT LIMITATIONS

Each Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of the Fund's assets.

FUNDAMENTAL POLICIES

The investment objective and certain of the investment limitations are
fundamental policies of the Funds. Fundamental policies cannot be changed with
respect to a Fund without the consent of a majority of the Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of the Fund's shares present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor") have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of the Balanced, Value
Momentum and Growth Equity Funds and continuously reviews, supervises and
administers each Fund's investment program. The Advisor discharges its
responsibilities subject to the supervision of, and policies established by, the
Trustees of the Trust. The Trust's shares are not sponsored, endorsed or
guaranteed by, and do not constitute obligations or deposits of, the Advisor and
are not guaranteed by the FDIC or any other governmental agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .60% of the average daily net assets of the Balanced, Growth
Equity and Value Momentum Funds and .80% of the average daily net assets of the
Emerging Growth Fund. Although the advisory fee for the Emerging Growth Fund is
higher than advisory fees paid by other mutual funds, the Trust believes that
the fee is comparable to the advisory fee paid by many other mutual funds with
similar investment objectives and policies. The Advisor may from time to time
waive all or a portion of its fee in order to limit the operating expenses of a
Fund. Any such waiver is voluntary and may be terminated at any time in the
Advisor's sole discretion.

<PAGE> 186

For the fiscal year ended January 31, 1996, Union Bank, as predecessor to the
Advisor, was paid an advisory fee of .60% of the average daily net assets of the
Growth Equity, Value Momentum and Balanced Funds, and .80% of the average daily
net assets of the Emerging Growth Fund.

Richard Earnest, a Vice President and Chief Investment Officer of the Advisor,
has served as team leader of the Value Momentum Fund since its inception and has
been with the Advisor and its predecessor since 1964. Carl J. Colombo, a Vice
President of the Advisor, has served as team leader of the Balanced Fund since
its inception, and as team leader of the Growth Equity Fund since May, 1995, and
has been with the Advisor and its predecessor since 1985.

THE SUBADVISOR

The Advisor and Bank of Tokyo-Mitsubishi Trust Company (the "SubAdvisor") have
entered into an investment subadvisory agreement relating to the Emerging Growth
Fund (the "Investment SubAdvisory Agreement"). Under the Investment SubAdvisory
Agreement, the SubAdvisor makes the day-to-day investment decisions for the
assets of the Emerging Growth Fund, subject to the supervision of, and policies
established by, the Advisor and the Trustees of the Trust. The Trust's shares
are not sponsored, endorsed or guaranteed by and do not constitute obligations
or deposits of the SubAdvisor and are not guaranteed by the FDIC or any other
governmental agency.

The SubAdvisor is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .50% of the average daily net
assets of the Emerging Growth Fund. For the fiscal year ended January 31, 1996,
The Bank of Tokyo Trust Company, as predecessor to the SubAdvisor, received .50%
of the average daily net assets of the Emerging Growth Fund.

<PAGE> 187

SubAdvisor to the Trust's Government Securities, Convertible Securities and Blue
Chip Growth Funds.

Seth E. Shalov has served as portfolio manager of the Emerging Growth Fund since
its inception. Mr. Shalov has served as the SubAdvisor's Senior Portfolio
Manager since October, 1988.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of a Fund's Investment Class
shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shareholders has a distribution plan ("Investment Class
Plan"). The Distribution Agreement and the Investment Class Plan adopted by the
Investment Class Shareholders provide that the Investment Class shares of a Fund
may bear the following distribution expenses: (1) the cost of prospectuses,
reports to Shareholders, sales literature and other materials for potential
investors; (2) advertising; and (3) expenses incurred in connection with the
promotion and sale of the Trust's shares, including the Distributor's expenses
for travel, communication, and compensation and benefits for sales personnel. In
addition, the Trust pays the Distributor a fee of up to .40% of a Fund's
Investment Class shares average daily net assets, of which a maximum of .25% may
be used to compensate broker/dealers and service providers which provide
administrative and/or distribution services to Investment Class Shareholders or
to their other customers who beneficially own Investment Class shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Funds may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business. ("Business Days"). The minimum initial investment in a Fund is
$2,000 ($1,000 for IRAs); however, the minimum investment may be waived in the
Distributor's discretion. All subsequent purchases must be at least $1,000 ($500
for IRAs).

<PAGE> 188

number of outstanding shares of the Fund. Net asset value per share is
determined daily as of 1:00 p.m. Pacific time, on any Business Day. Purchases
will be made in full and fractional shares of the Trust calculated to three
decimal places. The Trust reserves the right to reject a purchase order when the
Distributor determines that it is not in the best interest of the Trust and/or
its Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

The following table shows the regular sales charge on Investment Class shares to
a "single purchaser" (defined below) together with the dealer discount paid to
dealers and the agency commission paid to brokers (collectively the
"commission"):

<TABLE>
<CAPTION>
SALES SALES
CHARGE CHARGE AS COMMISSION
AS A APPROPRIATE AS
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<S> <C> <C> <C>
- ------------------------------------------------------
0- $ 49,999... 4.50% 4.71% 4.05%
$ 50,000- $ 99,999... 4.00% 4.17% 3.60%
$ 100,000- $249,999... 3.50% 3.63% 3.15%
$ 250,000- $499,999... 2.50% 2.56% 2.25%
$ 500,000- $999,999... 1.50% 1.52% 1.35%
$ 1,000,000 and Over... 0.00%* 0.00% 0.00%
</TABLE>

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

* A contingent deferred sales charge of 1.00% will be charged if such Investment
Class Shares are redeemed prior to one year from date of purchase.

In calculating the sales charge rates applicable to current purchases of a
Fund's shares, a "single purchaser" is entitled to cumulate current purchases
with the net purchase of previously purchased shares of the Fund and other of
the Trust's funds (the "Eligible Funds") which are sold subject to a comparable
sales charge.

The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Fund for their own account or for trust or
custodial accounts for their minor children, (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account including employee benefit plans
created under Sections 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), including related plans of the same employer. To be
entitled to a reduced sales charge based upon shares already owned, the investor
must ask the Distributor for such entitlement at the time of purchase and
provide the account number(s) of the investor, the investor and spouse, and
their minor children, and give the age of such children. The Fund may amend or
terminate this right of accumulation at any time as to subsequent purchases.

OTHER CIRCUMSTANCES. No sales charge is imposed on the Investment Class shares
of the Fund: (i) issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Trust is a party; (ii) sold to
dealers or brokers that have a sales agreement with the Distributor, for their
own account or for retirement plans for their employees or sold to employees
(and their spouses) of dealers or brokers that certify to the Distributor at the
time of purchase that such purchase is for their own account (or for the benefit
of such employees' minor children); (iii) in aggregate purchases of $1 million
or more by tax-exempt organizations enumerated in Section 501(c) of the Code, or
employee benefit plans created under Sections 401, 403(b) or 457 of the Code;
(iv) sold to employees and families of the Advisor and its affiliates; (v) sold
to fiduciary accounts of the Advisor and its affiliates; (vi) purchased with
proceeds from the recent redemption of shares of a mutual fund with similar
investment objectives and policies for which a sales load was paid; or (vii)
sold to purchasers of Investment Class shares of the Growth Equity Fund that are
sponsors of other investment companies that are unit investment trusts for
deposit for such sponsors into such unit investment trusts, and to purchasers of
Investment Class shares of the Growth Equity Fund that are holders of such unit
investment trusts that invest distributions from such investment trusts in
Investment Class shares of the Growth Equity Fund.

The waiver of the sales charge under clause (vi) applies only if the following
conditions are met: the purchase must be made within 60 days of the redemption;
the Distributor must be notified in writing by the investor, or his or her
agent, at the time a purchase is made; and a copy of the investor's account
statement showing such redemption must accompany such notice. The waiver policy
with respect to the purchase of shares through the use of proceeds from a recent
redemption above will not continue indefinitely, and may be discontinued at any
time without notice. Investors should contact the Distributor to confirm
continued availability prior to initiating the procedures described in clause
(vi).

Neither the Trust's transfer agent nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes are genuine. The Trust and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
other extraordinary circumstances exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means.

PURCHASES BY EXCHANGE

As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, shareholders of Investment Class shares of
other funds of the Trust that have similar sales charges may tender their shares
of those Funds for exchange into the number of shares (including fractional
shares) which have a value equal to the total net asset value of shares tendered
divided by the net asset value of Investment Class shares of the Fund next
determined after such order is received. Shares issued pursuant to this offer
will not be subject to the sales charge described above or any other charge. The
Fund may modify or terminate this exchange offer at any time upon 60 days'
notice.

<PAGE> 190

PERFORMANCE

A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long-term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios,
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

The performance of Institutional Class shares will normally be higher than for
Investment Class shares because the Institutional Class is not subject to
distribution expense generally charged to the Investment Class shares.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to provide a detailed
explanation of the federal, state, or local income tax treatment of a Fund or
its Shareholders. In addition, state and local income tax consequences of an
investment in a Fund may differ from the federal income tax consequences
described below. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes. Additional information concerning taxes is set forth in the Statement of
Additional Information.

TAX STATUS OF THE FUNDS:

<PAGE> 191

excess of net long-term capital gain over net short-term capital loss)
distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

A Fund will distribute substantially all of its net investment income (including
net short-term capital gain) and net capital gain to Shareholders. Dividends
from a Fund's net investment company taxable income are taxable to
Shareholders as ordinary income, (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. Dividends paid by
a Fund to corporate Shareholders will qualify for the dividends received
deduction to the extent derived from dividends received by the Fund from
domestic corporations. A portion of such dividends may be subject to the
alternative minimum tax. Dividends and distributions of net capital gain do not
qualify for the dividends-received deduction and are taxable to Shareholders as
long-term capital gain, regardless of how long Shareholders have held their
shares and regardless of whether the distributions are received in cash or in
additional shares. Each Fund will make annual reports to Shareholders of the
federal income tax status of all distributions, including the amount of
dividends eligible for the dividends-received deduction.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments, a
Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because each Fund distributes
all of its net investment income to its shareholders, a Fund may have to sell
Fund securities to distribute such imputed income, which may occur at a time
when the Advisor would not have chosen to sell such securities and which may
result in a taxable gain or loss.

Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. A Fund will not be able to treat Shareholders as
having paid their proportionate share of such taxes.

Dividends declared by a Fund in October, November, or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared, if paid by the Fund any time during the following January.

Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Each sale, exchange, or redemption of Fund Shares is a taxable transaction to
the Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolio of shares and different classes of each fund. In
addition to the Funds, the Trust consists of the following funds: Treasury Money
Market Fund, Money Market Fund, California Tax-Free Money Market Fund,
Intermediate-Term Bond Fund, California Intermediate Tax-Free Bond Fund, Limited
Maturity

<PAGE> 192

Government Fund, Blue Chip Growth Fund, Convertible Securities Fund, Government
Securities Fund and International Equity Fund. All consideration received by the
Trust for shares of any fund and all assets of such fund belong to that fund and
would be subject to liabilities related thereto. The Trust reserves the right to
create and issue shares of additional funds.

The Trust pays its expenses, including audit and legal expenses, expenses of
preparing and printing prospectuses, proxy solicitation material and reports to
Shareholders, costs of custodial services and registering the shares under
federal and state securities laws, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses. Please refer to "Financial Highlights" in this Prospectus
for more information regarding the Trust's expenses.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders, but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon the written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the information.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of a
Fund is distributed in the form of monthly dividends to Shareholders. Currently,
capital gains of a Fund, if any, will be distributed at least annually.

The dividends payable on Investment Class shares will typically be lower than
dividends payable on Institutional Class shares because of the distribution
expenses charged to Investment Class shares.

<PAGE> 193

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Funds:

AMERICAN DEPOSITARY RECEIPTS (ADRs)-- ADRs are receipts typically issued by a
U.S. financial institution that evidence ownership of underlying securities
issued by a foreign issuer.

CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--Each Fund may purchase
convertible bonds which are convertible into a set number of shares of another
form of security (usually common stock) at a prestated price. Convertible bonds
have characteristics similar to both fixed income and equity securities.
Convertible preferred stock is a class of capital stock that pays dividends at a
specified rate and that has preference over common stock in the payment of
dividends and the liquidation of assets. Convertible preferred stock is
preferred stock exchangeable for a given number of common stock shares, and has
characteristics similar to both fix-income and equity securities. Because of the
conversion feature, the market value of convertible bonds and convertible
preferred stock tend to move together with the market value of the underlying
stock. As a result, a Fund's selection of convertible bonds and convertible
preferred stock is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
bonds and convertible preferred stock is also affected by prevailing interest
rates, the credit quality of the issuer and any call provisions.

FUTURES AND OPTIONS ON FUTURES--The Balanced Fund and Emerging Growth Fund may
invest in futures and options on futures. Some futures strategies, including
selling futures, buying puts and writing calls, reduce the Fund's exposure to
price fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures and options may be
combined with each other in order to adjust the risk and return characteristics
of the overall portfolio.

Options and futures can be volatile instruments, and involve certain risks that
if applied at an inappropriate time, could negatively impact a Fund's return.

<PAGE> 194

underlying loan will be deemed to be the issuer of the participation interest
(except to the extent a purchasing Fund derives its rights from the intermediary
bank). Because the intermediary bank does not guarantee a loan participation in
any way, a loan participation is subject to the credit risks associated with the
underlying corporate borrower. In addition, in the event the underlying
corporate borrower fails to pay principal and interest when due, the Fund may
encounter delays, expenses and risks that are greater than those that would have
been involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower because it may be necessary under the terms of the loan
participation, for the Fund to assert its rights against the borrower through
the intermediary bank. Moreover, under the terms of a loan participation, the
purchasing Fund may be regarded as a creditor of the intermediary bank (rather
than of the underlying corporate borrower), so that a Fund may also be subject
to the risk that the issuing bank may become insolvent. Further, in the event of
the bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses that can be asserted by such borrower as a result
of improper conduct by the issuing bank. The secondary market, if any, for these
loan participations is limited, and any such participation purchased by the Fund
may be regarded as illiquid.

OPTIONS--Each Fund, except the Value Momentum and Growth Equity Funds, may
purchase options with respect to securities that are permitted investments and
each Fund, including the Value Momentum and Growth Equity Funds may write
covered call options. Under a call option, the purchaser of the option has the
right to purchase, and the writer (the Fund) the obligation to sell, the
underlying security at the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the obligation to
purchase, the underlying security at the exercise price during the option
period.

In addition, each Fund may buy options on stock indices to invest cash on an
interim basis. Such options will be listed on a national securities exchange. In
order to close out an option position, a Fund may enter into a "closing purchase
transaction"--the purchase of an option on the same security with the same
exercise price and expiration date as the option contract previously written on
any particular security. When the security is sold, a Fund effects a closing
purchase transaction so as to close out any existing option on that security.

There are risks associated with such investments including the following: (1)
the success of a hedging strategy may depend on the ability of the Advisor or
SubAdvisor to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of securities held by a
Fund and the price of options; (3) there may not be a liquid secondary market
for options; and (4) while a Fund will receive a premium when it writes covered
call options, it may not participate fully in a rise in the market value of the
underlying security.

<PAGE> 195

within a number of days from the date of purchase. A Fund will have actual or
constructive possession of the securities held as collateral for the repurchase
agreement. A Fund bears a risk of loss in the event the other party defaults on
its obligations and the Fund is delayed or prevented from exercising its rights
to dispose of the collateral securities or if the Fund realizes a loss in the
sale of the collateral. A Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.

SECURITIES LENDING--In order to generate additional income, each Fund may lend
the securities in which it is invested, pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
to 100% of the market value at all times of the loaned securities. The Fund will
continue to receive interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. Collateral is marked to market daily to provide a level of
collateral at least equal to the value of the loaned securities. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially.

SECURITIES OF FOREIGN ISSUERS--Each Fund may purchase U.S. dollar denominated
securities of foreign issuers. There may be certain risks connected with
investing in foreign securities, including risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be less information on
such securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
U.S. securities. The Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates may also affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to distributed
to shareholders by a Fund.

STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRs")--The Emerging Growth Fund may
acquire SPDRs, which are interests in a unit investment trust holding a
portfolio of securities linked to the S&P 500 Index. SPDRs closely track the
underlying portfolio of securities, trade like a share of common stock and pay
periodic dividends proportionate to those paid by the portfolio of stocks that
constitutes the S&P 500 Index. For further information regarding the Fund's
investment in SPDRs, see the Statement of Additional Information.

<PAGE> 196

obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., FNMA securities).

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations purchased by the
Balanced Fund may carry variable or floating rates of interest, may involve
conditional or unconditional demand features and may include variable amount
master demand notes. The interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

SECURITIES ISSUED ON A FORWARD BASIS OR WHEN-ISSUED SECURITIES--The Balanced
Fund may purchase securities subject to settlement on a future date. The
interest rate realized on these securities is fixed as of the purchase date, and
no interest accrues to a Fund before settlement. These securities are subject to
market fluctuations due to changes, real or anticipated, in market interest
rates and the public's perception of the creditworthiness of the issuer, and
will have the effect of leveraging the Fund's assets. A Fund will establish one
or more segregated accounts with the Custodian, and the Fund will maintain
liquid, high-grade assets in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities.

WARRANTS--The Growth Equity Fund, Value Momentum Fund and Balanced Fund may
purchase warrants which are securities that entitle the holder to buy a
proportionate amount of common stock at a specified price for a limited or
unlimited period of time. Warrants are often freely transferable and are traded
on major stock exchanges.

<PAGE> 197

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary.......................................... 2
Shareholder Transaction Expenses................. 3
Financial Highlights............................. 4
The Trust........................................ 5
Investment Objectives............................ 5
Investment Policies.............................. 5
Risk Factors..................................... 8
Investment Limitations........................... 9
Fundamental Policies............................. 9
The Advisor...................................... 9
The SubAdvisor................................... 10
The Administrator................................ 11
The Shareholder Servicing Agent.................. 11
Distribution..................................... 11
Purchase and Redemption of Shares................ 11
Purchases by Exchange............................ 13
Performance...................................... 14
Taxes............................................ 14
General Information.............................. 15
Description of Permitted Investments............. 17
</TABLE>

<PAGE> 198

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in professionally managed portfolios of securities. This Prospectus
relates to the Trust's:

BLUE CHIP GROWTH FUND

INVESTMENT CLASS SHARES

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 199

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Investment Class shares of the BLUE CHIP GROWTH FUND (the "Fund"). This summary
is qualified in its entirety by reference to the more detailed information
provided elsewhere in this Prospectus and in the Statement of Additional
Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks long-term capital
growth by investing in a diversified portfolio of common stocks and other equity
securities of seasoned, large capitalization companies. See "Investment
Objective."

WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund will invest primarily in
equity securities of seasoned, large capitalization companies, which include
common stocks, warrants, ADRs, preferred stocks convertible into common stock,
and units representing combinations of the foregoing. See "Investment Policies."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. Because the Fund invests primarily in equity
securities, the Fund's shares will fluctuate in value with the value of the
underlying securities in its portfolio. Investments in foreign securities may
subject the Fund to different risks than those associated with investments in
securities of U.S. issuers. See "Risk Factors."

ARE MY INVESTMENTS INSURED? Any guarantee by the U.S. Government, its agencies
or any instrumentalities of the securities in which any Fund invests guarantees
only the payment of principal and interest on the guaranteed security, and does
not guarantee the yield or value of the security or yield or value of shares of
that Fund. The Trust's Shares are not federally insured by the FDIC or any other
government agency.

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE SUBADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
SubAdvisor to the Fund. See "The SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is $2,000 ($1,000 for IRAs). A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time.
Purchase orders for shares will be executed at a per share price equal to the
net asset value next determined after the purchase order is effective (plus any
applicable sales charge.) Redemption orders must be placed prior to 1:00 p.m.
Pacific time on any Business Day for the order to be accepted that day. See
"Purchase and Redemption of Shares."

SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)

<TABLE>
<CAPTION>
BLUE CHIP
GROWTH
FUND
- ------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases................................................ 4.50%
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
- ------------------------------------------------------------------------------------------------------
Advisory Fees............................................................................ .60%
12b-1 Fees (After Fee Waivers)(1)........................................................ .00%
Other Expenses........................................................................... .23%
- ------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)............................................. .83%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>

(1) Absent voluntary fee waivers, 12b-1 Fees would be .40% for the Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.

(2) Absent fee waivers, "Total Operating Expenses" would have been 1.23%.

EXAMPLE:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) imposition of the maximum sales charge;
(2) 5% annual return and (3) redemption at the end of each time
period.......................................................... $53 $70 $89 $143
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Fund. The Trust also offers Institutional Class shares of the Fund, which are
subject to the same expenses, except there are no sales charges or distribution
costs. Additional information may be found under "The Administrator," "The
Advisor" and "The SubAdvisor."

Long-term investors may pay more than the equivalent of the maximum front-end
sales charge otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").

<PAGE> 201

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Investment Class shares of
the Trust's Blue Chip Growth Fund (the "Fund"). Information regarding the
Trust's other funds is contained in separate prospectuses that may be obtained
from the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVE

The Blue Chip Growth Fund seeks long-term capital growth by investing in a
diversified portfolio of common stocks and other equity securities of seasoned,
large capitalization companies.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

Under normal market conditions, at least 65% of the Fund's assets will be
invested in equity securities, which include common stocks, warrants to purchase
common stocks, U.S. dollar denominated equity securities of foreign issuers,
traded as American Depositary Receipts ("ADRs"), preferred stocks convertible
into common stocks, and units representing combinations of the foregoing. The
Fund will invest primarily in equity securities of seasoned, large
capitalization companies. A seasoned company is a company with an operating
history of 3 years or more. A large capitalization company is a company with
capitalization in excess of $1.0 billion. The Fund will limit its investment in
foreign securities to 15% of its total assets. A majority of the Fund's equity
investments ordinarily will consist of dividend-paying securities. The balance
of the Fund's assets (up to 35%) may be invested in money market instruments
(for temporary and defensive purposes as described below), options, futures and
options on futures, Standard & Poor's Depositary Receipts ("SPDRs"), shares of
other investment companies with similar investment objectives, investment grade
bonds and bonds convertible into common stock. The aggregate value of options on
securities (long puts and calls) may not exceed 10% of the Fund's net assets at
the time such options are purchased by the Fund. The Fund may purchase options
on stock indices to invest cash on an interim basis. The aggregate premium paid
on all options on stock indices cannot exceed 20% of the Fund's total assets.
The Fund may enter into futures and options on futures only to the extent that
obligations under such contracts or transactions, together with options on
securities, represent not more than 25% of the Fund's assets. Because the Fund
invests primarily in equity securities, the Fund's shares will fluctuate in
value with the value of the underlying securities in its portfolio. The Fund may
also purchase restricted securities which have not been registered under the
Securities Act of 1933 (Rule 144A Securities and Section 4(2) Commercial Paper).
All of the common stocks in which the Fund invests (including foreign
securities, but not including Rule 144A Securities) are traded on registered
exchanges or in the over the counter market or in the form of ADRs traded on
registered exchanges or NASDAQ.

The Fund will restrict its investments in illiquid securities to 15% of its net
assets.

The Fund may engage in securities lending and will limit such practice to
33 1/3% of its assets.

For temporary defensive purposes during periods when the Advisor or SubAdvisor
determines that market conditions warrant, the Fund may invest up to 100% of its
assets in money market instruments consisting of securities issued or guaranteed
by the U.S. government or its agencies or

<PAGE> 202

instrumentalities, receipts, including TR's, TIGR's and CATS, repurchase
agreements, money market funds, certificates of deposit, time deposits, bank
master notes and bankers' acceptances issued by banks having net assets of at
least 1 billion as of the end of their most recent fiscal year, commercial paper
rated at least A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's
Investors Service, Inc. ("Moody's"), and in cash. The Fund will not be pursuing
its investment objective to the extent that a substantial portion of its assets
are invested in money market securities.

In the event that a security owned by the Fund is downgraded below the stated
ratings categories the Advisor or SubAdvisor will take appropriate action with
regard to the security.

Under normal market conditions, the Fund does not expect its portfolio turnover
rate to exceed 75%.

For additional information see "Description of Permitted Investments."

RISK FACTORS

Since the Fund invests primarily in equity securities, the Fund's shares will
fluctuate in value, and thus may be more suitable for long-term investors who
can bear the risk of short-term fluctuations. Generally, because of their fixed
income features, convertible securities will fluctuate in value to a lesser
degree than the common stocks into which they are convertible. Changes in the
value of the Fund's portfolio securities will not affect cash income received
from ownership of such securities, but will affect the Fund's net asset value.

INVESTMENT LIMITATIONS

The Fund may not:

2. Purchase any securities which would cause more than 25% of the total assets
of a Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and repurchase
agreements involving such securities, and provided further, that utilities as a
group will not be considered to be one industry, and wholly-owned subsidiaries
organized to finance the operations of their parent companies will be considered
to be in the same industries as their parent companies.

<PAGE> 203

FUNDAMENTAL POLICIES

THE ADVISOR

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of the Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

THE SUBADVISOR

The Advisor and Bank of Tokyo-Mitsubishi Trust Company (the "SubAdvisor") have
entered into an investment subadvisory agreement (the "Investment SubAdvisory
Agreement"). Under the Investment SubAdvisory Agreement, the SubAdvisor makes
the day-to-day investment decisions for the assets of the Fund, subject to the
supervision of, and policies established by, the Advisor and the Trustees of the
Trust. The Trust's shares are not sponsored, endorsed or guaranteed by and do
not constitute obligations or deposits of the SubAdvisor and are not guaranteed
by the FDIC or any other governmental agency.

The SubAdvisor is entitled to a fee which is calculated daily and paid monthly
out of the Advisor's fee at an annual rate of .30% of the average daily net
assets of the Fund. For the fiscal year ended January 31, 1996, The Bank of
Toyko Trust Company as predecessor to the SubAdvisor, received .30% of the
average daily net assets of the Fund.

<PAGE> 204

Limited. The Bank of Tokyo Trust Company was the surviving entity, and changed
its name to Bank of Tokyo-Mitsubishi Trust Company. The parent companies merged
on the same date. Prior to the merger, the subadvisory services were provided by
The Bank of Tokyo Trust Company. The Bank of Tokyo Trust Company was established
in 1955 and has provided trust services since that time and management services
since 1965.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Investment Class
shares. Any such waiver is voluntary, and may be terminated at any time in the
Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shares have a distribution plan ("Investment Class Plan").
The Distribution Agreement and the Investment Class Plan provides that the
Investment Class shares of the Fund may bear the following distribution
expenses: (1) the cost of prospectuses, reports to Shareholders, sales
literature and other materials for potential investors; (2) advertising; and (3)
expenses incurred in connection with the promotion and sale of the Trust's
shares, including the Distributor's expenses for travel, communication, and
compensation and benefits for sales personnel. In addition, the Trust pays the
Distributor a fee of up to .40% of the Fund's Investment Class shares average
daily net assets, of which a maximum of .25% may be used to compensate
broker/dealers and service providers which provide administrative and/or
distribution services to Investment Class Shareholders or to their other
customers who beneficially own Investment Class shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Fund may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business. ("Business Days"). The minimum initial investment is $2,000
($1,000 for IRAs); however, the minimum investment may be waived in the
Distributors' discretion. All
<PAGE> 205

subsequent purchases must be in amounts of at least $1,000 ($500 for IRAs).

Purchase orders for shares will be executed at a per share price equal to the
net asset value next determined after the receipt of the purchase order by the
Distributor (plus any applicable sales charge). The purchase price of shares of
the Fund is the net asset value next determined after a purchase order is
received and accepted by the Trust (plus a sales charge). The net asset value
per share of the Fund is determined by dividing the total market value of the
Fund's investments and other assets, less any liabilities, by the total number
of outstanding shares of the Fund. Net asset value per share is determined daily
as of 1:00 p.m., Pacific time, on any Business Day. Purchases will be made in
full and fractional shares of the Trust calculated to three decimal places. The
Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

<TABLE>
<CAPTION>
SALES SALES
CHARGE CHARGE AS COMMISSION
AS A APPROPRIATE AS
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<C> <S> <C> <C> <C>
- ------------------------------------------------------
0- $ 49,999... 4.50% 4.71% 4.05%
$ 50,000- $ 99,999... 4.00% 4.17% 3.60%
$ 100,000- $249,999... 3.50% 3.63% 3.15%
$ 250,000- $449,999... 2.50% 2.56% 2.25%
$ 500,000- $949,999... 1.50% 1.52% 1.35%
$ 1,000,000 and Over... 0.00%* 0.00% 0.00%
</TABLE>

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

* A contingent deferred sales charge of 1.00% will be charged if such Investment
Class shares are redeemed prior to one year from date of purchase.

The commissions shown in the table apply to sales through authorized dealers and
brokers. Under certain circumstances, the Distributor may use its own funds to
compensate financial institutions and intermediaries in amounts that are in
addition to the commissions shown above. In addition, the Distributor may, from
time to time and at its own expense, provide promotional incentives in the form
of cash or other compensation to certain financial institutions and
intermediaries whose registered representatives have sold or are expected to
sell significant amounts of the Investment Class shares of the Fund. Such other
compensation may take the form of payments for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives to places within or without the United States. Under certain
circumstances, commissions up to the amount of the entire sales charge may be
reallowed to dealers or brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may vary among the Funds.

The waiver of the sales charge under clause (vi) applies only if the following
conditions are met: the purchase must be made within 60 days of the redemption;
the Distributor must be notified in writing by the investor, or his or her
agent, at the time a purchase is made; and a copy of the investor's account
statement showing such redemption must accompany such notice. The waiver policy
with respect to the purchase of shares through the use of proceeds from a recent
redemption above will not continue indefinitely, and may be discontinued at any
time without notice. Investors should contact the Distributor to confirm
continued availability prior to initiating the procedures described in clause
(vi).

PURCHASES BY EXCHANGE

<PAGE> 207

PERFORMANCE

The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment, for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The total return of the Fund may also be quoted as a dollar amount or on an
aggregate basis, an actual basis, without inclusion of any sales charge, or with
a reduced sales charge in advertisements distributed to investors entitled to a
reduced sales charge.

The Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long-term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment of any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. In addition, state and local income tax consequences of
investing in the Fund may differ from the federal income tax consequences
described below. Accordingly, Shareholders are urged to consult their tax
advisors regarding specific questions as to federal, state and local income
taxes. Additional information concerning taxes is set forth in the Statement of
Additional Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so as to be relieved of federal
income tax on that part of its net investment company taxable income and net
capital gain (the excess of net long-term capital

<PAGE> 208

gain over net short-term capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

The Fund will distribute substantially all of its net investment income
(including net short-term capital gain) and net capital gain to Shareholders.
Dividends from the Fund's net investment company taxable income are taxable to
Shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. Dividends paid by the
Fund to corporate Shareholders will qualify for the dividends received deduction
to the extent derived from dividends received by the Fund from domestic
corporations. A portion of such dividends may be subject to the alternative
minimum tax. Dividends and distributions of net capital gain do not qualify for
the dividends-received deduction and are taxable to Shareholders as long-term
capital gain, regardless of how long Shareholders have held their shares and
regardless of whether the distributions are received in cash or in additional
shares. The Fund will provide annual reports to Shareholders of the federal
income tax status of all distributions, including the amount of dividends
eligible for the dividends-received deduction.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments, a
Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because each Fund distributes
all of its net investment income to its shareholders, a Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Advisor or SubAdvisor would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Income derived by the Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Fund will not be able to treat Shareholders as
having paid their proportionate share of such taxes.

Dividends declared by the Fund in October, November, or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared, if paid by the Fund any time during the following January.

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
investment companies.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level, and may be exempt, depending on the state,
when received by a Shareholder as income dividends from the Fund provided
certain state-specific conditions are satisfied. Interest received on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. The Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from the Fund is considered tax exempt in their
particular state.

Each sale, exchange, or redemption of Fund Shares is a taxable transaction to
the Shareholder.

GENERAL INFORMATION

THE TRUST

<PAGE> 209

Fund, Limited Maturity Government Fund, California Intermediate Tax-Free Bond
Fund, Balanced Fund, Growth Equity Fund, Convertible Securities Fund, Government
Securities Fund, Emerging Growth Fund and International Equity Fund. All
consideration received by the Trust for shares of any fund and all assets of
such fund belong to that fund and would be subject to liabilities related
thereto. The Trust reserves the right to create and issue shares of additional
funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders, but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon the written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the information.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of
the Fund is distributed in the form of monthly dividends to Shareholders of
record. Currently, capital gains of the Fund, if any, will be distributed at
least annually.

<PAGE> 210

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Fund:

AMERICAN DEPOSITARY RECEIPTS (ADRs)-- American Depositary Receipts ("ADRs") are
receipts typically issued by a U.S. financial institution that evidence
ownership of underlying securities issued by a foreign issuer.

CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--Convertible bonds are bonds
convertible into a set number of shares of another form of security (usually
common stock) at a prestated price. Convertible bonds have characteristics
similar to both fixed income and equity securities. Convertible preferred stock
is a class of capital stock that pays dividends at a specified rate and that has
preference over common stock in the payment of dividends and the liquidation of
assets. Convertible preferred stock is preferred stock exchangeable for a given
number of common stock shares, and has characteristics similar to both
fixed-income and equity securities. Because of the conversion feature, the
market value of convertible bonds and convertible preferred stock tend to move
together with the market value of the underlying stock. As a result, the Fund's
selection of convertible bonds and convertible preferred stock is based, to a
great extent, on the potential for capital appreciation that may exist in the
underlying stock. The value of convertible bonds is also affected by prevailing
interest rates, the credit quality of the issuer and any call provisions.

FUTURES AND OPTIONS ON FUTURES--The Fund may invest in futures and options on
futures. The Fund may buy and sell futures contracts and related options to
manage its exposure to changing interest rates and security prices. Some futures
strategies, including selling futures, buying puts and writing calls, reduce the
Fund's exposure to price fluctuations. Other strategies, including buying
futures, writing puts and buying calls, tend to increase market exposure.
Futures and options may be combined with each other in order to adjust the risk
and return characteristics of the overall portfolio.

Options and futures can be volatile instruments, and involve certain risks that
if applied at an inappropriate time, could negatively impact the Fund's return.

INVESTMENT GRADE BONDS--Interest-bearing or discounted government or corporate
securities that obligates the issuer to pay the bondholder a specified sum of
money, usually at specific intervals, and to repay the principal amount of the
loan at maturity. Investment grade bonds are those rated BBB or better by S&P or
Baa or better by Moody's.

<PAGE> 211

and U.S. branches of foreign banks; (ii) U.S. Treasury Obligations and
instrumentalities of the U.S. Government; (iii) high-quality commercial paper
issued by U.S. and foreign corporations; (iv) debt obligations with a maturity
of one year or less issued by corporations with outstanding high-quality
commercial papers; and (v) repurchase agreements involving any of the foregoing
obligations entered into with highly-rated banks and broker-dealers.

OPTIONS--The Fund may purchase put options with respect to securities that are
permitted investments, and may write covered call options. Under a call option,
the purchaser of the option has the right to purchase, and the writer (Fund) the
obligation to sell, the underlying security at the exercise price during the
option period. A put option gives the purchasers the right to sell, and the
writer the obligation to purchase the underlying security at the exercise price
during the option period.

In addition, the Fund may buy options on stock indices to invest cash on an
interim basis. Such options will be listed on a national securities exchange. In
order to close out an option position, the Fund may enter into a "closing
purchase transaction"--the purchase of an option on the same security with the
same exercise price and expiration date as the option contract previously
written on any particular security. When the security is sold the Fund effects a
closing purchase transaction so as to close out any existing option on that
security.

There are risks associated with such investments, including the following: (1)
the success of a hedging strategy may depend on the ability of the Advisor or
SubAdvisor to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of securities held by the
Fund and the price of options; (3) there may not be a liquid secondary market
for options; and (4) while the Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market value
of the underlying security.

REPURCHASE AGREEMENTS--Agreements by which the Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities or if the Fund realizes a loss in the sale
of the collateral. A Fund will enter into repurchase agreements only with
financial institutions which are deemed to present minimal risk of bankruptcy
during the term of the agreement based on established guidelines. Repurchase
agreements are considered loans under the 1940 Act.

SECURITIES LENDING--In order to generate additional income, the Fund may lend
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or instrumentalities or any combination of cash and such securities as
collateral equal to 100% of the market value at all times of the loaned
securities. The Fund will continue to receive interest on the loaned securities
while simultaneously earning interest on the investment of cash collateral in
U.S. Government securities. Collateral is marked to market daily to provide a
level of at least equal to the market value of the loaned securities. There may
be risks of delay in receiving additional collateral or risks of delay in

<PAGE> 212

recovery of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially.

SECURITIES OF FOREIGN ISSUERS--The Fund may invest in U.S. dollar denominated
securities. There may be certain risks connected with investing in foreign
securities, including risks of adverse political and economic developments
(including possible governmental seizure or nationalization of assets), the
possible imposition of exchange controls or other governmental restrictions,
including less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, which reduce yield,
and may be less marketable than comparable U.S. securities. The Fund may be
affected favorably or unfavorably by changes in the exchange rates or exchange
control regulations between foreign currencies and the U.S. dollar. Changes in
foreign currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to distributed to shareholders by the Fund.

STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRs")--Interests in a unit investment
trust holding a portfolio of securities linked to the S&P 500 Index. SPDRs
closely track the underlying portfolio of securities, trade like a share of
common stock and pay periodic dividends proportionate to those paid by the
portfolio of stocks that constitutes the S&P 500 Index. For further information
regarding the Fund's investment in SPDRs, see the Statement of Additional
Information.

RECEIPTS--Interests in separately traded interest and principal component plans
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying securities. See also "Taxes."

WARRANTS--Warrants are securities that entitle the holder to buy a proportionate
amount of common stock at a specified price for a limited or unlimited period of
time. Warrants are often freely transferable and are traded on major stock
exchanges.

<PAGE> 213

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Shareholder Transaction Expenses................ 3
The Trust....................................... 4
Investment Objective............................ 4
Investment Policies............................. 4
Risk Factors.................................... 5
Investment Limitations.......................... 5
Fundamental Policies............................ 6
The Advisor..................................... 6
The SubAdvisor.................................. 6
The Administrator............................... 7
The Shareholder Servicing Agent................. 7
Distribution.................................... 7
Purchase and Redemption of Shares............... 7
Purchases by Exchange........................... 9
Performance..................................... 10
Taxes........................................... 10
General Information............................. 12
Description of Permitted Investments............ 13
</TABLE>

<PAGE> 214

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 215

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers to provide a
convenient means of investing in professionally managed portfolios of
securities. This Prospectus relates to the Trust's:

CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND

INVESTMENT CLASS SHARES

The Trust's Investment Class Shares are offered to individual and institutional
investors, including accounts for which UNION BANK OF CALIFORNIA, N.A., its
affiliates and correspondents act in an agency or custodial capacity.

THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., OR ANY OF ITS AFFILIATES
OR CORRESPONDENTS. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 216

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Investment Class shares of the CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (the
"Fund"). This summary is qualified in its entirety by reference to the more
detailed information provided elsewhere in this Prospectus and in the Statement
of Additional Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide high current
income that is exempt from federal and State of California income taxes. See
"Investment Objective."

WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund invests primarily in
investment grade or better bonds and notes issued by the State of California,
its agencies, instrumentalities and political subdivisions, the income on which
is exempt from regular federal and State of California personal income taxes
("California Municipal Securities"). See "Investment Policies."

ARE MY INVESTMENTS INSURED? Any guarantee by the U.S. Government, its agencies,
or any instrumentalities of the securities in which any Fund invests guarantees
only the payment of principal and interest on the guaranteed security, and does
not guarantee the yield or value of the security or yield or value of shares of
that Fund. The Trust's shares are not federally insured by the FDIC or any other
government agency.

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Fund. See "The Advisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is $2,000 ($1,000 for IRAs). A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time.
Purchase orders for shares will be executed at a per share price equal to the
asset value next determined after the purchase order is effective (plus any
applicable sales charge). Redemption orders must be placed prior to 1:00 p.m.
Pacific time on any Business Day for the order to be accepted that day. See
"Purchase and Redemption of Shares."

<PAGE> 217

SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)

<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE
TAX-FREE BOND FUND
<S> <C>
- -------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases...................................... 3.00%
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
- -------------------------------------------------------------------------------------------------------
Advisory Fee (After Fee Waivers)(1)............................................ .01%
12b-1 Fees (After Fee Waivers)(2).............................................. .00%
Other Expenses................................................................. .21%
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(1)(2)(3).......................... .22%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Advisor has agreed to waive its fee to the extent necessary to limit
Total Operating Expenses to 0.22%. Absent such waiver, the advisory fee
would have been .50%. The Advisor may terminate its waiver at any time in
its sole discretion.

(2) Absent voluntary fee waivers, 12b-1 Fees would be .40% for the Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.

(3) "Total Operating Expenses" have been restated to reflect current expenses
and fee waivers. Absent fee waivers, "Total Operating Expenses" would have
been 1.11%.

EXAMPLE:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming (1) imposition of the maximum sales charge; (2) 5%
annual return and (3) redemption at the end of each time
period........................................................... $32 $37 $42 $57
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Fund. The Trust also offers Institutional Class shares of the Fund which are
subject to the same expenses, except there are no sales charges or distribution
costs. Additional information may be found under "The Administrator" and "The
Advisor."

Long-term Shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
<PAGE> 218

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996 on
the Trust's financial statements as of January 31, 1996, included in the Trust's
Statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional Information is set forth in the Trust's 1996 Annual Report
to Shareholders, and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

RATIO OF
RATIO OF NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
TO AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- ---------------------------------------------------------------------------------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 1.12% 4.93% 4.04% 30%
1995 1.12% 4.92% 4.30% 22%
1994 (1) 1.13%* 4.26%* 3.63%* 19%
</TABLE>

<TABLE>
<C> <S>
* Annualized.
** Total return does not reflect the sales charge.
(1) Commenced operations on October 15, 1993.
</TABLE>
<PAGE> 219

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the Funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the Funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in sales charges, distribution costs, voting rights and dividends. Except for
these differences among the classes, each share of each fund represents an equal
proportionate interest in that fund. This Prospectus relates to the Investment
Class shares of the Trust's California Intermediate Tax-Free Bond Fund (the
"Fund"). Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's Distributor, SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVE

The California Intermediate Tax-Free Bond Fund seeks to provide high current
income that is exempt from federal and State of California income taxes.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

Under normal market conditions, the Fund will invest primarily in bonds and
notes issued by the State of California, its agencies, instrumentalities, and
political sub-divisions, the income on which is exempt from regular federal and
State of California personal income taxes ("California Municipal Securities").
The Fund may also invest in bonds and notes of other states, territories, and
possessions of the U.S. and their agencies, authorities, instrumentalities and
political sub-divisions which are exempt from federal income taxes, and in
shares of other investment companies, specifically money market funds, which
have similar investment objectives. Under normal market conditions, at least 80%
of the Fund's assets will be invested in bonds and notes rated AAA, AA, A or BBB
by Standard & Poor's Corporation ("S&P"), Aaa, Aa, A or Baa by Moody's Investors
Service ("Moody's"), or AAA, AA, A or BBB by Fitch Investors Service ("Fitch")
and which pay interest that is not treated as a preference item for purposes of
the federal alternative maximum tax. The Fund may purchase unrated securities
that are determined by the Advisor to be of comparable quality at the time of
purchase pursuant to quality standards set by the Board of Trustees. In the
event that a security owned by the Fund is downgraded below the stated ratings
categories, the Advisor will take appropriate action with regard to the
security.

Under California law, a mutual fund must have at least 50% of its total assets
invested in California Municipal Securities at the end of each quarter of its
taxable year in order to be eligible to pay California residents dividends that
are wholly or partially exempt from California personal income taxes.
Accordingly, the Fund intends to maintain at least 65% of its assets in
California Municipal Securities and may invest up to 100% of its assets in such
securities. The Fund has no restrictions on the maturity of municipal securities
in which it may invest. The dollar-weighted average portfolio maturity of the
Fund will be from three to ten years. Accordingly, the Fund seeks to invest in
municipal securities of such maturities which, in the judgment of the Advisor,
will provide a high level of current income consistent with prudent investment,
with consideration given to market conditions.

<PAGE> 220

The Fund may invest in restricted securities which have not been registered
under the Securities Act of 1933 (Rule 144A Securities and Section 4(2)
Commercial Paper). The Fund will restrict its investment in illiquid securities
to 15% of its net assets.

CALIFORNIA MUNICIPAL SECURITIES

The Fund may also purchase, subject to a limit
of 15% of its assets, California Municipal
Securities that are variable rate demand notes
(or VRDNs).

For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, the Fund may invest up to 25% of its assets in
taxable money market instruments consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, receipts, including
TR's, TIGR's and CATS, money market funds, repurchase agreements, and commercial
paper rated at least A-1 by S&P, or P-1 by Moody's, or Fitch-1 by Fitch. The
Fund also may hold a portion of its assets in cash. The Fund will not be
pursuing its investment objective to the extent that a substantial portion of
its assets is invested in money market securities, and the Fund may pay taxable
dividends to shareholders as a result.

For further information see "Description of Permitted Investments."

RISK FACTORS

The ability of the State of California and its political sub-divisions to raise
money through property taxes and to increase spending has been the subject of
considerable debate and various constitutional initiatives and other
limitations. This process, and associated legal challenges, remains on-going. It
is not possible to predict the ultimate effect of these constitutional
initiatives, nor can there be any assurance that additional initiatives will not
be introduced in the coming years.

income derived from these securities, but will affect the Fund's net asset
value.

INVESTMENT LIMITATIONS

The Fund may not:

2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities, and provided further, that utilities as a
group will not be considered to be one industry, and wholly-owned subsidiaries
organized to finance the operations of their parent companies will be considered
to be in the same industries as their parent companies.

3. Make loans, except that the Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; and (b) enter into
repurchase agreements.

FUNDAMENTAL POLICIES

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor") have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Fund's investment program.
The Advisor discharges its responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. The Trust's shares are not
sponsored, endorsed or guaranteed by, and do not constitute obligations or
deposits of, the Advisor and are not guaranteed by the FDIC or any other
governmental agency.

For the fiscal year ended January 31, 1996, the Fund paid Union Bank, as
predecessor to the Advisor, an advisory fee of .03% of its average daily net
assets.

<PAGE> 222

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of the Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

Robert Bigelow is the designated team leader and has served as team leader of
the Fund since October, 1994. Prior to joining the Advisor in June, 1994, Mr.
Bigelow served as a portfolio manager at City National Bank from January, 1986
to June, 1994.

THE ADMINISTRATOR

SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), and the Trust are parties to an
administration agreement dated January 30, 1991 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with certain management services including all necessary
office space, equipment, personnel, and facilities.

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Investment Class
shares. Any such waiver is voluntary, and may be terminated at any time in the
Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shares have a distribution plan ("Investment Class Plan").
The Distribution Agreement and the Investment Class Plan provide that the
Investment Class shares of the Fund may bear the following distribution
expenses: (1) the cost of prospectuses, reports to shareholders, sales
literature and other materials for potential investors; (2) advertising; and (3)
expenses incurred in connection with the promotion and sale of the Trust's
shares, including the Distributor's expenses for travel, communication, and
compensation and benefits for sales personnel. In addition, the Trust pays the
Distributor a fee of up to .40% of the Fund's Investment Class shares average
daily net assets, of which a maximum of .25% may be used to compensate
broker/dealers and service providers which provide administrative and/or
distribution services to Investment Class Shareholders or to their other
customers who beneficially own Investment Class shares.

<PAGE> 223

PURCHASE AND REDEMPTION OF SHARES

Purchase orders for shares will be executed at a per share price equal to the
net asset value next determined after the receipt of the purchase order by the
Distributor (plus any applicable sales charge). The purchase price of shares of
the Fund is the net asset value next determined after a purchase order is
received and accepted by the Trust (plus a sales charge). The net asset value
per share of the Fund is determined by dividing the total market value of the
Fund's investments and other assets, less any liabilities, by the total number
of outstanding shares of the Fund. Net asset value per share is determined daily
as of 1:00 p.m., Pacific time, on any Business Day. Purchases will be made in
full and fractional shares of the Trust calculated to three decimal places. The
Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

The following table shows the regular sales charge on Investment Class shares to
a "single purchaser" (defined below), together with the dealer discount paid to
dealers and the agency commission paid to brokers (collectively the
"commission"):

<TABLE>
<CAPTION>
SALES
CHARGE SALES COMMISSION
AS A CHARGE AS AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<S> <C> <C> <C>
- ------------------------------------------------------
0- $ 99,999... 3.00% 3.09% 2.70%
$ 100,000- $249,999... 2.50% 2.56% 2.25%
$ 250,000- $499,999... 2.00% 2.04% 1.80%
$ 500,000- $999,999... 1.50% 1.52% 1.35%
$1,000,000- and Over... 0.00%* 0.00% 0.00%
</TABLE>

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

* A contingent deferred sales charge of 1.00% will be charged if such
Investment Class Shares are redeemed prior to one year from date of purchase.

In calculating the sales charge rates applicable to current purchases of a
Fund's shares, a "single purchaser" is entitled to cumulate current purchases
with net purchases of previously purchased shares of the Fund and other of the
Trust's funds (the "Eligible Funds") which are sold subject to a comparable
sales charge.

<PAGE> 224

An investor relying upon any of the categories of waivers of the sales charge
must qualify for such waiver in advance of the purchase with the Distributor or
the financial institution or intermediary through which shares are purchased by
the investor.

The waiver of the sales charge under circumstance (vi) above applies only if the
purchase is made within 60 days of the redemption and if conditions imposed by
the Distributor are met. This waiver policy with respect to the purchase of
shares through the use of proceeds from a recent redemption as described in
circumstance (vi) above will not be continued indefinitely, and may be
discontinued at any time without notice. Investors should contact the
Distributor to determine whether they are eligible to purchase shares without
paying a sales charge through the use of proceeds from a recent redemption as
described above and to confirm continued availability of this waiver policy
prior to initiating the procedures described in circumstance (vi).

<PAGE> 225

extraordinarily active or other extraordinary circumstances exist, and you
experience difficulties placing redemption orders by telephone, you may wish to
consider placing your order by other means.

PURCHASES BY EXCHANGE

As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, shareholders of Investment Class shares of
other Funds of the Trust that have similar sales charge schedules may tender
their shares of those Funds for exchange into the number of shares (including
fractional shares) which have a value equal to the total net asset value of
shares tendered divided by the net asset value of Investment Class shares of the
Fund next determined after such order is received. Shares issued pursuant to
this offer will not be subject to the sales charge described above or any other
charge. The Fund may modify or terminate this exchange offer at any time upon 60
days' notice.

PERFORMANCE

The Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long-term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

The Fund may quote various measures of volatility and benchmark correlation in
advertising, and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative,
<PAGE> 226

judicial or administrative action. No attempt has been made to provide a
detailed explanation of the federal, state, or local income tax treatment of the
Fund or its Shareholders. In addition, state and local tax consequences of an
investment in the Fund may differ from the federal income tax consequences
described below. Accordingly, Shareholders are urged to consult their tax
advisors regarding specific questions as to federal, state and local income
taxes. Additional information concerning taxes is set forth in the Statement of
Additional Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment company taxable income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

Distributions of net capital gain also do not qualify for the dividends-received
deduction and are taxable to shareholders as long-term capital gain, regardless
of how long a Shareholder has held Fund shares, and regardless of whether the
distributions are received in cash or in additional shares. The Fund will make
annual reports to Shareholders of the federal income tax status of all
distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments,
the Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because the Fund distributes
all of its net investment income to shareholders, the Fund may have to sell Fund
securities to distribute such imputed income, which may occur at a time when the
Advisor would not have chosen to sell such securities and which may result in a
taxable gain or loss.

Dividends declared by the Fund in October, November or December of any year and
payable to Shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by the Shareholders on December 31 of the
year declared if paid by the Fund any time during the following January.

<PAGE> 227

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level, and may be exempt, depending on the state,
when received by a Shareholder as income dividends from the Fund provided
certain state-specific conditions are satisfied. Interest received on repurchase
agreements collateralized by U.S. government obligations normally is not exempt
from state tax. The Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Treasury obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from the Fund is considered tax exempt in their
particular state.

Each sale, exchange, or redemption of Fund shares is a taxable transaction to
the Shareholder.

CALIFORNIA TAXES:

If the Fund qualifies to pay California exempt-interest dividends, dividends
distributed to Shareholders will be considered California exempt-interest
dividends (1) if they are designated as exempt-interest dividends by the Fund in
a written notice to Shareholders mailed within 60 days of the close of the
Fund's taxable year and (2) to the extent the interest received by the Fund
during the year on California Tax Exempt Obligations exceeds expenses of the
Fund that would be disallowed under California personal income tax law as
allocable to tax-exempt interest if the Fund were an individual. If the
aggregate dividends so designated exceed the amount that may be treated as
California exempt-interest dividends, only that percentage of each dividend
distribution equal to the ratio of aggregate California exempt-interest
dividends to aggregate dividends so designated will be treated as a California
exempt-interest dividend. The Fund will notify Shareholders of the amount of
California exempt-interest dividends each year.

Corporations subject to California franchise tax that invest in the Fund may not
be entitled to exclude California exempt-interest dividends from income.

retroactive with respect to Fund transactions. Shareholders are advised to
consult with their own tax advisors for more detailed information concerning
California tax matters.

GENERAL INFORMATION

THE TRUST

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings, but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon the written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting in
connection with such matters.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

Substantially all of the net investment income (exclusive of capital gains) of
the Fund is distributed in the form of monthly dividends to Shareholders of
record. Currently, capital gains of the Fund, if any, will be distributed at
least annually.

has elected to take such payment in cash. Shareholders may change their election
by providing written notice to the Administrator at least 15 days prior to the
change.

The dividends payable on Investment Class shares will typically be lower than
dividends payable on Institutional Class shares because of the distribution
expenses charged to Investment Class shares.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

CoreStates Bank, N.A. Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as Custodian of the assets of the
Fund. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940, as amended.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Fund:

MUNICIPAL FORWARDS--Municipal Forwards are forward commitments for the purchase
of tax-exempt bonds with a specified coupon to be delivered by an issuer at a
future date, typically exceeding 45 days but normally less than one year after
the commitment date. Municipal forwards are normally used as a refunding
mechanism for bonds that may only be redeemed on a designated future date. As
with forward commitments and when-issued securities, municipal forwards are
subject to market fluctuations due to changes, real or anticipated, in market
interest rates between the commitment date and the settlement date and will have
the effect of leveraging the Fund's assets. Municipal forwards may be considered
to be illiquid investments. The Fund will maintain liquid, high-grade securities
in a segregated account in an amount at least equal to the purchase price of the
municipal forward.

<PAGE> 230

issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. Municipal bonds include
general obligation bonds, revenue or special obligation bonds, private activity
and industrial development bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility, tolls from a toll bridge, for example. The
payment of principal and interest on private activity and industrial development
bonds generally is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.

REPURCHASE AGREEMENTS--Agreements by which the Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its right to
dispose of the collateral securities or if the Fund realizes a loss on the sale
of the collateral. The Fund will enter into a repurchase agreement only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.

U.S. TREASURY OBLIGATIONS--Bills, notes and bonds issued by the U.S. Treasury
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS").

and principal payments for the benefit of the registered owners of the
certificates of receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TR's"), "Treasury Investment Growth
Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). STRIPS, TR'S, TIGR'S and CATS are sold as zero coupon securities,
which means that they are sold at a substantial discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the security, and such
accretion will constitute the income earned on the security for both accounting
and tax purposes. Because of these features, such securities may be subject to
greater interest rate volatility than interest paying securities. See also
"Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations purchased by the
Fund may carry variable or floating rates of interest, may involve conditional
or unconditional demand features and may include variable amount master demand
notes. California Municipal Securities may also be acquired through the purchase
of municipal forwards. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice period exceeding seven days may be
considered illiquid if there is no secondary market for such security.

<PAGE> 232

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary.......................................... 2
Shareholder Transaction Expenses................. 3
Annual Operating Expenses........................ 3
Financial Highlights............................. 4
The Trust........................................ 5
Investment Objective............................. 5
Investment Policies.............................. 5
California Municipal Securities.................. 6
Risk Factors..................................... 6
Investment Limitations........................... 7
Fundamental Policies............................. 7
The Advisor...................................... 7
The Administrator................................ 8
The Shareholder Servicing Agent.................. 8
Distribution..................................... 8
Purchase and Redemption of Shares................ 9
Purchases by Exchange............................ 11
Performance...................................... 11
Taxes............................................ 11
General Information.............................. 14
Description of Permitted Investments............. 15
</TABLE>

<PAGE> 233

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<PAGE> 234

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in professionally managed portfolios of securities. This Prospectus
relates to the Trust's:

LIMITED MATURITY GOVERNMENT FUND

INVESTMENT CLASS SHARES

This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same day as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 235

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Investment Class shares of the LIMITED MATURITY GOVERNMENT FUND (the "Fund").
This summary's qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks a high level of income
and relative price stability consistent with safety of capital. See "Investment
Objective."

WHO IS THE ADVISOR? Union Bank of California, N.A. serves as the Advisor to the
Trust. See "The Advisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve Wire System are open for business ("Business Days"). The
minimum initial investment is $2,000 ($1,000 for IRAs). A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time.
Purchase orders for shares will be executed at a per share price equal to the
net asset value next determined after the purchase order is effective.
Redemption orders must be placed prior to 1:00 p.m. Pacific time on any Business
Day for the order to be accepted that day. See "Purchase and Redemption of
Shares."

HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is determined and declared on each
Business Day as a dividend for shareholders of record as of the close of
business on that day. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See "Dividends."
<PAGE> 236

SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)

<TABLE>
<CAPTION>
LIMITED
MATURITY
GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchase.......................................... 1.50%
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
- ---------------------------------------------------------------------------------------------------
Advisory Fees..................................................................... .30%
12b-1 Fees (After Fee Waivers)(1)................................................. .00%
Other Expenses.................................................................... .23%
- ---------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(2)................................... .53%
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>

(1) Absent voluntary fee waivers, 12b-1 Fees would be .40% for the Fund. The
Distributor reserves the right to terminate its waiver at any time, in its
sole discretion.

(2) Absent fee waivers, "Total Operating Expenses" would be .93%.

EXAMPLE:

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Fund. The Trust also offers Institutional Class Shares of the Fund, which are
subject to the same expenses, except there are no sales charges or distribution
costs. Additional information may be found under "The Advisor" and "The
Administrator."

Long-term Shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
<PAGE> 237

FINANCIAL HIGHLIGHTS

The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated March 21, 1996, on
the Trust's financial statements as of January 31, 1996, included in the Trust's
Statement of Additional Information under "Financial Information." This table
should be read in conjunction with the Trust's financial statements and notes
thereto. Additional information is set forth in the Trust's 1996 Annual Report
to Shareholders, and is available without charge by calling 1-(800) 862-6243.

FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR

* Annualized.
** Total return does not reflect the sales charge.
(1) Commenced operations on August 18, 1993.
<PAGE> 238

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in sales charges, distribution costs, voting rights and dividends. Except for
these differences among the classes, each share of each fund represents an equal
proportionate interest in that fund. This Prospectus relates to the Investment
Class shares of the Trust's Limited Maturity Government Fund (the "Fund").
Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's Distributor, SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVE

The Limited Maturity Government Fund seeks a high level of income, relative to
funds with like investment objectives, and relative price stability consistent
with safety of capital.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

The Fund is limited to making investments and engaging in investment
transactions that are permissible for federal credit unions. Therefore, the Fund
will not invest in zero coupon securities with maturities greater than 10 years.
All collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs") purchased by the Fund will comport with the
average life, average life sensitivity and price sensitivity tests of Section
703.5(g) of the National Credit Union Association's ("NCUA") Rules and
Regulations. The Fund may purchase stripped mortgage-backed securities ("SMBS"),
residual interests in CMOs or REMICs, or non-floating/adjustable rate CMOs or
REMICs that do not comport with Section 703.5(g) of the NCUA Rules and
Regulations only if the instrument is purchased to reduce the Fund's interest
rate risk and is subjected to the monitoring, reporting, evaluation and pricing
requirements of Section 703.5(i) of the NCUA Rules and Regulations. Floating or
adjustable rate CMOs or REMICs that do not comply with Section 703.5(g) may be
purchased by the Fund if, they comport with the provisions of Section 703.5(j)
of the NCUA Rules and Regulations.

The Fund may purchase securities on a forward commitment or when-issued basis
where such purchases are for investment and not for leveraging purposes;
however, the Fund may sell
<PAGE> 239

these securities before the settlement date if it is deemed advisable. No
additional forward commitments will be made if more than 20% of the Fund's net
assets would be so committed.

Guarantees of the Fund's securities by the U.S. Government or its agencies or
instrumentalities guarantee only the principal and interest on the guaranteed
securities, and do not guarantee the securities' yield or the yield or value of
the Fund's shares.

Under normal circumstances, the Fund will maintain an average weighted maturity
of three years or less. The measure of average maturity will use the expected
life of securities held by the Fund.

Mortgage-backed securities purchased by the Fund will be issued or guaranteed as
to payment of principal and interest by the United States government or its
agencies or instrumentalities or, if issued by private issuers, rated in one of
the two highest rating categories by a nationally recognized rating agency. The
principal governmental issuer or guarantors of mortgage-backed securities are
the GNMA, FNMA, and FHLMC. Obligations of GNMA are backed by the full faith and
credit of the United States Government, while obligations of FNMA and FHLMC are
supported by the respective agency only. The Fund may purchase mortgage-backed
securities that are backed or collateralized by fixed, adjustable or floating
rate mortgages.

For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Fund may invest up to 100% of its assets in money market
instruments consisting of securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, repurchase agreements, receipts,
including TR's, TIGR's and CATS, certificates of deposit, time deposits, bank
master notes and bankers' acceptances issued by banks having net assets of at
least $1 billion as of the end of its most recent fiscal year or rated at least
A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investor Services
("Moody's"), and in cash. To the extent that the Fund is engaged in temporary
defensive investing, it will not be pursuing its investment objective.

For additional information, see "Description of Permitted Investments."

ELIGIBILITY UNDER FEDERAL CREDIT
UNION ACT

Shares of the Fund are designed to qualify as eligible investments for federally
chartered credit unions pursuant to Section 107(7), 107(8) and 107(15) of the
Federal Credit Union Act and Part 703 of the NCUA Rules and Regulations. The
Fund will continually monitor changes in the applicable laws, rules and
regulations governing eligible investments, including new investments, for
federally chartered credit unions and will take such

<PAGE> 240

action as may be necessary to assure that the Fund's investments, and,
therefore, shares of the Fund, continue to qualify as eligible investments under
the Federal Credit Union Act.

Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act set forth
those securities, deposits and other obligations in which federally chartered
credit unions may invest. The Fund's investments consist exclusively of assets
designed to qualify as eligible investments if owned directly by a federally
chartered credit union. Shares of the Fund may or may not qualify as eligible
investments for particular state chartered credit unions. Accordingly, the Fund
encourages, but does not require, each state chartered credit union to consult
qualified legal counsel concerning whether the Fund's shares are permissible
investments for that credit union. While the Advisor will ensure that the Fund
follows investment policies set forth herein, the Fund cannot be responsible for
compliance by participating state chartered credit unions with limitations on
permissible investments to which they may be subject.

RISK FACTORS

The market value of the Fund's fixed income investments will change in response
to interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Securities with longer maturities are subject to
greater fluctuations in value than securities with shorter maturities. Changes
by recognized agencies in the rating of any fixed income security, and in the
ability of an issuer to make payments of interest and principal, also affect the
value of these investments. Changes in the value of Fund securities will not
affect cash income derived from these securities, but will affect the Fund's net
asset value.

Mortgage-backed securities are subject to prepayment of the underlying
mortgages. During periods of declining interest rates, prepayment of mortgages
underlying these securities can be expected to accelerate. When the mortgage-
backed securities held by a Fund are prepaid, the Fund must reinvest the
proceeds in securities, the yields of which reflect prevailing interest rates,
which may be lower than those of the prepaid security.

Some of the permitted investments for the Fund may not be permitted investments
for particular state chartered credit unions. See "The Trust."

INVESTMENT LIMITATIONS

The Fund may not:

2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities, and provided further, that utilities as a
group will not be considered to be one industry, and wholly-owned subsidiaries
organized to finance the operations of their parent companies will be considered
to be in the same industry as their parent companies.

3. Make loans, except that the Fund may (a) purchase or hold debt instruments in
accordance with its investment objectives and policies, and (b) enter into
repurchase agreements.

<PAGE> 241

FUNDAMENTAL POLICIES

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor"), have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Fund's investment program.
The Advisor discharges its responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. The Trust's shares are not
sponsored, endorsed or guaranteed by, and do not constitute obligations or
deposits of, the Advisor and are not guaranteed by the FDIC or any other
government agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .30% of the average daily net assets of the Fund. The Advisor
may from time to time waive all or a portion of its fees in order to limit the
operating expenses of the Fund. Any such waiver is voluntary, and may be
terminated at any time in the Advisor's sole discretion.

For the fiscal year ended January 31, 1996, the Fund paid Union Bank, as
predecessor to the Advisor, an advisory fee of .30% of its average daily net
assets.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of the Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

THE ADMINISTRATOR

<PAGE> 242

of assets over $2 billion. The Administrator may waive its fee or reimburse
various expenses to the extent necessary to limit the total operating expenses
of the Fund's Investment Class shares. Any such waiver is voluntary, and may be
terminated at any time in the Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shares have a distribution plan (the "Investment Class
Plan"). The Distribution Agreement and the Investment Class Plan provide that
the Investment Class shares of the Fund may bear the following distribution
expenses: (1) the cost of prospectuses, reports to Shareholders, sales
literature and other materials for potential investors; (2) advertising; and (3)
expenses incurred in connection with the promotion and sale of the Trust's
shares, including the Distributor's expenses for travel, communication, and
compensation and benefits for sales personnel. In addition, the Trust pays the
Distributor a fee of up to .40% of the Fund's Investment Class shares average
daily net assets, of which a maximum of .25% may be used to compensate
broker/dealers and service providers, which provide administrative and/or
distribution services to Investment Class Shareholders or to their other
customers.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Fund may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business ("Business Days"). The minimum initial investment in the Trust is
$2,000 ($1,000 for IRAs); however, the minimum investment may be waived at the
Distributor's discretion. All subsequent purchases must be at least $1,000 ($500
for IRAs).

Purchase orders for shares will be executed at a per share price equal to the
net asset value next determined after the receipt of the purchase order by the
Distributor. The purchase price of shares of the Fund is the net asset value
next determined after a purchase order is received and accepted by the Trust.
The net asset value per share of the Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total number of outstanding shares of the Fund. Net asset value per share
is determined daily as of 1:00 p.m. Pacific time, on any Business Day. Purchases
will be made in full and fractional shares of the Trust calculated to three
decimal places. The Trust reserves the right to reject a purchase order when the
Distributor determines that it is not in the best interest of the Trust and/or
its Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

The following table shows the regular sales charge on Investment Class shares to
a "single purchaser" (described below) together with the dealer discount paid to
dealers and the agency

<PAGE> 243

commission paid to brokers (collectively the "commission"):

<TABLE>
<CAPTION>
SALES SALES
CHARGE CHARGE AS COMMISSION
AS A APPROPRIATE AS
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<C> <S> <C> <C> <C>
- ------------------------------------------------------
0- $ 99,999... 1.50% 1.52% 1.35%
$ 100,000- $249,999... 1.00% 1.01% 0.90%
$ 250,000- $499,999... 0.75% 0.76% 0.675%
$ 500,000- $999,999... 0.50% 0.50% 0.45%
$ 1,000,000 and Over... 0.00%* 0.00% 0.00%
</TABLE>

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

* A contingent deferred sales charge of .30% will be charged if such Investment
Class shares are redeemed prior to one year from date of purchase.

LETTER OF INTENT. By submitting a Letter of Intent (the "Letter") to the
Distributor, a "single purchaser" may purchase shares of the Fund and the other
Eligible Funds during a 13 month period at the reduced sales charge rates
applying to the aggregate amount of the intended purchases stated in the Letter.
The Letter may apply to purchases made up to 90 days before the date of the
Letter. To receive credit for such prior purchases and later purchases
benefitting from the Letter, the Shareholder must notify the Transfer Agent at
the time the Letter is submitted that there are prior purchases that may apply,
and, at the time of later purchases, notify the Transfer Agent that such
purchases are applicable under the Letter.

<PAGE> 244

(iii) in aggregate purchases of $1 million or more by tax-exempt organizations
enumerated in Section 501(c) of the Code, or employee benefit plans created
under Section 401, 403(b) or 457 of the Code; (iv) sold to employees and
families of the Advisor and its affiliates; or (v) all fiduciary accounts of the
Advisor and its affiliates.

PURCHASES BY EXCHANGE

As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, shareholders of Investment Class shares of
other Funds of the Trust that have sales charges may tender their shares for
those Funds for exchange into the number of shares (including fractional shares)
which have a value equal to the total net asset value of shares tendered divided
by the net asset value of Investment Class shares of the Fund next determined
after such order is received. Shares issued pursuant to this offer will not be
subject to this sales charge described above or any other charge. The Fund may
modify or terminate this exchange offer at any time upon 60 days' notice.

PERFORMANCE

The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment, for designated time periods (including, but not
limited to, the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions. The total return of the Fund may also be quoted as a dollar
amount or on an aggregate basis, an actual basis, without inclusion of any sales
charge, or with a reduced sales charge in advertisements distributed to
investors entitled to a reduced sales charge.

<PAGE> 245

include the value of a hypothetical investment in any of the capital markets.
The Fund may also quote financial and business publications and periodicals as
they relate to fund management, investment philosophy, and investment
techniques.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. In addition, state and local tax consequences of an investment
in the Fund may differ from the federal income tax consequences discussed below.
Accordingly, Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state, and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for federal income tax purposes, and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies by the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment company taxable income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

The Fund will distribute all of its net investment income (including net
short-term capital gain) to Shareholders. Dividends from the Fund's net
investment company taxable income are taxable to Shareholders as ordinary income
(whether received in cash or in additional shares) to the extent of the Fund's
earnings and profits. Any net capital gains will be distributed at least
annually, and will be taxed to Shareholders as long-term capital gains,
regardless of how long the Shareholder has held shares and regardless of whether
the distributions are received in cash or in additional shares. Dividends and
distributions of capital gain do not qualify for the corporate
dividends-received deduction for corporate shareholders. The Fund will provide
annual reports to Shareholders of the federal income tax status of all
distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments,
the Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations on such obligations during that period. Because the
Fund distributes all of its net investment income to shareholders, the Fund may
have to sell Fund securities to distribute such imputed income which may occur
at a time when the Advisor would not have chosen to sell such securities, and
which may result in a taxable gain or loss.

<PAGE> 246

the year declared if paid by the Fund any time during the following January.

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Investment income received directly by the Fund on direct U.S. obligations is
exempt from tax at the state level when received directly by the Fund, and may
be exempt, depending on the state, when received by a Shareholder as income
dividends from the Fund provided certain state-specific conditions are
satisfied. Interest realized on repurchase agreements collateralized by U.S.
government obligations normally is not exempt from state tax. The Fund will
inform Shareholders annually of the percentage of income and distributions
derived from direct U.S. Treasury obligations. Shareholders should consult their
tax advisors to determine whether any portion of the income dividends received
from the Fund is considered tax exempt in their particular state.

Each sale, exchange, or redemption of Fund shares is a taxable event to the
Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts Business Trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate series of shares and different classes of each fund. In addition
to the Fund, the Trust consists of the following funds: Treasury Money Market
Fund, Money Market Fund, California Tax-Free Money Market Fund, Growth Equity
Fund, Value Momentum Fund, Balanced Fund, Intermediate-Term Bond Fund,
California Intermediate Tax-Free Bond Fund, Blue Chip Growth Fund, Emerging
Growth Fund, Convertible Securities Fund, Government Securities Fund and
International Equity Fund. All consideration received by the Trust for shares of
any fund and all assets of such fund belong to that fund, and would be subject
to liabilities related thereto. The Trust reserves the right to create and issue
shares of additional funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

<PAGE> 247

REPORTING

The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

On each Business Day, the Fund declares a dividend from net investment income
(not including capital gain) as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) to shareholders of record at the
previous net asset value calculation. Dividends are normally paid (and, where
applicable, reinvested) on the first Business Day of the following month.
Currently capital gains of the Fund, if any, will be distributed at least
annually.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Fund:

subject to reserve requirements. In addition, a "depository institution" or
other exempt institution such as the Trust may, under Regulation D of the FRB,
in effect, make loans of Federal funds by instructing a correspondent or other
willing Fed Bank at which it maintains an account to loan Federal funds on its
behalf. Loans of Federal funds are not federally insured.

MONEY MARKET INSTRUMENTS--Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury Obligations
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding
high-quality commercial papers; and (v) repurchase agreements involving any of
the foregoing obligations entered into with highly-rated banks and
broker-dealers.

MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are generally issued or
guaranteed by U.S. Government agencies, such as GNMA, FNMA, or FHLMC. GNMA
mortgaged-backed certificates are mortgage-backed securities of the modified
pass-through type, which means that both interest and principal payments
(including prepayments) are passed through monthly to the holder of the
certificate. Each GNMA certificate evidences an interest in a specific pool of
mortgage loans insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. FNMA, a federally
chartered and stockholder-owned corporation, issues pass-through certificates
which are guaranteed as to payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States, issues participation
certificates which represent an interest in mortgages held in FHLMC's portfolio.
FHLMC guarantees the timely payment of interest and the ultimate collection of
principal. Securities issued or guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States.

There can be no assurance that the United States Government would provide
financial support to FNMA or FHLMC if necessary in the future.

<PAGE> 249

often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. The principal and interest payment
on the underlying mortgages may be allocated among the classes of CMOs in
several ways. Typically, payments of principal, including any prepayments, on
the underlying mortgages would be applied to the classes in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on CMOs of a class until all CMOs of other classes having
earlier stated maturities or final distribution dates have been paid in full.

Risks associated with mortgage-backed securities: While the United States
government or the issuing agency or entity guarantees the timely payment of
interest on and principal of the securities referred to in the preceding
section, the guarantees do not extend to the securities' yield or value, which
are likely to vary inversely with fluctuations in interest rates. Changes in
interest rates can lead to material changes in prepayment rates, which in turn
can materially affect an instrument value. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of
pass-through certificates.

REPURCHASE AGREEMENTS--Agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from exercising its right to
dispose of the collateral securities or if the Fund realizes a loss on the sale
of the collateral. A Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.

SECURITIES LENDING--In order to generate additional income, the Fund may lend
the securities in which it is invested, pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies or any combination of cash and such securities as collateral equal
to 100% of the market value at all times of the loaned securities. The Fund will
continue to receive interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. Collateral is marked to market daily to provide a level of
collateral at least

<PAGE> 250

equal to the value of the loaned securities. There may be risks of delay in
receiving additional collateral or risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially.

RECEIPTS--Interests in separately traded interest and principal component parts
of U.S. Treasury obligations that are issued by banks and brokerage firms and
are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's") "Treasury Investment Growth Receipts" ("TIGR's")
and "Certificates of Accrual on Treasury Securities" ("CATS"). STRIPS, TR'S,
TIGR'S and CATS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying securities. See also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased by
the Fund may carry variable or floating rates of interest, may involve
conditional or unconditional demand features and may include variable amount
master demand notes. The interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

SECURITIES ISSUED ON A FORWARD BASIS OR WHEN-ISSUED SECURITIES--The Fund may
purchase securities subject to settlement on a future date. The interest rate
realized on these securities is fixed as of the purchase date, and no interest
accrued to the Fund before settlement. These securities are subject to market
fluctuation due to changes, real or anticipated, in market interest rates, and
the public's perception of the creditworthiness of the issuer and will have the
effect of leveraging the Fund's assets. The Fund will establish one or more
segregated accounts with the Custodian, and the Fund will maintain liquid,
high-grade assets in an amount at least equal in value to the Fund's commitments
to purchase when-issued securities.

<PAGE> 251

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary......................................... 2
Shareholder Transaction Expenses................ 3
Annual Operating Expenses....................... 3
Financial Highlights............................ 4
The Trust....................................... 5
Investment Objective............................ 5
Investment Policies............................. 5
Eligibility Under Federal Credit Union Act...... 6
Risk Factors.................................... 7
Investment Limitations.......................... 7
Fundamental Policies............................ 8
The Advisor..................................... 8
The Administrator............................... 8
The Shareholder Servicing Agent................. 9
Distribution.................................... 9
Purchase and Redemption of Shares............... 9
Purchases By Exchange........................... 11
Performance..................................... 11
Taxes........................................... 12
General Information............................. 13
Description of Permitted Investments............ 14
</TABLE>

<PAGE> 252

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 253

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in one or more professionally managed portfolios of securities. This
Prospectus relates to the Trust's:

INTERNATIONAL EQUITY FUND

INVESTMENT CLASS SHARES

This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

MAY 28, 1996

INVESTMENT CLASS
<PAGE> 254

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified, open-end management investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Investment Class shares of the INTERNATIONAL EQUITY FUND (the "Fund"). This
summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in the Prospectus and in the Statement of
Additional Information.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? THE INTERNATIONAL EQUITY FUND seeks to
provide long-term capital appreciation. See "Investment Objective."

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. The Fund may purchase common stocks and other equity
securities that are volatile and may fluctuate in value more than other types of
investments. In addition, the Fund will invest in securities of foreign
companies that involve special risks and considerations not typically associated
with investing in U.S. companies. See "Risk Factors."

WHO IS THE ADVISOR? Union Bank of California, N.A., serves as the Advisor to
the Trust. See "The Advisor."

WHO IS THE SUBADVISOR? BOT - Mitsubishi Asset Management (U.K.) Limited serves
as the SubAdvisor to the Fund. See "The SubAdvisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business. ("Business Days"). The
minimum initial investment is $2,000 ($1,000 for IRAs). A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m. Pacific time.
Purchase orders for shares will be executed at a per share price equal to the
net asset value next determined after the purchase order is effective (plus any
applicable sales charge). Redemption orders must be placed prior to 1:00 p.m.
Pacific time on any Business Day for the order to be effective that day. See
"Purchase and Redemption of Shares."

SHAREHOLDER TRANSACTION EXPENSES INVESTMENT CLASS
(As a percentage of offering price)

<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases..................................................... 4.50%
</TABLE>

<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of offering price)
<S> <C>
- -------------------------------------------------------------------------------------------------------
INTERNATIONAL
EQUITY
FUND
Advisory Fees (After Fee Waivers) (1)................................................. .85%
12b-1 Fees (After Fee Waivers) (2).................................................... .40%
Other Expenses (3).................................................................... .41%
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers) (4)...................................... 1.66%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Advisor has agreed to waive a portion of its fee. Fee waivers are
voluntary and may be terminated at any time in the Advisor's sole
discretion. Absent this voluntary fee waiver, the Advisor's fee would be
.95%.

(2) Absent voluntary fee waivers, 12b-1 Fees would be .40 for the Fund. The
Distributor reserves the right to terminate its waiver at any time in its
sole discretion.

(3) "Other Expenses" reflect estimates for the current fiscal year.

(4) Absent fee waivers, "Total Operating Expenses" would have been 1.76% for the
Fund.

EXAMPLE:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming (1) imposition of the maximum sales charge; (2) 5% return
and (3) redemption at the end of each time period.
International Equity Fund............................................ $61 $ 95 $131 $ 233
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Investment Class shares of the
Fund. The Trust also offers Institutional Class shares of the Fund, which are
subject to the same expenses except there are no sales charges or distribution
costs. Additional information may be found under "The Administrator," "The
Advisor" and "The SubAdvisor."

Long-term Shareholders may pay more than the equivalent of the maximum sales
charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").

<PAGE> 256

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified,
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate funds. Shareholders may purchase shares of
twelve of the funds through two separate classes of shares (Institutional and
Investment Classes) and through three separate classes of two of the funds
(Institutional, Investment and Cash Sweep Classes), which provide for variations
in distribution costs, voting rights and dividends. Except for these differences
among the classes, each share of each fund represents an equal proportionate
interest in that fund. This Prospectus relates to the Investment Class shares of
the Trust's International Equity Fund (the "Fund"). Information regarding the
Trust's other funds is contained in separate prospectuses that may be obtained
from the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVE

THE INTERNATIONAL EQUITY FUND seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of equity securities of non-U.S.
issuers.

There can be no assurance that the Fund's investment objective will be met.

INVESTMENT POLICIES

Under normal market circumstances, at least 65% of the Fund's assets will be
invested in the following equity securities of non-U.S. issuers: common stocks,
securities convertible into common stocks, preferred stocks, warrants and rights
to purchase common stock. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in securities of issuers organized under
the laws of countries included in the Morgan Stanley Capital International
Europe, Australia and Far East Index (the "EAFE Index"(1)). At least 65% of the
Fund's total assets will be invested in securities of issuers in at least five
countries other than the United States.

Countries may be over- or under-weighted in comparison to the EAFE Index based
upon the Advisor's and SubAdvisor's view of forecasted rates of returns.

Regional and individual country weightings therefore may vary from the EAFE
Index benchmark. The Advisor and SubAdvisor will select individual securities
for the Fund on the basis of their undervaluation in relation to other
securities. The Fund expects its investments to emphasize companies with market
capitalization in excess of $100,000,000.

The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency, at a
specified date, at a specified price. The Fund may enter into forward foreign
currency contracts to hedge a specific security transaction or to hedge a
portfolio position. These contracts may be bought and sold to protect the Fund
to some degree, against a possible loss resulting from an adverse change in the
relationship between foreign currencies. The Fund may also invest in options on
currencies.

The Fund may invest in futures and options on futures for the purpose of
achieving the Fund's objectives. The Fund may invest in futures and
- ------------
(1) "MSCI-EAFE Index" is a registered service mark of Morgan Stanley Capital
International which does not sponsor and is in no way affiliated with the
International Equity Fund.
<PAGE> 257

related options based on any type of security or index traded on U.S. or foreign
exchanges or over the counter, as long as the underlying security or securities
represented by an index, are permitted investments of the Fund. Such futures
contracts may include index contracts and contracts for foreign currencies. The
Fund may enter into futures contracts and options on futures only to the extent
that obligations under such contracts or transactions, together with options on
securities or indices represent not more than 25% of the Fund's assets.

The premium paid of options on securities positions will not exceed 10% of the
Fund's net assets at the time such options are entered into by the Fund. The
aggregate premium paid on all options on stock indices will not exceed 20% of a
Fund's total assets.

The Fund's remaining assets may be invested in investment grade bonds and
debentures issued by non-U.S. or U.S. companies, obligations of supranational
entities, securities issued or guaranteed by foreign and U.S. governments, and
foreign and U.S. commercial paper. Certain of these instruments may have
floating or variable interest rate provisions. In addition, the Fund may invest
in securities of issuers whose principal activities are in countries with
emerging markets. The Fund defines an emerging market country as any country
whose economy and market the World Bank or the United Nations considers to be
emerging or developing. The Fund may also purchase shares of closed-end
investment companies that invest in the securities of issuers in a single
country or region and shares of open-end management investment companies. For
temporary defensive purposes during periods when the Advisor and SubAdvisor
determine that market conditions warrant, the Fund may invest up to 100% of its
assets in money market instruments consisting of securities issued or guaranteed
by the U.S. government or its agencies or instrumentalities, receipts, including
TR's, TIGR's and CATS, debt securities issued by foreign governments or
supranational entities, money market funds, repurchase agreements, certificates
of deposit, time deposits, bank master notes and bankers' acceptances issued by
banks having net assets of at least $1 billion as of the end of their most
recent fiscal year, commercial paper rated at least A-1 by Standard & Poor's
Corporation ("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's"), and
in cash. The Fund will not be pursuing its investment objective to the extent
that a substantial portion of its assets are invested in money market
securities.

The Fund will restrict its investment in illiquid securities to 15% of its net
assets.

The Fund may engage in securities lending and will limit such practice to
33 1/3% of its assets.

The Fund may purchase restricted securities, which have not been registered
under the Securities Act of 1933 (Rule 144A Securities and Section 4(2)
Commercial Paper).

For further information see "Description of Permitted Investments."

RISK FACTORS

Since the Fund invests in equity securities, the Fund's shares will fluctuate in
value and thus may be more suitable for long-term investors who can bear the
risk of short-term fluctuations.

<PAGE> 258

securities. The value of the Fund's investments denominated in foreign
currencies will depend on the relative strengths of those currencies and the
U.S. dollar, and the Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates may also affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to distributed
to shareholders by the Fund.

INVESTMENT LIMITATIONS

The Fund may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of the Fund's total assets. For purposes of this
investment limitation, each foreign governmental issuer is deemed a separate
issuer.

<PAGE> 259

FUNDAMENTAL POLICIES

THE ADVISOR

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .95% of the average daily net assets of the Fund. Although the
advisory fee for the Fund is higher than advisory fees paid by other mutual
funds, the Trust believes that the fee is comparable to the advisory fee paid by
many other mutual funds with similar investment objectives and policies. The
Advisor may from time to time waive all or a portion of its fee in order to
limit the operating expenses of the Fund. Any such waiver is voluntary and may
be terminated at any time in the Advisor's sole discretion.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of the Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time, the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

THE SUBADVISOR

The SubAdvisor is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .30% of the average daily net
assets of the Fund.

Tokyo-Mitsubishi Asset Management (U.K.) Limted, 12-15 Finsbury Circus, London
EC2 M7BT operates as a subsidiary of Bank of Tokyo, Ltd., Tokyo. Established in
1989, the SubAdvisor provides active global investment services for segregated
funds and specialist fund management.

Prior to February, 1995, the SubAdvisor had not previously served as the
investment advisor to

<PAGE> 260

mutual funds. As of April 1, 1996, Tokyo-Mitsubishi Asset Management (U.K.)
Limited managed assets of $ billion in individual portfolios and
collective funds.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Investment Class
shares. Any such waiver is voluntary, and may be terminated at any time in the
Administrator's sole discretion.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

The Investment Class shares have a distribution plan ("Investment Class Plan").
The Distribution Agreement and the Investment Class Plan provide that the
Investment Class shares of the Fund may bear the following distribution
expenses: (1) the cost of prospectuses, reports to Shareholders, sales
literature and other materials for potential investors; (2) advertising; and (3)
expenses incurred in connection with the promotion and sale of the Trust's
shares, including the Distributor's expenses for travel, communication, and
compensation and benefits for sales personnel. In addition, the Trust pays the
Distributor a fee of up to .40% of the Fund's Investment Class shares average
daily net assets, of which a maximum of .25% may be used to compensate
broker/dealers and service providers which provide administrative and/or
distribution services to Investment Class Shareholders or to their other
customers who beneficially own Investment Class shares.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Fund may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business. ("Business Days"). The minimum initial investment in the Fund is
$2,000 ($1,000 for IRAs); however, the minimum investment may be waived in the
Distributor's discretion. All subsequent purchases must be at least $1,000 ($500
for IRAs).

<PAGE> 261

other assets, less any liabilities, by the total number of outstanding shares of
the Fund. Net asset value per share is determined daily as of 1:00 p.m. Pacific
time, on any Business Day. Purchases will be made in full and fractional shares
of the Trust calculated to three decimal places. The Trust reserves the right to
reject a purchase order when the Distributor determines that it is not in the
best interest of the Trust and/or its Shareholders to accept such order.

Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.

<TABLE>
<CAPTION>
SALES SALES
CHARGE CHARGE AS COMMISSION
AS A APPROPRIATE AS
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<C> <S> <C> <C> <C>
- ------------------------------------------------------
0- $ 49,999... 4.50% 4.71% 4.05%
$ 50,000- $ 99,999... 4.00% 4.17% 3.60%
$ 100,000- $249,999... 3.50% 3.63% 3.15%
$ 250,000- $499,999... 2.50% 2.56% 2.25%
$ 500,000- $999,999... 1.50% 1.52% 1.35%
$ 1,000,000 and Over... 0.00%* 0.00% 0.00%
</TABLE>

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

* A contingent deferred sales charge of 1.00% will be charged if such Investment
Class shares are redeemed prior to one year from date of purchase.

In calculating the sales charge rates applicable to current purchases of the
Fund's shares, a "single purchaser" is entitled to cumulate current purchases
with the net purchase of previously purchased shares of the Fund and other of
the Trust's funds (the "Eligible Funds") which are sold subject to a comparable
sales charge.

The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Fund for their own account or for trust or
custodial accounts for their minor children, (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account including employee benefit plans
created under Sections 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), including related plans of the same employer. To be
entitled to a reduced sales charge based upon shares already owned, the investor
must ask the Distributor for such entitlement at the time of purchase and
provide the account number(s) of the investor, the investor and spouse, and
their minor children, and give the age of such children. The Fund may amend or
terminate this right of accumulation at any time as to subsequent purchases.

OTHER CIRCUMSTANCES. No sales charge is imposed on the Investment Class shares
of the
<PAGE> 262

Fund: (i) issued in plans of reorganization, such as mergers, asset acquisitions
and exchange offers, to which the Trust is a party; (ii) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own account
or for retirement plans for their employees or sold to employees (and their
spouses) of dealers or brokers that certify to the Distributor at the time of
purchase that such purchase is for their own account (or for the benefit of such
employees' minor children); (iii) in aggregate purchases of $1 million or more
by tax-exempt organizations enumerated in Section 501(c) of the Code, or
employee benefit plans created under Sections 401, 403(b) or 457 of the Code;
(iv) sold to employees and families of the Advisor and its affiliates; (v) sold
to fiduciary accounts of the Advisor and its affiliates; or (vi) purchased with
proceeds from the recent redemption of shares of a mutual fund with similar
investment objectives and policies for which a sales load was paid.

Shareholders who desire to redeem shares of the Trust must place their
redemption orders prior to 1:00 P.M., Pacific time, on any Business Day for the
order to be accepted on that Business Day. The redemption price is the net asset
value of the Fund next determined after receipt by the Distributor of the
redemption order. Payment on redemption will be made as promptly as possible
and, in any event, within seven calendar days after the redemption order is
received.

Neither the Trust's transfer agent nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes are genuine. The Trust and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
other extraordinary circumstances exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means.

PURCHASES BY EXCHANGE

PERFORMANCE

period over one year and is shown as a percentage of the investment.

The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment, for designated time periods (including, but not
limited to, the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions. The total return of the Fund may also be quoted as a dollar
amount or on an aggregate basis, an actual basis, without inclusion of any sales
charge, or with a reduced sales charge in advertisements distributed to
investors entitled to a reduced sales charge.

The Fund may quote various measures of volatility and benchmark correlation in
advertising, and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to provide a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. In addition, state and local tax consequences of an investment
in the Fund may differ from the federal income tax consequences described below.
Accordingly, Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes. Additional
information concerning taxes is set forth in the Statement of Additional
Information.

TAX STATUS OF THE FUND:

The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment company taxable income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

The Fund will distribute substantially all of its net investment income
(including net short-term capital gain) and net capital gain to Shareholders.
Dividends from the Fund's net investment company

<PAGE> 264

taxable income are taxable to Shareholders as ordinary income, (whether received
in cash or in additional shares) to the extent of the Fund's earnings and
profits. Distributions of net capital gain are taxable to Shareholders as
long-term capital gain, regardless of how long Shareholders have held their
shares and regardless of whether the distributions are received in cash or in
additional shares. Dividends and distributions of capital gain paid by the Fund
do not qualify for the dividends received deduction for corporate shareholders.
The Fund will provide annual reports to Shareholders of the federal income tax
status of all distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS, which are sold at
original issue discount and thus do not make periodic cash interest payments,
the Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because the Fund distributes
all of its net investment income to its shareholders, the Fund may have to sell
portfolio securities to distribute such imputed income, which may occur at a
time when the Advisor or SubAdvisor would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Income derived by the Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Fund expects to elect to treat Shareholders as
having paid their proportionate share of such taxes.

The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Each sale, exchange, or redemption of Fund Shares is a taxable transaction to
the Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each fund. In
addition to the Fund, the Trust consists of the following funds: Treasury Money
Market Fund, Money Market Fund, California Tax-Free Money Market Fund,
Intermediate-Term Bond Fund, California Intermediate Tax-Free Bond Fund, Limited
Maturity Government Fund, Blue Chip Growth Fund, Convertible Securities Fund,
Government Securities Fund, Balanced Fund, Value Momentum Fund, Growth Equity
Fund, and Emerging Growth Fund. All consideration received by the Trust for
shares of any fund and all assets of such fund belong to that fund, and would be
subject to liabilities related thereto. The Trust reserves the right to create
and issue shares of additional funds.

and state securities laws, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses. Please refer to "Financial Highlights" in this Prospectus
for more information regarding the Trust's expenses.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings, but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon the written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the information.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.

DIVIDENDS

The dividends payable on Investment Class shares will typically be lower than
dividends payable on Institutional Class shares because of the distribution
expenses charged to Investment Class shares.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110 (the "Custodian"), acts as Custodian of the assets of the Fund. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended.

<PAGE> 266

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Fund:

AMERICAN DEPOSITARY RECEIPTS ("ADRs") and EUROPEAN DEPOSITARY RECEIPTS
("EDRs")--ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.

CONVERTIBLE PREFERRED STOCK--The Fund may invest in convertible preferred stock,
which is a class of capital stock that pays dividends at a specified rate and
has preference over common stock in the payment of dividends and the liquidation
of assets. Convertible preferred stock is preferred stock exchangeable for a
given number of common stock shares and has characteristics similar to both
fixed-income and equity securities. Because of the conversion feature, the
market value of convertible preferred stock tends to move together with the
market value of the underlying common stock. As a result, the Fund's selection
of convertible preferred stock is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying common stock. The value of
convertible preferred stock is also affected by prevailing interest rates, the
credit quality of the issuer, and any call provisions.

FORWARD FOREIGN CURRENCY CONTRACTS-- The Fund may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into forward
currency contracts to protect against uncertainty in the level of future
exchange rates between particular currencies or between foreign currencies in
which the Fund's securities are or may be denominated. A forward contract
involves an obligation to purchase or sell a specific currency amount at a
future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, the Advisor and SubAdvisor believe that it is
important to have the flexibility to enter into forward currency contracts when
it determines that the best interests of the Fund will be served.

<PAGE> 267

currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency.

Options and futures can be volatile instruments, and involve certain risks that
if applied at an inappropriate time, could negatively impact a Fund's return.

MONEY MARKET INSTRUMENTS--Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding high-
quality commercial papers; and (v) repurchase agreements involving any of the
foregoing obligations entered into with highly-rated banks and broker-dealers.

OPTIONS--The Fund may purchase options with respect to securities that are
permitted investments, and the Fund may write covered call options. Under a call
option, the purchaser of the option has the right to purchase, and the writer
(the Fund) the obligation to sell, the underlying security at the exercise price
during the option period. A put option gives the purchaser the right to sell,
and the writer the obligation to purchase, the underlying security at the
exercise price during the option period.

In addition, the Fund may buy options on stock indices to invest cash on an
interim basis. Such options will be listed on a U.S. or foreign securities
exchange. In order to close out an option position, the Fund may enter into a
"closing purchase transaction"--the purchase of an option on the same security
with the same exercise price and expiration date as the option contract
previously written on any particular security. When the security is sold, the
Fund effects a closing purchase transaction so as to close out any existing
option on that security.

<PAGE> 268

REPURCHASE AGREEMENTS--Agreements by which the Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Fund will have actual or constructive
possession of the securities held as collateral for the repurchase agreement.
The Fund bears a risk of loss in the event the other party defaults on its
obligations and the Fund is delayed or prevented from its rights to dispose of
the collateral securities or if the Fund realizes a loss in the sale of the
collateral. The Fund will enter into repurchase agreements only with financial
institutions deemed to present minimal risk of bankruptcy during the term of the
agreement based on established guidelines. Repurchase agreements are considered
loans under the 1940 Act.

SECURITIES LENDING--In order to generate additional income, the Fund may lend
the securities in which it is invested, in order to generate additional income,
pursuant to agreements requiring that the loan be continuously secured by cash,
securities of the U.S. Government or its agencies or any combination of cash and
such securities as collateral equal to 100% of the market value at all times of
the loaned securities. The Fund will continue to receive interest on the loaned
securities while simultaneously earning interest on the investment of cash
collateral in U.S. Government securities. Collateral is marked to market daily
to provide a level of collateral at least equal to the value of the loaned
securities. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially.

certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TR's") "Treasury Investment Growth
Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). STRIPS, TR'S, TIGR'S and CATS are sold as zero coupon securities,
which means that they are sold at a substantial discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the security, and such
accretion will constitute the income earned on the security for both accounting
and tax purposes. Because of these features, such securities may be subject to
greater interest rate volatility than interest paying securities. See also
"Taxes".

VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased by
the Fund may carry variable or floating rates of interest, may involve a
conditional or unconditional demand features and may include variable amount
master demand notes. The interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security.

WARRANTS--The Fund may purchase warrants which are securities that entitle the
holder to buy a proportionate amount of common stock at a specified price for a
limited or unlimited period of time. Warrants are often freely transferable and
are traded on major stock exchanges.

<PAGE> 270

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary.......................................... 2
Shareholder Transaction Expenses................. 3
The Trust........................................ 4
Investment Objective............................. 4
Investment Policies.............................. 4
Risk Factors..................................... 5
Investment Limitations........................... 6
Fundamental Policies............................. 7
The Advisor...................................... 7
The SubAdvisor................................... 7
The Administrator................................ 8
The Shareholder Servicing Agent.................. 8
The Distributor.................................. 8
Purchase and Redemption of Shares................ 8
Purchases by Exchange............................ 10
Performance...................................... 10
Taxes............................................ 11
General Information.............................. 12
Description of Permitted Investments............. 14
</TABLE>

<PAGE> 271

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 272

STEPSTONE FUNDS

A Family of Mutual Funds

STEPSTONE FUNDS (the "Trust") is a mutual fund that offers a convenient means of
investing in one or more professionally managed portfolios of securities. This
Prospectus relates to the Trust's:

-- MONEY MARKET FUND
-- TREASURY MONEY MARKET FUND

CASH SWEEP CLASS SHARES

The Trust's Cash Sweep Class is offered to business customers of UNION BANK OF
CALIFORNIA, N.A. and THE BANK OF TOKYO-MITSUBISHI TRUST COMPANY, their
affiliates and correspondents for the automated investment ("sweep") of
designated cash balances. Such business customers include corporations,
partnerships, sole proprietorships, non-profit organizations and government
agencies.

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658 or by calling 1-(800) 862-6243. The
Statement of Additional Information is incorporated into this Prospectus by
reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., THE BANK OF
TOKYO-MITSUBISHI TRUST COMPANY OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS. THE
TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.

MAY 28, 1996

CASH SWEEP CLASS
<PAGE> 273

SUMMARY

STEPSTONE FUNDS (the "Trust") is a diversified open-end management investment
company which provides a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about Cash
Sweep Class shares of the MONEY MARKET and TREASURY MONEY MARKET FUNDS (each a
"Fund"). This summary is qualified in its entirety by reference to the more
detailed information provided elsewhere in this Prospectus and in the Statement
of Additional Information.

ARE MY INVESTMENTS INSURED? Any guarantee by the U.S. Government, its agencies
or instrumentalities of the securities in which any Fund invests guarantees only
the payment of principal and interest on the guaranteed security and does not
guarantee the yield or value of the security or yield or value of shares of that
Fund. The Trust's shares are not federally insured by the FDIC or any other
government agency.

WHO IS THE ADVISOR? Union Bank of California, N.A. serves as the Advisor to the
Trust. See "The Advisor."

WHO IS THE ADMINISTRATOR? SEI Financial Management serves as the Administrator
of the Trust. See "The Administrator."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as Distributor of
the Trust's shares. See "The Distributor."

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions will be effected
pursuant to the terms and conditions of Cash Sweep accounts entered into by
shareholders with Union Bank and its affiliates and correspondents. Orders may
be placed on days on which both the New York Stock Exchange and the Federal
Reserve wire system are open for business ("Business Days"). The minimum initial
investment is $1,000. Shareholders must place orders to purchase prior to 9:00
a.m. Pacific time or orders to redeem prior to 9:00 a.m. Pacific time for the
Money Market and Treasury Money Market Fund on any Business Day. Otherwise the
order will be effective the next Business Day. In addition, effectiveness of a
purchase is contingent on the Custodian's receipt of Federal funds before 11:00
a.m. Pacific time. See "Purchase and Redemption of Shares."

ANNUAL OPERATING EXPENSES CASH SWEEP CLASS
(As a percentage of average net assets)

<TABLE>
<CAPTION>
MONEY TREASURY
MARKET MONEY MARKET
FUND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees (After Fee Waivers)(1)......................................... .30% .25%
12b-1 Fees (After Fee Waivers)(2)............................................ .35% .35%
Other Expenses............................................................... .20% .20%
- ------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waivers)(3).............................. .85% .80%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Advisor has voluntarily agreed to waive fees to the extent necessary in
order to limit Total Operating Expenses of the Treasury Money Market Fund.
The Advisor reserves the right to terminate its waiver at any time in its
sole discretion. Absent this fee waiver, the Advisory Fees would be .30% for
the Fund.
(2) The Cash Sweep Class Plan provides that the Cash Sweep Class shares will
bear the costs of distribution expenses and, in addition, the Trust may pay
the Distributor a fee of up to .50% of the Cash Sweep Class shares' average
daily net assets, which may be used to compensate broker/dealers and service
providers. See "The Distributor" for further information. The Distributor
has agreed to waive fees so that such fees payable under the Cash Sweep Plan
are limited to .35%.
(3) Absent fee waivers, "Total Operating Expenses" would be 1.00% and 1.00% for
the Money Market Fund and Treasury Money Market Fund, respectively.

EXAMPLE:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period.
Money Market Fund................................................... $ 9 $ 27 $ 47 $ 105
Treasury Money Market Fund.......................................... $ 8 $ 26 $ 44 $ 99
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Funds. The information set forth in the
foregoing table and example relates only to Cash Sweep Class shares. The Trust
also offers Institutional and Investment Class shares of the Funds which are
subject to the same expenses except there are no distribution expenses.

Additional information may be found under "The Administrator" and "The Advisor."
<PAGE> 275

THE TRUST

STEPSTONE FUNDS (formerly Union Investors Funds) (the "Trust") is a diversified
open-end management investment company that offers units of beneficial interest
("shares") in fourteen separate investment funds. Shareholders may purchase
shares of twelve of the funds through two separate classes of shares
(Institutional and Investment Classes) and through three separate classes of two
of the funds (Institutional, Investment and Cash Sweep Classes), which provide
for variations in distribution costs, voting rights and dividends. Except for
these differences among the classes, each share of each fund represents an equal
proportionate interest in that fund. This Prospectus relates to the Cash Sweep
Class shares of the Trust's Money Market and Treasury Money Market Funds (each a
"Fund"). Information regarding the Trust's other funds is contained in separate
prospectuses that may be obtained from the Trust's Distributor, SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

INVESTMENT OBJECTIVES

THE MONEY MARKET FUND seeks to preserve principal value and maintain a high
degree of liquidity while providing current income.

THE TREASURY MONEY MARKET FUND seeks to preserve principal value and maintain a
high degree of liquidity while providing current income.

There can be no assurance that a Fund's investment objective will be met.

INVESTMENT POLICIES

MONEY MARKET FUND

The Money Market Fund will invest in obligations denominated in U.S. dollars
consisting of: (i) commercial paper issued by domestic and foreign issuers rated
at least A-1 by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's
Investors Service ("Moody's") at the time of investment or, if not rated, as
determined by the Advisor to be of comparable quality; (ii) obligations
(certificates of deposit, bank notes, time deposits, and bankers' acceptances)
of thrift institutions, savings and loans, U.S. commercial banks (including
foreign branches of such banks), and U.S. and foreign branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations with a remaining term of not more than 397 days of issuers
with commercial paper of comparable priority and security meeting the above
ratings criteria or determined by the Advisor to be of comparable quality; (iv)
general obligations issued by the U.S. Government and backed by its full faith
and credit, and obligations issued or guaranteed as to principal and interest by
the agencies or instrumentalities of the U.S. Government (e.g. obligations
issued by Farmers Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing Administration); (v) receipts,
including TR's, TIGR's and CATS; (vi) repurchase agreements involving such
obligations; (vii) restricted securities which have not been registered under
the Securities Act of 1933 (Rule 144A Securities and Section 4(2) Commercial
Paper) and (viii) loan participations. The Advisor will determine that the
permitted investments present minimal credit risks in accordance with guidelines
established by the Trust's Board of Trustees.

The Fund reserves the right to concentrate its investments in certain
instruments issued by U.S. banks, U.S. branches of foreign banks and foreign
branches of U.S. banks. The Fund is permitted to reserve freedom of action with
respect to concentration in obligations issued by foreign branches of domestic
banks, but only so long as the investment risk associated with investing in such
instruments is the same as that associated with investing in instruments issued
by the U.S. parent, in that the U.S. parent would be unconditionally liable in
the event that the foreign branch failed to pay on instruments.
<PAGE> 276

TREASURY MONEY MARKET FUND

The Fund is limited to making investments and engaging in investment
transactions that are permissible for federal credit unions.

GENERAL INVESTMENT POLICIES

Each Fund may also engage in securities lending and a Fund will limit such
practice to 33 1/3% of its total assets.

Each Fund will limit its investment in illiquid securities to 10% of its net
assets.

For further information, see "Description of Permitted Investments."

ELIGIBILITY UNDER FEDERAL CREDIT
UNION ACT

and, therefore, shares of the Fund, continue to qualify as eligible investments
under the Federal Credit Union Act.

RISK FACTORS

INVESTMENT LIMITATIONS

1. The Money Market Fund and the Treasury Money Market Fund may not purchase
securities of any issuer (except securities issued or guaranteed by the United
States its agencies or instrumentalities) and repurchase agreements involving
such securities if as a result more than 5% of the total assets of the Fund
would be invested in the securities of such issuer. While this restriction
applies to 75% of each Fund's assets, the Money Market Fund and the Treasury
Money Market Fund have each adopted, in accordance with Rule 2a-7, a policy
providing that the 5% limitation shall apply to 100% of the Fund's assets,
provided, however, that each Fund may invest up to 25% of its assets in the
First Tier quality securities of a single issuer for up to three days. In
addition, for purposes of this limitation, as it relates to the Money Market
Fund, loan participations are considered to be issued by both the issuing bank
and the underlying corporate borrower.

2. Each Fund may not purchase any securities which would cause more than 25% of
the total assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in the obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities, and
provided further, that utilities as a group will not be considered to be one
industry, and wholly-owned subsidiaries organized to finance the operations of
their parent companies will be considered to be in the same industry as their
parent companies. For purposes of this limitation as it relates to the Money
Market Fund, loan participations are considered to be issued by both the issuing
bank and the underlying corporate borrower, supranational entities are
considered to be a separate industry, and this
<PAGE> 278

limitation does not apply to investments in the banking industry.

3. Each Fund may not make loans, except that a Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and policies; (b)
enter into repurchase agreements; and (c) engage in securities lending as
described in this Prospectus and in the Statement of Additional Information.

FUNDAMENTAL POLICIES

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor") have entered into
an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement,
the Advisor makes the investment decisions for the assets of each Fund and
continuously reviews, supervises and administers the Fund's investment program.
The Advisor discharges its responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. The Trust's shares are not
sponsored, endorsed or guaranteed by, and do not constitute obligations or
deposits of, the Advisor and are not guaranteed by the FDIC or any other
government agency.

The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .30% of the average daily net assets of each Fund. The Advisor
may from time to time voluntarily waive all or a portion of its fees in order to
limit the operating expenses of a Fund. Any such waiver is voluntary and may be
terminated at any time in the Advisor's sole discretion.

For the fiscal year ended January 31, 1996, the Money Market and Treasury Money
Market Funds paid Union Bank, as predecessor to the Advisor, a fee of .30% and
.25% of their average daily net assets, respectively.

Merus-UCA Capital Management ("Merus"), 445 S. Figueroa Street, Los Angeles,
California 90071, which operates as a separate division of Union Bank of
California, N.A., manages the day-to-day operations of each Fund. On April 1,
1996, the former Union Bank merged with the Bank of California, and the
resulting bank changed its name to Union Bank of California, N.A. Each of the
former banks or its predecessor bank had been in banking since the early 1900's,
and each historically has had significant Investment functions within their
Trust and Investment Divisions. At the same time the banks' asset management
divisions were combined to form Merus. Union Bank of California, N.A. is a
subsidiary of Bank of Tokyo-Mitsubishi, Ltd., Tokyo.

THE ADMINISTRATOR

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of Trust assets up to $1 billion, .12% of
assets between $1 billion and $2 billion and .10% of assets over $2 billion. The
Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses applicable to a Fund's Cash
Sweep Class shares. Any such waiver is voluntary, and may be terminated at any
time.

THE SHAREHOLDER SERVICING AGENT

DISTRIBUTION

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, Corporation (SEI), and the Trust are parties to a distribution agreement
("Distribution Agreement"). The Distribution Agreement is renewable annually and
may be terminated by the Distributor, by a majority vote of the Disinterested
Trustees or by a majority vote of the outstanding securities of the Trust upon
not more than 60 days written notice by either party, or upon assignment by the
Distributor.

The Cash Sweep Class shares have a distribution plan ("Cash Sweep Class Plan").
The Cash Sweep Class Plan provides that the Cash Sweep Class shares of a Fund
will reimburse the Distributor for the following expenses: (1) the cost of
prospectuses, reports to Shareholders, sales literature and other materials for
potential investors and (2) expenses incurred in connection with the promotion
and sale of the Trust's shares including expenses for travel, communication, and
compensation and benefits for sales personnel.

In addition, the Trust pays the Distributor a fee of up to .50% of a Fund's Cash
Sweep Class shares average daily net assets, which can be used by the
Distributor to compensate broker/dealers and service providers. The Distributor
has agreed to waive any fees payable pursuant to the Plan other than .35%. The
Distributor reserves the right to terminate its waiver at any time in its sole
discretion.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Funds may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business ("Business Days"). Such orders will generally be effected pursuant
to the terms and conditions of Cash Sweep accounts entered into by shareholders
of the Funds with Union Bank and its affiliates and correspondents. The minimum
initial investment is $1,000.

At the end of each business day a shareholder's commercial demand deposit
account at Union Bank is automatically reviewed to identify funds available for
automatic investment. Fund shares are then purchased in $1,000 increments. When
the shareholder's commercial demand deposit account falls below a predetermined
target, Fund shares are redeemed in $1,000 increments, up to the balance of the
Fund account, as needed to raise a shareholder's commercial demand deposit
account to the target balance.

Purchase orders will be effective on the Business Day made if the Distributor
receives an order before 9:00 a.m., Pacific time on such Business Day.
Otherwise, the purchase order will be effective the next Business Day.
Effectiveness of a purchase order on any Business Day is contingent on the
Custodian's receipt of Federal funds before 11:00 a.m. Pacific time on such day.
The purchase price is the net asset value per share, which is expected to remain
constant at $1.00. The net asset value per share is calculated as of 9:00 a.m.,
Pacific time, each Business Day based on the amortized cost method. The Trust
reserves the right to reject a purchase order when the Distributor determines
that it is not in the best interest of the Trust and/or Shareholder(s).

<PAGE> 280

Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase.

The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of a Fund (normally
$1.00 per share).

Redemption orders may be made any time before 9:00 a.m. Pacific time for the
Money Market and Treasury Money Market Funds in order to receive that day's
redemption price (i.e. the next determined net asset value per share). For
redemption orders received before 9:00 a.m. Pacific time, payment will be made
the same day by transfer of federal funds. Otherwise, payment will be made on
the next Business Day. Redeemed shares are entitled to dividends declared the
day the redemption order is effective.

Neither the Trust's transfer agent nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes are genuine. The Trust and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
extraordinary circumstances exist, and you experience difficulties placing
redemption order by telephone, you may wish to consider placing your order by
other means.

COMPUTATION OF YIELD

The performance of Institutional Class shares will normally be higher than for
Investment Class and Cash Sweep Class shares because the Institutional Class is
not subject to distribution expenses generally charged to Investment Class and
Cash Sweep Class shares.

The yield of each Fund will fluctuate, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in the
Fund will actually yield in the future.

Each Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. The Funds may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Funds may use long term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Funds may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.

The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of
<PAGE> 281

other funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of a Fund or
its Shareholders. In addition, state and local income tax consequences of an
investment in a Fund may differ from the federal income tax consequences
discussed below. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes. Additional information concerning taxes is set forth in the Statement of
Additional Information.

TAX STATUS OF THE FUNDS:

Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"), so as to be relieved of federal
company taxable income tax on that part of its net investment income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Shareholders.

TAX STATUS OF DISTRIBUTIONS:

Each Fund will distribute all of its net investment income (including net
short-term capital gain) and net capital gain to Shareholders. Dividends from
net investment company taxable income are taxable to Shareholders as ordinary
income (whether received in cash or in additional shares) to the extent of the
Fund's earnings and profits. Distributions of net capital gain are taxable to
Shareholders as long-term capital gain regardless of how long the Shareholders
have held their shares and regardless of whether the distributions are received
in cash or in additional shares. Dividends and distributions of capital gain
paid by a Fund do not qualify for the dividends received deduction for corporate
shareholders. Each Fund will provide annual reports to Shareholders of the
federal income tax status of all distributions.

With respect to investments in STRIPS, TR's, TIGR's and CATS which are sold at
original issue discount and thus do not make periodic cash interest payments, a
Fund will be required to include as part of its current income the imputed
interest on such obligations even though the Fund has not received any interest
payments on such obligations during that period. Because each Fund distributes
all of its net investment income to its shareholders, a Fund may have to sell
portfolio securities to distribute such imputed income which may occur at a time
when the Advisor would not have chosen to sell such securities and which may
result in a taxable gain or loss.

The Funds intend to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

Income received directly by a Fund on direct U.S. obligations is exempt from tax
at the state level when received directly by a Fund and may be exempt, depending
on the state, when received by a Shareholder as income dividends from a Fund
provided certain state-specific conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. government

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obligations normally is not exempt from state tax. A Fund will inform
Shareholders annually of the percentage of income and distributions derived from
direct U.S. Treasury obligations. Shareholders should consult their tax advisors
to determine whether any portion of the income dividends received from a Fund is
considered tax exempt in their particular state.

Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. Each Fund will not be able to elect to treat
Shareholders as having paid their proportionate share of such foreign taxes.

Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax applicable to regulated
investment companies.

Each sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.

GENERAL INFORMATION

THE TRUST

The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated October 16, 1990. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each fund. In
addition to the Money Market and Treasury Money Market Funds, the Trust consists
of the following funds: Growth Equity Fund, Value Momentum Fund, Intermediate-
Term Bond Fund, Limited Maturity Government Fund, Balanced Fund, Blue Chip
Growth Fund, Emerging Growth Fund, Convertible Securities Fund, Government
Securities Fund, California Tax-Free Bond Fund, California Intermediate Tax-Free
Money Market Fund and International Equity Fund. All consideration received by
the Trust for shares of any fund and all assets of such fund belong to that fund
and would be subject to liabilities related thereto. The Trust reserves the
right to create and issue shares of additional funds.

TRUSTEES OF THE TRUST

VOTING RIGHTS

Each share held entitles the Shareholder of record to one vote. Shareholders of
each fund or class will vote separately on matters relating solely to such fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings but approval will be sought for certain changes in the operation
of the Trust and for the election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining Trustees or by Shareholders
at a special meeting called upon the written request of Shareholders owning at
least 10% of the outstanding shares of the Trust. In the event that such a
meeting is requested the Trust will provide appropriate communication assistance
and information to the Shareholders requesting the meeting.

REPORTING

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to the Administrator, SEI Financial
Management
<PAGE> 283

Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

DIVIDENDS

The dividends payable on the Cash Sweep Class shares will typically be lower
than the dividends payable on the Institutional Class shares because of the
distribution expenses charged to Cash Sweep Class shares. The dividends payable
on the Cash Sweep Class will also be less than the dividends payable on the
Investment Class shares because of the higher distribution expenses charged to
Cash Sweep Class shares.

COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS

Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.

CUSTODIAN

CoreStates Bank NA., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian") acts as Custodian of the assets of the
Fund. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940, as amended.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of the permitted investments for the Funds:

ASSET-BACKED SECURITIES (NON-MORTGAGE)--The Money Market Fund may invest in
asset-backed securities, which are instruments secured by company receivables,
truck and auto loans, leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for purpose of owning such assets and issuing
such debt. The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities.

BANKERS' ACCEPTANCE--Bills of exchange or time drafts drawn on and accepted by
commercial banks. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.

DERIVATIVES--Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof, including

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futures, options (e.g., puts and calls), options on futures, swap agreements,
and some mortgage-backed securities (CMOs, REMICs, IOs and POs). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.

LOAN PARTICIPATIONS--The Money Market Fund may invest in loan participations,
which are interests in loans to U.S. corporations (i.e., borrowers) administered
by the lending bank or agent for a syndicate of lending banks, and sold by the
lending bank or syndicate member ("intermediary bank"). In a loan participation,
the borrower of the underlying loan will be deemed to be the issuer of the
participation interest except to the extent a purchasing Fund derives its rights
from the intermediary bank. Because the intermediary bank does not guarantee a
loan participation in any way, a loan participation is subject to the credit
risks generally associated with the underlying corporate borrower. In addition,
in the event the underlying corporate borrower fails to pay principal and
interest when due, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct obligation (such as commercial paper) of such borrower because it may be
necessary under the terms of the loan participation for the Fund to assert its
rights against the borrower through the intermediary bank. Moreover, under the
terms of a loan participation the purchasing Fund may be regarded as a creditor
of the intermediary bank (rather than of the underlying corporate borrower),
making it subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate borrower,
a loan participation may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participations is limited, and any such
participation purchased by the Fund may be regarded as illiquid.

RULE 144A SECURITIES--The Money Market Fund may purchase Rule 144A Securities.
Rule 144A Securities are restricted securities that have not been registered
under the Securities Act of 1933 but which may be traded between certain
qualified institutional investors, including investment companies. The absence
of a secondary market may affect the value of Rule 144A Securities. The Board of
Trustees of the Trust has established guidelines and procedures to be utilized
to determine the liquidity of such securities.

securities on a forward commitment or when-issued basis when a Fund is fully or
almost fully invested may result in greater potential fluctuation in the value
of a Fund's net asset value per share. The purchasing Fund will establish one or
more segregated accounts with the Custodian, and will maintain liquid, high
grade assets in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities.

SECURITIES LENDING--In order to generate additional income, each Fund may lend
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or any combination of cash and such securities as collateral equal to
100% of the market value at all times of the loaned securities. The Fund will
continue to receive interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral in U.S. Government
securities. Collateral is marked to market daily to provide a level of
collateral at least equal to the value of the loaned securities. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially.

RECEIPTS--The Money Market Fund may invest in Receipts, which are interests in
separately traded interest and principal component parts of U.S. Treasury
obligations that are issued by banks or brokerage firms and are created by
depositing Treasury notes and Treasury bonds into a special account at a
custodian bank. The custodian holds the interest and principal payments for the
benefit of the registered owners of the certificates or receipts. The custodian
arranges for the issuance of the certificates or receipts evidencing ownership
and maintains the register. Receipts include "Treasury Receipts" ("TR's"),
"Treasury Investment Growth Receipts" ("TIGR's") and "Certificates of Accrual on
Treasury Securities" ("CATS"). STRIPS, TR'S, TIGR'S and CATS are sold as zero
coupon securities, which means that they are sold at a substantial discount and
redeemed at face value at their maturity date without interim cash payments of
interest or principal. This discount is accreted over the life of the security,
and such accretion will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, such securities may be
subject to greater interest rate volatility than interest paying securities. See
also "Taxes."

VARIABLE AND FLOATING RATE INSTRUMENTS--Instruments that carry variable or
floating rates of interest, may involve conditional or unconditional demand
features and may include variable amount master demand notes. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate

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changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice period exceeding seven days may be considered illiquid if there
is no secondary market for such security.

RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS

Investments by the Funds are subject to limitations imposed under regulations
adopted by the SEC. These regulations generally require money market funds to
acquire only U.S. dollar denominated obligations maturing in 397 days or less
and to maintain a dollar-weighted average portfolio maturity of 90 days or less.
In addition, the Funds may acquire only obligations that present minimal credit
risks and that are "eligible securities" which means they are (i) rated, at the
time of investment, by at least two nationally recognized security rating
organizations (one if it is the only organization rating such obligation) in the
highest short-term rating category or, if unrated, determined to be of
comparable quality (a "first tier security"), or (ii) rated according to the
foregoing criteria in the second highest short-term rating category or, if
unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term-rating.
In determining whether obligations are eligible securities, the rating of the
issuer's commercial paper, if any, is used for the above tests. Investments by
the Money Market Fund in second tier securities are subject to the further
constraints that (i) no more than 5% of the Fund's assets may be invested in
such securities in the aggregate, and (ii) any investment in such securities of
one issuer is limited to the greater of 1% of the Fund's total assets or $1
million. In addition, the Fund may invest up to 25% of its total assets in the
first tier securities of a single issuer for three business days.

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TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Summary.......................................... 2
Annual Operating Expenses........................ 3
The Trust........................................ 4
Investment Objectives............................ 4
Investment Policies.............................. 4
General Investment Policies...................... 5
Risk Factors..................................... 6
Investment Limitations........................... 6
Fundamental Policies............................. 7
The Advisor...................................... 7
The Administrator................................ 7
The Shareholder Servicing Agent.................. 8
Distribution..................................... 8
Purchase and Redemption of Shares................ 8
Computation of Yield............................. 9
Taxes............................................ 10
General Information.............................. 11
Description of Permitted Investments............. 12
Restraints on Investments by Money Market
Funds.......................................... 15
</TABLE>

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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 289
STEPSTONE FUNDS

A FAMILY OF MUTUAL FUNDS

INVESTMENT ADVISOR:

UNION BANK OF CALIFORNIA, N.A.

This Statement of Additional Information is not a prospectus. It is intended
to provide additional information regarding the activities and operations of
the Trust and should be read in conjunction with the Trust's prospectuses dated
May 28, 1996. Prospectuses may be obtained through the Distributor, SEI
Financial Services Company, 680 E. Swedesford Road, Wayne, Pennsylvania
19087-1658.

TABLE OF CONTENTS

PAGE

THE TRUST . . . . . . . . . . . . . . . . . . . . S-2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . S-2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . S-28
THE ADVISOR . . . . . . . . . . . . . . . . . . . S-30
THE SUBADVISORS . . . . . . . . . . . . . . . . . S-31
THE ADMINISTRATOR . . . . . . . . . . . . . . . . S-32
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . S-34
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . S-35
REPORTING . . . . . . . . . . . . . . . . . . . . S-37
PERFORMANCE . . . . . . . . . . . . . . . . . . . S-37
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . S-43
DETERMINATION OF NET ASSET VALUE . . . . . . . . S-43
TAXES . . . . . . . . . . . . . . . . . . . . . . S-44
FUND TRANSACTIONS . . . . . . . . . . . . . . . . S-46
DESCRIPTION OF SHARES . . . . . . . . . . . . . . S-50
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . S-50
LIMITATION OF TRUSTEES' LIABILITY . . . . . . . . S-50
5% SHAREHOLDERS . . . . . . . . . . . . . . . . . S-51
EXPERTS . . . . . . . . . . . . . . . . . . . . . S-57
FINANCIAL STATEMENTS . . . . . . . . . . . . . . S-58
APPENDIX . . . . . . . . . . . . . . . . . . . . A-1

May 28, 1996

S-1
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THE TRUST

Stepstone Funds (formerly Union Investors Funds) (the "Trust") is a
diversified, open-end management investment company established under
Massachusetts law as a business trust pursuant to a Declaration of Trust dated
October 16, 1990. The Trust changed its name on May 12, 1992, from Union
Investors Portfolios to Union Investors Funds. On March 1, 1994, the Trust
changed its name from Union Investors Funds to its current name, Stepstone
Funds. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest ("shares") and different classes of shares of
each Fund. Shareholders may purchase shares through two separate classes
(Institutional and Investment Classes) of twelve of the Trust's Funds and
through three separate classes (Institutional, Investment and Cash Sweep
Classes) of two of the Trust's Funds, which provide for variations in
distribution costs, voting rights and dividends. Except for these differences
among Institutional, Investment and Cash Sweep Class shares, each share of
each Fund represents an equal proportionate interest in that Fund. See
"Description of Shares." This Statement of Additional Information relates to
the Institutional Class and Investment Class shares of the Trust's
International Equity, Balanced, Blue Chip Growth, California Intermediate
Tax-Free Bond, California Tax-Free Money Market, Convertible Securities,
Emerging Growth, Government Securities, Growth Equity, Intermediate-Term Bond,
Limited Maturity Government, Money Market, Treasury Money Market, and Value
Momentum Funds and the Cash Sweep Class shares of the Money Market and Treasury
Money Market Funds (the "Funds").

DESCRIPTION OF PERMITTED INVESTMENTS

The following information supplements the information about permitted
investments set forth in the Prospectuses.

VARIABLE AMOUNT MASTER DEMAND NOTES. Certain of the permitted investments of
the Funds may include VARIABLE AMOUNT MASTER DEMAND NOTES, which may or may not
be backed by bank letters of credit. These notes permit the investment of
fluctuating amounts at varying market rates of interest pursuant to direct
arrangements between the Trust, as lender, and the borrower. Such notes
provide that the interest rate on the amount outstanding varies on a daily,
weekly or monthly basis depending upon a stated short-term interest rate index.
Both the lender and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. There is no secondary market for the
notes. It is not generally contemplated that such instruments will be traded.

SHARES OF OTHER INVESTMENT COMPANIES. A Fund's purchase of investment company
securities will result in the layering of expenses. A Fund is prohibited from
acquiring the securities of other investment companies if, as a result of such
acquisition, the Fund owns in the aggregate (1) more than 3% of the total
outstanding voting stock of the acquired company, (2) securities issued by the
acquired company having an aggregate value in excess of 5% of the value of the
total assets of the Fund, or (3) securities issued by the acquired company and
all other investment companies having an aggregate value in excess of 10% of
the value of the total assets of the Fund.

GNMA SECURITIES. Certain of the Funds may invest in SECURITIES ISSUED BY THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA"), a wholly-owned U.S.
Government corporation which guarantees the timely payment of principal and
interest. The market value and interest yield of these instruments can vary
due to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of federally insured
mortgage loans. GNMA certificates consist of underlying mortgages with a
maximum maturity of 30 years. However, due to scheduled and unscheduled
principal payments, GNMA certificates have a shorter average maturity and,
therefore, less principal volatility than a comparable 30-year bond. Since
prepayment

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rates vary widely, it is not possible to predict accurately the average
maturity of a particular GNMA pool. The scheduled monthly interest and
principal payments relating to mortgages in the pool will be "passed through"
to investors. GNMA securities differ from conventional bonds in that principal
is paid back to the certificate holders over the life of the loan rather than
at maturity. As a result, there will be monthly scheduled payments of
principal and interest. In addition, there may be unscheduled principal
payments representing prepayments on the underlying mortgages. Although GNMA
certificates may offer yields higher than those available from other types of
U.S. Government securities, GNMA certificates may be less effective than other
types of securities as a means of "locking in" attractive long-term rates
because of the prepayment feature. For instance, when interest rates decline,
the value of a GNMA certificate likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments can
cause the price of a GNMA certificate originally purchased at a premium to
decline in price to its par value, which may result in a loss.

MORTGAGE-BACKED SECURITIES. The Intermediate-Term Bond, Balanced, Government
Securities and Limited Maturity Government Funds may invest in MORTGAGE-BACKED
SECURITIES. Two principal types of mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICS"), which are rated in one of the two top
categories by S&P or Moody's. CMOs are securities collateralized by mortgages,
mortgage pass-throughs, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the mortgage
collateral pool is dedicated to bond repayment), and mortgage-backed bonds
(general obligations of the issuers payable out of the issuers' general funds
and additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which
have different maturities and are retired in sequence.

Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages, plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until
that portion of such CMO obligation is repaid, investors in the longer
maturities receive interest only. Accordingly, the CMOs in the longer maturity
series are less likely than other mortgage pass-throughs to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by U.S.
Government agencies or instrumentalities, the CMOs themselves are not generally
guaranteed.

REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.

ASSET-BACKED SECURITIES. The Intermediate-Term Bond, Money Market, Balanced
and Government Securities Funds may invest in readily marketable ASSET-BACKED
SECURITIES backed by corporate receivables, truck and auto loans, leases, and
credit card receivables. These issues may be traded over-the-counter and
typically have a short-intermediate maturity structure depending on the paydown
characteristics of the underlying assets which are passed through to the
security holder.

REPURCHASE AGREEMENTS. REPURCHASE AGREEMENTS are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or recognized securities
dealer) at an agreed upon price (including principal and interest) on an agreed
upon date within a number of days (usually not more than seven) from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
market rate of interest which is unrelated to the coupon rate or maturity of
the underlying security. A repurchase agreement

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involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.

Repurchase agreements are considered to be loans by the Fund for purposes of
its investment limitations. The repurchase agreements entered into by the
Funds will provide that the underlying security at all times shall have a value
at least equal to 102% of the resale price stated in the agreement (the Advisor
monitors compliance with this requirement). Under all repurchase agreements
entered into by the Funds, the Custodian or its agent must take possession of
the underlying collateral. However, if the seller defaults, the Funds could
realize a loss on the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the resale price
provided in the agreement including interest. In addition, even though the
Bankruptcy Code provides protection for most repurchase agreements, if the
seller should be involved in bankruptcy or insolvency proceedings, the Funds
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if the Funds are treated as an unsecured
creditor and required to return the underlying security to the seller's estate.

MUNICIPAL SECURITIES. MUNICIPAL NOTES in which the California Tax-Free Money
Market and California Intermediate Tax-Free Bond Funds may invest, include, but
are not limited to, general obligation notes, tax anticipation notes (notes
sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior to receipt of expected non-tax revenues from a
specific source), bond anticipation notes, certificates of indebtedness, demand
notes and construction loan notes. The Fund's investments in any of the notes
described above will be limited to those obligations (i) where both principal
and interest are backed by the full faith and credit of the United States, (ii)
which are rated MIG-2 or V-MIG-2 at the time of investment by Moody's Investors
Service ("Moody's"), (iii) which are rated SP-2 at the time of investment by
Standard and Poor's Corporation ("S&P"), (iv) which are rated F-1 at the time
of investment by Fitch Investors Service, Inc. ("Fitch") or (v) which, if not
rated, are of equivalent quality in the Advisor's judgment, to MIG-2, V-MIG-2,
SP-2 or F-1.

MUNICIPAL BONDS, in which the California Tax-Free Money Market and California
Intermediate Tax-Free Bond Funds may invest, must be rated AA or better S&P or
Fitch or Aa or better by Moody's at the time of investment for the California
Tax-Free Money Market Fund or, if purchased for the California Intermediate
Tax-Free Bond Fund, rated BBB or better by S&P or Fitch or Baa or better by
Moody's, or, if unrated, be deemed by the Advisor to have essentially the same
characteristics and quality as bonds having the above ratings. The Advisor may
purchase private activity bonds if the interest paid is excludable from Federal
income tax. Private activity bonds are issued by or on behalf of States or
political subdivisions thereof to finance privately owned or operated
facilities for business and manufacturing, housing, sports, and pollution
control and to finance activities of and facilities for charitable
institutions. Private activity bonds are also used to finance public
facilities such as airports, mass transit systems, ports, parking and low
income housing. The payment of the principal and interest on private activity
bonds is dependent solely on the ability of the facility's user to meet its
financial obligations and may be secured by a pledge of real and personal
property so financed.

California municipal securities, which are payable only from the revenues
derived from a particular facility, may be adversely affected by California
laws or regulations which make it more difficult for the particular facility to
generate revenues sufficient to pay such interest and principal, including,
among others, laws and regulations which limit the amount of fees, rates or
other charges which may be imposed for use of the facility or which increase
competition among facilities of that type or which limit or otherwise have the
effect of reducing the use of such facilities generally, thereby reducing the
revenues generated by the particular facility. California municipal
securities, the payment of interest and principal on which is insured in whole
or in part by a California governmentally created fund, may

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be adversely affected by California laws or regulations which restrict the
aggregate insurance proceeds available for payment of principal and interest in
the event of a default on such municipal securities. Similarly, California
municipal securities, the payment of interest and principal on which is
secured, in whole or in part, by an interest in real property, may be adversely
affected by California laws which limit the availability of remedies or the
scope of remedies available in the event of a default on such municipal
securities. Because of the diverse nature of such laws and regulations and the
impossibility of either predicting in which specific California municipal
securities the Funds will invest from time to time or predicting the nature or
extent of future changes in existing laws or regulations or the future
enactment or adoption of additional laws or regulations, it is not presently
possible to determine the impact of such laws and regulations on the municipal
securities in which the Funds may invest and, therefore, on the shares of the
Funds.

TAX-EXEMPT COMMERCIAL PAPER will be limited to investments in obligations which
are rated at least A-2 by S&P, F-2 by Fitch or Prime-2 by Moody's at the time
of investment or which are determined by the Advisor to be of equivalent
quality.

Other types of TAX-EXEMPT INSTRUMENTS which are permissible investments for the
California Tax-Free Money Market and California Intermediate Tax-Free Bond
Funds include floating rate notes. Investments in such floating rate
instruments will normally involve industrial development or revenue bonds which
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate) at a major commercial bank, and
that a Fund can demand payment of the obligation at all times, or at stipulated
dates on short notice (not to exceed 30 days), at par plus accrued interest.
The Funds may use the longer of the period required before a Fund is entitled
to prepayment under such obligations or the period remaining until the next
interest rate adjustment date for purposes of determining the maturity. Such
obligations are frequently secured by letters of credit or other credit support
arrangements provided by banks. The quality of the underlying credit or of the
bank, as the case may be, must, in the Advisor's opinion, be equivalent to the
long-term bond or commercial paper ratings stated above. The Advisor will
monitor the earning power, cash flow and liquidity ratios of the issuers of
such instruments, and the ability of an issuer of a demand instrument to pay
principal and interest on demand. The Advisor may purchase other types of
tax-exempt instruments, as long as they are of a quality equivalent to the bond
or commercial paper ratings stated above.

The Advisor has the authority to purchase securities at a price which would
result in a yield to maturity lower than that generally offered by the seller
at the time of purchase when it can simultaneously acquire the right to sell
the securities back to the seller, the issuer, or a third party (the "writer")
at an agreed-upon price at any time during a stated period or on a certain
date. Such a right is generally denoted as a "standby commitment" or a "put."
The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit the California Tax-Free Money Market and
California Intermediate Tax-Free Bond Funds to meet redemptions and remain as
fully invested as possible in municipal securities. The Funds reserve the
right to engage in put transactions. The right to put the securities depends
on the writer's ability to pay for the securities at the time the put is
exercised. The Funds limit their put transactions to institutions which the
Advisor believes present minimum credit risks, and the Advisor uses its best
efforts to initially determine and continue to monitor the financial strength
of the sellers of the puts by evaluating their financial statements and such
other information as is available in the marketplace. It may, however, be
difficult to monitor the financial strength of the writers because adequate
current financial information may not be available. In the event that any
writer is unable to honor a put for financial reasons, the affected Fund would
be a general creditor (i.e., on a parity with all other unsecured creditors) of
the writer. Furthermore, particular provisions of the contract between a Fund
and the writer may excuse the writer from repurchasing the securities; for
example, a change in the published rating of the underlying municipal
securities or any similar event

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that has an adverse effect on the issuer's credit or a provision in the
contract that the put will not be exercised except in certain special cases,
for example, to maintain portfolio liquidity. A Fund could, however, at any
time sell the underlying portfolio security in the open market or wait until
the portfolio security matures, at which time it should realize the full par
value of the security.

The municipal securities purchased subject to a put may be sold to third
persons at any time, even though the put is outstanding, but the put itself,
unless it is an integral part of the security as originally issued, may not be
marketable or otherwise assignable. Therefore, the put would have value only
to a Fund. Sale of the securities to third parties or lapse of time with the
put unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, a Fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to a Fund, such Fund could, of course, sell the portfolio
security. The maturity of the underlying security will generally be different
from that of the put. There will be no limit to the percentage of portfolio
securities that the Funds may purchase subject to a put, but the amount paid
directly or indirectly for puts which are not integral parts of the security as
originally issued held in either Fund will not exceed 1/2 of 1% of the value of
the total assets of such Funds calculated immediately after any such put is
acquired. For the purpose of determining the "maturity" of securities
purchased subject to an option to put, and for the purpose of determining the
dollar-weighted average maturity of the Funds including such securities, the
Trust will consider "maturity" to be the first date on which it has the right
to demand payment from the writer of the put although the final maturity of the
security is later than such date.

SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES

The ability of issuers to pay interest on, and repay principal of, California
municipal securities ("California Municipal Securities") may be affected by (1)
amendments to the California Constitution and related statutes that limit the
taxing and spending authority of California government entities, (2) voter
initiatives, (3) a wide variety of California laws and regulations, including
laws related to the operation of health care institutions and laws related to
secured interests in real property and (4) the general financial condition of
the State of California. The following information constitutes only a brief
summary, and is not intended as a complete description. The information has
been drawn, in some cases by excerpt, from official statements relating to
securities offerings of the State of California available as of the date of
this Statement of Additional Information. While the information has not been
independently verified by the California Tax-Free Money Market and California
Intermediate Tax-Free Bond Funds, these Funds have no reason to believe that
such information is not correct in all material respects.

Amendments to the California Constitution and Related Statutes. Certain of the
California Municipal Securities may be obligations of issuers who rely in whole
or in part on ad valorem real property taxes as a source of revenue. On June
6, 1978, California voters approved an amendment to the California Constitution
known as Proposition 13, which added Article XIIIA to the California
Constitution. The effect of Article XIIIA is to limit ad valorem taxes on real
property, and to restrict the ability of taxing entities to increase real
property tax revenues. On November 7, 1978, California voters approved
Proposition 8, and on June 3, 1986, California voters approved Proposition 46,
both of which amended Article XIIIA.

Section 1 of Article XIIIA limits the maximum ad valorem tax on real property
to 1% of full cash value (as defined in Section 2), to be collected by the
counties and apportioned according to law; provided that the 1% limitation does
not apply to ad valorem taxes or special assessments to pay the interest and
redemption charges on (i) any indebtedness approved by the voters prior to July
1, 1978, or (ii) any bonded indebtedness for the acquisition or improvement of
real property approved on or after July 1, 1978, by two-thirds of the votes
cast by the voters voting on the proposition. Section 2 of Article

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XIIIA defines "full cash value" to mean "the County Assessor's valuation of
real property as shown on the 1975/76 tax bill under 'full cash value' or,
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975 assessment."
The "full cash value" may be adjusted annually to reflect inflation at a rate
not to exceed 2% per year, or reduction in the consumer price index or
comparable local data, or reduced in the event of declining property value
caused by damage, destruction or other factors. The California State Board of
Equalization has adopted regulations, binding on county assessors, interpreting
the meanings of "change in ownership" and "new construction" for purposes of
determining full cash value of property under Article XIIIA.

Legislation enacted by the California Legislature to implement Article XIIIA
(Statutes of 1978, Chapter 292, as amended) provides that notwithstanding any
other law, local agencies may not levy any ad valorem property tax except to
pay debt service on indebtedness approved by the voters prior to July 1, 1978,
and that each county will levy the maximum tax permitted by Article XIIIA of
$4.00 per $100 assessed valuation (based on the former practice of using 25%,
instead of 100%, of full cash value as the assessed value for tax purposes).
The legislation further provided that, for the 1978/79 fiscal year only, the
tax levied by each county was to be apportioned among all taxing agencies
within the county in proportion to their average share of taxes levied in
certain previous years. The apportionment of property taxes in fiscal years
after 1978/79 has been revised pursuant to Statutes of 1979, Chapter 282, which
provides relief funds from State moneys beginning in fiscal year 1979/80 and is
designed to provide a permanent system for sharing State taxes and budget funds
with local agencies. Under Chapter 282, cities and counties receive more of
the remaining property tax revenues collected under Proposition 13 instead of
direct State aid. School districts receive a correspondingly reduced amount of
property taxes, but receive compensation directly from the State and are given
additional relief. Chapter 282 does not affect the derivation of the base levy
($4.00 per $100 of assessed valuation) and the bonded debt tax rate.

On November 6, 1979, an initiative known as "Proposition 4" or the "Gann
Initiative" was approved by the California voters, which added Article XIIIB to
the California Constitution. Under Article XIIIB, State and local governmental
entities have an annual "appropriations limit" and are not allowed to spend
certain moneys called "appropriations subject to limitation" in an amount
higher than the "appropriations limit." Article XIIIB does not affect the
appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population and certain
services provided by these entities. Article XIIIB also provides that if these
entities' revenues in any year exceed the amounts permitted to be spent, the
excess is to be returned by revising the tax rates or fee schedules over the
subsequent two years.

Article XIIIB, like XIIIA, may require further interpretation by both the
Legislature and the courts to determine its applicability to specific
situations involving the State and local taxing authorities. Depending upon
the interpretation, Article XIIIB may limit significantly a governmental
entity's ability to budget sufficient funds to meet debt service on bonds and
other obligations.

Voter Initiatives. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (as modified by Proposition 111, which was enacted on June 5,
1990), K-14 schools are guaranteed the greater of (a) in general, a fixed
percent of General Fund revenues ("Test 1"), (b) the amount appropriated to
K-14 schools in the

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prior year, adjusted for changes in the cost of living (measured as in Article
XIII B by reference to State per capita personal income) and enrollment ("Test
2"), or (c) a third test, which would replace "Test 2" in any year when the
percentage growth in per capita General Fund revenues from the prior year plus
one half of one percent is less than the percentage growth in State per capita
personal income ("Test 3"). Under "Test 3," schools would receive the amount
appropriated in the prior year adjusted for changes in enrollment and per
capita General Fund revenues, plus an additional small adjustment factor. If
"Test 3" is used in any year, the difference between "Test 3" and "Test 2"
would become a "credit" to schools which would be the basis of payments in
future years when per capita General Fund revenue growth exceeds per capita
personal income growth. Legislation adopted prior to the end of the 1988-89
Fiscal Year, implementing Proposition 98, determined the K-14 schools' funding
guarantee under Test 1 to be 40.3 percent of the General Fund Tax revenues,
based on 1986-87 appropriations. However, that percent would be adjusted to
account for redirection of local property taxes, since such a subsequent
redirection directly affects the share of General Fund revenues to schools.

Proposition 98 permits the Legislature by two-thirds vote of both houses, with
the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit
to K-14 schools.

During the recent recession, General Fund revenues for several years were less
than originally projected, so that the original Proposition 98 appropriations
turned out to be higher than the minimum percentage provided in the law. The
Legislature responded to these developments by designating the "extra"
Proposition 98 payments in one year as a "loan" from future years' Proposition
98 entitlements, and also intended that the "extra" payments would not be
included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from
Proposition 98 sources stayed almost constant at approximately $4,220 from
Fiscal Year 1991-92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, called CALIFORNIA TEACHERS' ASSOCIATION V. GOULD,
which challenged the validity of these off-budget loans. As part of the
negotiations leading to the 1995-96 Budget Act, an oral agreement was reached
to settle this case. It is expected that a formal settlement reflecting these
conditions will be entered into in the near future.

The oral agreement provides that both the State and K-14 schools share in the
repayment of prior years' emergency loans to schools. Of the total $1.76
billion in loans, the State will repay $935 million by forgiveness of the
amount owed, while schools will repay $825 million. The State share of the
repayment will be reflected as expenditures above the current Proposition 98
base calculation. The schools' share of the repayment will count as
appropriations that count toward satisfying the Proposition 98 guarantee, or
from "below" the current base. Repayments are spread over the eight-year
period of 1994-95 through 2001-02 to mitigate any adverse fiscal impact. Once
a court settlement is reached, and the Director of Finance certifies that such
a settlement has occurred, approximately $377 million in appropriations from
the 1995-96 Fiscal Year to schools will be disbursed in August 1996.

On November 4, 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as taxes levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii)

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restricts the use of revenues from a special tax to the purposes or for the
service for which the special tax was imposed, (iv) prohibits the imposition of
ad valorem taxes on real property by local governmental entities except as
permitted by Article XIIIA, (v) prohibits the imposition of transaction taxes
and sales taxes on the sale of real property by local governments, (vi)
requires that any tax imposed by a local government on or after August 1, 1985
be ratified by a majority vote of the electorate within two years of the
adoption of the initiative or be terminated by November 15, 1988, (vii)
requires that, in the event a local government fails to comply with the
provisions of this measure, a reduction in the amount of property tax revenue
allocated to such local government occurs in an amount equal to the revenues
received by such entity attributable to the tax levied in violation of the
initiative, and (viii) permits these provisions to be amended exclusively by
the voters of the State of California.

In September 1988, the California Court of Appeal in City of Westminster v.
County of Orange 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App.
1988), held that Proposition 62 is unconstitutional to the extent that it
requires a general tax by a general law city, enacted on or after August 1,
1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is not
possible to predict the impact of this decision on charter cities, on special
taxes, or on new taxes imposed after the effective date of Proposition 62.

On November 8, 1988, California voters approved Proposition 87. Proposition 87
amended Article XVI, Section 16, of the California Constitution by authorizing
the California Legislature to prohibit redevelopment agencies from receiving
any of the property tax revenue raised by increased property tax rates levied
to repay bonded indebtedness of local governments which is approved by voters
on or after January 1, 1989. It is not possible to predict whether the
California Legislature will enact such a prohibition nor is it possible to
predict the impact of Proposition 87 on redevelopment agencies and their
ability to make payments on outstanding debt obligations.

Other Relevant California Laws. A wide variety of California laws and
regulations may affect, directly or indirectly, the payment of interest on, or
the repayment of the principal of, California Municipal Securities in which the
California Tax-Free Money Market and California Intermediate Tax-Free Bond
Funds may invest. The impact of such laws and regulations on particular
California Municipal Securities may vary depending upon numerous factors
including, among others, the particular type of Municipal Security involved,
the public purpose funded by the Municipal Security and the nature and extent
of insurance or other security for payment of principal and interest on the
Municipal Security. For example, California Municipal Securities which are
payable only from the revenues derived from a particular facility may be
adversely affected by California laws or regulations which make it more
difficult for the particular facility to generate revenues sufficient to pay
such interest and principal, including, among others, laws and regulations
which limit the amount of fees, rates or other charges which may be imposed for
use of the facility or which increase competition among facilities of that type
or which limit or otherwise have the effect of reducing the use of such
facilities generally, thereby reducing the revenues generated by the particular
facility. California Municipal Securities, the payment of interest and
principal on which is insured in whole or in part by a California
governmentally created fund, may be adversely affected by California laws or
regulations which restrict the aggregate insurance proceeds available for
payment of principal and interest in the event of a default on such Municipal
Securities.

Certain California Municipal Securities in which the Tax-Free Money Market and
California Intermediate Tax-Free Bond Funds may invest may be obligations that
are payable solely from the revenues of health care institutions. Certain
provisions under California law may adversely affect such revenues and,
consequently, payment on those California Municipal Securities.

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The Federally sponsored Medicaid program for health care services to eligible
welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides
that the State of California shall selectively contract with hospitals to
provide acute inpatient services to Medi-Cal patients. Medi-Cal contracts
currently apply only to acute inpatient services. Generally, such selective
contracting is made on a flat per diem payment basis for all services to
Medi-Cal beneficiaries, and generally such payment has not increased in
relation to inflation, costs or other factors. Other reductions or limitations
may be imposed in payment for services rendered to Medi-Cal beneficiaries in
the future.

Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California
will be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice
under certain circumstances and is obligated to make contractual payments only
to the extent the California legislature appropriates adequate funding
therefor.

In February 1987, the Governor of the State of California announced that
payments to Medi-Cal providers for certain services (not including hospital
acute inpatient services) would be decreased by ten percent through June 1987.
However, a federal district court issued a preliminary injunction preventing
application of any cuts until a trial on the merits can be held. If the
injunction is deemed to have been granted improperly, the State of California
would be entitled to recapture the payment differential for the intended
reduction period. It is not possible to predict at this time whether any
decreases will ultimately be implemented.

California enacted legislation in 1982 that authorizes private health plans and
insurers to contract directly with hospitals for services to beneficiaries on
negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations" ("PPOs"), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO.
It is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.

These Debt Obligations may also be insured by the State of California pursuant
to an insurance program implemented by the Office of Statewide Health Planning
and Development for health facility construction loans. If a default occurs on
insured Debt Obligations, the State Treasurer will issue debentures payable out
of a reserve fund established under the insurance program or will pay principal
and interest on an unaccelerated basis from unappropriated State funds. At the
request of the Office of Statewide Health Planning and Development, Arthur D.
Little, Inc. prepared a study in December, 1983, to evaluate the adequacy of
the reserve fund established under the insurance program and based on certain
formulations and assumptions found the reserve fund substantially underfunded.
In September of 1986, Arthur D. Little, Inc. prepared an update of the study
and concluded that an additional 10% reserve be established for "multi-level"
facilities. For the balance of the reserve fund, the update recommended
maintaining the current reserve calculation method. In March of 1990, Arthur
D. Little, Inc. prepared a further review of the study and recommended that
separate reserves

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continue to be established for "multi-level" facilities at a reserve level
consistent with those that would be required by an insurance company.

Certain California Municipal Securities in which the California Tax-Free Money
Market and California Intermediate Tax-Free Bond Funds may invest may be
obligations which are secured in whole or in part by a mortgage or deed of
trust on real property. California has five principal statutory provisions
which limit the remedies of a creditor secured by a mortgage or deed of trust,
two of which limit the creditor's right to obtain a deficiency judgment. One
of the limitations is based on the method of foreclosure and the other on the
type of debt secured. Under the former, a deficiency judgment is barred when
the foreclosure is accomplished by means of a nonjudicial trustee's sale.
Under the latter, a deficiency judgment is barred when the foreclosed mortgage
or deed of trust secures certain purchase money obligations. Another
California statute, commonly known as the "one form of action" rule, requires
the creditors secured by real property to exhaust their real property security
by foreclosure before bringing a personal action against the debtor. The
fourth statutory provision limits any deficiency judgment obtained by a
creditor secured by real property following a judicial sale of such property to
the excess of the outstanding debt over the fair value of the property at the
time of the sale, thus preventing the creditor from obtaining a large
deficiency judgment against the debtor as the result of low bids at a judicial
sale. The fifth statutory provision gives the debtor the right to redeem the
real property from any judicial foreclosure sale as to which a deficiency
judgment may be ordered against the debtor.

Upon the default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power of sale
contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three
full monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. Therefore, the effective
minimum period for foreclosing on a home mortgage could be in excess of seven
months after the initial default. Such time delays in collections could
disrupt the flow of revenues available to an issuer for the payment of debt
service on the outstanding obligations if such defaults occur with respect to a
substantial number of mortgages or deeds of trust securing an issuer's
obligations.

In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
Federal or State Constitutions, consequently preventing an issuer from using
the nonjudicial foreclosure remedy described above.

Certain California Municipal Securities in which the California Tax-Free Money
Market and California Intermediate Tax-Free Bond Funds may invest may be
obligations which finance the acquisition of single family home mortgages for
low and moderate income mortgagors. These obligations may be payable solely
from revenues derived from the home mortgages, and are subject to the
California statutory limitations described above applicable to obligations
secured by real property. Under California anti-deficiency legislation, there
is no personal recourse against a mortgagor of a single family residence
purchased with the loan secured by the mortgage, regardless of whether the
creditor chooses judicial or nonjudicial foreclosure.

Under California law, mortgage loans secured by single family owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage
loans may be imposed only with respect

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to voluntary prepayments made during the first five years during the term of
the mortgage loan, and cannot in any event exceed six months' advance interest
on the amount prepaid in excess of 20% of the original amount of the mortgage
loan. This limitation could affect the flow of revenues available to an issuer
for debt service on the outstanding debt obligations which financed such home
mortgages.

Because of the diverse nature of such laws and regulations and the
impossibility of either predicting in which specific California Municipal
Securities the Funds will invest from time to time or predicting the nature or
extent of future changes in existing laws or regulations or the future
enactment or adoption of additional laws or regulations, it is not presently
possible to determine the impact of such laws and regulations on the Municipal
Securities in which the Funds may invest and, therefore, on the units of the
Funds.

The General Financial Condition of the State of California. The 1989-90 Fiscal
Year ended with revenues below estimates, so that the State's budget reserve
(the Special Fund for Economic Uncertainties or "SFEU") was fully depleted by
June 30, 1990. A recession began in mid-1990, which severely affected State
General Fund revenues, and increased expenditures above initial budget
appropriations due to greater health and welfare costs. The State's budget
problems in recent years have also been caused by a structural imbalance in
that the largest General Fund Programs -- K-14 education, health, welfare and
corrections -- were increasing faster than the revenue base, driven by the
State's rapid population growth. These pressures are expected to continue as
population trends maintain strong demand for health and welfare services, as
the school age population continues to grow, and as the State's corrections
program responds to a "Three Strikes" law enacted in 1994, which requires
mandatory life prison terms for certain third-time felony offenders.

As a result of these factors and others, from the late 1980's until 1992-93,
the State had a period of budget imbalance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in the SFEU approaching $2.8 billion at its peak at
June 30, 1993. Starting in the 1990-91 Fiscal Year and for each fiscal year
thereafter, each budget required multibillion dollar actions to bring projected
revenues and expenditures into balance. The Legislature and Governor agreed on
the following principal steps to produce Budget Acts in the years 1991-92 to
1993-94, including:

- significant cuts in health and welfare program expenditures;

- transfers of program responsibilities and funding from the
State to local governments referred to as "realignment"), coupled with some
reduction in mandates on local government;

- transfer of about $3.6 billion in local property tax revenues
from cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools under Proposition
98;

- reduction in growth of support for higher education programs,
coupled with increases in student fees;

- revenue increases (particularly in the 1991-92 Fiscal Year
budget), most of which were of a short duration;

- increased reliance on aid from the federal government to
offset the costs of incarcerating, educating and providing health and welfare
services to illegal immigrants; and

- various one-time adjustments and accounting changes.

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Despite these budget actions, as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve, the SFEU, as compared to
projected positive balances. By the 1993-94 Fiscal Year, the accumulated
deficit was so large that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95.

Another consequence of the accumulated budget deficits, together-with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the state to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992 the State Controller issued a total of approximately $3.8 billion of
registered warrants. After that date, all remaining outstanding registered
warrants (about $2.9 billion) were called for redemption from proceeds of the
issuance of 1992 Interim Notes after the budget was adopted.

In late spring of 1992, the State Controller issued revenue anticipation
warrants maturing in the following fiscal year in order to pay the State's
continuing obligations. The State was forced to rely increasingly on external
debt markets to meet its cash needs, as a succession of notes and warrants were
issued in the period from June 1992 to July 1994, often needed to pay
previously maturing notes or warrants. These borrowings were used also in part
to spread out the repayment of the accumulated budget deficit over the end of a
fiscal year, as noted earlier.

The Governor's Budget Proposal for the 1994-95 Fiscal Year, as updated in May
and June 1994, recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution designed to eliminate the
accumulated budget deficit, estimated at about $1.8 billion at June 30, 1994,
by June 30, 1996.

The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
General Fund revenues and transfers of $41.9 billion, $2.1 billion more than
actual revenues received in 1993-94, and expenditures of $40.9 billion, an
increase of $1.6 billion from the prior year. As a result of the improving
economy, the Department of Finance's final estimates for the fiscal year showed
revenues and transfers of $42.7 billion and expenditures of $42.0 billion,
reducing he accumulated budget deficit to about $600 million.

The principal features of the 1994-95 Budget Act were the following:

1. Receipt of additional federal aid of about $760 million for
costs of refugee assistance and costs of incarceration and medical care for
illegal immigrants. Only about $33 million of this amount was received, with
about another $98 million scheduled to be received in the 1995-96 Fiscal Year.

2. Reductions of approximately $1.1 billion in health and welfare
costs. Certain of these actions were blocked by legal challenges.

3. A General Fund increase of approximately $38 million in
support for the University of California and $65 million for California State
University, accompanied by student fee increases for both the University of
California and California State University.

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4. Proposition 98 funding for K-14 schools was increased by $526
million from 1993-94 Fiscal Year levels, representing an increase for
enrollment growth and inflation. Consistent with previous budget agreements,
Proposition 98 funding provided approximately $4,217 per student for K-12
schools, equal to the level in the prior three years.

5. Additional miscellaneous cuts ($500 million), fund transfers
($255 million), adjustment to prior years' legislation concerning property tax
shifts for local governments ($300 million).

The 1994-95 Budget Act contained no tax increases. Under legislation enacted
for the 1993-94 Budget Act, the renters' tax credit was suspended for two years
(1993 and 1994). A ballot proposition to permanently restore the renters' tax
credit after this year failed at the June 1994 election. The Legislature
enacted a further one-year suspension of the renters' tax credit, for 1995,
saving about $390 million in the 1995-96 Fiscal Year.

The State's cash flow management plan for the 1994-95 Fiscal Year included the
issuance $4.0 billion of Revenue Anticipation Warrants, Series C and D (the
"RAWs") on July 26, 1994, to mature on April 25, 1996, as part of a two-year
plan to retire the accumulated State budget deficit. To assure payment of the
RAWs, the Legislature enacted a backup mechanism which could result in
automatic expenditure cuts if projected revenues did not meet certain targets
(Section 12467 of the California Government Code, enacted by Chapter 135,
Statutes of 1994, the "Budget Adjustment Law").

The third and last step in the Budget Adjustment Law process occurred on
October 16, 1995, when the State Controller issued a report (the "October
Trigger Report") reviewing the estimated cash condition of the General Fund for
the 1995-96 Fiscal Year. The State Controller estimated that the General Fund
would have at least $1.4 billion of internal cash resources on June 30, 1996
(i. e., external borrowing would not be needed on June 30, 1996). As a result
of this funding, certain provisions of the Budget Adjustment Law, which could
have ultimately led to automatic, across-the-board cuts in the General Fund
budget, will not have to be implemented. Likewise, an earlier report issued on
November 15, 1994, avoided implementation of any automatic budget cuts in the
1994-95 fiscal year.)

The discussion below of the 1995-96 Fiscal Year budget is based on estimates
and projections of revenues and expenditures for the current fiscal year and
must not be construed as statements of fact. These estimates and projections
are based upon various assumptions which may be affected by numerous factors,
including future economic conditions in the State and the nation, and there can
be no assurance that the estimates will be achieved.

Periodic reports on revenues and expenditures during the fiscal year are issued
by the Administration, the State Controller's Office and the Legislative
Analyst's Office. The Department of Finance issues a monthly Bulletin which
reports the most recent revenue receipts, comparing them to Budget projections,
and reports on other current developments affecting the Budget. The
Administration also formally updates its budget projections twice during each
fiscal year, generally in January and May.

With strengthening revenues and reduced caseload growth based on an improving
economy, the State entered the 1995-96 Fiscal Year budget negotiations with the
smallest nominal "budget gap" to be closed in many years. Nonetheless, serious
policy differences between the Governor and Legislature prevented timely
enactment of the budget. The 1995-96 Budget Act was signed by the Governor on
August 3, 1995, 34 days after the start of the fiscal year. The Budget Act
projected General Fund revenues and transfers of $44.1 billion, a 3.5 percent
increase from the prior year. Expenditures were budgeted at $43.4 billion, a 4
percent increase. The Department of Finance projected that, after repaying the
last of the carry over budget deficit, there would be a positive balance of $28
million in the budget reserve, the Special Fund for Economic Uncertainties, at
June 30,1996. The Budget Act

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also projected Special Fund revenues of $12.7 billion and appropriated Special
Fund expenditures of $13.0 billion.

The Governor's Budget for the 1996-97 Fiscal Year, released on January 10, 1996
(the Governor's Budget"), updated the current year projections, so that
revenues and transfers are estimated to be $45.0 billion, and expenditures to
be $44.2 billion. The Special Fund for Economic Uncertainties is projected to
have a positive balance of about $50 million at June 30, 1996, and on that date
available internal borrowable resources (available cash, after payment of
obligations due) will be about $2.2 billion. The Administration projects it
will issue up to $2.0 billion of revenue anticipation notes in April, 1996, to
mature June 30, 1996, to assist in cash flow management for the final two
months of the year, after repayment of the $4.0 billion RAW issue on April 25,
1996.

The following are the principal features of the 1995-96 Budget Act:

1. Proposition 98 funding for schools and community colleges was
originally budgeted to increase by about $ 1.0 billion (General Fund) and $ 1.2
billion total above revised 1994-95 levels. Because of higher than projected
revenues in 1994-95, an additional $543 million ($91 per K-12 ADA) was
appropriated to the 1994-95 Proposition 98 entitlement. A large part of this
is a block grant of about $54 per pupil for any one-time purpose. For the
first time in several years, a full 2.7 percent cost of living allowance was
funded. The budget compromise anticipates a settlement of the CTA v. Gould
litigation discussed above under "Voter Initiatives". The Governor's Budget
indicates that, with revenues even higher than projected, Proposition 98
apportionments will exceed the amounts originally budgeted, reaching a level of
$4,500 per ADA.

2. Cuts in health and welfare costs totaling about $0.9 billion.
Some of these cuts (totaling about $500 million) require federal legislative or
administrative approval, which were still pending as of February, 1996.

3. A 3.5 percent increase in funding for the University of
California ($90 million General Fund) and the California State University
system ($24 million General Fund), with no increases in student fees.

4. The Budget, as updated by the 1996-97 Governor's Budget dated
January 10, 1996, assumed receipt of $494 million in new federal aid for
incarceration and health care costs of illegal immigrants, above commitments
already made by the federal government.

5. General Fund support for the Department of Corrections is
increased by about 8 percent over the prior year, reflecting estimates of
increased prison population, but funding is less than proposed in the 1995
Governor's Budget.

On January 10, 1996, the Governor released his proposed budget for the next
fiscal year (the "Governor's Budget"). The Governor requested total General
Fund appropriations of about $45.2 billion, based on projected revenues and
transfers of about $45.6 billion, which would leave a budget reserve in the
Special Fund for Economic Uncertainties at June 30, 1997 of about $400 million.
The Governor renewed a proposal, which had been rejected by the Legislature in
1995, for a 15 percent phased cut in individual and corporate tax rates over
three years (the budget proposal assumes this will be enacted, reducing
revenues in 1996-97 by about $600 million). There was also a proposal to
restructure trial court funding in a way which would result in a $300 million
decrease in General Fund revenues. The Governor requested legislation to make
permanent a moratorium on cost of living increases for welfare payments, and
suspension of a renters tax credit, which otherwise would go back into effect
in the 1996-97 Fiscal Year. He further proposed additional cuts in certain
health and welfare programs, and assumed that cuts previously approved by the
Legislature will receive federal

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approval. The Governor's Budget proposes increases in funding for K-12 schools
under Proposition 98, for State higher education systems (with a second year of
no student fee increases), and for corrections. The Governor's Budget projects
external cash flow borrowing of up to $3.2 billion, mature by June 30, 1997.

Additional Considerations. With respect to Municipal Securities issued by the
State of California and its political subdivisions, as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico, the Trust cannot
predict what legislation, if any, may be proposed in the California State
Legislature as regards the California State personal income tax status of
interest on such obligations, or which proposals, if any, might be enacted.
Such proposals, if enacted, might materially adversely affect the availability
of California Municipal Securities for investment by the Funds and the value of
the Funds' investments. In such event, the Trustees would reevaluate the
investment objective and policies of the Funds and consider changes in its
investments structure or possible dissolution.

OPTIONS ON SECURITIES. The Blue Chip Growth, Emerging Growth, Balanced, and
International Equity Funds may buy and sell options, and the Growth Equity,
Emerging Growth, Blue Chip Growth, Value Momentum, International Equity and
Balanced Funds may write CALL OPTIONS on a covered basis only. A Fund will not
engage in option writing strategies for speculative purposes.

COVERED CALL WRITING. A Fund may write covered call options from time to time
on such portion of its assets, without limit, as the Advisor determines is
appropriate in seeking to obtain the Fund's investment objective. A call
option gives the purchaser of such option the right to buy, and the writer, in
this case the Fund, has the obligation to sell the underlying security at the
exercise price during the option period. The advantage to the Fund of writing
covered calls is that the Fund receives a premium which is additional income.
However, if the value of the security rises, the Fund may not fully participate
in the market appreciation.

During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold,
which requires the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which a Fund
when obligated as a writer of an option, terminates its obligation by
purchasing an option of the same series as the option previously written. A
closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.

Closing purchase transactions will ordinarily be effected to realize a profit
on an outstanding call option, to prevent an underlying security from being
called, to permit the sale of the underlying security, or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. The Fund may realize a net gain or
loss from a closing purchase transaction, depending upon whether the net amount
of the original premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying
security. Such a loss may also be wholly or partially offset by unrealized
appreciation in the market value of the underlying security. Conversely, a
gain resulting from a closing purchase transaction could be offset in whole or
in part by a decline in the market value of the underlying security.

If a call option expires unexercised, the Fund will realize a short term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by

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depreciation in the market value of the underlying security during the option
period. If a call option is exercised, the Fund will realize a gain or loss
from the sale of the underlying security equal to the difference between the
cost of the underlying security, and the proceeds of the sale of the security
plus the amount of the premium on the option, less the commission paid.

The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date. The Fund will write
call options only on a covered basis, which means that the Fund will own the
underlying security subject to a call option at all times during the option
period or will own the right to acquire the underlying security at a price
equal to or below the option's strike price. Unless a closing purchase
transaction is effected the Fund would be required to continue to hold a
security which it might otherwise wish to sell, or deliver a security it would
want to hold. Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of a
call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.

Purchasing Call Options . The Blue Chip Growth, Balanced, Emerging and
International Equity Funds may purchase call options to hedge against an
increase in the price of securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the Fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Fund might
have realized had it bought the underlying security at the time it purchased the
call option.

Purchasing Put Options. The Blue Chip Growth, Balanced, Emerging and
International Equity Growth Funds may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
Fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, a Fund
will reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.

The Growth Equity Fund, the Value Momentum Fund, Emerging Growth, Blue Chip
Growth, Balanced Fund and the International Equity Fund may engage in OPTIONS
ON STOCK INDICES. A stock index assigns relative values to the common stocks
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.

Options on stock indices are similar to options on stocks but have different
delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option. The amount of cash received will be equal to such difference between
the closing price of the index and exercise price of the option expressed in
dollars times a specified multiple. The writer of the option is obligated, in
return for the premium received, to

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make delivery of this amount. Gain or loss to a Fund on transactions in stock
index options will depend on price movements in the stock market generally (or
in a particular industry or segment of the market) rather than price movements
of individual securities.

As with stock options, a Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an Exchange or it
may let the option expire unexercised.

A stock index fluctuates with changes in the market values of the stock so
included. Some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also
based on an industry or market segment such as the AMEX Oil and Gas Index or
the Computer and Business Equipment Index. Options on stock indices are
currently traded on the following Exchanges among others: The Chicago Board
Options Exchange, New York Stock Exchange, American Stock Exchange and London
Stock Exchange.

A Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices depends on the degree to which
price movements in the underlying index correlate with price movements in the
Fund's portfolio securities. Since a Fund's portfolio will not duplicate the
components of an index, the correlation will not be exact. Consequently, a Fund
bears the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. It is also possible that there may
be a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument.

Positions in stock index options may be closed out only on an exchange which
provides a secondary market. There can be no assurance that a liquid secondary
market will exist for any particular stock index option. Thus, it may not be
possible to close such an option. The inability to close options positions
could have an adverse impact on a Fund's ability to hedge effectively its
securities. A Fund will enter into an option position only if there appears to
be a liquid secondary market for such options.

A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 20% of a Fund's total assets.

Risk Factors in Options Transactions . The successful use of options
strategies depends on the ability of the investment advisor or, where
applicable, SubAdvisor to forecast interest rate and market movements correctly.

When it purchases an option, a Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time,
unless the Fund exercises the option or enters into a closing sale transaction
with respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, a Fund will lose part or all of its investment in the option. This
contrasts with an investment by a Fund in the underlying securities, since the
Fund may continue to hold its investment in those securities notwithstanding
the lack of a change in price of those securities.

The effective use of options also depends on a Fund's ability to
terminate option positions at times when its investment advisor or, where
applicable, SubAdvisor deems it desirable to do so. Although a Fund will take
an option position only if its investment advisor or, where applicable,

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SubAdvisor believes there is a liquid secondary market for the option, there is
no assurance that a Fund will be able to effect closing transactions at any
particular time or at an acceptable price.

If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular
option or options generally. In addition, a market could become temporarily
unavailable if unusual events, such as volume in excess of trading or clearing
capability, were to interrupt normal market operations. A marketplace may at
times find it necessary to impose restrictions on particular types of options
transactions, which may limit a Fund's ability to realize its profits or limit
its losses.

Disruptions in the markets for the securities underlying options
purchased or sold by a Fund could result in losses on the options. If trading
is interrupted in an underlying security, the trading of options on that
security is normally halted as well. As a result, a Fund as purchaser or
writer of an option will be unable to close out its positions until options
trading resumes, and it may be faced with losses if trading in the security
reopens at a substantially different price. In addition, the Options Clearing
Corporation (OCC) or other options markets, such as the London Options Clearing
House, may impose exercise restrictions. If a prohibition on exercise is
imposed at the time when trading in the option has also been halted, a Fund as
purchaser or writer of an option will be locked into its position until one of
the two restrictions has been lifted. If a prohibition on exercise remains in
effect until an option owned by a Fund has expired, the Fund could lose the
entire value of its option.

Futures Contracts on Securities and Related Options

Futures Contracts on Securities . A Fund will enter into futures
contracts on securities only when, in compliance with the SEC's requirements,
cash or equivalents equal in value to the securities' value (less any applicable
margin deposits) have been deposited in a segregated account of the Fund's
custodian.

A futures contract sale creates an obligation by the seller to deliver
the type of instrument called for in the contract in a specified delivery month
for a stated price. A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument called for in the contract
in a specified delivery month at a stated price. The specific instruments
delivered or taken at settlement date are not determined until on or near that
date. The determination is made in accordance with the rules of the exchanges
on which the futures contract was made. Futures contracts are traded in the
United States only on commodity exchange or boards of trade, known as "contract
markets," approved for such trading by the Commodity Futures Trading Commission
(CFTC), and must be executed through a futures commission merchant or brokerage
firm which is a member of the relevant contract market.

Although futures contracts by their terms call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Similarly, the closing out of a futures contract purchase
is effected by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a
gain, and if the purchase price exceeds the offsetting sale price, the
purchaser realizes a loss.

Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract, although
the Fund is required to deposit with its

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custodian in a segregated account in the name of the futures broker an amount
of cash and/or U.S. Government securities. This amount is known as "initial
margin." The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures contract margin
does not involve the borrowing of funds by the Fund to finance the
transactions. Rather, initial margin is in the nature of a performance bond or
good faith deposit on the contract that is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts also involve brokerage costs.

Subsequent payments, called "variation margin," to and from the broker
(or the custodian) are made on a daily basis as the price of the underlying
security fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."

A Fund may elect to close some or all of its futures positions at any
time prior to their expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position then currently held by the Fund. A Fund
may close its positions by taking opposite positions which will operate to
terminate the Fund's position in the futures contracts. Final determinations
of variation margin are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.

Options on Securities' Futures Contracts . A Fund will enter into
written options on securities' futures contracts only when, in compliance with
the SEC's requirements, cash or equivalents equal in value to the securities'
value (less any applicable margin deposits) have been deposited in a segregated
account of the Fund's custodian. A Fund may purchase and write call and put
options on the futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. A
Fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.

As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected.

A Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above.

Aggregate initial margin deposits for futures contracts (including
futures contracts on securities, indices and currency) and premiums paid for
related options, may not exceed 5% of a Fund's total assets.

Risk of Transactions in Securities' Futures Contracts and Related
Options. Successful use of securities' futures contracts by a Fund is subject
to the ability of its investment advisor or, where applicable, SubAdvisor to
predict correctly movements in the direction of interest rates and other
factors affecting securities markets.

Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to a Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the price of

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the hedged investments. The writing of an option on a futures contract
involves risks similar to those risks relating to the sale of futures
contracts.

There is no assurance that higher than anticipated trading activity or
other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.

To reduce or eliminate a hedge position held by a Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop or continue to exist
for a particular futures contract. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii)
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange
or a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of contracts or options (or a particular class or series of contracts or
options), in which event the secondary market on that exchange (or in the class
or series of contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

Futures Contracts on Indices and Related Options

Index Futures Contracts . A Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective, and may purchase and sell options on such index
futures contracts. A Fund will not enter into any index futures contract for the
purpose of speculation, and will only enter into contracts traded on securities
exchanges with standardized maturity dates.

An index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contracts and the price at which the futures contract
is originally struck. No physical delivery of the securities comprising the
index is made; generally contracts are closed out prior to the expiration date
of the contract. No price is paid upon entering into index futures contracts.
When a Fund purchases or sells an index futures contract, it is required to
make an initial margin deposit in the name of the futures broker and to make
variation margin deposits as the value of the contract fluctuates, similar to
the deposits made with respect to futures contracts on securities. Positions
in index futures contracts may be closed only on an exchange or board of trade
providing a secondary market for such index futures contracts. The value of
the contract usually will vary in direct proportion to the total face value.

A Fund's ability to effectively utilize index futures contracts
depends on several factors. First, it is possible that there will not be a
perfect price correlation between the index futures contracts and their
underlying index. Second, it is possible that a lack of liquidity for index
futures contracts could exist in the secondary market, resulting in the Fund's
inability to close a futures position prior to its maturity date. Third, the
purchase of an index futures contract involves the risk that the Fund could
lose more than the original margin deposit required to initiate a futures
transaction. In order to avoid leveraging and related risks, when a Fund
purchases an index futures contract, it will collateralize its

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position by depositing an amount of cash or cash equivalents, equal to the
market value of the index futures positions held, less margin deposits, in a
segregated account with the Fund's custodian. Collateral equal to the current
market value of the index futures position will be maintained on a daily basis.

The extent to which a Fund may enter into transactions involving index
futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Funds' intention to
qualify as such.

Options on Index Futures Contracts. Options on index futures
contracts are similar to options on securities except that options on index
futures contracts gives the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long position if the
option is a call and a short position if the option is a put), at a specified
exercise price at any time during the period of the option. Upon exercise of
the option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account which represents the amount by
which the market price of the index futures contract, at exercise, exceeds (in
the case of a call) or is less than (in the case of a put) the exercise price
of the option on the index futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise
price of the option and the closing level of the index on which the future is
based on the expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.

U.S. DOLLAR DENOMINATED OBLIGATIONS OF SECURITIES OF FOREIGN ISSUERS. Certain
of the Funds may invest in U.S. DOLLAR DENOMINATED OBLIGATIONS OF SECURITIES OF
FOREIGN ISSUERS. Permissible investments may consist of obligations of foreign
branches of U.S. banks and of foreign banks, including European Certificates of
Deposit, European Time Deposits, Canadian Time Deposits and Yankee Certificates
of Deposits, and investments in Canadian Commercial Paper, foreign securities
and Europaper. In addition, the Growth Equity, Emerging Growth, Blue Chip
Growth, Government Securities, Convertible Securities, Value Momentum,
International Equity and Balanced Funds may invest in American Depositary
Receipts. These instruments may subject the Fund to investment risks that
differ in some respects from those related to investments in obligations of
U.S. domestic issuers. Such risks include future adverse political and
economic developments, the possible imposition of withholding taxes on interest
or other income, possible seizure, nationalization, or expropriation of foreign
deposits, the possible establishment of exchange controls or taxation at the
source, greater fluctuations in value due to changes in exchange rates, or the
adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations. Such
investments may also entail higher custodial fees and sales commissions than
domestic investments. Foreign issuers of securities or obligations are often
subject to accounting treatment and engage in business practices different from
those respecting domestic issuers of similar securities or obligations.
Foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements than those applicable to domestic branches of
U.S. banks.

FOREIGN CURRENCY TRANSACTIONS. Under normal market conditions, the
International Equity Fund may engage in foreign currency exchange transactions
to protect against uncertainty in the level of future exchange rates. The
International Equity Fund expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging"), and to protect the value of specific portfolio
positions ("position hedging"). The Fund may purchase or sell a foreign
currency on a spot (or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities denominated in that
foreign currency, and may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and

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purchase or sell foreign currency futures contracts ("futures contracts"). The
Fund may also purchase domestic and foreign exchange-listed and
over-the-counter call and put options on foreign currencies and futures
contracts. Hedging transactions involve costs and may result in losses, and
the Fund's ability to engage in hedging and related options transactions may be
limited by tax considerations.

TRANSACTION HEDGING. When it engages in transaction hedging, the International
Equity Fund enters into foreign currency transactions with respect to specific
receivables or payables of the International Equity Fund generally arising in
connection with the purchase or sale of its portfolio securities. The
International Equity Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging, the Fund will attempt to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold, or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received.

Although there is no current intention to do so, the International
Equity Fund reserves the right to purchase and sell foreign currency futures
contracts which are traded in the United States and are subject to regulation
by the CFTC.

For transaction hedging purposes the International Equity Fund may
also purchase exchange-listed call and put options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives
the International Equity Fund the right to assume a short position in the
futures contract until expiration of the option. A put option on currency
gives the International Equity Fund the right to sell a currency at an exercise
price until the expiration of the option. A call option on a futures contract
gives the Fund the right to assume a long position in the futures contract
until the expiration of the option. A call option on currency gives the Fund
the right to purchase a currency at the exercise price until the expiration of
the option.

POSITION HEDGING. When it engages in position hedging, the International
Equity Fund enters into foreign currency exchange transactions to protect
against a decline in the values of the foreign currencies in which its
portfolios securities are denominated (or an increase in the value of currency
for securities which the SubAdvisor expects to purchase, when the Fund holds
cash or short- term investments). In connection with the position hedging, the
Fund may purchase or sell foreign currency forward contracts or foreign
currency on a spot basis.

The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.

It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward contract or
futures contract. Accordingly, it may be necessary for the International
Equity Fund to purchase additional foreign currency on the spot market (and
bear the expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security or
securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security or securities if the market value of such
security or securities exceeds the amount of foreign currency the International
Equity Fund is obligated to deliver.

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Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the International Equity Fund owns or
expects to purchase or sell. They simply establish a rate of exchange which
one can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they tend to limit any potential gain which might result
from the increase in the value of such currency.

CURRENCY FORWARD AND FUTURES CONTRACTS. A forward contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed by the
parties, at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right to cancel the
contract at maturity by paying a specified fee. Forward contracts are trades
in the interbank markets conducted directly between currency traders (usually
large commercial banks) and their customers. A forward contract generally has
no deposit requirement, and no commissions are charged at any stage for trades.

A futures contract is a standardized contract for the future delivery
of a specified amount of a foreign currency at a future date at a price set at
the time of the contract. Futures contracts are designed by and traded on
exchanges. The Fund would enter into futures contracts solely for hedging or
other appropriate risk management purposes as defined in the controlling
regulations.

Forward contracts differ from futures contracts in certain respects.
For example, the maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.

At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.

Positions in the futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such contracts.
Although the Fund intends to purchase or sell futures contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board
of trade will exist for any particular contract or at any particular time. In
such event, it may not be possible to close a futures position and, in the
event of adverse price movements, the Fund would continue to be required to
make daily cash payments of variation margin, as described below.

GENERAL CHARACTERISTICS OF CURRENCY FUTURES CONTRACTS. When the Fund purchases
or sells a futures contract, it is required to deposit with its custodian an
amount of cash or U.S. Treasury bills up to 5% of the amount of the futures
contract. This amount is known as "initial margin." The nature of initial
margin is different from that of margin in security transactions in that it
does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the International Equity Fund upon termination of the contract, assuming the
Fund satisfies its contractual obligation.

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Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin," and are made as the value of the underlying futures contract
fluctuates. For example, when the Fund sells a futures contract and the price
of the underlying currency rises above the delivery price, the International
Equity Fund's position declines in value. The Fund then pays a broker a
variation margin payment equal to the difference between the delivery price of
the futures contract and the market price of the currency underlying the
futures contract. Conversely, if the price of the underlying currency falls
below the delivery price of the contract, the Fund's futures position increases
in value. The broker then must make a variation margin payment equal to the
difference between the delivery price of the futures contract and the market
price of the currency underlying the futures contract.

When the International Equity Fund terminates a position in a futures
contract, a final determination of variation margin is made, additional cash is
paid by or to the International Equity Fund, and the International Equity Fund
realizes a loss or gain. Such closing transactions involve additional
commission costs.

FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies have recently been listed on several
exchanges. Such options will be purchased or written only when the Fund's
SubAdvisor believes that a liquid secondary market exists for such options.
There can be no assurance that a liquid secondary market will exist for a
particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investments generally.

The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors
may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market, and thus may not reflect relatively
smaller transactions (less than $1 million), where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market.

FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(the "spread") between prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to an
International Equity Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.

WHEN-ISSUED SECURITIES. These securities involve the purchase of debt
obligations on a when-issued basis, in which case delivery and payment normally
take place within 45 days after the date of commitment to purchase. The Funds
will only make commitments to purchase obligations on a when-issued basis with
the intention of actually acquiring the securities, but may sell them before
the settlement date. The when-issued securities are subject to market
fluctuation, and no interest accrues on the security to the purchaser during
this period. The payment obligation and the interest rate that

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will be received on the securities are each fixed at the time the purchaser
enters into the commitment. Purchasing obligations on a when-issued basis is a
form of leveraging, and can involve a risk that the yields available in the
market when the delivery takes place may actually be higher than those obtained
in the transaction itself. In that case there could be an unrealized loss at
the time of delivery.

Segregated accounts will be established with the Custodian, and the Funds will
maintain liquid, high grade assets in an amount at least equal in value to the
Funds' commitments to purchase when-issued securities.

RESTRICTED SECURITIES. RESTRICTED SECURITIES are securities that may not be
sold to the public without registration under the Securities Act of 1933 (the
"1933 Act") absent an exemption from registration. All of the Funds may invest
in restricted securities. The Advisor may invest up to 20% of the total assets
of a Fund in restricted securities, provided it determines that, at the time of
investment, such securities are not illiquid (generally, an illiquid security
cannot be disposed of within seven days in the ordinary course of business at
or near the current valuation on the Portfolio's books), based on guidelines
established and periodically reviewed by the Board of Trustees. Under these
guidelines, the Advisor will consider the frequency of trades and quotes for
the security, the number of dealers in, and potential purchasers for, the
securities, dealer undertakings to make a market in the security, and the
nature of the security and of the marketplace trades. In purchasing such
restricted securities, the Advisor intends to rely upon the exemptions from
registration provided by Section 4(2) and Rule 144A promulgated under the 1933
Act. Although not a matter controlled by fundamental investment policies and
restrictions (and therefore subject to change without Shareholder approval)
none of the Funds may invest more than 15% of its total assets in such
restricted securities as long as their shares are registered under the
securities laws in the State of Ohio.

LENDING OF PORTFOLIO SECURITIES. All of the Funds except the California
Intermediate Tax-Free Bond Fund may LEND SECURITIES pursuant to agreements
requiring that the loans be continuously secured by cash, securities of the
U.S. government or its agencies, or any combination of cash and such
securities, as collateral equal to 100% of the market value at all times of the
loaned securities. Such loans will not be made if, as a result, the aggregate
amount of all outstanding securities loans for a Fund exceed one-third of the
value of its total assets taken at fair market value. A Fund will continue to
receive interest on the loaned securities while simultaneously earning interest
on the investment of the cash collateral in U.S. government securities.
However, a Fund will normally pay lending fees to such broker-dealers and
related expenses from the interest earned on invested collateral. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans are made only to borrowers
deemed by the Advisor to be of good standing and when, in the judgment of the
Advisor, the consideration which can be earned currently from such securities
loans justifies the attendant risk. Any loan may be terminated by either party
upon reasonable notice to the other party. The Funds may use the Distributor
or a broker/dealer affiliate of the Advisor as a broker in these transactions.

STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS"). SPDRs are interests in a unit
investment trust ("UIT") that may be obtained from the UIT or purchased in the
secondary market as SPDRs are listed on the American Stock Exchange.

The UIT will issue SPDRs in aggregations of 50,000 known as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of
expenses and liabilities, and (c) a cash

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payment or credit ("Balancing Amount") designed to equalize the net asset value
of the S&P Index and the net asset value of a Portfolio Deposit.

SPDRs are not individually redeemable, except upon termination of the UIT. To
redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon
the existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.

The price of SPDRs is derived and based upon the securities held by the UIT.
Accordingly, the level of risk involved in the purchase or sale of a SPDR is
similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Portfolio could result in losses on SPDRs.
Trading in SPDRs involves risks similar to those risks, described above under
"Options," involved in the writing of options on securities.

HIGH YIELD SECURITIES

The Convertible Securities Fund may invest in lower rated securities. Fixed
income securities are subject to the risk of an issuer's ability to meet
principal and interest payments on the obligation (credit risk), and may also
be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated or unrated (i.e., high
yield) securities are more likely to react to developments affecting market and
credit risk than are more highly rated securities, which primarily react to
movements in the general level of interest rates. The market values of
fixed-income securities tend to vary inversely with the level of interest
rates. Yields and market values of high yield securities will fluctuate over
time, reflecting not only changing interest rates but the market's perception
of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, medium to lower rated securities may
decline in value due to heightened concern over credit quality, regardless of
the prevailing interest rates. Investors should carefully consider the
relative risks of investing in high yield securities and understand that such
securities are not generally meant for short-term investing.

The high yield market is relatively new and its growth has paralleled a long
period of economic expansion and an increase in merger, acquisition and
leveraged buyout activity. Adverse economic developments can disrupt the
market for high yield securities, and severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity which may lead to a higher incidence of
default on such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities. As a
result, the Convertible Securities Fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower
than if such securities were widely traded. Furthermore, the Trust may
experience difficulty in valuing certain securities at certain times. Prices
realized upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Convertible
Securities Fund's net asset value.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls an obligation for redemption, the Convertible
Securities Fund may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. If the Convertible
Securities Fund experiences unexpected net redemptions, it may be forced to
sell its higher rated securities, resulting in a decline in the overall credit
quality of the Convertible Securities Fund's investment portfolio and
increasing the exposure of the Convertible Securities Fund to the risks of high
yield securities.

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The Convertible Securities Fund may choose, at its expense or in conjunction
with others, to pursue litigation or otherwise exercise its rights as a
security holder to seek to protect the interest of security holders if it
determines this to be in the interest of the Convertible Securities Fund's
Shareholders.

OTHER INVESTMENTS

The Trust is not prohibited from investing in obligations of banks, but the
Trust may not purchase obligations of the Advisor or its affiliates.

INVESTMENT LIMITATIONS

A Fund may not:

1. Acquire more than 10% of the voting securities of any one issuer. For
the Government Securities Fund and the Limited Maturity Government
Fund, this limitation applies to only 75% of the Fund's assets.

2. Invest in companies for the purpose of exercising control.

3. Borrow money, except for temporary or emergency purposes and then only
in an amount not exceeding one-third of the value of total assets.
Any borrowing will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of the Fund's assets, asset coverage
of at least 300% is required. In the event that such asset coverage
shall at any time fall below 300%, the Fund shall, within three days
thereafter or such longer period as the Securities and Exchange
Commission may prescribe by rules and regulations, reduce the amount
of its borrowings to such an extent that the asset coverage of such
borrowings shall be at least 300%. This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities
to accommodate heavy redemption requests if they should occur and is
not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings
will reduce income.

4. Make loans, except that (a) a Fund may purchase or hold debt
instruments in accordance with its investment objective and policies;
(b) a Fund may enter into repurchase agreements, and (c) the Funds may
engage in securities lending as described in the Prospectus and in
this Statement of Additional Information.

5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed
10% of total assets taken at current value at the time of the
incurrence of such loan, except as permitted with respect to
securities lending.

6. Purchase or sell real estate, real estate limited partnership
interests, commodities or commodities contracts (except for financial
futures contracts and options relating thereto) and interests in a
pool of securities that are secured by interests in real estate.
However, subject to their permitted investments, any Fund may invest
in companies which invest in real estate, commodities or commodities
contracts.

7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term
credits as necessary for the clearance of security transactions.

8. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a Fund security.

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9. Purchase securities of other investment companies except for money
market funds and then only as permitted by the Investment Company Act
of 1940 and the rules and regulations thereunder. The Emerging
Growth, Blue Chip Growth, Convertible Securities, International Equity
and Government Securities Funds may also purchase the securities of
non-money market funds as permitted by the Investment Company Act of
1940. Under these rules and regulations, the Funds are prohibited
from acquiring the securities of other investment companies if, as a
result of such acquisition, the Funds own more than 3% of the total
voting stock of the company; securities issued by any one investment
company represent more than 5% of the total Funds' assets; or
securities (other than treasury stock) issued by all investment
companies represent more than 10% of the total assets of the Funds.
These investment companies typically incur fees that are separate from
those fees incurred directly by the Fund. A Fund's purchase of such
investment company securities results in the layering of expenses,
such that Shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including
advisory fees.

10. Issue senior securities (as defined in the Investment Company Act of
1940) except in connection with permitted borrowings as described
above or as permitted by rule, regulation or order of the Securities
and Exchange Commission.

11. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or any
investment advisor of the Trust owns beneficially more than 1/2 of 1%
of the shares or securities of such issuer and all such officers,
trustees, partners and directors owning more than 1/2 of 1% of such
shares or securities together own more than 5% of such shares or
securities.

12. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.

13. Write or purchase puts, calls, options or combinations thereof, except
that the Growth Equity, Emerging Growth, Blue Chip Growth, Balanced,
International Equity and the Value Momentum Funds may write covered
call options with respect to any or all parts of its Fund securities,
and the Balanced, Blue Chip Growth, Emerging Growth and Convertible
Securities Funds may purchase call and purchase and sell put options
listed on national exchanges and the International Equity Fund may
purchase call and purchase and sell options listed on U.S. and foreign
exchanges. The California Tax-Free Money Market Fund may purchase
puts as described in the prospectus. The Growth Equity, Emerging
Growth, Blue Chip Growth, Balanced, International Equity and Value
Momentum Funds may sell options previously purchased and enter into
closing transactions with respect to covered call options. In
addition, the Growth Equity, Emerging Growth, Blue Chip Growth, Value
Momentum, International Equity and Balanced Funds may purchase options
on stock indices to invest cash on an interim basis.

NON-FUNDAMENTAL POLICIES

No Fund may invest in warrants, except that the Growth Equity, Emerging Growth,
Blue Chip Growth, Convertible Securities, Value Momentum, International Equity,
and Balanced Funds may invest in warrants in an amount not exceeding 5% of the
Fund's net assets as valued at the lower of cost or market value. Included in
that amount, but not to exceed 2% of the Fund's net assets, may be warrants not
listed on the New York Stock Exchange or American Stock Exchange.

No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of its net assets, except that the Money Market Fund, Treasury
Money Market Fund and California Tax-Free

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Money Market Fund may not invest more than 10% of net assets in illiquid
securities. An illiquid security is a security which cannot be disposed of
within seven business days at approximately the price at which they are being
carried on the Fund's books, and includes repurchase agreements maturing in
excess of seven days, time deposits with a withdrawal penalty, non-negotiable
instruments and instruments for which no market exists.

The foregoing percentages will apply at the time of the purchase of a security.

THE ADVISOR

The Trust and Union Bank of California, N.A. (the "Advisor"), have entered into
an advisory agreement (the "Advisory Agreement") dated April 1, 1996. The
Advisory Agreement provides that the Advisor shall not be protected against any
liability to the Trust or its Shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard of its obligations or duties thereunder.

The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to the Advisor but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by the State of California, the Advisor will
bear the amount of such excess. The Advisor will not be required to bear
expenses of the Trust to an extent which would result in a Fund's inability to
qualify as a regulated investment company under provisions of the Internal
Revenue Code.

The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval, and (ii) by the vote of the Trustees or a majority of
outstanding shares of the Funds, as defined in the 1940 Act. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Funds by a majority of the outstanding shares of the Funds, on
not less than 30 days' nor more than 60 days' written notice to the Advisor, or
by the Advisor on 90 days' written notice to the Trust.

The Advisor is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of .80% of the daily average net assets of the Emerging
Growth Fund, .60% of the daily average net assets of each of the Value
Momentum, Growth Equity, Blue Chip Growth, Convertible Securities and Balanced
Funds, .50% of the average daily net assets of the Intermediate-Term Bond,
California Intermediate Tax-Free Bond and Government Securities Funds, and .30%
of the average daily net assets of each of the Money Market, Treasury Money
Market, California Tax-Free Money Market, and Limited Maturity Government
Funds, and .95% of the average daily net assets of the International Equity
Fund.

For the fiscal years ended January 31, 1994, 1995 and 1996, the Funds paid the
following advisory fees to Union Capital Advisors, the Advisor's predecessor:

<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
-------------------------------------- ------------------------------------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 757,744 $1,015,559 $1,238,970 $126,291 $ 0 $ 0
</TABLE>

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<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
-------------------------------------- ------------------------------------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Blue Chip Growth * $ 183,178 $ 288,983 * $ 0 $ 0
Fund

California Tax- $ 27,277 $ 60,306 $ 3,065 $ 12,731 $ 48,888 $ 61,451
Free Bond Fund
California Tax- $ 268,986 $ 99,901 $ 113,705 $217,383 $264,000 $237,331
Free Money Market
Fund

Convertible * $ 44,430 $ 77,050 * $ 0 $ 0
Securities Fund

Emerging Growth * $ 130,134 $ 255,357 * $ 0 $ 0
Fund

Government * $ 145,821 $ 185,894 * $ 0 $ 0
Securities Fund
Growth Equity Fund $ 854,563 $ 835,080 $ 972,952 $ 30,118 $ 0 $ 0

Intermediate Term $ 630,576 $ 617,704 $ 648,012 $ 0 $ 0 $ 0
Bond Fund

Limited Maturity $ 63,919 $ 111,587 $ 105,887 $ 0 $ 0 $ 0
Government Fund
Money Market Fund $1,732,049 $1,820,479 $2,002,595 $ 0 $ 0 $ 0

Treasury Money $544,009 $ 461,318 $ 775,061 $181,336 $ 129,255 $155,289
Market Fund

Value Momentum $701,450 $ 923,288 $1,169,765 $ 24,411 $ 0 $ 0
Fund
International * * $ 300,582 * * $ 76,243
Equity Fund
</TABLE>

* Not in operation during such period.

The Glass-Steagall Act restricts the securities activities of banks such as
Union Bank of California, N.A., but federal regulatory authorities permit such
banks to provide investment advisory and other services to mutual funds.
Should this position be challenged successfully in court or reversed by
legislation, the Trust might have to make other investment advisory
arrangements.

THE SUBADVISORS

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The Advisor and Bank of Tokyo-Mitsubishi Trust Company have entered into a
sub-advisory agreement which relates to the Emerging Growth, Blue Chip Growth,
Convertible Securities and Government Securities Funds. The Advisor and the
Tokyo-Mitsubishi Asset Management (UK) Limited have entered into a sub-advisory
agreement which relates to the International Equity Fund (the Bank of Tokyo
Trust Company, together with the BOT Asset Management (UK) Limited, the
"SubAdvisors").

Under its sub-advisory agreement, Bank of Tokyo-Mitsubishi Trust Company is
entitled to a fee which is calculated daily and paid monthly at an annual rate
of.20% of the average daily net assets of the Government Securities Fund, .30%
of the average daily net assets of the Blue Chip Growth Fund and Convertible
Securities Fund and .50% of the average daily net assets of the Emerging Growth
Fund. Such fee is paid by the Advisor, and Bank of Tokyo-Mitsubishi Trust
Company receives no fees directly from a Fund.

Bank of Tokyo-Mitsubishi Trust Company operates as a subsidiary of The Bank of
Tokyo, Ltd., Tokyo. Bank of Tokyo-Mitsubishi Trust Company was established in
1955 and has been providing asset management services since 1965.

[/R]
For the Fiscal Year ended January 31, 1996, The Bank of Tokyo Trust Company,
as predecessor to the SubAdvisor, was paid $159,198, $144,472, $37,745, and
$74,358 in sub-advisory fees for the Emerging Growth, Blue Chip Growth,
Convertible Securities and Government Securities Funds, respectively.
[/R]

Under its sub-advisory agreement, the Tokyo-Mitsubishi Asset Management (UK)
Limited is entitled to a fee which is calculated daily and paid monthly at an
annual rate of .30% of the average daily net assets of the International Equity
Fund. Such a fee is paid by the Advisor and Tokyo-Mitsubishi Asset Management
(UK) Limited receives no fees directly from the International Equity Fund.

Tokyo-Mitsubishi Asset Management (UK) Limited operates as a subsidiary of The
Bank of Tokyo, Ltd., Tokyo. Tokyo-Mitsubishi Asset Management (UK) Limited was
established in 1989.

THE ADMINISTRATOR

The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder.

The Administrator, a wholly-owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 101 Main Street, Cambridge, Massachusetts. Alfred P. West, Jr.,
Henry H. Greer and Carmen V. Romeo constitute the Board of Directors of the
Administrator and the Distributor. Mr. West is the Chairman of the Board and
Chief Executive Officer of SEI, the Administrator and the Distributor. Mr.
Greer serves as the President and Chief Operating Officer of SEI, the
Administrator and the Distributor. SEI and its subsidiaries are leading
providers of funds evaluation services, trust accounting systems, and brokerage
and information services to financial institutions, institutional investors and
money managers. The Administrator also serves as administrator to the
following other mutual funds: The Achievement Funds Trust, The Advisors' Inner
Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Conestoga Family
of Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, First American Funds,
Inc., First American Investment Funds, Inc., FMB Funds, Inc., Insurance
Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R), Monitor
Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar
Funds, Rembrandt Funds(R), 1784 Funds, SEI Daily Income Trust, SEI Index
Funds, SEI

S-32
<PAGE> 321

Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds and STI Classic Variable Trust.

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of average daily net assets of the Trust up
to $1 billion, .12% of the average daily net assets of the Trust between $1
billion and $2 billion and .10% of average daily net assets of the Trust over
$2 billion. Prior to March 9, 1993, the Administrator's fee was .12% of
average daily net assets of each Fund of the Trust up to $650 million and .09%
of average daily assets over $650 million.

For the fiscal years ended January 31, 1994, 1995 and 1996, the Funds paid the
following administration fees:

<TABLE>
<CAPTION>
Administrative Fees Paid Administrative Fees Waived
---------------------------------- ----------------------------------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $175,724 $233,783 $276,935 $ 0 $ 0 $ 0

Blue Chip * $ 42,147 $ 64,519 * $ 0 $ 0
Growth Fund
California Tax- $ 7,630 $ 30,713 $ 17,405 $ 0 $ 0 $ 0
Free Bond Fund

California Tax- $125,242 $170,054 $157,204 $ 0 $ 0 $ 0
Free Money Market
Fund

Convertible * $ 10,223 $ 17,197 * $ 0 $ 0
Securities Fund

Emerging Growth * $ 22,454 $ 42,746 * $ 0 $ 0
Fund
Government * $ 40,273 $ 49,832 * $ 0 $ 0
Securities Fund

Growth Equity $198,074 $192,266 $217,610 $ 0 $ 0 $ 0
Fund

Intermediate $175,200 $170,689 $173,915 $ 0 $ 0 $ 0
Term Bond Fund
Limited Maturity $ 29,975 $ 51,392 $ 47,409 * $ 0 $ 0
Government
Fund

Money Market $801,746 $838,165 $895,102 $ 0 $ 0 $ 0
Fund

Treasury Money $252,859 $ 271,795 $415,272 $ 0 $ 0 $ 0
Market Fund
Value $162,576 $ 212,556 $261,423 $ 0 $ 0 $ 0
Momentum Fund
</TABLE>

S-33
<PAGE> 322

<TABLE>
<CAPTION>
Administrative Fees Paid Administrative Fees Waived
---------------------------------- ----------------------------------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
International * * $ 54,149 * * $ 0
Equity Fund
</TABLE>

* Not in operation during such period.

THE DISTRIBUTOR

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement") dated January 30, 1991, which applies to both Institutional Class
and Investment Class shares of the Funds. The Distributor will receive no
compensation for distribution of Institutional Class shares. The Investment
Class has a distribution plan dated January 30, 1991 ("Investment Class
Distribution Plan").

INVESTMENT CLASS DISTRIBUTION PLAN

The Distribution Agreement and the Investment Class Distribution Plan adopted
by the Investment Class Shareholders provides that each Investment Class Fund
will bear the cost of its distribution expenses as provided in a budget
approved annually and reviewed quarterly by the Trustees of the Trust who are
not interested persons and have no financial interest in the Plan or any
related agreement ("Qualified Trustees"). The budget includes (1) the cost of
prospectuses, reports to Shareholders, sales literature and other materials for
potential investors; (2) advertising; (3) expenses incurred in connection with
the promotion and sale of the Trust's shares including the Distributor's
expenses for travel, communication, and compensation and benefits for sales
personnel; (4) any other expenses reasonably incurred in connection with the
distribution and marketing of the Investment Class shares subject to approval
of a majority of the Qualified Trustees. The Trust is not obligated to
reimburse the Distributor for any expenditures in excess of the approved
budget. In addition, the Trust will pay the Distributor a fee of up to .40% of
the Investment Class Fund's average daily net assets which the Distributor can
use to compensate broker/dealers and service providers, including Union Bank
and its affiliates, which provide administrative and/or distribution services
to Investment Class Shareholders or their customers who beneficially own
Investment Class Shares.

For the fiscal year ending January 31, 1996, no distribution fees were incurred
by the Institutional Class Shares of the Trust or the Investment Class Shares
of the Intermediate-Term Bond, Limited Maturity Government, California
Intermediate Tax-Free Bond, Blue Chip Growth, Convertible Securities, Emerging
Growth, Government Securities, and International Equity Funds. The Investment
Class Shares of the remaining Funds incurred the following distribution
expenses:

<TABLE>
<CAPTION>
AMOUNT
PAID TO PROSPECTUS
3RD PARTIES BY PRINTING COSTS
SFS FOR AND MAILING ASSOCIATED
DISTRIBUTOR COSTS (NEW WITH
RELATED SALES SHAREHOLDERS REGISTRATION
TOTAL BASIS SERVICES EXPENSES ADVERTISING ONLY) FEES
FUND/CLASS ($ AMOUNT) POINTS ($ AMOUNT) ($ AMOUNT) ($ AMOUNT) ($ AMOUNT) ($ AMOUNT) OTHER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>

S-34
<PAGE> 323

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Treasury Money 357,535 25 357,535 0 0 0 0 0
Market Fund

Money Market 449,528 25 449,528 0 0 0 0 0
Fund

California Tax- 235,554 33 235,554 0 0 0 0 0
Free
Money Market
Fund
Growth Equity 1,545 9 1,545 0 0 0 0 0
Fund

Value Momentum 9,265 9 9,265 0 0 0 0 0
Fund

Balanced Fund 6,702 9 6,702 0 0 0 0 0
</TABLE>

The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the Qualified Trustees, or by a majority vote of the outstanding
securities of the Trust upon not more than 60 days' written notice by either
party.

The Trust has adopted the Investment Class Distribution Plan in accordance with
the provisions of Rule 12b-1 under the Investment Company Act of 1940, which
regulates circumstances under which an investment company may directly or
indirectly bear expenses relating to the distribution of its shares.
Continuance of the Investment Class Distribution Plan must be approved annually
by a majority of the Trustees of the Trust and by a majority of the Qualified
Trustees. The Investment Class Distribution Plan requires that quarterly
written reports of amounts spent under the Investment Class Distribution Plan
and the purposes of such expenditures be furnished to and reviewed by the
Trustees. The Investment Class Distribution Plan may not be amended to
increase materially the amount which may be spent thereunder without approval
by a majority of the outstanding shares of the Trust. All material amendments
of the Plan will require approval by a majority of the Trustees of the Trust
and of the Qualified Trustees.

The Trust has also adopted a Distribution Plan with respect to Class C Shares
of the Trust. Class C Shares are sold without a sales charge, but are subject
to a 12b-1 fee in addition to reimbursement of certain expenses, a fee will be
paid to the Distributor at an annual rate of .50% of each Fund's average daily
net assets attributable to Class C Shares as compensation for its distribution-
related services. The Distributor may retain all or some of this payment and
may pay financial institutions and intermediaries such as banks, savings and
loan associations, insurance companies, investment counselors and subsidiaries,
as compensation for services in connection with distribution assistance or
provision of shareholder services.

TRUSTEES AND OFFICERS OF THE TRUST

The Trustees and executive officers of the Trust, their respective dates of
birth and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and
executive officer is SEI Financial Management Corporation, 680 East Swedesford
Road, Wayne, PA 19087. Certain trustees and officers of the Trust also serve
as trustees and officers of some or all of the following: The Achievement Funds
Trust; The Advisors' Inner Circle Fund; The Arbor Fund; ARK Funds; Bishop
Street Funds; Conestoga Family of Funds; CoreFunds, Inc.; CrestFunds, Inc.;
CUFUND; First American Funds, Inc.; First American Investment Funds, Inc.; FMB
Funds; Insurance Investment Products Trust; Inventor Funds, Inc.; Marquis
Funds(R); Monitor Funds; Morgan Grenfell Investment Trust; The Pillar
Funds; The PBHG Funds, Inc.; Rembrandt Funds(R); SEI Index Funds; SEI
Institutional Managed Trust; SEI International Trust; SEI Liquid Asset Trust;
SEI Tax Exempt Trust; 1784 Funds; Stepstone Funds; STI Classic Funds; and STI
Classic Variable Trust, each of which is an open-end management investment
company managed by SEI Financial Management Corporation and, except for
Rembrandt Funds(R), distributed by SEI Financial Services Company.

S-35
<PAGE> 324

WILLIAM R. HOWELL (DOB 02/28/22) - Chairman of the Board of Trustees- 445
South Figueroa Street, Los Angeles, CA 90071. Director, Current Income
Shares, Inc., Vice Chairman, Union Bank, from 1976 until retirement in 1982;
Director of Unionbanc Investment Management Company since 1977, until
retirement in 1982.

*ROBERT A. NESHER (DOB 08/17/46) - Trustee - 8 South Street, Kennebunkport, ME
04046. Retired since 1994. Executive Vice President of SEI, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor
September, 1981-1994.

MICHAEL L. NOEL (DOB 04/05/41) - Trustee - 445 South Figueroa Street, Los
Angeles, CA 90071. Vice President and Treasurer, Southern California Edison
Company, since 1980; Assistant Treasurer, Pacific Coast Electrical Association;
Director, Hancock Savings & Loan Association, since 1986; Director, Software
Toolworks, Inc., since July, 1989.

PAUL L. SMITH (DOB 04/25/18) - Trustee - 445 South Figueroa Street, Los
Angeles, CA 90071. Retired Director of Union Bank. Retired Vice Chairman and
member of the Office of the Chief Executive of Security Pacific Corporation.
Former Director and officer of numerous subsidiaries of such Corporation and
Security Pacific National Bank.

STEVEN K. JOINER (DOB 07/24/50) - Trustee - 3138 North Tenth Street, Arlington,
VA 22201. President, NAFCU Services Corporation, Inc., since 1993; Executive
Vice President, Credit Union Services, Inc., from 1979 to 1993.

DAVID G. LEE (DOB 04/16/52) - President and Chief Executive Officer - Senior
Vice President of the Distributor since 1993. Vice President of the
Distributor since 1991, President GW Sierra Trust Funds prior to 1991.

JEFFREY A. COHEN (DOB 04/22/61) - Controller and Chief Financial Officer - CPA,
Director, International and Domestic Funds Accounting - SEI Corporation from
1991 to present; Price Waterhouse, Audit Manager - prior to 1991.

KEVIN P. ROBINS (DOB 04/15/61) - Vice President and Assistant Secretary; Senior
Vice President, General Counsel and Secretary of SEI, the Administrator and
Distributor since 1994. Vice President and Assistant Secretary of SEI,
1992-1994.

KATHRYN L. STANTON (DOB 11/19/58) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1994. Associate, Morgan, Lewis & Bockius LLP (law firm) 1989-1994.

ROBERT B. CARROLL (DOB 02/26/60) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1994. United States Securities and Exchange Commission, Division of Investment
Management 1990,1994. Associate McGuire, Woods, Battle and Boothe (law firm)
prior to 1990.

SANDRA K. ORLOW (DOB 10/18/53) - Vice and Assistant Secretary - Vice President
and Assistant Secretary of the Administrator and Distributor since 1983.

TODD CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since May, 1995, Associate, Dewey Ballantine (law firm) 1994-1995, Associate,
Winston & Strawn (law firm) 1991-1995.

S-36
<PAGE> 325

JOSEPH M. LYDON (DOB 09/27/59) - Vice President and Assistant Secretary -
Director of Business Administration, SEI Corporation since April, 1995; Vice
President of Fund Group, Vice President of the Advisor - Dreman Value
Management, LP, President of Dreman Financial Services, Inc. from 1989 to 1995.

RICHARD W. GRANT (DOB 10/25/45) - Secretary - 2000 One Logan Square,
Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm),
Counsel to the Trust, Administrator and Distributor.

___________________________
*Mr. Nesher is a Trustee who may be deemed to be an "interested" person of the
Trust as the term is defined in the Investment Company Act of 1940.

The Trustees And Officers Of The Trust Own Less Than 1% Of The Outstanding
Shares Of The Trust.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM REGISTRANT
AGGREGATE RETIREMENT AND FUND
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL COMPLEX PAID TO
FROM REGISTRANT AS PART OF THE BENEFITS UPON DIRECTORS FOR
NAME OF PERSON AND POSITION FOR FYE 1/31/96 FUND EXPENSES RETIREMENT FYE 1/31/96
<S> <C> <C> <C> <C>
William R. Howell - Chairman $19,000 $ 0 $ 0 $19,000 for
& Trustee services on 1
board

Robert A. Nesher - Trustee $ 0 $ 0 $ 0 $ 0 for
services on 1
board

Michael L. Noel - Trustee $17,000 $ 0 $ 0 $17,000 for
services on 1
board
Paul L. Smith - Trustee $19,000 $ 0 $ 0 $19,000 for
services on 1
board

Steven K. Joiner - Trustee $17,000 $ 0 $ 0 $17,000 for
services on 1
board
</TABLE>

REPORTING

The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
Shareholder reports to Shareholders of record.

PERFORMANCE

Yields. Yields are one basis upon which investors may compare the Funds with
other funds; however, yields of other funds and other investment vehicles may
not be comparable because of the factors set forth below and differences in the
methods used in valuing portfolio instruments.

S-37
<PAGE> 326

The yields of these Money Market Funds fluctuate, and the annualization of a
week's dividend is not a representation by the Trust as to what an investment
in the Fund will actually yield in the future. Actual yields will depend on
such variables as asset quality, average asset maturity, the type of
instruments the Fund invests in, changes in interest rates on money market
instruments, changes in the expenses of the Fund and other factors.

Money Market Fund Yields. From time to time the Treasury Money Market, Money
Market, and California Tax-Free Money Market Funds (the "Money Market Funds")
advertise their "current yield" and "effective compound yield". Both yield
figures are based on historical earnings and are not intended to indicate
future performance. The "current yield" of the Money Market Funds refers to
the income generated by an investment in a Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized".
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in a Fund is assumed
to be reinvested. The "effective yield" will be slightly higher than the
"current yield" because of the compounding effect of this assumed reinvestment.

The current yield of the Money Market Funds will be calculated daily based upon
the seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change
by the value of the account at the beginning of the same period to obtain the
base period return and multiplying the result by (365/7). Realized and
unrealized gains and losses are not included in the calculation of the yield.
The effective compound yield of the Funds is determined by computing the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = (Base Period Return + 1) 365/7) - 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.

The California Tax-Free Money Market Fund may also calculate tax-equivalent
yields. Tax equivalent yields are computed by dividing that portion of a
Fund's yield which is tax-exempt by one minus a stated federal and/or state
income tax rate and adding the product to that portion, if any, of the Fund's
yield that is not tax-exempt. (Tax equivalent yields assume the payment of
Federal income taxes at a rate of 31% and California income taxes at a rate of
11%.)

For the 7-day period ended January 31, 1996, the Money Market, Treasury Money
Market and California Tax-Free Money Market Funds' current, effective and
tax-equivalent yields were as follows:

<TABLE>
<CAPTION>
7-DAY
7-DAY TAX-
7-DAY TAX-EQUIVALENT EQUIVALENT
EFFECTIVE YIELD EFFECTIVE
PORTFOLIO 7-DAY YIELD YIELD YIELD
<S> <C> <C> <C> <C>
Investment Class:
</TABLE>

S-38
<PAGE> 327

<TABLE>
<CAPTION>
7-DAY
7-DAY TAX-
7-DAY TAX-EQUIVALENT EQUIVALENT
EFFECTIVE YIELD EFFECTIVE
PORTFOLIO 7-DAY YIELD YIELD YIELD
<S> <C> <C> <C> <C>
Treasury Money Market Fund 4.87 4.99 N/A N/A

Money Market Fund 4.81 4.92 N/A N/A

California Tax-Free Money 2.71 2.74 4.67 4.72
Market Fund
Institutional Class:

Treasury Money Market Fund 5.12 5.25 N/A N/A

Money Market Fund 5.05 5.17 N/A N/A
California Tax-Free Money 3.04 3.08 5.24 5.31
Market Fund
</TABLE>

Other Yields. From time to time, Growth Equity, Value Momentum, Balanced,
Intermediate-Term Bond, Emerging Growth, Blue Chip Growth, Convertible
Securities, Government Bond and Limited Maturity Government Funds may advertise
a 30 day yield, and the California Intermediate Tax-Free Bond Fund may
advertise a 30 day yield and a 30 day tax equivalent yield. These figures
will be based on historical earnings and are not intended to indicate future
performance. The 30 day yield of these Funds refers to the annualized income
generated by an investment in the Funds over a specified 30 day period. The
yield is calculated by assuming that the income generated by the investment
during that period generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated
according to the following formula:

Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.

Tax equivalent yields are computed by dividing that portion of a Fund's yield
which is tax-exempt by one minus a stated federal and/or state income tax rate
and adding the product to that portion, if any, of the Fund's yield that is not
tax-exempt. (Tax equivalent yields assume the payment of Federal income taxes
at a rate of 31% and California income taxes at a rate of 11%.)

For the 30 day period ended January 31, 1996, the yields on the Funds, other
than the Money Market Funds, were as follows:

<TABLE>
<CAPTION>
30-DAY
30-DAY TAX-EQUIVALENT
PORTFOLIO YIELD YIELD
<S> <C> <C>
Investment Class:
</TABLE>

S-39
<PAGE> 328

<TABLE>
<CAPTION>
30-DAY
30-DAY TAX-EQUIVALENT
PORTFOLIO YIELD YIELD
<S> <C> <C>
Growth Equity Fund 0.44 N/A

Value Momentum Fund 1.63 N/A

Balanced Fund 2.38 N/A
Intermediate-Term Bond Fund 5.07 N/A

Limited Maturity Government Fund 5.63 N/A

California Intermediate Tax-Free Bond 4.42 7.62
Fund
Blue Chip Growth Fund N/A N/A

Convertible Securities Fund N/A N/A

Emerging Growth Fund N/A N/A
Government Securities Fund N/A N/A

International Equity Fund N/A N/A

Institutional Class:
Growth Equity Fund 0.68 N/A

Value Momentum Fund 1.95 N/A

Balanced Fund 2.73 N/A
Intermediate-Term Fund 5.23 N/A

Limited Maturity Government Fund 5.60 N/A

California Intermediate Tax-Free Bond 4.56 7.86
Fund
Blue Chip Growth Fund 1.43 N/A

Convertible Securities Fund 3.94 N/A

Emerging Growth Fund 0.09 N/A
Government Securities Fund 4.92 N/A

International Equity Fund N/A N/A
</TABLE>

S-40
<PAGE> 329

Total Return. From time to time, the Funds may advertise total return on an
"average annual total return" basis and on an "aggregate total return" basis
for various periods. Average annual total return reflects the average annual
percentage change in the value of an investment in a Fund over a particular
measuring period. Aggregate total return reflects the cumulative percentage
change in value over the measuring period. Aggregate total return is computed
according to a formula prescribed by the SEC. The formula can be expressed as
follows: P (1 + T)n = ERV, where P = a hypothetical initial payment of $1,000;
T = average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
designated time period as of the end of such period or the life of the fund.
The formula for calculating aggregate total return can be expressed as
(ERV/P)-1.

The calculation of total return assumes reinvestment of all dividends and
capital gain distribution on the reinvestment dates during the period and that
the entire investment is redeemed at the end of the period. In addition the
maximum sales charge for each Fund is deducted from the initial $1000 payment.
Total return may also be shown without giving effect to any sales charges.

Based on the foregoing, the average annual and aggregate total returns for the
Funds from inception through January 31, 1996, were as follows:

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
CLASS/WITHOUT LOAD ONE SINCE INCEPTION
PORTFOLIO WITH LOAD YEAR
<S> <C> <C> <C>
Treasury Money Market Fund Institutional 5.52 4.01

Investment Without Load 5.26 3.85
Money Market Fund Institutional 5.57 4.39

Investment Without Load 5.31 4.01

California Tax-Free Money Institutional 3.48 2.88
Market Fund Investment Without Load 3.14 2.54

Growth Equity Fund Institutional 32.93 14.39

Investment Without Load 32.79 12.64
Investment With Load 26.78 11.43

Value Momentum Fund Institutional 40.88 16.04

Investment Without Load 40.77 15.96
Investment With Load 34.44 14.58

Balanced Fund Institutional 28.93 12.37

Investment Without Load 28.73 12.46
Investment With Load 22.93 10.87
</TABLE>

S-41
<PAGE> 330

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
CLASS/WITHOUT LOAD ONE SINCE INCEPTION
PORTFOLIO WITH LOAD YEAR
<S> <C> <C> <C>
Intermediate-Term Bond Fund Institutional 16.58 9.00

Investment Without Load 16.48 7.76
Investment With Load 12.97 6.95

Limited Maturity Government Institutional 8.34 3.68
Fund
Investment Without Load 8.33 3.76
Investment With Load 8.33 3.76*

California Intermediate Tax- Institutional 15.83 4.28
Free Bond Fund
Investment Without Load 15.84 4.24
Investment With Load 12.33 2.86

Blue Chip Growth Fund Institutional 36.95 15.22

Investment Without Load N/A N/A
Investment With Load N/A N/A

Convertible Securities Fund Institutional 19.67 6.18

Investment Without Load N/A N/A
Investment With Load N/A N/A

Emerging Growth Fund Institutional 30.24 11.56

Investment Without Load N/A N/A

Investment With Load N/A N/A
Government Securities Fund Institutional 16.16 5.35

Investment Without Load N/A N/A

Investment With Load N/A N/A
International Equity Fund Institutional 13.60 13.56

Investment Without Load N/A N/A

Investment With Load N/A N/A
</TABLE>

*For the fiscal year ended January 31, 1996, shares were sold without a sales
charge.

(1)The Institutional Class of each of the Funds commenced operations on
February 1, 1991 except the Treasury Money Market Fund, which commenced
operations on December 1, 1992, the California Tax-

S-42
<PAGE> 331

Free Money Market Fund, which commenced operations on June 10, 1991, the
Limited Maturity Government Fund, which commenced operations May 7, 1993 the
California Intermediate Tax-Free Bond Fund which commenced operations on
October 15, 1993. The Investment Classes commenced operations as follows:
Money Market Fund, May 28, 1991; California Tax-Free Money Market Fund, June
25, 1991; Growth Equity Fund, November 14, 1991; Value Momentum Fund, April 2,
1992; Balanced Fund, November 13, 1992; Intermediate-Term Bond Fund, February
3, 1992; Treasury Money Market Fund, March 5, 1993; Limited Maturity Government
Fund, August 19, 1993 and California Intermediate Tax-Free Bond Fund, October
15, 1993; the Blue Chip Growth Fund, February 1, 1994; Convertible Securities
Fund, February 1, 1994; Emerging Growth Fund, February 1, 1994; and Government
Securities Fund, February 1, 1994. The International Equity Fund commenced
operations as of February 1, 1995.

The Funds may quote various measures of volatility and benchmark correlation in
advertising, and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions of shares of the Funds may be made on days on which
both the New York Stock Exchange and the Federal Reserve wire systems are open
for business.

It is currently the Trust's policy to pay for the redemptions in cash. The
Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of securities held by
the Funds other than the Money Market Funds in lieu of cash. Shareholders may
incur brokerage charges on the sale of any such securities so received in
payment of redemptions. However, a Shareholder will at all times be entitled
to aggregate cash redemptions from all Funds of the Trust during any 90-day
period of up to the lesser of $250,000 or 1% of the Trust's net assets.

The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of disposal or valuation of the Fund's securities is
not reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted. The Trust also reserves the right
to suspend sales of shares of the Fund for any period during which the New York
Stock Exchange, the Advisor, the Administrator and/or the Custodian are not
open for business.

A Fund with portfolio securities listed on foreign exchanges which trade on
Saturdays or other customary United States national business holidays would be
expected to disclose to their investors, if the Fund does not price on these
days, that the portfolio will trade and the net asset of the Fund's redeemable
securities may be significantly affected on days when the investor has no
access to the Fund.

S-43
<PAGE> 332
DETERMINATION OF NET ASSET VALUE

The net asset value per share of the Treasury Money Market, Money Market and
California Tax-Free Money Market Funds is calculated by adding the value of
securities and other assets, subtracting liabilities and dividing by the number
of outstanding shares. Securities will be valued by the amortized cost method
which involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuations
in general market rates of interest on the value of the instrument. While this
method provides certainty in valuation, it may result in periods during which a
security's value, as determined by this method, is higher or lower than the
price the Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield of the Funds may tend to be higher
than a like computation made by a company with identical investments utilizing
a method of valuation based upon market prices and estimates of market prices
for all of its portfolio securities. Thus, if the use of amortized cost by the
Funds resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Funds would be able to obtain a somewhat higher
yield than would result from investment in a company utilizing solely market
values, and existing investors in the Fund would experience a lower yield. The
converse would apply in a period of rising interest rates.

The Funds' use of amortized cost and the maintenance of the Funds' net asset
value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the
Investment Company Act of 1940, provided that certain conditions are met.
These conditions currently require that the Trust maintain a dollar-weighted
average maturity in the Funds of 90 days or less, not purchase any instrument
having a remaining maturity of more than one year, and will limit its
investments to those U.S. dollar-denominated instruments which the Trustees
determine to present minimal credit risks and which are of "high quality" as
determined by any major rating service or, if not rated, are determined by the
Trustees to be of comparable quality. The regulations also require the
Trustees to establish procedures which are reasonably designed to stabilize the
net asset value per share at $1.00 for the Funds. Such procedures include the
determination of the extent of deviation, if any, of the Funds' current net
asset value per share calculated using available market quotations from the
Funds' amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews
of the amount of the deviation and the methods used to calculate such
deviation. In the event that such deviation exceeds 1/2 of 1%, the Trustees
are required to consider promptly what action, if any, should be initiated,
and, if the Trustees believe that the extent of any deviation may result in
material dilution or other unfair results to Shareholders, the Trustees are
required to take such corrective action as they deem appropriate to eliminate
or reduce such dilution or unfair results to the extent reasonably practicable.
Such actions may include the sale of portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations. In addition, if the
Funds incur a significant loss or liability, the Trustees have the authority to
reduce pro rata the number of shares of the Funds in each Shareholder's account
and to offset each Shareholder's pro rata portion of such loss or liability
from the Shareholder's accrued but unpaid dividends or from future dividends
while each other Fund must annually distribute at least 90% of its investment
company taxable income.

The securities of the Funds other than the Money Market Funds are valued by the
Administrator pursuant to valuations provided by an independent pricing
service. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of
the pricing service and its valuations are reviewed by the officers of the
Trust under the general supervision of the Trustees. Although the methodology
and procedures are

S-44
<PAGE> 333
identical, the net asset value per share of Institutional Class and Investment
Class shares of Funds other than the Money Market Funds may differ because of
the distribution expenses charged to Investment Class shares.

TAXES

FEDERAL INCOME TAX

The following is only a summary of certain income tax considerations generally
affecting a Fund and its Shareholders and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisers
with specific reference to their own tax situations, including state and local
income tax liabilities.

ALL FUNDS

In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"), each Fund
must distribute annually to its Shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) (the "Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) the
Fund must derive less than 30% of its gross income each taxable year from the
sale or other disposition of stocks, securities or certain other investments
held for less than three months; (iii) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Fund's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iv) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or two or more issuers engaged in same or
similar businesses if the Fund owns at least 20% of the voting power of such
issuers.

Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain (the excess of net long-term capital gain over net short-term capital
loss), a Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital gain net income for the one-year period
ending on October 31 of that year, plus certain other amounts.

A dividends received deduction is available to corporations that receive
dividends form domestic corporations. Dividends paid by a Fund will be
eligible for the dividends received deduction for corporate shareholders to the
extent they are derived from dividends from domestic corporations and to the
extent that the respective security has been held for at least three months.
Shareholders will be advised each year of the portion of ordinary income
dividends eligible for the deduction.

Individual shareholders are not entitled to the dividends received deduction.

ADDITIONAL CONSIDERATION FOR CALIFORNIA TAX-FREE MONEY MARKET AND TAX-FREE BOND
FUNDS

S-45
<PAGE> 334

As noted in the Prospectuses for the California Tax-Free Money Market and
Tax-Free Bond Funds, exempt interest dividends are generally excludable from a
Shareholder's gross income for regular federal income tax purposes.
Exempt-interest dividends may nevertheless be subject to the alternative
minimum tax (the "Alternative Minimum Tax") imposed by Section 55 of the Code
or the environmental tax (the "Environmental Tax") imposed by Section 59A of
the Code. The Alternative Minimum Tax is imposed at the rate of 26% (with a
maximum rate of 28%) in the case of non-corporate taxpayers and at the rate of
20% in the case of corporate taxpayers, to the extent it exceeds the taxpayer's
regular tax liability. The Environmental Tax is imposed at the rate of 0.12%
and applies only to corporate taxpayers. The Alternative Minimum Tax and the
Environmental Tax may be imposed in two circumstances. First, exempt-interest
dividends derived from certain "private activity bonds" issued after August 7,
1986, will generally be an item of tax preference (and therefore potentially
subject to the Alternative Minimum Tax for both corporate and non-corporate
taxpayers and the Environmental Tax for corporate taxpayers only). Second, in
the case of exempt-interest dividends received by corporate Shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined
in Section 56(g) of the Code, in calculating the corporation's alternative
minimum taxable income for purposes of determining the Alternative Minimum Tax
and the Environmental Tax.

Any gain or loss recognized on a sale or redemption of shares of either Fund by
a Shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than
twelve months and otherwise will be generally treated as a short-term capital
gain or loss. Any loss recognized by a Shareholder upon the sale or redemption
of shares of either Fund held for six months or less, however, will be
disallowed to the extent of any exempt-interest dividends received by the
Shareholder with respect to such shares. If shares on which a net capital gain
distribution has been received are subsequently sold or redeemed and such
shares have been held for six months or less, any loss recognized will be
treated as a long- term capital loss to the extent of the long-term capital
gain distribution.

Interest on indebtedness incurred by Shareholders to purchase or carry shares
of the fund will not be deductible for federal income tax purposes to the
extent that the Fund distributes exempt interest dividends during the taxable
year. The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Certain foreign corporations engaged in a trade or business in the United
States will be subject to a "branch profits tax" on their "dividend equivalent
amount" for the taxable year, which will include exempt-interest dividends.
Certain Subchapter S corporations may also be subject to taxes on their
"passive investment income", which could include exempt-interest dividends. Up
to 85% (up to 50% for years prior to 1994) of the Social Security benefits or
railroad retirement benefits received by an individual during any taxable year
will be included in the gross income of such individual if the individual's
"modified adjusted gross income" (which includes exempt-interest dividends)
plus 50 percent of the Social Security benefits or railroad retirement benefits
received by such individual during that taxable year exceeds the base amount
described in Section 86 of the Code.

The Funds may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or
persons related to such users) of facilities financed by industrial development
or private activity bonds. A "substantial user" is defined generally to
include certain persons who regularly use a facility financed by the proceeds
of such bonds in their trade or business. Such entities or persons should
consult their tax advisors before purchasing shares of either Fund.

S-46
<PAGE> 335

Issuers of bonds purchased by the Fund (or the beneficiary of such bonds) may
have made certain representations or covenants in connection with the issuance
of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Investors should be aware
that exempt-interest dividends derived from such bonds may become subject to
federal income taxation retroactively to the date of issuance of such bonds to
which such dividends are attributable if such representations are determined to
have been inaccurate or if the issuer of such bonds (or the beneficiary of such
bonds) fails to comply with such covenants.

If a Fund should fail to qualify as a regulated investment company for any
taxable year, the Fund would pay tax on its taxable investment income and
capital gains at regular corporate rates without any deductions for amounts
distributed to Shareholders. In addition, all of the Fund's distributions to
Shareholders would be taxable as ordinary income and would qualify for the
corporate dividends-received deduction in the case of corporate shareholders.

FOREIGN TAXES

Dividends and interest received by a Fund may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on the Fund's securities. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. Foreign
countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If a Fund meets the Distribution Requirement
and if more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible to file an election with the Internal Revenue Service that will
enable Shareholders, in effect, to receive the benefit of the foreign tax
credit with respect to any foreign and U.S. possessions income taxes paid by
the Fund. Pursuant to the election, the Fund will treat those taxes as
dividends paid to its Shareholders. Each Shareholder will be required to
include a proportionate share of those taxes in gross income as income received
from a foreign source and must treat the amount so included as if the
Shareholder had paid the foreign tax directly. The Shareholder may then either
deduct the taxes deemed paid by him or her in computing his or her taxable
income or, alternatively, use the foregoing information in calculating the
foreign tax credit against the Shareholder's federal income tax. If a Fund
makes the election, it will report annually to its Shareholders the respective
amounts per share of the Fund's income from sources within, and taxes paid to,
foreign countries and U.S. possessions.

STATE TAXES

A Fund is generally not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Depending upon
applicable state and local law, distributions by the Funds to Shareholders and
the ownership of shares may be subject to state and local taxes.

Many states allow income received from certain United States Government
obligations that is tax exempt when received directly to be tax exempt when
received as income dividends from an investment company. Not all states permit
such income dividends to be tax exempt and some require that a certain minimum
percentage of an investment company's income dividend be derived from state
tax- exempt interest before any portion of the income dividends may be exempt.
The Funds will inform Shareholders annually of the percentage of income that is
derived from direct United States Government obligations. Shareholders should
consult their tax advisors to determine whether any portion of the income
dividends received from a Fund is considered tax exempt in their particular
states.

S-47
<PAGE> 336
FUND TRANSACTIONS

The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Advisor is responsible for placing the orders
to execute transactions for the Fund. In placing orders, it is the policy of
the Trust to seek to obtain the best net results taking into account such
factors as price (including the applicable dealer spread), the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved. While the Advisor generally seeks reasonably competitive spreads or
commissions, the Trust will not necessarily be paying the lowest spread or
commission available. The Trust will not purchase portfolio securities from
any affiliated person acting as principal except in conformity with the
regulations of the Securities and Exchange Commission (the "SEC").

The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the
Advisor will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their
own account. On occasion, securities may be purchased directly from the
issuer. Money market securities are generally traded on a net basis and do not
normally involve either brokerage commissions or transfer taxes. The cost of
executing portfolio securities transactions of the Trust will primarily consist
of dealer spreads and underwriting commissions.

The Trust does not expect to use one particular dealer, but subject to the
Trust's policy of seeking the best net results, dealers who provide
supplemental investment research to the Advisor may receive orders for
transactions by the Trust. Information so received will be in addition to and
not in lieu of the services required to be performed by the Advisor under the
Advisory Agreement, and the expenses of the Advisor will not necessarily be
reduced as a result of the receipt of such supplemental information.

It is expected that the Trust may execute brokerage or other agency
transactions through the Distributor or an affiliate of the Advisor, both of
which are registered broker-dealers, for a commission in conformity with the
1940 Act, the Securities Exchange Act of 1934 and rules promulgated by the SEC.
Under these provisions, the Distributor (or an affiliate of the Advisor) is
permitted to receive and retain compensation for effecting portfolio
transactions for the Trust on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor (or
an affiliate of the Advisor) to receive and retain such compensation. These
rules further require that commissions paid to the Distributor by the Trust for
exchange transactions not exceed "usual and customary" brokerage commissions.
The rules define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the
Funds may direct commission business to one more designated broker/dealers,
including the Distributor, in connection with such broker/dealer's payment of
certain of the Fund's expenses. The Trustees, including those who are not
"interested persons" of the Trust, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.

Since the Trust does not market its shares through intermediary broker-dealers,
it is not the trust's practice to allocate brokerage or principal business on
the basis of sales of its shares which may be made through such firms.
However, the Advisor may place Fund orders with qualified broker-dealers who
recommend the Trust to clients, and may, when a number of brokers and dealers
can provide

S-48
<PAGE> 337
best price and execution on a particular transaction, consider such
recommendations by a broker or dealer in selecting among broker- dealers.

The portfolio turnover rate for each non-money market Fund for the fiscal year
ended January 31, 1996, was as follows:

<TABLE>
<CAPTION>
FYE TURNOVER RATE

1995 1996
FUND
<S> <C> <C>
Growth Equity Fund 22% 24%

Value Momentum Fund 6% 20%

Balanced Fund 48% 26%
Intermediate-Term Bond Fund 95% 147%

Limited Maturity Government Fund 166% 186%

California Intermediate Tax-Free Bond Fund 22% 30%
Blue Chip Growth Fund 89% 69%

Convertible Securities Fund 36% 46%

Emerging Growth Fund 123% 131%
Government Securities Fund 184% 239%

International Equity Fund * 21%
</TABLE>

* Not in operation during such period.

The Brokerage Transactions and Commissions paid for each Fund for the Fiscal
Year ended January 31, 1996 was as follows:

<TABLE>
<CAPTION>
TOTAL
BROKERAGE
% TOTAL OF COMMISSIONS
TOTAL $ % OF TOTAL BROKERAGE PAID TO SFS
TOTAL $ AMOUNT OF BROKERAGE TRANSACTIONS IN TOTAL $
AMOUNT OF BROKERAGE COMMISSIONS EFFECTED CONNECTION AMOUNT OF
BROKERAGE COMMISSIONS PAID TO THROUGH WITH BROKERAGE
COMMISSIONS PAID TO AFFILIATED AFFILIATED REPURCHASE COMMISSIONS
PAID IN AFFILIATES BROKERS FOR BROKERS FOR AGREEMENT PAID FOR
FUND LAST YEAR IN LAST LAST YEAR LAST YEAR TRANSACTIONS RESEARCH
YEAR FOR LAST
YEAR
<S> <C> <C> <C> <C> <C> <C>
Treasury Money 114,370 114,370 100 100 114,370 0
Market Fund
Money Market 104,820 104,820 100 100 104,820 0
Fund
</TABLE>

S-49
<PAGE> 338

Growth Equity 71,326 5,052 7 5,052 0
Fund

Value Momentum 119,509 5,816 5 5,816 0
Fund
Balanced Fund 187,786 8,355 3 8,355 0

Intermediate- 4,340 4,340 100 100 4,340 0
Term Bond Fund

Limited 1,555 1,555 100 100 1,555 0
Maturity
Government Fund
California 0 0 0 0 0 0
Intermediate
Tax-Free Bond
Fund

Blue Chip 141,611 887 1 887 0
Growth Fund

Convertible 1,905 180 9 180 0
Securities Fund
Emerging Growth 136,741 2,709 2 2,709 0
Fund

Government 642 163 25 163 0
Securities Fund

International 163,788 1,684 1 1,684 0
Equity Fund
</TABLE>

<TABLE>
<CAPTION>
TOTAL $ AMOUNT OF BROKERAGE
TOTAL $ AMOUNT OF BROKERAGE COMMISSIONS
COMMISSIONS PAID PAID TO AFFILIATES IN
FUND 1994-1995 1994-1995
1994 1995
<S> <C> <C> <C>
Treasury Money Market Fund 0 71,721 71,271

Money Market Fund 0 129,034 129,034
</TABLE>

S-50
<PAGE> 339

<TABLE>
<CAPTION>
TOTAL $ AMOUNT OF BROKERAGE
TOTAL $ AMOUNT OF BROKERAGE COMMISSIONS
COMMISSIONS PAID PAID TO AFFILIATES IN
FUND 1994-1995 1994-1995
<S> <C> <C> <C>
California Tax-Free Money Market 0 0 0
Fund

Growth Equity Fund 154,013 63,600 4,728

Value Momentum Fund 127,867 69,408 7,304
Balanced Fund 232,020 169,370 5,139

Intermediate-Term Bond Fund 0 3,256

Limited Maturity Government Fund 0 11,500
California Intermediate Tax-Free 0 0 0
Bond Fund

Blue Chip Growth Fund 0 101,414

Convertible Securities Fund 0 800
Emerging Growth Fund 0 62,763

Government Securities Fund 0 1,092

International Equity Fund 0 0 0
</TABLE>

DESCRIPTION OF SHARES

The Declaration of Trust authorizes the issuance of an unlimited number of
shares of each series and of each class of shares thereof. Each Institutional
and Investment Class share of that Fund represents an equal proportionate
interest in that Fund with each other Institutional and Investment Class shares
of that Fund. Shares are entitled upon liquidation to a pro rata share in the
net assets of the Funds, Shareholders have no preemptive rights. The
Declaration of Trust provides that the Trustees of the Trust may create
additional series of shares. All consideration received by the Trust for
shares of any additional series and all assets in which such consideration is
invested would belong to that series and would be subject to the liabilities
related thereto. Share certificates representing shares will not be issued.

SHAREHOLDER LIABILITY

The Trust is an entity of the type commonly known as a "Massachusetts business
trust". Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders'

incurring financial loss for that reason appears remote because The Trust's
Declaration of Trust contains an express disclaimer of Shareholder liability
for obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
or on behalf of the Trust or the Trustees, and because the Declaration of Trust
provides for indemnification out of the Trust property for any Shareholder held
personally liable for the obligations of the Trust.

S-51
<PAGE> 340
LIMITATION OF TRUSTEES' LIABILITY

The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisors, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in the Declaration of Trust shall protect or indemnify a Trustee
against any liability for his willful misfeasance, bad faith, gross negligence
or reckless disregard of his duties.

5% SHAREHOLDERS

As of March 5, 1996 the following persons were the only persons who were record
owners (or to the knowledge of the Trust, beneficial owner) of 5% or more of
the shares of the Funds. The Trust believes that most of the shares referred
to below were held by the persons indicated in accounts for their fiduciary,
agency, or custodial customers.

INSTITUTIONAL CLASS

Money Market Fund

<TABLE>
<CAPTION>
Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Lane & Company 115,351,018.270 22.45
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112

BOTT Pension 31,222,481.100 6.08
c/o Bank of Tokyo Trust Co.
Attn: Dennis Demetropolious
100 Broadway
New York, NY 10005

Union Bank 367,068,640.000 71.45
Attn: Jessica Hickman
P.O. Box 109
San Diego, CA 92112
</TABLE>

S-52
<PAGE> 341

<TABLE>
<CAPTION>
Treasury Money Market Fund
--------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Union Bank 185,057,005.00 97.90
Attn: Jessica Hickman
P.O. Box 109
San Diego, CA 92112

</TABLE>

<TABLE>
<CAPTION>
California Tax-Free Money Market Fund
-------------------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Union Bank 34,262,229.000 100.00
Attn: Jessica Hickman
P.O. Box 109
San Diego, CA 92112
</TABLE>

<TABLE>
<CAPTION>
Growth Equity Fund
------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>

Lane & Company 10,097,960.818 99.49
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>

<TABLE>
<CAPTION>
Convertible Securities Fund
---------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>

BOTT Pension 1,560,179.877 95.85
c/o Bank of Tokyo Trust Co.
Attn: Dennis Demetropolious
100 Broadway
New York, NY 10005

</TABLE>

<TABLE>
<CAPTION>
Value Momentum Fund
-------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>

Lane & Company 12,245,573.094 98.67
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>

S-53
<PAGE> 342

<TABLE>
<CAPTION>
Blue Chip Growth Fund
---------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Lane & Company 758,841.037 14.66
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112

BOTT Pension 4,418,510.277 85.34
c/o Bank of Tokyo Trust Co.
Attn: Dennis Demetropolious
100 Broadway
New York, NY 10005
</TABLE>

<TABLE>
<CAPTION>
Emerging Growth Fund
--------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>

Lane & Company 555,497.020 15.53
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112

BOTT Pension 3,022,179.997 84.47
c/o Bank of Tokyo Trust Co.
Attn: Dennis Demetropolious
100 Broadway
New York, NY 10005

</TABLE>

<TABLE>
<CAPTION>
Intermediate-Term Bond Fund
---------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>

Lane & Company 12,743,871.935 99.61
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112

</TABLE>

<TABLE>
<CAPTION>
Balanced Fund
-------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------

<S> <C> <C>
Lane & Company 16,426,491.722 96.35
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>

S-54
<PAGE> 343

Government Securities Fund

<TABLE>
<CAPTION>
Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Lane & Company 402,718.763 8.30
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112

BOTT Pension 4,452,115.527 91.70
c/o Bank of Tokyo Trust Co.
Attn: Dennis Demetropolious
100 Broadway
New York, NY 10005
</TABLE>

<TABLE>
<CAPTION>
Limited Maturity Government Fund
--------------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Lane & Company 3,612,354.649 98.87
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>

<TABLE>
<CAPTION>
California Intermediate Tax-Free Bond Fund
------------------------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Lane & Company 457,002.689 100.00
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>

<TABLE>
<CAPTION>
International Equity Fund
-------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Lane & Company 1,219,379.980 99.58
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
</TABLE>

S-55
<PAGE> 344

<TABLE>
<CAPTION>
INVESTMENT CLASS
----------------

Money Market Fund
-----------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 265,634,712.970 100.00
For Exclusive Benefit of Customers
Attn: Sal Macca
1 World Financial Center
200 Liberty Street, 4th Fl.
New York, NY 10281
</TABLE>

<TABLE>
<CAPTION>
Treasury Money Market Fund
--------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 236,331,716.960 100.00
For Exclusive Benefit of Customers
Attn: Sal Macca
1 World Financial Center
200 Liberty Street, 4th Fl.
New York, NY 10281
</TABLE>

<TABLE>
<CAPTION>
California Tax-Free Money Market Fund
-------------------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 87,315,849.330 100.00
For Exclusive Benefit of Customers
Attn: Sal Macca
1 World Financial Center
200 Liberty Street, 4th Fl.
New York, NY 10281
</TABLE>

<TABLE>
<CAPTION>
Growth Equity Fund
------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
Post & Co. 25,194.000 17.26
c/o The Bank of New York
Attn: Bill Sauer Mutual Funds Reorg. Dept.
P.O. Box 1066
Wall Street Station
New York, NY 10268

National Financial Services Corp. 108,054.830 74.04
For Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

S-56
<PAGE> 345

<TABLE>
<CAPTION>
Value Momentum Fund
-------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 662,642.307 100.00
For Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

<TABLE>
<CAPTION>
Intermediate-Term Bond Fund
---------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 601,899.698 100.00
For Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

<TABLE>
<CAPTION>
Balanced Fund
-------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 586,005.818 100.00
For Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

<TABLE>
<CAPTION>
Limited Maturity Government Fund
--------------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 65,095.705 100.00
For Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

<TABLE>
<CAPTION>
California Intermediate Tax-Free Bond Fund
------------------------------------------

Name Number of Shares Percent of Fund
- ---- ---------------- ---------------
<S> <C> <C>
National Financial Services Corp. 454,551.420 100.00
For Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

S-57
<PAGE> 346

EXPERTS

The financial statements included in this Statement of Additional Information
and the Selected Per Share Data and Ratios included in the Prospectuses have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report, with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving the report.

S-58
<PAGE> 347
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Treasury Money Market Fund
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (34.0%)
U.S. Treasury Bills
5.480%, 02/01/96 . . . . . . . . . . . $ 5,000 $ 5,000
5.420%, 02/08/96 . . . . . . . . . . . 5,000 4,995
5.290%, 02/29/96 . . . . . . . . . . . 5,000 4,979
5.280%, 03/07/96 . . . . . . . . . . . 5,000 4,974
5.300%, 04/04/96 . . . . . . . . . . . 5,000 4,954
5.510%, 05/02/96 . . . . . . . . . . . 15,000 14,801
5.220%, 05/16/96 . . . . . . . . . . . 5,000 4,924
4.980%, 05/23/96 . . . . . . . . . . . 15,000 14,771
4.990%, 06/20/96 . . . . . . . . . . . 5,000 4,903
5.010%, 07/25/96 . . . . . . . . . . . 5,000 4,878
5.330%, 08/22/96 . . . . . . . . . . . 5,000 4,850
5.010%, 10/17/96 . . . . . . . . . . . 5,000 4,820
U.S. Treasury Notes
7.875%, 02/15/96 . . . . . . . . . . . 16,435 16,450
5.500%, 04/30/96 . . . . . . . . . . . 5,000 4,997
5.880%, 05/31/96 . . . . . . . . . . . 10,000 10,009
6.130%, 07/31/96 . . . . . . . . . . . 10,000 10,019
6.500%, 09/30/96 . . . . . . . . . . . 10,000 10,052
7.250%, 11/15/96 . . . . . . . . . . . 5,000 5,080
</TABLE>

VALUE
(000)
-------
- ------------------------------------------------------------------
<S> <C>
Total U.S. Treasury Obligations
(Cost $135,456,447) . . . . . . . 135,456
- ------------------------------------------------------------------

REPURCHASE AGREEMENTS (69.9%)
SBC Capital Markets
5.88%, dated 01/31/96, matures
02/01/96, repurchase price
$17,669,843 (collateralized by
U.S. Treasury Bond, par value
$12,910,000, 10.375%, matures
11/15/12: market value $18,057,115) . . . . . . . 17,667
Deutsche Morgan Grenfell/C.J.
Lawrence 5.88%, dated 01/31/96,
matures 02/01/96, repurchase
price $91,268,889 (collateralized
by various U.S. Treasury Notes,
total par value $89,014,000,
5.125%-7.50%, 08/31/96-03/31/00:
total market value $93,079,931) . . . . . . . . . 91,254
Barclays De Zoete Wedd Securities
5.88%, dated 01/31/96, matures,
02/01/96, repurchase price
$15,015,956 (collateralized by
various U.S. Treasury STRIPS,
total par value $33,926,000,
02/15/98-08/15/09: total
market value $15,313,823) . . . . . . . . . . . . 15,014
Morgan Stanley & Companies
5.88%, dated 01/31/96, matures
02/01/96, repurchase price
$15,065,513 (collateralized by U.S.
Treasury Note, par value
$14,990,000, 5.50%, matures
09/30/97: market value
$15,378,411) . . . . . . . . . . . . . . . . . . . 15,063
UBS Securities,
5.88%, dated 01/31/96, matures
02/01/96, repurchase price
$90,037,921 (collateralized by various
U.S. Treasury Notes, total par
value $89,029,000, 5.00%-9.125%,
11/30/98-07/31/99: total
market value $91,828,617) . . . . . . . . . . . . 90,023
J P Morgan Securities
5.88%, dated 01/31/96, matures
02/01/96, repurchase price
$15,020,641 (collateralized by various
U.S. Treasury Investment Growth
Receipts, total par value
$1,684,375, 02/15/98-05/15/04:
U.S. Treasury STRIPS, par value
$31,280,000, matures 05/15/09:
total market value $15,320,396) . . . . . . . . . 15,018
Merrill Lynch Government Securities
5.88%, dated 01/31/96, matures
02/01/96, repurchase price
$16,264,495 (collateralized by U.S.
Treasury Non-callable STRIPS, par
value $21,360,000, 8.50%, matures
11/15/00: market value $16,587,321) . . . . . . . 16,262
</TABLE>

13
<PAGE> 348
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Treasury Money Market Fund (cont'd)

<TABLE>
<CAPTION>
VALUE
(000)
-------
<S> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Nomura Securities International
5.88%, dated 01/31/96, matures
02/01/96, repurchase price
$17,804,732 (collateralized by
various U.S. Treasury Notes, total
par value $17,534,000, 4.75%-7.25%,
02/15/98-11/30/00: total
market value $18,158,645) . . . . . . . . . . . $ 17,802
- ------------------------------------------------------------------
Total Repurchase Agreements
(Cost $278,102,568) . . . . . . . . . . . . . 278,103
- ------------------------------------------------------------------
Total Investments (103.9%)
(Cost $413,559,015) . . . . . . . . . . . . . 413,559
- ------------------------------------------------------------------
Other Assets and Liabilities (-3.9%) . . . . . . . . (15,553)
- ------------------------------------------------------------------

NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 182,267,812
outstanding shares of beneficial
interest . . . . . . . . . . . . . . . . . . . $182,267
Fund shares of Investment Class
(unlimited authorization--no par
value) based on 215,740,733
outstanding shares of beneficial
interest . . . . . . . . . . . . . . . . . . . . 215,741
Accumulated Net Realized Loss
on Investments . . . . . . . . . . . . . . . . . (2)
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . . . . . . $398,006
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . . . . . . $1.00
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INVESTMENT CLASS . . . . . . . . . . . . . . . . $1.00
==================================================================
</TABLE>

STRIPS--Separate Trading of Registered Interest and Principal of Securities

The accompanying notes are an integral part of the financial statements.

14
<PAGE> 349
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Money Market Fund
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
CERTIFICATES OF DEPOSIT -- YANKEE (14.5%)
Banque Nationale de Paris, New York
5.820%, 02/14/96 . . . . . . . . . . . $20,000 $20,000
Bayerische Hypotheken Und Wechsel
5.650%, 06/27/96 . . . . . . . . . . . 10,000 9,995
Lloyds Bank PLC
5.220%, 07/24/96 . . . . . . . . . . . 30,000 30,000
Royal Bank of Canada, New York
5.500%, 06/17/96 . . . . . . . . . . . 25,000 25,000
Swiss Bank Corp, New York
5.670%, 03/25/96 . . . . . . . . . . . 25,000 24,998
- ------------------------------------------------------------------
Total Certificates of Deposit -- Yankee
(Cost $109,982,237) . . . . . . . 109,993
- ------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- EURO (12.1%)
Abbey National Bank, London
5.710%, 03/11/96 . . . . . . . . . . . 32,000 31,999
Deutsche Bank AG, London
5.730%, 02/20/96 . . . . . . . . . . . 30,000 29,999
Toronto Dominion Bank
5.430%, 04/09/96 . . . . . . . . . . . 30,000 30,002
- ------------------------------------------------------------------
Total Certificates of Deposit -- Euro
(Cost $91,996,869) . . . . . . . . 92,000
- ------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- DOMESTIC (3.9%)
Wachovia Bank of Georgia, N.A.
5.420%, 02/27/96 . . . . . . . . . . . 30,000 30,000
- ------------------------------------------------------------------
Total Certificates of Deposit -- Domestic
(Cost $39,987,732) . . . . . . . . 30,000
- ------------------------------------------------------------------
COMMERCIAL PAPER (41.8%)
AT&T
5.640%, 02/22/96 . . . . . . . . . . . 30,000 29,901
Ciesco
5.650%, 02/08/96 . . . . . . . . . . . 20,000 19,978
5.390%, 03/18/96 . . . . . . . . . . . 14,600 14,499
Commonwealth Bank of Australia
5.250%, 04/12/96 . . . . . . . . . . . 25,000 24,741
Ford Motor Credit
5.650%, 02/05/96 . . . . . . . . . . . 30,000 29,981
General Electric
5.400%, 03/11/96 . . . . . . . . . . . 15,985 15,891
Goldman Sachs
5.650%, 02/01/96 . . . . . . . . . . . 25,000 25,000
Merrill Lynch
5.400%, 03/15/96 . . . . . . . . . . . 30,000 29,807
Morgan Stanley Group
5.700%, 02/12/96 . . . . . . . . . . . 30,000 29,948
NationsBank
5.670%, 02/02/96 . . . . . . . . . . . 25,000 24,996
Societe Generale North America
5.270%, 04/23/96 . . . . . . . . . . . 30,000 29,640
Westpac Capital
5.510%, 04/08/96 . . . . . . . . . . . 25,000 24,744
WMX Technologies
5.500%, 03/08/96 . . . . . . . . . . . 20,000 19,890
- ------------------------------------------------------------------
Total Commercial Paper
(Cost $319,016,402) . . . . . . . 319,016
- ------------------------------------------------------------------
CORPORATE OBLIGATIONS (11.8%)
Bank of America, Illinois
5.730%, 03/05/96 . . . . . . . . . . . 10,000 10,000
5.360%, 04/18/96 . . . . . . . . . . . 20,000 20,000
Bank of Hawaii, Honolulu
5.500%, 01/03/97 . . . . . . . . . . . 10,000 10,004
Bear Stearns Floating Rate Note
5.730%, 05/15/96 (A) . . . . . . . . . 20,000 20,000
First of America Bank Michigan, N.A.
6.450%, 06/04/96 . . . . . . . . . . . 10,000 10,017
5.600%, 02/23/96 . . . . . . . . . . . 20,000 20,001
- ------------------------------------------------------------------
Total Corporate Obligations
(Cost $80,048,171) . . . . . . . . 90,022
- ------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (5.2%)
U.S. Treasury Notes
5.500%, 04/30/96 . . . . . . . . . . . 10,000 9,993
5.880%, 05/31/96 . . . . . . . . . . . 5,000 5,001
4.380%, 08/15/96 . . . . . . . . . . . 15,000 14,887
6.500%, 09/30/96 . . . . . . . . . . . 10,000 10,051
- ------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $39,931,624) . . . . . . . 39,932
- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (1.2%)
FNMA
5.680%, 10/07/96 . . . . . . . . . . . 9,200 9,209
- ------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Obligations
(Cost $9,208,951) . . . . . . . . 9,209
- ------------------------------------------------------------------
</TABLE>

15
<PAGE> 350
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Money Market Fund (cont'd)

<TABLE>
<CAPTION>
VALUE
(000)
-------
<S> <C>
REPURCHASE AGREEMENTS (9.5%)
Deutsche Morgan Grenfell/
C.J. Lawrence,
5.95%, dated 01/31/96, matures
02/01/96, repurchase price
$72,250,917 (collateralized by various
FHLMC obligations total par value
$180,156,295, 0.00%-7.50%,
02/01/96-02/15/24: FNMA
obligations total par value
$41,435,979, 0.00%-7.48%,
07/25/17-10/25/23: FHLB
obligation, par value $2,000,000,
8.10%, 03/25/96: U.S. Treasury
Bond, par value $3,000,000,
7.625%, 11/15/22: U.S. Treasury
Notes total par value $13,097,000,
7.25%-7.625%, 04/30/96-02/15/98:
total market value $73,684,413. . . . . . . . . . $ 72,239
- ------------------------------------------------------------------
Total Repurchase Agreements
(Cost $72,238,978) . . . . . . . . . . . . . 72,239
- ------------------------------------------------------------------
Total Investments (100.0%)
(Cost $762,410,964) . . . . . . . . . . . . 762,411
- ------------------------------------------------------------------
Other Assets and Liabilities (0.0%) . . . . . . . . 277
- ------------------------------------------------------------------

NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no
par value) based on 504,073,683
outstanding shares of beneficial
interest . . . . . . . . . . . . . . . . . . . $504,073
Fund shares of Investment Class
(unlimited authorization--no
par value) based on 259,783,048
outstanding shares of beneficial
interest . . . . . . . . . . . . . . . . . . . 259,782
Undistributed Net Investment Income . . . . . . . 1
Accumulated Net Realized Loss
on Investments . . . . . . . . . . . . . . . . (1,168)
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . . . . . . $762,688
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . . . . . . $1.00
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INVESTMENT CLASS . . . . . . . . . . . . . . . . $1.00
==================================================================
</TABLE>

(A) Floating Rate Security--The rate reflected on the Statement of Net Assets
is the rate in effect on January 31, 1996.
FHLB--Federal Home Loan Bank
FHLMC--Federal Home Loan Mortgage Association
FNMA--Federal National Mortgage Association

The accompanying notes are an integral part of the financial statements.

16
<PAGE> 351
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone California Tax-Free Money Market Fund
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
CALIFORNIA MUNICIPAL BONDS (98.8%)
Alameda County, Multi-Family
Housing, VRDN, RB (A) (B) (C)
2.950%, 02/07/96 . . . . . . . . . . . $ 900 $ 900
California Department of Water
Resources, Central Valley Project,
Ser N, VRDN, RB, CGIC Insured
(A) (B)
3.100%, 02/07/96 . . . . . . . . . . . 3,000 3,000
California Education Facilities,
Carnegie, TECP
3.100%, 05/03/96 . . . . . . . . . . . 1,000 1,000
California Health Facilities Financing
Authority, Kaiser Permanente,
Ser A, RB (A) (B)
6.500%, 10/01/96 . . . . . . . . . . . 500 510
California Health Facilities Financing
Authority, Catholic Health Care,
Ser A, VRDN, RB, MBIA Insured
(A) (B)
2.850%, 02/07/96 . . . . . . . . . . . 1,000 1,000
California Health Facilities Financing
Authority, Ser B, VRDN, RB, FGIC
Insured (A) (B)
2.900%, 02/07/96 . . . . . . . . . . . 500 500
California Health Facilities Financing
Authority, Santa Barbara, VRDN,
RB (A) (B) (C)
2.800%, 02/07/96 . . . . . . . . . . . 2,900 2,900
California Health Facilities Financing
Authority, Sutter Community
Hospital, Ser A, VRDN, RB (A) (B)
3.300%, 02/07/96 . . . . . . . . . . . 400 400
California Health Facilities Financing
Authority, Adventist Health Systems,
VRDN, RB (A) (B) (C)
2.800%, 02/07/96 . . . . . . . . . . . 1,500 1,500
California Health Facilities Financing
Authority, Children's Hospital,
VRDN, RB, MBIA Insured
2.900%, 02/07/96 . . . . . . . . . . . 900 900
California Health Facilities Financing
Authority, Memorial Health
Services, VRDN, RB (A) (B)
2.800%, 02/07/96 . . . . . . . . . . . 5,040 5,040
California Health Facilities Financing
Authority, Kaiser Permanente,
Ser A, VRDN, RB (A) (B)
2.800%, 02/07/96 . . . . . . . . . . . 5,000 5,000
California Health Facilities Financing
Authority, St. Joseph's Hospital,
VRDN, RB (A) (B)
3.250%, 02/07/96 . . . . . . . . . . . 600 600
California Pollution Control Finance
Authority, Pac-88c, TECP
3.350%, 02/07/96 . . . . . . . . . . . 1,000 1,000
California Pollution Control Finance
Authority, TECP (C)
3.150%, 05/10/96 . . . . . . . . . . . 1,000 1,000
California Pollution Control Finance
Authority, Minnesota Mining &
Manufacturing Project, VRDN,
RB (A) (B)
3.050%, 11/01/96 . . . . . . . . . . . 400 400
California Pollution Control Finance
Authority, Shell Oil, Ser A, VRDN,
RB (A) (B)
3.250%, 02/07/96 . . . . . . . . . . . 2,400 2,400
California Pollution Control Finance
Authority, Shell Oil, VRDN,
RB (A) (B)
3.250%, 02/07/96 . . . . . . . . . . . 1,400 1,400
California Pollution Control Finance
Authority, Southern California
Edison, Ser A, VRDN, RB (A) (B)
3.700%, 02/07/96 . . . . . . . . . . . 1,600 1,600
California Pollution Control Finance
Authority, Southern California
Edison, Ser D, VRDN, RB (A) (B)
3.700%, 02/07/96 . . . . . . . . . . . 400 400
California Pollution Control Finance
Authority, Southern California
Edison, Ser B, VRDN, RB (A) (B)
3.700%, 02/07/96 . . . . . . . . . . . 600 600
</TABLE>

17
<PAGE> 352
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (cont'd)

<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
California Pollution Control Finance
Authority, Southern California
Edison, Ser C, VRDN, RB (A) (B)
3.700%, 02/07/96 . . . . . . . . . . . $3,200 $ 3,200
California Pollution Control Finance
Authority, Shell Oil, Ser A, VRDN,
RB, MBIA Insured (A) (B)
3.250%, 02/07/96 . . . . . . . . . . . 200 200
California Pollution Control Finance
Authority, Exxon Project, VRDN,
RB (A) (B) (C)
3.500%, 02/07/96 . . . . . . . . . . . 5,000 5,000
California Revenue Anticipation
Warrants, FGIC Insured
5.750%, 04/25/96 . . . . . . . . . . . 470 472
California Statewide Community
Development Authority, St. Joseph
Health System, VRDN, RB (A) (B)
2.800%, 02/07/96 . . . . . . . . . . . 1,600 1,600
3.200%, 02/07/96 . . . . . . . . . . . 3,700 3,700
California Statewide Community
Development Authority, Sutter
Health Group, VRDN, RB,
AMBAC Insured
3.300%, 02/07/96 . . . . . . . . . . . 1,100 1,100
City of San Diego Multi-Family
Housing, University Apartments,
VRDN, RB (A) (B)
2.950%, 02/07/96 . . . . . . . . . . . 1,500 1,500
Contra Costa Transportation Authority,
Sales Tax Revenue, Ser A, VRDN,
RB, FGIC Insured (A) (B)
2.900%, 02/07/96 . . . . . . . . . . . 3,500 3,500
County of San Diego
Teeter Obligation, TECP (C)
3.300%, 04/04/96 . . . . . . . . . . . 1,000 1,000
Del Mar Race Track Authority.
TECP (C)
3.650%, 02/22/96 . . . . . . . . . . . 1,000 1,000
Eastern Municipal Water District,
COP, Ser B, VRDN, RB, FGIC
Insured (A) (B)
2.900%, 02/07/96 . . . . . . . . . . . 100 100
Escondido Unified School District,
Ser A, GO, FGIC Insured
3.400%, 09/01/96 . . . . . . . . . . . 1,000 1,000
Golden Empire School Finance
Authority, Kern High School,
VRDN, RB (A) (B) (C)
2.950%, 02/07/96 . . . . . . . . . . . 600 600
Healdsburg Community
Redevelopment Agency, VRDN,
RB (A) (B) (C)
3.500%, 02/07/96 . . . . . . . . . . . 3,760 3,760
Huntington Park Redevelopment
Agency, VRDN, RB (A) (B) (C)
3.550%, 02/07/96 . . . . . . . . . . . 1,170 1,170
Irvine Ranch Water District,
VRDN, GO (A) (B) (C)
4.150%, 02/07/96 . . . . . . . . . . . 2,700 2,700
Irvine Ranch Water District,
Capital Improvement Project,
COP, VRDN, RB (A) (B)
3.800%, 02/07/96 . . . . . . . . . . . 500 500
Long Beach Harbor Revenue, RB
6.500%, 05/15/96 . . . . . . . . . . . 1,200 1,209
Los Angeles County Transportation
Commission, Sales Tax Revenue,
RB, Pre-Refunded 07/01/96 @ 102
7.600%, 07/01/06 . . . . . . . . . . . 1,355 1,403
Los Angeles Metro Transportation
Authority, TECP (C)
3.150%, 02/01/96 . . . . . . . . . . . 2,000 2,000
Los Angeles Waste Water, TECP (C)
3.650%, 02/16/96 . . . . . . . . . . . 3,000 3,000
Los Angeles Department of
Water & Power, TECP
3.650%, 02/08/96 . . . . . . . . . . . 3,000 3,000
Modesto, COP, High School & City
School District, VRDN, RB
(A) (B) (C)
3.050%, 02/07/96 . . . . . . . . . . . 1,400 1,400
Riverside County Transportation
Commission, TECP (C)
3.900%, 02/08/96 . . . . . . . . . . . 1,000 1,000
</TABLE>

18
<PAGE> 353
STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (cont'd)

<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
Sacramento County Multi-Family
Housing, VRDN, RB (A) (B) (C)
3.400%, 02/07/96 . . . . . . . . . . . $2,800 $ 2,800
San Bernadino Transportation
Authority, Sales Tax Revenue,
VRDN, RB (A) (B) (C)
3.150%, 02/07/96 . . . . . . . . . . . 3,500 3,500
San Bernadino County Housing
Authority, Victoria Terrace,
Project A, VRDN, RB (A) (B) (C)
3.000%, 02/07/96 . . . . . . . . . . . 5,000 5,000
San Bernardino Multi-Family Housing,
Western #3 Project,
VRDN, RB (A) (B) (C)
3.000%, 02/07/96 . . . . . . . . . . . 2,500 2,500
San Bernardino Multi-Family Housing,
Western #4 Project,
VRDN, RB (A) (B) (C)
3.000%, 02/07/96 . . . . . . . . . . . 2,500 2,500
San Diego Transportation Authority,
TECP (C)
3.250%, 02/07/96 . . . . . . . . . . . 2,500 2,500
3.050%, 03/06/96 . . . . . . . . . . . 1,600 1,600
San Diego Water Authority, TECP
3.200%, 04/12/96 . . . . . . . . . . . 1,000 1,000
San Jose Unified School District,
County of Santa Clara, TRAN
4.750%, 09/19/96 . . . . . . . . . . . 2,000 2,008
San Mateo, TRAN
4.500%, 07/01/96 . . . . . . . . . . . 2,000 2,004
Santa Clara Transport Authority,
VRDN, RB (A) (B) (C)
3.650%, 02/07/96 . . . . . . . . . . . 1,000 1,000
Santa Clara Water District, RB,
Pre-Refunded 06/01/96 @ 100
5.750%, 06/01/96 . . . . . . . . . . . 1,400 1,410
Santa Cruz County, TRAN
4.500%, 07/11/96 . . . . . . . . . . . 2,000 2,004
Solano County, TRAN
4.500%, 11/01/96 . . . . . . . . . . . 2,500 2,512
Southern California Metro Water,
TECP (C)
3.650%, 02/22/96 . . . . . . . . . . . 1,000 1,000
Tracy Sycamore Multi-Family Housing,
VRDN, RB (A) (B) (C)
3.200%, 02/07/96 . . . . . . . . . . . 2,300 2,300
Tri City Hospital District, Imperial
Municipal Services Group, RB,
Pre-Refunded 02/01/96 @ 100
9.875%, 02/01/09 . . . . . . . . . . . 1,900 1,900
Vallejo Housing Authority, Multi-
Family Revenue, VRDN, RB,
FNMA Insured (A) (B)
2.950%, 02/07/96 . . . . . . . . . . . 900 900
Vallejo Housing Authority, Multi-
Family Revenue, VRDN, RB
(A) (B) (C)
3.200%, 02/07/96 . . . . . . . . . . . 5,000 5,000
West Covina Redevelopment Agency,
Lakes Public Parking Project,
VRDN, RB (A) (B) (C)
3.650%, 02/07/96 . . . . . . . . . . . 2,025 2,025
- ------------------------------------------------------------------
Total California Municipal Bonds
(cost $122,626,892) . . . . . . . 122,627
- ------------------------------------------------------------------
CASH EQUIVALENT (2.2%) . . . . . . . . . .
SEI California Tax Free Money
Market Portfolio (A)
3.180% . . . . . . . . . . . . . . . . 2,713
- ------------------------------------------------------------------
Total Cash Equivalent
(Cost $2,712,612) . . . . . . . . 2,713
- ------------------------------------------------------------------
Total Investments (101.0%)
(Cost $125,339,504) . . . . . . . 125,340
- ------------------------------------------------------------------
Other Assets and Liabilities (-1.0%) . . . (1,240)
- ------------------------------------------------------------------
</TABLE>

19
<PAGE> 354
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (cont'd)

<TABLE>
<CAPTION>
VALUE
(000)
-------
<S> <C>
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 42,920,481
outstanding shares of beneficial
interest . . . . . . . . . . . . . . $ 42,920
Fund shares of Investment Class
unlimited authorization--no par
value) based on 81,181,155
outstanding shares of beneficial
interest . . . . . . . . . . . . . . 81,182
Accumulated Net Realized
Loss on Investments . . . . . . . . (2)
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $124,100
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $1.00
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INVESTMENT CLASS . . . . . . . . . . . $1.00
==================================================================
</TABLE>

(A) Floating Rate Security--The rate reflected on the Statement of Net Assets
is the rate in effect on January 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 Company
COP--Certificate of Participation
CGIC--California Guaranty Insurance Company
FGIC--Financial Guaranty Insurance Company
FNMA--Federal National Mortgage Association
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.

20
<PAGE> 355
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Intermediate-Term Bond Fund
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
CORPORATE OBLIGATIONS (38.2%)
American Telephone & Telegraph
7.500%, 06/01/06 . . . . . . . . . . . $3,000 $3,330
Arkansas Electric Cooperative
7.330%, 06/30/08 . . . . . . . . . . . 2,492 2,701
Avco Financial Services
7.375%, 08/15/01 . . . . . . . . . . . 3,500 3,745
Bankers Trust, NY
7.250%, 01/15/03 . . . . . . . . . . . 3,500 3,679
7.500%, 11/15/15 . . . . . . . . . . . 1,500 1,552
Banponce
6.750%, 12/15/05 . . . . . . . . . . . 2,000 2,022
Ford Motor Credit
8.200%, 02/15/02 . . . . . . . . . . . 4,000 4,450
Province of British Columbia
6.500%, 01/15/26 . . . . . . . . . . . 5,000 4,956
Province of Manitoba
6.125%, 01/19/04 . . . . . . . . . . . 3,000 3,015
Province of Ontario
7.380%, 01/27/03 . . . . . . . . . . . 4,000 4,315
Pacific Gas & Electric
8.750%, 01/01/01 . . . . . . . . . . . 780 872
6.250%, 08/01/03 . . . . . . . . . . . 2,000 2,010
Panhandle Eastern
7.880%, 08/15/04 . . . . . . . . . . . 3,000 3,308
Pepsico
5.880%, 06/01/00 . . . . . . . . . . . 3,500 3,531
Ralston Purina
7.750%, 10/01/15 . . . . . . . . . . . 1,000 1,072
Salomon Brothers
7.750%, 05/15/00 . . . . . . . . . . . 2,000 2,100
Southern California Edison First
Mortgage
5.630%, 10/01/02 . . . . . . . . . . . 4,000 3,915
Union Electric
6.880%, 08/01/04 . . . . . . . . . . . 2,500 2,647
- ------------------------------------------------------------------
Total Corporate Obligations
(cost $50,713,720) . . . . . . . . 53,220
- ------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (42.0%)
United States Treasury Bonds
7.130%, 02/15/23 . . . . . . . . . . . 3,900 4,418
6.880%, 08/15/25 . . . . . . . . . . . 2,500 2,788
United States Treasury Notes
6.380%, 07/15/99 . . . . . . . . . . . 1,000 1,039
6.250%, 05/31/00 . . . . . . . . . . . 7,000 7,274
6.130%, 07/31/00 . . . . . . . . . . . 13,100 13,556
6.130%, 09/30/00 . . . . . . . . . . . 9,000 9,319
5.880%, 02/15/04 . . . . . . . . . . . 12,000 12,258
7.250%, 08/15/04 . . . . . . . . . . . 3,500 3,893
6.250%, 08/15/23 . . . . . . . . . . . 4,000 4,072
- ------------------------------------------------------------------
Total U.S. Treasury Obligations
(cost $56,820,022) . . . . . . . . 58,617
- ------------------------------------------------------------------
ASSET BACKED SECURITIES (5.8%)
American Express Master Trust
7.150%, 08/15/99 . . . . . . . . . . . 4,000 4,181
Bridgestone Firestone Master Trust
6.250%, 12/01/99 . . . . . . . . . . . 1,000 1,001
J.C. Penney Master Credit Card Trust
9.630%, 06/15/00 . . . . . . . . . . . 2,500 2,877
- ------------------------------------------------------------------
Total Asset Backed Securities
(Cost $7,538,833) . . . . . . . . 8,059
- ------------------------------------------------------------------
REPURCHASE AGREEMENTS (12.6%)
Deutsche Morgan Grenfell/
C.J. Lawrence,
5.95%, dated 01/31/96, matures
02/01/96, repurchase price
$17,548,455 (collateralized by U.S.
Treasury Notes, total par value
$17,129,000, 5.875%--8.00%,
10/15/96--06/30/00: total market
value $17,897,140) . . . . . . . . . 17,546
- ------------------------------------------------------------------
Total Repurchase Agreements
(cost $17,545,555) . . . . . . . . 17,546
- ------------------------------------------------------------------
Total Investments (98.6%)
(cost $132,618,130) . . . . . . . 137,442
- ------------------------------------------------------------------
Other Assets and Liabilities (1.4%) . . . 1,917
- ------------------------------------------------------------------
</TABLE>

21
<PAGE> 356
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Intermediate-Term Bond Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
(000)
-------
<S> <C>
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 12,516,925
outstanding shares of beneficial
interest . . . . . . . . . . . . . . $129,017
Fund shares of Investment Class
(unlimited authorization--no par
value) based on 604,695 outstanding
shares of beneficial interest . . . 6,793
Undistributed Net Investment Income . 137
Accumulated Net Realized Loss
on Investments . . . . . . . . . . . (1,412)
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 4,824
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $139,359
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $10.62
- ------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE--INVESTMENT CLASS . . $10.61
- ------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE--
INVESTMENT CLASS ($10.61/97%) . . . . $10.94
==================================================================
</TABLE>

The accompanying notes are an integral part of the financial statements.

22
<PAGE> 357
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Limited Maturity Government Fund
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (27.9%)
FFCB
6.640%, 05/18/96 (A) . . . . . . . . . $1,750 $ 1,756
FHLB
5.420%, 11/20/96 . . . . . . . . . . . 600 601
8.260%, 12/31/96 (A) . . . . . . . . . 2,000 2,043
6.180%, 11/20/97 (A) . . . . . . . . . 1,400 1,420
5.625%, 12/15/00 . . . . . . . . . . . 750 755
FHLMC
6.210%, 05/13/96 . . . . . . . . . . . 2,500 2,507
5.570%, 08/20/97 . . . . . . . . . . . 1,000 1,007
- ------------------------------------------------------------------
Total U.S. Government Agency
Obligations (cost $10,003,111) . . 10,089
- ------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (19.5%)
United States Treasury Bond
5.500%, 12/31/2000 . . . . . . . . . . 900 909
United States Treasury Notes
5.880%, 05/31/96 . . . . . . . . . . . 1,000 1,002
4.380%, 08/15/96 . . . . . . . . . . . 1,000 996
5.880%, 08/15/98 . . . . . . . . . . . 1,000 1,020
7.130%, 09/30/99 . . . . . . . . . . . 1,000 1,065
6.130%, 07/31/00 . . . . . . . . . . . 2,000 2,070
- ------------------------------------------------------------------
Total U.S. Treasury Obligations
(cost $6,876,047) . . . . . . . . 7,062
- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS (40.7%)
FHLMC, Gold 5 Year Balloon Program
6.000%, 03/01/98 . . . . . . . . . . . 1,273 1,284
6.000%, 04/01/99 . . . . . . . . . . . 863 871
7.500%, 10/01/99 . . . . . . . . . . . 2,137 2,215
8.000%, 01/01/00 . . . . . . . . . . . 1,611 1,670
8.000%, 03/01/00 . . . . . . . . . . . 1,743 1,808
GNMA
8.500%, 12/15/01 . . . . . . . . . . . 40 43
8.000%, 04/15/02 . . . . . . . . . . . 537 563
8.000%, 05/15/02 . . . . . . . . . . . 100 105
8.000%, 07/15/02 . . . . . . . . . . . 487 510
7.500%, 06/15/07 . . . . . . . . . . . 95 99
7.500%, 05/15/08 . . . . . . . . . . . 185 192
7.500%, 06/15/08 . . . . . . . . . . . 161 167
7.500%, 02/15/09 . . . . . . . . . . . 192 199
7.500%, 03/15/09 . . . . . . . . . . . 585 607
7.500%, 06/15/09 . . . . . . . . . . . 682 707
8.500%, 07/15/09 . . . . . . . . . . . 118 125
7.500%, 10/15/09 . . . . . . . . . . . 234 244
8.000%, 11/15/09 . . . . . . . . . . . 346 363
7.500%, 01/15/10 . . . . . . . . . . . 675 700
8.500%, 03/15/10 . . . . . . . . . . . 778 819
8.000%, 04/15/10 . . . . . . . . . . . 601 630
7.500%, 07/15/10 . . . . . . . . . . . 767 796
- ------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Obligations
(cost $14,437,452) . . . . . . . . 14,717
- ------------------------------------------------------------------
BANKERS ACCEPTANCE (3.8%)
Chemical Bank, New York
5.640%, 02/29/96 . . . . . . . . . . . 1,106 1,102
NationsBank N.A.
5.730%, 04/02/96 . . . . . . . . . . . 142 141
5.730%, 04/08/96 . . . . . . . . . . . 111 111
- ------------------------------------------------------------------
Total Bankers Acceptance
(Cost $1,353,588) . . . . . . . . 1,354
- ------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (2.9%)
Northern Trust, Chicago
9.010%, 02/03/97 . . . . . . . . . . . 1,000 1,036
- ------------------------------------------------------------------
Total Certificates of Deposit
(cost $1,033,382) . . . . . . . . 1,036
- ------------------------------------------------------------------
REPURCHASE AGREEMENT (4.5%)
Morgan Stanley & Company,
Incorporated 5.82% dated 01/31/96,
matures 02/01/96, repurchase price
$1,633,142 (collateralized by FNMA,
par value $1,650,000, 6.68%, matures
01/01/11: total market value
$1,673,882) . . . . . . . . . . . . . 1,633
- ------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,632,877) . . . . . . . . . 1,633
- ------------------------------------------------------------------
Total Investments (99.3%)
(Cost $35,336,457) . . . . . . . . 35,891
- ------------------------------------------------------------------
Other Assets and Liabilities (0.7%) . . . 255
- ------------------------------------------------------------------
</TABLE>

23
<PAGE> 358
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Limited Maturity Government Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
(000)
-------
<S> <C>
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization - no par
value) based on 3,661,323
outstanding shares of beneficial
interest . . . . . . . . . . . . . . $36,625
Fund shares of Investment Class
(unlimited authorization - no par
value) based on 64,695 outstanding
shares of beneficial interest . . . 739
Overdistributed Net Investment Income (6)
Accumulated Net Realized Loss
on Investments . . . . . . . . . . . (1,767)
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 555
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $36,146
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $9.70
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INVESTMENT CLASS . . . . . . . . . . . $9.71
==================================================================
</TABLE>

(A) The dates reported are the lesser of the maturity date or the call date.

FFCB-Federal Farm Credit Bank
FHLB-Federal Home Loan Bank
FHLMC-Federal Home Loan Mortgage Corporation
GNMA-Government National Mortgage Association

The accompanying notes are an integral part of the financial statements.

24
<PAGE> 359
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone California Tax-Free Bond Fund
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
CALIFORNIA MUNICIPAL BONDS (94.4%)
Alameda County, Santa Rita Jail
Project, COP, MBIA Insured
5.250%, 12/01/04 . . . . . . . . . . . $500 $524
Anaheim Public Financing Authority,
Electric Utililty Projects, RB, Callable
04/01/05 @ 100, MBIA Insured
5.500%, 10/01/10 . . . . . . . . . . . 250 254
Antioch Public Finance Authority,
Police Facilities Project, Lease RB,
MBIA Insured
4.550%, 01/01/03 . . . . . . . . . . . 500 502
Berkeley Unified School District,
GO, Ser D
8.250%, 08/01/05 . . . . . . . . . . . 345 437
California Educational Faciltities,
Pepperdine University, RB,
Callable 01/15/97 @ 102
6.750%, 01/15/06 . . . . . . . . . . . 500 522
California State, GO
4.200%, 09/01/02 . . . . . . . . . . . 250 243
Contra Costa Transportation
Authority, Sales Tax RB, SER A,
Escrowed to Maturity
6.300%, 03/01/00 . . . . . . . . . . . 250 270
Cupertino, COP, Callable
01/01/03 @ 102
5.500%, 01/01/05 . . . . . . . . . . . 500 515
Gilroy Unified School District, COP,
Measure J Capital Projects
5.750%, 09/01/05 . . . . . . . . . . . 235 251
Los Angeles Department of Airports,
RB, SER B, FGIC Insured
6.500%, 05/15/04 . . . . . . . . . . . 500 568
Los Angeles, GO, Callable
09/01/03 @ 101
5.400%, 09/01/06 . . . . . . . . . . . 300 314
Los Angeles, Wastewater System RB,
SER B, Callable 06/01/03 @ 102,
MBIA Insured
5.400%, 06/01/08 . . . . . . . . . . . 300 309
Moulton-Niguel Water District, COP,
Callable 09/01/03 @ 102,
AMBAC Insured
4.750%, 09/01/04 . . . . . . . . . . . 300 303
M-S-R Public Power Agency, San Juan
Project, RB, SER F, Callable
07/01/03 @ 102, Callable
07/01/05 @ 100
6.000%, 07/01/08 . . . . . . . . . . . 230 248
Sacramento Municipal Utility
District, Electric Revenue,
SER C, FGIC Insured
5.750%, 11/15/08 . . . . . . . . . . . 550 580
San Diego County Water Authority,
COP, SER A, Callable 05/01/03
@ 100, Callable 05/01/01 @ 102
6.250%, 05/01/04 . . . . . . . . . . . 480 528
San Francisco City & County, GO,
Utility Public Safety Improvement
Project, SER F, FGIC Insured
6.500%, 06/15/08 . . . . . . . . . . . 350 380
San Francisco Building Authority,
Department General Services,
Lease RB, SER A
4.500%, 10/01/00 . . . . . . . . . . . 300 300
Santa Clara, COP, AMBAC Insured
6.000%, 05/15/12 . . . . . . . . . . . 400 419
Santa Cruz County, Public Facilities
Financing Authority, Tax Allocation,
Callable 09/01/03 @ 102, MBIA
Insured
5.100%, 09/01/05 . . . . . . . . . . . 500 519
- ------------------------------------------------------------------
Total California Municipal Bonds
(Cost $7,773,603) . . . . . . . . 7,986
- ------------------------------------------------------------------
</TABLE>

25
<PAGE> 360
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
California Tax-Free Bond Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
(000)
-------
<S> <C>
CASH EQUIVALENT (3.4%)
Provident California Tax Free
Money Market (A)
2.990%, 02/07/96 . . . . . . . . . . . $ 147
SEI California Tax Free Money
Market Portfolio (A)
3.180%, 02/07/96 . . . . . . . . . . . 145
- ------------------------------------------------------------------
Total Cash Equivalent
(Cost $292,366) . . . . . . . . . 292
- ------------------------------------------------------------------
Total Investments (97.8%)
(Cost $8,065,969) . . . . . . . . 8,278
- ------------------------------------------------------------------
Other Assets and Liabilities (2.2%) . . . 184
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 425,808 outstanding
shares of beneficial interest . . . 5,235
Fund shares of Investment Class
(unlimited authorization--no par
value) based on 433,486 outstanding
shares of beneficial interest . . . 4,310
Undistributed Net Investment Income . 13
Accumulated Net Realized
Loss on Investments . . . . . . . . (1,308)
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 212
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $8,462
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $ 9.85
- ------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE--INVESTMENT CLASS . . $ 9.84
- ------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE--
INVESTMENT CLASS ($9.84/97%) . . . . . $10.14
==================================================================
</TABLE>

(A) Floating Rate Security-The rate reflected on the Statement of Net Assets is
the rate in effect on January 31, 1996.

AMBAC--American Municipal Bond Assurance Company
COP--Certificates of Participation
FGIC--Financial Guaranty Insurance Corporation
GO--General Obligation
MBIA--Municipal Bond Investors Assurance
RB--Revenue Bond
Ser--Series

The accompanying notes are an integral part of the financial statements.

26
<PAGE> 361
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Convertible Security Fund
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
CONVERTIBLE BONDS (61.9%)
AMR
6.130%, 11/01/24 . . . . . . . . . . . $ 300 $ 309
Airborne Freight
6.750%, 08/15/01 . . . . . . . . . . . 150 152
Alza
0.000%, 07/14/14 . . . . . . . . . . . 700 304
Automatic Data Processing
0.000%, 02/20/12 . . . . . . . . . . . 500 263
Bay Networks (144A)
5.250%, 05/15/03 . . . . . . . . . . . 175 198
Boston Chicken
0.000%, 06/01/15 . . . . . . . . . . . 1,200 358
Browning Ferris Industries
6.250%, 08/15/12 . . . . . . . . . . . 200 201
Chiron
5.250%, 05/21/02 . . . . . . . . . . . 225 235
Chubb Capital
6.000%, 05/15/98 . . . . . . . . . . . 200 238
Columbia HCA Healthcare
6.750%, 10/01/06 . . . . . . . . . . . 150 151
Comcast
1.130%, 04/15/07 . . . . . . . . . . . 425 218
Conner Peripherals
6.750%, 03/01/01 . . . . . . . . . . . 300 315
Consolidated Natural Gas
7.250%, 12/15/15 . . . . . . . . . . . 250 260
Cooper Industries
7.050%, 01/01/15 . . . . . . . . . . . 113 117
Federated Department Stores
5.000%, 10/01/03 . . . . . . . . . . . 400 398
Fifth Third Bank
4.250%, 01/15/98 . . . . . . . . . . . 250 282
First Data
5.000%, 12/15/99 . . . . . . . . . . . 240 408
General Instruments
5.000%, 06/15/00 . . . . . . . . . . . 225 246
Horace Mann Educators
6.500%, 12/01/99 . . . . . . . . . . . 250 256
Inco Limited
7.750%, 03/15/16 . . . . . . . . . . . 150 160
Integrated Health Services
5.750%, 01/01/01 . . . . . . . . . . . 300 301
Legg Mason
5.250%, 05/01/03 . . . . . . . . . . . 100 119
Liberty Property Trust
8.000%, 07/01/01 . . . . . . . . . . . 300 330
Lowe's
3.000%, 07/22/03 . . . . . . . . . . . 150 184
Magna International
5.000%, 10/15/02 . . . . . . . . . . . 250 250
Motorola
0.000%, 09/27/13 . . . . . . . . . . . 475 354
Noble Affiliates
4.250%, 11/01/03 . . . . . . . . . . . 175 175
Olsten
4.880%, 05/15/03 . . . . . . . . . . . 250 296
Seagate Technology
6.750%, 05/01/12 . . . . . . . . . . . 150 209
Softkey International (144A)
5.500%, 11/01/00 . . . . . . . . . . . 325 231
Sports and Recreation
4.250%, 11/01/00 . . . . . . . . . . . 200 119
Staples
4.500%, 10/01/00 . . . . . . . . . . . 325 327
Texas Instrument
2.750%, 09/29/02 . . . . . . . . . . . 100 115
3Com (144A)
10.250%, 11/01/01 . . . . . . . . . . . 200 314
Thermo Electron (144A)
4.250%, 01/01/03 . . . . . . . . . . . 375 430
Time Warner
0.000%, 06/22/13 . . . . . . . . . . . 500 208
8.750%, 01/10/15 . . . . . . . . . . . 82 85
U.S. Cellular
0.000%, 06/15/15 . . . . . . . . . . . 675 242
U.S. Filter (144A)
6.000%, 09/15/05 . . . . . . . . . . . 250 284
WMX Technologies
2.000%, 01/24/05 . . . . . . . . . . . 300 263
Whirlpool
0.000%, 05/14/11 . . . . . . . . . . . 500 197
Worldcom
5.000%, 08/15/03 . . . . . . . . . . . 200 214
- ------------------------------------------------------------------
Total Convertible Bonds
(Cost $9,722,218) . . . . . . . . 10,316
- ------------------------------------------------------------------
</TABLE>

27
<PAGE> 362
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Convertible Securities Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCKS (12.0%)
AUTOMOTIVE (6.2%)
Chrysler . . . . . . . . . . . . . . . . . 12,778 $ 738
Ford Motor . . . . . . . . . . . . . . . . 9,796 290
- ------------------------------------------------------------------
1,028
- ------------------------------------------------------------------
BANKS (1.5%)
Barnett Banks of Florida . . . . . . . . . 4,430 259
- ------------------------------------------------------------------
259
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (1.3%)
Motorola . . . . . . . . . . . . . . . . . 4,000 215
- ------------------------------------------------------------------
215
- ------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (1.4%)
ConAgra . . . . . . . . . . . . . . . . . 5,343 245
- ------------------------------------------------------------------
245
- ------------------------------------------------------------------
RAILROADS (1.6%)
Burlington Northern Santa Fe . . . . . . . 3,191 261
- ------------------------------------------------------------------
261
- ------------------------------------------------------------------
Total Common Stocks
(Cost $2,007,437) . . . . . . . . 2,008
- ------------------------------------------------------------------
PREFERRED STOCKS (18.5%)
COMPUTER SOFTWARE/SERVICES (4.7%)
General Motors Electronics
$3.25, Cl E . . . . . . . . . . . . . 10,100 789
- ------------------------------------------------------------------
789
- ------------------------------------------------------------------
BANKS (3.6%)
Banc One $3.50, Ser C . . . . . . . . . . 3,000 198
Citicorp $5.375, Ser B . . . . . . . . . 2,000 403
- ------------------------------------------------------------------
601
- ------------------------------------------------------------------
COMMERCIAL SERVICES (1.3%)
SCI Finance LLC 3.125% . . . . . . . . . . 3,000 228
- ------------------------------------------------------------------
228
- ------------------------------------------------------------------
FINANCIAL SERVICES (2.6%)
Conseco * 7.00% . . . . . . . . . . . . . 6,500 430
- ------------------------------------------------------------------
430
- ------------------------------------------------------------------
PAPER & PAPER PRODUCTS (0.9%)
International Paper . . . . . . . . . . . 3,000 145
- ------------------------------------------------------------------
145
- ------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
---------- -------
<S> <C> <C>
REAL ESTATE (1.8%)
Merry Land & Investment $2.15,
Ser C . . . . . . . . . . . . . . . . 10,000 299
- ------------------------------------------------------------------
299
- ------------------------------------------------------------------
RETAIL (1.0%)
Best Buy Capital 6.50% . . . . . . . . . . 5,000 163
- ------------------------------------------------------------------
163
- ------------------------------------------------------------------
STEEL & STEEL WORKS (1.0%)
WHX $3.75 Ser B . . . . . . . . . . . . . 3,500 168
- ------------------------------------------------------------------
168
- ------------------------------------------------------------------
WHOLESALE (1.6%)
Alco Standard $2.375, Ser AA . . . . . . . 3,000 261
- ------------------------------------------------------------------
261
- ------------------------------------------------------------------
Total Preferred Stocks
(Cost $2,569,357) . . . . . . . . 3,084
- ------------------------------------------------------------------
TIME DEPOSITS (7.3%)
Sanwa Bank Limited
5.750%, 02/01/96 . . . . . . . . . . . $ 1,208 1,208
- ------------------------------------------------------------------
Total Time Deposits
(Cost $1,208,119) . . . . . . . . 1,208
- ------------------------------------------------------------------
Total Investments (99.7%)
(Cost $15,507,131) . . . . . . . . 16,616
- ------------------------------------------------------------------
Other Assets and Liabilities (0.3%) . . . 52
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 1,597,511
outstanding shares of beneficial
interest . . . . . . . . . . . . . . 15,594
Undistributed Net Investment
Income . . . . . . . . . . . . . . . 22
Accumulated Net Realized Loss on
Investments . . . . . . . . . . . . (57)
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 1,109
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $16,668
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $10.43
==================================================================
</TABLE>

* Non-income producing security
Cl--Class
Ser--Series
(144A)--Private Placement Security

28
<PAGE> 363
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Government Securities Fund
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
--------- -------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (76.3%)
United States Treasury Bonds
5.500%, 12/31/00 . . . . . . . . . . . $1,000 $1,010
7.630%, 02/15/25 . . . . . . . . . . . 100 121
6.880%, 08/15/25 . . . . . . . . . . . 9,500 10,595
United States Treasury Notes
5.630%, 06/30/97 . . . . . . . . . . . 3,750 3,785
7.380%, 11/15/97 . . . . . . . . . . . 2,000 2,081
6.000%, 11/30/97 . . . . . . . . . . . 750 764
5.380%, 11/30/97 . . . . . . . . . . . 500 504
5.880%, 08/15/98 . . . . . . . . . . . 1,000 1,020
5.500%, 11/15/98 . . . . . . . . . . . 5,750 5,816
7.000%, 04/15/99 . . . . . . . . . . . 1,500 1,583
6.880%, 08/31/99 . . . . . . . . . . . 250 264
7.750%, 01/31/00 . . . . . . . . . . . 1,500 1,637
7.500%, 11/15/01 . . . . . . . . . . . 500 553
6.380%, 08/15/02 . . . . . . . . . . . 3,000 3,157
7.880%, 11/15/04 . . . . . . . . . . . 1,500 1,734
6.500%, 05/15/05 . . . . . . . . . . . 500 531
5.880%, 11/15/05 . . . . . . . . . . . 500 511
- ------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $34,788,128) . . . . . . . . 35,666
- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (11.0%)
Aid-Israel
7.125%, 08/15/99 . . . . . . . . . . . 2,000 2,103
FNMA
5.880%, 02/02/06 . . . . . . . . . . . 2,000 2,003
Tennessee Valley Authority
6.380%, 06/15/05 . . . . . . . . . . . 1,000 1,036
- ------------------------------------------------------------------
Total U.S. Government Agency
Obligations (Cost $4,984,197) . . 5,142
- ------------------------------------------------------------------
CORPORATE OBLIGATIONS (10.3%) . . . . . . .
Chrysler Financial
5.880%, 02/07/01 . . . . . . . . . . . 1,500 1,500
Ford Motor Credit
5.750%, 01/25/01 . . . . . . . . . . . 1,000 999
Meditrust
7.250%, 08/16/99 . . . . . . . . . . . 1,250 1,309
Salomon Brothers
7.970%, 03/10/97 . . . . . . . . . . . 1,000 1,021
- ------------------------------------------------------------------
Total Corporate Obligations
(Cost $4,739,030) . . . . . . . . 4,829
- ------------------------------------------------------------------
TIME DEPOSITS (5.0%) . . . . . . . . . . .
Sanwa Bank Limited
5.750%, 02/01/96 . . . . . . . . . . . 2,324 2,324
- ------------------------------------------------------------------
Total Time Deposits
(Cost $2,323,878) . . . . . . . . 2,324
- ------------------------------------------------------------------
Total Investments (102.6%)
(Cost $46,835,233) . . . . . . . . 47,961
- ------------------------------------------------------------------
Other Assets and Liabilities (-2.6%) . . . (1,236)
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 4,700,940
outstanding shares of beneficial
interest . . . . . . . . . . . . . . 45,904
Undistributed Net Investment
Income . . . . . . . . . . . . . . . 78
Accumulated Net Realized Loss
on Investments . . . . . . . . . . . (383)
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 1,126
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $46,725
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $9.94
==================================================================
</TABLE>

FNMA--Federal National Mortgage Association

The accompanying notes are an integral part of the financial statements.

29
<PAGE> 364
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Balanced Fund

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCKS (63.3%)
AEROSPACE & DEFENSE (1.2%)
Litton Industries* . . . . . . . . . . . . 30,000 $ 1,477
Loral . . . . . . . . . . . . . . . . . . 10,000 463
Watkins Johnson . . . . . . . . . . . . . 21,600 832
- ------------------------------------------------------------------
2,772
- ------------------------------------------------------------------
AIR TRANSPORTATION (0.4%)
KLM Royal Dutch Air* . . . . . . . . . . 35,000 1,085
- ------------------------------------------------------------------
1,085
- ------------------------------------------------------------------
AIRCRAFT (2.5%)
Lockheed Martin . . . . . . . . . . . . . 30,000 2,261
Textron . . . . . . . . . . . . . . . . . 20,000 1,573
United Technologies . . . . . . . . . . . 22,000 2,258
- ------------------------------------------------------------------
6,092
- ------------------------------------------------------------------
APPAREL/TEXTILES (0.3%)
Springs Industries, Cl A . . . . . . . . . 20,000 800
- ------------------------------------------------------------------
800
- ------------------------------------------------------------------
AUTOMOTIVE (0.5%)
Chrysler . . . . . . . . . . . . . . . . . 22,805 1,317
- ------------------------------------------------------------------
1,317
- ------------------------------------------------------------------
BANKS (1.7%)
Bank of New York . . . . . . . . . . . . . 24,000 1,230
Bank of Boston . . . . . . . . . . . . . . 25,000 1,144
First Union . . . . . . . . . . . . . . . 10,000 579
J.P. Morgan . . . . . . . . . . . . . . . 13,000 1,056
- ------------------------------------------------------------------
4,009
- ------------------------------------------------------------------
CHEMICALS (4.3%)
Cabot . . . . . . . . . . . . . . . . . . 33,000 1,897
Dow Chemical . . . . . . . . . . . . . . . 13,900 1,036
E.I. Du Pont De Nemours . . . . . . . . . 17,500 1,345
First Mississippi . . . . . . . . . . . . 40,000 985
Georgia Gulf . . . . . . . . . . . . . . 28,400 905
Monsanto . . . . . . . . . . . . . . . . . 10,000 1,303
Morton International . . . . . . . . . . . 25,000 925
W.R. Grace . . . . . . . . . . . . . . . . 20,000 1,233
Wellman . . . . . . . . . . . . . . . . . 33,400 668
- ------------------------------------------------------------------
10,297
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (2.1%)
Harris . . . . . . . . . . . . . . . . . . 17,600 1,102
ITT Industries . . . . . . . . . . . . . . 15,000 390
ITT* . . . . . . . . . . . . . . . . . . . 15,000 832
Motorola . . . . . . . . . . . . . . . . . 24,000 1,290
Nimbus CD International* . . . . . . . . . 25,000 191
Sprint . . . . . . . . . . . . . . . . . . 27,100 1,169
- ------------------------------------------------------------------
4,974
- ------------------------------------------------------------------
COMPUTERS & SOFTWARE SERVICES (3.3%)
Compaq Computer * . . . . . . . . . . . . 32,500 1,532
Computer Associates International . . . . 40,750 2,786
Hewlett Packard . . . . . . . . . . . . . 18,000 1,525
IBM . . . . . . . . . . . . . . . . . . . 15,000 1,631
Tandem Computers* . . . . . . . . . . . . 75,000 703
- ------------------------------------------------------------------
8,177
- ------------------------------------------------------------------
CONCRETE & MINERAL PRODUCTS (0.5%)
Hanson PLC, ADR . . . . . . . . . . . . . 85,000 1,318
- ------------------------------------------------------------------
1,318
- ------------------------------------------------------------------
DRUGS (4.1%)
American Home Products . . . . . . . . . . 20,000 2,040
Baxter International . . . . . . . . . . . 26,200 1,192
Bristol-Myers Squibb . . . . . . . . . . . 15,000 1,328
Mallinckrodt Group . . . . . . . . . . . . 35,000 1,404
Merck . . . . . . . . . . . . . . . . . . 15,000 1,054
SmithKline Beecham . . . . . . . . . . . . 23,000 1,294
Warner Lambert . . . . . . . . . . . . . . 15,000 1,406
- ------------------------------------------------------------------
9,718
- ------------------------------------------------------------------
ELECTRICAL UTILITIES (0.9%)
General Public Utilities . . . . . . . . . 22,800 775
Nipsco Industries . . . . . . . . . . . . 15,000 572
Ohio Edison . . . . . . . . . . . . . . . 37,500 895
- ------------------------------------------------------------------
2,242
- ------------------------------------------------------------------
ENTERTAINMENT (0.7%)
Walt Disney . . . . . . . . . . . . . . . 25,000 1,606
- ------------------------------------------------------------------
1,606
- ------------------------------------------------------------------
</TABLE>

30
<PAGE> 365
STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
Balanced Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
FINANCIAL SERVICES (3.5%)
Allstate . . . . . . . . . . . . . . . . . 15,759 $ 687
American Express . . . . . . . . . . . . . 25,000 1,150
Bear Stearns . . . . . . . . . . . . . . . 15,000 345
BRE Properties, Cl A . . . . . . . . . . 26,800 995
CBL and Associates Properties . . . . . . 25,000 513
Donaldson, Lufkin, & Jenrette . . . . . . 15,000 459
FNMA . . . . . . . . . . . . . . . . . . . 60,000 2,070
ITT Hartford Group* . . . . . . . . . . . 15,000 752
Travelers . . . . . . . . . . . . . . . . 24,733 1,626
- ------------------------------------------------------------------
8,597
- ------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (3.3%)
Archer-Daniels-Midland . . . . . . . . . . 67,250 1,278
Hudson Foods, Cl A . . . . . . . . . . . . 50,300 836
IBP . . . . . . . . . . . . . . . . . . . 60,000 1,598
Pepsico . . . . . . . . . . . . . . . . . 22,400 1,336
Philip Morris . . . . . . . . . . . . . . 14,400 1,339
Sara Lee . . . . . . . . . . . . . . . . . 15,000 506
Universal Foods . . . . . . . . . . . . . 26,000 1,004
- ------------------------------------------------------------------
7,897
- ------------------------------------------------------------------
FORESTRY (0.4%)
Rayonier . . . . . . . . . . . . . . . . . 25,000 906
- ------------------------------------------------------------------
906
- ------------------------------------------------------------------
GAS/NATURAL GAS (1.4%)
Coastal . . . . . . . . . . . . . . . . . 15,000 568
Questar . . . . . . . . . . . . . . . . . 18,000 587
Westcoast Energy . . . . . . . . . . . . . 30,400 475
Williams . . . . . . . . . . . . . . . . . 38,800 1,829
- ------------------------------------------------------------------
3,459
- ------------------------------------------------------------------
HOTELS & LODGING (0.5%)
Hilton Hotels . . . . . . . . . . . . . . 15,000 1,166
- ------------------------------------------------------------------
1,166
- ------------------------------------------------------------------
HOUSEHOLD FURNITURE & FIXTURES (0.2%)
Leggett & Platt . . . . . . . . . . . . . 21,200 509
- ------------------------------------------------------------------
509
- ------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.6%)
Sunbeam Oster . . . . . . . . . . . . . . 50,000 800
Whirlpool . . . . . . . . . . . . . . . . 14,100 767
- ------------------------------------------------------------------
1,567
- ------------------------------------------------------------------
INSURANCE (2.8%)
AFLAC . . . . . . . . . . . . . . . . . . 20,000 953
AMBAC . . . . . . . . . . . . . . . . . . 11,700 560
Equifax . . . . . . . . . . . . . . . . . 40,000 745
Lincoln National . . . . . . . . . . . . . 30,000 1,586
Progressive of Ohio . . . . . . . . . . . 23,800 1,205
Providian . . . . . . . . . . . . . . . . 15,800 693
USF&G . . . . . . . . . . . . . . . . . . 60,000 960
- ------------------------------------------------------------------
6,702
- ------------------------------------------------------------------
LEASING & RENTING (0.6%)
Comdisco . . . . . . . . . . . . . . . . . 42,750 914
Xtra . . . . . . . . . . . . . . . . . . . 15,000 639
- ------------------------------------------------------------------
1,553
- ------------------------------------------------------------------
LUMBER & WOOD PRODUCTS (0.3%)
Louisiana-Pacific . . . . . . . . . . . . 32,800 836
- ------------------------------------------------------------------
836
- ------------------------------------------------------------------
MACHINERY (3.9%)
Briggs & Stratton . . . . . . . . . . . . 20,000 878
Commercial Intertech . . . . . . . . . . . 50,000 925
Cummins Engine . . . . . . . . . . . . . . 25,000 966
Deere . . . . . . . . . . . . . . . . . . 37,500 1,406
Dresser Industries . . . . . . . . . . . . 50,000 1,300
General Electric . . . . . . . . . . . . . 16,600 1,274
Global Industries Technologies * . . . . . 31,000 705
JLG Industries . . . . . . . . . . . . . . 44,800 1,193
Parker-Hannifin . . . . . . . . . . . . . 15,000 512
- ------------------------------------------------------------------
9,159
- ------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (1.1%)
Bausch & Lomb . . . . . . . . . . . . . . 40,000 1,555
Columbia/HCA Healthcare . . . . . . . . . 10,000 557
Tenet Healthcare* . . . . . . . . . . . . 30,000 641
- ------------------------------------------------------------------
2,753
- ------------------------------------------------------------------
PAPER & PAPER PRODUCTS (2.0%)
Avery Dennison . . . . . . . . . . . . . . 20,000 1,068
Kimberly-Clark . . . . . . . . . . . . . . 10,000 806
Mead . . . . . . . . . . . . . . . . . . . 19,000 1,050
Weyerhaeuser . . . . . . . . . . . . . . . 20,000 922
Willamette Industries . . . . . . . . . . 19,000 1,059
- ------------------------------------------------------------------
4,905
- ------------------------------------------------------------------
</TABLE>

31
<PAGE> 366
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Balanced Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
PETROLEUM & FUEL PRODUCTS (0.9%)
Occidental Petroleum . . . . . . . . . . . 50,000 $1,075
Union Pacific Resources Group . . . . . . 38,400 998
- ------------------------------------------------------------------
2,073
- ------------------------------------------------------------------
PETROLEUM REFINING (4.1%)
Ashland . . . . . . . . . . . . . . . . . 29,000 1,066
Chevron . . . . . . . . . . . . . . . . . 28,000 1,453
Diamond Shamrock R&M . . . . . . . . . . . 35,000 997
Imperial Oil . . . . . . . . . . . . . . . 36,300 1,316
Mobil . . . . . . . . . . . . . . . . . . 15,000 1,661
Royal Dutch Petroleum, ADR . . . . . . . . 9,800 1,362
USX-Marathon Group . . . . . . . . . . . . 62,000 1,163
Unocal . . . . . . . . . . . . . . . . . . 30,000 896
- ------------------------------------------------------------------
9,914
- ------------------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES (0.9%)
Eastman Kodak . . . . . . . . . . . . . . 15,000 1,101
Xerox . . . . . . . . . . . . . . . . . . 8,000 989
- ------------------------------------------------------------------
2,090
- ------------------------------------------------------------------
PRECIOUS METALS (0.9%)
Barrick Gold . . . . . . . . . . . . . . . 48,636 1,429
Firstmiss Gold* . . . . . . . . . . . . . 28,338 765
- ------------------------------------------------------------------
2,194
- ------------------------------------------------------------------
PRINTING & PUBLISHING (1.3%)
Belo, Cl A . . . . . . . . . . . . . . . . 28,400 1,015
Houghton Mifflin . . . . . . . . . . . . . 25,000 1,041
Media General . . . . . . . . . . . . . . 30,000 1,001
- ------------------------------------------------------------------
3,057
- ------------------------------------------------------------------
RAILROADS (1.7%)
Burlington Northern Santa Fe . . . . . . . 25,000 2,047
Conrail Holding . . . . . . . . . . . . . 16,400 1,160
Union Pacific . . . . . . . . . . . . . . 15,000 1,000
- ------------------------------------------------------------------
4,207
- ------------------------------------------------------------------
REAL ESTATE (0.8%)
First Industrial Realty Trust . . . . . . 35,000 805
JP Realty . . . . . . . . . . . . . . . . 52,000 1,040
- ------------------------------------------------------------------
1,845
- ------------------------------------------------------------------
REPAIR SERVICES (0.8%)
PHH . . . . . . . . . . . . . . . . . . . 21,000 1,082
Rollins Truck Leasing . . . . . . . . . . 92,800 974
- ------------------------------------------------------------------
2,056
- ------------------------------------------------------------------
RETAIL (2.8%)
American Stores . . . . . . . . . . . . . 33,000 858
Heilig-Meyers . . . . . . . . . . . . . . 22,500 349
J.C. Penney . . . . . . . . . . . . . . . 25,000 1,225
Kroger* . . . . . . . . . . . . . . . . . 25,000 869
May Department Stores . . . . . . . . . . 28,000 1,246
Morrison Restaurants . . . . . . . . . . . 59,100 945
Sears Roebuck . . . . . . . . . . . . . . 17,000 705
Waban* . . . . . . . . . . . . . . . . . . 32,400 624
- ------------------------------------------------------------------
6,821
- ------------------------------------------------------------------
RUBBER & PLASTIC (0.8%)
Mark IV Industries . . . . . . . . . . . . 38,640 807
Premark International . . . . . . . . . . 20,000 1,035
- ------------------------------------------------------------------
1,842
- ------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (1.1%)
Intel . . . . . . . . . . . . . . . . . . 30,000 1,657
National Semiconductor * . . . . . . . . . 60,000 1,035
- ------------------------------------------------------------------
2,692
- ------------------------------------------------------------------
STEEL & STEEL WORKS (0.2%)
Texas Industries . . . . . . . . . . . . . 9,600 539
- ------------------------------------------------------------------
539
- ------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (2.9%)
A T & T . . . . . . . . . . . . . . . . . 12,271 821
Airtouch Communications* . . . . . . . . . 40,000 1,130
Bell Atlantic . . . . . . . . . . . . . . 20,000 1,377
Comsat . . . . . . . . . . . . . . . . . . 20,000 375
Frontier . . . . . . . . . . . . . . . . . 33,400 994
GTE . . . . . . . . . . . . . . . . . . . 25,000 1,150
NYNEX . . . . . . . . . . . . . . . . . . 20,000 1,072
- ------------------------------------------------------------------
6,919
- ------------------------------------------------------------------
TRANSPORTATION SERVICES (0.4%)
GATX . . . . . . . . . . . . . . . . . . . 23,400 1,082
- ------------------------------------------------------------------
1,082
- ------------------------------------------------------------------
</TABLE>

32
<PAGE> 367
STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
Balanced Fund (cont'd)

<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
---------- -------
<S> <C> <C>
TRUCKING (0.1%)
Wabash National . . . . . . . . . . . . . 15,000 $ 311
- ------------------------------------------------------------------
311
- ------------------------------------------------------------------
WHOLESALE (0.5%)
Arrow Electronics* . . . . . . . . . . . . 23,000 989
Hughes Supply . . . . . . . . . . . . . . 10,100 290
- ------------------------------------------------------------------
1,279
- ------------------------------------------------------------------
Total Common Stocks
(Cost $112,461,794) . . . . . . . 153,337
- ------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (13.9%)
U.S. Treasury Notes
7.500%, 01/31/97 . . . . . . . . . . . . $1,000 1,025
5.750%, 09/30/97 . . . . . . . . . . . 1,500 1,519
7.000%, 04/15/99 . . . . . . . . . . . 1,000 1,055
6.380%, 07/15/99 . . . . . . . . . . . 1,000 1,039
7.130%, 09/30/99 . . . . . . . . . . . 1,500 1,597
7.500%, 10/31/99 . . . . . . . . . . . 1,000 1,078
7.750%, 11/30/99 . . . . . . . . . . . 1,000 1,088
7.130%, 02/29/00 . . . . . . . . . . . 1,500 1,604
5.500%, 04/15/00 . . . . . . . . . . . 2,000 2,027
6.130%, 09/30/00 . . . . . . . . . . . 1,500 1,553
5.750%, 10/31/00 . . . . . . . . . . . 700 714
7.500%, 11/15/01 . . . . . . . . . . . 6,000 6,640
6.380%, 08/15/02 . . . . . . . . . . . 2,000 2,105
6.250%, 02/15/03 . . . . . . . . . . . 1,000 1,046
6.500%, 05/15/05 . . . . . . . . . . . 4,500 4,784
6.500%, 08/15/05 . . . . . . . . . . . 4,500 4,790
- ------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $31,963,015) . . . . . . . . 33,664
- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED BONDS (4.2%)
FNMA
7.500%, 08/01/01 . . . . . . . . . . . 3,357 3,453
GNMA
6.500%, 09/15/08 . . . . . . . . . . . 4,106 4,157
6.000%, 11/15/08 . . . . . . . . . . . 2,537 2,525
- ------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Bonds
(cost $10,093,688) . . . . . . . . 10,135
- ------------------------------------------------------------------
CORPORATE OBLIGATIONS (11.2%)
American Telephone & Telegraph
7.500%, 06/01/06 . . . . . . . . . . . 2,000 2,220
Associates
7.880%, 09/30/01 . . . . . . . . . . . 2,000 2,198
Avco Financial Services
7.380%, 08/15/01 . . . . . . . . . . . 2,000 2,140
Bankers Trust NY
7.500%, 11/15/15 . . . . . . . . . . . 2,000 2,070
Chemical Banking
6.700%, 08/15/08 . . . . . . . . . . . 1,500 1,536
Chesapeake & Potomac Telephone
of Maryland
6.000%, 05/01/03 . . . . . . . . . . . 1,500 1,498
First National Bank of Boston
8.000%, 09/15/04 . . . . . . . . . . . 2,000 2,210
General Motors Acceptance
8.000%, 10/01/96 . . . . . . . . . . . 1,000 1,016
Joseph E. Seagram and Sons
7.000%, 04/15/08 . . . . . . . . . . . 1,500 1,573
Metropolitan of Tokyo
7.500%, 03/18/97 . . . . . . . . . . . 1,300 1,332
Mobil
7.250%, 03/15/99 . . . . . . . . . . . 1,000 1,050
Panhandle Eastern
7.880%, 08/15/04 . . . . . . . . . . . 1,000 1,103
Province of British Columbia
7.000%, 01/15/03 . . . . . . . . . . . 1,500 1,603
Ralston Purina
7.750%, 10/01/15 . . . . . . . . . . . 2,000 2,145
Royal Bank of Scotland
6.380%, 02/01/11 . . . . . . . . . . . 1,500 1,485
</TABLE>

33
<PAGE> 368
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Stepstone Balanced Fund

<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
---------- -------
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
Texaco Capital
9.000%, 11/15/96 . . . . . . . . . . . $1,000 $ 1,029
Waste Management
6.380%, 07/01/97 . . . . . . . . . . . 1,000 1,015
- ------------------------------------------------------------------
Total Corporate Obligations
(cost $25,668,433) . . . . . . . . 27,223
- ------------------------------------------------------------------
ASSET BACKED SECURITIES (2.0%)
American Express 1994-1A
7.150%, 08/15/99 . . . . . . . . . . . 1,500 1,568
Banc One Credit Card Master Trust,
Ser 1994-A, Cl A
7.150%, 11/15/96 . . . . . . . . . . . 2,000 2,030
J.C.Penney's Master Credit Card Trust,
Ser C, Cl A
9.630%, 06/15/00 . . . . . . . . . . . 1,000 1,151
- ------------------------------------------------------------------
Total Asset Backed Securities
(cost $4,486,259) . . . . . . . . 4,749
- ------------------------------------------------------------------
EQUITY OPTIONS (-0.0%)
Computer Associates
February 65 Calls* 02/17/96 . . . . . (44)
Loral February 45 Calls* 02/17/96 . . (14)
- ------------------------------------------------------------------
Total Equity Options
(Cost $(35,279)) . . . . . . . . . (58)
- ------------------------------------------------------------------
REPURCHASE AGREEMENTS (4.7%)
Deutsche Morgan Grenfell/
C.J. Lawrence
5.95%, dated 01/31/96, matures
02/01/96, repurchase price
$11,431,154 (collateralized by U.S.
Treasury Bond, par value $368,000,
9.25%, matures 02/15/16: U.S.
Treasury Notes, total par value
$10,815,000, 5.125%-7.875%,
03/31/96-10/15/98: total market
value $11,658,037) . . . . . . . . . . 11,429
- ------------------------------------------------------------------
Total Repurchase Agreements
(Cost $11,429,265) . . . . . . . . 11,429
- ------------------------------------------------------------------
Total Investments (99.3%)
(Cost $196,067,175) . . . . . . . 240,479
- ------------------------------------------------------------------
Other Assets and Liabilities (0.7%) . . . 1,821
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 16,804,563
outstanding shares of beneficial
interest . . . . . . . . . . . . . . 189,220
Fund shares of Investment Class
(unlimited authorization--no par
value) based on 605,309 outstanding
shares of beneficial interest . . . 7,223
Undistributed Net
Investment Income . . . . . . . . . 351
Accumulated Net Realized Gain
on Investments . . . . . . . . . . . 1,095
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 44,411
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . 242,300
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $13.92
- ------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE--INVESTMENT CLASS . . $13.91
- ------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE--
INVESTMENT CLASS ($13.91/95.5%) . . . $14.57
==================================================================
</TABLE>

* Non-income producing security
ADR--American Depository Receipt
Cl--Class
FNMA--Federal National Mortgage Association
GNMA--Government National Mortgage Association
Ser--Series

The accompanying notes are an integral part of the financial statements.

34
<PAGE> 369
STATEMENT OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Growth Equity Fund
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
--------- -------
<S> <C> <C>
COMMON STOCK (94.0%)
AEROSPACE & DEFENSE (0.3%)
Watkins Johnson . . . . . . . . . . . . . 16,000 $ 616
- ------------------------------------------------------------------
616
- ------------------------------------------------------------------
AUTOMOTIVE (1.4%)
Chrysler . . . . . . . . . . . . . . . . . 24,894 1,438
Magna International, Cl A . . . . . . . . 27,000 1,117
- ------------------------------------------------------------------
2,555
- ------------------------------------------------------------------
BANKS (2.7%)
Banc One . . . . . . . . . . . . . . . . . 33,000 1,250
Fleet Financial Group . . . . . . . . . . 16,000 640
U.S. Bancorp . . . . . . . . . . . . . . . 90,780 2,984
- ------------------------------------------------------------------
4,874
- ------------------------------------------------------------------
BEAUTY PRODUCTS (0.9%)
International Flavors & Fragrances . . . . 34,000 1,704
- ------------------------------------------------------------------
1,704
- ------------------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING (0.9%)
Capital Cities/ABC . . . . . . . . . . . . 12,000 1,544
- ------------------------------------------------------------------
1,544
- ------------------------------------------------------------------
CHEMICALS (4.2%)
Georgia Gulf . . . . . . . . . . . . . . . 24,000 765
Great Lakes Chemical . . . . . . . . . . . 37,800 2,821
IMC Fertilizer Group . . . . . . . . . . . 60,500 2,269
Lilly (Eli) . . . . . . . . . . . . . . . 8,000 460
W.R. Grace . . . . . . . . . . . . . . . . 20,000 1,232
- ------------------------------------------------------------------
7,547
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (1.7%)
ADC Telecommunications* . . . . . . . . . 8,000 309
DSC Communications* . . . . . . . . . . . 47,000 1,369
Motorola . . . . . . . . . . . . . . . . . 20,000 1,075
Nimbus CD International* . . . . . . . . . 20,000 152
- ------------------------------------------------------------------
2,905
- ------------------------------------------------------------------
COMPUTERS & SOFTWARE SERVICES (20.5%)
Cisco Systems* . . . . . . . . . . . . . . 84,600 7,043
Compaq Computer* . . . . . . . . . . . . . 32,000 1,508
CUC International* . . . . . . . . . . . . 181,655 6,699
Computer Associates International . . . . . 36,000 2,461
Compuware* . . . . . . . . . . . . . . . . 48,700 889
First Data . . . . . . . . . . . . . . . . 75,683 5,355
Fiserv* . . . . . . . . . . . . . . . . . 41,000 1,107
Hewlett Packard . . . . . . . . . . . . . 40,800 3,458
Microsoft* . . . . . . . . . . . . . . . . 35,000 3,237
Olsten . . . . . . . . . . . . . . . . . . 40,000 1,590
Silicon Graphics* . . . . . . . . . . . . 109,200 3,071
Wonderware* . . . . . . . . . . . . . . . 40,000 640
- ------------------------------------------------------------------
37,058
- ------------------------------------------------------------------
CONTAINERS & PACKAGING (0.1%)
Brockway Standard Holdings* . . . . . . . 18,400 239
- ------------------------------------------------------------------
239
- ------------------------------------------------------------------
DRUGS (3.4%)
Alza * . . . . . . . . . . . . . . . . . . 16,000 452
Mallinckrodt Group . . . . . . . . . . . . 45,700 1,834
Schering Plough . . . . . . . . . . . . . 71,200 3,853
- ------------------------------------------------------------------
6,139
- ------------------------------------------------------------------
ELECTRICAL UTILITIES (1.5%)
Illinova . . . . . . . . . . . . . . . . . 25,000 747
Ohio Edison . . . . . . . . . . . . . . . 16,000 382
Pinnacle West Capital . . . . . . . . . . 56,500 1,667
- ------------------------------------------------------------------
2,796
- ------------------------------------------------------------------
ENTERTAINMENT (1.2%)
Ambassador International* . . . . . . . . 72,000 684
Walt Disney . . . . . . . . . . . . . . . 24,000 1,542
- ------------------------------------------------------------------
2,226
- ------------------------------------------------------------------
FINANCIAL SERVICES (5.0%)
FNMA . . . . . . . . . . . . . . . . . . . 136,800 4,720
MBNA . . . . . . . . . . . . . . . . . . . 108,300 4,413
- ------------------------------------------------------------------
9,133
- ------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (2.1%)
IBP . . . . . . . . . . . . . . . . . . . 16,000 426
PepsiCo . . . . . . . . . . . . . . . . . 29,800 1,777
Philip Morris . . . . . . . . . . . . . . 17,700 1,646
- ------------------------------------------------------------------
3,849
- ------------------------------------------------------------------
GAS/NATURAL GAS (1.7%)
Coastal . . . . . . . . . . . . . . . . . 40,000 1,515
Williams . . . . . . . . . . . . . . . . . 32,000 1,508
- ------------------------------------------------------------------
3,023
- ------------------------------------------------------------------
</TABLE>

35
<PAGE> 370
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Growth Equity (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HOUSEHOLD FURNITURE & FIXTURES (0.5%)
Leggett & Platt . . . . . . . . . . . . . 40,000 $ 960
- ------------------------------------------------------------------
960
- ------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.6%)
Danaher . . . . . . . . . . . . . . . . . 31,200 995
- ------------------------------------------------------------------
995
- ------------------------------------------------------------------
INSURANCE (9.8%)
AFLAC . . . . . . . . . . . . . . . . . . 32,000 1,524
AMBAC . . . . . . . . . . . . . . . . . . 64,200 3,073
Healthcare Compare* . . . . . . . . . . . 56,000 2,716
MBIA . . . . . . . . . . . . . . . . . . . 26,600 1,962
Oxford Health Plan* . . . . . . . . . . . 36,000 2,484
Progressive of Ohio . . . . . . . . . . . 17,000 861
U.S. Healthcare . . . . . . . . . . . . . 102,900 4,991
- ------------------------------------------------------------------
17,611
- ------------------------------------------------------------------
LEISURE PRODUCTS (1.1%)
Mattel . . . . . . . . . . . . . . . . . . 62,500 2,016
- ------------------------------------------------------------------
2,016
- ------------------------------------------------------------------
MACHINERY (2.1%)
General Electric . . . . . . . . . . . . . 35,100 2,694
Varity* . . . . . . . . . . . . . . . . . 28,000 1,036
- ------------------------------------------------------------------
3,730
- ------------------------------------------------------------------
MANUFACTURING (0.6%)
West Marine* . . . . . . . . . . . . . . . 34,000 1,165
- ------------------------------------------------------------------
1,165
- ------------------------------------------------------------------
MARINE TRANSPORTATION (1.8%)
Carnival, Cl A . . . . . . . . . . . . . . 121,000 3,267
- ------------------------------------------------------------------
3,267
- ------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (2.0%)
Nellcor* . . . . . . . . . . . . . . . . . 32,800 2,034
Vivra* . . . . . . . . . . . . . . . . . . 63,225 1,596
- ------------------------------------------------------------------
3,630
- ------------------------------------------------------------------
PAPER & PAPER PRODUCTS (0.6%)
Willamette Industries . . . . . . . . . . 20,000 1,115
- ------------------------------------------------------------------
1,115
- ------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS (0.3%)
Schlumberger . . . . . . . . . . . . . . . 8,000 561
- ------------------------------------------------------------------
561
- ------------------------------------------------------------------
PETROLEUM REFINING (3.6%)
Amoco . . . . . . . . . . . . . . . . . . 16,000 1,126
Ashland . . . . . . . . . . . . . . . . . 12,900 474
British Petroleum PLC, ADR . . . . . . . 28,300 2,763
Chevron . . . . . . . . . . . . . . . . . 24,000 1,245
Exxon . . . . . . . . . . . . . . . . . . 8,400 674
- ------------------------------------------------------------------
6,282
- ------------------------------------------------------------------
PROFESSIONAL SERVICES (2.2%)
Medaphis* . . . . . . . . . . . . . . . . 65,800 2,632
U.S. Delivery Systems* . . . . . . . . . . 42,100 1,289
- ------------------------------------------------------------------
3,921
- ------------------------------------------------------------------
RAILROADS (2.6%)
Burlington Northern Santa Fe . . . . . . . 28,000 2,292
Kansas City Southern Industries . . . . . 53,400 2,430
- ------------------------------------------------------------------
4,722
- ------------------------------------------------------------------
REAL ESTATE (0.3%)
Innkeepers USA Trust . . . . . . . . . . . 64,000 600
- ------------------------------------------------------------------
600
- ------------------------------------------------------------------
RETAIL (7.6%)
Corporate Express* . . . . . . . . . . . . 61,000 1,609
Kohls* . . . . . . . . . . . . . . . . . . 49,600 2,796
Landry's Seafood Restaurants* . . . . . . 48,300 718
McDonald's . . . . . . . . . . . . . . . . 58,600 2,945
Papa John's International* . . . . . . . . 41,000 1,712
Pep Boys-Manny, Moe & Jack . . . . . . . . 88,500 2,566
Toys R Us* . . . . . . . . . . . . . . . . 39,400 872
Wal-Mart Stores . . . . . . . . . . . . . 29,800 607
- ------------------------------------------------------------------
13,825
- ------------------------------------------------------------------
</TABLE>

36
<PAGE> 371
STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
Growth Equity Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCK (CONTINUED)
RUBBER & PLASTIC (1.1%)
Goodyear Tire & Rubber . . . . . . . . . . 24,000 $ 1,149
Mark IV Industries . . . . . . . . . . . . 44,100 921
- ------------------------------------------------------------------
2,070
- ------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (4.9%)
Applied Materials* . . . . . . . . . . . . 32,000 1,184
Aavid Thermal Technologies* . . . . . . . 24,000 240
Integrated Device Technology* . . . . . . 127,400 1,672
Intel . . . . . . . . . . . . . . . . . . 70,200 3,877
National Semiconductor* . . . . . . . . . 49,000 845
Recoton* . . . . . . . . . . . . . . . . . 60,000 1,035
- ------------------------------------------------------------------
8,853
- ------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (3.8%)
Cincinnati Bell . . . . . . . . . . . . . 65,000 2,112
MCI Communications . . . . . . . . . . . . 78,800 2,256
SBC Communications . . . . . . . . . . . . 43,200 2,446
- ------------------------------------------------------------------
6,814
- ------------------------------------------------------------------
TRUCKING (1.0%)
Wabash National . . . . . . . . . . . . . 83,125 1,725
- ------------------------------------------------------------------
1,725
- ------------------------------------------------------------------
Total Common Stock
(Cost $101,921,272) . . . . . . . 170,070
- ------------------------------------------------------------------
REPURCHASE AGREEMENTS (6.0%)
Deutsche Morgan Grenfell/C.J. Lawrence
5.950%, dated 01/31/96, matures
02/01/96, repurchase price $10,793,191
(collateralized by various U.S. Treasury
Notes, total par value $9,523,000,
5.750%--6.125%, 05/15/98--10/31/00:
U.S. Treasury Bond par value $759,000,
12.750%, 11/15/10: total market value
$11,008,112) . . . . . . . . . . . . 10,791
- ------------------------------------------------------------------
Total Repurchase Agreements
(Cost $10,791,408) . . . . . . . . 10,791
- ------------------------------------------------------------------
Total Investments (100.0%)
(Cost $112,712,680) . . . . . . . 180,861
- ------------------------------------------------------------------
Other Assets and Liabilities (0.0%) . . . 74
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 10,136,971
outstanding shares of beneficial
interest . . . . . . . . . . . . . . 110,100
Fund shares of Investment Class
(unlimited authorization--no par
value) based on 133,148 outstanding
shares of beneficial interest . . . 1,932
Undistributed Net Investment Income . 228
Accumulated Net Realized Gain
on Investments . . . . . . . . . . . 527
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 68,148
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $180,935
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $17.62
- ------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE--INVESTMENT CLASS . . $17.61
- ------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE--
INVESTMENT CLASS ($17.61/95.5%) . . . $18.44
==================================================================
</TABLE>

* Non-income producing security
ADR--American Depository Receipt
Cl--Class

The accompanying notes are an integral part of the financial statements.

37
<PAGE> 372
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Stepstone Value Momentum Fund
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
--------- -------
<S> <C> <C>
COMMON STOCKS (91.7%)
AEROSPACE & DEFENSE (2.3%)
Loral . . . . . . . . . . . . . . . . . . 67,200 $3,108
Rockwell International . . . . . . . . . . 40,000 2,345
- ------------------------------------------------------------------
5,453
- ------------------------------------------------------------------
AIRCRAFT (1.1%)
Textron . . . . . . . . . . . . . . . . . 33,000 2,595
- ------------------------------------------------------------------
2,595
- ------------------------------------------------------------------
APPAREL/TEXTILES (0.5%)
Springs Industries, Cl A . . . . . . . . . 30,000 1,200
- ------------------------------------------------------------------
1,200
- ------------------------------------------------------------------
AUTOMOTIVE (2.4%)
Arvin Industries . . . . . . . . . . . . . 40,000 785
Fleetwood Enterprises . . . . . . . . . . 40,000 1,020
Ford Motor . . . . . . . . . . . . . . . . 45,000 1,333
General Motors, Cl E . . . . . . . . . . . 17,000 944
TRW . . . . . . . . . . . . . . . . . . . 14,000 1,183
- ------------------------------------------------------------------
5,265
- ------------------------------------------------------------------
BANKS (3.4%)
BankAmerica . . . . . . . . . . . . . . . 30,000 2,021
Bankers Trust New York . . . . . . . . . . 20,000 1,298
First Union . . . . . . . . . . . . . . . 45,000 2,604
J.P. Morgan . . . . . . . . . . . . . . . 25,000 2,031
- ------------------------------------------------------------------
7,954
- ------------------------------------------------------------------
CHEMICALS (5.6%)
Cabot . . . . . . . . . . . . . . . . . . 53,000 3,047
Du Pont (E.I.) de Nemours . . . . . . . . 40,000 3,075
Eastman Chemical . . . . . . . . . . . . . 5,500 364
Monsanto . . . . . . . . . . . . . . . . . 12,000 1,563
W.R. Grace . . . . . . . . . . . . . . . . 64,000 3,944
Wellman . . . . . . . . . . . . . . . . . 60,000 1,200
- ------------------------------------------------------------------
13,193
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (1.9%)
CTS . . . . . . . . . . . . . . . . . . . 55,800 2,148
Harris . . . . . . . . . . . . . . . . . . 35,000 2,192
- ------------------------------------------------------------------
4,340
- ------------------------------------------------------------------
COMPUTERS & SERVICES (3.9%)
Cisco Systems* . . . . . . . . . . . . . . 30,000 2,497
Hewlett Packard . . . . . . . . . . . . . 50,000 4,237
International Business Machines . . . . . 22,000 2,393
- ------------------------------------------------------------------
9,127
- ------------------------------------------------------------------
DRUGS (4.7%)
American Home Products . . . . . . . . . . 15,000 1,530
Bristol Myers Squibb . . . . . . . . . . . 13,000 1,150
Mallinckrodt Group . . . . . . . . . . . . 65,000 2,608
Merck . . . . . . . . . . . . . . . . . . 45,000 3,161
SmithKline Beecham, ADR . . . . . . . . . 47,000 2,644
- ------------------------------------------------------------------
11,093
- ------------------------------------------------------------------
ELECTRICAL UTILITIES (1.1%)
General Public Utilities . . . . . . . . . 75,000 2,550
- ------------------------------------------------------------------
2,550
- ------------------------------------------------------------------
FINANCIAL SERVICES (7.3%)
Allstate . . . . . . . . . . . . . . . . . 39,467 1,722
BRE Properties, Cl A . . . . . . . . . . 60,000 2,227
Bear Stearns . . . . . . . . . . . . . . . 86,150 1,981
CBL Associates Properties . . . . . . . . 59,800 1,226
Dean Witter Discover . . . . . . . . . . . 45,000 2,436
Federal National Mortgage
Association . . . . . . . . . . . . . . 120,000 4,140
Real Estate Investment Trust
of California . . . . . . . . . . . . 28,300 580
Travelers . . . . . . . . . . . . . . . . 40,001 2,630
- ------------------------------------------------------------------
16,942
- ------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (6.2%)
American Brands . . . . . . . . . . . . . 29,000 1,323
IBP . . . . . . . . . . . . . . . . . . . 130,000 3,461
Philip Morris . . . . . . . . . . . . . . 35,000 3,255
Sara Lee . . . . . . . . . . . . . . . . . 60,000 2,025
Schweitzer-Manduit
International* . . . . . . . . . . . . 1,000 25
Unilever NV, ADR . . . . . . . . . . . . . 9,000 1,304
Universal Foods . . . . . . . . . . . . . 75,000 2,897
- ------------------------------------------------------------------
14,290
- ------------------------------------------------------------------
</TABLE>

38
<PAGE> 373
STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
Value Momentum Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
GAS/NATURAL GAS (4.3%)
Coastal . . . . . . . . . . . . . . . . . 45,000 $1,704
MCN . . . . . . . . . . . . . . . . . . . 75,000 1,847
Questar . . . . . . . . . . . . . . . . . 42,000 1,370
Sonat . . . . . . . . . . . . . . . . . . 40,000 1,380
Westcoast Energy . . . . . . . . . . . . . 70,000 1,094
Williams . . . . . . . . . . . . . . . . . 55,000 2,592
- ------------------------------------------------------------------
9,987
- ------------------------------------------------------------------
GLASS PRODUCTS (0.5%)
PPG Industries . . . . . . . . . . . . . . 27,000 1,262
- ------------------------------------------------------------------
1,262
- ------------------------------------------------------------------
HOTELS & LODGING (0.7%)
Hilton Hotels . . . . . . . . . . . . . . 20,000 1,555
- ------------------------------------------------------------------
1,555
- ------------------------------------------------------------------
HOUSEHOLD FURNITURE & FIXTURES (0.6%)
Leggett & Platt . . . . . . . . . . . . . 61,000 1,464
- ------------------------------------------------------------------
1,464
- ------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.7%)
Whirlpool . . . . . . . . . . . . . . . . 30,000 1,631
- ------------------------------------------------------------------
1,631
- ------------------------------------------------------------------
INSURANCE (3.9%)
Chubb . . . . . . . . . . . . . . . . . . 15,000 1,556
Equifax . . . . . . . . . . . . . . . . . 100,000 1,863
Lincoln National . . . . . . . . . . . . . 40,000 2,115
Providian . . . . . . . . . . . . . . . . 50,000 2,194
Torchmark . . . . . . . . . . . . . . . . 30,000 1,421
- ------------------------------------------------------------------
9,149
- ------------------------------------------------------------------
LEASING & RENTING (2.1%)
Comdisco . . . . . . . . . . . . . . . . . 135,000 2,886
Xtra . . . . . . . . . . . . . . . . . . . 45,000 1,918
- ------------------------------------------------------------------
4,804
- ------------------------------------------------------------------
MACHINERY (3.6%)
Deere . . . . . . . . . . . . . . . . . . 69,000 2,587
Dresser Industries . . . . . . . . . . . . 90,000 2,340
General Electric . . . . . . . . . . . . . 45,000 3,454
- ------------------------------------------------------------------
8,381
- ------------------------------------------------------------------
MEASURING DEVICES (0.7%)
Perkin Elmer . . . . . . . . . . . . . . . 35,000 1,654
- ------------------------------------------------------------------
1,654
- ------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (0.9%)
Becton, Dickinson . . . . . . . . . . . . 25,000 2,159
- ------------------------------------------------------------------
2,159
- ------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (0.5%)
Novacare* . . . . . . . . . . . . . . . . 50,000 300
Tenet Healthcare* . . . . . . . . . . . . 36,000 769
- ------------------------------------------------------------------
1,069
- ------------------------------------------------------------------
MISCELLANEOUS CONSUMER SERVICES (0.2%)
CPI . . . . . . . . . . . . . . . . . . . 30,000 443
- ------------------------------------------------------------------
443
- ------------------------------------------------------------------
MISCELLANEOUS TRANSPORTATION (0.8%)
Harsco . . . . . . . . . . . . . . . . . . 30,000 1,856
- ------------------------------------------------------------------
1,856
- ------------------------------------------------------------------
PAPER & PAPER PRODUCTS (4.7%)
Avery Dennison . . . . . . . . . . . . . . 52,000 2,776
Kimberly-Clark . . . . . . . . . . . . . . 58,360 4,705
Weyerhaeuser . . . . . . . . . . . . . . . 50,000 2,306
Willamette Industries . . . . . . . . . . 22,000 1,227
- ------------------------------------------------------------------
11,014
- ------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS (0.3%)
Union Pacific Resources . . . . . . . . . 30,000 780
- ------------------------------------------------------------------
780
- ------------------------------------------------------------------
PETROLEUM REFINING (4.7%)
Ashland . . . . . . . . . . . . . . . . . 30,000 1,103
Chevron . . . . . . . . . . . . . . . . . 30,000 1,556
Imperial Oil . . . . . . . . . . . . . . . 30,000 1,087
</TABLE>

39
<PAGE> 374
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Value Momentum Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PETROLEUM REFINING (CONTINUED)
Mobil . . . . . . . . . . . . . . . . . . 28,000 $3,101
Royal Dutch Petroleum, ADR . . . . . . . . 13,000 1,807
Unocal . . . . . . . . . . . . . . . . . . 48,000 1,434
Valero Energy . . . . . . . . . . . . . . 40,000 990
- ------------------------------------------------------------------
11,078
- ------------------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES (1.8%)
Eastman Kodak . . . . . . . . . . . . . . 35,000 2,568
Xerox . . . . . . . . . . . . . . . . . . 13,000 1,607
- ------------------------------------------------------------------
4,175
- ------------------------------------------------------------------
PRINTING & PUBLISHING (2.1%)
Houghton Mifflin . . . . . . . . . . . . . 40,000 1,665
Wallace Computer Services . . . . . . . . 60,000 3,323
- ------------------------------------------------------------------
4,988
- ------------------------------------------------------------------
RAILROADS (1.6%)
Burlington Northern Santa Fe . . . . . . . 22,000 1,801
Union Pacific . . . . . . . . . . . . . . 30,000 1,999
- ------------------------------------------------------------------
3,800
- ------------------------------------------------------------------
REAL ESTATE (2.0%)
First Industrial Realty Trust . . . . . . 110,000 2,530
JP Realty . . . . . . . . . . . . . . . . 108,000 2,160
- ------------------------------------------------------------------
4,690
- ------------------------------------------------------------------
REPAIR SERVICES (2.1%)
PHH . . . . . . . . . . . . . . . . . . . 65,000 3,348
Rollins Truck Leasing . . . . . . . . . . 160,000 1,680
- ------------------------------------------------------------------
5,028
- ------------------------------------------------------------------
RETAIL (2.8%)
Dayton-Hudson . . . . . . . . . . . . . . 18,000 1,346
Kroger* . . . . . . . . . . . . . . . . . 55,000 1,911
May Department Stores . . . . . . . . . . 55,000 2,447
Sears Roebuck . . . . . . . . . . . . . . 21,000 872
- ------------------------------------------------------------------
6,576
- ------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (2.2%)
Intel . . . . . . . . . . . . . . . . . . 70,000 3,866
National Semiconductor * . . . . . . . . . 75,000 1,294
- ------------------------------------------------------------------
5,160
- ------------------------------------------------------------------
STEEL & STEEL WORKS (1.1%)
Aluminum Company of America . . . . . . . 20,000 1,110
Engelhard . . . . . . . . . . . . . . . . 67,500 1,561
- ------------------------------------------------------------------
2,671
- ------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (4.3%)
A T & T . . . . . . . . . . . . . . . . . 18,449 1,234
Airtouch Communications* . . . . . . . . . 16,000 452
Comsat . . . . . . . . . . . . . . . . . . 70,000 1,313
Century Telephone Enterprises . . . . . . 50,000 1,694
Frontier . . . . . . . . . . . . . . . . . 90,000 2,677
GTE . . . . . . . . . . . . . . . . . . . 60,000 2,760
- ------------------------------------------------------------------
10,130
- ------------------------------------------------------------------
TRANSPORTATION SERVICES (1.0%)
GATX . . . . . . . . . . . . . . . . . . . 51,000 2,359
- ------------------------------------------------------------------
2,359
- ------------------------------------------------------------------
WHOLESALE (1.1%)
Avnet . . . . . . . . . . . . . . . . . . 40,000 1,715
Universal . . . . . . . . . . . . . . . . 40,000 935
- ------------------------------------------------------------------
2,650
- ------------------------------------------------------------------
Total Common Stocks
(Cost $145,722,213) . . . . . . . 214,515
- ------------------------------------------------------------------
WARRANTS (0.0%)
Chase Manhattan Warrants* . . . . . . . . 125 4
4
- ------------------------------------------------------------------
REPURCHASE AGREEMENT (7.8%)
Deutsche Morgan Grenfell/C.J. Lawrence
5.950%, dated 01/31/96, matures
02/01/96, repurchase price
$18,216,550 (collateralized by various
FHLMC obligations, total par value
$2,560,000, 0%--6.445%, 02/01/96--
10/21/02: U.S. Treasury Notes, total
par value $15,415,000, 5.50%--6.875%,
02/28/97--04/15/00, total market value
$18,578,180) . . . . . . . . . . . . 18,214
- ------------------------------------------------------------------
Total Repurchase Agreement
(Cost $18,213,541) . . . . . . . . 18,214
- ------------------------------------------------------------------
</TABLE>

40
<PAGE> 375

STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
Value Momentum Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
(000)
-------
<S> <C>
Total Investments (99.5%)
(Cost $163,935,754) . . . . . . . $232,733
- ------------------------------------------------------------------
Other Assets and Liabilities (0.5%) . . . 1,133
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 12,303,530
outstanding shares of beneficial
interest . . . . . . . . . . . . . . 151,322
Fund shares of Investment Class
(unlimited authorization--no par
value) based on 653,860 outstanding
shares of beneficial interest . . . 8,425
Undistributed Net Investment Income . 210
Accumulated Net Realized Gain
on Investments . . . . . . . . . . . 5,111
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 68,798
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $233,866
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $18.05
- ------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE--INVESTMENT CLASS . . $18.05
- ------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE--
INVESTMENT CLASS ($18.05/95.5%) . . . $18.90
==================================================================
</TABLE>

* 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.

41
<PAGE> 376
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Stepstone Blue Chip Growth Fund
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
--------- -------
<S> <C> <C>
COMMON STOCKS (95.6%)
AIR TRANSPORTATION (2.5%)
AMR * . . . . . . . . . . . . . . . . . . 11,000 $ 836
Federal Express * . . . . . . . . . . . . 10,000 761
- ------------------------------------------------------------------
1,597
- ------------------------------------------------------------------
AUTOMOTIVE (1.8%)
Chrysler . . . . . . . . . . . . . . . . . 10,000 578
Eaton . . . . . . . . . . . . . . . . . . 5,400 313
General Motors, Cl E . . . . . . . . . . . 5,000 278
- ------------------------------------------------------------------
1,169
- ------------------------------------------------------------------
BANKS (6.6%)
Bank of Boston . . . . . . . . . . . . . 14,400 659
Citicorp . . . . . . . . . . . . . . . . . 10,500 775
CoreStates Finance . . . . . . . . . . . . 15,000 600
Fifth Third Bancorp . . . . . . . . . . . 12,000 568
PNC Bank . . . . . . . . . . . . . . . . . 20,000 600
Republic New York . . . . . . . . . . . . 5,000 291
Wells Fargo . . . . . . . . . . . . . . . 3,000 704
- ------------------------------------------------------------------
4,197
- ------------------------------------------------------------------
BEAUTY PRODUCTS (0.9%)
Proctor & Gamble . . . . . . . . . . . . . 7,000 587
- ------------------------------------------------------------------
587
- ------------------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING (1.2%)
Capital Citites/ABC . . . . . . . . . . . 3,500 450
Viacom, Cl B* . . . . . . . . . . . . . . 8,000 324
- ------------------------------------------------------------------
774
- ------------------------------------------------------------------
CHEMICALS (4.6%)
Dow Chemical . . . . . . . . . . . . . . . 7,500 559
Du Pont (E.I.) de Nemours . . . . . . . . 8,200 630
Eastman Chemical . . . . . . . . . . . . . 3,500 231
IMC Fertilizer Group . . . . . . . . . . . 15,000 563
Lilly (Eli) . . . . . . . . . . . . . . . 9,426 542
Union Carbide Holding . . . . . . . . . . 10,000 421
- ------------------------------------------------------------------
2,946
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (1.5%)
ITT Industries . . . . . . . . . . . . . . 5,000 130
ITT* . . . . . . . . . . . . . . . . . . . 5,000 277
Motorola . . . . . . . . . . . . . . . . . 6,000 323
Picturetel * . . . . . . . . . . . . . . . 5,000 196
- ------------------------------------------------------------------
926
- ------------------------------------------------------------------
COMPUTERS & SOFTWARE SERVICES (8.8%)
3Com* . . . . . . . . . . . . . . . . . . 10,000 459
Automatic Data Processing . . . . . . . . 10,000 399
Cisco Systems* . . . . . . . . . . . . . . 4,000 333
Compaq Computer * . . . . . . . . . . . . 4,000 189
Computer Associates International . . . . 9,500 649
Dell Computer . . . . . . . . . . . . . . 8,000 219
Gateway 2000 Incorporated* . . . . . . . . 20,000 518
Hewlett Packard . . . . . . . . . . . . . 7,000 593
International Business Machines . . . . . 7,000 761
Microsoft* . . . . . . . . . . . . . . . . 8,000 740
Oracle Systems . . . . . . . . . . . . . . 5,000 239
Sun Microsystems* . . . . . . . . . . . . 11,000 506
- ------------------------------------------------------------------
5,605
- ------------------------------------------------------------------
CONCRETE & MINERAL PRODUCTS (0.9%)
Minnesota Mining & Manufacturing . . . . . 9,000 581
- ------------------------------------------------------------------
581
- ------------------------------------------------------------------
DRUGS (7.5%)
Abbott Labs . . . . . . . . . . . . . . . 8,000 338
Amgen* . . . . . . . . . . . . . . . . . . 18,000 1,082
Bristol-Myers Squibb . . . . . . . . . . . 7,000 620
Johnson & Johnson . . . . . . . . . . . . 13,000 1,248
Merck . . . . . . . . . . . . . . . . . . 13,000 913
Schering Plough . . . . . . . . . . . . . 10,000 541
- ------------------------------------------------------------------
4,742
- ------------------------------------------------------------------
ELECTRICAL SERVICES (5.7%)
American Electric Power . . . . . . . . . 10,000 443
Baltimore Gas & Electric . . . . . . . . . 20,000 575
Dominion Resources . . . . . . . . . . . . 20,000 857
Duke Power . . . . . . . . . . . . . . . . 13,200 657
Houston Industries . . . . . . . . . . . . 20,000 480
Texas Utilities . . . . . . . . . . . . . 15,000 613
- ------------------------------------------------------------------
3,625
- ------------------------------------------------------------------
ELECTRICAL TECHNOLOGY (0.5%)
Komag * . . . . . . . . . . . . . . . . . 10,000 291
- ------------------------------------------------------------------
291
- ------------------------------------------------------------------
ENTERTAINMENT (0.8%)
Walt Disney . . . . . . . . . . . . . . . 8,000 514
- ------------------------------------------------------------------
514
- ------------------------------------------------------------------
</TABLE>

42
<PAGE> 377
STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
Blue Chip Growth Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (4.0%)
American Express . . . . . . . . . . . . . 8,000 $ 368
Bear Stearns . . . . . . . . . . . . . . . 25,000 575
Charles Schwab . . . . . . . . . . . . . . 10,000 250
ITT Hartford Group* . . . . . . . . . . . 15,000 752
Merrill Lynch . . . . . . . . . . . . . . 10,000 569
- ------------------------------------------------------------------
2,514
- ------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (7.4%)
Coca Cola . . . . . . . . . . . . . . . . 11,000 829
IBP . . . . . . . . . . . . . . . . . . . 22,000 586
Kellogg . . . . . . . . . . . . . . . . . 2,700 207
PepsiCo . . . . . . . . . . . . . . . . . 10,000 596
Philip Morris . . . . . . . . . . . . . . 15,000 1,395
Tootsie Roll Industries . . . . . . . . . 15,000 585
Wm. Wrigley, Jr. . . . . . . . . . . . . . 8,000 476
- ------------------------------------------------------------------
4,674
- ------------------------------------------------------------------
GLASS PRODUCTS (0.5%)
PPG Industries . . . . . . . . . . . . . . 7,000 327
- ------------------------------------------------------------------
327
- ------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.8%)
Gillette . . . . . . . . . . . . . . . . . 10,000 536
- ------------------------------------------------------------------
536
- ------------------------------------------------------------------
INSURANCE (3.5%)
American International Group . . . . . . . 5,000 484
Pacificare Health Systems, Cl A* . . . . 8,000 724
Pacificare Health Systems, Cl B* . . . . 4,000 369
United Healthcare . . . . . . . . . . . . 10,000 629
- ------------------------------------------------------------------
2,206
- ------------------------------------------------------------------
LUMBER & WOOD PRODUCTS (0.4%)
Georgia-Pacific . . . . . . . . . . . . . 3,200 235
- ------------------------------------------------------------------
235
- ------------------------------------------------------------------
MACHINERY (6.2%)
Black & Decker . . . . . . . . . . . . . . 6,000 203
Caterpillar . . . . . . . . . . . . . . . 12,100 779
Case . . . . . . . . . . . . . . . . . . . 12,000 568
Deere . . . . . . . . . . . . . . . . . . 18,000 675
General Electric . . . . . . . . . . . . . 22,000 1,689
- ------------------------------------------------------------------
3,914
- ------------------------------------------------------------------
MARINE TRANSPORTATION (0.3%)
Royal Caribbean Cruises . . . . . . . . . 10,000 221
- ------------------------------------------------------------------
221
- ------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (3.7%)
Guidant . . . . . . . . . . . . . . . . . 8,330 382
Medtronic . . . . . . . . . . . . . . . . 13,000 743
St. Jude Medical . . . . . . . . . . . . . 9,000 397
Varian Associates . . . . . . . . . . . . 6,000 289
Columbia HCA Healthcare . . . . . . . . . 10,000 556
- ------------------------------------------------------------------
2,367
- ------------------------------------------------------------------
PAPER & PAPER PRODUCTS (0.4%)
International Paper . . . . . . . . . . . 5,800 237
- ------------------------------------------------------------------
237
- ------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS (0.3%)
Schlumberger . . . . . . . . . . . . . . . 3,000 210
- ------------------------------------------------------------------
210
- ------------------------------------------------------------------
PETROLEUM REFINING (7.4%)
Amoco . . . . . . . . . . . . . . . . . . 10,000 704
Exxon . . . . . . . . . . . . . . . . . . 15,400 1,236
Mobil . . . . . . . . . . . . . . . . . . 11,100 1,229
Phillips Petroleum . . . . . . . . . . . . 7,500 244
Royal Dutch Petroleum, ADR . . . . . . . . 8,000 1,112
Texaco . . . . . . . . . . . . . . . . . . 2,000 162
- ------------------------------------------------------------------
4,687
- ------------------------------------------------------------------
PROFESSIONAL SERVICES (0.7%)
Dun & Bradstreet . . . . . . . . . . . . . 6,000 390
- ------------------------------------------------------------------
390
- ------------------------------------------------------------------
RAILROADS (0.6%)
Burlington Northern Santa Fe . . . . . . . 5,000 409
- ------------------------------------------------------------------
409
- ------------------------------------------------------------------
RETAIL (4.1%)
Alberto Culver, Cl A . . . . . . . . . . . 20,000 670
Borders Group* . . . . . . . . . . . . . . 10,000 211
Home Depot . . . . . . . . . . . . . . . . 8,000 368
McDonald's . . . . . . . . . . . . . . . . 15,000 754
Pep Boys-Manny, Moe & Jack . . . . . . . . 13,000 377
Wal-Mart Stores . . . . . . . . . . . . . 10,000 204
- ------------------------------------------------------------------
2,584
- ------------------------------------------------------------------
RUBBER & PLASTIC (1.1%)
Agrium . . . . . . . . . . . . . . . . . . 24,000 330
Goodyear Tire & Rubber . . . . . . . . . . 8,000 383
- ------------------------------------------------------------------
713
- ------------------------------------------------------------------
</TABLE>

43
<PAGE> 378
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Blue Chip Growth Fund (cont'd)

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
---------- -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SEMI-CONDUCTORS/INSTRUMENTS (1.8%)
AMP . . . . . . . . . . . . . . . . . . . 5,200 $ 203
Applied Materials * . . . . . . . . . . . 5,000 185
Intel . . . . . . . . . . . . . . . . . . 10,000 552
Micron Technology . . . . . . . . . . . . 5,000 171
- ------------------------------------------------------------------
1,111
- ------------------------------------------------------------------
SPECIALTY MACHINERY (0.4%)
U.S. Filter * . . . . . . . . . . . . . . 10,000 258
- ------------------------------------------------------------------
258
- ------------------------------------------------------------------
STEEL & STEEL WORKS (0.7%)
Aluminum Company of America . . . . . . . 8,400 466
- ------------------------------------------------------------------
466
- ------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (7.1%)
A T & T . . . . . . . . . . . . . . . . . 22,000 1,471
Ameritech . . . . . . . . . . . . . . . . 15,200 914
Ascend Communications* . . . . . . . . . . 6,000 233
Bellsouth . . . . . . . . . . . . . . . . 10,000 429
Cascade Communications* . . . . . . . . . 4,000 313
GTE . . . . . . . . . . . . . . . . . . . 9,000 414
US West . . . . . . . . . . . . . . . . . 15,000 527
Vodafone Group PLC, ADR* . . . . . . . . . 5,000 179
- ------------------------------------------------------------------
4,480
- ------------------------------------------------------------------
WHOLESALE (0.9%)
Cordis* . . . . . . . . . . . . . . . . . 5,000 539
- ------------------------------------------------------------------
539
- ------------------------------------------------------------------
Total Common Stocks
(Cost $48,977,502) . . . . . . . . 60,632
- ------------------------------------------------------------------
PERFERRED STOCKS (0.4%)
AUTOMOTIVE (0.4%)
General Motors Cl E . . . . . . . . . . . 3,000 234
- ------------------------------------------------------------------
Total Preferred Stocks
(Cost $169,680) . . . . . . . . . 234
- ------------------------------------------------------------------
EQUITY OPTIONS (-0.2%)
Ascend Communications
February 35 Calls* 02/17/96 . . . . . . (15)
Ascend Communications
February 37.5 Calls* 02/17/96 . . . . . (10)
Caterpillar February 65 Calls* 02/17/96 . . (5)
Komag March 30 Calls* 03/16/96 . . . . . . (21)
Pacificare, Cl B February 95 Calls* 02/17/96 (10)
Picturetel February 40 Calls* 02/17/96 . . (10)
St Jude Medical February
45 Calls* 02/17/96 . . . . . . . . . . (8)
Sun Microsystems February
45 Calls* 02/17/96 . . . . . . . . . . (7)
Sun Microsystems March 45 Calls* 03/16/96 . (21)
- ------------------------------------------------------------------
Total Equity Options
(Cost $(136,248)) . . . . . . . . (107)
- ------------------------------------------------------------------
REPURCHASE AGREEMENTS (6.8%)
Morgan Stanley & Company
5.82%, dated 01/31/96, matures
02/01/96, repurchase price
$4,301,642 (collateralized by various
FNMA obligations, total par value
$4,398,274, 6.00%--7.50%, 03/01/01--
01/01/03: total market value $4,410,079) 4,301
- ------------------------------------------------------------------
Total Repurchase Agreements
(Cost $4,300,946) . . . . . . . . 4,301
- ------------------------------------------------------------------
Total Investments (102.6%)
(Cost $53,311,880) . . . . . . . . 65,060
- ------------------------------------------------------------------
Other Assets and Liabilities (-2.6%) . . . (1,650)
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 5,019,548
outstanding shares of beneficial
interest . . . . . . . . . . . . . . . 51,155
Undistributed Net Investment Income . . . 16
Accumulated Net Realized Gain
on Investments . . . . . . . . . . . . 491
Net Unrealized Appreciation
on Investments . . . . . . . . . . . . 11,748
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . $63,410
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $12.63
==================================================================
</TABLE>

* Non-income producing security
ADR--American Depository Reciept
Cl--Class
FNMA--Federal National Mortgage Association

The accompanying notes are an integral part of the financial statements.

44
<PAGE> 379
STEPSTONE OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Emerging Growth Fund
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
-------- ------
<S> <C> <C>
COMMON STOCKS (84.7%)
AGRICULTURE (0.4%)
Veterinary Centers of America* . . . . . . 10,000 $ 154
- ------------------------------------------------------------------
154
- ------------------------------------------------------------------
AIR TRANSPORTATION (0.7%)
Atlantic Southeast Airlines . . . . . . . 9,000 166
Comair Holdings . . . . . . . . . . . . . 1,500 37
Vanguard Airlines* . . . . . . . . . . . . 15,000 90
- ------------------------------------------------------------------
293
- ------------------------------------------------------------------
BANKS (5.7%)
Amsouth Bancorp . . . . . . . . . . . . . 5,000 198
Astoria Financial . . . . . . . . . . . . 5,000 246
Crestar Financial . . . . . . . . . . . . 5,000 289
Cullen/Frost Bankers . . . . . . . . . . . 3,700 180
Dauphin Deposit Bank & Trust . . . . . . . 1,400 39
Deposit Guaranty . . . . . . . . . . . . . 3,500 151
First Security . . . . . . . . . . . . . . 2,500 92
First Virginia Banks . . . . . . . . . . . 3,500 135
Hibernia, Cl A . . . . . . . . . . . . . . 12,500 134
Merchantile Bancorp . . . . . . . . . . . 5,000 218
Old Kent Financial . . . . . . . . . . . . 3,675 147
Roosevelt Financial Group . . . . . . . . 10,000 174
Union Planters . . . . . . . . . . . . . . 8,000 244
United Jersey Bank Financial . . . . . . . 3,500 125
- ------------------------------------------------------------------
2,372
- ------------------------------------------------------------------
BEAUTY PRODUCTS (0.3%)
Alberto Culver, Cl A . . . . . . . . . . . 4,000 134
- ------------------------------------------------------------------
134
- ------------------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING (1.4%)
Citicaster* . . . . . . . . . . . . . . . 7,500 183
Infinity Broadcasting * . . . . . . . . . 7,500 298
Young Broadcasting, Cl A* . . . . . . . . 3,500 98
- ------------------------------------------------------------------
579
- ------------------------------------------------------------------
BUILDING & CONSTRUCTION (0.2%)
Southern Energy Homes* . . . . . . . . . . 6,250 103
- ------------------------------------------------------------------
103
- ------------------------------------------------------------------
CHEMICALS (0.6%)
Cytec Industries* . . . . . . . . . . . . 3,500 267
- ------------------------------------------------------------------
267
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (2.3%)
ADC Telecommunications* . . . . . . . . . 2,800 108
Intervoice* . . . . . . . . . . . . . . . 8,000 175
Network Express* . . . . . . . . . . . . . 9,000 35
Octel Communications * . . . . . . . . . . 3,000 110
Picturetel * . . . . . . . . . . . . . . . 5,000 196
Tellabs* . . . . . . . . . . . . . . . . . 2,500 110
Teltrend* . . . . . . . . . . . . . . . . 6,000 238
- ------------------------------------------------------------------
972
- ------------------------------------------------------------------
COMPUTER & SOFTWARE SERVICES (18.2%)
3Com* . . . . . . . . . . . . . . . . . . 23,415 1,074
Adobe Systems . . . . . . . . . . . . . . 4,160 141
Alternative Resources* . . . . . . . . . . 2,500 72
Baan NV* . . . . . . . . . . . . . . . . . 5,000 217
Brooktrout Tech* . . . . . . . . . . . . . 8,000 250
Cadence Design Systems* . . . . . . . . . 10,000 391
Castelle* . . . . . . . . . . . . . . . . 10,000 83
Ciber* . . . . . . . . . . . . . . . . . . 8,000 168
Cisco Systems* . . . . . . . . . . . . . . 10,000 833
CUC International* . . . . . . . . . . . . 18,250 673
Datalogix International* . . . . . . . . . 5,000 59
Dataware Technologies* . . . . . . . . . . 2,500 18
Eagle Point Software* . . . . . . . . . . 10,000 165
Electroglas* . . . . . . . . . . . . . . . 2,500 52
Electronic Arts* . . . . . . . . . . . . . 5,000 120
HBO . . . . . . . . . . . . . . . . . . . 5,000 420
Mentor Graphics* . . . . . . . . . . . . . 6,500 92
Micros Systems* . . . . . . . . . . . . . 2,500 122
Norrell . . . . . . . . . . . . . . . . . 5,000 139
Oracle Systems . . . . . . . . . . . . . . 11,500 549
Physician Computer Networks* . . . . . . . 10,000 109
Pinnacle Micro* . . . . . . . . . . . . . 11,250 167
Proxim* . . . . . . . . . . . . . . . . . 15,000 285
Quarterdeck Office Systems* . . . . . . . 10,000 160
Sierra On-Line* . . . . . . . . . . . . . 7,500 187
Softkey International* . . . . . . . . . . 8,000 111
Spectrum Holobyte* . . . . . . . . . . . . 7,500 43
Sterling Software . . . . . . . . . . . . 5,000 296
</TABLE>

45
<PAGE> 380
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Emerging Growth Fund (cont'd)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
-------- ------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COMPUTER & SOFTWARE SERVICES (CONTINUED)
Sun Microsystems* . . . . . . . . . . . . 5,000 $ 230
S3* . . . . . . . . . . . . . . . . . . . 3,000 36
Symantec * . . . . . . . . . . . . . . . . 7,100 84
Sync Research* . . . . . . . . . . . . . . 2,000 56
TCSI Corp* . . . . . . . . . . . . . . . . 7,500 139
Unisys * . . . . . . . . . . . . . . . . . 10,000 75
- ------------------------------------------------------------------
7,616
- ------------------------------------------------------------------
CONSUMER PRODUCTS (0.6%)
Wolverine World Wide . . . . . . . . . . . 9,750 247
- ------------------------------------------------------------------
247
- ------------------------------------------------------------------
DRUGS (3.1%)
Autoimmune* . . . . . . . . . . . . . . . 5,000 67
Boston Scientific * . . . . . . . . . . . 6,200 318
IDEC Pharmaceuticals Corp* . . . . . . . . 10,000 215
Interneuron Pharmeceutical* . . . . . . . 6,500 195
Liposome * . . . . . . . . . . . . . . . 16,500 396
Sybron International* . . . . . . . . . . 4,500 109
- ------------------------------------------------------------------
1,300
- ------------------------------------------------------------------
ELECTRICAL UTILITIES (0.1%)
Accom* . . . . . . . . . . . . . . . . . . 7,400 49
- ------------------------------------------------------------------
49
- ------------------------------------------------------------------
ELECTRICAL TECHNOLOGY (0.7%)
Komag* . . . . . . . . . . . . . . . . . . 10,000 291
- ------------------------------------------------------------------
291
- ------------------------------------------------------------------
ENTERTAINMENT (0.5%)
Mirage Resorts * . . . . . . . . . . . . . 5,500 215
- ------------------------------------------------------------------
215
- ------------------------------------------------------------------
ENVIRONMENTAL SERVICES (0.7%)
Sanifill* . . . . . . . . . . . . . . . . 4,000 145
USA Waste Services* . . . . . . . . . . . 7,500 156
- ------------------------------------------------------------------
301
- ------------------------------------------------------------------
FINANCIAL SERVICES (3.6%)
CWM Mortgage Holdings . . . . . . . . . . 10,000 173
Credit Acceptance * . . . . . . . . . . . 15,000 313
Finova Group . . . . . . . . . . . . . . . 5,000 252
First American, Tennessee . . . . . . . . 5,000 239
Mercer International* . . . . . . . . . . 3,500 67
Mercury Finance . . . . . . . . . . . . . 10,500 134
Stormedia * . . . . . . . . . . . . . . . 3,500 102
Waterhouse Investor Services . . . . . . . 10,000 236
- ------------------------------------------------------------------
1,516
- ------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO (1.5%)
Canandaigua Wine, Cl A* . . . . . . . . . 15,500 577
Pete's Brewing Company* . . . . . . . . . 2,500 46
- ------------------------------------------------------------------
623
- ------------------------------------------------------------------
HOTELS & LODGING (1.0%)
HFS* . . . . . . . . . . . . . . . . . . . 5,000 415
- ------------------------------------------------------------------
415
- ------------------------------------------------------------------
INSURANCE (1.4%)
Healthcare Compare* . . . . . . . . . . . 2,500 121
Penncorp Financial Group . . . . . . . . . 6,000 180
United Healthcare . . . . . . . . . . . . 4,500 283
- ------------------------------------------------------------------
584
- ------------------------------------------------------------------
LEASING & RENTING (0.5%)
Kinetic Concepts . . . . . . . . . . . . . 15,000 186
- ------------------------------------------------------------------
186
- ------------------------------------------------------------------
LUMBER & WOOD PRODUCTS (0.5%)
Cavalier Homes . . . . . . . . . . . . . . 10,000 200
- ------------------------------------------------------------------
200
- ------------------------------------------------------------------
MACHINERY (0.2%)
General Instrument * . . . . . . . . . . . 3,650 83
- ------------------------------------------------------------------
83
- ------------------------------------------------------------------
MEASURING DEVICES (1.6%)
Advanced Energy Industries* . . . . . . . 10,000 88
Epic Design Technology* . . . . . . . . . 8,000 240
Input/Output . . . . . . . . . . . . . . . 8,000 194
LTX * . . . . . . . . . . . . . . . . . . 7,000 60
Thermedics* . . . . . . . . . . . . . . . 4,000 103
- ------------------------------------------------------------------
685
- ------------------------------------------------------------------
</TABLE>

46
<PAGE> 381
STEPSTONE FUNDS(R) January 31, 1996
- --------------------------------------------------------------------------------
Emerging Growth Fund (cont'd)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
-------- ------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MEDICAL PRODUCTS & SERVICES (4.9%)
Biochem Pharma* . . . . . . . . . . . . . 11,000 $ 484
Biomet* . . . . . . . . . . . . . . . . . 3,000 56
Datascope* . . . . . . . . . . . . . . . . 9,000 223
Endosonics* . . . . . . . . . . . . . . . 15,000 206
Gulf South Medical Supply* . . . . . . . . 9,000 266
Heartstream* . . . . . . . . . . . . . . . 2,000 26
Stryker . . . . . . . . . . . . . . . . . 6,000 335
St. Jude Medical . . . . . . . . . . . . . 10,200 450
- ------------------------------------------------------------------
2,046
- ------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (4.5%)
Columbia HCA Healthcare . . . . . . . . . 9,032 502
Community Health Systems* . . . . . . . . 2,500 96
Concord EFS* . . . . . . . . . . . . . . . 18,562 473
FHP International * . . . . . . . . . . . 10,000 289
Renal Treatment Centers* . . . . . . . . . 8,500 389
Rotech Medical* . . . . . . . . . . . . . 4,500 136
- ------------------------------------------------------------------
1,885
- ------------------------------------------------------------------
MISCELLANEOUS CONSUMER SERVICES (1.8%)
Corestaff* . . . . . . . . . . . . . . . . 7,000 262
Jenny Craig* . . . . . . . . . . . . . . . 10,000 98
Service International . . . . . . . . . . 9,000 390
- ------------------------------------------------------------------
750
- ------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING (0.9%)
Department 56* . . . . . . . . . . . . . . 9,000 357
- ------------------------------------------------------------------
357
- ------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS (0.6%)
Pride Petroleum Services* . . . . . . . . 10,000 91
Reading & Bates * . . . . . . . . . . . . 9,000 153
- ------------------------------------------------------------------
244
- ------------------------------------------------------------------
PRINTING & PUBLISHING (1.1%)
Books-A-Million * . . . . . . . . . . . . 5,000 41
Cadmus Communications . . . . . . . . . . 5,000 143
Gartner Group, Cl A* . . . . . . . . . . . 5,000 276
- ------------------------------------------------------------------
460
- ------------------------------------------------------------------
PROFESSIONAL SERVICES (0.5%)
Medaphis* . . . . . . . . . . . . . . . . 5,000 200
- ------------------------------------------------------------------
200
- ------------------------------------------------------------------
RAILROADS (0.4%)
Wisconsin Central Transportation * . . . . 2,000 150
- ------------------------------------------------------------------
150
- ------------------------------------------------------------------
RETAIL (8.9%)
Apple South . . . . . . . . . . . . . . . 3,000 53
Boston Chicken* . . . . . . . . . . . . . 10,500 357
Corporate Express* . . . . . . . . . . . . 4,500 119
Daka International* . . . . . . . . . . . 5,000 114
Gadzooks* . . . . . . . . . . . . . . . . 6,000 149
Garden Ridge* . . . . . . . . . . . . . . 10,000 330
Lone Star Steakhouse & Saloon* . . . . . . 15,000 489
Omnicare . . . . . . . . . . . . . . . . . 15,000 698
Staples . . . . . . . . . . . . . . . . . 10,000 246
Sunglass Hut International* . . . . . . . 13,800 384
Viking Office Products* . . . . . . . . . 11,000 561
Whole Foods Market* . . . . . . . . . . . 5,000 74
Williams Sonoma* . . . . . . . . . . . . . 10,000 153
- ------------------------------------------------------------------
3,727
- ------------------------------------------------------------------
RUBBER & PLASTIC (0.5%)
Lernout & Hauspie Speech* . . . . . . . . 7,500 208
- ------------------------------------------------------------------
208
- ------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (4.4%)
Altera * . . . . . . . . . . . . . . . . . 3,500 231
Applied Magnetics * . . . . . . . . . . . 10,000 145
Arc Capital, Cl A* . . . . . . . . . . . . 10,000 16
Atmel* . . . . . . . . . . . . . . . . . . 10,000 285
Oak Technology* . . . . . . . . . . . . . 13,000 650
Read-Rite* . . . . . . . . . . . . . . . . 5,100 92
Recoton * . . . . . . . . . . . . . . . . 10,000 172
Vitesse Semiconductor* . . . . . . . . . . 20,000 252
- ------------------------------------------------------------------
1,843
- ------------------------------------------------------------------
</TABLE>

47
<PAGE> 382
STEPSTONE FUNDS(R)
- --------------------------------------------------------------------------------
Emerging Growth Fund (cont'd)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
-------- ------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY MACHINERY (0.8%)
Standex International . . . . . . . . . . 2,500 $ 74
U.S. Filter* . . . . . . . . . . . . . . . 10,000 258
- ------------------------------------------------------------------
332
- ------------------------------------------------------------------
STEEL & STEEL WORKS (0.2%)
Align-Rite International* . . . . . . . . 7,500 83
- ------------------------------------------------------------------
83
- ------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (3.6%)
Aspect Telecommunications* . . . . . . . . 4,000 148
Cascade Communications* . . . . . . . . . 3,500 274
Cidco* . . . . . . . . . . . . . . . . . . 1,500 45
Mitel* . . . . . . . . . . . . . . . . . . 10,000 57
Qualcomm* . . . . . . . . . . . . . . . . 5,000 224
Worldcom* . . . . . . . . . . . . . . . . 20,390 747
- ------------------------------------------------------------------
1,495
- ------------------------------------------------------------------
TESTING LABORATORIES (0.6%)
Martek Biosciences* . . . . . . . . . . . 2,500 88
Primark * . . . . . . . . . . . . . . . . 4,500 150
- ------------------------------------------------------------------
238
- ------------------------------------------------------------------
WHOLESALE (5.2%)
Cardinal Health . . . . . . . . . . . . . 13,000 775
Chronimed* . . . . . . . . . . . . . . . . 2,000 38
Citrix Systems* . . . . . . . . . . . . . 6,500 206
Cordis* . . . . . . . . . . . . . . . . . 5,000 539
Ha Lo Industries* . . . . . . . . . . . . 5,000 130
Hughes Supply . . . . . . . . . . . . . . 10,000 287
Silicon Storage Technology* . . . . . . . 7,000 77
Secure Computing* . . . . . . . . . . . . 3,000 117
- ------------------------------------------------------------------
2,169
- ------------------------------------------------------------------
Total Common Stocks
(Cost $29,308,084) . . . . . . . . 35,372
- ------------------------------------------------------------------
EQUITY OPTIONS (-0.1%)
Cisco Systems February 75 Calls* 02/17/96 (14)
Cisco Systems April 75 Calls* 04/20/96 . . (20)
Cisco Systems February 65 Puts* 02/17/96 . --
Cisco Systems April 65 Puts* 04/20/96 . . 2
Picturetel February 40 Calls* 02/17/96 . . (10)
Qualcomm February 45 Calls* 02/17/96 . . . (4)
Qualcom February 35 Puts* 02/17/96 . . . . 1
Read-Rite February 25 Puts* 02/17/96 . . 13
Sun Microsystems March 45 Calls* 03/16/96 (21)
- ------------------------------------------------------------------
Total Equity Options
(Cost ($20,655)) . . . . . . . . . (53)
- ------------------------------------------------------------------
REPURCHASE AGREEMENTS (15.5%)
Morgan Stanley & Company
5.82%, dated 01/31/96, matures
02/01/96, repurchase price
$6,481,911 (collaterized by various
FNMA , par value $15,788,629,
6.50%--9.50%, 08/01/97--
01/01/16: total market
value $6,631,179) . . . . . . . . . . 6,481
- ------------------------------------------------------------------
Total Repurchase Agreements
(Cost $6,480,863) . . . . . . . . 6,481
- ------------------------------------------------------------------
Total Investments (100.1%)
(Cost $35,768,292) . . . . . . . . 41,800
- ------------------------------------------------------------------
Other Assets and Liabilities (-0.1%) . . . (30)
- ------------------------------------------------------------------
NET ASSETS:
Fund shares of Institutional Class
(unlimited authorization--no par
value) based on 3,497,444
outstanding shares of beneficial
interest . . . . . . . . . . . . . . 35,266
Overdistributed Net Investment Income (2)
Accumulated Net Realized Gain
on Investments . . . . . . . . . . . 474
Net Unrealized Appreciation
on Investments . . . . . . . . . . . 6,032
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $41,770
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $11.94
==================================================================
</TABLE>

* Non-income producing security
Cl-Class
FNMA-Federal National Mortgage Association

48
<PAGE> 383
STEPSTONE OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
Stepstone International Equity Fund
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
-------- ------
<S> <C> <C>
FOREIGN COMMON STOCKS (93.6%)
FRANCE (9.0%)
Accor . . . . . . . . . . . . . . . . . . 1,755 $ 229
Alcatel Alsthom . . . . . . . . . . . . . 2,594 237
Banque Nationale Paris . . . . . . . . . . 3,854 163
Carnaud Metal Box . . . . . . . . . . . . 4,800 205
Carrefour . . . . . . . . . . . . . . . . 450 289
Castorama . . . . . . . . . . . . . . . . 2,090 367
Chargeurs . . . . . . . . . . . . . . . . 770 177
Eaux Generale . . . . . . . . . . . . . . 1,500 159
Danone . . . . . . . . . . . . . . . . . . 1,500 238
Essilor International . . . . . . . . . . 750 159
GAN* . . . . . . . . . . . . . . . . . . . 5,800 184
Lafarge . . . . . . . . . . . . . . . . . 2,830 191
LVMH Moet Hennesey . . . . . . . . . . . . 1,800 401
Peugeot . . . . . . . . . . . . . . . . . 1,400 204
Schneider . . . . . . . . . . . . . . . . 5,000 204
Societe Generale . . . . . . . . . . . . . 1,754 206
Elf Aquitaine . . . . . . . . . . . . . . 2,385 178
Valeo . . . . . . . . . . . . . . . . . . 3,500 177
- ------------------------------------------------------------------
3,968
- ------------------------------------------------------------------
GERMANY (8.8%)
Allianz . . . . . . . . . . . . . . . . . 214 417
BASF . . . . . . . . . . . . . . . . . . . 800 191
BMW . . . . . . . . . . . . . . . . . . . 400 227
Bayer . . . . . . . . . . . . . . . . . . 950 283
Bankgesellschaft Berlin . . . . . . . . . 650 166
Daimler-Benz . . . . . . . . . . . . . . . 400 220
Degussa . . . . . . . . . . . . . . . . . 500 183
Deutsche Bank . . . . . . . . . . . . . . 4,000 200
Gehe . . . . . . . . . . . . . . . . . . . 625 314
Karstadt . . . . . . . . . . . . . . . . . 550 219
Preussag . . . . . . . . . . . . . . . . . 700 207
RWE . . . . . . . . . . . . . . . . . . . 750 294
Siemens . . . . . . . . . . . . . . . . . 700 398
Schering . . . . . . . . . . . . . . . . . 3,100 224
Veba . . . . . . . . . . . . . . . . . . . 8,000 356
- ------------------------------------------------------------------
3,899
- ------------------------------------------------------------------
HONG KONG (3.3%)
China Light & Power . . . . . . . . . . . 30,000 145
Hong Kong Telecommunications . . . . . . . 100,000 190
HSBC Holdings . . . . . . . . . . . . . . 15,195 252
Hutchison Whampoa . . . . . . . . . . . . 50,000 325
New World Development . . . . . . . . . . 60,000 303
Swire Pacific . . . . . . . . . . . . . . 30,000 262
- ------------------------------------------------------------------
1,477
- ------------------------------------------------------------------
JAPAN (33.2%)
Amada Metrecs . . . . . . . . . . . . . . 27,000 430
Asahi Breweries . . . . . . . . . . . . . 36,000 415
Best Denki . . . . . . . . . . . . . . . . 29,000 413
Daiwa Securities . . . . . . . . . . . . . 28,000 419
Fuji Bank . . . . . . . . . . . . . . . . 21,000 478
Fuji Photo Film . . . . . . . . . . . . . 14,000 396
Fujisawa Pharmaceutical . . . . . . . . . 43,000 388
Hitachi Cable . . . . . . . . . . . . . . 57,000 427
Japan Synthetic Rubber . . . . . . . . . . 70,000 442
Kaneka . . . . . . . . . . . . . . . . . . 62,000 403
Kansai Electric Power . . . . . . . . . . 16,700 392
Katokichi . . . . . . . . . . . . . . . . 20,000 431
Komatsu . . . . . . . . . . . . . . . . . 51,000 431
Long Term Credit Bank Japan . . . . . . . 54,000 395
Maeda . . . . . . . . . . . . . . . . . . 41,000 422
Matsushita Electric Works . . . . . . . . 40,000 423
Mitsubishi Heavy Industries . . . . . . . 49,000 389
Mitsui Marine & Fire . . . . . . . . . . . 59,000 435
Mitsui Trust & Banking . . . . . . . . . . 38,000 413
Nintendo . . . . . . . . . . . . . . . . . 5,000 367
Nomura Securities . . . . . . . . . . . . 21,000 456
Olympus Optical . . . . . . . . . . . . . 44,000 445
Onward Kashiyama . . . . . . . . . . . . . 28,000 417
Ryobi Limited . . . . . . . . . . . . . . 78,000 408
Sanden . . . . . . . . . . . . . . . . . . 64,000 418
Sanyo Electric . . . . . . . . . . . . . . 71,000 419
Shinmaywa Industries . . . . . . . . . . . 48,000 437
Sumitomo Bank . . . . . . . . . . . . . . 20,000 384
Takara Standard . . . . . . . . . . . . . 37,000 395
Tokio Marine & Fire . . . . . . . . . . . 34,000 427
</TABLE>

49
<PAGE> 384
STEPSTONE OF NET ASSETS January 31, 1996
- --------------------------------------------------------------------------------
International Equity Fund (cont'd)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
-------- ------
<S> <C> <C>
FOREIGN COMMON STOCK (CONTINUED)
JAPAN (CONTINUED)
Tokyo Electric Power . . . . . . . . . . . 15,900 $ 405
Toppan Printing . . . . . . . . . . . . . 31,000 415
Toshiba . . . . . . . . . . . . . . . . . 58,000 452
Toyo Ink . . . . . . . . . . . . . . . . . 78,000 422
Yamato Transportation . . . . . . . . . . 39,000 449
- ------------------------------------------------------------------
14,658
- ------------------------------------------------------------------
MALAYSIA (3.1%)
AMMB Holdings . . . . . . . . . . . . . . 20,000 227
Hume Industries . . . . . . . . . . . . . 40,000 189
Malayan Banking . . . . . . . . . . . . . 20,000 179
Petronas Gas . . . . . . . . . . . . . . . 60,000 225
Sime Darby . . . . . . . . . . . . . . . . 100,000 268
Telekom Malaysia* . . . . . . . . . . . . 20,000 166
United Engineers . . . . . . . . . . . . . 20,000 130
- ------------------------------------------------------------------
1,384
- ------------------------------------------------------------------
NETHERLANDS (7.7%)
Aegon . . . . . . . . . . . . . . . . . . 5,052 207
Akzo . . . . . . . . . . . . . . . . . . . 3,000 319
Ahold . . . . . . . . . . . . . . . . . . 5,151 212
Elsevier . . . . . . . . . . . . . . . . . 25,000 348
IHC Caland . . . . . . . . . . . . . . . 10,000 356
KPN . . . . . . . . . . . . . . . . . . . 4,062 156
OCE-Vander Grinten . . . . . . . . . . . . 4,000 274
Phillips Electronics* . . . . . . . . . . 5,000 199
Royal Dutch Petroleum . . . . . . . . . . 2,000 277
Unilever . . . . . . . . . . . . . . . . . 2,000 288
VNU . . . . . . . . . . . . . . . . . . . 2,500 370
Wolters Kluwer . . . . . . . . . . . . . . 4,044 397
- ------------------------------------------------------------------
3,403
- ------------------------------------------------------------------
SINGAPORE (3.8%)
Cerebos Pacific . . . . . . . . . . . . . 20,000 166
City Developments . . . . . . . . . . . . 35,000 284
Development Bank of Singapore* . . . . . . 18,000 255
Keppel . . . . . . . . . . . . . . . . . . 15,000 141
Natsteel . . . . . . . . . . . . . . . . . 50,000 102
Singapore Airlines . . . . . . . . . . . . 25,000 263
United Overseas Bank . . . . . . . . . . . 42,000 453
- ------------------------------------------------------------------
1,664
- ------------------------------------------------------------------
SWEDEN (0.2%)
Astra* . . . . . . . . . . . . . . . . . . 2,500 102
- ------------------------------------------------------------------
102
- ------------------------------------------------------------------
SWITZERLAND (7.9%)
Alusuisse Lonza . . . . . . . . . . . . . 250 195
BBC Brown Boveri . . . . . . . . . . . . . 300 346
Ciba Geigy . . . . . . . . . . . . . . . . 400 333
CS Holdings . . . . . . . . . . . . . . . 4,000 375
Nestle . . . . . . . . . . . . . . . . . . 400 421
Roche Holdings . . . . . . . . . . . . . . 90 658
SMH PC . . . . . . . . . . . . . . . . . . 600 344
Schweiz Bankverein . . . . . . . . . . . . 500 180
Union Bank of Switzerland* . . . . . . . . 250 260
Sulzer Gerbruder . . . . . . . . . . . . . 220 131
Zurich Versicherungs . . . . . . . . . . . 950 258
- ------------------------------------------------------------------
3,501
- ------------------------------------------------------------------
UNITED KINGDOM (15.3%)
Assocociated British Ports . . . . . . . . 50,000 218
British Airport Authority . . . . . . . . 60,000 440
BTR . . . . . . . . . . . . . . . . . . . 100,000 501
Rexam . . . . . . . . . . . . . . . . . . 50,000 287
Cable & Wireless . . . . . . . . . . . . . 60,000 403
Enterprise Oil . . . . . . . . . . . . . . 50,000 278
General Accident . . . . . . . . . . . . . 60,000 588
Hanson . . . . . . . . . . . . . . . . . . 75,000 230
Hardy Oil & Gas . . . . . . . . . . . . . 40,000 120
Hays PLC . . . . . . . . . . . . . . . . 50,000 277
Johnson Matthey . . . . . . . . . . . . . 45,000 368
Marks & Spencer . . . . . . . . . . . . . 75,000 492
National Grid Group* . . . . . . . . . . . 33,000 100
National Power . . . . . . . . . . . . . . 50,000 329
Prudential* . . . . . . . . . . . . . . . 50,000 325
RTZ . . . . . . . . . . . . . . . . . . . 30,269 419
Reuters Holdings . . . . . . . . . . . . . 25,000 234
Lloyd's TSB Group* . . . . . . . . . . . 111,648 545
Southern Electric . . . . . . . . . . . . 46,500 582
Whitbread . . . . . . . . . . . . . . . 1,286 14
- ------------------------------------------------------------------
6,750
- ------------------------------------------------------------------
</TABLE>

50
<PAGE> 385
STEPSTONE FUNDS(R) January 31,1996
- --------------------------------------------------------------------------------
International Equity Fund (cont'd)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
-------- ------
<S> <C> <C>
FOREIGN COMMON STOCK (CONTINUED)
OTHER (1.3%)
Latin America Equity Fund . . . . . . . . 35,000 $ 564
- ------------------------------------------------------------------
564
- ------------------------------------------------------------------
Total Foreign Common Stocks
(Cost $37,033,875) . . . . . . . . 41,370
- ------------------------------------------------------------------
FOREIGN PREFERRED STOCK (0.3%)
GERMANY (0.3%)
Jungheinrich . . . . . . . . . . . . . . . 700 116
- ------------------------------------------------------------------
Total Foreign Preferred Stocks
(Cost $164,208) . . . . . . . . . 116
- ------------------------------------------------------------------
REPURCHASE AGREEMENT (5.7%)
J.P. Morgan Securities, 5.80%, dated
01/31/96, matures 02/01/96,
repurchase price $2,539,137
(collateralized by U.S. Treasury
Note, total par value $2,520,000, 5.50%,
02/28/99, market value $2,603,077) . 2,538
- ------------------------------------------------------------------
Total Repurchase Agreements
(Cost $2,538,336) . . . . . . . . 2,538
- ------------------------------------------------------------------
Total Investments (99.6%)
(Cost $39,736,419) . . . . . . . . 44,024
- ------------------------------------------------------------------
Other Assets and Liabilities, Net (0.4%) . 164
- ------------------------------------------------------------------

NET ASSETS:
Fund Shares of Institutional Class
(unlimited authorization--no par
value) based on 1,178,705
outstanding shares of beneficial
interest . . . . . . . . . . . . . . $39,586
Accumulated net realized gain
on investments . . . . . . . . . . . 45
Accumulated net realized
gain on foreign currency
transactions . . . . . . . . . . . . 179
Undistributed net
investment income . . . . . . . . . 2
Net unrealized appreciation on
foreign currency and translation
of other assets and liabilities
in foreign currency . . . . . . . . 89
Net unrealized appreciation
on investments . . . . . . . . . . . 4,287
- ------------------------------------------------------------------
Total Net Assets: (100.0%) . . . . . . . . $44,188
- ------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE--
INSTITUTIONAL CLASS . . . . . . . . . $37.49
==================================================================
</TABLE>

* Non-income producing securities.

The accompanying notes are an integral part of the financial statements.

51
<PAGE> 386
[THIS PAGE INTENTIONALLY LEFT BLANK]

52
<PAGE> 387
STATEMENT OF OPERATIONS For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
Stepstone Funds

<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------
TREASURY CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income . . . . . . . . . . . . . . $18,032 $39,551 $4,339
- --------------------------------------------------------------------------------------------
Expenses:
Administrative Fee . . . . . . . . . . 415 895 157
Investment Adviser Fee . . . . . . . . 930 2,002 351
Investment Adviser Fee Waiver . . . . . (155) -- (241)
Custodian/Wire Agent Fee . . . . . . . 33 79 11
Professional Fees . . . . . . . . . . . 57 122 14
Registration Fees . . . . . . . . . . . 55 71 14
Distribution Fee (1) . . . . . . . . . 572 720 285
Distribution Fee Waiver . . . . . . . . (214) (270) (49)
Insurance Expenses . . . . . . . . . . 3 7 1
Trustees Fees . . . . . . . . . . . . . 6 20 2
Printing Expenses . . . . . . . . . . . 20 75 11
Miscellaneous Expenses . . . . . . . . 25 46 1
Amortization of Deferred Organizational Costs 6 6 6
- --------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . 1,753 3,773 563
- --------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . 16,279 35,778 3,776
- --------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments . . 5 (13) --
- --------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $16,284 $35,765 $3,776
============================================================================================
</TABLE>

Amounts designated as "--" are either $0 or have been rounded to $0.

(1) All distribution fees are incurred in the Investment Class

The accompanying notes are in integral part of the financial statements.

53
<PAGE> 388
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Stepstone Funds

<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------
LIMITED CALIFORNIA
INTERMEDIATE- MATURITY TAX-FREE CONVERTIBLE
TERM BOND GOVERNMENT BOND SECURITIES
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Interest Income . . . . . . . . . . . . . . . . . $ 8,623 $2,231 $ 670 $ 460
Dividend Income . . . . . . . . . . . . . . . . . -- -- -- 181
Less: Foreign Taxes withheld, net of
reclaims . . . . . . . . . . . . . . . . . . . -- -- -- --
- ------------------------------------------------------------------------------------------------
Total Investment Income . . . . . . . . 8,623 2,231 670 641
- ------------------------------------------------------------------------------------------------
Expenses:
Administrative Fee . . . . . . . . . . . . . . 174 47 17 17
Investment Adviser Fee . . . . . . . . . . . . 648 106 64 77
Investment Adviser Fee Waiver . . . . . . . . -- -- (61) --
Custodian/Wire Agent Fee . . . . . . . . . . . 14 6 2 2
Professional Fees . . . . . . . . . . . . . . 20 8 2 3
Registration Fees . . . . . . . . . . . . . . 9 3 3 2
Distribution Fee (1) . . . . . . . . . . . . . 26 3 18 --
Distribution Fee Waiver . . . . . . . . . . . (26) (3) (18) --
Insurance Fees . . . . . . . . . . . . . . . . 1 1 -- --
Trustees Fees . . . . . . . . . . . . . . . . 2 1 1 1
Printing Fees . . . . . . . . . . . . . . . . 10 5 1 2
Miscellaneous Fees . . . . . . . . . . . . . . 1 8 1 1
Amortization of Deferred Organizational
Costs . . . . . . . . . . . . . . . . . . . 6 1 -- 4
- ------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 885 186 30 109
- ------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . 7,738 2,045 640 532
- ------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments . . . . . 3,766 (119) (598) (14)
- ------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Option Contracts . . -- -- -- 1
- ------------------------------------------------------------------------------------------------
Net Realized Gain on Foreign Currency
Transactions . . . . . . . . . . . . . . . . . -- -- -- --
- ------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation on Investments 8,187 905 2,004 1,682
- ------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation on Foreign
Currency . . . . . . . . . . . . . . . . . . -- -- -- --
- ------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments . 11,953 786 1,406 1,669
- ------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from
Operations . . . . . . . . . . . . . . . . . . $19,691 $2,831 $2,046 $2,201
================================================================================================
</TABLE>

Amounts designated as "--" are either $0 or have been rounded to $0.
(1) All distribution fees are incurred in the Investment Class.
(2) Commenced operations February 1, 1995.

The accompanying notes are in integral part of the financial statements.

54
<PAGE> 389

For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

(IN THOUSANDS)
- --------------------------------------------------------------------------
GOVERNMENT GROWTH VALUE BLUE CHIP EMERGING INTERNATIONAL
SECURITIES BALANCED EQUITY MOMENTUM GROWTH GROWTH EQUITY
FUND FUND FUND FUND FUND FUND FUND(2)
<S> <C> <C> <C> <C> <C> <C>
$2,467 $ 5,238 $ 620 $ 676 $ 172 $ 307 $ 235
-- 3,024 1,786 4,912 970 98 841
-- -- -- -- -- -- (96)
- --------------------------------------------------------------------------
2,467 8,262 2,406 5,588 1,142 405 980
- --------------------------------------------------------------------------

50 277 218 261 65 43 54
186 1,239 973 1,169 289 255 376
-- -- -- -- -- -- (77)
7 25 20 24 8 7 61
11 38 30 36 13 10 8
6 23 16 18 8 6 17
-- 30 7 42 -- -- --
-- (23) (6) (32) -- -- --
1 2 2 2 -- -- --
1 6 5 6 1 1 1
7 24 20 23 7 7 4
6 11 8 14 4 2 12
4 6 6 6 4 4 5
- --------------------------------------------------------------------------
279 1,658 1,299 1,569 399 335 461
- --------------------------------------------------------------------------
2,188 6,604 1,107 4,019 743 70 519
- --------------------------------------------------------------------------
1,661 6,254 11,047 9,006 3,514 1020 167
- --------------------------------------------------------------------------
-- 104 182 -- (379) (107) --
- --------------------------------------------------------------------------
-- -- -- -- -- -- 179
- --------------------------------------------------------------------------

1,677 38,493 32,685 52,751 10,866 7,122 4,287
- --------------------------------------------------------------------------
-- -- -- -- -- -- 89
- --------------------------------------------------------------------------

3,338 44,851 43,914 61,757 14,001 8,035 4,722
- --------------------------------------------------------------------------

$5,526 $51,455 $45,021 $65,776 $14,744 $8,105 $5,241
==========================================================================
</TABLE>

55
<PAGE> 390
STATEMENT OF CHNAGES IN NET ASSETS
- --------------------------------------------------------------------------------
Stepstone Funds

<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------------------------
TREASURY CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
----------------------- ----------------------- -----------------------
02/01/95 02/01/94 02/01/95 02/01/94 02/01/95 02/01/94
TO 01/31/96 TO 01/31/95 TO 01/31/96 TO 01/31/95 TO 01/31/96 TO 01/31/95
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities:
Net Investment Income . . . . . . . . . . . . . $ 16,279 $ 7,672 $ 35,778 $ 23,714 $ 3,776 $ 3,080
Net Realized Gain (Loss) on Investments . . . . 5 (3) (13) (1,770) -- (2)
- ----------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 16,284 7,669 35,765 21,944 3,776 3,078
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class . . . . . . . . . . . . (8,954) (5,797) (26,497) (20,599) (1,571) (1,684)
Investment Class . . . . . . . . . . . . . . (7,325) (1,875) (9,276) (3,119) (2,205) (1,396)
Capital Gains:
Institutional Class . . . . . . . . . . . . -- -- -- -- -- --
Investment Class . . . . . . . . . . . . . . -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . (16,279) (7,672) (35,773) (23,718) (3,776) (3,080)
- ----------------------------------------------------------------------------------------------------------------------------
Change in Net Assets . . . . . . . . . . . . . . . 5 (3) (8) (1,774) 0 (2)
- ----------------------------------------------------------------------------------------------------------------------------
Share Transactions (All at $1.00 Per Share):
Institutional Class:
Shares Issued . . . . . . . . . . . . . . . 1,141,639 1,154,823 3,642,987 4,039,913 307,913 428,596
Shares Issued in Lieu of Cash Distributions 2,164 132 12,994 2,932 632 --
Shares Redeemed . . . . . . . . . . . . . . (1,104,578) (1,182,795) (3,689,649) (4,003,889) (317,672) (429,526)
---------- ---------- ---------- ---------- -------- --------
Total Institutional Share Transactions . 39,225 (27,840) (33,668) 38,956 (9,127) (930)
Investment Class:
Shares Issued . . . . . . . . . . . . . . . 467,443 259,095 420,652 245,168 143,423 114,291
Shares Issued in Lieu of Cash Distributions 6,283 1,483 8,172 2,916 1,956 1,342
Shares Redeemed . . . . . . . . . . . . . . (387,009) (160,743) (280,481) (222,938) (113,696) (118,359)
---------- ---------- ---------- ---------- -------- --------
Total Investment Share Transactions . . . 86,717 99,835 148,343 25,146 31,683 (2,726)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets From
Share Transactions . . . . . . . . . . . . . . . 125,942 71,995 114,675 64,102 22,556 (3,656)
- ----------------------------------------------------------------------------------------------------------------------------
Direct Contribution of Capital (1) . . . . . . . . -- -- -- 607 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets . 125,947 71,992 114,667 62,935 22,556 (3,658)
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period . . . . . . . . . . . . . . 272,059 200,067 648,021 585,086 101,544 105,202
End of Period . . . . . . . . . . . . . . . . . $ 398,006 $ 272,059 $ 762,688 $ 648,021 $124,100 $101,544
============================================================================================================================
</TABLE>

Amounts designated as "--" are either $0 or have been rounded to $0.

(1) See note 3 of the financial statements.

The accompanying notes are an integral part of the financial statements.

56
<PAGE> 391
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Stepstone Funds

<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------------------------
INTERMEDIATE- LIMITED MATURITY CALIFORNIA
TERM BOND GOVERNMENT TAX-FREE BOND
FUND FUND FUND
---------------- ---------------- ----------------
02/01/95 02/01/94 02/01/95 02/01/94 02/01/95 02/01/94
TO 01/31/96 TO 01/31/95 TO 01/31/96 TO 01/31/95TO 01/31/96 TO 01/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities:
Net Investment Income . . . . . . . . . . . . . $ 7,738 $ 7,277 $ 2,045 $ 1,685 $ 640 $ 1,079
Net Realized Gain (Loss) on Investments . . . . 3,766 (5,179) (119) (1,639) (598) (711)
Change in Unrealized Appreciation (Depreciation) on
Investments . . . . . . . . . . . . . . . . 8,187 (7,862) 905 (384) 2,004 (2,030)
Change in Unrealized Appreciation on Foreign Currency -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting From Operations 19,691 (5,764) 2,831 (338) 2,046 (1,662)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class . . . . . . . . . . . . (7,330) (6,835) (2,021) (1,580) (429) (835)
Investment Class . . . . . . . . . . . . . . (383) (477) (42) (83) (224) (247)
Capital Gains:
Institutional Class . . . . . . . . . . . . -- (168) -- -- -- --
Investment Class . . . . . . . . . . . . . . -- (11) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . (7,713) (7,491) (2,063) (1,663) (653) (1,082)
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Net Assets . . . . . . . . . . . . . . . 11,978 (13,255) 768 (2,001) 1,393 (2,744)
- -----------------------------------------------------------------------------------------------------------------------------------
Share Transactions:
Institutional Class:
Shares Issued . . . . . . . . . . . . . . . 42,987 17,791 4,715 10,856 1,685 1,005
Shares Issued in Lieu of Cash Distributions 7,227 6,843 2,005 1,550 18 17
Shares Redeemed . . . . . . . . . . . . . . (38,490) (32,744) (5,203) (11,266) (11,244) (8,205)
-------- -------- -------- -------- -------- --------
Total Institutional Share Transactions . 11,724 (8,110) 1,517 1,140 (9,541) (7,183)
Investment Class:
Shares Issued . . . . . . . . . . . . . . . 78 1,196 41 416 337 3,502
Shares Issued in Lieu of Cash Distributions 383 488 42 82 224 247
Shares Redeemed . . . . . . . . . . . . . . (1,297) (3,442) (222) (2,767) (1,626) (1,174)
-------- -------- -------- -------- -------- --------
Total Investment Share Transactions . . . (836) (1,758) (139) (2,269) (1,065) 2,575
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets From Share Transactions 10,888 (9,868) 1,378 (1,129) (10,606) (4,608)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets . 22,866 (23,123) 2,146 (3,130) (9,213) (7,352)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period . . . . . . . . . . . . . . 116,493 139,616 34,000 37,130 17,675 25,027
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . $139,359 $116,493 $36,146 $34,000 $ 8,462 $17,675
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Institutional Shares:
Issued . . . . . . . . . . . . . . . . . . . 4,225 1,775 491 1,108 178 109
Issued in Lieu of Cash Distributions . . . . 710 692 209 161 2 2
Redeemed . . . . . . . . . . . . . . . . . . (3,773) (3,269) (542) (1,165) (1,183) (894)
-------- -------- -------- -------- -------- --------
Total Institutional Share Transactions . 1,162 (802) 158 104 (1,003) (783)
Investment Shares:
Issued . . . . . . . . . . . . . . . . . . . 7 117 4 41 35 368
Issued in Lieu of Cash Distributions . . . . 38 49 4 9 24 27
Redeemed . . . . . . . . . . . . . . . . . . (128) (347) (23) (285) (171) (131)
-------- -------- -------- -------- -------- --------
Total Investment Share Transactions . . . (83) (181) (15) (253) (112) 264
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Share Transactions . . . 1,079 (983) 143 (131) (1,115) (519)
===================================================================================================================================
</TABLE>

Amounts designated as "--" are either $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

57
<PAGE> 392
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Stepstone Funds

<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------------------------
CONVERTIBLE SECURITIES GOVERNMENT SECURITIES BALANCED
FUND FUND FUND
----------------------- ----------------------- -----------------------
02/01/95 02/01/94 02/01/95 02/01/94 02/01/95 02/01/94
TO 01/31/96 TO 01/31/95 TO 01/31/96 TO 01/31/95 TO 01/31/96 TO 01/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities:
Net Investment Income . . . . . . . . . . . . . . . . . $ 532 $ 287 $ 2,188 $ 1,592 $ 6,604 $ 5,777
Net Realized Gain (Loss) on Investments . . . . . . . . (14) (44) 1,661 (2,044) 6,254 569
Net Realized Gain (Loss ) on Option Contracts . . . . . 1 -- -- -- 104 --
Net Realized Gain on Foreign Currency Transactions . . . -- -- -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments . . . . . . . . . . . . . . . . . . . 1,682 (573) 1,677 (551) 38,493 (10,690)
Change in Unrealized Appreciation on Foreign Currency . -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting From Operations 2,201 (330) 5,526 (1,003) 51,455 (4,344)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class . . . . . . . . . . . . . . . . . (522) (275) (2,167) (1,535) (6,372) (5,505)
Investment Class . . . . . . . . . . . . . . . . . . -- -- -- -- (235) (259)
Capital Gains:
Institutional Class . . . . . . . . . . . . . . . . . -- -- -- -- (5,794) (49)
Investment Class . . . . . . . . . . . . . . . . . . -- -- -- -- (213) (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . (522) (275) (2,167) (1,535) (12,614) (5,815)
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Net Assets . . . . . . . . . . . . . . . . . . . 1,679 (605) 3,359 (2,538) 38,841 (10,159)
- -----------------------------------------------------------------------------------------------------------------------------------
Share Transactions:
Institutional Class:
Shares Issued . . . . . . . . . . . . . . . . . . . . 7,325 12,990 26,500 41,604 66,771 60,233
Shares Issued in Lieu of Cash
Distributions . . . . . . . . . . . . . . . . . . . 522 275 2,167 1,535 12,136 5,545
Shares Redeemed . . . . . . . . . . . . . . . . . . . (3,155) (2,363) (17,479) (8,423) (49,861) (40,859)
-------- -------- -------- -------- -------- --------
Total Institutional Share Transactions . . . . . . 4,692 10,902 11,188 34,716 29,046 24,919
Investment Class:
Shares Issued . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 495 1,527
Shares Issued in Lieu of Cash Distributions . . . . . . -- -- -- -- 448 262
Shares Redeemed . . . . . . . . . . . . . . . . . . . . -- -- -- -- (1,092) (1,468)
-------- -------- -------- -------- -------- --------
Total Investment Share Transactions . . . . . . . . -- -- -- -- (149) 321
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets From Share Transactions . . . . 4,692 10,902 11,188 34,716 28,897 25,240
- -----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets . . . . . . 6,371 10,297 14,547 32,178 67,738 15,081
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period . . . . . . . . . . . . . . . . . . 10,297 -- 32,178 -- 174,562 159,481
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . $16,668 $10,297 $46,725 $32,178 $242,300 $174,562
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Institutional Shares:
Issued . . . . . . . . . . . . . . . . . . . . . . . 728 1,358 2,753 4,306 5,157 5,240
Issued in Lieu of Cash Distributions . . . . . . . . 53 29 228 168 921 483
Redeemed . . . . . . . . . . . . . . . . . . . . . . (317) (254) (1,829) (925) (3,894) (3,564)
-------- -------- -------- -------- -------- --------
Total Institutional Share Transactions . . . . . . 464 1,133 1,152 3,549 2,184 2,159
Investment Shares:
Issued . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 37 131
Issued in Lieu of Cash Distributions . . . . . . . . -- -- -- -- 34 23
Redeemed . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- (88) (128)
-------- -------- -------- -------- -------- --------
Total Investment Share Transactions . . . . . . . . -- -- -- -- (17) 26
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions . . . . . . . . . . . . 464 1,133 1,152 3,549 2,167 2,185
====================================================================================================================================
</TABLE>

Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Commenced operations on February 1, 1995.

The accompanying notes are an integral part of the financial statements.

58
<PAGE> 393
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL
GROWTH EQUITY VALUE MOMENTUM BLUE CHIP GROWTH EMERGING GROWTH EQUITY
FUND FUND FUND FUND FUND
- --------------------- ---------------------- ---------------------- ---------------------- ------------
02/01/95 02/01/94 02/01/95 02/01/94 02/01/95 02/01/94 02/01/95 02/01/94 02/01/95(1)
TO 01/31/96TO 01/31/95TO 01/31/96 TO 01/31/95 TO 01/31/96TO 01/31/95 TO 01/31/96 TO 01/31/95 TO 01/31/96
- --------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>

$ 1,107 $ 957 $ 4,019 $ 3,633 $ 743 $ 561 $ 70 $ 164 $ 519
11,047 (1,230) 9,006 1,742 3,514 (1,859) 1020 469 167
182 23 -- -- (379) 140 (107) 67 --
-- -- -- -- -- -- -- -- 179

32,685 (7,247) 52,751 (10,607) 10,866 882 7,122 (1,091) 4,287
-- -- -- -- -- -- -- -- 89
- --------------------------------------------------------------------------------------------------------
45,021 (7,497) 65,776 (5,232) 14,744 (276) 8,105 (391) 5,241
- --------------------------------------------------------------------------------------------------------

(1,121) (901) (3,872) (3,373) (762) (526) (88) (147) (517)
(11) (9) (209) (231) -- -- -- -- --

(9,394) (1,753) (4,808) (584) (925) -- (867) (108) (122)
(102) (19) (258) (39) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
(10,628) (2,682) (9,147) (4,227) (1,687) (526) (955) (255) (639)
- --------------------------------------------------------------------------------------------------------
34,393 (10,179) 56,629 (9,459) 13,057 (802) 7,150 (646) 4,602
- --------------------------------------------------------------------------------------------------------

33,917 32,462 44,290 37,157 20,422 44,610 17,160 28,965 44,605

10,453 2,638 8,517 3,881 1,687 526 955 255 639
(36,487) (31,007) (34,471) (22,646) (10,075) (6,015) (7,423) (4,646) (5,658)
-------- -------- -------- -------- -------- -------- -------- -------- --------
7,883 4,093 18,336 18,392 12,034 39,121 10,692 24,574 39,586

683 410 875 2,309 -- -- -- -- --
113 28 467 270 -- -- -- -- --
(227) (166) (2,356) (1,552) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
569 272 (1,014) 1,027 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
8,452 4,365 17,322 19,419 12,034 39,121 10,692 24,574 39,586
- --------------------------------------------------------------------------------------------------------
42,845 (5,814) 73,951 9,960 25,091 38,319 17,842 23,928 44,188
- --------------------------------------------------------------------------------------------------------

138,090 143,904 159,915 149,955 38,319 -- 23,928 -- --
- --------------------------------------------------------------------------------------------------------
$180,935 $138,090 $233,866 $159,915 $63,410 $38,319 $41,770 $23,928 $44,188
- --------------------------------------------------------------------------------------------------------

2,017 2,284 2,744 2,746 1,769 4,605 1,579 3,007 1,320
617 187 515 289 145 56 84 27 18
(2,167) (2,212) (2,161) (1,683) (917) (639) (704) (495) (159)
-------- -------- -------- -------- -------- -------- -------- -------- --------
467 259 1,098 1,352 997 4,022 959 2,539 1,179

39 28 53 170 -- -- -- -- --
7 2 28 20 -- -- -- -- --
(13) (11) (157) (115) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
33 19 (76) 75 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
500 278 1,022 1,427 997 4,022 959 2,539 1,179
========================================================================================================
</TABLE>

<PAGE> 394
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Stepstone Funds

For a Share Outstanding Throughout the Period or Year

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)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
INSTITUTIONAL CLASS
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 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 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 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>

RATIO OF
RATIO NET INVESTMENT
OF 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
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
INSTITUTIONAL CLASS
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 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 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 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%*
</TABLE>

* 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.

The accompanying notes are an integral part of the financial statements.

60
<PAGE> 395
- --------------------------------------------------------------------------------

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)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------
CALIFORNIA TAX-FREE MONEY MARKET
FUND
- --------------------------------
INSTITUTIONAL CLASS
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 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 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%) 09,848
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 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>

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 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 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%
</TABLE>

* 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.
The accompanying notes are an integral part of the financial statements.

61
<PAGE> 396
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Stepstone Funds

For a Share Outstanding Throughout the Period or Year

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)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------
LIMITED MATURITY GOVERNMENT FUND
- --------------------------------
INSTITUTIONAL CLASS
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 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 TAX-FREE BOND FUND
- -----------------------------
INSTITUTIONAL CLASS
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 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>

RATIO OF
RATIO NET INVESTMENT
OF 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
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------
LIMITED MATURITY GOVERNMENT FUND
- --------------------------------
INSTITUTIONAL CLASS
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 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 TAX-FREE BOND FUND
- -----------------------------
INSTITUTIONAL CLASS
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 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%
</TABLE>

* 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.
The accompanying notes are an integral part of the financial statements.

62
<PAGE> 397
- --------------------------------------------------------------------------------

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)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
INSTITUTIONAL CLASS
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 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 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 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>

RATIO OF
RATIO NET INVESTMENT
OF 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
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.85% 0.85% 4.14% 4.14% 46%
1995 (9) 0.85% 0.85% 3.87% 3.87% 36%
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.75% 0.75% 5.89% 5.89% 239%
1995 (9) 0.75% 0.75% 5.46% 5.46% 184%
- -------------
BALANCED FUND
- -------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 0.80% 3.20% 3.20% 26%
1995 0.80% 0.80% 3.41% 3.41% 48%
1994 0.69% 0.79% 3.35% 3.25% 49%
1993 0.69% 0.79% 3.72% 3.62% 68%
1992 (3) 0.78% 0.91% 4.44% 4.31% 56%
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 0.89% 1.20% 3.12% 2.81% 26%
1995 0.79% 1.19% 3.41% 3.01% 48%
1994 0.69% 1.19% 3.26% 2.76% 49%
1993 (10) 0.60%* 1.10%* 3.20%* 2.70%* 68%
</TABLE>

* 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.

The accompanying notes are an integral part of the financial statements.

63
<PAGE> 398
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Stepstone Funds

For a Share Outstanding Throughout the Period or Year

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)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------
GROWTH EQUITY FUND
- ------------------
INSTITUTIONAL CLASS
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 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 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 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>

RATIO OF
RATIO NET INVESTMENT
OF 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
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------
GROWTH EQUITY FUND
- ------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 0.80% 0.68% 0.68% 24%
1995 0.78% 0.78% 0.69% 0.69% 22%
1994 0.77% 0.79% 0.48% 0.46% 45%
1993 0.68% 0.78% 0.74% 0.64% 23%
1992 (3) 0.72% 0.85% 0.90% 0.77% 26%
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 0.89% 1.19% 0.60% 0.30% 24%
1995 0.78% 1.17% 0.69% 0.30% 22%
1994 0.77% 1.18% 0.48% 0.07% 45%
1993 0.67% 1.17% 0.69% 0.19% 23%
1992 (7) 0.83%* 0.96%* 0.79%* 0.66%* 26%
- -------------------
VALUE MOMENTUM FUND
- -------------------
INSTITUTIONAL CLASS
FOR THE YEARS ENDED JANUARY 31,:
1996 0.80% 0.80% 2.07% 2.07% 20%
1995 0.81% 0.81% 2.36% 2.36% 6%
1994 0.77% 0.79% 2.19% 2.17% 5%
1993 0.68% 0.78% 2.59% 2.49% 3%
1992 (3) 0.78% 0.91% 2.88% 2.75% 5%
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
1996 0.89% 1.20% 2.00% 1.69% 20%
1995 0.81% 1.21% 2.37 1.97% 6%
1994 0.77% 1.20% 2.12% 1.69% 5%
1993 (8) 0.65%* 1.15%* 2.53%* 2.03%* 3%
</TABLE>

* 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.

The accompanying notes are an integral part of the financial statements.

64
<PAGE> 399
- --------------------------------------------------------------------------------

(9) Commenced operations on February 1, 1994.
(15) Commenced operations on February 1, 1995.

The accompanying notes are in integral part of the financial statements.

65
<PAGE> 400
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stepstone Funds

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 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 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 Fund does not isolate that portion of gains and losses on
investments in securities which is due to changes in the foreign
exchange rates from that which is due to changes in market prices of
such securities.

The 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.

66
<PAGE> 401
January 31, 1996
- --------------------------------------------------------------------------------

Net Asset Value Per Share -- The net asset value per share is
calculated on each business day for each Fund. In general, it is
computed by dividing the assets of each Fund, less its liabilities, by
the number of outstanding shares of each 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 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.

67
<PAGE> 402
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Stepstone Funds

3. Transactions with Affiliates and Organization Costs

The Trust and SEI Financial Management Corporation (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 year was
approximately $54,000.

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 by thereof during the
period that the Trust is amortizing its organizational costs, the redemption
proceeds payable to the holder thereof by the Trust 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 Union Capital Advisors, a division of Union Bank, (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 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

68
<PAGE> 403
January 31, 1996
- --------------------------------------------------------------------------------

its fee in the Treasury Money Market Fund, the California Tax-Free Money
Market Fund, the International Equity Fund, and the California Tax-Free Bond
Fund in order to limit the operating expenses of the Funds.

The Advisor and The Bank of Tokyo Trust Company are parties to a Sub-Advisory
Agreement on the Blue Chip Growth Fund, the Emerging Growth Fund, the
Convertible Securities Fund and the Government Securities Fund. The Bank of
Tokyo Trust Company is entitled to a fee which is calculated daily and paid
monthly by the Advisor.

The Advisor and The Bank of Tokyo Asset Management (U.K.) Limited are parties
to a Sub-Advisory Agreement on the International Equity Fund. The Bank of
Tokyo Asset Management (U.K.) Limited 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 or about April 1, 1996. After the
merger, the resulting Bank will change its name to Union Bank of California,
N.A. Union Capital Advisors will be combined with Merus Capital Management and
re-named Merus-UCA Capital Management. Merus-UCA will operate as a separate
division of the Union Bank of California, N.A. The subadvisor, the Bank of
Tokyo Trust Company, will change its name to Bank of Tokyo-Mitsubishi Trust
Company upon the merger of the Bank of Tokyo Trust Company and Mitsubishi Bank
Trust Company of New York on or about April 1, 1996. These transactions will
result in the termination of the Stepstone Funds' investment advisory and
subadvisory agreements. The Funds have called a shareholder meeting to approve
new investment advisory and subadvisory contracts with Union Bank of
California, N.A. and Bank of Tokyo-Mitsubishi Trust Company, 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:

<TABLE>
<CAPTION>
INVESTMENT U.S. GOVERNMENT
SECURITIES SECURITIES
------------------ --------------------
PURCHASES SALES PURCHASES SALES
(000'S) (000'S) (000'S) (000'S)
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Int.-Term Bond. . . . . . . $53,374 $67,771 $123,299 $105,852
Limited Maturity Govt.. . . 1,038 159 52,382 38,371
California Tax-Free Bond. . 3,709 14,150 -- --
Convertible Securities. . . 11,375 5,294 -- --
Government Securities . . . 20,702 18,081 76,536 65,515
Balanced. . . . . . . . . . 55,247 46,110 18,516 2,555
Growth Equity . . . . . . . 36,113 39,851 -- --
Value Momentum . . . . . . 42,995 36,545 -- --
Blue Chip Growth. . . . . . 47,725 31,408 -- --
Emerging Growth . . . . . . 46,462 35,295 -- --
International Equity. . . . 44,352 7,765 -- --
</TABLE>

At January 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 January 31, 1996 for each
portfolio is as follows:

<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION TOTAL
(000'S) (000'S) (000'S)
------------- ------------ -------
<S> <C> <C> <C>
Int.-Term Bond . . . . $ 4,867 $ (43) $ 4,824
Limited Maturity Govt. 555 -- 555
California Tax-Free Bond 215 (3) 212
Convertible Securities 1,560 (451) 1,109
Government Securities . 1,140 (14) 1,126
Balanced . . . . . . . 46,268 (1,857) 44,411
Growth Equity . . . . . 70,366 (2,218) 68,148
Value Momentum . . . . 71,181 (2,383) 68,798
Blue Chip Growth . . . 12,382 (634) 11,748
Emerging Growth . . . . 7,689 (1,657) 6,032
International Equity . 4,997 (710) 4,287
</TABLE>

69
<PAGE> 404
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stepstone Funds

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:

<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRES EXPIRES EXPIRES
1/31/96 2002 2003 2004
------------ -------- ---------- --------
<S> <C> <C> <C> <C>
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. Tax-Free Bond . . 1,309,688 -- 588,397 721,291
Convertible Securities 57,122 -- 39,362 17,760
Government Securities . 362,601 -- 362,601 --
</TABLE>

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 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.

70
<PAGE> 405
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Stepstone Funds

7. Option Contracts

Transactions in covered call options and purchased put options during the
period ended January 31, 1996 are summarized as follows:

<TABLE>
<CAPTION>
GROWTH EQUITY
------------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ----------
<S> <C> <C>
Option written and outstanding at
beginning of period . . . . . . . -- $ --
Call option written during period . 1,669 592,787
Call option exercised during period (639) (201,573)
Call option expired during period . (553) (217,375)
Call option closed during period . (477) (173,839)
---------- ----------
Option written and outstanding at
end of period . . . . . . . . . . -- --
========== ==========
</TABLE>

<TABLE>
<CAPTION>
BLUE CHIP GROWTH
------------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ----------
<S> <C> <C>
Option written and outstanding at
beginning of period . . . . . . . 392 $ 62,027
Call option written during period . 7,439 2,271,388
Call option exercised during period (1,023) (198,890)
Call option expired during period (1,630) (381,581)
Call option closed during period . (4,718) (1,616,696)
---------- ----------
Option written and outstanding at
end of period . . . . . . . . . . 460 136,248
========== ==========
</TABLE>

<TABLE>
<CAPTION>
EMERGING GROWTH
------------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ----------
<S> <C> <C>
Option written and outstanding at
beginning of period . . . . . . . 188 $ 35,793
Call option written during period . 3,765 1,525,251
Call option exercised during period (528) (145,844)
Call option expired during period . (808) (190,597)
Call option closed during period . (2,467) (1,179,711)
---------- ----------
Option written and outstanding at
end of period . . . . . . . . . . 150 44,892
========== ==========

</TABLE>

<TABLE>
<CAPTION>
BALANCED
------------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ----------
<S> <C> <C>
Option written and outstanding at
beginning of period . . . . . . . -- $ --
Call option written during period . 921 93,380
Call option exercised during period (81) (19,778)
Call option expired during period . (620) (104,191)
Call option closed during period . (20) (4,690)
---------- ----------
Option written and outstanding at
end of period . . . . . . . . . . 200 35,279
========== ==========
</TABLE>

<TABLE>
<CAPTION>
CONVERTIBLE SECURITIES
------------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ----------
<S> <C> <C>
Option written and outstanding at
beginning of period . . . . . . . . -- $ --
Call option written during period . 10 1,529
Call option exercised during period -- --
Call option expired during period . -- --
Call option closed during period . (10) (1,529)
---------- ----------
Option written and outstanding at
end of period . . . . . . . . . . -- --
========== ==========
</TABLE>

<TABLE>
<CAPTION>
BLUE CHIP GROWTH
-------------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ----------
<S> <C> <C>
Purchased put option outstanding at
beginning of period . . . . . . . . -- $ --
Put option purchased during period 912 162,650
Put option sold during period . . . (650) (118,256)
Put option expired during period . (97) (12,867)
Put option exercised during period (165) (31,527)
---------- ----------
Purchased put option outstanding
at end of period. . . . . . . . . -- --
========== ==========
</TABLE>

<TABLE>
<CAPTION>
EMERGING GROWTH
------------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ----------
<S> <C> <C>
Purchase call option outstanding at
beginning of period . . . . . . . . -- $ --
Call option purchased during period 881 168,903
Call option sold during period . . (230) (51,315)
Call option expired during period . (336) (47,344)
Call option exercised during period (215) (46,007)
---------- ----------
Purchased call option outstanding at
end of period. . . . . . . . . . 100 24,237
========== ==========
</TABLE>

71
<PAGE> 406
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Shareholders and Trustees of the
Stepstone Funds:

We have audited the accompanying statements of net assets of the Treasury Money
Market, Money Market, California Tax-Free Money Market, Intermediate-Term
Bond,Limited Maturity Government, California Tax-Free Bond, Convertible
Securities, Government Securities, Balanced, Growth Equity, Value Momentum,
Blue Chip Growth, Emerging Growth, and International Equity Funds (fourteen of
the Funds constituting Stepstone Funds) as of January 31, 1996, and the related
statements of operations, statements of changes in net assets and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Treasury Money Market, Money Market, California Tax-Free Money Market,
Intermediate-Term Bond,Limited Maturity Government, California Tax-Free Bond,
Convertible Securities, Government Securities, Balanced, Growth Equity, Value
Momentum, Blue Chip Growth, Emerging Growth, and International Equity Funds of
Stepstone Funds as of January 31, 1996, the results of their operations,
changes in their net assets and financial highlights for the periods presented,
in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.
March 21, 1996

<PAGE> 407
APPENDIX

The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by Advisor or, where applicable, SubAdvisor with
regard to portfolio investments for the Funds include Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), and Fitch
Investors Service, Inc. ("Fitch"). Set forth below is a description of the
relevant ratings of each such NRSRO. The NRSROs that may be utilized by
Midlantic Bank, N.A. and the description of each NRSRO's ratings is as of the
date of this Statement of Additional Information, and may subsequently change.

Long-Term Debt Ratings (may be assigned, for example, to corporate and
municipal bonds)

Description of the four highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):

Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the
future.

Baa Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.

Description of the four highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):

AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.

A-1
<PAGE> 408
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):

AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issues is generally rated "[-]+."

A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)

Moody's description of its three highest short-term debt ratings:

Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by many of the following
characteristics:

-Leading market positions in well-established
industries.

-High rates of return on funds employed.

-Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.

-Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.

-Well-established access to a range of financial
markets and assured sources of alternate
liquidity.

Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt
obligations. This will normally be evidenced

A-2
<PAGE> 409
by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and
market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is
maintained.

S&P's description of its three highest short-term debt ratings:

A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a
plus sign (+).

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not
as high as for issues designated "A-1."

A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.

Fitch's description of its three highest short-term debt ratings:

F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.

F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.

F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment
grade.

Short-Term Loan/Municipal Note Ratings

Moody's description of its two highest short-term loan/municipal note ratings:

MIG-1/VMIG-1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for
refinancing.

MIG-2/VMIG-2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

A-3
<PAGE> 410
S&P's description of its two highest municipal note ratings:

SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest.

A-4

<PAGE> 1
EX-99.B1

THE EAGLE FUNDS(SM)

AGREEMENT AND DECLARATION OF TRUST

AGREEMENT AND DECLARATION OF TRUST dated the 16th day of
October, 1990, by the Trustees hereunder, and by the holders of Shares of
beneficial interest to be issued hereunder as hereinafter provided.

WITNESSETH that

WHEREAS, this Trust has been formed to carry on the business
of an investment company; and

WHEREAS, the Trustees have agreed to manage all property
coming into their hands as trustees of a Massachusetts voluntary association
with transferable Shares in accordance with the provisions hereinafter set
forth.

NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets, which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of
the same upon the following terms and conditions for the pro rata benefit of
the holders from time to time of Shares in this Trust as hereinafter set forth.

ARTICLE I
NAME AND DEFINITIONS

NAME

Section 1. This Trust shall be known as "The Eagle Funds,"
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.

DEFINITIONS

Section 2. Whenever used herein, unless otherwise required by
the context or specifically provided:

(a) The "Trust" refers to the Massachusetts voluntary
association established by this Agreement and
Declaration of Trust, as amended from time to time;
<PAGE> 2
(b) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV and
then in office;

(c) The term "Shares" means the equal proportionate
transferable units of interest into which the
beneficial interest in the Trust shall be divided
from time to time or, if more than one series or
class of Shares is authorized by the Trustees, the
equal proportionate transferable units into which
each series or class of Shares shall be divided from
time to time;

(d) "Shareholder" means a record owner of Shares;

(e) The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person," "Principal
Underwriter" and "Majority Shareholder Vote" (the 67%
or 50% requirement of the third sentence of Section
2(a) (42) of the Investment Company Act of 1940 (the
"1940 Act") and the Rules and Regulations thereunder,
all as amended from time to time, whichever may be
applicable) shall have the meanings given them in the
1940 Act;

(f) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time
to time; and

(g) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time;

(h) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all
as amended from time to time.

ARTICLE II
PURPOSE

The purpose of the Trust is to provide investors with one or
more investment portfolio(s) consisting primarily of securities, including debt
instruments or obligations.

ARTICLE III
SHARES

DIVISION OF BENEFICIAL INTEREST

Section 1. The Shares of the Trust shall be issued in one or
more series as the Trustees may, without shareholder approval, authorize. Each
series shall be preferred over all other series in respect of the assets
allocated to that series. The beneficial
<PAGE> 3
interest in each series shall at all times be divided into Shares, without par
value, each of which shall represent an equal proportionate interest in the
series with each other Share of the same series, none having priority or
preference over another. Each series shall be represented by one or more
classes of Shares, with each class possessing such rights (including,
notwithstanding any contrary provision herein, voting rights) as the Trustees
may, without shareholder approval, authorize. The number of Shares authorized
shall be unlimited, and the Shares so authorized may be represented in part by
fractional Shares. The Trustees may from time to time divide or combine the
Shares of any series into a greater or lesser number without thereby changing
the proportionate beneficial interests in the series.

OWNERSHIP OF SHARES

Section 2. The ownership of Shares shall be recorded on the
books of the Trust or its transfer or similar agent. No certificates
certifying the ownership of Shares shall be issued except as the Trustees may
otherwise determine from time to time. The Trustees may make such rules as
they consider appropriate for the issuance of Share certificates, the transfer
of Shares and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent of the Trust, as the case may be, shall
be conclusive as to who are the Shareholders of each series and as to the
number of Shares of each series held from time to time by each Shareholder.

INVESTMENTS IN THE TRUST; ASSETS OF THE SERIES

Section 3. The Trustees may accept investments in the Trust
from such persons and on such terms and, subject to any requirements of law,
for such consideration, which may consist of cash or tangible or intangible
property or a combination thereof, as they may from time to time authorize.

All consideration received by the Trust for the issue or sale
of Shares of each series, together with all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust and are herein referred to as "assets
of" such series. In addition, any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series shall be allocated by the Trustees between
and among one or more of the series in such manner as they, in their sole
discretion, deem fair and equitable. Each such allocation shall be conclusive
and binding upon the Shareholders of all series for all purposes, and shall be
referred to as assets belonging to that series.
<PAGE> 4
NO PREEMPTIVE RIGHTS

Section 4. Shareholders shall have no preemptive or other
right to receive, purchase or subscribe for any additional Shares or other
securities issued by the Trust.

STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY

Section 5. Shares shall be deemed to be personal property
giving only the rights provided in this instrument. Every Shareholder by
virtue of having become a Shareholder shall be held to have expressly assented
and agreed to the terms of this Declaration of Trust and to have become a party
thereto. The death of a Shareholder during the continuance of the Trust shall
not operate to terminate the same nor entitle the representative of any
deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
descendent under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property
or right to call for a partition or division of the same or for an accounting,
nor shall the ownership of Shares constitute the Shareholders partners.
Neither the Trust nor the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind personally any Shareholder, nor, except as
specifically provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.

TRUSTEES AND OFFICERS AS SHAREHOLDERS

Section 6. Any Trustee, officer or other agent of the Trust
may acquire, own and dispose of Shares of the Trust to the same extent as if he
were not a Trustee, officer or agent; and the Trustees may issue and sell or
cause to be issued and sold Shares to and buy such Shares from any such person
of any firm or company in which he is interested, subject only to the general
limitations herein contained as to the sale and purchase of such Shares; and
all subject to any restrictions which may be contained in the By-Laws.

ARTICLE IV
THE TRUSTEES

ELECTION

Section 1. The number of Trustees shall be fixed by the
Trustees, except that, commencing with the first shareholders meeting at which
Trustees are elected, there shall be not less than three nor more than fifteen
Trustees, each of whom shall hold office during the lifetime of this Trust or
until the election and qualification of his or her successor, or until he or
she sooner dies, resigns or is removed. The number of
<PAGE> 5
Trustees so fixed may be increased either by the Shareholders or by the
Trustees by a vote of a majority of the Trustees then in office. The number of
Trustees so fixed may be decreased either by the Shareholders or by the
Trustees by vote of a majority of the Trustees then in office, but only to
eliminate vacancies existing by reason of the death, resignation or removal of
one or more Trustees.

The initial Trustees, each of whom shall serve until the first
meeting of Shareholders at which Trustees are elected and until his or her
successor is elected and qualified, or until he or she sooner dies, resigns or
is removed, shall be Carl A. Guarino and such other persons as the Trustee or
Trustees then in office shall, prior to any sale of Shares pursuant to public
offering, appoint. By vote of the Shareholders holding a majority of the
shares entitled to vote, the Shareholders may remove a Trustee with or without
cause. By vote of a majority of the Trustees then in office, the Trustees may
remove a Trustee for cause. Any Trustee may, but need not, be a Shareholder.

In case of the declination, death, resignation, retirement,
removal, incapacity, or inability of any of the Trustees, or in case a vacancy
shall exist by reason of an increase in number, or for any other reason, the
remaining Trustees shall fill such vacancy by appointing such other person as
they in their discretion shall see fit consistent with the limitations under
the 1940 Act. Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees in office or by recording in the records
of the Trust, whereupon the appointment shall take effect. An appointment of a
Trustee may be made by the Trustees then in office in anticipation of a vacancy
to occur by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement, resignation
or increase in number of Trustees. As soon as any Trustee so appointed shall
have accepted this trust, the trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any further act or
conveyance, and he shall be deemed a Trustee hereunder. The power of
appointment is subject to the provisions of Section 16(a) of the 1940 Act. In
the event that at any time after the commencement of public sales of Trust
Shares less than a majority of the Trustees then holding office were elected to
such office by the Shareholders, the Trustees or the Trust's President promptly
shall call a meeting of Shareholders for the purpose of electing Trustees.
Each Trustee elected by the Shareholders or by the Trustees shall serve until
the election or qualification of his or her successor, or until he or she
sooner dies, resigns or is removed.

EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE

Section 2. The death, declination, resignation, retirement,
removal, or incapacity of the Trustees, or any one of them, shall not operate
to annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust.
<PAGE> 6
POWERS

Section 3. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility.
Without limiting the foregoing, the Trustees may adopt By-Laws not inconsistent
with this Declaration of Trust providing for the conduct of the business of the
Trust and may amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; they may fill vacancies in their
number, including vacancies resulting from increases in their number, and may
elect and remove such officers and appoint and terminate such agents as they
consider appropriate; they may appoint from their own number, and terminate,
any one or more committees consisting of two or more Trustees, including an
executive committee which may, when the Trustees are not in session, exercise
some or all of the powers and authority of the Trustees as the Trustees may
determine; they may appoint an advisory board, the members of which shall not
be Trustees and need not be Shareholders; they may employ one or more
investment advisers or managers as provided in Section 7 of this Article IV;
they may employ one or more custodians of the assets of the trust and may
authorize such custodians to employ subcustodians and to deposit all or any
part of such assets in a system or systems for the central handling of
securities, retain a transfer agent or a Shareholder servicing agent, or both,
provide for the distribution of Shares by the Trust, through one or more
principal underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter; and they may elect and remove such officers and
appoint and terminate such agents as they consider appropriate.

Without limiting the foregoing, the Trustees shall have power
and authority:

(a) To invest and reinvest cash, and to hold cash
uninvested;

(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of
the assets of the Trust;

(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities
or property, and to execute and deliver proxies or
powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person
or persons such power and discretion with relation to
securities or property as the Trustees shall deem
proper;

(d) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership
of securities;

(e) To hold any security or property in a form not
indicating any trust, whether
<PAGE> 7
in bearer, unregistered or other negotiable form, or
in the name of the Trustees or of the Trust or in the
name of a custodian, subcustodian or other depositary
or a nominee or nominees or otherwise;

(f) To establish separate and distinct series of shares
with separately defined investment objectives,
policies and purposes, and to allocate assets,
liabilities and expenses of the Trust to a particular
series of Shares or to apportion the same among two
or more series, provided that any liability or
expense incurred by a particular series of Shares
shall be payable solely out of the assets of that
series and to establish separate classes of shares of
each series;

(g) To consent to or participate in any plan for the
reorganization, consolidation or merger of any
corporation or issuer, any security or property of
which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security
held in the Trust;

(h) To join with other security holders in acting through
a committee, depositary, voting trustee or otherwise,
and in that connection to deposit any security with,
or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such
power and authority with relation to any security
(whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and
to pay, such portion of the expenses and compensation
of such committee, depositary or trustee as the
Trustees shall deem proper;

(i) To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust or any matter in
controversy, including but not limited to claims for
taxes;

(j) To enter into joint ventures, general or limited
partnerships and any other combinations or
associations;

(k) To borrow funds from a bank for temporary or
emergency purposes and not for investment purposes;

(l) To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of
guaranty or suretyship, or otherwise assume liability
for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any or
all of such obligations;

(m) To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or
appropriate for the conduct of the business,
<PAGE> 8
including, without limitation, insurance policies
insuring the assets of the Trust and payment of
distributions and principal on its portfolio
investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal
underwriters, or independent contractors of the Trust
individually against all claims and liabilities of
every nature arising by reason of holding, being or
having held any such office or position, or by reason
of any action alleged to have been taken or omitted
by any such person as Shareholder, Trustee, officer,
employee, agent, investment adviser or manager,
principal underwriter, or independent contractor,
including any action taken or omitted that may be
determined to constitute negligence, whether or not
the Trust would have the power to indemnify such
person against such liability;

(n) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish
and carry out pension, profit-sharing, share bonus,
share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and
annuity contracts as a means of providing such
retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the
Trust; and

(o) To establish, from time to time, a minimum total
investment for Shareholders, and to require the
redemption of the Shares of any Shareholders whose
investment is less than such minimum upon giving
notice to such Shareholder.

The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by Trustees. Except
as otherwise provided herein or from time to time in the By-Laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees (if a quorum be present), within or without
Massachusetts, including any meeting held by means of a conference telephone or
other communications equipment by which all persons participating in the
meeting can communicate with each other simultaneously and participation by
such means shall constitute presence in person at a meeting, or by written
consent of a majority of the Trustees then in office.

PAYMENT OF EXPENSES BY THE TRUST

Section 4. The Trustees are authorized to pay or to cause to
be paid out of the principal or income of the Trust, or partly out of principal
and partly out of income, as they deem fair, all expenses, fees, charges, taxes
and liabilities incurred or arising in connection with the Trust, or in
connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser or manager, principal
<PAGE> 9
underwriter, auditor, counsel, custodian, transfer agent, Shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur, provided,
however, that all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with a particular series of Shares as determined by the
Trustees, shall be payable solely out of the assets of that Series. Any
general liabilities, expenses, costs, charges or reserves of the Trust which
are not readily identifiable as belonging to any particular series shall be
allocated and charged by the Trustees between or among any one or more of the
series in such manner as the Trustees in their sole discretion deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes. Any creditor of any series may
look only to the assets of that series to satisfy such creditor's debt.

Section 5. The Trustees shall have the power, as frequently
as they may determine, to cause each Shareholder to pay directly, in advance or
arrears, for any and all expenses of the Trust, an amount fixed from time to
time by the Trustees, by setting off such charges due from such Shareholder
from declared but unpaid dividends owed such Shareholder and/or by reducing the
number of Shares in the account of such Shareholder by that number of full
and/or fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.

OWNERSHIP OF ASSETS OF THE TRUST

Section 6. Title to all of the assets of each series of
Shares and the Trust shall at all times be considered as vested in the
Trustees.

ADVISORY, MANAGEMENT AND DISTRIBUTION

Section 7. The Trustees may, at any time and from time to
time, contract with respect to the Trust or any series thereof for exclusive or
nonexclusive advisory and/or management services with Union Bank, a California
banking institution, SEI Financial Management Corporation, a Delaware
corporation, and/or any other corporation, trust, association or other
organization, every such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms interpretive of or in addition to said requirements
and restrictions as the Trustees may determine, including, without limitation,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. Any
contract for advisory services shall be subject to such Shareholder approval as
is required by the 1940 Act. The Trustees may also, at any time and from time
to time, contract with SEI Financial Services Company, a Pennsylvania
corporation, and/or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the By-Laws, and any such
contract may contain such other terms
<PAGE> 10
interpretive of or in addition to said requirements and restrictions as the
Trustees may determine.

The fact that:

(i) any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal
underwriter, or distributor or agent of or for any
corporation, trust, association, or other
organization, or of or for any parent or affiliate of
any organization, with which an advisory or
management or principal underwriter's or
distributor's contract, or transfer, Shareholder
servicing or other agency contract may have been or
may hereafter be made, or that any such organization,
or any parent or affiliate thereof, is a Shareholder
or has an interest in the Trust, or that

(ii) any corporation, trust, association or other
organization with which an advisory or management or
principal underwriter's or distributor's contract, or
transfer, Shareholder servicing or other agency
contract may have been or may hereafter be made also
has an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer,
Shareholder servicing or other agency contract with
one or more other corporations, trusts, associations,
or other organizations, or has other businesses or
interests shall not affect the validity of any such
contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing
the same or create any liability or accountability to
the Trust or its Shareholders.

ACTION BY THE TRUSTEES

Section 8. The Trustees shall act by majority vote at a
meeting duly called or by written consent of a majority without a meeting or by
telephone consent provided a quorum of Trustees participates in any such
telephonic meeting, unless the 1940 Act requires that a particular action be
taken only at a meeting in person of the Trustees.

ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS

VOTING POWERS

Section 1. The Shareholders shall have power to vote only (i)
for the election or removal of Trustees as provided in Article IV, Section 1,
(ii) with respect to any investment adviser as provided in Article IV, Section
7, (iii) with respect to any termination of the Trust or any series to the
extent and as provided in Article IX, Section 4, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as
<PAGE> 11
provided in Article IX, Section 7, (v) to the same extent as the stockholders
of a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (vi) with
respect to such additional matters relating to the Trust as may be required by
law, by this Declaration of Trust, by the By-Laws or by any registration of the
Trust with the Securities and Exchange Commission or any state, or as the
Trustees may consider necessary or desirable.

Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. Notwithstanding any other
provisions of this Declaration of Trust, or any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall be voted by
individual series, except (1) when required by the 1940 Act, Shares shall be
voted in the aggregate and not by individual series, and (2) when the Trustees
have determined that the matter affects only the interests of one or more
series, then only Shareholders of such series shall be entitled to vote
thereon. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy.

A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by any one of them unless at or prior to the
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, this Declaration of Trust or the
By-Laws to be taken by Shareholders.

VOTING POWER AND MEETINGS

Section 2. Meetings of Shareholders of the Trust or of any
series or class may be called by the Trustees, or such other person or persons
as may be specified in the By-Laws, and held from time to time for the purpose
of taking action upon any matter requiring the vote or the authority of the
Shareholders of the Trust or any series or class as herein provided or upon any
other matter deemed by the Trustees to be necessary or desirable. Meetings of
Shareholders of the Trust or of any series or class shall be called by the
Trustees or such other person or persons as may be specified in the By-Laws
upon written application requesting that a meeting be called for a purpose
requiring action by the Shareholders as provided herein or in the By-Laws by
Shareholders holding at least 10% of the outstanding Shares of the Trust if
Shareholders of all series are required hereunder to vote in the aggregate and
not by individual series at such meeting, or Shareholders holding at least 10%
of the outstanding shares of a series or class if Shareholders of such series
or class are entitled hereunder to vote by individual series or class at such
meeting. The Shareholders shall be entitled to at least seven days' written
notice of any meeting of the Shareholders.
<PAGE> 12
QUORUM AND REQUIRED VOTE

Section 3. A majority of the Shares entitled to vote shall be
a quorum for the transaction of business at a Shareholders' meeting, except
that where any provision of law or of this Declaration of Trust permits or
requires that holders of any series or class shall vote as a series or class,
then a majority of the aggregate number of Shares of that series or class
entitled to vote shall be necessary to constitute a quorum for the transaction
of business by that series or class. Any lesser number, however, shall be
sufficient for adjournments. Any adjourned session or sessions may be held
within a reasonable time after the date set for the original meeting without
the necessity of further notice.

Except when a larger vote is required by any provisions of
this Declaration of Trust or the By-Laws, a majority of the Shares voted on any
matter shall decide such matter and a plurality shall elect a Trustee, provided
that where any provision of law or of this Declaration of Trust permits or
requires that the holders of any series or class shall vote as a series or
class, then a majority of the Shares of that series or class voted on the
matter shall decide that matter insofar as that series or class is concerned.

ACTION BY WRITTEN CONSENT

Section 4. Any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger vote as shall be required by any provision of this Declaration
of Trust or the By-Laws) consent to the action in writing and such written
consents are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.

ADDITIONAL PROVISIONS

Section 5. The By-Laws may include further provisions for
Shareholders' votes and meetings and related matters.

ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS, REPURCHASES
AND DETERMINATION OF NET ASSET VALUE

DISTRIBUTIONS
<PAGE> 13
Section 1. The Trustees may, but need not, distribute each
year to the Shareholders of each series such income and gains, accrued or
realized, as the Trustees may determine, after providing for actual and accrued
expenses and liabilities (including such reserves as the Trustees may
establish) determined in accordance with good accounting practices. The
Trustees shall have full discretion to determine which items shall be treated
as income and which items as capital and their determination shall be binding
upon the Shareholders. Distributions of each year's income of each series, if
any be made, may be made in one or more payments, which shall be in Shares, in
cash or otherwise and on a date or dates determined by the Trustees. At any
time and from time to time in their discretion, the Trustees may distribute to
the Shareholders of any one or more series as of a record date or dates
determined by the Trustees, in shares, in cash or otherwise, all or part of any
gains realized on the sale or disposition of property of the series or
otherwise, or all or part of any other principal of the Trust attributable to
the series. Each distribution pursuant to this Section 1 shall be made ratably
according to the number of Shares of the series or class held by the several
Shareholders on the applicable record date thereof, provided that no
distributions need be made on Shares purchased pursuant to orders received, or
for which payment is made, after such time or times as the Trustees may
determine. Any such distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with this Declaration of Trust.

REDEMPTIONS AND REPURCHASES

Section 2. Any holder of Shares of the Trust may be
presentation of a written request, together with his certificates, if any, for
such Shares, in proper form for transfer, at the office of the Trust, the
adviser, the underwriter or the distributors, or at a principal office of a
transfer or Shareholder services agent appointed by the Trust (as the Trustees
may determine), redeem his Shares for the net asset value thereof determined
and computed in accordance with the provisions of this Section 2 and the
provisions of Section 5 of Article VI of this Declaration of Trust, less any
redemption charge which the Trustees may establish. Upon receipt of such
written request for redemption of Shares by the Trust, the adviser, the
underwriter or the distributor, or the Trust's transfer or Shareholder services
agent, such Shares shall be redeemed at the net asset value per share of the
particular series next determined after such Shares are tendered in proper form
for transfer to the Trust or determined as of such other time fixed by the
Trustees, as may be permitted or required by the 1940 Act, provided that no
such tender shall be required in the case of Shares for which a certificate or
certificates have not been issued, and in such case such Shares shall be
redeemed at the net asset value per share of the particular series next
determined after such demand has been received or determined at such other time
fixed by the Trustees, as may be determined or required by the 1940 Act.

The obligation of the Trust to redeem its Shares of each
series as set forth above in this Section 2 shall be subject to the condition
that, during any time of emergency, as hereinafter defined, such obligation may
be suspended by the Trust by or under authority
<PAGE> 14
of the Trustees for such period or periods during such time of emergency as
shall be determined by or under authority of the Trustees. If there is such a
suspension, any Shareholder may withdraw any demand for redemption and any
tender of Shares which has been received by the Trust during any such period
and any tender of Shares the applicable net asset value of which would but for
such suspension be calculated as of a time during such period. Upon such
withdrawal, the Trust shall return to the Shareholder the certificates
therefor, if any. For the purposes of any such suspension "time of emergency"
shall mean, either with respect to all Shares or any series of Shares, any
period during which:

(a) the New York Stock Exchange is closed other than for
customary weekend and holiday closings; or

(b) the Trustees or authorized officers of the Trust
shall have determined, in compliance with any
applicable rules and regulations or orders of the
Commission, either that trading on the New York Stock
Exchange is restricted, or that an emergency exists
as a result of which (i) disposal by the Trust of
securities owned by it is not reasonably practicable
or (ii) it is not reasonably practicable for the
Trust fairly to determine the current value of its
net assets; or

The Trust may also purchase, repurchase or redeem Shares in
accordance with such other methods, upon such other terms and subject to such
other conditions as the Trustees may from time to time authorize at a price not
exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.

PAYMENT IN KIND

Section 3. Subject to any generally applicable limitation
imposed by the Trustees, any payment on redemption, purchase or repurchase by
the Trust of Shares may, if authorized by the Trustees, be made wholly or
partly in kind, instead of in cash. Such payment in kind shall be made by
distributing securities or other property, constituting, in the opinion of the
Trustees, a fair representation of the various types of securities and other
property then held by the series of Shares being redeemed, purchased or
repurchased (but not necessarily involving a portion of each of the series'
holdings) and taken at their value used in determining the net asset value of
the Shares in respect of which payment is made.

ADDITIONAL PROVISIONS RELATING TO REDEMPTIONS AND REPURCHASES

Section 4. The completion of redemption, purchase or
repurchase of Shares shall
<PAGE> 15
constitute a full discharge of the Trust and the Trustees with respect to such
Shares and the Trustees may require that any certificate or certificates issued
by the Trust to evidence the ownership of such Shares shall be surrendered to
the Trustees for cancellation or notation.

DETERMINATION OF NET ASSET VALUE

Section 5. The term "net asset value" of the Shares of each
series shall mean: (i) the value of all the assets of such series; (ii) less
total liabilities of such series; (iii) divided by the number of Shares of such
series outstanding, in each case at the time of each determination. The
"number of Shares of such series outstanding" for the purpose of such
computation shall be exclusive of any Shares of such series to be redeemed,
purchased or repurchased by the Trust and not then redeemed, purchased or
repurchased as to which the price has been determined, but shall include Shares
of such series presented for redemption, purchase or repurchase by the Trust
and not then redeemed, purchased or repurchased as to which the price has not
been determined and Shares of such series the sale of which has been confirmed.
Any fractions involved in the computation of net asset value per share shall be
adjusted to the nearer cent unless the Trustees shall determine to adjust such
fractions to a fraction of a cent.

The Trustees or any officer, officers or agent of the Trust
designated for the purpose by the Trustees shall determine the net asset value
of the Shares of each series, and the Trustees shall fix the times as of which
the net asset value of the Shares of each series shall be determined and shall
fix the periods during which any such net asset value shall be effective as to
sales, redemptions and repurchases of, and other transactions in, the Shares of
such series, except as such times and periods for any such transactions may be
fixed by other provisions of this Declaration of Trust or the By-Laws. In
valuing the portfolio investments of any series for determination of net asset
value per Share of such series, securities for which market quotations are
readily available shall be valued at prices which, in the opinion of the
Trustees any officer, officers or agent of the Trust designated for the purpose
by the Trustees, most nearly represent the market value of such securities,
which may, but need not, be the most recent bid price obtained from one or more
of the market makers for such securities; other securities and assets shall be
valued at fair value as determined by or pursuant to the direction of the
Trustees. Notwithstanding the foregoing, short-term debt obligations,
commercial paper, and repurchase agreements may be, but need not be, valued on
the basis of quoted yields for securities of comparable maturity, quality and
type, or on the basis of amortized cost. In the determination of net asset
value of any series, dividends receivable and accounts receivable for
investments sold and for Shares sold shall be stated at the amounts to be
received therefor; and income receivable accrued daily on bonds and notes owned
shall be stated at the amount to be received. Any other assets shall be stated
at fair value as determined by the Trustees or such officer, officers or agent
pursuant to the Trustees' authority, except that no value shall be assigned to
good will, furniture, lists, reports, statistics or other noncurrent assets
other than real estate. Liabilities of any series for accounts payable, for
investments
<PAGE> 16
purchased and for Shares tendered for redemption, purchase or repurchase by the
Trust and not then redeemed, purchased or repurchased as to which the price has
been determined shall be stated at the amounts payable therefor. In
determining net asset value of any series, the person or persons making such
determination on behalf of the Trust may include in liabilities such reserves,
estimated accrued expenses and contingencies as such person or persons may in
its, his or their best judgment deem fair and reasonable under the
circumstances. Any income dividends and gains distributions payable by the
Trust shall be deducted as of such time or times on the record date therefor as
the Trustees shall determine.

The manner of determining the net assets of any series or of
determining the net asset value of the Shares of any series may from time to
time be altered as necessary or desirable in the judgment of the Trustees to
conform to any other method prescribed or permitted by any applicable law or
regulation or generally accepted accounting practice.

Determinations in accordance with Section 5 made in good faith
shall be binding on all parties concerned.

DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES

Section 6. No dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any
series) with respect to, nor any redemption or repurchase of, the Shares of any
series shall be effected by the Trust other than from the assets of such
series.

MAINTENANCE OF CONSTANT NET ASSET VALUE - MONEY MARKET SERIES

Section 7. The Trust will use its best efforts to maintain
the net asset value per Share of each money market series at $1.00. In the
event that the Trust, or any series, incurs a loss or liability, which the
Trustees, in their sole discretion, determine to be significant with respect to
the maintenance by the Trust of a constant net asset value of $1.00 per Share
for each series, the Trustees shall have the power (i) to reduce the number of
Shares of the Trust, or the series, as the case may be, by that number of full
and fractional Shares which represent the amount of such loss or liability, by
reducing the number of Shares in the account of each Shareholder of the Trust
or the series, as the case may be, on a pro rata basis; (ii) to offset the pro
rata share of such loss or liability from the accrued dividend account of each
Shareholder of the Trust or the series, as the case may be, and/or (iii) to
cause to be recorded on the books of the Trust or the series, as the case may
be, an asset account in the amount of any such loss or liability, which account
may be reduced by the amount of dividends declared thereafter upon the Shares
of the Trust or the series, as the case may be, outstanding on the day any such
loss or liability is incurred, until such asset account is reduced to zero.
<PAGE> 17

ARTICLE VII
COMPENSATION AND LIMITATION
OF LIABILITY OF TRUSTEES

COMPENSATION

Section 1. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.

LIMITATION OF LIABILITY

Section 2. The Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent, employee,
investment adviser or manager, principal underwriter or custodian, nor shall
any Trustee be responsible for the act or omission of any other Trustee, but
nothing herein contained shall protect any Trustee against any liability to
which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.

Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.

ARTICLE VIII
INDEMNIFICATION

Subject to the exceptions and limitations contained in this
Article, every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a
<PAGE> 18
Trustee or officer and against amounts paid or incurred by him in settlement
thereof.

No indemnification shall be provided hereunder to a Trustee or
officer:

(a) against any liability to the Trust or its
Shareholders by reason of a final adjudication by the
court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;

(b) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good
faith in the reasonable belief that his action was in
the best interests of the Trust;

(c) in the event of a settlement or other disposition not
involving a final adjudication (as provided in
paragraph (a) or (b)) and resulting in a payment by a
Trustee or officer, unless there has been either a
determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office by the court or
other body approving the settlement or other
disposition or a reasonable determination, based on a
review of readily available facts (as opposed to a
full trial-type inquiry) that he did not engage in
such conduct:

(i) by a vote of a majority of the Disinterested
Trustees acting on the matter (provided that
a majority of the Disinterested Trustees then
in office act on the matter); or

(ii) by written opinion of independent legal
counsel.

The rights of indemnification hereinafter provided may be
insured against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel other than Trustees and
officers may be entitled by contract or otherwise under law.

Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in the next to the
last paragraph of this Article shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Article, provided that either:

(a) such undertaking is secured by a surety bond or some
other appropriate
<PAGE> 19
security or the Trust shall be insured against losses
arising out of any such advances; or

(b) a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written
opinion shall determine, based upon a review of the
readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe
that the recipient ultimately will be found entitled
to indemnification.

As used in this Article, a "Disinterested Trustee" is one (i)
who is not an "interested person of the Trust (as defined by the 1940 Act)
(including anyone who has been exempted from being an "interested person:" by
any rule, regulation or order of the Securities and Exchange Commission), and
(ii) against whom none of such actions, suits or other proceedings or another
action, suit or other proceeding on the same or similar grounds is then or has
been pending.

As used in this Article, the words "claim," "action," "suit"
or "proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened; and the
words "liability" and "expenses" shall include without limitation, attorney's
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.

In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or for some other
reason, the shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expenses arising
from such liability, but only out of the assets of the particular series of
Shares of which he or she is or was a Shareholder.

ARTICLE IX
MISCELLANEOUS

TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE

Section 1. All persons extending credit to, contracting with
or having any claim against the Trust or a particular series of Shares shall
look only to the assets of the Trust or the assets of that particular series of
Shares for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Nothing in this Declaration of Trust shall protect any Trustee against any
<PAGE> 20
liability to which such Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee.

Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers or officer shall
give notice that this Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustees or Trustee or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, and may contain
such further recital as he or she or they may deem appropriate, but the
omission thereof shall not operate to bind any Trustees or Trustee or officers
or officer or Shareholders or Shareholder individually.

TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE; NO BOND OR SURETY

Section 2. The exercise by the Trustees of their powers and
discretion hereunder shall be binding upon everyone interested. A Trustee
shall be liable for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take advice of counsel
or other experts with respect to the meaning and operation of this Declaration
of Trust, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall not
be required to give any bond as such, nor any surety if a bond is required.

LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES

Section 3. No person dealing with the Trustees shall be bound
to make any inquiry concerning the validity of any transaction made or to be
made by the Trustees or to see to the application of any payments made or
property transferred to the Trust or upon its order.

DURATION AND TERMINATION OF TRUST

Section 4. Unless terminated as provided herein, the Trust
shall continue without limitation of time. The Trust may be terminated at any
time by vote of Shareholders holding at least a majority of the Shares entitled
to vote or by the Trustees by written notice to the Shareholders. Any series
of Shares may be terminated at any time by vote of Shareholders holding at
least a majority of the Shares of such series entitled to vote or by the
Trustees by written notice to the Shareholders of such series. Upon
termination of the Trust or of any one or more series of Shares, after paying
or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or
<PAGE> 21
accrued or anticipated, of the Trust or of the particular series as may be
determined by the Trustees, the Trust shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets to
distributable form in cash or Shares or other securities, or any combination
thereof, and distribute the proceeds to the Shareholders of the series
involved, ratably according to the number of Shares of such series held by the
several Shareholders of such series on the date of termination.

Section 5. The original or a copy of this instrument and of
each amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of the Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing
with the Trust may rely on certificate by an officer of the Trust as to whether
or not any such amendments have been made and as to any matters in connection
with the Trust hereunder; and, with the same effect as if it were the original,
may rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in such
amendment, references to this instrument, and the expression "herein,"
"hereof," and "hereunder" shall be deemed to refer to this instrument as
amended from time to time. Headings are placed herein for convenience of
reference only and shall not be taken as part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.

APPLICABLE LAW

Section 6. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.
This Declaration of Trust is to be governed by and construed and administered
according to the laws of said Commonwealth.

AMENDMENTS

Section 7. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then Trustees when
authorized to do so by a vote of Shareholders holding a majority of the Shares
entitled to vote, except that an amendment which shall affect the holders of
one or more series or classes of Shares but not the holders of all outstanding
series as classes shall be authorized by vote of the Shareholders holding a
majority of the Shares entitled to vote of each series or classes affected and
no vote of Shareholders of a series or classes not affected shall be required.
Amendments having the purpose of changing the name of the Trust or of supplying
any omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.
<PAGE> 22
IN WITNESS WHEREOF, the undersigned being the sole initial
Trustee of the Trust has executed this document this 16th day of October, 1990.

/s/ Carl A. Guarino
----------------------------------
Carl A. Guarino
c/o SEI Financial Services Company
680 E. Swedesford Road
Wayne, PA 19087

COMMONWEALTH OF PENNSYLVANIA
COUNTY OF PHILADELPHIA

I, the undersigned authority, hereby certify that the foregoing is a true and
correct copy of the instrument presented to me by Carl A. Guarino as the
original of such instrument.

WITNESS my hand and official seal, this 16th day of October, 1990.
---- -------------

s/s Marla Simon
----------------------------------
Notary Public

My commission expires: [Seal]

Resident Agent: CT Corporation, 2 Oliver Street, Boston, MA 02109
<PAGE> 23
THE EAGLE FUNDS

WRITTEN INSTRUMENT AMENDING
THE DECLARATION OF TRUST

The undersigned, being all of the Trustees of The Eagle Funds, a business trust
organized under the laws of the Commonwealth of Massachusetts, pursuant to a
Declaration of Trust dated October 16, 1990, do hereby amend, effective upon
the filing of this instrument in the office of the Secretary of State of the
Commonwealth of Massachusetts, the Declaration of Trust by deleting the name
"The Eagle Funds" wherever it appears therein and inserting in its place the
name "Union Investors Portfolios".

This instrument may be executed in several counterparts, each of which shall be
deemed an original but all taken together shall constitute one instrument.

IN WITNESS WHEREOF, the undersigned have signed these present on the date
indicated.

February 20, 1991
- -------------------------------
Paul L. Smith

February 20, 1991
- -------------------------------
William R. Howell

/s/ Michael L. Noel February 20, 1991
- -------------------------------
Michael L. Noel

/s/ Robert A. Nesher February 20, 1991
- -------------------------------
Robert A. Nesher
<PAGE> 24
UNION INVESTORS PORTFOLIOS

WRITTEN INSTRUMENT AMENDING THE
DECLARATION OF TRUST

The undersigned, being all of the trustees of Union Investors Portfolios, a
business trust organized under the laws of the Commonwealth of Massachusetts
pursuant to a Declaration of Trust dated October 16, 1990, do hereby amend,
effective upon the filing of this instrument in the office of the Secretary of
State of the Commonwealth of Massachusetts, the Declaration of Trust by
deleting the word "Portfolios" wherever it appears therein and inserting in
place thereof the word "Funds".

This instrument may be executed in several counterparts, each of which shall be
deemed an original, but all taken together shall constitute one instrument.

IN WITNESS WHEREOF, the undersigned have signed these presents on the dates
indicated.

/s/ William R. Howell May 12, 1992
- -------------------------------
William Howell

/s/ Paul Smith May 12, 1992
- -------------------------------
Paul Smith

/s/ Michael Noel May 12, 1992
- -------------------------------
Michael Noel

/s/ Robert A. Nesher May 12, 1992
- -------------------------------
Robert A. Nesher
<PAGE> 25
UNION INVESTORS FUNDS
Secretary's Certificate
Amendment to Declaration of Trust

The undersigned, Richard W. Grant, being the duly elected and
acting Secretary of Union Investors Funds (the "Trust"), a Massachusetts
business trust, DOES HEREBY CERTIFY that the following are true and correct
copies of resolutions adopted, pursuant to Article I Section I of the Agreement
and Declaration of Trust, by the Board of Trustees of the Trust at meetings
held on November 10, 1993 and February 9, 1994, respectively:

"VOTED: That the change of the Fund's name from "Union
Investors Funds" to "Stepstone Funds," be, and it hereby is,
approved effective with annual post-effective amendment."

"VOTED: That the actions of the officers of the Fund in
changing the Trust's name from "Union Investors Funds" to
"Stepstone Funds," be, and they hereby are, approved, such
change of name to be effective on March 1, 1994."

Witness my hand this 17th day of March, 1994.
---- -----------

/s/ Richard W. Grant
----------------------------------
Richard W. Grant
Secretary

<PAGE> 1
EX-99.B2

BY-LAWS

UNION INVESTOR PORTFOLIOS

SECTION 1. AGREEMENT AND DECLARATION OF TRUST AND PRINCIPAL OFFICE

1.1 Agreement and Declaration of Trust. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from
time to time in effect (the "Declaration of Trust"), of Union
Investor Portfolios, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").

1.2 Principal Office of the Trust. The principal office of the
Trust shall be located in Boston, Massachusetts.

SECTION 2. SHAREHOLDERS

2.1 Annual Meeting. The Trust will not hold annual meetings of
the shareholders.

2.2 Special Meetings. A special meeting of the shareholders may
be called at any time by the Trustees, by the president or, if
the Trustees and the president shall fail to call any meeting
of shareholders for a period of 30 days after written
application of one or more shareholders who hold at least 25%
of all shares issued and outstanding and entitled to vote at
the meeting, then such shareholders may call such meeting.
Each call of a meeting shall state the place, date, hour and
purposes of the meeting.

2.3 Place of Meetings. All meetings of the shareholders shall be
held at such place within the United States as shall be
designated by the Trustees or the president of the Trust.

2.4 Notice of Meetings. A written notice of each meeting of
shareholders, stating the place, date and hour and the
purposes of the meeting, shall be given at least seven days
before the meeting to each shareholder entitled to vote
thereat by leaving such notice with him or at his residence or
usual place of business or by mailing it, postage prepaid, and

<PAGE> 2
addressed to such shareholder at his address as it appears in
the records of the Trust. Such notice shall be given by the
secretary or an assistant secretary or by an officer
designated by the Trustees. No notice of any meeting of
shareholders need be given to a shareholder if a written
waiver of notice, executed before or after the meeting by such
shareholder or his attorney thereunto duly authorized, is
filed with the records of the meeting.

2.5 Ballots. No ballot shall be required for any election unless
requested by a shareholder present or represented at the
meeting and entitled to vote in the election.

2.6 Proxies. Shareholders entitled to vote may vote either in
person or by proxy in writing dated not more than six months
before the meeting named therein, which proxies shall be filed
with the secretary or other person responsible to record the
proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies
shall entitle the holders thereof to vote at any adjournment
of such meeting but shall not be valid after the final
adjournment of such meeting.

SECTION 3. TRUSTEES

3.1 Committees and Advisory Board. The Trustees may appoint from
their number an executive committee and other committees.
Except as the Trustees may otherwise determine, any such
committee may make rules for conduct of its business. The
Trustees may appoint an advisory board to consist of not less
than two nor more than five members. The members of the
advisory board shall be compensated in such manner as the
Trustees may determine and shall confer with and advise the
Trustees regarding the investments and other affairs of the
Trust. Each member of the advisory board shall hold office
until the first meeting of the Trustees following the next
annual meeting of the shareholders and until his successor is
elected and qualified, or until he sooner dies, resigns, is
removed, or becomes disqualified, or until the advisory board
is sooner abolished by the Trustees.

3.2 Regular Meetings. Regular meetings of the Trustees may be
held without call or notice at such places and at such times
as the Trustees may from time to time determine, provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees. A regular
meeting of the Trustees may be held without call or notice
immediately after and at the same place as the annual meeting
of the shareholders.

3.3 Special Meetings. Special meetings of the Trustees may be

<PAGE> 3
held at any time and at any place designated in the call of
the meeting, when called by the Chairman of the Board, the
president or the treasurer or by two or more Trustees,
sufficient notice thereof being given to each Trustee by the
secretary or an assistant secretary or by the officer or one
of the Trustees calling the meeting.

3.4 Notice. It shall be sufficient notice to a Trustee to send
notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the
Trustee at his or her usual or last known business or
residence address or to give notice to him or her in person or
by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting,
or to any Trustee who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him
or her. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.

3.5 Quorum. At any meeting of the Trustees one-third of the
Trustees then in office shall constitute a quorum; provided,
however, a quorum shall not be less than two. Any meeting may
be adjourned from time to time by a majority of the votes cast
upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.

SECTION 4. OFFICERS AND AGENTS

4.1 Enumeration; Qualification. The officers of the Trust shall
be a president, a treasurer, a secretary and such other
officers, if any, as the Trustees from time to time may in
their discretion elect or appoint. The Trust may also have
such agents, if any, as the Trustees from time to time may in
their discretion appoint. Any officer may be but none need be
a Trustee or shareholder. Any two or more offices may be held
by the same person.

4.2 Powers. Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and powers
herein and in the Declaration of Trust set forth, such duties
and powers as are commonly incident to his or her office as if
the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees
may from time to time designate.

4.3 Election. The president, the treasurer and the secretary
shall be elected annually by the Trustees. Other officers, if
any, may be elected or appointed by the Trustees at any time.

<PAGE> 4
4.4 Tenure. The president, the treasurer and the secretary shall
hold office for a one year term and until their respective
successors are chosen and qualified, or in each case until he
or she sooner dies, resigns, is removed or becomes
disqualified. Each agent shall retain his or her authority at
the pleasure of the Trustees.

4.5 President and Vice Presidents. The president shall be the
chief executive officer of the Trust. The president shall,
subject to the control of the Trustees, have general charge
and supervision of the business of the Trust. Any vice
president shall have such duties and powers as shall be
designated from time to time by the Trustees.

4.6 Chairman of the Board. If a Chairman of the Board of Trustees
is elected, he shall have the duties and powers specified in
these By-Laws and, except as the Trustees shall otherwise
determine, preside at all meetings of the shareholders and of
the Trustees at which he or she is present and have such other
duties and powers as may be determined by the Trustees.

4.7 Treasurer and Controller. The treasurer shall be the chief
financial officer of the Trust and subject to any arrangement
made by the Trustees with a bank or trust company or other
organization as custodian or transfer or shareholder services
agent, shall be in charge of its valuable papers and shall
have such other duties and powers as may be designated from
time to time by the Trustees or by the president. If at any
time there shall be no controller, the treasurer shall also be
the chief accounting officer of the Trust and shall have the
duties and powers prescribed the Trust and shall have the
duties and powers prescribed herein for the controller. Any
assistant treasurer shall have such duties and powers as shall
be designated from time to time by the Trustees.

The controller, if any be elected, shall be the chief
accounting officer of the Trust and shall be in charge of its
books of account and accounting records. The controller shall
be responsible for preparation of financial statements of the
Trust and shall have such other duties and powers as may be
designated from time to time by the Trustees or the president.

4.8 Secretary and Assistant Secretaries. The secretary shall
record all proceedings of the shareholders and the Trustees in
books to be kept therefor, which books shall be kept at the
principal office of the Trust. In the absence of the
secretary from any meeting of shareholders or Trustees, an
assistant secretary, or if there be none or he or she is
absent, a temporary clerk chosen at the meeting shall record
the proceedings thereof in the aforesaid books.

<PAGE> 5
SECTION 5. RESIGNATION AND REMOVALS

Any Trustee, officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the Chairman of the Board, the
president, the treasurer or the secretary or to a meeting of the Trustees. The
Trustees may remove any officer elected by them with or without cause by the
vote of a majority of the Trustees then in office. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee, officer,
or advisory board member resigning, and no officer or advisory board member
removed shall have any right to any compensation for any period following his
or her resignation or removal, or any right to damages on account of such
removal.

SECTION 6. VACANCIES

A vacancy in any office may be filled at any time. Each successor shall hold
office for the unexpired term, and in the case of the president, the treasurer
and the secretary, until his or her successor is chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified.

SECTION 7. SHARES OF BENEFICIAL INTEREST

No certificates certifying the ownership of shares shall be issued except as
the Trustees may otherwise authorize.

In lieu of issuing certificates for shares, the Trustees or the transfer or
shareholder services agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders
of certificates for such shares as if they had accepted such certificates and
shall be held to have expressly assented and agreed to the terms hereof.

SECTION 8. RECORD DATE

The Trustees may fix in advance a time, which shall not be more than 60 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date.

<PAGE> 6
SECTION 9. SEAL

The seal of the Trust shall, subject to alteration by the Trustees, consist of
a flat-faced circular die with the word "Massachusetts", together with the name
of the Trust and the year of its organization, cut or engraved thereon; but,
unless otherwise required by the Trustees, the seal shall not be necessary to
be placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.

SECTION 10. EXECUTION OF PAPERS

Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts and other obligations made, accepted or
endorsed by the Trust shall be signed, and any transfers of securities standing
in the name of the Trust shall be executed, by the president or by one of the
vice presidents or by the treasurer or by whomsoever else shall be designated
for that purpose by the vote of the Trustees and need not bear the seal of the
Trust.

SECTION 11. FISCAL YEAR

The fiscal year of the Trust shall end on such date in each year as the
Trustees shall from time to time determine.

SECTION 12. PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS

12.1 Dealings with Affiliates. The Trust shall not purchase or
retain securities issued by any issuer if one or more of the
holders of the securities of such issuer or one or more of the
officers or directors of such issuer is an officer or Trustee
of the Trust or officer or director of any organization,
association or corporation with which the Trust has an
investment advisor's contract ("investment advisor"), if to
the knowledge of the Trust one or more of such officers or
Trustees of the Trust or such officers or directors of such
investment advisors owns beneficially more than one-half of
one percent of the shares or securities of such issuer and
such officers, Trustees and directors owning more than on-half
of one percent of such shares or securities together own
beneficially more than five percent of such outstanding shares
or securities. Each Trustee and officer of the Trust shall
give notice to the secretary of the identity of all issuers
whose securities are held by the Trust of which such officer
or Trustee owns as much as one-half of one percent of the
outstanding securities, and the Trust shall not be charged

<PAGE> 7
with the knowledge of such holdings in the absence of
receiving such notice if the Trust has requested such
information not less often than quarterly.

Subject to the provisions of the preceding paragraph, no
officer, Trustee or agent of the Trust and no officer,
director or agent of any investment advisor shall deal for or
on behalf of the Trust with himself as principal or agent, or
with any partnership, association or corporation in which he
has a material financial interest; provided that the foregoing
provisions shall not prevent (a) officers and Trustees of the
Trust from buying, holding or selling shares in the Trust, or
from being partners, officers or directors of or financially
interested in any investment advisor to the Trust or in any
corporation, firm or association which may at any time have a
distributor's or principal underwriter's contract with the
Trust; (b) purchases or sales of securities or other property
if such transaction is permitted by or is exempt or exempted
from the provisions of the Investment Company Act of 1940 or
any Rule or Regulation thereunder and if such transaction does
not involve any commission or profit to any security dealer
who is, or one or more of whose partners, shareholders,
officers or directors is, an officer or Trustee of the Trust
or an officer or director of the investment advisor, manager
or principal underwriter of the Trust; (c) employment of legal
counsel, registrar, transfer agent, shareholder services,
dividend disbursing agent or custodian who is, or has a
partner, stockholder, officer or director who is, an officer
or Trustee of the Trust; (d) sharing statistical, research and
management expenses, including office hire and services, with
any other company in which an officer or Trustee of the Trust
is an officer or director or financially interested.

12.2 Dealing in Securities of the Trust. The Trust, the investment
advisor, any corporation, firm or association which may at any
time have an exclusive distributor's or principal
underwriter's contract with the Trust (the "distributor") and
the officers and Trustees of the Trust and officers and
directors of every investment advisor and distributor, shall
not take long or short positions in the securities of the
Trust, except that:

(a) the distributor may place orders with the Trust for
its shares equivalent to orders received by the
distributor;

(b) shares of the Trust may be purchased at not less than
net asset value for investment by the investment
advisor and by officers and directors of the
distributor, investment advisor, or the Trust and by
any trust, pension, profit-sharing or other benefit
plan for such persons, no such purchase to be in
contravention of any applicable state or federal
requirement.

<PAGE> 8
12.3 Limitation on Certain Loans. The Trust shall not make loans
to any officer, Trustee or employee of the Trust or any
investment advisor or distributor or their respective
officers, directors or partners or employees.

12.4 Custodian. All securities and cash owned by the Trust shall
be maintained in the custody of one or more banks or trust
companies having (according to its last published report) not
less than two million dollars ($2,000,000) aggregate capital,
surplus and undivided profits (any such bank or trust company
is hereinafter referred to as the "custodian"); provided,
however, the custodian may deliver securities as collateral on
borrowings effected by the Trust, provided, that such delivery
shall be conditioned upon receipt of the borrowed funds by the
custodian except where additional collateral is being pledged
on an outstanding loan and the custodian may deliver
securities lent by the trust against receipt of initial
collateral specified by the Trust. Subject to such rules,
regulations and orders, if any, as the Securities and Exchange
Commission may adopt, the Trust may, or may not permit any
custodian to, deposit all or any part of the securities owned
by the Trust in a system for the central handling of
securities operated by the Federal Reserve Banks, or
established by a national securities exchange or national
securities association registered with said Commission under
the Securities Exchange Act of 1934, or such other person as
may be permitted by said Commission, pursuant to which system
all securities of any particular class or series of any issue
deposited with the system are treated as fungible and may be
transferred or pledged by bookkeeping entry, without physical
delivery of such securities.

The Trust shall upon the resignation or inability to serve of
its custodian or upon change of the custodian:

(a) in the case of such resignation or inability to serve
use its best efforts to obtain a successor custodian;

(b) require that the cash and securities owned by this
corporation be delivered directly to the successor
custodian; and

(c) in the event that no successor custodian can be
found, submit to the shareholders, before permitting
delivery of the cash and securities owned by this
Trust otherwise than to a successor custodian, the
question whether or not this Trust shall be
liquidated or shall function without a custodian.

12.5 Limitations on Investment. Each series of shares may not
invest in securities other than those described in the Trust's
then current prospectus as appropriate for the series of

<PAGE> 9
shares for which such securities are being purchased.

12.6 Reports to Shareholders; Distributions from Realized Gains.
The Trust shall send to each shareholder of record at least
annually a statement of the condition of the Trust and of the
results of its operation, containing all information required
by applicable laws or regulations.

SECTION 13. AMENDMENTS

These By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such majority.

<PAGE> 1

EX-99.B5(a)

INVESTMENT ADVISORY AGREEMENT

AGREEMENT made this 30th day of ___________, 199__, by and between
Stepstone Funds, a Massachusetts business trust (the "Trust"), and Union Bank of
California, N.A., (the "Adviser").

WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment
policies; and

WHEREAS, the Trust has retained SEI Financial Management Corporation
(the "Administrator") to provide administration of the Trust's operations,
subject to the control of the Board of Trustees;

WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its Treasury Money Market, Money Market,
California Tax Free Money Market, Intermediate Term Bond, Value Momentum,
Growth Equity, and Balanced Portfolios and such other portfolios as the Trust
and the Adviser may agree upon (the "Portfolios"), and the Adviser is willing
to render such services:

NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:

1. DUTIES OF ADVISER. The Trust employs the Adviser to manage
the investment and reinvestment of the assets, and to
continuously review, supervise, and administer the investment
program of the Portfolios, to determine in its discretion the
securities to be purchased or sold, to provide the
Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain,
and to render regular reports to the Administrator and to the
Trust's Officers and Trustees concerning the Adviser's
discharge of the foregoing responsibilities.

The Adviser shall discharge the foregoing responsibilities
subject to the control of the Board of Trustees of the Trust
and in compliance with such
<PAGE> 2
policies as the Trustees may from time to time establish, and
in compliance with the objectives, policies, and limitations
for each such Portfolio set forth in the Trust's prospectus
and statement of additional information as amended from time
to time, and applicable laws and regulations.

The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office
space, furnishings and equipment and the personnel required by
it to perform the services on the terms and for the
compensation provided herein.

2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select
the brokers or dealers that will execute the purchases and
sales of portfolio securities for the Portfolios and is
directed to use its best efforts to obtain the best net
results as described in the Trust's prospectus and statement
of additional information from time to time. The Adviser will
promptly communicate to the Administrator and to the officers
and the Trustees of the Trust such information relating to
portfolio transactions as they may reasonably request.

It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the
Trust or be in breach of any obligation owing to the Trust
under this Agreement, or otherwise, solely by reason of its
having directed a securities transaction on behalf of the
Trust to a broker-dealer in compliance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934.

3. COMPENSATION OF THE ADVISER. For the services to be rendered
by the Adviser as provided in Sections 1 and 2 of this
Agreement, the Trust shall pay to the Adviser compensation at
the rate specified in the Schedule(s) which are attached
hereto and made a part of this Agreement. Such compensation
shall be paid to the Adviser at the end of each month, and
calculated by applying a daily rate, based on the annual
percentage rates as specified in the attached Schedule(s), to
the assets. The fee shall be based on the average daily net
assets for the month involved (less any assets of such
Portfolios held in non-interest bearing special deposits with
a Federal Reserve Bank).

All rights of compensation under this Agreement for services
performed as of the termination date shall survive the
termination of this Agreement.

4. OTHER EXPENSES. The Adviser shall pay all expenses of
preparing (including typesetting), printing and mailing
reports, prospectuses, statements of additional information,
and sales literature to prospective clients to the extent
these expenses are not borne by the Trust under a distribution
plan adopted pursuant to Rule 12b-1.

5. EXCESS EXPENSES. If the expenses for any Portfolio for any
fiscal year (including fees and other amounts payable to the
Adviser, but excluding interest, taxes, brokerage costs,
litigation, and other extraordinary costs) as calculated every

2
<PAGE> 3
business day would exceed the expense limitations imposed on
investment companies by any applicable statute or regulatory
authority of any jurisdiction in which Shares are qualified
for offer and sale, the Adviser shall bear such excess cost.

However, the Adviser will not bear expenses of the Trust or
any Portfolio which would result in the Trust's inability to
qualify as a regulated investment company under provisions of
the Internal Revenue Code. Payment of expenses by the Adviser
pursuant to this Section 5 shall be settled on a monthly basis
(subject to fiscal year end reconciliation) by a reduction in
the fee payable to the Adviser for such month pursuant to
Section 3 and, if such reduction shall be insufficient to
offset such expenses, by reimbursing the Trust.

6. REPORTS. The Trust and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy statements,
reports to shareholders, certified copies of their financial
statements, and such other information with regard to their
affairs as each may reasonably request.

7. STATUS OF ADVISER. The services of the Adviser to the Trust
are not to be deemed exclusive, and the Adviser shall be free
to render similar services to others so long as its services
to the Trust are not impaired thereby. The Adviser shall be
deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority
to act for or represent the Trust in any way or otherwise be
deemed an agent of the Trust.

8. CERTAIN RECORDS. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule
31a-2 promulgated under the Investment Company Act of 1940
which are prepared or maintained by the Adviser on behalf of
the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request.

9. LIMITATION OF LIABILITY OF ADVISER. The duties of the Adviser
shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the
Adviser hereunder. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in carrying
out its duties hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its
obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable state law which cannot
be waived or modified hereby. (As used in this Paragraph 9,
the term "Adviser" shall include directors, officers,
employees and other corporate agents of the Adviser as well as
that corporation itself).

3
<PAGE> 4
the Trust and satisfactory to the indemnified defendants in
the suit whose approval shall not be unreasonably withheld.
In the event that the Trust elects to assume the defense of
any suit and retain counsel, the indemnified defendants shall
bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of
a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the
indemnified defendants.

So long as the Adviser acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Adviser and hold it harmless from and against any and all
actions, demands, suits and claims (including claimed breaches of fiduciary
duty), whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation
expenses) arising directly or indirectly out of said advisory services to the
Trust. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.

The rights herein shall include the right to reasonable
advances of defense expenses in the event of any pending or
threatened litigation with respect to which indemnification
hereunder may ultimately be merited. In order that the
indemnification provision contained herein shall apply,
however, it is understood that if in any case the Trust may be
asked to indemnify or hold the Adviser harmless, the Trust
shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further
understood that the Adviser will use all reasonable care to
identify and notify the Trust promptly concerning any
situation which presents or appears likely to present the
probability of such a claim for indemnification against the
Trust, but failure to do so in good faith shall not effect the
rights hereunder.

The Adviser may apply to the Trust at any time for
instructions and may consult counsel for the Trust or its own
counsel and with accountants and other experts with respect to
any matter arising in connection with the Adviser's duties,
and the Adviser shall not be liable or accountable for any
action taken or omitted by it in good faith in accordance with
such instruction or with the opinion of such counsel,
accountants or other experts.

Also, the Adviser shall be protected in acting upon any
document which it reasonably believes to be genuine and to
have been signed or presented by the proper person or persons.
Nor shall the Adviser be held to have notice of any change of
authority of any officers, employee, or agent of the Trust
until receipt of written notice thereof from the Trust.

10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of
the Trust are or may be interested in the Adviser (or any
successor thereof) as directors, partners, officers, or
shareholders, or otherwise; directors, partners, officers,
agents, and shareholders of the Adviser are or may be
interested

4
<PAGE> 5
in the Trust as Trustees, shareholders or otherwise; and the
Adviser (or any successor) is or may be interested in the
Trust as a shareholder or otherwise. In addition, brokerage
transactions for the Trust may be effected through affiliates
of the Adviser if approved by the Board of Trustees, subject
to the rules and regulations of the Securities and Exchange
Commission.

11. DURATION AND TERMINATION. This Agreement, unless sooner
terminated as provided herein, shall remain in effect until
[two years from date of execution], and thereafter, for
periods of one year so long as such continuance thereafter is
specifically approved at least annually (a) by the vote of a
majority of those Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of each
Portfolio; provided, however, that if the shareholders of any
Portfolio fail to approve the Agreement as provided herein,
the Adviser may continue to serve hereunder in the manner and
to the extent permitted by the Investment Company Act of 1940
and rules and regulations thereunder. The foregoing
requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act of 1940
and the rules and regulations thereunder.

This Agreement may be terminated as to any Portfolio at any
time, without the payment of any penalty by vote of a majority
of the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Portfolio on not less
than 30 days nor more than 60 days written notice to the
Adviser, or by the Adviser at any time without the payment of
any penalty, on 90 days written notice to the Trust. This
Agreement will automatically and immediately terminate in the
event of its assignment. Any notice under this Agreement
shall be given in writing, addressed and delivered, or mailed
postpaid, to the other party at any office of such party. As
used in this Section 11, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in
the Investment Company Act of 1940 and the rules and
regulations thereunder; subject to such exemptions as may be
granted by the Securities and Exchange Commission under said
Act.

12. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the last address furnished by the other party to
the party giving notice: if to the Trust, at 680 East Swedesford
Road, Wayne, PA and if to the Adviser at 445 South Figueroa Street,
Los Angeles, CA.

13. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.

5
<PAGE> 6

A copy of the Declaration of Trust of the Trust is on file with the Secretary
of The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees, and
are not binding upon any of the Trustees, officers, or shareholders of the
Trust individually but binding only upon the assets and property of the Trust.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first written above.

Union Bank of California, N.A.

By:
--------------------------

Attest:
--------------------------

Stepstone Funds

By:
--------------------------

Attest:
--------------------------

6
<PAGE> 7

SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
STEPSTONE FUNDS

AND

UNION BANK OF CALIFORNIA, N.A.

Pursuant to Article 3, the Trust shall pay the Adviser compensation at an
annual rate as follows:

<TABLE>
<CAPTION>
Portfolio Fee (in basis points)
<S> <C>
Money Market 30
Treasury Money Market 30
California Tax Free
Money Market 30
Intermediate Term
Bond 50
Value Momentum 60
Growth Equity 60
Balanced 60
California Tax-Free Bond Fund 50
Limited Maturity Government 30
Government Securities 50
Convertible Securities 60
Blue Chip Growth 60
Emerging Growth 80
International Equity 95

</TABLE>

<PAGE> 1

EX-99.B5(b)

INVESTMENT SUBADVISORY AGREEMENT

AGREEMENT executed as of _____________, 1996, by and between UNION BANK
of CALIFORNIA, N.A. (the "Advisor"), and THE BANK OF TOKYO TRUST COMPANY, or
its successor, (the "SubAdvisor"), a subsidiary of The Bank of Tokyo, Ltd.,
a New York state chartered bank.

WHEREAS, Advisor is the investment manager for the Union Investors Funds (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, Advisor desires to retain SubAdvisor as its agent to furnish
investment advisory services for certain of the Trust's diversified investment
portfolios which are listed on Schedule A attached hereto and made a part
hereof (the "Funds").

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:

1. Appointment. Advisor hereby appoints SubAdvisor to provide certain
sub-investment advisory services to the Funds for the period and on the terms
set forth in this Agreement. SubAdvisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.

2. Delivery of Documents. Advisor has furnished or will furnish SubAdvisor
with copies properly certified or authenticated of each of the following:

(a) the Trust's Agreement and Declaration of Trust, as
filed with the Secretary of State of the Commonwealth of
Massachusetts on October 16, 1990, and all amendments thereto
or restatements thereof (such Declaration, as presently in
effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");

(b) the Trust's By-Laws and amendments thereto;

(d) the Trust's Notification of Registration of Form N-8A
under the Investment Company Act of 1940 (the "1940 Act") as
filed with the Securities and Exchange Commission (the "SEC")
on October 16, 1990, and all amendments thereto;

(e) the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended ("1933 Act") (File No.
33-37687) and under the 1940 Act as filed with the SEC and all
amendments thereto insofar as such Registration Statement and
such amendments relate to the Funds;
<PAGE> 2
(f) the Trust's most recent prospectuses and Statement of
Additional Information for the Funds (such prospectuses and
Statement of Additional Information, as presently in effect,
and all amendments and supplements thereto are herein
collectively called the "Prospectus"); and

(g) such other materials and documents as Subadvisor
shall reasonably request.

Advisor will furnish SubAdvisor from time to time with copies of all amendments
of or supplements to the foregoing.

3. Management. Subject always to the supervision of the Trust's Board of
Trustees and Advisor, SubAdvisor will furnish an investment program in respect
of, and make investment decisions for, all assets of the Funds and place all
orders for the purchase and sale of securities, all on behalf of the Funds. In
the performance of its duties, SubAdvisor will satisfy its fiduciary duties to
the Funds (as set forth in Section 8 below), and will monitor the Funds
investments, and will comply with the provisions of the Trust's Declaration of
Trust and By-Laws, as amended from time to time, and the stated investment
objectives, policies and restrictions of the Funds. SubAdvisor and Advisor
will each make its officers and employees available to the other from time to
time at reasonable times to review investment policies of the Funds and to
consult with each other regarding the investment affairs of the Funds.
SubAdvisor shall also make itself reasonably available to the Board of Trustees
at such times as the Board of Trustees shall request.

SubAdvisor represents and warrants that it is in compliance with all applicable
Rules and Regulations of the SEC pertaining to its investment advisory
activities and agrees that it:

(a) will use the same skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;

(b) will conform with all applicable Rules and Regulations of
the SEC pertaining to its investment advisory activities;

(c) will place orders pursuant to its investment
determinations for the Funds either directly with the issuer
or with any broker or dealer. In providing the Funds with
investment supervision, the SubAdvisor will give primary
consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
SubAdvisor may consider the financial responsibility, research
and investment information and other services provided by
brokers or dealers who may effect or be a party to any such
transaction or other transactions to which the SubAdvisor's
other clients may be a party. It is understood that it is
desirable for the Funds that the SubAdvisor have access to
supplemental investment and market research and security and
economic analysis provided by brokers who may execute
brokerage transactions at a higher cost to the Funds than may
result when allocating brokerage to other brokers on the basis
of seeking the most favorable price and efficient execution.
Therefore, the SubAdvisor is authorized to place orders for
the purchase and sale of securities for the
<PAGE> 3
Funds with such brokers, subject to such guidelines as shall
be established by the Advisor and reviewed by the Trust's
Board of Trustees from time to time with respect to the extent
and continuation of this practice. It is understood that the
services provided by such brokers may be useful to the
SubAdvisor in connection with the SubAdvisor's services to
other clients.

On occasions when the SubAdvisor deems the purchase or sale of
a security to be in the best interest of the Funds as well as
other clients of the SubAdvisor, the SubAdvisor, to the extent
permitted by applicable laws and regulations, the extent
permitted by applicable laws and regulations, may, but shall
be under no obligation to, aggregate the securities to be so
purchased or sold in order to obtain the most favorable price
or lower brokerage commissions and efficient execution. In
such event, allocation of the securities so purchased or sold,
as well as the expenses incurred in the transaction, will be
made by the SubAdvisor in the manner it considers to be the
most equitable and consistent with its fiduciary obligations
to the Funds and to such other clients. In no instance will
portfolio securities be purchased from or sold to Advisor,
SubAdvisor, SEI Financial Services Company or any affiliated
person of either the Trust, Advisor, SEI Financial Services
Company or SubAdvisor that Advisor has identified to the
SubAdvisor in writing, except as may be permitted under the
1940 Act;

(d) will report regularly to Advisor and will make
appropriate persons available for the purpose of reviewing at
reasonable times with representatives of Advisor and the Board
of Trustees the management of the Funds, including, without
limitation, review of the general investment strategy of the
Funds, the performance of the Funds in relation to standard
industry indices and general conditions affecting the
marketplace and will provide various other reports from time
to time as reasonably requested by Advisor;

(e) will maintain books and records with respect to the
Trust's securities transactions required by subparagraphs (b)
(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule
31a-1 under the 1940 Act and will furnish Advisor and the
Trust's Board of Trustees such periodic and special reports as
the Board of Trustees may request;

(f) will act upon instructions from Advisor not inconsistent
with the fiduciary duties hereunder; and

(g) will treat confidentially and as proprietary information
of the Trust all such records and other information relative
to the Trust maintained by the SubAdvisor, and will not use
such records and information for any purpose other than
performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by
the Trust, which approval shall not be unreasonably withheld
and may not be withheld where SubAdvisor may be exposed to
civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.

SubAdvisor shall have the right to execute and deliver, or cause its nominee to
execute and
<PAGE> 4
deliver, all proxies and notices of meetings and other notices affecting or
relating to the securities of the Funds.

4. Books and Records. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, SubAdvisor hereby agrees that all records which it maintains for
the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trust's request. SubAdvisor
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by subparagraphs (b) (5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act.
SubAdvisor may delegate its responsibilities under this Section to affiliates
that perform custody and/or fund accounting services for the Funds, which
delegation shall not, however, relieve the SubAdvisor of its responsibilities
under this paragraph 4.

5. Expenses. During the terms of this Agreement, SubAdvisor will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Trust.

6. Compensation. For the services provided and the expenses assumed pursuant
to this Agreement, Advisor will pay the SubAdvisor, and the SubAdvisor agrees
to accept as full compensation therefor, a sub-advisory fee, accrued daily and
payable monthly, in accordance with Schedule B hereto. From time to time,
SubAdvisor may agree to waive or reduce some or all of the compensation to
which it is entitled under this Agreement.

7. Services to Others. Advisor understands, and has advised the Trust's Board
of Trustees, that SubAdvisor now acts, and may in the future act, as an
investment adviser to fiduciary and other managed accounts, and as investment
advisor, sub-investment adviser, and/or administrator to other investment
companies. Advisor has no objection to SubAdvisor's acts in such capacities,
as long as such services do not impair the services rendered to Advisor or the
Trust. Advisor recognizes, and has advised the Trust's Board of Trustees, that
in some cases this procedure may adversely affect the size of the position that
the Funds may obtain in a particular security. In addition, Advisor
understands, and has advised the Trust's Board of Trustees, that the persons
employed by SubAdvisor to assist in SubAdvisor's duties under this Agreement
will not devote their full time to duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement will be
deemed to limit or restrict the right of SubAdvisor or any of its affiliates to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.

8. Limitation of Liability. The SubAdvisor shall not be liable for any error
or judgment or for any loss suffered by the Funds or Advisor in connection with
performance of its obligations under this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting
from willful misfeasance, bad faith or gross negligence on the SubAdvisor's
part in the performance of its duties or from reckless disregard of its
obligations and duties under this Agreement, except as may otherwise be
provided under provisions or applicable state law which
<PAGE> 5
cannot be waived or modified hereby.

9. Indemnification. Advisor and SubAdvisor each agree to indemnify the other
against any claim against, loss or liability to such other party (including
reasonable attorneys' fees) arising out of any action on the part of the
indemnifying party which constitutes willful misfeasance, bad faith or gross
negligence.

10. Duration and Termination. This Agreement will become effective as of the
date hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Funds in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for one year.

Thereafter, if not terminated, this Agreement will continue in effect for the
Funds for successive periods of 12 months, each ending on the day preceding the
anniversary of the Agreement's effective date of each year, provided that such
continuation is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, SubAdvisor, or Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of
all votes attributable to the outstanding Shares of the Funds. Notwithstanding
the foregoing, this Agreement may be terminated as to the Funds at any time,
without the payment of any penalty, on sixty (60) day's written notice by
Advisor or by SubAdvisor. This Agreement will immediately terminate in the
event of its assignment. (As used in this Agreement, the terms "majority of
the outstanding voting securities," "interested persons" and "assignment" have
the same meaning of such terms in the 1940 Act.)

11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only on an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

12. SubAdvisor Information. During the terms of this Agreement, Advisor agrees
to furnish the SubAdvisor at SubAdvisor's principal office all prospectuses,
proxy statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Funds, the Trust or the public
that refer to the SubAdvisor or its clients in any way prior to use thereof and
not to use material if the SubAdvisor reasonably objects in writing within five
business days (or such other period as may be mutually agreed) after receipt
thereof. The SubAdvisor's right to object to such materials is limited to the
portions of such materials that expressly relate to the SubAdvisor, its
services and its clients. The Advisor agrees to use its reasonable best efforts
to ensure that materials prepared by its employees or agents or its affiliates
that refer to the SubAdvisor or its clients in any way are consistent with
those materials previously approved by the SubAdvisor as referenced in the
first sentence of this paragraph. Sales literature may be furnished to the
SubAdvisor by first-class or overnight mail, facsimile transmission equipment
or hand delivery.

13. Severability. Should any part of this Agreement be held invalid by a
court decision,
<PAGE> 6
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.

14. Notices. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:

To Advisor at:

Union Bank of California, N.A.
530 "B" Street
San Diego, CA 92101

Attention: Clark Gates, Senior Vice President

To the SubAdvisor at:

The Bank of Tokyo Trust Company
100 Broadway
New York, NY 10005

Attention: Harold C. Elliot, CIO

To the Trust or the Funds at:

Stepstone Funds
680 East Swedesford Road
Wayne, Pennsylvania 19087

Attention: Legal Department

15. Change of Law. Where the effect of a requirement of the 1940 Act reflected
in any provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.

16. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement is held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement will not be affected thereby. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and will be governed by the laws of the
Commonwealth of Massachusetts.
<PAGE> 7

The name "Stepstone Funds" and "Trustees of the Stepstone Funds"
refer respectively to the Trust created by, and the Trustees, as trustees but
not individually or personally, acting from time to time under, the Declaration
of the Trust, to which reference is hereby made and copy of which is on file at
the office of the Secretary of State of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "Union Investors Funds" entered in the
name or on behalf thereof by any of the Trustees, representatives or agents are
made not individually but only in such capacities and are not binding upon any
of the Trustees, Shareholders or representatives of the trust personally, but
bind only the assets of the Trust, and persons dealing with the Funds must look
solely to the assets of the Trust belonging to such Funds for the enforcement
of any claims against the Trust.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.

UNION BANK OF CALIFORNIA, N.A.

By:
-----------------------------------

Name:
---------------------------------

Title:
--------------------------------

THE BANK OF TOKYO TRUST COMPANY

By:
-----------------------------------

Name:
---------------------------------

Title:
--------------------------------
<PAGE> 8
SCHEDULE A

UNION INVESTORS FUNDS

Blue Chip Growth Fund
Convertible Securities Fund
Emerging Growth Fund
Government Securities Fund
<PAGE> 9
SCHEDULE B

SUB ADVISOR COMPENSATION

1. GOVERNMENT SECURITIES FUND

Advisory Fee: 50 b.p.
Subadvisory Fee: 20 b.p.

2. CONVERTIBLE SECURITIES FUND

Advisory Fee: 60 b.p.
Subadvisory Fee: 30 b.p.

3. BLUE CHIP GROWTH FUND

Advisory Fee: 60 b.p.
Subadvisory Fee: 30 b.p.

4. EMERGING GROWTH FUND

Advisory Fee: 80 b.p.
Subadvisory Fee: 50 b.p.

<PAGE> 1
EX-99.B5(c)

INVESTMENT SUBADVISORY AGREEMENT

AGREEMENT executed as of , 1996 by and between UNION BANK OF
CALIFORNIA, N.A. (the "Advisor") and BOT ASSET MANAGEMENT (UK), LIMITED, or its
successor (the "SubAdvisor), an affiliate of The Bank of Tokyo, Ltd., ("BTAM").

WHEREAS, Advisor is the investment manager for the Stepstone Funds (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and

WHEREAS, Advisor desires to retain SubAdvisor as its agent to furnish
investment advisory services for the Trust's International Equity investment
portfolio (the "Fund").

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:

1. Appointment. Advisor hereby appoints SubAdvisor to provide certain
sub-investment advisory services to the Fund for the period and on the terms
set forth in this Agreement. SubAdvisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.

2. Delivery of Documents. Advisor has furnished or will furnish
SubAdvisor with copies properly certified or authenticated of each of the
following:

(a) the Trust's Agreement and Declaration of Trust, as
filed with the Secretary of State of the commonwealth of
Massachusetts on October 16, 1990, and all amendments thereto
or restatements thereof (such Declaration, as presently in
effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");

(b) the Trust's By-Laws and amendments thereto;

(e) the Trust's Registration statement on Form N-1A under
the Securities Act of 1933, as amended ("1933 Act") (File No.
33-37687) and under the 1940 Act as filed with the SEC and all
amendments thereto insofar as such Registration Statement and
such amendments relate to the Funds;
<PAGE> 2
(f) the Trust's most recent prospectuses and Statement of
Additional Information for the Funds (such prospectuses and
Statement of Additional Information, as presently in effect,
and all amendments and supplements thereto are herein
collectively called the "Prospectus"); and

(g) such other materials and documents as Subadvisor
shall reasonably request.

Advisor will furnish SubAdvisor from time to time with copies of all amendments
of or supplements to the foregoing.

3. Management. Subject always to the supervision of the Trust's Board of
Trustees and Advisor, SubAdvisor will furnish an investment program in respect
of, and make investment decisions for, all assets of the Fund and place all
orders for the purchase and sale of securities, all on behalf of the Fund. In
the performance of its duties, SubAdvisor will satisfy its fiduciary duties to
the Fund (as set forth in Section 8 below), and will monitor the Fund
investments, and will comply with the provisions of the Trust's Declaration of
Trust and By-Laws, as amended from time to time, and the stated investment
objectives, policies and restrictions of the Fund. SubAdvisor and Advisor will
each make its officers and employees available to the other from time to time
at reasonable times to review investment policies of the Fund and to consult
with each other regarding the investment affairs of the Fund. SubAdvisor shall
also make itself reasonably available to the Board of Trustees at such times as
the Board of Trustees shall request.

SubAdvisor represents and warrants that it is in compliance with all applicable
Rules and Regulations of the SEC pertaining to its investment advisory
activities and agrees that it:

(a) will use the same skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;

(b) will maintain registration with the SEC as an
investment adviser under the Investment Advisers Act of 1940
and will conform with all applicable Rules and Regulations of
the SEC pertaining to its investment advisory activities;

(c) will place orders pursuant to its investment
determinations for the Fund either directly with the issuer or
with any broker or dealer. In providing the Funds with
investment supervision, the SubAdvisor will give primary
consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
SubAdvisor may consider the financial responsibility, research
and investment information and other services provided by
brokers or dealers who may effect or be a party to any such
transaction or other transactions to which the SubAdvisor's
other clients may be a party. It is understood that it is
desirable for the Fund that the SubAdvisor have access to
supplemental investment and market research and security and
<PAGE> 3
economic analysis provided by brokers who may execute
brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis
of seeking the most favorable price and efficient execution.
Therefore, the SubAdvisor is authorized to place orders for
the purchase and sale of securities for the Fund with such
brokers, subject to such guidelines as shall be established by
the Advisor and reviewed by the Trust's Board of Trustees from
time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by
such brokers may be useful to the SubAdvisor in connection
with the SubAdvisor's services to other clients.

On occasions when the SubAdvisor deems the purchase or sale of a security to be
in the best interest of the Fund as well as other clients of the SubAdvisor,
the SubAdvisor, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be so
purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the SubAdvisor in the manner it considers to be
the most equitable and consistent with its fiduciary obligations to the Fund
and to such other clients. In no instance will portfolio securities be
purchased from or sold to Advisor, SubAdvisor, SEI Financial Services Company
or any affiliated person of either the Trust, Advisor, SEI Financial Services
Company or SubAdvisor that Advisor has identified to the SubAdvisor in writing,
except as may be permitted under the 1940 Act;

(d) will report regularly to Advisor and will make appropriate persons
available for the purpose of reviewing at reasonable times with representatives
of Advisor and the Board of Trustees the management of the Fund, including,
without limitation, review of the general investment strategy of the Fund, the
performance of the Fund in relation to standard industry indices and general
conditions affecting the marketplace and will provide various other reports
from time to time as reasonably requested by Advisor;

(e) will maintain books and records with respect to the Trust's securities
transactions required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and will furnish Advisor and the
Trust's Board of Trustees such periodic and special reports as the Board of
Trustees may request;

(f) will act upon instructions from Advisor not
inconsistent with the fiduciary duties hereunder; and

(g) will treat confidentially and as proprietary
information of the Trust all such records and other
information relative to the Trust maintained by the
SubAdvisor, and will not use such records and information for
any purpose other than performance
<PAGE> 4
of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust,
which approval shall not be unreasonably withheld and may not
be withheld where SubAdvisor may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.

SubAdvisor shall have the right to execute and deliver, or cause its nominee to
execute and deliver, all proxies and notices of meetings and other notices
affecting or relating to the securities of the Fund.

4. Books and Records. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, SubAdvisor hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
SubAdvisor further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the
1940 Act. SubAdvisor may delegate its responsibilities under this Section to
affiliates that perform custody and/or fund accounting services for the Fund,
which delegation shall not, however, relieve the SubAdvisor of its
responsibilities under this paragraph 4.

5. Expenses. During the terms of this Agreement, SubAdvisor will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions,
if any) purchased for the Trust.

6. Compensation. For the services provided and the expenses
assumed pursuant to this Agreement, Advisor will pay the SubAdvisor, and the
SubAdvisor agrees to accept as full compensation therefor, a sub-advisory fee,
accrued daily and payable monthly, in accordance with Schedule A hereto. From
time to time, SubAdvisor may agree to waive or reduce some or all of the
compensation to which it is entitled under this Agreement.

7. Services to Others. Advisor understands, and has advised the
Trust's Board of Trustees, that SubAdvisor now acts, and may in the future act,
as an investment adviser to fiduciary and other managed accounts, and as
investment advisor, sub-investment adviser, and/or administrator to other
investment companies. Advisor has no objection to SubAdvisor's acts in such
capacities, as long as such services do not impair the services rendered to
Advisor or the Trust. Advisor recognizes, and has advised the Trust's Board of
Trustees, that in some cases this procedure may adversely affect the size of
the position that the Fund may obtain in a particular security. In addition,
Advisor understands, and has advised the Trust's Board of Trustees, that the
persons employed by SubAdvisor to assist in SubAdvisor's duties under this
Agreement will not devote their full time to
<PAGE> 5
such service and nothing contained in this Agreement will be deemed to limit or
restrict the right of SubAdvisor or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.

8. Limitation of Liability. The SubAdvisor shall not be liable for any error
or judgment or for any loss suffered by the Fund or Advisor in connection with
performance of its obligations under this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting
from willful misfeasance, bad faith or gross negligence on the SubAdvisor's
part in the performance of its duties or from reckless disregard of its
obligations and duties under this Agreement, except as may otherwise be
provided under provisions or applicable state law which cannot be waived or
modified hereby.

10. Duration and Termination. This Agreement will become effective as of the
date hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Fund in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for one year.

Thereafter, if not terminated, this Agreement will continue in effect for the
Funds for successive periods of 12 months, each ending on the day preceding the
anniversary of the Agreement's effective date of each year, provided that such
continuation is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, SubAdvisor, or Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of
all votes attributable to the outstanding Shares of the Fund. Notwithstanding
the foregoing, this Agreement may be terminated as to the Funds at any time,
without the payment of any penalty, on sixty (60) day's written notice by
Advisor or by SubAdvisor. This Agreement will immediately terminate in the
event of its assignment. (As used in this Agreement, the terms "majority of
the outstanding voting securities", "interested persons" and "assignment" have
the same meaning of such terms in the 1940 Act.)

11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
<PAGE> 6
12. SubAdvisor Information. During the terms of this Agreement, Advisor
agrees to furnish the SubAdvisor at SubAdvisor's principal office all
prospectuses, proxy statements, reports to stockholders, sales literature or
other materials prepared for distribution to stockholders of the Fund, the
Trust or the public that refer to the SubAdvisor or its clients in any way
prior to use thereof and not to use material if the SubAdvisor reasonably
objects in writing within five business days (or such other period as may be
mutually agreed) after receipt thereof. The SubAdvisor's right to object to
such materials is limited to the portions of such materials that expressly
relate to the SubAdvisor, its services and its clients. The Advisor agrees to
use its reasonable best efforts to ensure that materials prepared by its
employees or agents or its affiliates that refer to the SubAdvisor or its
clients in any way are consistent with those materials previously approved by
the SubAdvisor as referenced in the first sentence of this paragraph. Sales
literature may be furnished to the SubAdvisor by first-class or overnight mail,
facsimile transmission equipment or hand delivery.

13. Severability. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.

14. Notices. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:

To Advisor at:

Union Bank of California, N.A.
530 "B" Street
San Diego, CA 92101

Attention: Clark Gates, Senior Vice President

To the SubAdvisor at:

BOT Asset Management (UK), Ltd.
12-15 Finsbury Circus
London, EC2M 7BT
England

Attention: James Wignall, Company Secretary

To the Trust or the Fund at:

Stepstone Funds
680 East Swedesford Road
Wayne, Pennsylvania 19087

Attention: Legal Department
<PAGE> 7
15. Change of Law. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is altered by a rule, regulation
or order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.

16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be
affected thereby. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and will be
governed by the laws of the Commonwealth of Massachusetts.

The name "Stepstone Funds" and "Trustees of the Stepstone Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of which is on file at
the office of the Secretary of State of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "Stepstone Funds" entered in the name or
on behalf thereof by any of the Trustees, representatives or agents are made
not individually but only in such capacities and are not binding upon any of
the Trustees, Shareholders or representatives of the trust personally, but bind
only the assets of the Trust, and persons dealing with the Funds must look
solely to the assets of the Trust belonging to such Funds for the enforcement
of any claims against the Trust.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.

UNION BANK OF CALIFORNIA, N.A.

By:
-------------------------------

Name:
------------------------------

Title:
-----------------------------

BOT ASSET MANAGEMENT (UK) LIMITED

By:
--------------------------------

Name:
------------------------------

Title:
-----------------------------
<PAGE> 8
SCHEDULE A

STEPSTONE INTERNATIONAL EQUITY FUND
Advisory Fee: 95 b.p. (will waive 20 b.p.)
Subadvisory Fee: 30 b.p.
<PAGE> 9
SCHEDULE B

SUBADVISOR PERFORMANCE STANDARDS

1. Outperform the Morgan Stanley Capital International (MSCI) Index.

<PAGE> 1

EX-99.B6

DISTRIBUTION AGREEMENT

UNION INVESTORS PORTFOLIOS

THIS AGREEMENT is made as of this 30th day of January, 1991,
between Union Investors Portfolios (the "Trust"), a Massachusetts business
trust and SEI Financial Services Company (the "Distributor"), a Pennsylvania
corporation.

WHEREAS, the Trust is registered as an investment company with
the Securities and Exchange Commission ("SEC") under the Investment Company Act
of 1940, as amended ("1940 Act"), and its Shares are registered with the SEC
under the Securities Act of 1933, as amended ("1933 Act"); and

WHEREAS, the Distributor is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934, as amended;

NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, the Trust and Distributor hereby agree as follows:

ARTICLE 1. Sale of Shares. The Trust grants to the
Distributor the exclusive right to sell Shares of the Trust at the net asset
value per Share, as agent and on behalf of the Trust, during the term of this
Agreement and subject to the registration requirements of the 1933 Act, the
rules and regulations of the SEC and the laws governing the sale of securities
in the various states ("Blue Sky Laws").

ARTICLE 2. Solicitation of Sales. In consideration of these
rights granted to the Distributor, the Distributor agrees to use all reasonable
efforts, consistent with its other business, in connection with the
distribution of Shares of the Trust; provided, however, that the Distributor
shall not be prevented from entering into like arrangements with other issuers.
The provisions of this paragraph do not obligate the Distributor to register as
a broker or dealer under the Blue Sky Laws of any jurisdiction when it
determines it would be uneconomical for it to do so or to maintain its
registration in any jurisdiction in which it is now registered.

ARTICLE 3. Authorized Representations. The Distributor is
not authorized by the Trust to give any information or to make any
representations other than those contained in the current registration
statements and prospectuses of the Trust filed with the SEC or contained in
Shareholder reports or other material that may be prepared by or on behalf of
the Trust for the Distributor's use. The Distributor may prepare and
distribute sales literature and other material as it may deem appropriate,
provided that such literature and materials have been approved by the Trust
prior to their use.

ARTICLE 4. Registration of Shares. The Trust agrees that it
will take all action necessary to register Shares under the federal and state
securities laws so that there will be available for sale the number of Shares
the Distributor may reasonably be

1
<PAGE> 2
expected to sell and to pay all fees associated with said registration. The
Trust shall make available to the Distributor such number of copies of its
currently effective prospectus and statement of additional information as the
Distributor may reasonably request. The Trust shall furnish to the Distributor
copies of all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the distribution
of Shares of the Trust.

ARTICLE 5. Compensation. As compensation for the services
performed and the expenses assumed under this Agreement relative to Investor
Class, and to the extent provided in the Trust's annual budget under its
Investor Class Distribution Plan adopted in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Trust shall reimburse the Distributor
for (i) the cost of preparing and printing prospectuses and statements of
additional information, reports to Shareholders, sales literature and other
materials for potential investors, (ii) advertising, (iii) expenses incurred in
connection with the distribution of units.

ARTICLE 6. Indemnification of Distributor. The Trust agrees
to indemnify and hold harmless the Distributor and each of its directors and
officers and each person, if any, who controls the Distributor within the
meaning of Section 15 of the 1933 Act against any loss, liability, claim,
damages or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damages, or expense and reasonable counsel
fees and disbursements incurred in connection therewith), arising by reason of
any person acquiring any Shares, based upon the ground that the registration
statement, prospectus, Shareholder reports or other information filed or made
public by the Trust (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements made not misleading. However, the
Trust does not agree to indemnify the Distributor or hold it harmless to the
extent that the statements or omission was made in reliance upon, and in
conformity with, information furnished to the Trust by or on behalf of the
Distributor.

In no case (i) is the indemnity of the Trust to be deemed to
protect the Distributor or any person against any liability to the Trust or its
Shareholders to which the Distributor or such person otherwise would be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Trust to be liable
to the Distributor under the indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or other person shall have notified the
Trust in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon the Distributor or such other person (or after the
Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Trust of any claim shall not
relieve the Trust from any liability which it may have to the Distributor or
any person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.

The Trust shall be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought
to enforce any claims subject to this indemnity provision. If the Trust elects
to assume the defense of any such claim, the defense shall be conducted by
counsel chosen by the Trust and satisfactory to the indemnified defendants in
the suit whose approval shall not be unreasonably withheld. In the event that
the Trust elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees

2
<PAGE> 3
and expenses of any additional counsel retained by them. If the Trust does not
elect to assume the defense of a suit, it will reimburse the indemnified
defendants for the reasonable fees and expenses of any counsel retained by the
indemnified defendants.

The Trust agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of its Shares.

ARTICLE 7. Indemnification of Trust. The Distributor
covenants and agrees that it will indemnify and hold harmless the Trust and
each of its Trustees and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the Act, against any loss, liability,
damages, claim or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense and reasonable
counsel fees incurred in connection therewith) based upon the 1933 Act or any
other statute or common law and arising by reason of any person acquiring any
Shares, and alleging a wrongful act of the Distributor or any of its employees
or alleging that the registration statement, prospectus, Shareholder reports or
other information filed or made public by the Trust (as from time to time
amended) included an untrue statement of a material fact or omitted to state a
material fact required to be stated or necessary in order to make the
statements not misleading, insofar as the statement or omission was made in
reliance upon and in conformity with information furnished to the Trust by or
on behalf of the Distributor.

In no case (i) is the indemnity of the Distributor in favor of
the Trust or any other person indemnified to be deemed to protect the Trust or
any other person against any liability to which the Trust or such other person
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Trust or upon any person (or after
the Trust or such person shall have received notice of service on any
designated agent). However, failure to notify the Distributor of any claim
shall not relieve the Distributor from any liability which it may have to the
Trust or any person against whom the action is brought otherwise than on
account of its indemnity agreement contained in this paragraph.

The Distributor shall be entitled to participate, at its own
expense, in the defense or, if it so elects, to assume the defense of any suit
brought to enforce the claim, but if the Distributor elects to assume the
defense, the defense shall be conducted by counsel chosen by the Distributor
and satisfactory to the indemnified defendants whose approval shall not be
unreasonably withheld. In the event that the Distributor elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the indemnified defendants in the suit for the reasonable fees and expenses of
any counsel retained by them.

The Distributor agrees to notify the Trust promptly of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any of the Trusts' Shares.

ARTICLE 8. Effective Date. This Agreement shall be
effective upon its execution, and

3
<PAGE> 4
unless terminated as provided, shall continue in force for one year from the
effective date and thereafter from year to year, provided that such annual
continuance is approved by (i) either the vote of a majority of the Trustees of
the Trust, or the vote of a majority of the outstanding voting securities of
the Trust, and (ii) the vote of a majority of those Trustees of the Trust who
are not parties to this Agreement or the Trust's Distribution Plan or
interested persons of any such party ("Qualified Trustees"), cast in person at
a meeting called for the purpose of voting on the approval. This Agreement
shall automatically terminate in the event of its assignment. As used in this
paragraph the terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act. In addition, this Agreement may at any time be
terminated without penalty by SFS, by a vote of a majority of Qualified
Trustees or by vote of a majority of the outstanding voting securities of the
Trust upon not less than sixty days prior written notice to the other party.

ARTICLE 9. Notices. Any notice required or permitted to be
given by either party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by the party giving
notice to the other party at the last address furnished by the other party to
the party giving notice: if to the Trust, at 680 East Swedesford Road, Wayne,
Pennsylvania, and if to the Distributor, 680 East Swedesford Road, Wayne,
Pennsylvania 19087.

ARTICLE 10. Limitation of Liability. A copy of the
Declaration of Trust of the Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts, and notice is hereby given that this Agreement
is executed on behalf of the Trustees of the Trust as Trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees, officers or unitholders of the Trust individually but
binding only upon the assets and property of the Trust.

ARTICLE 11. Governing Law. This Agreement shall be construed
in accordance with the laws of the Commonwealth of Massachusetts and the
applicable provisions of the 1940 Act. To the extent that the applicable laws
of the Commonwealth of Massachusetts, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.

ARTICLE 12. Multiple Originals. This Agreement may be
executed in two or more counterparts, each of which when so executed shall be
deemed to be an original, but such counterparts shall together constitute but
one and the same instrument.

IN WITNESS, the Trust and Distributor have each duly executed
this Agreement, as of the day and year above written.

UNION INVESTORS PORTFOLIOS

By:/s/ signature appears here
--------------------------

Attest:/s/ signature appears here
--------------------------

SEI FINANCIAL SERVICES COMPANY

By: /s/ signature appears here
--------------------------

Attest: /s/ signature appears here
---------------------------

<PAGE> 1

EX-99.B8(a)

CUSTODIAN AGREEMENT

This Agreement, dated as of the 30th day of January, 1991, by and
between Union Investors Portfolios (the "Trust"), a business trust operating as
an open-end investment company, duly organized under the laws of the
Commonwealth of Massachusetts and CoreStates Bank N.A.;

WITNESSETH:

WHEREAS, the Trust desires to deposit part of its cash and securities
with CoreStates Bank N.A. as custodian; and

WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end investment company and is
willing to act in such capacity upon the terms and conditions herein set forth;

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:

SECTION 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have meanings herein
specified unless the context otherwise requires.

CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity
as Custodian under this Agreement.

PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Trustees of the Trust or by the Board of Directors of an investment adviser for
the Trust to give the particular class of instructions. Telephone or
telegraphic instructions shall be confirmed in writing by such person or
persons as said Trustees or said Board of Directors shall have from time to
time authorized to give the particular class of instructions in question. The
Custodian may act upon telephone or telegraphic instructions without awaiting
receipt of written confirmation, and shall not be liable for the Trust's or
such investment adviser's failure to confirm such instructions in writing.

1
<PAGE> 2
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Trust in accordance with the registry records
maintained by the Trust or agents on its behalf.

SHARES: The term Shares of the Trust shall mean the units of beneficial
interest of the Trust.

SECTION 2. The Trust shall from time to time file with the Custodian a
certified copy of each resolution of its Board of Trustees authorizing the
person or persons to give Proper Instructions (as defined in Section 1) and
specifying the class of instructions that may be given by each person to the
Custodian under this Agreement, together with certified signatures of such
persons authorized to sign, which shall constitute conclusive evidence of the
authority of the officers and signatories designated therein to act, and shall
be considered in full force and effect with the Custodian fully protected in
acting in reliance thereon until it receives written notice to the contrary;
provided, however, that if the certifying officer is authorized to give Proper
Instructions, the certification shall be also signed by a second officer of the
Trust.

SECTION 3. The Trust hereby appoints the Custodian as custodian of part of the
Trust's cash and securities from time to time on deposit hereunder, to be held
by the Custodian and applied as provided in this Agreement. The Custodian
hereby accepts such appointment subject to the terms and conditions hereinafter
provided. Such cash and securities shall, however, be segregated from the
assets of others and shall be and remain the sole property of the Trust and the
Custodian shall have only the bare custody thereof.

The Custodian may deposit the Trust's portfolio securities with a U.S.
securities depository or in U.S. Federal book-entry systems pursuant to rules
and regulations of the Securities and Exchange Commission.

SECTION 4. The Trust will make an initial deposit of cash to be held and
applied by the Custodian hereunder. Thereafter the Trust will cause to be
deposited with the Custodian hereunder the applicable net asset value of Shares
sold from time to time whether representing initial issue, other stock or
reinvestments of dividends and/or distributions payable to Shareholders.

SECTION 5. The Custodian is hereby authorized and directed to disburse cash
from time to time upon receipt of and in accordance with Proper Instructions.

SECTION 6. The Custodian's compensation shall be as set forth in Schedule A
hereto attached, or as shall be set forth in amendments to such schedule
approved by the Trust and the Custodian.

2
<PAGE> 3
SECTION 7. In connection with its functions under this Agreement, the
Custodian shall:

(a) render to the Trust a daily report of all monies received or
paid on behalf of the Trust.

(b) create, maintain and retain all records relating to its
activities and obligations under this Agreement in such manner
as will meet the obligations of the Trust with respect to said
Custodian's activities in accordance with generally accepted
accounting principles. All records maintained by the
Custodian in connection with the performance of its duties
under this Agreement will remain the property of the Trust and
in the event of termination of this Agreement will be
relinquished to the Trust.

SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:

(a) may rely upon the advice of counsel, who may be counsel for
the Trust or for the Custodian, and upon statements of
accountants, brokers and other persons believed by it in good
faith to be expert in the matters upon which they are
consulted; and for any action taken or suffered in good faith
based upon such advice or statements the Custodian shall not
be liable to anyone;

(b) shall not be liable for anything done or suffered to be done
in good faith in accordance with any request or advice of, or
based upon information furnished by, the Trust or its
authorized officers or agents;

(c) is authorized to accept a certificate of the Secretary or
Assistant Secretary of the Trust, or Proper Instructions, to
the effect that a resolution in the form submitted has been
duly adopted by its Board of Trustees or by the Shareholders,
as conclusive evidence that such resolution has been duly
adopted and is in full force and effect;

(d) may rely and shall be protected in acting upon any signature,
written (including telegraph or other mechanical)
instructions, request, letter of transmittal, certificate,
opinion of counsel, statement, instrument, report, notice,
consent, order, or other paper or document reasonably believed
by it to be genuine and to have been signed, forwarded or
presented by the

3
<PAGE> 4
purchaser, Trust or other proper party or parties.

SECTION 9. The Trust, its successors and assigns hereby indemnify and hold
harmless the Custodian, its successors and assigns, of and from any and all
liability whatsoever arising out of or in connection with the Custodian's
status, acts, or omissions under this Agreement, except only for liability
arising out of the Custodian's own negligence, bad faith, or willful misconduct
in the performance of its duties specifically set forth in this Agreement.

Without limiting the generality of the foregoing, the Trust, its successors and
assigns do hereby fully indemnify and hold harmless the Custodian its
successors and assigns, from any and all loss, liability, claims, demand,
actions, suits and expenses of any nature as the same may arise from the
failure of the Trust to comply with any law, rule, regulation or order of the
United States, any state or any other jurisdiction, governmental authority,
body, or board relating to the sale, registration, qualification of units of
beneficial interest in the Trust, or from the failure of the Trust to perform
any duty or obligation under this Agreement.

Upon written request of the Custodian, the Trust shall assume the entire
defense of any claim subject to the foregoing indemnity, or the joint defense
with the Custodian of such claim, as the Custodian shall request. The
indemnities and defense provisions of this Section 9 shall indefinitely survive
termination of this Agreement.

SECTION 10. This Agreement may be amended from time to time without notice to
or approval of the Unitholders by a supplemental agreement executed by the
Trust and the Custodian and amending and supplementing this Agreement in the
manner mutually agreed.

SECTION 11. Either the Trust or the Custodian may give one hundred twenty
(120) days written notice to the other of the termination of this Agreement,
such termination to take effect at the time specified in the notice. In case
such notice of termination is given either by the Trust or by the Custodian,
the Trustees of the Trust shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company,
or a bank and trust company in good standing, with legal capacity to accept
custody of the cash and securities of a mutual fund.

Upon receipt of written notice from the Trust of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor Custodian. Unless or until a Successor Custodian has been
appointed as above provided, the Custodian then acting shall continue to act as
Custodian under this Agreement.

4
<PAGE> 5
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of
the Trust and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.

In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or filing of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.

SECTION 12. This Agreement shall take effect when assets of the Trust are
first delivered to the Custodian.

SECTION 13. This Agreement may be executed in two or more counterparts, each
of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.

SECTION 14. A copy of the Declaration of Trust of the Trust is on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees, officers or Shareholders of the Trust
individually, but binding only upon the assets and property of the Trust.

SECTION 15. The Custodian shall create and maintain all records relating to
its activities and obligations under this Agreement in such manner as will meet
the obligations of the Trust under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable Federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Trust.

Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Trust the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at any reasonable times by officers of,
attorneys for, and auditors employed by, the Trust.

SECTION 16. Nothing contained in this Agreement is intended to or shall
require the Custodian in any capacity hereunder to perform

5
<PAGE> 6
any functions or duties on any holiday or other day of special observance on
which the Custodian is closed. Functions or duties normally scheduled to be
performed on such days shall be performed on, and as of, the next business day
the Custodian is open.

SECTION 17. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of the Custodian, or by the Custodian without the written consent of
the Trust, authorized or approved by a resolution of its Board of Trustees.

IN WITNESS WHEREOF, the Trust and the Custodian have caused this Agreement to
be signed by their respective officers as of the day and year first above
written.

UNION INVESTORS PORTFOLIOS

By: /s/ signature appears here
---------------------------

Attest: /s/ signature appears here
--------------------------

CORESTATES BANK N.A.

By: /s/ signature appears here
---------------------------

Attest: /s/ signature appears here
---------------------------

6
<PAGE> 7
SCHEDULE A

FEE SCHEDULE

Until March 31, 1991 -

1.25 basis points on the first $2 billion

1.00 basis points on the next $2 billion

.50 basis points on amounts over $4 billion

Effective April 1, 1991 -

1.00 basis points on the first $2.5 billion

.75 basis points on the next $2.5 billion

.50 basis points on amounts over $5 billion

Transactions billed separately by portfolio at the now current rates. Asset
level charges billed as one invoice covering all SEI sponsored portfolios
custodied at CoreStates. SEI will allocate charges back to individual
portfolios.

The above rates would apply to month-end balances net of repurchase
agreements.

7
<PAGE> 8
SCHEDULE B

CUSTODY SERVICES

<TABLE>
<CAPTION>
Transaction Fees
<S> <C>
$4.00 Per trade clearing through Depository Trust Company or the U.S.
Treasury book-entry systems of the Philadelphia Federal Reserve.

$15.00 Per trade for assets requiring physical settlement or settlement
at the N.Y. Federal Reserve.

$9.00 Mortgage backed securities-paydowns.

$3.00 Fed wire on collateral.

$5.50/7.50 Other wire transfers in/out.

* $15.00 Conversion of assets eligible for book-entry at the Depository
Trust or Philadelphia Federal Reserve.

* $40.00 Conversion of ineligible for book-entry at the Depository Trust
or Philadelphia Federal Reserve.

* Includes delivery of original asset and receipt of the asset
resulting from the conversion.
</TABLE>

<PAGE> 1

EX-99.B8(b)

CUSTODIAN CONTRACT

This Contract between Stepstone Funds, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658
hereinafter called the "Fund", and State Street Bank and Trust Company a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",

WITNESSETH:

WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and

WHEREAS, the Fund intends to initially offer shares in one (l)
series, the Stepstone international Equity Fund (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");

NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:

1. Employment of Custodian and Property to be Held by It

The Fund hereby employs the Custodian as the custodian of the
assets of the portfolios of the Fund, including securities which the Fund, on
behalf of the applicable Portfolio desires to be held in places within the
United States ("domestic

<PAGE> 2
securities") and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the Declaration of Trust.
The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all
securities and cash of the Portfolios, and all payments of income, payments of
principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be responsible
for any property of a Portfolio held or received by the Portfolio and not
delivered to the Custodian.

Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall on behalf of the applicable Portfolio(s) from
time to time employ one or more sub-custodians, located in the United States
but only in accordance with an applicable vote by the Board of Trustees of the
Fund on behalf of the applicable Portfolio(s), and provided that the Custodian
shall have no more or less responsibility or liability to the Fund on account
of any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.

<PAGE> 3
2. Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian in the United States

2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash
property, to be held by it in the United States including all
domestic securities owned by such Portfolio, other than (a)
securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities
System" and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section
2.10A.

2.2 Delivery of securities. The Custodian shall release and
deliver domestic securities owned by a Portfolio held by the
Custodian or in a Securities System account of the Custodian
or in the Custodian's Direct Paper book entry system account
("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:

1) Upon sale of such securities for the account of
the Portfolio and receipt of payment therefor;

2) Upon the receipt of payment in connection with
any

<PAGE> 4
repurchase agreement related to such securities
entered into by the Portfolio;

3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.10 hereof;

4) To the depository agent in connection with
tender or other similar offers for securities of
the Portfolio;

5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in any
such case, the cash or other consideration is to
be delivered to the Custodian;

6) To the issuer thereof, or its agent, for
transfer into the name of the Portfolio or into
the name of any nominee or nominees of the
Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or
into the name or nominee name of any
sub-custodian appointed pursuant to Article l;
or for exchange for a different number of bonds,
certificates or other evidence representing the
same aggregate face amount or number of units;
provided that, in any such case, the new
securities are to be delivered to the Custodian;

<PAGE> 5
7) Upon the sale of such securities for the account
of the Portfolio, to the broker or its clearing
agent, against a receipt, for examination in
accordance with "street delivery" custom;
provided that in any such case, the Custodian
shall nave no responsibility or liability for
any loss arising from the delivery of such
securities prior to receiving payment for such
securities except as may arise from the
Custodian's own negligence or willful
misconduct;

8) For exchange or conversion pursuant to any plan
of merger, consolidation, recapitalization,
reorganization or readjustment of the securities
of the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit
agreement; provided that, in any such case, the
new securities and cash, if any, are to be
delivered to the Custodian;

9) In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim receipts
or temporary securities for

<PAGE> 6
definitive securities; provided that, in any
such case, the new securities and cash, if any,
are to be delivered to the Custodian;

10) For delivery in connection with any loans of
securities made by the Portfolio, but only
against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the
Fund on behalf of the Portfolio, which may be in
the form of cash or obligations issued by the
United States government, its agencies or
instrumentalities, except that in connection
with any loans for which collateral is to be
credited to the Custodian's account in the
book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will
not be held liable or responsible for the
delivery of securities owned by the Portfolio
prior to the receipt of such collateral;

11) For delivery as security in connection with any
borrowings by the Fund, on behalf of the
Portfolio requiring a pledge of assets by the
Fund on behalf of the portfolio, but only
against receipt of amounts borrowed;

12) For delivery in accordance with the provisions
of any agreement among the Fund on

<PAGE> 7
behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing
Corporation aid of any registered national
securities exchange, or of any similar
organization or organizations, regarding escrow
or other arrangements in connection with
transactions by the Portfolio of the Fund;

13) For delivery in accordance with the provisions
of any agreement among the Fund on behalf of the
Portfolio, the Custodian, and a Futures
Commission Merchant registered under the
Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any
similar organization or organizations, regarding
account deposits in connection with transactions
by the Portfolio of the Fund;

14) Upon receipt of instructions from the transfer
agent ("Transfer Agent") for the Fund, for
delivery to such Transfer Agent or to the
holders of shares in connection with

<PAGE> 8
distributions in kind, as may be described from
time to time in the currently effective
prospectus and statement of additional
information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or
redemption; and

15) For any other proper corporate purpose, but only
upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a
resolution of the Board of Trustees or of the
Executive Committee signed by an officer of the
Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities
of the Portfolio to be delivered, setting forth
the purpose for which such delivery is to be
made, declaring such purpose to be a proper
corporate purpose, and naming the person or
persons to whom delivery of such securities
shall be made.

2.3 Registration of Securities. Domestic securities held by the
Custodian (other than bearer securities) shall be registered
in the name of the Portfolio or in the name of any nominee of
the Fund on behalf of the Portfolio or of any nominee of the
Custodian which nominee shall be assigned exclusively to the
Portfolio, unless the Fund

<PAGE> 9
has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies
having the same investment adviser as the Portfolio, or in the
name or nominee name of any agent appointed pursuant to
Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the
terms of this Contract shall be in "street name" or other good
delivery form. If, however, the Fund directs the Custodian to
maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the
Fund on such securities and to notify the Fund on a best
efforts basis only of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or
exchange offers.

2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the United States in the
name of each Portfolio of the Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for
the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for a Portfolio may be
deposited by it

<PAGE> 10
to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may
in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the
funds to be deposited with each such bank or trust company
shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such
funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in
that capacity.

2.5 Availability of Federal Funds. Upon mutual agreement between
the Fund on behalf of each applicable Portfolio and the
Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund on behalf of a Portfolio, make
federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the
Portfolio's account.

2.6 Collection of Income. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all income
and other payments with respect to registered domestic
securities held hereunder to which each Portfolio shall be
entitled either by law or

<PAGE> 11
pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with
respect to bearer domestic securities if, on the date of
payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income,
as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income
items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder.
Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of
the Fund. The Custodian will have no duty or responsibility
in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the
Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.

2.7 Payment of Fund Monies. Upon receipt of Proper Instructions
from the Fund on behalf of the applicable Portfolio, which may
be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out monies of a Portfolio in
the following cases only:

1) Upon the purchase of domestic securities,
options, futures contracts or options on

<PAGE> 12
futures contracts for the account of the
Portfolio but only (a) against the delivery of
such securities or evidence of title to such
options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking
firm or trust company doing business in the
United States or abroad which is qualified under
the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by
the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in
the name of a nominee of the Custodian referred
to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with
the conditions set forth in section 2.10 hereof;
(c) in the case of a purchase involving the
Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in
the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio and
the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i)
against delivery of the securities either in
certificate form or through an entry

<PAGE> 13
crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by
the Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund
in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the
Fund as defined in Article 5;

2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;

3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;

4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;

<PAGE> 14
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;

6) For payment of the amount of dividends received in respect of
securities sold short;

7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.

2.8 Liability for Pavement in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of a Portfolio is made by
the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian.

2.9 Appointment of Agents. The Custodian may at any time or

<PAGE> 15
times in its discretion appoint (and may at any time remove)
any other bank or trust company which is itself qualified
under the Investment Company Act of 1940, as amended, to act
as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities
or liabilities hereunder.

2.10 Deposit of Fund Assets in Securities Systems. The Custodian
may deposit and/or maintain securities owned by a Portfolio in
a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred
to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:

1) The Custodian may keep securities of the
Portfolio in a Securities System provided that
such securities are represented in an account
("Account") of the Custodian in the Securities
System which shall not include any assets of the
Custodian other than assets held as a fiduciary,
custodian or otherwise

<PAGE> 16
for customers;

2) The records of the Custodian with respect to
securities of the Portfolio which are maintained
in a Securities System shall identify by
book-entry those securities belonging to the
Portfolio;

3) The Custodian shall pay for securities purchased
for the account of the Portfolio upon (i)
receipt of advice from the Securities System
that such securities have been transferred to
the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such
payment and transfer for the account of the
Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio
upon (i) receipt of advice from the Securities
System that payment for such securities has been
transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to
reflect such transfer and payment for the
account of the Portfolio. Copies of all advices
from the Securities System of transfers of
securities for the account of the portfolio
shall identify the Portfolio, be maintained for
the Portfolio by the Custodian and be provided
to the Fund at

<PAGE> 17
its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the
account of the Portfolio in the form of a
written advice or notice and shall furnish to
the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's
transactions in the Securities System for the
account of the Portfolio;

4) The Custodian shall provide the Fund for the
Portfolio with any report obtained by the
Custodian on the Securities System's accounting
system, internal accounting control and
procedures for safeguarding securities deposited
in the Securities System;

5) The Custodian shall have received from the Fund
on behalf of the Portfolio the initial or annual
certificate, as the case may be, required by
Article 14 hereof;

6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable
to the Fund for the benefit of the Portfolio for
any loss or damage to the Portfolio resulting
from use of the Securities System by reason of
any

<PAGE> 18
negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its
or their employees or from failure of the
Custodian or any such agent to enforce
effectively such rights as it may have against
the Securities System; at the election of the
Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any
claim against the Securities System or any other
person which the Custodian may have as a
consequence of any such loss or damage if and to
the extent that the Portfolio has not been made
whole for any such loss or damage.

2.10A Fund Assets Held in the Custodian's Direct Paper System The
Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject
to the following provisions:

1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions from the Fund on
behalf of the Portfolio;

2) The Custodian may keep securities of the
Portfolio in the Direct Paper System only if
such securities are represented in an account
("Account") of the Custodian in the Direct Paper
System which shall not include any

<PAGE> 19
assets of the custodian other than assets held
as a fiduciary, custodian or otherwise for
customers;

3) The records of the Custodian with respect to
securities of the Portfolio which are maintained
in the Direct paper System shall identify by
book-entry those securities belonging to the
Portfolio;

4) The Custodian shall pay for securities purchased
for the account of the Portfolio upon the making
of an entry on the records of the Custodian to
reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian
shall transfer securities sold for the account
of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such
transfer and receipt of payment for the account
of the Portfolio;

5) The Custodian shall furnish the Fund on behalf
of the Portfolio confirmation of each transfer
to or from the account of the Portfolio, in the
form of a written advice or notice, of Direct
Paper on the next business day following such
transfer and shall furnish to the Fund on behalf
of the Portfolio copies of daily transaction
sheets reflecting each

<PAGE> 20
day's transaction in the Securities System for
the account of the portfolio;

6) The Custodian shall provide the Fund on behalf
of the Portfolio with any report on its system
of internal accounting control as the Fund may
reasonably request from time to time.

2.11 Segregated Account. The Custodian shall upon receipt of
Proper Instructions from the Fund on behalf of each applicable
Portfolio establish and maintain a segregated account or
accounts for and on behalf of each such Portfolio, into which
account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio, (ii) for
purposes of segregating cash or government securities in
connection

<PAGE> 21
with options purchased, sold or written by the Portfolio or
commodity futures contracts or options thereon purchased or
sold by the portfolio, (iii) for the purposes of compliance by
the Portfolio with the procedures required by investment
Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange commission relating to
the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be
proper corporate purposes.

2.12 Ownership Certificates For Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt
of income or other payments with respect to domestic
securities of each Portfolio held by it and in connection with
transfers of securities.

2.13 Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if

<PAGE> 22
the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to
be voted, and shall promptly deliver to the portfolio such
proxies, all proxy soliciting materials and all notices
relating to such securities.

2.14 Communications Relating to Portfolio Securities Subject to the
provisions of section 2.3, the Custodian shall transmit
promptly to the Fund for each Portfolio all written
information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call
and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the
securities being held for the Portfolio. With respect to
tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by
the Custodian from issuers of the securities whose tender or
exchange is sought and from the party (or his agents) making
the tender or exchange offer. If the Portfolio desires to
take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify
the Custodian at least three business days prior to the date
on which the Custodian is to take such action.

<PAGE> 23
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States

3.1 Appointment of Foreign Sub-Custodians

The Fund hereby authorizes and instructs the Custodian to
employ as sub-custodians for the Portfolio's securities and
other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories
designated on schedule A hereto ("foreign sub-custodians").
Upon receipt of "Proper Instructions", as defined in Section 5
of this Contract, together with a certified resolution of the
Fund's Board of Trustees, the Custodian and the Fund may agree
to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper
Instructions the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for
maintaining custody of the Portfolio's assets.

3.2 Assets to be Held. The Custodian shall limit the securities
and other assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities", as defined in
paragraph (c) (l) of Rule 17f-5 under the Investment Company
Act of 1940, and (b) cash and cash equivalents in such amounts
as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as
belonging to the

<PAGE> 24
Fund, the foreign securities of the Fund held by each foreign
sub-custodian.

3.3 Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Custodian and the Fund, assets
of the Portfolios shall be maintained in foreign securities
depositories only through arrangements implemented by the
foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing
the provisions set forth in Section 3.4 hereof.

3.4 Agreements with Foreign Banking Institutions. Each agreement
with a foreign banking institution shall be substantially in
the form set forth in Exhibit 1 hereto and shall provide that:
(a) the assets of each Portfolio will not be subject to any
right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment
of money or value other than for custody or administration;
(c) adequate records will be maintained identifying the assets
as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the
Custodian, including to the extent permitted under applicable
law the independent

<PAGE> 25
public accountants for the Fund, will be given access to the
books and records of the foreign banking institution relating
to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or
its agents.

3.5 Access of Independent Accountants of the Fund. Upon request
of the Fund, the Custodian will use its best efforts to
arrange for the independent accountants of the Fund to be
afforded access to the books and records of any foreign
banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of
such foreign banking institution under its agreement with the
Custodian.

3.6 Reports by Custodian. The Custodian will supply to the Fund
from time to time, as mutually agreed upon, statements in
respect of the securities and other assets of the Portfolio(s)
held by foreign sub-custodians, including but not limited to
an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or
notifications of any transfers of securities to or from each
custodial account maintained by a foreign banking institution
for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such
securities.

<PAGE> 26
3.7 Transactions in Foreign Custody Account

(a) Except as otherwise provided in paragraph (b) of this
Section 3.7, the provision of Sections 2.2 and 2.7 of this
Contract shall apply, mutatis mutandis to the foreign
securities of the Fund held outside the United States by
foreign sub-custodians.

(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for
the account of each applicable Portfolio and delivery of
securities maintained for the account of each applicable
portfolio may be effected in accordance with the customary
established securities trading or securities processing
practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.

(c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such
securities.

3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant
to which the Custodian employs a foreign banking

<PAGE> 27
institution as a foreign sub-custodian shall require the
institution to exercise reasonable care in the performance of
its duties and to indemnify, and hold harmless, the Custodian
and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the
institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims against
a foreign banking institution as a consequence of any such
loss, damage, cost, expense, liability or claim if and to the
extent that the Fund has not been made whole for any such
loss, damage, cost, expense, liability or claim.

3.9 Liability of Custodian. The Custodian shall be liable for the
acts or omissions of a foreign banking institution to the same
extent as set forth with respect to sub-custodians generally
in this Contract and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.12 hereof, the Custodian shall not
be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph
3.9, in delegating

<PAGE> 28
custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or
insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses
under circumstances where the Custodian and State street
London Ltd. have exercised reasonable care.

3.10 Reimbursement for Advances. If the Fund requires the
Custodian to advance cash or securities for any purpose for
the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of
the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of
such Portfolios assets to the extent

<PAGE> 29
necessary to obtain reimbursement.

3.11 Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June, information
concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and
scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian
learns of a material adverse change in the financial condition
of a foreign sub-custodian or any material loss of the assets
of the Fund or in the case of any foreign sub-custodian not
the subject of an exemptive order from the Securities and
Exchange Commission is notified by such foreign sub-custodian
that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S.
dollars or the equivalent thereof) or that its shareholders
equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting
principles).

3.12 Branches of U.S. Banks

(a) Except as otherwise set forth in this Contract, the
provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a
banking institution which is a "bank" as defined by Section
2(a) (5) of the Investment Company Act of 1940 meeting the
qualification set forth in section 26(a) of

<PAGE> 30
said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph l of this
Contract.

(b) Cash held for each Portfolio of the Fund in the
United Kingdom shall be maintained in an interest bearing
account established for the Fund with the Custodian's London
branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.

3.13 Tax Law

The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the
Custodian as Custodian of the Fund by the tax law of the
United States of America or any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify
the Custodian of the obligations imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of
jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law
of jurisdictions for which the Fund has provided such
information.

4. Payments for Sales or Repurchases or Redemptions of

<PAGE> 31
Shares of the Fund

The Custodian shall receive from the distributor for the
Shares or from the Transfer Agent of the Fund and deposit into the account of
the appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund on behalf of each such Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of such
Portfolio.

From such funds as may be available for the purpose but
subject to the limitations of the Declaration of Trust and any applicable votes
of the Board of Trustees of the Fund pursuant thereto, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of a Portfolio, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or
through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.

5. Proper Instructions

<PAGE> 32
Proper Instructions as used throughout this Contract means a
writing signed or initialled by one or more person or persons as the Board of
Trustees shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause
all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which
requires a segregated asset account in accordance with Section 2.11.

6. Actions Permitted without Express Authority The Custodian may
in its discretion, without express authority from the Fund on
behalf of each applicable Portfolio:

1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its

<PAGE> 33
duties under this Contract, provided that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;

2) surrender securities in temporary form for securities in
definitive form;

3) endorse for collection, in the name of the Portfolio,
checks, drafts and other negotiable instruments; and

4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as otherwise
directed by the Board of Trustees of the Fund.

7. Evidence of Authority

The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.

8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income

The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of

<PAGE> 34
Trustees of the Fund to keep the books of account of each Portfolio and/or
compute the net asset value per share of the outstanding shares of each
portfolio or, if directed in writing to do so by the Fund on behalf of the
Portfolio, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate
daily the net income of the Portfolio as described in the Fund's currently
effective prospectus related to such Portfolio and shall advise the Fund and
the Transfer Agent daily of the total amounts of such net income and, if
instructed in writing by an officer of the Fund to do so, shall advise the
Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described
from time to time in the Fund's currently effective prospectus related to such
Portfolio.

9. Records

The Custodian shall with respect to each Portfolio create and
maintain all records relating to its activities and obligations under this
Contract in such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940 with particular attention to Section 31 thereof
and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property
of the Fund and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian

<PAGE> 35
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.

10. Opinion of Fund's Independent Accountant

The Custodian shall take all reasonable action, as the Fund on
behalf of each applicable Portfolio may from time to time request, to obtain
from year to year favorable opinions from the Fund's independent accountants
with respect to its activities hereunder in connection with the preparation of
the Fund's Form N1A, and Form N-SAR or other annual reports to the Securities
and Exchange Commission and with respect to any other requirements of such
Commission.

11. Reports to Fund by Independent Public Accountants

The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so

<PAGE> 36
state.

12. Compensation of Custodian

The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to time
between the Fund on behalf of each applicable Portfolio and the Custodian.

13. Responsibility of Custodian

So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title, validity
or genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall
be entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.

The Custodian shall be liable for the acts or omissions of a
foreign banking institution appointed pursuant to the provisions of Article 3
to the same extent as set forth in

<PAGE> 37
Article 1 hereof with respect to sub-custodians located in the United States
(except as specifically provided in Article 3.9) and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.12 hereof, the Custodian shall not be liable for any loss, damage,
cost, expense, liability or claim resulting from, or caused by, the direction
of or authorization by the Fund to maintain custody or any securities or cash
of the Fund in a foreign country including, but not limited to, losses
resulting from nationalization, expropriation, currency restrictions, or acts
of war or terrorism.

If the Fund on behalf of a Portfolio requires the Custodian to
take any action with respect to securities, which action involves the payment
of money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.

If the Fund requires the Custodian, its affiliates,
subsidiaries or agents, to advance cash or securities for any purpose
(including but not limited to securities settlements, foreign exchange
contracts and assumed settlement) for the benefit of a Portfolio including the
purchase or sale of foreign exchange or of contracts for foreign exchange or in
the event

<PAGE> 38
that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of
such Portfolio's assets to the extent necessary to obtain reimbursement.

14. Effective period, Termination and Amendment This Contract
shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of
the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or
mailing; provided, however that the Custodian shall not with
respect to a Portfolio act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary
or an Assistant Secretary that the Board of Trustees of the
Fund has approved the initial use of a particular Securities
System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that
the Board of Trustees has

<PAGE> 39
reviewed the use by such Portfolio of such Securities System,
as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall
not with respect to a Portfolio act under Section 2.10A hereof
in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees
has approved the initial use of the Direct Paper System by
such Portfolio and the receipt of an annual certificate of the
Secretary or an Assistant Secretary that the Board of Trustees
has reviewed the use by such Portfolio of the Direct Paper
System; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of
the Declaration of Trust, and further provided, that the Fund
on behalf of one or more of the portfolios may at any time by
action of its Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described
above to the Custodian,or (ii) immediately terminate this
Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency
or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent
jurisdiction.

Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such

<PAGE> 40
compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.

15. Successor Custodian

If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.

If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy of a vote of
the Board of Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.

In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by

<PAGE> 41
the Custodian on behalf of each applicable Portfolio and all instruments held
by the Custodian relative thereto and all other property held by it under this
Contract on behalf of each applicable Portfolio and to transfer to an account
of such successor custodian all of the securities of each such Portfolio held
in any Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.

In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.

16. Interpretive and Additional Provisions

In connection with the operation of this Contract, the
Custodian and the Fund on behalf of each of the Portfolios, may from time to
time agree on such provisions interpretive of or in addition to the provisions
of this Contract as may in their joint opinion be consistent with the general
tenor of this Contract. Any such interpretive or additional provisions shall be
in a writing signed by both parties and shall be annexed hereto provided that
no such interpretive or additional provisions shall

<PAGE> 42
contravene any applicable federal or state regulations or any provision of the
Declaration of Trust of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment
of this Contract.

17. Additional Funds

In the event that the Fund establishes one or more series of
Shares in addition to the Stepstone International Equity Fund with respect to
which it desires to have the Custodian render services as custodian under the
terms hereof, it shall so notify the Custodian in writing, and if the Custodian
agrees in writing to provide such services, such series of Shares shall become
a Portfolio hereunder.

18. Massachusetts Law to Apply

This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.

19. Prior contracts

This contract supersedes and terminates, as of the date
hereof, all prior contracts between the Fund on behalf of each of the
Portfolios and the Custodian relating to the custody of the Fund's assets.

20. Shareholder Communications Election

Securities and Exchange Commission Rule 14b-2 requires banks
which hold securities for the account of customers to respond to requests by
issuers of securities for the names, addresses and holdings of beneficial
owners of securities of that

<PAGE> 43
issuer held by the bank unless the beneficial owner has expressly objected to
disclosure of this information. In order to comply with the rule, the
Custodian needs the Fund to indicate whether it authorizes the Custodian to
provide the Fund's name, address, and share position to requesting companies
whose securities the Fund owns. If the Fund tells the Custodian "no", the
Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below,
the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any
funds or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consents or objects by checking one of the alternatives below.

YES / / The Custodian is authorized to release the
Fund's name, address, and share positions.

NO / / The Custodian is not authorized to release the
Fund's name, address, and share positions.

IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as

<PAGE> 44
of the _____________ day of ____________________, 199___.

ATTEST: STEPSTONE FUNDS

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

By
-------------------------------

ATTEST STATE STREET BANK AND TRUST COMPANY

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

By
-------------------------------

<PAGE> 45
Schedule A

The following foreign banking institutions and foreign
securities depositories have been approved by the Board of Trustees of
Stepstone Funds for use as sub-custodians for the Fund's securities and other
assets:

(Insert banks and securities depositories)

Certified:

- ----------------------------------
Fund's Authorized Officer

Date:
------------------

<PAGE> 46
EXHIBIT I

SUB-CUSTODIAN AGREEMENT

AGREEMENT made this day of _______________, 19____, between
State Street Bank and Trust Company, a massachusetts Trust Company (hereinafter
referred as the "Custodian"), having its principal place of business at 225
Franklin Street, Boston, MA, and (hereinafter referred to as the
"Subcustodian"), _________________ organized under the laws of
__________________ and having an office at _____________________________.

WHEREAS, Custodian has been appointed to act as Trustee,
Custodian or Subcustodian of securities and monies on behalf of certain of its
customers including, without limitation, collective investment undertakings,
investment companies subject to the U.S. Investment Company Act of 1940, as
amended, and employee benefit plans subject to the U.S. Employee Retirement
Income Security Act of 1974, as amended;

WHEREAS, Custodian wishes to establish Account (the "Account")
with the Subcustodian to hold and maintain certain property for which Custodian
is responsible as custodian; and

WHEREAS, Subcustodian agrees to establish the Account and to
hold and maintain all Property in the Account in accordance with the terms and
conditions herein set forth.

<PAGE> 47
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the Custodian and the Subcustodian agree as
follows:

I. The Account

A. Establishment of the Account. Custodian hereby
requests that Subcustodian establish for each client of the Custodian an
Account which shall be composed of:

1. A Custody Account for any and all Securities (as hereinafter
defined) from time to time received by Subcustodian therefor, and

2. A Deposit Account for any and all Cash (as hereinafter
defined) from time to time received by Subcustodian therefor.

B. Use of the Account. The Account shall be used exclusively to hold,
acquire, transfer or otherwise care for, on behalf of Custodian as custodian
and the customers of Custodian and not for Custodian's own interest, Securities
and such Cash or cash equivalents as are transferred to Subcustodian or as are
received in payment of any transfer of, or as payment on, or interest on, or
dividend from, any such Securities (herein collectively called "Cash").

C. Transfer of Property in the Account. Beneficial ownership of
the Securities and cash in the Account shall be freely

<PAGE> 48
transferable without payment of money or value other than for safe custody and
administration.

D. Ownership and Segregation of Property in the Account. The
ownership of the property in the Account, whether SecuritieS, Cash or both, and
whether any such property is held by Subcustodian in an Eligible Depository
shall be clearly recorded on Subcustodian's books as belonging to Custodian on
behalf of Custodian's customers, and not for Custodian's own interest and, to
the extent that Securities are physically held in the Account. such Securities
shall also be physically segregated from the general assets of Subcustodian,
the assets of Custodian in its individual capacity and the assets of
Subcustodian's other customers. In addition, Subcustodian shall maintain such
other records as may be necessary to identify the property hereunder as
belonging to each Account.

E. Registration of Securities in the Account. Securities which
are eligible for deposit in a depository as provided for in Paragraph III may
be maintained with the depository in an account for Subcustodian's customers.
Securities which are not held in a depository and that are ordinarily held in
registered form will be registered in the name of Subcustodian or in the name
of Subcustodian's nominee unless alternate instructions are furnished by
Custodian.

II. Services to Be Provided By the Subcustodian

<PAGE> 49
The services Subcustodian will provide to Custodian and the
manner in which such services will be performed will be as set forth below in
this Agreement.

A. Services Performed Pursuant to Instructions.

All transactions involving the Securities and Cash in the Account shall be
executed solely in accordance with Custodian'S Instructions as that term is
defined in Paragraph IV hereof, except those described in paragraph B below.

B. Services to Be Performed Without Instructions.

Subcustodian will, unless it receives Instructions from Custodian to the
contrary:

1. Collect Cash. Promptly collect and receive all dividends,
income, principal, proceeds from transfer and other payments with respect to
property held in the Account, and present for payment all Securities held in
the Account which are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment upon
presentation. and credit Cash receipts therefrom to the Deposit Account.

2. Exchange Securities. Promptly exchange Securities where the
exchange is purely ministerial including, without limitation, the exchange of
temporary Securities for those in definitive form and the exchange of warrants,
or other documents of entitlement to Securities, for the Securities themselves.

3. Sale of Rights and Fractional Interests. Whenever

<PAGE> 50
notification of a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend or stock split is received for the Account and
such rights entitlement or fractional interest bears an expiration date.
subcustodian will promptly endeavor to obtain Custodian's Instructions, but
should these not be received in time for Subcustodian to take timely action,
Subcustodian is authorized to sell such rights entitlement or fractional
interest and to credit the Account.

4. Execute Certificates. Execute in Custodian's name for the
Account, whenever Subcustodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income from the
Securities held in the account.

5. Pay Taxes and Receive Refunds. To pay or cause to be paid
from the Account any and all taxes and levies in the nature of taxes imposed on
the property in the Account by any governmental authority, and to take all
steps necessary to obtain all tax exemptions, privileges or other benefits,
including reclaiming and recovering any foreign withholding tax, relating to
the Account and to execute any declaration, affidavits, or certificates of
ownership which may be necessary in connection therewith.

6. Prevent Losses. Take such steps as may be reasonably necessary
to secure or otherwise prevent the loss of, entitlement attached to or
otherwise relating to property held in the Account.

C. Additional Services.

<PAGE> 51
1. Transmission of Notices of Corporate Action. By such means as
will permit Custodian to take timely action with respect thereto, Subcustodian
will promptly notify Custodian upon receiving notices or reports, or otherwise
becoming aware, of corporate action affecting Securities held in the Account
(including, but not limited to, calls for redemption, mergers, consolidations,
reorganizations, recapitalizations, tender offers, rights offerings, exchanges,
subscriptions and other offerings) and dividend, interest and other income
payments relating to such Securities.

2. Communications Regarding the Exercise of Entitlement. Upon
request by Custodian, Subcustodian will promptly deliver, or cause any Eligible
Depository authorized and acting hereunder to deliver, to Custodian all
notices, proxies, proxy soliciting materials and other communications that call
for voting or the exercise of rights or other specific action (including
material relative to legal proceedings intended to be transmitted to security
holders) relating to Securities held in the Account to the extent received by
Subcustodian or said Eligible Depository, such proxies or any voting
instruments to be executed by the registered holder of the Securities, but
without indicating the manner in which such Securities are to be voted.

3. Monitor Financial Service. In furtherance of its obligations
under this Agreement, Subcustodian will monitor a leading financial service
with respect to announcements and other information respecting property held
in the Account, including announcements and other information with respect to
corporate

<PAGE> 52
actions and dividend, interest and other income payments.

III. Use of Securities Depository Subcustodian may, with the prior
written approval of Custodian, maintain all or any part of the Securities in
the Account with a securities depository or clearing agency which is
incorporated or organized under the laws of a country other than the United
States of America and is supervised or regulated by a government agency or
regulatory authority in _____________________, the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the
central system for handling of designated securities or equivalent book entries
in __________________, or (b) a transnational system for the central handling
of securities or equivalent book entries (herein called "Eligible Depository"),
provided however, that, while so maintained, such Securities shall be subject
only to the directions of Subcustodian, and that Subcustodian duties,
obligations and responsibilities with regard to such Securities shall be the
same as if such Securities were held by Subcustodian on its premises.

IV. Claims Against Property in the Account The property in the
account shall not be subject to any right, charge, security
interest, lien or claim of any kind (collectively "Charges")
in favor of Subcustodian or any Eligible Depository or any
creditor of Subcustodian or of any Eligible Depository except
a claim for payment for such property's safe custody or
administration in accordance with the terms of this Agreement.
Subcustodian will immediately notify Custodian

<PAGE> 53
of any attempt by any party to assert any Charge against the
property held in the Account and shall take all lawful actions
to protect such property from such Charges until Custodian has
had a reasonable time to respond to such notice.

V. Subcustodian's Warranty

Subcustodian represents and warrants that:

(A) It is a branch of a "qualified U.S. bank" or an
"eligible foreign custodian" as those terms are defined in Rule 17f-5 of the
investment Company Act of 1940, a copy of which is attached hereto as
Attachment A (the "Rule"), and Subcustodian shall immediately notify Custodian,
in writing or by either authorized means, in the event that there appears to be
a substantial likelihood that Subcustodian will cease to qualify under the Rule
as currently in effect or as hereafter amended, or

(B) It is the subject of an exemptive order issued by the
United States Securities and Exchange Commission which order permits Custodian
to employ Subcustodian notwithstanding the fact that Subcustodian fails to
qualify under the terms of the Rule, and Subcustodian shall immediately notify
Custodian, in writing or by other authorized means, if for any reason it is no
longer covered by such exemptive order.

<PAGE> 54
Upon receipt of any such notification required under (A) or (B) of this
section, Custodian may terminate this Agreement immediately without prior
notice to subcustodian.

VI. Definitions

A. Instructions. The term "Instructions" means:

1. instructions in writing signed by authorized
individuals designated as such by Custodian;

2. telex or tested telex instructions of Custodian;

3. other forms of instructions in computer readable form
as shall customarily be used for the transmission of like information, and

4. such other forms of communication as from time to
time may be agreed upon by Custodian and Subcustodian, which Subcustodian
believes in good faith to have been given by Custodian or which are transmitted
with proper testing or authentication pursuant to terms and conditions which
Custodian may specify.

Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,

<PAGE> 55
fraud, bad faith, willful misconduct, or reckless disregard of duties on the
part of Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practice

B. Account. The term "Account" means collectively the Custody Account, and
the Deposit Account.

C. Securities. The term "Securities" includes, without limitation, stocks,
shares, bonds, debentures, debt securities (convertible or non-convertible),
notes, or other obligations or securities and any certificates, receipts,
futures contracts, foreign exchange contracts, options, warrants, scrip or
other instruments representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests therein, or
in any property or assets.

VII. Miscellaneous Provisions

A. Statements Regarding the Account. Subcustodian will
supply Custodian with such statements regarding the Account as Custodian may
request, including the identity and location of any Eligible Depository,
authorized and acting hereunder. In addition, Subcustodian will supply
Custodian an advice or notification of any transfers of Securities to or from
the Account indicating, as to Securities acquired for the Account, if
applicable. the Eligible Depository having physical possession of

<PAGE> 56
such Securities.

B. Examination of Books and Records. Subcustodian agrees that its
books and records relating to the Account and Subcustodian's actions under this
Agreement shall be open to the physical, on-premises inspection and audit at
reasonable times by officers of, auditors employed by or other representatives
of Custodian including (to the extent permitted under the law of
_______________) the independent public accountants for any customer of
Custodian whose property is being held hereunder and such books and records
shall be retained for such period as shall be agreed upon by Custodian and
Subcustodian.

As Custodian may reasonably request from time to time, Subcustodian will
furnish its auditor's reports on its system of internal controls, and
Subcustodian will use its best efforts to obtain and furnish similar reports of
any Eligible Depository authorized and acting hereunder.

C. Standard of Care. In holding, maintaining, servicing and
disposing of Property under this Agreement, and in fulfilling any other
obligations hereunder, Subcustodian shall exercise the same standard of care
that it exercises over its own assets, provided that Subcustodian shall
exercise at least the degree of care and maintain adequate insurance as
expected of a prudent professional Subcustodian for hire and shall assume the
burden of proving that it has exercised such care in its maintenance of
Property held by

<PAGE> 57
Subcustodian in its Account. The maintenance of the Property in an Eligible
Depository shall not affect Subcustodian's standard of care, and Subcustodian
will remain as fully responsible for any loss or damage to such securities as
if it had itself retained physical possession of them. Subcustodian shall also
indemnify and hold harmless Custodian and each of Custodian's customers from
and against any loss, damage, cost, expense, liability or claim (including
reasonable attorney's fees) arising out of or in connection with the improper
or negligent performance or the non-performance of the duties of Subcustodian.

Subcustodian shall be responsible for complying with all provisions of the law
of ____________________, or any other law, applicable to Subcustodian in
connection with its duties hereunder, including (but not limited to) the
payment of all transfer taxes or other taxes and compliance with any currency
restrictions and securities laws in connection with its duties as Subcustodian.

D. Loss of Cash or Securities. Subcustodian agrees that, in the
event of any loss of Securities or Cash in the Account, Subcustodian will use
its best efforts to ascertain the circumstances relating to such loss and will
promptly report the same to Custodian and shall use every legal means available
to it to effect the quickest possible recovery.

E. Compensation of Subcustodian. Custodian agrees to pay to

<PAGE> 58
Subcustodian from time to time such compensation for its services and such
out-of-pocket or incidental expenses of Subcustodian pursuant to this Agreement
as may be mutually agreed upon in writing from time to time.

F. Operating Requirements. The Subcustodian agrees to follow
such Operating Requirements as the Custodian may establish from time to time. A
copy of the current operating Requirements is attached as Attachment B to this
Agreement.

G. Termination. This Agreement may be terminated by
Subcustodian or Custodian on 60 days' written notice to the other party, sent
by registered mail, provided that any such notice, whether given by
Subcustodian or Custodian, shall be followed within 60 days by Instructions
specifying the names of the persons to whom Subcustodian shall deliver the
Securities in the Account and to whom the Cash in the account shall be paid.
If within 60 days following the giving of such notice of termination,
Subcustodian does not receive such Instructions, Subcustodian shall continue
to hold such Securities and Cash subject to this Agreement until such
Instructions are given. The obligations of the parties under this Agreement
shall survive the termination of this Agreement.

G. Notices. Unless otherwise specified in this Agreement, all
notices and communications with respect to matters contemplated by this
Agreement shall be in writing, and delivered by mail,

<PAGE> 59
postage prepaid, telex, SWIFT, or other mutually agree telecommunication
methods to the following addresses (or to such other address as either party
hereto may from time to time designate by notice duly given in accordance with
this paragraph):

To Subcustodian:

To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, MA 02105

H. Confidentiality. Subcustodian and Custodian shall each use
its best efforts to maintain the confidentiality of the property in the Account
and the beneficial owners thereof, subject, however, to the provisions of any
laws, requiring disclosure. In addition, Subcustodian shall safeguard any test
keys, identification codes or other security devices which Custodian shall make
available to it. The Subcustodian further agrees it will not disclose the
existence of this Agreement or any current business relationship unless
compelled by applicable law or regulation or unless it has secured the
Custodian' s written consent.

I. Assignment. This Agreement shall not be assignable by either
party but shall bind any successor in interest of Custodian and Subcustodian
respectively.

<PAGE> 60
J. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of___________________. To the extent
inconsistent with this Agreement or Custodian's Operating Requirements as
attached hereto, Subcustodian's rules and conditions regarding accounts
generally or custody accounts specifically shall not apply.

CUSTODIAN STATE STREET BANK AND TRUST COMPANY

By:
-----------------------------

Date:
---------------------------

AGREED TO BY THE SUBCUSTODIAN

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

By:
-----------------------------

Date:
---------------------------

<PAGE> 1

EX-99.B9

ADMINISTRATION AGREEMENT

UNION INVESTORS FUNDS

THIS AGREEMENT is made as of this 30th day of January, 1991, by and
between Union Investors Portfolios (the "Trust"), a Massachusetts business
trust, and SEI Financial Management Corporation (the "Administrator"), a
Delaware corporation.

WHEREAS, the Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and

WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide management, administrative, transfer agent
and shareholder servicing services to the Trust's Money Market, Treasury Money
Market, California Tax Free Money Market, Intermediate Term Bond, Balanced,
Growth Equity, Value Momentum and such other portfolios as the Trust and the
Administrator may agree on ("Portfolios"), on the terms and conditions
hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:

ARTICLE 1. Retention of the Administrator. The Trust hereby retains
the Administrator to act as the Administrator and Shareholder Servicing Agent
of the Portfolios and to furnish the Portfolios with the management,
administrative, transfer agent and shareholder servicing services as set forth
below. The Administrator hereby accepts such employment to perform the duties
set forth below.

The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust. All of the Administrator's duties shall
be subject always to the objectives, policies and restrictions contained in the
Trust's current registration statement under the 1940 Act, to the Trust's
Declaration of Trust and By-Laws, to the provisions of the 1940 Act, and to any
other guidelines that may be established by the Trust's Trustees.

The Administrator shall calculate the daily net asset value of the
Portfolios in accordance with the procedures prescribed in the Trust's
Registration Statement and such other procedures as may be established by the
Trustees of the Trust.

1
<PAGE> 2
ARTICLE 2. Transfer Agent Services. The Administrator will act as
Transfer Agent for the Portfolios' institutional accounts and, as such, will
record in an account (the "Account") the total number of units of beneficial
interest ("Shares") of each Portfolio issued and outstanding from time to time
and will maintain Share transfer records in which it will note the names and
registered addresses of Shareholders, and the number of Shares from time to
time owned by each of them. Each Shareholder will be assigned one or more
account numbers.

The Administrator is authorized to set up accounts and record
transactions in the accounts on the basis of instructions received from
Shareholders when accompanied by remittance in appropriate amount as provided
in the Trust's then current prospectus. The Trust will not issue certificates
representing its Shares. Whenever Shares are purchased or issued, the
Administrator shall credit the Account with the Shares issued, and credit the
proper number of Shares to the appropriate Shareholder.

Likewise, whenever the Administrator has occasion to redeem Shares
owned by a Shareholder, the Trust authorizes the Administrator to process the
transaction by making appropriate entries in its Share transfer records and
debiting the Account.

Upon receipt by the Trust's Custodian on behalf of the Administrator
of funds through the Federal Reserve wire system or conversion into Federal
funds of funds transmitted by other means for the purchase of Shares in
accordance with the Trust's current prospectus, the Administrator shall notify
the Trust of such deposits on a daily basis.

The Administrator shall credit the Shareholder's account with the
number of units purchased according to the price of the Shares in effect for
such purchases determined in the manner set forth in the Trust's then current
prospectus. The Administrator shall process each order for the redemption of
Shares from or on behalf of a Shareholder, and shall cause cash proceeds to be
wired in Federal funds.

The requirements as to instruments of transfer and other
documentation, the applicable redemption price and the time of payment shall be
as provided in the then current prospectus, subject to such supplemental
requirements consistent with such prospectus as may be established by mutual
agreement between the Trust and Administrator.

If the Administrator or the Trust determines that a request for
redemption does not comply with the requirements for redemption, the
Administrator shall promptly so notify the Shareholder, together with the
reason therefor, and shall effect such redemption at the price next determined
after receipt of documents complying with said standards.

2
<PAGE> 3
On each day that the Trust's Custodian and the New York Stock Exchange
are open for business ("Business Day"), the Administrator shall notify the
Custodian of the amount of cash or other assets required to meet payments made
pursuant to the provisions of this paragraph, and the Trust shall instruct the
Custodian to make available from time to time sufficient funds or other assets
therefore.

The authority of the Administrator to perform its responsibilities
under this paragraph shall be suspended upon receipt by it of notification from
the Securities and Exchange Commission or the Trustees of the suspension of the
determination of the Trust's net asset value.

In registering transfers, the Administrator may rely upon the opinion
of counsel in not requiring complete documentation, in registering transfers
without inquiry into adverse claims, in delaying registration for purposes of
such inquiry, or in refusing registration where in its judgment an adverse
claim requires such refusal.

The Trust warrants that it has or shall deliver to the Administrator,
as transfer agent:

(a) a copy of the Declaration of Trust of the Trust, incorporating
all amendments thereto, certified by the Secretary or
Assistant Secretary of the Trust;

(b) an opinion of counsel to the Trust with respect to (i) the
legality and continuing existence of the Trust, (ii) the
legality of its outstanding Shares of beneficial interest, and
(iii) the number of Shares authorized for issuance and stating
that upon issuance they will be validly issued and
non-assessable; and

(c) the Trust's Secretary's or Assistant Secretary's certificate
as to the authorized outstanding Shares of the Trust, its
address to which notices may be sent, the names and specimen
signatures of its officers who are authorized to sign
instructions or requests to the Administrator on behalf of the
Trust, and the name and address of legal counsel to the Trust.
In the event of any future amendment or change in respect of
any of the foregoing, prompt written notification of such
change shall be given by the Trust to the Administrator,
together with copies of all relevant resolutions, instruments
or other documents, specimen signatures, certificates,
opinions or the like as the Administrator may deem necessary
or appropriate.

3
<PAGE> 4
ARTICLE 3. Dividend Disbursing Agent. The Administrator shall act as
Dividend Disbursing Agent for the Trust's institutional accounts and, as such,
in accordance with the provisions of the Trust's Declaration of Trust and then
current prospectus, shall prepare and wire or credit income and capital gains
distributions to Shareholders.

The Trust agrees that it shall promptly inform the Administrator of
the declaration of any dividend or distribution on its Shares, and that on or
before the payment date of a distribution, it shall instruct the Custodian to
make available, at the instruction of the Dividend Disbursing Agent, sufficient
funds for the cash amount to be paid out. If a Shareholder is entitled to
receive additional Shares by virtue of any such distribution or dividend,
appropriate credits will be made to the Shareholder's account.

ARTICLE 4. Other Administrative Services. In addition to the
services described above, the Administrator shall perform or supervise the
performance by others of other administrative services in connection with the
operations of the Portfolios, and, on behalf of the Trust, will investigate,
assist in the selection of and conduct relations with custodians, depositories,
accountants, underwriters, brokers and dealers, corporate fiduciaries,
insurers, banks and persons in any other capacity deemed to be necessary or
desirable for the Portfolios' operation.

The Administrator shall provide the Trust with regulatory reporting,
fund accounting and related portfolio accounting services, all necessary office
space, equipment, personnel compensation and facilities (including facilities
for Shareholders' and Trustees' meetings) for handling the affairs of the
Portfolios and such other services as the Administrator shall, from time to
time, determine to be necessary to perform its obligations under this
Agreement.

The Administrator shall make reports to the Trust's Trustees
concerning the performance of its obligations hereunder; furnish advice and
recommendations with respect to other aspects of the business and affairs of
the Portfolios as the Trust shall determine desirable; and shall provide the
Portfolios' Shareholders with the reports described in the Trust's current
prospectus.

Also, the Administrator will perform other services for the Trust as
agreed from time to time, including, but not limited to, preparation and
mailing of appropriate federal income tax forms; mailing the annual reports of
the Trust; preparing an annual list of Shareholders; furnishing the Trust with
such reports regarding the sale and redemption of Shares as may be required in
order to comply with federal and state securities law; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the
Trust will pay the Administrator's out-of-pocket expenses.

4
<PAGE> 5
ARTICLE 5. Allocation of Charges and Expenses.

(A) The Administrator. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel
necessary to perform its obligations under this Agreement.
The Administrator shall also provide the items which it is
obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all
Trustees of the Trust who are affiliated persons of the
Administrator or any affiliated corporation; provided,
however, that unless otherwise specifically provided, the
Administrator shall not be obligated to pay the compensation
of any employee of the Trust retained by the Trustees of the
Trust to perform services on behalf of the Trust.

(B) The Trust. The Trust assumes and shall pay or cause to be
paid all other expenses of the Trust not otherwise allocated
herein, including, without limitation, organizational costs,
taxes, expenses for legal and auditing services, the expenses
of preparing (including typesetting), printing and mailing
reports, prospectuses, statements of additional information,
proxy solicitation material and notices to existing
Shareholders, all expenses incurred in connection with issuing
and redeeming Trust Shares, the costs of custodial services,
the cost of initial and ongoing registration of the Trust's
Shares under federal and state securities laws, fees and
out-of-pocket expenses of Trustees who are not affiliated
persons of the Administrator or any affiliated corporation,
insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, all fees and charges
of investment advisers to the Trust. In addition, the Trust
will bear distribution expenses in accordance with the Trust's
Distribution Plan.

ARTICLE 6. Compensation of the Administrator.

(A) Management Fee. For the services to be rendered, the
facilities furnished and the expenses assumed by the
Administrator pursuant to this Agreement, the Trust shall pay
to the Administrator compensation at an annual rate specified
in the schedules which are attached hereto and made a part of
this Agreement ("Schedules"). Such compensation shall be
calculated and accrued daily, and paid to the Administrator
monthly.

If this Agreement becomes effective subsequent to the first
day of a month or terminates before the last day of a month,
the Administrator's compensation for that part of the month in
which this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for
the preceding month shall be made promptly.

5
<PAGE> 6
(B) Compensation from Transactions. The Trust hereby authorizes
any entity or person associated with the Administrator which
is a member of a national securities exchange to effect any
transaction on the exchange for the account of the Trust which
is permitted by Section 11(a) of the Securities Exchange Act
of 1934 and Rule 11a2-2(T) thereunder, and the Trust hereby
consents to the retention of compensation for such
transactions in accordance with Rule 11a2-2(T) (a) (2) (iv).

(C) Survival of Compensation Rates. All rights of compensation
under this Agreement for services performed as of the
termination date shall survive the termination of this
Agreement.

ARTICLE 7. Limitation of Liability of the Administrator. The duties
of the Administrator shall be confined to those expressly set forth herein, and
no implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
state law which cannot be waived or modified hereby. (As used in this Article
7, the term "Administrator" shall include directors, officers, employees and
other corporate agents of the Administrator as well as that corporation
itself).

So long as the Administrator acts in good faith and with due diligence
and without gross negligence, the Trust assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and
against any and all losses, damages, costs, charges, reasonable counsel fees
and disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said management
and transfer, dividend disbursing and unitholder servicing agency relationship
to the Trust or any other service rendered to the Trust hereunder. The
indemnity and defense provisions set forth herein shall indefinitely survive
the termination of this Agreement.

The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not effect the rights
hereunder.

6
<PAGE> 7
The Administrator may apply to the Trust at any time for instructions
and may consult counsel for the Trust or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or
accountable for any action taken or omitted by it in good faith in accordance
with such instruction or with the opinion of such counsel, accountants or other
experts.

Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.

ARTICLE 8. Activities of the Administrator. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Trustees, officers, employees
and Shareholders of the Trust are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that directors, officers, employees and shareholders of the Administrator
and its counsel are or may be or become similarly interested in the Trust, and
that the Administrator may be or become interested in the Trust as a
Shareholder or otherwise.

ARTICLE 9. Duration of This Agreement. This Agreement shall remain
in effect for two years after the date of the Agreement and shall continue in
effect thereafter for an additional period of one year, subject to review and
approval of such continuance by the Trustees of the Trust.

This Agreement shall not be assignable by either party without the
written consent of the other party.

ARTICLE 10. Amendments. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Trustees of the Trust, and (ii) by the vote of a majority of
the Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Trustees meeting called
for the purpose of voting on such approval.

For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and
the Administrator may conclusively assume that any special procedure which has
been approved by the Trust does not conflict with or violate any requirements
of its Declaration of Trust, By-Laws or prospectus, or any rule, regulation or
requirement of any regulatory body.

7
<PAGE> 8
ARTICLE 11. Trustees' Liability. A copy of the Declaration of Trust
of the Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or Shareholders of the Trust individually, but binding only upon the
assets and property of the Trust.

ARTICLE 12. Certain Records. The Administrator shall maintain
customary records in connection with its duties as specified in this Agreement.
Any records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made
available to or surrendered promptly to the Trust on request.

In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.

ARTICLE 13. Definitions of Certain Terms. The terms "interested
person" and "affiliated person", when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.

ARTICLE 14. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party
giving notice: if to the Trust, at 680 East Swedesford Road, Wayne, PA, and if
to the Administrator at 680 East Swedesford Road, Wayne, PA.

ARTICLE 15. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the
applicable provisions of the 1940 Act. To the extent that the applicable laws
of the Commonwealth of Massachusetts, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.

ARTICLE 16. Multiple Originals. This Agreement may be executed in
two or more counterparts, each of which when so executed shall be deemed to be
an original, but such counterparts shall together constitute but one and the
same instrument.

8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.

UNION INVESTORS FUNDS

BY: /s/ SIGNATURE APPEARS HERE
-------------------------------------

ATTEST: /s/ SIGNATURE APPEARS HERE
---------------------------------

SEI FINANCIAL MANAGEMENT CORPORATION

BY: /s/ SIGNATURE APPEARS HERE
-------------------------------------

ATTEST: /s/ SIGNATURE APPEARS HERE
---------------------------------

9
<PAGE> 10
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
BETWEEN
UNION INVESTORS FUNDS
AND
SEI FINANCIAL MANAGEMENT CORPORATION

Pursuant to Article 6, Section A, effective as of November 10, 1994, the Trust
shall pay the Administrator compensation at which is calculated daily and paid
monthly at an annual rate as follows for the following Funds: Money Market,
Treasury Money Market, California Tax Free Money Market, Intermediate Term
Bond, Balanced, Growth Equity, Value Momentum, Limited Maturity Government,
California Tax Free Bond, Blue Chip Growth, Convertible Securities, Emerging
Growth, Government Securities and International Equity Funds.

.15% of assets up to $1 billion

.12% of assets from $1 billion to $2 billion

.10% of assets over $2 billion

10
<PAGE> 11
ADDENDUM
DATED NOVEMBER 10, 1993
TO THE ADMINISTRATION AGREEMENT
DATED JANUARY 30, 1991
BETWEEN
UNION INVESTORS FUNDS
AND
SEI FINANCIAL MANAGEMENT CORPORATION

The term of the Administration Agreement dated January 30, 1991 is hereby
extended to December 31, 1995

IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Addendum as of the day and year first above written.

UNION INVESTORS FUNDS

BY: /s/ SIGNATURE APPEARS HERE
---------------------------

ATTEST: /s/ SIGNATURE APPEARS HERE
---------------------------------

SEI FINANCIAL MANAGEMENT CORPORATION

BY: /s/ SIGNATURE APPEARS HERE
-------------------------------------

ATTEST: /s/ SIGNATURE APPEARS HERE
---------------------------------

11
<PAGE> 12

ADDENDUM
DATED NOVEMBER 9, 1995
TO THE ADMINISTRATION AGREEMENT
DATED JANUARY 30, 1991
BETWEEN
STEPSTONE FUNDS
AND
SEI FINANCIAL MANAGEMENT CORPORATION

The term of the Administration Agreement dated January 30, 1991 is hereby
extended to July 28, 1998. This Agreement may be terminated as to the
Portfolios at any time, without the payment of any penalty, on one hundred and
twenty (120) day's prior written notice by the Trust.

IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Addendum as of the day and year first above written.

STEPSTONE FUNDS

BY:
---------------------------------

ATTEST:
-----------------------------

SEI FINANCIAL MANAGEMENT CORPORATION

BY:
---------------------------------

ATTEST:
-----------------------------

<PAGE> 1

EX-99.B10

MORGAN, LEWIS & BOCKIUS LETTERHEAD APPEARS HERE

January 18, 1991

Union Investor Portfolios
2 Oliver Street
Boston, Massachusetts 02109

Gentlemen:

We are furnishing this opinion with respect to the proposed offer and
sale from time to time of units of beneficial interest, without par value (the
"Shares"), of Union Investor Portfolios (the "Trust"), a Massachusetts business
trust, being registered under the Securities Act of 1933 and the Investment
Company Act of 1940 by a Registration Statement on Form N-1A (File No.
33-37687) as amended from time to time (the "Registration Statement").

We have acted as counsel to the Trust since its inception, and we are
familiar with the actions taken by its trustees to authorize the issuance of
the Shares. We have reviewed the Agreement and Declaration of Trust, as
amended, the By-Laws, and the minute books of the Trust, and such other
certificates, documents and opinions of counsel as we deem necessary for the
purpose of this opinion.

We have reviewed the Trust's Notification of Registration on Form N-8A
under the Investment Company Act of 1940. We have assisted in the preparation
of the Trust's Registration Statement, including all pre-effective amendments
thereto filed with the Securities and Exchange Commission.

We assume the appropriate action will be taken to register or qualify
the sale of the Shares under any applicable state and federal laws regulating
sales and offerings of securities.

Based upon the foregoing, we are of the opinion that:

1. The Trust is a business trust validly existing under the laws
of the Commonwealth of Massachusetts. The Trust is

<PAGE> 2
Union Investor Portfolios
Page 2

authorized to issue an unlimited number of Shares in seven series representing
interests in the Treasury Money Market Portfolio, the Money Market Portfolio,
the California Tax Free Money Market Portfolio, the Growth Equity Portfolio,
the Value Momentum Portfolio, the Balanced Portfolio and the Intermediate-Term
Bond Portfolio (each such series except the Balanced Portfolio divided into two
classes of Shares, Class A and Class B) of the Trust, and in such other series
or classes as the Trustees may hereafter duly authorize.

2. Upon the issue of any Shares of any of the series or classes
of the Trust for payment therefor as described in the Prospectus and Statement
of Additional Information for such series or class filed as part of the
Registration Statement, the Shares so issued will be validly issued, fully paid
and non-assessable.

This opinion is intended only for your use in connection with the
offering of Shares and may not be relied upon by any other person.

We hereby consent to the inclusion of this opinion as Exhibit 10 to
the Trust's Registration Statement on Form N-1A to be filed with the Securities
and Exchange Commission and to the reference to our firm under the caption
"Counsel and Independent Accountants" in the Prospectus filed as part of such
Registration Statement.

Very truly yours,
/s/ Morgan Lewis & Bockius

<PAGE> 1

ARTHUR ANDERSEN LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated March 21, 1996 included in the
Post-Effective Amendment No. 14 to the Registration Statement on Form N-1 A of
the Stepstone Funds (No. 33-37687), and to all references to our firm
included in this Registration Statement File No. 33-37687.

Arthur Andersen LLP

Philadelphia, Pa.,
March 25, 1996

<PAGE> 1

EX-99.B15

DISTRIBUTION PLAN
INVESTOR CLASS
UNION INVESTORS PORTFOLIOS

WHEREAS, Union Investors Portfolios (the "Trust") is engaged
in business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and

WHEREAS, the Trustees of the Trust have determined that there
is a reasonable likelihood that the following Distribution Plan will benefit
the Trust and the owners of units of beneficial interest ("Shareholders") in
the Trust;

NOW, THEREFORE, the Trustees of the Trust hereby adopt this
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act.

SECTION 1. The Trust has adopted this Investor Class
Distribution Plan ("Plan") to enable the Trust to directly or indirectly bear
expenses relating to the distribution of Investor Class securities of which the
Trust is the issuer.

SECTION 2. The Trust may incur expenses for the items
stipulated in Section 3 of this Plan. All expenditures pursuant to this Plan
shall be made only pursuant to authorization by the President, any Vice
President or the Treasurer of the Trust. If there should be more than one
series of Trust shares, expenses incurred pursuant to this Plan shall be
allocated among the several series of the Trust on the basis of their relative
net asset values, unless otherwise determined by a majority of the Qualified
Trustees.

In addition, the Trust will pay the Distributor a fee of up to .40% of the
Investor Class Portfolios' average daily net assets. Compensation of
broker/dealers and service providers which provide specified services shall be
made by the Distributor from such fees. The actual fee paid will be negotiated
based on the extent and quality of services provided.

SECTION 3. Expenses permitted pursuant to this Plan shall
include, and be limited to, the following:

(a) The incremental printing costs incurred in producing
for and distributing to persons other than current
Shareholders of the Trust the reports, prospectuses,
notices and similar materials that are prepared by
the Trust for current Shareholders;

(b) advertising;

1
<PAGE> 2
(c) the costs of preparing, printing and distributing any
literature used in connection with the offering of
the Trust's Shares and not covered by Section 3(a) of
this Plan; and

(d) expenses incurred in connection with the promotion
and sale of the Trust's Shares including, without
limitation, travel and communication expenses and
expenses for the compensation of and benefits for
sales personnel.

SECTION 4. This Plan shall not take effect until it has been
approved (a) by a vote of at least a majority of the outstanding voting
securities of the Trust; and (b) together with any related agreements, by votes
of the majority of both (i) the Trustees of the Trust and (ii) the Qualified
Trustees, cast in person at a Board of Trustees meeting called for the purpose
of voting on this Plan or such agreement.

SECTION 5. This Plan shall continue in effect for a period of
more than one year after it takes effect only for so long as such continuance
is specifically approved at least annually in the manner provided in Part (b)
of Section 4 herein for the approval of this Plan.

SECTION 6. Any person authorized to direct the disposition of
monies paid or payable by the Trust pursuant to this Plan or any related
agreement shall provide to the Trustees of the Trust, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.

SECTION 7. This Plan may be terminated at any time by the
vote of a majority of the Qualified Trustees or by vote of a majority of the
Trust's outstanding voting securities.

SECTION 8. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide (a) that such agreement may be terminated at any time,
without payment of any penalty, by the vote of a majority of the Qualified
Trustees or by the vote of Shareholders holding a majority of the Trust's
outstanding voting securities, on not more than 60 days written notice to any
other party to the agreement; and (b) that such agreement shall terminate
automatically in the event of its assignment.

SECTION 9. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant to Section 2
hereof without the approval of Shareholders holding a majority of the
outstanding voting securities of the Trust, and all material amendments to this
Plan shall be approved in the manner provided in Part (b) of Section 4 herein
for the approval of this Plan.

SECTION 10. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not interested persons
of the Trust, and have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it, and (b) the terms
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act and the rules and regulations thereunder, subject to
such exemptions as may be granted by the Securities and Exchange Commission.

2
<PAGE> 3
SECTION 11. While this Plan is in effect, the selection and
nomination of those Trustees who are not interested persons of the Trust within
the meaning of Section 2(a) (19) of the 1940 Act shall be committed to the
discretion of the Trustees then in office who are not interested persons of the
Trust.

SECTION 12. This Plan shall not obligate the Trust or any
other party to enter into an agreement with any particular person.

<PAGE> 1

EX-99.B16

This schedule is included to illustrate how yield will be calculated
for the Money Market, Treasury Money Market and California Tax Free Money
Market Portfolios. The examples presented utilize actual data from the Trust
which has a fiscal year ending 1/31.

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
FOR THE SEVEN DAY PERIOD ENDED JANUARY 31, 1992:

Last 7 day dividend factors:

<TABLE>
<CAPTION>
CALIFORNIA TAX CALIFORNIA TAX
FREE MONEY FREE MONEY
MONEY MARKET MONEY MARKET MARKET MARKET
INSTITUTIONAL INVESTMENT TREASURY MONEY INSTITUTIONAL INVESTMENT
CLASS CLASS MARKET CLASS CLASS
----- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Jan. 25 . . . . . . . . .000126669 .000121190 .000216539 .000083228 .000074186

26 . . . . . . . . .000126669 .000121190 .000216539 .000083228 .000074186

27 . . . . . . . . .000125461 .000119982 .000216539 .000083450 .000074407

28 . . . . . . . . .000121899 .000116420 .000216866 .000083072 .000074030

29 . . . . . . . . .000121672 .000116193 .000216469 .000077811 .000068769

30 . . . . . . . . .000123976 .000118497 .000215751 .000083507 .000074465

31 . . . . . . . . .000124076 .000118601 .000216258 .000088015 .000078975

Base Period
Return . . . . . . . . .000870422 .000832073 .001514961 .000582311 .000519018

Annualized Yield =
((bpr+1) x 365/7. . . . 4.54% 4.34% 7.90% 3.04% 2.71%

Effective Yield =
((bpr+1) to the 365/7
power)-1. . . . . . . . 4.64% 4.43% 8.21% 3.09% 2.75%
</TABLE>

This schedule is included to illustrate how yield and total return
will be calculated for the Growth Equity, Intermediate Term Bond, Value
Momentum and Balanced Portfolios. The examples presented utilize actual data
from the Trust which has a fiscal year ending 1/31.

6
Yield = 2[((a-b)/(cd)) + 1) - 1]

<TABLE>
<CAPTION>
GROWTH EQUITY
INSTITUTIONAL GROWTH EQUITY INTERMEDIATE TERM
CLASS INVESTMENT CLASS BOND VALUE MOMENTUM BALANCED
- ------------- ---------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
a = 101,215 a = 101,215 a = 398,958 a = 146,669 a = 239,555

b = 51,519 b = 51,519 b = 40,687 b = 32,445 b = 41,404

c = 7,347,289 c = 7,347,289 c = 7,029,206 c = 4,423,649 c = 6,018,211

d = 12.69 d = 13.08 d = 10.49 d = 11.68 d = 11.15

Yield = .64% Yield = .67% Yield = 5.94% Yield = 2.67% Yield = 3.58%
</TABLE>
<PAGE> 2
n
Total Return P(1+T) = ERV

<TABLE>
<CAPTION>
GROWTH EQUITY INTERMEDIATE TERM BOND VALUE MOMENTUM BALANCED
------------- ---------------------- -------------- --------
<S> <C> <C> <C>
P = 1,000 P = 1,000 P = 1,000 P = 1,000

n = 1 n = 1 n = 1 n = 1

ERV = 1,282.00 ERV = 1,140.10 ERV = 1,202.10 ERV = 1,176.40

T = 28.20% T = 14.01% T = 20.21% T = 17.64%
(for the 12 months (for the 12 months ended (for the 12 months ended (for the 12 months
ended 1/31/92) 1/31/92) 1/31/92) ended 1/31/92)
</TABLE>

<PAGE> 1
EX-99.B24

STEPSTONE FUNDS

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the Stepstone Fund (the "Trust"), a business trust organized under
the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints
David G. Lee, Kevin P. Robins and Carmen V. Romeo, and each of them singly,
his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him or her in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Trust's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ William R. Howell Date: Oct. 19, 1994
- --------------------- ---------------
William Howell
Trustee
<PAGE> 2
STEPSTONE FUNDS

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the Stepstone Fund (the "Trust"), a business trust organized under
the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints
Kevin P. Robins and Carmen V. Romeo, and each of them singly, his or her true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him or her in his or her name, place and stead, and
in the capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trust's Registration Statement on Form N-1A
under the provisions of the Investment Company Act of 1940 and the Securities
Act of 1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, acting alone, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ David G. Lee Date:
- ---------------- -------------
David G. Lee
President
<PAGE> 3
STEPSTONE FUNDS

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the Stepstone Fund (the "Trust"), a business trust organized under
the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints
David G. Lee and Carmen V. Romeo, and each of them singly, his or her true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him or her in his or her name, place and stead, and
in the capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trust's Registration Statement on Form N-1A
under the provisions of the Investment Company Act of 1940 and the Securities
Act of 1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, acting alone, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ Kevin P. Robins Date: 10/24/94
- ------------------- ----------
Kevin P. Robins
Vice President, Assistant
Secretary
<PAGE> 4
STEPSTONE FUNDS

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ Paul Smith Date: 10/19/94
- -------------- ----------
Paul Smith
Trustee
<PAGE> 5
STEPSTONE FUNDS

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ Michael Noel Date: 10-19-94
- ----------------- ----------
Michael Noel
Trustee
<PAGE> 6
STEPSTONE FUNDS

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ Steven K. Joiner Date: 10/20/94
- -------------------- ----------
Steven K. Joiner
Trustee
<PAGE> 7
STEPSTONE FUNDS

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ Jeffrey A. Cohen Date:
- -------------------- -------------
Jeffrey A. Cohen
Controller
<PAGE> 8
STEPSTONE FUNDS

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.

/s/ Robert A. Nesher Date: 10-19-94
- -------------------- ----------
Robert A. Nesher
Trustee

<ARTICLE> 6
<CIK> 0000869094
<NAME> STEPSTONE FUND
<SERIES>
<NUMBER> 011
<NAME> TREASURY MONEY MARKET FUND CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 413559
<INVESTMENTS-AT-VALUE> 413559
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 413559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (15553)
<TOTAL-LIABILITIES> (15553)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 398008
<SHARES-COMMON-STOCK> 182268
<SHARES-COMMON-PRIOR> 143042
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 398006
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18032
<OTHER-INCOME> 0
<EXPENSES-NET> (1753)
<NET-INVESTMENT-INCOME> 16279
<REALIZED-GAINS-CURRENT> 5
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 16284
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8954)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1141639
<NUMBER-OF-SHARES-REDEEMED> (1104578)
<SHARES-REINVESTED> 2164
<NET-CHANGE-IN-ASSETS> 39251
<ACCUMULATED-NII-PRIOR> 0
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